Document:

Exhibit 10.5

 

SEVERANCE AGREEMENT

 

This Severance Agreement (“Agreement”) is made as of the 15th day of December, 2014 (the “Commencement Date”), between Monogram Residential Trust, Inc., a Maryland corporation (the “Company”) and Monogram Residential OP LP (the “Operating Partnership”), a Delaware limited partnership (collectively, the “Employers”), and Margaret Daly (the “Executive”).

 

WHEREAS, the Executive and the Employers entered into that certain Employment Agreement dated as of August 1, 2013 (the “Employment Agreement”) pursuant to which the Executive is currently employed by the Employers;

 

WHEREAS, the Executive and the Employers mutually desire to (a) terminate the Employment Agreement and (b) replace the Employment Agreement with this Agreement;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

 

1.                                      Termination.  The Executive’s employment hereunder is at-will and may be terminated under the following circumstances:

 

(a)                                 Death.  The Executive’s employment hereunder shall terminate upon her death.

 

(b)                                 Disability.  The Employers may terminate the Executive’s employment if she is disabled and unable to perform the essential functions of the Executive’s then existing position or positions under this Agreement (disregarding any reasonable accommodation) for a period of 90 consecutive days or for an aggregate of 180 days in any 12-month period.  If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executive’s then existing position or positions (disregarding any reasonable accommodation), the Executive may, and at the request of the Employers shall, submit to the Employers a certification in reasonable detail by a physician jointly selected by the Employers and the Executive or the Executive’s guardian or representative as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue.  The Executive shall cooperate with any reasonable request of the physician in connection with such certification.  If the Executive shall fail to submit such certification, the Employers’ determination of such issue shall be binding on the Executive.  Nothing in this Section 1(b) shall be construed to waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.

 

(c)                                  Termination by the Employers for Cause.  The Employers may terminate the Executive’s employment hereunder for Cause.  For purposes of this Agreement, “Cause” shall mean:  (i) the Executive’s dishonest or fraudulent action, willful misconduct or gross negligence in the conduct of her duties to the Employers; (ii) the Executive’s conviction of, or

 

 

pleading nolo contendere to, a felony; (iii) a material failure by the Executive to devote substantially all of her business time to the business of the Employers that is not cured by the Executive within 60 days after receiving written notice of such failure, unless such failure is due to an illness, injury or disability of the Executive or exercise of legally entitled rights such as under the Family Medical and Leave Act (“FMLA”) by the Executive; (iv) a material failure by the Executive to follow the Employers’ good faith instructions and directives that is not cured by the Executive within 60 days after receiving written notice of such failure, unless such failure is due to an illness, injury or disability of the Executive or exercise of legally entitled rights such as under FMLA by the Executive; (v) the Executive’s unreasonable and material neglect, refusal or failure to perform her assigned duties that is not cured by the Executive within 60 days after receiving written notice of such neglect, refusal or failure, unless such failure is due to an illness, injury or disability of the Executive or exercise of legally entitled rights such as under FMLA by the Executive; (vi) the Executive’s material breach of this Agreement; (vii) the Executive’s material breach of the Employers’ Code of Business Conduct Policy that if curable, is not cured within ten (10) business days; (viii) any governmental regulatory agency recommendations or orders that the Employers terminate the employment of the Executive or relieve her of her duties; or (ix) any other act or omission by the Executive that would reasonably be expected to result in material reputational harm to the Employers, their subsidiaries or affiliates.

 

(d)                                 Termination Without Cause.  The Employers may terminate the Executive’s employment hereunder at any time without Cause.  Any termination by the Employers of the Executive’s employment under this Agreement which does not constitute a termination for Cause under Section 1(c) and does not result from the death or disability of the Executive under Section 1(a) or (b) shall be deemed a termination without Cause.

 

(e)                                  Termination by the Executive.  The Executive may terminate her employment hereunder at any time for any reason, including but not limited to Good Reason.  For purposes of this Agreement, “Good Reason” shall mean that the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the following events:  (i) a material breach of this Agreement by the Employers, (ii) a diminution of, or reduction or adverse alteration of, the Executive’s duties or responsibilities, or the Employers’ assignment of duties, responsibilities or reporting requirements that are inconsistent with her position or that materially expand her duties, responsibilities or reporting requirements without the Executive’s consent, (iii) any requirement by the Employers that the Executive relocate to a principal place of business more than 35 miles from the physical location of the principal office work location of the Executive on the Commencement Date, or (iv) a reduction in the Executive’s base salary.  “Good Reason Process” shall mean that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has occurred; (ii) the Executive notifies the Employers in writing of the Good Reason condition within 90 days of when the Executive has actual knowledge of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Employers’ efforts, for a period not less than 30 days following such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates her employment within 30 days after the end of the Cure Period.  If the Employers cure the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.

 

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(f)                                   Notice of Termination.  Except for termination as specified in Section 1(a), any termination of the Executive’s employment by the Employers or any such termination by the Executive shall be communicated by written Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.

 

(g)                                  Date of Termination.  “Date of Termination” shall mean:  (i) if the Executive’s employment is terminated by her death, the date of her death; (ii) if the Executive’s employment is terminated on account of disability under Section 1(b) or by the Employers for Cause under Section 1(c), the date on which Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Employers under Section 1(d), 30 days after the date on which a Notice of Termination is given; (iv) if the Executive’s employment is terminated by the Executive under Section 1(e) without Good Reason, 30 days after the date on which a Notice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive under Section 1(e) with Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period.  Notwithstanding the foregoing, (A) in the event that the Executive gives a Notice of Termination to the Employers, the Employers may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the Employers for purposes of this Agreement, and (B) in the event that the Employers terminate the Executive’s employment without Cause under Section 1(d), the Employers may unilaterally accelerate the Date of Termination to any earlier effective date provided that the Employers continue to pay the Executive the Base Salary for the 30-day period immediately following the date on which a Notice of Termination is given to the Executive.

 

2.                                      Compensation Upon Termination.

 

(a)                                 Termination Generally.  If the Executive’s employment with the Employers is terminated for any reason, the Employers shall pay or provide to the Executive (or to her authorized representative or estate) (i) any Base Salary earned through the Date of Termination, unpaid expense reimbursements and unused paid time off that accrued through the Date of Termination on or before the time required by law but in no event more than 30 days after the Executive’s Date of Termination; (ii) any vested benefits the Executive may have under any employee benefit plan of the Employers through the Date of Termination, which vested benefits shall be paid and/or provided in accordance with the terms of such employee benefit plans; and (iii) except in the case of the Executive’s termination by the Employers for Cause, any awarded and unpaid cash incentive compensation, including, but not limited to any cash incentive compensation or other compensation or benefits which the Executive has earned on or before termination (collectively, the “Accrued Benefit”).

 

(b)                                 Termination on Account of Death or Disability.  If the Executive’s employment is terminated on account of death under Section 1(a) or disability under Section 1(b), the Employers shall pay the Executive (or her authorized representative or estate) her Accrued Benefit.  The Employers shall also provide the Executive (or her authorized representative or estate) with a lump sum payment equal to 100 percent of her annual base salary within 60 days of the Date of Termination.  In addition, the Executive (or her authorized representative or estate) shall also be entitled to receive the pro rata portion of any cash incentive compensation which would have been earned by the Executive during such year of termination

 

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had such Executive remained employed the entire year and as determined by the Compensation Committee of the Company, determined by multiplying such cash incentive compensation by a fraction, the numerator of which equals the number of days the Executive is employed by the Employers during such year to the Date of Termination, and the denominator of which equals 365 (the “Pro-Rated Bonus”).  The Pro-Rated Bonus shall be paid at the same time that the Employers pay cash incentive compensation to other executives.  Upon the Date of Termination, all equity awards with time-based vesting shall immediately fully vest in accordance with their terms and become non-forfeitable.  Each equity award which has been granted (or any other equity award which would otherwise have been granted to the Executive during the applicable performance period/calendar year in the ordinary course) with performance vesting shall vest at an amount based upon the Employers’ achievement of performance goals through the end of performance period, multiplied by a fraction, the numerator of which shall be the number of days the Executive was employed by the Employers from the commencement of the performance period through the Date of Termination and the denominator of which shall be the total number of days in the performance period.

 

(c)                                  Termination by the Employers Without Cause or by the Executive with Good Reason.  If the Executive’s employment is terminated by the Employers without Cause as provided in Section 1(d), or the Executive terminates her employment for Good Reason as provided in Section 1(e), then the Employers shall pay the Executive her Accrued Benefit.  The Employers shall also pay the Executive her Pro-Rated Bonus at the same time that the Employers pay cash incentive compensation to other executives.  In addition, subject to the Executive signing a general release of claims in favor of the Employers and related persons and entities in a form and manner satisfactory to the Employers and the expiration of the applicable seven-day revocation period (the “Release Condition”), all within 60 days from the Date of Termination:

 

(i)                                     the Employers shall pay the Executive an amount equal to 2.0 times the sum of (A) the Executive’s annual base salary plus (B) the Executive’s Incentive Compensation determined on the Date of Termination.  For purposes of this Agreement, “Incentive Compensation” shall mean the average of the annual cash incentive compensation received by the Executive each year during the last three years of employment with the Employer; and

 

(ii)                                  upon the Date of Termination, all equity awards with time-based vesting shall immediately fully vest in accordance with their terms and become non-forfeitable and each equity award which has been granted (or any other equity award which would otherwise have been granted to the Executive during the applicable performance period/calendar year in the ordinary course) with performance vesting shall vest at an amount based on the Employers’ achievement of performance goals through the end of the performance period, multiplied by a fraction, the numerator of which shall be the number of days the Executive was employed by the Employers from the commencement of the performance period through the Date of Termination and the denominator of which shall be the total number of days in the performance period; and

 

(iii)                               if the Executive was participating in the Employers’ group medical, vision and dental plan immediately prior to the Date of Termination, then the Employers shall provide the Executive with a lump sum payment equal to (A) 18 times

 

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the amount of monthly employer contribution that the Employers made to an insurer (or as otherwise determined on an actuarial basis based upon the applicable monthly premium for continuation coverage under Section 4980B of the Code and corresponding provisions of ERISA (“COBRA”)) to provide medical, vision and dental insurance to the Executive and her dependents in the month immediately preceding the Date of Termination, plus (B) the amount the Employers would have contributed to their health reimbursement arrangement on the Executive’s behalf for 18 months from the Date of Termination if the Executive had remained employed by the Employers; and

 

(iv)                              the amounts payable under Subsections (i) and (iii) shall be paid in a lump sum within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, such amounts shall be paid in the second calendar year no later than the last day of such 60-day period.

 

3.                                      Change in Control.

 

(a)                                 Treatment of Equity Awards.  Upon a Change of Control, all equity awards with time-based vesting shall immediately fully vest and become non-forfeitable and each equity award which has been granted (or any other equity award which would otherwise have been granted to the Executive during the applicable performance period/calendar year in the ordinary course) with performance vesting shall vest at an amount based upon and to the extent of the Employers’ achievement of performance goals during the performance period under each such equity award through the end of the calendar month immediately preceding the Change in Control.

 

(b)                                 Additional Limitation.

 

(i)                                     Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Employers to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and the applicable regulations thereunder (the “Severance Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, the following provisions shall apply:

 

(A)                               If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes payable by the Executive on the amount of the Severance Payments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, the Executive shall be entitled to the full benefits payable under this Agreement.

 

(B)                               If the Threshold Amount is less than (x) the Severance Payments, but greater than (y) the Severance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess

 

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of the Threshold Amount, then the Severance Payments shall be reduced (but not below zero) to the extent necessary so that the sum of all Severance Payments shall not exceed the Threshold Amount.  In such event, the Severance Payments shall be reduced in the following order:  (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits.  To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.

 

(ii)                                  For the purposes of this Section 3(b), “Threshold Amount” shall mean three times the Executive’s “base amount” within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00); and “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred by the Executive with respect to such excise tax.

 

(iii)                               The determination as to which of the alternative provisions of Section 3(b)(i) shall apply to the Executive shall be made by a nationally recognized accounting firm jointly selected by the Employers and the Executive (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Employers and the Executive within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Employers or the Executive.  For purposes of determining which of the alternative provisions of Section 3(b)(i) shall apply, the Executive shall be deemed to pay federal income taxes at the estimated marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.  Any determination by the Accounting Firm shall be binding upon the Employers and the Executive.

 

(c)                                  Definitions.  For purposes of this Section 3, the following terms shall have the following meanings:

 

“Change in Control” shall mean any of the following:

 

(i)                                     any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Act”) (other than the Employers, any of their subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Employers or any of their subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing more than 50 percent of the combined voting power of the Company’s then outstanding securities having the right to vote in an election of the Board (“Voting Securities”) (in such case other than as a result of an acquisition of securities directly by the Company or the Operating Partnership); or

 

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(ii)                                  the date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; or

 

(iii)                               the date a majority of the members of the Board is replaced during the 12-month period immediately following any consolidation or merger (or similar transaction) of the Company or the Operating Partnership; or

 

(iv)                              the consummation of (A) any consolidation or merger of the Company or the Operating Partnership where the shareholders of the Company and the unit holders of the Operating Partnership taken as a whole and considered as one class immediately before the transaction, or the unit holders of the Operating Partnership, as the case may be, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50 percent of the voting shares of the entity issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (B) any sale or other transfer, liquidation or dissolution (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of more than 50 percent of the assets of the Company or the Operating Partnership, whether owned directly or indirectly through one or more affiliates, subsidiaries or joint ventures.

 

Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of any acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of Voting Securities beneficially owned by any person to more than 50 percent of the combined voting power of all of the then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns more than 50 percent of the combined voting power of all of the then outstanding Voting Securities, then a “Change in Control” shall be deemed to have occurred for purposes of the foregoing clause (i).  A Change in Control shall not be deemed to have occurred in connection with any internal corporate restructuring.

 

4.                                      Section 409A.

 

(a)                                 Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s separation from service within the meaning of Section 409A of the Code, the Employers determine that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be considered deferred compensation otherwise subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s

 

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separation from service, or (B) the Executive’s death.  If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.

 

(b)                                 All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Employers or incurred by the Executive during the time periods set forth in this Agreement.  All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred.  The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses).  Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

 

(c)                                  To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service.”  The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

 

(d)                                 The parties intend that this Agreement will be administered in accordance with Section 409A of the Code.  To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code.  Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).  The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

 

(e)                                  The Employers make no representation or warranty and shall have no liability to the Executive or any other person for violations in form if any provisions relating to the form of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

(f)                                   Notwithstanding anything in this Section 4 to the contrary, all payments which can be paid under this Agreement earlier than the periods provided in Sections 4(a) or (c) or otherwise under this Agreement upon termination of employment shall be paid within five (5) days from the Date of Termination, or if later, satisfaction of the Release Condition, subject to compliance to the extent necessary with any timing requirements of Sections 409A of the Code.

 

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5.                                      Confidential Information, Noncompetition and Cooperation.

 

(a)                                 Confidential Information.  As used in this Agreement, “Confidential Information” means information belonging to the Employers which is of value to the Employers in the course of conducting its business and the disclosure of which could result in a competitive or other disadvantage to the Employers.  Confidential Information includes, without limitation, financial information, reports, and forecasts; inventions, improvements and other intellectual property; trade secrets; know-how; designs, processes or formulae; software; market or sales information or plans; customer lists; and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been developed by the management of the Employers.  Confidential Information includes information developed by the Executive in the course of the Executive’s employment by the Employers, as well as other information to which the Executive may have access in connection with the Executive’s employment.  Confidential Information also includes the confidential information of others with which the Employers have a business relationship.  Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless the presence of such information in the public domain is due to breach of the Executive’s duties under Section 5(b).

 

(b)                                 Confidentiality.  The Executive understands and agrees that the Executive’s employment creates a relationship of confidence and trust between the Executive and the Employers with respect to all Confidential Information.  At all times, both during the Executive’s employment with the Employers and after its termination, the Executive will keep in confidence and trust all such Confidential Information, and will not use or disclose any such Confidential Information without the written consent of the Employers, except as may be necessary in the ordinary course of performing the Executive’s duties to the Employers.

 

(c)                                  Documents, Records, etc.  All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, which are furnished to the Executive by the Employers or are produced by the Executive in connection with the Executive’s employment will be and remain the sole property of the Employers.  The Executive will return to the Employers all such materials and property as and when requested by the Employers.  In any event, the Executive will return all such materials and property immediately upon termination of the Executive’s employment for any reason.  The Executive will not retain any such material or property or any copies thereof after such termination.

 

(d)                                 Noncompetition and Nonsolicitation.  During the Executive’s employment with the Employers and for 15 months thereafter, regardless of the reason for the termination, the Executive (i) will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any Competing Business (as hereinafter defined); (ii) will refrain from directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Employers (other than terminations of employment of subordinate employees undertaken in the course of the Executive’s employment with the Employers); and (iii) will refrain from soliciting or encouraging any customer or supplier with whom the Executive was in contact or conducted business during the Term to terminate or otherwise modify adversely its business relationship with the Employers.  The Executive understands that

 

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the restrictions set forth in this Section 5(d) are intended to protect the Employers’ interest in their Confidential Information and established employee, customer and supplier relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose.  For purposes of this Agreement, the term “Competing Business” shall mean any publicly listed REIT or non-listed, publicly registered REIT in the business of primarily owning, operating, acquiring or developing multifamily real estate properties within 35 miles of any real estate property owned, operated or developed by the Employers.  The Executive acknowledges that her work with the Employers involves performing services relating to all multifamily real estate properties owned, operated or developed by the Employers.  Notwithstanding the foregoing, the Executive may own up to one percent (1%) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business.

 

(e)                                  Non-Disparagement.  The Executive agrees that during and after her employment with the Employers, she shall not make any disparaging remarks concerning the Employers or any of their affiliates, subsidiaries or current or former officers, directors, shareholders or employees.  The foregoing non-disparagement obligation shall not in any way affect the Executive’s obligation to testify truthfully in any legal, regulatory, or administrative proceedings.  The Employers agree, upon the termination of the Executive’s employment with the Employers, to provide a professional reference for the Executive at the request of the Executive, in such form as may reasonably be requested by the Executive and consistent with the Employers’ obligation for truthfulness, unless the Employers terminate the Executive’s employment for Cause.

 

(f)                                   Third-Party Agreements and Rights.  The Executive hereby confirms that the Executive is not bound by the terms of any agreement with any previous employer or other party which restricts in any way the Executive’s use or disclosure of information or the Executive’s engagement in any business.  The Executive represents to the Employers that the Executive’s execution of this Agreement, the Executive’s employment with the Employers and the performance of the Executive’s proposed duties for the Employers will not violate any obligations the Executive may have to any such previous employer or other party.  In the Executive’s work for the Employers, the Executive will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of the Employers any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.

 

(g)                                  Litigation and Regulatory Cooperation.  During and after the Executive’s employment, the Executive shall cooperate fully with the Employers in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employers which relate to events or occurrences that transpired while the Executive was employed by the Employers.  The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employers at mutually convenient times.  During and after the Executive’s employment, the Executive also shall cooperate fully with the Employers in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Employers.  The

 

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Employers shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 5(g).  The foregoing cooperation obligation shall not in any way affect the Executive’s obligation to testify truthfully in any legal, regulatory or administrative proceedings.

 

(h)                                 Injunction.  The Executive agrees that it would be difficult to measure any damages caused to the Employers which might result from any breach by the Executive of the promises set forth in this Section 5, and that in any event money damages would be an inadequate remedy for any such breach.  Accordingly, subject to Section 6 of this Agreement, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the Employers shall be entitled, in addition to all other remedies that they may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Employers.

 

6.                                      Arbitration of Disputes.  Any controversy or claim arising out of or relating to this Agreement or the breach thereof or otherwise arising out of the Executive’s employment or the termination of that employment (including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise, but excluding equitable enforcement of restrictive covenants) shall, to the fullest extent permitted by law, be settled by arbitration in accordance with the JAMS Rules in Texas.  Absent an award to the contrary that is consistent with applicable law, the fees and expenses of the arbitration shall be paid equally by each respective party, and each party shall be responsible for its/her own costs.  Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  This Section 6 shall be specifically enforceable.

 

7.                                      Consent to Jurisdiction.  To the extent that any court action is permitted consistent with or to enforce Section 6 of this Agreement, the parties hereby consent to the jurisdiction of the courts of the State of Texas and the United States District Court for the Northern District of Texas.  Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.

 

8.                                      Clawback.  Any incentive compensation and equity grants provided to the Executive during her term of employment shall be subject to clawback by the Employers (i) to the extent required by applicable law, or (ii) in the event the Executive’s intentional misconduct pertaining to any financial reporting requirement under the Federal securities laws results in the Employers being required to prepare and file an accounting restatement with the SEC, other than a restatement due to changes in accounting policy and any misconduct or failure by any person other than the Executive.

 

9.                                      Integration.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties concerning such subject matter.  The parties acknowledge and agree that the Employment Agreement has been terminated and is of no further force or effect.

 

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10.                               Withholding.  All payments made by the Employers to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Employers under applicable law.

 

11.                               Successor to the Executive.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees.  In the event of the Executive’s death or disability prior to the completion by the Employers of all payments due him under this Agreement, the Employers shall continue such payments to the Executive’s beneficiary designated in writing to the Employers prior to her death (or to her estate, if the Executive fails to make such designation), or in the case of disability, her legal guardian or representative.

 

12.                               Enforceability.  If any portion or provision of this Agreement (including, without limitation, any portion or provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

 

13.                               Survival.  Sections 5, 6, 7, 8, 9, 10, 12, 14, 15, 17 and 19 of this Agreement shall survive the termination of this Agreement and/or the termination of the Executive’s employment; provided, however, that this Agreement shall not terminate until all amounts due Executive are paid or otherwise provided to Executive.

 

14.                               Waiver.  No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

 

15.                               Notices.  Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Employers or, in the case of the Employers, at their main offices, attention of the Board, or electronically to the Chairman of the Board.

 

16.                               Amendment.  This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Employers.

 

17.                               Governing Law.  This is a Texas contract and shall be construed under and be governed in all respects by the laws of the State of Texas, without giving effect to the conflict of laws principles of such State.  With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of Appeals for the Fifth Circuit.

 

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18.                               Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.

 

19.                               Successor to the Company and the Operating Partnership.  Each of the Company and the Operating Partnership shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company or the Operating Partnership (including, but not limited to, in connection with any Change in Control or otherwise) expressly to assume and agree to perform this Agreement to the same extent that the Company or the Operating Partnership would be required to perform it if no succession had taken place.  Failure of the Company or the Operating Partnership to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

 

20.                               Gender Neutral.  Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written.

 

	
 
    	
MONOGRAM   RESIDENTIAL TRUST, INC.,
    
	
 
    	
a   Maryland corporation
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Daniel J. Rosenberg
    
	
 
    	
 
    	
Name:
    	
Daniel   J. Rosenberg
    
	
 
    	
 
    	
Title:
    	
Senior   Vice President, General Counsel
    
	
 
    	
 
    	
 
    	
and   Secretary
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
MONOGRAM   RESIDENTIAL OP LP,
    
	
 
    	
a   Delaware limited partnership
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
MONOGRAM   RESIDENTIAL, INC.,
    
	
 
    	
 
    	
 
    	
a   Delaware corporation, its general partner
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Daniel J. Rosenberg
    
	
 
    	
 
    	
Name:
    	
Daniel   J. Rosenberg
    
	
 
    	
 
    	
Title:
    	
Senior   Vice President, General Counsel
    
	
 
    	
 
    	
 
    	
and   Secretary
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/   Margaret Daly
    
	
 
    	
Margaret   Daly
    
					

 

14Exhibit 10.6

 

MONOGRAM RESIDENTIAL TRUST, INC.

 

SECOND AMENDED AND RESTATED INCENTIVE AWARD PLAN

(Adopted November 14, 2006,
 Amended and Restated March 14, 2008,
 Amended and Restated August 12, 2014)

 

Section 1.

PURPOSE

 

The purpose of this Plan is to promote the interests of the Company by providing the opportunity to purchase or receive Shares, or to receive compensation that is based upon appreciation in the value of Shares to Eligible Recipients in order to attract and retain Eligible Recipients by providing an incentive to work to increase the value of Shares and a stake in the future of the Company that corresponds to the stake of each of the Company’s stockholders.  The Plan provides for the grant of ISOs, NQSOs, Restricted Stock Awards, Restricted Stock Units, Stock Appreciation Rights, Dividend Equivalents and Other Stock-Based Awards to aid the Company in obtaining these goals.

 

Section 2.

DEFINITIONS

 

Each term set forth in this Section shall have the meaning set forth opposite such term for purposes of this Plan and any Incentive Award Agreements under this Plan (unless noted otherwise), and for purposes of such definitions, the singular shall include the plural and the plural shall include the singular, and reference to one gender shall include the other gender.  Note that some definitions may not be used in this Plan, and may be inserted here solely for possible use in Incentive Award Agreements issued under this Plan.

 

2.1                               Board means the Board of Directors of the Company.

 

2.2                               Cause shall mean an act or acts by an Eligible Recipient involving (a) the use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company, a Parent or a Subsidiary, (b) the breach of any contract with the Company, a Parent or a Subsidiary, (c) the violation of any fiduciary obligation to the Company, a Parent or a Subsidiary, (d) the unlawful trading in the securities of the Company, a Parent or a Subsidiary, or of another corporation based on information gained as a result of the performance of services for the Company, a Parent or a Subsidiary, (e) a felony conviction or the failure to contest prosecution of a felony, or (f) willful misconduct, dishonesty, embezzlement, fraud, deceit or civil rights violations, or other unlawful acts.

 

2.3                               Change of Control means either of the following:

 

(a)                                 any transaction or series of transactions pursuant to which the Company sells, transfers, leases, exchanges or disposes of substantially all (i.e., at least eighty-five percent (85%)) of its assets for cash or property, or for a combination of cash and property, or for other consideration; or

 

(b)                                 any transaction pursuant to which persons who are not current stockholders of the Company acquire by merger, consolidation, reorganization, division or other business combination

 

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or transaction, or by a purchase of an interest in the Company, an interest in the Company so that after such transaction, the stockholders of the Company immediately prior to such transaction no longer have a controlling (i.e., 50% or more) voting interest in the Company.

 

2.4                               Code means the Internal Revenue Code of 1986, as amended.

 

2.5                               Committee means any committee appointed by the Board to administer the Plan, as specified in Section 5 hereof.  Any such committee shall be comprised entirely of Directors or such other persons as permitted under applicable law.

 

2.6                               Common Stock means the common stock of the Company.

 

2.7                               Company means Monogram Residential Trust, Inc., a Maryland corporation, and any successor to such organization.

 

2.8                               Constructive Discharge means a termination of employment with the Company by an Employee due to any of the following events if the termination occurs within thirty (30) days of such event:

 

(a)                                 Forced Relocation or Transfer.  The Employee may continue employment with the Company, a Parent or a Subsidiary (or a successor employer), but such employment is contingent on the Employee’s being transferred to a site of employment which is located further than 50 miles from the Employee’s current site of employment.  For this purpose, an Employee’s site of employment shall be the site of employment to which they are assigned as their home base, from which their work is assigned, or to which they report, and shall be determined by the Committee in its sole discretion on the basis of the facts and circumstances.

 

(b)                                 Decrease in Salary or Wages.  The Employee may continue employment with the Company, a Parent or a Subsidiary (or a successor employer), but such employment is contingent upon the Employee’s acceptance of a salary or wage rate which is less than the Employee’s prior salary or wage rate.

 

(c)                                  Significant and Substantial Reduction in Benefits.  The Employee may continue employment with the Company, a Parent or a Subsidiary (or a successor employer), but such employment is contingent upon the Employee’s acceptance of a reduction in the pension, welfare or fringe benefits provided which is both significant and substantial when expressed as a dollar amount or when expressed as a percentage of the Employee’s cash compensation.  The determination of whether a reduction in pension, welfare or fringe benefits is significant and substantial shall be made on the basis of all pertinent facts and circumstances, including the entire benefit (pension, welfare and fringe) package provided to the Employee, and any salary or wages paid to the Employee.  However, notwithstanding the preceding, any modification or elimination of benefits which results solely from the provision of new benefits to an Employee by a successor employer as a result of a change of the Employee’s employment from employment with the Company to employment with such successor shall not be deemed a Significant and Substantial Reduction in Benefits where such new benefits are identical to the benefits provided to similarly situated Employees of the successor.

 

2.9                               Director means a member of the Board.

 

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2.10                        Dividend Equivalents mean a right to receive payments based on the dividends paid by the Company to its stockholders pursuant to the terms of Section 7.6.

 

2.11                        Eligible Recipient means an Employee and/or a Key Person.

 

2.12                        Employee means a common law employee of the Company, a Subsidiary or a Parent.

 

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

 

2.14                        Exercise Price means the price that shall be paid to purchase one (1) Share upon the exercise of an Option granted under this Plan.

 

2.15                        Fair Market Value of each Share on any date means the price determined below as of the close of business on such date (provided, however, if for any reason, the Fair Market Value per share cannot be ascertained or is unavailable for such date, the Fair Market Value per share shall be determined as of the nearest preceding date on which such Fair Market Value can be ascertained):

 

(a)                                 If the Share is listed or traded on any established stock exchange or a national market system, its Fair Market Value shall be the closing sale price for the Share (or the mean of the closing bid and ask prices, if no sales were reported), on such exchange or system on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or

 

(b)                                 If the Share is not listed or traded on any established stock exchange or a national market system, its Fair Market Value shall be the average of the closing dealer “bid” and “ask” prices of a Share as reflected on a national quotation system on the date of such determination; or

 

(c)                                  In the absence of an established public trading market for the Share, the Fair Market Value of a Share shall be determined in good faith by the Board.

 

2.16                        FLSA Exclusion means the provisions of Section 7(e) of the Fair Labor Standards Act of 1938 (the “FLSA”) that exempt certain stock-based compensation from inclusion in overtime determinations under the FLSA.

 

2.17                        Incentive Award means an ISO, a NQSO, a Restricted Stock Award, a Restricted Stock Unit, a Stock Appreciation Right, a Dividend Equivalent or an Other Stock-Based Award.

 

2.18                        Incentive Award Agreement means an agreement between the Company, a Parent or a Subsidiary, and a Participant evidencing an award of an Incentive Award.

 

2.19                        Insider means an individual who is, on the relevant date, an officer, director or ten percent (10%) beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.

 

2.20                        ISO means an option granted under this Plan to purchase Shares that is intended by the Company to satisfy the requirements of Code §422 as an incentive stock option.

 

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2.21                        Key Person means (1) an officer of the Company who is not an Employee or a member of the Board who is not an Employee, or (2) a consultant or advisor; provided, however, that such consultant or advisor must be a natural person who is providing or will be providing bona fide services to the Company, a Subsidiary or a Parent with such services (1) not being in connection with the offer or sale of securities in a capital-raising transaction, and (2) not directly or indirectly promoting or maintaining a market for securities of the Company, a Subsidiary or a Parent, within the meaning of the general instructions to SEC Form S-8.

 

2.22                        NQSO means an option granted under this Plan to purchase Shares that is not intended by the Company to satisfy the requirements of Code §422.

 

2.23                        Option means an ISO or a NQSO.

 

2.24                        Other Stock-Based Awards means such other Incentive Awards other than those specifically described in the Plan that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares and granted pursuant to the terms of Section 7.7

 

2.25                        Outside Director means a Director who is not an Employee and, effective upon the Company registering any of its equity securities under the 1934 Act, who qualifies as (1) a “non-employee director” under Rule 16b-3(b)(3) under the 1934 Act, as amended from time to time, and (2) an “outside director” under Code §162(m) and the regulations promulgated thereunder.

 

2.26                        Parent means a “parent corporation” as defined under Code §424(e).

 

2.27                        Participant means an individual who receives an Incentive Award hereunder.

 

2.28                        Performance-Based Exception means the performance-based exception from the tax deductibility limitations of Code §162(m).

 

2.29                        Plan means the Monogram Residential Trust, Inc. Second Amended and Restated Incentive Award Plan, as it may be amended from time to time.

 

2.30                        Restricted Stock Award means an award of Shares granted to a Participant under this Plan whereby the Participant has immediate rights of ownership in the Shares underlying the award, but such Shares are subject to restrictions in accordance with the terms and provisions of this Plan and the Incentive Award Agreement pertaining to the award and may be subject to forfeiture by the individual until the earlier of (a) the time such restrictions lapse or are satisfied, or (b) the time such shares are forfeited, pursuant to the terms and provisions of the Incentive Award Agreement pertaining to the award.

 

2.31                        Restricted Stock Unit means a contractual right granted to a Participant under this Plan to receive a Share, or cash in an amount equal to the Fair Market Value of one Share, that is subject to restrictions of this Plan and the applicable Incentive Award Agreement.

 

2.32                        SAR Exercise Price means the amount per Share specified in an Incentive Award Agreement with respect to a Stock Appreciation Right, the excess of the Fair Market Value of a Share

 

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over and above such amount, the holder of such Stock Appreciation Right may be able to receive upon the exercise or payment of such Stock Appreciation Right.

 

2.33                        Share means a share of the Common Stock of the Company.

 

2.34                        Stock Appreciation Right or SAR means a right granted to a Participant pursuant to the terms and provisions of this Plan whereby the individual, without payment to the Company (except for any applicable withholding or other taxes), receives cash, Shares, a combination thereof, or such other consideration as the Board may determine, in an amount equal to the excess of the Fair Market Value per Share on the date on which the Stock Appreciation Right is exercised over the exercise price per Share noted in the Stock Appreciation Right for each Share subject to the Stock Appreciation Right.

 

2.35                        Subsidiary means a “subsidiary corporation” as defined under Code §424(f).

 

2.36                        Ten Percent Stockholder means a person who owns (after taking into account the attribution rules of Code §424(d)) more than ten percent (10%) of the total combined voting power of all classes of shares of stock of either the Company, a Subsidiary or a Parent.

 

Section 3.

SHARES SUBJECT TO INCENTIVE AWARDS

 

3.1                               Shares Subject to Incentive Awards.  The total number of Shares that may be issued pursuant to Incentive Awards under this Plan (and the total number of Shares that may be issued pursuant to the exercise of ISOs under this Plan) shall not exceed twenty million, as adjusted pursuant to Section 10.  Such Shares shall be reserved, to the extent that the Company deems appropriate, from authorized but unissued Shares, and from Shares which have been reacquired by the Company.

 

3.2                               Availability of Shares not Delivered.  Any Shares subject to an Incentive Award that have not been issued under such Incentive Award as of the date of the cancellation, expiration or exchange of such Incentive Award thereafter shall again become available for grant under this Plan.  If any Shares issued pursuant to an Incentive Award are forfeited back to or repurchased by the Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such Shares, then the Shares forfeited back or repurchased shall revert to and again become available for issuance under the Plan.

 

If any Incentive Award, is settled for cash and does not result in the issuance of all or a portion of the Shares subject to such Incentive Award, the Shares shall, to the extent of such cash settlement, again be available for grant under the Plan, subject to the last sentence of this paragraph.  Notwithstanding anything in this Section 3.2 to the contrary and solely for purposes of determining whether Shares are available for the grant of ISOs, the maximum aggregate number of shares that may be granted under this Plan shall be determined without regard to any Shares restored pursuant to this Section 3.2 that, if taken into account, would cause the Plan to fail the requirement under Code §422 that the Plan designate a maximum aggregate number of shares that may be issued.

 

3.3                               Annual Limitation on Grants to Participants.  Notwithstanding anything herein to the contrary, after Incentive Awards granted under the Plan are subject to the tax deductibility limitations of Section 162(m) of the Code, no Participant may be granted Incentive Awards covering an aggregate

 

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number of Shares in excess of five million, or payable in cash in an amount in excess of five million dollars, in any calendar year, and any Shares subject to an Incentive Award which again become available for use under this Plan after the cancellation, expiration or exchange of such Incentive Award thereafter shall continue to be counted in applying this calendar year Participant limitation.  Notwithstanding the foregoing, the Share and dollar limits specified in the immediately preceding sentence are (a) doubled when applied to Incentive Awards granted to any Eligible Recipient during the fiscal year in which such Eligible Recipient first commences service with the Company or any Subsidiary or Parent; and (b) multiplied by the number of fiscal years over which the applicable performance period spans if such performance period is longer than 12 months’ duration.

 

Section 4.

EFFECTIVE DATE

 

The Plan will be effective on the date it is approved by a majority of the votes cast at a stockholder meeting, provided the stockholders of the Company so approve this Plan within twelve (12) months from August 12, 2014.

 

Section 5.

ADMINISTRATION

 

5.1                               General Administration.  This Plan shall be administered by the Board.  The Board, acting in its absolute discretion, shall exercise such powers and take such action as expressly called for under this Plan.  The Board shall have the power to interpret this Plan and, subject to the terms and provisions of this Plan, to take such other action in the administration and operation of the Plan as it deems equitable under the circumstances.  The Board’s actions shall be binding on the Company, on each affected Eligible Recipient, and on each other person directly or indirectly affected by such actions.

 

5.2                               Authority of the Board.  Except as limited by law or by the Articles of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Board shall have full power to select Eligible Recipients who shall participate in the Plan; to determine the sizes and types of Incentive Awards in a manner consistent with the Plan; to determine the terms and conditions of Incentive Awards in a manner consistent with the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Incentive Award Agreement; to establish, amend or rescind rules, regulations, subplans, or supplements for the Plan’s administration; and to amend the terms and conditions of any outstanding Incentive Awards as allowed under the Plan and such Incentive Awards.  Further, the Board may make all other determinations that may be necessary or advisable for the administration of the Plan.  The Board’s determinations under the Plan need not be uniform and may be made selectively among Incentive Awards or Eligible Recipients, whether or not the Eligible Recipients are similarly situated.

 

5.3                               Delegation of Authority.  The Board may delegate its authority under the Plan, in whole or in part, to a Committee appointed by the Board consisting of not less than one (1) Director or to a Committee of one or more other persons to whom the powers of the Board hereunder may be delegated in accordance with applicable law.  The members of the Committee and any other persons to whom authority has been delegated shall be appointed from time to time by, and shall serve at the

 

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discretion of, the Board.  The Committee or other delegate (if appointed) shall act according to the policies and procedures set forth in the Plan and to those policies and procedures established by the Board, and the Committee or other delegate shall have such powers and responsibilities as are set forth by the Board.  Reference to the Board in this Plan shall specifically include reference to the Committee or other delegate where the Board has delegated its authority to the Committee or other delegate, and any action by the Committee or other delegate pursuant to a delegation of authority by the Board shall be deemed an action by the Board under the Plan.  Notwithstanding the above, the Board may assume the powers and responsibilities granted to the Committee or other delegate at any time, in whole or in part.  With respect to Committee appointments and composition, only a Committee (or a sub-committee thereof) comprised solely of two (2) or more Outside Directors may grant Incentive Awards that will meet the Performance-Based Exception, and only a Committee comprised solely of Outside Directors may grant Incentive Awards to Insiders that will be exempt from Section 16(b) of the Exchange Act.

 

5.4                               Decisions Binding.  All determinations and decisions made by the Board (or its delegate) pursuant to the provisions of this Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its stockholders, Directors, Eligible Recipients, Participants, and their estates and beneficiaries.  Notwithstanding the foregoing, after a Change of Control, any determination by the Board as to whether Cause or Good Reason (as may be defined in the Incentive Award Agreement) exists will be subject to de novo review by a court of competent jurisdiction.

 

5.5                               Exculpation and Indemnification. In addition to such other rights of exculpation as they may have as members of the Board or the Committee or as officers or employees of the Company, a Subsidiary or a Parent, neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegates thereof) shall be entitled in all cases to indemnification, advancement and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s Articles of Incorporation or Bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

 

Section 6.

ELIGIBILITY

 

Eligible Recipients selected by the Board shall be eligible for the grant of Incentive Awards under this Plan, but no Eligible Recipient shall have the right to be granted an Incentive Award under this Plan merely as a result of his or her status as an Eligible Recipient.  Only Employees of the Company, a Parent or a Subsidiary, shall be eligible to receive a grant of ISOs.  The Board may grant Incentive Awards to an Eligible Recipient in connection with hiring, recruiting, or otherwise before the date the Eligible Recipient first performs bona fide services for the Company, a Subsidiary or a Parent, so long as the Incentive Awards do not become vested or exercisable, and no Shares are issued to such Eligible Recipient, before the date the Eligible Recipient begins performing such services, and such Incentive Awards are exempt from or comply with Section 409A of the Code.

 

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Section 7

TERMS OF INCENTIVE AWARDS

 

7.1                               Terms and Conditions of All Incentive Awards.

 

(a)                                 Grants of Incentive Awards.  The Board, in its absolute discretion, shall grant Incentive Awards, individually or in tandem, under this Plan from time to time and shall have the right to grant new Incentive Awards in exchange for outstanding Incentive Awards, including, but not limited to, exchanges of Options for the purpose of achieving a lower Exercise Price.  Incentive Awards shall be granted to Eligible Recipients selected by the Board, and the Board shall be under no obligation whatsoever to grant any Incentive Awards, or to grant Incentive Awards to all Eligible Recipients, or to grant all Incentive Awards subject to the same terms and conditions.

 

(b)                                 Shares Subject to Incentive Awards.  The number of Shares as to which an Incentive Award shall be granted shall be determined by the Board in its sole discretion, subject to the provisions of Section 3 as to the total number of Shares available for grants under the Plan.

 

(c)                                  Incentive Award Agreements.  Each Incentive Award shall be evidenced by an Incentive Award Agreement executed by the Company, a Parent or a Subsidiary, and the Participant, which shall be in such form and contain such terms and conditions as the Board in its discretion may, subject to the provisions of the Plan, from time to time determine.

 

(d)                                 Date of Grant.  The date an Incentive Award is granted shall be the date on which the Board (1) has approved the terms and conditions of the Incentive Award Agreement, (2) has determined the recipient of the Incentive Award and the number of Shares covered by the Incentive Award and (3) has taken all such other action necessary to direct the grant of the Incentive Award.

 

(e)                                  Discretion to Permit Transfers Other than for Value.  Except as otherwise restricted by applicable law, the Board may, but need not, permit an Incentive Award, other than an ISO or a tandem Stock Appreciation Right granted with respect to an ISO, to be transferred to a Participant’s Family Member (as defined below) as a gift or pursuant to a domestic relations order in settlement of marital property rights.  The Board shall not permit any transfer of an Incentive Award for value.  For purposes of this Section 7.1(e), “Family Member” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent (50%) of the voting interests.  The following transactions are not prohibited transfers for value: (i) a transfer under a domestic relations order in settlement of marital property rights; and (ii) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity.

 

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7.2                               Terms and Conditions of Options.

 

(a)                                 Necessity of Incentive Award Agreements.  Each grant of an Option shall be evidenced by an Incentive Award Agreement that shall specify whether the Option is an ISO or NQSO, and incorporate such other terms and conditions as the Board, acting in its absolute discretion, deems consistent with the terms of this Plan, including (without limitation) a restriction on the number of Shares subject to the Option that first become exercisable during any calendar year.  The Board and/or the Company shall have complete discretion to modify the terms and provisions of an Option in accordance with Section 12 of this Plan even though such modification may change the Option from an ISO to a NQSO.

 

(b)                                 Determining Optionees.  In determining Eligible Recipient(s) to whom an Option shall be granted and the number of Shares to be covered by such Option, the Board may take into account the recommendations of the Chief Executive Officer of the Company and its other officers, the duties of the Eligible Recipient, the present and potential contributions of the Eligible Recipient to the success of the Company, and other factors deemed relevant by the Board, in its sole discretion, in connection with accomplishing the purpose of this Plan.  An Eligible Recipient who has been granted an Option to purchase Shares, whether under this Plan or otherwise, may be granted one or more additional Options.  If the Board grants an ISO and a NQSO to an Eligible Recipient on the same date, the right of the Eligible Recipient to exercise one such Option shall not be conditioned on his or her failure to exercise the other such Option.

 

(c)                                  Exercise Price.  Subject to adjustment in accordance with Section 10 and the other provisions of this Section, the Exercise Price shall be as set forth in the applicable Incentive Award Agreement.  With respect to each grant of an ISO to a Participant who is not a Ten Percent Stockholder, the Exercise Price shall not be less than the Fair Market Value on the date the ISO is granted.  With respect to each grant of an ISO to a Participant who is a Ten Percent Stockholder, the Exercise Price shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date the ISO is granted.  If an Option is a NQSO, the Exercise Price for each Share shall be no less than the Fair Market Value on the date the NQSO is granted, provided that an NQSO may be granted with any Exercise Price less than the Fair Market Value, so long as the NQSO contains (i) such additional terms as necessary to comply with or be exempt under Section 409A of the Code; (ii) the Exercise Price is equal to or greater than the minimum price required by applicable state law or the minimum price required by the Company’s governing instrument and (iii) if the NQSO is intended to meet the FLSA Exclusion, the NQSO must be granted with an Exercise Price equivalent to or greater than eighty-five percent (85%) of the Fair Market Value of the Shares subject thereto on the date granted determined as of the date of such grant.  Any Option intended to meet the Performance-Based Exception must be granted with an Exercise Price equal to or greater than the Fair Market Value of the Shares subject thereto determined as of the date of such grant.

 

(d)                                 Option Term.  Each Option granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related Incentive Award Agreement, but no Incentive Award Agreement shall:

 

(i)                                     make an Option exercisable before the date such Option is granted; or

 

(ii)                                  make an Option exercisable after the earlier of:

 

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(A)                               the date such Option is exercised in full, or

 

(B)                               the date that is the tenth (10th) anniversary of the date such Option is granted, if such Option is a NQSO or an ISO granted to a non-Ten Percent Stockholder, or the date that is the fifth (5th) anniversary of the date such Option is granted, if such Option is an ISO granted to a Ten Percent Stockholder.  An Incentive Award Agreement may provide for the exercise of an Option after the employment of an Employee has terminated for any reason whatsoever, including death or disability.  The Employee’s rights, if any, upon termination of employment will be set forth in the applicable Incentive Award Agreement.

 

(e)                                  Payment.  Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised accompanied by full payment for the Shares.  Payment for shares of Stock purchased pursuant to exercise of an Option shall be made in (i) cash (including by check or money order), (ii) unless the Incentive Award Agreement provides otherwise, by delivery to the Company of a number of Shares (either previously owned Shares or Shares from those to be received upon exercise of the Option (i.e., a “net exercise”)) having an aggregate Fair Market Value equal to the amount to be tendered to the extent the use of such Shares does not have any adverse consequences to the Company for financial accounting purposes (as determined by the Committee), (iii) any other legal form of consideration deemed acceptable by the Board, or (iv) a combination thereof.  In addition, unless the Incentive Award Agreement provides otherwise, the Option may be exercised through a brokerage transaction following registration of the Company’s equity securities under Section 12 of the Exchange Act as permitted under the provisions of Regulation T applicable to cashless exercises promulgated by the Federal Reserve Board, unless prohibited by Section 402 of the Sarbanes-Oxley Act of 2002.  However, notwithstanding the foregoing, with respect to any Option recipient who is an Insider, a tender of shares or a cashless exercise must (1) have met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act, or (2) be a subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act.  Unless the Incentive Award Agreement provides otherwise, the foregoing exercise payment methods shall be subsequent transactions approved by the original grant of an Option.  Except as provided in subparagraph (f) below, payment shall be made at the time that the Option or any part thereof is exercised, and no Shares shall be issued or delivered upon exercise of an Option until full payment has been made by the Participant.  The holder of an Option, as such, shall have none of the rights of a stockholder.

 

(f)                                   Conditions to Exercise of an Option.  Each Option granted under the Plan shall vest and shall be exercisable at such time or times, or upon the occurrence of such event or events, and in such amounts, as the Board shall specify in the Incentive Award Agreement; provided, however, that subsequent to the grant of an Option, the Board, at any time before complete termination of such Option, may accelerate the time or times at which such Option may vest or be exercised in whole or in part.  Notwithstanding the foregoing, an Option intended to meet the FLSA Exclusion shall not be exercisable for at least six (6) months following the date it is granted, except by reason of death, disability, retirement, a change in corporate ownership or other circumstances permitted under regulations promulgated under the FLSA Exclusion.  Furthermore, if the recipient of an Option receives a hardship distribution from a Code §401(k) plan of the Company, or any Parent or Subsidiary, the Option may not be exercised during the six (6) month period following the hardship distribution, unless the Company determines that such exercise would not jeopardize the tax-

 

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qualification of the Code §401(k) plan.  The Board may impose such restrictions on any Shares acquired pursuant to the exercise of an Option as it may deem advisable, including, without limitation, vesting or performance-based restrictions, rights of the Company to re-purchase Shares acquired pursuant to the exercise of an Option, voting restrictions, investment intent restrictions, restrictions on transfer, “first refusal” rights of the Company to purchase Shares acquired pursuant to the exercise of an Option prior to their sale to any other person, “drag along” rights requiring the sale of shares to a third party purchaser in certain circumstances, “lock up” type restrictions in the case of an initial public offering of the Company’s stock, restrictions or limitations or other provisions that would be applied to stockholders under any applicable agreement among the stockholders, and restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and/or under any blue sky or state securities laws applicable to such Shares.

 

(g)                                  Transferability of Options.  An Option shall not be transferable or assignable except by will or by the laws of descent and distribution and shall be exercisable, during the Participant’s lifetime, only by the Participant; provided, however, that in the event the Participant is incapacitated and unable to exercise his or her Option, if such Option is a NQSO, such Option may be exercised by such Participant’s legal guardian, legal representative, or other representative whom the Board deems appropriate based on applicable facts and circumstances.  The determination of incapacity of a Participant and the determination of the appropriate representative of the Participant who shall be able to exercise the Option if the Participant is incapacitated shall be determined by the Board in its sole and absolute discretion.  Notwithstanding the foregoing, except as otherwise provided in the Incentive Award Agreement, a NQSO may also be transferred by a Participant as a bona fide gift (i) to his spouse, lineal descendant or lineal ascendant, siblings and children by adoption, (ii) to a trust for the benefit of one or more individuals described in clause (i) and no other persons, or (iii) to a partnership of which the only partners are one or more individuals described in clause (i), in which case the transferee shall be subject to all provisions of the Plan, the Incentive Award Agreement and other agreements with the Participant in connection with the exercise of the Option and purchase of Shares.  In the event of such a gift, the Participant shall promptly notify the Board of such transfer and deliver to the Board such written documentation as the Board may in its discretion request, including, without limitation, the written acknowledgment of the donee that the donee is subject to the provisions of the Plan, the Incentive Award Agreement and other agreements with the Participant.

 

(h)                                 Special Provisions for Certain Substitute Options.  Notwithstanding anything to the contrary in this Section, any Option in substitution for a stock option previously issued by another entity, which substitution occurs in connection with a transaction to which Code §424(a) is applicable, may provide for an Exercise Price computed in accordance with Code §424(a) and the regulations thereunder and may contain such other terms and conditions as the Board may prescribe to cause such substitute Option to contain as nearly as possible the same terms and conditions (including the applicable vesting and termination provisions) as those contained in the previously issued stock option being replaced thereby.

 

(i)                                     ISO Tax Treatment Requirements.  With respect to any Option that purports to be an ISO, to the extent that the aggregate Fair Market Value (determined as of the date of grant of such Option) of stock with respect to which such Option is exercisable for the first time by any individual during any calendar year exceeds one hundred thousand dollars ($100,000.00), such Option

 

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shall not be treated as an ISO in accordance with Code §422(d) and instead shall be treated as a NQSO.  The rule of the preceding sentence is applied in the order in which Options are granted.

 

(j)                                    Repricing of Stock Options.  With respect to any Option granted pursuant to, and under, this Plan, approval of the Stockholders of the Company is required for any repricing of all or any portion of existing outstanding Options, unless such repricing is in connection with a corporate transaction as set forth in Section 10.  For this purpose, “repricing” of Options shall include, but not be limited to, any of the following actions (or any similar action): (1) lowering the Exercise Price of an existing Option; (2) any action which would be treated as a “repricing” under generally accepted accounting principles; or (3) canceling of an existing Option at a time when its Exercise Price exceeds the Fair Market Value of the underlying stock subject to such Option, in exchange for another Option, a Restricted Stock Award, or other equity in the Company.

 

7.3                               Terms and Conditions of Stock Appreciation Rights.  A Stock Appreciation Right may be granted in connection with all or any portion of a previously or contemporaneously granted Option or not in connection with an Option.  A Stock Appreciation Right shall entitle the Participant to receive upon exercise or payment the excess of the Fair Market Value of a specified number of Shares at the time of exercise, over a SAR Exercise Price that shall be not less than the Exercise Price for that number of Shares in the case of a Stock Appreciation Right granted in connection with a previously or contemporaneously granted Option, or in the case of any other Stock Appreciation Right, not less than one hundred percent (100%) of the Fair Market Value of that number of Shares at the time the Stock Appreciation Right was granted.  The exercise of a Stock Appreciation Right shall result in a pro rata surrender of the related Option to the extent the Stock Appreciation Right has been exercised.

 

(a)                                 Payment.  Upon exercise or payment of a Stock Appreciation Right, the Company shall pay to the Participant the appreciation in cash or Shares (at the aggregate Fair Market Value on the date of payment or exercise) as provided in the Incentive Award Agreement or, in the absence of such provision, as the Board may determine.

 

(b)                                 Conditions to Exercise.  Each Stock Appreciation Right granted under the Plan shall be exercisable at such time or times, or upon the occurrence of such event or events, and in such amounts, as the Board shall specify in the Incentive Award Agreement; provided, however, that subsequent to the grant of a Stock Appreciation Right, the Board, at any time before complete termination of such Stock Appreciation Right, may accelerate the time or times at which such Stock Appreciation Right may be exercised in whole or in part.  Furthermore, if the recipient of a Stock Appreciation Right receives a hardship distribution from a Code §401(k) plan of the Company, or any Parent or Subsidiary, the Stock Appreciation Right may not be exercised during the six (6) month period following the hardship distribution, unless the Company determines that such exercise would not jeopardize the tax-qualification of the Code §401(k) plan.

 

(c)                                  Transferability of Stock Appreciation Rights.  Except as otherwise provided in a Participant’s Incentive Award Agreement, no Stock Appreciation Right granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.  Further, except as otherwise provided in a Participant’s Incentive Award Agreement, all Stock Appreciation Rights granted to a Participant under the Plan shall be exercisable, during the Participant’s lifetime, only by the Participant; provided, however, that in the event the Participant is incapacitated and unable to exercise his or her Stock Appreciation Right, such

 

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Stock Appreciation Right may be exercised by such Participant’s legal guardian, legal representative, or other representative whom the Board deems appropriate based on applicable facts and circumstances in accordance with the terms and provisions of the Incentive Award Agreement governing such Stock Appreciation Right.  The determination of incapacity of a Participant and the determination of the appropriate representative of the Participant shall be determined by the Board in its sole and absolute discretion.  Notwithstanding the foregoing, except as otherwise provided in the Incentive Award Agreement, (A) a Stock Appreciation Right which is granted in connection with the grant of a NQSO may be transferred, but only with the NQSO, and (B) a Stock Appreciation Right which is not granted in connection with the grant of a NQSO, may be transferred by the Participant as a bona fide gift (i) to his spouse, lineal descendant or lineal ascendant, siblings and children by adoption, (ii) to a trust for the benefit of one or more individuals described in clause (i), or (iii) to a partnership of which the only partners are one or more individuals described in clause (i), in which case the transferee shall be subject to all provisions of the Plan, the Incentive Award Agreement and other agreements with the Participant in connection with the exercise of the Stock Appreciation Right.  In the event of such a gift, the Participant shall promptly notify the Board of such transfer and deliver to the Board such written documentation as the Board may in its discretion request, including, without limitation, the written acknowledgment of the donee that the donee is subject to the provisions of the Plan, the Incentive Award Agreement and other agreements with the Participant in connection with the exercise of the Stock Appreciation Right.

 

(d)                                 Special Provisions for Tandem SARs.  A Stock Appreciation Right granted in connection with an Option may only be exercised to the extent that the related Option has not been exercised.  A Stock Appreciation Right granted in connection with an ISO (1) will expire no later than the expiration of the underlying ISO, (2) may be for no more than the difference between the Exercise Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Stock Appreciation Right is exercised, (3) may be transferable only when, and under the same conditions as, the underlying ISO is transferable, and (4) may be exercised only (i) when the underlying ISO could be exercised and (ii) when the Fair Market Value of the Shares subject to the ISO exceeds the Exercise Price of the ISO.

 

(e)                                  Code §409A Requirements.  A Stock Appreciation Right must meet certain restrictions contained in Code §409A if it is to avoid taxation under Code §409A as a “nonqualified deferred compensation plan.”  No Stock Appreciation Right should be granted under this Plan without careful consideration of the impact of Code §409A with respect to such grant upon both the Company and the recipient of the Stock Appreciation Right.

 

(f)                                   Repricing of Stock Appreciation Rights.  With respect to any Stock Appreciation Right granted pursuant to, and under, this Plan, approval of the Stockholders of the Company is required for any repricing of all or any portion of existing outstanding Stock Appreciation Rights, unless such repricing is in connection with a corporate transaction as set forth in Section 10.  For this purpose, “repricing” of Stock Appreciation Rights shall include, but not be limited to, any of the following actions (or any similar action): (1) lowering the SAR Exercise Price of an existing Stock Appreciation Right; (2) any action which would be treated as a “repricing” under generally accepted accounting principles; or (3) canceling of an existing Stock Appreciation Right at a time when its SAR Exercise Price exceeds the Fair Market Value of the underlying stock subject to such Stock Appreciation Right, in exchange for another Stock Appreciation Right, a Restricted Stock Award, or other equity in the Company.

 

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7.4                               Terms and Conditions of Restricted Stock Awards.

 

(a)                                       Grants of Restricted Stock Awards.  Shares awarded pursuant to Restricted Stock Awards shall be subject to any or no restrictions as determined by the Board for periods determined by the Board.  Restricted Stock Awards issued under the Plan may have restrictions which lapse based upon the service of a Participant, or based upon the attainment (as determined by the Board) of performance goals established by the Board, which goals shall be pursuant to the business criteria listed in Section 14 to the extent the Board intends the Restricted Stock Award to meet the Performance-Based Exception, or based upon any other criteria that the Board may determine appropriate or based upon a combination of the foregoing.  Any Restricted Stock Award that vests based on the attainment of performance goals must be granted by a Committee, must have its performance goals determined by such a Committee based upon one or more of the business criteria listed in Section 14, and must have the attainment of such performance goals certified in writing by such a Committee in order to meet the Performance-Based Exception.  The Board may require a cash payment from the Participant in exchange for the grant of a Restricted Stock Award or may grant a Restricted Stock Award without the requirement of a cash payment to the extent permitted under applicable law; provided, however, if the recipient of a Restricted Stock Award receives a hardship distribution from a Code §401(k) plan of the Company, or any Parent or Subsidiary, the recipient may not pay any amount for such Restricted Stock Award during the six (6) month period following the hardship distribution, unless the Company determines that such payment would not jeopardize the tax-qualification of the Code §401(k) plan.

 

(b)                                       Acceleration of Award.  The Board shall have the power to permit, in its discretion, an acceleration of the expiration of the applicable restrictions or the applicable period of such restrictions with respect to any part or all of the Shares awarded to a Participant.

 

(c)                                        Necessity of Incentive Award Agreement.  Each grant of a Restricted Stock Award shall be evidenced by an Incentive Award Agreement that shall specify the terms, conditions and restrictions regarding the Shares awarded to a Participant, and shall incorporate such other terms and conditions as the Board, acting in its absolute discretion, deems consistent with the terms of this Plan.  The Board shall have complete discretion to modify the terms and provisions of Restricted Stock Awards in accordance with Section 12 of this Plan.

 

(d)                                       Restrictions on Shares Awarded.  Shares awarded pursuant to Restricted Stock Awards shall be subject to any or no restrictions as determined by the Board for periods determined by the Board.  The Board may impose such restrictions on any Shares acquired pursuant to a Restricted Stock Award as it may deem advisable, including, without limitation, vesting or performance-based restrictions, rights of the Company to re-purchase Shares acquired pursuant to the Restricted Stock Award, voting restrictions, investment intent restrictions, restrictions on transfer, “first refusal” rights of the Company to purchase Shares acquired pursuant to the Restricted Stock Award prior to their sale to any other person, “drag along” rights requiring the sale of shares to a third party purchaser in certain circumstances, “lock up” type restrictions in connection with public offerings of the Company’s stock, restrictions or limitations or other provisions that would be applied to stockholders under any applicable agreement among the stockholders, and restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and/or under any blue sky or state securities laws applicable to such Shares.

 

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(e)                                        Transferability of Restricted Stock Awards.  Except as otherwise permitted in the Incentive Award Agreement, a Restricted Stock Award may not be transferred by the holder Participant, except upon the death of the holder Participant by will or by the laws of descent and distribution.

 

(f)                                         Voting, Dividend & Other Rights.  Unless the applicable Incentive Award Agreement provides otherwise, holders of Restricted Stock Awards shall be entitled to vote and shall receive dividends during the periods of restriction.  Cash dividends declared payable on the Shares covered by a Restricted Stock Award shall be (1) paid at the dividend payment date in cash or in unrestricted Shares having a Fair Market Value equal to the amount of such dividends or (2) deferred to such later date as determined by the Board and the amount or value thereof automatically deemed reinvested in additional Shares subject to the Restricted Stock Award, other Incentive Awards or other investment vehicles, as the Board shall determine or permit the Participant to elect.  Notwithstanding the foregoing, dividends declared payable on Shares covered by a Restricted Stock Award with conditions intended to meet the Performance-Based Exception shall be held by the Company and made subject to forfeiture at least until achievement of the applicable performance goal related to such Restricted Stock Award.  Common Stock or other property distributed in connection with a stock split or stock dividend shall be subject to the same restrictions and risk of forfeiture as the Shares covered by the Restricted Stock Award with respect to which such Common Stock or other property has been distributed.  As soon as is practicable after the date on which restrictions on any Shares covered by the Restricted Stock Award lapse, the Company shall deliver to the Participant the certificates for such Shares or shall cause the Shares to be registered in the Participant’s name in book-entry form, in either case with the restrictions removed, so long as the Participant complies with all conditions for delivery of such Shares contained in the Incentive Award Agreement or otherwise reasonably required by the Company.

 

7.5                               Terms and Conditions of Restricted Stock Units.

 

(a)                                 Grants of Restricted Stock Units.  A Restricted Stock Unit shall entitle the Participant to receive one Share or cash in an amount equal to the Fair Market Value of one Share at such future time and upon such terms as specified by the Board in the Incentive Award Agreement evidencing such award.  Restricted Stock Units issued under the Plan may have restrictions which lapse based upon the service of a Participant, or based upon other criteria that the Board may determine appropriate.  The Board may require a cash payment from the Participant in exchange for the grant of Restricted Stock Units or may grant Restricted Stock Units without the requirement of a cash payment; provided, however, if the recipient of a Restricted Stock Unit receives a hardship distribution from a Code §401(k) plan of the Company, or any Parent or Subsidiary, no payment for the Restricted Stock Unit may be made by the recipient during the six (6) month period following the hardship distribution, unless the Company determines that such payment would not jeopardize the tax-qualification of the Code §401(k) plan.

 

(b)                                 Vesting of Restricted Stock Units.  The Board shall establish the vesting schedule applicable to Restricted Stock Units and shall specify the times, vesting and performance goal requirements, if any.  Until the end of the period(s) of time specified in the vesting schedule and/or the satisfaction of any performance criteria, the Restricted Stock Units subject to such Incentive Award Agreement shall remain subject to forfeiture.  The performance goals established by the Board shall be

 

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pursuant to the terms and the business criteria listed in Section 14 to the extent the Board intends the Restricted Stock Unit to meet the Performance-Based Exception.

 

(c)                                  Acceleration of Award.  The Board shall have the power to permit, in its sole discretion, an acceleration of the applicable restrictions or the applicable period of such restrictions with respect to any part or all of the Restricted Stock Units awarded to a Participant.

 

(d)                                 Necessity of Incentive Award Agreement.  Each grant of Restricted Stock Unit(s) shall be evidenced by an Incentive Award Agreement that shall specify the terms, conditions and restrictions regarding the Participant’s right to receive Share(s) in the future, and shall incorporate such other terms and conditions as the Board, acting in its sole discretion, deems consistent with the terms of this Plan.  The Board shall have sole discretion to modify the terms and provisions of Restricted Stock Unit(s) in accordance with Section 12 of this Plan.

 

(e)                                  Transferability of Restricted Stock Units.  Except as otherwise provided in a Participant’s Incentive Award Agreement, no Restricted Stock Unit granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the holder Participant, except upon the death of the holder Participant by will or by the laws of descent and distribution.

 

(f)                                   Voting, Dividend & Other Rights.  Unless the applicable Incentive Award Agreement provides for dividend equivalents pursuant to Section 7.5(h) below, holders of Restricted Stock Units shall not be entitled to vote or to receive dividends until they become owners of the Shares pursuant to their Restricted Stock Units.

 

(g)                                  Code §409A Requirements.  A Restricted Stock Unit must meet certain restrictions contained in Code §409A if it is to avoid taxation under Code §409A as a “nonqualified deferred compensation plan.”  Restricted Stock Units shall be granted with terms that require the delivery of the Shares or cash, as applicable, no later than two and one-half months after the respective Restricted Stock Units vest, unless such Restricted Stock Units have been drafted to comply with or otherwise be exempt from Code §409A.

 

(h)                                 Dividend Equivalents.  Unless otherwise determined by the Board at date of grant, any Dividend Equivalents that are granted with respect to any Restricted Stock Units shall be either (A) paid with respect to such Restricted Stock Units at the dividend payment date in cash or in unrestricted Shares having a Fair Market Value equal to the amount of such dividends or (B) deferred with respect to such Restricted Stock Units and the amount or value thereof automatically deemed reinvested in additional Restricted Stock Units, other Incentive Awards or other investment vehicles, as the Board shall determine or permit the Participant to elect.  For the avoidance of doubt, payment of any Dividend Equivalents that relate to Restricted Stock Units with conditions intended to meet the Performance-Based Exception may be deferred at least until achievement of the applicable performance goal related to such Restricted Stock Units.

 

7.6                               Dividend Equivalents.  The Board is authorized to grant Dividend Equivalents to any Eligible Recipient entitling the Eligible Recipient to receive cash, Shares, other Awards, or other property equal in value to dividends paid with respect to a specified number of Shares, or other periodic payments.  Dividend Equivalents may be awarded on a free-standing basis or in connection with another Incentive Award.  The terms of an award of Dividend Equivalents shall be set forth in a

 

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written Incentive Award Agreement which shall contain provisions determined by the Board and not inconsistent with the Plan.  The Board may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Stock, Awards, or other investment vehicles, and subject to such restrictions on transferability and risks of forfeiture, as the Board may specify.  Notwithstanding any other provision of the Plan, unless otherwise exempt from Section 409A of the Code or otherwise specifically determined by the Board, each Dividend Equivalent shall be structured to avoid the imposition of any excise tax under Section 409A of the Code.

 

7.7                               Other Stock-Based Awards.  The Board is authorized, subject to limitations under applicable law, to grant to any Eligible Recipient such other Incentive Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares, as deemed by the Board to be consistent with the purposes of the Plan, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase rights for Shares, Incentive Awards with value and payment contingent upon performance of the Company or any other factors designated by the Board, and Incentive Awards valued by reference to the book value of Shares or the value of securities of or the performance of specified affiliates or business units.  The Board shall determine the terms and conditions of such Other Stock-Based Awards.  The terms of any Incentive Award pursuant to this Section shall be set forth in a written Incentive Award Agreement which shall contain provisions determined by the Board and not inconsistent with the Plan.  Shares delivered pursuant to an Incentive Award in the nature of a purchase right granted under this Section shall be purchased for such consideration (including without limitation loans from the Company or an affiliate), paid for at such times, by such methods, and in such forms, including, without limitation, cash, Shares, other Incentive Awards or other property, as the Board shall determine.  Cash awards, as an element of or supplement to any other Award under the Plan, may also be granted pursuant to this Section.  Notwithstanding any other provision of the Plan, unless otherwise exempt from Section 409A of the Code or otherwise specifically determined by the Board, each such Award shall be structured to avoid the imposition of any excise tax under Section 409A of the Code.

 

Section 8.

SECURITIES REGULATION

 

Each Incentive Award Agreement may provide that, upon the receipt of Shares as a result of the exercise of an Incentive Award or otherwise, the Participant shall, if so requested by the Company, hold such Shares for investment and not with a view of resale or distribution to the public and, if so requested by the Company, shall deliver to the Company a written statement satisfactory to the Company to that effect.  Each Incentive Award Agreement may also provide that, if so requested by the Company, the Participant shall make a written representation to the Company that he or she will not sell or offer to sell any of such Shares unless a registration statement shall be in effect with respect to such Shares under the Securities Act of 1933, as amended (“1933 Act”), and any applicable state securities law or, unless he or she shall have furnished to the Company an opinion, in form and substance satisfactory to the Company, of legal counsel acceptable to the Company, that such registration is not required.  Certificates representing the Shares transferred upon the exercise of an Incentive Award granted under this Plan may at the discretion of the Company bear a legend to the effect that such Shares have not been registered under the 1933 Act or any applicable state securities law and that such Shares may not be sold or offered for sale in the absence of an effective registration

 

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statement as to such Shares under the 1933 Act and any applicable state securities law or an opinion, in form and substance satisfactory to the Company, of legal counsel acceptable to the Company, that such registration is not required.

 

Section 9.

LIFE OF PLAN

 

No Incentive Award shall be granted under this Plan on or after the earlier of:

 

(a)                                 the tenth (10th) anniversary of the effective date of this Plan (as determined under Section 4 of this Plan), in which event this Plan otherwise thereafter shall continue in effect until all outstanding Incentive Awards have been exercised in full or no longer are exercisable, or

 

(b)                                 the date on which all of the Shares reserved under Section 3 of this Plan have (as a result of the exercise of Incentive Awards granted under this Plan or lapse of all restrictions under a Restricted Stock Award or Restricted Stock Unit) been issued or no longer are available for use under this Plan, in which event this Plan also shall terminate on such date.

 

This Plan shall continue in effect until all outstanding Incentive Awards have been exercised in full or are no longer exercisable and all Restricted Stock Awards or Restricted Stock Units have vested or been forfeited.  Notwithstanding the continuation of the Plan, no Incentive Award (other than an Option or Stock Appreciation Right) that is designed to qualify for the Performance-Based Exception shall be granted on or after the fifth anniversary of the effective date of the Plan unless the material terms of the applicable performance goals are approved by the stockholders of the Company no later than the first stockholder meeting that occurs in the fifth year following the effective date of the Plan.

 

Section 10.

ADJUSTMENT AND CORPORATE TRANSACTION

 

Notwithstanding anything in Section 12 to the contrary, the number of Shares reserved under Section 3 of this Plan, the limit on the number of Shares that may be granted during a calendar year to any individual under Section 3 of this Plan, the number of Shares subject to Incentive Awards granted under this Plan, and the Exercise Price of any Options and the SAR Exercise Price of any Stock Appreciation Rights, shall be adjusted by the Board in an equitable manner to reflect any change in the capitalization of the Company, including, but not limited to, such changes as stock dividends or stock splits.  Furthermore, the Board shall adjust (in a manner that satisfies the requirements of Code §424(a)) the number of Shares reserved under Section 3, and the number of Shares subject to Incentive Awards granted under this Plan, and the Exercise Price of any Options and the SAR Exercise Price of any Stock Appreciation Rights in the event of any corporate transaction described in Code §424(a) that provides for the substitution or assumption of such Incentive Awards.  If any adjustment under this Section creates a fractional Share or a right to acquire a fractional Share, such fractional Share shall be disregarded, and the number of Shares reserved under this Plan and the number subject to any Incentive Awards granted under this Plan shall be the next lower number of Shares, rounding all fractions downward.  An adjustment made under this Section by the Board shall be conclusive and binding on all affected persons and, further, shall not constitute an increase in the number of Shares reserved under Section 3.

 

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In the event of a corporate transaction described in Code §424(a) other than such corporate transaction that also qualifies as a Change of Control, all Incentive Awards shall be either assumed, continued or substituted for in connection with the corporate transaction.  Any assumption or substitution shall not result in any decrease in the benefits or economic value provided under each Incentive Award.

 

Section 11.

CHANGE OF CONTROL OF THE COMPANY

 

11.1                        General Rule for Options.  Except as otherwise provided in an Incentive Award Agreement, if a Change of Control occurs, and if the agreements effectuating the Change of Control do not provide for the assumption or substitution of all Options granted under this Plan, with respect to any Option granted under this Plan that is not so assumed or substituted (a “Non-Assumed Option”), the Committee, in its sole and absolute discretion, may, with respect to any or all of such Non-Assumed Options, take any or all of the following actions to be effective as of the date of the Change of Control (or as of any other date fixed by the Committee occurring within the thirty (30) day period ending on the date of the Change of Control, but only if such action remains contingent upon the effectuation of the Change of Control) (such date referred to as the “Action Effective Date”):

 

(a)                                 Accelerate the vesting and/or exercisability of such Non-Assumed Option; and/or

 

(b)                                 Unilaterally cancel any such Non-Assumed Option which has not vested and/or which has not become exercisable as of the Action Effective Date; and/or

 

(c)                                  Unilaterally cancel such Non-Assumed Option in exchange for:

 

(i)                                           whole and/or fractional Shares (or for whole Shares and cash in lieu of any fractional Share) that, in the aggregate, are equal in value to the excess of the Fair Market Value of the Shares that could be purchased subject to such Non-Assumed Option determined as of the Action Effective Date (taking into account vesting and/or exercisability) over the aggregate Exercise Price for such Shares; or

 

(ii)                                  cash or other property equal in value to the excess of the Fair Market Value of the Shares that could be purchased subject to such Non-Assumed Option determined as of the Action Effective Date (taking into account vesting and/or exercisability) over the aggregate Exercise Price for such Shares; and/or

 

(d)                                 Unilaterally cancel such Non-Assumed Option after providing the holder of such Option with (1) an opportunity to exercise such Non-Assumed Option to the extent vested and/or exercisable within a specified period prior to the date of the Change of Control, and (2) notice of such opportunity to exercise prior to the commencement of such specified period; and/or

 

(e)                                  Unilaterally cancel such Non-Assumed Option and notify the holder of such Option of such action, but only if the Fair Market Value of the Shares that could be purchased subject to such Non-Assumed Option determined as of the Action Effective Date (taking into account vesting and/or exercisability) does not exceed the aggregate Exercise Price for such Shares.

 

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However, notwithstanding the foregoing, to the extent that the recipient of a Non-Assumed Option is an Insider and subject to Section 16 of the Exchange Act at the time of the Change of Control, payment of cash in lieu of whole or fractional Shares or shares of a successor may only be made to the extent that such payment (1) has met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act, or (2) is a subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act.  Unless an Incentive Award Agreement provides otherwise, the payment of cash in lieu of whole or fractional Shares or in lieu of whole or fractional shares of a successor shall be considered a subsequent transaction approved by the original grant of an Option.

 

11.2                        General Rule for SARs.  Except as otherwise provided in an Incentive Award Agreement, if a Change of Control occurs, and if the agreements effectuating the Change of Control do not provide for the assumption or substitution of all Stock Appreciation Rights granted under this Plan, with respect to any Stock Appreciation Right granted under this Plan that is not so assumed or substituted (a “Non-Assumed SAR”), the Committee, in its sole and absolute discretion, may, with respect to any or all of such Non-Assumed SARs, take either or both of the following actions to be effective as of the date of the Change of Control (or as of any other date fixed by the Committee occurring within the thirty (30) day period ending on the date of the Change of Control, but only if such action remains contingent upon the effectuation of the Change of Control) (such date referred to as the “Action Effective Date”):

 

(a)                                 Accelerate the vesting and/or exercisability of such Non-Assumed SAR; and/or

 

(b)                                 Unilaterally cancel any such Non-Assumed SAR which has not vested or which has not become exercisable as of the Action Effective Date; and/or

 

(c)                                  Unilaterally cancel such Non-Assumed SAR in exchange for:

 

(i)                                     whole and/or fractional Shares (or for whole Shares and cash in lieu of any fractional Share) that, in the aggregate, are equal in value to the excess of the Fair Market Value of the Shares subject to such Non-Assumed SAR determined as of the Action Effective Date (taking into account vesting and/or exercisability) over the SAR Exercise Price for such Non-Assumed SAR; or

 

(ii)                                  cash or other property equal in value to the excess of the Fair Market Value of the Shares subject to such Non-Assumed SAR determined as of the Action Effective Date (taking into account vesting and/or exercisability) over the SAR Exercise Price for such Non-Assumed SAR; and/or

 

(d)                                 Unilaterally cancel such Non-Assumed SAR after providing the holder of such SAR with (1) an opportunity to exercise such Non-Assumed SAR to the extent vested and/or exercisable within a specified period prior to the date of the Change of Control, and (2) notice of such opportunity to exercise prior to the commencement of such specified period; and/or

 

(e)                                  Unilaterally cancel such Non-Assumed SAR and notify the holder of such SAR of such action, but only if the Fair Market Value of the Shares that could be purchased subject to such Non-Assumed SAR determined as of the Action Effective Date (taking into account vesting and/or exercisability) does not exceed the SAR Exercise Price for such Non-Assumed SAR.

 

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However, notwithstanding the foregoing, to the extent that the recipient of a Non-Assumed SAR is an Insider and subject to Section 16 of the Exchange Act at the time of the Change of Control, payment of cash in lieu of whole or fractional Shares or shares of a successor may only be made to the extent that such payment (1) has met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act, or (2) is a subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act.  Unless an Incentive Award Agreement provides otherwise, the payment of cash in lieu of whole or fractional Shares or in lieu of whole or fractional shares of a successor shall be considered a subsequent transaction approved by the original grant of a SAR.

 

11.3                        General Rule for Restricted Stock Units.  Except as otherwise provided in an Incentive Award Agreement, if a Change of Control occurs, and if the agreements effectuating the Change of Control do not provide for the assumption or substitution of all Restricted Stock Units granted under this Plan, with respect to any Restricted Stock Unit granted under this Plan that is not so assumed or substituted (a “Non-Assumed RSU”), the Committee, in its sole and absolute discretion, may, with respect to any or all of such Non-Assumed RSUs, take either or both of the following actions to be effective as of the date of the Change of Control (or as of any other date fixed by the Committee occurring within the thirty (30) day period ending on the date of the Change of Control, but only if such action remains contingent upon the effectuation of the Change of Control) (such date referred to as the “Action Effective Date”):

 

(a)                                 Accelerate the vesting of such Non-Assumed RSU; and/or

 

(b)                                 Unilaterally cancel any such Non-Assumed RSU which has not vested as of the Action Effective Date; and/or

 

(c)                                  Unilaterally cancel such Non-Assumed RSU in exchange for:

 

(i)                                     whole and/or fractional Shares (or for whole Shares and cash in lieu of any fractional Share) that are equal to the number of Shares subject to such Non-Assumed RSU determined as of the Action Effective Date (taking into account vesting); or

 

(ii)                                  cash or other property equal in value to the Fair Market Value of the Shares subject to such Non-Assumed RSU determined as of the Action Effective Date (taking into account vesting); and/or

 

(d)                                 Unilaterally cancel such Non-Assumed RSU and notify the holder of such RSU of such action, but only if the Fair Market Value of the Shares that were subject to such Non-Assumed RSU determined as of the Action Effective Date (taking into account vesting) is zero.

 

However, notwithstanding the foregoing, to the extent that the recipient of a Non-Assumed RSU is an Insider and subject to Section 16 of the Exchange Act at the time of the Change of Control, payment of cash in lieu of whole or fractional Shares or shares of a successor may only be made to the extent that such payment (1) has met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act, or (2) is a subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act.  Unless an Incentive Award Agreement provides otherwise, the payment of cash in lieu of whole

 

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or fractional Shares or in lieu of whole or fractional shares of a successor shall be considered a subsequent transaction approved by the original grant of an RSU.

 

11.4                        General Rule for Restricted Stock Awards.  Except as otherwise provided in an Incentive Award Agreement, if a Change of Control occurs, and if the agreements effectuating the Change of Control do not provide for the assignment of the forfeiture or repurchase rights for all Restricted Stock Awards granted under this Plan, with respect to any Restricted Stock Award granted under this Plan where the forfeiture or repurchase rights are not assigned (a “Non-Assumed Restricted Stock Award”), the Committee, in its sole and absolute discretion, may, with respect to any or all of such Non-Assumed Restricted Stock Award, take either or both of the following actions to be effective as of the date of the Change of Control (or as of any other date fixed by the Committee occurring within the thirty (30) day period ending on the date of the Change of Control, but only if such action remains contingent upon the effectuation of the Change of Control) (such date referred to as the “Action Effective Date”):

 

(a)                                 Accelerate the vesting of such Non-Assumed Restricted Stock Award (i.e., cancel any forfeiture or repurchase right); and/or

 

(b)                                 Unilaterally exercise the forfeiture or repurchase right for any such Non-Assumed Restricted Stock Award which has not vested as of the Action Effective Date; and/or

 

(c)                                  Unilaterally repurchase such Non-Assumed Restricted Stock Award in exchange for cash or other property equal in value to the Fair Market Value of the Shares subject to such Non-Assumed Restricted Stock Award determined as of the Action Effective Date (taking into account vesting); and/or

 

(d)                                 Unilaterally cancel such Non-Assumed Restricted Stock Award and notify the holder of such Restricted Stock Award of such action, but only if the Fair Market Value of the Shares that were subject to such Non-Assumed Restricted Stock Award determined as of the Action Effective Date (taking into account vesting) is zero.

 

However, notwithstanding the foregoing, to the extent that the recipient of a Non-Assumed Restricted Stock Award is an Insider and subject to Section 16 of the Exchange Act at the time of the Change of Control, payment of cash in lieu of whole or fractional Shares or shares of a successor may only be made to the extent that such payment (1) has met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act, or (2) is a subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act.  Unless an Incentive Award Agreement provides otherwise, the payment of cash in lieu of whole or fractional Shares or in lieu of whole or fractional shares of a successor shall be considered a subsequent transaction approved by the original grant of a Restricted Stock Award.

 

11.5                        General Rule for Other Incentive Award Agreements.  If a Change of Control occurs, then, except to the extent otherwise provided in the Incentive Award Agreement pertaining to a particular Incentive Award or as otherwise provided in this Plan, each Incentive Award shall be governed by applicable law and the documents effectuating the Change of Control.

 

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Section 12.

AMENDMENT OR TERMINATION

 

This Plan may be amended by the Board from time to time to the extent that the Board deems necessary or appropriate; provided, however, no such amendment shall be made absent the approval of the stockholders of the Company (a) to increase the number of Shares reserved under Section 3, except as set forth in Section 10, (b) to extend the maximum life of the Plan under Section 9 or the maximum exercise period under Section 7, (c) to decrease the minimum Exercise Price under Section 7, (d) to change the designation of Eligible Recipients eligible for Incentive Awards under Section 6, or (e) to eliminate or modify the prohibition set forth in Section 7.2(j) and Section 7.3(f) on repricing of Options and Stock Appreciation Rights.  Stockholder approval of other material amendments (such as an expansion of the types of awards available under the Plan, an extension of the term of the Plan, a change to the method of determining the Exercise Price of Options issued under the Plan, or a change to the provisions of Section 7.2(j)) may also be required pursuant to rules promulgated by an established stock exchange or a national market system if the Company is, or become, listed or traded on any such established stock exchange or national market system, or for the Plan to continue to be able to issue Incentive Awards which meet the Performance-Based Exception.  The Board also may suspend the granting of Incentive Awards under this Plan at any time and may terminate this Plan at any time.  The Company shall have the right to modify, amend or cancel any Incentive Award after it has been granted if (I) the modification, amendment or cancellation does not diminish the rights or benefits of the Incentive Award recipient under the Incentive Award (provided, however, that a modification, amendment or cancellation that results solely in a change in the tax consequences with respect to an Incentive Award shall not be deemed as a diminishment of rights or benefits of such Incentive Award), (II) the Participant consents in writing to such modification, amendment or cancellation, (III) there is a dissolution or liquidation of the Company, (IV) this Plan and/or the Incentive Award Agreement expressly provides for such modification, amendment or cancellation, or (V) the Company would otherwise have the right to make such modification, amendment or cancellation by applicable law.

 

Section 13.

MISCELLANEOUS

 

13.1                        Stockholder Rights.  No Participant shall have any rights as a stockholder of the Company as a result of the grant of an Incentive Award to him or to her under this Plan or his or her exercise of such Incentive Award pending the actual delivery of Shares subject to such Incentive Award to such Participant.

 

13.2                        No Guarantee of Continued Relationship.  The grant of an Incentive Award to a Participant under this Plan shall not constitute a contract of employment and shall not confer on a Participant any rights upon his or her termination of employment or relationship with the Company in addition to those rights, if any, expressly set forth in the Incentive Award Agreement that evidences his or her Incentive Award.

 

13.3                        Withholding.  The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company as a condition precedent for the fulfillment of any Incentive Award, an amount sufficient to satisfy Federal, state and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this

 

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Plan and/or any action taken by a Participant with respect to an Incentive Award.  Whenever Shares are to be issued to a Participant upon exercise of an Option or a Stock Appreciation Right, or satisfaction of conditions under a Restricted Stock Unit, or grant of or substantial vesting of a Restricted Stock Award, the Company shall have the right to require the Participant to remit to the Company, as a condition of exercise of the Option or Stock Appreciation Right, or as a condition to the fulfillment of the Restricted Stock Unit, or as a condition to the grant or substantial vesting of the Restricted Stock Award, an amount in cash (or, unless the Incentive Award Agreement provides otherwise, in Shares) sufficient to satisfy federal, state and local withholding tax requirements at the time of such exercise, satisfaction of conditions, or grant or substantial vesting.  However, notwithstanding the foregoing, to the extent that a Participant is an Insider, satisfaction of withholding requirements by having the Company withhold Shares may only be made to the extent that such withholding of Shares (1) has met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act, or (2) is a subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act.  Unless the Incentive Award Agreement provides otherwise, the withholding of shares to satisfy federal, state and local withholding tax requirements shall be a subsequent transaction approved by the original grant of an Incentive Award.  Notwithstanding the foregoing, in no event shall payment of withholding taxes be made by a retention of Shares by the Company unless the Company retains only Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld.

 

13.4                        Notification of Disqualifying Dispositions of ISO Options.  If a Participant sells or otherwise disposes of any of the Shares acquired pursuant to an Option that is an ISO on or before the later of (1) the date two (2) years after the date of grant of such Option, or (2) the date one (1) year after the exercise of such Option, then the Participant shall immediately notify the Company in writing of such sale or disposition and shall cooperate with the Company in providing sufficient information to the Company for the Company to properly report such sale or disposition to the Internal Revenue Service.  The Participant acknowledges and agrees that he may be subject to federal, state and/or local tax withholding by the Company on the compensation income recognized by Participant from any such early disposition, and agrees that he shall include the compensation from such early disposition in his gross income for federal tax purposes.  Participant also acknowledges that the Company may condition the exercise of any Option that is an ISO on the Participant’s express written agreement with these provisions of this Plan.

 

13.5                        Transfer.  The transfer of an Employee between or among the Company, a Subsidiary or a Parent shall not be treated as a termination of his or her employment under this Plan.  However, notwithstanding the foregoing, a termination of employment may nonetheless occur for purposes of determining whether an Option will satisfy the requirements of the Code to be an ISO.

 

13.6                        Construction.  This Plan shall be construed under the laws of the State of Maryland.

 

13.7                        Recovery of Amounts Paid.  Except as otherwise provided by the Board, Incentive Awards granted under the Plan shall be subject to any and all policies, guidelines, codes of conduct, or other agreement or arrangement adopted by the Board or Committee with respect to the recoupment, recovery or clawback of compensation (collectively, the “Recoupment Policy”) and/or to any provisions set forth in the applicable Incentive Award Agreement under which Company may recover from current and former Participants, any amounts paid or Shares issued under an Incentive Award and

 

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any proceeds therefrom under such circumstances as the Board or Committee determines appropriate.  The Board or Committee may apply the Recoupment Policy to Incentive Awards granted before the policy is adopted to the extent required by applicable law or rule of any securities exchange or market on which Shares are listed or admitted for trading, as determined by the Board or Committee in its sole discretion.

 

Section 14.

PERFORMANCE CRITERIA

 

14.1                        Performance Goal Business Criteria.  Unless and until the Board proposes for stockholder vote and stockholders approve a change in the general performance criteria set forth in this Section, with respect to which the attainment of goals may determine the degree of payout and/or vesting with respect to Incentive Awards to Employees and Key Persons pursuant to this Plan which are designed to qualify for the Performance-Based Exception, the performance criteria to be used by a Committee composed of two (2) or more Outside Directors for purposes of such grants shall be chosen from among the following:

 

(a)                                 Earnings per share;

 

(b)                                 Net income (before or after taxes);

 

(c)                                  Return measures (including, but not limited to, return on assets, equity or sales);

 

(d)                                 Cash flow return on investments which equals net cash flows divided by owners’ equity;

 

(e)                                  Earnings before or after taxes, depreciation and/or amortization;

 

(f)                                   Gross revenues;

 

(g)                                  Net or gross operating income (before or after taxes) or growth thereof, including same store net operating income;

 

(h)                                 Total stockholder returns;

 

(i)                                     Corporate performance indicators (indices based on the level of certain services provided to customers);

 

(j)                                    Cash generation, profit and/or revenue targets;

 

(k)                                 Growth measures, including revenue growth and growth of adjusted or modified funds from operations;

 

(l)                                     Share price (including, but not limited to, growth measures and total stockholder return);

 

(m)                             Pre-tax profits;

 

(n)                                 Net asset value;

 

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(o)                                 Total property return;

 

(p)                                 Capital expenditure;

 

(q)                                 Expense levels or ratios and reduction of expenses and costs;

 

(r)                                    Customer satisfaction; and/or

 

(s)                                   Strategic metrics, including capital allocation and investment strategy, execution of transition and development plans, branding or rebranding, management effectiveness, staffing development, team building and management, office relocation, management of legal and regulatory matters, management of co-investment relationships and joint ventures.

 

Performance goals may be applied on a per share or absolute basis and relative to one or more performance criteria, or any combination thereof, and may be measured pursuant to U.S. generally accepted accounting principles (“GAAP”), non-GAAP or other objective standards in a manner consistent with the Company’s, Parent’s, or Subsidiary’s established accounting policies, and may be compared with a peer group or other benchmark, all as the Committee shall determine at the time the performance goal for a performance period is established.  The Committee may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to the manner in which one or more of the performance goals is to be calculated or measured to take into account, or ignore, any change in accounting standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the performance goals.  Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of performance goals in order to prevent the dilution or enlargement of the Participant’s rights with respect to an Incentive Award.  The performance goals established by the Committee for an Incentive Award designed to qualify for the Performance-Based Exception shall be objective such that a third party having knowledge of the relevant facts could determine whether or not any performance goal has been achieved, or the extent of such achievement, and the amount, if any, which has been earned by the Participant based on such achievement.

 

14.2                        Discretion in Formulation of Performance Goals.  The Board shall have the discretion to adjust the determinations of the degree of attainment of the pre-established performance goals; provided, however, that Incentive Awards that are to qualify for the Performance-Based Exception may not be adjusted upward (although the Committee shall retain the discretion to adjust such Incentive Awards downward).

 

14.3                        Performance Periods.  The Board shall have the discretion to determine the period during which any performance goal must be attained with respect to an Incentive Award.  Such period may be of any length, and must be established prior to the start of such period or within the first ninety (90) days of such period (provided that the performance criteria is not in any event set after 25% or more of such period has elapsed).

 

14.4                        Modifications to Performance Goal Business Criteria.  In the event that the applicable tax and/or securities laws change to permit Board discretion to alter the governing performance measures noted above without obtaining stockholder approval of such changes, the Board shall have sole discretion to make such changes without obtaining stockholder approval.  In addition, in the event that the Board determines that it is advisable to grant Incentive Awards that shall not qualify for the

 

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Performance-Based Exception, the Board may make such grants without satisfying the requirements of Code §162(m); otherwise, a Committee composed exclusively of two (2) of more Outside Directors must make such grants.

 

14.5                        Certification and Payment.  Following completion of the applicable performance period, and prior to any, as applicable, grant, vesting, lapse of restrictions on or payment of an Incentive Award designed to qualify for the Performance-Based Exception, a Committee composed exclusively of two (2) of more Outside Directors shall determine in accordance with the terms of the Incentive Award Agreement and shall certify in writing whether the applicable performance goal(s) were achieved, or the level of such achievement, and the amount, if any, earned by the Participant based upon such performance.  For this purpose, approved minutes of the meeting of the Committee at which certification is made shall be sufficient to satisfy the requirement of a written certification.  No Incentive Awards designed to qualify for the Performance-Based Exception will be granted, become vested, have restrictions lapse or be paid, as applicable, for a performance period until such certification is made by the Committee.  The amount of an Incentive Awards designed to qualify for the Performance-Based Exception actually granted, vested, or paid to a Participant, or on which restrictions shall lapse, may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the performance period or otherwise, subject to the terms and conditions of the applicable Incentive Award Agreement.

 

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