Document:

2013ManagementIncentivePlan

EXHIBIT 10.3

EXCO RESOURCES, INC. 
2013 MANAGEMENT INCENTIVE PLAN

This 2013 Management Incentive Plan (the “2013 MIP”) of EXCO Resources, Inc., a Texas corporation (the “Company”), was adopted by the Board of Directors (the “Board”) of the Company on February 28, 2013 (the “Execution Date”), to be effective as of the Effective Date. 

Recitals:

          WHEREAS, the Board desires to encourage and reward value-enhancing performance of the Company’s management team by providing incentive compensation upon attaining pre-established performance criteria; and

          WHEREAS, the Board believes it to be in the best interests of the Company and its shareholders to adopt this 2013 MIP effective as of the Effective Date; 

          NOW, THEREFORE, in consideration of the foregoing and for the purpose described below, the Board hereby adopts this 2013 MIP as set forth herein. 

ARTICLE 1 
Purpose

          The 2013 MIP is intended to attract and retain the Company’s management team and to encourage them to remain with and devote their best efforts to the Company and its Subsidiaries, and to reward such executives for outstanding performance, thereby advancing the interests of the Company and aligning management’s interests with those of the Company’s shareholders.  The 2013 MIP provides a means of rewarding participants based the overall performance of the Company.

          This 2013 MIP is an annual incentive plan for the Company’s management team.  The bonus pool will be funded based on achievement of six performance measures.  The Compensation Committee then has discretion to allocate the bonus pool among eligible participants as it deems appropriate.

ARTICLE 2 
Definitions 

          Where the following words and phrases appear in this 2013 MIP, they shall have the respective meanings set forth below: 

2.1        “Adjusted EBITDA” means earnings before interest, taxes, depreciation, depletion, amortization, ceiling test write-downs, unrealized gains or losses on derivative financial instruments and other non-cash income and expense items.

2.2        “Aggregate Base Salaries” means the sum of all annual base salaries paid to the Eligible Employees during the Performance Period.  

2.3    “Award” means an amount granted to an Eligible Employee pursuant to Article 5 that is payable on or before March 15th of the year following the Performance Period.

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

2.5    “Cause” means (i) the willful breach or habitual neglect of assigned duties by an Eligible Employee related to the Company, including compliance with Company policies; (ii) conviction (including any plea of nolo contendere) of the Eligible Employee of any felony or crime involving dishonesty or moral turpitude; (iii) any act of personal dishonesty knowingly taken by the Eligible Employee in connection with his or her responsibilities as an employee and intended to result in personal enrichment of the Eligible Employee or any other person; (iv) bad faith conduct that is materially detrimental to the Company; (v) inability of the Eligible Employee to perform such employee’s duties due to alcohol or illegal drug use; (vi) the Eligible Employee’s failure to comply with any legal written directive of the Board; (vii) any act or omission of the Eligible Employee which is of substantial detriment to the Company because of the Eligible Employee’s intentional failure to comply with any statute, rule or regulation, except any act or omission believed by the Eligible Employee in good faith to have been in or not opposed to the best interest of the Company (without intent of the Eligible Employee to gain, directly or indirectly, a profit to which the Eligible Employee was not legally entitled) and except that Cause shall not mean bad judgment or negligence other than habitual neglect of duty; or (viii) any other act or failure to act or other conduct which is determined by the Committee, in its sole discretion, to be demonstrably and materially injurious to the Company, monetarily or otherwise.

2.6    “Change of Control” means the occurrence of any of the following:

		
	(i)
	any consolidation, merger or share exchange of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s Common Stock would be converted into cash, securities or other property, other than a consolidation, merger or share exchange of the Company in which the holders of the Company’s Common Stock immediately prior to such transaction have the same proportionate ownership of Common Stock of the surviving corporation immediately after such transaction or the merger of the Company into one of its subsidiaries;

		
	(ii)
	any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation) in one transaction or a series of related transactions, of all or substantially all of the assets of the Company;

		
	(iii)
	the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company;

		
	(iv)
	the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals (the “Continuing Directors”) who (x) at the Execution Date were directors or (y) become directors after the Execution Date and whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then in office who were directors at the Execution Date or whose election or nomination for election was previously so approved;

		
	(v)
	the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of an aggregate of 50% or more of the voting power of the Company’s outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the 1934 Act) who beneficially owned less than 50% of the voting power of the Company’s outstanding voting securities on the Execution Date; provided, however, that notwithstanding the foregoing, an acquisition shall not constitute a Change of Control hereunder if the acquirer is (x) a trustee or other fiduciary holding securities under an employee benefit plan of the Company and acting in such capacity, (y) a Subsidiary of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially 

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the same proportions as their ownership of voting securities of the Company or (z) any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors, or (aa) a purchaser(s) of shares sold pursuant to effective registration under applicable federal and state securities laws; or 
		
	(vi)
	in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7.

Notwithstanding the foregoing provisions of this Section 2.6, in the event an Award issued under the Plan is subject to Section 409A of the Code, then, to the extent necessary to comply with the requirements of Section 409A of the Code, in lieu of the foregoing definition, the definition of “Change of Control” for purposes of such Award shall be the definition provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.

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

2.8    “Committee” means the Compensation Committee of the Board.

2.9    “Common Stock” shall mean the common stock, par value $0.001 per share, of EXCO Resources, Inc.

2.10    “Company” means EXCO Resources, Inc. and its successors.

2.11    “Disability” means an Eligible Employee is qualified for long-term disability benefits under the Company’s or Subsidiary’s disability plan or insurance policy; or, if no such plan or policy is then in existence or if the Eligible Employee is not eligible to participate in such plan or policy, that the Eligible Employee, because of a physical or mental condition resulting from bodily injury, disease, or mental disorder, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee, based upon medical reports or other evidence satisfactory to the Committee. Notwithstanding the foregoing, in the event an Award issued under the 2013 MIP is subject to Section 409A of the Code, then, to the extent necessary to comply with the requirements of Section 409A of the Code, in lieu of the foregoing definition, the definition of “Disability” for purposes of such Award shall be the definition of “disability” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.

2.12    “Effective Date” means January 1, 2013.

2.13    “Eligible Employee” means, with respect to the Performance Period, each active employee of the Company or a Subsidiary who holds a position listed in Appendix A, as amended from time to time by the Committee or as otherwise automatically updated, and without further action under this MIP by the Board or the Committee, for each active employee hereinafter designated by the Board as a vice president of the Company.

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

2.15    “Finding Costs” means the amount of expense per Mcfe calculated by dividing exploration and development costs for wells completed during 2013 by extensions and discoveries associated with such wells, including performance revisions and excluding price revisions.  

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2.16    “Incentive Pool” means the aggregate amount to be awarded with respect to the Performance Period as determined pursuant to Article 4.

2.17     “Mcf” means one thousand cubic feet of natural gas.

2.18    “Mcfe” means one thousand cubic feet equivalent calculated by converting one barrel of oil or natural gas liquids to six Mcf of natural gas.

2.19    “Net Asset Value” means the number calculated using the Company’s year-end balance sheet with the present value of proved developed producing reserves and the present value of proved undeveloped reserves determined based on a value per Mcfe using estimated cash flows and supplemented by evaluations from recent asset acquisition activity including bids made by the Company and publicly announced transactions by other companies.  Prices used to calculate proved developed producing and proved undeveloped reserves are based on NYMEX forward strip prices.  The fair value of undeveloped acreage and estimated probable, possible, or contingent reserves, using appropriate market-based transactions shall serve as a substitute for the costs of such unproved asset values.  The historical carrying value of TGGT Holdings, LLC shall be replaced with the mathematical result of 50% of TGGT Holdings, LLC’s Adjusted EBITDA multiplied by 10, less the Company’s 50% share of the indebtedness of TGGT Holdings, LLC.

2.20    “Overall Performance Level” means the sum of the weighted achievement of the Performance Goals as determined pursuant to Article 4.

2.21    “Payment Date” means the date on which the Awards are paid pursuant to Article 5.

2.22    “Peer Group” means the group of companies listed in Appendix B.  If any of the companies in the Peer Group are not publicly traded as of December 31, 2013 due to merger, bankruptcy, or otherwise, such companies shall be excluded from the Peer Group.

2.23    “Performance Goals” means for the Performance Period, the established threshold, target, and maximum levels of applicable Performance Measures.

2.24    “Performance Measures” means the criteria used in determining Performance Goals for the Performance Period, which are Production, Net Asset Value, Finding Costs, Adjusted EBITDA, Relative TSR, and discretion of the Committee; provided that Production, Net Asset Value, Adjusted EBITDA and Relative TSR shall be adjusted on a pro forma basis to take into account any acquisitions or dispositions consummated during the Performance Period.

2.25    “Performance Period” means the calendar year beginning on January 1, 2013, or such shorter period in the case of a Change in Control.

2.26    “Person” means any individual, partnership, corporation, limited liability company, trust, incorporated or unincorporated organization or association or other legal entity of any kind.

2.27    “Production” means the net interest volumes of oil, natural gas and natural gas liquids stated on a Mcfe basis, as disclosed in the Company’s periodic reports under the Exchange Act.

2.28    “Relative TSR” means the Company’s TSR relative to the TSR of the companies in the Peer Group.  The Company and the companies in the Peer Group shall be ranked from highest to lowest 

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based on TSR and then the Company’s relative performance to the Peer Group will be determined based on percentile ranking (e.g., 25th percentile, 50th percentile, etc.).

2.29    “Section 409A” means Section 409A of the Code and any applicable regulations or rulings thereunder.

2.30    “Subsidiary” means any entity in which the Company, directly or indirectly, holds a majority of the total combined voting power of all classes of stock or profits or capital interests of such entity. “Subsidiaries” means more than one of any such entities, including corporations, limited partnerships, partnerships or limited liability companies.

2.31    “Total Shareholder Return” or “TSR” means the comparison of the percentage difference between the Company’s and each of the Peer Group’s companies’ respective average common stock closing prices for December 2013 and the average common stock closing prices for December 2012, as adjusted for any stock or cash dividends paid during the calendar year. 

ARTICLE 3
Administration of the 2013 MIP 

This 2013 MIP shall be administered by the Committee.  The Committee is authorized to interpret this 2013 MIP and may from time to time adopt such rules and regulations, consistent with the provisions of this 2013 MIP, as it may deem advisable to carry out this 2013 MIP.  All determinations made by the Committee under this 2013 MIP, and all interpretations of this 2013 MIP by the Committee, shall be final and binding on all interested parties. 

ARTICLE 4 
Determination of Incentive Pool

4.1    The Incentive Pool for the Performance Period shall be determined based on the Overall Performance Level of the Performance Goals in the following manner:
	
		
	Overall Performance Level
	Incentive Pool (1) 

	< Threshold
	No payout

	Threshold
	25% of Aggregate Base Salaries

	Target
	50% of Aggregate Base Salaries

	Maximum
	100% of Aggregate Base Salaries

	> Maximum
	100% of Aggregate Base Salaries

	(1) The Incentive Pool is calculated on the basis of straight-line interpolation between the threshold, target, and maximum Overall Performance Levels.

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4.2    The Overall Performance Level is calculated as the sum of the weighted actual achievement of the Performance Goals for each Performance Measure as detailed below.

	
					
	 
	 
	Performance Goals

	Performance Measure
	Weight
	Threshold
(25%)
	Target
(50%)
	Maximum
(100%)

	Production
	10%
	*
	*
	*

	Net Asset Value (in millions)
	10%
	*
	*
	*

	Finding Costs
	10%
	*
	*
	*

	Adjusted EBITDA
	10%
	*
	*
	*

	Relative TSR
	10%
	*
	*
	*

	Discretion of the Committee
	50%
	 
	 
	 

	 
	 
	 
	 
	 

   *Redacted

4.3    If the maximum level is exceeded for all Performance Measures, the funding level of the Incentive Pool is still capped at 100% of Aggregate Base Salaries.  Achievement of the Performance Goals is calculated on the basis of straight-line interpolation between the threshold, target, and maximum levels.  Please see Appendix C for an example of the 2013 MIP calculations.

4.4    The Committee has the authority to exercise negative discretion to reduce or eliminate the Incentive Pool at any time.

ARTICLE 5 
Grant of Awards 

5.1    After the Incentive Pool has been determined, management shall determine the amount (if any) of the Awards for each Eligible Employee subject to the Committee’s approval; however, the aggregate amount of the Awards shall not exceed the Incentive Pool.

5.2    Awards will be paid out as soon as administratively possible after December 31, 2013, but in no event later than March 15, 2014.  The Company, Subsidiary, or payroll agent through which payment of an Award is to be made shall have the right to deduct from any payment hereunder any amounts that Federal, state, local or foreign tax laws require with respect to such payments.

ARTICLE 6
Termination of Employment

6.1    In the event an Eligible Employee’s employment is terminated prior to December 31, 2013 for any reason other than for Cause (as determined by the Committee), all of such Eligible Employee’s rights to an Award shall be forfeited, unless the Committee shall determine that such Eligible Employee should receive a prorated Award.  Such prorated Award shall be based upon that portion of the 

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Performance Period during which he or she was an Eligible Employee, in which case the prorated portion of the Award shall be paid in accordance with the provisions of Article 5.

6.2    In the event of Disability during the Performance Period (absent termination), the Committee shall have discretion to grant an Award (or a prorated portion thereof) to the Eligible Employee on the Payment Date.

6.3    In the case of death during the Performance Period, the Committee shall have discretion to grant an Award (or a prorated portion thereof) to the Eligible Employee’s estate, or if there is no administration of the estate, to the heirs at law, on the Payment Date.

6.4    Unless the Committee exercises its discretion to grant an Award (or a prorated portion thereof) under Section 6.1, 6.2, or 6.3, such terminated, disabled or deceased Eligible Employee’s base salary shall not be included in the definition of Aggregate Base Salaries for purposes of funding the Incentive Pool.

6.5    If an Eligible Employee’s employment is terminated after the end of the Performance Period, but prior to the Payment Date, for any reason other than termination for Cause (as determined by the Committee), the amount of any Award applicable to the Performance Period shall be paid to the Eligible Employee in accordance with the provisions of Article 5 on the Payment Date, except in the case of death, in which case the amount of the Award then unpaid shall be paid to such Eligible Employee’s estate, or if there is no administration of the estate, to the heirs at law, as soon as practicable.

6.6    Notwithstanding anything above, in the case of termination for Cause (as determined by the Committee), such Eligible Employee shall immediately forfeit his or her right to any Award.

ARTICLE 7
Change in Control

In the event of a Change in Control, (i) prior to the Committee granting Awards pursuant to Article 5, the Incentive Pool shall be immediately funded based on achievement of the Performance Goals (as adjusted for the shortened Performance Period at the discretion of the Committee) through the earlier of (a) the last day of the calendar month preceding the month of the Change in Control or (b) December 31, 2013, and the Committee shall have the authority to grant Awards to Eligible Employees as determined by management subject to Committee approval; and (ii) after the Committee granted Awards pursuant to Article 5, but prior to payment of such Awards, the Eligible Employees shall be entitled to an immediate cash payment of the Awards. 

ARTICLE 8
Duration, Amendment and Termination 

Notwithstanding anything herein to the contrary, the Board may terminate at any time, or from time to time amend, modify, or suspend the 2013 MIP.  The Board may make any amendment to any outstanding Award that it believes is necessary or helpful to comply with any applicable law including, without limitation, Section 409A.  However, without the prior consent of affected Eligible Employees, no such action may adversely affect any rights or obligations with respect to any Award earned, regardless of whether the amounts have be calculated or paid.

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ARTICLE 9 
Miscellaneous 

9.1        Nothing in this 2013 MIP or related document nor any grant of Awards under this 2013 MIP shall confer on any employee the right to continued employment by the Company or any Subsidiary, or affect in any way the right of the Company or such Subsidiary to change the employee’s position at the Company or terminate the employment of such employee at any time.  The Committee shall have the final determination if any question arises as to whether and when there has been a termination of an employee’s employment.

9.2    Awards under this 2013 MIP are non-assignable and non-transferable and are not subject to adjustment, anticipation, alienation, garnishment, encumbrance, attachment or levy of any kind  except by will or the laws of descent and distribution.  Any attempt at transfer, assignment or other alienation prohibited by the preceding sentence shall be disregarded and all amounts payable hereunder shall be paid only in accordance with the provisions of this 2013 MIP.

9.3    Nothing in this 2013 MIP nor the granting of Awards shall be deemed to create a trust.  This 2013 MIP and all unpaid awards shall constitute an unfunded, unsecured liability of the Company to make payments in accordance with the provisions of this 2013 MIP.  All amounts payable under this 2013 MIP shall be paid from the general assets of the Company.  No Person shall have any right, title, or interest in any fund or in any specific asset of the Company or any Affiliate by reason of the 2013 MIP.

9.4    The existence of this 2013 MIP and the Awards granted hereunder shall not affect in any way the right or power of the Board or the shareholders of the Company to consummate or authorize any merger or consolidation of the Company, the liquidation or dissolution of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.

9.5    Neither the officers nor the directors of the Company nor the members of the Committee shall under any circumstances have any liability with respect to this 2013 MIP or its administration except for gross and intentional malfeasance. The officers and directors of the Company and the members of the Committee may rely upon opinions of counsel as to all matters, including the creation, operation and interpretation of this 2013 MIP.

9.6    This 2013 MIP and all related documents shall be governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to the principles of conflicts of law thereof, except to the extent preempted by federal law.

9.7    If any provision of the 2013 MIP shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the 2013 MIP shall be construed and enforced as if said illegal or invalid provision had never been included herein.

9.8    All obligations of the Company under the 2013 MIP shall be binding upon and inure to the benefit of 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.

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9.9    Except where the context indicates otherwise, words in the singular shall include the plural and vice versa and the masculine gender shall include the feminine.

ARTICLE 10
Compliance with Section 409A

It is the Company’s intention that this 2013 MIP meets the requirements of Section 409A by its terms and in operation so that compensation deferred under this 2013 MIP (if any) is exempt from or compliant with Section 409A such that no amounts shall be included in income under Section 409A.  Any ambiguities in this 2013 MIP shall be construed to reflect this intent.  If any term or provision of this 2013 MIP is found to be in violation of Section 409A, then such term or provision shall be deemed to be restricted and/or modified in the manner and to the extent necessary to render such term or provision in conformity with Section 409A, or shall be deemed removed from this 2013 MIP, and this 2013 MIP shall be construed and enforced to the maximum extent permitted by Section 409A as if such term or provision had been originally incorporated in this 2013 MIP as so restricted and/or modified, or as if such term or provision had not been originally incorporated in this 2013 MIP, as the case may be.

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IN WITNESS WHEREOF, EXCO Resources, Inc. has caused the 2013 MIP to be signed by its duly authorized officer on this 28th day of February, 2013. 
 
	
			
	 
	 
	 

	EXCO RESOURCES, INC.

	 
	 

	By:
	 
	   /s/ Douglas H. Miller

	 
	 

	Name:
	 
	Douglas H. Miller

	Its:
	 
	Chief Executive Officer

 

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Appendix A

Eligible Employees

		
	1.
	Chairman & CEO

		
	2.
	President & COO

		
	3.
	Executive Vice President & Chief Financial Officer

		
	4.
	VP, General Counsel & Secretary

		
	5.
	VP, Finance & Treasurer

		
	6.
	VP, Business Development & Marketing

		
	7.
	VP, Operations & GM – ETXNLA

		
	8.
	VP, Controller & CAO

		
	9.
	VP, Engineering

		
	10.
	VP, Land & Assistant Secretary

		
	11.
	VP & GM – ETXNLA JV

		
	12.
	CIO

		
	13.
	VP, Reservoir Engineering

		
	14.
	VP, Tax

		
	15.
	VP, Human Resources

		
	16.
	Assistant General Counsel/CCO & Assistant Secretary

		
	17.
	VP, Marketing

		
	18.
	VP, Supply Chain

		
	19.
	VP, EHS

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Appendix B

Peer Group

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Appendix C
Example Calculation for the 2013 MIP

13HD_EX_10.1_03.06.2013

Exhibit 10.1

THE HOME DEPOT, INC.

EQUITY AWARD TERMS AND CONDITIONS AGREEMENT
Executive Officers - U.S.

	
				
	GRANTED TO:
<NAME >
<XXX-XX-XXXX>
	NUMBER OF SHARES OF THE HOME DEPOT, INC.
COMMON STOCK:
	VESTING SCHEDULES:
	GRANT DATE:
<DATE>

	

NONQUALIFIED
STOCK OPTION
AWARD
	<XX,XXX >
	

25% on 2nd, 3rd, 4th and 5th Grant Date Anniversaries
	OPTION PRICE                  PER SHARE:  <$AMOUNT>

EXPIRATION DATE:
<DATE>

	PERFORMANCE-BASED RESTRICTED STOCK AWARD
	<X,XXX>
	50% on 30th Month Anniversary of Grant Date, and 50% on 60th Month Anniversary of Grant Date
	 

	PERFORMANCE SHARE AWARD
	Target Award: <X,XXX>
Threshold Award: <X,XXX>
Maximum Award: <XX,XXX>
	Performance Period of 3 Fiscal Years beginning with <YEAR>
	PERFORMANCE PERIOD 
<YEAR - YEAR>

In recognition of the value of your continued service as a key employee, The Home Depot, Inc., a Delaware corporation (the “Company”), on and as of the date specified above (the “Grant Date”), hereby grants to you, an employee of the Company or one of its subsidiaries, pursuant to the terms and conditions of the Company's Amended and Restated 2005 Omnibus Stock Incentive Plan (the “Plan”), a summary of which has been delivered to you, the following awards (collectively referred to as the “Award”):
  
		
	•
	A nonqualified stock option (the “Option”) to purchase from the Company the above-stated number of shares of Common Stock at the price per share stated above (the “Option Price”), which Option will expire on the expiration date stated above (the “Expiration Date”), unless it expires earlier in accordance with the terms and conditions described below;

		
	•
	A performance-based restricted stock award of the above-stated number of shares of Common Stock (the “Restricted Shares”) subject to the terms and conditions described below; and

		
	•
	A performance share award (the “Performance Shares”) of up to the above-stated Maximum Award, which may be earned in accordance with the performance vesting and other terms and conditions described below. 

In addition to the terms and conditions set forth herein, the Award is subject to and governed by the terms and conditions set forth in the Plan, which is incorporated herein by reference. Unless defined in this Equity Award Terms and Conditions Agreement (this “Award Agreement”) or the context otherwise requires, capitalized terms used in this Award Agreement will have the meanings set forth in the Plan.  

		
	A.
	NONQUALIFIED STOCK OPTION TERMS AND CONDITIONS:

		
	1.
	Vesting.  The Option will become exercisable in installments, as follows:  25% of the total number of shares subject to the Option will become exercisable on each of the second (2nd), third (3rd), fourth (4th), and fifth (5th) anniversaries of the Grant Date.

		
	2.
	Change in Employment Status.  Upon the termination of your employment (for any reason other than Retirement, death, Disability, or discharge for Cause), Option shares that have not become exercisable as of the date of such event will immediately lapse.  Option shares that are exercisable as of the date of termination of employment will lapse unless exercised within a period of three (3) months from the date of your termination of employment. Upon your Retirement, all Option shares that are not exercisable as of the date of your Retirement will continue to vest according to the schedule set forth in Section A.1 and all Option shares will remain exercisable until the Expiration Date; provided, however, that if after your Retirement, you become directly or indirectly employed by a Competitor, all unvested Option shares will immediately lapse.  Upon your death or the termination of your employment by reason of Disability, all Option shares will immediately become fully exercisable as of the date of death or termination on account of Disability and will lapse unless exercised within a period of one (1) year from the date of death or such termination.  In no event will the above time periods extend beyond the Expiration Date. In the event of your discharge for Cause, all Option shares, whether presently exercisable or not, will immediately lapse and become null and void on and as of the date of your termination of employment.  

		
	3.
	Change in Control.  All unvested options will vest immediately upon your termination of employment without Cause within twelve (12) months following the occurrence of a Change in Control and will remain exercisable until the Expiration Date.  

		
	4.
	Exercise of the Option.  You may exercise the vested portion of your Option in whole or in part (but in no event with respect to a fractional share) from time to time until the Expiration Date.  In order to exercise your Option, you must provide written notice of exercise to the Company, specifying the number of shares to be purchased, the Option Price of each share and the aggregate Option Price for all shares being purchased under such Option.  This notice must be accompanied by payment of the aggregate Option Price for the number of shares purchased.  Such exercise (subject to Section A.5 hereof) will be effective upon the actual receipt of such payment and notice to the Company.  The aggregate Option Price for all shares purchased pursuant to an exercise of the Option may be paid by check payable to the order of the Company, or shares of Common Stock of the Company held by you for at least six (6) months, the fair market value of which at the time of such exercise is equal to the aggregate Option Price (or portion thereof to be paid with previously owned Common Stock).  In addition, the aggregate Option Price for all shares purchased pursuant to your exercise of the Option may be paid from the proceeds of sale through a bank or broker on the date of exercise of some or all of the shares to which the exercise relates.  Payment of the Option Price in shares of Common Stock may be made by delivering properly endorsed stock certificates to the Company or otherwise causing such Common Stock to be transferred to the account of the Company, either physically or through attestation.  The Company may, in its discretion, require that you furnish, along with the notice of exercise, such documents as the Company deems necessary to assure compliance with applicable rules and regulations of any stock exchange or governmental authority.  No rights or privileges of a shareholder of the Company in respect to such shares issuable upon the exercise of any part of the Option will accrue to you unless and until such shares have been registered in your name.

		
	5.
	Transferability.  Except as otherwise provided in the Plan, the Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, other than by will or under the laws of descent and distribution, whether by the operation of law or otherwise.  An option may be exercised, during your lifetime, only by you or your legal representative.  You may, however, transfer the Option, in whole or in part, to a spouse or lineal descendant (a “Family Member”), a trust for the exclusive benefit of you and/or your Family Members, a partnership or other entity in which all the beneficial owners are you and/or your Family Members, or any other entity affiliated with you that may be approved by the Committee.  Upon any attempt to do anything prohibited by this paragraph, the Option will immediately become null and void.

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	B.
	PERFORMANCE-BASED RESTRICTED STOCK TERMS AND CONDITIONS:

		
	1.
	Restrictions.  To the extent not previously forfeited as provided in Section B.2, the Restricted Shares will vest and become transferable as follows: 50% of the shares granted will vest and become transferable upon the 30th month anniversary of the Grant Date; and 50% of the shares granted will vest and become transferable upon the 60th month anniversary of Grant Date, provided that if Company operating profit (as defined under the Company's Management Incentive Plan), for the fiscal year in which this Award is granted, as reported in the Company's audited financial statements filed on Form 10-K, is less than 90% of the target operating profit under the Company's Management Incentive Plan in which you participate for such fiscal year, all Restricted Shares granted to you pursuant to this Award will be forfeited on the date the Company's annual report on Form 10-K is filed for such year. Restricted Shares that have not vested may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated.

		
	2.
	Change in Employment Status or Change in Control.  If your employment with the Company and its subsidiaries terminates for reasons other than death, Disability, or Retirement or your termination without Cause within twelve (12) months following the occurrence of a Change in Control, all Restricted Shares granted to you pursuant to this Award that have not yet become vested and transferable as of the date of your employment termination will be immediately forfeited. Upon Retirement, all unvested Restricted Shares will continue to vest in accordance with the vesting conditions set forth in Section B.1 of this Award Agreement, provided that a sufficient number of shares will vest at the time your Restricted Shares become taxable to cover applicable tax withholding required pursuant to Section D.2; further provided, that if after Retirement, you become, either directly or indirectly, employed with a Competitor, or are discharged for Cause, all unvested Restricted Shares will be immediately forfeited.  Notwithstanding any other provision of this Award Agreement, in the event the Company terminates your employment without Cause within twelve (12) months after a Change in Control, or in the event of employment termination on account of your death or Disability, any unvested Restricted Shares will immediately vest and become transferable by you or your estate.

  
		
	3.
	Book Entry Account.  Within a reasonable time after the date of this Award, the Company will instruct its transfer agent to establish a book entry account representing the Restricted Shares in your name effective as of the Grant Date, provided that the Company will retain control of such account until the Restricted Shares have become vested in accordance with the Award.

		
	4.
	Shareholder Rights.  Upon the effective date of the book entry pursuant to Section B.3, you will have all of the rights of a shareholder with respect to the Restricted Shares, including the right to vote the shares and to receive all dividends or other distributions paid or made available with respect to such shares provided, however, that prior to a certification by the Committee that the Company has achieved the operating profit target set forth in Section B.1, all dividends will be accumulated, and upon such certification, will be paid to you, without interest, within 90 days following the Company's filing of its annual report on Form 10-K for such year.  Notwithstanding the foregoing, any stock dividends or other in-kind dividends or distributions will be held by the Company until the related Restricted Shares have become vested in accordance with this Award and will remain subject to the forfeiture provisions applicable to the Restricted Shares to which such dividends or distributions relate.

		
	5.
	Transferability.  Except as otherwise provided in this Section B, the Restricted Shares cannot be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, whether by the operation of law or otherwise.  Subsequent transfers of the Restricted Shares will be prohibited except in accordance with this Section B. Any attempted transfer of the Restricted Shares prohibited by this Section B.5 will be null and void.

3

		
	C.
	PERFORMANCE SHARE TERMS AND CONDITIONS: 

		
	1.
	Performance Vesting.  

(a)    Average Operating Profit.  Up to <XX>% of the Performance Share Target Award may be earned upon achievement of the target for the Performance Period, in accordance with the following schedule. The Committee will certify Average Operating Profit and vest any earned Performance Shares as soon as administratively practical, but not later than the 90th day following the end of the Performance Period.

	
			
	Average Operating Profit Target
	($ Millions)
	Percentage of Target Award Performance Shares Earned

	Below Threshold:
	Below $
	0%

	Threshold:
	$
	%

	Target:
	$
	%

	Maximum:
	$ or above
	%

The percentage of the Performance Share Target Award earned between Threshold and Target and Target and Maximum is based on interpolation, as set forth on Schedule A.  
(b)    Average ROIC.  Up to <XX>% of the Performance Share Target Award may be earned upon achievement of the target for the Performance Period, in accordance with the following schedule. The Committee will certify Average ROIC and vest any earned Performance Shares as soon as administratively practical, but not later than the 90th day following the end of the Performance Period.

	
			
	Average ROIC
	 
	Percentage of Target Award Performance Shares Earned

	Below Threshold:
	Below %
	0%

	Threshold:
	%
	%

	Target:
	%
	%

	Maximum:
	% or above
	%

The percentage of the Performance Share Target Award earned between Threshold and Target and Target and Maximum is based on interpolation, as set forth on Schedule A.     

		
	2.
	Delivery of Shares.  The number of shares of Common Stock that you earn under this Section C will be delivered to you as soon as administratively practicable, but not later than the 90th day following the end of the Performance Period. Before such delivery, the Committee will certify in writing the number of Performance Shares that you have earned. No fractional shares will be delivered pursuant to this Award and any fractional shares earned will be paid in cash.   

		
	3.
	Employment Termination. Except as provided in Section C.4 below, if your employment with the Company and its subsidiaries terminates before the end of the Performance Period, this Performance Share award will be forfeited on the date of such termination. 

		
	4.
	Death, Disability or Retirement. If your employment with the Company and its subsidiaries terminates during the Performance Period, because of your death, Disability or Retirement, in each case at or after Retirement Eligibility, you will be entitled to all of the Performance Shares earned in accordance with Section C.1, determined at the end of the Performance Period.  Such shares will be delivered to you (or your estate) as soon as administratively practicable, but not later than December 31, after the end of the Performance Period. If your employment with the Company and its subsidiaries terminates during the Performance Period due to your death or Disability before Retirement Eligibility, you will be entitled to a prorated portion of the Performance Shares earned in accordance with Section C.1, determined at the end of the Performance Period and based on the ratio of the number of days you are employed during the Performance Period to the total number of days in the Performance Period. Such payments will be paid to you (or your estate) as soon as administratively practicable, but not later than December 31, after the end of the Performance Period.  Notwithstanding the foregoing, the Performance Shares will be forfeited on the date of your discharge for 

4

Cause during the Performance Period or if following your Retirement you become directly or indirectly employed by a Competitor, upon your date of employment by such Competitor.

		
	5.
	Change in Control.  Unless previously forfeited, the Performance Share award will vest upon your termination of employment without Cause within twelve (12) months following the occurrence of a Change in Control in that number of Performance Shares determined as follows: (i) the number of Performance Shares that would have been earned under Section C.1, treating the date of the Change in Control as the last day of the Performance Period and prorating the Performance Share award based on the ratio of the number of days during the Performance Period before the Change in Control to the total number of days in the Performance Period absent such Change in Control; plus (ii) the number of Performance Shares representing the Performance Share Target Award and prorating the Performance Share Target Award based on the ratio of the number of days during the Performance Period after the Change in Control to the total number of days in the Performance Period absent such Change in Control.  As soon as administratively practicable, but not later than the 90th day after your termination of employment, the Company will deliver to you one share of Common Stock for each such vested Performance Share, which payment will be in lieu of any payment under Section C.1.

		
	6.
	Transferability.  The Performance Shares may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, whether by the operation of law or otherwise.  Any attempted transfer of the Performance Shares prohibited by this Section C.6 will be null and void.

		
	7.
	Adjustment for Dividends.  Upon the payment of any cash dividend on the Common Stock before the Company's transfer agent establishes a book entry account in your name representing the earned Performance Shares, the number of performance shares will be increased by the number obtained by dividing (x) the aggregate amount of the dividend that would be payable if each Performance Share were issued and outstanding and entitled to dividends on the dividend payment date, by (y) the closing stock price of the Common Stock on the dividend payment date. 

		
	8.
	Performance Share Definitions.

		
	a.
	“Average Operating Profit” means the Company's average Operating Profit for the Performance Period, determined by adding the Operating Profit for each fiscal year during the Performance Period based on a 52-week period commencing at the start of the fiscal year and dividing by three. 

		
	b.
	“Average ROIC” means the Company's average ROIC for the Performance Period, determined by adding the ROIC for each fiscal year during the Performance Period (based on a 52-week period commencing at the start of the fiscal year) and dividing by three.

		
	c.
	“Operating Profit” means, for any fiscal year, “operating profit” as defined by the Committee for the Company's Management Incentive Plan for that fiscal year. 

		
	d.
	“Performance Period” means the Company's three (3) consecutive fiscal years commencing with the fiscal year beginning <DATE>.

		
	e.
	“Performance Share” means a bookkeeping entry that records the equivalent of one (1) share of Common Stock.

		
	f.
	“Performance Share Target Award” means that target number of Performance Shares awarded to you pursuant to the cover page of this Award Agreement and which may be earned in accordance with Section C.1.

		
	g.
	“Performance Share Maximum Award” means that maximum number of Performance Shares awarded to you pursuant to cover page of this Award Agreement and which may be earned in accordance with Section C.1, representing 200% of the Performance Share Target Award.

		
	h.
	 “ROIC” means, for a fiscal year, the Company's return on invested capital, as defined by the Committee during the first 90 days of such fiscal year.

		
	9.
	Rights Unsecured.  You will have only the Company's unfunded, unsecured promise to pay pursuant to the Performance Share terms. Your rights will be that of an unsecured general creditor of the Company, and you will not have any security interest in any assets of the Company.

5

		
	D.
	GENERAL TERMS AND CONDITIONS

		
	1.
	Limitation of Rights.  The granting of this Award will not give you any rights to similar grants in future years or any right to be retained in the employ or service of the Company or its subsidiaries or interfere in any way with the right of the Company or any such subsidiary to terminate your services at any time or your right to terminate your services at any time.

		
	2.
	Withholding.  You are responsible for all applicable federal, state and local income and employment taxes (including taxes of any foreign jurisdiction) which the Company is required to withhold at any time with respect to your Award to satisfy statutory withholding requirements.  Unless you promptly tender payment in full by cash, check or shares of Common Stock, such payment will be made by withholding shares of Common Stock then due to be delivered to you. Shares withheld or tendered as payment of required withholding will be valued at the closing price per share of the Common Stock on the date such withholding obligation arises, or if there were no sales on such date, the closing price on the nearest preceding date on which sales occurred.   

		
	3.
	Limitation of Actions.  Any lawsuit with respect to any matter arising out of or relating to this Award must be filed no later than one (1) year after the date that the Company and/or its affiliates denies your claim or any earlier date that the claim otherwise accrues.

		
	4.
	Adjustments.  The Award will be subject to adjustment or substitution in accordance with Section 12 of the Plan.

		
	5.
	Delivery of Shares.  The Company will not be required to deliver any shares, or establish a book entry account representing such shares, pursuant to this Award if, in the opinion of counsel for the Company, such issuance would violate the (i) Securities Act of 1933 or any other applicable federal, state or foreign laws or regulations; or (ii) the requirements of any stock exchange or authority upon which the securities of the Company may then be listed or traded.  Prior to the issuance of any shares pursuant to this Award, the Company may require that you (or your legal representative upon your death or Disability) enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Award Agreement.

		
	6.
	Confidential Information.  You acknowledge that through your employment with the Company that you have acquired and had access to the Company's Confidential Information.  You agree that the Company may prevent the use or disclosure of its Confidential Information through use of an injunction or other means and acknowledge that the Company has taken all reasonable steps necessary to protect the secrecy of the Confidential Information. You agree that you have not and in the future will not use or disclose to any third party Confidential Information, unless compelled by law and after notice to the Company.

		
	7.
	Severability.  If any term, provision, covenant or restriction contained in the Award Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in the Award Agreement will remain in full force and effect, and will in no way be affected, impaired or invalidated.

		
	8.
	Controlling Law.  This Award will be construed, interpreted and applied in accordance with the law of the State of Delaware, without giving effect to the choice of law provisions thereof.  You agree to irrevocably submit any dispute arising out of or relating to this Award to the exclusive concurrent jurisdiction of the state and federal courts located in Delaware.  You also irrevocably waive, to the fullest extent permitted by applicable law, any objection you may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute, and you agree to accept service of legal process from the courts of Delaware.

		
	9.
	Construction.  The Award Agreement and the Plan contain the entire understanding between the parties and supersedes any prior understanding and agreements between them representing the subject matter hereof, except that the Award will be subject to the Plan and the terms and conditions set forth in any employment agreement between you and Company, if any. There are no other representations, agreements, arrangements or understandings, oral or written, between and among the parties hereto relating to the subject matter hereof which are not fully expressed herein.

6

		
	10.
	Headings.  Section and other headings contained in the Award Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of the Award Agreement or any provision hereof. 

		
	11.
	Disclaimer of Rights.  Nothing contained herein will constitute an obligation for continued employment.

		
	12.
	Offset.  The Company may deduct from amounts otherwise payable under this Award all amounts owed by you to the Company and its affiliates to the maximum extent permitted by applicable law.

		
	13.
	Terms of Plan.  The Award is subject to the terms and conditions set forth in the Plan, which are incorporated into and will be deemed to be a part of this Award Agreement, without regard to whether such terms and conditions (including, for example, provisions relating to certain changes in capitalization of the Company) are otherwise set forth in this Award Agreement. In the event that there is any inconsistency between the provisions of this Award Agreement and of the Plan, the provisions of the Plan will govern.

		
	14.
	Code Section 409A Compliance.  To the extent applicable, it is intended that this Award and the Plan not be subject to, or alternatively comply with, the provisions of Code Section 409A, so that the income inclusion provisions of Code Section 409A(a)(1) do not apply. This Award and the Plan will be interpreted and administered in a manner consistent with this intent, and any provision that would cause the Award or the Plan to fail to satisfy Code Section 409A will have no force and effect until amended to comply with Code Section 409A (which amendment may be retroactive to the extent permitted by Code Section 409A and may be made by the Company without your consent).

		
	15.
	Notice.  Any written notice required or permitted by this Award Agreement must be mailed, certified mail (return receipt requested) or hand-delivered, addressed to Company's Executive Vice President - Human Resources at Company's corporate headquarters at 2455 Paces Ferry Road, N.W., Atlanta, Georgia 30339-4024, or to you at your most recent home address on record with the Company.  Notices are effective upon receipt.

		
	E.
	AWARD DEFINITIONS

As used herein, the following terms will be defined as set forth below:

		
	1.
	“Board” means the Company's Board of Directors.

		
	2.
	“Cause” means a finding by the Company that you have (i) committed any felony or committed a misdemeanor involving theft or moral turpitude, (ii) committed any act or omission that constitutes neglect or misconduct with respect to your employment duties which results in economic harm to the Company or any subsidiary, (iii)  violated  any of the Company's substance abuse, compliance or any other policies applicable to you, which may be in effect at the time of the occurrence, or (iv) breached any material provision of any offer letter, award agreement, employment, non-competition, intellectual property or other agreement, in effect at the time of the breach, between you and Company, or any subsidiary.

		
	3.
	“Change in Control” means and includes the occurrence of any one  of the following events: 

		
	i)
	any “person” (as that term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934 (“1934 Act”), is or becomes the “beneficial owner” (as defined in the 1934 Act), directly or indirectly, of securities representing 50% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor of the Company; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control:  (A) an acquisition directly from the Company, (B) an acquisition by the Company or a Subsidiary, (C) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (D) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (iii) below); 

		
	ii)
	during any period of twelve (12) consecutive months, individuals who at the beginning of such period constituted the Board (the “Incumbent Directors”) cease, for any reason, to constitute at least a majority of the Board, provided that any person becoming a director after the beginning of such 12-month period and whose election or nomination for election was approved by at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the Company's proxy statement in which such individual was named as a nominee for election as a director, without objection to such nomination) shall be an Incumbent Director; 

7

		
	iii)
	the consummation of (A) any reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company (other than an internal reorganization), or (B) the sale or other disposition in one or a series of related transactions of 50% or more of the assets or earning power of the Company (in either such case a “Transaction”), unless immediately following such Transaction: (x) all or substantially all of the individuals and entities who were the beneficial owners of the outstanding Company common stock immediately prior to such Transaction beneficially own, directly or indirectly, more than 50% of the combined voting power for the election of directors of the entity resulting from, or owning the assets so purchased in, such Transaction (the “Surviving Entity”) in substantially the same proportions as their ownership, immediately prior to such Transaction, of the outstanding Company common stock, and (y) at least a majority of the members of the board of directors of the Surviving Entity were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Transaction (any Transaction that satisfies all of the criteria specified in (x) and (y) above shall be deemed to be a “Non-Qualifying Transaction”); or, 

		
	iv)
	the approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

		
	4.
	“Code” means the Internal Revenue Code of 1986, as amended.

		
	5.
	“Committee” means the Leadership Development and Compensation Committee of the Board.

		
	6.
	“Common Stock” means the Company's $.05 par value common stock.

		
	7.
	“Competitor” means any company or entity engaged in any way in a business that competes directly or indirectly with the Company, its parents, subsidiaries, affiliates or related entities, in the United States, Canada, Puerto Rico, Mexico, China or any other location in which the Company currently conducts business or may conduct business without the prior written consent of the Company.  Businesses that compete with the Company specifically include, but are not limited to, the following entities and each of their subsidiaries, affiliates, assigns, franchisees, or successors in interest: Lowe's Companies, Inc. (including, but not limited to, Eagle Hardware and Garden); Sears Holding Corp. (including, but not limited to Orchard Supply and Hardware Company); RONA Inc.; B&Q; OBI; Homemart; Orient Home; Grainger; Ferguson; ServiceMaster; Menard, Inc.; Ace Hardware; True Value Company; and Wal-Mart.

		
	8.
	“Confidential Information” means any data or information that is valuable to the Company and not generally known to competitors of the Company or other outsiders, regardless of whether the confidential information is in printed, written or electronic form, retained in your memory or has been compiled or created by you, including but not limited to technical, financial, personnel, staffing, payroll, computer systems, marketing, advertising, merchandising, product, vendor, customer or store planning data, trade secrets, or other information similar to the foregoing.

		
	9.
	“Disability” means that you have been found to be “Disabled” by the Company's long-term disability carrier or third party administrator, or if you are not a participant in the Company's long-term disability plan, under the criteria used by the Company's long-term disability plan.

		
	10.
	“Retirement” means termination of employment with the Company and its subsidiaries on or after your attainment of age 60 and having at least five (5) years of continuous service with the Company and its subsidiaries.    

		
	11.
	“Retirement Eligibility” means attainment of age 60 and completion of at least five (5) years of continuous service with the Company and its subsidiaries.    

8

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