Document:

exv4w1

 

Exhibit 4.1

ENCYSIVE PHARMACEUTICALS INC.

2007 INCENTIVE PLAN, AS AMENDED

(effective March 8, 2007)

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	SECTION 1 GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS	 	 	1	 
	1.1
	 	Purpose	 	 	1	 
	1.2
	 	Definitions	 	 	1	 
	1.3
	 	Plan Administration	 	 	7	 
	1.4
	 	Shares Available for Incentive Awards	 	 	9	 
	1.5
	 	Share Pool Adjustments for Awards and Payouts	 	 	9	 
	1.6
	 	Common Stock Available	 	 	10	 
	1.7
	 	Participation	 	 	10	 
	1.8
	 	Types of Incentive Awards	 	 	11	 
	1.9
	 	Other Compensation Programs	 	 	11	 
	SECTION 2 STOCK OPTIONS	 	 	11	 
	2.1
	 	Grant of Stock Options	 	 	11	 
	2.2
	 	Stock Option Terms	 	 	11	 
	2.3
	 	Stock Option Exercises	 	 	12	 
	2.4
	 	Supplemental Payment on Exercise of Nonstatutory Stock Options or SARs	 	 	14	 
	SECTION 3 RESTRICTED STOCK	 	 	15	 
	3.1
	 	Award of Restricted Stock	 	 	15	 
	3.2
	 	Restrictions	 	 	16	 
	3.3
	 	Delivery of Shares	 	 	17	 
	3.4
	 	Supplemental Payment on Vesting of Restricted Stock	 	 	17	 
	SECTION 4 OTHER STOCK-BASED AWARDS	 	 	17	 
	4.1
	 	Grant of Other Stock-Based Awards	 	 	17	 
	4.2
	 	Other Stock-Based Award Terms	 	 	17	 
	4.3
	 	Performance Awards	 	 	19	 
	SECTION 5 PROVISIONS RELATING TO PLAN PARTICIPATION	 	 	20	 
	5.1
	 	Plan Conditions	 	 	20	 
	5.2
	 	Transferability and Exercisability	 	 	22	 
	5.3
	 	Rights as a Stockholder	 	 	23	 
	5.4
	 	Listing and Registration of Shares	 	 	23	 
	5.5
	 	Change in Stock and Adjustments	 	 	23	 
	5.6
	 	Termination of Employment, Death, Disability and Retirement	 	 	26	 
	5.7
	 	Change in Control	 	 	29	 
	5.8
	 	Financing	 	 	30	 
	SECTION 6 GENERAL	 	 	31	 
	6.1
	 	Effective Date and Grant Period	 	 	31	 
	6.2
	 	Funding and Liability of Company	 	 	31	 
	6.3
	 	Withholding Taxes	 	 	31	 
	6.4
	 	No Guarantee of Tax Consequences	 	 	32	 
	6.5
	 	Designation of Beneficiary by Grantee	 	 	32	 

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	 	 	 	 	Page	 
	6.6
	 	Deferrals	 	 	32	 
	6.7
	 	Amendment and Termination	 	 	32	 
	6.8
	 	Requirements of Law	 	 	33	 
	6.9
	 	Rule 16b-3 Securities Law
Compliance and Compliance with Company Policies	 	 	33	 
	6.10
	 	Compliance with Section 162(m) of the Code	 	 	33	 
	6.11
	 	Successors	 	 	34	 
	6.12
	 	Miscellaneous Provisions	 	 	34	 
	6.13
	 	Severability	 	 	34	 
	6.14
	 	Gender, Tense and Headings	 	 	34	 
	6.15
	 	Governing Law	 	 	34	 
	6.16
	 	Section 409A of the Code	 	 	35	 

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ENCYSIVE PHARMACEUTICALS INC.

2007 INCENTIVE PLAN, AS AMENDED

SECTION 1

GENERAL PROVISIONS RELATING TO

PLAN GOVERNANCE, COVERAGE AND BENEFITS

     WHEREAS, the Board has authorized the Encysive Pharmaceuticals Inc. 2007 Incentive Plan, as
amended by the Board on April 27, 2007 (the “Plan”), subject to stockholder approval.

     NOW, THEREFORE, the Plan is hereby adopted effective as of March 8, 2007, subject to
stockholder approval in accordance with Section 6.1:

     1.1 Purpose

     The purpose of the Plan is to foster and promote the long-term financial success of Encysive
Pharmaceuticals Inc. (the “Company”) and its Subsidiaries and to increase stockholder value by: (a)
encouraging the commitment of selected key Employees, Consultants and Outside Directors, (b)
motivating superior performance of key Employees, Consultants and Outside Directors by means of
long-term performance related incentives, (c) encouraging and providing key Employees, Consultants
and Outside Directors with a program for obtaining ownership interests in the Company which link
and align their personal interests to those of the Company’s stockholders, (d) attracting and
retaining key Employees, Consultants and Outside Directors by providing competitive incentive
compensation opportunities, and (e) enabling key Employees, Consultants and Outside Directors to
share in the long-term growth and success of the Company.

     The Plan provides for payment of various forms of incentive compensation and it is not
intended to be a plan that is subject to the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”). The Plan shall be interpreted, construed and administered consistent with its
status as a plan that is not subject to ERISA.

     The Plan is effective as of March 8, 2007 (the “Effective Date”) subject to approval by the
Company’s stockholders. The Plan shall commence on the Effective Date and shall remain in effect,
subject to the right of the Board to amend or terminate the Plan at any time pursuant to
Section 6.7, until all Shares subject to the Plan have been purchased or acquired according
to its provisions. However, in no event may an Incentive Award be granted under the Plan after the
expiration of ten (10) years from the Effective Date.

     1.2 Definitions

     The following terms shall have the meanings set forth below:

     (a) Authorized Officer. The Chairman of the Board, the Chief Executive Officer
or any other senior officer of the Company to whom either of them delegate the authority to
execute any Incentive Agreement for and on behalf of the Company. No officer or director
shall be an Authorized Officer with respect to any Incentive Agreement for himself.

 

 

     (b) Board. The Board of Directors of the Company.

     (c) Cause. Unless otherwise expressly provided in the Grantee’s Incentive
Agreement, when used in connection with the termination of a Grantee’s Employment, shall
mean the termination of the Grantee’s Employment by the Company by reason of (i) the
conviction of the Grantee by a court of competent jurisdiction as to which no further appeal
can be taken of a crime involving moral turpitude or a felony; (ii) the proven commission by
the Grantee of an act of fraud upon the Company; (iii) the willful and proven
misappropriation of any funds or property of the Company by the Grantee; (iv) the willful,
continued and unreasonable failure by the Grantee to perform the material duties assigned to
him; (v) the knowing engagement by the Grantee in any direct, material conflict of interest
with the Company without compliance with the Company’s conflict of interest policy, if any,
then in effect; or (vi) the knowing engagement by the Grantee, without the written approval
of the Board, in any activity which competes with the business of the Company or which would
result in a material injury to the business, reputation or goodwill of the Company.

     (d) Change in Control. Unless otherwise expressly provided in the Grantee’s
Incentive Agreement, any of the events described in and subject to Section 5.7.

     (e) Code. The Internal Revenue Code of 1986, as amended, and the regulations
and other authority promulgated thereunder by the appropriate governmental authority.
References herein to any provision of the Code shall refer to any successor provision
thereto.

     (f) Committee. A committee appointed by the Board consisting of not less than
two directors as appointed by the Board to administer the Plan. During such period that the
Company is a Publicly Held Corporation, the Plan shall be administered by a committee
appointed by the Board consisting of not less than two directors who fulfill the
“non-employee director” requirements of Rule 16b-3 under the Exchange Act, the “outside
director” requirements of Section 162(m) of the Code and the “independent” requirements of
the rules of any national securities exchange on which any of the securities of the Company
are traded, listed or quoted. The Committee may be the Compensation and Corporate
Governance Committee of the Board, or any subcommittee of the Compensation and Corporate
Governance Committee, provided that the members of the Committee satisfy the requirements of
the previous provisions of this paragraph. Notwithstanding the foregoing, if the
composition of the Board does not provide the Company the ability to establish a committee
meeting the foregoing requirements, the Plan shall be administered by the full Board.

     The Board shall have the power to fill vacancies on the Committee arising by
resignation, death, removal or otherwise. The Board, in its sole discretion, may bifurcate
the powers and duties of the Committee among one or more separate committees, or retain all
powers and duties of the Committee in a single Committee. The members of the Committee
shall serve at the discretion of the Board.

     Notwithstanding the preceding paragraphs, the term “Committee” as used in the Plan with
respect to any Incentive Award for an Outside Director shall refer to the entire Board. In
the case of an Incentive Award for an Outside Director, the Board shall have

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all the powers and responsibilities of the Committee hereunder as to such Incentive
Award, and any actions as to such Incentive Award may be acted upon only by the Board
(unless it otherwise designates in its discretion). When the Board exercises its authority
to act in the capacity as the Committee hereunder with respect to an Incentive Award for an
Outside Director, it shall so designate with respect to any action that it undertakes in its
capacity as the Committee.

     (g) Common Stock. The common stock of the Company, $.005 par value per share,
and any class of common stock into which such common shares may hereafter be converted,
reclassified or recapitalized.

     (h) Company. Encysive Pharmaceuticals Inc., a corporation organized under the
laws of the State of Delaware, and any successor in interest thereto.

     (i) Consultant. An independent agent, consultant, attorney, or any other
individual who is not an Outside Director or Employee of the Company (or any Parent or
Subsidiary) and who (i), in the opinion of the Committee, is in a position to contribute to
the growth or financial success of the Company (or any Parent or Subsidiary), (ii) is a
natural person and (iii) provides bona fide services to the Company (or any Parent or
Subsidiary), which services are not in connection with the offer or sale of securities in a
capital raising transaction, and do not directly or indirectly promote or maintain a market
for the Company’s securities.

     (j) Disability. Unless otherwise expressly provided in the Grantee’s Incentive
Agreement, as determined by the Committee in its discretion exercised in good faith, a
physical or mental condition of the Employee that would entitle him to payment of disability
income payments under the Company’s long term disability insurance policy or plan for
employees, as then effective, if any; or in the event that the Grantee is not covered, for
whatever reason, under the Company’s long-term disability insurance policy or plan, and for
purposes of ISOs, “Disability” means a permanent and total disability as defined in Section
22(e)(3) of the Code. A determination of Disability may be made by a physician selected or
approved by the Committee and, in this respect, the Grantee shall submit to an examination
by such physician upon request.

     (k) Employee. Any employee of the Company (or any Parent or Subsidiary) who,
in the opinion of the Committee, is in a position to contribute to the growth, development
and financial success of the Company (or any Parent or Subsidiary), including, without
limitation, officers who are members of the Board.

     (l) Employment. Employment by the Company (or any Parent or Subsidiary), or by
any corporation issuing or assuming an Incentive Award in any transaction described in
Section 424(a) of the Code, or by a parent corporation or a subsidiary corporation of such
corporation issuing or assuming such Incentive Award, as the parent-subsidiary relationship
shall be determined at the time of the corporate action described in Section 424(a) of the
Code. In this regard, neither the transfer of a Grantee from Employment by the Company to
Employment by any Parent or Subsidiary, nor the transfer of a Grantee from Employment by any
Parent or Subsidiary to Employment by the Company, shall be deemed to be a termination of
Employment of the Grantee. Moreover, the Employment of a Grantee shall not be deemed to
have been terminated

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because of an approved leave of absence from active Employment on account of temporary
illness, authorized vacation or granted for reasons of professional advancement, education,
health, or government service, or military leave, or during any period required to be
treated as a leave of absence by virtue of any applicable statute, Company personnel policy
or agreement. Whether an authorized leave of absence shall constitute termination of
Employment hereunder shall be determined by the Committee in its discretion.

     Unless otherwise provided in the Incentive Agreement, the term “Employment” for
purposes of the Plan is also defined to include (i) compensatory or advisory services
performed by a Consultant for the Company (or any Parent or Subsidiary) and (ii) membership
on the Board by an Outside Director.

     (m) Exchange Act. The Securities Exchange Act of 1934, as amended.

     (n) Fair Market Value. Except as set forth below, the Fair Market Value of one
share of Common Stock on the date in question is deemed to be (i) the closing sales price on
the immediately preceding business day of a share of Common Stock as reported on the
consolidated reporting system for the securities exchange(s) on which Shares are then listed
or admitted to trading (as reported in the Wall Street Journal or other reputable source),
(ii) if not so reported, the closing bid on the immediately preceding business day of a
Share as quoted by the National Quotation Bureau’s “Pink Sheets” or the National Association
of Securities Dealers’ OTC Bulletin Board System or (iii) such other fair market value of a
price per share of Common Stock as determined by the Committee in accordance with applicable
law. If there was no public trade of Common Stock on the date in question, Fair Market
Value shall be determined by reference to the last preceding date on which such a trade was
so reported.

     If the Company is not a Publicly Held Corporation or the Common Stock is not publicly
traded within the meaning of Section 409A of the Code at the time a determination of the
Fair Market Value of the Common Stock is required to be made hereunder, the determination of
Fair Market Value for purposes of the Plan shall be made by the Committee using a reasonable
method in its discretion exercised in good faith. In this respect, the Committee may rely
on such financial data, valuations, experts, and other sources, in its discretion, as it
deems advisable under the circumstances.

     (o) Grantee. Any Employee, Consultant or Outside Director who is granted an
Incentive Award under the Plan.

     (p) Immediate Family. With respect to a Grantee, the Grantee’s spouse,
children or grandchildren (including legally adopted and step children and grandchildren).

     (q) Incentive Agreement. The written agreement entered into between the
Company and the Grantee setting forth the terms and conditions pursuant to which an
Incentive Award is granted under the Plan, as such agreement is further described in
Section 5.1(a).

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     (r) Incentive Award. A grant of an award under the Plan to a Grantee,
including any Nonstatutory Stock Option, Incentive Stock, Restricted Stock Award, Other
Stock-Based Award (which includes, but is not limited to, Phantom Units or SARs) or
Performance Award.

     (s) Incentive Stock Option or ISO. A Stock Option granted by the Committee to
an Employee under Section 2 which is designated by the Committee as an Incentive
Stock Option and intended to qualify as an Incentive Stock Option under Section 422 of the
Code. Only an Employee who meets the requirements of Sections 421 and 422 of the Code may
be granted an Incentive Stock Option.

     (t) Insider. An individual who is, on the relevant date, an officer, director
or ten percent (10%) beneficial owner of any class of the Company’s equity securities that
is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of
the Exchange Act.

     (u) Nonstatutory Stock Option. A Stock Option granted by the Committee to a
Grantee under Section 2 that is not designated by the Committee as an Incentive
Stock Option.

     (v) Option Price. The exercise price at which a Share may be purchased by the
Grantee of a Stock Option.

     (w) Other Stock-Based Award. An award granted by the Committee to a Grantee
under Section 4.1 that is valued in whole or in part by reference to, or is
otherwise based upon Common Stock, and is payable in Common Stock or other consideration.

     (x) Outside Director. A member of the Board who is not, at the time of grant
of an Incentive Award, an employee of the Company or any Parent or Subsidiary within the
meaning of Section 16b-3 under the Exchange Act.

     (y) Parent. Any corporation (whether now or hereafter existing) which
constitutes a “parent” of the Company, as defined in Section 424(e) of the Code.

     (z) Performance Award. An award granted by the Committee to the Grantee under
Section 4.3.

     (aa) Performance-Based Exception. The performance-based exception from the
tax deductibility limitations of Section 162(m) of the Code, as prescribed in Code § 162(m)
and Treasury Regulation § 1.162-27(e) (or its successor), which is applicable during such
period that the Company is a Publicly Held Corporation.

     (bb) Performance Period. A period of time, as may be determined in the
discretion of the Committee and set out in the Incentive Agreement, over which performance
is measured for the purpose of determining a Grantee’s right to and the payment value of an
Incentive Award.

     (cc) Performance Share or Performance Unit. A Performance Award under
Section 4.3 representing a contingent right to receive cash or Shares (which may be

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Restricted Stock) at the end of a Performance Period and which, in the case of
Performance Shares, is denominated in Common Stock, and in the case of Performance Units is
denominated in cash values.

     (dd) Phantom Units. An award of an Other Stock-Based Award where the value of
Shares is used to measure the benefits payable to a Grantee subject to the terms and
conditions established by the Committee.

     (ee) Plan. The Encysive Pharmaceuticals Inc. 2007 Incentive Plan as set forth
herein and as it may be amended from time to time.

     (ff) Publicly Held Corporation. A corporation issuing any class of common
equity securities required to be registered under Section 12 of the Exchange Act.

     (gg) Restricted Stock. Shares issued or transferred to a Grantee pursuant to
Section 3.

     (hh) Restricted Stock Award. An authorization by the Committee to issue or
transfer Restricted Stock to a Grantee.

     (ii) Restriction Period. The period of time determined by the Committee and
set forth in the Incentive Agreement during which the transfer of Restricted Stock by the
Grantee is restricted.

     (jj) Retirement. Unless otherwise expressly defined in the Incentive
Agreement, (1) in the case of an Employee, the voluntary termination of Employment from the
Company or any Parent or Subsidiary constituting retirement for age on any date after the
Employee attains a total of age and years of service with the Company of sixty-five (65)
years, provided that such Employee has attained the age of at least fifty-five (55) years
and has at least five (5) full years of service with the Company (computed from the starting
date of employment) and (2) in the case of an Outside Director, the voluntary termination of
service as a director of the Company constituting retirement for age on any date after the
Outside Director attains a total of age and years of service with the Company of sixty-five
(65) years, provided that such Outside Director has attained the age of at least fifty-five
(55) years and has at least five (5) full years of service with the Company (computed from
the date of election as director to date of retirement).

     (kk) SAR. A stock appreciation right.

     (ll) Share. A share of the Common Stock.

     (mm) Share Pool. The number of shares authorized for issuance under
Section 1.4, as adjusted for awards and payouts under Section 1.5 and as
adjusted for changes in corporate capitalization under Section 5.5.

     (nn) Stock Option or Option. Pursuant to Section 2, (i) an Incentive
Stock Option granted to an Employee or (ii) a Nonstatutory Stock Option granted to an
Employee, Consultant or Outside Director, where the Grantee has the right to purchase
Shares.

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     (oo) Subsidiary. Any corporation (whether now or hereafter existing) which
constitutes a “subsidiary” of the Company, as defined in Section 424(f) of the Code.

     (pp) Supplemental Payment. Any amount, as described in Sections 2.4,
3.4, 4.2(f) or 4.3(f), that is dedicated to payment of federal,
state and foreign income taxes which are payable by the Grantee resulting from an Incentive
Award. No Grantee shall be granted a Supplemental Payment in any calendar year with respect
to more than the number of Shares covered by the Incentive Award to such Grantee.

     1.3 Plan Administration

     (a) Authority of the Committee. Except as may be limited by law and subject to
the provisions herein, the Committee shall have full power to: (i) select Grantees who shall
participate in the Plan; (ii) determine the sizes, duration and types of Incentive Awards;
(iii) determine the terms and conditions of Incentive Awards and Incentive Agreements; (iv)
determine whether any Shares subject to Incentive Awards will be subject to any restrictions
on transfer; (v) construe and interpret the Plan and any Incentive Agreement or other
agreement entered into under the Plan; and (vi) establish, amend, or waive rules for the
Plan’s administration. Further, the Committee shall make all other determinations which may
be necessary or advisable for the administration of the Plan including, without limitation,
correcting any defect, supplying any omission or reconciling any inconsistency in the Plan
or any Incentive Agreement. The determinations of the Committee shall be final and binding.

     (b) Meetings. The Committee shall designate a chairman from among its members
who shall preside at all of its meetings, and shall designate a secretary, without regard to
whether that person is a member of the Committee, who shall keep the minutes of the
proceedings and all records, documents, and data pertaining to its administration of the
Plan. Meetings shall be held at such times and places as shall be determined by the
Committee and the Committee may hold telephonic meetings. The Committee may take any action
otherwise proper under the Plan by the affirmative vote, taken with or without a meeting, of
a majority of its members. The Committee may authorize any one or more of their members or
any officer of the Company to execute and deliver documents on behalf of the Committee.

     (c) Decisions Binding. All determinations and decisions made by the Committee
shall be made in its discretion pursuant to the provisions of the Plan, and shall be final,
conclusive and binding on all persons including the Company, its stockholders, Employees,
Grantees, and their estates and beneficiaries. The Committee’s decisions and determinations
with respect to any Incentive Award need not be uniform and may be made selectively among
Incentive Awards and Grantees, whether or not such Incentive Awards are similar or such
Grantees are similarly situated.

     (d) Modification of Outstanding Incentive Awards. Subject to the stockholder
approval requirements of Section 6.7 if applicable, the Committee may, in its
discretion, provide for the extension of the exercisability of an Incentive Award,
accelerate the vesting or exercisability of an Incentive Award, eliminate or make less
restrictive any restrictions contained in an Incentive Award, waive any restriction or other
provisions of an Incentive Award, or otherwise amend or modify an Incentive Award in

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any manner that is either (i) not adverse to the Grantee to whom such Incentive Award
was granted or (ii) consented to by such Grantee. With respect to an Incentive Award that
is an Incentive Stock Option, no adjustment to such option shall be made to the extent
constituting a “modification” within the meaning of Section 424(h)(3) of the Code unless
otherwise agreed to by the optionee in writing.

     (e) Delegation of Authority. The Committee may delegate to designated
officers or other Employees of the Company any of its duties under this Plan pursuant to
such conditions or limitations as the Committee may establish from time to time; provided,
however, while the Company is a Publicly Held Corporation, the Committee may not delegate to
any person the authority to (i) grant Incentive Awards or (ii) take any action which would
contravene the requirements of Rule 16b-3 under the Exchange Act or the Performance-Based
Exception under Section 162(m) of the Code.

     (f) Expenses of Committee. The Committee may employ legal counsel, including,
without limitation, independent legal counsel and counsel regularly employed by the Company,
and other agents as the Committee may deem appropriate for the administration of the Plan.
The Committee may rely upon any opinion or computation received from any such counsel or
agent. All expenses incurred by the Committee in interpreting and administering the Plan,
including, without limitation, meeting expenses and professional fees, shall be paid by the
Company.

     (g) INDEMNIFICATION. EACH PERSON WHO IS OR WAS A MEMBER OF THE COMMITTEE, OR
OF THE BOARD, SHALL BE INDEMNIFIED BY THE COMPANY AGAINST AND FROM ANY DAMAGE, LOSS,
LIABILITY, COST AND EXPENSE THAT MAY BE IMPOSED UPON OR REASONABLY INCURRED BY HIM IN
CONNECTION WITH OR RESULTING FROM ANY CLAIM, ACTION, SUIT, OR PROCEEDING TO WHICH HE MAY BE
A PARTY OR IN WHICH HE MAY BE INVOLVED BY REASON OF ANY ACTION TAKEN OR FAILURE TO ACT UNDER
THE PLAN (INCLUDING SUCH INDEMNIFICATION FOR A PERSON’S OWN, SOLE, CONCURRENT OR JOINT
NEGLIGENCE OR STRICT LIABILITY), EXCEPT FOR ANY SUCH ACT OR OMISSION CONSTITUTING WILLFUL
MISCONDUCT OR GROSS NEGLIGENCE. SUCH PERSON SHALL BE INDEMNIFIED BY THE COMPANY FOR ALL
AMOUNTS PAID BY HIM IN SETTLEMENT THEREOF, WITH THE COMPANY’S APPROVAL, OR PAID BY HIM IN
SATISFACTION OF ANY JUDGMENT IN ANY SUCH ACTION, SUIT, OR PROCEEDING AGAINST HIM, PROVIDED
HE SHALL GIVE THE COMPANY AN OPPORTUNITY, AT ITS OWN EXPENSE, TO HANDLE AND DEFEND THE SAME
BEFORE HE UNDERTAKES TO HANDLE AND DEFEND IT ON HIS OWN BEHALF. THE FOREGOING RIGHT OF
INDEMNIFICATION SHALL NOT BE EXCLUSIVE OF ANY OTHER RIGHTS OF INDEMNIFICATION TO WHICH SUCH
PERSONS MAY BE ENTITLED UNDER THE COMPANY’S ARTICLES OF INCORPORATION OR BYLAWS, AS A MATTER
OF LAW, OR OTHERWISE, OR ANY POWER THAT THE COMPANY MAY HAVE TO INDEMNIFY THEM OR HOLD THEM
HARMLESS.

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     1.4 Shares Available for Incentive Awards

     Subject to adjustment under Section 5.5, there shall be available for Incentive Awards
that are granted wholly or partly in Common Stock (including rights or Options that may be
exercised for or settled in Common Stock) 2,600,000 Shares. The total number of Shares reserved
for issuance under the Plan (pursuant to the previous sentence) shall be available for Incentive
Stock Options. The number of Shares that are the subject of Incentive Awards under this Plan, that
are forfeited or terminated, expire unexercised, withheld for tax withholding requirements, are
settled in cash in lieu of Common Stock or in a manner such that all or some of the Shares covered
by an Incentive Award are not issued to a Grantee or are exchanged for Incentive Awards that do not
involve Common Stock, shall again immediately become available for Incentive Awards hereunder. The
Committee may from time to time adopt and observe such procedures concerning the counting of Shares
against the Plan maximum as it may deem appropriate. The Board and the appropriate officers of the
Company shall from time to time take whatever actions are necessary to file any required documents
with governmental authorities, stock exchanges and transaction reporting systems to ensure that
Shares are available for issuance pursuant to Incentive Awards.

     During any period that the Company is a Publicly Held Corporation, the following rules shall
apply to grants of Incentive Awards to Employees:

     (a) Subject to adjustment as provided in Section 5.5, the maximum aggregate
number of Shares (including Phantom Units, Stock Options, SARs, Restricted Stock,
Performance Units and Performance Shares paid out in Shares, or Other Stock-Based Awards
paid out in Shares) that may be granted in any calendar year pursuant to any Incentive Award
held by any individual Employee shall be 2,600,000 Shares.

     (b) The maximum aggregate cash payout (including Phantom Units, SARs, Performance Units
and Performance Shares paid out in cash, or Other Stock-Based Awards paid out in cash) with
respect to Incentive Awards granted in any calendar year which may be made to any individual
Employee shall be Ten Million dollars ($10,000,000).

     (c) With respect to any Stock Option or SAR granted to an Employee that is canceled or
repriced, the number of Shares subject to such Stock Option or SAR shall continue to count
against the maximum number of Shares that may be the subject of Stock Options or SARs
granted to such Employee hereunder to the extent such is required in accordance with Section
162(m) of the Code.

     (d) The limitations of subsections (a), (b) and (c) above shall
be construed and administered so as to comply with the Performance-Based Exception.

     1.5 Share Pool Adjustments for Awards and Payouts

     The following Incentive Awards and payouts shall reduce, on a one Share for one Share basis,
the number of Shares authorized for issuance under the Share Pool:

     (a) Stock Options;

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     (b) Restricted Stock Awards; and

     (c) A payout of an Other Stock-Based Award or Performance Awards in Shares.

     The following transactions shall restore, on a one Share for one Share basis, the number of
Shares authorized for issuance under the Share Pool:

     (a) A payout of an Other Stock-Based Award or Performance Awards in the form of cash;

     (b) A cancellation, termination, expiration, forfeiture, or lapse for any reason of any
Shares subject to an Incentive Award; and

     (c) Payment of an Option Price or Restricted Stock purchase price as provided in the
Incentive Agreement or as determined by the Committee in its sole discretion with previously
acquired Shares or by withholding Shares that otherwise would be acquired on exercise or
grant (i.e., the Share Pool shall be increased by the number of Shares turned in or withheld
as payment of the Option Price or Restricted Stock purchase price).

     1.6 Common Stock Available

     The Common Stock available for issuance or transfer under the Plan shall be made available
from Shares now or hereafter (a) held in the treasury of the Company, (b) authorized but unissued
shares, or (c) shares to be purchased or acquired by the Company. No fractional shares shall be
issued under the Plan; payment for fractional shares shall be made in cash.

     1.7 Participation

     (a) Eligibility. The Committee shall from time to time designate those
Employees, Consultants, and/or Outside Directors, if any, to be granted Incentive Awards
under the Plan, the type of Incentive Awards granted, the number of Shares or Stock Options,
as the case may be, which shall be granted to each such person, and any other terms or
conditions relating to the Incentive Awards as it may deem appropriate to the extent not
inconsistent with the provisions of the Plan. A Grantee who has been granted an Incentive
Award may, if otherwise eligible, be granted additional Incentive Awards at any time.

     (b) Incentive Stock Option Eligibility. Only Employees who are also Employees
within the meaning of Sections 421 and 422 of the Code shall be eligible for Incentive Stock
Option, thus, no Consultant or Outside Director shall be eligible for the grant of any
Incentive Stock Option. In addition, no Employee shall be eligible for the grant of any
Incentive Stock Option who owns or would own immediately before the grant of such Incentive
Stock Option, directly or indirectly, stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company, or any Parent or
Subsidiary. This restriction does not apply if, at the time such Incentive Stock Option is
granted, the Option Price with respect to the Incentive Stock Option is at least one hundred
ten percent (110%) of the Fair Market Value on the date of grant and the Incentive Stock
Option by its terms is not exercisable after the expiration of

10

 

five (5) years from the date of grant. For the purpose of the immediately preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply for the purpose of
determining an Employee’s percentage ownership in the Company or any Parent or Subsidiary.
This paragraph shall be construed consistent with the requirements of Section 422 of the
Code.

     1.8 Types of Incentive Awards

     The types of Incentive Awards that may be granted under the Plan are Stock Options as
described in Section 2, Restricted Stock as described in Section 3, Other
Stock-Based Awards and Performance Awards as described in Section 4, or any combination of
the foregoing.

     1.9 Other Compensation Programs

     The existence and terms of the Plan shall not limit the authority of the Board or the Company
or any Company affiliate in compensating Outside Directors, Employees or Consultants in such other
forms and amounts, including compensation pursuant to any other plans or programs (including but
not limited to any bonus programs) as may be currently in effect or adopted in the future, as it
may determine from time to time.

SECTION 2

STOCK OPTIONS

     2.1 Grant of Stock Options

     The Committee is authorized to grant (a) Nonstatutory Stock Options to Employees, Consultants
and/or Outside Directors and (b) Incentive Stock Options to Employees only, in accordance with the
terms and conditions of the Plan, and with such additional terms and conditions, not inconsistent
with the Plan, as the Committee shall determine in its discretion. Successive grants may be made
to the same Grantee whether or not any Stock Option previously granted to such person remains
unexercised.

     2.2 Stock Option Terms

     (a) Written Agreement. Each grant of a Stock Option shall be evidenced by a
written Incentive Agreement. Among its other provisions, each Incentive Agreement shall set
forth the extent to which the Grantee shall have the right to exercise the Stock Option
following termination of the Grantee’s Employment. Such provisions shall be determined in
the discretion of the Committee, shall be included in the Grantee’s Incentive Agreement and
need not be uniform among all Stock Options issued pursuant to the Plan.

     (b) Number of Shares. Each Stock Option shall specify the number of Shares to
which it pertains.

     (c) Exercise Price. The Option Price with respect to each Stock Option shall
be determined by the Committee; provided, however, that with respect to all Stock Options,
the Option Price shall not be less than one hundred percent (100%) of the Fair Market Value
per Share on the date the Stock Option is granted and with respect to

11

 

Incentive Stock Options, shall be one hundred ten percent (110%) for ten percent (10%)
or greater stockholders pursuant to Section 1.7(b). Each Stock Option shall specify
the method of exercise which shall be consistent with the requirements of Section
2.3(a).

     (d) Term. In the Incentive Agreement, the Committee shall fix the term of each
Stock Option (which shall be not more than ten (10) years from the date of grant; provided,
however, that the term shall be five (5) years for ISO grants to ten percent (10%) or
greater stockholders pursuant to Section 1.7(b)). In the event no term is fixed,
such term shall be ten (10) years from the date of grant.

     (e) Exercise. The Committee shall determine the time or times at which a Stock
Option may be exercised in whole or in part. Each Stock Option may specify the required
period of continuous Employment and/or the performance objectives to be achieved before the
Stock Option or portion thereof will become exercisable. Each Stock Option, the exercise of
which, or the timing of the exercise of which, is dependent, in whole or in part, on the
achievement of designated performance objectives, may specify a minimum level of achievement
in respect of the specified performance objectives below which no Stock Options will be
exercisable and a method for determining the number of Stock Options that will be
exercisable if performance is at or above such minimum but short of full achievement of the
performance objectives. All such terms and conditions shall be set forth in the Incentive
Agreement.

     (f) $100,000 Annual Limit on Incentive Stock Options. Notwithstanding any
contrary provision in the Plan, to the extent that the aggregate Fair Market Value
(determined as of the time the Incentive Stock Option is granted) of the Shares with respect
to which Incentive Stock Options are exercisable for the first time by any Grantee during
any single calendar year (under the Plan and any other equity-based incentive plans of the
Company and its Subsidiaries or Parent) exceeds the sum of $100,000, such Incentive Stock
Option shall be treated as a Nonstatutory Stock Option to the extent in excess of the
$100,000 limit, and not an Incentive Stock Option, but all other terms and provisions of
such Stock Option shall remain unchanged. This paragraph shall be applied by taking
Incentive Stock Options into account in the order in which they were granted and shall be
construed in accordance with Section 422(d) of the Code. In the absence of such regulations
or other authority, or if such regulations or other authority require or permit a
designation of the Options which shall cease to constitute Incentive Stock Options, then
such Incentive Stock Options, only to the extent of such excess, shall automatically be
deemed to be Nonstatutory Stock Options but all other terms and conditions of such Incentive
Stock Options, and the corresponding Incentive Agreement, shall remain unchanged.

     2.3 Stock Option Exercises

     (a) Method of Exercise and Payment. Stock Options shall be exercised by the
delivery of a signed written notice of exercise to the Company as of a date set by the
Company in advance of the effective date of the proposed exercise. The notice shall set
forth the number of Shares with respect to which the Option is to be exercised, accompanied
by full payment for the Shares.

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     The Option Price upon exercise of any Stock Option shall be payable to the Company in
full either: (i) in cash or its equivalent, or (ii) subject to prior approval by the
Committee in its discretion, by tendering previously acquired Shares having an aggregate
Fair Market Value at the time of exercise equal to the total Option Price (provided that the
Shares which are tendered must have been held by the Grantee for at least six (6) months
prior to their tender to satisfy the Option Price), or (iii) subject to prior approval by
the Committee in its discretion, by withholding Shares which otherwise would be acquired on
exercise having an aggregate Fair Market Value at the time of exercise equal to the total
Option Price, or (iv) subject to prior approval by the Committee in its discretion, by a
combination of (i), (ii), and (iii) above. Any payment in Shares shall be effected by the
surrender of such Shares to the Company in good form for transfer and shall be valued at
their Fair Market Value on the date when the Stock Option is exercised. Unless otherwise
permitted by the Committee in its discretion, the Grantee shall not surrender, or attest to
the ownership of, Shares in payment of the Option Price if such action would cause the
Company to recognize compensation expense (or additional compensation expense) with respect
to the Stock Option for financial reporting purposes.

     The Committee, in its discretion, also may allow the Option Price to be paid with such
other consideration as shall constitute lawful consideration for the issuance of Shares
(including, without limitation, effecting a “cashless exercise” with a broker of the
Option), subject to applicable securities law restrictions and tax withholdings, or by any
other means which the Committee determines to be consistent with the Plan’s purpose and
applicable law. A “cashless exercise” of an Option is a procedure by which a broker
provides the funds to the Grantee to effect an Option exercise, to the extent consented to
by the Committee in its discretion. At the direction of the Grantee, the broker will either
(i) sell all of the Shares received when the Option is exercised and pay the Grantee the
proceeds of the sale (minus the Option Price, withholding taxes and any fees due to the
broker) or (ii) sell enough of the Shares received upon exercise of the Option to cover the
Option Price, minimum withholding taxes and any fees due the broker and deliver to the
Grantee (either directly or through the Company) a stock certificate for the remaining
Shares. Dispositions to a broker effecting a cashless exercise are not exempt under Section
16 of the Exchange Act (if the Company is a Publicly Held Corporation). In no event will
the Committee allow the Option Price to be paid with a form of consideration, including a
loan or a “cashless exercise,” if such form of consideration would violate the
Sarbanes-Oxley Act of 2002 as determined by the Committee in its discretion.

     The Committee, in its discretion, may also allow an Option to be exercised by a
broker-dealer acting on behalf of the Grantee if (i) the broker-dealer has received from the
Grantee a duly endorsed Incentive Agreement evidencing such Option and instructions signed
by the Grantee requesting the Company to deliver the Shares subject to such Option to the
broker-dealer on behalf of the Grantee and specifying the account into which such shares
should be deposited, (ii) adequate provision has been made with respect to the payment of
any withholding taxes due upon such exercise, and (iii) the broker-dealer and the Grantee
have otherwise complied with Section 220.3(e)(4) of Regulation T, 12 CFR Part 220 (or its
successor).

     As soon as practicable after receipt of a written notification of exercise and full
payment, the Company shall deliver, or cause to be delivered, to or on behalf of the

13

 

Grantee, in the name of the Grantee or other appropriate recipient, Share certificates
for the number of Shares purchased under the Stock Option. Such delivery shall be effected
for all purposes when the Company or a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to Grantee or other
appropriate recipient.

     Subject to Section 5.2, during the lifetime of a Grantee, each Option granted
to him shall be exercisable only by the Grantee (or his legal guardian in the event of his
Disability) or by a broker-dealer acting on his behalf pursuant to a cashless exercise under
the foregoing provisions of this Section 2.3(a).

     (b) Restrictions on Share Transferability. The Committee may impose such
restrictions on any grant of Stock Options or on any Shares acquired pursuant to the
exercise of a Stock Option as it may deem advisable, including, without limitation,
restrictions under (i) any buy/sell agreement or right of first refusal, non-competition,
and any other agreement between the Company and any of its securities holders or employees,
(ii) any applicable federal securities laws, (iii) the requirements of any stock exchange or
market upon which such Shares are then listed and/or traded, or (iv) any blue sky or state
securities law applicable to such Shares. Any certificate issued to evidence Shares issued
upon the exercise of an Incentive Award may bear such legends and statements as the
Committee shall deem advisable to assure compliance with federal and state laws and
regulations.

     Any Grantee or other person exercising an Incentive Award may be required by the
Committee to give a written representation that the Incentive Award and the Shares subject
to the Incentive Award will be acquired for investment and not with a view to public
distribution; provided, however, that the Committee, in its sole discretion, may release any
person receiving an Incentive Award from any such representations either prior to or
subsequent to the exercise of the Incentive Award.

     (c) Notification of Disqualifying Disposition of Shares from Incentive Stock
Options. Notwithstanding any other provision of the Plan, a Grantee who disposes of
Shares acquired upon the exercise of an Incentive Stock Option by a sale or exchange either
(i) within two (2) years after the date of the grant of the Incentive Stock Option under
which the Shares were acquired or (ii) within one (1) year after the transfer of such Shares
to him pursuant to exercise, shall promptly notify the Company of such disposition, the
amount realized and his adjusted basis in such Shares.

     (d) Proceeds of Option Exercise. The proceeds received by the Company from the
sale of Shares pursuant to Stock Options exercised under the Plan shall be used for general
corporate purposes.

     2.4 Supplemental Payment on Exercise of Nonstatutory Stock Options or SARs

     The Committee, either at the time of grant or as of the time of exercise of any Nonstatutory
Stock Option or SAR, may provide in the Incentive Agreement for a Supplemental Payment by the
Company to the Grantee with respect to the exercise of any Nonstatutory Stock Option or SAR. The
Supplemental Payment shall be in the amount specified by the Committee, which amount shall not
exceed the amount necessary to pay the federal, state and foreign income

14

 

tax payable with respect to both the exercise of the Nonstatutory Stock Option and/or SAR and
the receipt of the Supplemental Payment, assuming the holder is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed appropriate by the
Committee in its discretion. The Committee shall have the discretion to grant Supplemental Payments
that are payable solely in cash or Supplemental Payments that are payable in cash, Common Stock, or
a combination of both, as determined by the Committee at the time of payment.

SECTION 3

RESTRICTED STOCK

     3.1 Award of Restricted Stock

     (a) Grant. In consideration of the performance of Employment by any Grantee
who is an Employee, Consultant or Outside Director, Shares of Restricted Stock may be
awarded under the Plan by the Committee with such restrictions during the Restriction Period
as the Committee may designate in its discretion, any of which restrictions may differ with
respect to each particular Grantee. Restricted Stock shall be awarded for no additional
consideration or such additional consideration as the Committee may determine, which
consideration may be less than, equal to or more than the Fair Market Value of the shares of
Restricted Stock on the date of grant. The terms and conditions of each grant of Restricted
Stock shall be evidenced by an Incentive Agreement.

     (b) Immediate Transfer Without Immediate Delivery of Restricted Stock. Unless
otherwise specified in the Grantee’s Incentive Agreement, each Restricted Stock Award shall
constitute an immediate transfer of the record and beneficial ownership of the Shares of
Restricted Stock to the Grantee in consideration of the performance of services as an
Employee, Consultant or Outside Director, as applicable, entitling such Grantee to all
voting and other ownership rights in such Shares.

     As specified in the Incentive Agreement, a Restricted Stock Award may limit the
Grantee’s dividend rights during the Restriction Period in which the shares of Restricted
Stock are subject to a “substantial risk of forfeiture” (within the meaning given to such
term under Section 83 of the Code) and restrictions on transfer. In the Incentive
Agreement, the Committee may apply any restrictions to the dividends that the Committee
deems appropriate. Without limiting the generality of the preceding sentence, if the grant
or vesting of Shares of Restricted Stock is designed to comply with the requirements of the
Performance-Based Exception, the Committee may apply any restrictions it deems appropriate
to the payment of dividends declared with respect to such Shares of Restricted Stock, such
that the dividends and/or the Shares of Restricted Stock maintain eligibility for the
Performance-Based Exception. In the event that any dividend constitutes a derivative
security or an equity security pursuant to the rules under Section 16 of the Exchange Act,
if applicable, such dividend shall be subject to a vesting period equal to the remaining
vesting period of the Shares of Restricted Stock with respect to which the dividend is paid.

15

 

     Shares awarded pursuant to a grant of Restricted Stock may be (i) issued in the name of
the Grantee and held, together with a stock power endorsed in blank, by the Committee or
Company (or their delegates) or in trust or in escrow pursuant to an agreement satisfactory
to the Committee or (ii) issued in “book entry” form or other means of evidencing
uncertificated Shares, as determined by the Committee, until such time as the restrictions
on transfer have expired. All such terms and conditions shall be set forth in the
particular Grantee’s Incentive Agreement. The Company or Committee (or their delegates)
shall issue to the Grantee a receipt evidencing the certificates held by it which are
registered in the name of the Grantee.

     3.2 Restrictions

     (a) Forfeiture of Restricted Stock. Restricted Stock awarded to a Grantee may
be subject to the following restrictions until the expiration of the Restriction Period: (i)
a restriction that constitutes a “substantial risk of forfeiture” (as defined in Section 83
of the Code), or a restriction on transferability; (ii) unless otherwise specified by the
Committee in the Incentive Agreement, the Restricted Stock that is subject to restrictions
which are not satisfied shall be forfeited and all rights of the Grantee to such Shares
shall terminate; and (iii) any other restrictions that the Committee determines in advance
are appropriate, including, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Stock to a continuing substantial risk of
forfeiture in the hands of any transferee. Any such restrictions shall be set forth in the
particular Grantee’s Incentive Agreement.

     (b) Issuance of Certificates. Reasonably promptly after the date of grant with
respect to Shares of Restricted Stock, the Company shall cause to be issued a stock
certificate, registered in the name of the Grantee to whom such Shares of Restricted Stock
were granted, evidencing such Shares; provided, however, that the Company shall not cause to
be issued such a stock certificate unless it has received a stock power duly endorsed in
blank with respect to such Shares; provided, further, in lieu of issuing such a stock
certificate, the Committee may arrange to make “book entries” or other means of evidencing
uncertificated Shares of Restricted Stock. Each such stock certificate shall bear the
following legend or any other legend approved by the Company:

The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture and restrictions against transfer)
contained in the Encysive Pharmaceuticals Inc. 2007 Incentive Plan
and an Incentive Agreement entered into between the registered owner
of such shares and Encysive Pharmaceuticals Inc. A copy of the Plan
and Incentive Agreement are on file in the corporate offices of
Encysive Pharmaceuticals Inc.

Such legend shall not be removed from the certificate evidencing such Shares of Restricted
Stock until such Shares vest pursuant to the terms of the Incentive Agreement.

     (c) Removal of Restrictions. The Committee, in its discretion, shall have the
authority to remove any or all of the restrictions on the Restricted Stock if it determines

16

 

that, by reason of a change in applicable law or another change in circumstance arising
after the grant date of the Restricted Stock, such action is appropriate.

     3.3 Delivery of Shares

     Subject to withholding taxes under Section 6.3 and to the terms of the Incentive
Agreement, a stock certificate evidencing the Shares of Restricted Stock with respect to which the
restrictions in the Incentive Agreement have been satisfied shall be delivered to the Grantee or
other appropriate recipient free of restrictions. Such delivery shall be effected for all purposes
when the Company shall have deposited such certificate in the United States mail, addressed to the
Grantee or other appropriate recipient.

     3.4 Supplemental Payment on Vesting of Restricted Stock

     The Committee, either at the time of grant or vesting of Restricted Stock, may provide for a
Supplemental Payment by the Company to the Grantee in an amount specified by the Committee, which
amount shall not exceed the amount necessary to pay the federal, state and foreign income tax
payable with respect to both the vesting of the Restricted Stock and receipt of the Supplemental
Payment, assuming the Grantee is taxed at either the maximum effective income tax rate applicable
thereto or at a lower tax rate as deemed appropriate by the Committee in its discretion. The
Committee shall have the discretion to grant Supplemental Payments that are payable solely in cash
or Supplemental Payments that are payable in cash, Common Stock, or a combination of both, as
determined by the Committee at the time of payment.

SECTION 4

OTHER STOCK-BASED AWARDS

     4.1 Grant of Other Stock-Based Awards

     Other Stock-Based Awards may be awarded by the Committee to selected Grantees that are
denominated or payable in, valued in whole or in part by reference to, or otherwise related to,
Shares, as deemed by the Committee to be consistent with the purposes of the Plan and the goals of
the Company. Types of Other Stock-Based Awards include, without limitation, purchase rights,
SARs, Shares awarded which are not subject to any restrictions or conditions, convertible or
exchangeable debentures, other rights convertible into Shares or Restricted Stock, Phantom Units,
Restricted Stock units, Incentive Awards valued by reference to the value of securities of, or the
performance of, the Company or a specified Subsidiary, division or department, and settlement in
cancellation of rights of any person with a vested interest in any other plan, fund, program or
arrangement that is or was sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards may be awarded
either alone or in addition to or in tandem with any other Incentive Awards.

     4.2 Other Stock-Based Award Terms

     (a) Written Agreement. The terms and conditions of each grant of an Other
Stock-Based Award shall be evidenced by an Incentive Agreement.

17

 

     (b) Purchase Price. Except to the extent that an Other Stock-Based Award is
granted in substitution for an outstanding Incentive Award or is delivered upon exercise of
a Stock Option, the amount of consideration required to be received by the Company shall be
either (i) no consideration other than services actually rendered (in the case of authorized
and unissued shares) or to be rendered, or (ii) in the case of an Other Stock-Based Award in
the nature of a purchase right, consideration (other than services rendered or to be
rendered) at least equal to fifty percent (50%) of the Fair Market Value of the Shares
covered by such grant on the date of grant (or such percentage higher than fifty percent
(50%) that is required by any applicable tax or securities law). To the extent a SAR is
intended to be exempt from Section 409A of the Code or to the extent that the Company is a
Publicly Held Corporation and that a SAR is intended to qualify for the Performance-Based
Exception, the exercise price per Share shall not be less than one hundred percent (100%) of
Fair Market Value of a Share on the date of the grant of the SAR, and the SAR shall
otherwise comply with the requirements of Section 409A of the Code.

     (c) Performance Criteria and Other Terms. In its discretion, the Committee may
specify such criteria, periods or goals for vesting in Other Stock-Based Awards and payment
thereof to the Grantee as it shall determine; and the extent to which such criteria, periods
or goals have been met shall be determined by the Committee. All terms and conditions of
Other Stock-Based Awards shall be determined by the Committee and set forth in the Incentive
Agreement.

     (d) Payment. Other Stock-Based Awards may be paid in Shares or other
consideration related to such Shares, in a single payment or in installments on such dates
as determined by the Committee, all as specified in the Incentive Agreement.

     (e) Dividends. The Grantee of an Other Stock-Based Award shall not be entitled
to receive, currently or on a deferred basis, dividends or dividend equivalents with respect
to the number of Shares covered by the Other Stock-Based Award, unless (and to the extent)
otherwise as determined by the Committee and set forth in the Incentive Agreement. The
Committee may also provide in the Incentive Agreement that the amounts of any dividends or
dividend equivalent shall be deemed to have been reinvested in additional Shares.

     (f) Supplemental Payment. The Committee, either at the time of grant or at the
time of vesting of an Other Stock-Based Award, may provide for a Supplemental Payment by the
Company to the Grantee in an amount specified by the Committee, which amount shall not
exceed the amount necessary to pay the federal, state and foreign income tax payable with
respect to both the vesting the Incentive Award and receipt of the Supplemental Payment,
assuming the Grantee is taxed at either the maximum effective income tax rate applicable
thereto or at a lower tax rate as seemed appropriate by the Committee in its discretion. The
Committee shall have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the time of
payment.

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     4.3 Performance Awards

     (a) Grant. The Committee is authorized to grant Performance Awards to selected
Grantees. Performance Awards may be by reference to Performance Shares or Performance
Units. Each grant of Performance Awards shall be evidenced by an Incentive Agreement in
such amounts and upon such terms as shall be determined by the Committee. The Committee may
make grants of Performance Awards in such a manner that more than one Performance Period is
in progress concurrently. For each Performance Period, the Committee shall establish the
number of Performance Awards and their contingent values which may vary depending on the
degree to which performance criteria established by the Committee are met.

     (b) Performance Criteria. The Committee may establish performance goals
applicable to Performance Awards based upon criteria in one or more of the following
categories: (i) performance of the Company as a whole, (ii) performance of a segment of the
Company’s business, and (iii) individual performance. Performance criteria for the Company
shall relate to the achievement of predetermined financial, operational or strategic
objectives for the Company and its Subsidiaries. Performance criteria for a segment of the
Company’s business shall relate to the achievement of financial, operational or strategic
objectives of the segment for which the Grantee is accountable. Examples of performance
criteria shall include (but are not limited to) pre-tax or after-tax profit levels,
including: earnings per share, earnings before interest and taxes, earnings before interest,
taxes, depreciation and amortization, net operating profits after tax, and net income; total
stockholder return; return on assets, equity, capital or investment; cash flow and cash flow
return on investment; economic value added and economic profit; growth in earnings per
share; levels of operating expense and maintenance expense or measures of customer
satisfaction and customer service as determined from time to time including the relative
improvement therein. Individual performance criteria shall relate to a Grantee’s overall
performance, taking into account, among other measures of performance, the attainment of
individual goals and objectives. The performance goals may differ among Grantees.

     (c) Modification. If the Committee determines, in its discretion exercised in
good faith, that the established performance measures or objectives are no longer suitable
to the Company’s objectives because of a change in the Company’s business, operations,
corporate structure, capital structure, or other conditions the Committee deems to be
appropriate, the Committee may modify the performance measures and objectives to the extent
it considers such modification to be necessary, provided, however, that with respect to
Performance Awards intended to qualify for the Performance-Based Exception, the Committee
shall not permit any such modification that would cause the Performance Awards to fail to
qualify for the Performance-Based Exception.

     (d) Payment. The basis for payment of Performance Awards for a given
Performance Period shall be the achievement of those performance objectives determined by
the Committee at the beginning of the Performance Period as specified in the Grantee’s
Incentive Agreement. If minimum performance is not achieved for a Performance Period, no
payment shall be made and all contingent rights shall cease. If minimum performance is
achieved or exceeded, the number of Performance Awards may be based on the degree to which
actual performance exceeded the pre-established

19

 

minimum performance standards. The amount of payment shall be determined by multiplying
the number of Performance Awards granted at the beginning of the Performance Period times
the final Performance Award value. Payments shall be made, in the discretion of the
Committee as specified in the Incentive Agreement.

     (e) Special Rule for Performance-Based Exception. No later than the ninetieth
(90th) day following the beginning of a Performance Period (or twenty-five percent (25%) of
the Performance Period) the Committee shall establish performance goals as described in
Section 4.3 applicable to Performance Awards awarded to comply with the
Performance-Based Exception in such a manner as shall permit payments with respect thereto
to qualify for the Performance-Based Exception, if applicable. If a Performance Award
granted to a Grantee is intended to comply with the Performance-Based Exception, the
Committee in establishing performance goals shall comply with Treasury Regulation §
l.162-27(e)(2). As soon as practicable following the Company’s determination of the
Company’s financial results for any Performance Period, the Committee shall certify in
writing: (i) whether the Company achieved its minimum performance for the objectives for the
Performance Period, (ii) the extent to which the Company achieved its performance objectives
for the Performance Period, (iii) any other terms that are material to the grant of
Performance Awards, and (iv) the calculation of the payments, if any, to be paid to each
Grantee for the Performance Period.

     (f) Supplemental Payment on Vesting of Performance Units or Performance Shares.
The Committee, either at the time of grant or at the time of vesting of Performance Units
or Performance Shares, may provide for a Supplemental Payment by the Company to the Grantee
in an amount specified by the Committee, which amount shall not exceed the amount necessary
to pay the federal, state and foreign income tax payable with respect to both the vesting of
such Performance Units or Performance Shares and receipt of the Supplemental Payment,
assuming the Grantee is taxed at either the maximum effective income tax rate applicable
thereto or at a lower tax rate as seemed appropriate by the Committee in its discretion. The
Committee shall have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the time of
payment.

SECTION 5

PROVISIONS RELATING TO PLAN PARTICIPATION

     5.1 Plan Conditions

     (a) Incentive Agreement. Each Grantee to whom an Incentive Award is granted
shall be required to enter into an Incentive Agreement with the Company, in such a form as
is provided by the Committee. The Incentive Agreement shall contain specific terms as
determined by the Committee, in its discretion, with respect to the Grantee’s particular
Incentive Award. Such terms need not be uniform among all Grantees or any similarly
situated Grantees. The Incentive Agreement may include, without limitation, vesting,
forfeiture and other provisions particular to the particular Grantee’s Incentive Award, as
well as, for example, provisions to the effect that the Grantee (i) shall not disclose any
confidential information acquired during Employment with the Company,

20

 

(ii) shall abide by all the terms and conditions of the Plan and such other terms and
conditions as may be imposed by the Committee, (iii) shall not interfere with the Employment
or other service of any Employee, (iv) shall not compete with the Company or become involved
in a conflict of interest with the interests of the Company, (v) shall forfeit an Incentive
Award if terminated for Cause, (vi) shall not be permitted to make an election under Section
83(b) of the Code when applicable, and (vii) shall be subject to any other agreement between
the Grantee and the Company regarding Shares that may be acquired under an Incentive Award
including, without limitation, an agreement restricting the transferability of Shares by
Grantee. An Incentive Agreement shall include such terms and conditions as are determined
by the Committee, in its discretion, to be appropriate with respect to any individual
Grantee. The Incentive Agreement shall be signed by the Grantee to whom the Incentive Award
is made and by an Authorized Officer.

     (b) No Right to Employment. Nothing in the Plan or any instrument executed
pursuant to the Plan shall create any Employment rights (including without limitation,
rights to continued Employment) in any Grantee or affect the right of the Company to
terminate the Employment of any Grantee at any time without regard to the existence of the
Plan.

     (c) Securities Requirements. The Company shall be under no obligation to
effect the registration pursuant to the Securities Act of 1933 of any Shares to be issued
hereunder or to effect similar compliance under any state laws. Notwithstanding anything
herein to the contrary, the Company shall not be obligated to cause to be issued or
delivered any certificates evidencing Shares pursuant to the Plan unless and until the
Company is advised by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authorities, and the
requirements of any securities exchange on which Shares are traded. The Committee may
require, as a condition of the issuance and delivery of certificates evidencing Shares
pursuant to the terms hereof, that the recipient of such Shares make such covenants,
agreements and representations, and that such certificates bear such legends, as the
Committee, in its discretion, deems necessary or desirable.

     If the Shares issuable on exercise of an Incentive Award are not registered under the
Securities Act of 1933, the Company may imprint on the certificate for such Shares the
following legend or any other legend which counsel for the Company considers necessary or
advisable to comply with the Securities Act of 1933:

THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON
RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, THAT
REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.

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     5.2 Transferability and Exercisability

     Incentive Awards granted under the Plan shall not be transferable or assignable other
than: (a) by will or the laws of descent and distribution or (b) pursuant to a qualified
domestic relations order (as defined by Section 414(p) of the Code); provided, however, only
with respect to Incentive Awards of Nonstatutory Stock Options, the Committee may, in its
discretion, authorize all or a portion of the Nonstatutory Stock Options to be granted on
terms which permit transfer by the Grantee to (i) the members of the Grantee’s Immediate
Family, (ii) a trust or trusts for the exclusive benefit of such Immediate Family, or (iii)
a partnership in which such members of such Immediate Family are the only partners, provided
that (A) there may be no consideration for any such transfer, (B) the Incentive Agreement
pursuant to which such Nonstatutory Stock Options are granted must be approved by the
Committee, and must expressly provide for transferability in a manner consistent with this
Section 5.2, and (C) subsequent transfers of transferred Options shall be prohibited
except in accordance with clauses (a) and (b) (above) of this sentence. Following any
permitted transfer, any Incentive Award shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that the term
“Grantee” shall be deemed to refer to the transferee. The termination of Employment events
of Section 5.6 and in the Incentive Agreement shall continue to be applied with
respect to the original Grantee, and the Incentive Award shall be exercisable by the
transferee only to the extent, and for the periods, specified in the Incentive Agreement.

     Except as may otherwise be permitted under the Code, in the event of a permitted
transfer of a Nonstatutory Stock Option hereunder, the original Grantee shall remain subject
to withholding taxes upon exercise. In addition, the Company shall have no obligation to
provide any notices to a transferee including, for example, of the termination of an
Incentive Award following the original Grantee’s termination of Employment.

     In the event that a Grantee terminates Employment with the Company to assume a position
with a governmental, charitable, educational or other nonprofit institution, the Committee
may, in its discretion, subsequently authorize a third party, including but not limited to a
“blind” trust, to act on behalf of and for the benefit of such Grantee regarding any
outstanding Incentive Awards held by the Grantee subsequent to such termination of
Employment. If so permitted by the Committee, a Grantee may designate a beneficiary or
beneficiaries to exercise the rights of the Grantee and receive any distribution under the
Plan upon the death of the Grantee.

     No transfer by will or by the laws of descent and distribution shall be effective to
bind the Company unless the Committee has been furnished with a copy of the deceased
Grantee’s enforceable will or such other evidence as the Committee deems necessary to
establish the validity of the transfer. Any attempted transfer in violation of this
Section 5.2 shall be void and ineffective. All determinations under this
Section 5.2 shall be made by the Committee in its discretion.

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     5.3 Rights as a Stockholder

     (a) No Stockholder Rights. Except as otherwise provided in Section
3.1(b) for grants of Restricted Stock, a Grantee of an Incentive Award (or a permitted
transferee of such Grantee) shall have no rights as a stockholder with respect to any Shares
until the issuance of a stock certificate for such Shares.

     (b) Representation of Ownership. In the case of the exercise of an Incentive
Award by a person or estate acquiring the right to exercise such Incentive Award by reason
of the death or Disability of a Grantee, the Committee may require reasonable evidence as to
the ownership of such Incentive Award or the authority of such person and may require such
consents and releases of taxing authorities as the Committee may deem advisable.

     5.4 Listing and Registration of Shares

     The exercise of any Incentive Award granted hereunder shall only be effective at such time as
counsel to the Company shall have determined that the issuance and delivery of Shares pursuant to
such exercise is in compliance with all applicable laws, regulations of governmental authorities
and the requirements of any securities exchange on which Shares are traded. The Committee may, in
its discretion, defer the effectiveness of any exercise of an Incentive Award in order to allow the
issuance of Shares to be made pursuant to a registration statement, or an exemption from
registration, or other methods for compliance available under federal or state securities laws.
The Committee shall inform the Grantee in writing of its decision to defer the effectiveness of the
exercise of an Incentive Award. During the period that the effectiveness of the exercise of an
Incentive Award has been deferred, the Grantee may, by written notice to the Committee, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.

     5.5 Change in Stock and Adjustments

     (a) Changes in Law or Circumstances. Subject to Section 5.7 (which
only applies in the event of a Change in Control), in the event of any change in applicable
law or any change in circumstances which results in or would result in any dilution of the
rights granted under the Plan, or which otherwise warrants an equitable adjustment because
it interferes with the intended operation of the Plan, then, if the Committee should so
determine, in its absolute discretion, that such change equitably requires an adjustment in
the number or kind of shares of stock or other securities or property theretofore subject,
or which may become subject, to issuance or transfer under the Plan or in the terms and
conditions of outstanding Incentive Awards, such adjustment shall be made in accordance with
such determination. Such adjustments may include changes with respect to (i) the aggregate
number of Shares that may be issued under the Plan, (ii) the number of Shares subject to
Incentive Awards, and (iii) the Option Price or other price per Share for outstanding
Incentive Awards. Any adjustment under this paragraph of an outstanding Incentive Stock
Option shall be made only to the extent not constituting a “modification” within the meaning
of Section 424(h)(3) of the Code or Section 409A of the Code unless otherwise agreed to by
the Grantee in writing. The Committee shall give notice to each applicable Grantee of such
adjustment which shall be effective and binding.

23

 

     (b) Exercise of Corporate Powers. The existence of the Plan or outstanding
Incentive Awards hereunder shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments, recapitalization,
reorganization or other changes in the Company’s capital structure or its business or any
merger or consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding whether of a similar character
or otherwise.

     (c) Recapitalization of the Company. Subject to Section 5.7 (which
only applies in the event of a Change in Control), if while there are Incentive Awards
outstanding, the Company shall effect any subdivision or consolidation of Shares or other
capital readjustment, the payment of a stock dividend, stock split, combination of Shares,
recapitalization or other increase or reduction in the number of Shares outstanding, without
receiving compensation therefor in money, services or property, then the number of Shares
available under the Plan and the number of Incentive Awards which may thereafter be
exercised shall (i) in the event of an increase in the number of Shares outstanding, be
proportionately increased and the Option Price or Fair Market Value of the Incentive Awards
awarded shall be proportionately reduced; and (ii) in the event of a reduction in the number
of Shares outstanding, be proportionately reduced, and the Option Price or Fair Market Value
of the Incentive Awards awarded shall be proportionately increased. The Committee shall
take such action and whatever other action it deems appropriate, in its discretion, so that
the value of each outstanding Incentive Award to the Grantee shall not be adversely affected
by a corporate event described in this subsection (c).

     (d) Reorganization of the Company. Subject to Section 5.7, if the
Company is reorganized, merged or consolidated, or is a party to a plan of exchange with
another corporation, pursuant to which reorganization, merger, consolidation or exchange,
stockholders of the Company receive any Shares or other securities or property, or if the
Company should distribute securities of another corporation to its stockholders, each
Grantee shall be entitled to receive, in lieu of the number of unexercised Incentive Awards
previously awarded, the number of Stock Options, Restricted Stock shares, or Other
Stock-Based Awards, with a corresponding adjustment to the Option Price or Fair Market Value
of said Incentive Awards, to which he would have been entitled if, immediately prior to such
corporate action, such Grantee had been the holder of record of a number of Shares equal to
the number of the outstanding Incentive Awards payable in Shares that were previously
awarded to him. For this purpose, Shares of Restricted Stock shall be treated the same as
unrestricted outstanding Shares. In this regard, the Committee shall take whatever other
action it deems appropriate to preserve the rights of Grantees holding outstanding Incentive
Awards.

     (e) Issue of Common Stock by the Company. Except as hereinabove expressly
provided in this Section 5.5 and subject to Section 5.7 in the event of a
Change in Control, the issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or

24

 

upon any conversion of shares or obligations of the Company convertible into such
            shares or other securities, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or Option Price or Fair Market Value of, any Incentive
Awards then outstanding under previously granted Incentive Awards; provided, however, in
such event, outstanding Shares of Restricted Stock shall be treated the same as outstanding
unrestricted Shares.

     (f) Acquisition of the Company. Subject to Section 5.7 (which only
applies in the event of a Change in Control), in the case of any sale of assets, merger,
consolidation or combination of the Company with or into another corporation other than a
transaction in which the Company is the continuing or surviving corporation and which does
not result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof (an “Acquisition”), in the
discretion of the Committee, any Grantee who holds an outstanding Incentive Award shall have
the right (subject to any limitation applicable to the particular Incentive Award under the
Plan) to receive upon exercise thereof the Acquisition Consideration (as defined below)
receivable upon the Acquisition by a holder of the number of Shares which would have been
obtained upon exercise of the Incentive Award immediately prior to the Acquisition. The
term “Acquisition Consideration” shall mean the kind and amount of shares of the surviving
or new corporation, cash, securities, evidence of indebtedness, other property or any
combination thereof receivable in respect of one Share upon consummation of an Acquisition.
The Committee, in its discretion, shall have the authority to take whatever action it deems
appropriate to effectuate the provisions of this subsection (f).

     (g) Assumption under the Plan of Outstanding Stock Options. Notwithstanding
any other provision of the Plan, the Committee, in its absolute discretion, may authorize
the assumption and continuation under the Plan of outstanding and unexercised stock options
or other types of stock-based incentive awards that were granted under a stock option plan
(or other type of stock incentive plan or agreement) that is or was maintained by a
corporation or other entity that was merged into, consolidated with, or whose stock or
assets were acquired by, the Company as the surviving corporation. Any such action shall be
upon such terms and conditions as the Committee, in its discretion, may deem appropriate,
including provisions to preserve the holder’s rights under the previously granted and
unexercised stock option or other stock-based incentive award, such as, for example,
retaining an existing exercise price under an outstanding stock option. Any such assumption
and continuation of any such previously granted and unexercised incentive award shall be
treated as an outstanding Incentive Award under the Plan and shall thus count against the
number of Shares reserved for issuance pursuant to Section 1.4. In addition, any
Shares issued by the Company through the assumption or substitution of outstanding grants
from an acquired company shall reduce the Shares available for grants under Section
1.4.

     (h) Assumption of Incentive Awards by a Successor. Subject to Section
5.7 and unless otherwise expressly provided in the Grantee’s Incentive Agreement,
notwithstanding any other provision hereof, in the event of a dissolution or liquidation of
the Company, a sale of all or substantially all of the Company’s assets, a merger or
consolidation involving the Company in which the Company is not the surviving

25

 

corporation, or a merger or consolidation involving the Company in which the Company is
the surviving corporation but the holders of Shares receive securities of another
corporation and/or other property, including cash, the Committee shall, in its discretion,
have the right and power to:

     (i) cancel, effective immediately prior to the occurrence of such corporate
event, each outstanding Incentive Award (whether or not then exercisable), and, in
full consideration of such cancellation, pay to the Grantee to whom such Incentive
Award was granted an amount in cash equal to the excess of (A) the highest value, as
determined by the Committee, in its discretion, of the property (including cash)
received by the holder of a Share of Common Stock as a result of such event over (B)
the exercise price of such Incentive Award, if any; or

     (ii) (A) provide for the exchange of each Incentive Award outstanding
immediately prior to such corporate event (whether or not then exercisable) for an
award on some or all of the property for which such Incentive Award is exchanged
and, incident thereto, make an equitable adjustment as determined by the Committee,
in its discretion, in the exercise price of the award, if any, or the number of
            shares or amount of property (including cash) subject to the Incentive Award or (B)
provide for a cash settlement payment to the Grantee in consideration for the
exchange or cancellation of the Incentive Award hereunder.

The Committee, in its discretion, shall have the authority to take whatever action it deems
appropriate to effectuate the provisions of this subsection (h).

     5.6 Termination of Employment, Death, Disability and Retirement

     (a) Termination of Employment. Unless otherwise expressly provided in the
Grantee’s Incentive Agreement, if the Grantee’s Employment is terminated for any reason
other than due to his death, Disability, Retirement or for Cause, any non-vested portion of
any Stock Option or other applicable Incentive Award at the time of such termination shall
automatically expire and terminate and no further vesting shall occur after the termination
date. In such event, except as otherwise expressly provided in his Incentive Agreement, the
Grantee shall be entitled to exercise his rights only with respect to the portion of the
Incentive Award that was vested as of the termination date for a period that shall end on
the earlier of (i) the expiration date set forth in the Incentive Agreement with respect to
the vested portion of such Incentive Award or (ii) the date that occurs ninety (90) calendar
days after his termination date (not to exceed three (3) months in the case of an ISO).
Unless otherwise expressly provided in his Incentive Agreement, a Grantee’s Employment shall
not be deemed to have been terminated if a Grantee who is an Employee becomes a Consultant
or Outside Director immediately upon his termination of Employment with the Company, or if a
Grantee’s status otherwise changes between or among Employee, Consultant or Outside Director
without a gap in service for the Company in any such capacity. All determinations regarding
whether and when there has been a termination of Employment shall be made by the Committee.

     (b) Termination of Employment for Cause. Unless otherwise expressly provided
in the Grantee’s Incentive Agreement, in the event of the termination of a

26

 

Grantee’s Employment for Cause, all vested and non-vested Stock Options and other
Incentive Awards granted to such Grantee shall immediately expire, and shall not be
exercisable to any extent, as of 12:01 a.m. (CST) on the date of such termination of
Employment.

     (c) Retirement of Employee. Unless otherwise expressly provided in the
Grantee’s Incentive Agreement, upon the Retirement of any Employee who is a Grantee:

     (i) (A) for Employees with less than five (5) years of service with the
Company, any non-vested portion of any outstanding Option or other Incentive Award
shall immediately terminate and no further vesting shall occur; (B) for Employees
with at least five (5) years but less than ten (10) years of service with the
Company, (1) any non-vested portion of any outstanding Option that would have vested
in the next twelve (12) months following the date of Retirement shall become one
hundred percent (100%) vested and immediately and fully exercisable, (2) any
Resticted Stock for which restrictions or conditions have not been satisfied and for
which restrictions or conditions would have been deemed satisfied in the next twelve
(12) months following the date of Retirement shall be deemed satisfied, and the
Restiction Period thereto shall be deemed to have expired and (3) any other
Incentive Award shall immediately terminate and no further vesting shall occur; and
(C) for Employees with at least ten (10) years of service with the Company, (1) any
non-vested portion of any outstanding Option shall become one hundred percent (100%)
vested and immediately and fully exercisable, (2) any Resticted Stock for which
restrictions or conditions have not been satisfied shall be deemed satisfied, and
the Restiction Period thereto shall be deemed to have expired and (3) any other
Incentive Award shall immediately terminate and no further vesting shall occur; and

     (ii) any vested Option or other Incentive Award shall expire on the earlier of
(A) the expiration date set forth in the Incentive Agreement for such Incentive
Award; or (B) the expiration of six (6) months after the date of Retirement in the
case of any Incentive Award, provided, however, that with respect to an ISO, if it
is not exercised within three (3) months after Retirement, it will not be treated as
an ISO but will be treated as a Nonstatutory Stock Option.

     (d) Retirement of Outside Director. Unless otherwise expressly provided in the
Grantee’s Incentive Agreement, upon the Retirement of any Outside Director who is a Grantee:

     (i) (A) for Outside Directors with less than five (5) years of service with the
Company, any non-vested portion of any outstanding Option or other Incentive Award
shall immediately terminate and no further vesting shall occur; (B) for Outside
Directors with at least five (5) years but less than ten (10) years of service with
the Company, (1) any non-vested portion of any outstanding Option that would have
vested in the next twelve (12) months following the date of Retirement shall become
one hundred percent (100%) vested and immediately and fully exercisable, (2) any
Resticted Stock for which restrictions or conditions have not been satisfied and for
which restrictions or conditions would have been deemed satisfied in the next twelve
(12) months following the date of Retirement

27

 

shall be deemed satisfied, and the Restiction Period thereto shall be deemed to
have expired and (3) any other Incentive Award shall immediately terminate and no
further vesting shall occur; and (C) for Outside Directors with at least ten (10)
years of service with the Company, (1) any non-vested portion of any outstanding
Option shall become one hundred percent (100%) vested and immediately and fully
exercisable, (2) any Resticted Stock for which restrictions or conditions have not
been satisfied shall be deemed satisfied, and the Restiction Period thereto shall be
deemed to have expired and (3) any other Incentive Award shall immediately terminate
and no further vesting shall occur; and

     (ii) any vested Option or other Incentive Award shall expire on the earlier of
(A) the expiration date set forth in the Incentive Agreement for such Incentive
Award; or (B) the expiration of six (6) months after the date of Retirement in the
case of any Incentive Award.

     (e) Disability or Death. Unless otherwise expressly provided in the Grantee’s
Incentive Agreement, upon termination of Employment as a result of the Grantee’s Disability
or death:

     (i) any nonvested portion of any outstanding Option or other applicable
Incentive Award shall immediately terminate upon termination of Employment and no
further vesting shall occur; and

     (ii) any vested Incentive Award shall expire on the earlier of either (A) the
expiration date set forth in the Incentive Agreement or (B) the one (1) year
anniversary date of the Grantee’s termination of Employment date.

     In the case of any vested Incentive Stock Option held by an Employee following
termination of Employment, notwithstanding the definition of “Disability” in Section
1.2, whether the Employee has incurred a “Disability” for purposes of determining the
length of the Option exercise period following termination of Employment under this
paragraph (d) shall be determined by reference to Section 22(e)(3) of the Code to the extent
required by Section 422(c)(6) of the Code. The Committee shall determine whether a
Disability for purposes of this subsection (d) has occurred.

     (f) Continuation. Subject to the conditions and limitations of the Plan and
applicable law and regulation in the event that a Grantee ceases to be an Employee, Outside
Director or Consultant, as applicable, for whatever reason, the Committee and Grantee may
mutually agree with respect to any outstanding Option or other Incentive Award then held by
the Grantee (i) for an acceleration or other adjustment in any vesting schedule applicable
to the Incentive Award, (ii) for a continuation of the exercise period following termination
for a longer period than is otherwise provided under such Incentive Award, or (iii) to any
other change in the terms and conditions of the Incentive Award. In the event of any such
change to an outstanding Incentive Award, a written amendment to the Grantee’s Incentive
Agreement shall be required.

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     5.7 Change in Control

     Notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as
defined below) the following actions shall automatically occur as of the day immediately preceding
the Change in Control date unless expressly provided otherwise in the Grantee’s Incentive
Agreement:

     (a) all of the Stock Options then outstanding shall become one hundred percent (100%)
vested and immediately and fully exercisable;

     (b) all of the restrictions and conditions of any Restricted Stock and any Other
Stock-Based Awards then outstanding shall be deemed satisfied, and the Restriction Period
with respect thereto shall be deemed to have expired; and

     (c) all of the Other Stock-Based Awards shall become fully vested, deemed earned in
full, and promptly paid within thirty (30) days to the affected Grantees without regard to
payment schedules and notwithstanding that the applicable performance cycle, retention cycle
or other restrictions and conditions have not been completed or satisfied.

     Notwithstanding any other provision of the Plan, unless otherwise expressly provided in the
Grantee’s Incentive Agreement, the provisions of this Section 5.7 may not be terminated,
amended, or modified to adversely affect any Incentive Award theretofore granted under the Plan
without the prior written consent of the Grantee with respect to his outstanding Incentive Awards
subject, however, to the last paragraph of this Section 5.7.

     (d) Unless otherwise specifically provided in a Grantee’s Incentive Agreement, for all
purposes of this Plan, a “Change in Control” of the Company shall be deemed to occur if:

     (i) There is an acquisition by a “person” as such term is used in Sections
13(d) and 14(d) of the Exchange Act (a “Person”) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or
more of the total voting power of all the Company’s then outstanding securities
entitled to vote generally in the election of directors to the Board; provided,
however, that for purposes of this subsection (i), the following acquisitions shall
not constitute a Change in Control: (1) any acquisition by the Company or its Parent
or Subsidiaries, (2) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or its Parent or Subsidiaries, or (3) any
acquisition consummated with the prior approval of the Board;

     (ii) During a period of two consecutive calendar years, individuals who at the
beginning of such period constitute the Board, and any new director(s) whose
election by the Board or nomination for election by the Company’s stockholders was
approved by a vote of at least two-thirds of the directors then still in office, who
either were directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority of the Board;

29

 

     (iii) The Company becomes a party to a merger, plan of reorganization,
consolidation or share exchange in which either (1) the Company will not be the
surviving corporation or (2) the Company will be the surviving corporation and any
outstanding shares of the Company’s common stock will be converted into shares of
any other company (other than a reincorporation or the establishment of a holding
company involving no change of ownership of the Company) or other securities, cash
or other property (excluding payments made solely for fractional shares);

     (iv) The stockholders of the Company approve a merger, plan of reorganization,
consolidation or share exchange with any other corporation, and immediately
following such merger, plan of reorganization, consolidation or share exchange the
holders of the voting securities of the Company outstanding immediately prior
thereto hold securities representing fifty percent (50%) or less of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger, plan of reorganization, consolidation or
share exchange; provided, however, that notwithstanding the foregoing, no Change in
Control shall be deemed to have occurred if one-half (1/2) or more of the members of
the Board of the Company or such surviving entity immediately after such merger,
plan of reorganization. consolidation or share exchange is comprised of persons who
served as directors of the Company immediately prior to such merger, plan of
reorganization. consolidation or share exchange or who are otherwise designees of
the Company;

     (v) Upon approval by the Company’s stockholders of a complete liquidation and
dissolution of the Company or the sale or other disposition of all or substantially
all of the assets of the Company other than to a Parent or Subsidiary; or

     (vi) Any other event that a majority of the Board, in its sole discretion,
shall determine constitutes a Change in Control hereunder.

     Notwithstanding the occurrence of any of the foregoing events of this Section 5.7
which would otherwise result in a Change in Control, the Board may determine in its discretion, if
it deems it to be in the best interest of the Company, that an event or events otherwise
constituting a Change in Control shall not be deemed a Change in Control hereunder. Such
determination shall be effective only if it is made by the Board prior to the occurrence of an
event that otherwise would be a Change in Control, or after such event if made by the Board a
majority of which is composed of directors who were members of the Board immediately prior to the
event that otherwise would be or probably would lead to a Change in Control.

     5.8 Financing

     To the extent permitted by the Sarbanes-Oxley Act of 2002 or other applicable law, the Company
may extend and maintain, or arrange for and guarantee, the extension and maintenance of financing
to any Grantee to purchase Shares pursuant to exercise of an Incentive Award upon such terms as are
approved by the Committee and the Board in their discretion.

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SECTION 6

GENERAL

     6.1 Effective Date and Grant Period

     This Plan is adopted by the Board effective as of the Effective Date subject to the approval
of the stockholders of the Company within twelve (12) months from the Effective Date. Incentive
Awards may be granted under the Plan at any time prior to receipt of such stockholder approval;
provided, however, if the requisite stockholder approval is not obtained within the permissible
time frame, then the Plan and any Incentive Awards granted hereunder shall automatically become
null and void and of no force or effect. Unless sooner terminated by the Board pursuant to
Section 6.7, no Incentive Award shall be granted under the Plan after ten (10) years from
the Effective Date.

     6.2 Funding and Liability of Company

     No provision of the Plan shall require the Company, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust or other entity to
which contributions are made, or otherwise to segregate any assets. In addition, the Company shall
not be required to maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for purposes of the Plan.
Although bookkeeping accounts may be established with respect to Grantees who are entitled to cash,
Common Stock or rights thereto under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. The Company shall not be required to segregate any assets that may at any
time be represented by cash, Common Stock or rights thereto. The Plan shall not be construed as
providing for such segregation, nor shall the Company, the Board or the Committee be deemed to be a
trustee of any cash, Common Stock or rights thereto. Any liability or obligation of the Company to
any Grantee with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no such liability or
obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company, the Board nor the Committee shall be required to
give any security or bond for the performance of any obligation that may be created by the Plan.

     6.3 Withholding Taxes

     (a) Tax Withholding. The Company shall have the power and the right to deduct
or withhold, or require a Grantee to remit to the Company, an amount sufficient to satisfy
federal, state, and local taxes, domestic or foreign, required by law or regulation to be
withheld with respect to any taxable event arising as a result of the Plan or an Incentive
Award hereunder.

     (b) Share Withholding. With respect to tax withholding required upon the
exercise of Stock Options, upon the lapse of restrictions on Restricted Stock, or upon any
other taxable event arising as a result of any Incentive Awards, Grantees may elect, subject
to the approval of the Committee in its discretion, to satisfy the withholding requirement,
in whole or in part, by having the Company withhold Shares having a Fair Market Value on the
date the tax is to be determined equal to the minimum statutory total

31

 

tax which could be imposed on the transaction. All such elections shall be made in
writing, signed by the Grantee, and shall be subject to any restrictions or limitations that
the Committee, in its discretion, deems appropriate. Any fraction of a Share required to
satisfy such obligation shall be disregarded and the amount due shall instead be paid in
cash by the Grantee.

     (c) Incentive Stock Options. With respect to Shares received by a Grantee
pursuant to the exercise of an Incentive Stock Option, if such Grantee disposes of any such
Shares within (i) two (2) years from the date of grant of such Option or (ii) one (1) year
after the transfer of such shares to the Grantee, the Company shall have the right to
withhold from any salary, wages or other compensation payable by the Company to the Grantee
an amount sufficient to satisfy federal, state and local tax withholding requirements
attributable to such disqualifying disposition.

     6.4 No Guarantee of Tax Consequences

     Neither the Company nor the Committee makes any commitment or guarantee that any federal,
state or local tax treatment will apply or be available to any person participating or eligible to
participate hereunder.

     6.5 Designation of Beneficiary by Grantee

     Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid in case of his death
before he receives any or all of such benefit. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Grantee in writing with the Committee during the Grantee’s
lifetime. In the absence of any such designation, benefits remaining unpaid at the Grantee’s death
shall be paid to the Grantee’s estate.

     6.6 Deferrals

     The Committee may permit a Grantee to defer such Grantee’s receipt of the payment of cash or
the delivery of Shares that would, otherwise be due to such Grantee by virtue of the lapse or
waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or
goals with respect to Other Stock-Based Awards. If any such deferral election is permitted, the
Committee shall, in its discretion, establish rules and procedures for such payment deferrals to
the extent consistent with the Code.

     6.7 Amendment and Termination

     The Board shall have complete power and authority to terminate or amend the Plan at any time;
provided, however, if the Company is a Publicly Held Corporation, the Board shall not, without the
approval of the stockholders of the Company within the time period required by applicable law, (a)
except as provided in Section 5.5, increase the maximum number of Shares which may be
issued under the Plan pursuant to Section 1.4, (b) amend the requirements as to the class
of Employees eligible under the Plan, (c) to the extent applicable, increase the maximum limits on
Incentive Awards to Employees as set for compliance with the Performance-Based

32

 

Exception, (d) extend the term of the Plan, or (e) to the extent applicable, decrease the
authority granted to the Committee under the Plan in contravention of Rule 16b-3 under the Exchange
Act.

     No termination, amendment, or modification of the Plan shall adversely affect in any material
way any outstanding Incentive Award previously granted to a Grantee under the Plan, without the
written consent of such Grantee or other designated holder of such Incentive Award.

     In addition, to the extent that the Committee determines that (a) the listing for
qualification requirements of any national securities exchange or quotation system on which the
Common Stock is then listed or quoted, if applicable, or (b) the Code (or regulations promulgated
thereunder), require stockholder approval in order to maintain compliance with such listing
requirements or to maintain any favorable tax advantages or qualifications, then the Plan shall not
be amended in such respect without approval of the Company’s stockholders.

     6.8 Requirements of Law

     The granting of Incentive Awards and the issuance of Shares under the Plan shall be subject to
all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required. The Committee may refuse to issue or transfer
any Shares or other consideration under an Incentive Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or other consideration might violate
applicable laws. Certificates evidencing Shares delivered under this Plan (to the extent that such
shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the rules and regulations of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which the Common Stock is
then listed or to which it is admitted for quotation, and any applicable federal or state
securities law, if applicable. The Committee may cause a legend or legends to be placed upon such
certificates (if any) to make appropriate reference to such restrictions.

     6.9 Rule 16b-3 Securities Law Compliance and Compliance with Company Policies

     With respect to Insiders to the extent applicable, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 under the Exchange Act. With respect to all
Grantees, transactions under the Plan are intended to comply with Securities Regulation BTR and the
Company’s insider trading policies as revised from time to time or such other similar Company
policies, including but not limited to, policies relating to black out periods. Any ambiguities or
inconsistencies in the construction of an Incentive Award or the Plan shall be interpreted to give
effect to such intention. However, to the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void to the extent deemed advisable by
the Committee in its discretion.

     6.10 Compliance with Section 162(m) of the Code

     While the Company is a Publicly Held Corporation, unless otherwise determined by the Committee
with respect to any particular Incentive Award, it is intended that the Plan shall comply fully
with the applicable requirements so that any Incentive Awards subject to Section 162(m) shall
qualify for the Performance-Based Exception. If any provision of the Plan or an

33

 

Incentive Agreement would disqualify the Plan or would not otherwise permit the Plan or
Incentive Award to comply with the Performance-Based Exception as so intended, such provision shall
be construed or deemed to be amended to conform to the requirements of the Performance-Based
Exception to the extent permitted by applicable law and deemed advisable by the Committee.

     6.11 Successors

     All obligations of the Company under the Plan with respect to Incentive Awards granted
hereunder shall be binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.

     6.12 Miscellaneous Provisions

     (a) No Employee, Consultant, Outside Director, or other person shall have any claim or
right to be granted an Incentive Award under the Plan. Neither the Plan, nor any action
taken hereunder, shall be construed as giving any Employee, Consultant, Outside Director, or
other person any right to be retained in the Employment or other service of the Company or
any Parent or Subsidiary.

     (b) No Shares shall be issued hereunder unless counsel for the Company is then
reasonably satisfied that such issuance will be in compliance with federal and state
securities laws, if applicable.

     (c) The expenses of the Plan shall be borne by the Company.

     (d) By accepting any Incentive Award, each Grantee and each person claiming by or
through him shall be deemed to have indicated his acceptance of the Plan.

     6.13 Severability

     In the event that any provision of this Plan shall be held illegal, invalid or unenforceable
for any reason, such provision shall be fully severable, but shall not affect the remaining
provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.

     6.14 Gender, Tense and Headings

     Whenever the context so requires, words of the masculine gender used herein shall include the
feminine and neuter, and words used in the singular shall include the plural. Section headings as
used herein are inserted solely for convenience and reference and constitute no part of the
interpretation or construction of the Plan.

     6.15 Governing Law

     The Plan shall be interpreted, construed and constructed in accordance with the laws of the
State of Texas without regard to its conflicts of law provisions, except as may be superseded by
applicable laws of the United States.

34

 

     6.16 Section 409A of the Code

     To the extent that any Incentive Award is subject to or exempt from Section 409A of the Code,
as determined by the Committee, the Incentive Agreement shall comply with the requirements of
Section 409A of the Code in a manner as determined by the Committee in its sole discretion
including, but not limited to, using the more restrictive definition of Change in Control to comply
with Section 409A of the Code and using the more restrictive definition of Disability as provided
in Section 409A of the Code, and the other terms and conditions of an Incentive Award subject to
Section 409A of the Code shall be interpreted and construed, and shall be deemed amended to comply
with Section 409A of the Code or if it is intended to be exempt, then to be exempt from Section
409A of the Code, as applicable. The Committee may amend any Incentive Award to comply with or to
be exempt from Section 409A of the Code without a Grantee’s consent even if such amendment would
have an adverse affect on a Grantee’s Incentive Award.

[Signature Page Follows]

35

 

     IN WITNESS WHEREOF, Encysive Pharmaceuticals Inc. has caused this Plan to be duly executed in
its name and on its behalf by its duly authorized officer.

	 	 	 	 	 	 	 
	 	 	ENCYSIVE PHARMACEUTICALS INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Bruce D. Given, M.D.	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Bruce D. Given, M.D.	 	 
	 

	 	Title:
	 	President and Chief Executive Officer	 	 
	 
	 

	 	Date:
	 	April 27, 2007	 	 

36exv10w1

 

Exhibit 10.1

Quanta Services, Inc.

Term Sheet

Annual Incentive Plan 2007 – Operating Units

	 	 	 	 	 
	Participants	 	Employees will be selected to participate in the
Annual Incentive plan annually at the discretion
of the CEO with the approval of the Compensation
Committee.
	 
	 	 	 	 
	Target Incentive

	 	§
	 	Target incentive ranges have been or will
be developed for each participant in the Plan.
	 

	 	§
	 	Management will make recommendations to
the Compensation Committee regarding the target
incentive for each participant based on a
competitive range.
	 
	 	 	 	 
	Performance Measures

	 	§
	 	The Annual Incentive for each Operating
Unit will be based on an operating income target
to be approved by the Compensation Committee
annually.
	 

	 	§
	 	For purposes of the plan, operating income
will be defined as operating income before
goodwill, plus/minus insurance true-up, plus/minus
intercompany interest income or expense, less
external interest expense, and excluding gains or
losses on sales of property and equipment.
	 

	 	§
	 	There will be no discretionary portion for
the annual incentive.
	 
	 	 	 	 
	Incentive Determination
	 	 	 	 

	 	 	 	 
	 	Percentage of Target /	 	Incentive as a % of
	 	Objective Obtained 	 	Target Incentive
	 	Less than 75%	 	0%
	 	75%	 	25%
	 	80%	 	40%
	 	85%	 	55%
	 	90%	 	70%
	 	95%	 	85%
	 	100%	 	100%
	 	150%	 	150%
	 	200% or greater	 	200%

	 	 	 	 	 
	 

	 	§
	 	Subject to the limitations described
below, the amount of incentive will be determined
based on the table above.
	 

	 	§
	 	The salary to be used in the incentive
calculation will be the base salary in effect on
the December 31 immediately preceding the date of
the calculation.
	 

	 	§
	 	When performance falls between the
designated points in the table, the incentive will
be determined by interpolation.

 

 

	 	 	 	 	 	 	 
	Limitations	 	§	 	The bonus calculation is subject to the
following limitations; sequenced as follows:
	 
	 	 	 	 	 	 
	 	 	 	 	Step 1:
	 
	 	 	 	 	 	 
	 	 	 	 	Is target bonus pool > 10% of the operating
income before goodwill and after insurance true-up
(before consideration of intercompany interest
income or expense, interest expense, and gains or
losses on the sale of property and equipment)?
	 
	 	 	 	 	 	 
	 	 	 	 	     If Yes, Go to Step 2.
	 
	 	 	 	 	 	 
	 	 	 	 	      If No, use the Incentive Determination chart
above. Any bonus earned (for the aggregate pool)
is limited to 10% of operating income (as
defined). Further, any individual bonuses are
capped at 200% of the target bonus.
	 
	 	 	 	 	 	 
	 	 	 	 	Step 2:
	 
	 	 	 	 	 	 
	 	 	 	 	Has the Operating Income Goal been met or
exceeded? If Yes, go to b., If No, go to a.
	 
	 	 	 	 	 	 
	 

	 	 	 	a.
	 	Use the Incentive Determination chart above
with the following limitations: Bonuses earned
under this section ( for the pool) are limited to
10% of actual operating income (as defined).
	 

	 	 	 	b.
	 	Use the Incentive Determination chart above

with the following limitations:
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Up to 10% of the operating income goal (as
defined) can be earned by the pool participants.
For every dollar of operating income (as defined)
in excess of the operating income goal, $.25 will
be contributed to the bonus pool. Add this amount
to the results of the Incentive Determination
chart. The total contribution under this
paragraph b. is limited to 100% of the target
bonus for each of the pool participants.
	 
	 	 	 	 	 	 
	 	 	§	 	Any calculated incentive will be subject
to (i) assessment of overall company performance
to ensure that payout of calculated incentives
will not jeopardize the financial stability of the
company and (ii) approval by the Compensation
Committee.
	 
	 	 	 	 	 	 

2

 

	 	 	 	 	 	 	 
	 	 	§	 	A participant must be employed by the
company on the date the bonus is paid. Any
participant not employed by the company on the
payment date forfeits any and all rights to such
bonus. It is the company’s intention to pay
bonuses earned under the plan in March following
the end of the calculation period.
	 
	 	 	 	 	 	 
	 	 	§	 	A new participant added to this Plan
during the Plan year will be pro-rated from their
date of hire. In any event, a new participant must
be employed by October 1 to be eligible for
incentives in the current plan year.
	 
	 	 	 	 	 	 
	Incentive Payout	 	Any incentive earned under the Annual Incentive
Plan is intended to be paid in cash.

3

 

Quanta Services, Inc.

Term Sheet

Supplemental Incentive Plan

2007 – Operating Units

	 	 	 	 	 
	Participants

	 	§
	 	Employees will be selected to
participate in the Supplemental Incentive
Plan annually at the discretion of the CEO
with the approval of the Compensation
Committee.
	 

	 	§
	 	For purposes of the supplemental
incentive, Field Unit participants will be
classified into two categories: Stock
Eligible or Cash-only Eligible
participants, at the discretion of the CEO
with the approval of the Compensation
Committee.
	 
	 	 	 	 
	Target Incentive

	 	 	 	Each participant will be assigned a target
supplemental incentive expressed as a
dollar value annually.
	 
	 	 	 	 
	Performance Measures and
Incentive Determination	 	Performance
Award:
	 
	 	 	 	 
	 

	 	§
	 	Fifty percent of a participant’s
supplemental incentive value will be based
on Modified Return on Asset (MROA)
performance versus target.
	 
	 	 	 	 
	 

	 	§
	 	MROA will be calculated by dividing
net operating income by total assets.
Operating Income is defined as operating
income before goodwill, after insurance
true-up (before consideration of
intercompany interest income or expense,
interest expense, and gains or losses on
the sale of property and equipment).. Total
assets will be based on the quarterly
average for the fiscal year excluding
inter-company accounts and cash on hand.
	 
	 	 	 	 
	 

	 	§
	 	The Performance Award will be
determined according to the table below:

	 	 	 	 
	 	Percentage of Target /	 	Incentive as a % of
	 	Objective Obtained 	 	Target Incentive
	 	Less than 75%	 	0%
	 	75%	 	25%
	 	80%	 	40%
	 	85%	 	55%
	 	90%	 	70%
	 	95%	 	85%
	 	100%	 	100%
	 	150%	 	150%
	 	200% or greater	 	200%

4

 

	 	 	 	 	 	 	 
	 	 	When performance falls between the
designated points in the table, the
incentive will be determined by
interpolation.
	 
	 	 	 	 	 	 
	 	 	Discretionary
Award
	 
	 	 	 	 	 	 
	 	 	For 2007, the remaining fifty percent of
the supplemental incentive will, in lieu of
a discretionary component, be based on the
following two safety measurements, each of
which will be equally weighted:
	 
	 	 	 	 	 	 
	 	 	§	 Total Incident Injury Rate:
	 
	 	 	 	 	 	 
	 

	 	 	 	Ø
	 	Each Operating Unit has a “Total
Incident Injury Rate” (“TIIR”) calculated
for 2006. Subject to each participant’s
ethical behavior and compliance with the
Code of Ethics and Business Conduct,
one-half of the discretionary award will be
based on improvements in TIIR performance.
The baseline for measuring 2007 performance
is the respective actual TIIR for 2006
expressed as a percentage of payroll. The
following Bonus Eligibility Scale will be
used to measure the amount of bonus earned
as a result of improvement in the TIIR rate
from 2006 to 2007:

	 	 	 	 
	 	If TIIR rate is	 	Bonus earned
	 	Reduced by:	 	will be:
	 	Less than 10%	 	0%
	 	10%	 	30%
	 	15%	 	50%
	 	20%	 	75%
	 	25%	 	100%
	 	Greater than 50%	 	125%

	 	 	 	 	 	 	 
	 

	 	 	 	Ø
	 	When performance falls between the
designated points in the table, the
incentive will be determined by
interpolation.
	 
	 	 	 	 	 	 
	 

	 	 	 	Ø
	 	Regardless of the percentage
decrease, if an operating unit has a TIIR
below 2.0 at the end of 2007 then 100% of
the target bonus is earned.

5

 

	 	 	 	 	 	 	 
	 

	 	§
	 	Safety Severity Rating:
	
	 
	 	 	 	 	 	 
	 

	 	 	 	Ø
	 	Each Operating Unit’s performance
will also be measured based on Severity of
claims. Subject to each participant’s
ethical behavior and compliance with the
Code of Business Conduct, one-half of the
discretionary award will be based on the
Operating Unit’s Safety Severity Rate. The
baseline for measuring 2007 performance is
the respective actual Total Incurred Loss
Amount for 2006 expressed as a percentage
of payroll. The following Bonus Eligibility
Scale will be used to measure the amount of
bonus earned as a result of improvement in
the Total Incurred Rate from 2006 to 2007:

	 	 	 	 
	 	If Total Incurred	 	 
	 	Loss Rate is	 	Bonus earned
	 	Reduced by:	 	will be:
	 	Less than 10%	 	0%
	 	10%	 	30%
	 	15%	 	50%
	 	20%	 	75%
	 	25%	 	100%
	 	Greater than 50%	 	125%

	 	 	 	 	 	 	 
	 

	 	 	 	Ø
	 	When performance falls between the
designated points in the table, the
incentive will be determined by
interpolation.
	 
	 	 	 	 	 	 
	 

	 	 	 	Ø
	 	Regardless of the percentage
decrease, if an operating unit has a Total
Incurred amount below $5,000 at the end of
2007 then 100% of the target bonus is
earned.
	 
	 	 	 	 	 	 
	Limitations	 	§	 	Any calculated incentive will be
subject to (i) assessment of overall
company performance to ensure that payout
of calculated incentives will not
jeopardize the financial stability of the
company and (ii) approval by the
Compensation Committee.
	 	 	§	 	In any year, stock awarded under
this and all other plans shall not exceed
1% of the outstanding stock. The
Compensation Committee and the Board of
Directors will review this limitation
annually.

6

 

	 	 	 	 	 
	 

	 	§
	 	A participant must be employed by
the company on the date the bonus is paid.
Any participant not employed by the company
on the payment date forfeits any and all
rights to such bonus. It is the company’s
intention to pay bonuses earned under the
plan in March following the end of the
calculation period.
	 

	 	§
	 	A new participant added to this
Plan during the Plan year will be pro-rated
from their date of hire. In any event, a
new participant must be employed by October
1 to be eligible for incentives in the
current plan year
	 	 	 	 	 
	Incentive Payout

	 	§
	 	Stock Eligible participants, at the
election of the CEO with approval by the
Compensation Committee, may receive any
incentive earned under the Supplemental
plan in cash, restricted stock or a
combination thereof. Subject to the above
limitations, the portion of the incentive
awarded in restricted stock will be
multiplied by 1.10 and then that amount
will be divided by the current stock price
to determine the number of shares Any
shares awarded will vest ratably over a
three-year period following the date of
grant. A participant receiving restricted
stock must be employed by the company at
each vesting date. If a participant leaves
the employment of the company, all unvested
restricted stock awards are forfeited.
	 

	 	§
	 	Cash-only Eligible participants
will receive any incentive earned for the
year in cash.

7

 

Quanta Services, Inc.

Term Sheet

Annual Incentive Plan 2007 – Corporate

	 	 	 
	Participants

	 	Employees will be selected to participate in the
Annual Incentive Plan at the discretion of the CEO
with the approval of the Compensation Committee.
	 
	 	 
	Target Incentive

	 	§     Target incentive ranges have been or will
be developed for each participant in the Plan.

	 
	 	 
	 

	 	§     Management will make recommendations to
the Compensation Committee regarding the target
incentive for each participant based on a
competitive range.

	 
	 	 
	Performance Measures

	 	§     The annual incentive will be based on an
operating income target to be determined annually
by the Compensation Committee. This target will
be adjusted, as appropriate, at the discretion of
the Compensation Committee to take into account
any business acquisitions or divestitures during
the Plan year.

	 
	 	 
	 

	 	§     For purposes of the plan, operating income
will be operating income less interest expense,
net of interest income.

	 
	 	 
	 

	 	§     There will be no discretionary portion for
the annual incentive.

	 
	 	 
	Incentive Determination
	 	 

	 	 	 	 
	 	Percentage of Target /	 	Incentive as a % of
	 	Objective Obtained 	 	Target Incentive
	 	Less than 75%	 	0%
	 	75%	 	25%
	 	80%	 	40%
	 	85%	 	55%
	 	90%	 	70%
	 	95%	 	85%
	 	100%	 	100%
	 	150%	 	150%
	 	200% or greater	 	200%

	 	 	 
	 

	 	§     The amount of incentive earned will be
based on the table above.

	 
	 	 
	 

	 	§     The salary to be used in the calculation
will be the base salary in effect on the December
31 immediately preceding the date of the
calculation.

	 
	 	 
	 

	 	§     When performance falls between the
designated points in the table, the incentive will
be determined by interpolation.

8

 

	 	 	 
	Limitations

	 	§     Any calculated incentive will be subject
to (i) assessment of overall company performance
to ensure that payout of calculated incentives
will not jeopardize the financial stability of the
company and (ii) approval by the Compensation
Committee.

	 
	 	 
	 

	 	§      A participant must be employed by the
company on the date the bonus is paid. Any
participant not employed by the company on the
payment date forfeits any and all rights to such
bonus. It is the company’s intention to pay
bonuses earned under the plan in March following
the end of the calculation period.

	 
	 	 
	 

	 	§      A new participant added to this Plan
during the Plan year will be pro-rated from their
date of hire. In any event, a new participant must
be employed by October 1 to be eligible for
incentives in the current plan year.

	 
	 	 
	Incentive Payout

	 	Any incentive earned under the Annual Incentive
Plan is intended to be paid in cash.

9

 

Quanta Services, Inc.

Term Sheet

Supplemental Incentive Plan 2007 – Corporate

	 	 	 
	 

	 	§     Employees will be selected to participate
in the Supplemental Incentive Plan annually at the
discretion of the CEO with the approval of the
Compensation Committee.

	 
	 	 
	Participants

	 	§     For purposes of the supplemental
incentive, Corporate participants will be
classified annually into two categories: Stock
Eligible or Cash-only Eligible participants, at
the discretion of the CEO with the approval of the
Compensation Committee.

	 
	 	 
	Performance Measures

	 	Performance Award
	 
	 	 
	 

	 	Fifty percent of a participant’s supplemental
incentive value will be based on return on equity
after eliminating the effects of goodwill (ROE)
versus the target for the year. This target will
be determined annually by the Compensation
Committee. The target will be adjusted as
appropriate, at the discretion of the Compensation
Committee, to take into account any business
acquisitions or dispositions during the Plan year.
	 
	 	 
	 

	 	Discretionary Award
	 
	 	 
	 

	 	The remaining fifty percent of a participant’s
supplemental incentive value will be determined on
a discretionary basis. The Discretionary Award
will be based on obtaining pre-established
objectives established for each participant for
the year and on exhibiting ethical behavior and
compliance with the Code of Ethics and Business
Conduct.
	 
	 	 
	Incentive Determination
	 	 

	 	 	 	 
	 	Percentage of Target /	 	Incentive as a % of
	 	Objective Obtained 	 	Target Incentive
	 	Less than 75%	 	0%
	 	75%	 	25%
	 	80%	 	40%
	 	85%	 	55%
	 	90%	 	70%
	 	95%	 	85%
	 	100%	 	100%
	 	150%	 	150%
	 	200% or greater	 	200%

	 	 	 
	 

	 	§     The Performance Award will be determined
according to the table above.

	 
	 	 
	 

	 	§     When performance falls between the
designated points in the table, the incentive will
be determined by interpolation.

10

 

	 	 	 
	Limitations

	 	§     Any calculated incentive will be subject
to (i) assessment of overall company performance
to ensure that payout of calculated incentives
will not jeopardize the financial stability of the
company and (ii) approval by the Compensation
Committee.

	 
	 	 
	 

	 	§     In any year, stock awarded under this and
all other plans shall not exceed 1% of the
outstanding stock. The Compensation Committee and
the Board of Directors will review this limitation
annually.

	 
	 	 
	 

	 	§     A participant must be employed by the
company on the date the bonus is paid. Any
participant not employed by the company on the
payment date forfeits any and all rights to such
bonus. It is the company’s intention to pay
bonuses earned under the plan in March following
the end of the calculation period.

	 
	 	 
	 

	 	§     A new participant added to this Plan
during the Plan year will be pro-rated from their
date of hire. In any event, a new participant must
be employed by October 1 to be eligible for
incentives in the current plan year

	 
	 	 
	Incentive Payout

	 	§     Stock Eligible participants, at the
election of the CEO with approval by the
Compensation Committee, may receive any incentive
earned under the Supplemental plan in cash,
restricted stock or a combination thereof.
Subject to the above limitations, the portion of
the incentive awarded in restricted stock will be
multiplied by 1.10 and then that amount will be
divided by the current stock price to determine
the number of shares. Any shares awarded will
vest ratably over a three-year period following
the date of grant. A participant receiving
restricted stock must be employed by the company
at each vesting date. If a participant leaves the
employment of the company, all unvested restricted
stock awards are forfeited.

	 
	 	 
	 

	 	§     Cash-only Eligible participants will
receive any incentive earned for the year in cash.

11

 

Quanta Services, Inc.

Term Sheet

Discretionary Incentive Plan 2007 – All

	 	 	 
	Discretionary Payout

	 	Annually, the Compensation Committee shall
establish a discretionary incentive pool that
will be available to reward exceptional
performance. This pool will be awarded at the
discretion of the CEO, with the Compensation
Committee’s approval, in cash, restricted stock,
or a combination thereof. A participant must be
employed by the company on the date the bonus is
paid. Any participant not employed by the
company on the payment date forfeits any and all
rights to such bonus. It is the company’s
intention to pay bonuses earned under the plan
in March following the end of the calculation
period.

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