Document:

exhibit10_1.htm

Exhibit 10.1

BRONCO DRILLING COMPANY, INC.

2006 STOCK INCENTIVE PLAN

(as amended on December 10, 2010)

1. Purpose; Eligibility.

 

1.1 General Purpose.  The name of this plan is the Bronco Drilling Company, Inc. 2006 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to enable Bronco Drilling Company, Inc., a Delaware corporation (the “Company”), and any Affiliate to obtain and retain the services of the types of Employees, Consultants and Directors who will contribute to the Company’s long range success and to provide incentives that are linked directly to increases in share value which will inure to the benefit of all stockholders of the Company.

 

1.2 Eligible Award Recipients.  The persons eligible to receive Awards are the Employees, Consultants and Directors of the Company and its Affiliates.

 

1.3 Available Awards. The purpose of the Plan is to provide a means by which eligible recipients of Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of one or more of the following Awards: (a) Incentive Stock Options, (b) Nonstatutory Stock Options, (c) Restricted Awards (Restricted Stock and Restricted Stock Units), (d) Performance Awards and (e) Stock Appreciation Rights.

 

2. Definitions.

 

2.1 “409A Award” means an Award that is considered “nonqualified deferred compensation” within the meaning of Section 409A of the Code and Section 8 of this Plan.

 

2.2 “Administrator” means the Board or the Committee appointed by the Board in accordance with Section 3.5.

 

2.3 “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code and any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture or unincorporated organization that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Company. For this purpose “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another, whether through ownership of voting securities, by contract or otherwise.

 

2.4 “Award” means any right granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Award (Restricted Stock and Restricted Stock Units), a Performance Award, a Stock Appreciation Right and a 409A Award.

 

2.5 “Award Agreement” means a written agreement between the Company and a holder of an Award evidencing the terms and conditions of an individual Award grant. Each Award Agreement shall be subject to the terms and conditions of the Plan.

 

2.6 “Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” shall be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

 

2.7 “Board” means the Board of Directors of the Company.

 

2.8 “Cashless Exercise” has the meaning set forth in Section 6.4.

 

2.9 “Cause” means, (a) with respect to any Participant who is a party to an employment or service agreement or employment policy manual with the Company or its Affiliates and such agreement or policy manual provides for a definition of Cause, as defined therein and (b) with respect to all other Participants, (i) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company or an Affiliate, (ii) conduct tending to bring the Company into substantial public disgrace, or disrepute, (iii) gross negligence or willful misconduct with respect to the Company or an Affiliate or (iv) material violation of state or federal securities laws. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions relating to whether a Participant has been discharged for Cause.

 

2.10 “Change in Control” shall mean:

 

(a) The direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act);

 

(b) The Incumbent Directors cease for any reason to constitute at least a majority of the Board;

 

(c) The adoption of a plan relating to the liquidation or dissolution of the Company; or

 

(d) The consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” or “group” (as such terms are used in Section 13(d) of the Exchange Act), becomes the Beneficial Owner of more than 50% of the voting power of the Company. The foregoing notwithstanding, a transaction shall not constitute a Change in Control if (i) its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction; (ii) it constitutes an initial public offering or a secondary public offering that results in any security of the Company being listed (or approved for listing) on any securities exchange or designated (or approved for designation) as a national market security on an interdealer quotation system; or (iii) solely because 50% or more of the total voting power of the Company’s then outstanding securities is acquired by (A) a trustee or other fiduciary holding securities under one or more employee benefit Plans of the Company or any Affiliate, or (B) any company which, immediately prior to such Business Combination, is owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock in the Company immediately prior to such acquisition.

 

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

 

2.12 “Committee” means a committee of one or more members of the Board appointed by the Board to administer the Plan in accordance with Section 3.5.

 

2.13 “Common Stock” means the common stock, $0.01 par value per share of the Company.

 

2.14 “Company” means Bronco Drilling Company, Inc., a Delaware corporation.

 

2.15 “Consultant” means any person, including an advisor, (a) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or who provides bona fide services to the Company or an Affiliate pursuant to a written agreement or (b) who is a member of the Board of Directors of an Affiliate; provided that, except as otherwise permitted in Section 5.4(b) hereof, such person is a natural person and such services are not in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.

 

2.16 “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Administrator or its delegate, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal or family leave of absence.

 

2.17 “Covered Employee” means the chief executive officer and the four other highest compensated officers of the Company for whom total compensation is or would be required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

  

  

  

 

2.18 “Date of Grant” means, provided the key terms and conditions of the Award are communicated to the Participant within a reasonable period of time following the Administrator’s action, the date on which the Administrator adopts a resolution, or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award and from which the Participant begins to benefit from or be adversely affected by subsequent changes in the Fair Market Value of the Company Common Stock or, if a different date is set forth in such resolution or determined by the Administrator as the Date of Grant, then such date as is set forth in such resolution. In any situation where the terms of the Award are subject to negotiation with the Participant, the Date of Grant shall not be earlier than the date the key terms and conditions of the Award are communicated to the Participant.

 

2.19 “Detrimental Activity” means: (a) violation of the terms of any agreement with the Company concerning non-disclosure, confidentiality, intellectual property, privacy or exclusivity; (b) disclosure of the Company’s confidential information to anyone outside the Company, without prior written authorization from the Company, or in conflict with the interests of the Company, whether the confidential information was acquired or disclosed by the Participant during or after employment by the Company; (c) failure or refusal to disclose promptly or assign to the Company all right, title and interest in any invention, work product or idea, patentable or not, made or conceived by the Participant during employment by the Company, relating in any manner to the interests of the Company or, the failure or refusal to do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in other countries; (d) activity that is discovered to be grounds for or results in termination of the Participant’s employment for Cause; (e) any breach of a restrictive covenant contained in any employment agreement, Award Agreement or other agreement between the Participant and the Company, during any period for which a restrictive covenant prohibiting Detrimental Activity, or other similar conduct or act, is applicable to the Participant during or after employment by the Company; (f) any attempt directly or indirectly to induce any Employee of the Company to be employed or perform services or acts in conflict with the interests of the Company; (g) any attempt, in conflict with the interests of the Company, directly or indirectly, to solicit the trade or business of any current or prospective customer, client, supplier or partner of the Company; (h) the conviction of, or guilty plea entered by, the Participant for any felony or a crime involving moral turpitude whether or not connected with the Company; or (i) the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company.

 

2.20 “Director” means a member of the Board.

 

2.21 “Disability” means that the Optionholder is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment; provided, however, for purposes of determining the term of an Incentive Stock Option pursuant to Section 6.10 hereof, the term Disability shall have the meaning ascribed to it under Code Section 22(e)(3). The determination of whether an individual has a Disability shall be determined under procedures established by the Administrator. Except in situations where the Administrator is determining Disability for purposes of the term of an Incentive Stock Option pursuant to Section 6.10 hereof within the meaning of Code Section 22(e)(3), the Administrator may rely on any determination that a Participant is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any Affiliate in which a Participant participates.

 

2.22 “Effective Date” shall mean April 20, 2006, the date the Board adopted the Plan.

 

2.23 “Employee” means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

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

 

2.25 “Fair Market Value” means, as of any date, the value of the Common Stock as determined below. The Fair Market Value on the date of the Company’s initial public offering of its Common Stock shall be the initial price to the public on such date. Thereafter, on any date on which the Company’s shares of Common Stock are registered under Section 12 of the Exchange Act (a) if the Common Stock is admitted to quotation on the Nasdaq over the counter market or any interdealer quotation system and closing prices are reported the Fair Market Value on any date shall not be less than the closing price reported for the Common Stock on such market or system for such date or, if closing prices are not reported, the Fair Market Value on any given date shall not be less than the average of the highest bid and lowest asked prices of the Common Stock reported for such date or, if no bid and asked prices were reported for such date, for the last day preceding such date for which such prices were reported, (b) if the Common Stock is admitted to trading on a national securities exchange or the Nasdaq National Market or Nasdaq Small Cap Market, the Fair Market Value on any date shall not be less than the closing price reported for the Common Stock on such exchange or system for such date or, if no sales were reported for such date, for the last date preceding the date on which such a sale was reported, or (c) in the absence of an established market for the Common Stock, the Fair Market Value determined in good faith by the Administrator and such determination shall be conclusive and binding on all persons.

 

2.26 “Form S-8” has the meaning set forth in Section 5.4(b).

 

2.27 “Free Standing Rights” has the meaning set forth in Section 7.3(a).

 

2.28 “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

 

2.29 “Incumbent Directors” means individuals who, on the Effective Date, constitute the Board, provided that any individual becoming a Director subsequent to the Effective Date whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) shall be an Incumbent Director. No individual initially elected or nominated as a Director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.

 

2.30 “Listing Date” means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.

 

2.31 “Market Stand-Off” has the meaning set forth in Section 15.

 

2.32 “Nasdaq” means the Nasdaq Stock Market, Inc., or any successor thereto.

 

2.33 “Non-Employee Director” means a Director who is a “non-employee director” within the meaning of Rule 16b-3.

 

2.34 “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

 

2.35 “Officer” means (a) before the Listing Date, any person designated by the Company as an officer and (b) on and after the Listing Date, a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

2.36 “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.

 

2.37 “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant.  Each Option Agreement shall be subject to the terms and conditions of the Plan and need not be identical.

 

2.38 “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

 

2.39 “Outside Director” means a Director who is an “outside director” within the meaning of Section 162(m) of the Code and Treasury Regulations § 1.162-27(e)(3).

 

2.40 “Participant” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Award.

 

2.41 “Performance Award” means Awards granted pursuant to Section 7.2.

 

2.42 Intentionally Deleted.

 

2.43 “Permitted Transferee” means (a) any spouse, parents, siblings (by blood, marriage or adoption) or lineal descendants (by blood, marriage or adoption) of a Participant; (b) any trust or other similar entity for the benefit of a Participant or the Participant’s spouse, parents, siblings or lineal descendants; provided, however, that any transfer made by a Participant to a Permitted Transferee may only be made if the Permitted Transferee, prior to the time of transfer of stock, agrees in writing to be bound by the terms of this Plan and provides written notice to the Company of such transfer.

 

2.44 “Plan” means this Bronco Drilling Company, Inc. 2006 Stock Incentive Plan.

  

  

  

 

2.45 “Related Rights” has the meaning set forth in Section 7.3(a).

 

2.46 “Restricted Award” means any Award granted pursuant to Section 7.1, including Restricted Stock and Restricted Stock Units.

 

2.47 “Restricted Period” has the meaning set forth in Section 7.1.

 

2.48 “Restricted Stock” has the meaning set forth in Section 7.1.

 

2.49 “Restricted Stock Unit” means a hypothetical Common Stock unit having a value equal to the Fair Market Value of an identical number of shares of Common Stock as determined in Section 7.1.

 

2.50 “Right of Repurchase” means the Company’s option to repurchase unvested Common Stock acquired under the Plan upon the Participant’s termination of Continuous Service pursuant to Section 11.7.

 

2.51 “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

2.52 “Rule 701” has the meaning set forth in Section 5.4(a).

 

2.53 “SAR Amount” has the meaning set forth in Section 7.3(i).

 

2.54 “SAR exercise price” has the meaning set forth in Section 7.3(b).

 

2.55 “SEC” means the Securities and Exchange Commission.

 

2.56 “Securities Act” means the Securities Act of 1933, as amended.

 

2.57 “Stock Appreciation Right” means the right pursuant to an award granted under Section 7.3 to receive an amount equal to the excess, if any, of (A) the Fair Market Value, as of the date such Stock Appreciation Right or portion thereof is surrendered, of the shares of stock covered by such right or such portion thereof, over (B) the aggregate SAR exercise price of such right or such portion thereof.

 

2.58 “Stock for Stock Exchange” has the meaning set forth in Section 6.4.

 

2.59 “Surviving Entity” means the Company if immediately following any merger, consolidation or similar transaction, the holders of outstanding voting securities of the Company immediately prior to the merger or consolidation own equity securities possessing more than 50% of the voting power of the entity existing following the merger, consolidation or similar transaction. In all other cases, the other entity to the transaction and not the Company shall be the Surviving Entity. In making the determination of ownership by the stockholders of an entity immediately after the merger, consolidation or similar transaction, equity securities which the stockholders owned immediately before the merger, consolidation or similar transaction as stockholders of another party to the transaction shall be disregarded. Further, outstanding voting securities of an entity shall be calculated by assuming the conversion of all equity securities convertible (immediately or at some future time) into shares entitled to vote.

 

2.60 “Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.

 

3. Administration.

 

3.1 Administration by Board.  The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in Section 3.5.

 

3.2 Powers of Administrator.  The Administrator shall have the power and authority to select and grant to Participants, Awards pursuant to the terms of the Plan.

 

3.3 Specific Powers.  In particular, the Administrator shall have the authority: (a) to construe and interpret the Plan and apply its provisions; (b) to promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; (c) to authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; (d) to delegate its authority to one or more Officers of the Company with respect to Awards that do not involve Covered Employees or “insiders” within the meaning of Section 16 of the Exchange Act, provided such delegation is pursuant to a resolution that specifies the total number of shares of Common Stock that may be subject to awards by such Officer and such Officer may not make an Award to himself or herself; (e) to determine when Awards are to be granted under the Plan; (f) from time to time to select, subject to the limitations set forth in this Plan, those Participants to whom Awards shall be granted; (g) to determine the number of shares of Common Stock to be made subject to each Award; (h) to determine whether each Option is to be an Incentive Stock Option or a Nonstatutory Stock Option; (i) to prescribe the terms and conditions of each Award, including, without limitation, the exercise price and medium of payment, vesting provisions and Right of Repurchase provisions, and to specify the provisions of the Award Agreement relating to such grant or sale; (j) to amend any outstanding Awards, including for the purpose of modifying the time or manner of vesting, the purchase price or exercise price, or the term of any outstanding Award; provided, however, that if any such amendment impairs a Participant’s rights or increases a Participant’s obligations under his or her Award, such amendment shall also be subject to the Participant’s consent (provided, however, a cancellation of an Award where the Participant receives a payment equal in value to the Fair Market Value of the vested Award or, in the case of vested Options, the difference between the Fair Market Value of the Common Stock subject to an Option and the exercise price, shall not constitute an impairment of the Participant’s rights that requires consent); (k) to determine the duration and purpose of leaves of absences which may be granted to a Participant without constituting termination of their Continuous Service for purposes of the Plan, which periods shall be no shorter than the periods generally applicable to Employees under the Company’s employment policies; (l) to make decisions with respect to outstanding Awards that may become necessary upon a Change in Control or an event that triggers anti-dilution adjustments; and (m) to exercise discretion to make any and all other determinations which it determines to be necessary or advisable for administration of the Plan.

 

3.4 Decisions Final. All decisions made by the Administrator pursuant to the provisions of the Plan shall be final and binding on the Company and the Participants, unless such decisions are determined by a court having jurisdiction to be arbitrary and capricious.

 

3.5 The Committee.

 

(a) General. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board or the Administrator shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. The members of the Committee shall be appointed by and serve at the pleasure of the Board. From time to time, the Board may increase or decrease the size of the Committee, add additional members to, remove members (with or without cause) from, appoint new members in substitution therefor, and fill vacancies, however caused, in the Committee. The Committee shall act pursuant to a vote of the majority of its members or, in the case of a committee comprised of only two members, the unanimous consent of its members, whether present or not, or by the written consent of the majority of its members and minutes shall be kept of all of its meetings and copies thereof shall be provided to the Board. Subject to the limitations prescribed by the Plan and the Board, the Committee may establish and follow such rules and regulations for the conduct of its business as it may determine to be advisable.

 

(b) Committee Composition when Common Stock is Registered. At such time as the Common Stock is required to be registered under Section 12 of the Exchange Act, in the discretion of the Board, a Committee may consist solely of two or more Non-Employee Directors who are also Outside Directors. The Board shall have discretion to determine whether or not it intends to comply with the exemption requirements of Rule 16b-3 and/or Section 162(m) of the Code. However, if the Board intends to satisfy such exemption requirements, with respect to Awards to any Covered Employee and with respect to any insider subject to Section 16 of the Exchange Act, the Committee shall be a compensation committee of the Board that at all times consists solely of two or more Non-Employee Directors who are also Outside Directors. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Awards to eligible persons who are either (A) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Award or (B) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code or (ii) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. Nothing herein shall create an inference that an option is not validly granted under the Plan in the event Awards are granted under the Plan by a compensation committee of the Board that does not at all times consist solely of two or more Non-Employee Directors who are also Outside Directors.

  

  

  

 

3.6 Indemnification. In addition to such other rights of indemnification as they may have as Directors or members of the Committee, and to the extent allowed by applicable law, the Administrator shall be indemnified by the Company against the reasonable expenses, including attorney’s fees, actually incurred in connection with any action, suit or proceeding or in connection with any appeal therein, to which the Administrator may be party by reason of any action taken or failure to act under or in connection with the Plan or any option granted under the Plan, and against all amounts paid by the Administrator in settlement thereof (provided, however, that the settlement has been approved by the Company, which approval shall not be unreasonably withheld) or paid by the Administrator in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Administrator did not act in good faith and in a manner which such person reasonably believed to be in the best interests of the Company, and in the case of a criminal proceeding, had no reason to believe that the conduct complained of was unlawful; provided, however, that within 60 days after institution of any such action, suit or proceeding, such Administrator or Committee member shall, in writing, offer the Company the opportunity at its own expense to handle and defend such action, suit or proceeding.

 

4. Shares Subject to the Plan.

 

4.1 Share Reserve.  Subject to the provisions of Section 12.1 relating to adjustments upon changes in Common Stock, the shares that may be issued pursuant to Awards shall consist of the Company’s authorized but unissued Common Stock, and the maximum aggregate amount of such Common Stock which may be issued upon exercise of all Awards under the Plan shall not exceed 5,000,000, less 1,000,000, the total number of shares underlying options granted to Employees prior to the adoption of this Plan and outstanding on the Effective Date under the Bronco Drilling Company, Inc. 2005 Stock Incentive Plan (“Prior Outstanding Options”). If, prior to the termination of the Plan, a Prior Outstanding Option shall expire, be forfeited or terminate for any reason without having been exercised in full, the shares subject to such expired, forfeited or terminated Prior Outstanding Options shall again be available for purposes of the Plan and the number of shares of Common Stock which may be issued upon the exercise of Awards under the Plan shall be increased by the number of shares of Common Stock underlying such expired, forfeited or terminated Prior Outstanding Options. In no event, however, will the maximum aggregate amount of Common Stock which may be issued upon exercise of all Awards under the Plan, including Incentive Stock Options, exceed 5,000,000 shares of Common Stock (subject to adjustment as provided in Section 12.1), all of which may be used for Incentive Stock Options or any other Award. Awards for fractional shares of Common Stock may not be issued under the terms of the Plan.

 

4.2 Reversion of Shares to the Share Reserve.  If any Award shall for any reason expire or otherwise terminate, in whole or in part, the shares of Common Stock not acquired under such Award shall revert to and again become available for issuance under the Plan. If shares of Common Stock issued under the Plan are reacquired by the Company pursuant to the terms of any forfeiture provision, including the Right of Repurchase of unvested Common Stock under Section 11.7(a), such shares shall again be available for purposes of the Plan.

 

4.3 Source of Shares.  The shares of Common Stock subject to the Plan may be authorized but unissued Common Stock or reacquired Common Stock, bought on the market, pursuant to any forfeiture provision or otherwise.

 

5. Eligibility.

 

5.1 Eligibility for Specific Awards. Incentive Stock Options may be granted only to Employees. Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

 

5.2 Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least 110% of the Fair Market Value of the Common Stock at the Date of Grant and the Option is not exercisable after the expiration of five years from the Date of Grant.

 

5.3 Section 162(m) Limitation. Subject to the provisions of Section 12.1 relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Awards covering more than 500,000 shares during any fiscal year. This Section 5.3 shall not apply prior to the Listing Date and, following the Listing Date, this Section 5.3 shall not apply until (a) the earliest of: (i) the first material modification of the Plan (including any increase in the number of shares of Common Stock reserved for issuance under the Plan in accordance with Section 4.1); (ii) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (iii) the expiration of the Plan; or (iv) the first meeting of stockholders at which Directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under Section 12 of the Exchange Act; or (b) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

 

5.4 Consultants.

 

(a) Prior to the Listing Date, a Consultant shall not be eligible for the grant of an Award if, at the time of grant, either the offer or the sale of the Company’s securities to such Consultant is not exempt under Rule 701 of the Securities Act (“Rule 701”) because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions.

 

(b) From and after the Listing Date, a Consultant shall not be eligible for the grant of an Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company (i.e., capital raising), or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions.

 

5.5 Directors. Each Director of the Company shall be eligible to receive discretionary grants of Awards under the Plan.

 

6. Option Provisions.

 

Each Option shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. Notwithstanding the foregoing, the Company shall have no liability to any Participant or any other person if an Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code and Section 8 of the Plan. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

 

6.1 Term.  Subject to the provisions of Section 5.2 regarding Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it was granted.

 

6.2 Exercise Price of an Incentive Stock Option.  Subject to the provisions of Section 5.2 regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

 

6.3 Exercise Price of a Nonstatutory Stock Option.  The exercise price of each Nonstatutory Stock Option shall be not less than 100% of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted; provided, however, any Nonstatutory Stock Option granted with an exercise price less than 100% of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted shall satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code, in accordance with Section 6.15 and Section 8 hereof. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

  

  

  

 

6.4 Consideration.  The exercise price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (a) in cash or by certified or bank check at the time the Option is exercised or (b) in the discretion of the Administrator, upon such terms as the Administrator shall approve, the exercise price may be paid: (i) by delivery to the Company of other Common Stock, duly endorsed for transfer to the Company, with a Fair Market Value on the date of delivery equal to the exercise price (or portion thereof) due for the number of shares being acquired, or by means of attestation whereby the Participant identifies for delivery specific shares of Common Stock that have been held for more than six months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) that have a Fair Market Value on the date of attestation equal to the exercise price (or portion thereof) and receives a number of shares of Common Stock equal to the difference between the number of shares thereby purchased and the number of identified attestation shares of Common Stock (a “Stock for Stock Exchange”); (ii) during any period for which the Common Stock is publicly traded (i.e., the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market, or if the Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National Market) or any similar system whereby the Common Stock is regularly quoted by a recognized securities dealer but closing sale prices are not reported), by a copy of instructions to a broker directing such broker to sell the Common Stock for which such Option is exercised, and to remit to the Company the aggregate Exercise Price of such Options (a “Cashless Exercise”); (iii) in any other form of legal consideration that may be acceptable to the Administrator, including without limitation with a full-recourse promissory note; provided, however, if applicable law requires, the par value (if any) of Common Stock, if newly issued, shall be paid in cash or cash equivalents. Any Common Stock acquired upon exercise with a promissory note shall be pledged as security for payment of the principal amount of the promissory note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Administrator (in its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note. Unless the Administrator determines otherwise, shares of Common Stock having a Fair Market Value at least equal to the principal amount of any such loan shall be pledged by the holder to the Company as security for payment of the unpaid balance of the loan and such pledge shall be evidenced by a pledge agreement, the terms of which shall be determined by the Administrator, in its discretion; provided, however, that each loan shall comply with all applicable laws, regulations and rules of the Board of Governors of the Federal Reserve System and any other governmental agency having jurisdiction. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery (or attestation) to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). Notwithstanding the foregoing, during any period for which the Common Stock is publicly traded (i.e., the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market, or if the Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National Market) or any similar system whereby the Common Stock is regularly quoted by a recognized securities dealer but closing sale prices are not reported), an exercise with a promissory note or other transaction by a Director or executive officer that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by the Company, or an Affiliate in violation of Section 402(a) of the Sarbanes-Oxley Act (codified as Section 13(k) of the Exchange Act) shall be prohibited with respect to any Award under this Plan. Unless otherwise provided in the terms of an Option Agreement, payment of the exercise price by a Participant who is an officer, director or other “insider” subject to Section 16(b) of the Exchange Act in the form of a Stock for Stock Exchange is subject to pre-approval by the Administrator, in its sole discretion. Any such pre-approval shall be documented in a manner that complies with the specificity requirements of Rule 16b-3, including the name of the Participant involved in the transaction, the nature of the transaction, the number of shares to be acquired or disposed of by the Participant and the material terms of the Options involved in the transaction.

 

6.5 Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

 

6.6 Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option may, in the sole discretion of the Administrator, be transferable to a Permitted Transferee upon written approval by the Administrator to the extent provided in the Option Agreement. A Permitted Transferee includes: (a) a transfer by gift or domestic relations order to a member of the Optionholder’s immediate family (child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships), any person sharing the Optionholder’s household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the Optionholder) control the management of assets, and any other entity in which these persons (or the Optionholder) own more than 50% of the voting interests; (b) third parties designated by the Administrator in connection with a program established and approved by the Administrator pursuant to which Participants may receive a cash payment or other consideration in consideration for the transfer of such Nonstatutory Stock Option; and (c) such other transferees as may be permitted by the Administrator in its sole discretion. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

 

6.7 Vesting Generally. The Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Administrator may deem appropriate. The vesting provisions of individual Options may vary. No Option may be exercised for a fraction of a share of Common Stock. The Administrator may, but shall not be required to, provide for an acceleration of vesting and exercisability in the terms of any Option Agreement upon the occurrence of a specified event.

 

6.8 Termination of Continuous Service. Unless otherwise provided in an Option Agreement or in an employment agreement the terms of which have been approved by the Administrator, in the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability or termination by the Company for Cause), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (a) the date three months following the termination of the Optionholder’s Continuous Service, or (b) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. Unless otherwise provided in an Option Agreement or in an employment agreement the terms of which have been approved by the Administrator, or as otherwise provided in Sections 6.10 and 6.11 of this Plan, outstanding Options that are not exercisable at the time an Optionholder’s Continuous Service terminates for any reason other than for Cause (including an Optionholder’s death or Disability) shall be forfeited and expire at the close of business on the date of such termination. If the Optionholder’s Continuous Service terminates for Cause, all outstanding Options shall be forfeited (whether or not vested) and expire as of the beginning of business on the date of such termination for Cause.

 

6.9 Extension of Termination Date. An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service for any reason other than Cause (other than upon the Optionholder’s death or Disability) would be prohibited at any time because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act or any other state or federal securities law or the rules of any securities exchange or interdealer quotation system, then the Option shall terminate on the earlier of (a) the expiration of the term of the Option in accordance with Section 6.1 or (b) the expiration of a period after termination of the Participant’s Continuous Service that is three months after the end of the period during which the exercise of the Option would be in violation of such registration or other securities law requirements.

 

6.10 Disability of Optionholder. Unless otherwise provided in an Option Agreement, in the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (a) the date 12 months following such termination or (b) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

 

6.11 Death of Optionholder. Unless otherwise provided in an Option Agreement, in the event an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s death, but only within the period ending on the earlier of (a) the date 12 months following the date of death or (b) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

 

6.12 Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.

 

6.13 Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. In such case, the shares of Common Stock acquired on exercise shall be subject to the vesting schedule that otherwise would apply to determine the exercisability of the Option. Any unvested shares of Common Stock so purchased may be subject to any other restriction the Administrator determines to be appropriate.

 

6.14 Reload Options. At the discretion of the Administrator, the Option may include a “reload” feature pursuant to which an Optionholder exercising an option by the delivery of a number of shares of Common Stock in accordance with Section 6.4(b)(i) hereof would automatically be granted an additional Option (with an exercise price equal to the Fair Market Value of the Common Stock on the date the additional Option is granted and with the same expiration date as the original Option being exercised, and with such other terms as the Administrator may provide) to purchase that number of shares of Common Stock equal to the number delivered in a Stock for Stock Exchange of the original Option.

  

  

  

 

6.15 Additional Requirements Under Section 409A. Each Option Agreement shall include a provision whereby, notwithstanding any provision of the Plan or the Option Agreement to the contrary, the Option shall satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code, in accordance with Section 8 hereof, in the event any Option under this Plan is granted with an exercise price less than Fair Market Value of the Common Stock subject to the Option on the date the Option is granted (regardless of whether or not such exercise price is intentionally or unintentionally priced at less than Fair Market Value, or is materially modified at a time when the Fair Market Value exceeds the exercise price), or is otherwise determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code.

 

7. Provisions of Awards Other Than Options.

 

7.1 Restricted Awards. A Restricted Award is an Award of actual shares of Common Stock (“Restricted Stock”) or hypothetical Common Stock units (“Restricted Stock Units”) having a value equal to the Fair Market Value of an identical number of shares of Common Stock, which may, but need not, provide that such Restricted Award may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose for such period (the “Restricted Period”) as the Administrator shall determine. Each Restricted Award shall be in such form and shall contain such terms, conditions and Restricted Periods as the Administrator shall deem appropriate, including the treatment of dividends or dividend equivalents, as the case may be. The Administrator in its discretion may provide for an acceleration of the end of the Restricted Period in the terms of any Restricted Award, at any time, including in the event a Change in Control occurs. The terms and conditions of the Restricted Award may change from time to time, and the terms and conditions of separate Restricted Awards need not be identical, but each Restricted Award shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

 

(a) Purchase Price. The purchase price of Restricted Awards, if any, shall be determined by the Administrator, and may be stated as cash, property or prior services.

 

(b) Consideration. The consideration for Common Stock acquired pursuant to the Restricted Award shall be paid either: (i) in cash at the time of purchase; or (ii) in any other form of legal consideration that may be acceptable to the Administrator in its discretion including, without limitation, a recourse promissory note, property or a Stock for Stock Exchange, or prior services that the Administrator determines have a value at least equal to the Fair Market Value of such Common Stock.

 

(c) Vesting. Shares of Common Stock acquired under the Restricted Award may, but need not, be subject to a Restricted Period that specifies a Right of Repurchase in favor of the Company in accordance with a vesting schedule to be determined by the Administrator, or forfeiture in the event the consideration was in the form of services. The Administrator in its discretion may provide for an acceleration of vesting in the terms of any Restricted Award, at any time, including in the event a Change in Control occurs.

 

(d) Termination of Participant’s Continuous Service. Unless otherwise provided in a Restricted Award or in an employment agreement the terms of which have been approved by the Administrator, in the event a Participant’s Continuous Service terminates for any reason, the Company may exercise its Right of Repurchase or otherwise reacquire, or the Participant shall forfeit the unvested portion of a Restricted Award acquired in consideration of prior or future services, and any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the Restricted Award shall be forfeited and the Participant shall have no rights with respect to the Award.

 

(e) Transferability. Rights to acquire shares of Common Stock under the Restricted Award shall be transferable by the Participant only upon such terms and conditions as are set forth in the Award Agreement, as the Administrator shall determine in its discretion, so long as Common Stock awarded under the Restricted Award remains subject to the terms of the Award Agreement.

 

(f) Concurrent Tax Payment. The Administrator, in its sole discretion, may (but shall not be required to) provide for payment of a concurrent cash award in an amount equal, in whole or in part, to the estimated after tax amount required to satisfy applicable federal, state or local tax withholding obligations arising from the receipt and deemed vesting of restricted stock for which an election under Section 83(b) of the Code may be required.

 

(g) Lapse of Restrictions. Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Administrator, the restrictions applicable to the Restricted Award shall lapse and a stock certificate for the number of shares of Common Stock with respect to which the restrictions have lapsed shall be delivered, free of any restrictions except those that may be imposed by law, the terms of the Plan or the terms of a Restricted Award, to the Participant or the Participant’s beneficiary or estate, as the case may be, unless such Restricted Award is subject to a deferral condition that complies with the 409A Award requirements that may be allowed or required by the Administrator in its sole discretion. The Company shall not be required to deliver any fractional share of Common Stock but will pay, in lieu thereof, the Fair Market Value of such fractional share in cash to the Participant or the Participant’s beneficiary or estate, as the case may be. Unless otherwise subject to a deferral condition that complies with the 409A Award requirements, the Common Stock certificate shall be issued and delivered and the Participant shall be entitled to the beneficial ownership rights of such Common Stock not later than (i) the date that is 2 1/2 months after the end of the Participant’s taxable year for which the Restricted Period ends and the Participant has a legally binding right to such amounts; (ii) the date that is 2 1/2 months after the end of the Company’s taxable year for which the Restricted Period ends and the Participant has a legally binding right to such amounts, whichever is later; or (iii) such earlier date as may be necessary to avoid application of Code Section 409A to such Award.

 

7.2 Performance Awards.

 

(a) Nature of Performance Awards. A Performance Award is an Award entitling the recipient to acquire shares of Common Stock or hypothetical Common Stock units having a value equal to the Fair Market Value of an identical number of shares of Common Stock that will be settled in the form of shares of Common Stock upon the attainment of specified performance goals. The Administrator may make Performance Awards independent of or in connection with the granting of any other Award under the Plan. Performance Awards may be granted under the Plan to any Participant, including those who qualify for awards under other performance plans of the Company. The Administrator in its sole discretion shall determine whether and to whom Performance Awards shall be made, the performance goals applicable under each Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded shares; provided, however, that the Administrator may rely on the performance goals and other standards applicable to other performance plans of the Company in setting the standards for Performance Awards under the Plan. Performance goals shall be based on a pre-established objective formula or standard that specifies the manner of determining the number of shares under the Performance Award that will be granted or will vest if the performance goal is attained. Performance goals will be determined by the Administrator prior to the time 25% of the service period has elapsed and may be based on one or more business criteria that apply to a Participant, a business unit or the Company and its Affiliates. Such business criteria may include, by way of example and without limitation, revenue, earnings before interest, taxes, depreciation and amortization (EBITDA), funds from operations, funds from operations per share, operating income, pre-tax or after-tax income, cash available for distribution, cash available for distribution per share, net earnings, earnings per share, return on equity, return on assets, return on capital, economic value added, share price performance, improvements in the Company’s attainment of expense levels, and implementing or completion of critical projects, or improvement in cash-flow (before or after tax). A performance goal may be measured over a performance period on a periodic, annual, cumulative or average basis and may be established on a corporate-wide basis or established with respect to one or more operating units, divisions, subsidiaries, acquired businesses, minority investments, partnerships or joint ventures. More than one performance goal may be incorporated in a performance objective, in which case achievement with respect to each performance goal may be assessed individually or in combination with each other. The Administrator may, in connection with the establishment of performance goals for a performance period, establish a matrix setting forth the relationship between performance on two or more performance goals and the amount of the Performance Award payable for that performance period. The level or levels of performance specified with respect to a performance goal may be established in absolute terms, as objectives relative to performance in prior periods, as an objective compared to the performance of one or more comparable companies or an index covering multiple companies, or otherwise as the Administrator may determine. Performance goals shall be objective and, if the Company is publicly traded, shall otherwise meet the requirements of Section 162(m) of the Code. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants. A Performance Award to a Participant who is a Covered Employee shall (unless the Administrator determines otherwise) provide that in the event of the Participant’s termination of Continuous Service prior to the end of the performance period for any reason, such Award will be payable only (i) if the applicable performance objectives are achieved and (ii) to the extent, if any, the Administrator shall determine. Such objective performance goals are not required to be based on increases in a specific business criteria, but may be based on maintaining the status quo or limiting economic losses.

 

(b) Restrictions on Transfer. Performance Awards and all rights with respect to such Performance Awards may not be sold, assigned, transferred, pledged or otherwise encumbered.

 

(c) Rights as a Stockholder. A Participant receiving a Performance Award that is denominated in shares of Common Stock or hypothetical Common Stock units shall have the rights of a stockholder only as to shares actually received by the Participant under the Plan and not with respect to shares subject to the Award but not actually received by the Participant. A Participant shall be entitled to receive a stock certificate evidencing the acquisition of shares of Common Stock under a Performance Award only upon satisfaction of all conditions specified in the written instrument evidencing the Performance Award (or in a performance plan adopted by the Administrator). The Common Stock certificate shall be issued and delivered and the Participant shall be entitled to the beneficial ownership rights of such Common Stock not later than (i) the date that is 2 1/2 months after the end of the Participant’s taxable year for which the Administrator certifies that the Performance Award conditions have been satisfied and the Participant has a legally binding right to such amounts; (ii) the date that is 2 1/2 months after the end of the Company’s taxable year for which the Administrator certifies that the Performance Award conditions have been satisfied and the Participant has a legally binding right to such amounts, whichever is later; or (iii) such other date as may be necessary to avoid application of Section 409A to such Awards.

 

(d) Termination. Except as may otherwise be provided by the Administrator at any time, a Participant’s rights in all Performance Awards shall automatically terminate upon the Participant’s termination of employment (or business relationship) with the Company and its Affiliates for any reason.

  

  

  

 

(e) Acceleration, Waiver, Etc. At any time prior to the Participant’s termination of employment (or other business relationship) by the Company and its Affiliates, the Administrator may in its sole discretion accelerate, waive or, subject to Section 13, amend any or all of the goals, restrictions or conditions imposed under any Performance Award. The Administrator in its discretion may provide for an acceleration of vesting in the terms of any Performance Award at any time, including in the event a Change in Control occurs.

 

(f) Certification. Following the completion of each performance period, the Administrator shall certify in writing, in accordance with the requirements of Section 162(m) of the Code, whether the performance objectives and other material terms of a Performance Award have been achieved or met. Unless the Administrator determines otherwise, Performance Awards shall not be settled until the Administrator has made the certification specified under this Section 7.2(f).

 

7.3 Stock Appreciation Rights.

 

(a) General. Stock Appreciation Rights may be granted either alone (“Free Standing Rights”) or, provided the requirements of Section 7.3(b) are satisfied, in tandem with all or part of any Option granted under the Plan (“Related Rights”). In the case of a Nonstatutory Stock Option, Related Rights may be granted either at or after the time of the grant of such Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock Option.

 

(b) Grant Requirements. A Stock Appreciation Right may only be granted if the Stock Appreciation Right: (i) does not provide for the deferral of compensation within the meaning of Section 409A of the Code; or (ii) satisfies the requirements of Section 7.3(i) and Section 8 hereof. A Stock Appreciation Right does not provide for a deferral of compensation if: (A) the value of the Common Stock the excess over which the right provides for payment upon exercise (the “SAR exercise price”) may never be less than the Fair Market Value of the underlying Common Stock on the date the right is granted, (B) the compensation payable under the Stock Appreciation Right can never be greater than the difference between the SAR exercise price and the Fair Market Value of the Common Stock on the date the Stock Appreciation Right is exercised, (C) the number of shares of Common Stock subject to the Stock Appreciation Right must be fixed on the date of grant of the Stock Appreciation Right, and (D) the right does not include any feature for the deferral of compensation other than the deferral of recognition of income until the exercise of the right.

 

(c) Exercise and Payment. Upon exercise thereof, the holder of a Stock Appreciation Right shall be entitled to receive from the Company, an amount equal to the product of (i) the excess of the Fair Market Value, on the date of such written request, of one share of Common Stock over the SAR exercise price per share specified in such Stock Appreciation Right or its related Option, multiplied by (ii) the number of shares for which such Stock Appreciation Right shall be exercised. Payment with respect to the exercise of a Stock Appreciation Right that satisfies the requirements of Section 7.3(b)(i) shall be paid on the date of exercise and made in shares of Common Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Administrator in its sole discretion), valued at Fair Market Value on the date of exercise. Payment with respect to the exercise of a Stock Appreciation Right that does not satisfy the requirements of Section 7.3(b)(i) shall be paid at the time specified in the Award in accordance with the provisions of Section 7.3(i) and Section 8. Payment may be made in the form of shares of Common Stock (with or without restrictions as to substantial risk of forfeiture and transferability, as determined by the Administrator in its sole discretion), cash or a combination thereof, as determined by the Administrator.

 

(d) Exercise Price. The exercise price of a Free Standing Stock Appreciation Right shall be determined by the Administrator, but shall not be less than 100% of the Fair Market Value of one share of Common Stock on the Date of Grant of such Stock Appreciation Right. A Related Right granted simultaneously with or subsequent to the grant of an Option and in conjunction therewith or in the alternative thereto shall have the same exercise price as the related Option, shall be transferable only upon the same terms and conditions as the related Option, and shall be exercisable only to the same extent as the related Option; provided, however, that a Stock Appreciation Right, by its terms, shall be exercisable only when the Fair Market Value per share of Common Stock subject to the Stock Appreciation Right and related Option exceeds the exercise price per share thereof and no Stock Appreciation Rights may be granted in tandem with an Option unless the Administrator determines that the requirements of Section 7.3(b)(i) are satisfied.

 

(e) Reduction in the Underlying Option Shares. Upon any exercise of a Stock Appreciation Right, the number of shares of Common Stock for which any related Option shall be exercisable shall be reduced by the number of shares for which the Stock Appreciation Right shall have been exercised. The number of shares of Common Stock for which a Stock Appreciation Right shall be exercisable shall be reduced upon any exercise of any related Option by the number of shares of Common Stock for which such Option shall have been exercised.

 

(f) Written Request. Unless otherwise determined by the Administrator in its sole discretion, Stock Appreciation Rights shall be settled in the form of Common Stock. If permitted in the Stock Appreciation Right’s Award Agreement, a Participant may request that any exercise of a Stock Appreciation Right be settled for cash, but a Participant shall not have any right to demand a cash settlement. A request for a cash settlement may be made only by a written request filed with the Corporate Secretary of the Company during the period beginning on the third business day following the date of release for publication by the Company of quarterly or annual summary statements of earnings and ending on the twelfth business day following such date. Within 30 days of the receipt by the Company of a written request to receive cash in full or partial settlement of a Stock Appreciation Right or to exercise such Stock Appreciation Right for cash, the Administrator shall, in its sole discretion, either consent to or disapprove, in whole or in part, such written request. A written request to receive cash in full or partial settlement of a Stock Appreciation Right or to exercise a Stock Appreciation Right for cash may provide that, in the event the Administrator shall disapprove such written request, such written request shall be deemed to be an exercise of such Stock Appreciation Right for shares of Common Stock.

 

(g) Disapproval by Administrator. If the Administrator disapproves in whole or in part any request by a Participant to receive cash in full or partial settlement of a Stock Appreciation Right or to exercise such Stock Appreciation Right for cash, such disapproval shall not affect such Participant’s right to exercise such Stock Appreciation Right at a later date, to the extent that such Stock Appreciation Right shall be otherwise exercisable, or to request a cash form of payment at a later date, provided that a request to receive cash upon such later exercise shall be subject to the approval of the Administrator. Additionally, such disapproval shall not affect such Participant’s right to exercise any related Option.

 

(h) Restrictions on Transfer. Stock Appreciation Rights and all rights with respect to such Awards may not be sold, assigned, transferred, pledged or otherwise encumbered.

 

(i) Additional Requirements under Section 409A. A Stock Appreciation Right that is not intended to or fails to satisfy the requirements of Section 7.3(b)(i) shall satisfy the requirements of this Section 7.3(i) and the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code, in accordance with Section 8 hereof. The requirements herein shall apply in the event any Stock Appreciation Right under this Plan is granted with an SAR exercise price less than Fair Market Value of the Common Stock underlying the Award on the date the Stock Appreciation Right is granted (regardless of whether or not such SAR exercise price is intentionally or unintentionally priced at less than Fair Market Value, or is materially modified at a time when the Fair Market Value exceeds the SAR exercise price), provides that it is settled in cash, or is otherwise determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code. Any such Stock Appreciation Right may provide that it is exercisable at any time permitted under the governing written instrument, but such exercise shall be limited to fixing the measurement of the amount, if any, by which the Fair Market Value of a share of Common Stock on the date of exercise exceeds the SAR exercise price (the “SAR Amount”). However, once the Stock Appreciation Right is exercised, the SAR Amount may only be paid on the fixed time, payment schedule or other event specified in the governing written instrument or in Section 8.1 hereof.

 

8. Additional Conditions Applicable to Nonqualified Deferred Compensation Under Section 409A of the Code.

 

In the event any Award under this Plan is granted with an exercise price less than Fair Market Value of the Common Stock subject to the Award on the Date of Grant (regardless of whether or not such exercise price is intentionally or unintentionally priced at less than Fair Market Value, or such Award is materially modified and deemed a new Award at a time when the Fair Market Value exceeds the exercise price), or is otherwise determined to constitute a 409A Award, the following additional conditions shall apply and shall supersede any contrary provisions of this Plan or the terms of any 409A Award agreement.

 

8.1 Exercise and Distribution. No 409A Award shall be exercisable or distributable earlier than upon one of the following:

 

(a) Specified Time. A specified time or a fixed schedule set forth in the written instrument evidencing the 409A Award, but not later than after the expiration of 10 years from the Date of Grant. If the written grant instrument does not specify a fixed time or schedule, such time shall be the date that is the fifth anniversary of the Date of Grant.

 

(b) Separation from Service. Separation from service (within the meaning of Section 409A of the Code) by the 409A Award recipient; provided, however, if the 409A Award recipient is a “key employee” (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s stock is publicly traded on an established securities market or otherwise, exercise or distribution under this Section 8.1(b) may not be made before the date which is six months after the date of separation from service.

 

(c) Death. The date of death of the 409A Award recipient.

 

(d) Disability. The date the 409A Award recipient becomes disabled (within the meaning of Section 8.4(b) hereof).

  

  

  

 

(e) Unforeseeable Emergency. The occurrence of an unforeseeable emergency (within the meaning of Section 8.4(c) hereof), but only if the net value (after payment of the exercise price) of the number of shares of Common Stock that become issuable does not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the exercise, after taking into account the extent to which the emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s other assets (to the extent such liquidation would not itself cause severe financial hardship).

 

(f) Change in Control Event. The occurrence of a Change in Control Event (within the meaning of Section 8.4(a) hereof), including the Company’s discretionary exercise of the right to accelerate vesting of such Award upon a Change in Control Event or to terminate the Plan or any 409A Award granted hereunder within 12 months of the Change in Control Event.

 

8.2 Term. Notwithstanding anything to the contrary in this Plan or the terms of any 409A Award agreement, the term of any 409A Award shall expire and such Award shall no longer be exercisable on the date that is the later of: (a) 2 1/2 months after the end of the Company’s taxable year in which the 409A Award first becomes exercisable or distributable pursuant to Section 8 hereof and is not subject to a substantial risk of forfeiture; or (b) 2 1/2 months after the end of the 409A Award recipient’s taxable year in which the 409A Award first becomes exercisable or distributable pursuant to Section 8 hereof and is not subject to a substantial risk of forfeiture, but not later than the earlier of (i) the expiration of 10 years from the date the 409A Award was granted, or (ii) the term specified in the 409A Award agreement.

 

8.3 No Acceleration. A 409A Award may not be accelerated or exercised prior to the time specified in Section 8 hereof, except in the case of one of the following events:

 

(a) Domestic Relations Order. The 409A Award may permit the acceleration of the exercise or distribution time or schedule to an individual other than the Participant as may be necessary to comply with the terms of a domestic relations order (as defined in Section 414(p)(1)(B) of the Code).

 

(b) Conflicts of Interest. The 409A Award may permit the acceleration of the exercise or distribution time or schedule as may be necessary to comply with the terms of a certificate of divestiture (as defined in Section 1043(b)(2) of the Code).

 

(c) Change in Control Event. The Administrator may exercise the discretionary right to accelerate the vesting of such 409A Award upon a Change in Control Event or to terminate the Plan or any 409A Award granted thereunder within 12 months of the Change in Control Event and cancel the 409A Award for compensation. In addition, the Administrator may exercise the discretionary right to accelerate the vesting of such 409A Award provided that such acceleration does not change the time or schedule of payment of such Award and otherwise satisfies the requirements of this Section 8 and the requirements of Section 409A of the Code.

 

8.4 Definitions. Solely for purposes of this Section 8 and not for other purposes of the Plan, the following terms shall be defined as set forth below:

 

(a) “Change in Control Event” means the occurrence of a change in the ownership of the Company, a change in effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company (as defined in Proposed Regulations § 1.409A-3(g)(5) and any subsequent guidance interpreting Code Section 409A). For example, a Change in Control Event will occur if:

 

(i) a person or more than one person acting as a group:

 

(A) acquires ownership of stock that brings such person’s or group’s total ownership in excess of 50% of the outstanding stock of the Company; or

 

(B) acquires ownership of 35% or more of the total voting power of the Company within a 12 month period; or

 

(ii) acquires ownership of assets from the Company equal to 40% or more of the total value of the Company within a 12 month period.

 

(b) “Disabled” means a Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering Employees.

 

(c) “Unforeseeable Emergency” means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty, or similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

 

9. Covenants of the Company.

 

9.1 Availability of Shares. During the terms of the Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Awards.

 

9.2 Securities Law Compliance. Each Award Agreement shall provide that no shares of Common Stock shall be purchased or sold thereunder unless and until (a) any then applicable requirements of state or federal laws and regulatory agencies shall have been fully complied with to the satisfaction of the Company and its counsel and (b) if required to do so by the Company, the Participant shall have executed and delivered to the Company a letter of investment intent in such form and containing such provisions as the Administrator may require. The Company shall use reasonable efforts to seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Awards and to issue and sell shares of Common Stock upon exercise of the Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Award or any Common Stock issued or issuable pursuant to any such Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Awards unless and until such authority is obtained.

 

10. Use of Proceeds from Stock.

 

Proceeds from the sale of Common Stock pursuant to Awards shall constitute general funds of the Company.

 

11. Miscellaneous.

 

11.1 Acceleration of Exercisability and Vesting. The Administrator shall have the power to accelerate the time at which an Award may first be exercised or the time during which an Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.

 

11.2 Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Award unless and until such Participant has satisfied all requirements for exercise of the Award pursuant to its terms and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such Common Stock certificate is issued, except as provided in Section 12.1 hereof.

 

11.3 No Employment or Other Service Rights. Nothing in the Plan or any instrument executed or Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (a) the employment of an Employee with or without notice and with or without Cause, (b) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (c) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

11.4 Transfer, Approved Leave of Absence. For purposes of the Plan, no termination of employment by an Employee shall be deemed to result from either (a) a transfer to the employment of the Company from an Affiliate or from the Company to an Affiliate, or from one Affiliate to another; or (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the Employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

  

  

  

 

11.5 Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Award, (a) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Award; and (b) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Award has been registered under a then currently effective registration statement under the Securities Act or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

 

11.6 Withholding Obligations. To the extent provided by the terms of an Award Agreement and subject to the discretion of the Administrator, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (a) tendering a cash payment; (b) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; (c) delivering to the Company previously owned and unencumbered shares of Common Stock of the Company or (d) by execution of a recourse promissory note by a Participant who is not a Director or executive officer. Unless otherwise provided in the terms of an Option Agreement, payment of the tax withholding by a Participant who is an officer, director or other “insider” subject to Section 16(b) of the Exchange Act by delivering previously owned and unencumbered shares of Common Stock of the Company or in the form of share withholding is subject to pre-approval by the Administrator, in its sole discretion. Any such pre-approval shall be documented in a manner that complies with the specificity requirements of Rule 16b-3, including the name of the Participant involved in the transaction, the nature of the transaction, the number of shares to be acquired or disposed of by the Participant and the material terms of the Award involved in the transaction.

 

11.7 Right of Repurchase. Each Award Agreement may provide that, following a termination of the Participant’s Continuous Service, the Company may repurchase the Participant’s unvested Common Stock acquired under the Plan as provided in this Section 11.7 (the “Right of Repurchase”). The Right of Repurchase for unvested Common Stock shall be exercisable at a price equal to the lesser of the purchase price at which such Common Stock was acquired under the Plan or the Fair Market Value of such Common Stock (if an Award is granted solely in consideration of past services without payment of any additional consideration, the unvested Common Stock shall be forfeited without any repurchase). The Award Agreement may specify the period of time following a termination of the Participant’s Continuous Service during which the Right of Repurchase may be exercised.

 

12. Adjustments Upon Changes in Stock.

 

12.1 Capitalization Adjustments. If any change is made in the Common Stock subject to the Plan, or subject to any Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), then (a) the aggregate number of shares of Common Stock or class of shares which may be purchased pursuant to Awards granted hereunder; (b) the aggregate number of shares of Common Stock or class of shares which may be purchased pursuant to Incentive Stock Options granted hereunder; (c) the number and/or class of shares of Common Stock covered by outstanding Options and Awards; (d) the maximum number of shares of Common Stock with respect to which Options may be granted to any single Optionholder during any calendar year; and (e) the exercise price of any Option in effect prior to such change shall be proportionately adjusted by the Administrator to reflect any increase or decrease in the number of issued shares of Common Stock or change in the Fair Market Value of such Common Stock resulting from such transaction; provided, however, that any fractional shares resulting from the adjustment shall be eliminated. The Administrator shall make such adjustments, and its determination shall be final, binding and conclusive. The conversion of any securities of the Company that are by their terms convertible shall not be treated as a transaction “without receipt of consideration” by the Company.

 

12.2 Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Awards shall terminate immediately prior to such event.

 

12.3 Change in Control—Asset Sale, Merger, Consolidation or Reverse Merger. In the event of a Change in Control, a dissolution or liquidation of the Company, or any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off, or a sale, in one or a series of related transactions, of all or substantially all of the assets of the Company; a merger or consolidation in which the Company is not the Surviving Entity; or a reverse merger in which the Company is the Surviving Entity, but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then the Company, to the extent permitted by applicable law, but otherwise in the sole discretion of the Administrator may provide for: (a) the continuation of outstanding Awards by the Company (if the Company is the Surviving Entity); (b) the assumption of the Plan and such outstanding Awards by the Surviving Entity or its parent; (c) the substitution by the Surviving Entity or its parent of Awards with substantially the same terms (including an award to acquire the same consideration paid to the stockholders in the transaction described in this Section 12.3) for such outstanding Awards and, if appropriate, subject to the equitable adjustment provisions of Section 12.1 hereof; (d) the cancellation of such outstanding Awards in consideration for a payment (in the form of stock or cash) equal in value to the Fair Market Value of vested Awards, or in the case of an Option, the difference between the Fair Market Value and the exercise price for all shares of Common Stock subject to exercise (i.e., to the extent vested) under any outstanding Option; or (e) the cancellation of such outstanding Awards without payment of any consideration. If such Awards would be canceled without consideration for vested Awards, the Participant shall have the right, exercisable during the later of the 10-day period ending on the fifth day prior to such merger or consolidation or 10 days after the Administrator provides the Award holder a notice of cancellation, to exercise such Awards in whole or in part without regard to any installment exercise provisions in the Option Agreement.

 

13. Amendment of the Plan and Awards.

 

13.1 Amendment of Plan. The Board at any time, and from time to time, may amend or terminate the Plan. However, except as provided in Section 12.1 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy any applicable law or any Nasdaq or securities exchange listing requirements. At the time of such amendment, the Board shall determine, upon advice from counsel, whether such amendment will be contingent on stockholder approval.

 

13.2 Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.

 

13.3 Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options or to the nonqualified deferred compensation provisions of Section 409A of the Code and/or to bring the Plan and/or Awards granted under it into compliance therewith.

 

13.4 No Impairment of Rights. Rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing. However, a cancellation of an Award where the Participant receives a payment equal in value to the Fair Market Value of the vested Award or, in the case of vested Options, the difference between the Fair Market Value and the exercise price, shall not be an impairment of the Participant’s rights that requires consent of the Participant.

 

13.5 Amendment of Awards. The Administrator at any time, and from time to time, may amend the terms of any one or more Awards; provided, however, that the Administrator may not effect any amendment which would otherwise constitute an impairment of the rights under any Award unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing. For the avoidance of doubt, the cancellation of a vested Award where the Participant receives a payment equal in value to the Fair Market Value of the vested Award or, in the case of vested Options, the difference between the Fair Market Value of the Common Stock underlying the Option and the aggregate exercise price, shall not be an impairment of the Participant’s rights that requires consent of the Participant.

 

14. General Provisions.

 

14.1 Other Compensation Arrangements. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

 

14.2 Recapitalizations. Each Award Agreement shall contain provisions required to reflect the provisions of Section 12.1.

 

14.3 Delivery. Upon exercise of a right granted pursuant to an Award under this Plan, the Company shall issue Common Stock or pay any amounts due within a reasonable period of time thereafter. Subject to any statutory or regulatory obligations the Company may otherwise have, for purposes of this Plan, 30 days shall be considered a reasonable period of time.

 

14.4 Other Provisions. The Award Agreements authorized under the Plan may contain such other provisions not inconsistent with this Plan, including, without limitation, restrictions upon the exercise of the Awards, as the Administrator may deem advisable.

  

  

  

 

14.5 Cancellation and Rescission of Awards for Detrimental Activity.

 

(a) Upon exercise, payment or delivery pursuant to an Award, the Participant shall certify in a manner acceptable to the Company that the Participant has not engaged in any Detrimental Activity described in Section 2.19.

 

(b) Unless the Award Agreement specifies otherwise, the Administrator may cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid or deferred Awards at any time if the Participant engages in any Detrimental Activity described in Section 2.19.

 

(c) In the event a Participant engages in Detrimental Activity described in Section 2.19 after any exercise, payment or delivery pursuant to an Award, during any period for which any restrictive covenant prohibiting such activity is applicable to the Participant, such exercise, payment or delivery may be rescinded within one year thereafter. In the event of any such rescission, the Participant shall pay to the Company the amount of any gain realized or payment received as a result of the exercise, payment or delivery, in such manner and on such terms and conditions as may be required by the Company. The Company shall be entitled to set-off against the amount of any such gain any amount owed to the Participant by the Company.

 

14.6 Disqualifying Dispositions. Any Participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years from the Date of Grant of such Incentive Stock Option or within one year after the issuance of the shares of Common Stock acquired upon exercise of such Incentive Stock Option shall be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Common Stock.

 

15. Market Stand-Off.

 

Each Option Agreement and Award Agreement shall provide that, in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, the Participant shall agree not to sell, make any short sale of, loan, hypothecate, pledge, grant any option for the repurchase of, transfer the economic consequences of ownership or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to any Common Stock without the prior written consent of the Company or its underwriters, for such period of time from and after the effective date of such registration statement as may be requested by the Company or such underwriters (the “Market Stand-Off”). In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the shares of Common Stock acquired under this Plan until the end of the applicable stand-off period. If there is any change in the number of outstanding shares of Common Stock by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification, dissolution or liquidation of the Company, any corporate separation or division (including, but not limited to, a split-up, a split-off or a spin-off), a merger or consolidation; a reverse merger or similar transaction, then any new, substituted or additional securities which are by reason of such transaction distributed with respect to any shares of Common Stock subject to the Market Stand-Off, or into which such shares of Common Stock thereby become convertible, shall immediately be subject to the Market Stand-Off.

 

16. Effective Date of Plan.

 

The Plan became effective as of the Effective Date. No Award granted on or after the Effective Date may be exercised (or, in the case of a stock Award, may be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.

 

17. Termination or Suspension of the Plan.

 

The Plan shall terminate automatically on the day before the 10th anniversary of the Effective Date. No Award shall be granted pursuant to the Plan after such date, but Awards theretofore granted may extend beyond that date. The Board may suspend or terminate the Plan at any earlier date pursuant to Section 13.1 hereof. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

 

18. Choice of Law.

 

The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of law rules.

 

19. Execution.

 

To record the adoption of the Plan by the Board, the Company has caused its authorized officer to execute the Plan as of the date specified below.

 

[SIGNATURE PAGE FOLLOWS]

  

  

  

IN WITNESS WHEREOF, upon authorization of the Board of Directors, the undersigned has caused the Bronco Drilling Company, Inc. 2006 Stock Incentive Plan to be executed effective as of the 9th day of June, 2006 (subsequently amended with stockholder approval effective as of the 10th day of December 2010).

 

BRONCO DRILLING COMPANY, INC.

By: /s/ D. FRANK HARRISON 

D. Frank Harrison,

Chief Executive Officerex10-1.htm

 

 

Exhibit 10.1

 

 

SEPARATION AGREEMENT

 

This Separation Agreement and General Release (this "Agreement") is entered into by and between Robert E. Harrison (the "Executive") and Alliance One International, Inc. (the "Company"), effective as of December 14, 2010 (the "Effective Date").

 

W I T N E S S E T H:

 

WHEREAS, the Executive is employed by the Company as its President and Chief Executive Officer pursuant to the Amended and Restated Employment Agreement made effective as of December 31, 2008, by and between the Company and the Executive (the "Employment Agreement"), a copy of which is attached hereto as Exhibit 1;

 

WHEREAS, the Executive is also a member of the Company's Board of Directors;

 

WHEREAS, subject to the terms and conditions of this Agreement, the Executive shall resign from all positions with the Company and any of its subsidiaries or affiliates and with the Company's Board of Directors as of the Effective Date; and

 

WHEREAS, the Executive and the Company desire to settle fully and finally any differences, rights and duties arising between them in an amicable fashion.

 

NOW, THEREFORE, in consideration of the covenants, releases, representations and mutual promises herein contained, and for other good and valid consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, it is agreed as follows:

 

1.         Resignation.  In accordance with the terms and conditions of this Agreement, the Executive and the Company have mutually agreed that, as of the Effective Date, the Executive shall resign from his position as President and Chief Executive Officer of the Company any other positions he may hold with the Company and any of its subsidiaries or affiliates, and with the Company's Board of Directors.  The Executive agrees to execute such documents and take such actions as may be necessary or desirable to further effectuate the foregoing.  Except as otherwise provided herein, all of the Executive's rights under the Employment Agreement shall terminate as of the Effective Date.

 

2.         Accrued Payments And Benefits.  Regardless of whether the Executive signs this Agreement, the Executive will be provided with:

 

(a)           an amount of $25,685 representing all earned, but unpaid salary payable to the Executive through the Effective Date, at the annualized rate of $682,500 (the "Base Salary"), to be paid in accordance with the Company's customary payroll procedures;

 

(b)           in accordance with Company policy and after submission of appropriate documentation to the Company, the Executive will be reimbursed for any reasonable business expenses the Executive incurred through the Effective Date; and

 

  

  

  

 

(c)           any vested amounts payable to the Executive under the Alliance One Savings and Profit Sharing Plan, the Alliance One International Inc. Supplemental Retirement Account Plan, the Alliance One International Inc. Pension Plan and the Standard Commercial Corporation Supplemental Executive Retirement Plan, in accordance with the terms of such plans and applicable law and in the amounts set forth in Exhibit 2.

 

3.         Separation Payments And Benefits.  In consideration of the Executive's execution of and compliance with the terms and conditions set forth in this Agreement, the Company agrees to provide the Executive with the following payments and benefits:

 

(a)           an amount of $31,190 representing the Executive's Base Salary from the Effective Date until the December 31, 2010 pursuant to Article 12.1 of the Employment Agreement, to be paid prior to December 31, 2010;

 

(b)           an amount of $112,192 representing sixty (60) days of the Executive's Base Salary in lieu of notice pursuant to Article 3.2 of the Employment Agreement, to be paid on February 14, 2011 or within four (4) business days thereafter;

 

(c)           an amount of $3,165,876 representing the Executive's severance payment pursuant to Article 12.2(a) of the Employment Agreement, to be paid on February 14, 2011 or within four (4) business days thereafter;

 

(d)           if the Company pays bonuses for the 2011 fiscal year under the 2011 Management Incentive Plan, a pro rata bonus for the 2011 fiscal year, as determined by the Board's Committee on Executive Compensation pursuant to Article 4.2(b) of the Employment Agreement, to be calculated according to Article 4.2(b) of the Employment Agreement and any such bonus shall be paid by June 15, 2011 or on or about the date that the Company pays 2011 fiscal year bonuses to other executives under the 2011 Management Incentive Plan;

 

(e)           reimbursement of reasonable attorney's fees incurred by the Executive in the negotiation, analysis and preparation of this Agreement pursuant to Article 15 of the Employment Agreement, in an amount not to exceed $25,000, to be paid within sixty (60) days following submission of appropriate documentation to the Company but no later than the last day of the Executive's taxable year following the taxable year in which the expense was incurred;

 

(f)           the Executive acknowledges and agrees that the Executive has no restricted stock awards;

 

(g)           Performance-Based Stock Units; Restricted Stock Units; Performance Shares.

 

	
  

	
(i)

	
The Executive acknowledges and agrees that all of the 300,000 performance-based stock units granted to him on or about October 18, 2010, under the Amended and Restated Alliance One International, Inc. 2007 Incentive Plan (the "2007 Incentive Plan") are forfeited on the Effective Date, and that the Executive shall not be entitled to any payment or benefit with respect to such performance-based stock units.

 

  

2

  

 

	
  

	
(ii)

	
In full satisfaction of its obligations with respect to the 190,000 restricted stock units granted to the Executive on or about October 18, 2010, under the 2007 Incentive Plan, the Company shall pay to the Executive on February 14, 2011, or within four (4) business days thereafter, an amount of $43,491.  The Executive shall not be entitled to any other payment or benefit with respect to such restricted stock units.

 

	
  

	
(iii)

	
The performance shares granted to the Executive under the 2007 Incentive Plan, pursuant to the Performance Share Award Agreements between the Company and the Executive, dated June 18, 2009, and August 6, 2009, are forfeited on the Effective Date, and that the Executive shall not be entitled to any payment or benefit with respect to such performance shares.

 

(h)           stock options held by the Executive and outstanding on the Effective Date with an exercise price equal to or less than the fair market value of the underlying shares on the close of business on the Effective Date shall be vested and remain exercisable until 24 months following the Effective Date or, if sooner, the date the options expire pursuant to Article 4.3 of the Employment Agreement.  The Executive acknowledges and agrees that Exhibit 2 contains a complete list of all outstanding stock options as of the Effective Date.  Any stock options held by the Executive and outstanding on the Effective Date that have not vested in accordance with this Section (h), and any stock options held by the Executive and outstanding on the Effective Date that have an exercise price greater than the fair market value of the underlying shares as of the close of business on the Effective Date, will be cancelled as of the Effective Date without consideration; and

 

(i)           notwithstanding that the Executive has not satisfied the vesting requirements under the Alliance One International Inc. Supplemental Executive Retirement Plan (as amended and restated effective January 1, 2009) (the "AOI SERP") as of the Effective Date, the Executive shall be deemed to have satisfied the vesting requirements of Section 4.01 of the AOI SERP as of the Effective Date.  Any amounts due to Executive under the AOI SERP will be payable in accordance with and subject to the terms of Exhibit 3, the AOI SERP and applicable law.

 

4.         Additional Payments And Benefits Subject To Supplemental Release.  In accordance with the terms and conditions set forth in the supplemental release of claims  provided to the Executive simultaneously with this Agreement (the "Supplemental Release"), if the Supplemental Release is executed by the Executive (and not revoked pursuant to its terms) the Executive shall have the ability to receive the additional payments and benefits specified therein.

 

5.         Withholdings:  Any amount payable to the Executive will be less all applicable federal, state and local withholding taxes and any other authorized or legally required deductions.

 

  

3

  

 

6.         Waiver and Release.

 

(a)           The Executive, on behalf of himself and his successors, assigns, executors and administrators, voluntarily, knowingly and willingly releases and forever discharges the Company, together with its past and present parents, subsidiaries, and affiliates, together with each of their officers, directors, stockholders, partners, employees, agents, representatives, attorneys and advisors and each of their subsidiaries, affiliates, estates, predecessors, successors, and assigns (collectively, the "Releasees") from any and all rights, claims, charges, actions, causes of action, complaints, sums of money, suits, debts, covenants, contracts, agreements, promises, obligations, damages, demands or liabilities of every kind whatsoever, in law or in equity, whether known or unknown, suspected or unsuspected (collectively, "Claims") which the Executive or the Executive's executors, administrators, successors or assigns ever had, now has or may hereafter claim to have by reason of any matter, cause or thing whatsoever:  (i) arising from the beginning of time up to the Effective Date under any federal, state or local statute, constitution, law or regulation, including, without limitation, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Sarbanes-Oxley Act of 2002, the Worker Adjustment and Retraining Notification Act, the Rehabilitation Act of 1973, Executive Order 11246, the Family and Medical Leave Act of 1993, the Genetic Information Nondiscrimination Act, the North Carolina Retaliatory Employment Discrimination Act, North Carolina Equal Employment Practices Act, the North Carolina Persons With Disabilities Protection Act and the North Carolina Wage and Hour Act; (ii) relating to the Executive's hiring, employment or cessation of employment with the Company or any of the Releasees, as well as the circumstances thereof; and/or (iii) arising under or relating to any policy, agreement, understanding or promise, written or oral, formal or informal, between the Company and any of the Releasees and the Executive existing as of the Effective Date, including, but not limited to, the Employment Agreement.  This Section 6(a) does not waive or attempt to waive (1) any Claims that the Executive may have under the Age Discrimination in Employment Act or the Older Workers Benefit Protection Act (which are covered by the Supplemental Release); (2) any Claims that cannot legally be waived; (3) any rights the Executive may have to file a charge of discrimination with a federal or state administrative agency; provided, however, that the Executive acknowledges and agrees that, the Executive is not entitled to any personal recovery in any such agency proceedings; (4) any Claims the Executive may have under this Agreement; and (5) any Claims the Executive may have to indemnification pursuant to Article 18 of the Employment Agreement.

 

(b)            For the purpose of implementing a full and complete release, the Executive understands and agrees that this release of claims is intended to include all Claims, if any, which the Executive may have and which the Executive does not now know or suspect to exist in the Executive's favor against the Releasees and that this Agreement extinguishes those claims.  Accordingly, the Executive expressly waives all rights afforded by any federal, state or local statute, constitution, law or regulation prohibiting, limiting, or restricting the waiver of unknown claims.

 

(c)           By signing this Agreement, the Executive represents and warrants that as of the Effective Date, the Executive has not commenced or joined in any Claim

 

  

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whatsoever against any of the Releasees arising out of or relating to any of the matters set forth in this Section.

 

(d)           The Company, on behalf of itself and its successors and assigns, voluntarily, knowingly and willingly releases and forever discharges the Executive from any and all Claims which the Company or the Company's successors or assigns ever had, now has or may hereafter claim to have by reason of any matter, cause or thing whatsoever:  (i) arising from the beginning of time up to the Effective Date under any federal, state or local statute, constitution, law or regulation; (ii) relating to the Executive's hiring, employment or cessation of employment with the Company; and/or (iii) arising under or relating to any policy, agreement, understanding or promise, written or oral, formal or informal, between the Company and the Executive existing as of the Effective Date, including, but not limited to, the Employment Agreement.  This Section 6(d) does not waive or attempt to waive (1) any Claims that the Company may have against the Executive relating to fraudulent conduct or willful misconduct; (2) any Claims that cannot legally be waived; or (3) any Claims the Company may have under this Agreement.

 

7.         No Further Rights Or Benefits.  The Executive acknowledges and agrees that, other than as specifically provided above in this Agreement or the Supplemental Release, the Executive is not entitled to any compensation, rights or amounts under the Employment Agreement or any contract, plan, policy or practice, past or present, of the Company or any of the other Releasees.  Except as set forth in this Agreement, the Executive acknowledges and agrees that as of the Effective Date, the Executive shall not be eligible to participate or continue to participate in any employee benefit plans or compensation arrangements of the Company or any of the other Releasees or otherwise be entitled to any perquisite or fringe benefit.

 

8.         Continuing Obligations.

 

(a)           The Executive acknowledges and agrees that the obligations set forth in the following Articles of the Employment Agreement shall continue in full force and effect after the Effective Date:  13.1 (Assistance in Litigation); 13.2 (Confidential Information); 13.4 (Nonsolicitation); 13.6 (Return of Company Property); and 13.7 (Failure To Comply).

 

(b)           Nondisparagement.

 

	
  

	
(i)

	
The Executive shall not make any statements that denigrate or disparage the Company, its employees or its Board to the media or financial analysts.

 

	
  

	
(ii)

	
The Company will not authorize any statements that denigrate or disparage the Executive to the media or financial analysts.  If the Executive becomes aware of any such statements, the Executive will bring them to the attention of the Company and the Company will take reasonable steps to address them.

 

(c)           Noncompetition.  The Executive shall not:  (i) prior to the Effective Date and for the three-year period following the Effective Date, and within the Territory (as defined below) without the prior written consent of the Company, compete with the Company by engaging, directly or indirectly, as a licensee, owner, manager, consultant, officer, employee, director, investor or otherwise, in any business activities (a) that directly compete with

 

  

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the business activities of the Company, whether for a competitor of the Company or for an entity whose internal business activities include or propose to include the business activities engaged in by the Company, (b) for any cigarette manufacturer, or (c) for any entity which engages in business activities in the sourcing, processing and/or marketing of tobacco leaf products or other value added tobacco products and services, including but not limited to, the production of Cut Rag, expanded tobacco products, toasting and blending services or seed research and supply; or (ii) usurp for his own benefit any corporate opportunity under consideration by the Company during his employment, unless the Company shall have finally decided not to take advantage of such corporate opportunity.  The restrictions of part (i) of this paragraph shall not apply to a passive investment by the Executive constituting ownership of less than five percent (5%) of the equity of any entity engaged in any business described in part (i) of this paragraph.  The Executive acknowledges that the possible restrictions on his activities which may occur as a result of his compliance with his obligations under this paragraph are required for the reasonable protection of the Company's legitimate business interests, do not unduly restrict his ability to earn a livelihood in his chosen field of employment, and do not otherwise impose an undue hardship on him.  The Executive also acknowledges that if he were to engage in any business activity covered by part (i) of this paragraph, the Company would suffer an unfair competitive disadvantage because the disclosure of the Company's confidential and proprietary information would be inevitable given the Executive's career with the Company, and his extensive unique and intimate knowledge of such information and of the Company's business.  The Executive further acknowledges and agrees that the time, territory and scope of activities prohibited by the provisions of this paragraph, including the possible worldwide reach of the non-competition provisions, are reasonable and necessary for protection of the Company's legitimate business interests in view of the unique nature of the Company's business, its competitive position as one of the only companies engaged in such business in a worldwide market, the Executive's high-level position with the Company prior to the Effective Date, the limited time period of the non-competition provisions, and the unique and intimate knowledge of the Company's business, its confidential and proprietary information and the special needs and preferences of its customers and suppliers the Executive has acquired during and as a result of his employment with the Company in a high-level position, all of which would give the Executive an unfair competitive advantage against the Company if the Executive were to breach the non-competition provisions anywhere within the Territory.  For purposes of this paragraph, "Territory" means the geographic areas and locations where the Company and its affiliates carry on or transact their business, the Company and its affiliates sell or market their products or services, and the Company or its affiliates' customers are located, including without limitation (A) the world, (B) Africa, Asia, Europe, North America and South America, (C) each of the countries in Africa, Asia, Europe, North America and South America, respectively, as if listed individually herein, (D) Brazil, (E) the United States of America, (F) each of the states of the United States of America as if listed individually herein, (G) the State of North Carolina, (H) the Commonwealth of Virginia, (I) each county within the State of North Carolina as if listed individually herein, (J) each county within the Commonwealth of Virginia as if listed individually herein, (K) the territory within a 100 mile radius of the Company's office in Morrisville, North Carolina, and (L) the territory within a 100 mile radius of each other office of the Company or any affiliate (whether now existing or hereafter established) as if listed individually herein.  The Executive acknowledges and agrees that Article 13.7 (Failure To Comply) of the Employment Agreement shall be expanded to include the obligations set forth in this Section (c).

 

  

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9.         Confidentiality of Agreement.  Subject to Section 10 below, the Executive agrees that this Agreement and its terms and conditions are confidential and that the Executive will not disclose the existence or terms of this Agreement to any third parties, other than to the Executive's spouse, attorney, accountant, financial advisor or as required by law or may be necessary to enforce this Agreement.  Any disclosure to the Executive's spouse, attorney, accountant or financial advisor shall be conditioned on his or her agreement to keep this Agreement and its terms and conditions confidential and to not disclose the existence or terms of this Agreement to any other third parties.

 

10.       Responding to Legal Process.  Nothing in this Agreement shall prohibit the Executive from responding to a valid subpoena, court order or similar legal process; provided, however, that prior to the Executive responding to a valid subpoena, court order or similar legal process which may require the disclosure of confidential information, the Executive shall provide the Company with written notice of the subpoena, court order or similar legal process sufficiently in advance of such disclosure to afford such entity a reasonable opportunity to challenge the subpoena, court order or similar legal process.

 

11.       Entire Agreement.  Except as specifically provided herein, this Agreement and the Supplemental Release constitute the complete, final and exclusive embodiment of the entire agreement between the Executive and the Company with regard to their subject matter.  It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations.  This Agreement may not be modified or amended except in a writing signed by both the Executive and a duly authorized officer of the Company.  This Agreement shall bind the heirs, personal representatives, successors and assigns of both the Executive and the Company, and inure to the benefit of both the Executive and the Company, their heirs, successors and assigns.

 

12.       Representations.  The Executive acknowledges and agrees that, if the Executive chooses to sign this Agreement, that it is executed voluntarily and without any duress or undue influence on the part of the Company.  The Executive further acknowledges that:  (a) the Company has advised Executive of Executive's right to consult with an attorney prior to executing this Agreement and that he has availed himself of this right; (b) Executive has carefully read and fully understands all of the provisions of this Agreement; (c) Executive is entering into this Agreement, including the releases set forth in Section 6 of this Agreement, knowingly, freely and voluntarily in exchange for good and valuable consideration; and (d) Executive has the full power, capacity and authority to enter into this Agreement.

 

13.       No Admission of Wrongdoing.  The parties understand and acknowledge that this Agreement constitutes a compromise and settlement of any and all potential disputed claims.  No action taken by the parties, either previously or in connection with this Agreement, shall be deemed or construed to be:  (a) an admission of the truth or falsity of any potential Claims; or (b) an acknowledgment or admission by any party of any fault, improper conduct or liability whatsoever to the other party or to any third party.

 

14.       Reformation and Severability.  It is the intent of the Executive and the Company that the provisions of this Agreement be enforced to the fullest extent permitted by law.

 

  

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In case any provision of this Agreement shall be declared by a court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable as written, the Executive and the Company agree that the court or arbitrator shall modify and reform such provision to permit enforcement to the greatest extent permitted by law.  In addition, if any provision of this Agreement shall be declared invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall in no way be affected or impaired thereby.

 

15.       Governing Law.  This Agreement shall be deemed to have been entered into and shall be construed and enforced in accordance with the laws of the State of North Carolina without regard to its conflicts of law principles.  In the event a dispute arises out of or pertains to this Agreement, the Executive and the Company agree to use reasonable efforts to resolve such dispute through negotiation.  In the event such dispute cannot be settled through negotiation, the parties agree that any action or proceeding instituted with respect thereto shall be commenced and maintained in accordance with the arbitration provision pursuant to Article 24.2 of the Employment Agreement, or as applicable, the Failure To Comply provision pursuant to Article 13.7 of the Employment Agreement.

 

16.       Tax Advice and Information.  The Executive acknowledges that neither of the Company or any of their representatives have provided the Executive with any tax advice or tax-related representations concerning the payments provided for in this Agreement or any other aspect of this Agreement.  Further, the Executive understands and agrees that the Executive should consult the Executive's own tax advisor(s) for any such tax advice or information.  The parties acknowledge and agree that:  the form and timing of the payments and benefits to be provided pursuant to this Agreement are intended to be exempt from or to comply with one or more exceptions to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations thereunder ("Section 409A"), including the requirement for a six-month suspension on payments to "specified employees" as defined in Section 409A that are not otherwise permitted to be paid within the six-month suspension period.  Notwithstanding any provision of this Agreement to the contrary, neither the Company nor any of the other Releasees represent or warrant the tax treatment under any federal, state, local, or foreign laws or regulations thereunder (individually and collectively referred to as the "Tax Laws") of any payment or benefits contemplated by this Agreement including, but not limited to, when and to what extent such payments or benefits may be subject to tax, penalties and interest under the Tax Laws.

 

17.       Miscellaneous.  The title and captions used in this Agreement are for convenience only and are not to be construed in interpreting this Agreement.  This Agreement and the provisions contained in it shall not be construed or interpreted for or against either party because that party drafted or caused that party's legal representative to draft any of its provisions.  This Agreement may be executed simultaneously in counterparts, each of which shall be an original, but all of which shall constitute but one and the same agreement.  Facsimile or electronic copies of this Agreement shall be of the same force and effect as the original.

 

18.       Notices.  All notices, requests and other communications to any party under this Agreement shall be in writing and sent by personal delivery or overnight courier to the address provided below as well as by facsimile transmission if such information is provided below:

 

  

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(a)       If to the Executive:

 

Robert E. Harrison

7300 Haymarket Lane

Raleigh, North Carolina 27615

With a copy to:

Michael P. Bentzen

Hughes & Bentzen, PLLC

1100 Connecticut Ave. NW

Suite 340

Washington, D.C. 20036

Fax Number:  (202) 293-8973

 

(b)       If to the Company

 

Alliance One International, Inc.

Attention:  Robert A. Sheets, EVP, CFO and CAO

8001 Aerial Center Parkway

P.O. Box 2009

Morrisville, North Carolina 27560

Fax Number:  (919) 379-4132

With a copy to:

John P. Furfaro

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036-6522

Fax Number:  (917) 777-2624

And with a copy to:

Susanna Knutson Gibbons

Poyner Spruill LLP

301 Fayetteville Street

Suite 1900

Raleigh, NC 27601

Fax Number:  (919) 783-1075

 

19.       Attorney Fees.  In the event of the institution of legal proceedings to enforce this Agreement pursuant to Section 15 or otherwise relating to the Executive's employment, the prevailing party shall, in addition to any other right or remedy, be entitled to reimbursement of such party's reasonable attorneys' fees and expenses associated with any Claim upon which such party prevails, including, but not limited to, the dismissal of any Claim, mediation, arbitration, or a final determination by a court after which time for any appeal has lapsed.

 

  

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IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of the date indicated below.

 

 

Alliance One International, Inc.

 

 

	
By:

	
/s/ Robert A Sheets

	 
	
Name:

	
Robert A Sheets

	 
	
Title:

	
Executive Vice President &

	 
	  	
Chief Financial Officer

	 

 

 

	
/s/ Robert E Harrison

	  	  
	
Robert E. Harrison

	  	  

	
Date:

	
  12/14/10

	  

 

 

  

10

  

EXHIBIT 1

 

 

Employment Agreement

 

  

  

  

EXHIBIT 10.2

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), made effective as of December 31, 2008, by and between ALLIANCE ONE INTERNATIONAL, INC., a Virginia Corporation (the “Company”), and ROBERT E. HARRISON (the “Executive”).

 

R E C I T A L S:

 

The Company the Executive are parties to that certain Employment Agreement dated November 7, 2004 (the “Original Agreement”).  The Company and the Executive have concluded that the Original Agreement should be amended in accordance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).  Accordingly, the Company and the Executive desire to amend and restate the Original Agreement as set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and obligations herein and the compensation the Company agrees herein to pay the Executive, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:

ARTICLE 1

 

EMPLOYMENT OF EXECUTIVE

 

Subject to the terms and conditions set forth in this Agreement, the Company hereby employs the Executive and the Executive hereby accepts such employment for the period stated in ARTICLE 3 of this Agreement.

 

ARTICLE 2

 

POSITION, RESPONSIBILITIES AND DUTIES

 

2.1.           Position and Responsibilities. During the Term (as defined in Section 3.1), the Executive shall serve as the President and Chief Executive Officer of the Company on the conditions herein provided. The Executive shall provide such executive services in the management of the Company’s business not inconsistent with his position and the provisions of Section 2.2 as shall be assigned to him from time to time by the Board and shall report to the Board.

 

2.2.           Duties. In addition to having the responsibilities described in Section 2.1, during the Term the Executive shall also serve, if elected, as a director of the Company or as an officer or director of any subsidiary or affiliate of the Company. During the Term and except for illness, reasonable vacation periods, and reasonable leaves of absence, the Executive shall devote his full business time, attention, skill, energies and efforts to the faithful performance of his duties hereunder and to the business and affairs of the Company and any subsidiary or affiliate of the Company and shall not during the Term be employed in any other business activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage; provided, however, that (i) with the approval of the Board, the Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or organizations, which, in the Board’s judgment, will not present any conflict of interest with the Company or any of its subsidiaries or affiliates or divisions, or materially affect the performance of the Executive’s duties pursuant to this Agreement and (ii) the Executive shall not be prevented from investing his personal assets in any business which does not compete with the Company or with any subsidiary or

 

  

  

  

 

affiliate of the Company, where the form or manner of such investment will not require substantial services on the part of the Executive in the operation of the business in which such investment is made. Notwithstanding the foregoing, the duties of the Executive shall not be expanded without the Executive’s prior approval.

 

ARTICLE 3

 

TERM

 

3.1.           Term of Employment. The term of the Executive’s employment (the “Initial Term”) under this Agreement shall commence effective as of December 31, 2008 (the “Effective Date”), and shall continue until the earliest to occur of the following dates (the “Termination Date”): (i) May 13, 2010; (ii) the date of death of the Executive; (iii) the date coinciding with the end of one hundred eighty (180) days of continuous “Total Disability” (as defined in Section 7.4) of the Executive (the “Disability Period”); (iv) the specified date of Executive’s separation from service under the Notice Exception (as defined in Section 3.2); (v) the date of Executive’s separation from service under the Cause Exception (as defined in Section 3.3); or (vi) the date the Executive separates from service for Good Reason (as defined in Section 3.4). In the event that the Initial Term shall expire on account of the terminating event described in subparagraph (i) of this Section 3.1, then, notwithstanding the provisions of subparagraph (i) of this Section 3.1, the Initial Term shall be extended automatically, without any further action by the Company or the Executive for successive one-year periods (each, an “Extension Period”) following the expiration of the Initial Term (by reason of the terminating event described in subparagraph (i) of this Section 3.1) or any succeeding one-year Extension Period (except as otherwise provided in this Section 3.1). If either party hereto desires for the Term to expire at the end of the Initial Term or at the end of any succeeding one-year Extension Period, such party shall give written notice of such desire to the other party at least one year before the expiration of the Initial Term or the Extension Period, as applicable. All references herein to the term of the Executive’s employment (the “Term”) shall refer to the Initial Term and shall include any Extension Period.

 

3.2.           Termination by Giving Notice. If the Company desires to terminate the Executive’s employment without Cause prior to the expiration of the Term or if the Executive desires to separate from service without Good Reason prior to the expiration of the Term, such party shall give not less than sixty (60) days’ written notice of such desire to the other party specifying the date on which the separation from service will occur (the “Notice Exception”). Notwithstanding the foregoing, the Notice Exception shall not be effected by the Company while the Executive is Totally Disabled as provided in ARTICLE 7.

 

3.3.           Termination for Cause; Automatic Termination. Subject to the requirements of Section 3.5 of this Agreement, the Company shall at all times have the right to discharge the Executive for Cause. For purposes of this Agreement, the term “Cause” shall be limited to one or more of the following: (i) the Executive’s failure or refusal to perform his material duties, responsibilities and obligations; (ii) any act of fraud, misappropriation of funds, material dishonesty, theft or embezzlement by the Executive affecting the Company; (iii) the Executive’s conviction of a felony or a plea of nolo contendere to a felony; (iv) the Executive’s willful gross neglect or misconduct resulting in material harm to the Company’s financial condition or reputation or (v) the Executive’s breach of his covenants in ARTICLE 13 (the “Cause Exception”).

 

Notwithstanding the foregoing, if the Company desires to discharge the Executive for the reason described in subparagraph (i) of this Section 3.3 (a “Policy Infraction”), it shall give notice to the Executive as provided in Section 3.5 and the Executive shall have thirty (30) days after notice has been given to him in which to cure the Policy Infraction. If the Policy Infraction is timely cured by the Executive, the Company’s notice shall become null and void. For purposes of this Agreement, Cause shall not include the Executive’s Total Disability (as defined in Section 7.4).

 

3.4.           Good Reason. Subject to the requirements of Section 3.5 of this Agreement, the

 

  

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Executive may separate from service at any time for Good Reason (as defined in this Section 3.4). If the Executive desires to separate from service for Good Reason, he shall give notice to the Company as provided in Section 3.5. For purposes of this Section 3.4, separation from service for “Good Reason” shall mean any of the following:

 

(a)           The Executive’s voluntary separation from service with the Company on account of and within six (6) months following a material diminution or material adverse change by the Board of the duties, functions, responsibilities and authority of the Executive in the position or positions identified in section 2.1 without his consent, if such diminution or change is not cured within thirty (30) days after notice has been given to the Company by the Executive; or

 

(b)           The Executive’s voluntary separation from service with the Company on account of and within six (6) months following any material breach of a provision of this Agreement by the Company, if such breach is not cured within thirty (30) days after notice has been given to the Company by the Executive. Without limiting the generality of the foregoing sentence, the Company shall be in material breach of its obligations hereunder if, for example, the Company shall not permit the Executive to exercise such responsibilities as are consistent with the Executive’s position as President and Chief Executive Officer, or assign the Executive duties that are inconsistent with such positions and are of such a nature as are usually associated with the positions of president and chief executive officer of a corporation engaged in substantially the same business as the Company, or the Executive shall at any time be required to report to anyone other than directly to the Company’s Board as provided in Section 2.1, or the Company shall fail to make a payment when due to the Executive; or

 

(c)           The Executive’s voluntary separation from service with the Company on account of and within six (6) months following a material reduction in the Executive’s Base Salary, annual incentive opportunity or aggregate benefit levels without his consent, if such reduction is not cured within thirty (30) days after notice has been given to the Company by the Executive;

 

(d)           The Executive’s voluntary separation from service with the Company on account of and within six (6) months following the Company’s failure to obtain the written assumption of this Agreement in accordance with ARTICLE 26 on or before the consummation of a transaction described in ARTICLE 26, if such failure is not cured within thirty (30) days after notice has been given to the Company or the Successor Corporation, as appropriate; or

 

(e)           The Executive’s voluntary separation from service with the Company on account of and within six (6) months following the failure of the Company’s shareholders to reelect the Executive as a member of the Board, if such failure is not cured within thirty (30) days after notice has been given to the Company by the Executive.

 

If the reason for the Executive’s desire to separate from service for Good Reason as defined in this Section 3.4 is timely cured by the Company (or the Successor Corporation, if appropriate), the Executive’s notice shall become null and void.

 

3.5.           Notice of Termination. Any termination by the Company under the Cause Exception or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto. For purposes of Sections 3.3 and 3.4, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) sets forth the date the separation from service will occur (subject to the other party’s right to cure such facts and circumstances, if applicable).

 

(a)           If the Executive’s employment is terminated by reason of neglect or misconduct pursuant to clause (iv) of Section 3.3, the Executive’s separation from service shall be not less than thirty (30) days nor more than forty-five (45) days after the receipt of the Notice of Termination by the Executive.

 

  

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(b)           If the Executive desires to separate from service for Good Reason pursuant to Section 3.4, the Executive must provide the Notice of Termination to the Company or Successor Corporation, as appropriate, within ninety (90) days after the initial existence of the condition claimed to provide a basis for separation from service for Good Reason.  The Executive’s separation from service date shall be not less than thirty (30) days after the receipt of the Notice of Termination by the Company or Successor Corporation, as the case may be.  The Executive’s separation from service date must be within six (6) months of the initial existence of the condition providing the basis for separation from service for Good Reason.

 

(c)           If the Executive’s employment is terminated by reason of one of the events described in clauses (i), (ii), (iii) or (v) of Section 3.3, the Executive’s separation from service shall be not more than fifteen (15) days after the receipt of the Notice of Termination by the Executive.

 

3.6.           Rights of Executive Upon Termination of Employment.

 

(a)           Following the date the Term expires on account of the Executive’s employment through the Initial Term or any Extension Period, or the Executive’s separation from service with Good Reason or the Executive’s separation from service pursuant to the Company’s exercise of the Notice Exception, the rights of the Executive shall be as provided in ARTICLES 4, 5, 6, 9, 10, 12, 13, 14, 15, 16, 18, 24 and 26.

 

(b)           Following the date the Term expires on account of the Executive’s death, the rights of the Executive’s personal representative and designated beneficiary (as determined pursuant to ARTICLE 16) shall be as provided in ARTICLES 4, 5, 6, 8, 10, 14, 15, 16, 18, 24 and 26.

 

(c)           Following the date the Term expires on account of the Executive’s Total Disability, the rights of the Executive shall be as provided in ARTICLES 4, 5, 6, 7, 9, 10, 13, 14, 15, 16, 18, 24 and 26.

 

(d)           Following the date the Term expires on account of the Executive’s separation from service pursuant to Executive’s exercise of the Notice Exception, the rights of the Executive shall be as provided in ARTICLES 4, 5, 6, 9, 10, 13, 14, 15, 16, 18, 24 and 26.

 

(e)           Following the date the Term expires on account of the termination of the Executive for Cause, the Executive shall be entitled to receive his Base Salary through the Termination Date plus any amounts that the Executive was entitled to receive through the Termination Date as provided in ARTICLES 5, 6, 10, 14, 15, 16, 18, 24 and 26. If the Term expires on account of the termination of the Executive for Cause, the Executive shall continue to be subject to the provisions of ARTICLE 13 and the Executive shall forfeit any rights under annual incentive, long-term incentive, equity compensation and similar plans or awards that were not vested on the Termination Date.

 

3.7.           Separation from Service Defined.  All references herein to Executive’s “separation from service” shall mean Executive’s separation from service with the Company and its subsidiaries and affiliates within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the “Code”) and applicable regulations and other guidance thereunder, including but not limited to Executive’s termination on account of death or Total Disability.

 

ARTICLE 4

 

COMPENSATION

 

4.1.           Base Salary. For all services rendered by the Executive during the Term, including without limitation services as an executive, officer, director (except fees and reimbursements to which all members of the Board, or a subsidiary or affiliate of the Company, are generally entitled) or member of any committee of the Company or of any subsidiary, affiliate, or division thereof, the Company shall pay

 

  

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the Executive as compensation a base annual salary (the “Base Salary”), payable in appropriate installments to conform with regular payroll dates for salaried personnel of the Company. The annual rate of the Executive’s Base Salary shall be at least $650,000. The Board’s Committee on Executive Compensation (the “Committee”) shall review the Executive’s performance on an annual basis and may, in its discretion, increase the Executive’s Base Salary on account of his performance.

 

4.2.           Bonus.

 

(a)           In addition to the Base Salary provided for in Section 4.1, the Executive shall be entitled to such annual bonus or bonuses, if any (the “Awarded Bonuses”), as may be awarded to the Executive from time to time under the Company’s Management Incentive Plan or any successor or replacement bonus plan or arrangement (the “MIP”). The Awarded Bonuses for a fiscal year shall be payable in the manner specified in the MIP, but in no event later than the end of the calendar year in which the relevant fiscal year ends. Each fiscal year, the “target” annual bonus under the MIP shall be at least seventy-five percent (75%) of the Executive’s then-current Base Salary and the maximum annual bonus under the MIP shall be at least two hundred percent (200%) of the Executive’s “target” annual bonus for the fiscal year.

 

(b)           If the Term expires on account of the Executive’s separation from service with Good Reason or the Company’s exercise of the Notice Exception, then the Executive shall receive a pro rata amount of the annual bonus for the fiscal year that includes the Termination Date as determined by the Committee. The pro rata bonus will be paid to the Executive on or before the later of (i) the 15th day of the third month immediately following the end of the fiscal year that includes the Executive’s separation from service date, or (ii) March 15 immediately following the end of the calendar year that includes the Executive’s separation from service date.

 

4.3.           Long-Term Incentive Plans. The Executive shall be eligible to receive awards under the Company’s long-term incentive plans as determined by the Committee in its discretion. If the Term expires on account of the Executive’s separation from service with Good Reason or the Company’s exercise of the Notice Exception, then (i) all restrictions on any restricted or deferred stock awards outstanding on the Termination Date shall be eliminated, (ii) all stock options outstanding on the Termination Date with an exercise price equal to or less than the fair market value of the shares as of the close of business on the Termination Date shall be immediately vested and shall remain exercisable for twenty-four (24) months thereafter or until the expiration date of the option, if sooner; provided, that without the Executive’s consent this clause (ii) shall not apply to options that are intended to be incentive stock options under Section 422 of the Internal Revenue Code of 1986; and (iii) all stock options outstanding on the Termination Date with an exercise price greater than the fair market value of the shares as of the close of business on the Termination Date shall be cancelled as of the close of business on the Termination Date.

 

ARTICLE 5

 

REIMBURSEMENT OF EXPENSES, OFFICE AND SECRETARIAL ASSISTANCE

 

The Company recognizes that the Executive will incur, from time to time, expenses for the benefit of the Company and in furtherance of the Company’s business, including, but not limited to, expenses for entertainment, travel and other business expenses consistent with the Company’s past practices. During the Term the Executive will be reimbursed for his reasonable expenses incurred for the benefit of the Company in accordance with the general policy of the Company as adopted from time to time by the Board. To receive such reimbursement, the Executive must present to the Company an itemized accounting, in such detail as the Company may reasonably request, of such expenditures. The Company further agrees to furnish the Executive during the Term with an office and such secretarial assistance as shall be suitable to the character of the Executive’s position with the Company and adequate for the performance of his duties hereunder. In the event of the termination of the Executive’s employment for

 

  

5

  

 

any reason, the Company shall reimburse the Executive (or in the event of death, his personal representative) for expenses incurred by the Executive on behalf of the Company prior to the Termination Date to the extent such expenses have not been previously reimbursed by the Company. The expenses eligible for reimbursement under this ARTICLE 5 in any year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other year.  Executive’s rights under this ARTICLE 5 are not subject to liquidation or exchange for any other benefit.

 

ARTICLE 6

 

SUPPLEMENTAL RETIREMENT BENEFIT

 

The Executive shall participate in the Company’s Supplemental Executive Retirement Plan (the “SERP”). The Executive shall be entitled to receive benefits in accordance with, and subject to, the terms of the SERP, as in effect from time to time. The Executive’s Surviving Spouse (as defined in the SERP) also shall be entitled to receive benefits in accordance with, and subject to, the terms of the SERP, as in effect from time to time.

 

ARTICLE 7

 

DISABILITY BENEFITS

 

7.1.           Commencement of Total Disability. If the Executive suffers a “Total Disability” (as defined in Section 7.4) during the Term, he shall be deemed totally disabled (“Totally Disabled”) for purposes of this Agreement as of the date such Total Disability commenced.

 

7.2.           Benefits Payable Upon Total Disability. In the event of the Executive’s disability or Total Disability, he shall be entitled to receive benefits in accordance with, and subject to, the terms of any short-term disability, long-term disability or other plan or program providing benefits for disability maintained by the Company.

 

7.3.           Cessation of Disability. Notwithstanding the provisions of Section 7.2, if prior to the end of the Disability Period the Executive’s Total Disability shall have ceased under the definition of Total Disability set forth in Section 7.4 and he shall have commenced to perform his regular duties hereunder, the following special provisions shall apply: (i) this Agreement shall continue in full force and effect (except as otherwise provided in ARTICLE 3); and (ii) the Executive shall be entitled to resume his employment under this Agreement and to receive thereafter compensation in accordance with ARTICLE 4 as though he had not been Totally Disabled.

 

7.4.           Definition of Total Disability. For purposes of this Agreement, “Total Disability” shall mean the permanent and total inability, by reason of physical or mental infirmity, or both, of the Executive to perform his regular and customary duties with the Company in a satisfactory manner for one hundred eighty (180) days in any period of three hundred sixty-five (365) days. The determination of the existence or nonexistence of Total Disability shall be made by the Board, pursuant to a medical examination by a medical doctor licensed to practice medicine in the State of North Carolina selected or approved by the Board.

 

ARTICLE 8

 

DEATH BENEFIT

 

Upon the expiration of the Term on account of the Executive’s death, the Company shall pay to the Executive’s designated beneficiary (as determined pursuant to ARTICLE 16 or the terms of the applicable benefit plan) any life insurance or death benefits payable under any plan or program

 

  

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maintained by the Company.

 

ARTICLE 9

 

DEATH FOLLOWING COMMENCEMENT OF PAYMENTS

 

If (i) the Term expires under circumstances entitling the Executive to receive payments pursuant to ARTICLE 12 and (ii) the Executive dies prior to receiving any or all of the payments, monthly installments or benefits to which he is due hereunder (including, for the avoidance of doubt, amounts payable under Sections 4.2 and 4.3), then such remaining payments, monthly installments or benefits shall be payable to his designated beneficiary (as determined pursuant to ARTICLE 16).

 

ARTICLE 10

 

OTHER EMPLOYEE BENEFITS

 

The Executive shall be entitled to participate in any and all retirement, health, disability, life insurance, long-term disability insurance, nonqualified deferred compensation and tax-qualified retirement plans or any other plans or benefits offered by the Company to its employees or executives generally, if and to the extent the Executive is eligible to participate in accordance with the terms and provisions of any such plan or benefit program. Nothing in this ARTICLE 10 is intended, or shall be construed, to require the Company to institute any particular plan, program or benefit. Benefits payable pursuant to this Agreement shall be in addition to benefits payable to the Executive under all other employee benefit plans or programs of the Company.

 

ARTICLE 11

 

VACATION AND SICK LEAVE

 

During the term of his employment hereunder, the Executive shall be entitled to and receive as an additional benefit at least four (4) weeks of personal time off each fiscal year under the Company’s Compensated Leave Policy, during which time his compensation shall be paid in full. Such personal time off shall be taken by the Executive at such times as may be reasonably mutually agreed upon by the Executive and the Company.

 

ARTICLE 12

 

TERMINATION COMPENSATION

 

12.1.        Monthly Compensation. Upon the expiration of the Term for any reason, the Executive shall be entitled to continue to receive his Base Salary through the last day of the month in which the Termination Date occurs.

 

12.2.        Severance Payment and Benefits. In addition to the compensation provided for in Section 12.1, the Executive shall be entitled to severance benefits as provided in this Section 12.2 upon his separation from service with Good Reason or upon his separation from service on account of the Company’s exercise of the Notice Exception.  For purposes of this Section 12.2, the date of such separation from service is referred to as the Executive’s “Separation Date”.

 

(a)           Within sixty (60) days following the Separation Date, the Executive (or in the event of his subsequent death, his designated beneficiary) shall be entitled to receive a single cash payment equal to a multiple of (i) the Executive’s Base Salary as in effect on the Separation Date plus (ii) the greater of (A) the Executive’s target annual bonus under Section 4.2 for the fiscal year that includes the Separation

 

  

7

  

 

Date or (B) the average of the actual annual bonuses paid to the Executive under Section 4.2 for the two fiscal years ended before the Separation Date. The multiplier shall be (X) three (3) if the Separation Date is within twenty-four months after a Change in Control, or (Y) two (2) in all other cases. If all or any part of the amount payable pursuant to this paragraph is delayed pursuant to the last sentence of ARTICLE 33, such amount shall bear interest until paid at an annual rate of 5%.

 

(b)           Following the Separation Date, the Executive shall be entitled to the special health care benefits described in this Section 12.2(b).

 

(i)           Executive shall be entitled to participate (treating the Executive as an “active employee” of the Company for this purpose) in the Company’s Medical Plan for Salaried Employees, as the same may be amended from time to time (the “Company Medical Plan”) during the period commencing immediately after participation would otherwise cease on account of Executive’s separation from service in the absence of this Agreement (and without regard to the continuation of coverage requirements of Section 4980B of the Code and Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended (“COBRA”)), and ending on the earliest of (A) the last day of the thirtieth (30th) month (thirty-sixth (36th) month if the Separation Date is within twenty-four (24) months after a Change in Control) following the Separation Date; (B) the date of Executive’s death; or (C) the last day of the month in which the Executive becomes eligible for Medicare.  The coverage required to be provided to the Executive pursuant to this Section 12.2(b)(i) shall be referred to herein as the “Extended Coverage” and the period during which the Extended Coverage is provided shall be referred to herein as the “Medical Plan Coverage Period.”  The Company, consistent with sound business practices, shall use its best efforts to provide the Executive with the Extended Coverage under the Company Medical Plan during the Medical Plan Coverage Period, including, if necessary, amending the applicable provisions of the Company Medical Plan and negotiating the addition of any necessary riders to any group health insurance contract.  During the Medical Plan Coverage Period, the Executive shall pay the entire premium required for the Extended Coverage under the Company Medical Plan.  The premium required for the Extended Coverage shall be equal to the premium required by COBRA for the continuation of individual coverage under the Company Medical Plan (the “COBRA Rate”).  Notwithstanding the foregoing, for any period of Extended Coverage after the COBRA Period (as defined below), as determined by the Company, the premium required for the Extended Coverage in such period shall be the greater of the COBRA Rate or the actuarially determined cost of the Extended Coverage as determined by an actuary selected by the Company.

 

(ii)           If at any time during the Medical Plan Coverage Period the Company is unable for whatever reason to provide the Executive with the Extended Coverage under the Company Medical Plan, the Company, consistent with sound business practices, shall use its best efforts to secure for the Executive coverage under an individual policy of health insurance providing coverage for the Executive which is substantially equivalent to the Extended Coverage to be provided under the Company Medical Plan (the “Individual Medical Policy”).  In such event, the Executive shall pay the entire premium charged for coverage of the Executive under the Individual Medical Policy.

 

(iii)           The provisions of this paragraph shall apply only if the Medical Plan Coverage Period ends before the last day of the thirtieth (30th) month (thirty-sixth (36th) month if the Separation Date is within twenty-four (24) months after a Change in Control) following the Separation Date on account of the Executive’s entitlement to Medicare.  In such event, the Executive shall on or prior to attainment of age 65 enroll in Medicare Parts A, B and D and shall obtain a Medicare supplemental policy (the “Medicare Supplemental Policy”) to become effective no later than the end of the Medical Plan Coverage Period.  During the period beginning immediately after the end of the Medical Plan Coverage Period and ending on the earlier of the Executive’s date of death or the last day of the thirtieth (30th) month (thirty-sixth (36th) month if the Separation Date is within twenty-four (24) months after a Change in Control) following the Separation Date (the “Medicare Period”), the Executive shall at all times maintain and pay the premiums charged for Medicare Parts A, B and D coverage and for a Medicare Supplemental Policy.  Each month during the Medicare Period, the Company shall reimburse the Executive for the premiums paid by the Executive for Medicare Part D and for the Medicare Supplemental Policy, to the extent the amount of

 

  

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such premiums exceeds the then-applicable amount of the monthly contribution or premium charged an active full-time salaried employee participating in the Company Medical Plan for coverage of such active full-time salaried employee.  Such reimbursement shall be made on a monthly basis within ten (10) business days after the Executive submits a written request for reimbursement accompanied by sufficient evidence demonstrating that the premiums subject to reimbursement were incurred.

 

(iv)           The Extended Coverage provided to the Executive pursuant to paragraph (i) of this Section 12.2(b) is intended to satisfy during the Medical Plan Coverage Period the continuation of coverage requirements of COBRA as such requirements apply to the Executive on account of separation from service.  Executive shall complete such COBRA election materials as the Company may require in order to make the Extended Coverage available.  Notwithstanding any contrary provision of this Section 12.2(b), the period of COBRA continuation coverage for Executive shall not expire prior to the end of the applicable period of continuation coverage to which the Executive would be entitled under COBRA (the “COBRA Period”).  For any portion of the COBRA Period that continues after the end of the Medical Plan Coverage Period, the Executive shall be responsible for paying the full COBRA Rate for any continuation coverage he maintains during such COBRA Period. Notwithstanding the foregoing provisions of this Section 12.2(b), in the event that the Extended Coverage for whatever reason does not satisfy the continuation of coverage requirements of COBRA during the Medical Plan Coverage Period, the Executive shall be entitled to elect COBRA continuation coverage in lieu of the Extended Coverage described in this Section 12.2(b).  In such event, the Executive shall be responsible for paying the full amount of the premium charged for such COBRA continuation coverage under the Company Medical Plan at the COBRA Rate.

 

(v)           Each month during the Medical Plan Coverage Period, the Company shall pay to Executive a special benefit as determined pursuant to the provisions of this paragraph (the “Special Benefit”).  The amount of the monthly Special Benefit shall be equal to the amount of the monthly premium actually paid by the Executive for the Extended Coverage for such month, less the then-applicable amount of the monthly contribution or premium charged an active full-time salaried employee participating in the Company Medical Plan for coverage of such active full-time salaried employee.  The Special Benefit shall be payable on the 20th day of each calendar month, or within ten (10) business days thereafter, commencing in the first month of the Medical Plan Coverage Period.  If all or any portion of a Special Benefit payment is delayed pursuant to the last sentence of ARTICLE 33, such amount shall bear interest until paid at an annual rate of 5%.

 

(vi)           In addition to the Special Benefit described in paragraph (v), the Company shall pay to the Executive each year during the Medical Plan Coverage Period a payment equal to the amount necessary to pay the federal and state income taxes imposed upon the Executive as a result of the receipt of the Special Benefit payments (i.e., a gross-up payment).  The gross-up payment for each calendar year during the Medical Plan Coverage Period shall be paid to the Executive in a single lump sum payment on or prior to December 31 of each such calendar year.  Each gross-up payment shall be determined pursuant to the following formula and expressing the Tax Rate as a decimal.

 

 

	  	  	  	  	  	  	  	  	  	  	  	  	  
	
Gross-up Amount

	
=

	
Special Benefit Amount

	
X

	
(1 +

	
(

	
Tax Rate

	
X

	
(

	
1

	
)))

	
Less

	
Special Benefit Amount

 

	
1-Tax Rate

	  

  

9

  

 

The “Tax Rate” shall be equal to (A) the highest marginal income tax rate in effect under Code Section 1(a) (or any successor provision) in the calendar year in which the gross-up payment is made (the “Federal Rate”), plus (B) the highest marginal rate of income tax for individuals in the state in which Executive is domiciled in the calendar year in which the gross-up payment is paid (the “State Rate”), minus (C) the Federal Rate times the State Rate.  The “Special Benefit Amount” shall be equal to the total amount of Special Benefit payments during the calendar year in which the gross-up payment is made.  Notwithstanding the foregoing, in no event shall a gross-up payment be made to the Executive with respect to any Special Benefit payments that are not includible in the income of the Executive for federal and state income tax purposes.  If all or any portion of a gross-up payment is delayed pursuant to the last sentence of ARTICLE 33, such amount shall bear interest until paid at an annual rate of 5%.

 

(vii)           Executive shall pay for the Extended Coverage on a monthly basis.  The premium or contribution due for Extended Coverage under the Company Medical Plan in any month shall be due on the last day of the immediately preceding month, provided that any payment received by the Company within twenty (20) days of the due date shall be deemed timely.  If Executive fails to pay any premium or contribution when due as provided in this paragraph, the Company’s obligation to provide Extended Coverage under this Section 12.2(b) shall immediately expire.  If Executive fails to pay the premium within twenty (20) days of the due date as described in the prior sentence, the Company will provide Executive with written notice of the failure to make such premium payment.  The written notice shall be furnished to Executive in the manner provided in ARTICLE 29.  Executive shall have ten (10) days after the Company provides such notice within which to make the applicable premium payment and any such payment received by the Company within this ten (10) day period shall be considered timely.  Executive hereby authorizes the Company to withhold from any monthly payment then due to Executive under this Agreement or otherwise the premiums or contributions required and then due under this Section 12.2(b) to pay for Extended Coverage for Executive.

 

(viii)           Expenses eligible for reimbursement under this Section 12.2(b) in a calendar year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other calendar year.  Executive’s rights under this Section 12.2(b) are not subject to liquidation or exchange for any other benefit.

 

(c)           For thirty (30) months (thirty-sixth (36) months if the Separation Date is within twenty-four (24) months after a Change in Control) immediately following Executive’s Separation Date, the Company shall reimburse Executive for any premiums Executive pays to maintain life and disability insurance coverage equivalent to the Company-provided group coverage in effect for Executive at the time of his termination of employment, to the extent the amount of such premiums exceeds the then-applicable amount of the monthly contribution or premium charged an active full-time salaried employee participating in the Company’s group life and disability plans.  Such reimbursement shall be made on a monthly basis within ten (10) business days after the Executive submits a written request for reimbursement accompanied by sufficient evidence demonstrating that the premiums subject to reimbursement were incurred.  Expenses eligible for reimbursement under this Section 12.2(c) in a calendar year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other calendar year.  Executive’s rights under this Section 12.2(c) are not subject to liquidation or exchange for any other benefit.

 

(d)           Notwithstanding the foregoing, if a payment or reimbursement under this Section 12.2 would be otherwise be payable before the Separation Date, the Company shall delay making such payment or reimbursement until the month following the Separation Date.

 

12.3.        Change in Control Defined.  For purposes of this Agreement, “Change in Control” shall mean any of the following:

 

(a)           Any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) becomes the beneficial owner, directly or indirectly, of Company securities representing more than 30% of the aggregate voting power of all classes of the Company’s

 

  

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voting securities on a fully diluted basis, after giving effect to the conversion of all outstanding warrants, options and other securities of the Company convertible into or exercisable for voting securities of the Company (whether or not such securities are then exercisable);

 

(b)           The shareholders of the Company approve a plan of merger, consolidation or share exchange between the Company and an entity other than a direct or indirect wholly-owned subsidiary of the Company, unless the Company shareholders immediately before the completion of such transaction will continue to hold at least 50% of the aggregate voting power of all classes of voting securities of the surviving or resulting entity;

 

(c)           The shareholders of the company approve a proposal with respect to the sale, lease, exchange or other disposition of all, or substantially all, of the Company’s property, unless the Company shareholders immediately before the completion of such transaction will continue to hold, directly or indirectly, at least 50% of the aggregate voting power of all classes of voting securities of the transferee;

 

(d)           During any period of two consecutive years (which period may be deemed to begin prior to the date of this Agreement), individuals who at the beginning of such period constituted the Board, together with any new members of the Board whose election by the Board or whose nomination for election by the Company’s shareholders was approved by a majority of the members of the Board then still in office who either were directors at the beginning of such period or whose nomination or election was previously so approved, cease for any reason to constitute a majority of the Board; or

 

(e)           The Board, in its sole discretion, determines that a Change in Control has occurred.

 

ARTICLE 13

 

POST-TERMINATION OBLIGATIONS

 

All payments and benefits to the Executive under this Agreement shall be subject to the Executive’s compliance with the following provisions during the Term and following the termination of the Executive’s employment:

 

13.1.        Assistance in Litigation. The Executive shall, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it is, or may become, a party, and which arises out of facts and circumstances known to the Executive. The Company shall promptly reimburse the Executive for his out-of-pocket expenses incurred in connection with the fulfillment of his obligations under this Section 13.1, provided that such expenses are incurred by Executive during his lifetime.  The expenses eligible for reimbursement under this Section 13.1 in any calendar year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other calendar year.  Executive’s rights under this Section 13.1 are not subject to liquidation or exchange for any other benefit.

 

13.2.        Confidential Information. The Executive shall not disclose or reveal to any unauthorized person any trade secret or other confidential information relating to the Company, its subsidiaries or affiliates, or to any businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Company; provided, however, that the foregoing shall not prohibit the Executive from disclosing such information to the extent necessary or desirable in connection with obtaining financing for the Company (or furnishing such information under any agreements, documents or instruments under which such financing may have been obtained) or otherwise disclosing such information to third parties or governmental agencies in furtherance of the interests of the Company; or as may be required by law.

 

13.3.        Noncompetition. The Executive shall not: (i) during his employment by the Company and for the three-year period following the expiration of the Term, without the prior written consent of the

 

  

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Company, engage directly or indirectly, as a licensee, owner, manager, consultant, officer, employee, director, investor or otherwise, in any business in competition with the Company; or (ii) usurp for his own benefit any corporate opportunity under consideration by the Company during his employment, unless the Company shall have finally decided not to take advantage of such corporate opportunity. The restrictions of part (i) of this Section 13.3 shall not apply if the employment of the Executive is terminated by the Company’s exercise of the Notice Exception or by the Executive for Good Reason, and shall further not apply to a passive investment by the Executive constituting ownership of less than five percent (5%) of the equity of any entity engaged in any business described in part (i) of this Section 13.3. The Executive acknowledges that the possible restrictions on his activities which may occur as a result of his performance of his obligations under this Section 13.3 are required for the reasonable protection of the Company.

 

13.4.        Nonsolicitation. During his employment by the Company and for the one-year period following the expiration of the Term, the Executive will not recruit or solicit any employee of the Company to leave the Company to work with or for Executive or for any other person or business by whom Executive is employed. During the Term and for the one-year period following the expiration of the Term, the Executive will not recruit or solicit any customers or vendors of the Company to become customers or vendors of any business entity that competes with any of the businesses owned or operated by, or under common ownership with, the Company.

 

13.5.        Nondisparagement. The Executive shall not make any statements that denigrate or disparage the Company, its employees or its Board to the media or financial analysts. The Company, the Board and the Company’s employees shall not make any statements that denigrate or disparage the Executive to the media or financial analysts.

 

13.6.        Return of Company Property. All records, files, drawings, documents, models, equipment and the like relating to the business of the Company that the Executive prepared or used or came in contact with during the Executive’s employment by the Company shall be and remain the sole property of the Company and the Executive warrants that as of the termination of the Executive’s employment all such property will be returned to the Company and that the Executive will not retain any such property. In addition, upon termination of his employment hereunder the Executive agrees to turn over to the Company all documents (including without limitation paper documents, audiotapes, videotapes and other recording media, as well as all copies and transcripts thereof) that contain matters of or relating to trade secrets, confidential information, etc. of the Company.

 

13.7.        Failure to Comply. In the event that the Executive shall fail to comply with any provision of this ARTICLE 13, and such failure shall continue for ten (10) days following delivery of notice thereof by the Company to the Executive, all rights hereunder of the Executive and any person claiming under or through him shall thereupon terminate and no person shall be entitled thereafter to receive any payments or benefits hereunder (except for benefits under employee benefit plans or programs as provided in ARTICLE 10 which have been earned or otherwise fixed or determined to be payable prior to such termination). In addition to the foregoing, in the event of a breach or threatened breach by the Executive of the provisions of this ARTICLE 13, the Company shall have and may exercise any and all other rights and remedies available to the Company at law or otherwise, including but not limited to obtaining an injunction from a court of competent jurisdiction enjoining and restraining the Executive from committing such violation, and the Executive hereby consents to the issuance of such injunction.

 

ARTICLE 14

 

ADDITIONAL PAYMENTS BY COMPANY

 

 

14.1.        Gross-Up Payment. This Section 14.1 applies if (i) any amount required to be paid or distributed to the Executive pursuant to this Agreement and any other amounts otherwise required to be paid or distributed to the Executive by the Company shall constitute a parachute payment within the

 

  

12

  

 

meaning of Section 280G of the Code, (ii) the aggregate of such parachute payments (the “Parachute Payments”) shall cause the Executive to be subject to the excise tax on excess parachute payments under Section 4999 of the Code (the “Excise Tax”), or any successor or similar provision thereof and (iii) the total of all such Parachute Payments equals or exceeds one hundred ten percent (110%) of the amount that could be paid to the Executive without the Executive incurring an Excise Tax liability. In that event, the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount the Executive shall receive after the payment of any Excise Tax and any Excise Tax or other taxes on the Gross-Up Payment, shall equal the amount which he would have received if the Excise Tax had not been imposed. The Gross-Up Payment shall be the sum of the following:

 

(a)           The Excise Taxes imposed on and paid by the Executive on account of the excess Parachute Payments;

 

(b)           Any federal income tax, social security tax, unemployment tax or Excise Tax imposed on and paid by the Executive as a result of the Gross-Up Payment required to be made under this Section 14.1; and

 

(c)           Any state income or other tax imposed on and paid by the Executive as a result of the Gross-Up Payment required to be made under this Section 14.1.

 

The Gross-Up Payment shall be made within thirty (30) days following the date the Executive remits the related Excise Taxes or other taxes to the appropriate taxing authorities.  The Gross-Up Payment shall in any event be paid to the Executive no later than the last day of the calendar year immediately following the calendar year in which the Executive remits the related Excise Taxes or other taxes.

 

In the event that any Excise Tax and/or other tax giving rise to a Gross-Up Payment is subsequently determined to be less than the amount actually remitted by the Executive and the Executive receives a refund of such Excise Tax and/or other tax, within thirty (30) days of receiving such refund the Executive shall repay to the Company the entire amount of the refund (including any portion designated as interest).

 

14.2.        Reduction in Parachute Payments. This Section 14.2 applies if (i) any amount required to be paid or distributed to the Executive pursuant to this Agreement and any other amounts otherwise required to be paid or distributed to the Executive by the Company shall constitute a Parachute Payment, (ii) the Parachute Payments shall cause the Executive to be subject to the Excise Tax and (iii) the total of such Parachute Payments is less than one hundred ten percent (110%) of the amount that could be paid to the Executive without the Executive incurring an Excise Tax liability. In that event, such payments shall be reduced to the maximum amount that may be paid without subjecting the Executive of the Excise Tax.  Such payments shall be reduced in a manner that will not have the effect of delaying or accelerating any payment of deferred compensation in violation of Code Section 409A, and in a manner that will not subject the Executive to the taxes imposed by Code Section 409A.

 

ARTICLE 15

 

ATTORNEYS’ FEES

 

 

In the event that the Executive during his lifetime incurs any attorneys’ fees in connection with entering into this Agreement or in protecting or enforcing his rights under this Agreement or under any employee benefit plans or programs sponsored by the Company in which the Executive is a participant, the Company shall reimburse the Executive for such reasonable attorneys’ fees and for any other reasonable expenses related thereto unless, in the case of an action instituted by the Executive, the Executive is acting in bad faith. Such reimbursement shall be made within thirty (30) days following final resolution of the dispute or occurrence giving rise to such fees and expenses, but in any event no later

 

  

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than the end of the calendar year following the calendar year in which the expense was incurred.  The expenses eligible for reimbursement under this paragraph in any calendar year shall not affect any expenses eligible for reimbursement or in-kind benefits to be provided in any other calendar year.  Executive’s rights under this Article 15 are not subject to liquidation or exchange for any other benefit.

 

ARTICLE 16

 

BENEFICIARY

 

The Executive shall name one or more primary beneficiaries and one or more contingent beneficiaries, who shall be entitled to receive any death benefit payable under ARTICLE 8 or any benefits payable under ARTICLE 9 due to the Executive’s death following commencement of payments under ARTICLES 7 or 12, which beneficiary or beneficiaries shall be subject to change from time to time by notice in writing to the Board. A beneficiary may be a trust, an individual or the Executive’s estate. If the Executive fails to designate a beneficiary, primary or contingent, then and in such event, such benefit shall be paid to the surviving spouse of the Executive or, if he shall leave no surviving spouse, then to the Executive’s estate. If a named beneficiary entitled to receive any death benefit is not living or in existence at the death of the Executive or dies prior to asserting a written claim for any such death benefit, then and in any such event, such death benefit shall be paid to the other primary beneficiary or beneficiaries named by the Executive who shall then be living or in existence, if any, otherwise to the contingent beneficiary or beneficiaries named by the Executive who shall then be living or in existence, if any; but if there are no primary or contingent beneficiaries then living or in existence, such benefit shall be paid to the surviving spouse of the Executive or, if he shall leave no surviving spouse, then to the Executive’s estate. If a named beneficiary is receiving or is entitled to receive payments of any such death benefit and dies before receiving all of the payments due him, any remaining benefits shall be paid to the other primary beneficiary or beneficiaries named by the Executive who shall then be living or in existence, if any, otherwise to the contingent beneficiary or beneficiaries named by the Executive who shall then be living or in existence, if any; but if there are no primary or contingent beneficiaries then living or in existence, the balance shall be paid to the estate of the beneficiary who was last receiving the payments.

 

ARTICLE 17

 

DECISIONS BY COMPANY; FACILITY OF PAYMENT

 

Any powers granted to the Board hereunder may be exercised by a committee, appointed by the Board, and such committee, if appointed, shall have general responsibility for the administration and interpretation of this Agreement; provided, however, that any action by the Company to terminate the Executive’s employment under the Notice Exception or for Cause or to enforce (or assert the Executive’s violation of) the provisions of ARTICLE 13 shall be taken only pursuant to a resolution adopted by a majority of the members of the Board (and not a committee or other delegate of the Board) at a duly held meeting of the Board. Subject to and to the extent not inconsistent with the provisions of ARTICLE 16, if the Board or the committee shall find that any person to whom any amount is or was payable hereunder is unable to care for his affairs because of illness or accident, or is a minor, or has died, then the Board or the committee, if it so elects, may direct that any payment due him or his estate (unless a prior claim therefore has been made by a duly appointed legal representative) or any part thereof be paid or applied for the benefit of such person or to or for the benefit of his spouse, children or other dependents, an institution maintaining or having custody of such person, any other person deemed by the Board or committee to be a proper recipient on behalf of such person otherwise entitled to payment, or any of them, in such manner and proportion as the Board or committee may deem proper. Any such payment shall be in complete discharge of the liability of the Company therefor.

 

  

14

  

 

ARTICLE 18

 

INDEMNIFICATION

 

The Company shall indemnify the Executive during his employment and thereafter to the maximum extent permitted by applicable law from any and all liability of the Executive arising out of, or in connection with, his employment by the Company or membership on the Board; provided, that in no event shall such indemnity of the Executive at any time during the period of his employment by the Company be less than the maximum indemnity provided by the Company at any time during such period to any other officer or director under any indemnification insurance policy or the bylaws or charter of the Company or by agreement.

 

ARTICLE 19

 

SOURCE OF PAYMENTS; NO TRUST

 

The obligations of the Company to make payments hereunder shall constitute a liability of the Company to the Executive. Such payments shall be from the general funds of the Company, and the Company shall not be required to establish or maintain any special or separate fund, or otherwise to segregate assets to assure that such payments shall be made, and neither the Executive nor his designated beneficiary shall have any interest in any particular asset of the Company by reason of its obligations hereunder. Nothing contained in this Agreement shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company.

 

ARTICLE 20

 

SEVERABILITY

 

All agreements and covenants contained herein are severable, and in the event any of them shall be held to be invalid in an arbitration under Section 24.2, this Agreement shall be interpreted as if such invalid agreements or covenants were not contained herein.

 

ARTICLE 21

 

ASSIGNMENT PROHIBITED

 

This Agreement is personal to each of the parties hereto, and neither party may assign nor delegate any of his or its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that nothing in this ARTICLE 21 shall preclude (i) the Executive from designating a beneficiary to receive any benefit payable under this Agreement upon his death or (ii) the executors, administrators, or other legal representatives of the Executive or his estate from assigning any rights under this Agreement to the person or persons entitled thereto.

 

ARTICLE 22

 

NO ATTACHMENT

 

Except as otherwise provided in this Agreement or required by applicable law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such

 

  

15

  

 

action shall be null, void and of no effect.

 

ARTICLE 23

 

HEADINGS

 

The headings of articles, paragraphs and sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

 

ARTICLE 24

 

GOVERNING LAW; ARBITRATION

 

24.1.        Governing Law. The parties intend that this Agreement and the performance hereunder and all proceedings hereunder shall be construed in accordance with and under and pursuant to the laws of the State of North Carolina and that in any proceeding that may be brought arising out of, in connection with, or by reason of this Agreement, the laws of the State of North Carolina shall be applicable and shall govern to the exclusion of the laws of any other forum.

 

24.2.        Arbitration. Any dispute arising out of, in connection with or by reason of this Agreement, including the breach, termination, interpretation or validity thereof shall be finally resolved by arbitration in accordance with the CPR Institute for Dispute Resolution Rules for Non-Administered Arbitration as in effect on the Effective Date, by three arbitrators of whom each party shall select one and the third to be selected by the two party-designated arbitrators. Prior to the first presentation to the panel of arbitrators each party shall submit to the arbitrators and the other party a written statement setting forth that party’s position with respect to the issue or issues being arbitrated and the correct interpretation of this Agreement, the correct resolution of the issues and the amount, if any, that the party claims should be paid under this Agreement with respect to such issue or issues. At the conclusion of the arbitration the panel shall approve the position of one of the parties and the interpretation, resolution or the amount, if any, to be paid in accordance with that party’s written statement. Except as provided in the two preceding sentences, the arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. § § 10-16. Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be in the city in which the Company’s principal executive office is located.

 

ARTICLE 25

 

BINDING EFFECT

 

This Agreement shall be binding upon, and inure to the benefit of, the Executive and his heirs, executors, administrators and legal representatives and the Company and its permitted successors and assigns.

 

ARTICLE 26

 

MERGER OR CONSOLIDATION

 

The Company will not consolidate or merge into or with another corporation, or transfer all or substantially all of its assets to another corporation (the “Successor Corporation”) unless the Successor Corporation shall assume this Agreement, and upon such assumption, the Executive and the Successor Corporation shall become obligated to perform the terms and conditions of this Agreement.

 

  

16

  

 

ARTICLE 27

 

COUNTERPARTS

 

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

 

ARTICLE 28

 

ENTIRE AGREEMENT

 

This Agreement expresses the whole and entire agreement between the parties with reference to the employment of the Executive and, as of the Effective Date, supersedes and replaces the Original Agreement and any other prior employment agreement, understanding or arrangement (whether written or oral) between the Company and the Executive or Standard Commercial Corporation and the Executive. Each of the parties hereto has relied on his or its own judgment in entering into this Agreement.

 

ARTICLE 29

 

NOTICES

 

All notices, requests and other communications to any party under this Agreement shall be in writing (including telefacsimile transmission or similar writing) and shall be given to such party at its address or telefacsimile number set forth below or such other address or telefacsimile number as such party may hereafter specify for the purpose by notice to the other party:

 

 

(a)          If to the Executive:

 

Robert E. Harrison

7300 Haymarket Lane

Raleigh, North Carolina  27615

 

With a copy to:

 

Michael P. Bentzen, Esq.

Hughes & Bentzen, PLLC

11000 Connecticutt Ave. NW

Suite 340

Washington, D.C. 20006

Fax Number: (202) 293-8973

 

 

(b)          If to the Company:

 

Alliance One International, Inc.

8001 Aerial Center Parkway

P.O. Box 2009

Morrisville, North Carolina   27560

Fax Number: (919) 379-4132

 

Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means, when delivered at the address specified in this ARTICLE 29.

 

  

17

  

 

ARTICLE 30

 

MODIFICATION OF AGREEMENT

 

No waiver or modification of this Agreement or of any covenant, condition, or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith. No evidence of any waiver or modification shall be offered or received in evidence at any proceeding, arbitration, or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such waiver or modification is in writing, duly executed as aforesaid. The parties further agree that the provisions of this ARTICLE 30 may not be waived except as herein set forth.

 

ARTICLE 31

 

TAXES

 

To the extent required by applicable law, the Company shall deduct and withhold all necessary Social Security taxes and all necessary federal and state withholding taxes and any other similar sums required by law to be withheld from any payments made pursuant to the terms of this Agreement.

 

ARTICLE 32

 

RECITALS

 

The Recitals to this Agreement are incorporated herein and shall constitute an integral part of this Agreement.

 

ARTICLE 33

 

SECTION 409A

 

To the extent applicable, the parties hereto intend that this Agreement comply with Section 409A of the Code and all guidance or regulations thereunder (“Section 409A”).  The parties hereby agree that this Agreement shall at all times be construed in a manner to comply with Section 409A and that should any provision be found not in compliance with Section 409A, the parties are hereby contractually obligated to execute any and all amendments to this Agreement deemed necessary and required by legal counsel for the Company to achieve compliance with Section 409A.  By execution and delivery of this Agreement, the Executive irrevocably waives any objections he may have to the amendments required by Section 409A.  In the event amendments are required to be made to this Agreement to comply with Section 409A, the Company shall use its commercially reasonable best efforts to provide the Executive with substantially the same benefits and payments he would have been entitled to pursuant to this Agreement had Section 409A not applied, but in a manner that is compliant with Section 409A.  The manner in which the immediately preceding sentence shall be implemented shall be the subject of good faith negotiations of the parties.  The parties also agree that in no event shall any payment required to be made pursuant to this Agreement that is considered deferred compensation within the meaning of Section 409A be accelerated in violation of Section 409A.  The parties further agree that any payments of deferred compensation that are made as a result of a separation from service cannot commence under Section 409A until the lapse of six (6) months after a separation from service (or death of the Executive, if earlier), to the extent that Executive is determined to be a “specified employee” (as that term is defined in Section 409A) and a six-month delay is required under Section 409A.  Any payment or portion thereof that must be delayed pursuant to this “specified employee” rule shall be paid, along with any interest accrued in accordance with this Agreement, in the seventh (7th) month following the Executive’s separation.

 

  

18

  

 

IN WITNESS WHEREOF, the parties have executed this Agreement on this the 30th day of December, 2008.

 

	  	
EXECUTIVE

	  	  
	  	
/s/    Robert E. Harrison (SEAL)

	  	
Robert E. Harrison

	  	  
	 	 
	 	 
	  	
ALLIANCE ONE INTERNATIONAL, INC.

	  	  
	  	
By: /s/    Michael K. McDaniel

	  	  
	  	
December 30, 2008

 

 

 

  

19

  

EXHIBIT 2

 

Vested Amounts Payable Under Certain Plans

 

Alliance One Savings and Profit Sharing Plan:  Vested account balance was $291,603.12 as of December 10, 2010; amount payable will be based on vested account balance when the distribution is processed.

Alliance One International Inc. Supplemental Retirement Account Plan:  Vested account balance as of March 31, 2011 is $501,251.43; amount payable under Plan terms will be based on vested account balance as of June 30, 2011.

Alliance One International Inc. Pension Plan:  Vested January 1, 2011 Account Balance (estimated) is $308,181.

Standard Commercial Corporation Supplemental Executive Retirement Plan:  Vested single life annuity benefit is $4,186.88 payable monthly commencing at age 65; actual amount paid will depend on the Executive's election as to form of payment under the Plan terms.

Outstanding stock options as of the Effective Date:

	
Grant Date

	
Grant Type

	
Grant Price

	
Outstanding (Vested + Unvested)

	  	
Outstanding & Exercisable following Termination (Exercise Price equal to or less than FMV on 12/14/2010)

	
Expiration Date following Termination

	
Cancelled at Termination (Options with Exercise Price greater than FMV on 12/14/2010)

	
8/14/2001

	
NQ

	
$5.83

	
36,000

	  	
0

	  	
36,000

	
8/13/2002

	
NQ

	
$6.30

	
36,000

	  	
0

	  	
36,000

	
6/11/2003

	
NQ

	
$5.80

	
36,000

	  	
0

	  	
36,000

	
8/30/2005

	
ISO

	
$3.96

	
70,000

	  	
70,000

	
12/14/2012

	
0

	
8/17/2006

	
NQ

	
$3.94

	
29,127

	  	
29,127

	
12/14/2012

	
0

	
8/17/2006

	
ISO

	
$3.94

	
40,873

	  	
40,873

	
12/14/2012

	
0

	
8/16/2007

	
NQ

	
$7.48

	
170,381

	  	
0

	  	
170,381

	
8/16/2007

	
ISO

	
$7.48

	
17,519

	  	
0

	  	
17,519

	
TOTAL

	  	  	
435,900

	  	
140,000

	  	
295,900

  

  

  

EXHIBIT 3

 

Amounts Payable Under AOI SERP

Capitalized terms in this Exhibit shall be defined as set forth in the AOI SERP.  Executive is the "Participant."

The Participant shall be entitled to a Normal Retirement Allowance in accordance with Section 3.01(a)(i) of the AOI SERP.

For purposes of Section 3.01(a)(i) of the AOI SERP, the Participant's Normal Retirement Allowance is a monthly payment of $27,358.86 (less applicable withholding taxes and deductions pursuant to Section 5 of the Agreement) commencing on his Normal Retirement Date (February 1, 2019).  The Normal Retirement Allowance is fixed and not subject to future adjustment on the basis of the Participant's marital status or any other factors.

For purposes of Section 3.01(b) of the SERP, if the Participant is married on his Normal Retirement Date, and his Spouse survives him, the Surviving Spouse's monthly allowance will be $13,679.43 (less applicable withholding taxes and deductions pursuant to Section 5 of the Agreement).

No benefit will be payable pursuant to Section 3.02 of the AOI SERP.

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