Document:

Exhibit 10.3

 

EMPLOYEE MATTERS AGREEMENT

 

AMONG

 

B/E AEROSPACE, INC.,

 

AND

 

KLX INC.

 

Dated as of [                        ], 2014

 

 

Table of Contents

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE I DEFINITIONS AND   INTERPRETATION
    	
 
    	
1
    
	
Section 1.01
    	
Certain Defined Terms
    	
 
    	
1
    
	
Section 1.02
    	
Interpretation and Rules of Construction
    	
 
    	
4
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE II ASSIGNMENT OF   EMPLOYEES
    	
 
    	
5
    
	
Section 2.01
    	
Active Employees
    	
 
    	
5
    
	
Section 2.02
    	
Former Employees
    	
 
    	
6
    
	
Section 2.03
    	
Employment Law Obligations
    	
 
    	
7
    
	
Section 2.04
    	
Employee Records
    	
 
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE III EQUITY AWARDS
    	
 
    	
8
    
	
Section 3.01
    	
General Principles
    	
 
    	
8
    
	
Section 3.02
    	
Establishment of Long-Term   Incentive Plan
    	
 
    	
9
    
	
Section   3.03
    	
Treatment of Outstanding B/E Equity Awards
    	
 
    	
9
    
	
Section 3.04
    	
Employee Stock Purchase Plan
    	
 
    	
11
    
	
Section 3.05
    	
Section 16(b) of the Exchange Act; Code Section   162(m)
    	
 
    	
11
    
	
Section 3.06
    	
Liabilities for Settlement of Awards
    	
 
    	
11
    
	
Section   3.07
    	
Form S-8
    	
 
    	
12
    
	
Section   3.08
    	
Tax Reporting and Withholding for Equity-Based Awards
    	
 
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IV CERTAIN U.S. WELFARE   BENEFIT MATTERS
    	
 
    	
12
    
	
Section 4.01
    	
Establishment of Welfare Plans
    	
 
    	
12
    
	
Section   4.02
    	
Accrued Paid Time Off
    	
 
    	
13
    
	
Section   4.03
    	
Flexible Spending Accounts
    	
 
    	
14
    
	
Section   4.04
    	
COBRA and HIPAA
    	
 
    	
14
    
	
Section 4.05
    	
Third Party Vendors
    	
 
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE V NONQUALIFIED DEFERRED   COMPENSATION PLANS
    	
 
    	
14
    
	
Section 5.01
    	
Deferred Compensation Plan
    	
 
    	
14
    
	
Section 5.02
    	
Non-Employee Directors Deferred Compensation Plan
    	
 
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VI U.S. DEFINED   CONTRIBUTION PLAN
    	
 
    	
15
    
	
Section 6.01
    	
B/E Savings Plan
    	
 
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VII ANNUAL INCENTIVE   PLANS
    	
 
    	
16
    
	
Section 7.01
    	
B/E Annual Incentive Plans
    	
 
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VIII COMPENSATION MATTERS   AND GENERAL BENEFIT AND EMPLOYEE MATTERS
    	
 
    	
17
    
	
Section 8.01
    	
Restrictive Covenants in Employment and Other Agreements
    	
 
    	
17
    
	
Section 8.02
    	
Termination of Participation
    	
 
    	
17
    
	
Section 8.03
    	
Leaves of Absence
    	
 
    	
17
    
	
Section 8.04
    	
Workers’ and Unemployment Compensation
    	
 
    	
17
    
	
Section 8.05
    	
Preservation of Rights to Amend
    	
 
    	
18
    

 

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Section 8.06
    	
Confidentiality
    	
 
    	
18
    
	
Section 8.07
    	
Administrative Complaints/Litigation
    	
 
    	
18
    
	
Section 8.08
    	
Reimbursement and Indemnification
    	
 
    	
18
    
	
Section 8.09
    	
Fiduciary Matters
    	
 
    	
18
    
	
Section 8.10
    	
Section 409A
    	
 
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IX MISCELLANEOUS
    	
 
    	
19
    
	
Section 9.01
    	
Limitation of Liability
    	
 
    	
19
    
	
Section 9.02
    	
Expenses
    	
 
    	
19
    
	
Section 9.03
    	
Notices
    	
 
    	
19
    
	
Section 9.04
    	
Public Announcements
    	
 
    	
20
    
	
Section 9.05
    	
Severability
    	
 
    	
20
    
	
Section 9.06
    	
Entire Agreement
    	
 
    	
20
    
	
Section 9.07
    	
Amendment
    	
 
    	
21
    
	
Section 9.08
    	
Waiver
    	
 
    	
21
    
	
Section 9.09
    	
Assignment
    	
 
    	
21
    
	
Section 9.10
    	
Parties in Interest
    	
 
    	
21
    
	
Section 9.11
    	
Currency
    	
 
    	
21
    
	
Section 9.12
    	
Tax Matters
    	
 
    	
22
    
	
Section 9.13
    	
Governing Law
    	
 
    	
22
    
	
Section 9.14
    	
Effect if Distribution Does Not Occur
    	
 
    	
22
    
	
Section 9.15
    	
Waiver of Jury Trial
    	
 
    	
22
    
	
Section 9.16
    	
Survival of Covenants
    	
 
    	
22
    
	
Section 9.17
    	
Counterparts
    	
 
    	
22
    
	
 
    	
 
    	
 
    	
 
    
	
SCHEDULES
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Schedule 1.01
    	
KLX Employees
    	
 
    	
 
    
	
Schedule 2.01(f)
    	
Employment Contracts
    	
 
    	
 
    
	
Schedule 4.01(a)
    	
Welfare Benefits
    	
 
    	
 
    
	
Schedule 4.01(c)
    	
Welfare Benefit Liabilities
    	
 
    	
 
    
					

 

ii

 

EMPLOYEE MATTERS AGREEMENT

 

EMPLOYEE MATTERS AGREEMENT (this “Agreement”), dated as of [                      ], 2014, by and between B/E AEROSPACE, INC., a corporation organized under the laws of the State of Delaware (“B/E”), and KLX INC., a corporation organized under the laws of the State of Delaware (“KLX”).  Each of B/E and KLX is sometimes referred to herein as a “Party” and together, as the “Parties”.

 

WHEREAS B/E and KLX have entered into a Separation and Distribution Agreement as of the date hereof (the “Separation Agreement”) pursuant to which B/E shall separate into two separate, publicly traded companies, which shall operate the Manufacturing Business and the CMS Business, respectively, and distribute to the holders of issued and outstanding B/E Common Stock on a pro rata basis (in each case without consideration being paid by such shareholders), through a spin-off, all of the outstanding shares of common stock, par value $0.01 per share, of KLX; and

 

WHEREAS, in connection with the Separation and Distribution, the Parties desire to enter into this Agreement as a complement to the Separation Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and in the Separation Agreement, and intending to be legally bound hereby, B/E and KLX hereby agree as follows:

 

Article I

 

DEFINITIONS AND INTERPRETATION

 

Section 1.01                             Certain Defined Terms.

 

Unless otherwise defined herein, each capitalized term shall have the meaning specified for such term in the Separation Agreement.  As used in this Agreement:

 

“B/E Adjustment Ratio” means a fraction, the numerator of which is the B/E Pre-Distribution Stock Value and the denominator of which is the B/E Post-Distribution Stock Value.

 

“B/E Annual Incentive Plan” means any annual incentive bonus or commission program maintained by B/E.

 

“B/E Common Stock” means the shares of common stock, par value $0.01 per share, of B/E.

 

“B/E Deferred Compensation Plan” means the B/E Aerospace Inc. 2010 Deferred Compensation Plan, as amended.

 

 

“B/E DSU” means any stock unit held by a non-employee member of the Board pursuant to the B/E NEDDCP.

 

“B/E Employee” means any individual who shall be employed by a member of the B/E Group on and after the Distribution Date.

 

“B/E ESPP” means the Amended and Restated 1994 Employee Stock Purchase Plan, as amended.

 

“B/E Equity Awards” means B/E RSAs, B/E RSUs, including any B/E Performance Award, and B/E DSUs.

 

“B/E LTIP” means the B/E Aerospace, Inc. 2005 Long-Term Incentive Plan, as amended.

 

“B/E NEDDCP” means the B/E Aerospace, Inc. Amended and Restated Non-Employee Directors Stock and Deferred Compensation Plan, as amended.

 

“B/E Non-Employee Director” means any individual who shall be a non-employee member of the Board immediately after the Distribution Date.

 

“B/E Performance Award” means the portion of any B/E RSA or RSU that is subject to performance-based vesting.

 

“B/E Post-Distribution Stock Value” means the opening price per share of the B/E Common Stock trading on the first trading day following the Distribution Date during Regular Trading Hours.

 

“B/E Pre-Distribution Stock Value” means the closing price per share of the B/E Common Stock trading regular way with due bills on the Distribution Date during Regular Trading Hours.

 

“B/E Rabbi Trust” means the B/E Aerospace Inc. Deferred Compensation Plan Rabbi Trust.

 

“B/E RSA” means the portion of any restricted stock awards issued under the B/E LTIP that is subject only to time-based vesting.

 

“B/E RSU” means the portion of any RSUs issued under the B/E LTIP that is subject only to time-based vesting.

 

“B/E Savings Plan” means the Amended and Restated B/E Aerospace Inc. Savings Plan, as amended.

 

“B/E Welfare Plan” means any Welfare Plan sponsored or maintained by one or more members of the B/E Group as of immediately prior to the Distribution Date.

 

“Benefit Plan” shall mean any plan, program, policy, agreement, arrangement or understanding that is an employment, consulting, deferred compensation, executive compensation, incentive bonus or other bonus, employee pension, profit sharing, savings, retirement, supplemental retirement, stock option, stock purchase, stock appreciation right, restricted stock, restricted stock unit, deferred stock unit, other equity-based compensation, severance pay, retention, change in control, salary continuation, life, death benefit, health, hospitalization, workers’ compensation, sick leave, vacation pay, disability or accident insurance or other employee benefit plan, program, agreement or arrangement, including any “employee 

 

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benefit plan” (as defined in Section 3(3) of ERISA) (whether or not subject to ERISA) sponsored or maintained by such entity or to which such entity is a party.

 

“CMS Business Employee” means an individual whose employment duties primarily related to the CMS Business immediately prior to the Distribution Date.

 

“COBRA” means the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

 

“Committee” means the Compensation Committee of the Board

 

“Employee Records” means all records pertaining to employment, including benefits, eligibility, training history, performance reviews, disciplinary actions, job experience and history and compensation history.

 

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

“HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.

 

“KLX Conversion Ratio” means a fraction, the numerator of which is the B/E Pre-Distribution Stock Value and the denominator of which is the KLX Post-Distribution Stock Value.

 

“KLX Employee” means any individual who shall be employed by KLX or a member of the KLX Group on and after the date two days prior to the Distribution Date, except for those employees identified on Schedule 1.01, who shall transfer employment from B/E to KLX as of the Distribution Date, and excluding, for all purposes under this Agreement, the Chief Executive Officer of KLX.

 

“KLX Equity Awards” means KLX RSAs and RSUs and any other awards to be granted under the KLX LTIP.

 

“KLX Non-Employee Director” means any individual who shall be a non-employee member of the board of directors of KLX immediately after the Distribution Date and who is not a B/E Non-Employee Director.

 

“KLX Post-Distribution Stock Value” means the opening price per share of the KLX Common Stock trading on the first trading day following the Distribution Date during Regular Trading Hours.

 

“Manufacturing Business Employee” means an individual whose employment duties primarily related to the Manufacturing Business immediately prior to the Distribution Date.

 

“Regular Trading Hours” means the period beginning at 9:30 AM, New York City time, and ending at 4:00 PM, New York City time.

 

“RSU” means a right to receive a share of common stock of B/E or KLX, as applicable, in the future.

 

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“Welfare Plan” means, where applicable, a “welfare plan” (as defined in Section 3(1) of ERISA) or a “cafeteria plan” under Section 125 of the Code, and any benefits offered thereunder, and any other plan offering health benefits (including medical, prescription drug, dental, vision, and mental health and substance abuse), disability benefits, or life, accidental death and disability, and business travel insurance, pre-tax premium conversion benefits, dependent care assistance programs, employee assistance programs, paid time off programs, contribution funding toward a health savings account, flexible spending accounts, or cashable credits.

 

The following terms have the meanings set forth in the Sections set forth below:

 

	
Definition
    	
 
    	
Location
    
	
 
    	
 
    	
 
    
	
“B/E”
    	
 
    	
Preamble
    
	
“Former   B/E Employee”
    	
 
    	
2.02(c)
    
	
“Former   KLX Employee”
    	
 
    	
2.02(b)
    
	
“FICA”
    	
 
    	
2.01(e)
    
	
“FSA   Participation Period”
    	
 
    	
4.04(a)
    
	
“FUTA”
    	
 
    	
2.01(e)
    
	
“KLX”
    	
 
    	
Preamble
    
	
“KLX   Deferred Compensation Plan”
    	
 
    	
5.01(a)
    
	
“KLX   Deferred Compensation Obligations”
    	
 
    	
5.01(d)
    
	
“KLX   DSU”
    	
 
    	
3.03(c)
    
	
“KLX   ESPP”
    	
 
    	
3.04
    
	
“KLX   FSA”
    	
 
    	
4.03
    
	
“KLX   LTIP”
    	
 
    	
3.02
    
	
“KLX   Non-Employee Director Deferred Compensation Plan”
    	
 
    	
5.02
    
	
“KLX   Performance Award”
    	
 
    	
3.03(e)
    
	
“KLX   RSA”
    	
 
    	
3.03(a)
    
	
“KLX   RSU”
    	
 
    	
3.03(c)
    
	
“KLX   Welfare Plans”
    	
 
    	
4.01(a)
    
	
“Party”
    	
 
    	
Preamble
    
	
“Separation   Agreement”
    	
 
    	
Recitals
    

 

Section 1.02                             Interpretation and Rules of Construction

 

In this Agreement, except to the extent otherwise provided or that the context otherwise requires:

 

(i)                                     when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated;

 

(ii)                                  the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;

 

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(iii)                               whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”;

 

(iv)                              the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;

 

(v)                                 all terms defined in this Agreement have the defined meanings when used in any Ancillary Agreement, or any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;

 

(vi)                              if there is any conflict between the provisions of the Separation Agreement and this Agreement, the provisions of this Agreement shall control with respect to the subject matter hereof; if there is any conflict between the provisions of the body of this Agreement and the Schedules hereto, the provisions of the body of this Agreement shall control unless explicitly stated otherwise in such Schedule;

 

(vii)                           the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; and

 

(viii)                        references to a Person are also to its successors and permitted assigns.

 

Article II

 

ASSIGNMENT OF EMPLOYEES

 

Section 2.01                             Active Employees.

 

(a)                                                                                 Generally.  Except as otherwise set forth in this Agreement, effective not later than the Distribution Date, the employment of each Manufacturing Business Employee who is employed by a member of the KLX Group shall be assigned and transferred to B/E or a member of the B/E Group.  The employment of each CMS Business Employee who is employed by a member of the B/E Group shall be assigned and transferred to KLX or a member of the KLX Group.

 

(b)                                                                                 At Will Employment.  Notwithstanding the above or any other provision of this Agreement, nothing in this Agreement shall create any obligation on the part of any member of the KLX Group or the B/E Group to continue the employment of any employee for any period of time following the Distribution Date or to change the employment status of any employee from “at will,” to the extent such employee is an “at will” employee under applicable Law.

 

(c)                                                                                  Severance.  The Distribution and the assignment, transfer or continuation of the employment of employees in connection therewith shall not be deemed a severance of employment of any employee for purposes of any plan, policy, practice or arrangement of any member of the B/E Group or KLX Group.

 

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(d)                                                                                 Not a Change of Control/Change in Control.  Neither the consummation of the Distribution nor any transaction in connection with the Distribution shall be deemed a “change of control,” “change in control,” or term of similar import for purposes of Section 409A of the Code or any Benefit Plan of B/E Group or KLX Group.

 

(e)                                                                                  Payroll and Related Taxes.  With respect to the portion of the tax year occurring prior to the day immediately following the Distribution Date, B/E will (i) be responsible for all payroll obligations, tax withholding and reporting obligations and (ii) furnish a Form W-2 or similar earnings statement to all KLX Employees and Former KLX Employees for such period.  With respect to the remaining portion of such tax year, KLX will (A) be responsible for all payroll obligations, tax withholding, and reporting obligations regarding KLX Employees and (B) furnish a Form W-2 or similar earnings statement to all KLX Employees.  With respect to each KLX Employee, B/E and KLX shall, and shall cause their respective Affiliates to (to the extent permitted by applicable Law and practicable) (1) treat KLX (or the applicable member of the KLX Group) as a “successor employer” and B/E (or the applicable member of the B/E Group) as a “predecessor,” within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, to the extent appropriate, for purposes of taxes imposed under the United States Federal Insurance Contributions Act, as amended (“FICA”), or the United States Federal Unemployment Tax Act, as amended (“FUTA”), (2) cooperate with each other to avoid, to the extent possible, the restart of FICA and FUTA upon or following the Distribution Date with respect to each such KLX Employee for the tax year during which the Distribution Date occurs, and (3) file tax returns, exchange wage payment information, and report wage payments made by the respective predecessor and successor employer on separate IRS Forms W-2 or similar earnings statements to each such KLX Employee for the tax year in which the Distribution Date occurs, in a manner provided in Section 4.02(l) of Revenue Procedure 2004-53.

 

(f)                                                                                   Employment Contracts.  Effective as of the Distribution Date, KLX will assume and honor, or will cause a member of the KLX Group to assume and honor, the agreements to which any KLX Employee is party with any member of the B/E Group, that are set forth on Schedule 2.01(f).

 

Section 2.02                             Former Employees.

 

(a)                                                                                 General Principle.  Except as otherwise provided in this Agreement, each former employee of the KLX Group or the B/E Group as of the Distribution Date will be considered a former employee of the business as to which his or her duties were primarily related immediately prior to his or her termination of employment with all of KLX, B/E and their respective Affiliates.

 

(b)                                                                                 Former KLX Employees.  Former employees of the KLX Group as of the Distribution Date shall be deemed to include all employees who, as of their last day of employment with all of KLX, B/E and their respective Affiliates, had employment duties primarily related to the CMS Business (collectively, the “Former KLX Employees”).

 

(c)                                                                                  Former B/E Employees.  Former employees of the B/E Group as of the Distribution Date shall be deemed to include all employees who, as of their last day of 

 

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employment with all of KLX, B/E and their respective Affiliates, had employment duties primarily related to the Manufacturing Business (collectively, the “Former B/E Employees”).

 

Section 2.03                             Employment Law Obligations.

 

(a)                                                                                 Compliance With Employment Laws.  On and after the Distribution Date (i) the members of the KLX Group shall be responsible for adopting and maintaining any policies or practices, and for all other actions and inactions, necessary to comply with employment-related laws and requirements relating to the employment of the KLX Employees and (ii) the members of the B/E Group shall remain responsible for adopting and maintaining any policies or practices, and for all other actions and inactions, necessary to comply with employment-related laws and requirements relating to the employment of the B/E Employees and the treatment of the Former B/E Employees and Former KLX Employees in respect of their former employment with B/E.

 

Section 2.04                             Employee Records.

 

(a)                                                                                 Employee Records Relating to KLX Employees and Former KLX Employees.  All Employee Records and data in any form relating to KLX Employees and Former KLX Employees shall be the property of KLX, except that data pertaining to the KLX Employee or Former KLX Employee and relating to any period that to the KLX Employee or Former KLX Employee was employed by a member of the B/E Group prior to the Distribution shall be jointly owned by KLX and B/E.

 

(b)                                                                                 Employee Records Relating to B/E Employees and Former B/E Employees.  All Employee Records and data in any form relating to B/E Employees and Former B/E Employees shall be the property of B/E, except that data pertaining to the B/E Employee or Former B/E Employee and relating to any period that the B/E Employee or Former B/E Employee was employed by KLX, B/E or any of their respective Affiliates prior to the Distribution shall be jointly owned by KLX and B/E.

 

(c)                                                                                  Sharing of Records.  The Parties shall use their respective reasonable commercial efforts to provide each other such Employee Records and information only as necessary or appropriate to carry out their obligations under applicable Law (including, without limitation, any relevant privacy protection laws or regulations in any applicable jurisdictions), this Agreement or the Separation Agreement or the Transition Services Agreement, or for the purposes of administering their respective employee Benefit Plans and policies.  Subject to applicable Law, all information and Employee Records regarding employment and personnel matters of (i) B/E Employees and Former B/E Employees shall be accessed, retained, held, used, copied and transmitted after the Distribution Date by B/E in accordance with all laws and policies relating to the collection, storage, retention, use, transmittal, disclosure and destruction of such records and (ii) KLX Employees and Former KLX Employees shall be accessed, retained, held, used, copied and transmitted after the Distribution Date by KLX in accordance with all laws and policies relating to the collection, storage, retention, use, transmittal, disclosure and destruction of such records.  The Parties shall reimburse each other for any reasonable costs incurred in copying or transmitting any records requested pursuant to this Section 2.04.

 

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(d)                                                                                 Access to Records.  To the extent consistent with applicable privacy protection laws or regulations, access to such Employee Records after the Distribution Date will be provided to KLX and B/E in accordance with the Separation Agreement.  In addition, notwithstanding anything to the contrary, KLX shall retain reasonable access to those Employee Records retained by B/E necessary for KLX’s continued administration of any plans or programs on behalf of Employees after the Distribution Date, provided that such access shall be limited to individuals who have a job-related need to access such Employee Records.  KLX shall also retain copies of all restrictive covenant agreements with any B/E Employee or Former B/E Employee in which KLX has a valid business interest.

 

(e)                                                                                  Maintenance of Employee Records.  With respect to retaining, destroying, transferring, sharing, copying and permitting access to all such information, KLX and B/E shall each comply with all applicable Laws, regulations and internal policies, and each Party shall indemnify and hold harmless the other Party from and against any and all liability, claims, actions, and damages that arise from a failure (by the indemnifying party or its agents) to so comply with all applicable Laws, regulations and internal policies applicable to such information.

 

(f)                                                                                   No Access to Computer Systems.  Except as set forth in the Separation Agreement or the Transition Services Agreement, no provision of this Agreement shall give either Party direct access to the computer systems of the other Party, unless specifically permitted by the owner of such systems.

 

(g)                                                                                  Relation to Separation Agreement.  The provisions of this Section 2.04 shall be in addition to, and not in derogation of, the provisions of the Separation Agreement governing Confidential Information and access to and use of employees, Information and Records.

 

(h)                                                                                 Confidentiality.  Except as otherwise set forth in this Agreement, all Employee Records and data relating to employees shall, in each case, be subject to the confidentiality provisions of the Separation Agreement.

 

(i)                                                                                     Cooperation.  Each member of the B/E Group and KLX Group shall use reasonable commercial efforts to share, retain and maintain data and Employee Records that are necessary or appropriate to further the purposes of this Section 2.04 and for each other to administer their respective Benefit Plans to the extent consistent with this Agreement and applicable Law.  Except as provided under the Transition Services Agreement, neither B/E nor KLX shall charge the other any fee for such cooperation.  The Parties agree to cooperate as long as is reasonably necessary to further the purposes of this Section 2.04.

 

Article III

 

EQUITY AWARDS

 

Section 3.01                             General Principles.

 

(a)                                                                                 B/E and KLX shall take any and all reasonable actions as shall be necessary and appropriate to further the provisions of this ARTICLE III, including, to the 

 

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extent practicable, providing written notice or similar communication to each employee who holds one or more awards granted under the B/E LTIP informing such employee of (i) the actions contemplated by this ARTICLE III with respect to such awards and (ii) whether (and during what time period) any “blackout” period shall be imposed upon holders of awards granted under the B/E Equity Plan during which time awards may not be exercised or settled, as the case may be.

 

(b)                                                                                 From and after the Distribution, (i) a grantee who has outstanding awards under the B/E LTIP or the KLX LTIP shall be considered to have been employed by the applicable plan sponsor before and after the Distribution for purposes of (x) vesting and (y) determining the date of termination of employment as it applies to any such award and (ii) for purposes of determining whether any “change in control” has occurred with respect to any B/E Equity Award or KLX Equity Award, (A) a “change in control” shall only be deemed to have occurred for purposes of any award that is held by an B/E Employee upon a “change in control” of B/E and (B) a “change in control” shall only be deemed to have occurred for purposes of any award that is held by a KLX Employee upon a “change in control” of KLX.

 

(c)                                                                                  No award described in this ARTICLE III, whether outstanding or to be issued, adjusted, substituted, assumed, converted or cancelled by reason of or in connection with the Distribution, shall be issued, adjusted, substituted, assumed, converted or cancelled until in the judgment of the administrator of the applicable plan or program such action is consistent with all applicable Laws, including federal securities Laws.  Any period of exercisability will not be extended on account of a period during which such an award is not exercisable pursuant to the preceding sentence.

 

Section 3.02                             Establishment of Long-Term Incentive Plan.  On or prior to the Distribution Date, KLX shall establish a long-term incentive plan for the benefit of eligible KLX Employees that is substantially similar to the B/E LTIP (the “KLX LTIP”), except that the KLX LTIP will also provide for the granting of the KLX RSAs, KLX RSUs, KLX DSUs and KLX Performance Awards to be granted pursuant to Section 3.03 hereof.  Prior to the Distribution Date, B/E, as the sole stockholder of KLX, shall approve the KLX LTIP.

 

Section 3.03                             Treatment of Outstanding B/E Equity Awards.

 

(a)                                                                                 B/E RSAs held by KLX Employees and KLX Non-Employee Directors.  Rather than participate in the Distribution, the B/E RSAs that are outstanding, unvested and held by a KLX Employee or KLX Non-Employee Director as of immediately prior to the Effective Time shall be assumed by KLX upon the Effective Time and the holder thereof shall be entitled to receive, in replacement of his or her B/E RSAs, as soon as practicable following the Effective Time, a number of restricted shares of KLX Common Stock (“KLX RSAs”), which shall be equal to the number of shares subject to such B/E RSAs immediately prior to the Effective Time, multiplied by the KLX Conversion Ratio and rounded down to the nearest whole share (with each separate vesting tranche of KLX RSAs comprising the holder’s aggregate number of KLX RSAs being rounded up or down to the nearest whole share).  Each KLX RSA described in the preceding sentence shall be subject to substantially the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding B/E RSA immediately prior to the Effective Time (including vesting); provided, however, that from and after the Effective Time the vesting of each KLX RSA shall be determined based upon continued service with the KLX Group.

 

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(b)                                                                                 B/E RSAs held by B/E Employees and B/E Non-Employee Directors.  Rather than participate in the Distribution, the B/E RSAs that are outstanding, unvested and held by a B/E Employee, Former B/E Employee, B/E Director and Former KLX Employee as of immediately prior to the Effective Time shall, as soon as practicable following the Effective Time, be adjusted by multiplying the number of shares of B/E Common Stock subject to such B/E RSAs immediately prior to the Effective Time by the B/E Adjustment Ratio and rounding down to the nearest whole share (with each separate vesting tranche of B/E RSAs comprising the holder’s aggregate number of B/E RSAs being rounded up or down to the nearest whole share).  Following the Effective Time, the adjusted B/E RSAs shall remain subject to the same terms and conditions as applicable to the B/E RSA prior to the Effective Time.

 

(c)                                                                                  B/E RSUs and B/E DSUs held by KLX Employees and KLX Non-Employee Directors.  The B/E RSUs or B/E DSUs that are outstanding and held by a KLX Employee or KLX Non-Employee Director, as of immediately prior to the Effective Time, shall be assumed by KLX and converted, as soon as practicable following the Effective Time, into an award of RSUs (“KLX RSUs”) or DSUs (“KLX DSUs”), as applicable, over KLX Common Stock equal to the number of shares subject to such B/E RSUs or B/E DSUs immediately prior to the Effective Time, multiplied by the KLX Conversion Ratio and rounded down to the nearest whole share (with each separate vesting tranche of KLX RSUs comprising the holder’s aggregate number of KLX RSUs being rounded up or down to the nearest whole share). Each KLX RSU or KLX DSU described in the preceding sentence shall be subject to substantially the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding B/E RSU or B/E DSU, as applicable, immediately prior to the Effective Time (including vesting); provided, however, that from and after the Effective Time the vesting of each KLX RSU shall be determined based upon continued service with the KLX Group.

 

(d)                                                                                 B/E RSUs and B/E DSUs held by B/E Employees and B/E Non-Employee Directors.  The B/E RSUs and B/E DSUs that are outstanding and held by a B/E Employee, B/E Non-Employee Director, Former B/E Employee, or Former KLX Employee, as of immediately prior to the Effective Time shall be adjusted, as soon as practicable following the Effective Time, by multiplying the number of shares subject to such B/E RSUs or B/E DSUs immediately prior to the Effective Time by the B/E Adjustment Ratio and rounding down to the nearest whole share (with each separate vesting tranche of B/E RSUs comprising the holder’s aggregate number of B/E RSUs being rounded up or down to the nearest whole share). Following the Effective Time, all adjusted B/E RSUs and adjusted B/E DSUs shall remain subject to the same terms and conditions as applicable to the B/E RSU or B/E DSU prior to the Effective Time.

 

(e)                                                                                  B/E Performance Awards held by KLX Employees. The B/E Performance Awards that are outstanding and held by a KLX Employee, as of immediately prior to the Effective Time, shall be assumed by KLX upon the Effective Time and converted into an award, subject to performance-based vesting, over KLX Common Stock (“KLX Performance Award”). The target number of shares of B/E Common Stock subject to each such B/E Performance Award shall be converted into a target number of shares of KLX Common Stock subject to each KLX Performance Award in the manner set forth above in Section 3.03(a) or 3.03(c), as applicable.  The board of directors of KLX (or any duly authorized committee or representative thereof) will set new performance targets for the period following the Effective Time.  Following the Effective Time, the KLX Performance Awards shall remain subject to the same terms and conditions as applicable to the corresponding B/E Performance Awards prior to the Effective Time (including the annual performance targets previously set by the Board, or any duly authorized committee or representative thereof, for the portion of the performance period prior to the Effective Time), except that the attainment of any annual performance target for the 

 

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portion of the performance period after the Effective Time shall be determined by reference to the performance target set by the board of directors of KLX (or any duly authorized committee or representative thereof).

 

(f)                                                                                   B/E Performance Awards held by B/E Employees. The B/E Performance Awards that are outstanding and held by a B/E Employee, shall be converted as of the Effective Time into an adjusted B/E Performance Award. The target number of shares of B/E Common Stock subject to each such B/E Performance Award prior to the Effective Time shall be adjusted in the manner set forth above in Section 3.03(b) or 3.03(d), as applicable.  The Board (or any duly authorized committee or representative thereof) shall set new performance targets for the period following the Effective Time.  Following the Effective Time, the B/E Performance Awards shall remain subject to the same terms and conditions as applicable to the B/E Performance Awards prior to the Effective Time (including the annual performance targets previously set by the Board, or any duly authorized committee or representative thereof, for the portion of the performance period prior to the Effective Time).

 

Section 3.04                             Employee Stock Purchase Plan.  Effective as of the Distribution Date, KLX shall establish an employee stock purchase plan for the benefit of KLX Employees that is substantially similar to the B/E ESPP (the “KLX ESPP”).  Prior to the Distribution Date, B/E, as the sole stockholder of KLX, shall approve the KLX ESPP

 

(a)                                                                                 Unless otherwise decided by the Committee in its sole discretion, all payroll deductions under the B/E ESPP shall cease following the last payroll payment date prior to the Distribution Date.  The option period that would be in progress on the Distribution Date shall be shortened so that the exercise shall occur by the day prior to the Distribution Date.

 

Section 3.05                             Section 16(b) of the Exchange Act; Code Section 162(m).

 

(a)                                                                                 By approving the adoption of this Agreement, the respective Boards of Directors of each of B/E and KLX intend to exempt from the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, by reason of the application of Rule 16b-3 thereunder, all acquisitions and dispositions of equity incentive awards by non-employee directors and officers of each of B/E and KLX.

 

(b)                                                                                 Notwithstanding anything in this Agreement to the contrary (including the treatment of deferred compensation plans, outstanding equity awards and annual incentive awards as described herein), B/E and KLX agree to negotiate in good faith regarding the need for any treatment different from that otherwise provided herein to ensure that a federal income tax deduction for the payment of such deferred compensation or equity award, annual incentive award or other compensation is, to the extent prescribed under the terms of the applicable plan and award agreement, not limited by reason of Section 162(m) of the Code.

 

Section 3.06                             Liabilities for Settlement of Awards. Except as provided for pursuant to Section 3.08, from and after the Effective Time (a) B/E shall be responsible for all Liabilities associated with B/E Equity Awards, including share delivery, registration or other obligations related to the exercise, vesting or settlement of the B/E Equity Awards and (b) KLX shall be responsible for all Liabilities associated with KLX Equity Awards, including any option 

 

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exercise, share delivery, registration or other obligations related to the exercise, vesting or settlement of the KLX Equity Awards.

 

Section 3.07                             Form S-8.  Upon or as soon as reasonably practicable after the Effective Time and subject to applicable Law, KLX shall prepare and file with the SEC one or several registration statements on Form S-8 (or another appropriate form) registering under the Securities Act the offering of a number of shares of KLX Common Stock at a minimum equal to the number of shares that are or may be subject to KLX Equity Awards.  KLX shall use commercially reasonable efforts to cause any such registration statement to be kept effective (and the current status of the prospectus or prospectuses required thereby to be maintained) as long as any KLX Equity Awards remain outstanding.

 

Section 3.08                             Tax Reporting and Withholding for Equity-Based Awards.  A member of the B/E Group will be responsible for all income, payroll, or other tax reporting related to income of B/E Employees, B/E Non-Employee Directors, Former B/E Employees, or Former KLX Employees from B/E Equity Awards, and a member of the KLX Group will be responsible for all income, payroll, or other tax reporting related to income of KLX Employees and KLX Non-Employee Directors from KLX Equity Awards.  Further, a member of the B/E Group shall be responsible for remitting applicable tax withholdings for B/E Employees, Former B/E Employees and Former KLX Employees to each applicable taxing authority, and a member of the KLX Group shall be responsible for remitting applicable tax withholdings for KLX Employees to each applicable taxing authority.  B/E and KLX acknowledge and agree that the Parties will cooperate with each other and with third-party providers to effectuate withholding and remittance of taxes, as well as required tax reporting, in a timely, efficient, and appropriate manner.

 

Article IV

 

CERTAIN U.S. WELFARE BENEFIT MATTERS

 

Section 4.01                             Establishment of Welfare Plans.

 

(a)                                                                                 On or prior to January 1, 2015, KLX shall establish and adopt Welfare Plans that will provide welfare benefits to each eligible KLX Employee who is, as of the Distribution Date, a participant in any of the B/E Welfare Plans (and their eligible spouses and dependents, as the case may be) under terms and conditions that are substantially similar to the B/E Welfare Plans (the “KLX Welfare Plans”).  Coverage and benefits under the B/E Welfare Plans shall then be provided to the KLX Employees on an uninterrupted basis under the newly established KLX Welfare Plans which shall contain substantially the same terms and conditions as in effect under the corresponding B/E Welfare Plans immediately prior to the Distribution Date, unless otherwise noted on Schedule 4.01(a).  KLX Employees shall cease to be eligible for coverage under the B/E Welfare Plans on January 1, 2015, unless otherwise noted on Schedule 4.01(a).  For the avoidance of doubt, KLX shall not participate in any B/E Welfare Plans on or after January 1, 2015, and B/E Employees and Former B/E Employees shall not participate in any KLX Welfare Plans at any time.  During the period, if any, after the Distribution Date and before January 1, 2015, coverage for KLX Employees under the B/E Welfare Plans shall be provided pursuant to the terms set forth in the Transition Services Agreement.

 

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(b)                                                                                 KLX shall use commercially reasonable efforts to cause all KLX Welfare Plans (to the extent not already waived or taken into account, as applicable, prior to the date hereof) to (i) waive all limitations as to preexisting conditions, exclusions, and service conditions with respect to participation and coverage requirements applicable to KLX Employees, other than limitations that were in effect with respect to such KLX Employees as of the Distribution Date under the B/E Welfare Plans, and (ii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to a KLX Employee to the extent such KLX Employee had satisfied any similar limitation under the analogous B/E Welfare Plan as of the Distribution Date.

 

(c)                                                                                  Unless otherwise noted on Schedule 4.01(c), B/E shall retain Liability and responsibility in accordance with the applicable B/E Welfare Plan for all reimbursement claims (such as medical and dental claims) for expenses incurred and for all non-reimbursement claims (such as life insurance claims) incurred by KLX Employees (and their dependents and beneficiaries) under such plans prior to January 1, 2015 and KLX shall retain Liability and responsibility in accordance with the KLX Welfare Plans for all reimbursement claims (such as medical and dental claims) for expenses incurred and for all non-reimbursement claims (such as life insurance claims) incurred by KLX Employees (and their dependents and beneficiaries) on or following January 1, 2015.  For purposes of this Section 4.01, a benefit claim shall be deemed to be incurred as follows: (i) when the event giving rise to the benefit under the applicable plan has occurred as set forth in the governing plan documents, if it is clear based on the governing documents of both the B/E Welfare Plan and KLX Welfare Plans which plan should be responsible for the claim or, if not, as follows: (ii) (A) health, dental, vision, employee assistance program, education assistance program and prescription drug benefits (including in respect of any hospital confinement), upon provision of such services, materials or supplies; and (B) life, accidental death and dismemberment and business travel accident insurance benefits, upon the death, or other event giving rise to such benefits.  The members of the B/E Group shall retain liability and responsibility in accordance with the applicable B/E Welfare Plan for all reimbursement claims (such as medical and dental claims) for expenses incurred and for all non-reimbursement claims (such as life insurance claims) for individuals who, immediately prior to January 1, 2015, are Former KLX Employees (and their dependents and beneficiaries), including any such employee on long-term disability on January 1, 2015.

 

(d)                                                                                 Benefit Elections and Designations.  As of January 1, 2015, KLX shall cause the KLX Welfare Plans to recognize and give effect to all elections and designations (including all coverage and contribution elections and beneficiary designations) made by each KLX Employee under, or with respect to, the corresponding B/E Welfare Plan for the plan year in which the Distribution occurs.  Notwithstanding the foregoing, nothing in this Section 4.01 will prohibit KLX from soliciting or causing the solicitation of new election forms or beneficiary designations from KLX Employees to be effective under the KLX Welfare Plan as of January 1, 2015.

 

Section 4.02                             Accrued Paid Time Off.  KLX shall credit each KLX Employee with the amount of accrued but unused vacation time, sick time and other time-off benefits as such KLX Employee had with the B/E Group as of January 1, 2015.

 

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Section 4.03                             Flexible Spending Accounts.  On or prior to January 1, 2015, KLX shall establish and adopt KLX Welfare Plans that will provide health care flexible spending account and dependent care flexible spending account benefits to KLX Employees (each a “KLX FSA”).

 

Section 4.04                             COBRA and HIPAA.  B/E shall retain responsibility for compliance with the health care continuation coverage requirements of COBRA with respect to Former KLX Employees who, prior to the Distribution Date, were covered under a B/E Welfare Plan pursuant to COBRA.  B/E shall be responsible for administering compliance with any certificate of creditable coverage requirements of HIPAA or Medicare applicable to the B/E Welfare Plans with respect to KLX Employees.  The Parties agree that neither the Distribution nor any transfers of employment that occur in connection with and on or prior to the Distribution shall constitute a COBRA qualifying event for purposes of COBRA; provided, that, in all events, KLX shall assume, or shall have caused the KLX Welfare Plans to assume, responsibility for compliance with the health care continuation coverage requirements of COBRA with respect to KLX Employees who, on or after January 1, 2015 incur a qualifying event for purposes of COBRA.

 

Section 4.05                             Third Party Vendors.  Except as provided below, to the extent any B/E Welfare Plan is administered by a third-party vendor, B/E and KLX will cooperate and use their reasonable commercial efforts to “clone” any contract with such third-party vendor for KLX and to maintain any pricing discounts or other preferential terms for both B/E and KLX.  Neither party shall be liable for failure to obtain such pricing discounts or other preferential terms for KLX.  Each party shall be responsible for any additional premiums, charges or administrative fees that such party may incur pursuant to this Section 4.05

 

Article V

 

NONQUALIFIED DEFERRED COMPENSATION PLANS

 

Section 5.01                             Deferred Compensation Plan.

 

(a)                                                                                 Prior to the Distribution Date, KLX shall establish a nonqualified deferred compensation plan that is identical in all material respects to the B/E Deferred Compensation Plan (the “KLX Deferred Compensation Plan”) for the benefit of each KLX Employee who is, immediately prior to the Distribution Date, a participant in the B/E Deferred Compensation Plan.  KLX shall be responsible for any and all Liabilities and other obligations with respect to the KLX Deferred Compensation Plan, and KLX shall assume and fully perform, pay and discharge, all obligations of the B/E Deferred Compensation Plan relating to KLX Employees as of the Distribution Date.

 

(b)                                                                                 Prior to the Distribution Date, KLX shall establish a trust in a form that is identical in all material respects to the B/E Rabbi Trust as in effect as of the Distribution Date (the “KLX Rabbi Trust”).  In connection with the assumption of the Liabilities under the B/E Deferred Compensation Plan in respect of KLX Employees, B/E shall, prior to the Distribution Date, transfer Assets from the B/E Rabbi Trust to the KLX Rabbi Trust. The amount of Assets to be transferred to the KLX Rabbi Trust shall be determined by multiplying 

 

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the value of the Liabilities to be transferred to the KLX Deferred Compensation Plan by a fraction, the numerator of which is the fair market value of the assets held in the B/E Rabbi Trust immediately prior to the transfer and the denominator of which is the amount of Liabilities of the B/E Deferred Compensation Plan immediately prior to the transfer.  The valuation of Liabilities shall be calculated by the record keeper for the B/E Deferred Compensation Plan and the value of Assets shall be calculated by the Trustee of the B/E Rabbi Trust, and such valuations shall be approved by B/E and KLX.

 

(c)                                                                                  To the extent consistent with the funding objectives of the transfer described in Section 5.01(b), above, B/E shall, in determining the types of Assets to transfer to the KLX Rabbi Trust, direct the trustee of the B/E Rabbi Trust to transfer life insurance policies with respect to which KLX Employees are the insureds. B/E and KLX may agree in writing to modify the amount of Assets to be transferred to the KLX Rabbi Trust, as calculated under the provisions of Section 5.01(b), if the cash value of the insurance policies naming the KLX Employees exceeds the amount calculated.

 

(d)                                                                                 Upon or as soon as reasonably practicable after the Effective Time and subject to applicable Law, KLX shall prepare and file with the SEC one or several registration statements on Form S-8 (or another appropriate form) registering under the Securities Act the unsecured obligations of KLX to pay deferred compensation in the future in accordance with the terms of the KLX Deferred Compensation Plan (the “KLX Deferred Compensation Obligations”).  KLX shall use commercially reasonable efforts to cause any such registration statement to be kept effective (and the current status of the prospectus or prospectuses required thereby to be maintained) as long as any KLX Deferred Compensation Obligations remain outstanding.

 

Section 5.02                             Non-Employee Directors Deferred Compensation Plan.  On or prior to the Distribution Date, KLX shall establish a nonqualified deferred compensation plan for the benefit of the non-employee KLX Non-Employee Directors that is substantially similar to the B/E NEDDCP (the “KLX Non-Employee Director Deferred Compensation Plan”).

 

Article VI

 

U.S. DEFINED CONTRIBUTION PLAN

 

Section 6.01                             B/E Savings Plan.

 

(a)                                                                                 On or prior to the Distribution Date, B/E and KLX shall take all necessary actions to convert the B/E Savings Plan to a multiple employer plan and add KLX as a sponsor to the B/E Savings Plan.  On and after the Distribution Date, KLX Employees who participated in the B/E Savings Plan prior to the Distribution Date shall continue to participate on the B/E Savings Plan on the same terms and conditions as applied prior to the Distribution Date.  On and after the Distribution Date, all contributions payable to the B/E Savings Plan with respect to KLX Employees, determined in accordance with the terms and provisions of the B/E Savings Plan, ERISA and the Code, shall be paid by KLX to the B/E Savings Plan.

 

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(b)                                                                                 The B/E Savings Plan shall provide, effective as of the Distribution Date, (i) for the establishment of a KLX Common Stock fund and (ii) that such KLX Common Stock fund shall receive a transfer of and hold all shares of KLX Common Stock distributed in connection with the Distribution in respect of shares of B/E Common Stock.  All participants in the B/E Savings Plan will be prohibited from increasing their holdings in such KLX Common Stock fund under the B/E Savings Plan, and may elect to liquidate their holdings in such KLX Common Stock fund and invest those monies in any other investment fund offered under the B/E Savings Plan.

 

Article VII

 

ANNUAL INCENTIVE PLANS

 

Section 7.01                             B/E Annual Incentive Plans.

 

(a)                                                                                 2014 Bonuses.  B/E shall pay eligible KLX Employees a cash bonus payment equal to the full annual cash bonus amount earned by such KLX Employee for 2014, as determined by B/E, immediately prior to the Distribution Date.  B/E shall be entitled to the benefit of any tax deduction in respect of the cash bonus payment made pursuant to this Section 7.01(a).

 

(b)                                                                                 Future Annual Incentive Plans.  Each of B/E and KLX are expected to implement their own annual incentive plans for calendar year 2015 in which B/E Employees and KLX Employees, respectively, will participate.  KLX shall be solely responsible for funding, paying and discharging all obligations relating to any annual cash incentive awards that any KLX Employee is eligible to receive under any KLX annual incentive plan with respect to payments made on account of performance periods beginning at or after January 1, 2015, and B/E shall be solely responsible for funding, paying and discharging all obligations relating to any annual cash incentive awards that any B/E Employee is eligible to receive under any B/E Annual Incentive Plan with respect to payments made on account of performance periods beginning at or after January 1, 2015.

 

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Article VIII

 

COMPENSATION MATTERS AND GENERAL BENEFIT AND EMPLOYEE MATTERS

 

Section 8.01                             Restrictive Covenants in Employment and Other Agreements.  To the fullest extent permitted by the agreements described in this Section 8.01 and applicable Law, B/E shall assign, or cause an applicable member of the B/E Group to assign (including through notification to employees, as applicable), to KLX or a member of the KLX Group, as designated by KLX, all agreements containing restrictive covenants (including confidentiality, non-competition and non-solicitation provisions) between a member of the B/E Group and a KLX Employee, with such assignment to be effective as of the Distribution Date.  To the extent that assignment of such agreements is not permitted, effective as of the Distribution Date, each member of the KLX Group shall be considered to be a successor to each member of the B/E Group for purposes of, and a third-party beneficiary with respect to, all agreements containing restrictive covenants (including confidentiality, non-competition and non-solicitation provisions) between a member of the B/E Group and a KLX Employee, such that each member of the KLX Group shall enjoy all the rights and benefits under such agreements (including rights and benefits as a third-party beneficiary), with respect to the business operations of the KLX Group; provided, however, that in no event shall B/E be permitted to enforce such restrictive covenant agreements against KLX  Employees for action taken in their capacity as employees of a member of the KLX Group.

 

Section 8.02                             Termination of Participation.  Except as otherwise provided under this Agreement, effective as of the Distribution Date, KLX Employees shall cease participation in each B/E Benefit Plan and shall no longer be eligible to participate in any B/E Benefit Plan.

 

Section 8.03                             Leaves of Absence.  KLX will continue to apply the appropriate leave of absence policies applicable to inactive KLX Employees who are on an approved leave of absence as of the Distribution Date.  Leaves of absence taken by KLX Employees prior to the Distribution Date shall be deemed to have been taken as employees of a member of the KLX Group.

 

Section 8.04                             Workers’ and Unemployment Compensation.  All workers’ compensation Liabilities relating to, arising out of, or resulting from any claim by a B/E Employee, Former B/E Employee, KLX Employee or Former KLX Employee that results from an accident, incident or event occurring, or from an occupational disease which becomes manifest, prior to the Distribution Date shall be retained by B/E.  Effective as of the Distribution Date, KLX, acting through the member of the KLX Group employing each KLX Employee, will be responsible for (a) obtaining workers’ compensation insurance, including providing all collateral required by the insurance carriers and providing all notices to KLX Employees required by applicable workers’ compensation Laws and (b) establishing new or transferred unemployment insurance employer accounts, policies and claims handling contracts with the applicable government agencies.

 

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Section 8.05                             Preservation of Rights to Amend.  The rights of B/E or KLX to amend or terminate any plan, program, or policy referred to herein shall not be limited in any way by this Agreement.

 

Section 8.06                             Confidentiality.  Each Party agrees that any information conveyed or otherwise received by or on behalf of a Party in conjunction herewith is confidential and is subject to the terms of the confidentiality provisions set forth in the Separation Agreement.

 

Section 8.07                             Administrative Complaints/Litigation.  To the extent that any legal action relates to a putative or certified class of plaintiffs, which includes both B/E Employees (or Former B/E Employees) and KLX Employees (or Former KLX Employees) and such action involves employment or Benefit Plan related claims, reasonable costs and expenses incurred by the Parties in responding to such legal action shall be allocated among the Parties equitably in proportion to a reasonable assessment of the relative proportion of B/E Employees (or Former B/E Employees) and KLX Employees (or Former KLX Employees) included in or represented by the putative or certified plaintiff class.  The procedures contained in the indemnification and related litigation cooperation provisions of the Separation Agreement shall apply with respect to each Party’s indemnification obligations under this Section 8.07.

 

Section 8.08                             Reimbursement and Indemnification.  To the extent provided for under this Agreement, each Party agrees to reimburse the other Party, within 30 days of receipt from the other Party of reasonable verification, for all costs and expenses which the other Party may incur on its behalf as a result of any of the respective Welfare Plans and other Benefit Plans.  All Liabilities retained, assumed, or indemnified against by KLX pursuant to this Agreement, and all Liabilities retained, assumed, or indemnified against by B/E pursuant to this Agreement, shall in each case be subject to the indemnification provisions of the Separation Agreement.  Notwithstanding anything to the contrary, (i) no provision of this Agreement shall require any member of the KLX Group to pay or reimburse to any member of the B/E Group any benefit-related cost item that a member of the KLX Group has paid or reimbursed to any member of the B/E Group prior to the Effective Time; and (ii) no provision of this Agreement shall require any member of the B/E to pay or reimburse to any member of the KLX Group any benefit-related cost item that a member of the B/E Group has paid or reimbursed to any member of the KLX Group prior to the Effective Time.

 

Section 8.09                             Fiduciary Matters.  Each Party acknowledges that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good-faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard.  Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.

 

Section 8.10                             Section 409A.  B/E and KLX shall cooperate in good faith so that the transactions contemplated by this Agreement and the Separation Agreement will not result in adverse tax consequences under Section 409A of the Code to any KLX Employee, KLX Non-

 

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Employee Director, Former KLX Employee, B/E Employee, B/E Non-Employee Director or Former B/E Employee, in respect of their respective benefits under any Benefit Plan.  In the event the Parties determine that the actions described in this Agreement may result in any KLX Employee, KLX Non-Employee Director, Former KLX Employee, B/E Employee, B/E Non-Employee Director or Former B/E Employee becoming subject to additional taxes pursuant to Section 409A of the Code, the Parties agree to cooperate in good faith to modify the procedures described in this Agreement to prevent such KLX Employee, KLX Non-Employee Director, Former KLX Employee, B/E Employee, B/E Non-Employee Director or Former B/E Employee from becoming subject to such additional tax.

 

Article IX

 

MISCELLANEOUS

 

Section 9.01                             Limitation of Liability.  IN NO EVENT SHALL ANY MEMBER OF THE B/E GROUP OR THE KLX GROUP BE LIABLE TO ANY MEMBER OF THE KLX GROUP OR THE B/E GROUP, RESPECTIVELY, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY’S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES TO THIRD PARTIES AS SET FORTH IN ARTICLE VII OF THE SEPARATION AGREEMENT.

 

Section 9.02                             Expenses.  Except as otherwise provided in this Agreement in this Agreement, the Separation Agreement or in any Ancillary Agreement, each Party shall pay its own expenses in fulfilling its obligations under this Agreement.  Notwithstanding anything in this Agreement, the Separation Agreement or in any Ancillary Agreement to the contrary, all KLX Transaction Costs shall be borne by KLX and all B/E Transaction Costs shall be borne by B/E.

 

Section 9.03                             Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by an internationally recognized overnight courier service, by facsimile or registered or certified mail (postage prepaid, return receipt requested) to the respective Parties hereto at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.03):

 

(a)                                 if to B/E:

 

1400 Corporate Center Way
 Wellington, FL 33414
 Facsimile:  (561) 791-3966
 Attention:  Ryan Patch

 

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with copies to:

 

Shearman & Sterling LLP

599 Lexington Avenue
 New York, NY  10022-6069
 Telecopy:  (212) 848-7179

 

Attention:                 Creighton O’M. Condon, Esq.
 Robert M. Katz, Esq.

 

(b)                                 if to KLX:

 

1300 Corporate Center Way
 Wellington, FL 33414
 Facsimile:  [·]
  Attention:  Roger Franks

 

with copies to:

 

Shearman & Sterling LLP
 599 Lexington Avenue
 New York, NY  10022-6069
 Telecopy:  (212) 848-7179

 

Attention:                 Creighton O’M. Condon, Esq.
 Robert M. Katz, Esq.

 

Section 9.04                             Public Announcements.  Following the Effective Time, neither Party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the Separation Agreement or the transactions contemplated by this Agreement or the Separation Agreement without the prior written consent of the other Party unless otherwise required by Law or applicable stock exchange regulation, and the Parties to this Agreement shall cooperate as to the timing and contents of any such press release or public announcement.

 

Section 9.05                             Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to either Party hereto.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated by this Agreement are consummated as originally contemplated to the greatest extent possible.

 

Section 9.06                             Entire Agreement.  This Agreement and the other Distribution documents constitute the entire understanding of the Parties with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and negotiations, both 

 

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written and oral, between the Parties with respect to the subject matter hereof and thereof.  Irrespective of anything else contained herein, the Parties do not intend for this Agreement constitute the establishment or adoption of, or amendment to, any Benefit Plan, and no person participating in any such Benefit Plan shall have any claim or cause of action, under ERISA or otherwise, in respect of any provision of this Agreement as it relates to any such Benefit Plan or otherwise.

 

Section 9.07                             Amendment.  This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Parties hereto or (b) by a waiver in accordance with Section 9.08.

 

Section 9.08                             Waiver.  Either Party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of the other Party and (b) waive compliance with any of the agreements of the other Party or conditions to such Party’s obligations contained herein.  Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the Party to be bound thereby.  Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement.  The failure of either Party hereto to assert any of its rights hereunder shall not constitute a waiver of any of such rights.

 

Section 9.09                             Assignment.  Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either Party without the prior written consent of the other Party.  Any purported assignment without such consent shall be void.  Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.  Notwithstanding the foregoing, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Party’s Assets, or (b) the sale of all or substantially all of such Party’s Assets; provided, however, that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party.  No assignment permitted by this Section 9.08 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.

 

Section 9.10                             Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of the Parties hereto and their respective successors and permitted assigns, and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

 

Section 9.11                             Currency.  Unless otherwise specified in this Agreement, all references to currency, monetary values and dollars set forth herein means United States dollars, and all payments hereunder shall be made in United States dollars unless otherwise mutually agreed upon by the Parties.

 

Section 9.12                             Tax Matters.  Notwithstanding anything in this Agreement to the contrary, except for those tax matters specifically addressed herein, the Tax Sharing Agreement 

 

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will be the exclusive agreement among the Parties with respect to all Tax matters, including indemnification in respect of Tax matters.

 

Section 9.13                             Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, regardless of the Laws that might otherwise govern under applicable principles of conflicts of laws thereof.

 

Section 9.14                             Effect if Distribution Does Not Occur.  Notwithstanding anything in this Agreement to the contrary, if the Separation Agreement or Transition Services Agreement is terminated prior to the Distribution Date, this Agreement shall be of no further force and effect.

 

Section 9.15                             Waiver of Jury Trial.  EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH OF THE PARTIES HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.14.

 

Section 9.16                             Survival of Covenants.  Except as expressly set forth in this Agreement or any Ancillary Agreement, the covenants and agreements contained in this Agreement and each Ancillary Agreement, and Liability for the breach of any obligations contained herein or therein, shall survive the Distribution and shall remain in full force and effect.

 

Section 9.17                             Counterparts. This Agreement may be executed and delivered (including by facsimile transmission or portable document format (“.pdf”)) in counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.

 

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

 

	
 
    	
B/E   AEROSPACE, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
KLX   INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:Exhibit 10.12

 

KLX INC. LONG-TERM INCENTIVE PLAN

 

1.                                      Purposes of the Plan

 

The purposes of the Plan are to (a) promote the long-term success of the Company and its Subsidiaries and to increase stockholder value by providing Eligible Individuals with incentives to contribute to the long-term growth and profitability of the Company by offering them an opportunity to obtain a proprietary interest in the Company through the grant of equity-based awards and (b) assist the Company in attracting, retaining and motivating highly qualified individuals who are in a position to make significant contributions to the Company and its Subsidiaries.

 

2.                                      Definitions and Rules of Construction

 

(a)                                 Definitions.  For purposes of the Plan, the following capitalized words shall have the meanings set forth below:

 

“Award” means an Option, Restricted Stock, Restricted Stock Unit, Stock Appreciation Right, Performance Stock, Performance Unit or Other Award granted by the Committee pursuant to the terms of the Plan.

 

“Award Document” means an agreement, certificate or other type or form of document or documentation approved by the Committee that sets forth the terms and conditions of an Award.  An Award Document may be in written, electronic or other media, may be limited to a notation on the books and records of the Company and, unless the Committee requires otherwise, need not be signed by a representative of the Company or a Participant.

 

“Board” means the Board of Directors of the Company, as constituted from time to time.

 

“Change in Control” has the meaning assigned to it for purposes of the employment agreement or consulting agreement, as the case may be, applicable to the Participant.  If there is no employment or consulting agreement or if the employment agreement or consulting agreement contains no such term, “Change in Control” means:

 

(i)                                     The consummation of a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the stockholders of the Company immediately prior to the reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to the reorganization, merger, consolidation or other transaction;

 

(ii)                                  The consummation of a liquidation or dissolution of the Company;

 

(iii)                               The sale of all or substantially all of the assets of the Company;

 

(iv)                              Individuals who, as of the Effective Date of this Plan, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or

 

(v)                                 The acquisition (other than from the Company) by any person, entity or “group,” within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act of more than 25% of either the then outstanding Shares of the Common Stock or the combined voting power of the Company’s then

 

 

outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a “Controlling Interest”) excluding, for this purpose, any acquisitions by (A) the Company or any of its Subsidiaries or joint ventures, partnerships or business organizations in which the Company or its Subsidiaries have an equity interest, (B) any person, entity or “group” that as of the Effective Date owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) or a Controlling Interest or (C) any employee benefit plan of the Company or any of its Subsidiaries or joint ventures, partnerships or business organizations in which the Company or its Subsidiaries have an equity interest.

 

Notwithstanding the foregoing, with respect to an Award that is subject to Section 409A of the Code, the payment or settlement of which will accelerate upon a Change in Control, no event set forth in an agreement applicable to a Participant or clauses (i), (ii) or (iii) will constitute a Change in Control for purposes of the Plan and any Award Document unless the event also constitutes a “change in ownership,” “change in effective control,” or “change in the ownership of a substantial portion of the Company’s assets” as defined under Section 409A of the Code.

 

“Code” means the Internal Revenue Code of 1986, as amended, and the applicable guidance, rulings and regulations promulgated thereunder.

 

“Committee” means the Compensation Committee of the Board, any successor committee thereto or any other committee appointed from time to time by the Board to administer the Plan.  The Committee shall serve at the pleasure of the Board and shall meet the requirements of Section 162(m) of the Code and Section 16(b) of the Exchange Act; provided, however, that if any Committee member is found not to have the qualification requirements of Section 162(m) and/or Section 16(b), any actions taken or Awards granted shall not be invalidated by this failure to so qualify; and provided, further, that the Board may perform any duties delegated to the Committee and in these instances, any reference to the Board shall be deemed a reference to the Committee.

 

“Common Stock” means the common stock of the Company, par value $0.01 per Share, or such other class of Share or other securities as may be adjusted under Section 13(b) of the Plan.

 

“Company” means KLX Inc., a Delaware corporation, or any successor to all or substantially all of its business that adopts the Plan.

 

“Disability” has the meaning assigned to it for purposes of the employment agreement or consulting agreement, as the case may be, applicable to the Participant.  If there is no employment or consulting agreement or such agreement contains no such term, “Disability” has the meaning set forth in the long-term disability plan applicable to the Participant.  Notwithstanding the foregoing, with respect to an Award that is subject to Section 409A of the Code, the payment or settlement of which will accelerate upon a disability, “Disability” will have the meaning ascribed thereto under Section 409A of the Code.

 

“Effective Date” means the date of the consummation of the distribution of all of the shares of the Company’s Common Stock on a pro rata basis to the holders of B/E Aerospace, Inc. common stock.

 

“Eligible Individuals” means the individuals described in Section 4(a) of the Plan who are eligible for Awards under the Plan.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Fair Market Value” means, with respect to a share of Common Stock, the fair market value of the Share as of the relevant date of determination, as determined in accordance with the valuation methodology approved by the Committee.  In the absence of any alternative valuation methodology approved by the Committee, the Fair Market Value of a Share of Common Stock shall equal the closing selling price of a Share of Common Stock on the trading day immediately preceding the date on which the valuation is made as reported on the composite tape for securities listed on the Nasdaq Global Select Market (“Nasdaq”), or such other national securities exchange as may be designated by the Committee, or, in the event that the Common Stock is not listed for trading on

 

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a national securities exchange but is quoted on an automated system, on such automated system, in any such case on the valuation date (or, if there were no sales on such automated system on the valuation date, the average of the highest and lowest quoted selling prices as reported on said composite tape or automated system for the most recent day during which a sale occurred).

 

“Incentive Stock Option” means an Option that is intended to comply with the requirements of Section 422 of the Code or any successor provision thereto.

 

“Nonqualified Stock Option” means an Option that is not intended to comply with the requirements of Section 422 of the Code or any successor provision thereto.

 

“Option” means an Incentive Stock Option or Nonqualified Stock Option granted pursuant to Section 7 of the Plan.

 

“Other Award” means any form of Award other than an Option, Restricted Stock, Restricted Stock Unit, Performance Stock, Performance Unit or Stock Appreciation Right granted pursuant to Section 11 of the Plan.

 

“Participant” means an Eligible Individual who has been granted an Award under the Plan.

 

“Performance Period” means the period established by the Committee and set forth in the applicable Award Document over which Performance Targets are measured.

 

“Performance Stock” means a Target Number of Shares granted pursuant to Section 10(a) of the Plan.

 

“Performance Target” means the performance measures established by the Committee from among the performance criteria provided in Section 6(h) and set forth in the applicable Award Document.

 

“Performance Unit” means a right to receive a Target Number of Shares or cash in the future granted pursuant to Section 10(b) of the Plan.

 

“Plan” means the KLX Inc. Long-Term Incentive Plan, as may be amended or restated from time to time.

 

“Plan Limit” means the maximum aggregate number of Shares that may be issued for all purposes under the Plan as set forth in Section 5(a) of the Plan.

 

“Restricted Stock” means Shares granted or sold to a Participant pursuant to Section 8(b) of the Plan.

 

“Restricted Stock Unit” means a right to receive a Share (or cash, if applicable) in the future granted pursuant to Section 8(a) of the Plan.

 

“Section 162(m) Award” means an Award that is intended to be “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

 

“Shares” means shares of Common Stock.

 

“Stock Appreciation Right” means a right to receive all or some portion of the appreciation on Shares granted pursuant to Section 9 of the Plan.

 

“Subsidiary” means (i) a domestic or foreign corporation or other entity with respect to which the Company, directly or indirectly, has the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the members of the corporation’s board of directors or analogous governing body, or (ii) any other domestic or foreign corporation or other entity in which the Company, directly or indirectly,

 

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has an equity or similar interest and which the Committee designates as a Subsidiary for purposes of the Plan.  For purposes of determining eligibility for the grant of Incentive Stock Options under the Plan, the term “Subsidiary” shall be defined in the manner required by Section 424(f) of the Code.

 

“Substitute Award” means any Award granted upon assumption of, or in substitution or exchange for, outstanding employee equity awards previously granted by a company or other entity acquired by the Company or with which the Company combines or separates pursuant to the terms of an equity compensation plan that was approved by the stockholders of such company or other entity, including any awards granted under the B/E Aerospace, Inc. 2005 Long-Term Incentive Plan and assumed by the Company in connection with the separation of the Company from B/E Aerospace, Inc.

 

“Target Number” means the target number of Shares or cash value established by the Committee and set forth in the applicable Award Document.

 

(b)                                 Rules of Construction.  The masculine pronoun shall be deemed to include the feminine pronoun, and the singular form of a word shall be deemed to include the plural form, unless the context requires otherwise.  Unless the text indicates otherwise, references to sections are to sections of the Plan.

 

3.                                      Administration

 

(a)                                 Committee.  The Plan shall be administered by the Committee, which shall have full power and authority, subject to the express provisions hereof, to:

 

(i)                                     select the Participants from the Eligible Individuals;

 

(ii)                                  grant Awards in accordance with the Plan;

 

(iii)                               determine the number of Shares subject to each Award or the cash amount payable in connection with an Award;

 

(iv)                              determine the terms and conditions of each Award, including, without limitation, those related to term, permissible methods of exercise, vesting, forfeiture, payment, settlement, exercisability, Performance Periods, Performance Targets, and the effect, if any, of a Participant’s termination of employment with the Company or any of its Subsidiaries or a Change in Control of the Company;

 

(v)                                 subject to Section 16, amend the terms and conditions of an Award after grant;

 

(vi)                              specify and approve the provisions of the Award Documents delivered to Participants in connection with their Awards;

 

(vii)                           construe and interpret any Award Document delivered under the Plan;

 

(viii)                        make factual determinations in connection with the administration or interpretation of the Plan;

 

(ix)                              adopt, prescribe, amend, waive and rescind administrative regulations, rules and procedures relating to the Plan;

 

(x)                                 employ legal counsel, independent auditors and consultants as it deems desirable for the administration of the Plan and rely upon any advice, opinion or computation received therefrom;

 

(xi)                              vary the terms of Awards to take account of tax and securities laws and other regulatory requirements or to procure favorable tax treatment for Participants;

 

(xii)                           correct any defects, supply any omission or reconcile any inconsistency in any Award Document or the Plan; and

 

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(xiii)                        make all other determinations and take any other action desirable or necessary to interpret, construe or implement properly the provisions of the Plan or any Award Document.

 

(b)                                 Plan Construction and Interpretation.  The Committee shall have full power and authority, subject to the express provisions hereof, to construe and interpret the Plan.

 

(c)                                  Determinations of Committee Final and Binding.  All determinations by the Committee or its delegate in carrying out and administering the Plan and in construing and interpreting the Plan shall be made in the Committee’s sole discretion and shall be final, binding and conclusive for all purposes and upon all interested persons.

 

(d)                                 Non-Uniform Determinations.  The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among Eligible Individuals who receive, or are eligible to receive, Awards (whether or not such Eligible Individuals are similarly situated).  Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Documents, as to the Eligible Individuals to receive Awards under the Plan and the terms and provisions of Awards under the Plan.

 

(e)                                  Delegation of Authority.  To the extent not prohibited by applicable laws, rules and regulations, the Committee may, from time to time, delegate some or all of its authority under the Plan to a subcommittee or subcommittees thereof or other persons or groups of persons it deems necessary, appropriate or advisable under conditions or limitations as it may set at the time of the delegation or thereafter; provided, however, that the Committee may not delegate its authority (i) to make Awards to employees (A) who are subject on the date of the Award to the reporting rules under Section 16(a) of the Exchange Act, (B) whose compensation for such fiscal year may be subject to the limit on deductible compensation pursuant to Section 162(m) of the Code or (C) who are officers of the Company who are delegated authority by the Committee hereunder, or (ii) pursuant to Section 16 of the Plan.  For purposes of the Plan, reference to the Committee shall be deemed to refer to any subcommittee, subcommittees, or other persons or groups of persons to whom the Committee delegates authority pursuant to this Section 3(e).

 

(f)                                   Liability of Committee.  Subject to applicable laws, rules and regulations (i) no member of the Board or Committee (or its delegates) shall be liable for any good faith action or determination made in connection with the operation, administration or interpretation of the Plan, and (ii) the members of the Board or the Committee (and its delegates) shall be entitled to indemnification and reimbursement in the manner provided in the Company’s Certificate of Incorporation and Bylaws as they may be amended from time to time.  In the performance of its responsibilities with respect to the Plan, the Committee shall be entitled to rely upon information and/or advice furnished by the Company’s officers or employees, the Company’s accountants, the Company’s counsel and any other party the Committee deems necessary, and no member of the Committee shall be liable for any action taken or not taken in reliance upon any such information and/or advice.

 

(g)                                  Action by the Board.  Anything in the Plan to the contrary notwithstanding, subject to applicable laws, rules and regulations, any authority or responsibility that, under the terms of the Plan, may be exercised by the Committee may alternatively be exercised by the Board.

 

4.                                      Eligibility

 

(a)                                 Eligible Individuals.  Awards may be granted to officers, employees, directors, consultants, advisors and independent contractors of the Company or any of its Subsidiaries or joint ventures, partnerships or business organizations in which the Company or its Subsidiaries have an equity interest.  Only employees of the Company or a Parent or Subsidiary may be granted Incentive Stock Options.  The Committee shall have the authority to select the persons to whom Awards may be granted and to determine the type, number and terms of Awards to be granted to each such Participant.  Under the Plan, references to “employment” or “employed” include the engagement of Participants who are consultants, advisors and independent contractors of the Company or its Subsidiaries.

 

(b)                                 Grants to Participants.  The Committee shall have no obligation to grant any Eligible Individual an Award or to designate an Eligible Individual as a Participant solely by reason of the Eligible

 

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Individual having received a prior Award or having been previously designated as a Participant.  The Committee may grant more than one Award to a Participant and may designate an Eligible Individual as a Participant for overlapping periods of time.

 

5.                                      Shares Subject to the Plan

 

(a)                                 Plan Limit.  Subject to adjustment in accordance with Section 13 of the Plan, the maximum aggregate number of Shares that may be issued in respect of new Awards granted under the Plan shall be 5,000,000, which includes Shares underlying Substitute Awards.  Shares to be issued under the Plan may be authorized and unissued Shares, issued Shares that have been reacquired by the Company (in the open-market or in private transactions) and that are being held in treasury, or a combination thereof.  All of the Shares subject to the Plan Limit may be issued pursuant to Incentive Stock Options, except that in calculating the number of Shares that remain available for Awards of Incentive Stock Options, the rules set forth in Section 5(b) shall not apply to the extent not permitted under Section 422 of the Code.

 

(b)                                 Rules Applicable to Determining Shares Available for Issuance.  The number of Shares remaining available for issuance shall be reduced by the number of Shares subject to outstanding Awards and, for Awards that are not denominated by Shares, by the number of Shares actually delivered upon settlement or payment of the Award.  For purposes of determining the number of Shares that remain available for issuance under the Plan, (i) the number of Shares that are tendered by a Participant or withheld by the Company to pay the exercise price of an Award or to satisfy the Participant’s tax withholding obligations in connection with the exercise or settlement of an Award and (ii) all of the Shares covered by a stock-settled Stock Appreciation Right to the extent exercised (not limited to the Shares actually issued to Participants, but also including Shares withheld by the Company for taxes in connection with such exercise), will not be added back to the Plan Limit.  In addition, for purposes of determining the number of Shares that remain available for issuance under the Plan, the number of Shares corresponding to Awards under the Plan that are forfeited or cancelled or otherwise expire for any reason without having been exercised or settled or that are settled through issuance of consideration other than Shares (including, without limitation, cash) shall be added back to the Plan Limit and again be available for the grant of Awards; provided, however, that this provision shall not be applicable with respect to (i) the cancellation of a Stock Appreciation Right granted in tandem with an Option upon the exercise of the Option or (ii) the cancellation of an Option granted in tandem with a Stock Appreciation Right upon the exercise of the Stock Appreciation Right.

 

(c)                                  Special Limits.  Anything to the contrary in Section 5(a) above notwithstanding, but subject to adjustment under Section 13(b), the following special limits shall apply to Shares available for Awards under the Plan:

 

(i)                                     the maximum number of Shares that may be issued pursuant to Restricted Stock, Restricted Stock Units, Performance Stock, Performance Units and Other Awards that are payable in Shares granted under the Plan shall equal 5,000,000 Shares in the aggregate;

 

(ii)                                  the maximum number of Shares that may be issued pursuant to Options and Stock Appreciation Rights granted to any Eligible Individual in any calendar year shall equal 1,100,000 Shares;

 

(iii)                               the maximum number of Shares that may be issued pursuant to Awards (other than Options and Stock Appreciation Rights) granted to any Eligible Individual in any calendar year shall equal 750,000 Shares (measured as of the date of grant);

 

(iv)                              the maximum dollar value of Awards (other than Options or Stock Appreciation Rights) that may be granted to any Eligible Individual in any calendar year is $25,000,000 (measured as of the date of grant); and

 

(v)                                 any Shares underlying Substitute Awards shall not be counted against the number of Shares remaining for issuance and shall not be subject to this Section 5(c).

 

(vi)                              any Shares underlying the Awards granted prior to the first meeting of the Company at which the Plan is submitted for the approval of stockholders, in accordance with Section 15 of the Plan, shall not be subject to this Section 5(c).

 

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6.                                      Awards in General

 

(a)                                 Types of Awards.  Awards under the Plan may consist of Options, Restricted Stock Units, Restricted Stock, Stock Appreciation Rights, Performance Stock, Performance Units and Other Awards.  Any Award described in Sections 7 through 11 of the Plan may be granted singly or in combination or tandem with any other Awards, as the Committee may determine.  Awards under the Plan may be made in combination with, in replacement of, or as alternatives to awards or rights under any other compensation or benefit plan of the Company, including the plan of any acquired entity.

 

(b)                                 Terms Set Forth in Award Document.  The terms and conditions of each Award shall be set forth in an Award Document in a form approved by the Committee for the Award, which shall contain terms and conditions not inconsistent with the Plan.  Notwithstanding the foregoing, and subject to applicable laws, rules and regulations, the Committee may accelerate (i) the vesting or payment of any Award, (ii) the lapse of restrictions on any Award, or (iii) the date on which any Award first becomes exercisable.  The terms of Awards may vary among Participants, and the Plan does not impose upon the Committee any requirement to make Awards subject to uniform terms.  Accordingly, the terms of individual Award Documents may vary.

 

(c)                                  Vesting.  The Committee shall specify at the time of grant the vesting provisions of an Award.

 

(d)                                 Termination of Employment.  The Committee shall specify at or after the time of grant of an Award the provisions governing the disposition of an Award in the event of a Participant’s termination of employment with the Company or any of its Subsidiaries or affiliates.  Subject to Section 409A of the Code and other applicable laws, rules and regulations, in connection with a Participant’s termination of employment, the Committee shall have the discretion to (i) accelerate the vesting, exercisability or settlement of, (ii) accelerate or eliminate the restrictions and conditions applicable to, or (iii) extend the post-termination exercise period of an outstanding Award.  The provisions described in this Section 6(d) may be specified in the applicable Award Document or determined at a subsequent time.

 

(e)                                  Change in Control.  The Committee shall have full authority to determine the effect, if any, of a Change in Control of the Company on the vesting, exercisability, settlement, payment or lapse of restrictions applicable to an Award, which effect may be specified in the applicable Award Document or, subject to Section 409A of the Code and other applicable laws, rules and regulations, determined at a subsequent time.  Except as otherwise specified in an Award Document (or in a Participant’s employment agreement) and subject to applicable laws, rules and regulations (including Section 409A of the Code), the Board or the Committee shall, at any time prior to, coincident with or after the effective time of a Change in Control, take such actions as it may consider appropriate, including, without limitation:  (i) providing for the acceleration of any vesting conditions relating to the exercise or settlement of an Award (including the deemed attainment of Performance Targets) or that an Award shall terminate or expire unless exercised or settled in full on or before a date fixed by the Board or the Committee; (ii) making other adjustments to the Awards then outstanding as the Committee deems appropriate to reflect the Change in Control; (iii) causing the Awards then outstanding to be assumed, or new rights to be substituted for the Awards, by the surviving corporation in the Change in Control; or (iv) permitting or requiring Participants to surrender outstanding Options or Stock Appreciation Rights in exchange for a cash payment equal to the difference between the highest price paid for a Share in the Change in Control transaction and the Exercise Price of the Options or Stock Appreciation Rights.

 

(f)                                   Dividends and Dividend Equivalents.  The Committee may provide Participants with the right to receive dividends or payments equivalent to dividends or interest with respect to an outstanding Award.  The payments can either be paid currently or deemed to have been reinvested in Shares, and can be made in Shares, cash or a combination thereof, as the Committee shall determine; provided, however, that the terms of any reinvestment of dividends must comply with all applicable laws, rules and regulations, including, without limitation, Section 409A of the Code.  Notwithstanding the foregoing, no dividends or dividend equivalents shall be paid with respect to Options or Stock Appreciation Rights.

 

(g)                                  Rights of a Stockholder.  A Participant shall have no rights as a stockholder with respect to Shares covered by an Award (including voting rights) until the date the Participant or his nominee becomes the

 

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holder of record of such Shares.  No adjustment shall be made for dividends or other rights for which the record date is prior to such date, except as provided in Section 13(b) of the Plan.

 

(h)                                 Section 162(m) Awards.  (i)  The Committee may determine whether any Award under the Plan is intended to be “qualified performance-based compensation” as that term is used in Section 162(m) of the Code.  Any Awards designated to be “qualified performance-based compensation” shall be conditioned on the achievement of one or more Performance Targets to the extent required by Section 162(m) of the Code and shall be subject to all other conditions and requirements of Section 162(m).  The Performance Targets that may be used by the Committee for such Awards will be based on measurable and attainable financial goals for the Company, one or more of its operating divisions, Subsidiaries or business units or any combination of the above from the following:  net income, net revenue, operating cash flow, operating margin, operating revenue, revenue growth rates, pretax income, pretax operating income, operating or gross margin, growth rates, operating income growth, return on assets (including return on tangible assets and cash return on tangible assets), total stockholder return, on-time delivery targets, Share price, return on equity, operating earnings, diluted earnings per Share or earnings per Share growth, or a combination thereof as selected by the Committee.  The Performance Targets may be described in terms of objectives that are related to the individual Participant or objectives that are Company-wide or related to a Subsidiary, division, department, region, function or business unit and may be measured on an absolute or cumulative basis or on the basis of percentage of improvement over time, and may be measured in terms of Company performance (or performance of the applicable Subsidiary, operating division, department, region, function or business unit) or measured relative to selected peer companies or a market or other index.  In addition, for Awards not intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee may establish Performance Targets based on other criteria as it deems appropriate.

 

(ii)                                  The Participants to receive Section 162(m) Awards shall be designated and the applicable Performance Targets shall be established by the Committee within ninety (90) days following the commencement of the applicable Performance Period (or such earlier or later date permitted or required by Section 162(m) of the Code).  Each Participant shall be assigned a Target Number payable if Performance Targets are achieved.  Any payment of a Section 162(m) Award granted with Performance Targets shall be conditioned on the written certification of the Committee in each case that the Performance Targets and any other material conditions were satisfied.  The Committee may determine, at the time of grant, that if performance exceeds the specified Performance Targets, the Award may be settled with payment greater than the Target Number, but in no event may the payment exceed the limits set forth in Section 5(c).  The Committee retains the right to reduce any Section 162(m) Award notwithstanding the attainment of the Performance Targets.  In the event that one or more members of the Committee are not “outside directors” as that term is defined in Section 162(m) of the Code, the grant and terms of Awards intended to qualify as Section 162(m) Awards will be made by a subcommittee appointed in accordance with Section 3(e) of the Plan consisting of two or more “outside directors” for purposes of Section 162(m) of the Code.

 

(i)                                     Deferrals.  In accordance with the procedures authorized by, and subject to the approval of, the Committee, Participants may be given the opportunity to defer the payment or settlement of an Award to one or more dates selected by the Participant.  The terms of any deferrals must comply with all applicable laws, rules and regulations including, without limitation, Section 409A of the Code.  No deferral opportunity shall exist with respect to an Award unless explicitly permitted by the Committee on or after the time of grant.

 

(j)                                    Repricing of Options and Stock Appreciation Rights.  Notwithstanding anything in the Plan to the contrary, the terms of outstanding Awards may not be amended, without stockholder approval, to reduce the exercise price of outstanding Options or Stock Appreciation Rights, or to cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards, or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Options or Stock Appreciation Rights.  The foregoing shall not prevent adjustments pursuant to Section 13(b) of the Plan.

 

7.                                      Terms and Conditions of Options

 

(a)                                 General.  The Committee may grant Options to Eligible Individuals and shall determine whether the Options shall be Incentive Stock Options or Nonqualified Stock Options.  Each Option shall be evidenced by an Award Document that shall expressly identify the Option as an Incentive Stock Option or Nonqualified Stock Option, and be in such form and contain such provisions as the Committee shall from time to

 

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time deem appropriate.  The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision, as amended from time to time.

 

(b)                                 Exercise Price.  The exercise price of an Option shall be fixed by the Committee at the time of grant or shall be determined by a method specified by the Committee at the time of grant.  In no event shall the exercise price of an Option be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant; provided, however, that the exercise price of a Substitute Award granted as an Option shall be determined in accordance with Section 409A of the Code and may be less than the one hundred percent (100%) of the Fair Market Value.  Payment of the exercise price of an Option shall be made in any form approved by the Committee at the time of grant.

 

(c)                                  Term.  An Option shall be effective for such term as shall be determined by the Committee and as set forth in the Award Document relating to the Option, and the Committee may extend the term of an Option after the time of grant; provided, however, that the term of an Option may in no event extend beyond the tenth (10th) anniversary of the date of grant of such Option.

 

(d)                                 Exercise; Payment of Exercise Price.  Options shall be exercised by delivery of a notice of exercise in a form approved by the Company.  Subject to the provisions of the applicable Award Document, the exercise price of an Option may be paid (i) in cash (or cash equivalents), (ii) by actual delivery or attestation to ownership of freely transferable Shares already owned by the person exercising the Option and equal in value to the exercise price, (iii) by a combination of cash and Shares equal in value to the exercise price, (iv) through net share settlement or similar procedure involving the withholding of Shares subject to the Option with a value equal to the exercise price, or (v) by such other means as the Committee may authorize.  In accordance with the rules and procedures authorized by the Committee from time to time for this purpose, the Option may also be exercised through a “cashless exercise” procedure authorized by the Committee that permits Participants to exercise Options by delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the exercise price and the amount of any required tax or other withholding obligations or through other procedures determined by the Company from time to time.

 

8.                                      Terms and Conditions of Restricted Stock Units and Restricted Stock

 

(a)                                 Restricted Stock Units.  The Committee is authorized to grant Restricted Stock Units to Eligible Individuals.  A Restricted Stock Unit shall entitle a Participant to receive, subject to the terms, conditions and restrictions set forth in the Plan and the applicable Award Document, one or more Shares.  Restricted Stock Units may, among other things, be subject to restrictions on transferability, vesting requirements or other specified circumstances under which they may be cancelled.  Upon settlement, the Restricted Stock Units shall be paid in Shares, cash, or a combination of cash and Shares, with a value equal to the Fair Market Value of the Shares at the time of payment.

 

(b)                                 Restricted Stock.  The Committee may grant or sell Restricted Stock to Eligible Individuals.  An Award of Restricted Stock shall consist of one or more Shares granted or sold to an Eligible Individual, and shall be subject to the terms, conditions and restrictions set forth in the Plan and established by the Committee in connection with the Award and specified in the applicable Award Document.  Restricted Stock may, among other things, be subject to restrictions on transferability, vesting requirements or other specified circumstances under which it may be cancelled.

 

9.                                      Stock Appreciation Rights

 

(a)                                 General.  The Committee is authorized to grant Stock Appreciation Rights to Eligible Individuals.  A Stock Appreciation Right shall entitle a Participant to receive, upon satisfaction of the conditions to payment specified in the applicable Award Document, an amount equal to the excess, if any, of the Fair Market Value on the exercise date of the number of Shares for which the Stock Appreciation Right is exercised over the grant price for such Stock Appreciation Right specified in the applicable Award Document.  The grant price per Share of Shares covered by a Stock Appreciation Right shall be fixed by the Committee at the time of grant or, alternatively, shall be determined by a method specified by the Committee at the time of grant, but in no event shall the grant price of a Stock Appreciation Right be less than one hundred percent (100%) of the Fair Market Value of a

 

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Share on the date of grant; provided, however, that the grant price of a Substitute Award granted as a Stock Appreciation Right shall be in accordance with Section 409A of the Code and may be less than one hundred percent (100%) of the Fair Market Value.  Payments to a Participant upon exercise of a Stock Appreciation Right may be made in cash or Shares, or in a combination of cash and Shares.

 

(b)                                 Term.  A Stock Appreciation Right shall be effective for such term as shall be determined by the Committee and as set forth in the Award Document relating to such Stock Appreciation Right, and the Committee may extend the term of a Stock Appreciation Right after the time of grant; provided, however, that the term of a Stock Appreciation Right may in no event extend beyond the tenth (10th) anniversary of the date of grant of such Stock Appreciation Right.

 

(c)                                  Methods of Exercise.  In accordance with the rules and procedures established by the Committee for this purpose, and subject to the provisions of the applicable Award Document and all applicable laws, the Committee shall determine the permissible methods of exercise for a Stock Appreciation Right.

 

(d)                                 Stock Appreciation Rights in Tandem with Options.  A Stock Appreciation Right granted in tandem with an Option may be granted either at the same time as the Option or subsequent thereto.  If granted in tandem with an Option, a Stock Appreciation Right shall cover the same number of Shares as covered by the Option (or such lesser number of Shares as the Committee may determine) and shall be exercisable only at the same time or times and to the extent the related Option shall be exercisable, and shall have the same term as the related Option.  The grant price of a Stock Appreciation Right granted in tandem with an Option shall equal the per Share exercise price of the Option to which it relates.  Upon exercise of a Stock Appreciation Right granted in tandem with an Option, the related Option shall be cancelled automatically to the extent of the number of Shares covered by such exercise.  Conversely, if the related Option is exercised as to some or all of the Shares covered by the tandem grant, the tandem Stock Appreciation Right shall be cancelled automatically to the extent of the number of Shares covered by the Option exercise.

 

10.                               Performance Stock and Performance Units

 

(a)                                 Performance Stock.  The Committee may grant Performance Stock to Eligible Individuals.  An Award of Performance Stock shall consist of a Target Number of Shares granted to an Eligible Individual based on the achievement of Performance Targets over the applicable Performance Period, and shall be subject to the terms, conditions and restrictions set forth in the Plan and established by the Committee in connection with the Award and specified in the applicable Award Document.

 

(b)                                 Performance Units.  The Committee may grant Performance Units to Eligible Individuals.  A Performance Unit shall entitle a Participant to receive, subject to the terms, conditions and restrictions set forth in the Plan and established by the Committee in connection with the Award and specified in the applicable Award Document, a Target Number of Shares or cash based upon the achievement of Performance Targets over the applicable Performance Period.  Performance Units shall be settled through the delivery of Shares or cash, or a combination of cash and Shares, with a value equal to the Fair Market Value of the underlying Shares as of the last day of the applicable Performance Period.

 

11.                               Other Awards

 

The Committee shall have the authority to specify the terms and provisions of other forms of equity-based or equity-related Awards not described above that the Committee determines to be consistent with the purpose of the Plan and the interests of the Company.  Other Awards may provide for cash payments based in whole or in part on the value or future value of Shares, for the acquisition or future acquisition of Shares, or any combination thereof.  Notwithstanding the foregoing, where the value of an Other Award is based on a spread value, the grant or exercise price will not be less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of the grant.

 

12.                               Certain Restrictions

 

(a)                                 Transfers.  No Award shall be transferable other than by last will and testament, by the laws of descent and distribution or pursuant to a domestic relations order, as the case may be; provided, however,

 

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that the Committee may, subject to terms and conditions as it shall specify, permit the transfer of an Award for no consideration (i) to a Participant’s family member, (ii) to one or more trusts established in whole or in part for the benefit of one or more of such family members, (iii) to one or more entities which are beneficially owned in whole or in part by one or more such family members or (iv) to any other individual or entity permitted under law and the rules of Nasdaq or any other exchange that lists the Shares (collectively, “Permitted Transferees”).  Any Award transferred to a Permitted Transferee shall be further transferable only by last will and testament or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Participant.

 

(b)                                 Award Exercisable Only by Participant.  During the lifetime of a Participant, an Award shall be exercisable only by the Participant or by a Permitted Transferee to whom the Award has been transferred in accordance with Section 12(a) above.  The grant of an Award shall impose no obligation on a Participant to exercise or settle the Award.

 

13.                               Recapitalization or Reorganization

 

(a)                                 Authority of the Company and Stockholders.  The existence of the Plan, the Award Documents and the Awards granted under the Plan shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Shares or the rights under the Shares or which are convertible into or exchangeable for Shares, 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.

 

(b)                                 Change in Capitalization.  Notwithstanding any provision of the Plan or any Award Document, the number and kind of Shares authorized for issuance under Section 5 of the Plan, including the maximum number of Shares available under the special limits provided for in Section 5(c), shall be equitably adjusted in the manner deemed necessary by the Committee in the event of a stock split, reverse stock split, stock dividend, recapitalization, reorganization, partial or complete liquidation, reclassification, merger, consolidation, separation, extraordinary cash dividend, split-up, spin-off, combination, exchange of Shares, warrants or rights offering to purchase Shares at a price substantially below Fair Market Value or other similar corporate event or distribution of stock or property of the Company affecting the Shares in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the Plan.  In addition, upon the occurrence of any of the foregoing events, the number and kind of Shares subject to any outstanding Award and the exercise price per Share (or the grant price per Share, as the case may be), if any, under any outstanding Award shall be equitably adjusted (including by payment of cash to a Participant) in order to preserve the benefits or potential benefits intended to be made available to Participants.  Such adjustments shall be made by the Committee whose determination as to what adjustments shall be made, and the extent thereof, shall be final.  Unless otherwise determined by the Committee, such adjusted Awards shall be subject to the same restrictions and vesting or settlement schedule to which the underlying Award is subject.  Notwithstanding the forgoing, the Committee shall not be required to make any adjustments that would cause an Award to fail to satisfy the conditions of an applicable exemption from the requirements of Section 409A of the Code or otherwise violate the applicable requirements thereof.

 

14.                               Term of the Plan

 

Unless earlier terminated pursuant to Section 16 of the Plan, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date, except with respect to Awards then outstanding.  No Awards may be granted under the Plan after the tenth (10th) anniversary of the Effective Date.

 

15.                               Effective Date

 

The Plan shall become effective on the Effective Date.  The Plan shall be submitted to stockholders for approval no later than the first annual meeting of the Company that occurs after the separation of the Company from B/E Aerospace, Inc. and, if such approval is not obtained, the Plan shall terminate and no further Awards shall be granted hereunder.

 

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16.                               Amendment and Termination

 

Subject to applicable laws, rules and regulations, the Board may at any time terminate or, from time to time amend, modify or suspend the Plan; provided, however, that no termination, amendment, modification or suspension (i) shall be effective without the approval of the stockholders of the Company if such approval is required under applicable laws, rules and regulations, including the rules of Nasdaq and (ii) shall materially and adversely alter or impair the rights of a Participant in any Award previously made under the Plan without the consent of the holder of the Award.  Notwithstanding the foregoing, the Board shall have broad authority to amend the Plan or any Award under the Plan without the consent of a Participant to the extent it deems necessary or desirable (a) to comply with, or take into account changes in, interpretations of or guidance promulgated under, applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations, (b) to take into account unusual or nonrecurring events or market conditions (including, without limitation, the events described in Section 13(b)), (c) to take into account significant acquisitions or dispositions of assets or other property by the Company or (d) to ensure that an Award is not subject to interest and penalties under Section 409A of the Code.

 

17.                               Miscellaneous

 

(a)                                 Tax Withholding.  The Company or a Subsidiary, as appropriate, may require any individual entitled to receive a payment in respect of an Award to remit to the Company, prior to payment, an amount sufficient to satisfy any applicable tax withholding requirements.  In the case of an Award payable in Shares, the Company or a Subsidiary, as appropriate, may permit or require a Participant to satisfy, in whole or in part, the obligation to remit taxes by directing the Company to withhold Shares that would otherwise be received by the Participant or to repurchase Shares that were issued to the Participant to satisfy the minimum statutory withholding rates for any applicable tax withholding purposes, in accordance with all applicable laws and pursuant to such rules as the Committee may establish from time to time.  The Company or a Subsidiary, as appropriate, shall also have the right to deduct from all cash payments made to a Participant (whether or not the payment is made in connection with an Award) any applicable taxes required to be withheld with respect to payments under the Plan.

 

(b)                                 No Right to Awards or Employment.  No person shall have any claim or right to receive Awards under the Plan.  Neither the Plan, the grant of Awards under the Plan nor any action taken or omitted to be taken under the Plan shall be deemed to create or confer on any Eligible Individual any right to be retained in the employ of the Company or any Subsidiary or other affiliate thereof, or to interfere with or to limit in any way the right of the Company or any Subsidiary or other affiliate thereof to terminate the employment of the Eligible Individual at any time.  No Award shall constitute salary, recurrent compensation or contractual compensation for the year of grant, any later year or any other period of time.  Neither the Plan nor any Award constitutes a contractual entitlement to any bonus payment in general irrespective of whether Awards or bonus payments were made in previous years.  Payments received by a Participant under any Award made pursuant to the Plan shall not be included in, nor have any effect on, the determination of employment-related rights or benefits under any other employee benefit plan or similar arrangement provided by the Company and the Subsidiaries, unless otherwise specifically provided for under the terms of such plan or arrangement or by the Committee.

 

(c)                                  Securities Law Restrictions.  An Award may not be exercised or settled and no Shares may be issued in connection with an Award unless the issuance of the Shares (i) has been registered under the Securities Act of 1933, as amended, (ii) has qualified under applicable state “blue sky” laws (or the Company has determined that an exemption from registration and from qualification under such state “blue sky” laws is available) and (iii) complies with all applicable laws, rules and regulations, including all foreign securities laws.  The Committee may require each Eligible Individual purchasing or acquiring Shares pursuant to an Award under the Plan to represent to and agree with the Company in writing that such Eligible Individual is acquiring the Shares for investment purposes and not with a view to the distribution thereof.  All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any exchange upon which the Shares are then listed, and any applicable securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

 

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(d)                                 Section 162(m) of the Code.  The Plan is intended to comply in all respects with Section 162(m) of the Code; provided, however, that in the event the Committee determines that compliance with Section 162(m) of the Code is not desired with respect to a particular Award, compliance with Section 162(m) of the Code shall not be required.  In addition, if any provision of this Plan would cause Awards that are intended to constitute “qualified performance-based compensation” under Section 162(m) of the Code, to fail to so qualify, that provision shall be severed from, and shall be deemed not to be a part of, the Plan, but the other provisions of the Plan shall remain in full force and effect.

 

(e)                                  Awards to Individuals Subject to Laws of a Jurisdiction Outside of the United States.  To the extent that Awards under the Plan are awarded to Eligible Individuals who are domiciled or resident outside of the United States or to persons who are domiciled or resident in the United States but who are subject to the tax laws of a jurisdiction outside of the United States, the Committee may adjust the terms of the Awards granted hereunder to such person (i) to comply with the laws, rules and regulations of such jurisdiction and (ii) to permit the grant of the Award not to be a taxable event to the Participant.  The authority granted under the previous sentence shall include the discretion for the Committee to adopt, on behalf of the Company, one or more sub-plans applicable to separate classes of Eligible Individuals who are subject to the laws of jurisdictions outside of the United States.

 

(f)                                   Satisfaction of Obligations.  Subject to applicable law, the Company may apply any cash, Shares, securities or other consideration received upon exercise or settlement of an Award to any obligations a Participant owes to the Company and the Subsidiaries in connection with the Plan or otherwise, including, without limitation, any tax obligations or obligations under a currency facility established in connection with the Plan.

 

(g)                                  No Limitation on Corporate Actions.  Nothing contained in the Plan shall be construed to prevent the Company or any Subsidiary from taking any corporate action, whether or not it would have an adverse effect on any Awards made under the Plan.  No Participant, beneficiary or other person shall have any claim against the Company or any Subsidiary as a result of any corporate action.

 

(h)                                 Unfunded Plan.  The Plan is intended to constitute an unfunded plan for incentive compensation.  Prior to the issuance of Shares, cash or other form of payment in connection with an Award, nothing contained herein shall give any Participant any rights that are greater than those of a general unsecured creditor of the Company.  The Committee may, but is not obligated to, authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Shares with respect to Awards hereunder.

 

(i)                                     Award Document.  In the event of any conflict or inconsistency between the Plan and any Award Document, the Plan shall govern and the Award Document shall be interpreted to minimize or eliminate the conflict or inconsistency.

 

(j)                                    Successors and Assigns.  All obligations of the Company under the Plan with respect to Awards shall be binding on any successor or assign to the Company, whether the existence of the successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

 

(k)                                 Application of Funds.  The proceeds received by the Company from the sale of Shares pursuant to Awards will be used for general corporate purposes.

 

(l)                                     Headings.  The headings of Sections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan.

 

(m)                             Severability.  If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.

 

(n)                                 Expenses.  The costs and expenses of administering the Plan shall be borne by the Company.

 

(o)                                 Section 409A of the Code.  Notwithstanding any contrary provision in the Plan or an Award Document, if any provision of the Plan or an Award Document contravenes any regulations or guidance

 

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promulgated under Section 409A of the Code or would cause an Award to be subject to additional taxes, accelerated taxation, interest and/or penalties under Section 409A of the Code, such provision of the Plan or Award Document may be modified by the Committee without consent of the Participant in any manner the Committee deems reasonable or necessary.  In making such modifications the Committee shall attempt, but shall not be obligated, to maintain, to the maximum extent practicable, the original intent of the applicable provision without contravening the provisions of Section 409A of the Code.  For purposes of Section 409A, each payment or settlement provided under this Plan shall be treated as a separate payment.  Moreover, any discretionary authority that the Committee may have pursuant to the Plan shall not be applicable to an Award that is subject to Section 409A of the Code to the extent such discretionary authority would contravene Section 409A of the Code or the guidance promulgated thereunder.

 

(p)                                 Governing Law.  Except as to matters of federal law, the Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Florida (other than its conflict of law rules).

 

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