Document:

Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is entered into to be effective as of immediately before the effectiveness of the initial public offering of Common Stock (the “Effective Date”) as specified on Exhibit A to this Agreement (“Ex. A”), which is incorporated herein by reference, by and between the company identified on Ex. A (the “Company”) and the employee identified on Ex. A. (“Employee”).

 

RECITALS

 

WHEREAS, the Company desires to continue to employ Employee, and Employee desires to continue to be employed by the Company, subject to the terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to the following terms:

 

TERMS

 

1.                                      Defined Terms.  Capitalized terms used throughout this Agreement have the meaning ascribed to such terms in Exhibit B to this Agreement (“Ex. B”), which is incorporated herein by reference.

 

2.                                      Employment and Duties.

 

a.                                      Duties; Responsibilities; Authorities; and Primary Work Location.  Employee shall serve in the position and with the title set forth on Ex. A or in such other similar capacity or capacities for the Company or any Affiliates as the President may from time to time designate in his sole discretion.  In such capacity or capacities, Employee shall (i) have the duties, responsibilities, and authorities as may be assigned by the President from time to time in his sole discretion; (ii) report to the President as identified on Ex. A; (iii) comply with and, where applicable, enforce the personnel, ethical, and operational policies and procedures of the Company and its Affiliates; and (iv) cooperate with any investigation or inquiry authorized by the Company or an Affiliate or conducted by a governmental authority related to the Company’s or an Affiliate’s business or Employee’s conduct.  Any obligations of the Company under this Agreement may be satisfied by the Company’s delegation of such obligations to one or more of its Affiliates.  Although Employee shall be expected to work at all the Company and Affiliate locations from time to time and travel as necessary to perform his duties and responsibilities, Employee’s primary work location shall be at the location identified on Ex. A.

 

b.                                      Exclusive Services and Compensation.  Employee shall devote his full working time, skill, attention, and best efforts to the business and affairs of the Company and its Affiliates, and shall not engage in any activity inconsistent with the foregoing,

 

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whether or not such activity is pursued for gain, profit, or other pecuniary advantage, unless the Company consents to Employee’s involvement in such activity in writing upon full disclosure by Employee; provided, however, that to the extent such activities do not violate or interfere with Employee’s performance of his duties and responsibilities under this Agreement or otherwise violate this Agreement, Employee may (i) manage his personal, financial, and legal affairs; (ii) participate in professional organizations; and (iii) engage in charitable and community activities.  All services that Employee may render to the Company or any of its Affiliates in any capacity during the Term shall be deemed to be services required by this Agreement and the consideration for such services is that provided for in this Agreement.

 

c.                                       Dodd-Frank Act and Other Applicable Law Requirements.  Employee agrees (i) to abide by any compensation recovery, recoupment, anti-hedging, or other policy applicable to executives of the Company and its Affiliates, as may be in effect from time to time, as approved by the Board or a duly authorized committee thereof or as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) or other applicable law, and (ii) that the terms and conditions of this Agreement shall be deemed automatically amended as may be necessary from time to time to ensure compliance by Employee and this Agreement with such policies, the Dodd-Frank Act, or other applicable law.

 

3.                                      Term.  This Agreement shall continue in full force and effect for the initial term identified on Ex. A (the “Initial Term”) commencing on the Effective Date and continuing until the expiration date identified on Ex. A (the “Expiration Date”), unless terminated before the Expiration Date in accordance with Section 5.  Notwithstanding the previous sentence, the effectiveness of this Agreement shall automatically be extended for an additional one-year term on the Expiration Date and on each successive anniversary of the Expiration Date (each, a “Extension Date”), unless and until (a) either party gives written notice of non-renewal at least 90 days before the Expiration Date or any Extension Date; or (b) the Agreement is terminated earlier in accordance with Section 5 (each, an “Extension Term”).  The Initial Term and any Extension Terms shall be referred to below collectively as the “Term” of this Agreement.

 

4.                                      Compensation and Benefits.  In consideration for the performance of Employee’s duties, responsibilities, and authorities under this Agreement, the Company shall provide, or cause its Affiliate to provide, Employee with the following compensation and employment benefits:

 

a.                                      Base Salary.  Employee shall receive an initial annual base salary in the amount identified on Ex. A (the “Base Salary”) prorated for any partial period of employment and payable in accordance with the Company’s ordinary payroll policies and procedures for employee compensation.  The Base Salary may be reviewed and/or adjusted from time to time at the sole discretion of the Committee.

 

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b.                                      Bonus.  Employee shall be eligible to participate in a bonus plan or program (the “Bonus Plan”) that is generally applicable to similarly situated employees of the Company and its Affiliates.  Any bonus payable under the Bonus Plan (the “Bonus”) may be based upon the achievement of certain performance goals and objectives during the applicable fiscal year (or other performance period) as determined by the Committee in its sole discretion.  Employee’s Bonus target (the “Bonus Target”) shall be determined from time to time by the Committee in its sole discretion.  The Committee will approve and certify achievement of performance results prior to the payment of any Bonus. Notwithstanding the foregoing, except as otherwise provided in this Agreement and/or the Company’s Bonus Plan, Employee shall not be eligible for a Bonus unless Employee remains employed by the Company as of the last day of the fiscal year (or other performance period) with respect to which the Bonus relates, and any such Bonus shall be paid to Employee no later than the 15th day of the third calendar month following the fiscal year (or other performance period) with respect to which the Bonus relates.

 

c.                                       Paid Time Off.  For each calendar year during the Term, Employee shall be entitled to the number of weeks of paid time off set forth on Ex. A, prorated for any partial periods of employment, to be accrued and used in accordance with the terms of the Company’s paid time off policy.  Unless otherwise specifically permitted under the Company’s paid time off policy applicable to similarly situated employees or required by applicable law, any accrued and unused paid time off shall not be carried over from year to year and shall not be reimbursed if not used during the year in which it was granted.

 

d.                                      Other Employee Benefits.  Employee shall be entitled to participate in all employee benefit plans, programs, and arrangements extended, from time to time, to similarly situated employees of the Company pursuant to the terms and eligibility requirements of such plans.  Such employment benefits, plans, programs, and arrangements shall be governed by the applicable plan documents, insurance policies, and/or employment policies, and may be modified, suspended, revoked, or terminated in the Company’s sole discretion without violating this Agreement.

 

e.                                       Expense Reimbursement.  Employee shall be authorized to incur ordinary, necessary, and reasonable business and travel expenses while performing his duties, responsibilities, and authorities under this Agreement and promoting the Company’s business and activities during the Term.  The Company shall reimburse Employee for all such expenses incurred in accordance with the Company’s policies and practices concerning reimbursement of business expenses.

 

f.                                        Other Compensation and Benefits.  The Company shall pay or provide Employee with the other compensation and benefit-related items, if any, as set forth on Ex. A.

 

g.                                       Withholding and Deductions.  With respect to any payment to be made to Employee under this Agreement, the Company shall deduct, where applicable, any amounts

 

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authorized by Employee and permissible under applicable law, and shall withhold and report all amounts required to be withheld and reported by applicable law.

 

h.                                      Supplemental Life Insurance Policy.  The Company shall use commercially reasonable efforts as soon as reasonably possible after the Effective Date to provide Employee with either a supplemental individual life insurance policy or coverage under a supplemental group life insurance policy (the policy being provided being referred to as the “Policy”) subject to the following terms: (i) the term of the Policy shall be ten (10) years; (ii) the Company shall pay the premiums for such Policy for ten (10) years or until this Agreement is terminated, whichever is shorter; (iii) Employee shall be entitled to name the beneficiary or beneficiaries of the Policy as it pertains to his benefits under the Policy; (iv) the Policy shall provide for a benefit equal to at least three (3) multiplied by Employee’s Base Salary plus Bonus Target; (v) Employee shall submit to a medical examination if such examination is required by the insurance company issuing the Policy; and (vi) the Policy shall be in addition to any life-insurance coverage the Company ordinarily provides to its executive employees.

 

5.                                      Termination.

 

a.                                      Circumstances:  This Agreement may be terminated as follows and any termination of this Agreement shall also constitute a termination of Employee’s employment with the Company:

 

i.                                          Death.  Employee’s employment shall automatically terminate upon his death.

 

ii.                                       Inability to Perform.  The Company may terminate Employee’s employment by reason of Employee’s Inability to Perform.

 

iii.                                    Termination for Cause.  The Company may terminate Employee’s employment for Cause.

 

iv.                                   Termination without Cause.  The Company may terminate Employee’s employment without Cause.

 

v.                                      Resignation for Good Reason.  Employee may resign his employment for Good Reason.

 

vi.                                   Resignation without Good Reason.  Employee may resign his employment without Good Reason.

 

vii.                                Non-Extension of Term by the Company.  The Company may give notice of non-extension to Employee pursuant to Section 3, in which event the Term shall expire and Employee’s employment shall terminate on the last day of the then current Term.

 

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viii.                             Non-Extension of Term by Employee.  Employee may give notice of non-extension to the Company pursuant to Section 3, in which event the Term shall expire and Employee’s employment shall terminate on the last day of the then current Term.

 

b.                                      Procedure for Termination by the Company for Cause.  Before exercising its right to terminate Employee’s employment for Cause, the Board must provide written notice to Employee of its intent to do so, and that notice shall describe in reasonable detail the condition(s) believed to constitute Cause under such clause(s) and provide Employee with a reasonable period of time to correct the condition(s) (the “Correction Period”), unless the Board determines in its sole discretion that such condition(s) are not reasonably capable of being corrected or appropriately curable.  A thirty (30)-day Correction Period shall be presumptively reasonable.  Nothing in this Section 5(b) precludes discussions between Employee and the Company, or personnel actions by the Company short of termination of employment, regarding such condition(s).

 

c.                                       Procedure for Resignation by Employee for Good Reason.  To exercise his option to resign employment for Good Reason, Employee must provide written notice to the Company of his belief that Good Reason exists within sixty (60) days of the initial existence of the Good Reason condition, and that notice shall describe in reasonable detail the condition(s) believed to constitute Good Reason.  The Company then shall have thirty (30) days to remedy the Good Reason condition(s).  If not remedied within that thirty (30)-day period or if the Company notifies Employee that it does not intend to cure such condition(s) before the end of that thirty (30)-day period, Employee may submit a Notice of Termination pursuant to Section 5(d); provided, however, that the Notice of Termination invoking Employee’s right to terminate his employment for Good Reason must be given no later than one-hundred (100) days after the date the Good Reason condition first arose; otherwise, Employee is deemed to have accepted the condition(s), or the Company’s correction of such condition(s), that may have given rise to the existence of Good Reason.

 

d.                                      Notice of Termination.  Any termination of Employee’s employment by the Company or by Employee under this Section 5 (other than termination pursuant to Section 5(a)(i)) shall be communicated by a Notice of Termination to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a written notice indicating the specific termination provision in this Agreement relied upon for the termination and specifying the Date of Termination; provided, however, that the failure by the Company or Employee to issue a Notice of Termination shall not waive any right of the Company or Employee under this Agreement.

 

e.                                       Investigation; Suspension.  The Company may suspend Employee’s employment with pay pending an investigation authorized by the Company or an Affiliate or a governmental authority or a determination whether Employee has engaged in acts or

 

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omissions constituting Cause, and such paid suspension shall not constitute Good Reason or a termination of Employee’s employment.

 

f.                                        Deemed Resignation.  Any termination of Employee’s employment with the Company shall constitute an automatic resignation of Employee from all other positions as an employee, officer, director, manager, or other service provider of the Company and each Affiliate of the Company, and an automatic resignation of Employee from the Board (if applicable and unless otherwise agreed in writing) and from the board of directors or similar governing body of the Company and any Affiliate and from the board of directors or similar governing body of any corporation, limited liability company, or other entity in which the Company or any Affiliate holds an equity interest and with respect to which board or similar governing body Employee serves as the Company’s or such Affiliate’s designee or other representative, and as a trustee, fiduciary, committee member or service provider in any other capacity with respect to the Company’s and its Affiliates’ employee benefit plans, programs, policies and arrangements.

 

g.                                       Survival.  The expiration or termination of the Term shall not impair the rights or obligations of any party under this Agreement, which shall have accrued prior to such expiration or termination or which by their nature or terms survive the expiration or termination of the Term including without limitation Employee’s obligations under Sections 9, 10, 11, and 19 and the Company’s obligations under Sections 6, 7, and 19.

 

6.                                      Rights and Obligations Upon Termination Not In Connection with a Change in Control.

 

a.                                      Termination for Any Reason.  Upon Employee’s termination from employment with the Company for any reason, the Company shall pay Employee (i) Employee’s Base Salary through the Date of Termination, (ii) business expenses incurred through the Date of Termination that are reimbursable pursuant to Section 4(e), (iii) any accrued but unused paid time off through the Termination Date if payable under the Company’s paid time off policy, and (iv) any Bonus awarded pursuant to the Bonus Plan for the fiscal year (or other performance period) preceding the year in which the Date of Termination occurs which remains unpaid as of the Date of Termination.  The amounts, if any, in clauses (i)-(iii) shall be paid at the time and in the manner required by applicable law but in no event later than thirty (30) business days after the Date of Termination.  The amount, if any, in clause (iv) shall be paid in the manner and at the time provided for in the Bonus Plan; provided, however, that such payment shall be made no later than the 15th day of the third calendar month following the fiscal year (or other bonus performance period) with respect to which the Bonus relates.

 

b.                                      Termination by the Company without Cause, Resignation by Employee for Good Reason, or Non-Extension by the Company.  In addition to the payments provided for in Section 6(a) and except as provided in Section 7(a) or (b), as applicable, if Employee’s employment is terminated by the Company without Cause pursuant to

 

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Section 5(a)(iv), by reason of Employee’s resignation for Good Reason pursuant to Section 5(a)(v), or pursuant to Section 5(a)(vii) by reason of notice of non-extension given by the Company pursuant to Section 3:

 

i.                                          The Company shall pay to Employee an amount equal to (A) that portion or multiple set forth on Ex. A of Employee’s Base Salary as of the Date of Termination or, if greater, of Employee’s Base Salary before any reduction not consented to by Employee at any time within two (2) years immediately before the Date of Termination plus (B) that portion or multiple set forth on Ex. A of Employee’s Bonus Target as of the Date of Termination (together, the “Severance Pay”), at the time and in the manner provided in Section 6(c); provided, however, that, if Employee’s employment is terminated pursuant to Section 5(a)(vii) by reason of notice of non-extension given by the Company pursuant to Section 3, then the Severance Pay shall be limited to 100% of his Base Salary in effect immediately before the Date of Termination, the Severance Pay shall not include the components just described above, and Employee shall not be entitled to the Severance Benefits Continuation described below; and

 

ii.                                       Should Employee timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its Affiliates and timely make the premium payments, the Company shall reimburse Employee on a monthly basis for the cost of continued coverage under COBRA for Employee and any of his eligible dependents until the earlier of (A) the date Employee is no longer entitled to continuation coverage under COBRA or (B) the number of months set forth on Ex. A following the Date of Termination (the “Severance Benefits Continuation”);

 

provided further, however, that Employee shall not be entitled to receive the Severance Pay and Severance Benefits Continuation (or the payments provided for in Sections 7(a) or (b), as applicable) unless (x) Employee executes and returns to the Company a Release on or prior to the 60th day following the Date of Termination or such shorter time as may be prescribed in the Release, (y) such Release shall not have been timely revoked by Employee, and (z) the Date of Termination constitutes a Separation from Service; and provided further, however, that if Employee violates his continuing obligations under Sections 9, 10, or 11, Employee shall not be entitled to receive the Severance Pay or Severance Benefits Continuation (or the payments provided for in Sections 7(a) or (b), as applicable) and Employee shall immediately repay to the Company upon written demand any Severance Pay or Severance Benefits Continuation (or the payments provided for in Sections 7(a) or (b), as applicable) that already have been paid to him.  For purposes of clarification only, Employee is not entitled to Severance Pay or Severance Benefits Continuation if his employment terminates by reason of death or Inability to Perform, by reason of his resignation without Good Reason, by reason of notice of non-extension given by Employee, or by reason of the termination of his employment for Cause.

 

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c.                                       Time and Manner of Payment of Severance Pay.  The Severance Pay provided for under Section 6(b)(i) shall be paid as follows:

 

i.                                          If the Severance Pay is equal to or less than the Section 409A Exempt Amount, then the Severance Pay shall be paid in equal monthly installments (each of which such installments may be made, at the Company’s sole discretion, over one or more of the Company’s payroll dates in such month) over the “Severance Pay Period” set forth on Ex. A, commencing in payment with the first month after the calendar month in which the Release Effective Date occurs.

 

ii.                                       If the Severance Pay is greater than the Section 409A Exempt Amount (as defined below), then

 

(A)                               the Section 409A Exempt Amount shall be paid in equal monthly installments (each of which such installments may be made, at the Company’s sole discretion, over one or more of the Company’s payroll dates in such month) over the Severance Pay Period, commencing in payment with the first month after the calendar month in which the Release Effective Date occurs, and

 

(B)                               the excess of the Severance Pay over the Section 409A Exempt Amount shall be paid in a single lump sum no later than sixty (60) days after the Date of Termination.

 

Notwithstanding the foregoing, in no event shall any Severance Pay be paid later than the last day of the second calendar year following the calendar year in which Employee’s Separation from Service occurs.

 

7.                                      Rights and Obligations Upon Termination In Connection with a Change in Control.

 

a.                                      CIC Payment and CIC Benefits Continuation.  If Employee is employed by the Company on the date as of which a Change in Control occurs (the “CIC Effective Date”) and Employee’s employment is terminated upon the CIC Effective Date or within the number of months identified on Ex. A (the “CIC Window Period”) following the CIC Effective Date by the Company without Cause pursuant to Section 5(a)(iv), by reason of Employee’s resignation for Good Reason pursuant to Section 5(a)(v), or pursuant to Section 5(a)(vii) by reason of notice of non-extension given by the Company pursuant to Section 3, then in addition to the amounts provided for in Section 6(a), if any, the Company shall pay Employee the following Change in Control payments and benefits in lieu of the Severance Pay and Severance Benefits Continuation that otherwise would be payable pursuant to Section 6(b) but subject to the provisos in Section 6(b):

 

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i.                                          On the Company’s first payroll date after the Release Effective Date but no later than 60 days after the Date of Termination, the Company shall pay Employee a lump sum payment in cash (the “CIC Pay”) equal to:

 

(A)                               the “CIC Base Salary Multiple” set forth on Ex. A multiplied by the greater of (I) Employee’s Base Salary as of the Date of Termination or (II) Employee’s Base Salary before any reduction not consented to by Employee at any time within two (2) years immediately before the CIC Effective Date, plus

 

(B)                               the “CIC Bonus Multiple” set forth on Ex. A multiplied by the greater of Employee’s Bonus Target under the Bonus Plan as of immediately before (I) the Date of Termination or (II) the CIC Effective Date.

 

ii.                                       Should Employee timely elect to continue coverage under a group health insurance plan sponsored by the Company or one of its Affiliates and timely make the premium payments, reimburse Employee on a monthly basis for the cost of continued coverage under COBRA for Employee and any of his eligible dependents until the earlier of (A) the date Employee is no longer entitled to continuation coverage under COBRA or (B) the number of months set forth on Ex. A following the Date of Termination (the “CIC Benefits Continuation”).

 

b.                                      Effect of a Change in Control Following Date of Termination.  If Employee’s employment is terminated by the Company without Cause pursuant to Section 5(a)(iv), by reason of Employee’s resignation for Good Reason pursuant to Section 5(a)(v), or pursuant to Section 5(a)(vii) by reason of notice of non-extension given by the Company pursuant to Section 3, and a CIC Effective Date occurs within one-hundred and eighty (180) days following the Date of Termination, then, in lieu of any remaining Severance Pay and Severance Benefits Continuation that otherwise would be payable pursuant to Section 6(b) but subject to the provisos in Section 6(b), the Company shall pay Employee the following Change in Control payments and benefits subject to the provisos in Section 6(b):

 

i.                                          On the later of the CIC Effective Date or the Company’s first payroll date after the Release Effective Date but no later than 60 days after the CIC Effective Date, a lump sum payment in cash equal to (A) the excess, if any, of (I) the CIC Pay Employee would have been entitled to receive under Section 7(a)(i) if his Date of Termination had occurred during the CIC Window Period, over (II) the total amount of Severance Pay received by Employee prior to the CIC Effective Date in accordance with Section 6(c); and

 

ii.                                       If Employee timely elects or elected to continue coverage under a group health insurance plan sponsored by the Company or one of its Affiliates in accordance with Section 6(b) and timely makes the premium payments,

 

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reimburse Employee on a monthly basis for the cost of continued coverage under COBRA for Employee and any of his eligible dependents until the earlier of (A) the date Employee is no longer entitled to continuation coverage under COBRA or (B) the number of months of CIC Benefits Continuation Employee would have been entitled to receive under Section 7(a)(ii) if his Date of Termination had occurred during the CIC Window Period, less the number of months of Severance Benefits Continuation reimbursed or then reimbursable to Employee prior to the CIC Effective Date.

 

c.                                       Parachute Payments.  Notwithstanding any contrary provision in this Agreement, if Employee is a “disqualified individual” (as defined in Section 280G of the Code), and the Change in Control payments and benefits described in Section 7, together with any other payments which Employee has the right to receive from the Company and its Affiliates, would constitute a “parachute payment” (as defined in Section 280G of the Code), the payments and benefits provided hereunder shall be either (i) reduced (but not below zero) so that the aggregate present value of such payments and benefits received by Employee from the Company and its Affiliates shall be $1.00 less than three times Employee’s “base amount” (as defined in Section 280G of the Code) and so that no portion of such payments received by Employee shall be subject to the excise tax imposed by Section 4999 of the Code, or (ii) paid in full, whichever produces the better net after-tax result for Employee (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The determination as to whether any such reduction in the amount of the payments and benefits is necessary shall be made by the Company in good faith and such determination shall be conclusive and binding on Employee.  If a reduced payment is made to Employee pursuant to clause (i) above and through error or otherwise that payment, when aggregated with other payments from the Company or its Affiliates used in determining if a parachute payment exists, exceeds $1.00 less than three times Employee’s base amount, Employee shall immediately repay such excess to the Company upon notification that an overpayment has been made.

 

8.                                      Additional Rules Related to Payments.

 

a.                                      Exclusive Payments.  In all cases, the amounts payable to Employee under this Agreement upon termination of the employment relationship, along with the associated terms for payment, shall constitute all of the Company’s and its Affiliates’ obligations to Employee with respect to the termination of the employment relationship.  Nothing in this Agreement, however, is intended to limit any earned, vested benefits (other than any entitlement to severance pay, separation pay, change-in-control pay, or similar payments, if any) that Employee may have under the applicable provisions of any benefit plan of the Company in which Employee is participating at the time of the termination of the employment relationship.

 

b.                                      Offsets.  Employee agrees that the Company may set off against, and Employee authorizes the Company to deduct from, any payments due to Employee, or to his

 

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estate, heirs, legal representatives, or successors, any amounts which may be due and owing to the Company or an Affiliate by Employee, whether arising under this Agreement or otherwise; provided, however, that any such set off shall be made only in a manner that complies with Section 409A of the Code.

 

c.                                       Payments Upon Death.  If Employee’s employment is terminated by reason of Employee’s death, the Company shall pay to such person as Employee shall designate in a written notice to the Company (or, if no such person is designated, to his estate) any unpaid portion of the amounts described in Sections 6 or 7.  In addition, in the event of Employee’s death after he becomes entitled to payments pursuant to Sections 6 or 7, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to Employee, to such person as Employee shall designate in a written notice to the Company (or, if no such person is designated, to his estate).

 

d.                                      No Mitigation.  Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Employee as the result of employment by another company after the Date of Termination, or otherwise.

 

9.                                       Confidential Information.

 

a.                                       Employee Acknowledgments.  Employee acknowledges and agrees that (i) the Company is engaged in a highly competitive business; (ii) as a result of Employee’s employment with the Company, Employee may be granted equity or rights to acquire equity in the Company or an Affiliate; (iii) the Company has expended considerable sums, time and resources to develop goodwill with its customers, vendors, and others, and to create, protect, and exploit its Confidential Information); (iv) the Company must continue to prevent the dilution of its goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (v) Employee’s participation in or direction of the Company’s day-to-day operations and strategic planning is an integral part of the Company’s continued success and goodwill; (vi) given his position and responsibilities, Employee necessarily will be creating Confidential Information that belongs to the Company and enhances the Company’s goodwill, and in carrying out his responsibilities Employee in turn will be relying on the Company’s goodwill and the disclosure by the Company to him of Confidential Information; and (vii) Employee will have access to Confidential Information that could be used by unauthorized third parties in a manner that would irreparably harm the Company’s competitive position in the marketplace and dilute its goodwill.

 

b.                                      Company Promises.  The Company acknowledges and agrees that Employee must have and continue to have throughout the Term the benefits and use of its goodwill and Confidential Information in order to properly carry out Employee’s duties and

 

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responsibilities.  The Company accordingly promises during the Term to provide the Employee with access to previously undisclosed Confidential Information and to authorize Employee to engage in activities that will create new and additional Confidential Information.

 

c.                                       Further Acknowledgements.  The Company and Employee thus acknowledge and agree that during the Term, and upon the Effective Date, Employee will receive Confidential Information that is unique, proprietary, and valuable to the Company; will create Confidential Information that is unique, proprietary, and valuable to the Company; and will benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill the Company has generated and from the Confidential Information.

 

d.                                      Employee Promises.  Accordingly, Employee acknowledges and agrees that at all times while employed by the Company and thereafter:

 

i.                                          all Confidential Information shall remain and be the sole and exclusive property of the Company;

 

ii.                                       he will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, employee, or legal counsel of the Company, or any other third parties that have a legitimate business need to receive the Confidential Information, to the extent necessary for the proper performance of his duties and responsibilities unless authorized to do so by the Company or compelled to do so by law or valid legal process;

 

iii.                                    if he believes he is compelled by law or valid legal process to disclose or divulge any Confidential Information outside of his capacity as an employee or representative of the Company or its Affiliates, he will notify the Company in writing sufficiently in advance of any such disclosure to allow the Company the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

 

iv.                                   at the end of his employment with the Company for any reason or at the request of the Company at any time, he will immediately return to the Company all Confidential Information and all copies thereof, in whatever tangible form or medium, including electronic;

 

v.                                      he will immediately notify the Company if he learns of or suspects any unauthorized disclosure of Confidential Information;

 

vi.                                   absent the promises and representations of Employee in this Section 9, the Company would require him immediately to return any tangible Confidential Information in his possession, would not provide Employee with new and

 

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additional Confidential Information, would not authorize Employee to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement; and

 

vii.                                Employee’s obligations under this Section 9 are in addition to any applicable contractual, statutory, or common-law obligations and survive the termination of this Agreement.

 

10.                                 Restricted Activities.

 

a.                                       Employee Covenants.  In consideration of the Company’s promises set out in Section 9 and the other promises and undertakings of the Company in this Agreement, Employee agrees that, during the Restriction Period set forth on Ex. A, he shall not engage in any of the following activities (the “Restricted Activities”) without the written consent of the President and the Board:

 

i.                                          Non-Competition.  Except in the proper performance of his duties for the Company, directly or indirectly, whether or not for compensation, engage or prepare to engage in, or aid or advise another person or entity who is engaging in or preparing to engage in, a Competing Business (as defined in Section 10(c)(i)) as an employee, officer, director, agent, partner, stockholder, owner, member, representative, consultant, or in any other individual or representative capacity; provided, however, that this Section 10(a)(i) does not prohibit Employee’s ownership of (A) stock or other securities listed on a national securities exchange or actively traded in the over-the-counter market if he and the members of his immediate family do not, directly or indirectly, hold more than a total of 5% of all such shares of stock or other securities issued and outstanding; (B) royalty interests where Employee owns the surface of the land covered by the royalty interest and the ownership of the royalty interest is incidental to the ownership of such surface estate; (C) Oil and Gas Interests (as defined in Section 10(c)(ii)) owned by Employee prior to the Effective Date and disclosed to the Company in writing; or (D) Oil and Gas Interests acquired by Employee through a bona fide gift or inheritance; and provided further, however, that during the Restriction Period, the prohibitions of this Section 10(a)(i) extend only to (I) Oil and Gas Interests in the Specified Geographical Area (as defined in Section 10(c)(iv)) and (II) the performance by Employee, directly or indirectly, of the same or similar activities Employee has performed for the Company for or on behalf of a Competing Business that take place anywhere in, or are directed at any part of, the Specified Geographical Area, or such other activities that by their nature are likely to lead to the disclosure of Confidential Information.

 

ii.                                       Non-Solicitation of Employees and Other Service Parties.  Except in the proper performance of his duties for the Company, directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or

 

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entice, any person who is then, or was within the previous six (6) months, employed by or otherwise engaged to perform services for the Company to leave that employment or cease performing those services, whether on his own behalf or on behalf of any other person or entity, or to become employed by or otherwise perform services for a Competing Business; and

 

iii.                                    Non-Solicitation of Customers, Suppliers, or Vendors.  Except in the proper performance of his duties for the Company directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of the Company to cease being a customer, supplier, or vendor of the Company or to divert all or any part of such person’s or entity’s business from the Company, whether on his own behalf or on behalf of any other individual or entity.

 

b.                                      Acknowledgements.  Employee acknowledges and agrees that the restrictions in this Section 10 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set out in Section 9; that the Company’s promises and undertakings set out, and the matters recited, in Section 9 and Employee’s position and responsibilities with the Company give rise to the Company’s interest in restricting Employee’s post-employment activities; that such restrictions are designed to enforce the Employee’s promises and undertakings set out in Sections 9 and 10 and his common-law obligations and duties owed to the Company; that the restrictions are reasonable and necessary, are valid and enforceable under applicable law, and do not impose a greater restraint than necessary to protect the Company’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify the Company in writing should he believe or be advised that the restrictions are not, or likely are not, valid or enforceable under the law of any state that he contends or is advised is applicable; that he will not challenge the enforceability of such restrictions; that absent the promises and representations made by Employee in Sections 9 and 10, the Company would require him immediately to return any tangible Confidential Information in his possession, would not provide Employee with new and additional Confidential Information, would not authorize Employee to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement; and his obligations under this Section 10 are in addition to any applicable statutory or common-law obligations and survive the termination of this Agreement.

 

c.                                       Definitions.  For purposes of this Section 10,

 

i.                                          Competing Business.  “Competing Business” means (A) the ownership, operation, leasing, acquisition, exploration, marketing, development, production, or disposition of Oil and Gas Interests or (B) such other business activities as the Company may engage in, prepare to engage in, or investigate becoming engaged in during Employee’s employment with the Company or

 

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the six (6)-month period before the Date of Termination, and about which Employee had Confidential Information.

 

ii.                                       Oil and Gas Interests.  “Oil and Gas Interests” means any royalty, overriding royalty, working, leasehold, or other property interest in oil and gas assets or any right to acquire such interests.

 

iii.                                    Prospective Oil and Gas Interests.  “Prospective Oil and Gas Interests” means Oil and Gas Interests that the Company attempted to acquire, or was investigating the acquisition of, during Employee’s employment with the Company or within six (6) months before the Date of Termination, and about which Employee had access to or created Confidential Information.

 

iv.                                   Specified Geographical Area.  “Specified Geographical Area” means (A) the Company’s Oil and Gas Interests as of the Date of Termination; (B) the Company’s Prospective Oil and Gas Interests (as defined in Section 10(c)(iii)); (C) outer continental shelf Blocks adjacent to the Company’s Oil and Gas Interests as of the Date of Termination; and (D) the surface area within three (3) miles of the Company’s Oil and Gas Interests as of the Date of Termination or the Company’s Prospective Oil and Gas Interests.

 

d.                                      Affiliates.  As used in Sections 9, 10, and 11, the term “Company” shall include the Company and any of its Affiliates.

 

11.                                 Inventions.

 

a.                                       Definition of Inventions.  Employee agrees that any and all technology, software (including source code and object code), inventions, discoveries, developments, concepts, processes, written materials, methods, specifications, products, ideas, know-how, technical information, patents and improvements thereof, copyrights, designs, marks, logos, trade names, processes, trade secrets, and all other intellectual property conceived, created, written, developed, or first reduced to practice by Employee, alone or jointly, in the performance of Employee’s duties for the Company or during the Restriction Period (“Inventions”) are and shall be the sole and exclusive property of the Company.  Employee acknowledges that all original works of authorship protectable by copyright that are produced by Employee in the performance of Employee’s duties for the Company are “works made for hire” as defined in the United States Copyright Act (17 U.S.C. § 101).  In addition, to the extent that any such works or Inventions are not works made for hire under the United States Copyright Act, Employee hereby assigns without further consideration all right, title, and interest in such works and/or Inventions to the Company.

 

b.                                      Disclosure, Assignment, and Cooperation.  Employee (i) shall promptly and fully disclose to the Company all Inventions, including Inventions previously conceived, created, written, developed, or first reduced to practice during Employee’s

 

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employment with the Company, if any, (ii) shall treat all Inventions as Confidential Information, and (iii) hereby assigns (with respect to already-existing Inventions) and agrees to immediately assign (with respect to not-yet-existing Inventions) to the Company without further consideration all of Employee’s right, title, and interest in and to such Inventions, whether or not copyrightable or patentable.  While employed by the Company and following the termination of Employee’s employment, Employee shall execute all papers, including without limitation all applications, invention assignments, and copyright assignments, and shall otherwise assist the Company as reasonably required, to memorialize, confirm, and perfect in the Company the rights, title, and other interests granted to the Company under this Agreement.  Employee represents that there are no inventions, original works of authorship, developments, improvements or trade secrets that (i) were made by Employee prior to his execution of this Agreement, (ii) belong to Employee, (iii) relate to Company’s actual or proposed business, products, or research and development, and (iv) are not assigned to the Company hereunder.

 

c.                                       Exceptions.  Notwithstanding the foregoing, Employee understands that the provisions of this Section 11 requiring assignment of Inventions to the Company do not apply to any Invention that Employee has developed entirely on Employee’s own time without using the Company’s equipment, supplies, facilities, trade secret information, or Confidential Information (an “Other Invention”) except for those Other Inventions that either (i) relate at the time of conception or reduction to practice of such Other Invention to the Company’s business, or actual or anticipated research or development of the Company or (ii) result from or relate to any work that Employee performed for the Company or to any Confidential Information or Inventions.  Employee will advise the Company promptly in writing of any Invention that Employee believes constitutes an Other Invention.  Employee agrees that he will not incorporate, or permit to be incorporated, any Other Invention owned by him or in which he has an interest into a Company product, process or service without the Company’s prior written consent.  Notwithstanding the foregoing sentence, if, in the course of Employee’s employment, Employee incorporates into a Company product, process, or service an Other Invention owned by him or in which he has an interest, Employee hereby grants to the Company a nonexclusive, royalty-free, fully paid-up, irrevocable, perpetual, transferable, sub-licensable, worldwide license to reproduce, make derivative works of, distribute, perform, display, import, make, have made, modify, use, sell, offer to sell, and exploit in any other way such Other Invention as part of or in connection with such product, process or service, and to practice any method related thereto.

 

d.                                      Survival.  Employee’s obligations under this Section 11 survive the termination of this Agreement.

 

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12.                                 Remedies; Reformation.

 

a.                                       Remedies.  Employee acknowledges and agrees that the Company would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of Sections 9, 10, or 11 were not performed in accordance with their specific terms or were otherwise breached.  Accordingly, Employee agrees that the Company shall be entitled to equitable relief, including temporary restraining order, temporary, and permanent injunctions and specific performance, in the event Employee breaches or threatens to breach any of the provisions of such Sections, without the necessity of posting any bond or proving special damages or irreparable injury.  Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of such Sections by Employee, but shall be in addition to all other remedies available to the Company at law or equity.

 

b.                                      Automatic Reformation.  If any of the provisions of Sections 9, 10, or 11 are ever deemed by a court to be unenforceable as written under applicable law, such provisions shall be, and are, automatically reformed to the maximum limitations permitted by applicable law.

 

13.                                 Notices.  All notices under this Agreement shall be in writing and shall be deemed to have been delivered on the date personally delivered or three calendar days after the date deposited in a receptacle maintained by the United States Postal Service for such purpose, postage prepaid, by certified mail, return receipt requested, addressed to the Company at its headquarters or Employee at the address of such person as set forth in the Company’s records.  Either party may designate a different address by providing written notice of such new address to the other party.

 

14.                                 Governing Law; Venue.  This Agreement shall be governed by the laws of the State of Texas, without regard to its conflict-of-laws principles.  Employee and the Company hereby irrevocably consent to the binding and exclusive venue for any Dispute between the parties arising out of or related to this Agreement being in the state or federal court of competent jurisdiction that regularly conducts proceedings in Dallas County, Texas.  Nothing in this Agreement, however, precludes Employee or the Company from seeking to remove a civil action from any state court to federal court.

 

15.                                 Entire Agreement.  This Agreement constitutes the entire agreement between the parties concerning its subject matters and supersedes all prior and contemporaneous agreements and understandings, both written and oral, between the parties with respect to its subject matters. Employee agrees that the Company has not made any promise or representation to him concerning this Agreement not expressed in this Agreement, and that, in signing this Agreement, he is not relying on any prior oral or written statement or representation by the Company but is instead relying solely on his own judgment and his legal and tax advisors, if any.

 

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16.                                 Assignment; Successors; Binding Agreement.

 

a.                                       Assignment by the Company.  The Company may assign or otherwise transfer this Agreement or any of its rights or obligations under this Agreement without the written consent of Employee to any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company.

 

b.                                      Required Assumption.  The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

 

c.                                       No Third-Party Beneficiaries.  Except with respect to the Company’s Affiliates as provided for in Sections 2 and 10, nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

 

d.                                      No Assignment by Employee.  Employee shall not have any right to assign otherwise transfer this Agreement or any of his rights or obligations under this Agreement without the written consent of the Company and shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable under this Agreement shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution.

 

e.                                       Successors and Permitted Assigns.  This Agreement shall be binding upon and inure to the benefit of the Company and Employee and their respective successors, permitted assigns, personnel and legal representatives, executors, administrators, heirs, distributes, devisees, and legatees, as applicable.

 

17.                                 Amendments; Waivers. Other than pursuant to Section 2(c), (i) no provision of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing and signed by Employee and by a duly authorized officer of the Company, and such waiver is set out in writing and signed by the party to be charged; and (ii) no waiver by a party or failure to enforce or insist on his or its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights, and a waiver on one occasion shall not be deemed to be a waiver of the same or any other type of breach on a future occasion.  Notwithstanding the previous sentence, the Company may amend or modify this Agreement in its sole discretion at any time without the further consent of Employee in any manner necessary to comply with applicable law and regulations, including without limitation the Dodd-Frank Act and the regulations thereunder, or the listing or other requirements of any stock exchange upon which the Company or an Affiliate is listed.

 

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18.                                 Construction.  This Agreement shall be deemed drafted equally by both the parties.  Its language shall be construed as a whole and according to its fair meaning.  Any presumption or principle that the language is to be construed against any party shall not apply.  The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation.  Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary.  Also, unless the context clearly indicates to the contrary, (a) the plural includes the singular and the singular includes the plural; (b) “and” and “or” are each used both conjunctively and disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all,” and “each and every”; (d) “includes” and “including” are each “without limitation”; (e) “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (f) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.

 

19.                                 Dispute Resolution.  The parties agree to the following dispute resolution terms:

 

a.                                       Definition of Dispute.  Any controversy, claim, complaint, cause of action, or similar proceeding, whether based on statute, contract, common law, negligence, tort, misrepresentation, or any other legal theory, arising out of or relating to this Agreement or Employee’s employment with the Company (a “Dispute”), shall be resolved solely in accordance with the terms of this Section 19; provided, however, that the term Dispute shall not include Employee’s administrative claims for workers’ compensation or unemployment compensation benefits (although any claim asserted under Ch. 451 of the Texas Labor Code shall be considered a Dispute subject to dispute resolution).

 

b.                                      Mediation.  If a Dispute cannot be settled by good faith negotiation between the parties, the parties shall submit the Dispute to nonbinding mediation as soon as reasonably possible after the Dispute arose.  If complete agreement cannot be reached within five calendar days of submission to mediation, either party may file a civil action against the other party in any court of competent jurisdiction permitted under  Section 14.

 

c.                                       Waiver of Right to Jury Trial.  NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, THE PARTIES SHALL, AND HEREBY DO, IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY DISPUTE.  IN ADDITION, EMPLOYEE SHALL, AND HEREBY DOES, IRREVOCABLY WAIVE THE RIGHT TO PARTICIPATE IN ANY CLASS OR COLLECTIVE ACTION WITH RESPECT TO ANY DISPUTE.

 

20.                                 Severability.  If any provision of this Agreement is held to be illegal, invalid, or unenforceable, (a) this Agreement shall be considered divisible, (b) such provision shall be deemed inoperative to the extent it is deemed illegal, invalid, or unenforceable, and (c) in all

 

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other respects this Agreement shall remain in full force and effect; provided, however, that, if any such provision may be made enforceable by limitation, then such provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by applicable law.

 

21.                                 Miscellaneous.  All references in this Agreement to payment or sums of money shall mean in U.S. currency only.  All references in this Agreement to calendar year, month, week, or day shall mean the calendar and parts thereof as observed in the U.S.  All references in this Agreement to date and time shall mean U.S. central standard date and time.

 

22.                                 Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.  The delivery of this Agreement in the form of a clearly legible facsimile or electronically scanned version by e-mail shall have the same force and effect as delivery of the originally executed document.

 

23.                                 Code Section 409A.  All or a portion of the severance pay and severance benefits provided under this Agreement is intended to be exempt from Code Section 409A and any ambiguous provision will be construed in a manner that is compliant with or exempt from the application of Code Section 409A.  In particular, the severance pay and benefits are intended to constitute a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4), a payment or benefit described in paragraphs (b)(9)(iv) and (v) of Treasury Regulation Section 1.409A-1, and/or severance pay due to involuntary separation from service under Treasury Regulation Section 1.409A-1(b)(9)(iii). If a provision of the Agreement would result in the imposition of an applicable tax under Code Section 409A, the parties agree that such provision shall be reformed to the extent permissible under Code Section 409A to avoid imposition of the applicable tax, with such reformation effected in a manner that has the most favorable tax result to Employee.  Notwithstanding any provision in this Agreement to the contrary, if (a) Employee is a “specified employee,” as such term is defined in Code Section 409A and the regulations thereunder and (b) any payment due under this Agreement is subject to Code Section 409A and is required to be delayed under Code Section 409A because Employee is a specified employee, that payment shall be payable on the earlier of (i) the first business day that is six months after Employee’s Separation from Service, (ii) the date of Employee’s death, or (iii) the date that otherwise complies with the requirements of Code Section 409A. This Section shall be applied by accumulating all payments that otherwise would have been paid within six months of Employee’s Separation from Service and paying such accumulated amounts on the earliest business day which complies with the requirements of Code Section 409A. For purposes of determining the identity of specified employees, the Company may establish procedures as it deems appropriate in accordance with Code Section 409A. For purposes of Code Section 409A, each payment amount or benefit due under this Agreement will be considered a separate payment and Employee’s entitlement to a series of payments or benefits under this Agreement is to be treated as an entitlement to a series of separate payments.  With respect to any reimbursements that are subject to Code Section 409A, (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for

 

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reimbursement in any other calendar year, (ii) the reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.

 

[Signature Page Follows]

 

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AGREED:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
COMPANY
    	
 
    	
EMPLOYEE
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
Name:   
    
	
 
    	
Title:   
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date Signed:
    	
 
    	
 
    	
Date   Signed:
    	
 
    
							

 

22

 

EXHIBIT A

 

ADDITIONAL TERMS AND CONDITIONS OF EMPLOYMENT AGREEMENT

 

	
Effective   Date:
    	
 
    	
Immediately   before the effectiveness of the initial public offering of Common Stock.
    
	
 
    	
 
    	
 
    
	
Employer/the   Company:
    	
 
    	
Cinco   Resources, Inc.
    
	
 
    	
 
    	
 
    
	
Employee   Name:
    	
 
    	
Edward   P. Travis
    
	
 
    	
 
    	
 
    
	
Position and Title:
    	
 
    	
Chief Operating Officer and Senior Vice   President
    
	
 
    	
 
    	
 
    
	
Reporting to:
    	
 
    	
President
    
	
 
    	
 
    	
 
    
	
Primary Work Location:
    	
 
    	
Dallas, Texas
    
	
 
    	
 
    	
 
    
	
Initial Term:
    	
 
    	
Two years
    
	
 
    	
 
    	
 
    
	
Expiration   Date of Initial Term:
    	
 
    	
Second   anniversary of the Effective Date.
    
	
 
    	
 
    	
 
    
	
Base   Salary:
    	
 
    	
$285,000.00
    
	
 
    	
 
    	
 
    
	
Weeks   of Paid Time Off:
    	
 
    	
5   weeks
    
	
 
    	
 
    	
 
    
	
Additional Compensation &   Benefits:
    	
 
    	
The Company shall pay for Employee’s   membership with the Petroleum Club of Dallas.
    
	
 
    	
 
    	
 
    
	
Severance Pay:
    	
 
    	
1.5   x Base Salary; plus 

1.5   x Bonus Target
    
	
 
    	
 
    	
 
    
	
Months   of Severance Benefits Continuation (limited to applicable COBRA continuation   period):
    	
 
    	
18   months
    
	
 
    	
 
    	
 
    
	
Severance   Pay Period in Months (limited to 20):
    	
 
    	
Up   to 20 months
    
	
 
    	
 
    	
 
    
	
CIC   Window Period in Months (limited to 18):
    	
 
    	
12   months
    
	
 
    	
 
    	
 
    
	
CIC Base Salary Multiple:
    	
 
    	
2.0   x Base Salary
    
	
 
    	
 
    	
 
    
	
CIC Bonus Multiple:
    	
 
    	
2.0   x Bonus Target
    
	
 
    	
 
    	
 
    
	
Months   of CIC Benefits Continuation (limited to applicable COBRA continuation   period):
    	
 
    	
18   months
    
	
 
    	
 
    	
 
    
	
Restriction   Period:
    	
 
    	
During   employment and for 12 months following any termination of employment.
    

 

1

 

	
AGREED:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
COMPANY
    	
 
    	
EMPLOYEE
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
Name:   
    
	
 
    	
Title:   
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date Signed:
    	
 
    	
 
    	
Date   Signed:
    	
 
    
							

 

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EXHIBIT B

 

DEFINITIONS

 

Definitions. The following terms, when used throughout this Agreement, shall have the following meanings:

 

1.             “Affiliate” means the Company and any corporation, partnership, limited liability company, association, trust, or other organization which, directly or indirectly, controls, is controlled by, or is under common control with, the Company.  For purposes of the preceding sentence, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any entity or organization, shall mean the possession, directly or indirectly, of the power (a) to vote more than 50% of the securities having ordinary voting power for the election of directors of the controlled entity or organization, or (b) to direct or cause the direction of the management and policies of the controlled entity or organization, whether through the ownership of voting securities or by contract or otherwise.

 

2.             “Base Salary” has the meaning set forth in Section 4(a).

 

3.             “Board” means the Board of Directors of the Company.

 

4.             “Bonus” has the meaning set forth in Section 4(b).

 

5.             “Bonus Plan” has the meaning set forth in Section 4(b).

 

6.             “Bonus Target” has the meaning set forth in Section 4(b).

 

7.             “Cause” means a finding by the President or Board of acts or omissions of Employee constituting, in the good faith judgment of the President or Board, any of the following: (a) gross negligence or material misconduct in the performance of his duties and responsibilities; (b) the material failure to comply with the lawful directives of the President; (c) the material failure to devote his full working time, skill, attention and best efforts to, or to substantially and diligently perform, his duties and responsibilities (other than in connection with an approved leave of absence); (d) conduct that is contrary to the best interests of the Company or its Affiliates or is likely to damage the business of the Company or its Affiliates, including without limitation their reputation; (e) a breach of duty (other than inadvertent acts or omissions) involving fraud, dishonesty, disloyalty, or a conflict of interest; (f) the material violation of, failure to report, or material failure to enforce the personnel, ethical, or operational policies and procedures of the Company or its Affiliates; (g) the failure to cooperate with any investigation or inquiry authorized by the Company or an Affiliate or conducted by a governmental authority related to the Company’s or an Affiliate’s business or Employee’s conduct; (h) Employee’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to, any felony or other serious criminal offense or crime of moral turpitude or any violation of federal or state securities laws; or (i) a material violation of any provision of this Agreement or any non-solicitation, non-competition, non-disclosure, intellectual property, or other agreement (or similar agreement) with the Company or any of its Affiliates.

 

8.             “Change in Control” means (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company’s Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (b) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of the Company and its subsidiaries to any other person or entity (other than an Affiliate of the Company), (c) the stockholders of the Company approve any plan or proposal for liquidation or dissolution of the Company, (d) any person or entity (other than Yorktown Energy Partners IV, L.P., Yorktown Energy Partners V, L.P, Yorktown Energy Partners VI, L.P. or any of their affiliated funds), including a “group” as contemplated by section 13(d)(3) of the Securities Exchange of Act of 1934, as amended from time to time, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power), or (e) as a result of or in connection with a contested election of Directors, the persons who were Directors of the Company before such election shall cease to 

 

1

 

constitute a majority of the Board.  Notwithstanding the foregoing, a Change in Control shall not include (y) the initial public offering of the Company’s common stock or a merger of the Company and/or any other affiliate of Yorktown Partners LLC or (z) any capital raising transaction that is approved by two or more members of the Board who meet the independence requirements of the principal exchange or quotation system upon which shares of the Company’s common stock are listed or quoted or, if no members of the Board meet such independence requirements, that is approved by the Board.

 

9.             “CIC Base Salary Multiple” has the meaning set forth in Section 7(a)(i)(A).

 

10.           “CIC Bonus Multiple” has the meaning set forth in Section 7(a)(i)(B).

 

11.           “CIC Benefits Continuation” has the meaning set forth in Section 7(a)(ii).

 

12.           “CIC Effective Date” has the meaning set forth in Section 7(a).

 

13.           “CIC Pay” has the meaning set forth in Section 7(a)(i).

 

14.           “CIC Window Period” has the meaning set forth in Section 7(a).

 

15.           “COBRA” means the Consolidated Omnibus Budget Reconciliation Act of 1985 or other applicable law governing continuation of insurance benefits.

 

16.           “Code” means the Internal Revenue Code of 1986, as amended.

 

17.           “Committee” means (a) for so long as the Company is a “controlled company” within the meaning of the NYSE corporate governance standards, the Board or such other committee as the Board may designate to act as the Committee for purposes of this Agreement or (b) if and when the Company is no longer a controlled company, the Compensation Committee of the Board or such other committee as the Board may designate to act as the Committee for purposes of this Agreement.

 

18.           “Common Stock” means the common stock of the Company, $0.001 par value per share, or any stock or other securities hereafter issued or issuable in substitution or exchange for the Common Stock.

 

19.           “Company” has the meaning set forth in the introductory paragraph of this Agreement.

 

20.           “Competing Business” has the meaning set forth in Section 10(c)(i).

 

21.           “Confidential Information” means any confidential or proprietary information or trade secrets of or relating to the Company or provided to the Company by a third party under an obligation or expectation of confidential treatment, including without limitation, all documents or information, in whatever form or medium concerning or evidencing the Company’s operations; processes; products; business practices; finances; principals; vendors; suppliers; customers and potential customers; marketing methods; costs, prices, contractual relationships; regulatory status; personnel (including without limitation compensation, other terms of employment, or performance other than as concerns solely Employee); drilling and production technology and maximization means, methods, and techniques; geological and geophysical maps, data, interpretations, and analyses; project and prospect locations and leads; well logs, interpretations, and analyses; and production information, but excluding any such documents or information that is or becomes generally available to the public other than as a result of any breach of this Agreement or violation of legal duty or other unauthorized disclosure by Employee or another.

 

22.           “Correction Period” has the meaning set forth in Section 5(b).

 

23.           “Date of Termination” means (a) if Employee’s employment is terminated by his death, the date of his death; (b) if Employee’s employment is terminated by the Company pursuant to any of Sections 5(a)(ii) or (iii), the date specified in the Notice of Termination, which date shall be no earlier than the date such notice is given; (c) if Employee’s

 

2

 

employment is terminated by Employee pursuant to Section 5(a)(v), the date specified in the Notice of Termination, which date shall be no earlier than the date such notice is given and no later than thirty (30) days after the date such notice is given; (d) if Employee’s employment is terminated by the Company pursuant to Section 5(a)(iv) or by Employee pursuant to Section 5(a)(vi), thirty (30) days after the date such notice is given; and (e) if Employee’s employment is terminated pursuant to Sections 5(a)(vii) or (viii) by reason of notice of non-extension given by either party pursuant to Section 3, the last day of the then current Term, provided, however, that in the event of a termination by the Company pursuant to Section 5(a)(iv) or by Employee pursuant to Sections 5(a)(v) or (vi), the Company may accelerate the Date of Termination by paying Employee his Base Salary for the period by which the Date of Termination is so accelerated and such acceleration shall not change the characterization of the termination under such provision.

 

24.           “Dispute” has the meaning set forth in Section 19(a).

 

25.           “Effective Date” has the meaning set forth in the introductory paragraph of this Agreement.

 

26.           “Employee” has the meaning set forth in the introductory paragraph of this Agreement.

 

27.           “Excise Tax” has the meaning set forth in Section 7(c).

 

28.           “Ex. A” has the meaning set forth in the introductory paragraph of this Agreement.

 

29.           “Ex. B” has the meaning set forth in Section 1.

 

30.           “Expiration Date” has the meaning set forth in Section 3.

 

31.           “Extension Term” has the meaning set forth in Section 3.

 

32.          “Good Reason” means any of the following actions if taken without Employee’s prior consent: (a) a material reduction in Employee’s Base Salary; (b) a material reduction in Employee’s authority, responsibilities or duties; (c) a permanent relocation of Employee’s principal place of employment to any location outside of a one hundred (100) mile radius of the location from which Employee served the Company immediately prior to the relocation, provided such relocation is a material change in geographic location at which Employee must provide services for purposes of Section 409A of the Code and the regulations thereunder; or (d) any other material breach by the Company of this Agreement.  A change in Employee’s title or reporting structure, standing alone, does not constitute “Good Reason.”  Neither a transfer of employment among the Company and any of its Affiliates nor the Company or an Affiliate entering into a co-employer relationship with a personnel services organization constitutes Good Reason.  A suspension of Employee with pay pursuant to Section 5(e) does not constitute “Good Reason.”

 

33.           “Inability to Perform” means and shall be deemed to have occurred if (a) Employee has been determined under the Company’s or an Affiliate’s long-term disability plan to be eligible for long-term disability benefits, or (b) in the absence of, or Employee’s participation in or application for benefits under, such a plan, Employee’s inability to perform the essential functions of his position, despite any reasonable accommodation required by law, by reason of an illness or injury for (i) 180 consecutive calendar days or (ii) an aggregate of 180 calendar days during any period of 12 consecutive months, as determined by the Board or the President in its or his sole discretion.

 

34.           “Initial Term” has the meaning set forth in Section 3.

 

35.           “Inventions” has the meaning set forth in Section 11(a).

 

36.           “Notice of Termination” has the meaning set forth in Section 5(d).

 

37.           “Oil and Gas Interests” has the meaning set forth in Section 10(c)(ii).

 

38.           “Other Invention” has the meaning set forth in Section 11(c).

 

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39.           “President” means the Company’s Chairman, President, and Chief Executive Officer.

 

40.           “Prospective Oil and Gas Interests” has the meaning set forth in Section 10(c)(iii).

 

41.           “Release” means a waiver and release of claims by Employee in the form prescribed by the Company, which form may include an agreement by Employee not to disparage the Company, its Affiliates, and other related persons or entities and for certain post-employment cooperation, but which form shall not include a release and waiver of claims for indemnification or for coverage under officer and director liability policies, if applicable.

 

42.           “Release Effective Date” means earliest date following Employee’s Separation from Service that the Release described in Section 6(b) has become fully enforceable and irrevocable.

 

43.           “Restricted Activities” has the meaning set forth in Section 10(a).

 

44.           “Restriction Period” is the time period set forth on Ex. A.

 

45.           “Section 409A Exempt Amount” means (a) two (2) multiplied by the lesser of (i) Employee’s annualized compensation based upon the annual rate of pay for services provided to the Company for the calendar year preceding the calendar year in which Employee has a Separation from Service (adjusted for any increase during that year that was expected to continue indefinitely if the service provider had not separated from service) or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Code Section 401(a)(17) for the year in which Employee has a Separation from Service, less (b) the value of the Severance Benefits Continuation or CIC Benefits Continuation, as applicable (but excluding payments or benefits described in paragraphs (b)(9)(iv) and (v) of Treasury Regulation Section 1.409A-1).

 

46.           “Separation from Service” means separation from service (within the meaning of Code Section 409A and the regulations and other guidance promulgated thereunder) with the group of companies that includes the Company and each of its “409A Affiliates.” For this purpose, “409A Affiliate” means any incorporated or unincorporated trade or business or other entity or person, other than the Company, that along with the Company is considered a single the Company under Code Section 414(b) or Code Section 414(c), but (i) in applying Code Section 1563(a)(1), (2), and (3) for the purposes of determining a controlled group of corporations under Code Section 414(b), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Code Section 1563(a)(1), (2), and (3), and (ii) in applying Treasury Regulation Section 1.414(c)-2 for the purposes of determining trades or businesses (whether or not incorporated) that are under common control for the purposes of Code Section 414(c), the phrase “at least 50 percent” shall be used instead of the phrase “at least 80 percent” in each place the phrase “at least 80 percent” appears in Treasury Regulation Section 1.414(c)-2.

 

47.           “Severance Benefits Continuation” has the meaning set forth in Section 6(b)(ii).

 

48.           “Severance Pay” has the meaning set forth in Section 6(b)(i).

 

49.           “Severance Pay Period” has the meaning set forth in Section 6(c)(i).

 

50.           “Specified  Geographical Area” has the meaning set forth in Section 10(c)(iv).

 

51.           “Term” has the meaning set forth in the Section 3.

 

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AGREED:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
COMPANY
    	
 
    	
EMPLOYEE
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
Name:   
    
	
 
    	
Title:   
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date Signed:
    	
 
    	
 
    	
Date   Signed:
    	
 
    
							

 

5Exhibit 10.4

 

CINCO RESOURCES, INC.

2011 LONG TERM INCENTIVE PLAN

 

ARTICLE I.

ESTABLISHMENT AND PURPOSE

 

1.1          History; Establishment.

 

(a)           Effective February 28, 2008, Cinco Natural Resources Corporation (“Cinco NRC”) established the Cinco Natural Resources Corporation 2008 Stock Incentive Plan as an amendment and restatement of the Cinco NRC 2002 Stock Option Plan and 2005 Stock Option Plan.  Thereafter, Cinco NRC, Cinco Resources, Inc. (“Cinco”) and Cinco Merger, Inc. entered into an Agreement and Plan of Merger dated October 29, 2009, pursuant to which Cinco Merger, Inc. merged with and into Cinco NRC and each share of Cinco NRC’s common stock was converted into a share of Common Stock.  In connection with that merger and effective as of the “Effective Time” as defined in such Agreement and Plan of Merger, Cinco (a) assumed and adopted the Cinco NRC 2008 Stock Incentive Plan, (b) renamed it the Cinco Resources, Inc. 2008 Stock Incentive Plan (the “Cinco 2008 Plan”), and (c) each share of Cinco NRC common stock subject to outstanding Awards under the Cinco 2008 Plan was converted into a share of Common Stock.

 

(b)           Cinco now wishes to amend, restate and rename the Cinco 2008 Plan in connection with that certain Agreement and Plan of Merger dated November 17, 2011 (the “Cima/Cinco Merger Agreement”) entered into by and among Cinco, Cima Resources, Inc. (“Cima”) and Cinco Merger, Inc. (“Merger Sub”), pursuant to which Merger Sub will merge with and into Cima, with Cima being the surviving company as a wholly owned subsidiary of Cinco.  In accordance with the Cima/Cinco Merger Agreement, the Cima 2010 Stock Incentive Plan (the “Cima 2010 Plan”) will be merged with and into the Cinco 2008 Plan (the “Stock Plan Merger”) and then each share of Cima common stock covered by a Restricted Stock Award originally granted under the Cima 2010 Plan will be converted into a Cinco Restricted Stock Award, representing the “Per Restricted Share Merger Consideration” (as defined in the Cima/Cinco Merger Agreement), which Cinco Restricted Stock Award will be issued under the Cinco 2008 Plan, as amended and restated.  This Cinco Resources, Inc. 2011 Long Term Incentive Plan (the “Plan”), as set forth in this document, is hereby adopted by Cinco to reflect the Stock Plan Merger and is an amendment and restatement of the Cinco 2008 Plan and the Cima 2010 Plan.

 

1.2          Purpose.  The purposes of the Plan are to attract and retain the best personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants of Cinco and its Affiliates, and to promote the success of Cinco’s business. Cinco is committed to creating long-term stockholder value.  Cinco’s compensation philosophy is based on the belief that Cinco can best create stockholder value if employees, officers, directors and others performing services for Cinco and its Affiliates act and are rewarded as business owners.  Cinco believes that an equity stake through equity compensation programs effectively aligns service provider and stockholder interests by motivating and rewarding performance that will enhance stockholder value.

 

 

1.3          Effectiveness and Term.  The Plan was approved by the Board pursuant to the Cima/Cinco Merger Agreement on November 17, 2011, to be effective as of November 17, 2011.  Unless terminated earlier by the Board pursuant to Section 14.1, the Plan shall terminate on February 27, 2018, which is the day prior to the tenth anniversary of the effective date of the Cinco 2008 Plan.

 

ARTICLE II.

DEFINITIONS

 

2.1          “Affiliate” means (a) with respect to Incentive Stock Options, a “parent corporation” or “subsidiary corporation” (as those terms are defined in Section 424 of the Code) of Cinco, (b) with respect to Nonqualified Stock Options and SARs, an organization that is aggregated and treated as a single employer with Cinco under Section 414(b) of the Code (controlled group of corporations) or Section 414(c) of the Code (group of trades or businesses under common control), as applicable, but using an “at least 50 percent” rather than an “at least 80 percent” control level and (c) with respect to other Awards, any corporation, partnership, limited liability company, association, trust or other organization which, directly or indirectly, controls, is controlled by, or is under common control with, Cinco.  For purposes of the preceding sentence, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any entity or organization, shall mean the possession, directly or indirectly, of the power (i) to vote more than 50% of the securities having ordinary voting power for the election of directors of the controlled entity or organization, or (ii) to direct or cause the direction of the management and policies of the controlled entity or organization, whether through the ownership of voting securities or by contract or otherwise.

 

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

 

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

 

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

 

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

 

2.6          “Cause” means, unless otherwise defined in an Employee Agreement entered into by the Participant in which case the definition in the Employee Agreement shall govern if there is a conflict in definitions, a finding by the Committee of acts or omissions of the Participant constituting, in the Committee’s good faith judgment, any of the following: (a) gross negligence or material misconduct in the performance of his duties and responsibilities; (b) the material failure to comply with the lawful directives of the Board, senior officers of Cinco or the Participant’s supervisor; (c) the material failure to devote his full working time, skill, attention

 

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and best efforts to, or to substantially and diligently perform, his duties and responsibilities (other than in connection with an approved leave of absence); (d) conduct that is contrary to the best interests of Cinco or its Affiliates or is likely to damage the business of Cinco or its Affiliates, including without limitation their reputation; (e) a breach of duty (other than inadvertent acts or omissions) involving fraud, dishonesty, disloyalty, or a conflict of interest; (f) the material violation of, failure to report, or material failure to enforce the personnel, ethical, or operational policies and procedures of Cinco or its Affiliates; (g) the failure to cooperate with any investigation or inquiry authorized by Cinco or an Affiliate or conducted by a governmental authority related to Cinco’s or an Affiliate’s business or the Participant’s conduct; (h) the Participant’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to, any felony or other serious criminal offense or crime of moral turpitude or any violation of federal or state securities laws; or (i) a material violation of any provision of an Employee Agreement or any non-solicitation, non-competition, non-disclosure, intellectual property, or other agreement (or similar agreement) with Cinco or any of its Affiliates.

 

2.7          “Change of Control” means (a) any consolidation or merger of Cinco in which Cinco is not the continuing or surviving corporation or pursuant to which shares of Cinco’s Common Stock would be converted into cash, securities or other property, other than a merger of Cinco in which the holders of Cinco’s Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of Cinco and its subsidiaries to any other person or entity (other than an Affiliate of Cinco), (c) the stockholders of Cinco approve any plan or proposal for liquidation or dissolution of Cinco, (d) any person or entity (other than Yorktown Energy Partners IV, L.P., Yorktown Energy Partners V, L.P, Yorktown Energy Partners VI, L.P. or any of their affiliated funds), including a “group” as contemplated by section 13(d)(3) of the Exchange Act acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of Cinco’s voting stock (based upon voting power) or (e) as a result of or in connection with a contested election of Directors, the persons who were Directors of Cinco before such election shall cease to constitute a majority of the Board.  Notwithstanding the foregoing, a Change of Control shall not include (i) the initial public offering of the Common Stock or a merger of Cinco and Cima and/or any other affiliate of Yorktown Partners LLC or (ii) any capital raising transaction that is approved by two or more members of the Board who meet the independence requirements of the principal exchange or quotation system upon which the shares of Common Stock are listed or quoted or, if no members of the Board meet such independence requirements, that is approved by the Board.

 

2.8          “Cinco” means Cinco Resources, Inc., a Delaware corporation, or any successor thereto.

 

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

 

2.10        “Committee”  means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board to administer the Plan, which committee shall consist of two or more members of the Board.  To the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be

 

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exercised by the Board.  If possible based on the composition of the Board, during such time as the Common Stock is registered under Section 12 of the Exchange Act, each member of the Committee shall be an Outside Director.  If for any reason the Common Stock is registered under Section 12 of the Exchange Act and the appointed Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of the Code (to the extent applicable), such noncompliance with such requirements shall not affect the validity of Awards, grants, interpretations or other actions of the Committee.

 

2.11        “Common Stock” means the common stock of Cinco, $0.001 par value per share, or any stock or other securities hereafter issued or issuable in substitution or exchange for the Common Stock.

 

2.12        “Company” means Cinco and any Affiliate.

 

2.13        “Disability,” “Incapacity” or any similar term means, unless otherwise defined in an Employee Agreement entered into by the Participant in which case the definition in the Employee Agreement shall govern if there is a conflict in definitions, (a) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or (b) the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of Cinco or an Affiliate.

 

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

 

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

 

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

 

2.17        “Employee Agreement” means any agreement between Cinco or an Affiliate and an Employee containing one or more of the following agreements or covenants by the Employee:  (i) an employment agreement, (ii) an agreement by the Employee to keep confidential certain information, (iii) an agreement or covenant to refrain from competing with the Company and/or the Affiliate, (iv) an agreement or covenant to refrain from soliciting employees, contractors, customers, vendors or suppliers of Cinco and/or the Affiliate, or (v) an agreement to disclose and assign to Cinco and/or the Affiliate certain intellectual property, including without limitation,

 

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ideas, inventions, discoveries, processes, designs, methods, substances, articles, computer programs, and improvements.

 

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

 

2.19        “Fair Market Value” means (a) if the Common Stock is listed on any established stock exchange or a national market system, including without limitation Nasdaq Global Select Market, Nasdaq Global Market, Nasdaq Capital Market, the American Stock Exchange and the New York Stock Exchange, the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the date of the determination (or if there was no quoted price for such date, then for the last preceding business day on which there was a quoted price), as reported in The Wall Street Journal or such other source as the Committee deems reliable, (b) if the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the mean between the high bid and low asked prices for the Common Stock for the date of the determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable or (c) if the Common Stock is not reported or quoted by any such organization, (i) with respect to Incentive Stock Options, fair market value of the Common Stock as determined in good faith by the Committee within the meaning of Section 422 of the Code or (ii) with respect to other Awards, fair market value of the Common Stock as determined in good faith by the Committee using a “reasonable application of a reasonable valuation method” within the meaning of Treasury Regulation Section 1.409A-1(b)(5)(iv)(B) or other applicable valuation rules under the Code or applicable law. Notwithstanding the foregoing, in the event that the date of determination is the date of the execution and delivery of the underwriting agreement relating to date of closing of Cinco’s IPO (as defined below), “Fair Market Value” shall mean the initial per share public offering price of the shares of Common Stock sold in the IPO as reflected in the final prospectus filed with the SEC.  For purposes of this definition, “IPO” means an initial public offering of shares of Common Stock to the public in an underwritten offering pursuant to a registration statement under the Securities Act or the securities laws of any other jurisdiction.

 

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

 

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

 

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

 

2.23        “162(m) Requirements” is defined in Section 11.3.

 

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

 

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

 

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

 

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

 

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

 

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

 

2.30        “Plan” means the Cinco Resources, Inc. 2011 Long Term Incentive Plan, as in effect from time to time.

 

2.31        “Prior Plans” means the Cinco Resources, Inc. 2008 Stock Incentive Plan and the Cima Resources, Inc. 2010 Stock Incentive Plan.

 

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

 

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

 

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

 

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

 

2.36        “Section 409A” means Section 409A of the Code and the Treasury Regulations and other guidance thereunder.

 

2.37        “SEC” means the United States Securities and Exchange Commission, or any successor agency or organization.

 

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2.38        “Securities Act” means the Securities Act of 1933, as amended.

 

2.39        “Stock Appreciation Right” or  “SAR” means a right granted to a Participant pursuant to Article VIII with respect to a share of Common Stock to receive upon exercise cash, Common Stock or a combination of cash and Common Stock, equal to the appreciation in value of a share of Common Stock.

 

2.40        “Stock Award” means a share of Common Stock granted to a Participant pursuant to Article XII that is not subject to vesting or forfeiture restrictions.

 

ARTICLE III.

PLAN ADMINISTRATION

 

3.1          Plan Administrator and Discretionary Authority.  The Plan shall be administered by the Committee.  The Committee shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms.  The Committee shall have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Plan.  Without limiting the generality of the preceding sentence, the Committee shall have the exclusive right to (a) interpret the Plan and the Award Agreements executed hereunder, (b) decide all questions concerning eligibility for, and the amount of, Awards granted under the Plan, (c) construe any ambiguous provision of the Plan or any Award Agreement, (d) prescribe the form of Award Agreements, including, without limitation, establishing vesting and other restrictions, (e) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement, (f) issue administrative guidelines as an aid to administering the Plan and make changes in such guidelines as the Committee from time to time deems proper, (g) make regulations for carrying out the Plan and make changes in such regulations as the Committee from time to time deems proper, (h) determine whether Awards should be granted singly or in combination, (i) to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions and limitations, (j) accelerate the exercise, vesting or payment of an Award when such action or actions would be in the best interests of the Company, (k) require Participants to hold a stated number or percentage of shares of Common Stock acquired pursuant to an Award for a stated period and (l) take any and all other actions the Committee deems necessary or advisable for the proper operation or administration of the Plan.  The Committee shall have authority in its sole discretion with respect to all matters related to the discharge of its responsibilities and the exercise of its authority under the Plan, including without limitation its construction of the terms of the Plan and its determination of eligibility for participation in, and the terms of Awards granted under, the Plan.  The decisions of the Committee and its actions with respect to the Plan shall be final, conclusive and binding on all persons having or claiming to have any right or interest in or under the Plan, including without limitation Participants and their respective Permitted Transferees, estates, beneficiaries and legal representatives.  In the case of an Award intended to be eligible for the performance-based compensation exemption under Section 162(m) of the Code, the Committee shall exercise its discretion consistent with qualifying the Award for such exemption.  In the case of an Award intended to be exempt from or compliant with Section 409A, the Committee shall exercise its discretion consistent with such intent.  The Committee shall have the authority, in its sole and absolute discretion, to delegate its duties and functions under the Plan to the Chief

 

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Executive Officer or other named executive officer of Cinco or such other agents as it may appoint from time to time, provided the Committee may not delegate its duties where such delegation would violate state corporate law or with respect to making Awards to, or otherwise with respect to Awards granted to, individuals who are covered employees receiving Awards that are intended to constitute “performance-based compensation” within the meaning of Section 162(m) of the Code.

 

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

 

ARTICLE IV.

SHARES SUBJECT TO THE PLAN

 

4.1          Available Shares.

 

(a)           Subject to adjustment as provided in Sections 4.2, the maximum number of shares of Common Stock that shall be available for grant of Awards under the Plan shall be 168,284 shares.  If an Award or Option granted under the Plan or the Prior Plans expires, is forfeited or becomes unexercisable for any reason without having been exercised in full, the undelivered shares of Common Stock which were subject to the Award or Option shall, unless the Plan shall have been terminated, become available for future Awards under the Plan.

 

(b)           The maximum number of shares of Common Stock that may be subject to Incentive Stock Options granted under the Plan is 168,284 shares.  The maximum number of shares of Common Stock that may be subject to all Awards granted under the Plan to any one Participant each fiscal year is 84,142 shares.  The maximum number of shares of Common Stock that may be subject to Nonqualified Stock Options and SARs granted under the Plan to any one Participant during a fiscal year is 84,142 shares.  The limitations provided in this Section 4.1(b) shall be subject to adjustment as provided in Section 4.2.

 

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

 

(d)           Notwithstanding any provision of this Plan to the contrary, the Board or the Committee shall have the right to substitute or assume awards in connection with mergers, reorganizations, separations or other transactions to which Section 424(a) of the Code applies, provided such substitutions or assumptions are permitted by Section 424 of the Code (or, if applicable, Section 409A) and the regulations promulgated thereunder.

 

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(e)           To comply with Rule 701 promulgated under the Securities Act, while the Common Stock is not registered under Section 12 of the Exchange Act, the maximum number of shares of Common Stock that shall be available for grant of Awards under the Plan during any consecutive 12-month period shall be the greatest of (i) a number of shares having an aggregate sales price of $1,000,000, (ii) a number of shares having an aggregate sales price equal to 15% of the Company’s total assets, measured on the date of the Company’s most recent balance sheet, or (iii) a number of shares equal to 15% of the Company’s outstanding Common Stock, measured on the date of the Company’s most recent balance sheet.

 

4.2          Adjustments for Recapitalizations and Reorganizations.  Subject to Article XIII, if there is any change in the number or kind of shares of Common Stock outstanding (a) by reason of a stock dividend, spin-off, recapitalization, stock split or combination or exchange of shares, (b) by reason of a merger, reorganization or consolidation, (c) by reason of a reclassification or change in par value or (d) by reason of any other extraordinary or unusual event affecting the outstanding Common Stock as a class without Cinco’s receipt of consideration, or if the value of outstanding shares of Common Stock is reduced as a result of a spin-off or Cinco’s payment of an extraordinary cash dividend, or distribution, or dividend or distribution consisting of any assets of Cinco other than cash, the maximum number and kind of shares of Common Stock available for issuance under the Plan, the maximum number and kind of shares of Common Stock for which any individual may receive Awards in any fiscal year or under the Plan, the number and kind of shares of Common Stock covered by outstanding Awards, and the price per share or the applicable market value or performance target of such Awards will be appropriately adjusted by the Committee to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Common Stock to preclude, to the extent practicable, the enlargement or dilution of rights under such Awards; provided, however, that any fractional shares resulting from such adjustment shall be eliminated.  Notwithstanding the provisions of this Section 4.2, (i) the number and kind of shares of Common Stock available for issuance as Incentive Stock Options under the Plan shall be adjusted only in accordance with Sections 422 and 424 of the Code and the regulations thereunder, and (ii) outstanding Awards and Award Agreements shall be adjusted in accordance with (A) Sections 422 and 424 of the Code and the regulations thereunder with respect to Incentive Stock Options and (B) Section 409A with respect to Nonqualified Stock Options, SARs and, to the extent applicable, other Awards.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE V.

ELIGIBILITY

 

The Committee shall select Participants from those Employees, Outside Directors and other individuals providing services to the Company that, in the opinion of the Committee, are in a position to make a positive contribution to the success of the Company.  Once a Participant has been selected for an Award by the Committee, the Committee shall determine the type and size of Award to be granted to the Participant and shall establish in the related Award Agreement the terms, conditions, restrictions and limitations applicable to the Award, in addition to those set forth in the Plan and the administrative guidelines and regulations, if any, established by the Committee.  Notwithstanding the foregoing, Employees, Outside Directors and other individuals that provide services to Affiliates that are not considered a single employer with Cinco under Code Section 414(b) or Code Section 414(c) shall not be eligible to receive Awards which are subject to Section 409A until the Affiliate adopts this Plan as a participating employer in accordance with Section 15.18.

 

ARTICLE VI.

FORM OF AWARDS

 

6.1          Form of Awards.  Awards may be granted under the Plan, in the Committee’s sole discretion, in the form of Options pursuant to Article VII, SARs pursuant to Article VIII, Restricted Stock pursuant to Article IX, Restricted Stock Units pursuant to Article X, Performance Awards pursuant to Article XI and Stock Awards and Other Incentive Awards pursuant to Article XII, or a combination thereof.  All Awards shall be subject to the terms, conditions, restrictions and limitations of the Plan.  The Committee may, in its sole discretion, subject any Award to such other terms, conditions, restrictions and/or limitations (including without limitation the time and conditions of exercise, vesting or payment of an Award and restrictions on transferability of any shares of Common Stock issued or delivered pursuant to an Award), provided they are not inconsistent with the terms of the Plan.  The Committee may, but is not required to, subject an Award to such conditions as it determines are necessary or appropriate to ensure that an Award constitutes “qualified performance based compensation” within the meaning of Section 162(m) of the Code and the regulations thereunder.  Awards under a particular Article of the Plan need not be uniform, and Awards under more than one Article of the Plan may be combined in a single Award Agreement.  Any combination of Awards may be granted at one time and on more than one occasion to the same Participant.  Subject to compliance with applicable tax law (including Section 409A), an Award Agreement may provide that a Participant may elect to defer receipt of income attributable to the exercise or vesting of an Award.

 

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ARTICLE VII.

OPTIONS

 

7.1          General.  Awards may be granted in the form of Options that may be Incentive Stock Options or Nonqualified Stock Options, or a combination of both.  Incentive Stock Options may be granted only to Employees.  Nonqualified Stock Options may be granted only to Employees, Outside Directors or other individuals performing services for Cinco or a corporation or other type of entity in a chain of corporations or other entities in which each corporation or other entity has a “controlling interest” in another corporation or entity in the chain, starting with Cinco and ending with the corporation or other entity for which the Employee, Outside Director or other individual or entity performs services.  For purposes of this Section, “controlling interest” means (a) in the case of a corporation, ownership of stock possessing at least 50% of total combined voting power of all classes of stock entitled to vote of such corporation or at least 50% of the total value of shares of all classes of stock of such corporation; (b) in the case of a partnership, ownership of at least 50% of the profits interest or capital interest of such partnership; (c) in the case of a sole proprietorship, ownership of the sole proprietorship; or (d) in the case of a trust or estate, ownership of an actuarial interest (as defined in Treasury Regulation Section 1.414(c)-2(b)(2)(ii)) of at least 50% of such trust or estate.

 

7.2          Terms and Conditions of Options.  An Option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee.  The price at which a share of Common Stock may be purchased upon exercise of an Option shall be determined by the Committee, but such exercise price shall not be less than the greater of (a) the par value per share of the Common Stock or (b) 100% of the Fair Market Value per share of Common Stock on the Grant Date unless, with respect to a Nonqualified Stock Option, the Option is granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became Employees (or other service providers) as a result of a merger, consolidation, acquisition or other corporate transaction involving the Company which complies with Treasury Regulation Section 1.409A-1(b)(5)(v)(D) or the Option is otherwise structured to be exempt from or compliant with Section 409A.  Except as otherwise provided in Section 7.3, the term of each Option shall be as specified by the Committee; provided, however, that no Options shall be exercisable later than 10 years after the Grant Date.  Options may be granted with respect to Restricted Stock or shares of Common Stock that are not Restricted Stock, as determined by the Committee in its sole discretion.

 

7.3          Restrictions Relating to Incentive Stock Options.

 

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

 

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notify the Participant of such determination as soon as practicable after such determination.  The price at which a share of Common Stock may be purchased upon exercise of an Incentive Stock Option shall be determined by the Committee, but such exercise price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the Grant Date.  No Incentive Stock Option shall be granted to an Employee under the Plan if, at the time such Option is granted, such Employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of Cinco or of its Affiliates unless (i) on the Grant Date of such Option, the exercise price of such Option is at least 110% of the Fair Market Value of the Common Stock subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five years from the Grant Date of the Option.

 

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

 

7.4          Exercise of Options.

 

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

 

(b)           Upon exercise of an Option, the exercise price of the Option shall be payable to Cinco in full either (i) in cash or an equivalent acceptable to the Committee, (ii) in the sole discretion of the Committee and in accordance with any applicable administrative guidelines established by the Committee, (A) by tendering one or more previously acquired nonforfeitable, unrestricted shares of Common Stock having an aggregate Fair Market Value at the time of exercise equal to the total exercise price or (B) by surrendering a sufficient portion of the shares with respect to which the Option is exercised having an aggregate Fair Market Value at the time of exercise equal to the total exercise price or (iii) in a combination of the forms specified in (i) or (ii) of this subsection; provided, however, that payment of the exercise price by means of tendering or surrendering shares of Common Stock shall not be permitted when the same may, in the reasonable opinion of the Committee, cause Cinco to record a loss or expense as a result thereof.

 

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

 

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the sale or margin loan proceeds directly to Cinco to pay the exercise price and any required withholding taxes.

 

(d)           As soon as reasonably practicable after receipt of written notification of exercise of an Option and full payment of the exercise price and any required withholding taxes, Cinco shall (i) deliver to the Participant, in the Participant’s name or the name of the Participant’s designee, a stock certificate or certificates in an appropriate aggregate amount based upon the number of shares of Common Stock purchased under the Option or (ii) cause to be issued in the Participant’s name or the name of the Participant’s designee, in book-entry form, an appropriate number of shares of Common Stock based upon the number of shares purchased under the Option.

 

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

 

(a)           Termination For Cause.  If the employment or service of a Participant shall terminate for Cause, each outstanding Option held by the Participant shall automatically terminate as of the date of such termination of employment or service, and the right to exercise the Option shall immediately terminate.

 

(b)           Termination By Reason of Death or Disability.  In the event of a Participant’s termination of employment or service by reason of the death or by the Company on account of Disability, each outstanding Option shall remain outstanding and may be exercised by the person who acquires the Option by will or the laws of descent and distribution, or by the Participant, as the case may be, but only (i) within the one year period following the date of termination on account of death or Disability (if otherwise prior to the date of expiration of the Option), and not thereafter, and (ii) to purchase the number of shares of Common Stock that were subject to purchase upon exercise of the Option at the time of such termination, plus the number of shares of Common Stock that would have become purchasable upon the next vesting date.

 

(c)           Termination For Reasons Other Than Cause, Death or Disability.  If a Participant’s employment or service with Cinco and its Affiliates is terminated voluntarily by the Participant or by action of Cinco or an Affiliate for reasons other than for Cause or Disability or termination as a result of the Participant’s death, an Option may be exercised, but only (i) within three months after such termination (if otherwise prior to the date of expiration of the Option), and not thereafter, and (ii) to purchase the number of shares of Common Stock, if any, that could be purchased upon exercise of the Option at the date of termination of the Participant’s employment or service.

 

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

 

ARTICLE VIII.

STOCK APPRECIATION RIGHTS

 

8.1          General.

 

(a)           The Committee may grant Awards in the form of SARs in such numbers and at such times as it shall determine.  SARs shall vest and be exercisable in whole or in such installments and at such times as may be determined by the Committee.  The price at which SARs may be exercised shall be determined by the Committee but shall not be less than 100% of the Fair Market Value per share of Common Stock on the Grant Date unless (i) the SARs are granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became Employees (or other service providers) as a result of a merger, consolidation, acquisition or other corporate transaction involving the Company which complies with Treasury Regulation Section 1.409A-1(b)(5)(v)(D) or (ii) the SARs are otherwise structured to be exempt from or compliant with Section 409A.  The term of each SAR shall be as specified by the Committee; provided, however, that no SARs shall be exercisable later than 10 years after the Grant Date.  At the time of an Award of SARs, the Committee may, in its sole discretion, prescribe additional terms, conditions, restrictions and limitations applicable to the SARs, including without limitation rules pertaining to the termination of employment or service (by reason of death, permanent and total disability, or otherwise) of a Participant prior to exercise of the SARs, as it determines are necessary or appropriate, provided they are not inconsistent with the Plan.

 

(b)           SARs may be granted only to Employees, Outside Directors or other individuals performing services for Cinco or a corporation or other type of entity in a chain of corporations or other entities in which each corporation or other entity has a “controlling interest” in another corporation or entity in the chain, starting with Cinco and ending with the corporation or other entity for which the Employee, Outside Director or other individual or entity performs services.  For purposes of this Section, “controlling interest” means (a) in the case of a corporation, ownership of stock possessing at least 50% of total combined voting power of all classes of stock entitled to vote of such corporation or at least 50% of the total value of shares of all classes of stock of such corporation; (b) in the case of a partnership, ownership of at least 50% of the profits interest or capital interest of such partnership; (c) in the case of a sole proprietorship, ownership of the sole proprietorship; or (d) in the case of a trust or estate, ownership of an actuarial interest (as defined in Treasury Regulation Section 1.414(c)-2(b)(2)(ii)) of at least 50% of such trust or estate.

 

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8.2          Exercise of SARs.  SARs shall be exercised by the delivery of a written notice of exercise to Cinco, setting forth the number of whole shares of Common Stock with respect to which the Award is being exercised.  Upon the exercise of SARs, the Participant shall be entitled to receive an amount equal to the excess of the aggregate Fair Market Value of the shares of Common Stock with respect to which the Award is exercised (determined as of the date of such exercise) over the aggregate exercise price of such shares.  Such amount shall be payable to the Participant in cash and/or shares of Common Stock, as provided in the Award Agreement.

 

ARTICLE IX.

RESTRICTED STOCK

 

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

 

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

 

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

 

9.4          Other Terms and Conditions.  Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes.  Restricted Stock awarded to a Participant under the Plan shall be registered in the name of the Participant or, at the option of Cinco, in the name of a nominee of Cinco, and shall be issued in book-entry form or represented by a stock certificate.  Subject to the terms and conditions of the Award Agreement, a Participant to whom Restricted Stock has been awarded shall have the right to receive dividends thereon during the Restricted Period, to vote the Restricted Stock and to enjoy all other stockholder rights with respect thereto, except that (a) Cinco shall retain custody of any certificates evidencing the Restricted Stock during the Restricted Period and (b) the Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Restricted Stock during the Restricted Period.  A breach of the terms and conditions established by the Committee pursuant to the Award of the Restricted Stock may result in a forfeiture of the Restricted Stock.  At the time of an Award of Restricted Stock, the Committee may, in its sole discretion, prescribe additional terms, conditions, restrictions and limitations applicable to the Restricted Stock, including without limitation rules pertaining to the termination of employment or service (by reason of death, permanent and total disability, retirement, cause or otherwise) of a Participant prior to expiration of the Restricted Period.

 

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

 

ARTICLE X.

RESTRICTED STOCK UNITS

 

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

 

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

 

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

 

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

 

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ARTICLE XI.

PERFORMANCE AWARDS

 

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

 

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

 

11.3        Code Section 162(m) Requirements.  From and after the date on which remuneration paid (or Awards granted) pursuant to the Plan becomes subject to the deduction limitation of Section 162(m) of the Code, the Committee shall have the discretion to determine whether all or any portion of a Performance Award shall be intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code (the “162(m) Requirements”).  The performance criteria for any Performance Award that is intended to satisfy the 162(m) Requirements shall be established in writing by the Committee based on one or more performance goals as set forth in Section 11.4 not later than 90 days after commencement of the performance period with respect to such Award, provided that the outcome of the performance in respect of the goals remains substantially uncertain as of such time.  The maximum amount that may be paid in cash pursuant to Performance Awards granted to a Participant with respect to a Cinco’s fiscal year that are intended to satisfy the 162(m) Requirements is $2,500,000; provided, however, that such maximum amount with respect to a Performance Award that provides for a performance period longer than one fiscal year shall be the foregoing limit multiplied by the number of full fiscal years in the performance period.  At the time of the grant of a Performance Award and to the extent permitted under Code Section 162(m) and regulations thereunder for a Performance Award intended to satisfy the 162(m) Requirements, the Committee may provide for the manner in which the performance goals will be measured in light of specified corporate transactions, extraordinary events, accounting changes and other similar occurrences.

 

11.4        Performance Goals.  The performance measure(s) to be used for purposes of Performance Awards shall be set in the Committee’s sole discretion and may be described in terms of objectives that are related to the individual Participant or objectives that are Company-wide or related to a subsidiary, division, department, region, function or business unit of the Company in which the Participant is employed or with respect to which the Participant performs services, and may consist of one or more or any combination of the following criteria: (a) 

 

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earnings or earnings per share (whether on a pre-tax, after-tax, operational or other basis), (b) return on equity, (c) total stockholder return (either absolute or compared to a peer group or index), (d) return on assets or net assets, (e) return on capital or invested capital and other related financial measures, (f) return on investment, (g) cash flow from operations, free cash flow, EBITDA or EBITDAX, (h) revenues, (i) income or operating income, (j) expenses or costs or expense levels or cost levels (absolute or per unit), (k) one or more operating ratios, (l) stock price (including growth measures and total stockholder return or attainment by the shares of a specified value for a specified period of time), (m) operating profit, (n) profit margin, (o) capital expenditures, (p) net borrowing, debt leverage levels, credit quality or debt ratings, (q) the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions, (r) net asset value per share, (s) economic value added, (t) individual business objectives, (u) growth in production or gas or oil production, (v) oil and gas reserves or growth or additions in reserves, (w) oil and gas replacement ratio(s),(x) finding and development cost per unit, (y) cost reduction targets, and/or (z) ratio of debt to proved reserves.  These criteria may be applied to an individual holder of a Performance Award, the Company as a whole or a relevant portion of the Company’s operations.  The performance goals established using these criteria may be expressed on an absolute or a relative basis, and may employ comparisons based on internal targets or the performance of other companies, or the historical performance of the Company or any of its operating units or divisions.  Any earnings-based measures may use comparisons related to capital, shareholder’s equity, shares outstanding, assets or net assets.

 

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

 

ARTICLE XII.

STOCK AWARDS AND OTHER INCENTIVE AWARDS

 

12.1        Stock Awards.  Stock Awards may be granted to Participants upon such terms and conditions as the Committee may determine.  Shares of Common Stock issued pursuant to Stock Awards may be issued for cash consideration or for no cash consideration.  The Committee shall determine the number of shares of Common Stock to be issued pursuant to a Stock Award.  The Committee may in its sole discretion require a Participant to pay a stipulated purchase price for each share of Common Stock covered by a Stock Award.

 

12.2        Other Incentive Awards.  Other Incentive Awards may be granted in such amounts, upon such terms and at such times as the Committee shall determine.  Other Incentive Awards may be granted based upon, payable in or otherwise related to, in whole or in part, shares of Common Stock if the Committee, in its sole discretion, determines that such Other Incentive Awards are consistent with the purposes of the Plan.  Such Awards may include, but are not limited to, Common Stock awarded as a bonus, dividend equivalents, convertible or exchangeable debt securities, other rights convertible or exchangeable into Common Stock, purchase rights for Common Stock, Awards with value and payment contingent upon Cinco’s performance or any other factors designated by the Committee, and awards valued by reference 

 

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to the book value of Common Stock or the value of securities of or the performance of specified subsidiaries.  Long-term cash Awards also may be made under the Plan.  Cash Awards also may be granted as an element of or a supplement to any Awards permitted under the Plan.  Awards may also be granted in lieu of obligations to pay cash or deliver other property under the Plan or under other plans or compensation arrangements, subject to any applicable provision under Section 16 of the Exchange Act. Each grant of an Other Incentive Award shall be evidenced by an Award Agreement that shall specify the amount of the Other Incentive Award and the terms, conditions, restrictions and limitations applicable to such Award.  Payment of Other Incentive Awards shall be made at such times and in such form, which may be cash, shares of Common Stock or other property (or a combination thereof), as established by the Committee, subject to the terms of the Plan.

 

ARTICLE XIII.

CHANGE OF CONTROL

 

13.1        Vesting of Awards.  Except as provided otherwise in an Award Agreement, notwithstanding any provision of this Plan to the contrary, in the event of a Change of Control, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, an Award granted hereunder shall be accelerated or waived (assuming with respect to any Performance Awards, all performance criteria and other conditions are achieved or fulfilled at target level) so that:

 

(a)           if no exercise of the Award is required, the Award may be realized in full at the time of the occurrence of the Change of Control (the “Change Effective Time”), or

 

(b)           if exercise of the Award is required, the Award may be exercised in full at the Change Effective Time;

 

provided, however, that with respect to any Award that consists of nonexempt deferred compensation within the meaning of Section 409A, in the event of a Change of Control that does not satisfy the requirements for a change in the ownership or effective control of Cinco or a change in the ownership of a substantial portion of the assets of Cinco within the meaning of Section 409A (a “Section 409A Change in Control”), then delivery of payment with respect to such Award as provided herein shall be made upon the earliest of (i) the Participant’s “separation from service” (within the meaning of Treasury Regulation Section 1.409A-1(h)), (ii) the Participant’s becoming disabled (within the meaning of Treasury Regulation Section 1.409A-3(i)(4)), (iii) the Participant’s death or (iv) a Section 409A Change in Control; provided, however, that delivery of payment upon separation from service to a Participant who is a “specified employee” (as defined in Treasury Regulation Section 1.409A-1(i)) as of the date of his or her separation from service shall be delayed for a period of six months after the Participant’s separation from service (or, if earlier than the end of the six-month period, the date of death of the Participant).

 

13.2        Assumption of Awards.  Upon a Change of Control where Cinco is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Options that are not exercised before the Change of Control will be assumed by or replaced with comparable options or rights in the

 

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surviving corporation (or a parent of the surviving corporation) in accordance with Section 424(a) of the Code and the regulations thereunder (or Section 409A, if applicable), and other outstanding Awards will be converted into similar awards of the surviving corporation (or a parent of the surviving corporation).

 

13.3        Cancellation of Awards.  Notwithstanding the foregoing, in the event of a Change of Control of Cinco, then the Committee, in its discretion, may, no later than the effective time of such Change of Control, require any Participant holding an Award to surrender such Award in exchange for (a) with respect to each share of Common Stock subject to an Option or SAR (whether or not vested), payment by the Company (or a successor), in cash or other property, of an amount equivalent in value to the excess of the value of the consideration received for each share of Common Stock by holders of Common Stock in connection with such Change of Control (the “Change of Control Consideration”) over the exercise price or grant price per share, (b) with respect to each share of Common Stock subject to an Award of Restricted Stock Units or Other Incentive Awards, and related Cash Dividend Rights and Dividend Unit Rights (if applicable), payment by the Company (or a successor), in cash or other property, of an amount equivalent to the value of any such Cash Dividend Rights and Dividend Unit Rights plus the value of the Change of Control Consideration for each share covered by the Award, assuming all restrictions or limitations (including risks of forfeiture) have lapsed and (c) with respect to a Performance Award, payment by the Company (or a successor), in cash or other property, of an amount equivalent to the value of such Award, as determined by the Committee, taking into account, to the extent applicable, the Change of Control Consideration, and assuming all performance criteria and other conditions to payment of such Awards are achieved or fulfilled to the maximum extent possible.  Payments made upon a Change of Control pursuant to this Section shall be made no later than the date on which the Change of Control occurs.  Notwithstanding the foregoing, with respect to any Award that consists of nonexempt deferred compensation within the meaning of Section 409A, in the event of a Change of Control that is not a Section 409A Change in Control, then delivery of payment with respect to such Award as provided herein shall be made upon the earliest of (i) the Participant’s “separation from service” (within the meaning of Treasury Regulation Section 1.409A-1(h)), (ii) the Participant’s becoming disabled (within the meaning of Treasury Regulation Section 1.409A-3(i)(4)), (iii) the Participant’s death or (iv) a Section 409A Change in Control; provided, however, that delivery of payment upon separation from service to a Participant who is a “specified employee” (as defined in Treasury Regulation Section 1.409A-1(i)) as of the date of his or her separation from service shall be delayed for a period of six months after the Participant’s separation from service (or, if earlier than the end of the six-month period, the date of death of the Participant).

 

ARTICLE XIV.

AMENDMENT AND TERMINATION

 

14.1        Plan Amendment and Termination.  The Board may at any time suspend, terminate, amend or modify the Plan, in whole or in part; provided, however, that no amendment or modification of the Plan shall become effective without the approval of such amendment or modification by the holders of at least a majority of the shares of Common Stock if (a) such amendment or modification increases the maximum number of shares subject to the Plan (except as provided in Article IV) or changes the designation or class of persons eligible to receive Awards under the Plan or (b) counsel for Cinco determines that such approval is otherwise

 

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required by or necessary to comply with applicable law or the listing requirements of an exchange or association on which the Common Stock is then listed or quoted.  An amendment to the Plan generally will not require stockholder approval if it curtails rather than expands the scope of the Plan, nor if it is made to conform the Plan to statutory or regulatory requirements, such as, without limitation, Section 409A.  Upon termination of the Plan, the terms and provisions of the Plan shall, notwithstanding such termination, continue to apply to Awards granted prior to such termination.  Except as otherwise provided herein, no suspension, termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the consent of the Participant (or the Permitted Transferee) holding such Award.  Notwithstanding the foregoing, Cinco may amend any Award Agreement to be exempt from Section 409A or to comply with the requirements of Section 409A or to modify any provision that causes an Award that is intended to be classified as an “equity instrument” under FASB ASC Topic 718 (formerly FAS 123R) to be classified as a liability on Cinco’s financial statements.

 

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

 

ARTICLE XV.

MISCELLANEOUS

 

15.1        Award Agreements.  After the Committee grants an Award under the Plan to a Participant, Cinco and the Participant shall enter into an Award Agreement setting forth the terms, conditions, restrictions and limitations applicable to the Award and such other matters as the Committee may determine to be appropriate.  The Committee may permit or require a Participant to defer receipt of the payment of cash or the delivery of shares of Common Stock that would otherwise be due to the Participant in connection with any Award; provided, however, that any permitted deferrals shall be structured to meet the requirements of Section 409A.  Awards that are not paid currently shall be recorded as payable on Cinco’s records for the Plan.  The terms and provisions of the respective Award Agreements need not be identical.  All Award Agreements shall be subject to the provisions of the Plan, and in the event of any conflict between an Award Agreement and the Plan, the terms of the Plan shall govern.  All Awards under the Plan are intended to be structured in a manner that will either comply with or be exempt from Section 409A.

 

15.2        Listing; Suspension.

 

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

 

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

 

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

 

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

 

15.4        Transferability.

 

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

 

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

 

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

 

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

 

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

 

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Common Stock shall be issued pursuant to any Award unless and until the applicable tax withholding obligations have been satisfied.

 

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

 

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

 

15.8        Compliance with Law and Stock Exchange or Association Requirements; Disclosure.  In addition, it is the intent of Cinco that Options designated Incentive Stock Options comply with the applicable provisions of Section 422 of the Code, that Awards intended to constitute “qualified performance-based awards” comply with the applicable provisions of Section 162(m) of the Code, and that all Awards, including any deferral of the receipt of the payment of cash or the delivery of shares of Common Stock that the Committee may permit or require, either be exempt from Section 409A or, if not exempt, comply with the requirements of Section 409A.  To the extent that any legal requirement of Section 16 of the Exchange Act or Sections 422 or 162(m) of the Code or Section 409A as set forth in the Plan ceases to be required under Section 16 of the Exchange Act or Section 422 or 162(m) of the Code or Section 409A, that Plan provision shall cease to apply.  Any legal requirement of Section 16 of the Exchange Act or Section 162(m) of the Code as set forth in the Plan shall only be effective in the event the Common Stock is registered under Section 12 of the Exchange Act.  Any provision of this Plan to the contrary notwithstanding, the Committee may revoke any Award if it is contrary to law, governmental regulation or stock exchange or association requirements or modify an Award to bring it into compliance with any government regulation or stock exchange or association requirements.  The Committee may agree to limit its authority under this Section.  In addition, by accepting or exercising any Award granted under the Plan (or any Prior Plan) and while applicable, the Participant agrees to abide and be bound by any policies adopted by Cinco pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or exchange listing standards promulgated thereunder calling for the repayment

 

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and/or forfeiture of any Award or payment resulting from an accounting restatement. Such repayment and/or forfeiture provisions shall apply whether or not the Participant is employed by or affiliated with Cinco.  To comply with Rule 701 promulgated under the Securities Act while the Common Stock is not registered under Section 12 of the Exchange Act, the Company shall provide each Participant with a copy of the Plan.  In addition, if the number of shares sold during any consecutive 12-month period has an aggregate sales price exceeding $5,000,000, the Company will also provide each Participant with a summary of the material terms of the Plan, information about the risks associated with the shares, and Company financial statements as required by Rule 701.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

15.18      Participating Affiliates.  With the consent of the Committee, any Affiliate that is not considered a single employer with Cinco under Code Section 414(b) or Code Section 414(c) may adopt the Plan for the benefit of its Employees by written instrument delivered to the Committee before the grant to the Affiliate’s Employees under the Plan of any Award subject to Section 409A.

 

IN WITNESS WHEREOF, this Plan has been executed on this 15th day of December, 2011, to be effective as of the Effective Date.

 

	
 
    	
CINCO   RESOURCES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Jon Glass
    
	
 
    	
 
    	
Jon   Glass, President and Chief Executive Officer
    

 

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