Document:

Exhibit 10.5

 

SOFTWARE JOINT OWNERSHIP AGREEMENT

 

This Software Joint Ownership Agreement (this “Agreement”) is entered into by and between El Paso Corporation (“El Paso”) and EP Energy Corporation (“EP Energy”) pursuant to that certain Separation and Distribution Agreement between them dated     , 2011 (the “SDA”).  This Agreement is a “Transaction Document” under the SDA.  El Paso and EP Energy are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.  The Parties hereby agree as follows:

 

1.             Capitalized Terms; Incorporation by Reference.

 

a.             Capitalized terms not otherwise defined in this Agreement shall have the meanings given to them in the SDA, which terms are incorporated herein by reference.  Articles and Sections in the SDA referenced in this Agreement are incorporated herein and shall apply to this Agreement as if written herein to the extent not in conflict with this Agreement.  Provisions in the SDA applicable to Transaction Documents shall be applicable to this Agreement to the extent not in conflict with this Agreement.

 

b.             The term “Jointly Owned Software” means those computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, set forth in Exhibit A, attached hereto and incorporated herein by reference, and shall include, to the extent existing: (i) descriptions, flow charts and other work products used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons (collectively, “Tools”), and (ii) documentation, including user manuals and other training documentation (collectively, “Documentation”), relating to any of the foregoing.

 

2.             Ownership of the Software.

 

a.             The Parties agree that the Jointly Owned Software has been jointly developed by them and is jointly owned by them.  Neither Party owes any reimbursement obligation to the other Party in connection with the development of any of the Jointly Owned Software.  For clarity, the Parties agree that the software set forth in Exhibit B and any internally developed software not set forth in Exhibit A is owned solely by El Paso and excluded from Jointly Owned Software.

 

b.             Each Party shall furnish to the other Party copies of any Jointly Owned Software, Tools and Documentation existing at the Effective Time to the extent not already in a Party’s possession, as requested by such Party in writing, and reasonably cooperate with each other in such exchange.  Requests for copies shall be sent to the attention of the Party’s Chief Information Officer at the address set forth in Section 8.5 of the SDA.   Requests for such copies shall be made within twelve (12) months of the Effective Time.  After that time, a Party may, but shall not be obligated to, provide any such copies.

 

c.             Each Party shall own any modifications it makes to the Jointly Owned Software after the Effective Time and any derivative works thereof which such Party creates after the Effective Time.  However, a Party may, in its sole discretion, provide the other Party with such modifications or derivative works if the other Party reimburses 50% of the cost of such modifications or derivative works, which modifications and derivative works shall then be considered as Jointly Owned Software.

 

1

 

3.             Use of the Software.  The parties agree that the Jointly Owned Software shall be used as, and only as, permitted by the provisions of this Agreement.

 

a.             Each Party and any members of its Group may use, modify, copy, distribute, execute, maintain and make derivative works of the Software only for the internal business purposes of such Party and/or its Group (collectively, “Use”).  The Parties agree not to market, distribute, sell, assign or license the Software to any Person who is not its Affiliate.

 

b.             Except as expressly provided in the Transition Services Agreement, neither Party shall have any obligation to maintain or support the Jointly Owned Software for the other Party, and each Party shall bear the costs of maintenance and support for its and its Group’s Use of the Jointly Owned Software.

 

c.             Each Party and its Group shall, at its own expense, maintain adequate security controls for its networks and computers to protect the Jointly Owned Software and related data from unauthorized third party intrusions/attacks (“Security Controls”).  Security Controls which are at least as protective as the Security Controls which El Paso maintains for its networks and computers as of the Effective Time shall be deemed adequate.

 

d.             Each Party and its Group shall comply with all Laws applicable to the Use of the Jointly Owned Software.

 

4.             Third Party Software.  It is the responsibility and liability of each Party to obtain any third party licenses which are embedded in the Jointly Owned Software or which are necessary to Use the Jointly Owned Software (“Third Party Licenses”).  Each Party and its Group shall comply with the terms of Third Party Licenses.

 

5.             Confidentiality.  The Jointly Owned Software shall be treated as Confidential Information of both Parties under Section 6.2 of the SDA.

 

6.             No Representations or Warranties.  Neither Party makes any representations or warranties of any kind whatsoever regarding the Jointly Owned Software, its Use, any adverse effects of Use on a Party’s networks, computer systems, files, records, databases or other software programs, or that the Jointly Owned Software is bug or virus free.  Each Party disclaims any and all warranties, express or implied, including without limitation warranties of merchantability or fitness for a particular purpose, or as to design, condition, quality, capacity, performance, material, workmanship, title and non-infringement with respect to the Jointly Owned Software.

 

7.  Indemnification.

 

a.             EP Energy.  EP Energy shall indemnify, defend and hold harmless the El Paso Group from and against all Liabilities arising from (i) any Use by the EP Energy Group of the Jointly Owned Software, (ii) any results and decisions from such Use,  (iii) the failure to obtain or comply with any Third Party Licenses, (iv) the failure to comply with Laws applicable to Use, and (v) any unauthorized intrusion by a third party into the EP Energy Group computer systems, which intrusion adversely impacts Use of the Jointly Owned Software by El Paso.

 

b.             El Paso.  El Paso shall indemnify, defend and hold harmless the EP Energy Group from and against all Liabilities arising from (i) any Use by the El Paso Group of the Jointly Owned Software, (ii) any results and decisions from such Use,  (iii) the failure to obtain or comply with any Third Party Licenses, (iv) the failure to comply with Laws applicable to Use, and (v) any unauthorized intrusion by a third party into the El Paso Group

 

2

 

computer systems, which intrusion adversely impacts Use of the Jointly Owned Software by EP Energy.

 

c.             Infringement Claims.  Third Party Claims that any of the Jointly Owned Software infringes the third Person’s intellectual property rights shall be treated as Shared Liabilities under Section 2.10 of the SDA with the Applicable Percentage of each Party being 50% and with El Paso being the Managing Party.  The provisions of Section 5.7 through 5.10, and Section 6.6 of the SDA shall apply to such Third Party Claims.  Notwithstanding the foregoing, if such Third Party Claims arise because of a Party’s modification of the Jointly Owned Software or creation of derivative works after the Effective Time, then such Third Party Claims shall not be treated as Shared Liabilities unless the modifications or derivative works become Jointly Owned Software pursuant to Section 2(c) of this Agreement, but instead such Third Party Claims shall be an EP Energy Liability in the case of EP Energy modifications and derivative works and an Excluded Liability in the case of EL Paso modifications and derivative works.

 

8.             No Franchise; No Joint Venture.   This Agreement does not create, extend or renew a: (i) franchise under any local, state, or federal law, or (ii) joint venture or partnership.

 

9.             Dispute Resolution.  The provisions of Article VII of the SDA shall apply to Disputes under this Agreement.  The Parties acknowledge that such Article provides for ADR procedures and a waiver of the right to a jury trial by the Parties.

 

10.           Audit Rights.  With reasonable advance written notice and during normal business hours, each Party shall have the right to audit the books, records, files and computer systems relating to the Jointly Owned Software of the other Party and its use to confirm compliance with this Agreement.  Such audits shall not be conducted more than once every twelve (12) months.  In the event that non-compliance is discovered, the audited Party shall reimburse the auditing Party the reasonable costs of the audit.

 

11.           Miscellaneous.  The provisions of Article VII are incorporated herein by reference.

 

12.           Effective Time.  This Agreement is effective when the Effective Time occurs.  Notwithstanding anything in this Agreement to the contrary, if the SDA is terminated prior to the Effective Time, this Agreement shall be of no further force and effect.

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers.

 

 

	
EL   PASO CORPORATION
    	
EP   ENERGY CORPORATION
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Title:
    	
 
    	
 
    	
Title:
    	
 
    

 

3Exhibit 10.6

 

EP Energy Corporation

2011 Omnibus Incentive Plan

 

 

TABLE OF CONTENTS

 

	
SECTION 1
    	
 
    	
ESTABLISHMENT   AND OBJECTIVES
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 2
    	
 
    	
DEFINITIONS
    	
1
    
	
2.1
    	
 
    	
Award
    	
1
    
	
2.2
    	
 
    	
Award   Agreement
    	
1
    
	
2.3
    	
 
    	
Beneficiary
    	
1
    
	
2.4
    	
 
    	
Board   of Directors
    	
2
    
	
2.5
    	
 
    	
Cash   Awards
    	
2
    
	
2.6
    	
 
    	
Cause
    	
2
    
	
2.7
    	
 
    	
Change   in Capitalization
    	
2
    
	
2.8
    	
 
    	
Change   in Control
    	
2
    
	
2.9
    	
 
    	
Code
    	
4
    
	
2.10
    	
 
    	
Common   Stock
    	
4
    
	
2.11
    	
 
    	
Consultant
    	
5
    
	
2.12
    	
 
    	
Covered   Employee
    	
5
    
	
2.13
    	
 
    	
Director
    	
5
    
	
2.14
    	
 
    	
Effective   Date
    	
5
    
	
2.15
    	
 
    	
Employee
    	
5
    
	
2.16
    	
 
    	
Employee
    	
5
    
	
2.17
    	
 
    	
Exchange   Act
    	
5
    
	
2.18
    	
 
    	
Fair   Market Value
    	
5
    
	
2.19
    	
 
    	
Good   Reason
    	
6
    
	
2.20
    	
 
    	
Incentive   Award
    	
6
    
	
2.21
    	
 
    	
Incentive   Stock Option
    	
6
    
	
2.22
    	
 
    	
Management   Committee
    	
7
    
	
2.23
    	
 
    	
Maximum   Annual Employee Grant
    	
7
    
	
2.24
    	
 
    	
Nonqualified   Option
    	
7
    
	
2.25
    	
 
    	
Option
    	
7
    
	
2.26
    	
 
    	
Option   Price
    	
7
    
	
2.27
    	
 
    	
Other   Stock-Based Award
    	
7
    
	
2.28
    	
 
    	
Participant
    	
7
    
	
2.29
    	
 
    	
Performance   Goals
    	
7
    
	
2.30
    	
 
    	
Performance   Period
    	
10
    
	
2.31
    	
 
    	
Performance   Shares
    	
10
    
	
2.32
    	
 
    	
Performance   Units
    	
10
    
	
2.33
    	
 
    	
Plan   Administrator
    	
10
    
	
2.34
    	
 
    	
Restricted   Stock
    	
10
    
	
2.35
    	
 
    	
Restricted   Stock Units
    	
10
    
	
2.36
    	
 
    	
Restriction   Period
    	
10
    
	
2.37
    	
 
    	
Rule 16b-3
    	
10
    
	
2.38
    	
 
    	
Section 16   Insider
    	
10
    
	
2.39
    	
 
    	
Section 162(m)
    	
11
    

 

i

 

	
2.40
    	
 
    	
Stock   Appreciation Right
    	
11
    
	
2.41
    	
 
    	
Subsidiary
    	
11
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 3
    	
 
    	
ADMINISTRATION
    	
11
    
	
3.1
    	
 
    	
Plan   Administrator
    	
11
    
	
3.2
    	
 
    	
Authority   of Plan Administrator
    	
11
    
	
3.3
    	
 
    	
Indemnification   of Plan Administrator
    	
12
    
	
3.4
    	
 
    	
Delegation   to Management Committee
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 4
    	
 
    	
ELIGIBILITY
    	
13
    
	
4.1
    	
 
    	
Eligibility
    	
13
    
	
4.2
    	
 
    	
Actual   Participation
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 5
    	
 
    	
SHARES   AVAILABLE FOR THE PLAN
    	
13
    
	
5.1
    	
 
    	
Aggregate   Shares
    	
13
    
	
5.2
    	
 
    	
Limitations
    	
14
    
	
5.3
    	
 
    	
Adjustments   in Authorized Shares
    	
14
    
	
5.4
    	
 
    	
Effect   of Certain Transactions
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 6
    	
 
    	
STOCK   OPTIONS
    	
16
    
	
6.1
    	
 
    	
Grant   of Options
    	
16
    
	
6.2
    	
 
    	
Special   Provisions Applicable to Incentive Stock Options
    	
16
    
	
6.3
    	
 
    	
Terms   of Options
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 7
    	
 
    	
STOCK   APPRECIATION RIGHTS
    	
20
    
	
7.1
    	
 
    	
Grant   of Stock Appreciation Rights
    	
20
    
	
7.2
    	
 
    	
Exercise   of Stock Appreciation Rights
    	
20
    
	
7.3
    	
 
    	
Special   Provisions Applicable to Stock Appreciation Rights
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 8
    	
 
    	
PERFORMANCE   SHARES AND PERFORMANCE UNITS
    	
22
    
	
8.1
    	
 
    	
Grant   of Performance Shares and Performance Units
    	
22
    
	
8.2
    	
 
    	
Value   of Performance Shares and Performance Units
    	
22
    
	
8.3
    	
 
    	
Payment   of Performance Shares and Performance Units
    	
22
    
	
8.4
    	
 
    	
Form and   Timing of Payment
    	
23
    
	
8.5
    	
 
    	
Nontransferability   of Performance Shares and Performance Units
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 9
    	
 
    	
RESTRICTED   STOCK
    	
23
    
	
9.1
    	
 
    	
Grant   of Restricted Stock
    	
23
    
	
9.2
    	
 
    	
Restriction   Period
    	
23
    
	
9.3
    	
 
    	
Other   Restrictions
    	
24
    
	
9.4
    	
 
    	
Voting   Rights; Dividends and Other Distributions
    	
24
    
	
9.5
    	
 
    	
Issuance   of Shares; Settlement of Awards
    	
24
    

 

ii

 

	
SECTION 10
    	
 
    	
RESTRICTED   STOCK UNITS
    	
24
    
	
10.1
    	
 
    	
Grant   of Restricted Stock Units
    	
24
    
	
10.2
    	
 
    	
Restriction   Period
    	
25
    
	
10.3
    	
 
    	
Other   Restrictions
    	
25
    
	
10.4
    	
 
    	
Dividend   Equivalents
    	
25
    
	
10.5
    	
 
    	
Issuance   of Shares; Settlement of Awards
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 11
    	
 
    	
INCENTIVE   AWARDS
    	
26
    
	
11.1
    	
 
    	
Incentive   Awards
    	
26
    
	
11.2
    	
 
    	
Performance   Goal Certification
    	
26
    
	
11.3
    	
 
    	
Discretion   to Reduce Awards; Participant’s Performance
    	
26
    
	
11.4
    	
 
    	
Required   Payment of Incentive Awards
    	
26
    
	
11.5
    	
 
    	
Nontransferability   of Incentive Awards
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 12
    	
 
    	
CASH   AWARDS AND OTHER STOCK-BASED AWARDS
    	
27
    
	
12.1
    	
 
    	
Grant   of Cash Awards
    	
27
    
	
12.2
    	
 
    	
Other   Stock-Based Awards
    	
27
    
	
12.3
    	
 
    	
Value   of Cash Awards and Other Stock-Based Awards
    	
27
    
	
12.4
    	
 
    	
Payment   of Cash Awards and Other Stock-Based Awards
    	
28
    
	
12.5
    	
 
    	
Transferability   of Cash Awards and Other Stock-Based Awards
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 13
    	
 
    	
TERMINATION   OF EMPLOYMENT, SERVICE OR DIRECTORSHIP
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 14
    	
 
    	
EFFECT   OF A CHANGE IN CONTROL
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 15
    	
 
    	
REGULATORY   APPROVALS AND LISTING
    	
29
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 16
    	
 
    	
TERM   OF PLAN
    	
30
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 17
    	
 
    	
GENERAL   PROVISIONS
    	
30
    
	
17.1
    	
 
    	
Forfeiture   Events
    	
30
    
	
17.2
    	
 
    	
Continued   Service
    	
31
    
	
17.3
    	
 
    	
Other   Compensation
    	
31
    
	
17.4
    	
 
    	
Nontransferabilty
    	
31
    
	
17.5
    	
 
    	
Unfunded   Obligations
    	
31
    
	
17.6
    	
 
    	
Beneficiaries
    	
32
    
	
17.7
    	
 
    	
Governing   Law
    	
32
    
	
17.8
    	
 
    	
Satisfaction   of Tax Obligations
    	
32
    
	
17.9
    	
 
    	
Participants   in Foreign Jurisdictions
    	
33
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 18
    	
 
    	
COMPLIANCE   WITH RULE 16b-3, SECTION 162(m) AND SECTION 409A
    	
33
    
	
18.1
    	
 
    	
Rule 16b-3   of the Exchange Act and Section 162(m) of the Code
    	
33
    
	
18.2
    	
 
    	
Section 409A   of the Code
    	
33
    

 

iii

 

	
SECTION 19
    	
 
    	
AMENDMENT,   TERMINATION OR DISCONTINUANCE OF THE PLAN
    	
34
    
	
19.1
    	
 
    	
Amendment   of Plan
    	
34
    
	
19.2
    	
 
    	
Termination   or Suspension of Plan
    	
34
    

 

iv

 

EP Energy Corporation

2011 Omnibus Incentive Plan

 

SECTION 1   ESTABLISHMENT AND OBJECTIVES

 

EP Energy Corporation (hereinafter referred to as the “Company”) hereby establishes an incentive compensation plan to be known as the “EP Energy Corporation 2011 Omnibus Incentive Plan” (hereinafter referred to as the “Plan”).  The Plan shall become effective on [                    ] (the “Effective Date”) and shall remain in effect as provided in Section 16 hereof.

 

The objectives of the Plan are to promote the interests of the Company and its stockholders by strengthening its ability to attract and retain the employment and or services of Participants (as hereinafter defined) by furnishing suitable recognition of their ability and experience, to align their interests and efforts to the long-term interests of the Company’s stockholders, and to provide them with a direct incentive to achieve the Company’s strategic and financial goals.

 

SECTION 2   DEFINITIONS

 

Unless otherwise required by the context, the following terms when used in the Plan shall have the meanings set forth in this Section 2:

 

2.1                               Award

 

An “Award” granted under the Plan means any Incentive Stock Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Incentive Award, Cash Award or Other Stock-Based Award, in each case payable in cash or in shares of Common Stock as may be designated by the Plan Administrator.

 

2.2                               Award Agreement

 

The “Award Agreement” is the written agreement setting forth the terms and conditions applicable to an Award granted under the Plan (which, in the discretion of the Plan Administrator, need not be countersigned by a Participant).  The Plan Administrator may, in its discretion, provide for the use of electronic, internet or other non-paper Award Agreements.

 

2.3                               Beneficiary

 

The person or persons designated by the Participant pursuant to Section 6.3(f) or 

 

1

 

Section 17.6 of this Plan to whom payments are to be paid pursuant to the terms of the Plan in the event of the Participant’s death.

 

2.4                               Board of Directors

 

The Board of Directors of the Company.

 

2.5                               Cash Awards

 

As defined in Section 12.1.

 

2.6                               Cause

 

A termination of a Participant by his or her Employer shall be for “Cause” if the Employer determines that the Participant has (i) failed to substantially perform his or her duties to the Employer’s satisfaction (other than a failure resulting from the Participant’s incapacity due to physical or mental illness) which has not been cured to the Employer’s satisfaction; (ii) willfully engaged in conduct which is injurious to the Company or any of its affiliates, monetarily or otherwise; (iii) has been convicted of any felony, or a misdemeanor involving moral turpitude; or (iv) willfully engaged in conduct in violation of the Company’s policies or Code of Conduct. Whether a Participant has been terminated for Cause will be determined by the Employer in the exercise of its sole discretion.

 

2.7                               Change in Capitalization

 

A “Change in Capitalization” means any increase or reduction in the number of shares of Common Stock, any change (including, without limitation, in the case of a spin-off, dividend or other distribution in respect of shares, a change in value) in the shares of Common Stock or any exchange of shares of Common Stock for a different number or kind of shares of Common Stock or other securities of the Company or another corporation, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants, rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise.

 

2.8                               Change in Control

 

A “Change in Control” shall mean the occurrence of any of the following after the Effective Date:

 

(a)                                  An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than twenty percent (20%) of (1) the then-outstanding shares of Common Stock (or any other securities into which such shares of Common Stock are changed or for which such shares of Common Stock are exchanged) 

 

2

 

(the “Shares”) or (2) the combined voting power of the Company’s then-outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Shares or Voting Securities in a “Non-Control Acquisition” (as hereinafter defined) shall not constitute a Change in Control.  A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Company (for purposes of this definition, a “Related Entity”), (ii) the Company or any Related Entity, or (iii) any Person in connection with a “Non-Control Transaction” (as hereinafter defined);

 

(b)                                 The individuals who, as of the Effective Date, are members of the Board of Directors (the “Incumbent Board of Directors”), cease for any reason to constitute at least a majority of the members of the Board of Directors or, following a Merger (as hereinafter defined), the board of directors of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”) or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however, that, if the election, or nomination for election by the Company’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board of Directors, such new director shall, for purposes of the Plan, be considered a member of the Incumbent Board of Directors; and provided, further, however, that no individual shall be considered a member of the Incumbent Board of Directors if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Proxy Contest; or

 

(c)                                  The consummation of:

 

(i)                                     A merger, consolidation or reorganization (1) with or into the Company or (2) in which securities of the Company are issued (a “Merger”), unless such Merger is a “Non-Control Transaction.”  A “Non-Control Transaction” shall mean a Merger in which:

 

(A)                              the stockholders of the Company immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation;

 

(B)                                the individuals who were members of the Incumbent Board of Directors immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of 

 

3

 

directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and

 

(C)                                no Person other than (1) the Company, (2) any Related Entity, or (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to the Merger, was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to the Merger had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Shares or Voting Securities, has Beneficial Ownership, directly or indirectly, of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation, if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation;

 

(ii)                                  A complete liquidation or dissolution of the Company; or

 

(iii)                               The sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person (other than (x) a transfer to a Related Entity, (y) a transfer under conditions that would constitute a Non-Control Transaction, with the disposition of assets being regarded as a Merger for this purpose or (z) the distribution to the Company’s stockholders of the stock of a Related Entity or any other assets).

 

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons; provided, that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company and, after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities and such Beneficial Ownership increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.

 

2.9                               Code

 

The Internal Revenue Code of 1986, as amended and in effect from time to time, and the temporary or final regulations of the Secretary of the U.S. Treasury adopted pursuant to the Code.

 

4

 

2.10                        Common Stock

 

The Common Stock of the Company, $0.01 par value per share, or such other class of shares or other securities as may be applicable pursuant to the provisions of Section 5.

 

2.11                        Consultant

 

“Consultant” means a natural person who is neither an Employee nor a Director and who performs services for the Company or a Subsidiary pursuant to a contract, provided that those 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 an market for the Company’s securities.

 

2.12                        Covered Employee

 

A “Covered Employee” means, with respect to any grant of an Award, a Participant who the Plan Administrator deems is or may be or become a “covered employee” as defined in Section 162(m)(3) of the Code for any year and who may receive remuneration over $1 million in such year which would not be deductible under Section 162(m).

 

2.13                        Director

 

“Director” means any individual who is a member of the Board of Directors; provided, however, that any member of the Board of Directors who is employed by the Company shall be considered an Employee under this Plan.

 

2.14                        Effective Date

 

“Effective Date” shall have the meaning ascribed to such term in Section 1 hereof.

 

2.15                        Employee

 

“Employee” means any employee of the Company or a Subsidiary.

 

2.16                        Employer

 

“Employer” shall mean, as to any Participant who is an Employee, the Company or Subsidiary that employs the Participant on such date.

 

2.17                        Exchange Act

 

The Securities Exchange Act of 1934, as amended.

 

2.18                        Fair Market Value

 

The “Fair Market Value” of the Common Stock on any date shall be deemed to be the average between the highest and lowest quoted selling prices at which Common Stock is sold on such date as reported on the consolidated transaction reporting system for the

 

5

 

national securities exchange on which the Common Stock is listed on that date, or if no Common Stock was traded on such date, on the next preceding day on which Common Stock was so traded.  If the Fair Market Value of the Common Stock cannot be determined pursuant to the preceding provisions, the “Fair Market Value” of the Common Stock shall be determined by the Plan Administrator in good faith.

 

2.19                        Good Reason

 

“Good Reason” shall mean, as to any Participant who is an officer of his or her Employer, the occurrence of any of the following events or conditions following a Change in Control:

 

(a)                                  a change in the Participant’s status, position or responsibilities (including reporting responsibilities) which represents a substantial reduction of his or her status, position or responsibilities as in effect immediately prior thereto; the assignment to the Participant of any duties or responsibilities which are inconsistent with such status, position or responsibilities; or any removal of the Participant from or failure to reappoint or reelect him or her to any of such positions, except in connection with the termination of his or her employment for Cause, Permanent Disability, as a result of his or her death, or by the Participant other than for Good Reason;

 

(b)                                 a reduction in the Participant’s annual base salary;

 

(c)                                  the requirement by the Participant’s Employer (without the consent of the Participant) that he or she have a principal place of employment which is outside a fifty (50) mile radius of his or her principal place of employment immediately prior to a Change in Control;

 

(d)                                 the failure by the Company or any of its affiliates to provide the Participant with compensation and benefits at least equal, based on the aggregate value, to those provided for under the compensation and employee benefit plans of the Company and its affiliates as in effect immediately prior to the Change in Control;

 

(e)                                  any material breach by the Company of any provision of this Plan; or

 

(f)                                    any purported termination of the Participant’s employment for Cause by the Employer which does not otherwise comply with the terms of this Plan.

 

2.20                        Incentive Award

 

A percentage of base salary, fixed dollar amount or other measure of compensation which Participants are eligible to receive, in cash and/or other Awards under the Plan, at the end of a Performance Period if certain performance measures are achieved.

 

2.21                        Incentive Stock Option

 

An Option intended to meet the requirements of an Incentive Stock Option as

 

6

 

defined in Section 422 of the Code, as in effect at the time of grant of such option, or any statutory provision that may hereafter replace such Section.

 

2.22                        Management Committee

 

A committee consisting of the Chief Executive Officer and such other officers of the Company appointed by the Chief Executive Officer.

 

2.23                        Maximum Annual Employee Grant

 

The Maximum Annual Employee Grant set forth in Section 5.2.

 

2.24                        Nonqualified Option

 

An Option which is not intended to meet the requirements of an Incentive Stock Option as defined in Section 422 of the Code.

 

2.25                        Option

 

Option means an Incentive Stock Option or a Nonqualified Option granted under the Plan, as described in Section 6 herein.

 

2.26                        Option Price

 

The price per share of Common Stock at which an Option is exercisable.

 

2.27                        Other Stock-Based Award

 

As defined in Section 12.2.

 

2.28                        Participant

 

An eligible Employee, Director or Consultant to whom Awards are granted under the Plan, to the extent such an individual is designated as a Participant as set forth in Section 4.

 

2.29                        Performance Goals

 

The Plan Administrator may grant Awards subject to Performance Goals to any Participant, including, without limitation, to any Covered Employee.  As to any such Awards, the Plan Administrator shall establish one or more of the following Performance Goals for each Performance Period in writing.  Each Performance Goal selected for a particular Performance Period shall include any one or more of the following, either individually, alternatively or in any combination, applied to either the Company as a whole or to a Subsidiary or business unit, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to the pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Plan Administrator:

 

7

 

·                                          earnings;

·                                          earnings before interest and taxes;

·                                          earnings before interest, taxes, depreciation and amortization;

·                                          earnings per share;

·                                          net income;

·                                          operating income;

·                                          revenues;

·                                          operating cash flow;

·                                          free cash flow (defined as operating cash flow less capital expenditures less dividends);

·                                          debt level;

·                                          debt ratios or other measures of credit quality or liquidity;

·                                          equity ratios;

·                                          expenses;

·                                          cost reduction targets;

·                                          capital expended;

·                                          working capital;

·                                          weighted average cost of capital;

·                                          operating or profit margins;

·                                          interest-sensitivity gap levels;

·                                          return on assets;

·                                          return on net assets;

·                                          return on equity or capital employed;

·                                          return on total capital;

·                                          amount of the oil and gas reserves;

·                                          oil and gas reserve additions;

·                                          oil and gas reserve replacement ratios;

·                                          costs of finding oil and gas reserves;

·                                          oil and gas reserve replacement costs;

·                                          daily natural gas and/or oil production;

·                                          production and production growth;

·                                          absolute or per unit operating and maintenance costs;

·                                          absolute or per unit general and administrative costs;

·                                          absolute or per unit lease operating expenses;

·                                          operating and maintenance cost management;

·                                          performance of investment in oil and/or gas properties;

·                                          capital efficiency targets (capital/new volumes);

·                                          redeployable capital savings targets;

·                                          absolute or per unit cash costs;

·                                          present value ratio;

·                                          drilling inventory growth (% or absolute);

·                                          production or reserves per debt adjusted shares

·                                          total shareholder return;

·                                          charge-offs;

·                                          asset sale targets;

 

8

 

·                                          asset quality levels;

·                                          value of assets;

·                                          Fair Market Value of the Common Stock;

·                                          employee retention/attrition rates;

·                                          investments;

·                                          regulatory compliance;

·                                          satisfactory internal or external audits;

·                                          improvement of financial ratings;

·                                          safety targets;

·                                          environmental targets;

·                                          economic value added;

·                                          achievement of balance sheet or income statement objectives;

·                                          project completion measures; and/or

·                                          other measures such as those relating to acquisitions, dispositions, or customer satisfaction.

 

The Plan Administrator shall adjust the Performance Goals to include or exclude extraordinary charges, gain or loss on the disposition of business units, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisitions, acquisition expenses, including expenses related to goodwill and other intangible assets, stock offerings, stock repurchases and loan loss provisions.  The Plan Administrator may also provide for the manner in which performance will be measured against the Performance Goals (or may adjust the Performance Goals) to reflect the impact of specified corporate transactions (such as a stock split, stock dividend or other Change in Capitalization), special charges, and tax law changes.  In addition, the Plan Administrator may make such adjustments to the Performance Goals applicable to Participants who are not Covered Employees as it determines are appropriate.  Such adjustments may occur at the time of the granting of an Award, or at any time thereafter, but, in the case of Covered Employees, only to the extent permitted by Section 162(m).  Performance Goals may include a threshold level of performance below which no Award shall be earned, target levels of performance at which specific Awards will be earned, and a maximum level of performance at which the maximum level of Awards will be earned.

 

In establishing Performance Goals with respect to Covered Employees, the Plan Administrator shall ensure such Performance Goals (i) are established no later than the end of the first 90 days of the Performance Period (or such other time permitted by the Internal Revenue Service), and (ii) satisfy all other applicable requirements imposed by Section 162(m), including the requirement that such Performance Goals be stated in terms of an objective formula or standard, and the Plan Administrator may not in any event increase the amount of compensation payable to a Covered Employee upon the satisfaction of any Performance Goal.  Prior to the payment of any “performance-based compensation” within the meaning of Section 162(m), the Plan Administrator shall certify in writing the extent to which the applicable Performance Goals were, in fact, achieved and the amounts to be paid, vested or delivered as a result thereof; provided, that the Plan Administrator may reduce, but not increase, such amount.

 

9

 

2.30                        Performance Period

 

That period of time during which Performance Goals are evaluated to determine the vesting or granting of Awards under the Plan, as the Plan Administrator may determine.

 

2.31                        Performance Shares

 

An award granted under the Plan representing the right to receive a number of shares of Common Stock for each performance share granted, as the Plan Administrator may determine.

 

2.32                        Performance Units

 

An award granted under the Plan representing the right to receive a payment equal to the value of a performance unit, as the Plan Administrator may determine.

 

2.33                        Plan Administrator

 

Those committees appointed and authorized pursuant to Section 3 to administer the Plan.

 

2.34                        Restricted Stock

 

Common Stock granted under the Plan that is subject to the requirements of Section 9 and such other restrictions as the Plan Administrator deems appropriate.

 

2.35                        Restricted Stock Units

 

An award granted under the Plan representing a right to receive a payment equal to the value of a share of Common Stock.

 

2.36                        Restriction Period

 

The period Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture and are not transferable, as determined by the Plan Administrator pursuant to Section 3.2(b) and as provided in Section 9 and 10 herein.

 

2.37                        Rule 16b-3

 

Rule 16b-3 of the General Rules and Regulations under the Exchange Act.

 

2.38                        Section 16 Insider

 

Any person who is selected by the Plan Administrator to receive an Award pursuant to the Plan and who is or may be or become subject to the requirements of Section 16 of the Exchange Act, and the rules and regulations promulgated thereunder.

 

10

 

2.39                        Section 162(m)

 

Section 162(m) of the Code, and regulations promulgated thereunder.

 

2.40                        Stock Appreciation Right

 

Stock Appreciation Right means an Award granted to a Participant, either alone or in connection with a related Option, as described in Section 7 herein.

 

2.41                        Subsidiary

 

Subsidiary means any corporation in which the Company owns, directly or indirectly, at least fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns, directly or indirectly, at least fifty percent (50%) of the combined equity thereof. Notwithstanding the foregoing, for purposes of determining whether any individual may be a Participant for purposes of any grant of Incentive Stock Options, “Subsidiary” shall have the meaning ascribed to such term in Section 424(f) of the Code.

 

SECTION 3   ADMINISTRATION

 

3.1                               Plan Administrator

 

(a)                                  The Compensation Committee of the Board of Directors shall be the Plan Administrator with respect to all Covered Employees and all Section 16 Insiders.  As to these individuals, the Plan Administrator shall be constituted at all times so as to (i) be “independent” as such term is defined pursuant to the rules of any stock exchange on which the Common Stock may then be listed, and (ii) meet the non-employee director standards of Rule 16b-3 and the outside director requirements of Section 162(m), so long as any of the Company’s equity securities are registered pursuant to Section 12(b) or 12(g) of the Exchange Act.

 

(b)                                 Other than as set forth in Section 3.1(a), the Management Committee shall be the Plan Administrator.  The Chief Executive Officer may from time to time remove members from, or add members to, the Management Committee.

 

(c)                                  Notwithstanding Sections 3.1(a) and 3.1(b), the Board of Directors may designate itself or the Compensation Committee of the Board of Directors as the Plan Administrator as to any Participant or groups of Participants.

 

3.2                               Authority of Plan Administrator

 

Subject to the express terms and conditions set forth herein, the Plan Administrator shall have the power from time to time to:

 

11

 

(a)                                  determine those individuals to whom Awards shall be granted under the Plan and the number of shares or amount of cash subject to such Awards and prescribe the terms and conditions (which need not be identical) of each such Awards, including, in the case of Options and Stock Appreciation Rights, the Option Price, vesting schedule and duration;

 

(b)                                 set the terms and conditions of any Award consistent with the terms of the Plan, including the designation of any applicable Restriction Period;

 

(c)                                  establish Performance Goals for any Performance Period and determine whether such goals were satisfied;

 

(d)                                 approve forms of Award Agreement for use under the Plan;

 

(e)                                  make any amendments, modifications or adjustments to the terms of any outstanding Awards, as permitted by the Plan;

 

(f)                                    construe and interpret the Plan and the Awards granted hereunder and decide all questions of fact arising in its application;

 

(g)                                 establish, amend and revoke rules and regulations for the administration of the Plan;

 

(h)                                 exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and

 

(i)                                     generally, exercise such powers and perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan.

 

All decisions and determinations by the Plan Administrator in the exercise of the above powers shall be final, binding and conclusive upon the Company, its Subsidiaries, the Participants and all other persons having or claiming any interest therein.

 

3.3                               Indemnification of Plan Administrator

 

Each member of any committee acting as Plan Administrator, while serving as such, shall be entitled, in good faith, to rely or act upon any advice of the Company’s independent auditors, counsel or consultants hired by the committee, or other agents assisting in the administration of the Plan.  The Plan Administrator and any officers or employees of the Company acting at the direction or on behalf of the Company shall not be personally liable for any action or determination taken or made, or not taken or made, in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected under the Company’s charter or by-laws with respect to any such action or determination.

 

12

 

3.4                               Delegation to Management Committee

 

To the maximum extent permitted by applicable law, the Board of Directors may delegate to the Management Committee the authority (i) to designate the individuals who shall be Participants, (ii) to determine the Awards to be granted to any such Participants or (iii) both (i) and (ii); provided, however, that the Management Committee shall not have the authority to grant Awards to any member of the Management Committee or to a Director.  Any such delegation shall be made by resolution of the Board of Directors, and such resolution shall set forth the total number of shares of Common Stock subject to such delegation.

 

SECTION 4   ELIGIBILITY

 

4.1                               Eligibility

 

Persons eligible to participate in the Plan include all Employees, Directors and Consultants, as determined by the Plan Administrator in its sole discretion.

 

4.2 Actual Participation

 

Subject to the provisions of the Plan, the Plan Administrator may, from time to time, select from all eligible Employees, Directors and Consultants, those to whom Awards shall be granted and shall determine the nature and amount of each Award. The Plan Administrator may establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Participants favorable treatment under such laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan.

 

SECTION 5   SHARES AVAILABLE FOR THE PLAN

 

5.1                               Aggregate Shares

 

Subject to adjustment as provided in Section 5.3, the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under the Plan is [                    ].

 

Any shares of Common Stock that are potentially deliverable under an Award granted under this Plan that is cancelled, forfeited, settled in cash, expires or is otherwise terminated without delivery of such shares shall not be counted as having been delivered under the Plan.  Likewise, shares of Common Stock that have been issued in connection with an Award of Restricted Stock that is canceled or forfeited prior to vesting or settled in cash, causing the shares to be returned to the Company, shall not be counted as having been delivered under the Plan.

 

13

 

If shares of Common Stock are returned to the Company in satisfaction of taxes relating to Restricted Stock, in connection with a cash out of Restricted Stock (but excluding upon forfeiture of Restricted Stock) or in connection with the tendering of shares by a Participant in satisfaction of the exercise price or taxes relating to an Award, such issued shares shall not become available again under the Plan.  Each Stock Appreciation Right issued under the Plan will be counted as one share issued under the Plan without regard to the number of shares issued to the Participant upon exercise of such Stock Appreciation Right.

 

Notwithstanding any other provision in this Section 5.1, the grant of any Award that cannot by its terms be settled in shares of Common Stock shall not result in the reduction of the number of shares of Common Stock available for Awards under the Plan.

 

Shares of Common Stock delivered pursuant to the Plan may be authorized but unissued shares of the Company, treasury shares, or shares purchased on the open market, as determined by the Plan Administrator.

 

5.2                               Limitations

 

Subject to adjustment as provided in Section 5.3, the following limitations shall apply:

 

The maximum number of shares and maximum amount with respect to which Awards under this Plan may be granted to any Participant in any one calendar year shall not exceed: (i) 2,000,000 shares, in the case of Incentive Stock Options, Nonqualified Options or Stock Appreciation Rights; (ii) 1,000,000 shares in the case of Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units or Other Stock-Based Awards; and (iii) $10,000,000 worth of other Awards under the Plan, including Incentive Awards.  Collectively, the foregoing maximums referred to in this Section 5.2 shall be referred to as the “Maximum Annual Employee Grants.”

 

5.3                               Adjustments in Authorized Shares

 

(a)                                  In the event of a Change in Capitalization, such adjustment shall be made to (i) the maximum number and class of shares of Common Stock or other stock or securities with respect to which Awards may be granted under the Plan, (ii) the maximum number and class of shares of Common Stock or other stock or securities that may be issued upon exercise of Nonqualified Options and Incentive Stock Options, (iii) the Maximum Annual Employee Grants, (iv) the number and class of shares of Common Stock or other stock or securities which are subject to outstanding Awards granted under the Plan and the Option Price or grant price therefor, if applicable, (v) the Performance Goals (vi) and other terms and conditions of outstanding Awards, as may be determined to be appropriate and equitable by the Plan Administrator, in its sole discretion, to prevent dilution or enlargement of rights. Any such adjustment shall be final, binding and conclusive on all persons claiming any right or interest under the Plan.

 

14

 

(b)                                 Any such adjustment in the shares of Common Stock or other stock or securities (i) subject to outstanding Incentive Stock Options (including any adjustments in the exercise price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code or (ii) subject to outstanding Awards that are intended to qualify as performance-based compensation under Section 162(m) shall be made in such a manner as not to adversely affect the treatment of the Awards as performance-based compensation.

 

(c)                                  If, by reason of a Change in Capitalization, a Participant shall be entitled to, or shall be entitled to exercise an Option or Stock Appreciation Right with respect to, new, additional or different shares of stock or securities of the Company or any other corporation, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the shares of Common Stock subject to the Option or Stock Appreciation Right, as the case may be, prior to such Change in Capitalization.

 

5.4                               Effect of Certain Transactions

 

Following (a) the liquidation or dissolution of the Company or (b) a merger or consolidation of the Company (a “Transaction”), (i) each outstanding Award shall be treated as provided for in the agreement entered into in connection with the Transaction (which treatment may be different as among different types of Awards and different holders thereof) or (ii) if not so provided in such agreement, each Participant shall be entitled to receive in respect of each share of Common Stock subject to any outstanding Awards, upon exercise of any Option or Stock Appreciation Right or payment or transfer in respect of any other Award, the same number and kind of stock, securities, cash, property or other consideration that each holder of a share of Common Stock was entitled to receive in the Transaction in respect of a share of Common Stock; provided, however, that such stock, securities, cash, property, or other consideration shall remain subject to all of the conditions, restrictions and performance criteria which were applicable to Awards prior to such Transaction, but giving effect to any applicable provision of this Plan or any Award Agreement if the Transaction is a Change in Control.  Without limiting the generality of the foregoing, the treatment of outstanding Options and Stock Appreciation Rights pursuant to clause (i) of this Section 5.4 in connection with a Transaction in which the consideration paid or distributed to the Company’s stockholders is not entirely shares of common stock of the acquiring or resulting corporation may include the cancellation of outstanding Options and Stock Appreciation Rights upon consummation of the Transaction provided either (x) the holders of affected Options and Stock Appreciation Rights have been given a period of at least fifteen (15) days prior to the date of the consummation of the Transaction to exercise the Options and Stock Appreciation Rights (whether or not they were otherwise exercisable) or (y) the holders of the affected Options and Stock Appreciation Rights are paid (in cash or cash equivalents) in respect of each share of Common Stock covered by the Options or Stock Appreciation Rights being cancelled an amount equal to the excess, if any, of the per share price paid or distributed to stockholders in the Transaction (the value of any non-cash consideration to be determined by the Plan

 

15

 

Administrator in its sole discretion) over the exercise price thereof.  For avoidance of doubt, (1) the cancellation of Options and Stock Appreciation Rights pursuant to clause (y) of the preceding sentence may be effected notwithstanding anything to the contrary contained in this Plan or any Award Agreement and (2) if the amount determined pursuant to clause (y) of the preceding sentence is zero or less, the affected Options and Stock Appreciation Rights may be cancelled without any payment therefor.  The treatment of any Award as provided in this Section 5.4 shall be conclusively presumed to be appropriate for purposes of Section 5.3.

 

SECTION 6   STOCK OPTIONS

 

6.1                               Grant of Options

 

(a)                                  Options may be granted to Participants in such number, upon such terms, and at such times during the term of the Plan as the Plan Administrator shall determine.

 

(b)                                 An Option granted under the Plan may be either an Incentive Stock Option or a Nonqualified Option; provided, however, that Incentive Stock Options may be awarded only to Employees.

 

6.2                               Special Provisions Applicable to Incentive Stock Options

 

Each provision of the Plan and each Incentive Stock Option granted thereunder shall be construed so that each such option shall qualify as an Incentive Stock Option, and any provision thereof that cannot be so construed shall be disregarded, unless the Participant agrees otherwise.  The total number of shares which may be purchased upon the exercise of Incentive Stock Options granted under the Plan shall not exceed the total specified in Section 5.1, as adjusted pursuant to Section 5.3. Incentive Stock Options, in addition to complying with the other provisions of the Plan relating to Options generally, shall be subject to the following conditions:

 

(a)                                  Ten Percent (10%) Stockholders

 

A Participant must not, immediately before an Incentive Stock Option is granted to him or her, own stock representing more than ten percent (10%) of the voting power or value of all classes of stock of the Company or of a Subsidiary.  This requirement is waived if (i) the Option Price of the Incentive Stock Option to be granted is at least one hundred ten percent (110%) of the Fair Market Value of the stock subject to the option, determined at the time the option is granted, and (ii) the option is not exercisable more than five (5) years from the date the option is granted.

 

16

 

(b)                                 Annual Limitation

 

To the extent that the aggregate Fair Market Value (determined at the time of the grant of the option) of the stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), such options shall be treated as Nonqualified Options.  In applying the limitation in the preceding sentence in the case of multiple option grants, unless otherwise required by applicable law, options which were intended to be Incentive Stock Options shall be treated as Nonqualified Options according to the order in which they were granted such that the most recently granted options are first treated as Nonqualified Options.

 

(c)                                  Additional Terms

 

Any other terms and conditions which the Plan Administrator determines, upon advice of counsel, must be imposed for the option to be an Incentive Stock Option.

 

(d)                                 Notice of Disqualifying Disposition

 

If a Participant shall make any disposition of shares of Common Stock issued pursuant to an Inventive Stock Option under the circumstances described in Section 421(b) of the Code (relating to disqualifying distributions), the Participant shall notify the Company of such disposition within twenty days thereof.

 

6.3                               Terms of Options

 

Except as otherwise provided in Section 6.2, all Incentive Stock Options and Nonqualified Options under the Plan shall be granted subject to the following terms and conditions:

 

(a)                                  Option Price

 

The Option Price shall be determined by the Plan Administrator in any reasonable manner, but shall not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock on the date the Option is granted; provided, however, that this restriction shall not apply to Awards that are adjusted pursuant to Section 5.3 herein.

 

(b)                                 Duration of Options

 

Options shall be exercisable at such time and under such conditions as set forth in the Award Agreement, but in no event shall any Option (whether a Nonqualified Option or an Incentive Stock Option) be exercisable later than the tenth (10th) anniversary of the date of its grant.

 

17

 

(c)                                  Exercise of Options

 

Options granted under this Section 6 shall be exercisable at such times and be subject to such restrictions and conditions as set forth in the Award Agreement and as the Plan Administrator shall in each instance approve, which need not be the same for each grant or for each Participant.

 

(d)                                 Payment

 

The purchase price of shares purchased under Options shall be paid in full to the Company upon the exercise of the option by delivery of consideration equal to the product of the Option Price and the number of shares of Common Stock purchased (the “Purchase Price”).  Such consideration may be either (i) in cash or (ii) at the discretion of the Plan Administrator, in Common Stock (by either actual delivery of Common Stock or by attestation presenting satisfactory proof of beneficial ownership of such Common Stock) already owned by the Participant, or any combination of cash and Common Stock.  The Fair Market Value of such Common Stock as delivered shall be valued as of the day prior to delivery.  The Plan Administrator can determine that additional forms of payment will be permitted.  To the extent permitted by the Plan Administrator and applicable laws and regulations (including, without limitation, federal tax and securities laws, regulations and state corporate law), an Option may also be exercised in a “cashless” exercise by delivery of a properly executed exercise notice together with irrevocable instructions to a broker selected by the Company to promptly deliver to the Company sufficient proceeds to pay the Purchase Price.  A Participant shall have none of the rights of a stockholder until the shares of Common Stock are issued to the Participant.

 

The Plan Administrator may permit, in its discretion, a Participant to pay all or a portion of the Purchase Price by having shares of Common Stock with a Fair Market Value equal to all or a portion of the Purchase Price be withheld from the shares issuable to the Participant upon the exercise of the option.  The Fair Market Value of such Common Stock as is withheld shall be determined as of the same day as the exercise of the Option.

 

(e)                                  Restrictions

 

The Plan Administrator shall determine and reflect in the Award Agreement, with respect to each option, the nature and extent of the restrictions, if any, to be imposed on the shares of Common Stock which may be purchased thereunder, including, without limitation, restrictions on the transferability of such shares acquired through the exercise of such options for such periods as the Plan Administrator may determine.  In addition, to the extent permitted by applicable laws and regulations, the Plan Administrator may require that a Participant who wants to effectuate a “cashless” exercise of options be required to sell the shares of Common Stock acquired in the associated exercise to the Company, or in the open

 

18

 

market through the use of a broker selected by the Company, at such price and on such terms as the Plan Administrator may determine at the time of grant, or otherwise.

 

(f)                                    Nontransferability of Options

 

Options granted under the Plan and the rights and privileges conferred thereby shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or by the applicable laws of descent and distribution.  Notwithstanding the foregoing and only as provided by the Plan Administrator or the Company, as applicable, Nonqualified Options may be transferred to a Participant’s immediate family members, directly or indirectly or by means of a trust, corporate entity or partnership (a person who thus acquires this option by such transfer, a “Permitted Transferee”).  A transfer of an option may only be effected by the Company at the request of the Participant and shall become effective upon the Permitted Transferee agreeing to such terms as the Plan Administrator may require and only when recorded in the Company’s record of outstanding options.  In the event an option is transferred as contemplated hereby, the option may not be subsequently transferred by the Permitted Transferee except a transfer back to the Participant or by will or the laws of descent and distribution.  A transferred option may be exercised by a Permitted Transferee to the same extent as, and subject to the same terms and conditions as, the Participant (except as otherwise provided herein), as if no transfer had taken place.  As used herein, “immediate family” shall mean, with respect to any person, such person’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, and shall include adoptive relationships.  In the event of exercise of a transferred option by a Permitted Transferee, any amounts due to (or to be withheld by) the Company upon exercise of the option shall be delivered by (or withheld from amounts due to) the Participant, the Participant’s estate or the Permitted Transferee, in the reasonable discretion of the Company.

 

In addition, to the extent permitted by applicable law and Rule 16b-3, the Plan Administrator may permit a recipient of a Nonqualified Option to designate in writing during the Participant’s lifetime a Beneficiary to receive and exercise the Participant’s Nonqualified Options in the event of such Participant’s death.  Except as otherwise provided for herein, if any Participant attempts to transfer, assign, pledge, hypothecate or otherwise dispose of any option under the Plan or of any right or privilege conferred thereby, contrary to the provisions of the Plan or such option, or suffers the sale or levy or any attachment or similar process upon the rights and privileges conferred hereby, all affected options held by such Participant shall be immediately forfeited.

 

19

 

(g)                                 No Repricing or Cashout

 

The Plan Administrator shall have no authority to make any adjustment (other than in connection with a Change in Capitalization in which an adjustment is permitted or required under the terms of the Plan) or amendment, and no such adjustment or amendment shall be made, that reduces or would have the effect of reducing the exercise price of an Option previously granted under the Plan, whether through amendment, cancellation or replacement grants, or other means, unless the Company’s shareholders shall have approved such adjustment or amendment.  In addition, the Plan Administrator is not permitted to purchase for cash previously granted options with an exercise price that is greater than the Company’s trading price on the proposed date of purchase without shareholder approval.

 

SECTION 7   STOCK APPRECIATION RIGHTS

 

7.1                               Grant of Stock Appreciation Rights

 

Stock Appreciation Rights may be granted to Participants in such number, and at such times during the term of the Plan as the Plan Administrator shall determine, the Plan Administrator taking into account the duties of the respective employees, their present and potential contributions to the success of the Company or its Subsidiaries, and such other factors as the Plan Administrator shall deem relevant in accomplishing the purposes of the Plan.  The Plan Administrator may grant a Stock Appreciation Right or provide for the grant of a Stock Appreciation Right, either from time to time in the discretion of the Plan Administrator or automatically upon the occurrence of specified events, including, without limitation, the achievement of Performance Goals or other performance measures, the satisfaction of an event or condition within the control of the recipient of the Stock Appreciation Right or within the control of others.  The granting of a Stock Appreciation Right shall take place when the Plan Administrator by resolution, written consent or other appropriate action determines to grant such a Stock Appreciation Right to a particular Participant at a particular price.  A Stock Appreciation Right may be granted freestanding or in tandem or in combination with any other Award under the Plan.  The grant price of a freestanding Stock Appreciation Right shall at least equal the Fair Market Value of a share of Common Stock on the date of grant of the Stock Appreciation Right, and the grant price of a tandem Stock Appreciation Right shall equal the Option Price of the related option; provided, however, that this restriction shall not apply to Awards that are adjusted pursuant to Section 5.3 herein.

 

7.2                               Exercise of Stock Appreciation Rights

 

A Stock Appreciation Right may be exercised upon such terms and conditions and for a term such as the Plan Administrator shall determine; provided, however, no Stock Appreciation Right shall be exercisable later than the tenth (10th) anniversary of the date of its grant.  Upon exercise of a Stock Appreciation Right, a Participant shall be entitled to

 

20

 

receive payment from the Company in an amount determined by multiplying (i) the difference between the Fair Market Value of a share of Common Stock on the date of exercise of the Stock Appreciation Right over the price fixed at the date of grant (which price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant) times (ii) the number of shares of Common Stock with respect to which the Stock Appreciation Right is exercised.  At the discretion of the Plan Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in shares of Common Stock of equivalent value, or in some combination thereof.

 

7.3                               Special Provisions Applicable to Stock Appreciation Rights

 

Stock Appreciation Rights are subject to the following restrictions:

 

(a)                                  A Stock Appreciation Right granted in tandem with any other Award under the Plan shall be exercisable at such time or times as the Award to which it relates shall be exercisable, or at such other times as the Plan Administrator may determine.

 

(b)                                 The right of a Participant to exercise a Stock Appreciation Right granted in tandem with any other Award under the Plan shall be canceled if and to the extent the related Award is exercised or canceled.  To the extent that a Stock Appreciation Right is exercised, the related Award shall be deemed to have been surrendered unexercised and canceled.

 

(c)                                  A holder of Stock Appreciation Rights shall have none of the rights of a stockholder until shares of Common Stock, if any, are issued to such holder pursuant to such holder’s exercise of such rights.

 

(d)                                 The acquisition of Common Stock pursuant to the exercise of a Stock Appreciation Right shall be subject to the same restrictions as would apply to the acquisition of Common Stock acquired upon exercise of an option, as set forth in Section 6.3.

 

(e)                                  Except as may otherwise be permitted by the Plan Administrator, Stock Appreciation Rights granted under the Plan and the rights and privileges conferred thereby shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise) other than by will or by the applicable laws of descent and distribution.

 

(f)                                    The Plan Administrator shall have no authority to make any adjustment (other than in connection with a Change in Capitalization in which an adjustment is permitted or required under the terms of the Plan) or amendment, and no such adjustment or amendment shall be made, that reduces or would have the effect of reducing the grant price of a Stock Appreciation Right previously granted under the Plan, whether through amendment, cancellation or replacement grants, or other

 

21

 

means, unless the Company’s shareholders shall have approved such adjustment or amendment.  In addition, the Plan Administrator is not permitted to purchase for cash previously granted Stock Appreciation Rights with a grant price that is greater than the Company’s trading price on the proposed date of purchase without shareholder approval.

 

SECTION 8   PERFORMANCE SHARES AND PERFORMANCE UNITS

 

8.1                               Grant of Performance Shares and Performance Units

 

Subject to the limitations in Section 5.2, Performance Shares or Performance Units may be granted to Participants at any time and from time to time as the Plan Administrator shall determine.  The Plan Administrator shall have complete discretion in determining the number of Performance Shares or Performance Units granted to each Participant and the terms and conditions thereof, taking into account the duties of the respective Participants, their present and potential contributions to the success of the Company or its Subsidiaries, and such other factors as the Plan Administrator shall deem appropriate.  Performance Shares and Performance Units may be granted alone or in combination with any other Award under the Plan. Notwithstanding the above, no dividends or dividend equivalents shall be payable on unvested Performance Shares or unvested Performance Units.

 

8.2                               Value of Performance Shares and Performance Units

 

The Plan Administrator shall set Performance Goals over Performance Periods.  Prior to each grant of Performance Shares or Performance Units, the Plan Administrator shall establish an initial number of shares of Common Stock for each Performance Share and an initial value for each Performance Unit granted to each Participant for that Performance Period.  Prior to each grant of Performance Shares or Performance Units, the Plan Administrator also shall set the Performance Goals that will be used to determine the extent to which the Participant receives the number of shares of Common Stock for the Performance Shares or payment of the value of the Performance Units awarded for such Performance Period.  With respect to each such Performance Goal utilized during a Performance Period, the Plan Administrator may assign percentages or other relative values to various levels of performance which shall be applied to determine the extent to which the Participant shall receive a payout of the number of Performance Shares or value of Performance Units awarded.

 

8.3                               Payment of Performance Shares and Performance Units

 

After a Performance Period has ended, the holder of a Performance Share or Performance Unit shall be entitled to receive the value thereof as determined by the Plan Administrator.  The Plan Administrator shall make this determination by first determining the extent to which the Performance Goals set pursuant to Section 8.2 have been met.  The Plan Administrator shall then determine the applicable percentage or other relative value to

 

22

 

be applied to, and will apply such percentage or other relative value to, the number of Performance Shares or value of Performance Units to determine the payout to be received by the Participant.  In addition, with respect to Performance Shares and Performance Units granted to each Participant, no payout shall be made hereunder except upon written certification by the Plan Administrator that the applicable Performance Goals have been satisfied to a particular extent.

 

8.4                               Form and Timing of Payment

 

The payment described in Section 8.3 shall be made in shares of Common Stock, or in cash, or partly in shares of Common Stock and partly in cash, at the discretion of the Plan Administrator and set forth in the Award Agreement.  The value of any fractional shares shall be paid in cash.  Payment shall be made in a lump sum or installments as prescribed by the Plan Administrator and set forth in the Award Agreement; provided that each Award Agreement shall comply with the timing of payment requirements set forth in Section 409A of the Code.  If a number of shares of Common Stock is to be converted into an amount of cash on any date, or if an amount of cash is to be converted into a number of shares of Common Stock on any date, such conversion shall be done at the then-current Fair Market Value of the Common Stock on such date.

 

8.5                               Nontransferability of Performance Shares and Performance Units

 

Except as otherwise provided by the Plan Administrator, Performance Shares and Performance Units granted under the Plan and the rights and privileges conferred thereby shall not be subject to execution, attachment or similar process and may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation or law or otherwise) other than by will or by the applicable laws of descent and distribution.

 

SECTION 9   RESTRICTED STOCK

 

9.1                               Grant of Restricted Stock

 

Subject to the limitations in Section 5.2, Restricted Stock may be granted to Participants in such number and at such times during the term of the Plan as the Plan Administrator shall determine, the Plan Administrator taking into account the duties of the respective Participants, their present and potential contributions to the success of the Company or its Subsidiaries, and such other factors as the Plan Administrator shall deem relevant in accomplishing the purposes of the Plan.  The Plan Administrator may grant Restricted Stock or provide for the grant of Restricted Stock, either from time to time in the discretion of the Plan Administrator or automatically upon the occurrence of specified events.

 

9.2                               Restriction Period

 

During the Restriction Period, the Restricted Stock may not be sold, assigned,

 

23

 

transferred, pledged, hypothecated or otherwise encumbered or disposed of by the recipient.  In the event of any attempt by the Participant to sell, exchange, transfer, pledge or otherwise dispose of Restricted Stock in violation of the terms of the Plan without the Company’s prior written consent, such Restricted Stock shall be forfeited to the Company.  During the Restriction Period, the Plan Administrator shall evidence the restrictions on the shares of Restricted Stock in such a manner as it determines is appropriate (including, without limitation, by means of appropriate stop-transfer orders on shares of Restricted Stock credited to book-entry accounts).

 

9.3                               Other Restrictions

 

The Plan Administrator shall impose such other restrictions on Restricted Stock granted pursuant to the Plan as it may deem advisable, including Performance Goals or other performance measures.

 

9.4                               Voting Rights; Dividends and Other Distributions

 

Unless otherwise determined by the Plan Administrator and set forth in a Participant’s Award Agreement, each Participant who receives a grant of Restricted Stock shall have all the rights of a stockholder with respect to such shares (except as provided in the restrictions on transferability), including the right to vote the shares and receive dividends and other distributions paid with respect to the underlying shares of Restricted Stock; provided, however, that no Participant awarded Restricted Stock shall have any right as a stockholder with respect to any shares subject to the Participant’s Restricted Stock grant prior to the establishment of a book-entry account for such shares.

 

9.5                               Issuance of Shares; Settlement of Awards

 

When the restrictions imposed by Section 9.2 expire or otherwise lapse with respect to one or more shares of Restricted Stock, the Participant shall be obligated to return to the Company such shares of Restricted Stock (if applicable), and the Company shall deliver to the Participant one (1) share of Common Stock in satisfaction of each share of Restricted Stock, which shares so delivered shall not contain any legend.  The delivery of shares pursuant to this Section 9.5 shall be subject to any required share withholding to satisfy tax withholding obligations pursuant to Section 17.8.  Any fractional shares subject to such Restricted Stock shall be paid to the Participant in cash.

 

SECTION 10   RESTRICTED STOCK UNITS

 

10.1                        Grant of Restricted Stock Units

 

Subject to the limitations in Section 5.2, Restricted Stock Units may be granted to eligible employees in such number and at such times during the term of the Plan as the Plan Administrator shall determine, the Plan Administrator taking into account the duties of the respective Participants, their present and potential contributions to the success of the

 

24

 

Company or its Subsidiaries, and such other factors as the Plan Administrator shall deem relevant in accomplishing the purposes of the Plan.  The Plan Administrator may grant Restricted Stock Units or provide for the grant of Restricted Stock Units, either from time to time in the discretion of the Plan Administrator or automatically upon the occurrence of specified events.

 

10.2                        Restriction Period

 

During the Restriction Period, Restricted Stock Units may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of by the recipient.  In the event of any attempt by the Participant to sell, exchange, transfer, pledge or otherwise dispose of Restricted Stock Units in violation of the terms of the Plan without the Company’s prior written consent, such Restricted Stock Units shall be forfeited to the Company.

 

10.3                        Other Restrictions

 

The Plan Administrator shall impose such other restrictions on Restricted Stock Units granted pursuant to the Plan as it may deem advisable.  A Participant receiving a grant of Restricted Stock Units shall not be recorded as a stockholder of the Company and shall not acquire any rights of a stockholder unless or until the Participant is issued shares of Common Stock in settlement of such Restricted Stock Units.

 

10.4                        Dividend Equivalents

 

The Plan Administrator may provide that Restricted Stock Units awarded under the Plan shall be entitled to an amount per Restricted Stock Unit equal in value to the cash dividend, if any, paid per share of Common Stock on issued and outstanding shares, on the dividend payment dates occurring during the period between the date on which the Restricted Stock Units are granted to the Participant and the date on which such Restricted Stock Units are settled, cancelled, forfeited, waived, surrendered or terminated under the Plan.  Such paid amounts called “dividend equivalents” shall be (i) paid in cash or Common Stock or (ii) credited to the Participant as additional Restricted Stock Units, or any combination thereof, as the Plan Administrator shall determine.  Unless otherwise determined by the Plan Administrator, dividend equivalents shall vest at such time as the Restricted Stock Unit to which it relates vests.

 

10.5                        Issuance of Shares; Settlement of Awards

 

When the restrictions imposed by Section 10.2 expire or otherwise lapse with respect to one or more Restricted Stock Units, Restricted Stock Units shall be settled (i) in cash or (ii) by the delivery to the Participant of the number of shares of Common Stock equal to the number of the Participant’s Restricted Stock Units that are vested, or any combination thereof, as the Plan Administrator shall determine.  The payment hereunder shall comply with the timing of payment requirements set forth in Section 409A of the Code, including, but not limited to the timing of payments to “specified employees” as

 

25

 

defined in Section 409A(a)(2)(B)(i) of the Code.  The delivery of shares pursuant to this Section 10.5 shall be subject to any required share withholding to satisfy tax withholding obligations pursuant to Section 17.8.  Any fractional shares subject to such Restricted Stock Units shall be paid to the Participant in cash.

 

SECTION 11   INCENTIVE AWARDS

 

11.1                        Incentive Awards

 

Prior to the beginning of each Performance Period, or not later than 90 days following the commencement of the relevant fiscal year, the Plan Administrator shall establish Performance Goals or other performance measures which must be achieved for any Participant to receive an Incentive Award for that Performance Period.  The Performance Goals or other performance measures may be based on any combination of corporate and business unit Performance Goals or other performance measures.  The Plan Administrator may also establish one or more Company-wide Performance Goals or other performance measures which must be achieved for any Participant to receive an Incentive Award for that Performance Period.  Such Performance Goals or other performance measures may include a threshold level of performance below which no Incentive Award shall be earned, target levels of performance at which specific Incentive Awards will be earned, and a maximum level of performance at which the maximum level of Incentive Awards will be earned.  Each Incentive Award shall specify the amount of cash and the amount of any other Awards subject to such Incentive Award.

 

11.2                        Performance Goal Certification

 

An Incentive Award shall become payable to the extent provided herein in the event that the Plan Administrator certifies in writing prior to payment of the Incentive Award that the Performance Goals or other performance measures selected for a particular Performance Period have been attained.  In no event will an Incentive Award be payable under this Plan if the threshold level of performance set for each Performance Goal or other performance measure for the applicable Performance Period is not attained.

 

11.3                        Discretion to Reduce Awards; Participant’s Performance

 

The Plan Administrator, in its sole and absolute discretion, prior to a Change in Control, may reduce the amount of any Incentive Award otherwise payable to a Participant upon attainment of any Performance Goal or other performance measure for the applicable Performance Period.  A Participant’s individual performance must be satisfactory, regardless of the Company’s performance and the attainment of Performance Goals or other performance measures, before he or she may be paid an Incentive Award.  In evaluating a Participant’s performance, the Plan Administrator shall consider the Performance Goals or other performance measures, the Participant’s responsibilities and accomplishments, and such other factors as it deems appropriate.

 

26

 

11.4                        Required Payment of Incentive Awards

 

The Plan Administrator shall make a determination within thirty (30) days after the information that is necessary to make such a determination is available for a particular Performance Period whether the Performance Goals or other performance measures for the Performance Period have been achieved and the amount of the Incentive Award for each Participant.  The Plan Administrator shall certify the foregoing determinations in writing.  In the absence of an election by the Participant pursuant to Section 11.5, the Incentive Award shall be paid not later than December 31 of the calendar year in which the foregoing determinations have been made.   Participants shall receive their Incentive Awards in any combination of cash and/or other Awards under the Plan as determined by the Plan Administrator.  The payment hereunder shall comply with the timing of payment requirements set forth in Section 409A of the Code.

 

11.5                        Nontransferability of Incentive Awards

 

Except as otherwise determined by the Plan Administrator, Incentive Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.

 

SECTION 12   CASH AWARDS AND OTHER STOCK-BASED AWARDS

 

12.1                        Grant of Cash Awards

 

Subject to the terms and provisions of this Plan, the Plan Administrator, at any time and from time to time, may grant cash awards to Participants in such amounts and upon such terms, including the achievement of specific performance criteria, as the Plan Administrator may determine (each, a “Cash Award”).

 

12.2                        Other Stock-Based Awards

 

The Plan Administrator may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted shares of Common Stock, including shares subject to mandatory deferral requirements) in such amounts and subject to such terms and conditions, as the Plan Administrator shall determine (each, an “Other Stock-Based Award”).  Such Other Stock-Based Awards may involve the transfer of actual shares of Common Stock to Participants, or payment in cash or otherwise of amounts based on the value of shares of Common Stock.

 

12.3                        Value of Cash Awards and Other Stock-Based Awards

 

Each Cash Award granted pursuant to this Section 12 shall specify a payment amount or payment range as determined by the Plan Administrator.  Each Other Stock-Based Award shall be expressed in terms of shares of Common Stock or units based on

 

27

 

shares of Common Stock, as determined by the Plan Administrator.  The Plan Administrator may establish performance criteria applicable to such awards in its discretion.  If the Plan Administrator exercises its discretion to establish performance criteria, the number and/or value of such cash awards or Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance goals are met.

 

12.4                        Payment of Cash Awards and Other Stock-Based Awards

 

Payment, if any, with respect to a Cash Award or an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash or shares of Common Stock as the Plan Administrator determines.  The value of any fractional shares shall be paid in cash.  The payment hereunder shall comply with the timing of payment requirements set forth in Section 409A of the Code.

 

12.5                        Transferability of Cash Awards and Other Stock-Based Awards

 

Except as otherwise determined by the Plan Administrator, neither Cash Awards nor Other Stock-Based Awards may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.

 

SECTION 13   TERMINATION OF EMPLOYMENT, SERVICE OR DIRECTORSHIP

 

The Award Agreement applicable to each Award shall set forth the effect of a termination of the Participant’s employment, service or directorship upon such Award; provided, however, that, unless explicitly set forth otherwise in an Award Agreement or as determined by the Plan Administrator, all of a Participant’s unvested and/or unexercisable Awards shall automatically be forfeited upon termination of the Participant’s employment, service or directorship for any reason, and, as to Awards consisting of Options or Stock Appreciation Rights, the Participant shall be permitted to exercise the vested portion of the Option or Stock Appreciation Right for three months following termination of his or her employment, service or directorship.  Provisions relating to the effect of a termination of employment, service or directorship upon an Award shall be determined in the sole discretion of the Plan Administrator and need not be uniform among all Awards or among all Participants.  Unless the Plan Administrator determines otherwise, the transfer of employment of a Participant as between the Company and its affiliates and Subsidiaries shall not constitute a termination of employment.

 

SECTION 14   EFFECT OF A CHANGE IN CONTROL

 

Except as otherwise provided in an Award Agreement, in the event of a Participant’s termination of employment (i) by his or her Employer without Cause or (ii) if

 

28

 

Section 2.19 is applicable to the Participant, by the Participant for Good Reason, in each case within two years following a Change in Control:

 

(a)                                  all options and Stock Appreciation Rights then held by the Participant shall become fully vested and exercisable;

 

(b)                                 the Restriction Periods applicable to all shares of Restricted Stock and all Restricted Stock Units then held by the Participant shall immediately lapse;

 

(c)                                  the performance periods applicable to any Performance Shares, Performance Units and Incentive Awards that have not ended shall end and such Awards shall become vested and payable in an amount equal to the target amount thereof (assuming achievement of target levels by both Participants and the Company) within ten days following such termination; and

 

(d)                                 any restrictions applicable to Cash Awards and Other Stock-Based Awards shall immediately lapse and, to the extent permissible under Section 409A of the Code, if applicable, become payable within ten days following such termination.

 

For avoidance of doubt, the default provisions specified above shall apply to Participants who are Employees.  The treatment of outstanding Awards following a Change in Control held by Participants who are Consultants or Directors shall be determined by the Plan Administrator, in its sole and absolute discretion.

 

SECTION 15   REGULATORY APPROVALS AND LISTING

 

The Company shall not be required to issue any shares of Common Stock under the Plan prior to:

 

(a)                                  obtaining any approval or ruling from the Securities and Exchange Commission, the Internal Revenue Service or any other governmental agency which the Company, in its sole discretion, shall determine to be necessary or advisable;

 

(b)                                 listing of such shares on any stock exchange on which the Common Stock may then be listed; and

 

(c)                                  completing any registration or other qualification of such shares under any federal or state laws, rulings or regulations of any governmental body which the Company, in its sole discretion, shall determine to be necessary or advisable.

 

All certificates, or book-entry accounts, for shares of Common Stock delivered under the Plan shall also be subject to such stop-transfer orders and other restrictions as the Plan Administrator may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which Common Stock is then listed and any applicable federal or state securities laws, and the Plan

 

29

 

Administrator may cause a legend or legends to be placed on any such certificates, or notations on such book-entry accounts, to make appropriate reference to such restrictions.  The foregoing provisions of this paragraph shall not be effective if and to the extent that the shares of Common Stock delivered under the Plan are covered by an effective and current registration statement under the Securities Act of 1933, as amended, or if and so long as the Plan Administrator determines that application of such provisions are no longer required or desirable.  In making such determination, the Plan Administrator may rely upon an opinion of counsel for the Company.

 

SECTION 16   TERM OF PLAN

 

The Plan shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Section 19, until all shares of Common Stock subject to it shall have been purchased or acquired according to the provisions herein.  However, in no event may an Award be granted under the Plan on or after the tenth (10th) anniversary of the Effective Date.  After this Plan is terminated, no future Awards may be granted pursuant to the Plan, but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and this Plan’s terms and conditions.

 

SECTION 17   GENERAL PROVISIONS

 

17.1                        Forfeiture Events

 

(a)                                  The Plan Administrator may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award.  Such events may include, without limitation, termination of employment for Cause, violation of material policies that may apply to the Participant, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company or any of its affiliates or Subsidiaries.

 

(b)                                 If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, and if a Participant knowingly engaged in the misconduct, was grossly negligent with respect to such misconduct, or knowingly or grossly negligently failed to prevent the misconduct (whether or not the Participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002), the Participant shall reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the twelve-month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting

 

30

 

requirement.

 

17.2                        Continued Service

 

Nothing in the Plan shall:

 

(a)                            interfere with or limit in any way the right of the Company or a Subsidiary to terminate any Participant’s employment or service at any time,

 

(b)                           confer upon any Participant any right to continue in the employ or service of the Company or a Subsidiary, nor

 

(c)                            confer on any Director any right to continue to serve on the Board of Directors of the Company or a Subsidiary.

 

No Employee, Director or Consultant shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive future Awards.

 

17.3                        Other Compensation

 

Unless determined otherwise by the Plan Administrator or required by contractual obligations, the grant, vesting or payment of Awards under the Plan shall not be considered as part of a Participant’s salary or used for the calculation of any other pay, allowance, pension or other benefit unless otherwise permitted by other benefit plans provided by the Company or its Subsidiaries, or required by law or by contractual obligations of the Company or its Subsidiaries.

 

17.4                        Nontransferability

 

Unless otherwise provided in the Plan, the right of a Participant or Beneficiary to the payment of any Award under the Plan may not be assigned, transferred, pledged or encumbered, nor shall such right or other interests be subject to attachment, garnishment, execution or other legal process.

 

17.5                        Unfunded Obligations

 

Any amounts (deferred or otherwise) to be paid to Participants pursuant to the Plan are unfunded obligations.  Neither the Company nor any Subsidiary is required to segregate any monies from its general funds, to create any trusts or to make any special deposits with respect to this obligation.  Beneficial ownership of any investments, including trust investments which the Company may make to fulfill this obligation, shall at all times remain in the Company.  Any investments and the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or a fiduciary relationship

 

31

 

between the Plan Administrator, the Company or any Subsidiary and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s Beneficiary or the Participant’s creditors in any assets of the Company or its Subsidiaries whatsoever.

 

17.6                        Beneficiaries

 

The designation of a Beneficiary shall be on a form provided by the Company, executed by the Participant (with the consent of the Participant’s spouse, if required by the Company for reasons of community property or otherwise), and delivered to a designated representative the Company.  A Participant may change his or her Beneficiary designation at any time.  A designation by a Participant under any predecessor plans shall remain in effect under the Plan unless such designation is revoked or changed under the Plan.  If no Beneficiary is designated, if the designation is ineffective, or if the Beneficiary dies before the balance of a Participant’s benefit is paid, the balance shall be paid to the Participant’s spouse, or if there is no surviving spouse, to the Participant’s estate.  Notwithstanding the foregoing, however, a Participant’s Beneficiary shall be determined under applicable state law if such state law does not recognize Beneficiary designations under plans of this sort and is not preempted by laws which recognize the provisions of this Section 17.6.

 

17.7                        Governing Law

 

The Plan shall be construed and governed in accordance with the laws of the State of Texas.

 

17.8                        Satisfaction of Tax Obligations

 

The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, domestic or foreign taxes required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.

 

With respect to withholding required upon the exercise of Options or Stock Appreciation Rights, upon the vesting or settlement of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, or upon any other taxable event arising as a result of Awards granted hereunder, the Committee may require or may permit Participants to elect that the withholding requirement be satisfied, in whole or in part, by having the Company withhold, or by tendering to the Company, Shares having a Fair Market Value equal to the minimum statutory withholding (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes) that could be imposed on the transaction and, in any case in which it would not result in additional accounting expense to the Company, taxes in excess of the minimum statutory withholding amounts. Any such elections by a Participant shall be irrevocable, made in writing and signed by the Participant.

 

Any Participant who makes a Section 83(b) election under the Code shall, within

 

32

 

ten (10) days of making such election, notify the Company in writing of such election and shall provide the Company with a copy of such election form filed with the Internal Revenue Service.

 

A Participant is solely responsible for obtaining, or failing to obtain, tax advice with respect to participation in the Plan prior to the Participant’s (i) entering into any transaction under or with respect to the Plan, (ii) designating or choosing the times of distributions under the Plan, or (iii) disposing of any shares of Common Stock issued under the Plan.

 

17.9                        Participants in Foreign Jurisdictions

 

The Plan Administrator shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with provisions of the laws of any countries in which the Company may operate to ensure the viability of the benefits from Awards granted to Participants employed in such countries, to meet the requirements of local laws that permit the Plan to operate in a qualified or tax-efficient manner, to comply with applicable foreign laws and to meet the objectives of the Plan.

 

SECTION 18   COMPLIANCE WITH RULE 16b-3, SECTION 162(m)

AND SECTION 409A

 

18.1                        Rule 16b-3 of the Exchange Act and Section 162(m) of the Code

 

The Company’s intention is that, so long as any of the Company’s equity securities are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, the Plan shall comply in all respects with the rules of any exchange on which the shares of Common Stock are traded and with Rule 16b-3.  In addition, it is the Company’s intention that, as to Covered Employees, unless otherwise indicated in an Award Agreement, stock options, Stock Appreciation Rights, Performance Shares, Performance Units and Incentive Awards shall qualify as performance-based compensation under Section 162(m).  If any Plan provision is determined not to be in compliance with the foregoing intentions, that provision shall be deemed modified as necessary to meet the requirements of any such exchange, Rule 16b-3 and Section 162(m).

 

18.2                        Section 409A of the Code

 

The Plan is intended to be administered, operated and construed in compliance with Section 409A of the Code and any guidance issued thereunder.

 

a)                                      The Plan Administrator may, to the extent permitted by applicable law, including, but not limited to Section 409A of the Code, permit Participants to defer Awards under the Plan.  Any such deferrals shall be subject to such terms, conditions and procedures that the Plan Administrator may establish from time to time in its sole discretion.

 

33

 

(b)                                 The terms and conditions governing any Awards that the Plan Administrator determines will be subject to Section 409A of the Code, including any rules for elective or mandatory deferral of the delivery of cash or shares of Common Stock pursuant thereto, shall be set forth in the applicable Award Agreement or, if applicable, under the terms of any separate plan document, and shall comply in all respects with Section 409A of the Code.

 

(c)                                  Notwithstanding this or any other provision of the Plan to the contrary, the Board of Directors and the Plan Administrator may amend the Plan in any manner, or take any other action, that either of them determines, in its sole discretion, is necessary, appropriate or advisable to cause the Plan to comply with Section 409A of the Code and any guidance issued thereunder, which amendment may be retroactive to the extent permitted by Section 409A of the Code.  Any such action, once taken, shall be deemed to be effective from the earliest date necessary to avoid a violation of Section 409A of the Code and shall be final, binding and conclusive on all Participants and other individuals having or claiming any right or interest under the Plan.

 

SECTION 19   AMENDMENT, TERMINATION OR DISCONTINUANCE

OF THE PLAN

 

19.1                        Amendment of Plan

 

Subject to the Board of Directors, the Plan Administrator may from time to time make such amendments to the Plan as it may deem proper and in the best interest of the Company, including, without limitation, any amendment necessary to ensure that the Company may obtain any regulatory approval referred to in Section 15; provided, however, that (i) to the extent required by applicable law, regulation or stock exchange rule, stockholder approval shall be required, and (ii) no change in any Award previously granted under the Plan may be made without the consent of the Participant if such change would impair the right of the Participant under the Award to acquire or retain Common Stock or cash that the Participant may have acquired as a result of the Plan.

 

19.2                        Termination or Suspension of Plan

 

The Board of Directors may at any time suspend the operation of or terminate the Plan with respect to any shares of Common Stock or rights which are not at that time subject to any Award outstanding under the Plan.

 

34

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00194-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00194-of-00352.parquet"}]]