Document:

EX-10.23

 

Exhibit 10.23

TOWN SPORTS INTERNATIONAL HOLDINGS, INC.

 

2006 STOCK INCENTIVE PLAN

 

Adopted
as of May 30, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE I PURPOSE
	 	 	1	 
	ARTICLE II DEFINITIONS
	 	 	1	 
	ARTICLE III ADMINISTRATION
	 	 	8	 
	ARTICLE IV SHARE LIMITATION
	 	 	11	 
	ARTICLE V ELIGIBILITY AND GENERAL REQUIREMENTS FOR AWARDS
	 	 	15	 
	ARTICLE VI STOCK OPTIONS
	 	 	15	 
	ARTICLE VII STOCK APPRECIATION RIGHTS
	 	 	19	 
	ARTICLE VIII RESTRICTED STOCK
	 	 	22	 
	ARTICLE IX PERFORMANCE SHARES
	 	 	24	 
	ARTICLE X OTHER STOCK-BASED AWARDS
	 	 	26	 
	ARTICLE XI TERMINATION
	 	 	28	 
	ARTICLE XII CHANGE IN CONTROL PROVISIONS
	 	 	29	 
	ARTICLE XIII TERMINATION OR AMENDMENT OF PLAN
	 	 	30	 
	ARTICLE XIV UNFUNDED PLAN
	 	 	32	 
	ARTICLE XV GENERAL PROVISIONS
	 	 	32	 
	ARTICLE XVI EFFECTIVE DATE OF PLAN
	 	 	35	 
	ARTICLE XVII TERM OF PLAN
	 	 	35	 
	ARTICLE XVIII NAME OF PLAN
	 	 	36	 
	EXHIBIT A PERFORMANCE GOALS
	 	 	i	 

 i 

 

 

TOWN SPORTS INTERNATIONAL HOLDINGS, INC.

 

2006 STOCK INCENTIVE PLAN

 

ARTICLE I

PURPOSE

     The purpose of this 2006 Stock Incentive Plan (the “Plan”) is to enhance the
profitability and value of the Company for the benefit of its stockholders by enabling the Company
to offer Eligible Employees, Consultants and Non-Employee Directors stock-based incentives in the
Company to attract, retain and reward such individuals and strengthen the mutuality of interests
between such individuals and the Company’s stockholders.

ARTICLE II

DEFINITIONS

     For purposes of the Plan, the following terms shall have the following meanings:

     2.1 “Acquisition Event” means a merger or consolidation in which the Company is not the
surviving entity, any transaction that results in the acquisition of all or substantially all of
the Company’s outstanding Common Stock by a single person or entity or by a group of persons and/or
entities acting in concert, or the sale or transfer of all or substantially all of the Company’s
assets. The occurrence of Acquisition Event shall be determined by the Committee in its sole
discretion.

     2.2 “Affiliate” means each of the following: (a) any Subsidiary; (b) any Parent; (c)
any corporation, trade or business (including, without limitation, a partnership or limited
liability company) that is directly or indirectly controlled 50% or more (whether by ownership of
stock, assets or an equivalent ownership interest or voting interest) by the Company; (d) any
corporation, trade or business (including, without limitation, a partnership or limited liability
company) that directly or indirectly controls 50% or more (whether by ownership of stock, assets or
an equivalent ownership interest or voting interest) of the Company; and (e) any other entity in
which the Company or any of its Affiliates has a material equity interest and that is designated as
an “Affiliate” by resolution of the Committee; provided, however, that the Common
Stock subject to any Award constitutes “service recipient stock” for purposes of Section 409A of
the Code or otherwise does not subject the Award to Section 409A of the Code.

     2.3 “Award” means any award under the Plan of any Stock Option, Stock Appreciation
Right, Restricted Stock, Performance Share or Other Stock-Based Award. All Awards shall be granted
by, confirmed by, and subject to the terms of, a written or electronic agreement executed by the
Company and the Participant. Any reference herein to an agreement

 

 

in writing shall be deemed to include an electronic writing to the extent permitted by
applicable law.

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

     2.5 “Cause” means with respect to a Participant’s Termination of Employment or
Termination of Consultancy, the following: (a) in the case where there is no employment agreement,
consulting agreement, change in control agreement or similar agreement in effect between the
Company or an Affiliate and the Participant at the time of the grant of the Award (or where there
is such an agreement but it does not define “cause” (or words of like import)), termination due to:
(i) a Participant’s conviction of, or plea of guilty or nolo contendere to, a felony; (ii)
perpetration by a Participant of an illegal act, dishonesty, or fraud that could cause significant
economic injury to the Company; (iii) a Participant’s insubordination, refusal to perform his or
her duties or responsibilities for any reason other than illness or incapacity or materially
unsatisfactory performance of his or her duties for the Company; (iv) continuing willful and
deliberate failure by the Participant to perform the Participant’s duties in any material respect,
provided that the Participant is given notice and an opportunity to effectuate a cure as determined
by the Committee; or (v) a Participant’s willful misconduct with regard to the Company that could
have a material adverse effect on the Company; or (b) in the case where there is an employment
agreement, consulting agreement, change in control agreement or similar agreement in effect between
the Company or an Affiliate and the Participant at the time of the grant of the Award that defines
“cause” (or words of like import), “cause” as defined under such agreement; provided,
however, that with regard to any agreement under which the definition of “cause” only
applies on occurrence of a change in control, such definition of “cause” shall not apply until a
change in control actually takes place and then only with regard to a termination thereafter. With
respect to a Participant’s Termination of Directorship, “cause” means an act or failure to act that
constitutes cause for removal of a director under applicable Delaware law.

     2.6 “Change in Control” has the meaning set forth in Section 12.2.

     2.7 “Change in Control Price” has the meaning set forth in Section 12.1.

     2.8 “Code” means the Internal Revenue Code of 1986, as amended. Any reference to any
section of the Code shall also be a reference to any successor provision and any Treasury
Regulation promulgated thereunder.

     2.9 “Committee” means: (a) with respect to the application of the Plan to Eligible
Employees and Consultants, a committee or subcommittee of the Board appointed from time to time by
the Board, which committee or subcommittee shall consist of two or more non-employee directors,
each of whom shall be (i) a “non-employee director” as defined in Rule 16b-3; (ii) to the extent
required by Section 162(m) of the Code, an “outside director” as defined under Section 162(m) of
the Code; and (iii) an “independent director” as defined under NASD Rule 4200(a)(15) or such other
applicable stock exchange rule; and (b) with respect to the application of the Plan to Non-Employee
Directors, (i) the Board, or (ii) a committee or subcommittee (which may differ from the committee
or subcommittee established for the grant of Awards to employees) comprised of two or more
non-employee directors each of whom qualify as a “non-employee director” as defined in Rule 16b-3
and an “independent director” as defined under

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NASD Rule 4200(a)(15). To the extent that no Committee exists that has the authority to
administer the Plan, the functions of the Committee shall be exercised by the Board. If for any
reason the appointed Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of
the Code, such noncompliance shall not affect the validity of Awards, grants, interpretations or
other actions of the Committee.

     2.10 “Common Stock” means the Common Stock, $0.001 par value per share, of the Company.

     2.11 “Company” means Town Sports International Holdings, Inc., a Delaware corporation,
and its successors by operation of law.

     2.12 “Consultant” means any natural person who provides bona fide consulting or
advisory services to the Company or its Affiliates pursuant to a written agreement, which are not
in connection with the offer and sale of securities in a capital-raising transaction, and do not,
directly or indirectly, promote or maintain a market for the Company’s or its Affiliates’
securities.

     2.13 “Detrimental Activity” means:

	 	(a)	 	disclosing, divulging, furnishing or making available to anyone
at any time, except as necessary in the furtherance of Participant’s
responsibilities to the Company or any of its Affiliates, either during or
subsequent to Participant’s service relationship with the Company or its
Affiliates, any knowledge or information with respect to confidential or
proprietary information, methods, processes, plans or materials of the Company
or any of its Affiliates, or with respect to any other confidential or
proprietary aspects of the business of the Company or any of its Affiliate,
acquired by the Participant at any time prior to the Participant’s Termination;
	 
	 	(b)	 	any activity while employed or performing services that
results, or if known could reasonably be expected to result, in the
Participant’s Termination that is classified by the Company as a termination
for Cause;
	 
	 	(c)	 	(i) directly or indirectly soliciting, enticing or inducing any
employee of the Company or of any of its Affiliates to be employed by an
person, firm or corporation that is, directly or indirectly, in competition
with the business or activities of the Company or any of its Affiliates; (ii)
directly or indirectly approaching any such employee for these purposes; (iii)
authorizing or knowingly approving the taking of such actions by other persons
on behalf of any such person, firm or corporation, or assisting any such
person, firm or corporation in taking such action; (iv) directly or indirectly
soliciting, raiding, enticing or inducing any person, firm or corporation
(other than the U.S. Government or its agencies) who or which is, or at any
time from and after the date of grant of the Award was, a customer of the
Company or of any of its Affiliates to become a

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	 	 	 	customer for the same or similar products or services that it purchased from
the Company or any of its Affiliates, or any other person, firm or
corporation, or approaching any such customer for such purpose or authorize
or knowingly approving the taking of such actions by any other person; or

	 	(d)	 	a material breach of any agreement between the Participant and
the Company or an Affiliate (including, without limitation, any employment
agreement or noncompetition or nonsolicitation or confidentiality agreement).
Unless otherwise determined by the Committee at grant, Detrimental Activity
shall not be deemed to occur after the end of the one-year period following the
Participant’s Termination.

For purposes of subsections (a), (c) and (d) above, the Chief Executive Officer of
the Company has the authority to provide the Participant with written authorization
to engage in the activities contemplated thereby and no other person shall have
authority to provide the Participant with such authorization.

     2.14 “Disability” means with respect to a Participant’s Termination, a permanent and
total disability as defined in Section 22(e)(3) of the Code. A Disability shall only be deemed to
occur at the time of the determination by the Committee of the Disability. Notwithstanding the
foregoing, for Awards that are subject to Section 409A of the Code, Disability shall mean that a
Participant is disabled under Section 409A(a)(2)(C)(i) or (ii) of the Code.

     2.15 “Disparagement” means making comments or statements to the press, the Company’s or
its Affiliates’ employees, consultants or any individual or entity with whom the Company or its
Affiliates has a business relationship that could reasonably be expected to adversely affect in any
manner: (a) the conduct of the business of the Company or its Affiliates (including, without
limitation, any products or business plans or prospects); or (b) the business reputation of the
Company or its Affiliates, or any of their products, or their past or present officers, directors
or employees.

     2.16 “Effective Date” means the effective date of the Plan as defined in Article
XVI.

     2.17 “Eligible Employees” means each employee of the Company or an Affiliate.

     2.18 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and all
rules and regulations promulgated thereunder. Any references to any section of the Exchange Act
shall also be a reference to any successor provision.

     2.19 “Fair Market Value” means, unless otherwise required by any applicable provision
of the Code or any regulations issued thereunder, as of any date and except as provided below, the
last sales price reported for the Common Stock on the applicable date: (a) as reported on the
principal national securities exchange in the United States on which it is then traded or The
NASDAQ Stock Market; or (b) if not traded on any such national securities exchange or The NASDAQ
Stock Market, as quoted on an automated quotation system sponsored by the National Association of
Securities Dealers, Inc. or if the Common Stock shall not have been reported or

4

 

quoted on such date, on the first day prior thereto on which the Common Stock was reported or
quoted. For purposes of the grant of any Award, the applicable date shall be the trading day on
which the Award is granted, or if such grant date is not a trading day, the trading day immediately
prior to the date on which the Award is granted. For purposes of the exercise of any Award, the
applicable date shall be the date a notice of exercise is received by the Company or, if not a day
on which the applicable market is open, the next day that it is open. Notwithstanding anything
herein to the contrary, for purposes of granting Incentive Stock Options, “Fair Market Value” means
the price for Common Stock set by the Committee in good faith based on reasonable methods set forth
under Section 422 of the Code including, without limitation, a method utilizing the average of
prices of the Common Stock reported on the principal national securities exchange on which it is
then traded during a reasonable period designated by the Committee.

     2.20 “Family Member” means “family member” as defined in Rule 701 under the Securities
Act or, following the filing of a form S-8 pursuant to the Securities Act with respect to the Plan,
as defined in Section A.1.(5) of the general instructions of Form S-8, as may be amended from time
to time.

     2.21 “Incentive Stock Option” means any Stock Option awarded to an Eligible Employee of
the Company, its Subsidiaries and its Parent (if any) under the Plan intended to be and designated
as an “Incentive Stock Option” within the meaning of Section 422 of the Code.

     2.22 “Non-Employee Director” means a non-employee director of the Company as defined in
Rule 16b-3.

     2.23 “Non-Qualified Stock Option” means any Stock Option awarded under the Plan that is
not an Incentive Stock Option.

     2.24 “Other Stock-Based Award” means an Award under Article X of the Plan that
is valued in whole or in part by reference to, or is payable in or otherwise based on, Common
Stock, including, without limitation, a restricted stock unit or an Award valued by reference to an
Affiliate.

     2.25 “Parent” means any parent corporation of the Company within the meaning of Section
424(e) of the Code.

     2.26 “Participant” means an Eligible Employee, Non-Employee Director or Consultant to
whom an Award has been granted pursuant to the Plan.

     2.27 “Performance Period” means the duration of the period during which receipt of an
Award is subject to the satisfaction of performance criteria, such period as determined by the
Committee in its sole discretion.

     2.28 “Performance Share” means an Award made pursuant to Article IX of the Plan
of the right to receive Common Stock or cash of an equivalent value at the end of a specified
Performance Period.

5

 

     2.29 “Person” means any individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint-stock company, trust, incorporated organization,
governmental or regulatory or other entity.

     2.30 “Plan” means this Town Sports International Holdings, Inc. 2006 Stock Incentive
Plan, as amended from time to time.

     2.31 “Reference Stock Option” has the meaning set forth in Section 7.1.

     2.32 “Registration Date” means the first date after the Effective Date on which (a) the
Company sells its Common Stock in a bona fide underwriting pursuant to a registration statement
under the Securities Act or (b) any class of common equity securities of the Company is required to
be registered under Section 12 of the Exchange Act.

     2.33 “Restricted Stock” means a share of Common Stock issued under the Plan that is
subject to restrictions under Article VIII.

     2.34 “Restriction Period” has the meaning set forth in Section 8.3(a).

     2.35 “Retirement” means a voluntary Termination of Employment or Termination of
Consultancy at or after age 65 or such earlier date after age 50 as may be approved by the
Committee, in its sole discretion, at the time of grant, or thereafter provided that the exercise
of such discretion does not make the applicable Award subject to Section 409A of the Code, except
that Retirement shall not include any Termination with or without Cause. With respect to a
Participant’s Termination of Directorship, Retirement means the failure to stand for reelection or
the failure to be reelected on or after a Participant has attained age 65 or, with the consent of
the Board, provided that the exercise of such discretion does not make the applicable Award subject
to Section 409A of the Code, before age 65 but after age 50.

     2.36 “Rule 16b-3” means Rule 16b-3 under Section 16(b) of the Exchange Act as then in
effect or any successor provision.

     2.37 “Section  162(m) of the Code” means the exception for performance-based
compensation under Section 162(m) of the Code and any applicable Treasury regulations thereunder.

     2.38 “Section 4.2 Event” has the meaning set forth in Section 4.2(b).

     2.39 “Securities Act” means the Securities Act of 1933, as amended, and all rules and
regulations promulgated thereunder. Any reference to any section of the Securities Act shall also
be a reference to any successor provision.

     2.40 “Stock Appreciation Right” means the right pursuant to an Award granted under
Article VII. A Tandem Stock Appreciation Right shall mean the right to surrender to the
Company all (or a portion) of a Stock Option in exchange for a number of shares of Common Stock
and/or cash, as determined by the Committee, equal to the difference between (a) the Fair Market
Value on the date such Stock Option (or such portion thereof) is surrendered, of the Common Stock
covered by such Stock Option (or such portion thereof), and (b) the aggregate

6

 

exercise price of such Stock Option (or such portion thereof). A Non-Tandem Stock
Appreciation Right shall mean the right to receive a number of shares of Common Stock and/or cash,
as determined by the Committee, equal to the difference between (i) the Fair Market Value of a
share of Common Stock on the date such right is exercised, and (ii) the aggregate exercise price of
such right, otherwise than on surrender of a Stock Option.

     2.41 “Stock Option” or “Option” means any option to purchase shares of Common
Stock granted to Eligible Employees, Non-Employee Directors or Consultants pursuant to Article
VI.

     2.42 “Subsidiary” means any subsidiary corporation of the Company within the meaning of
Section 424(f) of the Code.

     2.43 “Ten Percent Stockholder” means a person owning stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company, its Subsidiaries or its
Parent.

     2.44 “Termination” means a Termination of Consultancy, Termination of Directorship or
Termination of Employment, as applicable.

     2.45 “Termination of Consultancy” means: (a) that the Consultant is no longer acting as
a consultant to the Company or an Affiliate; or (b) when an entity that is retaining a Participant
as a Consultant ceases to be an Affiliate unless the Participant otherwise is, or thereupon
becomes, a Consultant to the Company or another Affiliate at the time the entity ceases to be an
Affiliate. In the event that a Consultant becomes an Eligible Employee or a Non-Employee Director
upon the termination of his or her consultancy, unless otherwise determined by the Committee, in
its sole discretion, no Termination of Consultancy shall be deemed to occur until such time as such
Consultant is no longer a Consultant, an Eligible Employee or a Non-Employee Director.
Notwithstanding the foregoing, the Committee may, in its sole discretion, otherwise define
Termination of Consultancy in the Award agreement or, if no rights of a Participant are reduced,
may otherwise define Termination of Consultancy thereafter.

     2.46 “Termination of Directorship” means that the Non-Employee Director has ceased to
be a director of the Company; except that if a Non-Employee Director becomes an Eligible Employee
or a Consultant upon the termination of his or her directorship, his or her ceasing to be a
director of the Company shall not be treated as a Termination of Directorship unless and until the
Participant has a Termination of Employment or Termination of Consultancy, as the case may be.

     2.47 “Termination of Employment” means: (a) a termination of employment (for reasons
other than a military or personal leave of absence granted by the Company) of a Participant from
the Company and its Affiliates; or (b) when an entity that is employing a Participant ceases to be
an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or
another Affiliate at the time the entity ceases to be an Affiliate. In the event that an Eligible
Employee becomes a Consultant or a Non-Employee Director upon the termination of his or her
employment, unless otherwise determined by the Committee, in its sole discretion, no Termination of
Employment shall be deemed to occur until such time as such

7

 

Eligible Employee is no longer an Eligible Employee, a Consultant or a Non-Employee Director.
Notwithstanding the foregoing, the Committee may, in its sole discretion, otherwise define
Termination of Employment in the Award agreement or, if no rights of a Participant are reduced, may
otherwise define Termination of Employment thereafter.

     2.48 “Transfer” means: (a) when used as a noun, any direct or indirect transfer, sale,
assignment, pledge, hypothecation, encumbrance or other disposition (including the issuance of
equity in a Person), whether for value or no value and whether voluntary or involuntary (including
by operation of law), and (b) when used as a verb, to directly or indirectly transfer, sell,
assign, pledge, encumber, charge, hypothecate or otherwise dispose of (including the issuance of
equity in a Person) whether for value or for no value and whether voluntarily or involuntarily
(including by operation of law). “Transferred” and “Transferrable” shall have a correlative
meaning.

     2.49 “Transition Period” means the “reliance period” under Treasury Regulation Section
1.162-27(f)(2), which ends on the earliest to occur of the following: (i) the date of the first
annual meeting of stockholders of the Company at which directors are to be elected that occurs
after December 31, 2010; (ii) the date the Plan is materially amended for purposes of Treasury
Regulation Section 1.162-27(h)(1)(iii); or (iii) the date all shares of Common Stock available for
issuance under the Plan have been allocated.

ARTICLE III

ADMINISTRATION

     3.1 The Committee. The Plan shall be administered and interpreted by the Committee.

     3.2 Grants of Awards. The Committee shall have full authority to grant, pursuant to
the terms of the Plan, to Eligible Employees, Consultants and Non-Employee Directors: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Performance Shares; and (v)
Other Stock-Based Awards. In particular, the Committee shall have the authority:

	 	(a)	 	to select the Eligible Employees, Consultants and Non-Employee
Directors to whom Awards may from time to time be granted hereunder;
	 
	 	(b)	 	to determine whether and to what extent Awards are to be
granted hereunder to one or more Eligible Employees, Consultants or
Non-Employee Directors;
	 
	 	(c)	 	to determine, in accordance with the terms of the Plan, the
number of shares of Common Stock to be covered by each Award granted hereunder;
	 
	 	(d)	 	to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder (including, but not
limited to, the exercise or purchase price (if any), any restriction or
limitation, any vesting schedule or acceleration thereof, or any forfeiture
restrictions or

8

 

	 	 	 	waiver thereof, regarding any Award and the shares of Common Stock relating
thereto, based on such factors, if any, as the Committee shall determine, in
its sole discretion);

	 	(e)	 	to determine whether, to what extent and under what
circumstances grants of Options and other Awards under the Plan are to operate
on a tandem basis and/or in conjunction with or apart from other awards made by
the Company outside of the Plan;
	 
	 	(f)	 	to determine whether and under what circumstances a Stock
Option may be settled in cash, Common Stock and/or Restricted Stock under
Section 6.3(d);
	 
	 	(g)	 	to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an Award
under the Plan shall be deferred either automatically or at the election of the
Participant in any case, subject to, and in accordance with, Section 409A of
the Code;
	 
	 	(h)	 	to determine whether a Stock Option is an Incentive Stock
Option or Non-Qualified Stock Option;
	 
	 	(i)	 	to determine whether to require a Participant, as a condition
of the granting of any Award, to not sell or otherwise dispose of shares
acquired pursuant to an Award for a period of time as determined by the
Committee, in its sole discretion, following the date of such Award;
	 
	 	(j)	 	to offer to buy out an Award previously granted, based on such
terms and conditions as the Committee shall establish and communicate to the
Participant at the time such offer is made; provided that any such purchase of
an Award shall be limited to no more than the fair market value of such Award
on the date of purchase; and
	 
	 	(k)	 	generally, to exercise such powers and to perform such acts as
the Committee deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.

     3.3 Guidelines. Subject to Article XIII, the Committee shall, in its sole
discretion, have the authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan and perform all acts, including the delegation of its responsibilities
(to the extent permitted by applicable law and applicable stock exchange rules), as it shall, from
time to time, deem advisable; to construe and interpret the terms and provisions of the Plan and
any Award issued under the Plan (and any agreements relating thereto); and to otherwise supervise
the administration of the Plan. The Committee may, in its sole discretion, correct any defect,
supply any omission or reconcile any inconsistency in the Plan or in any agreement relating thereto
in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of the
Plan. The Committee may, in its sole discretion, adopt special guidelines and

9

 

provisions for persons who are residing in or employed in, or subject to, the taxes of, any
domestic or foreign jurisdictions to comply with applicable tax and securities laws of such
domestic or foreign jurisdictions. To the extent applicable, the Plan is intended to comply with
the applicable requirements of Rule 16b-3 and with respect to Awards intended to be
“performance-based,” the applicable provisions of Section 162(m) of the Code, and the Plan shall be
limited, construed and interpreted in a manner so as to comply therewith.

     3.4 Decisions Final. Any decision, interpretation or other action made or taken in
good faith by or at the direction of the Company, the Board or the Committee (or any of its
members) arising out of or in connection with the Plan shall be within the absolute discretion of
all and each of them, as the case may be, and shall be final, binding and conclusive on the Company
and all employees and Participants and their respective heirs, executors, administrators,
successors and assigns.

     3.5 Procedures. If the Committee is appointed, the Board shall designate one of the
members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws
of the Company, at such times and places as it shall deem advisable, including, without limitation,
by telephone conference or by written consent to the extent permitted by applicable law. A
majority of the Committee members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination reduced to writing and
signed by all the Committee members in accordance with the By-Laws of the Company shall be as fully
effective as if it had been made by a vote at a meeting duly called and held. The Committee shall
keep minutes of its meetings and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.

     3.6 Designation of Consultants/Liability.

	 	(a)	 	The Committee may, in its sole discretion, designate employees
of the Company and professional advisors to assist the Committee in the
administration of the Plan and (to the extent permitted by applicable law and
applicable exchange rules) may grant authority to officers to grant Awards
and/or execute agreements or other documents on behalf of the Committee.
	 
	 	(b)	 	The Committee may, in its sole discretion, employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of the Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred by the Committee or the Board in the engagement of any such
counsel, consultant or agent shall be paid by the Company. The Committee, its
members and any person designated pursuant to subsection (a) above shall not be
liable for any action or determination made in good faith with respect to the
Plan. To the maximum extent permitted by applicable law, no officer of the
Company or member or former member of the Committee or of the Board shall be
liable for any action or determination made in good faith with respect to the
Plan or any Award granted under it.

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     3.7 Indemnification. To the maximum extent permitted by applicable law and the
Certificate of Incorporation and By-Laws of the Company and to the extent not covered by insurance
directly insuring such person, each officer or employee of the Company or any Affiliate and member
or former member of the Committee or the Board shall be indemnified and held harmless by the
Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to
the Committee) or liability (including any sum paid in settlement of a claim with the approval of
the Committee), and advanced amounts necessary to pay the foregoing at the earliest time and to the
fullest extent permitted, arising out of any act or omission to act in connection with the
administration of the Plan, except to the extent arising out of such officer’s, employee’s,
member’s or former member’s fraud or bad faith. Such indemnification shall be in addition to any
rights of indemnification the officers, employees, directors or members or former officers,
directors or members may have under applicable law or under the Certificate of Incorporation or
By-Laws of the Company or any Affiliate. Notwithstanding anything else herein, this
indemnification will not apply to the actions or determinations made by an individual with regard
to Awards granted to him or her under the Plan.

ARTICLE IV

SHARE LIMITATION

     4.1 Shares.

	 	(a)	 	General Limitations. The aggregate number of shares of
Common Stock that may be issued or used for reference purposes or with respect
to which Awards may be granted under the Plan shall not exceed 1,300,000 shares
(subject to any increase or decrease pursuant to Section 4.2), which may
be either authorized and unissued Common Stock or Common Stock held in or
acquired for the treasury of the Company or both. If any Option, Stock
Appreciation Right or Other Stock-Based Award granted under the Plan expires,
terminates or is canceled for any reason without having been exercised in full,
the number of shares of Common Stock underlying any unexercised Award shall
again be available for the purpose of Awards under the Plan. If any shares of
Restricted Stock, Performance Shares or Other Stock-Based Awards, denominated
in shares of Common Stock, granted under the Plan are forfeited for any reason,
the number of forfeited shares of Restricted Stock, Performance Shares or such
Other Stock-Based Awards shall again be available for the purposes of Awards
under the Plan, as provided in this Section 4.1(a). If a Tandem Stock
Appreciation Right or a Limited Stock Appreciation Right is granted in tandem
with an Option, such grant shall only apply once against the maximum number of
shares of Common Stock that may be issued under the Plan. In addition, subject
to the sentence below, in determining the number of shares of Common Stock
available for Awards, if, pursuant to any applicable Committee procedures,
Common Stock has been delivered or exchanged by a Participant as full or
partial payment to the Company for payment of the exercise price, or for
payment of withholding taxes, or if the number

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	 	 	 	shares of Common Stock otherwise deliverable has been reduced for payment of
the exercise price or for payment of withholding taxes, the number of shares
of Common Stock exchanged as payment in connection with the exercise or for
withholding or reduced shall again be available for purpose of Awards under
the Plan. Notwithstanding anything herein to the contrary, any share of
Common Stock that again becomes available for grant pursuant to this
Section 4.1(a) shall be added back as one share of Common Stock to
the maximum aggregate limit.

	 	(b)	 	Individual Participant Limitations.

     (i) The maximum number of shares of Common Stock subject to any Award
of Stock Options, Stock Appreciation Rights or shares of Restricted Stock
for which the grant of such Award or the lapse of the relevant Restriction
Period is subject to the attainment of Performance Goals in accordance with
Section 8.3(a)(ii), which may be granted under the Plan during any
fiscal year of the Company to each Eligible Employee or Consultant shall be
250,000 shares per type of Award (which shall be subject to any further
increase or decrease pursuant to Section 4.2), provided that the
maximum number of shares of Common Stock for all types of Awards does not
exceed 250,000 (which shall be subject to any further increase or decrease
pursuant to Section 4.2) during any fiscal year of the Company. If a
Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation
Right is granted in tandem with a Stock Option, it shall apply against the
Eligible Employee’s or Consultant’s individual share limitations for both
Stock Appreciation Rights and Stock Options.

     (ii) The maximum number of shares of Common Stock subject to any Award
of Stock Options (other than Incentive Stock Options), Stock Appreciation
Rights or Other Stock-Based Awards that may be granted under the Plan during
any fiscal year of the Company to each Non-Employee Director shall be
250,000 shares per type of Award (which shall be subject to any further
increase or decrease pursuant to Section 4.2), provided that the
maximum number of shares of Common Stock for all types of Awards does not
exceed 250,000 (which shall be subject to any further increase or decrease
pursuant to Section 4.2) during any fiscal year of the Company. If a
Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation
Right is granted in tandem with a Stock Option, it shall apply against the
Non-Employee Director’s individual share limitations for both Stock
Appreciation Rights and Stock Options.

     (iii) There are no annual individual Eligible Employee or Consultant
share limitations on Restricted Stock for which the grant of such Award or
the lapse of the relevant Restriction Period is not subject to attainment of
Performance Goals in accordance with Section 8.3(a)(ii).

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     (iv) The maximum value at grant of Performance Shares that may be
granted under the Plan with respect to any fiscal year of the Company to
each Eligible Employee or Consultant shall be $1,000,000. Each Performance
Share shall be referenced to one share of Common Stock and shall be charged
against the available shares under the Plan at the time the unit value
measurement is converted to a referenced number of shares of Common Stock in
accordance with Section 9.1.

     (v) The individual Participant limitations set forth in this Section
4.1(b) shall be cumulative; that is, to the extent that shares of Common
Stock for which Awards are permitted to be granted to an Eligible Employee
or a Consultant during a fiscal year are not covered by an Award to such
Eligible Employee or Consultant in a fiscal year, the number of shares of
Common Stock available for Awards to such Eligible Employee or Consultant
shall automatically increase in the subsequent fiscal years during the term
of the Plan until used.

     (vi) The individual Participant limitations set forth in this
Section 4.1(b) shall not apply prior to the Registration Date and,
following the Registration Date, this Section 4.1(b) shall not apply
until the expiration of the Transition Period.

     4.2 Changes.

	 	(a)	 	The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize (i) any adjustment, recapitalization,
reorganization or other change in the Company’s capital structure or its
business, (ii) any merger or consolidation of the Company or any Affiliate,
(iii) any issuance of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Common Stock, (iv) the dissolution or liquidation of
the Company or any Affiliate, (v) any sale or transfer of all or part of the
assets or business of the Company or any Affiliate, (vi) any Section 4.2 Event,
or (vii) any other corporate act or proceeding.
	 
	 	(b)	 	Subject to the provisions of Section 4.2(d), in the
event of any such change in the capital structure or business of the Company by
reason of any stock split, reverse stock split, stock dividend, extraordinary
dividend (whether cash or stock), subdivision, combination or reclassification
of shares, recapitalization, merger, amalgamation, conversion, adjustment,
consolidation, spin-off, reorganization, partial or complete liquidation,
issuance of rights or warrants to purchase any Common Stock or securities
convertible or exercisable into, or exchangeable for, Common Stock, issuance of
any class of securities convertible or exercisable into, or exercisable for,
any class of stock, any sale or transfer of all or part of the Company’s assets
or business, or any other corporate transaction or event having an effect
similar to any of the foregoing (a “Section 4.2 Event”)

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	 	 	 	and the Committee determines in its sole discretion that an adjustment is
necessary or appropriate under the Plan to prevent substantial dilution or
enlargement of the rights granted to, or available for, Participants under
the Plan, then (i) the aggregate number and kind of shares that thereafter
may be issued under the Plan, (ii) the number and kind of shares or other
property (including cash) to be issued upon exercise of an outstanding Award
or under other Awards granted under the Plan, (iii) the purchase price
thereof, and/or (iv) the individual Participant limitations set forth in
Section 4.1(b) (other than those based on cash limitations) shall be
adjusted consistent with such change in such manner as the Committee may, in
its sole discretion, deem appropriate and equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for,
Participants under the Plan. Any such adjustment determined by the
Committee shall be final, binding and conclusive on the Company and all
Participants and their respective heirs, executors, administrators,
successors and assigns. Furthermore, in connection with any Section 4.2
Event, the Committee may provide, in its sole discretion, for the
cancellation of any outstanding Awards and payment in cash or other property
in exchange therefor. Except as provided in this Section 4.2 or in
the applicable Award agreement, a Participant shall have no rights by reason
of any Section 4.2 Event.

	 	(c)	 	Fractional shares of Common Stock resulting from any adjustment
in Awards pursuant to Section 4.2(a) or Section 4.2(b) shall be
aggregated until, and eliminated at, the time of exercise by rounding-down for
fractions less than one-half and rounding-up for fractions equal to or greater
than one-half. No cash settlements shall be made with respect to fractional
shares eliminated by rounding. Notice of any adjustment shall be given by the
Committee to each Participant whose Award has been adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
	 
	 	(d)	 	In the event of an Acquisition Event, the Committee may, in its
sole discretion, terminate all outstanding and unexercised Stock Options or
Stock Appreciation Rights or any Other Stock Based Award that provides for a
Participant elected exercise (“Exercisable Awards”) effective as of the
date of the Acquisition Event, by delivering notice of termination to each
Participant at least 20 days prior to the date of consummation of the
Acquisition Event, in which case during the period from the date on which such
notice of termination is delivered to the consummation of the Acquisition
Event, each such Participant shall have the right to exercise his or her
Exercisable Awards that are then outstanding to the extent vested as of the
date on which such notice of termination is delivered (or, at the discretion of
the Committee, without regard to any limitations on exercisability otherwise
contained in the Award agreements), but any such exercise shall be contingent
on the occurrence of the Acquisition Event,

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	 	 	 	and, provided that, if the Acquisition Event does not take place within a
specified period after giving such notice for any reason whatsoever, the
notice and exercise pursuant thereto shall be null and void. For the
avoidance of doubt, in the event of an Acquisition Event, the Committee may,
in its sole discretion, terminate any Exercisable Award for which the
exercise price is equal to or exceeds the Fair Market Value without payment
of consideration therefor.

If an Acquisition Event occurs but the Committee does not terminate the outstanding
Awards pursuant to this Section 4.2(d), then the applicable provisions of
Section 4.2(b) and Article XII shall apply.

     4.3 Minimum Purchase Price. Notwithstanding any provision of the Plan to the contrary,
if authorized but previously unissued shares of Common Stock are issued under the Plan, such shares
shall not be issued for a consideration that is less than as permitted under applicable law.

ARTICLE V

ELIGIBILITY AND GENERAL REQUIREMENTS FOR AWARDS

     5.1 General Eligibility. All Eligible Employees, Consultants, Non-Employee Directors
and prospective employees and consultants are eligible to be granted Awards, subject to the terms
and conditions of the Plan. Eligibility for the grant of Awards and actual participation in the
Plan shall be determined by the Committee in its sole discretion.

     5.2 Incentive Stock Options. Notwithstanding anything herein to the contrary, only
Eligible Employees of the Company, its Subsidiaries and its Parent (if any) are eligible to be
granted Incentive Stock Options under the Plan. Eligibility for the grant of an Incentive Stock
Option and actual participation in the Plan shall be determined by the Committee in its sole
discretion.

     5.3 General Requirement. The vesting and exercise of Awards granted to a prospective
employee or consultant are conditioned upon such individual actually becoming an Eligible Employee
or Consultant.

ARTICLE VI

STOCK OPTIONS

     6.1 Options. Each Stock Option granted under the Plan shall be one of two types: (a)
an Incentive Stock Option; or (b) a Non-Qualified Stock Option.

     6.2 Grants. The Committee shall, in its sole discretion, have the authority to grant
to any Eligible Employee (subject to Section 5.2) Incentive Stock Options, Non-Qualified
Stock Options, or both types of Stock Options. The Committee shall, in its sole discretion, have
the authority to grant any Consultant or Non-Employee Director Non-Qualified Stock Options. To

15

 

the extent that any Stock Option does not qualify as an Incentive Stock Option (whether
because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or
the portion thereof that does not qualify shall constitute a separate Non-Qualified Stock Option.

     6.3 Terms of Options. Options granted under the Plan shall be subject to the following
terms and conditions and shall be in such form and contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee, in its sole discretion, shall deem
desirable:

	 	(a)	 	Exercise Price. The exercise price per share of Common
Stock subject to a Stock Option shall be determined by the Committee at the
time of grant, provided that the per share exercise price of a Stock Option
shall not be less than 100% (or, in the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, 110%) of the Fair Market Value of the
Common Stock at the time of grant.
	 
	 	(b)	 	Stock Option Term. The term of each Stock Option shall
be fixed by the Committee, provided that no Stock Option shall be exercisable
more than 10 years after the date the Option is granted; and provided further
that the term of an Incentive Stock Option granted to a Ten Percent Stockholder
shall not exceed five years.
	 
	 	(c)	 	Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Committee at grant. If the Committee provides, in its
discretion, that any Stock Option is exercisable subject to certain limitations
(including, without limitation, that such Stock Option is exercisable only in
installments or within certain time periods or upon attainment of certain
financial results), the Committee may waive such limitations on the
exercisability at any time at or after grant in whole or in part (including,
without limitation, waiver of the installment exercise provisions or
acceleration of the time at which such Stock Option may be exercised), based on
such factors, if any, as the Committee shall determine, in its sole discretion.
Unless otherwise determined by the Committee at grant, the Option agreement
shall provide that (i) in the event the Participant engages in Detrimental
Activity prior to any exercise of the Stock Option, all Stock Options held by
the Participant shall thereupon terminate and expire, (ii) as a condition of
the exercise of a Stock Option, the Participant shall be required to certify
(or shall be deemed to have certified) at the time of exercise in a manner
acceptable to the Company that the Participant is in compliance with the terms
and conditions of the Plan and that the Participant has not engaged in, and
does not intend to engage in, any Detrimental Activity, and (iii) in the event
the Participant engages in Detrimental Activity during the one-year period
commencing on the later of the date the Stock Option is exercised or the date
of the Participant’s Termination, the Company shall be entitled to recover from
the Participant at any time within one year after such date, and the
Participant shall pay

16

 

	 	 	 	over to the Company, an amount equal to any gain realized as a result of the
exercise (whether at the time of exercise or thereafter).

	 	(d)	 	Method of Exercise. Subject to whatever installment
exercise and waiting period provisions apply under subsection (c) above, to the
extent vested, Stock Options may be exercised in whole or in part at any time
during the Option term, by giving written notice of exercise to the Company
specifying the number of shares of Common Stock to be purchased. Such notice
shall be accompanied by payment in full of the purchase price as follows: (i)
in cash or by check, bank draft or money order payable to the order of the
Company; (ii) solely to the extent permitted by applicable law, if the Common
Stock is traded on a national securities exchange, The NASDAQ Stock Market or
quoted on a national quotation system sponsored by the National Association of
Securities Dealers, and the Committee authorizes, through a procedure whereby
the Participant delivers irrevocable instructions to a broker reasonably
acceptable to the Committee to deliver promptly to the Company an amount equal
to the purchase price; or (iii) on such other terms and conditions as may be
acceptable to the Committee (including, without limitation, the relinquishment
of Stock Options or by payment in full or in part in the form of Common Stock
owned by the Participant based on the Fair Market Value of the Common Stock on
the payment date as determined by the Committee, in its sole discretion). No
shares of Common Stock shall be issued until payment therefor, as provided
herein, has been made or provided for.
	 
	 	(e)	 	Non-Transferability of Options. No Stock Option shall
be Transferable by the Participant otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable, during
the Participant’s lifetime, only by the Participant. Notwithstanding the
foregoing, the Committee may determine, in its sole discretion, at the time of
grant or thereafter that a Non-Qualified Stock Option that is otherwise not
Transferable pursuant to this Section is Transferable to a Family Member in
whole or in part and in such circumstances, and under such conditions, as
determined by the Committee, in its sole discretion. A Non-Qualified Stock
Option that is Transferred to a Family Member pursuant to the preceding
sentence (i) may not be subsequently Transferred otherwise than by will or by
the laws of descent and distribution and (ii) remains subject to the terms of
the Plan and the applicable Award agreement. Any shares of Common Stock
acquired upon the exercise of a Non-Qualified Stock Option by a permissible
transferee of a Non-Qualified Stock Option or a permissible transferee pursuant
to a Transfer after the exercise of the Non-Qualified Stock Option shall be
subject to the terms of the Plan and the applicable Award agreement.
	 
	 	(f)	 	Incentive Stock Option Limitations. To the extent that
the aggregate Fair Market Value (determined as of the time of grant) of the
Common Stock

17

 

	 	 	 	with respect to which Incentive Stock Options are exercisable for the first
time by an Eligible Employee during any calendar year under the Plan and/or
any other stock option plan of the Company, any Subsidiary or any Parent
exceeds $100,000, such Options shall be treated as Non-Qualified Stock
Options. Should any provision of the Plan not be necessary in order for the
Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may, in its sole
discretion, amend the Plan accordingly, without the necessity of obtaining
the approval of the stockholders of the Company.

	 	(g)	 	Form, Modification, Extension and Renewal of Stock
Options. Subject to the terms and conditions and within the limitations of
the Plan, Stock Options shall be evidenced by such form of agreement or grant
as is approved by the Committee, and the Committee may, in its sole discretion
(i) modify, extend or renew outstanding Stock Options granted under the Plan
(provided that the rights of a Participant are not reduced without his or her
consent and provided further that such action does not subject the Stock
Options to Section 409A of the Code), and (ii) accept the surrender of
outstanding Stock Options (up to the extent not theretofore exercised) and
authorize the granting of new Stock Options in substitution therefor (to the
extent not theretofore exercised). Notwithstanding the foregoing, an
outstanding Option may not be modified to reduce the exercise price thereof nor
may a new Option at a lower price be substituted for a surrendered Option
(other than adjustments or substitutions in accordance with Section
4.2), unless such action is approved by the stockholders of the Company.
	 
	 	(h)	 	Buyout and Settlement Provisions. The Committee may at
any time offer to buy out an Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made, provided that such purchase of an Option
shall be limited to no more than the fair market value of the Award on the date
of such purchase.
	 
	 	(i)	 	Early Exercise. The Committee may provide that a Stock
Option include a provision whereby the Participant may elect at any time before
the Participant’s Termination to exercise the Stock Option as to any part or
all of the shares of Common Stock subject to the Stock Option prior to the full
vesting of the Stock Option and such shares shall be subject to the provisions
of Article VI and treated as Restricted Stock. Any unvested shares of
Common Stock so purchased may be subject to a repurchase option in favor of the
Company or to any other restriction the Committee determines to be appropriate.
	 
	 	(j)	 	Other Terms and Conditions. Stock Options may contain
such other provisions, which shall not be inconsistent with any of the terms of
the Plan, as the Committee shall, in its sole discretion, deem appropriate.

18

 

ARTICLE VII

STOCK APPRECIATION RIGHTS

     7.1 Tandem Stock Appreciation Rights. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option (a “Reference Stock Option”) granted under the
Plan (“Tandem Stock Appreciation Rights”). In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such Reference Stock Option. In
the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of
such Reference Stock Option.

     7.2 Terms and Conditions of Tandem Stock Appreciation Rights. Tandem Stock
Appreciation Rights granted hereunder shall be subject to such terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from time to time by the
Committee in its sole discretion, and the following:

	 	(a)	 	Exercise Price. The exercise price per share of Common
Stock subject to a Tandem Stock Appreciation Right shall be determined by the
Committee at the time of grant, provided that the per share exercise price of a
Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market
Value of the Common Stock at the time of grant.
	 
	 	(b)	 	Term. A Tandem Stock Appreciation Right or applicable
portion thereof granted with respect to a Reference Stock Option shall
terminate and no longer be exercisable upon the termination or exercise of the
Reference Stock Option, except that, unless otherwise determined by the
Committee, in its sole discretion, at the time of grant, a Tandem Stock
Appreciation Right granted with respect to less than the full number of shares
covered by the Reference Stock Option shall not be reduced until and then only
to the extent the exercise or termination of the Reference Stock Option causes
the number of shares covered by the Tandem Stock Appreciation Right to exceed
the number of shares remaining available and unexercised under the Reference
Stock Option.
	 
	 	(c)	 	Exercisability. Tandem Stock Appreciation Rights shall
be exercisable only at such time or times and to the extent that the Reference
Stock Options to which they relate shall be exercisable in accordance with the
provisions of Article VI, and shall be subject to the provisions of
Section 6.3(c).
	 
	 	(d)	 	Method of Exercise. A Tandem Stock Appreciation Right
may be exercised by the Participant by surrendering the applicable portion of
the Reference Stock Option. Upon such exercise and surrender, the Participant
shall be entitled to receive the payment determined in the manner prescribed in
this Section 7.2. Stock Options that have been so surrendered, in whole
or in part, shall no longer be exercisable to the extent the related Tandem
Stock Appreciation Rights have been exercised.

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	 	(e)	 	Payment. Upon the exercise of a Tandem Stock
Appreciation Right, a Participant shall be entitled to receive up to, but no
more than, an amount in cash and/or shares of Common Stock (as chosen by the
Committee in its sole discretion at grant, or thereafter if no rights of a
Participant are reduced) equal in value to the excess of the Fair Market Value
of one share of Common Stock over the Option exercise price per share specified
in the Reference Stock Option agreement, multiplied by the number of shares in
respect of which the Tandem Stock Appreciation Right shall have been exercised.
	 
	 	(f)	 	Deemed Exercise of Reference Stock Option. Upon the
exercise of a Tandem Stock Appreciation Right, the Reference Stock Option or
part thereof to which such Stock Appreciation Right is related shall be deemed
to have been exercised for the purpose of the limitation set forth in
Article IV of the Plan on the number of shares of Common Stock to be
issued under the Plan.
	 
	 	(g)	 	Non-Transferability. Tandem Stock Appreciation Rights
shall be Transferable only when and to the extent that the underlying Stock
Option would be Transferable under Section 6.3(e) of the Plan.

     7.3 Non-Tandem Stock Appreciation Rights. Non-Tandem Stock Appreciation Rights may
also be granted without reference to any Stock Options granted under the Plan.

     7.4 Terms and Conditions of Non-Tandem Stock Appreciation Rights. Non-Tandem Stock
Appreciation Rights granted hereunder shall be subject to such terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from time to time by the
Committee in its sole discretion, and the following:

	 	(a)	 	Exercise Price. The exercise price per share of Common
Stock subject to a Non-Tandem Stock Appreciation Right shall be determined by
the Committee at the time of grant, provided that the per share exercise price
of a Non-Tandem Stock Appreciation Right shall not be less than 100% of the
Fair Market Value of the Common Stock at the time of grant.
	 
	 	(b)	 	Term. The term of each Non-Tandem Stock Appreciation
Right shall be fixed by the Committee, but shall not be greater than 10 years
after the date the right is granted.
	 
	 	(c)	 	Exercisability. Non-Tandem Stock Appreciation Rights
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at grant. If the Committee
provides, in its discretion, that any such right is exercisable subject to
certain limitations (including, without limitation, that it is exercisable only
in installments or within certain time periods), the Committee may waive such
limitations on the exercisability at any time at or after grant in whole or in
part (including, without limitation, waiver of the installment exercise

20

 

	 	 	 	provisions or acceleration of the time at which such right may be
exercised), based on such factors, if any, as the Committee shall determine,
in its sole discretion. Unless otherwise determined by the Committee at
grant, the Award agreement shall provide that (i) in the event the
Participant engages in Detrimental Activity prior to any exercise of the
Non-Tandem Stock Appreciation Right, all Non-Tandem Stock Appreciation
Rights held by the Participant shall thereupon terminate and expire, (ii) as
a condition of the exercise of a Non-Tandem Stock Appreciation Right, the
Participant shall be required to certify (or shall be deemed to have
certified) at the time of exercise in a manner acceptable to the Company
that the Participant is in compliance with the terms and conditions of the
Plan and that the Participant has not engaged in, and does not intend to
engage in, any Detrimental Activity, and (iii) in the event the Participant
engages in Detrimental Activity during the one-year period commencing on the
later of the date the Non-Tandem Stock Appreciation Right is exercised or
the date of the Participant’s Termination, the Company shall be entitled to
recover from the Participant at any time within one year after such date,
and the Participant shall pay over to the Company, an amount equal to any
gain realized as a result of the exercise (whether at the time of exercise
or thereafter).

	 	(d)	 	Method of Exercise. Subject to whatever installment
exercise and waiting period provisions apply under subsection (c) above,
Non-Tandem Stock Appreciation Rights may be exercised in whole or in part at
any time in accordance with the applicable Award agreement, by giving written
notice of exercise to the Company specifying the number of Non-Tandem Stock
Appreciation Rights to be exercised.
	 
	 	(e)	 	Payment. Upon the exercise of a Non-Tandem Stock
Appreciation Right a Participant shall be entitled to receive, for each right
exercised, up to, but no more than, an amount in cash and/or shares of Common
Stock (as chosen by the Committee in its sole discretion at grant, or
thereafter if no rights of a Participant are reduced) equal in value to the
excess of the Fair Market Value of one share of Common Stock on the date the
right is exercised over the Fair Market Value of one share of Common Stock on
the date the right was awarded to the Participant.
	 
	 	(f)	 	Non-Transferability. No Non-Tandem Stock Appreciation
Rights shall be Transferable by the Participant otherwise than by will or by
the laws of descent and distribution, and all such rights shall be exercisable,
during the Participant’s lifetime, only by the Participant.

     7.5 Limited Stock Appreciation Rights. The Committee may, in its sole discretion,
grant Tandem and Non-Tandem Stock Appreciation Rights either as a general Stock Appreciation Right
or as a Limited Stock Appreciation Right. Limited Stock Appreciation Rights may be exercised only
upon the occurrence of a Change in Control or such other event as the Committee may, in its sole
discretion, designate at the time of grant or thereafter. Upon the

21

 

exercise of Limited Stock Appreciation Rights, except as otherwise provided in an Award
agreement, the Participant shall receive in cash or Common Stock, as determined by the Committee,
an amount equal to the amount (a) set forth in Section 7.2(e) with respect to Tandem Stock
Appreciation Rights, or (b) set forth in Section 7.4(e) with respect to Non-Tandem Stock
Appreciation Rights, as applicable.

ARTICLE VIII

RESTRICTED STOCK

     8.1 Awards of Restricted Stock. Shares of Restricted Stock may be issued either alone
or in addition to other Awards granted under the Plan. The Committee shall, in its sole
discretion, determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and
the time or times at which, grants of Restricted Stock shall be made, the number of shares to be
awarded, the price (if any) to be paid by the Participant (subject to Section 8.2), the time
or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the Awards. The Committee may
condition the grant or vesting of Restricted Stock upon the attainment of specified performance
targets (including, the Performance Goals specified in Exhibit A attached hereto) or such
other factors as the Committee may determine, in its sole discretion, including to comply with the
requirements of Section 162(m) of the Code.

     Unless otherwise determined by the Committee at grant, each Award of Restricted Stock shall
provide that in the event the Participant engages in Detrimental Activity prior to, or during the
one-year period after, any vesting of Restricted Stock, the Committee may direct that all unvested
Restricted Stock shall be immediately forfeited to the Company and that the Participant shall pay
over to the Company an amount equal to the Fair Market Value at the time of vesting of any
Restricted Stock that had vested in the period referred to above.

     8.2 Awards and Certificates. Eligible Employees, Consultants and Non-Employee
Directors selected to receive Restricted Stock shall not have any rights with respect to such
Award, unless and until such Participant has delivered a fully executed copy of the agreement
evidencing the Award to the Company and has otherwise complied with the applicable terms and
conditions of such Award. Further, such Award shall be subject to the following conditions:

	 	(a)	 	Purchase Price. The purchase price of Restricted Stock
shall be fixed by the Committee. Subject to Section 4.3, the purchase
price for shares of Restricted Stock may be zero to the extent permitted by
applicable law, and, to the extent not so permitted, such purchase price may
not be less than par value.
	 
	 	(b)	 	Acceptance. Awards of Restricted Stock must be accepted
within a period of 60 days (or such other period as the Committee may specify)
after the grant date, by executing a Restricted Stock agreement and by paying
whatever price (if any) the Committee has designated thereunder.

22

 

	 	(c)	 	Legend. Each Participant receiving Restricted Stock
shall be issued a stock certificate in respect of such shares of Restricted
Stock, unless the Committee elects to use another system, such as book entries
by the transfer agent, as evidencing ownership of shares of Restricted Stock.
Such certificate shall be registered in the name of such Participant, and
shall, in addition to such legends required by applicable securities laws, bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
	 
	 	 	 	“The anticipation, alienation, attachment, sale, transfer, assignment,
pledge, encumbrance or charge of the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture) of the Town
Sports International Holdings, Inc. (the “Company”) 2006 Stock
Incentive Plan (as the same may be amended or supplemented from time to
time, the “Plan”) and an agreement entered into between the
registered owner and the Company dated ___. Copies of such Plan and
agreement are on file at the principal office of the Company.”
	 
	 	(d)	 	Custody. If stock certificates are issued in respect of
shares of Restricted Stock, the Committee may require that any stock
certificates evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any grant
of Restricted Stock, the Participant shall have delivered a duly signed stock
power, endorsed in blank, relating to the Common Stock covered by such Award.

     8.3 Restrictions and Conditions. The shares of Restricted Stock awarded pursuant to
the Plan shall be subject to the following restrictions and conditions:

	 	(a)	 	(i) Restriction Period. The Participant shall not be
permitted to Transfer shares of Restricted Stock awarded under the Plan during
the period or periods set by the Committee (the “Restriction Period”)
commencing on the date of such Award, as set forth in the Restricted Stock
Award agreement and such agreement shall set forth a vesting schedule and any
events that would accelerate vesting of the shares of Restricted Stock. Within
these limits, based on service, attainment of performance goals pursuant to
Section 8.3(a)(ii) below and/or such other factors or criteria as the
Committee may determine in its sole discretion, the Committee may condition the
grant or provide for the lapse of such restrictions in installments in whole or
in part, or may accelerate the vesting of all or any part of any Restricted
Stock Award and/or waive the deferral limitations for all or any part of any
Restricted Stock Award.

     (ii) Objective Performance Goals, Formulae or Standards. If the grant
of shares of Restricted Stock or the lapse of restrictions is based on the
attainment of Performance Goals, the Committee shall establish the
Performance Goals and the applicable vesting percentage of the Restricted

23

 

Stock Award applicable to each Participant or class of Participants in
writing prior to the beginning of the applicable fiscal year or at such
later date as otherwise determined by the Committee and while the outcome of
the Performance Goals are substantially uncertain. Such Performance Goals
may incorporate provisions for disregarding (or adjusting for) changes in
accounting methods, corporate transactions (including, without limitation,
dispositions and acquisitions) and other similar type events or
circumstances. With regard to a Restricted Stock Award that is intended to
comply with Section 162(m) of the Code, to the extent any such provision
would create impermissible discretion under Section 162(m) of the Code or
otherwise violate Section 162(m) of the Code, such provision shall be of no
force or effect. The applicable Performance Goals shall be based on one or
more of the performance criteria set forth in Exhibit A hereto.

	 	(b)	 	Rights as a Stockholder. Except as provided in this
subsection (b) and subsection (a) above and as otherwise determined by the
Committee, the Participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a holder of shares of Common Stock of the Company
including, without limitation, the right to receive any dividends, the right to
vote such shares and, subject to and conditioned upon the full vesting of
shares of Restricted Stock, the right to tender such shares. The Committee
may, in its sole discretion, determine at the time of grant that the payment of
dividends shall be deferred until, and conditioned upon, the expiration of the
applicable Restriction Period.

	 	(c)	 	Lapse of Restrictions. If and when the Restriction
Period expires without a prior forfeiture of the Restricted Stock, the
certificates for such shares shall be delivered to the Participant. All
legends shall be removed from said certificates at the time of delivery to the
Participant, except as otherwise required by applicable law or other
limitations imposed by the Committee.

ARTICLE IX

PERFORMANCE SHARES

     9.1 Award of Performance Shares. Performance Shares may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall, in its sole discretion,
determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time or
times at which, Performance Shares shall be awarded, the number of Performance Shares to be awarded
to any person, the Performance Period during which, and the conditions under which, receipt of the
Shares will be deferred, and the other terms and conditions of the Award in addition to those set
forth in Section 9.2.

     Unless otherwise determined by the Committee at grant, each Award of Performance Shares shall
provide that in the event the Participant engages in Detrimental Activity prior to, or

24

 

during the one-year period after the later of the date of any vesting of Performance Shares or
the date of the Participant’s Termination, the Committee may direct (at any time within one year
thereafter) that all unvested Performance Shares shall be immediately forfeited to the Company and
that the Participant shall pay over to the Company an amount equal to any gain the Participant
realized from any Performance Shares that had vested in the period referred to above.

     Except as otherwise provided herein, the Committee shall condition the right to payment of any
Performance Share upon the attainment of objective performance goals established pursuant to
Section 9.2(c) below.

     9.2 Terms and Conditions. Performance Shares awarded pursuant to this Article
IX shall be subject to the following terms and conditions:

	 	(a)	 	Earning of Performance Share Award. At the expiration
of the applicable Performance Period, the Committee shall determine the extent
to which the performance goals established pursuant to Section 9.2(c)
are achieved and the percentage of each Performance Share Award that has been
earned.
	 
	 	(b)	 	Non-Transferability. Subject to the applicable
provisions of the Award agreement and the Plan, Performance Shares may not be
Transferred during the Performance Period.
	 
	 	(c)	 	Objective Performance Goals, Formulae or Standards. The
Committee shall establish the objective Performance Goals for the earning of
Performance Shares based on a Performance Period applicable to each Participant
or class of Participants in writing prior to the beginning of the applicable
Performance Period or at such later date as permitted under Section 162(m) of
the Code and while the outcome of the Performance Goals are substantially
uncertain. Such Performance Goals may incorporate, if and only to the extent
permitted under Section 162(m) of the Code, provisions for disregarding (or
adjusting for) changes in accounting methods, corporate transactions
(including, without limitation, dispositions and acquisitions) and other
similar type events or circumstances. To the extent any such provision would
create impermissible discretion under Section 162(m) of the Code or otherwise
violate Section 162(m) of the Code, such provision shall be of no force or
effect. The applicable Performance Goals shall be based on one or more of the
performance criteria set forth in Exhibit A hereto.
	 
	 	(d)	 	Dividends. Unless otherwise determined by the Committee
at the time of grant, amounts equal to any dividends declared during the
Performance Period with respect to the number of shares of Common Stock covered
by a Performance Share will not be paid to the Participant.
	 
	 	(e)	 	Payment. Following the Committee’s determination in
accordance with subsection (a) above, shares of Common Stock or, as determined
by the

25

 

	 	 	 	Committee in its sole discretion, the cash equivalent of such shares shall
be delivered to the Eligible Employee, Consultant or Non-Employee Director,
or his legal representative, in an amount equal to such individual’s earned
Performance Share. Notwithstanding the foregoing, the Committee may, in its
sole discretion, award an amount less than the earned Performance Share
and/or subject the payment of all or part of any Performance Share to
additional vesting, forfeiture and deferral conditions as it deems
appropriate.

	 	(f)	 	Accelerated Vesting. Based on service, performance
and/or such other factors or criteria, if any, as the Committee may determine,
the Committee may, in its sole discretion, at or after grant, accelerate the
vesting of all or any part of any Performance Share Award and/or waive the
deferral limitations for all or any part of such Award.

ARTICLE X

OTHER STOCK-BASED AWARDS

     10.1 Other Awards. The Committee, in its sole discretion, is authorized to grant to
Eligible Employees, Consultants and Non-Employee Directors Other Stock-Based Awards that are
payable in, valued in whole or in part by reference to, or otherwise based on or related to shares
of Common Stock, including, but not limited to, shares of Common Stock awarded purely as a bonus
and not subject to any restrictions or conditions, shares of Common Stock in payment of the amounts
due under an incentive or performance plan sponsored or maintained by the Company or an Affiliate,
performance units, dividend equivalent units, stock equivalent units, restricted stock units and
deferred stock units. To the extent permitted by law, the Committee may, in its sole discretion,
permit Eligible Employees and/or Non-Employee Directors to defer all or a portion of their cash
compensation in the form of Other Stock-Based Awards granted under the Plan, subject to the terms
and conditions of any deferred compensation arrangement established by the Company, which shall be
intended to comply with Section 409A of the Code. Other Stock-Based Awards may be granted either
alone or in addition to or in tandem with other Awards granted under the Plan.

     Unless otherwise determined by the Committee at grant, each Other Stock-based Award shall
provide that in the event the Participant engages in Detrimental Activity prior to, or during the
one-year period after the later of the date of any vesting of Performance Shares or the date of the
Participant’s Termination, the Committee may direct (at any time within one year thereafter) that
any unvested portion of such Award shall be immediately forfeited to the Company and that the
Participant shall pay over to the Company an amount equal to any gain the Participant realized from
any such Award that had vested in the period referred to above.

     Subject to the provisions of the Plan, the Committee shall, in its sole discretion, have
authority to determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and
the time or times at which, such Awards shall be made, the number of shares of Common Stock to be
awarded pursuant to such Awards, and all other conditions of the Awards.

26

 

The Committee may also provide for the grant of Common Stock under such Awards upon the
completion of a specified performance period.

     The Committee may condition the grant or vesting of Other Stock-Based Awards upon the
attainment of specified Performance Goals set forth on Exhibit A as the Committee may
determine, in its sole discretion; provided that to the extent that such Other Stock-Based Awards
are intended to comply with Section 162(m) of the Code, the Committee shall establish the objective
Performance Goals for the vesting of such Other Stock-Based Awards based on a performance period
applicable to each Participant or class of Participants in writing prior to the beginning of the
applicable performance period or at such later date as permitted under Section 162(m) of the Code
and while the outcome of the Performance Goals are substantially uncertain. Such Performance Goals
may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions
for disregarding (or adjusting for) changes in accounting methods, corporate transactions
(including, without limitation, dispositions and acquisition) and other similar type events or
circumstances. To the extent any such provision would create impermissible discretion under
Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be
of no force or effect. The applicable Performance Goals shall be based on one or more of the
performance criteria set forth in Exhibit A hereto.

     10.2 Terms and Conditions. Other Stock-Based Awards made pursuant to this Article
X shall be subject to the following terms and conditions:

	 	(a)	 	Non-Transferability. Subject to the applicable
provisions of the Award agreement and the Plan, shares of Common Stock subject
to Awards made under this Article X may not be Transferred prior to the
date on which the shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses.
	 
	 	(b)	 	Dividends. Unless otherwise determined by the Committee
at the time of Award, subject to the provisions of the Award agreement and the
Plan, the recipient of an Award under this Article X shall not be
entitled to receive, currently or on a deferred basis, dividends or dividend
equivalents with respect to the number of shares of Common Stock covered by the
Award.
	 
	 	(c)	 	Vesting. Any Award under this Article X and any
Common Stock covered by any such Award shall vest or be forfeited to the extent
so provided in the Award agreement, as determined by the Committee, in its sole
discretion.
	 
	 	(d)	 	Price. Common Stock issued on a bonus basis under this
Article X may be issued for no cash consideration; Common Stock
purchased pursuant to a purchase right awarded under this Article X
shall be priced, as determined by the Committee in its sole discretion.
	 
	 	(e)	 	Payment. Form of payment for the Other Stock-Based
Award shall be specified in the Award agreement.

27

 

ARTICLE XI

TERMINATION

     11.1 Termination. The following rules apply with regard to the Termination of a
Participant.

	 	(a)	 	Rules Applicable to Stock Option and Stock Appreciation Rights.
Unless otherwise determined by the Committee at grant (or, if no rights of the
Participant are reduced, thereafter):

     (i) Termination by Reason of Death, Disability or Retirement. If a
Participant’s Termination is by reason of death, Disability or the
Participant’s Retirement, all Stock Options or Stock Appreciation Rights
that are held by such Participant that are vested and exercisable at the
time of the Participant’s Termination may be exercised by the Participant
(or, in the case of death, by the legal representative of the Participant’s
estate) at any time within a one-year period from the date of such
Termination, but in no event beyond the expiration of the stated term of
such Stock Options or Stock Appreciation Rights; provided,
however, if the Participant dies within such exercise period, all
unexercised Stock Options or Stock Appreciation Rights held by such
Participant shall thereafter be exercisable, to the extent to which they
were exercisable at the time of death, for a period of one year from the
date of such death, but in no event beyond the expiration of the stated term
of such Stock Options or Stock Appreciation Rights.

     (ii) Involuntary Termination Without Cause. If a Participant’s
Termination is by involuntary termination without Cause, all Stock Options
or Stock Appreciation Rights that are held by such Participant that are
vested and exercisable at the time of the Participant’s Termination may be
exercised by the Participant at any time within a period of 90 days from the
date of such Termination, but in no event beyond the expiration of the
stated term of such Stock Options or Stock Appreciation Rights.

     (iii) Voluntary Termination. If a Participant’s Termination is
voluntary (other than a voluntary termination described in Section
11.2(a)(iv)(2) below, or a Retirement), all Stock Options or Stock
Appreciation Rights that are held by such Participant that are vested and
exercisable at the time of the Participant’s Termination may be exercised by
the Participant at any time within a period of 30 days from the date of such
Termination, but in no event beyond the expiration of the stated terms of
such Stock Options or Stock Appreciation Rights.

     (iv) Termination for Cause. If a Participant’s Termination: (1) is for
Cause or (2) is a voluntary Termination (as provided in subsection (iii)
above) or a Retirement after the occurrence of an event that would be

28

 

grounds for a Termination for Cause, all Stock Options or Stock
Appreciation Rights, whether vested or not vested, that are held by such
Participant shall thereupon terminate and expire as of the date of such
Termination.

     (v) Unvested Stock Options and Stock Appreciation Rights. Stock
Options or Stock Appreciation Rights that are not vested as of the date of a
Participant’s Termination for any reason shall terminate and expire as of
the date of such Termination.

	 	(b)	 	Rules Applicable to Restricted Stock, Performance Shares and
Other Stock-Based Awards. Unless otherwise determined by the Committee at
grant or thereafter, upon a Participant’s Termination for any reason: (i)
during the relevant Restriction Period, all Restricted Stock still subject to
restriction shall be forfeited; and (ii) any unvested Performance Shares or
Other Stock-Based Awards shall be forfeited.

ARTICLE XII

CHANGE IN CONTROL PROVISIONS

     12.1 Benefits. In the event of a Change in Control of the Company, and except as
otherwise provided by the Committee in an Award agreement or in a written employment agreement
between the Company and a Participant, a Participant’s unvested Award shall vest in full and a
Participant’s Award shall be treated in accordance with one of the following methods as determined
by the Committee in its sole discretion:

	 	(a)	 	Awards, whether or not vested by their terms or pursuant to the
preceding sentence, shall be continued, assumed, have new rights substituted
therefor or be treated in accordance with Section 4.2(d), as determined
by the Committee in its sole discretion, and restrictions to which any shares
of Restricted Stock or any other Award granted prior to the Change in Control
are subject shall not lapse upon a Change in Control (other than with respect
to vesting pursuant to the foregoing provisions of this Section 12.1)
and the Restricted Stock or other Award shall, where appropriate in the sole
discretion of the Committee, receive the same or other appropriate distribution
as other Common Stock on such terms as determined by the Committee in its sole
discretion; provided, however, that, the Committee may, in its
sole discretion, decide to award additional Restricted Stock or other Award in
lieu of any cash distribution. Notwithstanding anything to the contrary
herein, for purposes of Incentive Stock Options, any assumed or substituted
Stock Option shall comply with the requirements of Treasury Regulation §
1.424-1 (and any amendments thereto).
	 
	 	(b)	 	The Committee, in its sole discretion, may provide for the
purchase of any Awards by the Company or an Affiliate (or the cancellation and
extinguishment thereof pursuant to the terms of a merger agreement

29

 

	 	 	 	entered into by the Company) for an amount of cash equal to the excess of
the Change in Control Price (as defined below) of the shares of Common Stock
covered by such Awards, over the aggregate exercise price of such Awards.
For purposes of this Section 12.1, “Change in Control Price”
shall mean the highest price per share of Common Stock paid in any
transaction related to a Change in Control of the Company.

	 	(c)	 	The Committee may, in its sole discretion, provide for the
cancellation of any particular Award or Awards without payment, if the Change
in Control Price is less than the Fair Market Value of such Award(s) on the
date of grant.
	 
	 	(d)	 	Notwithstanding anything else herein, the Committee may, in its
sole discretion, provide for accelerated vesting or lapse of restrictions, of
an Award at the time of grant or at any time thereafter.

     12.2 Change in Control. Unless otherwise determined by the Committee in the applicable
Award agreement or other written agreement approved by the Committee, a “Change in Control” shall
be deemed to occur following any transaction if: (a) any “person” as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 40% or more of the combined voting power of the
then outstanding securities of the Company (or its successor corporation); or (b) the stockholders
of the Company approve a plan of complete liquidation of the Company or the consummation of the
sale or disposition by the Company of all or substantially all of the Company’s assets other than
(i) the sale or disposition of all or substantially all of the assets of the Company to a person or
persons who beneficially own, directly or indirectly, at least 50% or more of the combined voting
power of the outstanding voting securities of the Company at the time of the sale, or (ii) pursuant
to a spin-off type transaction, directly or indirectly, of such assets to the stockholders of the
Company.

ARTICLE XIII

TERMINATION OR AMENDMENT OF PLAN

     13.1 Termination or Amendment. Notwithstanding any other provision of the Plan, the
Board or the Committee may at any time, and from time to time, amend, in whole or in part, any or
all of the provisions of the Plan (including any amendment deemed necessary to ensure that the
Company may comply with any regulatory requirement referred to in Article XV), or suspend or
terminate it entirely, retroactively or otherwise; provided, however, that, unless
otherwise required by law or specifically provided herein, the rights of a Participant with respect
to Awards granted prior to such amendment, suspension or termination, may not be impaired without
the consent of such Participant and, provided further, without the approval of the stockholders of
the Company in accordance with the laws of the State of Delaware, to the extent required by the
applicable provisions of Rule 16b-3 or Section 162(m) of the Code, pursuant to

30

 

the requirements of NASD Rule 4350(i)(1)(A) or such other applicable stock exchange rule, or,
to the extent applicable to Incentive Stock Options, Section 422 of the Code, no amendment may be
made that would:

	 	(a)	 	increase the aggregate number of shares of Common Stock that
may be issued under the Plan pursuant to Section 4.1 (except by
operation of Section 4.2);
	 
	 	(b)	 	increase the maximum individual Participant limitations for a
fiscal year under Section 4.1(b) (except by operation of Section
4.2);
	 
	 	(c)	 	change the classification of Eligible Employees or Consultants
eligible to receive Awards under the Plan;
	 
	 	(d)	 	decrease the minimum option price of any Stock Option or Stock
Appreciation Right;
	 
	 	(e)	 	extend the maximum option period under Section 6.3;
	 
	 	(f)	 	alter the Performance Goals for the Award of Restricted Stock,
Performance Shares or Other Stock-Based Awards subject to satisfaction of
Performance Goals as set forth in Exhibit A;
	 
	 	(g)	 	award any Stock Option or Stock Appreciation Right in
replacement of a canceled Stock Option or Stock Appreciation Right with a
higher exercise price, except in accordance with Section 6.3(g); or
	 
	 	(h)	 	require stockholder approval in order for the Plan to continue
to comply with the applicable provisions of Section 162(m) of the Code or, to
the extent applicable to Incentive Stock Options, Section 422 of the Code. In
no event may the Plan be amended without the approval of the stockholders of
the Company in accordance with the applicable laws of the State of Delaware to
increase the aggregate number of shares of Common Stock that may be issued
under the Plan, decrease the minimum exercise price of any Stock Option or
Stock Appreciation Right, or to make any other amendment that would require
stockholder approval under NASD Rule 4350(i)(1)(A), or the rules of any other
exchange or system on which the Company’s securities are listed or traded at
the request of the Company.

     The Committee may amend the terms of any Award theretofore granted, prospectively or
retroactively, but, subject to Article IV above or as otherwise specifically provided
herein, no such amendment or other action by the Committee shall adversely impair the rights of any
holder without the holder’s consent. Notwithstanding anything herein to the contrary, the Board or
the Committee may amend the Plan or any Award granted hereunder at any time without a Participant’s
consent to comply with Code Section 409A or any other applicable law.

31

 

ARTICLE XIV

UNFUNDED PLAN

     14.1 Unfunded Status of Plan. The Plan is an “unfunded” plan for incentive and
deferred compensation. With respect to any payments as to which a Participant has a fixed and
vested interest but that are not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a general unsecured
creditor of the Company.

ARTICLE XV

GENERAL PROVISIONS

     15.1 Legend. The Committee may require each person receiving shares of Common Stock
pursuant to an Award granted under the Plan to represent to and agree with the Company in writing
that the Participant is acquiring the shares without a view to distribution thereof and such other
securities law-related representations as the Committee shall request. In addition to any legend
required by the Plan, the certificates and/or book entry accounts for such shares may include any
legend that the Committee, in its sole discretion, deems appropriate to reflect any restrictions on
Transfer.

     All certificates and/or book entry accounts for shares of Common Stock delivered under the
Plan shall be subject to such stop transfer orders and other restrictions as the Committee may, in
its sole discretion, deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, The NASDAQ Stock Market or any national securities exchange
system upon whose system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference to such restrictions.

     15.2 Other Plans. Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval if such approval is
required; and such arrangements may be either generally applicable or applicable only in specific
cases.

     15.3 No Right to Employment/Directorship/Consultancy. Neither the Plan nor the grant
of any Option or other Award hereunder shall give any Participant or other employee, Consultant or
Non-Employee Director any right with respect to continuance of employment, consultancy or
directorship by the Company or any Affiliate, nor shall they be a limitation in any way on the
right of the Company or any Affiliate by which an employee is employed or a Consultant or
Non-Employee Director is retained to terminate his or her employment, consultancy or directorship
at any time.

     15.4 Withholding of Taxes. The Company shall have the right to deduct from any payment
to be made pursuant to the Plan, or to otherwise require, prior to the issuance or delivery of any
shares of Common Stock or the payment of any cash hereunder, payment by the Participant of, any
Federal, state or local taxes required by law to be withheld. Upon the vesting

32

 

of Restricted Stock (or other Award that is taxable upon vesting), or upon making an election
under Section 83(b) of the Code, a Participant shall pay all required withholding to the Company.
Any statutorily required withholding obligation with regard to any Participant may be satisfied,
subject to the advance consent of the Committee, by reducing the number of shares of Common Stock
otherwise deliverable or by delivering shares of Common Stock already owned. Any fraction of a
share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount
due shall be paid instead in cash by the Participant.

     15.5 No Assignment of Benefits. No Award or other benefit payable under the Plan
shall, except as otherwise specifically provided by law or permitted by the Committee, be
Transferable in any manner, and any attempt to Transfer any such benefit shall be void, and any
such benefit shall not in any manner be liable for or subject to the debts, contracts, liabilities,
engagements or torts of any person who shall be entitled to such benefit, nor shall it be subject
to attachment or legal process for or against such person.

     15.6 Listing and Other Conditions.

	 	(a)	 	Unless otherwise determined by the Committee, as long as the
Common Stock is listed on a national securities exchange or system sponsored by
a national securities association, the issue of any shares of Common Stock
pursuant to an Award shall be conditioned upon such shares being listed on such
exchange or system. The Company 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.
	 
	 	(b)	 	If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to an Option or
other Award is or may in the circumstances be unlawful or result in the
imposition of excise taxes on the Company under the statutes, rules or
regulations of any applicable jurisdiction, the Company 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 said counsel, such sale or delivery shall be lawful or will not
result in the imposition of excise taxes on the Company.
	 
	 	(c)	 	Upon termination of any period of suspension under this
Section 15.6, 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.
	 
	 	(d)	 	A Participant shall be required to supply the Company with any
certificates, representations and information that the Company requests

33

 

	 	 	 	and otherwise cooperate with the Company in obtaining any listing,
registration, qualification, exemption, consent or approval the Company
deems necessary or appropriate.

     15.7 Governing Law. The Plan and actions taken in connection herewith shall be
governed and construed in accordance with the laws of the State of Delaware (regardless of the law
that might otherwise govern under applicable Delaware principles of conflict of laws).

     15.8 Construction. Wherever any words are used in the Plan in the masculine gender
they shall be construed as though they were also used in the feminine gender in all cases where
they would so apply, and wherever any words are used herein in the singular form they shall be
construed as though they were also used in the plural form in all cases where they would so apply.

     15.9 Other Benefits. No Award granted or paid out under the Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the Company or its
Affiliates nor affect any benefits under any other benefit plan now or subsequently in effect under
which the availability or amount of benefits is related to the level of compensation.

     15.10 Costs. The Company shall bear all expenses associated with administering the
Plan, including expenses of issuing Common Stock pursuant to any Awards hereunder.

     15.11 No Right to Same Benefits. The provisions of Awards need not be the same with
respect to each Participant, and such Awards to individual Participants need not be the same in
subsequent years.

     15.12 Death/Disability. The Committee may in its sole discretion require the
transferee of a Participant to supply it with written notice of the Participant’s death or
Disability and to supply it with a copy of the will (in the case of the Participant’s death) or
such other evidence as the Committee deems necessary to establish the validity of the transfer of
an Award. The Committee may, in its discretion, also require the agreement of the transferee to be
bound by all of the terms and conditions of the Plan.

     15.13 Section  16(b) of the Exchange Act. On and after the Registration Date, all
elections and transactions under the Plan by persons subject to Section 16 of the Exchange Act
involving shares of Common Stock are intended to comply with any applicable exemptive condition
under Rule 16b-3. The Committee may, in its sole discretion, establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of the Plan and the
transaction of business thereunder.

     15.14 Section 409A of the Code. The Plan is intended to comply with the applicable
requirements of Section 409A of the Code and shall be limited, construed and interpreted in
accordance with such intent. To the extent that any Award is subject to Section 409A of the Code,
it shall be paid in a manner that will comply with Section 409A of the Code, including proposed,
temporary or final regulations or any other guidance issued by the Secretary of the Treasury and
the Internal Revenue Service with respect thereto. Notwithstanding anything

34

 

herein to the contrary, any provision in the Plan that is inconsistent with Section 409A of
the Code shall be deemed to be amended to comply with Section 409A of the Code and to the extent
such provision cannot be amended to comply therewith, such provision shall be null and void.

     15.15 Successor and Assigns. The Plan shall be binding on all successors and permitted
assigns of a Participant, including, without limitation, the estate of such Participant and the
executor, administrator or trustee of such estate.

     15.16 Severability of Provisions. If any provision of the Plan shall be held invalid
or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof,
and the Plan shall be construed and enforced as if such provisions had not been included.

     15.17 Payments to Minors, Etc. Any benefit payable to or for the benefit of a minor,
an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid
to such person’s guardian or to the party providing or reasonably appearing to provide for the care
of such person, and such payment shall fully discharge the Committee, the Board, the Company, its
Affiliates and their employees, agents and representatives with respect thereto.

     15.18 Headings and Captions. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan, and shall not be employed
in the construction of the Plan.

     15.19 Transition Period. The Plan has been adopted by the Board and approved by its
stockholders, both of which occurred prior to the occurrence of a Registration Date. The Plan is
intended to constitute a plan described in Treasury Regulation Section 1.162-27(f)(1), pursuant to
which the deduction limits under Section 162(m) of the Code do not apply during the applicable
reliance period. The reliance period shall end on the earliest date identified in the definition
of “Transition Period” contained in Section 2.49 of the Plan.

ARTICLE XVI

EFFECTIVE DATE OF PLAN

     The Plan shall become effective upon adoption by the Board or such later date as provided in
the adopting resolution, subject to the approval of the Plan by the stockholders of the Company
within 12 months before or after adoption of the Plan by the Board in accordance with the laws of
the State of Delaware.

ARTICLE XVII

TERM OF PLAN

     No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the
earlier of the date the Plan is adopted by the Board and the date of stockholder approval, but
Awards granted prior to such tenth anniversary may, and the Committee’s authority to administer the
terms of such Awards, extend beyond that date; provided, however, that no Award
(other than a Stock Option or Stock Appreciation Right) that is intended to be “performance-based”

35

 

under Section 162(m) of the Code shall be granted on or after the fifth anniversary of the
stockholder approval of the Plan unless the Performance Goals set forth on Exhibit A are
reapproved (or other designated performance goals are approved) by the stockholders no later than
the first stockholder meeting that occurs in the fifth year following the year in which
stockholders approve the Performance Goals set forth on Exhibit A.

ARTICLE XVIII

NAME OF PLAN

     The Plan shall be known as the “Town Sports International Holdings, Inc. 2006 Stock Incentive
Plan.”

36

 

EXHIBIT A

PERFORMANCE GOALS

     To the extent permitted under Section 162(m) of the Code, performance goals established for
purposes of the grant or vesting of Awards of Restricted Stock, Other Stock-Based Awards and/or
Performance Shares, each intended to be “performance-based” under Section 162(m) of the Code, shall
be based on the attainment of certain target levels of, or a specified increase or decrease (as
applicable) in one or more of the following performance goals (“Performance Goals”):

	 	(a)	 	earnings per share;
	 
	 	(b)	 	operating income;
	 
	 	(c)	 	net income;
	 
	 	(d)	 	cash flow;
	 
	 	(e)	 	gross profit;
	 
	 	(f)	 	gross profit return on investment;
	 
	 	(g)	 	gross margin return on investment;
	 
	 	(h)	 	gross margin;
	 
	 	(i)	 	working capital;
	 
	 	(j)	 	earnings before interest and taxes;
	 
	 	(k)	 	earnings before interest, tax, depreciation and amortization;
	 
	 	(l)	 	return on equity;
	 
	 	(m)	 	return on assets;
	 
	 	(n)	 	return on capital;
	 
	 	(o)	 	return on invested capital;
	 
	 	(p)	 	net revenues;
	 
	 	(q)	 	gross revenues;
	 
	 	(r)	 	revenue growth;
	 
	 	(s)	 	total shareholder return;

 i 

 

 

	 	(t)	 	economic value added;
	 
	 	(u)	 	specified objectives with regard to limiting the level of
increase in all or a portion of the Company’s bank debt or other long-term or
short-term public or private debt or other similar financial obligations of the
Company, which may be calculated net of cash balances and/or other offsets and
adjustments as may be established by the Committee in its sole discretion;
	 
	 	(v)	 	the fair market value of the shares of the Company’s Common
Stock;
	 
	 	(w)	 	the growth in the value of an investment in the Company’s
Common Stock assuming the reinvestment of dividends; or
	 
	 	(x)	 	reduction in expenses.

     To the extent permitted under Section 162(m) of the Code, the Committee may, in its sole
discretion, also exclude, or adjust to reflect, the impact of an event or occurrence that the
Committee determines should be appropriately excluded or adjusted, including:

     (i) restructurings, discontinued operations, extraordinary items or
events, and other unusual or non-recurring charges as described in
Accounting Principles Board Opinion No. 30 and/or management’s discussion
and analysis of financial condition and results of operations appearing or
incorporated by reference in the Company’s Form 10-K for the applicable
year;

     (ii) an event either not directly related to the operations of the
Company or not within the reasonable control of the Company’s management; or

     (iii) a change in tax law or accounting standards required by generally
accepted accounting principles.

     Performance goals may also be based upon individual Participant performance goals, as
determined by the Committee, in its sole discretion.

     In addition, such Performance Goals may be based upon the attainment of specified levels of
Company (or subsidiary, division, other operational unit or administrative department of the
Company) performance under one or more of the measures described above relative to the performance
of other corporations. To the extent permitted under Section 162(m) of the Code, but only to the
extent permitted under Section 162(m) of the Code (including, without limitation, compliance with
any requirements for stockholder approval), the Committee may also:

(a) designate additional business criteria on which the performance goals may be
based; or

(b) adjust, modify or amend the aforementioned business criteria.EX-10.15

 

Exhibit 10.15

FINANCIAL EXPERT AGREEMENT

     THIS AGREEMENT (the “Agreement”), made this 25th day of January 2007, by and between Southwest
Bancorp, Inc., a registered bank holding company (“Southwest”) and David S. Crockett, Jr., a member
of the board of directors of Southwest (“Mr. Crockett “).

W I T N E S S E T H

     WHEREAS, Mr. Crockett serves as a member of Southwest’s board of directors and of the Audit
Committee of Southwest and its wholly owned subsidiary, Stillwater National Bank and Trust Company
(“SNB-Stillwater”).

     WHEREAS, Southwest is required by the Listing Standards of the NASDAQ National Market (the
“Listing Standards”) to have at least one “Audit Committee Financial Expert” as defined in that
rule, the Securities Exchange Act of 1934, and Securities and Exchange Commission (“SEC”)
regulation. .

     WHEREAS, the board of directors has determined that Mr. Crockett meets the definition of
Audit Committee Financial Expert.

     WHEREAS, Southwest is required to identify each director who is an Audit Committee Financial
Expert in the proxy statements for its annual meetings of shareholders and its annual report to the
SEC on Form 10-K.

     WHEREAS, it is the position of the SEC, as stated in Release 34-47235 and embodied in SEC
regulation at Item 401(h) of Regulation S-K, that the designation or identification of a person as
an Audit Committee Financial Expert should not impose on such person any duties, obligations, or
liability that are greater than those imposed on such person as member of the audit committee and
the board of directors, and that, it would adversely affect the operation of the audit committee
and its vital role in the financial reporting and the public disclosure system and systems of
corporate governance, and would be adverse to the interests of investors and to the operation of
markets and not in the public interest if courts were to conclude that the designation and public
identification of an Audit Committee Financial Expert affected such person’s duties, obligations,
or liability as an audit committee member or a board member.

     WHEREAS, consistent with such SEC policy, Southwest’s board of directors has adopted a
resolution to the effect that it is Southwest policy that no director shall be subject to
additional responsibility or liability by reason of his or her identification or service as an
audit committee financial expert.

     WHEREAS, in spite of these SEC and Southwest policies, it is possible that federal or state
courts may seek to impose additional liability upon an Audit Committee Financial Expert by reason
of his or her identification or service as such, and may allow actions to proceed based upon claims
of such additional liability whether or not such claims are eventually found to be baseless.

     WHEREAS, accordingly, Southwest and Mr. Crockett desire to provide a binding and enforceable
means of effecting such SEC and Southwest policies in connection with his service and
identification as an Audit Committee Financial Expert for Southwest in order to avoid such adverse
consequences to Southwest, Southwest’s shareholders, and Mr. Crockett .

     NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is
agreed as follows:

1. Identification and Service as Financial Expert.

 

 

(a) Mr. Crockett agrees to serve as an Audit Committee Financial Expert for so long as he is a
member of the Audit Committee, and consents to the identification of him as an Audit Committee
Financial Expert where and in the manner required by applicable law and regulation and the Listing
Standards.

(b) Notwithstanding paragraph (a) hereof, Mr. Crockett may terminate his status as an Audit
Committee Financial Expert and may resign or decline to stand for reelection as a director or
member of the Audit Committee, provided that, if he is the sole Audit Committee Financial Expert,
he (i) has provided at least 60 days prior notice thereof, (ii) is unable to perform his duties as
an audit committee member due to disability or other cause not within his control, or (iii) has
received Southwest’s consent thereto. Failure to provide such notice shall not, however, affect Mr.
Crockett ’s indemnification rights under this agreement.

(c) Mr. Crockett shall receive a fee for service as an Audit Committee Financial Expert of $1,000
more than the fee paid to other members of the committee who are not Audit Committee Financial
Experts (other than the chairman thereof) for each meeting.

2. Term. The term of this Agreement shall begin on the date first written above and shall
extend until the seventh anniversary of the day upon which Mr. Crockett last served as an Audit
Committee Financial Expert.

3. Indemnification 

(a) Southwest agrees to indemnify and hold harmless Mr. Crockett against any and all losses,
claims, damages, liabilities, and expenses (including reasonable costs of investigation and
reasonable attorneys’ fees and expenses), joint or several, and whether or not he continues to be a
director at the time of incurring any such expenses or liabilities, arising out of or based, in
whole or in part, upon Mr. Crockett ’s service as an Audit Committee Financial Expert, and shall
reimburse Mr. Crockett for any reasonable legal or other expenses as incurred, but in no event
less frequently than 30 days after each invoice is submitted, incurred by him in connection with
investigating or defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that Southwest shall not be
liable in any such case to the extent, but only to the extent, that any such losses, claims,
damages, liabilities, and expenses arise out of or are based upon (i) claims that are substantially
the same as those made against at least 1/2 of the other members of the Audit Committee excluding the
chairman of such committee and any person who has been identified as an Audit Committee Financial
Expert in Southwest’s proxy materials; or (ii) willful breach of fiduciary duty by Mr. Crockett
involving personal profit.

(b) Southwest shall reimburse Mr. Crockett for any reasonable legal or other expenses as incurred
as provided in paragraph (a) of this section 3 notwithstanding the possibility that payments for
such expenses might later be held to be improper hereunder or under applicable law. Any legal or
other expenses incurred by Mr. Crockett in connection with investigation or defending against or
appearing as a third-party witness in connection with any pending or threatened action that seeks
damage, liability, or expense from, or is based upon action or inaction by, the Audit Committee,
Mr. Crockett , or more than two other members of the Audit Committee shall qualify for
reimbursement of such legal or other expenses as incurred; provided that Mr. Crockett hereby
agrees to refund any such amounts that are determined by final unappealable order of a court with
jurisdiction over the parties not to be subject to reimbursement under this Agreement.

(c) The indemnity provided by this agreement is in addition to any liability Southwest may
otherwise have to Mr. Crockett . If the indemnification provided for in this Section 3 is not
permitted by applicable law, indemnification hereunder will be made to the maximum extent allowed
by such law.

(d) If any action or claim shall be brought or asserted against Mr. Crockett in respect of which
indemnity may be sought from Southwest, Mr. Crockett shall promptly notify Southwest in writing,
and Southwest shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to Mr. Crockett and the payment of all expenses; provided, however, that the failure
to so notify Southwest shall not relieve it from any liability which it may have to Mr. Crockett
otherwise than under such paragraph (a) or (b) of Section 3 of this

 

 

Agreement, and further, shall only relieve it from liability under such sections to the extent it
is prejudiced thereby. Mr. Crockett shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of such counsel shall
be at the expense of Mr. Crockett unless (i) the employment thereof has been specifically
authorized by Southwest in writing, (ii) Southwest has failed to assume the defense or to employ
counsel reasonably satisfactory to Mr. Crockett , or (iii) the named parties to any such action
(including any impleaded parties) include both Mr. Crockett and Southwest and Mr. Crockett shall
have been advised by such counsel that there may be one or more legal defenses available to him
that are different from or in addition to those available to Southwest (in which case, if Mr.
Crockett notifies Southwest in writing that he elects to employ separate counsel at the expense of
Southwest, Southwest shall not have the right to assume the defense of such action on behalf of Mr.
Crockett ); it being understood, however, that Southwest shall not, in connection with any one such
action or separate but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys at any time and such firm shall be designated in writing by Mr.
Crockett .

(e) Mr. Crockett , as a condition of such indemnity, shall use reasonable efforts to cooperate with
Southwest in the defense of any such action or claim.

(f) Southwest shall not be liable for any settlement of any such action effected without its
written consent, but if there be a final judgment for the plaintiff in any such action, Southwest
agrees to indemnify and hold harmless Mr. Crockett from and against any loss, claim, damage,
liability, or expense by reason of such settlement or judgment.

(g) Southwest shall not, without the prior written consent of Mr. Crockett , settle, compromise, or
consent to the entry of any judgment in any pending or threatened claim, action, suit, or
proceeding in respect of which indemnity may be sought hereunder (whether or not Mr. Crockett is a
party to such claim, action, suit or proceeding), unless such settlement, compromise, or consent
includes a release of Mr. Crockett , reasonably satisfactory to him, from all liability arising out
of such claim, action, suit, or proceeding or unless Southwest shall confirm in a written agreement
of Southwest to Mr. Crockett , that notwithstanding any federal, state, or common law, such
settlement, compromise, or consent shall not alter the right of Mr. Crockett to indemnification as
provided in this Agreement.

4. Funding of Trust. Upon the earlier of the tenth business day following (i) the filing of
any action for which indemnification is called for hereunder or (ii) the failure of Southwest to
reimburse amounts as required hereunder, Southwest shall (A) establish a valid trust under the law
of the State of Oklahoma and qualifying as a “Rabbi Trust” for federal income tax purposes with an
independent trustee that has or may be granted corporate trust powers under Oklahoma law, (B)
deposit in such trust the sum of $100,000, and (C) provide the trustee of the trust with a written
direction to hold said amount and any investment return thereon in a segregated account, and to pay
such amounts as demanded by Mr. Crockett from the trust upon written demand from Mr. Crockett
stating the amount of the payment demanded from the trust and the basis for his rights to such
payment hereunder. Southwest shall restore the balance therein within two business days following
notice from the Trustee of payments therefrom so that that the total amount held in such trust is
at least $100,000. Upon the earlier of the final judgement or binding settlement of any and all
such claims for which indemnification is then called for hereunder, the trustee of the trust shall
pay to Southwest, as applicable, the entire balance remaining in the trust. Payments from the trust
to Mr. Crockett shall be considered payments made by Southwest for purposes of this Agreement.
Payment of such amounts to Mr. Crockett from the trust, however, shall not relieve Southwest from
any obligation to pay amounts in excess of those paid from the trust, or from any obligation to
take actions or refrain from taking actions otherwise required by this Agreement. Mr. Crockett ‘s
rights under this Agreement shall be those of a general, unsecured creditor, and he shall have no
claim against the assets of the trust, and the assets of the trust shall remain subject to the
claims of creditors of Southwest.

5.
Reimbursement of Mr. Crockett ’s Expenses to Enforce this Agreement. Southwest
shall reimburse Mr. Crockett for all out-of-pocket expenses, including, without limitation,
reasonable attorney’s fees, incurred by Mr. Crockett in connection with successful enforcement by
Mr. Crockett of the obligations of Southwest under this Agreement. Successful enforcement shall
mean the grant of an award of money or the requirement that Southwest

 

 

take some action specified by this Agreement (i) as a result of court order; or (ii) otherwise by
Southwest following an initial failure of Southwest to pay such money or take such action promptly
after written demand therefor from Mr. Crockett stating the reason that such money or action was
due under this Agreement at or prior to the time of such demand.

6. Injunctive Relief. If there is a breach or threatened breach of Sections 3, 4, or 5 of
this Agreement, Southwest and Mr. Crockett agree that there is no adequate remedy at law for such
breach, and that Mr. Crockett shall be entitled to injunctive relief to enforce the obligations of
Southwest under such sections of this Agreement.

7. Successors and Assigns.

(a) This Agreement shall inure to the benefit of and be binding upon any corporate or other
successor of Southwest which shall acquire, directly or indirectly, by merger, consolidation,
purchase, or otherwise, all or substantially all of the assets or stock of Southwest. Southwest
shall not enter into any agreement to effect any such transaction without obtaining a binding
contractual commitment from the acquiror to honor the terms of this agreement.

(b) The rights to indemnification and enforcement of this agreement may be exercised by Mr.
Crockett ’s personal representative on behalf of his estate in the event of his death during the
term hereof.

8. Notices.

(a) All notices, requests, demands and other communications in connection with this Agreement shall
be made in writing and shall be deemed to have been given three business days after mailing at any
general or branch United States Post Office, by registered or certified mail, postage prepaid,
addressed as follows or to such other address provided in writing by the party, except that a
change in address will not be deemed given until it is actually received. Notices also may be given
by facsimile transmission, hand delivery, or next business day delivery by a nationally recognized
delivery service such as FedEx or UPS and, in that event, will be deemed to be given as of the date
they are actually received.

If to Southwest or the Bank:

Southwest Bancorp, Inc.

608 S. Main Street

Stillwater, Oklahoma 74076

Attention:       President and Chief Executive Officer

Copy to:        Corporate Secretary

If to Mr. Crockett :

David S. Crockett, Jr.

11609 Valleydale

Dallas, Texas 75230

(b) Southwest will provide copies of any and all notices received by it hereunder to the Southwest
board of directors and Audit Committee promptly following receipt.

9. Amendments. No amendments or additions to this Agreement shall be binding unless made in
writing and signed by all of the parties, except as herein otherwise specifically provided.

10. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of
Oklahoma shall govern this Agreement in all respects, whether as to its validity, construction,
capacity, performance, or otherwise.

 

 

11. Severability. The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or enforceability of
the other provisions hereof.

12. Headings. Headings contained herein are for convenience of reference only.

13. Entire Agreement. This Agreement, together with any understanding or modifications
thereof as agreed to in writing by the parties, shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set
forth above.

	 	 	 
	 

	 	Southwest Bancorp, Inc.
	 
	 	 
	 

	 	By: /s/ Rick Green
	 
	 	 
	 

	 	Title: President and Chief Executive Officer
	 
	 	 
	 

	 	David S. Crockett, Jr.
	 
	 	 
	 

	 	/s/ David S. Crockett, Jr.
	 
	 	 
	 

	 	David S. Crockett, Jr.

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