Document:

Exhibit
10.3

 

STROUD ENERGY, INC.

2005 STOCK INCENTIVE PLAN

 

ARTICLE I.
ESTABLISHMENT AND PURPOSE

 

1.1          Establishment.  Stroud Energy, Inc. (“SEI”)
hereby establishes the Stroud Energy, Inc. 2005 Stock Incentive Plan, as
set forth in this document.  In connection
with the transactions contemplated by that certain Combination Agreement
between SEI, Stroud Energy Management, Ltd., Stroud Energy, Ltd., Stroud Oil
Properties, Inc. and the other parties thereto dated August 1, 2005
(the “Combination Agreement”), the Stroud Oil Properties, Inc. 2001 Stock
Incentive Plan  (the “SOP Plan”) will be
assumed and adopted by SEI and restated into the form of this Plan, and
outstanding options under the SOP Plan will be assumed by SEI and adjusted to become
options to purchase shares of SEI’s Common Stock in accordance with the rules set
forth in Treasury Regulations Section 1.424-1(a).

 

1.2          Purpose.  The purposes of the Plan are
to attract and retain highly qualified individuals to perform services for SEI
and its Affiliates and to align the interests of those individuals with those
of the stockholders of SEI.  SEI is
committed to creating long-term stockholder value.  SEI’s compensation philosophy is based on a
belief that SEI can best create stockholder value if key employees, directors,
and certain others providing services to the Company act and are rewarded as
business owners.  SEI believes that an
equity stake through equity compensation programs effectively aligns employee
and stockholder interests by motivating and rewarding long-term performance
that will enhance stockholder value.

 

1.3          Effectiveness
and Term. 
This Plan shall become effective as of September 23, 2005, (the “Effective
Date”), which is the date of approval of the Plan by the holders of at least a
majority of the shares of Common Stock either (i) present or represented
and entitled to vote at a special meeting of the stockholders of SEI duly held
in accordance with applicable law or (ii) by written action in lieu of a
meeting in accordance with applicable law. Unless terminated earlier by the Board
pursuant to Section 14.1, this Plan shall terminate on the day prior to
the tenth anniversary of the Effective Date.

 

ARTICLE II.
DEFINITIONS

 

2.1          “Affiliate” means (i) with respect to Incentive Stock
Options, a “parent corporation” or a “subsidiary corporation” of SEI, as those
terms are defined in sections 424(e) and (f) of the Code,
respectively, and (ii) with respect to other Awards, (A) a “parent
corporation” or a subsidiary corporation” of SEI as defined in (i) above
or (B) any other corporation, organization, association, partnership, sole
proprietorship or other type of entity, whether incorporated or unincorporated,
directly or indirectly controlling or controlled by or under direct or indirect
common control with SEI.

 

2.2          “Award” means an award granted to a Participant in the form
of Options, SARs, Restricted Stock, Restricted Stock Units, Performance Awards,
Stock Awards or Other Incentive Awards, whether granted singly or in
combination.

 

 

2.3          “Award Agreement” means a written agreement between SEI and a
Participant that sets forth the terms, conditions, restrictions and limitations
applicable to an Award.

 

2.4          “Board” means the Board of Directors of SEI.

 

2.5          “Cash
Dividend Right” means a contingent right, granted
in tandem with a specific Restricted Stock Unit Award, to receive an amount in
cash equal to the cash distributions made by SEI with respect to a share of
Common Stock during the period such Award is outstanding.

 

2.6          “Cause” means (i) any material violation by the
Participant of any employment agreement between the Participant and SEI or an
Affiliate, (ii) any act or omission by the Participant involving fraud,
willful misconduct or gross negligence on the part of the Participant that is materially
injurious to SEI, or (iii) the Participant’s conviction of, or entry of a
plea agreement or consent decree or similar arrangement with respect to any
felony involving fraud, moral turpitude or any violation of federal or state
securities law.

 

2.7          “Change of Control” means any of the following events:

 

(a)           the acquisition by any “person” (including a “group”
(as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), but excluding SEI or an existing stockholder of SEI who, upon closing of the
Private Placement, holds 5% or more of the Common Stock) of “beneficial
ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of SEI representing more than 20% of the combined
voting power of SEI’s then outstanding securities entitled to vote generally in
the election of directors; or

 

(b)           the consummation of a reorganization, merger,
consolidation or other form of business transaction or series of business
transactions, in each case, with respect to which persons who were stockholders
of SEI immediately prior to such reorganization, merger or consolidation or
other transaction do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated company’s then outstanding voting
securities; or

 

(c)           the sale, lease or disposition (in one or a series
of related transactions) by SEI of all or substantially all of SEI’s assets
(including those of its subsidiaries) to any person or its Affiliates, other
than SEI or its Affiliates; or

 

(d)           the members of the Board at the beginning of any
consecutive 24-calendar-month period (the “Incumbent Directors”) cease for any
reason other than death to constitute at least a majority of the members of the
Board, provided that any director whose election, or nomination for election by
SEI’s stockholders, was approved by a vote of at least a majority of the
members of the Board then still in office who were members of the Board at the
beginning of such 24-calendar-month period, shall be deemed to be an Incumbent
Director; or

 

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(e)           the approval by the Board or the stockholders of SEI
of a complete or substantially complete liquidation or dissolution of SEI; or

 

(f)            any event similar to the foregoing that the Committee
determines in its absolute discretion would, if consummated, materially alter
the structure or business SEI.

 

Notwithstanding the foregoing, (i) a
Change of Control shall not include any acquisition, merger, or reorganization
by SEI in which the stockholders of SEI immediately prior to such acquisition,
merger, or reorganization will have substantially the same proportionate
ownership of common stock of the surviving corporation immediately thereafter
or which would be considered a Change of Control only due to the acquisition of
Common Stock by any employee benefit plan (or related trust) sponsored or
maintained by SEI or any parent or subsidiary of SEI, and (ii) a Change of
Control shall not include the transactions contemplated by the Combination
Agreement, the Private Placement, or the initial public offering of the Common
Stock.

 

2.8          “Code” means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions
and regulations.

 

2.9          “Committee”
means the Compensation Committee of the Board or
such other committee of the Board as may be designated by the Board to
administer the Plan, which committee shall consist of two or more members of
the Board; provided, however, that with respect to the application of the Plan
to Awards made to Outside Directors, the “Committee” shall be the Board.  During such time as the Common Stock is
registered under Section 12 of the Exchange Act, each member of the
Committee shall be an Outside Director.  To
the extent that no Committee exists that has the authority to administer the
Plan, the functions of the Committee shall be exercised by the Board.

 

2.10        “Common Stock” means the common stock of SEI, $.001 par value
per share, or any stock or other securities of hereafter issued or issuable in
substitution or exchange for the Common Stock.

 

2.11        “Company” means SEI and any Affiliate.

 

2.12        “Dividend Unit Right” means a contingent right, granted in
tandem with a specific Restricted Stock Unit Award, to have an additional
number of Restricted Stock Units credited to a Participant in respect of the
Award equal to the number of shares of Common Stock that could be purchased at
Fair Market Value with the amount of each cash distribution made by SEI with
respect to a share of Common Stock during the period such Award is outstanding.

 

2.13        “Effective
Date” means the date this Plan becomes effective as provided in Section 1.3.

 

2.14        “Employee” means an employee of the Company; provided,
however, that the term “Employee” does not include an Outside Director or an
individual performing services for

 

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the Company
who is treated for tax purposes as an independent contractor at the time of
performance of the services.

 

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

 

2.16        “Fair Market Value” means the fair market value of the Common
Stock, as determined in good faith by the Committee or (i) if the Common
Stock is traded in the over-the-counter market, the average of the
representative closing bid and asked prices as reported by NASDAQ for the date
the Award is granted (or if there was no quoted price for such date of grant,
then for the last preceding business day on which there was a quoted price), or
(ii) if the Common Stock is traded in the NASDAQ National Market System,
the average of the highest and lowest selling prices for such stock as quoted
on the NASDAQ National Market System for the date the Award is granted (or if
there are no sales for such date of grant, then for the last preceding business
day on which there were sales), or (iii) if the Common Stock is listed on
any national stock exchange, the average of the highest and lowest selling
prices for such stock as quoted on such exchange for the date the Award is
granted (or if there are no sales for such date of grant, then for the last
preceding business day on which there were sales).

 

2.17        “Grant Date” means the date an Award is determined to be
effective by the Committee upon the grant of such Award.

 

2.18        “Incentive Stock Option” means an Option that is intended to
meet the requirements of section 422(b) of the Code.

 

2.19        “NASDAQ” means The NASDAQ Stock Market, Inc.

 

2.20        “Nonqualified Stock Option” means an Option that is not an
Incentive Stock Option.

 

2.21        “Option” means an option to purchase shares of Common Stock
granted to a Participant pursuant to Article VII.  An Option may be either an Incentive Stock
Option or a Nonqualified Stock Option, as determined by the Committee.

 

2.22        “Other Incentive Award” means an incentive award granted to a
Participant pursuant to Article XII.

 

2.23        “Outside Director” means a member of the Board who:  (i) meets the independence requirements
of the principal exchange or quotation system upon which the shares of Common
Stock are listed or quoted, (ii) from and after the date on which the remuneration
paid pursuant to the Plan becomes subject to the deduction limitation under Section 162(m)
of the Code, qualifies as an “outside director” under Section 162(m) of
the Code, (iii) qualifies as a “non-employee director” of SEI under Rule 16b-3,
and (iv) satisfies independence criteria under any other applicable laws
or regulations relating to the issuance of shares of Common Stock to Employees.

 

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2.24        “Participant” means an Employee, director, or other
individual or entity who performs services for the Company that has been
granted an Award; provided, however, that no Award that may be settled in
Common Stock may be issued to a Participant that is not a natural person.

 

2.25        “Performance Award” means an Award granted to a Participant
pursuant to Article XI to receive cash or Common Stock conditioned in
whole or in part upon the satisfaction of specified performance criteria.

 

2.26        “Permitted Transferee” shall have the meaning given such term
in Section 15.4.

 

2.27        “Plan” means the Stroud Energy, Inc. 2005 Stock Incentive
Plan, as in effect from time to time.

 

2.28        “Private Placement” means the private placement of shares of the
Common Stock to accredited investors, qualified institutional buyers and
non-U.S. persons involving SEI and/or its stockholders scheduled to close on or
about the Effective Date.

 

2.29        “Purchased Restricted Stock” shall have the meaning given
such term in Section 9.2.

 

2.30        “Restricted Period” means the period established by the
Committee with respect to an Award of Restricted Stock or Restricted Stock Units
during which the Award remains subject to forfeiture.

 

2.31        “Restricted Stock” means a share of Common Stock granted to a
Participant pursuant to Article IX that is subject to such terms,
conditions, and restrictions as may be determined by the Committee.

 

2.32        “Restricted
Stock Unit” means a fictional share of
Common Stock granted to a Participant pursuant to Article X that is
subject to such terms, conditions, and restrictions as may be determined by the
Committee.

 

2.33        “Rule 16b-3” means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act, or any successor rule or
regulation that may be in effect from time to time.

 

2.34        “SEI” means Stroud Energy, Inc., a Delaware corporation,
or any successor thereto.

 

2.35        “SOP Plan” means the Stroud Oil Properties, Inc. 2001
Stock Incentive Plan.

 

2.36        “Stock Appreciation Right” or “SAR” means a right granted to a Participant pursuant to Article VIII
with respect to a share of Common Stock to receive upon exercise cash,

 

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Common Stock
or a combination of cash and Common Stock, equal to the appreciation in value
of a share of Common Stock.

 

ARTICLE III.  PLAN ADMINISTRATION

 

3.1          Plan
Administrator and Discretionary Authority.  The Plan shall be administered by the
Committee.  The Committee shall have
total and exclusive responsibility to control, operate, manage and administer
the Plan in accordance with its terms. 
The Committee shall have all the authority that may be necessary or
helpful to enable it to discharge its responsibilities with respect to the
Plan.  Without limiting the generality of
the preceding sentence, the Committee shall have the exclusive right to:  (i) interpret the Plan and the Award
Agreements executed hereunder; (ii) decide all questions concerning
eligibility for, and the amount of, Awards granted under the Plan; (iii) construe
any ambiguous provision of the Plan or any Award Agreement; (iv) prescribe
the form of Award Agreements; (v) correct any defect, supply any omission
or reconcile any inconsistency in the Plan or any Award Agreement; (vi) issue
administrative guidelines as an aid to administering the Plan and make changes
in such guidelines as the Committee from time to time deems proper; (vii) make
regulations for carrying out the Plan and make changes in such regulations as
the Committee from time to time deems proper; (viii) determine whether Awards
should be granted singly or in combination; (ix) to the extent permitted
under the Plan, grant waivers of Plan terms, conditions, restrictions and
limitations; (x) accelerate the exercise, vesting or payment of an Award when
such action or actions would be in the best interests of the Company; (xi)
require Participants to hold a stated number or percentage of shares of Common
Stock acquired pursuant to an Award for a stated period; and (xii) take any and
all other actions the Committee deems necessary or advisable for the proper
operation or administration of the Plan. 
The Committee shall have authority in its sole discretion with respect
to all matters related to the discharge of its responsibilities and the
exercise of its authority under the Plan, including without limitation its
construction of the terms of the Plan and its determination of eligibility for
participation in, and the terms of Awards granted under, the Plan.  The decisions of the Committee and its
actions with respect to the Plan shall be final, conclusive and binding on all
persons having or claiming to have any right or interest in or under the Plan,
including without limitation Participants and their respective Permitted
Transferees, estates, beneficiaries and legal representatives.

 

3.2          Liability;
Indemnification. 
No member of the Committee, nor any person to whom it has delegated authority,
shall be personally liable for any action, interpretation or determination made
in good faith with respect to the Plan or Awards granted hereunder, and each
member of the Committee (or delegatee of the Committee) shall be fully
indemnified and protected by SEI with respect to any liability he may incur
with respect to any such action, interpretation or determination, to the
maximum extent permitted by applicable law.

 

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ARTICLE IV.  SHARES SUBJECT TO THE PLAN

 

4.1          Available
Shares.

 

(a)           Subject to adjustment as
provided in Section 4.2, the maximum number of shares of Common Stock that
shall be available for grant of Awards under the Plan shall be 1,500,000 shares
of Common Stock.

 

(b)           The maximum number of
shares of Common Stock that may be subject to Incentive Stock Options granted
under the Plan is 1,500,000 shares.  The
maximum number of shares of Common Stock that may be subject to Nonqualified
Stock Options and SARs granted under the Plan to any one Participant during a
calendar year is 500,000 shares.  The
maximum number of shares of Common Stock that may be subject to all Awards
granted under the Plan to any one Participant during a calendar year is 750,000 shares. The limitations provided in this Section 4.1(b) shall
be subject to adjustment as provided in Section 4.2.

 

(c)           Shares of Common Stock
issued pursuant to the Plan may be original issue or treasury shares or a
combination of the foregoing, as the Committee, in its sole discretion, shall
from time to time determine.  SEI will,
during the term of this Plan, will at all times reserve and keep available such
number of shares of Common Stock as shall be sufficient to satisfy the
requirements of the Plan.

 

4.2          Adjustments
for Recapitalizations and Reorganizations. Subject
to Article XIII, if there is any change in the number or kind of shares of
Common Stock outstanding (i) by reason of a stock dividend, spin-off,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization, or consolidation, (iii) by reason of a
reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Common Stock as a
class without SEI’s receipt of consideration, or if the value of outstanding
shares of Common Stock is reduced as a result of a spin-off or SEI’s payment of
an extraordinary cash dividend, or distribution or dividend or distribution
consisting of any assets of SEI other than cash, the maximum number and kind of
shares of Common Stock available for issuance under the Plan, the maximum
number and kind of shares of Common Stock available for issuance under the Plan
as Incentive Stock Options, the maximum number and kind of shares of Common
Stock for which any individual may receive Awards of Nonqualified Stock Options
and SARs in any calendar year, the number and kind of shares of Common Stock
covered by outstanding Awards, and the price per share or the applicable market
value or performance target of such Awards may be appropriately adjusted by the
Committee to reflect any increase or decrease in the number of, or change in
the kind or value of, issued shares of Common Stock to preclude, to the extent
practicable, the enlargement or dilution of rights under such Awards; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated.

 

4.3          Adjustments
for Awards. 
The Committee shall have sole discretion to determine the manner in
which shares of Common Stock available for grant of Awards under the

 

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Plan are
counted.  Without limiting the discretion
of the Committee under this Section 4.3, unless otherwise determined by
the Committee, the following rules shall apply for the purpose of
determining the number of shares of Common Stock available for grant of Awards
under the Plan:

 

(a)           Options, Restricted
Stock and Stock Awards.  The grant of Options, Restricted Stock or
Stock Awards shall reduce the number of shares of Common Stock available for
grant of Awards under the Plan by the number of shares of Common Stock subject
to such an Award.

 

(b)           SARs.  The grant of SARs that may
be paid or settled (i) only in Common Stock or (ii) in either cash or
Common Stock shall reduce the number of shares available for grant of Awards
under the Plan by the number of shares subject to such an Award; provided,
however, that upon the exercise of SARs, the excess of the number of shares of
Common Stock with respect to which the Award is exercised over the number of
shares of Common Stock issued upon exercise of the Award shall again be
available for grant of Awards under the Plan.  The grant of SARs that may be paid or settled
only for cash shall not affect the number of shares available for grant of
Awards under the Plan.

 

(c)           Restricted
Stock Units.  The grant of Restricted Stock Units (including those credited to a
Participant in respect of a Dividend Unit Right) that may be paid or settled (i) only
in Common Stock or (ii) in either cash or Common Stock shall reduce the
number of shares available for grant of Awards under the Plan by the number of
shares subject to such an Award; provided, however, that upon settlement of the
Award, the excess, if any, of the number of shares of Common Stock that had
been subject to such Award over the number of shares of Common Stock issued
upon its settlement shall again be available for grant of Awards under the Plan.  The grant of Restricted Stock Units that may
be paid or settled only for cash shall not affect the number of shares
available for grant of Awards under the Plan.

 

(d)           Other Incentive
Awards.  The
grant of a Performance Award or Other Incentive Award in the form of Common
Stock or that may be paid or settled (i) only in Common Stock or (ii) in
either Common Stock or cash shall reduce the number of shares available for
grant of Awards under the Plan by the number of shares subject to such an Award;
provided, however, that upon settlement of the Award, the excess, if any, of
the number of shares of Common Stock that had been subject to such Award over
the number of shares of Common Stock issued upon its settlement shall again be
available for grant of Awards under the Plan. 
The grant of a Performance Award or Other Incentive Award that may be
paid or settled only for cash shall not affect the number of shares available
for grant of Awards under the Plan.

 

(e)           Cancellation,
Forfeiture and Termination.  If any Award referred to in Sections 4.3(a),
(b), (c), or (d) (other than an Award that may be paid or settled only for
cash) is canceled or forfeited, or terminates, expires or lapses, for any
reason, the shares then subject to such Award shall again be available for
grant of Awards under the Plan.

 

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(f)            Payment of
Exercise Price and Withholding Taxes.  If previously acquired shares of Common Stock
are used to pay the exercise price of an Award, the number of shares available
for grant of Awards under the Plan shall be increased by the number of shares delivered
as payment of such exercise price.  If
previously acquired shares of Common Stock are used to pay withholding taxes
payable upon exercise, vesting or payment of an Award, or shares of Common
Stock that would be acquired upon exercise, vesting or payment of an Award are
withheld to pay withholding taxes payable upon exercise, vesting or payment of
such Award, the number of shares available for grant of Awards under the Plan
shall be increased by the number of shares delivered or withheld as payment of
such withholding taxes.

 

ARTICLE V.  ELIGIBILITY

 

The Committee shall select Participants
from those Employees, directors and other individuals or entities providing
services to the Company that, in the opinion of the Committee, are in a
position to make a significant contribution to the success of the Company.  Once a Participant has been selected for an
Award by the Committee, the Committee shall determine the type and size of
Award to be granted to the Participant and shall establish in the related Award
Agreement the terms, conditions, restrictions and limitations applicable to the
Award, in addition to those set forth in the Plan and the administrative guidelines
and regulations, if any, established by the Committee.

 

ARTICLE VI.  FORM OF AWARDS

 

6.1          Form of Awards.  Awards may be granted under the Plan, in the
Committee’s sole discretion, in the form of Options pursuant to Article VII,
SARs pursuant to Article VIII, Restricted Stock pursuant to Article IX,
Restricted Stock Units pursuant to Article X, Performance Awards pursuant
to Article XI, and Stock Awards and Other Incentive Awards pursuant to Article XII,
or a combination thereof.  All Awards
shall be subject to the terms, conditions, restrictions and limitations of the
Plan.  The Committee may, in its sole
discretion, subject any Award to such other terms, conditions, restrictions
and/or limitations (including without limitation the time and conditions of
exercise, vesting or payment of an Award and restrictions on transferability of
any shares of Common Stock issued or delivered pursuant to an Award), provided
they are not inconsistent with the terms of the Plan.  The Committee may, but is not required to,
subject an Award to such conditions as it determines are necessary or
appropriate to ensure than an Award constitutes “qualified performance based
compensation” within the meaning of section 162(m) of the Code and the
regulations thereunder.  Awards under a
particular Article of the Plan need not be uniform, and Awards under more
than one Article of the Plan may be combined in a single Award
Agreement.  Any combination of Awards may
be granted at one time and on more than one occasion to the same
Participant.  Subject to compliance with
applicable tax law, an Award Agreement may provide that a Participant may elect
to defer receipt of income attributable to the exercise or vesting of an Award.

 

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6.2          No Repricing.  Except for adjustments made
pursuant to Section 4.2,  no Award
may be repriced, replaced, regranted through cancellation or otherwise modified
without stockholder approval, if the effect would be to reduce the exercise
price for the shares underlying such Award; and, the Committee may not cancel
an outstanding Option that is under water for the purpose of granting a
replacement Award of a different type.

 

6.3          Loans.  The
Committee may, in its sole discretion, approve the extension of a loan by the
Company to a Participant who is an Employee to assist the Participant in paying
the exercise price or purchase price of an Award; provided, however, that no
loan shall be permitted if the extension of such loan would violate any
provision of applicable law.  Any loan
will be made upon such terms and conditions as the Committee shall determine.

 

ARTICLE VII.  OPTIONS

 

7.1          General.  Awards may be granted in the
form of Options that may be Incentive Stock Options or Nonqualified Stock
Options, or a combination of both; provided, however, that Incentive Stock
Options may be granted only to Employees.

 

7.2          Terms
and Conditions of Options.  An Option shall be exercisable in whole or in
such installments and at such times as may be determined by the Committee.  The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee, but such exercise price shall not be less than 100% of the Fair Market Value per share
of Common Stock on the Grant Date unless the Option was granted through the
assumption of, or in substitution for, outstanding awards previously granted to
individuals who became Employees as a result of a merger, consolidation,
acquisition, or other corporate transaction involving the Company.  Except as otherwise provided in Section 7.3,
the term of each Option shall be as specified by the Committee; provided,
however, that no Options shall be exercisable later than ten years after the
Grant Date.  Options may be granted with
respect to Restricted Stock or shares of Common Stock that are not Restricted
Stock, as determined by the Committee in its sole discretion.

 

7.3          Restrictions
Relating to Incentive Stock Options.

 

(a)           Options granted in the form
of Incentive Stock Options shall, in addition to being subject to the terms and
conditions of Section 7.2, comply with section 422(b) of the
Code.  To the extent the aggregate Fair
Market Value (determined as of the times the respective Incentive Stock Options
are granted) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an individual during any calendar year under
all incentive stock option plans of SEI and its Affiliates exceeds $100,000,
such excess Incentive Stock Options shall be treated as options that do not
constitute Incentive Stock Options.  The
Committee shall determine, in accordance with the applicable provisions of the
Code, which of a Participant’s Incentive Stock Options will not constitute
Incentive Stock Options because of such limitation and shall notify the
Participant of such determination as soon as practicable after such determination.  The price at which a share of Common Stock
may be purchased upon exercise of an Incentive

 

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Stock Option shall be
determined by the Committee, but such exercise price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the Grant
Date.  No Incentive Stock Option shall be
granted to an Employee under the Plan if, at the time such Option is granted,
such Employee owns stock possessing more than 10% of the total combined voting
power of all classes of stock of SEI or an Affiliate, within the meaning of section 422(b)(6) of
the Code, unless (i) on the Grant Date of such Option, the exercise price
of such Option is at least 110% of the Fair Market Value of the Common Stock subject
to the Option and (ii) such Option by its terms is not exercisable after
the expiration of five years from the Grant Date of the Option.

 

(b)           Each Participant awarded an
Incentive Stock Option shall notify SEI in writing immediately after the date he
or she makes a disqualifying disposition of any shares of Common Stock acquired
pursuant to the exercise of such Incentive Stock Option.  A disqualifying disposition is any
disposition (including any sale) of such Common Stock before the later of (i) two
years after the Grant Date of the Incentive Stock Option or (ii) one year
after the date of exercise of the Incentive Stock Option.

 

7.4          Exercise
of Options.

 

(a)           Subject to the terms and
conditions of the Plan, Options shall be exercised by the delivery of a written
notice of exercise to SEI, setting forth the number of whole shares of Common
Stock with respect to which the Option is to be exercised, accompanied by full
payment for such shares.

 

(b)           Upon exercise of an Option,
the exercise price of the Option shall be payable to SEI in full either: (i) in
cash or an equivalent acceptable to the Committee, or (ii) in the sole
discretion of the Committee and in accordance with any applicable
administrative guidelines established by the Committee, by tendering one or
more previously acquired nonforfeitable, unrestricted shares of Common Stock
that have been held by the Participant for at least six months having an
aggregate Fair Market Value at the time of exercise equal to the total exercise
price, or (iii) in a combination of the forms of payment specified in
clauses (i) and (ii) above.

 

(c)           During such time as the
Common Stock is registered under Section 12 of the Exchange Act, to the
extent permissible under applicable law, payment of the exercise price of an
Option may also be made, in the absolute discretion of the Committee, by
delivery to SEI or its designated agent of an executed irrevocable option
exercise form together with irrevocable instructions to a broker-dealer to sell
or margin a sufficient portion of the shares with respect to which the Option
is exercised and deliver the sale or margin loan proceeds directly to SEI to
pay the exercise price and any required withholding taxes.

 

(d)           As soon as reasonably
practicable after receipt of written notification of exercise of an Option and
full payment of the exercise price and any required withholding taxes, SEI
shall (i) deliver to the Participant, in the Participant’s name or the
name of the

 

11

 

Participant’s designee, a stock
certificate or certificates in an appropriate aggregate amount based upon the
number of shares of Common Stock purchased under the Option, or (ii) cause
to be issued in the Participant’s name or the name of the Participant’s designee,
in book-entry form, an appropriate number of shares of Common Stock based upon
the number of shares purchased under the Option.

 

7.5          Termination
of Employment or Service.  Each Award Agreement embodying the Award of
an Option shall set forth the extent to which the Participant shall have the
right to exercise the Option following termination of the Participant’s
employment or service with the Company. 
Such provisions shall be determined by the Committee in its absolute
discretion, need not be uniform among all Options granted under the Plan and
may reflect distinctions based on the reasons for termination of employment or
service.  In the event a Participant’s
Award Agreement embodying the award of an Option does not set forth such
termination provisions, the following termination provisions shall apply with
respect to such Award:

 

(a)           Termination
Other Than For Cause.  If the employment or service of a Participant
shall terminate for any reason other than Cause, each outstanding Option held
by the Participant may be exercised, to the extent then vested, until the
earlier of (i) the expiration of one year from the date of such
termination of employment or service or (ii) the expiration of the term of
such Option.

 

(b)           Termination for
Cause. 
Notwithstanding paragraphs (a) above, if the employment or service
of a Participant shall terminate for Cause, each outstanding Option held by the
Participant may be exercised, to the extent then vested, until the earlier of (i) the
expiration of 30 days from the date of such termination of employment or
service or (ii) the expiration of the terms of such Option.

 

Notwithstanding the foregoing, an Option will
not be treated as an Incentive Stock Option unless at all times beginning on
the Grant Date and ending on the day three months (one year in the case of a
Participant who is “disabled” within the meaning of Section 22(e)(3) of
the Code) before the date of exercise of the Option, the Participant is an employee
of SEI or an Affiliate (or a corporation or a parent or subsidiary corporation
of such corporation issuing or assuming an option in a transaction to which Section 424(a) of
the Code applies).

 

ARTICLE VIII.  STOCK APPRECIATION RIGHTS

 

8.1          General.  The Committee may grant Awards
in the form of SARs in such numbers and at such times as it shall determine.  SARs shall vest and be exercisable in whole or
in such installments and at such times as may be determined by the
Committee.  The price at which SARs may
be exercised shall be determined by the Committee but shall not be less than 100%
of the Fair Market Value per share of Common Stock on the Grant Date unless the
SARs were granted through the assumption of, or in substitution for,
outstanding awards previously granted to individuals who became Employees as a
result of a merger, consolidation, acquisition, or other corporate transaction
involving the Company.  The term of each
SAR shall be as specified by the Committee; provided, however, that no SARs
shall be exercisable later than

 

12

 

seven years
after the Grant Date.  At the time of an
Award of SARs, the Committee may, in its sole discretion, prescribe additional
terms, conditions, restrictions and limitations applicable to the SARs,
including without limitation rules pertaining to the termination of
employment or service (by reason of death, permanent and total disability, or
otherwise) of a Participant prior to exercise of the SARs, as it determines are
necessary or appropriate, provided they are not inconsistent with the Plan.

 

8.2          Exercise of SARs. 
SARs shall be exercised by the delivery of a written notice of exercise
to SEI, setting forth the number of whole shares of Common Stock with respect
to which the Award is being exercised. 
Upon the exercise of SARs, the Participant shall be entitled to receive
an amount equal to the excess of the aggregate Fair Market Value of the shares
of Common Stock with respect to which the Award is exercised (determined as of
the date of such exercise) over the aggregate exercise price of such
shares.  Such amount shall be payable to
the Participant in cash or in shares of Common Stock, as provided in the Award
Agreement; provided, however, that if SARs are to be settled in cash, the SARs
shall be structured to avoid negative tax consequences to the Participant under
Section 409A of the Code.

 

ARTICLE IX.  RESTRICTED STOCK

 

9.1          General.  Awards may be
granted in the form of Restricted Stock in such numbers and at such times as
the Committee shall determine.  The
Committee shall impose such terms, conditions and restrictions on Restricted
Stock as it may deem advisable, including without limitation providing for vesting
upon the achievement of specified performance goals pursuant to a Performance
Award and restrictions under applicable Federal or state securities laws.  A Participant shall not be required to make
any payment for Restricted Stock unless required by the Committee pursuant to Section 9.2.

 

9.2          Purchased Restricted Stock.  The Committee may in its sole discretion
require a Participant to pay a stipulated purchase price for each share of
Restricted Stock (“Purchased Restricted Stock”).

 

9.3          Restricted Period.  At
the time an Award of Restricted Stock is granted, the Committee shall establish
a Restricted Period applicable to such Restricted Stock.  Each Award of Restricted Stock may have a
different Restricted Period in the sole discretion of the Committee.

 

9.4          Other Terms and Conditions.  Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes.  Restricted Stock awarded to a Participant
under the Plan shall be registered in the name of the Participant or, at the
option of SEI, in the name of a nominee of SEI, and shall be issued in
book-entry form or represented by a stock certificate.  Subject to the terms and conditions of the
Award Agreement, a Participant to whom Restricted Stock has been awarded shall
have the right to receive dividends thereon during the Restricted Period, to
vote the Restricted Stock and to enjoy all other stockholder rights with respect
thereto, except that (i) SEI shall retain custody of any certificates
evidencing the Restricted Stock during the Restricted Period, and (ii) the
Participant may not sell, transfer,

 

13

 

pledge, exchange, hypothecate or otherwise dispose of
the Restricted Stock during the Restricted Period.  A breach of the terms and conditions
established by the Committee pursuant to the Award of the Restricted Stock may
result in a forfeiture of the Restricted Stock. 
At the time of an Award of Restricted Stock, the Committee may, in its sole
discretion, prescribe additional terms, conditions, restrictions and
limitations applicable to the Restricted Stock, including without limitation rules pertaining
to the termination of employment or service (by reason of death, permanent and
total disability, retirement, cause or otherwise) of a Participant prior to
expiration of the Restricted Period.

 

9.5          Miscellaneous.  Nothing in
this Article shall prohibit the exchange of shares of Restricted Stock
pursuant to a plan of merger or reorganization for stock or other securities of
SEI or another corporation that is a party to the reorganization, provided that
the stock or securities so received in exchange for shares of Restricted Stock
shall, except as provided in Article XIII, become subject to the
restrictions applicable to such Restricted Stock.  Any shares of Common Stock received as a
result of a stock split or stock dividend with respect to shares of Restricted
Stock shall also become subject to the restrictions applicable to such
Restricted Stock.

 

ARTICLE X.  RESTRICTED STOCK UNITS

 

10.1        General.  Awards may be granted in the form of Restricted Stock
Units in such numbers and at such times as the Committee shall determine.  The Committee shall impose such terms, conditions
and restrictions on Restricted Stock Units as it may deem advisable, including
without limitation prescribing the period over which and the conditions upon
which a Restricted Stock Unit may become vested or be forfeited, and providing
for vesting upon the achievement of specified performance goals pursuant to a
Performance Award.  Upon the lapse of
restrictions with respect to each Restricted Stock Unit, the Participant shall
be entitled to receive from the Company one share of Common Stock or an amount
of cash equal to the Fair Market Value of one share of Common Stock, as
provided in the Award Agreement.  A
Participant shall not be required to make any payment for Restricted Stock
Units.  Restricted Stock Units shall be
structured to avoid negative tax consequences to the Participant under Section 409A
of the Code.

 

10.2        Restricted Period.  At
the time an Award of Restricted Stock Units is granted, the Committee shall
establish a Restricted Period applicable to such Restricted Stock Units.  Each Award of Restricted Stock Units may have
a different Restricted Period in the sole discretion of the Committee.

 

10.3        Cash Dividend Rights and Dividend Unit Rights. To the extent provided by the
Committee in its sole discretion, a grant of Restricted Stock Units may include
a tandem Cash Dividend Right or Dividend Unit Right grant.  A grant of Cash Dividend Rights may provide
that such Cash Dividend Rights shall be paid directly to the Participant at the
time of payment of related dividend, be credited to a bookkeeping account
subject to the same vesting and payment provisions as the tandem Award (with or
without interest in the sole discretion of the Committee), or be subject to
such other provisions or restrictions as determined by the Committee in its sole
discretion.  A grant of Dividend Unit
Rights may provide that such Dividend Unit Rights shall be subject to the same
vesting and payment provisions as the tandem

 

14

 

Award or be subject to such other provisions and
restrictions as determined by the Committee in its sole discretion.

 

10.4        Other Terms and Conditions.  At
the time of an Award of Restricted Stock Units, the Committee may, in its sole
discretion, prescribe additional terms, conditions, restrictions and
limitations applicable to the Restricted Stock Units, including without
limitation rules pertaining to the termination of employment or service
(by reason of death, permanent and total disability, retirement, cause or
otherwise) of a Participant prior to expiration of the Restricted Period.

 

ARTICLE XI.  PERFORMANCE AWARDS

 

11.1        General.  Awards may be granted in the
form of Performance Awards that may be payable in the form of cash, shares of
Common Stock, or a combination of both, in such amounts and at such times as
the Committee shall determine. 
Performance Awards shall be conditioned upon the level of achievement of
one or more stated performance goals over a specified performance period that
shall not be shorter than one year. 
Performance Awards may be combined with other Awards to impose
performance criteria as part of the terms of such other Awards.

 

11.2        Terms and
Conditions. 
Each Award Agreement embodying a Performance Award shall set forth (i) the
amount, including a target and maximum amount if applicable, a Participant may
earn in the form of cash or shares of Common Stock or a formula for determining
such amount, (ii) the performance criteria and level of achievement versus
such criteria that shall determine the amount payable or number of shares of
Common Stock to be granted, issued, retained and/or vested, (iii) the
performance period over which performance is to be measured, (iv) the
timing of any payments to be made, (v) restrictions on the transferability
of the Award, and (vi) such other terms and conditions as the Committee
may determine that are not inconsistent with the Plan.

 

11.3        Code Section 162(m)
Requirements. 
From and after the date on which remuneration paid pursuant to the Plan
becomes subject to the deduction limitation under Section 162(m) of the
Code, the Committee shall determine in its sole discretion whether all or any
portion of a Performance Award shall be intended to satisfy the requirements for
“performance-based compensation” under section 162(m) of the Code (the “162(m)
Requirements”).  The performance criteria
for any Performance Award that is intended to satisfy the 162(m) Requirements
shall be established in writing by the Committee based on one or more performance
goals as set forth in Section 11.4 not later than 90 days after commencement
of the performance period with respect to such Award, provided that the outcome
of the performance in respect of the goals remains substantially uncertain as
of such time.  The maximum amount that
may be paid in cash pursuant to Performance Awards granted to a Participant with
respect to a calendar year that are intended to satisfy the 162(m) Requirements
is $1,000,000.00; provided, however, that such maximum amount with respect to a
Performance Award that provides for a performance period longer than one
calendar year shall be the foregoing limit multiplied by the number of full
calendar years in the performance period. 
At the time of the grant of a

 

15

 

Performance
Award and to the extent permitted under Code section 162(m) and
regulations thereunder for a Performance Award intended to satisfy the 162(m)
Requirements, the Committee may provide for the manner in which the performance
goals will be measured in light of specified corporate transactions,
extraordinary events, accounting changes and other similar occurrences.

 

11.4        Performance
Goals.  The
performance measure(s) to be used for purposes of Performance Awards may be
described in terms of objectives that are related to the individual Participant
or objectives that are Company-wide or related to a subsidiary, division,
department, region, function or business unit of the Company in which the
Participant is employed or with respect to which the Participant performs
services, and may consist of one or more or any combination of the following
criteria:  (i) earnings or earnings
per share (whether on a pre-tax, after-tax, operational or other basis), (ii) return
on equity, (iii) return on assets or net assets, (iv) return on
capital or invested capital and other related financial measures, (v) cash
flow, (vi) revenues, (vii) income or operating income, (viii) expenses
or expense levels, (ix) one or more operating ratios, (x) stock price,
(xi) total stockholder return, (xii) market share, (xiii) operating profit, (xiv)
profit margin, (xv) growth in production, (xvi) capital expenditures, (xvii)
net borrowing, debt leverage levels, credit quality or debt ratings, (xviii)
the accomplishment of mergers, acquisitions, dispositions, public offerings or
similar extraordinary business transactions, (xix) net asset value per share,
(xx) economic value added, (xxi) individual business objectives and (xxii)
added reserves.  The performance goals
based on these performance measures may be made relative to the performance of
other business entities.

 

11.5        Certification
and Negative Discretion.  Prior to the payment of any compensation
pursuant to a Performance Award that is intended to satisfy the 162(m)
Requirements, the Committee shall certify the extent to which the performance
goals and other material terms of the Award have been achieved or satisfied.  The Committee in its sole discretion shall
have the authority to reduce, but not to increase, the amount payable and the
number of shares to be granted, issued, retained or vested pursuant to a
Performance Award.

 

ARTICLE XII.  STOCK AWARDS AND OTHER INCENTIVE AWARDS

 

12.1        Stock Awards. 
Stock Awards may be granted to Participants upon
such terms and conditions as the Committee may determine. Shares of Common
Stock issued pursuant to Stock Awards may be issued for cash consideration or
for no cash consideration. The Committee shall determine the number of shares
of Common Stock to be issued pursuant to a Stock Award.

 

12.2        Other Incentive Awards.  Other Incentive Awards may be granted in such
amounts, upon such terms and at such times as the Committee shall
determine.  Other Incentive Awards may be
granted based upon, payable in or otherwise related to, in whole or in part,
shares of Common Stock if the Committee, in its sole discretion, determines
that such Other Incentive Awards are consistent with the purposes of the
Plan.  Each grant of an Other Incentive
Award shall be evidenced by an Award Agreement that shall specify the amount of
the Other Incentive Award and the terms, conditions, restrictions and
limitations applicable to such Award. 
Payment of Other Incentive Awards shall be made at such times and in
such form, which may be

 

16

 

cash, shares of Common Stock or other property (or a
combination thereof), as established by the Committee, subject to the terms of
the Plan.

 

ARTICLE XIII.  CHANGE OF CONTROL

 

13.1        Awards
Other Than Restricted Stock.  Unless otherwise determined by the Committee
at the time of grant of an Award or unless otherwise provided in the applicable
Award Agreement, if the stockholders of SEI shall approve a transaction which
upon consummation would constitute a Change of Control of SEI, or in the event
of any Change of Control of SEI not subject to stockholder approval, then, no
later than the effective time of such Change of Control, each Participant
holding an Award (other than a Restricted Stock Award) shall be required to
surrender such Award in exchange for (i) with respect to each share of
Common Stock subject to an Option or SAR (whether or not vested), payment by the Company (or a
successor), in cash, of an amount equivalent to the excess of the value of the
consideration received for each share of Common Stock by holders of Common
Stock in connection with such Change of Control (the “Change of Control
Consideration”) over the exercise price or grant price per share; (ii) with
respect to each share of Common Stock subject to an Award of Restricted Stock
Units or Other Incentive Awards, and related Cash Dividend Rights and Dividend
Unit Rights (if applicable), payment by the Company (or a successor), in cash, of
an amount equivalent to the value of any such Cash Dividend Rights and Dividend
Unit Rights plus the value of the Change of Control Consideration for each
share covered by the Award, assuming all restrictions or limitations (including
risks of forfeiture) have lapsed; and (iii) with
respect to a Performance Award, payment by the Company (or a successor), in cash, of an amount equivalent to the value of such Award, as determined by the Committee,
taking into account, to the extent applicable, the Change of Control
Consideration, and assuming all performance criteria
and other conditions to payment of such Awards are achieved or fulfilled to the
maximum extent possible.  Except as
provided below, cash payments made upon a Change of Control pursuant to this Article shall
be made no later than the date on which the Change of Control occurs.  With respect to an Award that consists of
deferred compensation under Section 409A of the Code, if a corporate event
occurs that would otherwise constitute a Change of Control under Section 2.7(a)-(f),
but does not satisfy the requirements for a change of control or change in
control under Section 409A of the Code and Treasury guidance and
Regulations related to Section 409A of the Code, including but not limited
to Notice 2005-1 and such other Treasury guidance or Regulations issued after
the Effective Date, then such Award shall be fully vested, all restrictions or
limitations shall lapse, or all performance criteria or other conditions
related to such Awards shall be deemed to be achieved or fulfilled to the maximum
extent possible as of the date of such corporate event, as applicable, as provided
above in this Article XIII, but the cash payment with respect to such
Award shall be delayed until payment may be made to the Participant without
negative tax consequences to the Participant under Section 409A of the
Code.

 

13.2        Restricted
Stock Awards. 
Unless otherwise determined by the Committee at the time of grant of an
Award or unless otherwise provided in the applicable Award Agreement, if the
stockholders of SEI shall approve a transaction which upon consummation would
constitute a Change of Control of SEI, or in the event of any Change of Control
of SEI not subject to stockholder approval, then effective immediately prior to
the Change of Control, all Awards

 

17

 

shall be fully vested, all restrictions and
limitations shall lapse and all performance criteria or other conditions
related to such Awards shall be deemed to be achieved or fulfilled to the
maximum extent possible.

 

ARTICLE XIV.  AMENDMENT AND TERMINATION

 

14.1        Plan Amendment and Termination.  The
Board may at any time suspend, terminate, amend or modify the Plan, in whole or
in part; provided, however, that no amendment or modification of the Plan shall
become effective without the approval of such amendment or modification by the
holders of at least a majority of the shares of Common Stock if (i) such
amendment or modification increases the maximum number of shares subject to the
Plan (except as provided in Article IV) or changes the designation or
class of persons eligible to receive Awards under the Plan, or (ii) counsel
for SEI determines that such approval is otherwise required by or necessary to
comply with applicable law or the listing requirements of NASDAQ or such other
exchange or association on which the Common Stock is then listed or quoted.  An amendment to the Plan
shall not require stockholder approval if it curtails rather than expands the
scope of the Plan, nor if it is made to conform the Plan to new statutory or
regulatory requirements that arise after submission of the Plan to stockholders
for their approval, such as, without limitation, changes to section 409A
of the Code, or regulations issued thereunder.  Upon
termination of the Plan, the terms and provisions of the Plan shall,
notwithstanding such termination, continue to apply to Awards granted prior to
such termination.  Except as otherwise
provided herein, no suspension, termination, amendment or modification of the
Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the consent of the Participant (or the Permitted
Transferee) holding such Award.

 

14.2        Award Amendment and Cancellation.  The
Committee may amend the terms of any outstanding Award granted pursuant to the
Plan, but except as otherwise provided herein, no such amendment shall
adversely affect in any material way the Participant’s (or a Permitted
Transferee’s) rights under an outstanding Award without the consent of the
Participant (or the Permitted Transferee) holding such Award.

 

ARTICLE XV.  MISCELLANEOUS

 

15.1        Award Agreements. 
After the Committee grants an Award under the Plan to a Participant, SEI
and the Participant shall enter into an Award Agreement setting forth the terms,
conditions, restrictions and limitations applicable to the Award and such other
matters as the Committee may determine to be appropriate.  The Committee may permit or
require a Participant to defer receipt of the payment of cash or the delivery
of shares of Common Stock that would otherwise be due to the Participant in
connection with any Award; provided, however, that any permitted deferrals shall be structured to avoid
negative tax consequences to the Participant under Section 409A of the
Code.  The terms and provisions of
the respective Award Agreements need not be identical.  All Award Agreements shall be subject to the
provisions of the Plan, and in the event of any conflict between an Award
Agreement and the Plan, the terms of the Plan shall govern.  Options, restricted stock and other awards
granted pursuant to the SOP Plan shall continue to be governed by the terms of
the SOP Plan as in effect at the time of the award.

 

18

 

15.2        Listing; Suspension.

 

(a)           As long as the Common Stock is listed on a
national securities exchange or system sponsored by a national securities
association, the issuance of any shares of Common Stock pursuant to an Award
shall be conditioned upon such shares being listed on such exchange or
system.  SEI shall have no obligation to
issue such shares unless and until such shares are so listed, and the right to
exercise any Option or other Award with respect to such shares shall be
suspended until such listing has been effected.

 

(b)           If at any time counsel to SEI or its
Affiliates shall be of the opinion that any sale or delivery of shares of
Common Stock pursuant to an Award is or may in the circumstances be unlawful or
result in the imposition of excise taxes on SEI or its Affiliates under the laws
of any applicable jurisdiction, SEI or its Affiliates shall have no obligation
to make such sale or delivery, or to make any application or to effect or to
maintain any qualification or registration under the Securities Act of 1933, as
amended, or otherwise, with respect to shares of Common Stock or Awards, and
the right to exercise any Option or other Award shall be suspended until, in
the opinion of such counsel, such sale or delivery shall be lawful or will not
result in the imposition of excise taxes on SEI or its Affiliates.

 

(c)           Upon termination of any period of
suspension under this Section, any Award affected by such suspension that shall
not then have expired or terminated shall be reinstated as to all shares
available before such suspension and as to shares that would otherwise have
become available during the period of such suspension, but no such suspension
shall extend the term of any Award unless otherwise determined by the Committee
in its sole discretion.

 

15.3        Additional Conditions. 
Notwithstanding anything in the Plan to the contrary:  (i) the Committee may, if it shall
determine it necessary or desirable in its sole discretion, at the time of
grant of any Award or the issuance of any shares of Common Stock pursuant to any
Award, require the recipient of the Award or such shares of Common Stock, as a
condition to the receipt thereof, to deliver to SEI a written representation of
present intention to acquire the Award or such shares of Common Stock for his
own account for investment and not for distribution, (ii) the certificate
for shares of Common Stock issued to a Participant may include any legend that
the Committee deems appropriate to reflect any restrictions on transfer, and (iii) all
certificates for shares of Common Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange or association upon
which the Common Stock is then listed or quoted, any applicable federal or
state securities law, and any applicable corporate law, and the Committee may
cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions.

 

19

 

15.4        Transferability.

 

(a)           All Awards granted to a
Participant shall be exercisable during his lifetime only by such Participant,
or if applicable, a Permitted Transferee as provided in subsection (c) of
this Section; provided, however, that in the event of a Participant’s legal
incapacity, an Award may be exercised by his guardian or legal
representative.  When
a Participant dies, the personal representative, beneficiary, or other person
entitled to succeed to the rights of the Participant may acquire the rights
under an Award. Any such successor must furnish proof satisfactory to SEI of
the successor’s entitlement to receive the rights under an Award under the
Participant’s will or under the applicable laws of descent and distribution.

 

(b)           Except as otherwise provided
in this Section, no Award shall be subject to execution, attachment or similar
process, and no Award may be sold, transferred, pledged, exchanged,
hypothecated or otherwise disposed of, other than by will or pursuant to the
applicable laws of descent and distribution. 
Any attempted sale, transfer, pledge, exchange, hypothecation or other
disposition of an Award not specifically permitted by the Plan or the Award
Agreement shall be null and void and without effect.

 

(c)           If provided in the Award
Agreement, Nonqualified Stock Options may be transferred by a Participant to a
Permitted Transferee.  For purposes of
the Plan, “Permitted Transferee” means (i) a member of a Participant’s
immediate family, (ii) any person sharing the Participant’s household
(other than a tenant or employee of the Participant), (iii) trusts in
which a person listed in (i) or (ii) above has more than 50% of the
beneficial interest, (iv) a foundation in which the Participant or a
person listed in (i) or (ii) above controls the management of assets,
(v) any other entity in which the Participant or a person listed in (i) or
(ii) above owns more than 50% of the voting interests, provided that in the
case of the preceding clauses (i) through (v), no consideration is
provided for the transfer, and (vi) any transferee permitted under
applicable securities and tax laws as determined by counsel to SEI.  In determining whether a person is a “Permitted
Transferee,” immediate family members shall include a Participant’s child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships.

 

(d)           Incident
to a Participant’s divorce, the Participant may request that SEI agree to
observe the terms of a domestic relations order which may or may not be part of
a qualified domestic relations order (as defined in Code section 414(p))
with respect to all or a part of one or more Awards made to the Participant
under the Plan to the Participant’s alternate payee.  SEI’s decision regarding such a request shall
be made by the Committee, in its sole and absolute discretion, based upon the
best interests of SEI.  The Committee’s
decision need not be uniform among Participants.  As a condition of participation, a
Participant agrees to hold SEI harmless from any claim that may arise out of SEI’s
observance of the terms of any such domestic relations order.

 

20

 

15.5        Withholding Taxes.  The
Company shall be entitled to deduct from any payment made under the Plan,
regardless of the form of such payment, the amount of all applicable income and
employment taxes required by law to be withheld with respect to such payment,
may require the Participant to pay to the Company such withholding taxes prior
to and as a condition of the making of any payment or the issuance or delivery
of any shares of Common Stock under the Plan, and shall be entitled to deduct
from any other compensation payable to the Participant any withholding
obligations with respect to Awards.  In
accordance with any applicable administrative guidelines it establishes, the
Committee may allow a Participant to pay the amount of taxes required by law to
be withheld from or with respect to an Award by (i) withholding shares of
Common Stock from any payment of Common Stock due as a result of such Award, or
(ii) permitting the Participant to deliver to the Company previously
acquired shares of Common Stock, in each case having an aggregate Fair Market
Value equal to the amount of such required withholding taxes.  No payment shall be made and no shares of
Common Stock shall be issued pursuant to any Award unless and until the
applicable tax withholding obligations have been satisfied.

 

15.6        No Fractional Shares.  No
fractional shares of Common Stock shall be issued or delivered pursuant to the
Plan or any Award granted hereunder, provided that the Committee in its sole
discretion may round fractional shares down to the nearest whole share or
settle fractional shares in cash.

 

15.7        Notices.  All notices
required or permitted to be given or made under the Plan or pursuant to any
Award Agreement (unless provided otherwise in such Award Agreement) shall be in
writing and shall be deemed to have been duly given or made if (i) delivered
personally, (ii) transmitted by first class registered or certified United
States mail, postage prepaid, return receipt requested, (iii) sent by
prepaid overnight courier service, or (iv) sent by telecopy or facsimile
transmission, with confirmation receipt, to the person who is to receive it at
the address that such person has theretofore specified by written notice
delivered in accordance herewith.  Such
notices shall be effective (i) if delivered personally or sent by courier
service, upon actual receipt by the intended recipient, (ii) if mailed,
upon the earlier of five days after deposit in the mail or the date of delivery
as shown by the return receipt therefor, or (iii) if sent by telecopy or
facsimile transmission, when the answer back is received.  SEI or a Participant may change, at any time
and from time to time, by written notice to the other, the address that it or
such Participant had theretofore specified for receiving notices.  Until such address is changed in accordance
herewith, notices hereunder or under an Award Agreement shall be delivered or
sent (i) to a Participant at his address as set forth in the records of
the Company or (ii) to SEI at the principal executive offices of SEI
clearly marked “Attention:  General
Counsel.”

 

15.8        Compliance with Law and Stock Exchange or
Association Requirements.  In addition, it is the intent of the SEI that
Options designated as Incentive Stock Options comply with the applicable
provisions of Section 422 of the Code, and that Awards intended to
constitute “qualified performance-based awards” comply with the applicable
provisions of Section 162(m) of the Code and that any deferral of the
receipt of the payment of cash or the delivery of shares of Common Stock that
the Committee may permit or require, and any Award granted that is subject to Section 409A
of the Code, comply with the requirements of Section 409A of the Code.

 

21

 

To the extent that any legal
requirement of Section 16 of the Exchange Act or Sections 422, 162(m) or
409A of the Code as set forth in the Plan ceases to be required under Section 16
of the Exchange Act or Sections 422, 162(m) or 409A of the Code, that Plan
provision shall cease to apply.  Any
provision of this Plan to the contrary notwithstanding, the Committee may
revoke any Award if it is contrary to law, governmental regulation, or stock
exchange or association requirements or modify an Award to bring it into
compliance with any government regulation or stock exchange or association
requirements.  The Committee may agree to
limit its authority under this Section.

 

15.9        Binding Effect.  The
obligations of SEI under the Plan shall be binding upon any successor
corporation or organization resulting from the merger, consolidation or other
reorganization of SEI, or upon any successor corporation or organization
succeeding to all or substantially all of the assets and business of SEI.  The terms and conditions of the Plan shall be
binding upon each Participant and his Permitted Transferees, heirs, legatees,
distributees and legal representatives.

 

15.10      Severability.  If any provision
of the Plan or any Award Agreement is held to be illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining provisions
of the Plan or such agreement, as the case may be, but such provision shall be
fully severable and the Plan or such agreement, as the case may be, shall be
construed and enforced as if the illegal or invalid provision had never been
included herein or therein.

 

15.11      No Restriction of Corporate Action.  Nothing contained in the Plan shall be
construed to prevent SEI or any Affiliate from taking any corporate action
(including any corporate action to suspend, terminate, amend or modify the
Plan) that is deemed by SEI or such Affiliate to be appropriate or in its best
interest, whether or not such action would have an adverse effect on the Plan
or any Awards made or to be made under the Plan.  No Participant or other person shall have any
claim against SEI or any Affiliate as a result of such action.

 

15.12      Governing Law.  The Plan shall
be governed by and construed in accordance with the internal laws (and not the
principles relating to conflicts of laws) of the State of Texas except as
superseded by applicable federal law.

 

15.13      No Right, Title or Interest in Company Assets.  No Participant shall have any rights as a
stockholder of SEI as a result of participation in the Plan until the date of
issuance of Common Stock in his name and, in the case of Restricted Stock,
unless and until such rights are granted to the Participant pursuant to the
Plan.  To the extent any person acquires
a right to receive payments from the Company under the Plan, such rights shall
be no greater than the rights of an unsecured general creditor of the Company,
and such person shall not have any rights in or against any specific assets of
the Company.  All Awards shall be
unfunded.

 

15.14      Risk of Participation. 
Nothing contained in the Plan shall be construed either as a guarantee
by SEI or the Affiliates, or their respective stockholders, directors, officers
or employees, of the value of any assets of the Plan or as an agreement by SEI
or the Affiliates, or

 

22

 

their respective stockholders, directors, officers or
employees, to indemnify anyone for any losses, damages, costs or expenses
resulting from participation in the Plan.

 

15.15      No Guarantee of Tax Consequences.  No
person connected with the Plan in any capacity, including without limitation SEI
and the Affiliates and their respective directors, officers, agents and
employees, makes any representation, commitment or guarantee that any tax
treatment, including without limitation federal, state and local income, estate
and gift tax treatment, will be applicable with respect to any Awards or
payments thereunder made to or for the benefit of a Participant under the Plan
or that such tax treatment will apply to or be available to a Participant on
account of participation in the Plan.

 

15.16      Continued Employment or Service. 
Nothing contained in the Plan or in any Award Agreement shall confer
upon any Participant the right to continue in the employ or service of the
Company, or interfere in any way with the rights of the Company to terminate a
Participant’s employment or service at any time, with or without cause.  The loss of existing or potential profit in
Awards will not constitute an element of damages in the event of termination of
employment or service for any reason, even if the termination is in violation
of an obligation of SEI or an Affiliate to the Participant.

 

15.17      Miscellaneous.  Headings are
given to the articles and sections of the Plan solely as a convenience to
facilitate reference.  Such headings
shall not be deemed in any way material or relevant to the construction of the
Plan or any provisions hereof.  The use
of the masculine gender shall also include within its meaning the
feminine.  Wherever the context of the
Plan dictates, the use of the singular shall also include within its meaning
the plural, and vice versa.

 

IN WITNESS WHEREOF, this Plan has been executed as of the Effective
Date.

 

	
   

  	
  STROUD ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  Patrick J. Noyes

  
	
   

  	
   

  	
  Name: Patrick J. Noyes

  
	
   

  	
   

  	
  Title: President & Chief Executive
  Officer

  

 

23Exhibit
10.4

 

STROUD ENERGY, INC.

RESTRICTED STOCK PLAN

 

ARTICLE I.  ESTABLISHMENT
AND PURPOSE

 

1.1          Establishment
and Purpose. 
Stroud Energy, Inc. (“SEI”) hereby establishes the Stroud Energy, Inc.
Restricted Stock Plan, as set forth in this document.  The purposes of the Plan are to attract and
retain highly qualified senior management and other employees to perform
services for SEI and its Affiliates and to align the interests of such
employees with those of the stockholders of SEI.  SEI is committed to creating long-term
stockholder value.  SEI’s compensation
philosophy is based on a belief that SEI can best create stockholder value if senior
management and other employees act and are rewarded as business owners.  SEI believes that an equity stake through
equity compensation programs effectively aligns employee and stockholder
interests by motivating and rewarding long-term performance that will enhance
stockholder value.

 

1.2          Replacement
of SEM Class B Restricted Units.  In connection with the transactions
contemplated by that certain Combination Agreement between SEI, Stroud Energy
Management, Ltd. (“SEM”), Stroud Energy, Ltd., Stroud Oil Properties, Inc.
and the other parties thereto dated August 1, 2005 (the “Combination
Agreement”), shares of SEI Common Stock issued in exchange for the Class B
Partnership Interests in SEM that were previously issued to senior management
and other employees of Stroud Oil Properties, Inc. or its affiliates
during 2005 will be issued pursuant to this Plan.

 

1.3          Effectiveness
and Term. 
This Plan shall become effective as of September 23, 2005, (the “Effective
Date”), which is the date of approval of the Plan by the holders of at least a
majority of the shares of Common Stock by written action in lieu of a meeting
in accordance with applicable law. Unless terminated earlier by the Board pursuant to Section 9.1, this
Plan shall terminate on the day prior to the tenth anniversary of the Effective
Date.

 

ARTICLE II.  DEFINITIONS

 

2.1          “Affiliate” means (i) a “parent corporation” or a “subsidiary
corporation” of SEI, as those terms are defined in Sections 424(e) and (f) of
the Code, respectively, and (ii) any other corporation, organization,
association, partnership, sole proprietorship or other type of entity, whether
incorporated or unincorporated, directly or indirectly controlling or
controlled by or under direct or indirect common control with SEI.

 

2.2          “Award” means an award granted to a Participant in the form
of Restricted Stock.

 

2.3          “Award Agreement” means a written agreement between SEI and a
Participant that sets forth the terms, conditions, restrictions and limitations
applicable to an Award.

 

2.4          “Board” means the Board of Directors of SEI.

 

 

2.5          “Cause” means a finding by the Committee of acts or omissions
constituting willful misconduct or gross negligence in the course of the
Participant’s employment or service with the Company.

 

2.6          “Change of Control” means any of the following events:

 

(a)           the acquisition by any “person” (including a “group”
(as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), but excluding SEI or an existing stockholder of SEI who, upon closing of
the Private Placement, holds 5% or more of the Common Stock) of “beneficial
ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of SEI representing more than 20% of the combined
voting power of SEI’s then outstanding securities entitled to vote generally in
the election of directors; or

 

(b)           the consummation of a reorganization, merger,
consolidation or other form of business transaction or series of business
transactions, in each case, with respect to which persons who were stockholders
of SEI immediately prior to such reorganization, merger or consolidation or
other transaction do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated company’s then outstanding voting
securities; or

 

(c)           the sale, lease or disposition (in one or a series
of related transactions) by SEI of all or substantially all of SEI’s assets
(including those of its subsidiaries) to any person or its Affiliates, other
than SEI or its Affiliates; or

 

(d)           the members of the Board at the beginning of any
consecutive 24-calendar-month period (the “Incumbent Directors”) cease for any
reason other than death to constitute at least a majority of the members of the
Board, provided that any director whose election, or nomination for election by
SEI’s stockholders, was approved by a vote of at least a majority of the
members of the Board then still in office who were members of the Board at the
beginning of such 24-calendar-month period, shall be deemed to be an Incumbent
Director; or

 

(e)           the approval by the Board or the stockholders of SEI
of a complete or substantially complete liquidation or dissolution of SEI; or

 

(f)            any event similar to the foregoing that the Committee
determines in its absolute discretion would, if consummated, materially alter
the structure or business SEI.

 

Notwithstanding the foregoing, (i) a
Change of Control shall not include any acquisition, merger, or reorganization
by SEI in which the stockholders of SEI immediately prior to such acquisition,
merger, or reorganization will have substantially the same proportionate
ownership of common stock of the surviving corporation immediately thereafter
or which would be considered a Change of Control only due to the acquisition of
Common Stock by any employee benefit plan (or related trust) sponsored or
maintained by SEI or any parent or subsidiary of SEI, and (ii) a

 

2

 

Change of Control shall not include the
transactions contemplated by the Combination Agreement, the Private Placement,
or the initial public offering of the Common Stock.

 

2.7          “Code” means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions
and regulations.

 

2.8          “Committee”
means the Compensation Committee of the Board or
such other committee of the Board as may be designated by the Board to
administer the Plan, which committee shall consist of two or more members of
the Board.  During such time as the
Common Stock is registered under Section 12 of the Exchange Act, each
member of the Committee shall be an Outside Director.  To the extent that no Committee exists that
has the authority to administer the Plan, the functions of the Committee shall
be exercised by the Board.

 

2.9          “Common Stock” means the common stock of SEI, $.001 par value
per share, or any stock or other securities of hereafter issued or issuable in
substitution or exchange for the Common Stock.

 

2.10        “Company” means SEI and any Affiliate.

 

2.11        “Effective
Date” means the date this Plan becomes effective as provided in Section 1.3.

 

2.12        “Employee” means an employee of the Company; provided,
however, that the term “Employee” does not include an Outside Director or an
individual performing services for the Company who is treated for tax purposes
as an independent contractor at the time of performance of the services.

 

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

 

2.14        “Executive” means an Employee who is an executive officer or
other member of senior management of the Company.

 

2.15        “Fair Market Value” means the fair market value of the Common
Stock, as determined in good faith by the Committee or (i) if the Common
Stock is traded in the over-the-counter market, the average of the
representative closing bid and asked prices as reported by NASDAQ for the date
the Award is granted (or if there was no quoted price for such date of grant,
then for the last preceding business day on which there was a quoted price), or
(ii) if the Common Stock is traded in the NASDAQ National Market System,
the average of the highest and lowest selling prices for such stock as quoted
on the NASDAQ National Market System for the date the Award is granted (or if
there are no sales for such date of grant, then for the last preceding business
day on which there were sales), or (iii) if the Common Stock is listed on
any national stock exchange, the average of the highest and lowest selling
prices for such stock as quoted on such exchange for the date the Award is
granted (or if there are no sales for such date of grant, then for the last
preceding business day on which there were sales).

 

3

 

2.16        “Grant Date” means the date an Award is determined to be
effective by the Committee upon the grant of such Award.

 

2.17        “NASDAQ” means The NASDAQ Stock Market, Inc.

 

2.18        “Outside Director” means a member of the Board who: (i) meets
the independence requirements of the principal exchange or quotation system
upon which the shares of Common Stock are listed or quoted, (ii) from and
after the date on which the remuneration paid pursuant to the Plan becomes
subject to the deduction limitation under Section 162(m) of the Code,
qualifies as an “outside director” under Section 162(m) of the Code, (iii) qualifies
as a “non-employee director” of SEI under Rule 16b-3, and (iv) satisfies
independence criteria under any other applicable laws or regulations relating
to the issuance of shares of Common Stock to Employees.

 

2.19        “Participant” means an Executive or other Employee who has
been granted an Award.

 

2.20        “Plan” means the Stroud Energy, Inc. Restricted Stock Plan,
as in effect from time to time.

 

2.21        “Private Placement” means the private placement of shares of
the Common Stock to accredited investors, qualified institutional buyers and
non-U.S. persons involving SEI and/or its stockholders scheduled to close on or
about the Effective Date.

 

2.22        “Purchased Restricted Stock” shall have the meaning given
such term in Section 7.2.

 

2.23        “Restricted Period” means the period established by the
Committee with respect to an Award during which the Award remains subject to
forfeiture.

 

2.24        “Restricted Stock” means a share of Common Stock granted to a
Participant pursuant to Article VII that is subject to such terms,
conditions, and restrictions as may be determined by the Committee.

 

2.25        “Rule 16b-3” means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act, or any successor rule or
regulation that may be in effect from time to time.

 

2.26        “SEI” means Stroud Energy, Inc., a Delaware corporation,
or any successor thereto.

 

ARTICLE III.  PLAN ADMINISTRATION

 

3.1          Plan
Administrator and Discretionary Authority.  The Plan shall be administered by the
Committee.  The Committee shall have
total and exclusive responsibility to

 

4

 

control,
operate, manage and administer the Plan in accordance with its terms.  The Committee shall have all the authority
that may be necessary or helpful to enable it to discharge its responsibilities
with respect to the Plan.  Without
limiting the generality of the preceding sentence, the Committee shall have the
exclusive right to:  (i) interpret
the Plan and the Award Agreements executed hereunder; (ii) decide all
questions concerning eligibility for, and the amount of, Awards granted under
the Plan; (iii) construe any ambiguous provision of the Plan or any Award
Agreement; (iv) prescribe the form of Award Agreements; (v) correct
any defect, supply any omission or reconcile any inconsistency in the Plan or
any Award Agreement; (vi) issue administrative guidelines as an aid to
administering the Plan and make changes in such guidelines as the Committee
from time to time deems proper; (vii) make regulations for carrying out
the Plan and make changes in such regulations as the Committee from time to
time deems proper; (viii) to the extent permitted under the Plan, grant
waivers of Plan terms, conditions, restrictions and limitations; (ix) accelerate
the vesting or payment of an Award when such action or actions would be in the
best interests of the Company; (x) require Participants to hold a stated number
or percentage of shares of Common Stock acquired pursuant to an Award for a
stated period; and (xi) take any and all other actions the Committee deems
necessary or advisable for the proper operation or administration of the
Plan.  The Committee shall have authority
in its sole discretion with respect to all matters related to the discharge of
its responsibilities and the exercise of its authority under the Plan,
including without limitation its construction of the terms of the Plan and its
determination of eligibility for participation in, and the terms of Awards granted
under, the Plan.  The decisions of the
Committee and its actions with respect to the Plan shall be final, conclusive
and binding on all persons having or claiming to have any right or interest in
or under the Plan, including without limitation Participants and their
respective estates, beneficiaries and legal representatives.

 

3.2          Liability;
Indemnification. 
No member of the Committee, nor any person to whom it has delegated authority,
shall be personally liable for any action, interpretation or determination made
in good faith with respect to the Plan or Awards granted hereunder, and each
member of the Committee (or delegatee of the Committee) shall be fully
indemnified and protected by SEI with respect to any liability he may incur
with respect to any such action, interpretation or determination, to the
maximum extent permitted by applicable law.

 

ARTICLE IV.  SHARES SUBJECT TO THE PLAN

 

4.1          Available
Shares.

 

(a)           Subject to adjustment as
provided in Section 4.2, the maximum number of shares of Common Stock that
shall be available for grant of Awards under the Plan shall be 801,861 shares
of Common Stock.  Of the maximum number
of shares of Common Stock that are available for grant of Awards under the
Plan, 735,861 shares of Common Stock shall be available for the grant of Awards
to Executives and the remaining 66,000 shares shall be available for the grant
of Awards to Employees other than Executives.

 

(b)           Shares of Common Stock
issued pursuant to the Plan may be original issue or treasury shares or a
combination of the foregoing, as the Committee, in its sole discretion, shall
from time to time determine.  SEI will,
during the term of this Plan, will

 

5

 

at all times reserve and keep
available such number of shares of Common Stock as shall be sufficient to
satisfy the requirements of the Plan.

 

4.2          Adjustments
for Recapitalizations and Reorganizations. Subject
to Article VIII, if there is any change in the number or kind of shares of
Common Stock outstanding (i) by reason of a stock dividend, spin-off,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization, or consolidation, (iii) by reason of a
reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Common Stock as a
class without SEI’s receipt of consideration, or if the value of outstanding
shares of Common Stock is reduced as a result of a spin-off or SEI’s payment of
an extraordinary cash dividend, or distribution or dividend or distribution consisting
of any assets of SEI other than cash, the maximum number and kind of shares of
Common Stock available for issuance under the Plan and the number and kind of
shares of Common Stock covered by outstanding Awards may be appropriately
adjusted by the Committee to reflect any increase or decrease in the number of,
or change in the kind or value of, issued shares of Common Stock to preclude,
to the extent practicable, the enlargement or dilution of rights under such
Awards; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.

 

4.3          Adjustments
for Awards. 
The Committee shall have sole discretion to determine the manner in
which shares of Common Stock available for grant of Awards under the Plan are
counted.  Without limiting the discretion
of the Committee under this Section 4.3, unless otherwise determined by
the Committee, the following rules shall apply for the purpose of
determining the number of shares of Common Stock available for grant of Awards
under the Plan:

 

(a)           Restricted
Stock.  The
grant Restricted Stock shall reduce the number of shares of Common Stock available
for grant of Awards under the Plan by the number of shares of Common Stock subject
to such an Award.

 

(b)           Cancellation,
Forfeiture and Termination.  If any Award referred to in Section 4.3(a) is
canceled or forfeited, or terminates, expires or lapses, for any reason, the
shares then subject to such Award shall again be available for grant of Awards
under the Plan.

 

(c)           Payment of Withholding
Taxes.  If
previously acquired shares of Common Stock are used to pay withholding taxes
payable upon vesting or payment of an Award, the number of shares available for
grant of Awards under the Plan shall be increased by the number of shares
delivered or withheld as payment of such withholding taxes.

 

ARTICLE V.  ELIGIBILITY

 

The Committee shall select Participants
from those Employees providing services to the Company that, in the opinion of
the Committee, are in a position to make a significant contribution to the
success of the Company.  Once a
Participant has been selected for an Award

 

6

 

by the
Committee, the Committee shall determine the size of Award to be granted to the
Participant and shall establish in the related Award Agreement the terms, conditions,
restrictions and limitations applicable to the Award, in addition to those set
forth in the Plan and the administrative guidelines and regulations, if any,
established by the Committee.

 

ARTICLE VI.  FORM OF AWARDS

 

6.1          Form of Awards.  Awards may be granted under the Plan in the
form of Restricted Stock pursuant to Article VII.  All Awards shall be subject to the terms,
conditions, restrictions and limitations of the Plan.  The Committee may, in its sole discretion,
subject any Award to such other terms, conditions, restrictions and/or
limitations (including without limitation the time and conditions of vesting or
payment of an Award and restrictions on transferability of any shares of Common
Stock issued or delivered pursuant to an Award), provided they are not
inconsistent with the terms of the Plan. 
The Committee may, but is not required to, subject an Award to such
conditions as it determines are necessary or appropriate to ensure than an
Award constitutes “qualified performance based compensation” within the meaning
of Section 162(m) of the Code and the regulations thereunder.  Awards need not be uniform.  Subject to compliance with applicable tax
law, an Award Agreement may provide that a Participant may elect to defer
receipt of income attributable to the vesting or settlement of an Award.

 

ARTICLE VII.  RESTRICTED STOCK

 

7.1          General.  Awards may be
granted in the form of Restricted Stock in such numbers and at such times as
the Committee shall determine.  The
Committee shall impose such terms, conditions and restrictions on Restricted
Stock as it may deem advisable, including without limitation providing for vesting
upon the achievement of specified performance goals pursuant to an Award and restrictions
under applicable Federal or state securities laws.  A Participant shall not be required to make
any payment for Restricted Stock unless required by the Committee pursuant to Section 7.2.

 

7.2          Purchased Restricted Stock.  The Committee may in its sole discretion
require a Participant to pay a stipulated purchase price for each share of
Restricted Stock (“Purchased Restricted Stock”).

 

7.3          Restricted Period.  At
the time an Award is granted, the Committee shall establish a Restricted Period
applicable to the Award.  Each Award may
have a different Restricted Period in the sole discretion of the Committee.

 

7.4          Other Terms and Conditions.  Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes.  Restricted Stock awarded to a Participant
under the Plan shall be registered in the name of the Participant or, at the
option of SEI, in the name of a nominee of SEI, and shall be issued in
book-entry form or represented by a stock certificate.  Subject to the terms and conditions of the
Award Agreement, a Participant to whom Restricted Stock has been awarded shall
have the right to receive dividends thereon during the Restricted Period, to
vote the Restricted Stock and to enjoy all other stockholder rights with

 

7

 

respect thereto, except that (i) SEI shall retain
custody of any certificates evidencing the Restricted Stock during the Restricted
Period, and (ii) the Participant may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the Restricted Stock during the Restricted
Period.  A breach of the terms and
conditions established by the Committee pursuant to the Award may result in a
forfeiture of the Restricted Stock.  At
the time of an Award, the Committee may, in its sole discretion, prescribe
additional terms, conditions, restrictions and limitations applicable to the
Restricted Stock, including without limitation rules pertaining to the
termination of employment or service (by reason of death, permanent and total
disability, retirement, cause or otherwise) of a Participant prior to
expiration of the Restricted Period.

 

7.5          Miscellaneous.  Nothing in
this Article shall prohibit the exchange of shares of Restricted Stock
pursuant to a plan of merger or reorganization for stock or other securities of
SEI or another corporation that is a party to the reorganization, provided that
the stock or securities so received in exchange for shares of Restricted Stock
shall, except as provided in Article VIII, become subject to the
restrictions applicable to such Restricted Stock.  Any shares of Common Stock received as a
result of a stock split or stock dividend with respect to shares of Restricted
Stock shall also become subject to the restrictions applicable to such
Restricted Stock.

 

7.6          Code Section 162(m)
Requirements. 
From and after the date on which remuneration paid pursuant to the Plan
becomes subject to the deduction limitation under Section 162(m) of the
Code, the Committee shall determine in its sole discretion whether all or any
portion of an Award shall be intended to satisfy the requirements for “performance-based
compensation” under Section 162(m) of the Code (the “162(m) Requirements”).  The performance criteria for any Award that
is intended to satisfy the 162(m) Requirements shall be established in writing
by the Committee based on one or more performance goals as set forth in Section 7.7
not later than 90 days after commencement of the performance period with
respect to such Award, provided that the outcome of the performance in respect
of the goals remains substantially uncertain as of such time.  The maximum number of shares of Common Stock
that may be awarded to any Participant during any calendar year pursuant to any
Award that is intended to satisfy the 162(m) Requirements is 100,000 shares;
provided, however, that such maximum number of shares with respect to an Award
that provides for a performance period longer than one calendar year shall be
the foregoing limit multiplied by the number of full calendar years in the
performance period.  At the time of the
grant of an Award and to the extent permitted under Code Section 162(m)
and regulations thereunder for an Award intended to satisfy the 162(m)
Requirements, the Committee may provide for the manner in which the performance
goals will be measured in light of specified corporate transactions,
extraordinary events, accounting changes and other similar occurrences.

 

7.7          Performance
Goals.  The
performance measure(s) to be used for purposes of an Award may be described in
terms of objectives that are related to the individual Participant or
objectives that are Company-wide or related to a subsidiary, division,
department, region, function or business unit of the Company in which the
Participant is employed or with respect to which the Participant performs
services, and may consist of one or more or any combination of the following
criteria:  (i) earnings or earnings
per share (whether on a pre-tax, after-tax, operational or other basis), (ii) return
on equity, (iii) return on assets or net assets, (iv) return on
capital or invested capital and other related financial measures, (v) cash
flow, (vi) revenues,

 

8

 

(vii) income
or operating income, (viii) expenses or expense levels, (ix) one or
more operating ratios, (x) stock price, (xi) total stockholder return, (xii)
market share, (xiii) operating profit, (xiv) profit margin, (xv) growth in
production, (xvi) capital expenditures, (xvii) net borrowing, debt leverage
levels, credit quality or debt ratings, (xviii) the accomplishment of mergers,
acquisitions, dispositions, public offerings or similar extraordinary business
transactions, (xix) net asset value per share, (xx) economic value added, (xxi)
individual business objectives or (xxii) added reserves.  The performance goals based on these
performance measures may be made relative to the performance of other business
entities.

 

7.8          Certification
and Negative Discretion.  Prior to the payment of any compensation
pursuant to an Award that is intended to satisfy the 162(m) Requirements, the
Committee shall certify the extent to which the performance goals and other
material terms of the Award have been achieved or satisfied.  The Committee in its sole discretion shall
have the authority to reduce, but not to increase, the amount payable and the
number of shares to be granted, issued, retained or vested pursuant to an Award
that is intended to satisfy the Section 162(m) Requirements.

 

ARTICLE VIII.  CHANGE OF CONTROL

 

Unless otherwise determined by the Committee at the time of grant of an
Award or unless otherwise provided in the applicable Award Agreement, if the
stockholders of SEI shall approve a transaction which upon consummation would
constitute a Change of Control of SEI, or in the event of any Change of Control
of SEI not subject to stockholder approval, then effective immediately prior to
the Change of Control, all Awards shall be fully vested, all restrictions and
limitations shall lapse and all performance criteria or other conditions
related to such Awards shall be deemed to be achieved or fulfilled to the
maximum extent possible.

 

ARTICLE IX.  AMENDMENT AND TERMINATION

 

9.1          Plan Amendment and Termination.  The
Board may at any time suspend, terminate, amend or modify the Plan, in whole or
in part; provided, however, that no amendment or modification of the Plan shall
become effective without the approval of such amendment or modification by the
holders of at least a majority of the shares of Common Stock if (i) such
amendment or modification increases the maximum number of shares subject to the
Plan (except as provided in Article IV) or changes the designation or
class of persons eligible to receive Awards under the Plan, or (ii) counsel
for SEI determines that such approval is otherwise required by or necessary to
comply with applicable law or the listing requirements of NASDAQ or such other
exchange or association on which the Common Stock is then listed or quoted.  An amendment to the Plan
shall not require stockholder approval if it curtails rather than expands the
scope of the Plan, nor if it is made to conform the Plan to new statutory or
regulatory requirements that arise after submission of the Plan to stockholders
for their approval, such as, without limitation, changes to Section 409A
of the Code, or regulations issued thereunder.  Upon
termination of the Plan, the terms and provisions of the Plan shall,
notwithstanding such termination, continue to apply to Awards granted prior to
such termination.  Except as otherwise
provided herein, no suspension, termination, amendment or modification of the
Plan shall

 

9

 

adversely affect in any material way any Award
previously granted under the Plan, without the consent of the Participant holding
such Award.

 

9.2          Award Amendment and Cancellation.  The
Committee may amend the terms of any outstanding Award granted pursuant to the
Plan, but except as otherwise provided herein, no such amendment shall adversely
affect in any material way the Participant’s rights under an outstanding Award
without the consent of the Participant holding such Award.

 

ARTICLE X.  MISCELLANEOUS

 

10.1        Award Agreements. 
After the Committee grants an Award under the Plan to a Participant, SEI
and the Participant shall enter into an Award Agreement setting forth the
terms, conditions, restrictions and limitations applicable to the Award and
such other matters as the Committee may determine to be appropriate.  The Committee may permit or
require a Participant to defer receipt of the payment of cash or the delivery
of shares of Common Stock that would otherwise be due to the Participant in
connection with any Award; provided, however, that any permitted deferrals shall be structured to avoid
negative tax consequences to the Participant under Section 409A of the
Code.  The terms and provisions of
the respective Award Agreements need not be identical.  All Award Agreements shall be subject to the
provisions of the Plan, and in the event of any conflict between an Award
Agreement and the Plan, the terms of the Plan shall govern.

 

10.2        Listing; Suspension.

 

(a)           As long as the Common Stock is listed on a
national securities exchange or system sponsored by a national securities
association, the issuance of any shares of Common Stock pursuant to an Award
shall be conditioned upon such shares being listed on such exchange or
system.  SEI shall have no obligation to
issue such shares unless and until such shares are so listed.

 

(b)           If at any time counsel to SEI or its
Affiliates shall be of the opinion that any sale or delivery of shares of
Common Stock pursuant to an Award is or may in the circumstances be unlawful or
result in the imposition of excise taxes on SEI or its Affiliates under the laws
of any applicable jurisdiction, SEI or its Affiliates shall have no obligation
to make such sale or delivery, or to make any application or to effect or to
maintain any qualification or registration under the Securities Act of 1933, as
amended, or otherwise, with respect to shares of Common Stock or Awards.

 

(c)           Upon termination of any period of
suspension under this Section, any Award affected by such suspension that shall
not then have expired or terminated shall be reinstated as to all shares
available before such suspension and as to shares that would otherwise have
become available during the period of such suspension, but no such suspension
shall extend the term of any Award unless otherwise determined by the Committee
in its sole discretion.

 

10

 

10.3        Additional Conditions. 
Notwithstanding anything in the Plan to the contrary:  (i) the Committee may, if it shall
determine it necessary or desirable in its sole discretion, at the time of
grant of any Award or the issuance of any shares of Common Stock pursuant to
any Award, require the recipient of the Award or such shares of Common Stock,
as a condition to the receipt thereof, to deliver to SEI a written
representation of present intention to acquire the Award or such shares of
Common Stock for his own account for investment and not for distribution, (ii) the
certificate for shares of Common Stock issued to a Participant may include any
legend that the Committee deems appropriate to reflect any restrictions on
transfer, and (iii) all certificates for shares of Common Stock delivered
under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, any stock
exchange or association upon which the Common Stock is then listed or quoted,
any applicable federal or state securities law, and any applicable corporate
law, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.

 

10.4        Transferability.

 

(a)           Any action to be taken during
the Participant’s lifetime in connection with an Award shall be taken only by
such Participant; provided, however, that in the event of a Participant’s legal
incapacity, such action may be taken by his guardian or legal
representative.  When
a Participant dies, the personal representative, beneficiary, or other person
entitled to succeed to the rights of the Participant may acquire the rights
under an Award. Any such successor must furnish proof satisfactory to SEI of
the successor’s entitlement to receive the rights under an Award under the
Participant’s will or under the applicable laws of descent and distribution.

 

(b)           Except as otherwise provided
in this Section, no Award shall be subject to execution, attachment or similar
process, and no Award may be sold, transferred, pledged, exchanged,
hypothecated or otherwise disposed of, other than by will or pursuant to the
applicable laws of descent and distribution. 
Any attempted sale, transfer, pledge, exchange, hypothecation or other
disposition of an Award not specifically permitted by the Plan or the Award
Agreement shall be null and void and without effect.

 

(c)           Incident
to a Participant’s divorce, the Participant may request that SEI agree to
observe the terms of a domestic relations order which may or may not be part of
a qualified domestic relations order (as defined in Code Section 414(p))
with respect to all or a part of one or more Awards made to the Participant
under the Plan to the Participant’s alternate payee.  SEI’s decision regarding such a request shall
be made by the Committee, in its sole and absolute discretion, based upon the
best interests of SEI.  The Committee’s
decision need not be uniform among Participants.  As a condition of participation, a
Participant agrees to hold SEI harmless from any claim that may arise out of SEI’s
observance of the terms of any such domestic relations order.

 

10.5        Withholding Taxes.  The
Company shall be entitled to deduct from any payment made under the Plan,
regardless of the form of such payment, the amount of all applicable

 

11

 

income and employment taxes required by law to be
withheld with respect to such payment, may require the Participant to pay to
the Company such withholding taxes prior to and as a condition of the making of
any payment or the issuance or delivery of any shares of Common Stock under the
Plan, and shall be entitled to deduct from any other compensation payable to
the Participant any withholding obligations with respect to Awards.  In accordance with any applicable
administrative guidelines it establishes, the Committee may allow a Participant
to pay the amount of taxes required by law to be withheld from or with respect
to an Award by (i) withholding shares of Common Stock from any payment of
Common Stock due as a result of such Award, or (ii) permitting the
Participant to deliver to the Company previously acquired shares of Common
Stock, in each case having an aggregate Fair Market Value equal to the amount
of such required withholding taxes.  No
shares of Common Stock shall be issued pursuant to any Award unless and until
the applicable tax withholding obligations have been satisfied.

 

10.6        No Fractional Shares.  No
fractional shares of Common Stock shall be issued or delivered pursuant to the
Plan or an Award granted hereunder, provided that the Committee in its sole
discretion may round fractional shares down to the nearest whole share or
settle fractional shares in cash.

 

10.7        Notices.  All notices
required or permitted to be given or made under the Plan or pursuant to any
Award Agreement (unless provided otherwise in such Award Agreement) shall be in
writing and shall be deemed to have been duly given or made if (i) delivered
personally, (ii) transmitted by first class registered or certified United
States mail, postage prepaid, return receipt requested, (iii) sent by
prepaid overnight courier service, or (iv) sent by telecopy or facsimile
transmission, with confirmation receipt, to the person who is to receive it at
the address that such person has theretofore specified by written notice
delivered in accordance herewith.  Such
notices shall be effective (i) if delivered personally or sent by courier
service, upon actual receipt by the intended recipient, (ii) if mailed,
upon the earlier of five days after deposit in the mail or the date of delivery
as shown by the return receipt therefor, or (iii) if sent by telecopy or
facsimile transmission, when the answer back is received.  SEI or a Participant may change, at any time
and from time to time, by written notice to the other, the address that it or
such Participant had theretofore specified for receiving notices.  Until such address is changed in accordance
herewith, notices hereunder or under an Award Agreement shall be delivered or
sent (i) to a Participant at his address as set forth in the records of
the Company or (ii) to SEI at the principal executive offices of SEI
clearly marked “Attention:  General
Counsel.”

 

10.8        Compliance with Law and Stock Exchange or
Association Requirements.  In addition, it is the intent of the SEI that
Awards intended to constitute “qualified performance-based awards” comply with
the applicable provisions of Section 162(m) of the Code and that any
deferral of the receipt of the payment of cash or the delivery of shares of
Common Stock that the Committee may permit or require, and any Award granted
that is subject to Section 409A of the Code, comply with the requirements
of Section 409A of the Code. To the extent that any legal requirement of Section 16
of the Exchange Act or Sections 162(m) or 409A of the Code as set forth in the
Plan ceases to be required under Section 16 of the Exchange Act or
Sections 162(m) or 409A of the Code, that Plan provision shall cease to
apply.  Any provision of this Plan to the
contrary notwithstanding, the Committee may revoke any Award if it is contrary
to law,

 

12

 

governmental regulation, or
stock exchange or association requirements or modify an Award to bring it into
compliance with any government regulation or stock exchange or association
requirements.  The Committee may agree to
limit its authority under this Section.

 

10.9        Binding Effect.  The
obligations of SEI under the Plan shall be binding upon any successor
corporation or organization resulting from the merger, consolidation or other
reorganization of SEI, or upon any successor corporation or organization
succeeding to all or substantially all of the assets and business of SEI.  The terms and conditions of the Plan shall be
binding upon each Participant and his heirs, legatees, distributees and legal
representatives.

 

10.10      Severability.  If any
provision of the Plan or any Award Agreement is held to be illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
provisions of the Plan or such agreement, as the case may be, but such
provision shall be fully severable and the Plan or such agreement, as the case
may be, shall be construed and enforced as if the illegal or invalid provision
had never been included herein or therein.

 

10.11      No Restriction of Corporate Action.  Nothing contained in the Plan shall be
construed to prevent SEI or any Affiliate from taking any corporate action
(including any corporate action to suspend, terminate, amend or modify the
Plan) that is deemed by SEI or such Affiliate to be appropriate or in its best
interest, whether or not such action would have an adverse effect on the Plan
or any Awards made or to be made under the Plan.  No Participant or other person shall have any
claim against SEI or any Affiliate as a result of such action.

 

10.12      Governing Law.  The Plan shall
be governed by and construed in accordance with the internal laws (and not the
principles relating to conflicts of laws) of the State of Texas except as
superseded by applicable federal law.

 

10.13      No Right, Title or Interest in Company Assets.  No Participant shall have any rights as a
stockholder of SEI as a result of participation in the Plan until the date of
issuance of Common Stock in his name and, in the case of Restricted Stock,
unless and until such rights are granted to the Participant pursuant to the
Plan.  To the extent any person acquires
a right to receive payments from the Company under the Plan, such rights shall
be no greater than the rights of an unsecured general creditor of the Company,
and such person shall not have any rights in or against any specific assets of
the Company.  All Awards shall be
unfunded.

 

10.14      Risk of Participation. 
Nothing contained in the Plan shall be construed either as a guarantee
by SEI or the Affiliates, or their respective stockholders, directors, officers
or employees, of the value of any assets of the Plan or as an agreement by SEI
or the Affiliates, or their respective stockholders, directors, officers or
employees, to indemnify anyone for any losses, damages, costs or expenses
resulting from participation in the Plan.

 

10.15      No Guarantee of Tax Consequences.  No
person connected with the Plan in any capacity, including without limitation SEI
and the Affiliates and their respective directors, officers, agents and
employees, makes any representation, commitment or guarantee that any tax
treatment, including without limitation federal, state and local income, estate
and gift tax treatment, will be applicable with respect to any Awards or
payments thereunder made to or for

 

13

 

the benefit of a Participant under the Plan or that
such tax treatment will apply to or be available to a Participant on account of
participation in the Plan.

 

10.16      Continued Employment. 
Nothing contained in the Plan or in any Award Agreement shall confer
upon any Participant the right to continue in the employ of the Company, or
interfere in any way with the rights of the Company to terminate a Participant’s
employment at any time, with or without cause. 
The loss of existing or potential profit in Awards will not constitute
an element of damages in the event of termination of employment for any reason,
even if the termination is in violation of an obligation of SEI or an Affiliate
to the Participant.

 

10.17      Miscellaneous.  Headings are given
to the articles and sections of the Plan solely as a convenience to facilitate
reference.  Such headings shall not be
deemed in any way material or relevant to the construction of the Plan or any
provisions hereof.  The use of the
masculine gender shall also include within its meaning the feminine.  Wherever the context of the Plan dictates,
the use of the singular shall also include within its meaning the plural, and
vice versa.

 

IN WITNESS WHEREOF, this Plan has been executed as of the Effective Date.

 

	
   

  	
  STROUD ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  Patrick J. Noyes

  
	
   

  	
   

  	
  Patrick J. Noyes

  
	
   

  	
   

  	
  President & Chief Executive
  Officer

  

 

14

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