Document:

exv10w5

 

Exhibit 10.5

EAGLE MATERIALS INC.

INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AGREEMENT

     This option agreement (the “Option Agreement” or “Agreement”) entered into between Eagle
Materials Inc., a Delaware corporation (the “Company”), and ___(the
“Optionee”), an employee of the Company or its Affiliates, with respect to a right (the “Option”)
awarded to the Optionee under the Eagle Materials Inc. Incentive Plan, as amended (the “Plan”), on
June 20, 2007, (the “Award Date”) to purchase from the Company up to but not exceeding in the
aggregate ___shares of the Company’s common stock, par value $0.01 per share (the “Common
Stock”), at a price of $47.525 per share (the “Exercise Price”), such number of shares and such
price per share being subject to adjustment as provided in the Plan, and further subject to the
following terms and conditions:

     1. Relationship to Plan

     This Option is subject to all of the terms, conditions and provisions of the Plan and
administrative interpretations thereunder, if any, which have been adopted by the Company’s
Compensation Committee (“Committee”) and are in effect on the date hereof. Except as defined
herein, capitalized terms shall have the same meanings ascribed to them under the Plan. For
purposes of this Option Agreement:

          (a) “Disability” shall have the meaning assigned to such term under the Plan, however,
in the case of a Director, for purposes of this Agreement, Disability shall be determined by the
Committee.

          (b) “Operating Earnings” for any fiscal year means the Company’s Earnings Before
Income Taxes adjusted for Interest Expense, Net and Corporate General Expenses, as certified by the
Committee.

          (c) “Earnings Per Share” for any fiscal year means the Company’s Earnings Per Share
(diluted) as for such fiscal year, as certified by the Committee.

          (d) “Retirement” means the cessation of employment with the Company and all of its
Affiliates: (i) on or after age 62 with at least 10 years of service, provided that the employee
has given notice in writing at least 2 years in advance of such cessation of employment; or (ii)
under other circumstances approved by the Committee.

          (e) “Vesting Date” means March 31 of any given fiscal year in which the Option Shares
(as defined below) vest, if any, in accordance with Section 2(a) hereof.

          (f) “Vesting Period” means the period commencing on April 1, 2007 and ending on March
31, 2014.

     2. Vesting and Exercise Schedules.

          (a) Vesting Schedule. The shares of Common Stock covered by this Option (the “Option
Shares”) shall vest based on the financial targets measured by Operating Earnings and Earnings

 

 

Per Share, as more particularly described in the matrix (the “Vesting Matrix”) attached to
this Agreement as Exhibit A.

          The exact vesting percentage attained from the Vesting Matrix shall be calculated based on
straight-line interpolation between the percentages shown in the Vesting Matrix with fractional
percentages rounded to the nearest tenth of one percent.

          If the Operating Earnings and Earnings Per Share for any fiscal year subsequent to the initial
fiscal year within the Vesting Period results in a vesting percentage, the applicable percentage of
Option Shares which shall vest on the applicable Vesting Date shall equal: (i) the vesting
percentage derived from the Vesting Matrix for the given fiscal year-end less (ii) the vesting
percentage previously attained in prior fiscal year(s), if any. At the end of the Vesting Period,
if any Option Shares remain unvested, such Option Shares shall be forfeited.

          Except as expressly set forth herein, the Optionee must be in continuous employment with the
Company or any of its Affiliates or serve as a Director from the Award Date through the Vesting
Date in order for the Option Shares to vest as provided in this Section 2(a).

          (b) Exercisability. The Option Shares that vest in accordance with the provisions of
Section 2(a) shall become exercisable as soon as administratively practicable following the
applicable Vesting Date.

          The Optionee must be in continuous employment with the Company or any of its Affiliates or
serve as a Director from the Award Date through the date the portion of the Option Shares would
otherwise become exercisable in order for the Option to become exercisable with respect to
additional Option Shares, unless Optionee’s employment and service as a Director terminates by
reason of Retirement, otherwise such Option Shares shall be forfeited. In the event Optionee’s
employment and service as a Director terminates by reason of death or Disability, the then
exercisable Option Shares shall continue to be exercisable as if the Optionee had remained employed
or continued to serve as a Director for a period of two years following the Optionee’s death or
Disability. All remaining Option Shares will be forfeited. In the event Optionee’s employment and
service as a Director terminates by reason of Retirement, this Option shall remain in effect so
that any then exercisable Option Shares shall continue to be exercisable and any unvested Option
Shares shall continue to have the opportunity to vest as if the Optionee had remained employed or
continued to serve as a Director, until the expiration of this Agreement.

          To the extent the Option becomes exercisable, such Option may be exercised in whole or in part
(at any time or from time to time, except as otherwise provided herein) until expiration of the
Option pursuant to the terms of this Agreement or the Plan.

          (c) Calculations. The Committee shall have the sole authority to approve the
calculation of the Operating Earnings and Earnings Per Share for purposes of vesting, and its
approval of such calculations shall be final, conclusive, and binding on all parties.

          (d) Change in Control. This Option shall become fully vested and exercisable, without
regard to the limitations set forth in subparagraph (a) above, provided that the Optionee has been
in continuous employment with the Company or any of its Affiliates or served as a Director since
the Award Date, upon the occurrence of a Change in Control (as defined in Exhibit B to this
Agreement), with respect to any Option Shares which have not been theretofore forfeited, unless
either (i) the Committee determines that the terms of the transaction giving rise to the Change in
Control

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provide that the Option is to be replaced within a reasonable time after the Change in Control
with an option of equivalent value to purchase shares of the surviving parent corporation or (ii)
the Option is to be settled in cash in accordance with the last sentence of this subparagraph (d).
Upon a Change in Control, pursuant to Section 16 of the Plan, the Company may, in its discretion,
settle the Option by a cash payment equal to the difference between the Fair Market Value per share
of Common Stock on the settlement date and the Exercise Price for the Option, multiplied by the
number of shares then subject to the Option.

     3. Termination of Option.

     The Option hereby granted shall terminate and be of no force and effect with respect to any
shares of Common Stock not previously purchased by the Optionee at the earliest time specified
below:

          (a) the seventh anniversary of the Award Date;

          (b) if Optionee’s employment with the Company and its Affiliates and service as a Director is
terminated by the Company or a Subsidiary for “cause” (as determined by the Committee) at any time
after the Award Date, then the Option shall terminate immediately upon such termination of
Optionee’s employment;

          (c) if Optionee’s employment with the Company and its Affiliates and service as a Director is
terminated for any reason other than death, Retirement, Disability or termination for “cause,” then
the Option shall terminate on the first business day following the expiration of the 90-day period
beginning on the date of termination of Optionee’s employment and service as a Director; or

          (d) if Optionee’s employment with the Company and its Affiliates and service as a Director is
terminated due to the death or Disability of the Optionee at any time after the Award Date and
while in the employ of the Company or its Affiliates or service as Director, or within 90 days
after termination of such employment or service for reasons other than “cause”, then the Option
shall terminate on the first business day following the expiration of the two-year period which
began on the date of Optionee’s death or Disability. If Optionee’s employment with the Company and
its Affiliates and service as a Director is terminated due to the Retirement of the Optionee at any
time after the Award Date and while in the employ of the Company or its Affiliates or service as
Director, then the Option shall terminate on the seventh anniversary of the Award Date.

          In the event the Option remains exercisable for a period of time following the date of
termination of Optionee’s employment and service as a Director, the portion of the Option not
exercisable upon termination, unless such termination is due to Retirement, shall terminate and be
of no force and effect upon the date of the Optionee’s termination of employment and service as a
Director.

     4. Exercise of Option.

     Subject to the limitations set forth herein and in the Plan, this Option may be exercised by
notice provided to the Company as set forth in Section 5. The payment of the Exercise Price for
the Common Stock being purchased pursuant to the Option shall be made (a) in cash, by check or cash
equivalent, (b) by tender to the Company, or attestation to the ownership, of Common Stock owned by
the Optionee having a Fair Market Value (as determined by the Company without regard to any
restrictions on transferability applicable to such Common Stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less than the Exercise
Price, (c) by delivery of a properly executed notice together with irrevocable instructions to a
broker providing for the assignment

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to the Company of the proceeds of a sale or loan with respect to some or all of the shares
being acquired upon the exercise of the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System), (d) by such other consideration as may be approved by the
Board from time to time to the extent permitted by applicable law, or (e) by any combination
thereof. Such notice shall be accompanied by cash or Common Stock in the full amount of all
federal and state withholding or other employment taxes applicable to the taxable income of such
Optionee resulting from such exercise (or instructions to satisfy such withholding obligation by
withholding Option Shares in accordance with Section 8). For the purpose of determining the
amount, if any, of the purchase price satisfied by payment in Common Stock, such Common Stock shall
be valued at its Fair Market Value on the date of exercise.

     If the Optionee desires to pay the purchase price for the Option Shares by tendering Common
Stock using the method of attestation, the Optionee may, subject to any such conditions and in
compliance with any such procedures as the Committee may adopt, do so by attesting to the ownership
of Common Stock of the requisite value, in which case the Company shall issue or otherwise deliver
to the Optionee upon such exercise a number of Option Shares equal to the result obtained by
dividing (a) the excess of the aggregate Fair Market Value of the total number shares of Common
Stock subject to the Option for which the Option (or portion thereof) is being exercised over the
purchase price payable in respect of such exercise by (b) the Fair Market Value per share of Common
Stock subject to the Option, and the Optionee may retain the shares of Common Stock the ownership
of which is attested.

     Notwithstanding anything to the contrary contained herein, the Optionee agrees that he will
not exercise the Option granted pursuant hereto, and the Company will not be obligated to issue any
Option Shares pursuant to this Option Agreement, if the exercise of the Option or the issuance of
such shares would constitute a violation by the Optionee or by the Company of any provision of any
law or regulation of any governmental authority or any stock exchange or transaction quotation
system. The Optionee agrees that, unless the options and shares covered by the Plan have been
registered pursuant to the Securities Act of 1933, as amended (the “Act”), the Company may, at its
election, require the Optionee to give a representation in writing in form and substance
satisfactory to the Company to the effect that he is acquiring such shares for his own account for
investment and not with a view to, or for sale in connection with, the distribution of such shares
or any part thereof.

     If any law or regulation requires the Company to take any action with respect to the shares
specified in such notice, the time for delivery thereof, which would otherwise be as promptly as
reasonably practicable, shall be postponed for the period of time necessary to take such action.

     5. Notices.

     Notice of exercise of the Option must be made in the following manner, using such forms as the
Company may from time to time provide:

          (a) by electronic means as designated by the Committee, in which case the date of exercise
shall be the date when receipt is acknowledged by the Company;

          (b) by registered or certified United States mail, postage prepaid, to Eagle Materials Inc.,
Attention: Secretary, 3811 Turtle Creek, Suite 1100, Dallas, Texas 75219, in which case the date of
exercise shall be the date of mailing; or

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          (c) by hand delivery or otherwise to Eagle Materials Inc., Attention: Secretary, 3811 Turtle
Creek, Suite 1100, Dallas, Texas 75219, in which case the date of exercise shall be the date when
receipt is acknowledged by the Company.

     Notwithstanding the foregoing, in the event that the address of the Company is changed prior
to the date of any exercise of this Option, notice of exercise shall instead be made pursuant to
the foregoing provisions at the Company’s current address.

     Any other notices provided for in this Agreement or in the Plan shall be given in writing or
by such electronic means, as permitted by the Committee, and shall be deemed effectively delivered
or given upon receipt or, in the case of notices delivered by the Company to the Optionee, five
days after deposit in the United States mail, postage prepaid, addressed to the Optionee at the
address specified at the end of this Agreement or at such other address as the Optionee hereafter
designates by written notice to the Company.

     6. Assignment of Option.

     Except as otherwise permitted by the Committee, the rights of the Optionee under the Plan and
this Award Agreement are personal; no assignment or transfer of the Optionee’s rights under and
interest in this Option may be made by the Optionee otherwise than by will, by beneficiary
designation, by the laws of descent and distribution or by a qualified domestic relations order;
and this Option is exercisable during his lifetime only by the Optionee, except as otherwise
expressly provided in this Agreement.

     After the death of the Optionee, exercise of the Option shall be permitted only by the
Optionee’s designated beneficiary or, in the absence of a designated beneficiary, the Optionee’s
executor or the personal representative of the Optionee’s estate (or by his assignee, in the event
of a permitted assignment) to the extent that the Option is exercisable on or after the date of the
Optionee’s death, as set forth in Sections 2(b) and 3(d) hereof.

     7. Stock Certificates.

     Certificates representing the Common Stock issued pursuant to the exercise of the Option will
bear all legends required by law and necessary or advisable to effectuate the provisions of the
Plan and this Option. The Company may place a “stop transfer” order against shares of the Common
Stock issued pursuant to the exercise of this Option until all restrictions and conditions set
forth in the Plan or this Agreement and in the legends referred to in this Section 7 have been
complied with.

     8. Withholding.

     No certificates representing shares of Common Stock purchased hereunder shall be delivered to
or in respect of an Optionee unless the amount of all federal, state and other governmental
withholding tax requirements imposed upon the Company with respect to the issuance of such shares
of Common Stock has been remitted to the Company or unless provisions to pay such withholding
requirements have been made to the satisfaction of the Committee. The Committee may make such
provisions as it may deem appropriate for the withholding of any taxes which it determines is
required in connection with this Option. The Optionee may pay all or any portion of the taxes
required to be withheld by the Company or paid by the Optionee in connection with the exercise of
all or any portion of this Option by delivering cash, or, pursuant to Committee — approved
procedures, by electing to have the Company withhold shares of Common Stock, or by delivering
previously owned shares of Common Stock, having

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a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must
make the foregoing election on or before the date that the amount of tax to be withheld is
determined.

     9. Shareholder Rights.

     The Optionee shall have no rights of a shareholder with respect to shares of Common Stock
subject to the Option unless and until such time as the Option has been exercised and ownership of
such shares of Common Stock has been transferred to the Optionee.

     10. Successors and Assigns.

     This Agreement shall bind and inure to the benefit of and be enforceable by the Optionee, the
Company and their respective permitted successors and assigns (including personal representatives,
heirs and legatees), except that the Optionee may not assign any rights or obligations under this
Agreement except to the extent and in the manner expressly permitted herein.

     11. No Employment Guaranteed.

     No provision of this Option Agreement shall confer any right upon the Optionee to continued
employment with the Company or any Subsidiary.

     12. Governing Law.

     This Option Agreement shall be governed by, construed and enforced in accordance with the laws
of the State of Texas.

     13. Amendment.

     This Agreement cannot be modified, altered or amended except by an agreement, in writing,
signed by both the Company and the Optionee.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	EAGLE MATERIALS INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Date:

	 	 
	 	 
	 	By:
	 	 
	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Steven R. Rowley	 	 
	 

	 	 	 	 	 	Title:
	 	President and CEO	 	 

     The Optionee hereby accepts the foregoing Option Agreement, subject to the terms and
provisions of the Plan and administrative interpretations thereof referred to above.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	OPTIONEE:	 	 
	Date:

	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Eagle Materials Inc.	 	 
	 	 	 	 	 	 	3811 Turtle Creek Blvd.	 	 
	 	 	 	 	 	 	Suite 1100	 	 
	 	 	 	 	 	 	Dallas, Texas 75219	 	 

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EXHIBIT A

VESTING MATRIX

     Option Shares will commence vesting at the percentage indicated in the Vesting Matrix when the
Operating Earnings and Earnings Per Share levels can be placed within the charted points on the
Vesting Matrix. When the percentage is determined, a number of Option Shares corresponding to the
Vesting Matrix percentage will vest as of March 31 of the fiscal year just ended. Whether a
vesting has occurred will be determined by the Compensation Committee following the end of such
fiscal year.

     In the event the Company makes an acquisition or disposition (e.g. assets, stock or other
equity interest), then the Compensation Committee may, in its discretion, make any adjustments to:
(1) the method of calculating the Operating Earnings and/or Earnings per Share; or (2) the
structure of Vesting Matrix, as it deems appropriate to fulfill the intents and purposes of the
vesting criteria, taking into consideration the effect of the acquisition or disposition on vesting
opportunities.

A-1 

 

VESTING MATRIX

(Vesting Percentage)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating Earnings ($ Millions)	 
	EPS	 	320	 	 	340	 	 	360	 	 	380	 	 	400	 	 	420	 	 	440	 	 	460	 	 	480	 	 	500	 	 	520	 	 	540	 	 	560	 	 	580	 	 	600	 
	4.0
	 	 	10.0	 	 	 	15.0	 	 	 	20.0	 	 	 	25.0	 	 	 	30.0	 	 	 	35.0	 	 	 	40.0	 	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 
	4.5
	 	 	12.5	 	 	 	17.5	 	 	 	22.5	 	 	 	27.5	 	 	 	32.5	 	 	 	37.5	 	 	 	42.5	 	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 
	5.0
	 	 	15.0	 	 	 	20.0	 	 	 	25.0	 	 	 	30.0	 	 	 	35.0	 	 	 	40.0	 	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 
	5.5
	 	 	17.5	 	 	 	22.5	 	 	 	27.5	 	 	 	32.5	 	 	 	37.5	 	 	 	42.5	 	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 	 	 	87.5	 
	6.0
	 	 	20.0	 	 	 	25.0	 	 	 	30.0	 	 	 	35.0	 	 	 	40.0	 	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 	 	 	90.0	 
	6.5
	 	 	22.5	 	 	 	27.5	 	 	 	32.5	 	 	 	37.5	 	 	 	42.5	 	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 	 	 	87.5	 	 	 	92.5	 
	7.0
	 	 	25.0	 	 	 	30.0	 	 	 	35.0	 	 	 	40.0	 	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 	 	 	90.0	 	 	 	95.0	 
	7.5
	 	 	27.5	 	 	 	32.5	 	 	 	37.5	 	 	 	42.5	 	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 	 	 	87.5	 	 	 	92.5	 	 	 	97.5	 
	8.0
	 	 	30.0	 	 	 	35.0	 	 	 	40.0	 	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 	 	 	90.0	 	 	 	95.0	 	 	 	100.0	 
	8.5
	 	 	32.5	 	 	 	37.5	 	 	 	42.5	 	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 	 	 	87.5	 	 	 	92.5	 	 	 	97.5	 	 	 	 	 
	9.0
	 	 	35.0	 	 	 	40.0	 	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 	 	 	90.0	 	 	 	95.0	 	 	 	100.0	 	 	 	 	 
	9.5
	 	 	37.5	 	 	 	42.5	 	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 	 	 	87.5	 	 	 	92.5	 	 	 	97.5	 	 	 	 	 	 	 	 	 
	10.0
	 	 	40.0	 	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 	 	 	90.0	 	 	 	95.0	 	 	 	100.0	 	 	 	 	 	 	 	 	 
	10.5
	 	 	42.5	 	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 	 	 	87.5	 	 	 	92.5	 	 	 	97.5	 	 	 	 	 	 	 	 	 	 	 	 	 
	11.0
	 	 	45.0	 	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 	 	 	90.0	 	 	 	95.0	 	 	 	100.0	 	 	 	 	 	 	 	 	 	 	 	 	 
	11.5
	 	 	47.5	 	 	 	52.5	 	 	 	57.5	 	 	 	62.5	 	 	 	67.5	 	 	 	72.5	 	 	 	77.5	 	 	 	82.5	 	 	 	87.5	 	 	 	92.5	 	 	 	97.5	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	12.0
	 	 	50.0	 	 	 	55.0	 	 	 	60.0	 	 	 	65.0	 	 	 	70.0	 	 	 	75.0	 	 	 	80.0	 	 	 	85.0	 	 	 	90.0	 	 	 	95.0	 	 	 	100.0	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

NOTE:

The Vesting Percentage relates to the Company’s Operating Earnings and Earnings Per Share in
any fiscal year during the term of the option beginning with Fiscal Year 2008.

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EXHIBIT B

CHANGE IN CONTROL

     For the purpose of this Agreement, a “Change of Control” shall mean the occurrence of any of
the following events:

     (a) The acquisition by any Person of beneficial ownership of securities of the Company
(including any such acquisition of beneficial ownership deemed to have occurred pursuant to Rule
13d-5 under the Exchange Act) if, immediately thereafter, such Person is the beneficial owner of
(i) 50% or more of the total number of outstanding shares of any single class of Company Common
Stock or (ii) 40% or more of the total number of outstanding shares of all classes of Company
Common Stock, unless such acquisition is made (a) directly from the Company in a transaction
approved by a majority of the members of the Incumbent Board or (b) by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation controlled by the
Company;

     (b) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (or who is otherwise designated as a member of the
Incumbent Board by such a vote) shall be considered as though such individual were a member of the
Incumbent Board, except that any such individual shall not be considered a member of the Incumbent
Board if his or her initial assumption of office occurs as a result of either an actual or
threatened election contest (as such term is used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board;

     (c) The consummation of a Business Combination, unless, immediately following such Business
Combination, (i) more than 50% of both the total number of then outstanding shares of common stock
of the parent corporation resulting from such Business Combination and the combined voting power of
the then outstanding voting securities of such parent corporation entitled to vote generally in the
election of directors will be (or is) then beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners, respectively, of the outstanding
shares of Company Common Stock immediately prior to such Business Combination in substantially the
same proportions as their ownership immediately prior to such Business Combination of the
outstanding shares of Company Common Stock, (ii) no Person (other than any employee benefit plan
(or related trust) of the Company or any corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 40% or more of the total number of then outstanding
shares of common stock of the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a majority of the members of the board of
directors of the parent corporation resulting from such Business Combination were members of the
Incumbent Board immediately prior to the consummation of such Business Combination; or

     (d) Approval by the Board and the shareholders of the Company of (i) a complete liquidation or
dissolution of the Company or (ii) a Major Asset Disposition (or, if there is no such approval by
shareholders, consummation of such Major Asset Disposition) unless,

B-1 

 

     (e) immediately following such Major Asset Disposition, (A) Persons that were beneficial
owners of the outstanding shares of Company Common Stock immediately prior to such Major Asset
Disposition beneficially own, directly or indirectly, more than 50% of the total number of then
outstanding shares of common stock and the combined voting power of the then outstanding shares of
voting stock of the Company (if it continues to exist) and of the Acquiring Entity in substantially
the same proportions as their ownership immediately prior to such Major Asset Disposition of the
outstanding shares of Company Common Stock; (B) no Person (other than any employee benefit plan (or
related trust) of the Company or such entity) beneficially owns, directly or indirectly, 40% or
more of the then outstanding shares of common stock or the combined voting power of the then
outstanding voting securities of the Company (if it continues to exist) and of the Acquiring Entity
entitled to vote generally in the election of directors and (C) at least a majority of the members
of the Board of the Company (if it continues to exist) and of the Acquiring Entity were members of
the Incumbent Board at the time of the execution of the initial agreement or action of the Board
providing for such Major Asset Disposition.

     For purposes of the foregoing,

	 	(i)	 	the term “Person” means an individual, entity or group;
	 
	 	(ii)	 	the term “group” is used as it is defined for purposes
of Section 13(d)(3) of the Exchange Act;
	 
	 	(iii)	 	the terms “beneficial owner”, “beneficial ownership”
and “beneficially own” are used as defined for purposes of Rule 13d-3
under the Exchange Act;
	 
	 	(iv)	 	the term “Business Combination” means (x) a merger,
consolidation or share exchange involving the Company or its stock or
(y) an acquisition by the Company, directly or through one or more
subsidiaries, of another entity or its stock or assets;
	 
	 	(v)	 	the term “Company Common Stock” shall mean the Common
Stock, par value $.01 per share, of the Company;
	 
	 	(vi)	 	the term “Exchange Act” means the Securities Exchange
Act of 1934, as amended.
	 
	 	(vii)	 	the phrase “parent corporation resulting from a
Business Combination” means the Company if its stock is not acquired or
converted in the Business Combination and otherwise means the entity
which as a result of such Business Combination owns the Company or all
or substantially all of the Company’s assets either directly or through
one or more subsidiaries;
	 
	 	(viii)	 	the term “Major Asset Disposition” means the sale or other disposition
in one transaction or a series of related transactions of 50% or more of
the assets of the Company and its subsidiaries on a consolidated basis;
and any specified percentage or portion of the assets of the Company
shall be based on fair market value, as determined by a majority of the
members of the Incumbent Board;

B-2 

 

	 	(ix)	 	the term “Acquiring Entity” means the entity that acquires the
largest portion of the assets sold or otherwise disposed of in a Major
Asset Disposition (or the entity, if any, that owns a majority of the
outstanding voting stock of such acquiring entity entitled to vote
generally in the election of directors or members of a comparable
governing body); and
	 
	 	(x)	 	the phrase “substantially the same proportions,” when
used with reference to ownership interests in the parent corporation
resulting from a Business Combination or in an Acquiring Entity, means
substantially in proportion to the number of shares of Company Common
Stock beneficially owned by the applicable Persons immediately prior to
the Business Combination or Major Asset Disposition, but is not to be
construed in such a manner as to require that the same ratio or number
of shares of such parent corporation or Acquiring Entity be issued, paid
or delivered in exchange for or in respect of the shares of each class
of Company Common Stock.

B-3exv10w1

 

EXHIBIT 10.1

SEPARATION AGREEMENT AND RELEASE OF CLAIMS 

This Separation Agreement and General Release of Claims (“Agreement”) is made and entered into
between Residential Funding Company, LLC (“RFC” or “Company”) and Bruce Paradis (“Paradis” or
“you”). This Agreement represents our mutual understanding and agreement concerning your at-will
employment with RFC, which will terminate effective June 1, 2007 (“Separation Date”).

IT IS HEREBY AGREED, by and between Paradis and RFC as follows:

     1. Release Consideration. If you sign this Agreement on or before July 1, 2007 and do
not revoke pursuant to Section 17 of this Agreement, RFC will provide you with the following
consideration as set forth in Sections 1(a), 1(b), 1(c) and 1 (d).

a. The sum of $511,271.00 less all applicable federal, state, local, and benefit
withholdings, payable to you within 10 business days following the 15-Day Revocation Period
detailed in Section 17 herein. RFC will issue you an IRS Form W-2 for this sum. This
consideration represents a full and final compromise of any and all of your claims for
compensation and/or damages of any kind as well as any and all claims for attorney’s fees
and costs, and is not something to which you would be entitled in the event you do not sign
this Agreement.

b. The sum of $2,019,750.00 less all applicable, federal, state, local and benefit
withholdings, payable to you on or before February 29, 2008, but only if you are in
compliance with Section 5 (a) through (d) below on that date. RFC will issue you an IRS Form
W-2 for this sum.

c. RFC will reimburse you for six months of office rental expenses in an aggregate amount
not to exceed $22,455.00, to be used within a twelve (12) month period. This reimbursement
shall only be for the actual cost of the office space itself, no additional business
expenses. The reimbursement shall begin effective on the later of (i) June 1, 2007 or (ii)
the commencement of Paradis’ lease, which will occur no later than December 1, 2007. RFC
will issue you an IRS Form 1099 for this amount.

d. You will be provided with full-time administrative support by Marybeth Sayre beginning on
June 1, 2007 and ending on September 28, 2007. Ms. Sayre will remain on the payroll of RFC
during this time period.

     2. Release and Waiver of Claims by You. Except as described in Sections 2.3 and 2.4
below, you WAIVE AND RELEASE any and all claims, whether or not now known to you, against RFC and
its parent companies, current and former officers, directors, members, investors, employees,
attorneys, agents, predecessors, successors, affiliates, subsidiaries, assigns and legal
representatives (together, the “Releasees”), arising from or relating to any and all acts, events
and omissions occurring prior to the date you sign this Agreement.

 

 

     2.1. Included Claims. The claims being waived and released include, without
limitation,

a. any and all claims arising from or relating to your recruitment, hire, employment
and termination of employment with RFC;

b. any and all claims of wrongful discharge, emotional distress, defamation,
misrepresentation, fraud, detrimental reliance, breach of contractual obligations,
promissory estoppel, negligence, assault and battery, violation of public policy;

c. any and all claims of unlawful discrimination, harassment and retaliation under
applicable federal, state and local laws and regulations;

d. any and all claims of violation of any federal, state and local law relating to
recruitment, hiring, terms and conditions of employment, and termination of
employment; and

e. any and all claims for monetary damages and any other form of personal relief.

The claims being waived and released also include claims under the federal Age Discrimination in
Employment Act, as amended (“ADEA”).

     2.2 Unknown Claims. In waiving and releasing any and all claims against the Company
Releasees, whether or not now known to you, you understand that this means that, if you later
discover facts different, from or in addition to those facts currently known by you, or believed by
you to be true, the waivers and releases of this Agreement will remain effective in all respects —
‘despite such different or additional facts and your later discovery of such facts, even if yow
would not have agreed to this Agreement if you had prior knowledge of such facts.

     2.3. Exceptions. The only claims that are not being waived and released by you under
this Section 2 are claims you may have for:

a. unemployment, state disability and/or paid family leave insurance benefits
pursuant to the terms of applicable state law;

b. continuation of existing participation in Company-sponsored group health benefit
plans, at your full expense, under the federal law known as “COBRA” and/or under an
applicable state counterpart law;

c. any benefit entitlements that are vested as of the Separation Date pursuant to
the terms of a Company-sponsored benefit plan governed by the federal law known as
“ERISA;”

d. violation of any federal, state or local statutory and/or public policy right or
entitlement that, by applicable law, is not waivable; and

 

 

e. any wrongful act or omission occurring after the date you sign this Agreement.

     2.4. Government Agency Claims Exception. Nothing in this Section 2, or elsewhere in
this Agreement, prevents or prohibits you from filing a claim with a government agency, such as the
U.S. Equal Employment Opportunity Commission, that is responsible for enforcing a law on behalf of
the government.

     3. Release and Waiver of Claims by Company. The Company waives and releases any and all
claims, whether or not now known to it, against Paradis, arising from or relating to any and all
acts, events and omissions occurring prior to the date of this Agreement with the exception of
claims arising from Paradis’ criminal conduct, fraud, willful and wanton misconduct, breach of
fiduciary duty and/or claims against Paradis arising out of loan transactions, if any, between
Paradis and the Company, its parents, subsidiaries or affiliates.

     4. Waiver of Rights. You understand that by executing this Agreement, you are waiving
any rights that you may have with respect to any plan or agreement between you and the Company
and/or its parents in which you may have eligibility or entitlement to severance or other
compensation, including but not limited to the GMAC Senior Leadership Severance Plan, the GMAC
Long-Term Phantom Interest Plan, the GMAC LLC 2007 Annual Incentive Plan, the GMAC Mortgage Group
Phantom Stock Plan and the GMAC Management LLC Class C. Membership Interests Plan.

     5. Non-Competition and Non-Solicitation. You acknowledge and recognize the highly
competitive nature of the businesses of Residential Capital, LLC its affiliates, successors and
direct and indirect subsidiaries (collectively “ResCap”) and accordingly agree that:

a. for 6 months from the date you execute this Agreement you will not engage in any
activity which is competitive with ResCap, including without limitation becoming an
employee, investor (except for passive investments of not more than five percent
(5%) of the outstanding shares of, or any other equity holdings of a competitor of
ResCap’s that is traded on the New York Stock Exchange, Nasdaq or any other
over-the-counter securities market), officer, owner, agent, partner or director of,
consultant or contractor or other participant in, any firm, person or other entity
in any geographic area that either directly or indirectly competes with ResCap.
“Competitive” means any individual or entity engaged in the business of the
origination and/or servicing of mortgage loans, the securitization of mortgage
loans, real estate finance services, business financing services, including but not
limited to resort finance, residential finance, healthcare finance or acquisition or
development and construction finance. Notwithstanding the foregoing, nothing in
this provision is intended to prohibit you from engaging in personal investments in
real estate finance services, business financing services, including but not limited
to resort finance, residential finance, or development and construction finance..
You affirm that from June 1, 2007 until the date you execute this Agreement that you
have not engaged in the activities described in this paragraph 5(a).

 

 

b. for 6 months from the date you execute this Agreement you will not directly or
indirectly assist others in engaging in any of the activities in which you are
prohibited to engage by clause (a) above. You affirm that from June 1, 2007 until
the date you execute this Agreement that you have not engaged’ in the activities
described in this paragraph 5(b).

c. for 18 months from the date you execute this Agreement you will not directly or
indirectly induce any employee of ResCap to terminate his/her employment with ResCap
or employ or offer employment to any person who was employed by ResCap unless such
person shall have ceased to be employed by ResCap for a period of at least twelve
(12) months. You affirm that from June 1, 2007 until the date you execute this
Agreement that you have not the activities described in this paragraph 5(c).

d. for 6 months from the date you execute this Agreement you will not directly or
indirectly solicit business from any Customer of ResCap, with respect to the
origination and/or servicing of mortgage loans, the securitization of mortgage
loans, real estate finance services, business financing services, including but not
limited to resort finance, residential finance, healthcare finance or acquisition or
development and construction finance. The term “Customer” of ResCap, as used in
this paragraph, shall mean those entities and their successors or affiliates that,
within the twelve (12) month period immediately preceding your Separation Date,
purchased products or services from ResCap. You specifically agree and understand
that the scope of this restriction is reasonable and tailored to reflect the nature
of your work for ResCap. You affirm that from June 1, 2007 until the date you
execute this Agreement that you have not engaged in the activities described in this
paragraph 5(d).

e. It is expressly understood and agreed that (i) although you and ResCap consider
the restrictions contained in this Section 5 to be reasonable, if a final judicial
determination is made by a court of competent jurisdiction that the time or
geographic restrictions or any other restriction contained herein is unenforceable,
this Agreement shall not be rendered void but rather shall be deemed to be
enforceable to such maximum extent as such court may judicially determine or
indicate to be enforceable, and (ii) if any restriction contained in this Agreement
is determined to be unenforceable and such restriction cannot be amended so as to
make it enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.

f. Notwithstanding any provision of this Agreement to the contrary, upon RFC’s good
faith determination that you have breached any provision of this Section 5, RFC’s
obligations to make any payments to you under Section 1(b) of this Agreement shall
abate if you are unable to cure such breach, within the reasonable discretion of the
Company, within ten days after written notice to you detailing which sub-section(s)
you breached and the factual basis for the claim of breach. RFC shall send written
notice of breach to you detailing the factual basis for the claim of breach. Such
notice shall be sent to: Bruce Paradis 12530 Beach

 

 

Circle, Eden Prairie, MN 55344. Should you fail to cure the breach within 10 days
after receiving the written notice, RFC’s obligations to make any payments to you
under Section 1(b) of this Agreement shall continue to be abated until the
respective claims of the parties related to the breach have been adjudicated.

g. After payment of the consideration set forth in Section 1(b) has been made, you
agree that upon an arbitrator’s determination under subsection h below, that you
have breached any provision of this Section 5, it will cause irreparable harm to RFC
and you will become immediately liable to RFC for $200,000 if you are unable to cure
such breach, within the sole discretion of the Company, within ten days after
written notice to you detailing which sub-section(s) you breached and the factual
basis for the claim of breach. RFC shall send written notice of breach to you
detailing the factual basis for the claim of breach. Such notice shall be sent to:
Bruce Paradis 12530 Beach Circle, Eden Prairie, MN 55344.

h. Any controversy or claim arising out of or relating to Section 5, or breach
thereof shall be submitted to arbitration in Minneapolis, Minnesota in accordance
with the Rules of the American Arbitration Association relating to employment
disputes. The award rendered in any arbitration proceeding held under this
Paragraph shall be final and binding, and judgment upon the award may be entered in
any court having jurisdiction thereof.

     6. Cooperation. You agree that you will cooperate with reasonable requests by RFC,
its parents, subsidiaries or affiliates for assistance in the transition of your duties as well as
the preparation and defense of claims or litigation matters involving the Company, its parents,
subsidiaries or affiliates at times that are mutually convenient. Such cooperation shall include,
but is not limited to, being available for interview by Company representatives or its attorneys;
attending administrative or judicial hearings; attending depositions, meetings, strategy sessions
and trial; and assisting in responding to correspondence from third parties and discovery requests.
RFC agrees to reimburse your reasonable out-of-pocket expenses, excluding attorney’s fees,
incurred in providing such cooperation and, to the extent that your involvement takes more than
eight hours in the aggregate, RFC will compensate you at an hourly rate of $300. All other
requests for cooperation by the Company not involving the preparation and defense of claims or
litigation matters as specifically set forth herein shall be limited to 12 months from the date you
execute this Agreement. All requests for your cooperation shall not exceed more than 20 hours per
month. This time limitation is exclusive of any activities you are required to participate in by
subpoena or court order.

     7. Confidential Information. You agree and acknowledge that during the course of your
employment with RFC that you had access and were privy to information, documents and/or materials
relating to RFC, its parents, subsidiaries and affiliates that are of a confidential and/or
proprietary nature or which constitute trade secrets and/or privileged information, the disclosure
of which will cause irreparable harm to RFC, its parents, subsidiaries and affiliates. As part of
this Agreement, you agree to return such information which is in your possession or which has been
given to others, and that you will not discuss or disclose to any person or entity any trade
secret, confidential, proprietary and/or privileged information without the express permission of
RFC.

 

 

     8. Confidentiality and Non-Disparagement. You agree that you will not communicate or
disclose the terms of this Agreement, or the circumstances leading up to this Agreement to any
persons other than your spouse, attorney, accountant and/or tax consultant, or as otherwise
required by law. It will be a material breach of this Agreement to discuss this Agreement with any
employee or former employee of RFC, its parents, subsidiaries and affiliates. You agree that you
will not publicly or privately disparage any of the products, services or actions of ResCap or
GMAC, LLC, their employees, or any related entity, or make detrimental, harmful or injurious
remarks regarding ResCap or GMAC, LLC their employees, or any related entity. Nothing in this
Section 8, or elsewhere in this Agreement, is intended to prevent or prohibit you from (i)
providing information regarding your former employment relationship. with RFC, as may be required
by law or legal process; or (ii) cooperating, participating or assisting in any government entity.
investigation or proceeding.

     9. You agree that if an arbitrator (as provided below) has determined that you have breached
the terms of Sections 7 or 8, it will cause irreparable harm to RFC and you will become immediately
liable to RFC for $200,000.00 if you are unable to cure such breach, within the sole discretion of
the Company, within ten days after written notice to you detailing which sub-section(s) you
breached and the factual basis for the claim of breach. RFC shall send written notice of breach to
you detailing the factual basis for the claim of breach. Such notice shall be sent to: Bruce
Paradis 12530 Beach Circle, Eden Prairie, MN 55344. Any controversy or claim arising out of or
relating to Section 9 shall be submitted to arbitration in Minneapolis, Minnesota in accordance
with the Rules of the American Arbitration Association relating to employment disputes. The award
rendered in any arbitration proceeding held under this Paragraph shall be final and binding, and
judgment upon the award may be entered in any court having jurisdiction thereof.

     10. Confidentiality and Non-Disparagement. Company agrees that it will not
communicate or disclose the terms of this Agreement, or the circumstances leading up to this
Agreement to any entities or persons other than senior management of the Company, its attorneys,
accountants, tax consultants, and/or Company personnel based on business necessity or as otherwise
required by law. Nothing in this Section 10, or elsewhere in this Agreement, is intended to
prevent or prohibit Company from (i) providing information which may be required by law or legal
process; or (ii) cooperating, participating or assisting in any government entity investigation or
proceeding.

     11. Construction of Agreement. Should any of the provisions or terms of this Agreement
require judicial interpretation, it is agreed that the Court interpreting or construing this
Agreement shall not apply a presumption that such provision(s) or term(s) shall be more strictly
construed against one party by reason of the rule of construction that a document is to be
construed more strictly against the party who prepared it, it being agreed that all parties and
their counsel have participated in the review of this Agreement.

     12. Entire Agreement. The undersigned further agree, declare and represent that no
promise, inducement, representation or agreement not herein expressed has been made to any party or
caused them to enter this Agreement. The Agreement contains the entire agreement between the
parties and the terms of the Agreement are contractual and not a mere recital. This is a fully
integrated agreement. It may not be altered or modified by oral agreement or

 

 

representation or otherwise except by a writing of subsequent date hereto signed by all
parties in interest.

     13. Severability. Other than for Sections 1, 2, 2.1 2.4, 4 and 5 herein, the
paragraphs of this Agreement are severable. Finding that any particular paragraph of this Agreement
is invalid and/or unenforceable shall not affect the validity or enforceability of the remaining
provisions of the Agreement.

     14. Facsimile Signatures. This Agreement may be executed in any number of
counterparts, and with facsimile signatures, with the same effect as if all of the parties hereto
had signed the same document. All counterparts shall be construed together and shall constitute one
agreement. Absent an original signature, it is hereby understood and agreed that a facsimile
signature shall be binding upon the parties and otherwise admissible under the Best Evidence Rule.

     15. Governing Law. This Agreement is made and entered into in the State of Minnesota
and shall in all respects be interpreted, enforced and governed under the laws of Minnesota.

     16. Acknowledgement.

               a. You have read the terms of this Agreement and understand its terms and effects, including
the fact that you have agreed to RELEASE AND FOREVER DISCHARGE RELEASEES from any claims arising
out of your employment relationship with RFC, the terms and conditions of that employment
relationship, and the termination of that employment relationship;

               b. You have signed this Agreement voluntarily and knowingly in exchange for the consideration
provided to you, which you acknowledge is adequate and satisfactory;

               c. You have been advised by RFC through this document to consult with an attorney concerning
this Agreement prior to signing it;

               d. RFC provided you with a period of at least twenty-one (21) days in which to consider this
Agreement, and decide whether or not to sign it, and you have signed on the date indicated below
after concluding that it is satisfactory to you;

               e. Neither RFC, nor any of its agents, representatives, employees, or attorneys, has made any
representations to you concerning the terms or effects of this Agreement other than those contained
herein.

     17. Right to Revoke. You also understand you have the right to revoke this Agreement
insofar as it relates to claims or potential claims under the Minnesota Human Rights Act and/or the
Age Discrimination in Employment Act. In order to revoke this Agreement, you must provide written
notice, delivered in person or sent by certified mail, to the following:

 

 

Anne M. Janiczek

Associate General Counsel

GMAC Mortgage, LLC

100 Witmer Road, P. O. Box 963,

Horsham, PA 19044-0963

To be effective, any revocation relating to the Minnesota Human Rights Act must be delivered within
fifteen (15) calendar days following your execution of this agreement, and any revocation relating
to the Age Discrimination in Employment Act must be delivered within seven calendar (7) days (the
“Revocation Periods”). Because of these Revocation Periods, this Agreement will not become
effective or enforceable until the sixteenth calendar day after you sign it, provided that you have
delivered your signed Agreement to the Company, and you did not revoke the Agreement as set forth
above.

     IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have executed the
foregoing Separation Agreement and Release of Claims this 25 day of July, 2007.

	 	 	 
	WITNESS: /s/ Mary Beth Sayre

	 	/s/ Bruce Paradis
	 

	 	 
	 

	 	Bruce Paradis
	 
	 	 
	 

	 	RESIDENTIAL FUNDING COMPANY, LLC
	 
	 	 
	 

	 	By: /s/ James G. Jones
	 

	 	 
	 

	 	Title: President

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