Document:

Exhibit 10.2

 

SPECIFIC TERMS IN THIS EXHIBIT
HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN
REQUESTED.  THE REDACTED MATERIAL

HAS BEEN SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION,

AND THE TERMS HAVE BEEN MARKED AT
THE APPROPRIATE PLACE WITH

TWO ASTERISKS (**).

 

 

GAS GATHERING AGREEMENT

 

THIS GAS GATHERING
AGREEMENT (this “Agreement”) is made and entered into as of this 1st day of May
2006 (the “Effective Date”), by and between Chesapeake Exploration Limited Partnership,
hereinafter referred to as “Producer”, and MarkWest Pinnacle L.P. hereinafter
referred to as “Gatherer”.

 

W I T N E S S E T H

 

WHEREAS, Producer and
Gatherer are parties to the following agreements, as amended, (the “Original
Agreements”) which they desire to terminate and replace with this Agreement:

(1)                            The Natural Gas Purchase Agreement dated
April 1, 2002 between Chesapeake Exploration Limited Partnership, formerly BRG
Petroleum Corporation, and MarkWest Pinnacle L.P.

(2)                            The Natural Gas Purchase Agreement dated
December 1, 2002 between Chesapeake Exploration Limited Partnership, previously
EXCO Resources, and MarkWest Pinnacle L.P.

(3)                            The Gathering Agreement dated April 1,
1993, between Chesapeake Exploration Limited Partnership, previously EXCO
Resources, and MarkWest Pinnacle L.P.

(4)                            The Gas Purchase Agreement dated January
20, 2004 between Chesapeake Exploration Limited Partnership, formerly EXCO
Resources, and MarkWest Pinnacle L.P.

(5)                            The Natural Gas Purchase Agreement dated
April 1, 2004 between Chesapeake Exploration Limited Partnership, formerly
Kaiser Francis Oil Company and MarkWest Pinnacle L.P.

(6)                            The Gas Transportation Agreement dated
April 1, 2004 between Chesapeake Exploration Limited Partnership, formerly
Kaiser Francis Oil Company and MarkWest Pinnacle L.P.

 

WHEREAS,
Gatherer owns, operates, and maintains a gas gathering system, compression
facilities and natural gas processing facilities, all such facilities in the
aggregate hereinafter referred to as the “System” which System is located in
Rusk and Nacogdoches Counties, Texas and Gatherer has constructed or shall
cause to be constructed gathering facilities to receive and gather Producer’s
Gas at the Receipt Point(s) and deliver gas to Producer or for Producer’s
account at the Delivery Point(s) under the terms and conditions herein; and

 

WHEREAS, Producer
represents that it owns or controls certain Natural Gas produced or to be
produced and saved from the wells, lands, leaseholds and other sources within
the bounded area depicted on Exhibit “A” attached hereto and made a part of
this Agreement (“Area Dedication”) which Producer has requested Gatherer to
receive and gather at the Receipt Point(s) and deliver to Producer or for
Producer’s account at the Delivery Point(s), subject to the provisions hereof;

 

NOW, THEREFORE, in
consideration of the premises and the mutual covenants and agreements contained
herein, Gatherer and Producer hereby agree as follows:

 

Article I.

DEFINITIONS

 

Except as otherwise
provided, the following terms as used herein shall have the meaning set forth
below:

 

 

 

1.1           “MCF”
shall mean one thousand (1,000) cubic feet of Gas.

 

1.2           “BTU”
shall mean British thermal unit, which is the quantity of heat required to
raise the temperature of one (1) pound avoirdupois of pure water from
fifty-eight and five tenths degrees Fahrenheit (58.5°F) to
fifty-nine and five tenths degrees Fahrenheit (59.5°F) at
standard pressure.

 

1.3           “MMBTU” shall mean one million
British thermal units (1,000,000 BTU’s).

 

1.4           “Gas” or “Natural Gas” includes gas
well gas produced from wells classified as gas wells by any governmental
authority having jurisdiction, casinghead gas produced from oil wells so
classified, and flash gas vaporized from crude oil and condensate therefrom
after production.

 

1.5           “Gas Unit” shall mean a drilling unit
or proration unit as defined by field rules and administrative processes of the
Texas Railroad Commission.

 

1.6           “Day” shall mean a period of
twenty-four (24) consecutive hours commencing at 9:00 o’clock a.m. Central time
on one calendar day and ending at 9:00 o’clock a.m. Central time on the
following calendar day.

 

1.7           “Month”
shall mean the period commencing on the first Day of a calendar month and
ending on the first Day of the next calendar month.

 

1.7           “Well” shall mean Producer’s owned
and/or controlled interest in any well productive of gas which is completed
within the Area Dedicated.

 

1.8           “System”
shall mean all delivery, compression, gathering, measurement, treating,
processing, dehydration facilities, and other related facilities constructed by
or used by Gatherer to receive Producer’s Gas at the Receipt Point(s) and
deliver gas for Producer’s account at the Delivery Point(s).  For the purposes of Sections 6.3 and 15.1
herein, “System” shall also be construed to include all of Gatherer’s delivery,
compression, gathering, measurement, treating, processing, dehydration
facilities, and other related facilities constructed by or used by Gatherer to
receive Gas from other parties on pipelines contiguously connected to pipelines
used by Gatherer to receive Producer’s Gas.  
Also for the purposes of Sections 6.3 and 15.1 herein, “System” shall
also be construed to include all of Gatherer’s associated and related Gas
Gathering, Purchase, Transportation, Compressor Lease, Gas Sales, Right-of-Way,
and real property Agreements and/or Contracts as well as all permits, imbalance
positions, and working capital adjustments necessary to operate the physical
assets of the system.

 

1.9           “Receipt
Point(s)” shall mean the interconnect of Producer’s production battery(ies),
where Producer shall deliver Producer’s Gas to Gatherer and Gatherer shall
receive Producer’s Gas in accordance with the terms of this Agreement. The
MMBTU of the gas measured at the Receipt Point(s) shall be determined on a
water saturated basis at Standard Base Conditions.  From the Effective Date forward, the
following connection and Receipt Point guidelines will apply:

1.9.1                        For Gas Units that have existing Wells
and Receipt Point(s) located therein, Producer will be responsible for laying
flowlines needed to connect future Wells behind existing Receipt Points.

1.9.2                        For Gas Units that do not have existing
Wells and Receipt Point(s), Gatherer will be responsible for extending and
expanding its system as needed to gather Gas at the initial Receipt Point for
the additional Gas Unit.  Once the
initial Receipt Point for a Gas Unit is established, Producer will be
responsible for laying flowlines needed to connect future Wells behind the
initial Gas Unit Receipt Point.

 

2

 

1.10         “Delivery
Point(s)” shall have the meaning prescribed in Article III, Paragraph 3.2
herein. Gatherer shall redeliver Producer’s Gas to Producer or to Producer’s
designee for Producer’s account to these meters on a dry MMBTU basis at
Standard Base Conditions.

 

1.11         “Assumed
Atmospheric Pressure for Measurement and Testing” shall mean fourteen and one
half pounds per square inch absolute (14.5 psia) at the Receipt Point(s).

 

1.12         “Standard
Base Conditions” shall mean a pressure of fourteen and sixty five hundredths
pounds per square inch absolute (14.65 psia) at a temperature of sixty degrees
Fahrenheit (60°F).

 

1.13     “Inferior
Liquids” shall mean mixed crude
oil, slop oil, salt water, nuisance liquids, and other liquids recovered by
Gatherer in its System.  Revenues from
Inferior Liquids, drips, and other gathering system liquids will be retained by
Gatherer to defray costs of treating and handling; Gatherer will not allocate
or pay for those liquids.

 

1.14         “NGPL” shall mean Natural Gas Pipeline
of America, a subsidiary of Kinder Morgan Energy Partners, L.P.

 

 

Article II.

SCOPE
OF AGREEMENT

 

2.1           Gatherer agrees to construct,
maintain, and operate (or cause others to construct, maintain, and operate)
pipelines and related facilities required to enable Gatherer to receive Gas
from Producer at the Receipt Point(s) and deliver a thermally equivalent
quantity of Gas to Producer or for Producer’s account at the Delivery Point(s)
in accordance with the terms of this Agreement within the Area Dedication.

 

2.2           Gatherer shall have sole
responsibility for construction, maintenance, and operation of its System
consistent with performing its obligations wherein Gatherer can extend the
System, add to or remove components from the System, and operate the System in
the manner Gatherer determines to be in its best interest. Gatherer shall
operate the System or cause it to be operated, as the System may exist from
time to time, in a manner consistent with general industry practice, but shall
not be prevented thereby from being innovative or achieving cost efficiencies
as it may deem necessary. Gatherer shall be responsible for carrying out all
obligations stated in this Agreement; provided, however, if Producer believes
Gatherer is in default of any obligation contained herein, Producer shall so
notify Gatherer in writing giving full particulars thereof. Except as otherwise
noted herein, Gatherer shall have thirty (30) days after receipt of notice from
Producer in which to cure such default, if any.

 

2.3           Producer shall dedicate all of
Producer’s owned and controlled Gas produced and saved from the Wells, lands,
leaseholds and other sources within the bounded area depicted on Exhibit “A”.

 

2.4           Producer shall construct, maintain,
and operate (or cause others to construct, maintain, and operate) pipelines and
related facilities to enable the Gas from the Wells to be collected at
production batteries located within each Gas Unit and delivered to Gatherer’s
Receipt Point(s).  Producer shall select
the location of Receipt Points to utilize as it connects future Wells.  Producer shall provide estimates to Gatherer
as to the expected maximum flow and timing of such flow at each Receipt Point
to assist Gatherer in selecting the proper pipeline size required for the
connection.

 

2.5           **

 

2.6           **

 

3

 

2.7           Prior to October 1, 2006, Gatherer
shall assist Producer in connecting Wells to Gatherer’s System or to Producer’s
central battery(ies).  The connection
location shall be mutually agreed upon prior to Gatherer beginning
construction.  Producer shall reimburse
Gatherer 100% for all Well connect costs incurred after May 1, 2006 and prior
to October 1, 2006.  The only exception
to the foregoing being, Producer shall be responsible for all well connects
which were or would have been associated with that certain Gas Transportation
Agreement dated April 1, 2004 between Chesapeake Exploration Limited
Partnership, formerly Kaiser Francis Oil Company and MarkWest Pinnacle
L.P.  On October 1, 2006 and through the
term of this Agreement, Producer shall be responsible for all well connects and
Gatherer shall only be responsible for the Receipt Point connections.

 

2.8           Gatherer shall operate a dewpoint
control treating facility to meet the forty-five (45) degree hydrocarbon dew
point required by NGPL.  Should the
hydrocarbon dew point required by NGPL become less than forty-five (45)
degrees, Gatherer and Producer shall work in good faith to determine a solution
to the new hydrocarbon dew point requirement. 
This solution shall include a change in Fees to offset the capital
expenditure and operating costs that shall be born upon the Gatherer in meeting
the new hydrocarbon dew point specification as well as an agreed upon mechanism
for passing through the keep whole economics resulting from the additional
extraction of liquids from the Gas.

 

Article III.

RECEIPT AND DELIVERY OF GAS

 

                3.1           The Receipt Point(s) for Producer’s Gas delivered to
Gatherer shall be at the interconnection of Gatherer’s central delivery point
(CDP) meter at or near Producer’s production battery facilities delivering Gas
from the Wells located within Producer’s Gas Unit.

 

3.2           Delivery Point shall be at the outlet
flange of Gatherer’s measurement facilities at the point of interconnection
between Gatherer and NGPL pipeline at either of the two delivery points into
NGPL, as follows:

 

	
  NGPL
  PIN 902922 “Cornerstone”

  	
   

  	
  Nacogdoches
  County, Texas

  
	
  NGPL
  PIN 900523 “Hunter”

  	
   

  	
  Nacogdoches
  County, Texas

  

 

Or
any other future delivery points on Gatherer’s System that Gatherer and
Producer mutually agree upon.

 

3.3           Gatherer shall measure the quantity
of gas received at each Receipt Point measured in MMBtu’s and shall redeliver a
thermally equivalent quantity of gas, less a **% fuel and loss allowance, for
Producer’s account at the Delivery Point(s).

 

 

Article IV.

OPERATIONAL IMBALANCE AND CASH BALANCING

 

4.1           All gas quantities shall be delivered
to Gatherer at the Receipt Point(s) and redelivered to Producer (or on behalf
of Producer) at the Delivery Point(s) as nearly as practicable at uniform
hourly and daily rates of flow.  The parties recognize that certain gas imbalances
may occur between the quantity of gas received by Gatherer for the account of Producer
and the quantity of gas redelivered by Gatherer for the account of
Producer.  During each month the parties
agree to cooperate with each other and with any interconnecting pipeline to
remedy any imbalance as soon as either party becomes aware of an
imbalance.  At the end of each
month, any imbalance in MMBTU between the quantity of gas received by Gatherer
hereunder from all Receipt Point(s), less the applicable fuel and loss as
outlined herein, and redelivered by Gatherer hereunder at the Delivery Point(s)
shall be balanced by means of a payment to Producer from Gatherer or a payment
to Gatherer from Producer, as applicable, valued at the Cash-out price.  To 

 

4

 

the
extent that Producer’s Receipt Point(s) quantities, less the applicable fuel
and loss, are greater than Producer’s Delivery Point(s) quantities (“Due
Producer”), Gatherer will make a payment to Producer for the imbalance based on
the difference between Receipt Point(s) quantities, less the applicable fuel
and loss, and the Delivery Point(s) quantities multiplied by the Cash-out
price.  To the extent that Producer’s
Receipt Point(s) quantities are less than Producer’s Delivery Point(s)
quantities (“Due Gatherer”), Gatherer will invoice Producer for the imbalance
based on the difference between Receipt Point(s) quantities, less the
applicable fuel and loss, and the Delivery Point(s) quantities multiplied by
the Cash-out price.  The Cash-out price
shall be determined using the month’s pricing in which the imbalance was
generated.  The Cash-out price shall be
equal to the month’s arithmetic average of the monthly posted average price as
published in Platts Gas Daily  Price Guide for the month in which the imbalance was
generated, in the section entitled “Monthly averages of daily midpoints” for
NGPL-Texok. Should the information necessary to calculate the Cash-out price
cease to be available, Gatherer and Producer will work in good faith to
determine a comparable substitute publication and/or daily posting(s) providing
equivalent data.

 

4.2           Producer
shall be solely responsible for submitting appropriate nominations for
redelivery of Gas, less the applicable fuel and loss, at the Delivery Point and
for any and all delivery imbalances occurring with respect to Producer’s Gas
which is moving under Producer’s pipeline transportation agreement to the
extent that such imbalances are caused by Producer’s failure to make proper and
timely nominations. Producer shall indemnify and hold Gatherer harmless from
any and all costs, expense, liabilities, or damages (including without
limitation, pipeline imbalances, penalties, court costs, and attorney fees)
arising due to any such pipeline imbalances on Producer’s pipeline
transportation agreement(s) caused by Producer’s failure to make proper and
timely nominations. Gatherer shall indemnify and hold Producer harmless from
and against any and all costs, expense, liabilities, or damages (including
without limitation, pipeline imbalances, penalties, court costs, and attorney
fees) arising due to any such pipeline imbalances under Producer’s pipeline
transportation agreement caused by Gatherer’s failure to properly and timely
give effect to Producer’s nominations, however, Gatherer shall not be
responsible for eliminating any imbalances between Producer and any third
party. Furthermore, Gatherer shall not be obligated to deviate from its
standard operating and accounting procedures to reduce or eliminate any such
imbalances.

 

Article V.

ADDITIONAL RECEIPT POINTS

 

5.1           Gatherer shall use commercially
reasonable efforts to construct pipelines and measurement equipment to connect
and be prepared to receive gas from Producer’s well(s) at the Receipt Point(s)
developed within the Area Dedication when Producer’s batteries are completed
and ready to flow.  Producer agrees to
provide to Gatherer, Producer’s battery locations and drilling and completion
schedule sufficiently in advance to allow Gatherer to acquire rights-of-way and
to order and install the necessary facilities to be prepared to receive
Producer’s gas.

 

5.2           Gatherer shall construct, or cause to
be constructed with reasonable promptness and diligence at its sole risk, cost,
and expense, such additions and/or extensions of the System as are necessary
and adequate to receive Gas from Producer. Producer agrees that it shall
construct, or cause to be constructed with reasonable promptness and diligence
at its sole risk, cost, and expense, those of Producer’s facilities as are
necessary and adequate to deliver Producer’s Gas into the System.

 

5.3           In the event Producer plans to
construct a new central battery that is greater than ** feet from Gatherer’s
System, Producer shall notify Gatherer in writing of the additional Receipt
Point, and Gatherer shall begin the right-of-way acquisition process to help
expedite the flow of production.  In
consideration of Gatherer beginning to acquire right-of-way prior to completion
of the central battery, Producer shall fully indemnify Gatherer for all
reasonable costs incurred by Gatherer in obtaining the 

 

5

 

right-of-way
in the event the central battery is not installed.  Producer shall pay any such invoice to
Gatherer within fifteen (15) days after receipt thereof.

 

5.4           In the event Producer deems the
central battery, that is greater than ** feet from Gatherer’s System, to be
economically productive, Producer and Gatherer shall discuss Producer’s
potential offset drilling locations, plans and schedule, and production
profiles so that Gatherer may endeavor to properly size the extension of
Gatherer’s System to accommodate such future drilling.  Upon completion of the discussion, Gatherer
shall construct, or cause to be constructed with reasonable promptness and
diligence the extension of the System.

 

Article VI.

RECEIPT PRESSURE

 

6.1           Producer shall deliver Gas to
Gatherer at the Receipt Point(s) at a pressure sufficient to effect delivery
into Gatherer’s gathering system, against the pressure prevailing therein from
time to time; provided, however, that Producer shall not be required to deliver
Gas at a pressure greater than **.

 

6.2           (a) Gatherer agrees to maintain a
Monthly Average Receipt Point pressure (hereinafter, the “MARP”) for each
Receipt Point each month as follows: The MARP consists of the following values:
(i) the sum of daily average individual Receipt Point pressures divided by (ii)
the number of days in the subject month, with the final result equaling the
MARP for that Receipt Point of not greater than ** at each Receipt Point.  Gatherer’s agreement to maintain the MARP
below ** will commence October 1, 2006. 
The MARP shall commence to be calculated for the October 2006
production.

 

                (b)           The average daily Receipt Point
pressure and number of days for a Receipt Point, whose operation on a given day
is affected by a force majeure condition, shall not be used in calculating the
MARP.

 

                (c)           In the event a Receipt Point’s
pressure exceeds the MARP for any given month, Gatherer will calculate an
amount equal to ** times the MMBtu’s that were delivered at that affected
Receipt Point(s) (the “Affected Receipt Point(s)”) for the month and deduct it
(on a gross basis) from the next invoice that Gatherer sends to Producer.  At the latest, the deductions will be applied
within 45 days of the end of each given production month.

 

                (d)           If the MARP is greater than ** on
more than ** of Producer’s Receipt Points, then Gatherer shall also calculate
an amount equal to ** times the MMBtu’s that were delivered at all Receipt
Point(s) that are not Affected Receipt Point(s) (the “Non-Affected Receipt
Point(s)”) for the month and deduct it (on a gross basis) from the next invoice
that Gatherer sends to Producer.  At the
latest, the deductions will be applied within 45 days of the end of each given
production month.

 

                (e)           In the event Producer believes the
penalties due per the terms of this section have been incorrectly calculated or
applied, Producer shall only have 90 days from the end of a given month to
notify Gatherer of the error and seek correction.

 

                (f)             Notwithstanding any other provision of this Section, if
Producer’s operations result in delivery of free liquids at any Receipt Point,
then based upon notice as set forth in Article XVII and confirmation that
Producers Receipt Point flowed free liquid into the System, then the Receipt
Point’s pressure obligation set forth in this Article is suspended for the
relevant month and Producer shall reimburse Gatherer the reasonable cost to
dispose of any produced water which was inadvertently flowed into the system.

 

                (g)           Should the MARP at any Receipt Point exceed ** for **,
then Producer may, upon not less than three (3) days prior written notice to
Gatherer, permanently deliver its Gas from that Receipt 

 

6

 

Point
to an alternate party for transportation and/or processing and will be released
from further obligation to make deliveries for that impacted Receipt Point
under this agreement.

 

6.3           **

 

6.4           Should
Chesapeake Exploration Limited Partnership sell its oil and gas leasehold
interests covered by this agreement, and wish to assign this Agreement to an
unaffiliated third party as a result of a segregated asset sale, transfer or
trade, **.  All other terms and
conditions of this Agreement shall survive any such assignment.  **.

 

Article VII.

COMPRESSOR STATION INLET
PRESSURE

 

7.1           Gatherer
shall operate compression within normal operating range of pressures, volumes,
and compression ratios for such compression facilities based on the volume of
gas available at each respective compressor facility.  Gatherer’s obligation to operate the
compression facilities shall be limited to Gatherer’s ability to do such within
normal operating limitations, as determined by Gatherer, of such compressors
and the daily operating conditions of the System.

 

7.2           (a)
Gatherer will maintain a Monthly Average
Compressor Station Inlet Separator Pressure (“MASP”) each month of not greater
than fifty (55) psig as measured at the electronic pressure recorder located at
the compressor station inlet separator of each of the two (2) facilities used
to provide compression (each “Compressor Facility”).  Gatherer’s agreement to maintain the MASP
shall commence October 1, 2006.

 

(b)           The MASP consists of the following
values: (i) the sum of daily average inlet separator pressure at each
individual Compressor Facility divided by (ii) the number of days in the
subject month, with the final result equaling the MASP for such month for that
Compressor Facility.  The average daily
inlet separator pressure and number of days for a Compressor Facility whose
operation on a given day is affected by a force majeure condition shall not be
used in calculating the MASP.

 

 (c)          If
the MASP of a Compressor Facility is greater than **, then Gatherer will
calculate an amount equal to ** times the portion of Producer’s MMBTU’s that
ratably flowed through the affected Compressor Facility (the “Affected
Compressor Station”) for the month and deduct it (on a gross basis) from the
next invoice that Gatherer sends to Producer. 
At the latest, the deductions will be applied within 45 days of the end
of each given production month.  The ** less per MMBtu penalty shall be
ratably allocated to Producer’s MMBTU’s based upon the nameplate horsepower of
the two (2) Compressor Facilities.  An elaboration of the calculation is as
follows:  The total horsepower of the
Affected Compressor Station shall be divided by the total horsepower of the
Compressor Facilities from which that percentage result shall be multiplied by
the summed volume of all of Producer’s Receipt Points.  The calculated quantity shall then be
multiplied by the ** Fees reduction to equate to the invoice reduction.

 

(d)           In the event Producer believes the
penalties due per the terms of this section have been incorrectly calculated or
applied, Producer shall only have 90 days from the end of a given month to
notify Gatherer of the error and seek correction.

 

 

 

Article VIII.

MEASUREMENT

 

7

 

8.1           Gatherer shall measure the Gas delivered
by Producer hereunder using electronic flow meters, which Gatherer has
installed or caused to be installed at the Receipt Point(s). Measurement shall
be made by Gatherer in accordance with the requirements of applicable
provisions in ANSI/API 2530, “Orifice Metering of
Natural Gas” (American Gas Association Gas Measurement Committee
Report No. 3) of the Natural Gas Department of the American Gas
Association, as amended from time to time, or by any other method commonly used
in the industry and mutually acceptable to the parties.  EFM equipment will be designed and installed
in accordance to the procedures set forth in the Manual of Petroleum Standards,
Chapter 21.1 (Latest Revision).  Producer
will have access to Gatherer’s metering equipment and information received from
such metering equipment at reasonable hours. 
In addition, Producer shall have the right to install check measurement
/ monitoring equipment at the (1) Receipt Point(s), (2) Compressor Station Inlet
Separators, and (3) Delivery Point(s) - including the right to install Producer’s
check measurement equipment on the Gatherer’s meter tube(s).  All such check measurement equipment shall be
installed so such equipment will not interfere with the operations of Gatherer’s
equipment.

 

8.2           The accuracy of Gatherer’s measuring
equipment shall be verified by test, and a chromatographic analysis shall be
conducted, using means and methods generally acceptable in the gas industry
once every six (6) months for Receipt Points which make less than 500 mscfd,
every three (3) months for Receipt Points which make between 501 — 1000 mscfd,
and every one (1) month for Receipt Points that make 1001 mscfd or more.
Measuring equipment found to be registering inaccurately shall be adjusted to
read accurately. Gatherer shall give Producer two (2) days notice of upcoming
tests. If Producer fails to have a representative present, the results of the
test shall nevertheless be considered accurate until the next test. Gatherer
shall, upon written request of Producer, conduct a test of Gatherer’s measuring
equipment, provided that in no event shall Gatherer be required to test its
equipment more frequently than once a month. All tests of such measuring
equipment shall be made at Gatherer’s expense, except that Producer shall bear
the expense of tests made at Producer’s request.

 

8.3           If for any reason, any measuring
equipment is inoperative or inaccurate by more than two percent (2%) in the
measurement of Gas, then the volume of Gas delivered by Producer to Gatherer
during the period of such inaccuracy shall be determined on the basis of the
best data available using the first of the following methods which is feasible:

 

(i.)                                  By
using the registration of any check measuring equipment installed and
accurately registering; or

 

(ii.)                               By
using a percentage factor to correct the error, if the percentage of error is
ascertainable by calibration, test, or mathematical calculations; or

 

(iii.)                            By
comparing deliveries made during preceding periods under similar delivery
conditions when the meter was registering accurately.

 

8.4           An adjustment based on such
determination shall be made for such period of inaccuracy as may be definitely
known or, if not known, then for one half (1/2) the period since the date of
the last meter test. In no event, however, shall any adjustment extend back
beyond ninety (90) days from the date the error was first made known by one
party hereunder to the other.

 

8.5           Each party shall have the right to
inspect the other party’s equipment, charts, and other measurement or test data
during business hours; but the reading, calibration, and adjustment of such
equipment and changing of charts shall be done by the party installing and
furnishing same. Unless the parties agree otherwise, each party shall preserve
all its original test data, charts, and other similar records for a period of
two (2) years.

 

8

 

Article IX.

GAS QUALITY AND SPECIFICATIONS

 

9.1           All Gas tendered to Gatherer at the
Receipt Point(s) shall be commercially free of dust, rust, gum and gum forming
constituents, dirt, paraffin, impurities, and other solid or liquid matter
which might interfere with its merchantability or cause injury to or
interference with the proper operation of the lines, meters, regulators and
other appliances through which it flows and shall conform to the following
specifications (the “Specifications”) and shall be free of Inferior Liquids:

 

	
   

  	
  (i.)

  	
   

  	
  Oxygen

  	
   

  	
  **

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii.)

  	
   

  	
  Free Water

  	
   

  	
  **

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii.)

  	
   

  	
  H2S

  	
   

  	
  No more than ** per one
  hundred (100) cubic feet of gas

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iv.)

  	
   

  	
  Heating Value

  	
   

  	
  No less than ** per
  cubic foot

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (v.)

  	
   

  	
  Total Sulfur

  	
   

  	
  Including mercaptan
  and hydrogen sulfide, not to exceed ** per one hundred (100) cubic feet of
  gas

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (vi.)

  	
   

  	
  Temperature

  	
   

  	
  No more than **
  Fahrenheit (**°F) and no less than **
  Fahrenheit (**°F)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (vii.)

  	
   

  	
  Carbon Dioxide

  	
   

  	
  No more than ** by
  volume

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (viii.)

  	
   

  	
  Nitrogen

  	
   

  	
  No more than ** by
  volume

  

 

9.2           If, at any time during the term of
this Agreement, either party ascertains that such Gas fails to meet the
Specifications, such party shall immediately notify the other of the extent of
the deviation from the Specifications. Producer shall determine the expected
duration of such failure and notify the Gatherer of the efforts Producer is
undertaking to remedy such deficiency. In the event Producer cannot (or elects
not to) remedy such deficiency, Gatherer may, as its sole remedy, refuse to
accept delivery of such Gas. In such case, Producer may immediately terminate
this Agreement as to the affected Gas.

 

9.3           If Gatherer can blend Gas failing to
meet the specifications (vii.) Carbon Dioxide and (viii.) Nitrogen with other
Gas across the gathering system and such blending causes the composite Gas
composition to meet the Specifications; Gatherer agrees to do so, as long as
such blending does not cause undue operational problems.

 

 

Article X.

GATHERING and DEHYDRATION FEE, LINE LOSS,
COMPRESSION, AND FUEL CHARGE

 

10.1         For the services provided by Gatherer
hereunder, Producer shall pay Gatherer a gathering, compression, hydrocarbon
dew point processing, and dehydration fee (“Fees”) for each MMBTU of Gas
delivered to Gatherer by Producer at the Receipt Point(s) as set forth below.

 

9

 

	
  Tiers

  	
   

  	
  Quantity (MMBTU/d)

  	
   

  	
  Fee ($ per MMBTU)

  
	
  **

  	
   

  	
  **

  	
   

  	
  $**

  
	
  **

  	
   

  	
  **

  	
   

  	
  $**

  
	
  **

  	
   

  	
  **

  	
   

  	
  $**

  

                                An elaboration
of the Fee structure set forth above, is as follows: The aggregated monthly
quantity of all of the Producer’s Receipt Points shall be summed and divided by
the number of days for the given production month.   From the calculation, a MMBTU per day
quantity shall result and the first ** Mmbtu/day shall be assessed a Fee of **,
the next **Mmbtu/day shall be assessed a Fee of **, and all remaining
quantities greater than **Mmbtu/day shall be assessed **.

 

10.2         Additionally, Producer shall pay
Gatherer a 2006 well connect recovery fee of $** per MMBTU of Gas delivered by
Producer to Gatherer beginning May 1, 2006 **.

 

10.3         Gatherer shall assess a deemed fuel and
line loss charge of ** on all volumes of Gas delivered by Producer to Gatherer
during each Month at each Receipt Point, calculated on a MMBTU basis. The
volume of Gas attributable to such deemed fuel and line loss charge shall be
deducted from, and shall not be included in, the imbalance volumes being cashed
out under the provisions of Article IV of this Agreement.

 

 

 

Article XI.

BILLING, PAYMENT, AND REPORTING

 

11.1         On or before the fifteenth (15th)
of each Month, Gatherer shall render an invoice to Producer for the preceding
Month. Gatherer shall provide Producer with information to support Gatherer’s
invoice identified as to Producer’s Receipt Point(s) and showing the total
quantity of Gas delivered hereunder, the amount due therefore, and information
sufficient to explain and support any adjustments made by Gatherer in
determining the amount billed. Producer shall pay Gatherer or Gatherer shall
pay Producer, as the case may be, at the address shown hereunder within 30 days
of receipt of invoice. If the correct amount is not paid when due, interest on
any unpaid and undisputed portion shall accrue at an interest rate equal to two
percent (2%) plus the prime rate as quoted by the Wall Street Journal, or at
the highest rate permitted by applicable law, whichever is lower, from due date
until date paid. If default with respect to undisputed charges continues after
thirty (30) days written notice from Gatherer to Producer, Gatherer may suspend
receipt of Gas hereunder without prejudice to any other available remedies at
law or in equity.

 

11.2         If any overcharge or undercharge in any
form whatsoever shall at any time be found relative to any invoice delivered
whether outstanding or paid, Gatherer shall refund any amount of overcharge or
Producer shall pay any amount of undercharge, as the case may be, within thirty
(30) days after final determination thereof; provided, no retroactive
adjustment shall be made beyond a period of twenty-four (24) months from the
month of production for which the overcharge or undercharge was made.

 

11.3         Both parties hereto shall have the
right at any and all reasonable times to examine the books and records of the
other party to the extent necessary to verify the accuracy of any statement,
charge, computation, or demand made pursuant to this Agreement. Prior to such
examination, the party requesting it shall execute a mutually acceptable
confidentiality agreement if requested to do so.

 

Article XII.

TAXES

 

12.1         Producer shall pay or cause to be paid
all production taxes imposed with respect to the Gas delivered and gathered
hereunder.

 

10

 

12.2         Gatherer shall pay all ad valorem or
other similar taxes, fees, or assessments imposed by any state or federal
authority with respect to the System and ownership thereof.  Producer shall pay all other severance,
gathering or other similar taxes, fees, or assessments imposed by any state or
federal authority with respect to the Gas delivered hereunder. Further, Producer
represents that it has timely filed, or shall timely file, any and all reports
which it is required to file with respect to production or severance taxes to
be paid hereunder. Producer shall indemnify and hold Gatherer harmless with
respect to Producer’s failure to file any and all such reports or with respect
to Producer’s failure to pay any and all taxes which Producer is obligated to
pay pursuant to the terms of this Agreement.

 

 

Article XIII.

CONTROL, POSSESSION, AND TITLE

 

13.1         Producer shall indemnify and hold
Gatherer harmless from liability with respect to Producer’s Gas or Producer’s
operations to deliver such Gas prior to the Gas being delivered into the
System. Gatherer shall indemnify and hold Producer harmless from liability with
respect to the Gas delivered into the System after receipt thereof by Gatherer
and prior to delivery thereof at the Delivery Point except for any such
liability relating to the title to such Gas that shall remain with Producer.

 

            13.2             Producer warrants title to or the right to deliver all
Gas delivered or caused to be delivered hereunder. Producer warrants that such
Gas is free from all liens and adverse claims of every kind and agrees to
indemnify Gatherer from all suits, actions, debts, accounts, damages, costs,
losses, and expenses arising from or out of adverse claims of any or all
persons, including governmental entities, as to title to said Gas or as to
royalties or charges thereof. Title to the Gas delivered or caused to be
delivered by Producer to Gatherer hereunder at the Receipt Point(s) shall
remain with Producer and shall not pass to nor vest in Gatherer.

 

13.3         Gatherer shall be entitled to and shall
own all condensate and pipeline drip collected on the System. Producer shall
not have any right, title, or interest in liquid hydrocarbons extracted from
the Gas. Producer represents that the Gas delivered under this Agreement is
free of rights to extract liquid hydrocarbons in favor of Producer or any other
third party. Further, all Gas purchased, sold, gathered, or transported under this
Agreement shall not be subjected to processing for extraction of liquid
hydrocarbons (other than by conventional mechanical separation) prior to
delivery at the Receipt Point(s).

 

Article XIV.

FORCE MAJEURE

 

14.1         If either party is rendered unable,
wholly or in part by Force Majeure, to carry out its obligations under this
Agreement, then the obligations of the affected party, except for payment due,
so far as they are affected by such Force Majeure, shall be suspended during
the continuance of any inability so caused, but for no longer period. Such
cause shall, to the extent possible, be remedied with all reasonable dispatch.
The affected party shall give notice and full particulars of such Force Majeure
in writing by mail or telecopy or other electronic facility to the other party
as soon as practicable after the occurrence of the cause relied on.

 

14.2         The term Force Majeure as employed
herein shall mean acts of God; strikes, lockouts, or other industrial
disturbances; acts of the public enemy, wars, blockades, military action,
earthquakes, fires, storms or storm warnings, crevasses, floods, or washouts;
arrests and restraints of governments and people; civil disturbances;
explosions, breakage or accident to machinery or lines of pipe (including any
compression or processing facilities located on the System); the necessity for
testing or making repairs or alterations to machinery or lines of pipe;
freezing of wells or lines of pipe; inability to obtain 

 

11

 

easements
and/or rights-of-way; inability of any party hereto to obtain necessary
materials, supplies, or permits due to existing or future rules, regulations,
orders, laws, or proclamations of governmental authorities (both Federal and
State) including both civil and military; and any other causes whether of the
kind herein enumerated or otherwise, and whether caused or occasioned by or
happening on account of the act or omission of one of the parties hereto or
some persons or concern not a party hereto, not within the control of the party
claiming suspension and which, by the exercise of due diligence, such party is
unable to prevent or overcome.

 

14.3         It is understood and agreed that the
settlement of strikes or lockouts shall be entirely within the discretion of
the party having the difficulty, and that the above requirement that any Force
Majeure shall be remedied with all reasonable dispatch shall not require the
settlement of strikes or lockouts by acceding to the demands of the opposing
party when such course is inadvisable in the discretion of the party having the
difficulty.

 

14.4         Should an event of Force Majeure render
Gatherer unable to take delivery of any of Producer’s Gas at the Receipt
Point(s) for a period exceeding five (5) consecutive calendar days or greater
upon mutual agreement of both parties, then Producer may, upon not less than
three (3) days prior written notice to Gatherer, temporarily deliver its Gas to
a third party for transportation and/or processing; provided, however, that Producer’s
Gas shall be delivered to Gatherer upon the earlier of the end of the temporary
sale or on the first Day of the Month following the Month that the Force
Majeure event is rectified.

 

14.5         Should an event of Force Majeure render
Gatherer unable to take delivery of any of Producer’s Gas at any of the Receipt
Point(s) for a period exceeding thirty (30) consecutive calendar days, then
unless Gatherer reimburses Producer, within 5 days of receipt of an invoice
from Producer, for all out of pocket third party costs incurred by Producer to
purchase and construct the required facilities to move Producer’s gas to an
alternate market during the Force Majeure event, Producer may, upon not less
than three (3) days prior written notice to Gatherer, permanently deliver its
Gas to an alternate party for transportation and/or processing for those
Receipt Point(s) impacted by the Force Majeure event and will be released from
further obligation to make deliveries for those impacted Receipt Points under
this agreement.

 

 

Article XV.

TERM 

 

15.1         This
Agreement shall be effective May 1,
2006, and shall continue in full force and effect until April 30, 2016 (“Primary
Term”), whereupon Producer shall have the option to exercise one of three
options by giving notice prior to January 1, 2016.  Producer may elect to i) terminate this
agreement by providing ** written notice, ii) extend the term until ** (“Extended
Term”), after which this Agreement shall be automatically renewed for
successive renewal terms of one (1) month each, unless terminated by either
party with at least thirty (30) days prior written notice or iii) **.

 

 

 

Article XVI.

ASSIGNMENTS

 

16.1         This Agreement shall extend to and be
binding upon the parties hereto, their successors, and assigns. The rights of
the parties may be assigned or conveyed in whole or in part from time to time;
provided, however, neither party shall assign this Agreement without the prior
written consent of the other party which consent shall not be unreasonably
withheld. All assignments and conveyances shall be subject to this Agreement
and shall not relieve the assignor of its duties hereunder. No transfer of, or 

 

12

 

succession
to, the interest of any party hereto, either in whole or partially, shall
affect or bind the other party until the first Day of the Month following the
Month in which the other party shall have received written notification
thereof.  Finally, the conditions
addressed under paragraph 6.4 shall apply to any assignment made by Producer.

 

 

 

 

Article XVII.

NOTICES

 

17.1         Except as herein otherwise provided,
any notice, request, demand, payment, invoice, statement, or bill provided for
in this Agreement or any notice which either party may desire to give to the
other shall be in writing and mailed by registered mail or ordinary mail to the
post office address of the party intended to receive the same, as the case may
be, as follows or to such other address as either party shall designate by
written notice to the other party.

 

If
to PRODUCER:

 

                For Notices and Requests:

 

                CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP

                Attn:  Gas Contract Administration

                6100 North Western Avenue

                Oklahoma City, Oklahoma 73118

 

                Statements, Bills, Invoices,
or Payments:

 

                CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP

                Attn:  Gas Control

                6100
North Western Avenue

                Oklahoma City, Oklahoma 73118

 

If
to GATHERER:

 

                For Notices and Requests

 

                MARKWEST
PINNACLE L.P.

                2500 City West, Ste. 740

                Houston, Texas 77042

                Attn: Bert Dillmann (email:
bdillmann@markwest.com)

 

                For Statements, Bills, or
Invoices

 

                MARKWEST
PINNACLE L.P.

                6655 S. Lewis, Ste. 350

                Tulsa OK 74136

                Attn: Matt Daniel (email:
mdaniel@markwest.com)

 

                For Payments

 

                Wire:

                MARKWEST PINNACLE L.P.

                **

 

13

 

Article XVIII.

MISCELLANEOUS

 

18.1         The interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws
of the State of Texas.

 

18.2         This Agreement contains the entire
understanding of the parties superseding all other agreements, whether oral or
written, express or implied. As a result of the parties entering into this
Agreement, the Original Agreements have been terminated and replaced by this
Agreement.  This Agreement may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension, or discharge
is sought. Every covenant, term, and provision of the Agreement shall be
construed simply according to its fair meaning and not strictly for or against
any party. Any waiver of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by Producer or
Gatherer.

 

18.3         Fees
as specified in Section 10.1 and Penalties as specified in Section 6.2 and 7.2
shall be subject to an annual adjustment. The annual adjustment shall be equal
to the lesser of:

 

(i.)                                  **

 

(ii.)                               **

 

The annual adjustment shall begin on January 1, 2007.

 

18.4         Producer,
to the extent it can do so, hereby grants to Gatherer the right to use (along
with the right to ingress and egress) Producer’s leaseholds, properties, and
premises underlying the System in order to carry out the provisions of this
Agreement with the right to remove same before or after the expiration of this
Agreement and the right to free access at all reasonable times to any part of
said leaseholds, properties, and premises.

 

18.5         The captions in this Agreement are for
the convenience of the parties in identification of the provisions hereof and
shall not constitute a part of this Agreement nor be considered in the
interpretation of this Agreement, and the following shall apply:

 

(i.)                                  This
Agreement was prepared jointly by the parties hereto and not by any party to
the exclusion of the other;

 

(ii.)                               Failure
to exercise any right or rights hereunder shall not be considered a waiver of
such right or rights in the future.

 

18.6         Each party agrees that it shall
maintain this Agreement and the contents thereof in strict confidence, and that
it shall not cause or permit disclosure thereof to any third party without the
express written consent of the other party; provided, however, that disclosure
is permitted in the event and to the extent such party is required by a court
or agency exercising jurisdiction over the subject matter thereof, by order or
by regulation.

 

14

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed in several counterparts, each of which is an original, as of the date
first written above.

 

	
  PRODUCER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  James C. Johnson

  	
   

  
	
   

  	
  James
  C. Johnson

  	
   

  
	
  Title:

  	
  Vice
  President - Marketing

  	
   

  
	
   

  	
   

  	
   

  
	
  GATHERER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MARKWEST
  PINNACLE L.P.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Frank Semple

  	
   

  
	
   

  	
  Frank
  Semple

  	
   

  
	
  Title:

  	
  President
  and CEO

  	
   

  

 

15

 

 

EXHIBIT A

 

 

**

 

16

 

GAS
GATHERING AGREEMENT

EXHIBIT “B”
(Page 1 of 2)

BY AND
BETWEEN

CHESAPEAKE
EXPLORATION LIMITED PARTNERSHIP

AND

MARKWEST
PINNACLE L.P.

 

 

                Attached to and
made a part of Gas Gathering Agreement entered into as of May 1, 2006, by and
between Chesapeake Exploration Limited Partnership (“Producer”), and MarkWest
Pinnacle, L.P. (“Gatherer”).

 

**

 

17Exhibit 10.1

GAIAM, INC.

1999 LONG-TERM INCENTIVE PLAN

RESTATED AS OF JUNE 22, 2006

Section 1.  Purpose.  The purpose of
this Plan is to advance the interests of Gaiam and its shareholders by
providing incentives to certain Eligible Persons (as defined below) who
contribute significantly to the strategic and long-term performance objectives
and growth of the Company.

Section 2.  Definitions.  The
definitions applicable to this Plan are provided in Appendix A.

Section 3.  Administration.  The
Committee shall administer this Plan and shall have all the powers vested in it
by the terms of this Plan, such powers to include exclusive authority to select
the Eligible Persons to be granted Awards under this Plan, to determine the
type, size and terms of the Award to be made to each Eligible Person selected,
to modify the terms of any Award that has been granted, to determine the time
when Awards will be granted, to establish performance objectives, to make any
adjustments necessary or desirable as a result of the granting of Awards to
Eligible Persons located outside the United States and to prescribe the form of
the agreements evidencing Awards made under this Plan. The Committee is
authorized to interpret this Plan and the Awards granted under this Plan, to
establish, amend and rescind any rules and regulations relating to this Plan,
and to make any other determinations that it deems necessary or desirable for
the administration of this Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in this Plan or in any Award in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. Any decision of the Committee in the interpretation and
administration of this Plan, as described this Plan, shall lie within its sole
and absolute discretion and shall be final, conclusive and binding on all
parties concerned. The Committee may act only
by a majority of its members in office, except that the
members thereof may authorize any one or more of their members or any officer
of the Company to execute and deliver documents or to take any other
ministerial action on behalf of the Committee with respect to Awards made or to
be made to Participants.
Notwithstanding the foregoing or any other provision of this Plan, the
Committee shall not have the authority to accelerate the time or schedule of
any payment in a manner which is not permitted under Code Section 409A, or to
grant or amend any Award in any manner which would result in an inclusion of
any amount in gross income under Code Section 409A(a)(1).

No member of
the Committee and no officer of the Company shall be liable for anything done
or omitted to be done by him, by any other member of the Committee or by any
officer of the Company in connection with the performance of duties under this
Plan, except for his own willful misconduct or
as expressly provided by statute. In addition to all other rights of
indemnification and reimbursement to which a member of the Committee and an
officer of the Company may be entitled, the Company shall indemnify and hold
harmless each such member or officer who was or is a party or is threatened to
be made a party to any threatened, pending or completed proceeding or suit in
connection with the performance of duties under this Plan against expenses
(including reasonable attorneys’ fees), judgments, fines, liabilities, losses
and amounts paid in settlement actually and reasonably incurred by him in
connection with such proceeding or suit, except for his
own willful misconduct or as expressly provided otherwise by statute. Expenses
(including reasonable attorneys’ fees) incurred by a such a member or officer
in defending any such proceeding or suit shall be paid by the Company in
advance of the final disposition of such proceeding or suit upon receipt of a
written affirmation by such member or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification and a written
undertaking by or on behalf of such member or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company as authorized in this Section.

 

Section 4.  Participation.  Consistent
with the purposes of this Plan, the Committee shall have exclusive power to
select the Eligible Persons who may participate in this Plan and be granted
Awards under this Plan. Eligible Persons may be selected individually or by
groups or categories, as determined by the Committee in its discretion.

Section 5.  Awards under this Plan.

(a)           Types of Awards.  Awards
under this Plan may include, but need not be limited to, one or more of the
following types, either alone or in any combination thereof:  (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock, (iv) Performance Grants and (v) any other type
of Award deemed by the Committee in its discretion to be consistent with the
purposes of this Plan (including, but not limited to, Awards of or options or
similar rights granted with respect to unbundled stock units or components thereof,
and Awards to be made to Participants who are foreign nationals or are employed
or performing services outside the United States).

(b)           Maximum Number of Shares
that May be Issued.  There may be issued under this Plan
(as Restricted Stock, in payment of Performance Grants, pursuant to the
exercise of Stock Options or Stock Appreciation Rights or in payment of or
pursuant to the exercise of such other Awards as the Committee, in its
discretion, may determine) an aggregate of not more than 3,000,000 Common
Shares, subject to adjustment as provided in Section 15. No Eligible
Person may receive Awards under this Plan for more than 400,000 Common Shares
in any one fiscal year of Gaiam, subject to adjustment as provided in
Section 15. Common Shares issued pursuant to this Plan may be either
authorized but unissued shares, treasury shares, reacquired shares or any
combination thereof. If any Common Shares issued as Restricted Stock or
otherwise subject to repurchase or forfeiture rights are reacquired by the
Company pursuant to such rights or, if any Award is canceled, terminates or
expires unexercised, any Common Shares that would otherwise have been issuable
pursuant thereto will be available for issuance under new Awards.

(c)           Rights with Respect to
Common Shares and Other Securities. 
Except as provided in subsection 8(c) with respect to Awards of
Restricted Stock and unless otherwise determined by the Committee in its
discretion, a Participant to whom an Award is made (and any person succeeding
to such a Participant’s rights pursuant to this Plan) shall have no rights as a
shareholder with respect to any Common Shares or as a holder with respect to
other securities, if any, issuable pursuant to any such Award until the date of
the issuance of a stock certificate to him for such Common Shares or other
instrument of ownership, if any. Except as provided in Section 15, no
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities, other property or
other forms of consideration, or any combination thereof) for which the record
date is prior to the date such stock certificate or other instrument of
ownership, if any, is required to be issued based upon the date any Award was
exercised. In all events, a Participant with whom an Award agreement is made to
issue Common Shares in the future, shall have no rights as a shareholder with
respect to Common Shares related to such agreement until issuance to him of a
stock certificate representing such shares.

Section 6.  Stock Options.  The
Committee may sell Purchased Options or grant other Stock Options either alone,
or in conjunction with Associated Awards, either at the time of grant or by
amendment thereafter; provided that
an Incentive Stock Option may be granted only to Eligible Persons who are
employees of the Company and who have Associated Awards only to the extent that
such Associated Awards do not disqualify the Incentive Stock Option’s status as
such under the Code. Each Stock Option granted or sold under this Plan shall be
evidenced by an agreement in such form as the 

 2
 

 

Committee shall prescribe
from time to time in accordance with this Plan and shall comply with the
applicable terms and conditions of this Section and this Plan, and with such
other terms and conditions, including, but not limited to, restrictions upon
the Stock Option or the Common Shares issuable upon exercise thereof, as the
Committee, in its discretion, shall establish.

(a)           The exercise price of a Stock Option
may be equal to or greater than the Fair Market Value of the Common Shares
subject to such Stock Option at the time the Stock Option is granted, as
determined by the Committee; provided, however,
that in the case of an Incentive Stock Option granted to an employee of the
Company, the exercise price shall not be less than the Fair Market Value of the
Common Shares subject to such Stock Option at the time the Stock Option is
granted, or if granted to a Ten Percent Employee, such exercise price shall not
be less than 110% of such Fair Market Value at the time the Stock Option is
granted. In no event, however, will the exercise price per share of a Stock
Option be less than the par value per share of a Common Share.

(b)           The Committee shall determine the
number of Common Shares to be subject to each Stock Option. In the case of a
Stock Option awarded in conjunction with an Associated Award, the number of
Common Shares subject to an outstanding Stock Option may be reduced on an
appropriate basis to the extent that the Associated Award has been exercised,
paid to or otherwise received by the Participant, as determined by the
Committee.

(c)           Any Stock Option may be exercised
during its term only at such time or times and in such installments as the
Committee may establish.

(d)           A Stock Option shall not be
exercisable:

(i)            in the case of any Incentive Stock
Option granted to a Ten Percent Employee, after the expiration of five years
from the date it is granted, and, in the case of any other Stock Option, after
the expiration of ten years from the date it is granted; and

(ii)           unless payment in full is made for
the shares being acquired thereunder at the time of exercise as provided in
subsection 6(i).

(e)           The Committee shall determine in its
discretion and specify in each agreement evidencing a Stock Option the effect,
if any, the termination of the Participant’s employment with or performance of
services for the Company shall have on the exercisability of the Stock Option; provided, however, that an Incentive Stock Option shall not
be exercisable at a time that is beyond the time an Incentive Stock Option may
be exercised in order to qualify as such under the Code.

(f)            In the case of an Incentive Stock
Option, the amount of the aggregate Fair Market Value of Common Shares
(determined at the time of grant of the Stock Option) with respect to which
incentive stock options are exercisable for the first time by an employee of
the Company during any calendar year (under all such plans of his employer
corporation and its parent and subsidiary corporations) shall not exceed
$100,000 or such other amount as is specified in the Code.

(g)           It is the intent of Gaiam that
Nonqualified Stock Options granted under this Plan not be classified as
Incentive Stock Options, that the Incentive Stock Options granted under this
Plan be consistent with and contain or be deemed to contain all provisions
required under Section 422 and the other appropriate provisions of the
Code and any implementing regulations 

 3
 

 

(and any successor provisions thereof), and that any ambiguities in
construction shall be interpreted in order to effectuate such intent.

(h)           A Purchased Option may contain such
additional terms not inconsistent with this Plan, including but not limited to
the circumstances under which the purchase price of such Purchased Option may
be returned to the holder of the Purchased Option, as the Committee may
determine in its sole discretion.

(i)            For purposes of payments made to
exercise Stock Options, such payment shall be made in such form (including, but
not limited to, cash, Common Shares, the surrender of another outstanding Award
under this Plan or any combination thereof) as the Committee may determine in
its discretion; provided, however, that, unless
the Committee determines otherwise, for
purposes of making such payment in Common Shares, such shares shall be valued
at their Fair Market Value on the day of exercise and shall have been held by
the Participant for a period of at least six (6) months.

Section 7.  Stock Appreciation Rights.  The
Committee may grant Stock Appreciation Rights either alone, or in conjunction
with Associated Awards, either at the time of grant or by amendment thereafter.
Each Award of Stock Appreciation Rights granted under this Plan shall be
evidenced by an agreement in such form as the Committee shall prescribe from
time to time in accordance with this Plan and shall comply with the applicable
terms and conditions of this Section and this Plan, and with such other terms
and conditions, including, but not limited to, restrictions upon the Award of
Stock Appreciation Rights or the Common Shares issuable upon exercise thereof,
as the Committee, in its discretion, shall establish.

(a)           The Committee shall determine the
number of Common Shares to be subject to each Award of Stock Appreciation
Rights. In the case of an Award of Stock Appreciation Rights awarded in
conjunction with an Associated Award, the number of Common Shares subject to an
outstanding Award of Stock Appreciation Rights may be reduced on an appropriate
basis to the extent that the Associated Award has been exercised, paid to or
otherwise received by the Participant, as determined by the Committee.

(b)           The Award of Stock Appreciation
Rights shall not be exercisable:

(i)            unless the Associated Award, if any,
is at the time exercisable;

(ii)           if the Associated Award is a Stock
Option and the Fair Market Value per share of the Common Shares on the exercise
date does not exceed the exercise price per share of such Stock Option; and

(iii)         if the Associated Award is an Incentive
Stock Option and the exercise of the Award of Stock Appreciation Rights would
disqualify the Incentive Stock Option as such under the Code.

(c)           The Committee shall determine in its
discretion and specify in each agreement evidencing an Award of Stock Appreciation
Rights the effect, if any, the termination of the Participant’s employment with
or performance of services for the Company shall have on the exercisability of
the Award of Stock Appreciation Rights.

(d)           An Award of Stock Appreciation Rights
shall entitle the holder to exercise such Award or to surrender unexercised an
Associated 

 4
 

 

Award (or any portion of such Associated Award) to Gaiam and to receive
from Gaiam in exchange thereof, without payment to Gaiam, that number of Common
Shares having an aggregate value equal to (or, in the discretion of the
Committee, less than) the excess of the Fair Market Value of one share, at the
time of such exercise, over the exercise price, times the number of shares
subject to the Award or the Associated Award, or portion thereof, that is so
exercised or surrendered, as the case may be. The Committee shall be entitled
in its discretion to elect to settle the obligation arising out of the exercise
of a Stock Appreciation Right by the payment of cash or Other Gaiam Securities
or property, or other forms of payment or any combination thereof, as
determined by the Committee, equal to the aggregate value of the Common Shares
it would otherwise be obligated to deliver. Any such election by the Committee
shall be made as soon as practicable after the receipt by the Committee of
written notice of the exercise of the Stock Appreciation Right.

(e)           A Stock Appreciation Right may
provide that it shall be deemed to have been exercised at the close of business
on the business day preceding the expiration date of the Stock Appreciation
Right or of the related Stock Option (or other Award), or such other date as
specified by the Committee, if at such time such Stock Appreciation Right has a
positive value. Such deemed exercise shall be settled or paid in the same
manner as a regular exercise thereof as provided in subsection 7(d) of
this Agreement.

Section 8.  Restricted Stock.  The
Committee may grant Awards of Restricted Stock either alone, or in conjunction
with Associated Awards, either at the time of grant or by amendment thereafter.
Each Award of Restricted Stock under this Plan shall be evidenced by an
agreement in such form as the Committee shall prescribe from time to time in
accordance with this Plan and shall comply with the applicable terms and
conditions of this Section and this Plan, and with such other terms and
conditions as the Committee, in its discretion, shall establish.

(a)           The Committee shall determine the
number of Common Shares to be issued to a Participant pursuant to the Award of
Restricted Stock, and the extent, if any, to which they shall be issued in
exchange for cash, other consideration, or both.

(b)           Until the expiration of such period
as the Committee shall determine from the date on which the Award is granted
and subject to such other terms and conditions as the Committee in its
discretion shall establish (the “Restricted
Period”), a Participant to whom an Award of Restricted Stock is
made shall be issued, but shall not be entitled to the delivery of, a stock
certificate representing the Common Shares subject to such Award.

(c)           Unless otherwise determined by the
Committee in its discretion, a Participant to whom an Award of Restricted Stock
has been made (and any person succeeding to such a participant’s rights
pursuant to this Plan) shall have, after issuance of a certificate for the
number of Common Shares awarded and prior to the expiration of the Restricted
Period, ownership of such Common Shares, including the right to vote such
Common Shares and to receive dividends or other distributions made or paid with
respect to such Common Shares (provided that
such Common Shares, and any new, additional or different shares, or Other Gaiam
Securities or property, or other forms of consideration that the Participant
may be entitled to receive with respect to such Common Shares as a result of a
stock split, stock dividend or any other change in the corporation or capital
structure of Gaiam, shall be subject to the restrictions set forth in this Plan
as determined by the Committee in its discretion), subject, however, to the
options, restrictions and limitations imposed thereon pursuant to this Plan.

(d)           The Committee shall determine in its
discretion and specify in each agreement evidencing an Award of Restricted Stock
the effect, if any, the termination of the Participant’s 

 5
 

 

employment with or performance of services for the Company during the
Restricted Period shall have on such Award of Restricted Stock.

Section 9.  Performance Grants.  The
Committee may grant Awards of Performance Grants either alone, or in
conjunction with Associated Awards, either at the time of grant or by amendment
thereafter. The Award of a Performance Grant to a Participant will entitle him
to receive a specified amount determined by the Committee (the “Actual Value”), if the terms
and conditions specified in this Plan and in the Award are satisfied. Each
Award of a Performance Grant shall be subject to the applicable terms and
conditions of this Section and this Plan, and to such other terms and
conditions, including but not limited to, restrictions upon any cash, Common
Shares, Other Gaiam Securities or property, or other forms of payment, or any
combination thereof, issued with respect to the Performance Grant, as the
Committee, in its discretion, shall establish, and shall be embodied in an
agreement in such form and substance as is determined by the Committee.

(a)           The Committee shall determine the
value or range of values of a Performance Grant to be awarded to each
Participant selected for an Award and whether or not such a Performance Grant
is granted in conjunction with an Associated Award. As determined by the
Committee, the maximum value of each Performance Grant (the “Maximum Value”) shall be:
(i) an amount fixed by the Committee at the time the Award is made or
amended thereafter, (ii) an amount that varies from time to time based in
whole or in part on the then current value of the Common Shares, Other Gaiam
Securities or property, or other securities or property, or any combination thereof
or (iii) an amount that is determinable from criteria specified by the
Committee. Performance Grants may be issued in different classes or series
having different names, terms and conditions. In the case of a Performance
Grant awarded in conjunction with an Associated Award, the Performance Grant
may be reduced on an appropriate basis to the extent that the Associated Award
has been exercised, paid to or otherwise received by the Participant, as
determined by the Committee.

(b)           The award period (“Award Period”) related to any
Performance Grant shall be a period determined by the Committee. At the time
each Award is made, the Committee shall establish performance objectives to be
attained within the Award Period as the means of determining the Actual Value
of such a Performance Grant. The performance objectives shall be based on such
measure or measures of performance, which may include, but need not be limited
to, the performance of the Participant, the Company or one or more of its
divisions or units, or any combination of the foregoing, as the Committee shall
determine, and may be applied on an absolute basis or be relative to industry
or other indices or any combination thereof. The Actual Value of a Performance
Grant shall be equal to its Maximum Value only if the performance objectives
are attained in full, but the Committee shall specify the manner in which the
Actual Value of Performance Grants shall be determined if the performance
objectives are met in part. Such performance measures, the Actual Value or the
Maximum Value, or any combination thereof, may be adjusted in any manner by the
Committee in its discretion at any time and from time to time during or as soon
as practicable after the Award Period, if it determines that such performance measures,
the Actual Value or the Maximum Value, or any combination thereof, are not
appropriate under the circumstances.

(c)           The Committee shall determine in its
discretion and specify in each agreement evidencing a Performance Grant the
effect, if any, the termination of the Participant’s employment with or
performance of services for the Company during the Award Period shall have on
such Performance Grant.

 6
 

 

(d)           The Committee shall determine whether
the conditions of a Performance Grant have been met and, if so, shall ascertain
the Actual Value of the Performance Grant. If the Performance Grant has no
Actual Value, the Award and such Performance Grant shall be deemed to have been
canceled and the Associated Award, if any, may be canceled or permitted to continue
in effect in accordance with its terms. If the Performance Grant has any Actual
Value and:

(i)            was not awarded in conjunction with
an Associated Award, the Committee shall cause an amount equal to the Actual
Value of the Performance Grant earned by the Participant to be paid to him or
his permitted assignee or Beneficiary; or

(ii)           was awarded in conjunction with an
Associated Award, the Committee shall determine, in accordance with criteria
specified by the Committee (A) to cancel the Performance Grant, in which
event no amount with respect thereto shall be paid to the Participant or his
permitted assignee or Beneficiary, and the Associated Award may be permitted to
continue in effect in accordance with its terms, (B) to pay the Actual
Value of the Performance Grant to the Participant or his permitted assignee or
Beneficiary as provided below, in which event the Associated Award may be
canceled or (C) to pay to the Participant or his Beneficiary, the Actual
Value of only a portion of the Performance Grants, in which event all or a
portion of the Associated Award may be permitted to continue in effect in
accordance with its terms or be canceled, as determined by the Committee.

Such determination by the Committee shall be
made as promptly as practicable following the end of the Award Period or upon
the earlier termination of employment or performance of services, or at such
other time or times as the Committee shall determine, and shall be made
pursuant to criteria specified by the Committee.

(e)           Payment of any amount with respect to
the Performance Grants that the Committee determines to pay as provided above
shall be made by Gaiam as promptly as practicable after the end of the Award
Period or at such other time or times as the Committee shall determine, and may
be made in cash, Common Shares, Other Gaiam Securities or property, or other
forms of payment, or any combination thereof or in such other manner, as
determined by the Committee in its discretion. Notwithstanding anything in this
Section to the contrary, the Committee may, in its discretion, determine and
pay out the Actual Value of the Performance Grants at any time during the Award
Period.

Section 10.  Deferral of Compensation.  The
Committee shall determine whether or not an Award shall be made in conjunction
with the deferral of the Participant’s salary, bonus or other compensation, or
any combination thereof, and whether or not such deferred amounts may be:

(a)           forfeited to the Company or to other
Participants or any combination thereof, under certain circumstances (which may
include, but need not be limited to, certain types of termination of employment
or performance of services for the Company);

(b)           subject to increase or decrease in
value based upon the attainment of or failure to attain, respectively, certain
performance measures; and/or

(c)           credited with income equivalents
(which may include, but need not be limited to, interest, dividends or other
rates of return) until the date or dates of payment of the Award, if any.

 7
 

 

Section 11.  Deferred Payment of Awards.  The
Committee may specify that the payment of all or any portion of cash, Common
Shares, Other Gaiam Securities or property, or any other form of payment, or
any combination thereof, under an Award shall be deferred until a later date. Deferrals
shall be for such periods or until the occurrence of such events, and upon such
terms, as the Committee shall determine in its discretion, provided however, that any such deferral shall comply with
the requirements of Code Section 409A. Deferred payments of Awards may
be made by undertaking to make payment in the future based upon the performance
of certain investment equivalents (which may include, but need not be limited
to, government securities, Common Shares, other securities, property or consideration,
or any combination thereof), together with such additional amounts of income
equivalents (which may be compounded and may include, but need not be limited
to, interest, dividends or other rates of return or any combination thereof) as
may accrue thereon until the date or dates of payment, such investment
equivalents and such additional amounts of income equivalents to be determined
by the Committee in its discretion.

Section 12.  Transferability of Awards.  A
Participant’s rights and interest under this Plan or any Award may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise, including, but not by way of
limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in
any other manner; provided, however, the Committee
may permit such transfer to a Permitted Transferee; and provided,
further, that, unless otherwise permitted by the Code, any Incentive
Stock Option granted pursuant to this Plan shall not be transferable other than
by will, by the laws of descent and distribution, and shall be exercisable
during the Participant’s lifetime only by Participant or by such Permitted
Transferee.

Section 13.  Amendment or Substitution of Awards under this Plan.  The
terms of any outstanding Award under this Plan may be amended or modified from
time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of
exercise of any Award and/or payments thereunder) if the Committee could grant
such amended or modified Award under the terms of this Plan at the time of such
amendment or modification; provided that
no such amendment or modification shall adversely affect in a material manner
any right of a Participant under the Award without his written consent, unless
the Committee determines in its discretion that there have occurred or are
about to occur significant changes in the Participant’s position, duties or
responsibilities, or significant changes in economic, legislative, regulatory,
tax, accounting or cost/benefit conditions that are determined by the Committee
in its discretion to have or to be
expected to have a substantial effect on the performance of the Company, or any
affiliate, division or department thereof, on this Plan or on any Award under
this Plan and provided further that the Committee shall not have the authority
to accelerate the time or schedule of any payment in a manner which is not
permitted under Code Section 409A, or to grant or amend any Award in any manner
which would result in an inclusion of any amount in gross income under Code
Section 409A(a)(1). The Committee may, in its discretion, permit holders of
Awards under this Plan to surrender outstanding Awards in order to exercise or
realize the rights under other Awards, or in exchange for the grant of
new Awards, or require holders of Awards to surrender outstanding Awards as a
condition precedent to the grant of new Awards under this Plan.

Section 14.  Termination of a Participant.  For
all purposes under this Plan, the Committee shall determine whether a
Participant has terminated employment with, or the performance of services for,
the Company; provided, however, an absence or leave approved by the Company, to the
extent permitted by applicable provisions of the Code, shall not be considered
an interruption of employment or performance of services for any purpose under
this Plan.

Section 15.  Dilution and Other Adjustments.  If
any change in the outstanding Common Shares of the Company occurs by reason of
any stock split of or stock dividend on the Common Shares, then, 

 8
 

 

except as otherwise determined by the Committee, the
terms of any outstanding Awards shall be equitably adjusted. If any change in
the outstanding Common Shares occurs by reason of any split-up, split-off,
spin-off, recapitalization, merger, consolidation, rights offering,
reorganization, combination or exchange of shares, sale by the Company of all
of its assets, distribution to shareholders (other than a stock dividend or a
normal cash dividend on the Common Shares), or other extraordinary or unusual
event (other than a stock split of the Common Stock as provided above), then
the Committee may determine, in its discretion, to terminate all outstanding
Awards immediately prior to the consummation of any such event, or make an
equitable adjustment in the terms of any outstanding Award and/or the number of
Common Shares available for Awards. Any such termination or adjustment made by
the Committee and shall be final, conclusive and binding for all purposes of
the Plan. Unless otherwise provided by the Committee, all outstanding Awards
shall terminate immediately prior to the consummation of any dissolution or
liquidation of the Company.

Section 16.  Designation of Beneficiary by Participant.  A
Participant may name a beneficiary to receive any payment to which he may be
entitled with respect to any Award under this Plan in the event of his death,
on a written form to be provided by and filed with the Committee, and in a
manner determined by the Committee in its discretion (a “Beneficiary”). The Committee
reserves the right to review and approve Beneficiary designations. A
Participant may change his Beneficiary from time to time in the same manner,
unless such Participant has made an irrevocable designation. Any designation of
a Beneficiary under this Plan (to the extent it is valid and enforceable under
applicable law) shall be controlling over any other disposition, testamentary
or otherwise, as determined by the Committee in its discretion. If no
designated Beneficiary survives the Participant and is living on the date on
which any amount becomes payable to such a Participant’s Beneficiary, such
payment will be made to the legal representatives of the Participant’s estate,
and the term “Beneficiary”
as used in this Plan shall be deemed to include such person or persons. If
there are any questions as to the legal right of any Beneficiary to receive a
distribution under this Plan, the Committee in its discretion may determine
that the amount in question be paid to the legal representatives of the estate
of the Participant, in which event the Company, the Board, the Committee, the
Designated Administrator (if any), and the members thereof, will have no further
liability to anyone with respect to such amount.

Section 17.  Financial Assistance.  If
the Committee determines that such action is advisable, the Company may assist
any Participant in obtaining financing from the Company (or under any program
of the Company approved pursuant to applicable law), or from a bank or other
third party, on such terms as are determined by the Committee, and in such
amount as is required to accomplish the purposes of this Plan, including, but
not limited to, to permit the exercise of an Award, the participation therein,
and/or the payment of any taxes with respect thereto. Such assistance may take
any form that the Committee deems appropriate, including, but not limited to, a
direct loan from the Company, a guarantee of the obligation by the Company or
the maintenance by the Company of deposits with such bank or third party.

Section 18.  Miscellaneous Provisions.

(a)           Any proceeds from Awards shall
constitute general funds of Gaiam.

(b)           No fractional shares may be delivered
under an Award, but in lieu thereof a cash or other adjustment may be made as
determined by the Committee in its discretion.

(c)           No Eligible Person or other person
shall have any claim or right to be granted an Award under this Plan.
Determinations made by the Committee under this Plan need not be uniform and
may be made selectively among Eligible Persons under this Plan, whether or not
such Eligible Persons are similarly situated. Neither this Plan nor any action
taken hereunder shall be construed as giving any Eligible Person any right to
continue to be employed by or perform 

 9
 

 

services for the Company, and the right to terminate the employment of
or performance of services by Eligible Persons at any time and for any reason
is specifically reserved.

(d)           No Participant or other person shall
have any right with respect to this Plan, the Common Shares reserved for
issuance under this Plan or in any Award, contingent or otherwise, until
written evidence of the Award shall have been delivered to the recipient and
all the terms, conditions and provisions of this Plan and the Award applicable
to such recipient (and each person claiming under or through him) have been
met.

(e)           No Common Shares, Other Gaiam
Securities or property, other securities or property or other forms of payment
shall be issued hereunder with respect to any Award unless counsel for Gaiam
shall be satisfied that such issuance will be in compliance with applicable law
and any applicable rules of any stock exchange or other market quotation system on which Common Shares are listed.

(f)            It is the intent of Gaiam that this
Plan comply in all respects with Rule 16b-3 and Section 162(m) with
respect to Awards granted to executive officers of Gaiam, that any ambiguities
or inconsistencies in construction of this Plan be interpreted to give effect
to such intention and that if any provision of this Plan is found not to be in
compliance with Rule 16b-3 or Section 162(m), such provision shall be
deemed null and void with respect to Awards granted to executive officers of
Gaiam to the extent required to permit such Awards to comply with Rule 16b-3
and Section 162(m). It is also the intent of Gaiam that this Plan comply in all
respects with the provisions of the Code providing favorable treatment to
Incentive Stock Options, that any ambiguities or inconsistencies in
construction of this Plan be interpreted to give effect to such intention and
that if any provision of this Plan is found not to be in compliance with the
Incentive Stock Option provisions of the Code, such provision shall be deemed
null and void with respect to Incentive Stock Options granted to employees of
the Company to the extent required to permit such Incentive Stock Options to
receive favorable treatment under the Code.

It
is the intent of Gaiam that this Plan comply in all respects with any
applicable provisions of Code Section 409A with respect to Awards granted under
this plan and any amendment or revision of such Awards, that any ambiguities or
inconsistencies in construction of this Plan be interpreted to give effect to
such intention and that if any provision of this Plan is found not to be in
compliance with any applicable provisions of Code Section 409A such Plan
provision shall be deemed null and void to the extent required to permit such
Awards to comply with any applicable provisions of Code Section 409A.
Specifically, the Committee shall not have the authority to accelerate the time
or schedule of any payment in a manner which is not permitted under Code
section 409A or the regulations issued thereunder, or to grant or amend any
Award in any manner which would result in an inclusion of any amount in gross
income under Code Section 409A(a)(1).

(g)           The Company shall have the right to
deduct from any payment made under this Plan any federal, state, local or
foreign income or other taxes required by law to be withheld with respect to
such payment. It shall be a condition to the obligation of Gaiam to issue
Common Shares, Other Gaiam Securities or property, other securities or
property, or other forms of payment, or any combination thereof, upon exercise,
settlement or payment of any Award under this Plan, that the Participant (or
any Beneficiary or person entitled to act) pay to Gaiam, upon its demand, such
amount as may be required by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes.
If the amount requested is not paid, Gaiam may refuse to issue Common Shares,
Other Gaiam Securities or property, other securities or property, or other
forms of payment, or any combination thereof.

 10

 

Notwithstanding anything in this Plan to the
contrary, the Committee may, in its discretion, permit an Eligible Person (or
any Beneficiary or person entitled to act) to elect to pay a portion or all of
the amount requested by the Company for such taxes with respect to such Award,
at such time and in such manner as the Committee shall deem to be appropriate
(including, but not limited to, by authorizing Gaiam to withhold, or agreeing
to surrender to Gaiam on or about the date such tax liability is determinable,
Common Shares, Other Gaiam Securities or property, other securities or
property, or other forms of payment, or any combination thereof, owned by such
person or a portion of such forms of payment that would otherwise be
distributed, or have been distributed, as the case may be, pursuant to such
Award to such person, having a Fair Market Value equal to the amount of such
taxes).

(h)           The expenses of this Plan shall be
borne by the Company; provided, however,
the Company may recover from a Participant or his Beneficiary, heirs or assigns
any and all damages, fees, expenses and costs incurred by the Company arising
out of any actions taken by a Participant in breach of this Plan or any
agreement evidencing such Participant’s Award.

(i)            This Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of assets to assure the payment of any Award under
this Plan, and rights to the payment of Awards shall be no greater than the
rights of the Company’s general creditors.

(j)            By accepting any Award or other
benefit under this Plan, each Participant and each person claiming under or
through him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under this Plan by the
Company, the Board, the Committee or the Designated Administrator (if
applicable).

(k)           The appropriate officers of the
Company shall cause to be filed any reports, returns or other information
regarding Awards hereunder of any Common Shares issued pursuant hereto as may
be required by applicable law and any applicable rules of any stock exchange or
other market quotation system on
which Common Shares are listed.

(l)            The validity, construction,
interpretation, administration and effect of this Plan, and of its rules and
regulations, and rights relating to this Plan and to Awards granted under this
Plan, shall be governed by the substantive laws, but not the choice of law
rules, of the State of Colorado.

(m)          Records of the Company shall be
conclusive for all purposes under this Plan or any Award, unless determined by
the Committee to be incorrect.

(n)           If any provision of this Plan or any
Award is held to be illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining provisions of this Plan or any Award,
but such provision shall be fully severable, and this Plan or Award, as
applicable, shall be construed and enforced as if the illegal or invalid
provision had never been included in this Plan or Award, as applicable.

(o)           The
terms of this Plan shall govern all Awards under this Plan and in no event
shall the Committee have the power to grant any Award under this Plan that is
contrary to any of the provisions of this Plan.

(p)           For purposes of interpretation of
this Plan, the masculine pronoun includes the feminine and the singular
includes the plural wherever appropriate.

 11
 

 

Section 19.  Plan Amendment or Suspension.  This
Plan may be amended or suspended in whole or in part at any time from time to
time by the Board. No amendment of this Plan shall adversely affect in a
material manner any right of any Participant with respect to any Award
previously granted without such Participant’s written consent, except as
permitted under Section 13.

Section 20.  Plan Termination.  This
Plan shall terminate upon the earlier of the following dates or events to
occur:

(a)           upon the adoption of a resolution of
the Board terminating this Plan; or

(b)           the tenth anniversary of the
Effective Date; provided, however, that the Board
may, prior to such date, extend the term of this Plan for an additional period
of up to five years for the grant of Awards other than Incentive Stock Options.
No termination of this Plan shall materially alter or impair any of the rights
or obligations of any person, without his consent, under any Award previously
granted under this Plan, except that
subsequent to termination of this Plan, the Committee may make amendments or
modifications permitted under Section 13.

Section 21.  Effective Date.  This
Plan shall be effective, and Awards may be granted under this Plan, on or after
the Effective Date.

 12
 

 

APPENDIX A

The following
terms shall have the meaning indicated:

(a)           “Actual Value” has the meaning set forth in Section 9.

(b)           “Associated Award” shall mean an Award granted
concurrently or subsequently in conjunction with another Award.

(c)           “Award” shall mean an award of rights to an Eligible
Person under this Plan.

(d)           “Award Period” has the meaning set forth in subsection
9(b).

(e)           “Beneficiary” has the meaning set forth in Section 16.

(f)            “Board” shall mean the board of directors of Gaiam.

(g)           “Code” shall mean the Internal Revenue Code of 1986, as
it now exists or may be amended from time to time, and the rules and
regulations promulgated thereunder, as they may exist or may be amended from
time to time.

(h)           “Committee” shall mean the person or persons responsible
for administering the Plan. The Board shall constitute the Committee until the
Board appoints a Board Committee, after which time the Board Committee shall
constitute the Committee, provided, however, that at any time the Board may
designate itself as the Committee or designate itself to administer certain of
the Committee’s authority under the Plan, including administering certain Awards
under the Plan. The Board or the Board Committee may designate a Designated
Administrator to constitute the Committee or to administer certain of the
Committee’s authority under the Plan, including administering certain Awards
under the Plan, subject to the right of the Board or the Board Committee, as
applicable, to revoke its designation at any time and to make such designation
on such terms and conditions as it may determine in its discretion. For
purposes of this definition, the “Board Committee” shall mean a
committee of the Board designated by the Board to administer this Plan. Except
as otherwise determined by the Board, the Board Committee (i) shall be
comprised of not fewer than two directors, (ii) shall meet any applicable
requirements under Rule 16b-3, including any requirement that the Board
Committee consist of “nonemployee directors” (as defined in Rule 16b-3), (iii)
shall meet any applicable requirements under Section 162(m), including any
requirement that the Board Committee consist of “outside directors” (as defined
in Treasury Regulation §1.162-27(e)(3)(i) or any successor regulation), and
(iv) shall meet any applicable requirements of any stock exchange or other
market quotation system on which Common Shares are listed. For purposes of this
definition, the “Designated
Administrator” shall mean a person or person designated
by the Board or a Board Committee to act as a Designated Administrator pursuant
to this Plan. Except as otherwise determined by the Board, a Designated
Administrator shall only be appointed if Rule 16b-3 permits such
appointment and the exercise of any authority without adversely affecting the
ability of Awards to officers of Gaiam to comply with the conditions for Rule
16b-3 or Section 162(m).

(i)            “Company” shall mean Gaiam and any parent, subsidiary or
affiliate of Gaiam.

 13
 

 

(j)            “Common Shares” shall mean shares of Class A common
stock, par value $0.0001 per share, of Gaiam and stock of any other class into
which such shares may thereafter be changed.

(k)           “Effective Date” shall June 1, 1999.

(l)            “Eligible Person(s)” shall mean those persons who are
full or part-time employees of the Company or other individuals who perform
services for the Company, including, without limitation, directors who are not
employees of the Company and consultants and independent contractors who
perform services for the Company.

(m)          “Exchange Act” shall mean the
Securities Exchange Act of 1934, as it now exists or may be amended from time
to time, and the rules promulgated thereunder, as they may exist or may be
amended from time to time.

(n)           “Fair Market Value” shall mean such value rounded up to
the nearest cent as determined by the Committee in accordance with applicable
law.

(o)           “Incentive Stock Option” shall mean a Stock Option that
is an incentive stock option as defined in Section 422 of the Code. Incentive
Stock Options are subject, in part, to the terms, conditions and restrictions
described in Section 6.

(p)           “Maximum Value” has the meaning set forth in subsection
9(a).

(q)           “Gaiam” shall mean Gaiam, Inc., a Colorado corporation.

(r)           “Nonqualified Stock Option” shall mean a Stock Option
that is not an incentive stock option as defined in Section 422 of the Code.
Nonqualified Stock Options are subject, in part, to the terms, conditions and
restrictions described in Section 6.

(s)           “Other Gaiam Securities” shall mean Gaiam securities
(which may include, but need not be limited to, unbundled stock units or
components thereof, debentures, preferred stock, warrants, securities
convertible into Common Shares or other property) other than Common Shares.

(t)            “Participant” shall mean an Eligible Person to whom an
Award has been granted under this Plan.

(u)           “Performance Grant” shall mean an Award subject, in part,
to the terms, conditions and restrictions described in Section 9, pursuant
to which the recipient may become entitled to receive cash, Common Shares,
Other Gaiam Securities or property, or other forms of payment, or any
combination thereof, as determined by the Committee.

(v)            “Permitted Transferee” means (i)
any person defined as an employee in the Instructions to Registration Statement
Form S-8 promulgated by the Securities and Exchange Commission, as such Form
may be amended from time to time, which persons include, as of the date of
adoption of the Plan, (a) executors, administrators or beneficiaries of the
estates of deceased Participants, guardians or members of a committee for
incompetent former Participants, or similar persons duly authorized by law to
administer the estate or assets of former Participants, and (b) Participants’
family members who acquire Awards from the Participant other than for value,
through a gift or a domestic relations order and (ii) any trust established for
the benefit of 

 14
 

 

any person
described in clause (i). For purposes of this definition, “family member” includes any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the Participant’s household (other than a
tenant or employee), a trust in which these persons have more than fifty
percent of the beneficial interest, a foundation in which these persons (or the
Participant) control the management of assets, and any other entity in which
these persons (or the Participant) own more than fifty percent of the voting
interests. For purposes of this definition, neither (i) a transfer under a
domestic relations order in settlement of marital property rights; nor (ii) a
transfer to an entity in which more than fifty percent of the voting interests
are owned by family members (or the Participant) in exchange for an interest in
that entity is considered a transfer for “value”.

(w)           “Plan” shall mean this Gaiam, Inc. 1999 Long-Term
Incentive Plan.

(x)           “Purchased Option” shall mean a Stock Option that is sold
to an Eligible Person at a price determined by the Committee. Purchased Options
are subject, in part, to the terms, conditions and restrictions described in
Section 6.

(y)           “Restricted Period” has the meaning set forth in
subsection 8(b).

(z)           “Restricted Stock” shall mean an Award of Common Shares
that are issued subject, in part, to the terms, conditions and restrictions
described in Section 8.

(aa)         “Rule
16b-3” shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act and any successor rule.

(bb)         “Section
162(m)” shall mean §162(m) of the Code, any rules or regulations
promulgated thereunder, as they may exist or may be amended from time to time,
or any successor to such section.

(cc)         “Section 409A” shall mean
§409A of the Code, any rules or regulations promulgated thereunder, as they may
exist or may be amended from time to time, or any successor to such section.

(dd)         “Stock
Appreciation Right” shall mean an Award of a right to receive
(without payment to Gaiam) cash, Common Shares, Other Gaiam Securities or
property, or other forms of payment, or any combination thereof, as determined
by the Committee, based on the increase in the value of the number of Common
Shares specified in the Stock Appreciation Right. Stock Appreciation Rights are
subject, in part, to the terms, conditions and restrictions described in
Section 7.

(ee)         “Stock
Option” shall mean an Award of a right to purchase Common
Shares. The term Stock Option shall include Nonqualified Stock Options,
Incentive Stock Options and Purchased Options.

(ff)           “Ten Percent Employee” shall mean an employee of the
Company who owns stock representing more than ten percent of the voting power
of all classes of stock of Gaiam or any parent or subsidiary of Gaiam.

(gg)         “Treasury
Regulation” shall mean a final, proposed or temporary regulation
of the Department of Treasury under the Code and any successor regulation.

 15

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