Document:

exv10w2

 

Exhibit 10.2

NEENAH ENTERPRISES, INC.

MANAGEMENT EQUITY INCENTIVE PLAN

(An amendment and restatement of the

Neenah Foundry Company 2003 Management Equity Incentive Plan)

1. Introduction.

     (a) Background. The Neenah Foundry Company 2003 Management Equity Incentive Plan (the
“Plan”) was first established by Neenah Foundry Company as of the Effective Date to promote the
long-term growth and profitability of Neenah Foundry Company and its subsidiaries by enabling
Neenah Foundry Company to attract, retain and reward the best available employees and directors by
providing such individuals with incentives to maximize stockholder value and otherwise contribute
to the success of Neenah Foundry Company.

     (b) Amendment of Plan. ACP Holding Company (“ACP”), the indirect parent corporation
of Neenah Foundry Company, is now adopting and assuming the Plan in connection with its
recapitalization and name change to Neenah Enterprises, Inc. (“NEI”). The Plan is also being
amended to permit the grant of stock appreciation rights and restricted stock units, in addition to
incentive stock options, non-qualified stock options and restricted stock, and to make certain
other changes, including renaming the Plan the “Neenah Enterprises, Inc. Management Equity
Incentive Plan.” The following provisions constitute an amendment and restatement of the Plan. All
of these changes are effective upon the approval of the amended Plan by the holders of the then
outstanding securities of ACP entitled to vote generally in the election of directors.

2. Definitions.

     For purposes of this Plan, except when the context clearly indicates otherwise, the following
terms shall have the meanings set forth below.

     (a) “ACP” means ACP Holding Company, a Delaware corporation. Following the
recapitalization of ACP, ACP Holding Company will be renamed Neenah Enterprises, Inc., and is
sometimes referred to as “NEI.”

     (b) “Award” means an Incentive Stock Option, Non-Qualified Stock Option, Stock
Appreciation Right, Restricted Stock Award or Restricted Stock Unit, as appropriate.

     (c) “Bankruptcy Code” means the Bankruptcy Reform Act of 1978, as codified in Title 11
of the United States Code, 11 U.S.C. Section 101, et seq., as amended from time to time.

     (d) “Board of Directors” and “Board” mean the board of directors of NEI.

     (e) “Code” means the Internal Revenue Code of 1986, as amended.

     (f) “Committee” means the Committee described in Section 3(a) hereof.

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     (g) “Common Stock” means ACP’s Common Stock, par value $0.01 per share, as adjusted
for any stock split, stock dividend, share combination, share exchange, recapitalization, merger,
consolidation or other reorganization. Following the recapitalization of ACP, “Common Stock” means
NEI’s Common Stock.

     (h) “Company Group” means NEI and its Subsidiaries.

     (i) “Effective Date” means the effective date of the Plan of Reorganization.

     (j) “Employment Agreement” means the written agreement between any Plan Participant
and NEI or any of its Subsidiaries pursuant to which such Plan Participant becomes employed by any
member of the Company Group.

     (k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (l) “Fair Market Value” of a share of Common Stock means, as of the date in question,
and except as otherwise provided in any Grant Agreement entered into pursuant to agreements in
effect as of the effective date of the Plan of Reorganization, the officially-quoted closing price
of the stock on the principal securities exchange on which the Common Stock is then listed for
trading for the applicable trading day or, if the Common Stock is not then so listed, the Fair
Market Value shall be the fair value of the Common Stock determined in good faith by the Board and,
in the case of an Incentive Stock Option, in accordance with Section 422 of the Code; provided,
that when shares received upon exercise of an Option are immediately sold in the open market, the
net sale price received may be used to determine the Fair Market Value of any shares used to pay
the exercise price or applicable withholding taxes and to compute the withholding taxes.

     (m) “Family Member” has the meaning given to such term in General Instructions
A.1(a)(5) to Form S-8 under the Securities Act of 1933, as amended, and any successor thereto.

     (n) “Grant Agreement” means, in the case of each Initial Plan Participant, such
person’s Employment Agreement, and in each other case, the written agreement containing the terms
and conditions of an Award as are determined by the Committee, in its sole discretion, consistent
with the Plan.

     (o) “Grant Date” means the date on which an Award is deemed granted, which shall be
the date on which the Committee authorizes the Award or such later date as the Committee shall
determine in its sole discretion.

     (p) “Incentive Stock Option” means an option conforming to the requirements of Section
422 of the Code and any successor thereto.

     (q) “Initial Plan Participants” means each of William Barrett, Gary LaChey, Joseph
DeRita, Frank Headington, Timothy Koller, William Martin, Joseph Varkoly, Steve Shaffer, and John
Andrews.

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     (r) “NEI” means Neenah Enterprises, Inc. (formerly known as ACP Holding Company), a
Delaware corporation. All references in the Plan to NEI shall include its predecessor, ACP, as
appropriate.

     (s) “Non-Employee Director” has the meaning given to such term in Rule 16b-3 under the
Exchange Act and any successor thereto.

     (t) “Non-Qualified Stock Option” means any stock option other than an Incentive Stock
Option.

     (u) “Option” means an Incentive Stock Option or Non-Qualified Stock Option, as
appropriate.

     (v) “Performance Goal” means a performance goal established by the Committee prior to
the grant of an Award that is based on the attainment of goals relating to one or more of the
following business criteria measured on an absolute basis or in terms of growth or reduction: net
sales; revenue; product revenue; operating income (before or after taxes); pre- or after-tax income
(before or after allocation of corporate overhead and bonus); earnings per share; net income
(pre-tax or after-tax and with adjustments as stipulated); total shareholder return; return on
assets, net assets, equity, tangible book value or capital employed; appreciation in and/or
maintenance of the price of the shares of common stock or any other publicly-traded securities of
the Company; market share; gross profits; earnings (including earnings before taxes, earnings
before interest and taxes or earnings before interest, taxes, depreciation and amortization), and
adjusted versions of those or similar measures; economic value-added models or equivalent metrics;
comparisons with various stock market indices; reductions in costs; cash flow or cash flow per
share (before or after dividends); return on capital (including return on total capital or return
on invested capital); cash flow return on investment; improvement in or attainment of expense
levels or working capital levels; operating margins, gross margins or cash margin; year-end cash;
debt reductions; stockholder equity; market share; regulatory achievements; loss ratio, expense
ratio, incremental profit contribution measurements (sales less variable costs), operational type
metrics ((including but not limited to lost time accidents, % scrap, OEE (overall equipment
efficiency), man-hours per ton, on time delivery, workers compensation claims, customer returns,
etc.)), capacity utilization metrics; and implementation, completion or attainment of measurable
objectives with respect to research, development, products or projects, production volume levels,
acquisitions and divestitures and recruiting and maintaining personnel. Such performance goals may
be based solely by reference to NEI’s performance or the performance of an affiliate, division,
business segment or business unit of the Company Group, or based upon the relative performance of
other companies or upon comparisons of any of the indicators of performance relative to other
companies. The Committee may also exclude charges related to an event or occurrence which the
Committee determines should appropriately be excluded, including (a) restructurings, discontinued
operations, extraordinary items, and other unusual or non-recurring charges, (b) an event either
not directly related to the operations of the Company Group or not within the reasonable control of
the Company Group’s management, or (c) the cumulative effects of tax or accounting changes in
accordance with generally accepted accounting principles.

     (w) “Plan” has the meaning set forth in Section 1 hereof.

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     (x) “Plan Participant” means each Initial Plan Participant and any directors, officers
and employees of, and other individuals performing services for, the Company Group who are selected
by the Board or the Committee.

     (y) “Plan of Reorganization” means the Joint Prepackaged Plan of Reorganization of
ACP, NFC Castings, Inc., Neenah Foundry Company and certain of its Subsidiaries under Chapter 11 of
the Bankruptcy Code, dated July 1, 2003, including the Plan Supplement and other supplements,
appendices and schedules to the Plan, in each case, as amended or supplemented on or before the
Effective Date.

     (z) “Restricted Stock Award” means restricted stock awarded under Section 8 hereof.

     (aa) “Restricted Stock Unit” means an Award under Section 9 hereof.

     (bb) “Shares” has the meaning set forth in Section 4 hereof.

     (cc) “Stock Appreciation Right” or “SAR” means the right to receive cash or
shares of Common Stock based upon the excess of the Fair Market Value of one share of Common Stock
on the date the SAR is exercised over the grant price (which shall be not less than the Fair Market
Value of a share of Common Stock on the Grant Date).

     (dd) “Subsidiary” means any corporation in which NEI or another entity qualifying as a
Subsidiary within this definition owns 50% or more of the total combined voting power of all
classes of stock, or any other entity (including, but not limited to, partnerships and joint
ventures) in which NEI or another entity qualifying as a Subsidiary within this definition owns 50%
or more of the combined equity thereof.

     (ee) “Transaction” has the meaning given to such term in Section 11(b) hereof.

3. Administration.

     (a) Committee. For purposes of the power to grant Awards to directors who are not
employees of the Company Group, the Committee shall consist of the entire Board. For other Plan
purposes, the Plan shall be administered by a committee designated by the Board to administer the
Plan and shall initially be the Compensation Committee of the Board. To the extent applicable, the
Committee shall be constituted to permit the Plan and Awards to comply with the provisions of the
principal securities exchange on which the Common Stock is then listed for trading, Rule 16b-3
under the Exchange Act or any successor rule, and Section 162(m) of the Code.

     (b) Committee Powers. Subject to the provisions of the Plan and the terms of any
Grant Agreement, the Committee shall be authorized to:

          (i) select persons to participate in the Plan;

          (ii) determine the form and substance of Awards made under the Plan to each Plan Participant,
and the conditions and restrictions, if any, subject to which such Awards will be made (including
the form and substance of the Grant Agreements);

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          (iii) certify that the conditions and restrictions applicable to any Award have been met;

          (iv) waive in whole or in part any limitations, restrictions or condition imposed upon any
Awards the Committee shall deem appropriate;

          (v) modify, extend or renew any Awards made under the Plan, provided that this provision shall
not provide authority to reprice any Option or SAR to a lower exercise price or grant price or
permit the exchange of any Option or SAR for another Option or SAR with a lower exercise price or
grant price;

          (vi) make any adjustments necessary or desirable in connection with Awards made under the Plan
to eligible Plan Participants located outside the United States;

          (vii) adopt, amend, or rescind rules and regulations for the administration of the Plan,
including, but not limited to, correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Grant Agreement, in the manner and to the extent it shall deem
necessary or advisable, including so that the Plan and the operation of the Plan comply with Rule
16b-3 under the Exchange Act, Sections 162(m), 409A and 422 of the Code to the extent applicable
and other applicable law and make such other determinations for carrying out the Plan as it may
deem appropriate; and

          (viii) exercise such powers and perform such acts as are deemed necessary or advisable to
promote the best interests of NEI and its Subsidiaries with respect to the Plan; provided,
that in no event shall any amendment, notification, adjustment, correction or supplement to the
Plan pursuant to the foregoing clauses (i) through (viii) adversely affect any Plan Participant
without such Plan Participant’s consent.

     (c) Delegation of Authority. The Committee shall have the right, from time to time,
to delegate to one or more officers of NEI the authority of the Committee to grant and determine
the terms and conditions of Awards granted under the Plan, subject to the requirements of Section
157(c) of the Delaware General Corporation Law (or any successor provision) and such other
limitations as the Committee shall determine. In no event shall any such delegation of authority be
permitted with respect to Awards granted to any member of the Board or to any Plan Participant who
is subject to Rule 16b-3 under the Exchange Act or is a covered employee under Section 162(m) of
the Code. The Committee shall also be permitted to delegate, to any appropriate officer or employee
of the Company Group, responsibility for performing certain ministerial functions under the Plan.
In the event that the Committee’s authority is delegated to officers or employees in accordance
with the foregoing, all provisions of the Plan relating to the Committee shall be interpreted in a
manner consistent with the foregoing by treating any such reference as a reference to such officer
or employee for such purpose. Any action undertaken in accordance with the Committee’s delegation
of authority hereunder shall have the same force and effect as if such action was undertaken
directly by the Committee and shall be deemed for all purposes of the Plan to have been taken by
the Committee.

     (d) Construction. The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with applicable federal and

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state laws and rules and regulations promulgated pursuant thereto. No member of the Committee
and no officer of the Company Group shall be liable for any action taken or omitted to be taken by
such member, by any other member of the Committee or by any officer or employee of the Company
Group in connection with the performance of duties under the Plan, except for such person’s own
willful misconduct or as expressly provided by statute. The expenses of administering the Plan
shall be borne by the Company Group.

4. Shares Available for the Plan.

     (a) Available Shares. Subject to adjustments as provided in Section 4(b) below, an
aggregate of 8,000,000 shares of Common Stock (the “Shares”) may be issued pursuant to the Plan,
any of which may be issued in the form of Incentive Stock Options. No Plan Participant may receive
Awards for more than 2,000,000 Shares in any calendar year. Such Shares may be in whole or in part
authorized and unissued or held by NEI as treasury shares or Shares held by any member of the
Company Group. If any Award under the Plan expires or terminates unexercised, becomes unexercisable
or is forfeited as to any Shares, or is tendered or withheld as to any Shares in payment of the
exercise price or the taxes payable with respect to the exercise, then such unpurchased, forfeited,
tendered or withheld Shares shall thereafter be available for further Awards under the Plan. If an
SAR is exercised pursuant to Section 7, the number of available Shares shall be reduced only by the
Shares of Common Stock issued upon exercise of an SAR.

     (b) Adjustments. In the event of a reorganization, recapitalization, stock split,
reverse stock split, stock dividend, extraordinary cash dividend, combination of shares, merger,
consolidation, distribution of assets, or any other change in the corporate structure or shares of
NEI, the Committee shall make such equitable adjustments as it determines in good faith are
necessary or appropriate (i) in the number and kind of Shares or other property available for
issuance under the Plan (including, without limitation, the aggregate and individual Share limits
pursuant to Section 4(a) above), (ii) the number and kind of Shares of Common Stock, units, or
other rights subject to then outstanding Awards, (iii) the exercise and grant price for each Option
and SAR subject to then outstanding Awards, and (iv) any other terms of an Award that are affected
by the event. Any such adjustment shall be final, conclusive and binding for all purposes of the
Plan. Any such adjustment in the Shares subject to outstanding Incentive Stock Options (including
any adjustments in the exercise price) shall be made in such manner as not to constitute a
modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted
by Sections 422 and 424 of the Code.

     (c) 2007 Adjustment. In connection with the recapitalization of ACP, ACP intends to
implement a 1-for-5 reverse stock split. In the event that the 1-for-5 reverse stock split is
implemented, (i) then outstanding Awards and (ii) the aggregate and individual limits described in
Section 4(a) above shall be adjusted pursuant to Section 4(b), resulting in an aggregate limit of
1,600,000 Shares of Common Stock and a Plan Participant limit of 400,000 Shares of Common Stock for
any calendar year.

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5. Participation.

     (a) Eligibility. Participation in the Plan shall be limited to those directors
(including Non-Employee Directors), officers and employees of, and other individuals performing
services for, or to whom an offer of employment has been extended by, NEI and the Subsidiaries
selected by the Committee (including Plan Participants located outside the United States). Nothing
in the Plan or in any Grant Agreement shall confer any right on a Plan Participant to continue in
the employ as a director, officer or employee of or in the performance of services for the Company
Group or shall interfere in any way with the right to terminate the employment or performance of
services or to reduce the compensation or responsibilities of a Plan Participant at any time. By
accepting any award under the Plan, each Plan Participant and each person claiming under or through
him or her shall be conclusively deemed to have indicated his or her acceptance and ratification
of, and consent to, any action taken under the Plan by NEI, the Board or the Committee.

     (b) Grants. Awards may be granted to such persons and for such number of Shares as
the Committee shall determine, subject to the limitations contained herein (such individuals to
whom Grants are made being sometimes herein called “optionees” or “grantees,” as the case may be).
Determinations made by the Committee under the Plan need not be uniform and may be made selectively
among eligible individuals under the Plan, whether or not such individuals are similarly situated.
An Award of any type made hereunder in any one year to an eligible Plan Participant shall neither
guarantee nor preclude a further Award of that or any other type to such Plan Participant in that
year or subsequent years.

6. Incentive and Non-Qualified Options.

     (a) Type of Option. The Committee may from time to time grant to eligible Plan
Participants Incentive Stock Options, Non-Qualified Stock Options, or any combination thereof;
provided, that the Committee may grant Incentive Stock Options only to eligible employees of NEI or
its Subsidiaries (as defined for this purpose in Section 424(f) of the Code or any successor
thereto). The Options granted under the Plan shall be evidenced by a Grant Agreement and shall take
such form as the Committee shall determine, subject to the terms and conditions of the Plan.

     (b) Designation of Option. At the time each Option is granted, the Committee shall
designate the Option as an Incentive Stock Option or Non-Qualified Stock Option. Any Option
designated as an Incentive Stock Option shall comply with the requirements of Section 422 of the
Code or any successor thereto. If an Incentive Stock Option granted under the Plan does not qualify
as such for any reason, then to the extent of such non-qualification, the stock option represented
thereby shall be a Non-Qualified Stock Option duly granted under the Plan, provided that such stock
option otherwise meets the Plan’s requirements for Non-Qualified Stock Options.

     (c) Price. The price per Share deliverable upon the exercise of each Option (the
“exercise price”) shall be established by the Committee, provided that the exercise price may not
be less than 100% of the Fair Market Value of a share of Common Stock as of the Grant Date, and in
the case of the grant of any Incentive Stock Option to an employee who, at the time of the grant,
owns more than 10% of the total combined voting power of all classes of stock of NEI or

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any of the Subsidiaries, the exercise price may not be less than 110% of the Fair Market Value
of a share of Common Stock as of the Grant Date, in each case unless otherwise permitted by Section
422 of the Code or any successor thereto.

     (d) Payment. Options may be exercised, in whole or in part, upon payment of the
exercise price of the Shares to be acquired. Unless otherwise determined by the Committee, payment
shall be made (i) in cash (including check, bank draft, money order or wire transfer of immediately
available funds), (ii) by delivery (either actually or by attestation) of outstanding shares of
Common Stock with a Fair Market Value on the date of exercise equal to the aggregate exercise price
payable with respect to the Options’ exercise, (iii) by shares of Common Stock that would otherwise
be issued upon exercise of the Option, (iv) by means of any cashless exercise procedures approved
by the Committee and as may be in effect on the date of exercise, or (v) by any combination of the
foregoing. In the event a grantee is permitted to, and elects to pay the exercise price payable
with respect to an Option pursuant to clause (ii) above, (A) only a whole number of share(s) of
Common Stock (and not fractional shares of Common Stock) may be tendered in payment, and (B) Common
Stock must be delivered to NEI. Delivery for this purpose may, at the election of the grantee, be
made either by (A) physical delivery of the certificate(s) for all such shares of Common Stock
tendered in payment of the exercise price, accompanied by duly executed instruments of transfer in
a form acceptable to NEI, (B) direction to the grantee’s broker to transfer, by book entry, such
shares of Common Stock from a brokerage account of the grantee to a brokerage account specified by
NEI or (C) attestation. When payment of the exercise price is made by delivery of Common Stock, the
difference, if any, between the aggregate exercise price payable with respect to the Option being
exercised and the Fair Market Value of the shares of Common Stock tendered in payment (plus any
applicable taxes) shall be paid in cash. No grantee may tender shares of Common Stock having a Fair
Market Value exceeding the aggregate exercise price payable with respect to the Option being
exercised (plus any applicable taxes).

     (e) Exercisability. The Committee shall determine the date on which each Option shall
become exercisable and may provide that an Option shall become exercisable in installments. The
Shares constituting each installment may be purchased in whole or in part at any time after such
installment becomes exercisable, subject to such minimum exercise requirements as may be designated
by the Committee. Prior to the exercise of an Option and delivery of the Shares represented
thereby, the optionee shall have no rights as a stockholder with respect to any Shares covered by
such outstanding Option (including any dividend or voting rights).

     (f) Exercise Period. No Option shall be exercisable in whole or in part more than ten
years from the date it is granted, and no Incentive Stock Option granted to an employee who at the
time of the grant owns more than 10% of the total combined voting power of all classes of stock of
NEI or any of the Subsidiaries shall be exercisable more than five years from the date it is
granted. All rights to purchase Shares pursuant to an Option shall, unless sooner terminated,
expire on the date designated by the Committee.

     (g) Incentive Stock Option Requirements. An Award of an Incentive Stock Option may
provide that such Option may be exercised not later than 3 months following termination of
employment of the Plan Participant with the Company Group, or not later than one year

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following a permanent and total disability within the meaning of Section 22(e)(3) of the Code,
as and to the extent determined by the Committee to comply with the requirements of Section 422 of
the Code. If required by Section 422(d) of the Code, the aggregate Fair Market Value (determined as
of the Grant Date) of Shares with respect to which Incentive Stock Options are exercisable for the
first time during any calendar year under all equity incentive plans of NEI and the Subsidiaries
(as defined in Section 422 of the Code or any successor thereto) may not exceed $100,000.

7. Stock Appreciation Rights.

     (a) Granting of SARs. The Committee may, from time to time and in its discretion,
grant SARs to eligible Plan Participants. SARs may be granted with respect to Options granted
concurrently (tandem SARs) or on a stand alone basis (stand alone SARs).

     (b) SAR Terms. Each SAR grant shall be evidenced by a Grant Agreement that shall
specify the number of SARs granted, the grant price (which shall be not less than the Fair Market
Value of a share of Common Stock on the Grant Date), the term of the SAR (which shall not exceed
ten years from the date of grant), and such other provisions as the Committee shall determine.

     (c) Method of Exercise. An SAR that has become exercisable may be exercised as
provided in the Grant Agreement.

     (d) Payment of Stock Appreciation Rights. Upon exercise the Plan Participant shall be
entitled to receive an amount determined by multiplying: (i) the excess of the Fair Market Value of
a share of Common Stock on the date of exercise over the grant price of such Stock Appreciation
Right, by (ii) the number of shares as to which such Stock Appreciation Right is exercised. Subject
to the requirements of Section 409A of the Code, payment of the amount determined under the
foregoing may be made, as approved by the Committee and set forth in the Grant Agreement, in shares
of Common Stock valued at their Fair Market Value on the date of exercise, in cash, or in a
combination of shares of Common Stock and cash, subject to applicable tax withholding requirements.

8. Restricted Stock.

     (a) Granting of Restricted Stock. The Committee may at any time and from time to time
grant Shares of Restricted Stock under the Plan to such Plan Participants and in such amounts as it
determines. Each Award of Restricted Stock shall be evidenced by a Grant Agreement which shall
specify the applicable restrictions on such Shares and such other terms and conditions as the
Committee shall determine consistent with this Plan, including the time or times within which such
Grants may be subject to forfeiture and any other terms and conditions of the Grants. The
Committee may condition the grant of Restricted Stock upon the attainment of Performance Goals so
that the Award qualifies as “performance-based compensation” within the meaning of Section 162(m)
of the Code. The Committee may also condition the grant of Restricted Stock upon such other
conditions, restrictions and contingencies as the Committee may determine. The provisions of
Restricted Stock Grant Agreements need not be the same with respect to each recipient.

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     (b) Grant Terms. Except as otherwise provided in any Grant Agreement, the Plan
Participant will be required to pay NEI the aggregate par value of any Shares of Restricted Stock
(or such larger amount as the Board may determine to constitute capital under Section 154 of the
Delaware General Corporation Law, as amended, or any successor thereto) within ten days of the date
of grant, unless such Shares of restricted stock are treasury shares. Except as otherwise provided
in any Grant Agreement, certificates representing Shares of restricted stock granted under the Plan
will be held in escrow by NEI on the Plan Participant’s behalf during any period of restriction
thereon and, following the end of such period of restriction, during any period during which such
Shares may not be sold pursuant to the first sentence of the next following paragraph of the Plan,
will bear an appropriate legend specifying the applicable restrictions thereon, and the Plan
Participant will be required to execute a blank stock power therefor. Each Grant Agreement may
provide that the recipient of the Award shall make an effective election under Section 83(b) of the
Code within thirty (30) days receipt of such Restricted Stock. Except as otherwise provided in any
Grant Agreement, during such period of restriction the Plan Participant shall have all of the
rights of a holder of Common Stock, including but not limited to the rights to receive dividends
and to vote, and any stock or other securities received as a distribution with respect to such Plan
Participant’s restricted stock shall be subject to the same restrictions as then in effect for the
restricted stock, including vesting restrictions to the extent the related shares of restricted
stock are subject to vesting.

     (c) Transfer Restrictions. Except as otherwise provided in the Grant Agreement,
during the period in which a Plan Participant is a director, officer or employee of, or performing
other services for NEI or a Subsidiary, any Shares granted pursuant to a restricted stock award may
not be sold, transferred, pledged, exchanged, assigned, hypothecated, or otherwise disposed of
until all applicable restrictions have lapsed with respect to all Shares subject to such award.
Except as otherwise provided in any Grant Agreement, at such time as a Plan Participant ceases to
be, or in the event a Plan Participant does not become, a director, officer or employee of, or
otherwise performing services for, NEI or its Subsidiaries for any reason, all Shares of restricted
stock granted to such Plan Participant on which the restrictions have not lapsed shall be
immediately forfeited to NEI.

9. Restricted Stock Units. 

     (a) Granting of Restricted Stock Units. The Committee may from time to time grant to
eligible Plan Participants Restricted Stock Units, which will entitle a grantee to receive shares
of Common Stock if predetermined conditions are satisfied. The Committee shall determine the Plan
Participants to whom Restricted Stock Units will be made, the number of shares to be awarded, the
time or times within which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards. The Committee may condition the grant of a Restricted Stock Unit upon
the attainment of Performance Goals so that the grant qualifies as “performance-based compensation”
within the meaning of Section 162(m) of the Code. The Committee may also condition the grant of a
Restricted Stock Unit upon such other conditions, restrictions and contingencies as the Committee
may determine. The provisions of Restricted Stock Units need not be the same with respect to each
recipient.

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     (b) Terms and Conditions. Restricted Stock Units shall be subject to the following terms
and conditions:

          (i) The Plan Participant shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber the Restricted Stock Units at any time.

          (ii) Except to the extent otherwise provided in the applicable Grant Agreement and (iii)
below, the portion of each Award still subject to conditions established by the Committee shall be
forfeited by the Plan Participant upon termination of a Plan Participant’s service for any reason.

          (iii) In the event of the special circumstances of a Plan Participant whose employment is
terminated by NEI or any of its Subsidiaries (other than for cause), the Committee may waive in
whole or in part any or all remaining conditions with respect to such Plan Participant’s Restricted
Stock Units.

          (iv) Unless otherwise provided in the Grant Agreement, certificates for such shares shall be
delivered to the Plan Participant if and when the applicable conditions cease to be applicable to
the Restricted Stock Units.

          (v) Each Award shall be confirmed by, and be subject to the terms of, a Grant Agreement
identifying the conditions applicable to the Award.

     (c) Rights as Shareholder. A Plan Participant receiving a Restricted Stock Unit shall
not be deemed the holder of any shares covered by the Award, or have any rights as a shareholder
with respect thereto, until such shares are issued to him/her following the lapse of the applicable
restrictions. The Committee may elect to pay or accumulate dividend equivalents in connection with
Restricted Stock Units. A Plan Participant shall have no right to receive any dividend equivalents
unless determined by the Committee.

10. Withholding Taxes.

     (a) Right to Withhold. NEI and the Subsidiaries shall have the power and the right to
deduct or withhold, or require a Plan Participant to remit to NEI or a Subsidiary, an amount
sufficient to satisfy Federal, state, and local taxes (including the Plan Participant’s FICA
obligation) required by law to be withheld with respect to any taxable event arising or as a result
of this Plan. With respect to withholding required upon the exercise of Options or SARs, upon the
lapse of restrictions on Restricted Stock or Restricted Stock Units, Plan Participants may elect,
subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in
part, by having NEI withhold shares having a Fair Market Value on the date the tax is to be
determined (which with respect to Options and SARs shall not exceed the minimum statutory total tax
which could be imposed on the transaction). In the event a Plan Participant elects to deliver or
have NEI withhold shares of Common Stock pursuant to this Section 10(a), such delivery or
withholding must be made subject to the conditions and pursuant to the procedures set forth in
Section 6(d) with respect to the delivery or withholding of Common Stock in payment of the exercise
price of Options.

11

 

     (b) Withholding Obligation. NEI and its Subsidiaries shall be entitled, if necessary
or desirable, to withhold amounts due and payable to any Plan Participant (including salary or
bonus) either pursuant to Section 10(a) or this Section 10(b), the amount of any federal, state or
local taxes of any kind required by law to be withheld with respect to any grant or delivery of
Shares. NEI may defer any such grant or delivery of Shares unless indemnified to its satisfaction
for such withholding obligation.

11. Corporate Transactions.

     (a) Change in Control. The Committee may set forth in any Grant Agreement the effect,
if any, that a “change in control” or other, similar transaction shall have on any Awards granted
hereunder.

     (b) Corporate Events. Except as otherwise provided in any Grant Agreement, in the
event of (A) a merger or consolidation of NEI or any other member of the Company Group, (B) the
sale, lease, exchange or other disposition of all or substantially all of the assets of NEI or any
other member of the Company Group or (C) the liquidation or dissolution of NEI or any other member
of the Company Group (each a “Transaction”), the Plan and any Awards granted hereunder shall
continue in effect in accordance with their respective terms, except that following a Transaction
either (i) each outstanding Option, SAR, Restricted Stock Award or Restricted Stock Unit shall be
treated as provided for in the agreement entered into in connection with the Transaction or (ii) if
not so provided in such agreement, each Plan Participant shall be entitled to receive in respect of
each Share subject to any outstanding Options, SARs, Restricted Stock Awards or Restricted Stock
Units, as the case may be, upon exercise of any Options or SARs or payment or transfer in respect
of any Restricted Stock Award or Restricted Stock Unit, the same number and kind of stock,
securities, cash, property, or other consideration that each holder of a Share was entitled to
receive in the Transaction in respect of a Share; provided, that such stock, securities, cash,
property, or other consideration shall remain subject to all of the conditions and restrictions
that were applicable to the Awards prior to such Transaction, but giving effect to the Transaction.

12. General

     (a) Transferability. No Award granted under the Plan shall be transferable by a Plan
Participant other than by will or the laws of descent and distribution or to a Plan Participant’s
Family Member by gift or a qualified domestic relations order as defined by the Code. An Option
may be exercised only by the optionee or grantee thereof; by his or her Family Member if such
person has acquired the Option by gift or qualified domestic relations order; by the executor or
administrator of the estate of any of the foregoing or any person to whom the Option is transferred
by will or the laws of descent and distribution; or by the guardian or legal representative of any
of the foregoing; provided, that Incentive Stock Options may be exercised by any Family
Member, guardian or legal representative only if permitted by the Code and any regulations
thereunder. All provisions of this Plan shall in any event continue to apply to any Option granted
under the Plan and transferred as permitted by this Section 12, and any transferee of any such
Option shall be bound by all provisions of this Plan as and to the same extent as the applicable
original grantee.

12

 

     (b) Listing, Registration and Qualification. If the Committee determines that the
listing, registration or qualification upon any securities exchange or under any law of Shares
subject to any Award is necessary or desirable as a condition of, or in connection with, the
granting of same or the issue or purchase of Shares thereunder, no such Option may be exercised in
whole or in part, and no Shares may be issued, unless such listing, registration or qualification
is effected free of any conditions not acceptable to the Committee.

     (c) Transfer of Employee. The transfer of an employee from NEI to a Subsidiary, from
a Subsidiary to NEI, or from one Subsidiary to another Subsidiary, shall not be considered a
termination of employment; nor shall it be considered a termination of employment if an employee is
placed on military or sick leave or such other leave of absence that is considered by the Committee
as continuing intact the employment relationship.

     (d) Amendment or Substitution of Awards under the Plan. The terms of any outstanding
Award, payment, grant or incentive under the Plan may be amended from time to time by the Committee
solely to provide rights under the Plan that are more favorable to any Plan Participant;
provided, that if such amendment adversely affects the rights of any Plan Participant, such
amendment shall be deemed to affect such Plan Participant only upon such Plan Participant’s written
consent and that no such amendment may reprice any Option or SAR to a lower exercise price or grant
price or permit the exchange of any Option or SAR for another Option or SAR with a lower exercise
price or grant price.

     (e) Termination Date. No termination of the Plan shall materially and adversely
affect any of the rights or obligations of any Plan Participant, without such Plan Participant’s
written consent, under any grant of Options or other incentives theretofore granted under the Plan.

     (f) Severability. Whenever possible, each provision of the Plan shall be interpreted
in such manner as to be effective and valid under applicable law, but if any provision of the Plan
is held to be prohibited by or invalid under applicable law, such provision shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating the remainder of the
Plan.

     (g) Governing Law. The Plan shall be governed by the corporate laws of the State of
Delaware, without giving effect to any choice of law provisions that might otherwise refer
construction or interpretation of the Plan to the substantive law of another jurisdiction.

     (h) Section 409A Compliance. To the extent applicable, it is intended that the Plan
and all Awards hereunder comply with the requirements of Section 409A of the Code, and the Plan and
all Grant Agreements shall be interpreted and applied by the Committee in a manner consistent with
this intent in order to avoid the imposition of any additional tax under Section 409A of the Code.
In the event that any provision of the Plan or an Grant Agreement is determined by the Committee to
not comply with the applicable requirements of Section 409A of the Code, the Committee shall have
the authority to take such actions and to make such changes to the Plan or an Grant Agreement as
the Committee deems necessary to comply with such requirements, provided that no such action shall
adversely affect any outstanding Award without the consent of the affected Plan Participant.
Notwithstanding the foregoing or anything

13

 

elsewhere in the Plan or an Grant Agreement to the contrary, if a Plan Participant is a
“specified employee” as defined in Section 409A of the Code at the time of termination of service
with respect to an Award, then solely to the extent necessary to avoid the imposition of any
additional tax under Section 409A of the Code, the commencement of any payments or benefits under
the Award shall be deferred until the date that is six months following the Plan Participant’s
termination of service (or such other period as required to comply with Section 409A).

14exv10w1

 

Exhibit 10.1

EXECUTION COPY

AMENDMENT NO. 3

Dated as of July 27, 2007

to

CREDIT AGREEMENT

Dated as of September 14, 2005

     THIS AMENDMENT NO. 3 (“Amendment”) is made as of July 27, 2007 (the “Effective
Date”) by and among Pacific Sunwear of California, Inc., a California corporation (the
“Borrower”), the financial institutions listed on the signature pages hereof and JPMorgan
Chase Bank, National Association, as Administrative Agent (the “Administrative Agent”),
under that certain Credit Agreement dated as of September 14, 2005 by and among the Borrower, the
Lenders and the Administrative Agent (as amended, supplemented or otherwise modified from time to
time, the “Credit Agreement”). Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings given to them in the Credit Agreement.

     WHEREAS, the Borrower has requested that certain modifications be made to the Credit
Agreement;

     WHEREAS, the Borrower, the Lenders party hereto and the Administrative Agent have agreed to
amend the Credit Agreement on the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions
contained herein, and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Borrower, the Lenders party hereto and the Administrative Agent hereby
agree to the following amendments to the Credit Agreement.

     1. Amendments to Credit Agreement. Effective as of the Effective Date but subject to
the satisfaction of the conditions precedent set forth in Section 2 below, the Credit
Agreement is hereby amended as follows:

     (a) Section 1.01 of the Credit Agreement is hereby amended to insert the following definition
therein in the appropriate alphabetical order:

     “Kansas IRB Financing” means that certain industrial revenue bond financing,
structured as a Sale and Leaseback Transaction, entered into on July 1, 2007 between City of
Olathe, Kansas (the “Kansas IRB Issuer”) and the Borrower, whereby the Kansas IRB
Issuer issued Industrial Revenue Bonds (PacSun Project), Series 2007 (the “Kansas
Industrial Revenue Bonds”), purchased by the Borrower for the purpose of financing the
acquisition, construction and installation of certain real property, machinery and equipment
constituting a distribution facility located in the City of Olathe, Johnson

 

 

County, Kansas, which facility was sold and deeded by the Borrower to the Kansas IRB
Issuer and leased back by the Kansas IRB Issuer to the Borrower.

     (b) Section 6.01 of the Credit Agreement is hereby amended to: (1) delete the “and” at
the end of clause (h) thereof, (2) delete the “.” appearing at the end of clause (i) thereof and
substitute “; and” in lieu thereof, and (3) insert a new clause (j) therein as follows:

     “(j) Indebtedness representing the present value of the total obligations of the
Borrower, in its capacity as lessee of the property subject to the Kansas IRB Financing, for
rental payments due and owing to the Kansas IRB Issuer in an aggregate amount not to exceed
$24,500,000 during the term of this Agreement.”

     (c) Section 6.08(a) of the Credit Agreement is hereby amended to restate clauses (2)
and (3) of the proviso appearing at the end thereof to read as follows:

     “(2) solely with respect to the fiscal quarters of the Borrower ending on or about
February 3, 2007, May 5, 2007 and August 4, 2007, the Borrower will not permit such ratio to
be less than 1.00 to 1.0 and (3) solely with respect to the fiscal quarters of the Borrower
ending on or about November 3, 2007, the Borrower will not permit such ratio to be less than
1.25 to 1.0.”

     2. Conditions of Effectiveness. The effectiveness of this Amendment is subject to the
conditions precedent that the Administrative Agent shall have received (i) counterparts of this
Amendment duly executed by the Borrower, the Required Lenders and the Administrative Agent, (ii)
counterparts of the Consent and Reaffirmation attached hereto duly executed by the Subsidiary
Guarantors and (iii) for the account of each Lender which delivers its executed signature page
hereto by such time as is requested by the Administrative Agent, an amendment fee equal to 0.025%
of such Lender’s Commitment under the Credit Agreement.

     3. Representations and Warranties of the Borrower. The Borrower hereby represents and
warrants as follows:

     (a) This Amendment and the Credit Agreement as amended hereby constitute legal, valid and
binding obligations of the Borrower and are enforceable against the Borrower in accordance with
their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law.

     (b) As of the date hereof and giving effect to the terms of this Amendment, (i) no Default
shall have occurred and be continuing and (ii) the representations and warranties of the Borrower
set forth in the Credit Agreement, as amended hereby, are true and correct in all material respects
as of the date hereof (other than such representations and warranties as are made of a specific
earlier date, in which case such representations and warranties shall be true and correct in all
material respects as of such earlier date).

2

 

     4. Reference to and Effect on the Credit Agreement.

     (a) Upon the effectiveness hereof, each reference to the Credit Agreement in the Credit
Agreement or any other Loan Document shall mean and be a reference to the Credit Agreement as
amended hereby.

     (b) Except as specifically amended above, the Credit Agreement and all other documents,
instruments and agreements executed and/or delivered in connection therewith shall remain in full
force and effect and are hereby ratified and confirmed.

     (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver
of any right, power or remedy of the Administrative Agent or the Lenders, nor constitute a waiver
of any provision of the Credit Agreement or any other documents, instruments and agreements
executed and/or delivered in connection therewith.

     5. Governing Law. This Amendment shall be construed in accordance with and governed
by the law of the State of New York.

     6. Headings. Section headings in this Amendment are included herein for convenience
of reference only and shall not constitute a part of this Amendment for any other purpose.

     7. Counterparts. This Amendment may be executed by one or more of the parties hereto
on any number of separate counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.

[Signature Pages Follow]

3

 

     IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above
written.

	 	 	 	 	 
	 	PACIFIC SUNWEAR OF CALIFORNIA, INC.,
as the Borrower

 	 
	 	By:  	/s/ SALLY FRAME KASAKS	 
	 	 	Name:  	Sally Frame Kasaks 	 
	 	 	Title:  	Chief Executive Officer and 
Chairman of the Board 	 
	 

	 	 	 	 	 
	 	 	 
	 	By:  	/s/ GERALD M. CHANEY
 	 
	 	 	Name:  	Gerald M. Chaney 	 
	 	 	Title:  	Sr. Vice President and 
Chief Financial Officer 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

	 	 	 	 	 
	 	JPMORGAN CHASE BANK,
NATIONAL ASSOCIATION,
individually as a Lender, as the Swingline Lender, 
as an Issuing Bank and as Administrative Agent

 	 
	 	By:  	/s/ JAMES A. KNIGHT 	 
	 	 	Name:  	James A. Knight 	 
	 	 	Title:  	Vice President 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

	 	 	 	 	 
	 	BANK OF AMERICA, N.A.,
individually as a Lender, as an Issuing Bank and as Syndication Agent

 	 
	 	By:  	/s/ STEPHEN J. GARVIN 	 
	 	 	Name:  	Stephen J. Garvin 	 
	 	 	Title:  	Managing Director 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

	 	 	 	 	 
	 	NATIONAL CITY BANK,
individually as a Lender and as Co-Documentation Agent

 	 
	 	By:  	/s/ JENNIFER OBERS 	 
	 	 	Name:  	Jennifer Obers 	 
	 	 	Title:  	Portfolio Manager 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

	 	 	 	 	 
	 	U.S. BANK NATIONAL ASSOCIATION,
individually as a Lender and as Co-Documentation Agent

 	 
	 	By:  	/s/ JANET JORDAN 	 
	 	 	Name:  	Janet Jordan 	 
	 	 	Title:  	Vice President 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

	 	 	 	 	 
	 	PNC BANK, NATIONAL ASSOCIATION,
individually as a Lender

 	 
	 	By:  	/s/ MARC C. VAN HORN 	 
	 	 	Name:  	Marc C. Van Horn 	 
	 	 	Title:  	Credit Officer 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

	 	 	 	 	 
	 	UNION BANK OF CALIFORNIA, N.A.,
individually as a Lender

 	 
	 	By:  	/s/ MARGARET FURBANK 	 
	 	 	Name:  	Margaret Furbank 	 
	 	 	Title:  	Vice President 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

	 	 	 	 	 
	 	WACHOVIA BANK,
NATIONAL ASSOCIATION,
individually as a Lender

 	 
	 	By:  	/s/ SUSAN T. GALLAGHER 	 
	 	 	Name:  	Susan T. Gallagher 	 
	 	 	Title:  	Vice President 	 
	 

 

 

Signature Page to Amendment No. 3 to

Credit Agreement dated as of September 14, 2005

Pacific Sunwear of California, Inc.

 

 

CONSENT AND REAFFIRMATION

     Each of the undersigned hereby acknowledges receipt of a copy of the foregoing Amendment No. 3
to the Credit Agreement (as the same may be amended, restated, supplemented or otherwise modified
from time to time, the “Credit Agreement”) by and among Pacific Sunwear of California,
Inc., a California corporation (the “Borrower”) the Lenders and JPMorgan Chase Bank,
National Association, as Administrative Agent (the “Administrative Agent”), which Amendment
No. 3 is dated as of July 27, 2007 and is by and among the Borrower, the financial institutions
listed on the signature pages thereof and the Administrative Agent (the “Amendment”).
Capitalized terms used in this Consent and Reaffirmation and not defined herein shall have the
meanings given to them in the Credit Agreement. Without in any way establishing a course of
dealing by the Administrative Agent or any Lender, each of the undersigned consents to the
Amendment and reaffirms the terms and conditions of the Subsidiary Guaranty and any other Loan
Document executed by it and acknowledges and agrees that the Subsidiary Guaranty and each and every
such Loan Document executed by the undersigned in connection with the Credit Agreement remains in
full force and effect and is hereby reaffirmed, ratified and confirmed. All references to the
Credit Agreement contained in the above-referenced documents shall be a reference to the Credit
Agreement as so modified by the Amendment and as the same may from time to time hereafter be
amended, modified or restated.

Dated July 27, 2007

[Signature Pages Follow]

 

 

     IN WITNESS WHEREOF, this Consent and Reaffirmation has been duly executed as of the day and
year above written.

	 	 	 	 	 
	 	PACIFIC SUNWEAR STORES CORP.

 	 
	 	By:  	/s/ SALLY FRAME KASAKS 	 
	 	 	Name:  	Sally Frame Kasaks 	 
	 	 	Title:  	Chief Executive Officer and 
Chairman of the Board 	 
	 
	 	 	 
	 	By:  	/s/ GERALD M. CHANEY 	 
	 	 	Name:  	Gerald M. Chaney 	 
	 	 	Title:  	Sr. Vice President and 
Chief Financial Officer 	 
	 

 

 

Signature Page to Consent and Reaffirmation

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