Document:

exv10w1

 

EXHIBIT 10.1

COVANSYS CORPORATION

2007 STOCK OPTION PLAN

 

COVANSYS CORPORATION

2007 STOCK OPTION PLAN

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Page	
	 	 	 	 	 	
	 	ARTICLE 1	 	 	
    GENERAL PROVISIONS	 	 	1	 
	 	1.1	 	 	
    Purpose of the Plan	 	 	1	 
	 	1.2	 	 	
    Structure of the Plan	 	 	1	 
	 	1.3	 	 	
    Adoption and Term	 	 	1	 
	 	ARTICLE 2	 	 	
    DEFINITIONS	 	 	1	 
	 	ARTICLE 3	 	 	
    ADMINISTRATION	 	 	3	 
	 	3.1	 	 	
    Administration of the Plan	 	 	3	 
	 	3.2	 	 	
    Expenses of Administration	 	 	3	 
	 	3.3	 	 	
    Indemnification	 	 	3	 
	 	ARTICLE 4	 	 	
    ELIGIBILITY AND PARTICIPATION	 	 	3	 
	 	ARTICLE 5	 	 	
    SHARES OF COMMON STOCK SUBJECT TO THE PLAN	 	 	4	 
	 	5.1	 	 	
    Shares Subject to the Plan	 	 	4	 
	 	5.2	 	 	
    Shares of Common Stock Subject to Terminated or Expired Options	 	 	4	 
	 	5.3	 	 	
    Adjustment of Shares	 	 	4	 
	 	ARTICLE 6	 	 	
    OPTIONS	 	 	4	 
	 	6.1	 	 	
    Power to Grant Options	 	 	4	 
	 	6.2	 	 	
    Optionee to Have No Rights as a Shareholder	 	 	4	 
	 	6.3	 	 	
    Incentive Options	 	 	4	 
	 	ARTICLE 7	 	 	
    TERMS, CONDITIONS AND EXERCISE OF OPTIONS	 	 	5	 
	 	7.1	 	 	
    Option Agreements	 	 	5	 
	 	7.2	 	 	
    Conditions for Exercise and Term of Options	 	 	5	 
	 	7.3	 	 	
    Exercise Price and Procedures	 	 	6	 
	 	7.4	 	 	
    Effect of Termination of Service	 	 	6	 
	 	7.5	 	 	
    Prohibition Against Exercise of Out-Of-the-Money Options	 	 	6	 
	 	7.6	 	 	
    Limited Transferability of Options	 	 	6	 
	 	7.7	 	 	
    Acceleration of Exercise Time	 	 	6	 
	 	ARTICLE 8	 	 	
    MISCELLANEOUS MATTERS	 	 	7	 
	 	8.1	 	 	
    Tax Withholding	 	 	7	 
	 	8.2	 	 	
    Amendment or Termination	 	 	7	 
	 	8.3	 	 	
    Regulatory Approvals	 	 	7	 
	 	8.4	 	 	
    No Employment or Service Rights	 	 	7	 
	 	8.5	 	 	
    No Restraint	 	 	7	 
	 	8.6	 	 	
    Use of Proceeds	 	 	7	 
	 	8.7	 	 	
    Severability	 	 	7	 
	 	8.8	 	 	
    Compliance with Section 16(b) of the Securities Exchange Act	 	 	7	 
	 	8.9	 	 	
    Compliance with Code Section 162(m)	 	 	7	 
	 	8.10	 	 	
    Strict Construction	 	 	8	 
	 	8.11	 	 	
    Choice of Law	 	 	8	 

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COVANSYS CORPORATION

2007 STOCK OPTION PLAN

ARTICLE 1

General Provisions

     
1.1     Purpose of the Plan.
This Plan is intended to promote the interests of the
Corporation by providing eligible persons, including directors,
consultants and employees of the Corporation, with the
opportunity to acquire a proprietary interest in the Corporation
as an incentive for them to continue in such employ or service
and to attract new employees or individuals with outstanding
qualifications.

     
1.2     Types of Options. The
Plan shall provide for the grant of Incentive Options and
Nonqualified Options pursuant to which eligible persons may
purchase shares of Common Stock of the Corporation pursuant to
the terms and conditions provided in the Plan.

     
1.3     Adoption and Term. The
Plan has been approved by the Board of Directors of the
Corporation and, subject to the approval of a majority of the
voting power of the shareholders of the Corporation, is
effective January 1, 2007. The Plan will remain in effect
from January 1, 2007 through December 31, 2007.

ARTICLE 2

Definitions

     
The following definitions shall be in effect under the Plan:

     
Board shall mean the Corporation’s Board of
Directors.

     
Change in Control shall mean a change in ownership or
control of the Corporation affected through any of the following
transactions:

		
	 	     
    (a) a merger, consolidation or other reorganization unless
    securities representing more than 50% of the total combined
    voting power of the voting securities of the successor
    corporation are immediately thereafter beneficially owned,
    directly or indirectly and in substantially the same proportion,
    by the persons who beneficially owned the Corporation’s
    outstanding voting securities immediately prior to such
    transaction;
	 
	 	     
    (b) a sale, transfer or other disposition of all or
    substantially all of the Corporation’s assets; or
	 
	 	     
    (c) the acquisition, directly or indirectly, by any person
    or related group of persons (other than the Corporation or a
    person that directly or indirectly controls, is controlled by,
    or is under common control with, the Corporation), of beneficial
    ownership (within the meaning of Rule 13-d3 of the Exchange
    Act) of securities possessing more than 50% of the total
    combined voting power of the Corporation’s outstanding
    securities from a person or persons other than the Corporation.

     
Code shall mean the Internal Revenue Code of 1986, as
amended.

     
Committee shall mean the Committee established by the
Board of Directors, or such other committee as the Board may
establish and assign the responsibility of administering this
Plan; provided, however, that the Committee shall be comprised
solely of two or more members of the Board, as determined by the
Board from time to time, each of whom shall be (i) a
“disinterested person” as that term is defined and
interpreted pursuant to
Rule 16b-3
promulgated under Section 16 of the Exchange Act and
(ii) an “outside director” as that term is
defined and interpreted pursuant to section 162(m) of the
Code and the regulations thereunder.

     
Common Stock shall mean the Corporation’s common
stock.

     
Corporation shall mean Covansys Corporation, a Michigan
corporation.

     
Date of Grant with respect to an Option, means the date
on which the Committee grants such Option pursuant to the Plan.

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Disability shall mean the inability of Optionee to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that is expected to
result in death or has lasted or can be expected to last for a
continuous period of twelve months or more.

     
Employee shall mean an individual who is and continues to
be employed (within the meaning of Section 3401 of the Code
and the regulations promulgated thereunder) by the Corporation,
Parent or a Subsidiary including officers (whether or not they
may also be directors) of the Corporation, Parent or a
Subsidiary. An Employee shall cease to be an Employee upon the
voluntary or involuntary termination of his employment with the
Corporation, parent or subsidiary for any reason, including
death or Disability.

     
Exchange Act shall mean the Securities Exchange Act of
1934, as amended.

     
Exercise Date shall mean the date on which the Option
shall have been exercised in accordance with the applicable
Option documentation.

     
Fair Market Value per share of Common Stock on any
relevant date shall be determined in accordance with the
following provisions:

		
	 	     
    (a) If the Common Stock is at the time traded on the NASDAQ
    Stock Market (or any other stock exchange), then the Fair Market
    Value shall be the closing selling price per share of Common
    Stock on the date in question, as such price is reported by the
    National Association of Securities Dealers on the NASDAQ Stock
    Market and published in The Wall Street Journal. If there is no
    closing selling price for the Common Stock on the date in
    question, then the Fair Market Value shall be the closing
    selling price on the last preceding date for which such
    quotation exists.
	 
	 	     
    (b) If the Common Stock is at the time neither listed on
    the NASDAQ Stock Market or any stock exchange, then the Fair
    Market Value shall be determined by the Committee after taking
    into account such factors as the Committee shall deem
    appropriate but shall be determined without regard to any
    restrictions other than a restriction which, by its term, will
    never lapse.

     
Incentive Option shall mean an Option that satisfies the
requirements of Code Section 421.

     
Termination for Cause shall mean (i) the commission
of any act of fraud, embezzlement or dishonesty by Optionee,
(ii) any unauthorized use or disclosure by such person of
confidential information or trade secrets of the Corporation, or
(iii) any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation
in a material manner.

     
Nonqualified Option shall mean an Option that does not
qualify as an Incentive Option.

     
Option shall mean an Incentive Option or a Nonqualified
Option granted pursuant to the Plan.

     
Optionee shall mean any person to whom an option is
granted pursuant to the Plan.

     
Plan shall mean this Covansys Corporation 2007 Stock
Option Plan.

     
Reporting Persons means any and all Employees subject to
Section 16 of the Exchange Act.

     
Retirement means normal retirement at age 65 or
early retirement. Early retirement means (a) age 60,
(b) completion of 20 years of service; or
(c) age 55 with 10 years of service.

     
Service shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the
capacity of an Employee, a member of the board of directors or
an independent contractor, except to the extent otherwise
specifically provided in the documents evidencing the option
grant or stock issuance.

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ARTICLE 3

Administration

     
3.1     Administration of the
Plan.

     
(a) The Board shall administer the Plan. However, any or
all administrative functions otherwise exercisable by the Board
may be delegated to the Committee. Members of the Committee
shall serve for such period of time as the Board may determine
and may be removed by the Board at any time. The Board may also
at any time terminate the functions of the Committee and
reassume all powers and authority previously delegated to the
Committee.

     
(b) The Committee shall have the authority (subject to the
provisions of the Plan) to establish such rules and procedures
as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding options issued
under the Plan as it may deem necessary or advisable. Decisions
of the Committee shall be final and binding on all parties who
have an interest in the Plan or any option grant issued under
the Plan.

     
(c) The Committee shall have full authority to determine
with respect to the grants made under the Plan, which eligible
persons are to receive such grants, the time or times when those
grants are to be made, the number of shares to be covered by
each such grant, the status of the Option as either an Incentive
Option or a Nonqualified Option, the time or times when each
Option is to become exercisable, the vesting schedule (if any)
applicable to the Option shares and the maximum term for which
the option is to remain outstanding.

     
(d) Action taken or not taken by the Committee on one or
more occasions shall be without obligation to take or not take
such action on any other occasion(s). The Committee may delegate
to one or more Persons any of its powers, other than its power
to authorize the granting of Options, hereinbefore or
hereinafter provided or conferred, or designate one or more
Persons to do or perform those matters to be done or performed
by the Committee, including administration of the Plan.
Notwithstanding the foregoing, the Committee may not delegate a
power if the delegation of such power would cause the Plan to
fail to satisfy the plan administration requirements set forth
in Rule 16b-3(c)
promulgated under the Exchange Act or section 162(m) of the
Code and the regulations promulgated thereunder. Any Person or
Persons delegated or designated by the Committee shall be
subject to the same obligations and requirements imposed on the
Committee and its members under the Plan.

     
3.2     Expenses of Administration.
The Corporation shall pay all costs and expenses of
administering the Plan.

     
3.3     Indemnification. To the
maximum extent permitted by law, the Corporation shall indemnify
each member of the Board or member of the Committee, as well as
any other Employee of the Corporation with duties under the
Plan, against expenses and liabilities (including any amount
paid in settlement) reasonably incurred by the individual in
connection with any claims against the individual by reason of
the performance of the individual’s duties under the Plan,
unless the losses are due to the individual’s gross
negligence or lack of good faith. The Corporation will have the
right to select counsel and to control the prosecution or
defense of the suit. In the event that more than one person who
is entitled to indemnification is subject to the same claim, all
such persons shall be represented by a single counsel, unless
such counsel advises the Corporation in writing that he or she
cannot represent all such persons under applicable rules of
professional responsibility. The Corporation will not be
required to indemnify any person for any amount incurred through
any settlement unless the Corporation consents in writing to the
settlement.

ARTICLE 4

Eligibility and Participation

     
The following persons are eligible to participate in the Plan:
Employees, members of the Board of Directors of the Corporation,
parent or subsidiary, and independent contractors who provide
services to the Corporation (or any parent or subsidiary). In
making such selections, the Committee may take into account

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the nature of the services rendered by such persons, their
present and potential contributions to the Corporation’s
success, and such other factors as the Committee in its
discretion shall deem relevant.

ARTICLE 5

Shares of Common Stock Subject to the Plan

     
5.1     Shares Subject to the
Plan. The shares of Common Stock issuable under the Plan
shall be shares of authorized but unissued or reacquired shares
of Common Stock. The maximum number of shares of Common Stock
that may be subject to Options granted under the Plan shall not
exceed 2,000,000 shares.

     
5.2     Shares of Common Stock
Subject to Terminated or Expired Options. Shares of
Common Stock subject to outstanding Options shall be available
for subsequent issuance under the Plan to the extent the Options
expire or terminate for any reason prior to their being
exercised in full.

     
5.3     Adjustment of Shares.
Should any change be made to the Common Stock by reason of
any stock split, stock dividend, reverse stock split,
recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class
without the Corporation’s receipt of consideration,
appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable pursuant to the Plan
and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding Option
in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Committee shall be
final.

ARTICLE 6

Options

     
6.1     Power to Grant Options.
The maximum aggregate number of shares of Common Stock with
respect to which Options may be granted to any one Employee
during the calendar year shall be limited to
100,000 shares. For purposes of calculating the number of
shares with respect to which Options have been granted to an
Employee for any such period, any shares subject to an Option
that is granted and subsequently cancelled or surrendered during
such period shall continue to be counted against the maximum
number of shares which may be granted to such Employee pursuant
to the Plan during such period. Subject to this maximum share
limitation, the Committee may grant to such Employees or persons
as the Committee may select in accordance with Article 4,
Options entitling the Optionee to purchase shares of Common
Stock from the Corporation in such quantity, and on such terms
and subject to such conditions not inconsistent with the terms
of the Plan, as may be established by the Committee at the time
of grant or pursuant to applicable resolution of the Committee.

     
6.2     Optionee to Have No Rights
as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder of the
Corporation with respect to the shares of Common Stock made
subject to an Option unless and until such Optionee exercises
such Option and is issued the shares purchased thereby. No
adjustments shall be made for distributions, dividends,
allocations, or other rights with respect to any shares of
Common Stock prior to the exercise of such Option.

     
6.3     Incentive Options. The
terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this
Section 6.3, all the provisions of the Plan shall be
applicable to Incentive Options. Options that are specifically
designated as Nonqualified Options are not subject to the terms
of this Section 6.3.

		
	 	     
    (a) Eligibility. Incentive Options may only be
    granted to Employees.
	 
	 	     
    (b) Dollar Limitation. The aggregate Fair Market
    Value of the shares of Common stock (determined as of the Date
    of Grant) for which one or more Incentive Options granted to any
    Employee pursuant to the Plan (or any other option plan of the
    Corporation or any Parent or subsidiary) may for the first time
    become exercisable as Incentive Options during any one calendar
    year shall not exceed $100,000. To the extent that an
    Optionee’s Options exceed that limit, they will be treated
    as Nonqualified

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    Options (but all of the other provisions of the Option shall
    remain applicable), with the first Options that were awarded to
    Optionee to be treated as Incentive Options.
	 
	 	     
    (c) Restrictions on Sale of Shares. Shares issued
    pursuant to the exercise of an Incentive Option may not be sold
    by the Employee until the expiration of 12 months after
    exercise and 24 months from the Date of Grant. Shares that
    do not satisfy these restrictions shall be treated as a grant of
    Nonqualified Options.
	 
	 	     
    (d) Special Rules for Incentive Options Granted to 10%
    Shareholder.

		
	 	     
    (1) Exercise Price. If any Employee to whom an
    Incentive Option is granted is a 10% Shareholder, the Exercise
    Price of the Incentive Option must be at least 110% of the Fair
    Market Value of the Corporation’s Common Stock.
	 
	 	     
    (2) Term of Option. If any Employee to whom an
    Incentive Option is granted is a 10% Shareholder, then the
    Option term shall not exceed five years measured from the date
    the Incentive Option is granted.
	 
	 	     
    (3) Definition of 10% Shareholder. For purposes of
    the Plan, an Employee is deemed to be a 10% Shareholder if he
    owns more than 10% of the Corporation or any Parent or
    Subsidiary.

		
	 	     
    (e) Special Rules for Exercise of Incentive Options
    Following Termination of Employment Due to Disability or
    Retirement.

		
	 	     
    (1) Retirement. In order to preserve tax treatment
    as an Incentive Option, vested and outstanding Incentive Options
    must be exercised by an Optionee no later than the earlier of:
    (i) three (3) months following the date the Optionee
    terminates employment by reason of Retirement, or (ii) the
    expiration date of the Incentive Option.
	 
	 	     
    (2) Disability. In order to preserve tax treatment
    as an Incentive Option, vested and outstanding Incentive Options
    must be exercised by an Optionee who becomes Disabled no later
    than the earlier of (i) twelve (12) months following
    the date of Disability, or (ii) the expiration date of the
    Incentive Option.

ARTICLE 7

Terms, Conditions and Exercise of Options

     
7.1     Option Agreements. The
terms of any Option shall be as set forth in a written stock
option agreement (an “Option Agreement”) in
such form as the Committee shall from time to time determine.
Each Option Agreement shall comply with and be subject to the
terms and conditions of the Plan and such other terms and
conditions as the Committee may deem appropriate. In the event
that any provision of an Option granted under the Plan shall
conflict with any term in the Plan as constituted on the Date of
Grant of such Option, the term in the Plan constituted on the
Date of Grant of such Option shall control. No Person shall have
any rights under any Option granted under the Plan unless and
until the Corporation and the Optionee have executed an Option
Agreement setting forth the grant and the terms and conditions
of the Option.

     
7.2     Conditions for Exercise and
Term of Options. Subject to the provisions of
Section 7.7 hereof, no portion of an Option granted under
the Plan may be exercised until the Optionee has completed one
(1) year of service with the Corporation after the date of
grant of such Option. Provided that an Optionee has completed
one (1) year of service with the Corporation after the Date
of Grant of an Option, each Option granted under this Plan shall
become exercisable (i.e., it shall “vest”) as
follows:

		
	 	     
    (a) Vesting. Each Option granted under this Plan
    shall become vested and exercisable (i) on the first (1st)
    anniversary of the Date of Grant of such Option to the extent of
    twenty-five percent (25%) of the shares made subject to such
    Option; and (ii) on each of the second (2nd) through fourth
    (4th) anniversaries of the Date of Grant of such Option, to the
    extent of an additional twenty-five percent (25%) of the shares
    made subject to such Option.

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    (b) Option Term. No Option shall have a term in
    excess of ten years measured from the date that the Option is
    granted.

     
7.3     Exercise Price and
Procedures.

		
	 	     
    (a) Exercise Price. The Exercise Price means the
    price per share at which an Optionee may exercise his or her
    Option to acquire all or a portion of the shares of Common Stock
    that are the subject of such Option, as determined by the
    Committee on the Date of Grant. Notwithstanding the foregoing,
    in no event shall the Exercise Price of any Common Stock made
    the subject of an Option be less than the Fair Market Value of
    such Common Stock, determined as of the Date of Grant.
	 
	 	     
    (b) Exercise Procedures. Each Option granted under
    the Plan shall be exercised by providing written notice to the
    Committee, together with payment of the Exercise Price, which
    notice and payment must be received by the Committee on or
    before the earlier of (i) the date such Option expires
    pursuant to Section 7.2 hereof, and (ii) the last date
    on which such Option may be exercised as provided in
    Sections 7.4 through 7.7 hereof, as applicable.
	 
	 	     
    (c) Payment of Exercise Price. The Exercise Price
    times the number of the shares to be purchased upon exercise of
    an Option granted under the Plan shall be paid in full at the
    time of exercise: (i) in cash or by certified check, in
    United States dollars; (ii) in the discretion of the
    Committee, by the delivery of shares of Common Stock with a Fair
    Market Value at the time of exercise equal to the Exercise Price
    times the number of shares subject to the Option being
    purchased; or (iii) in the discretion of the Committee, by
    delivery to the Corporation or its designated agent of an
    executed irrevocable exercise form together with irrevocable
    instructions to a broker/ dealer to sell (or margin) a
    sufficient number of the shares and deliver the sale (or margin
    loan) proceeds directly to the Corporation to pay the aggregate
    Exercise Price; or (iv) in the discretion of the Committee,
    a combination of the methods described in
    (i), (ii) and (iii).

     
7.4     Effect of Termination of
Service. Subject to Section 6.3 with respect to
Incentive Options and subject to Section 7.7, the following
provisions shall govern the exercise of any Options granted to
an Optionee that are vested and outstanding at the time
Optionee’s Service ceases:

		
	 	     
    (a) Termination of Employment for Reasons Other than
    Death, Disability, Retirement or a Termination for Cause.
    Should Optionee’s Service cease for any reason other than
    death, Disability or a Termination for Cause (as determined by
    the Committee), then each Option shall remain exercisable until
    the close of business on the earlier of (i) thirty
    (30) days following the date Optionee’s Service ceased
    or (ii) the expiration date of the Option.
	 
	 	     
    (b) Termination of Employment Due to Death, Disability
    or Retirement. Should Optionee’s Service cease due to
    death, Disability or Retirement, then each Option shall remain
    exercisable until the close of business on the earlier of
    (i) the eighteen (18) month anniversary of the date
    Optionee’s Service ceased, or (ii) the expiration date
    of the Option.
	 
	 	     
    (c) Termination for Cause. Should Optionee’s
    Service be terminated for Cause, each outstanding Option granted
    to Optionee shall terminate immediately.

     
7.5     Prohibition Against Exercise
of Out-of-the-Money
Options. The exercise of any Option shall not be permitted
if the Fair Market Value of the Common Stock that would be
acquired upon such exercise, determined as of the date of
exercise, is less than the Exercise Price of such Option.

     
7.6     Limited Transferability of
Options. An Option shall be exercisable only by Optionee
during his or her lifetime and shall not be assignable or
transferable other than by will or by the laws of inheritance
following Optionee’s death.

     
7.7     Acceleration of Exercise
Time. Notwithstanding anything to the contrary in the Plan,
the Committee, in its discretion, may allow the exercise in
whole or in part, at any time after the Date of Grant of any
Option held by an Optionee, which Option has not previously
become exercisable. In the event of a Change in Control of the
Corporation, the Committee, in its discretion may provide that
Options shall become

6

 

100% vested and exercisable on the date of the Change in
Control. Notwithstanding the preceding sentences, Options
granted to Reporting Persons shall not become exercisable prior
to the six (6) month anniversary of the Date of Grant.

ARTICLE 8

Miscellaneous Matters

     
8.1     Tax Withholding. The
Corporation shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment in cash
in United States dollars from an Optionee or beneficiary in lieu
of withholding) the amount of any withholding or other tax
required by law to be withheld or paid by the Corporation with
respect to any amount payable and/or shares of Common Stock
issuable under such Optionee’s Option, and the Corporation
may defer payment or issuance of the shares of Common Stock upon
such Optionee’s exercise of an Option unless indemnified to
its satisfaction against any liability for such tax. The amount
of any such withholding shall be equal to the minimum statutory
amount required to be withheld (but in no event any more than
the minimum statutory amount required to be withheld) as
determined by the Corporation.

     
8.2     Amendment or Termination.
The Board shall have complete and exclusive power and
authority to amend or terminate the Plan or any grant of Options
made hereunder. However, no such amendment or termination of the
Plan shall adversely affect the rights and obligations with
respect to Options at the time outstanding under the Plan unless
Optionee consents to such amendment or termination. In addition,
certain amendments may require approval of the
Corporation’s stockholders.

     
8.3     Regulatory Approvals.
The implementation of the Plan, the granting of any Options
under the Plan, and the issuance of any shares of Common Stock
upon the exercise of any Option, shall be subject to the
Corporation’s procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the
Plan, the Options granted, and the shares of Common Stock issued
pursuant to it.

     
8.4     No Employment or Service
Rights. Nothing in the Plan shall confer upon Optionee any
right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of
the Corporation (or any Parent or Subsidiary employing or
retaining such person) or of Optionee which rights are hereby
expressly reserved by each, to terminate such person’s
Service at any time for any reason, with or without cause,
unless the relationship is subject to an employment agreement.

     
8.5     No Restraint. Neither
the grant of Options nor the issuance of Common Stock under the
Plan shall affect the right of the Corporation to undertake any
corporate action.

     
8.6     Use of Proceeds. Any
cash proceeds received by the Corporation from the sale of
shares of Common Stock pursuant to the Plan shall be used for
any corporate purpose.

     
8.7     Severability. Whenever
possible, each provision in the Plan and every Option at any
time granted under the Plan shall be interpreted in such a
manner as to be effective and valid under applicable law, but if
any provision of the Plan or any Option at any time granted
under the Plan shall be held to be prohibited or invalid under
applicable law, then, (i) such provision shall be deemed
amended to accomplish the objectives of the provision as
originally written to the fullest extent permitted by law, and
(ii) all other provisions of the Plan and every other
Option at any time granted under the Plan shall remain in full
force and effect.

     
8.8     Compliance with
Section 16(b) of the Securities Exchange Act. With
respect to Reporting Persons, transactions under this Plan are
intended to comply with all applicable conditions of
Rule 16b-3 or its
successors under the Exchange Act and in all events the Plan
shall be construed in accordance with
Rule 16b-3. 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 permitted by law and deemed advisable by the Committee.
The Committee, in its absolute discretion, may bifurcate the
Plan so as to restrict, limit or condition the use of any
provision of the Plan to participants who are officers or
directors of the Corporation, subject to Section 16 of the
Exchange Act without so restricting, limiting or conditioning
the Plan with respect to other participants.

7

 

     
8.9 Compliance with Code Section 162(m). This Plan
is intended to comply with all applicable provisions of
Section 162(m) of the Code. 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 permitted by law and
deemed advisable by the Committee.

     
8.10 Strict Construction. No rule of strict construction
shall be implied against the Committee, the Corporation, Parent
or Subsidiary or any other Person in the interpretation of any
of the terms of the Plan, any Option granted under the Plan or
any rule or procedure established by the Committee.

     
8.11 Choice of Law. All determinations made and actions
taken pursuant to the Plan shall be governed by the internal
laws of the State of Michigan and construed in accordance
therewith.

     
To record the adoption of the Plan, the Corporation has caused
the execution hereof as of
this                     day
of                     ,
2006.

		
	 	
    COVANSYS CORPORATION,
	 	
    a Michigan corporation

			
	 	By: 	
     

		
	 	
     

	 
	 	
    Its:
	 	
     

8exv10w1

 

Exhibit 10.1

EXECUTION
COPY

THE HOUSTON EXPLORATION COMPANY

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Amended and Restated on July 25, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	ARTICLE I DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 
	1.1
	 	Actuarial Equivalent	 	 	1	 
	1.2
	 	Board	 	 	1	 
	1.3
	 	Bonus	 	 	1	 
	1.4
	 	Cause	 	 	1	 
	1.5
	 	Change of Control	 	 	2	 
	1.6
	 	Company	 	 	2	 
	1.7
	 	Code	 	 	2	 
	1.8
	 	Early Retirement Date	 	 	2	 
	1.9
	 	Effective Date	 	 	2	 
	1.10
	 	Eligible Employee	 	 	2	 
	1.11
	 	ERISA	 	 	2	 
	1.12
	 	Final Average Salary	 	 	2	 
	1.13
	 	Good Reason	 	 	3	 
	1.14
	 	Normal Retirement Date	 	 	3	 
	1.15
	 	Notional Interest	 	 	3	 
	1.16
	 	Offset Amount	 	 	3	 
	1.17
	 	Participant	 	 	3	 
	1.18
	 	Plan	 	 	3	 
	1.19
	 	Plan Year	 	 	3	 
	1.20
	 	Plan Administrator	 	 	3	 
	1.21
	 	Postponed Retirement Date	 	 	3	 
	1.22
	 	Retirement	 	 	4	 
	1.23
	 	Retirement Date	 	 	4	 
	1.24
	 	Specified Employee	 	 	4	 
	1.25
	 	Termination of Employment	 	 	4	 
	1.26
	 	Total Compensation	 	 	4	 
	1.27
	 	Years of Participation	 	 	4	 
	1.28
	 	Years of Service	 	 	4	 
	 
	 	 	 	 	 	 
	ARTICLE II ELIGIBILITY FOR BENEFITS	 	 	4	 
	 
	 	 	 	 	 	 
	2.1
	 	Eligibility to Participate	 	 	4	 
	2.2
	 	Entitlement to Benefits	 	 	5	 
	2.3
	 	Forfeiture of Benefits	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE III BENEFITS	 	 	6	 
	 
	 	 	 	 	 	 
	3.1
	 	Amount of Benefit	 	 	6	 
	3.2
	 	Form of Benefit	 	 	7	 
	3.3
	 	Payment of Benefits	 	 	7	 
	3.4
	 	Vesting	 	 	7	 
	3.5
	 	Payees Under Legal Disability	 	 	7	 
	3.6
	 	Withholding for Taxes	 	 	8	 

i

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	3.7
	 	Mailing of Payments	 	 	8	 
	3.8
	 	Grantor Trust	 	 	8	 
	3.9
	 	Protective Provisions	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE IV CHANGE OF CONTROL	 	 	9	 
	 
	 	 	 	 	 	 
	4.1
	 	Entitlement to Benefits	 	 	9	 
	4.2
	 	Special Administrative Committee	 	 	9	 
	4.3
	 	Full Vesting	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE V OPERATION AND ADMINISTRATION OF THE PLAN	 	 	9	 
	 
	 	 	 	 	 	 
	5.1
	 	Plan Administrator Powers	 	 	9	 
	5.2
	 	Composition of Plan Administrator	 	 	10	 
	5.3
	 	Plan Administrator Procedure	 	 	10	 
	5.4
	 	Notices and Communications	 	 	11	 
	5.5
	 	Reporting and Disclosure	 	 	11	 
	5.6
	 	Conflict of Interest	 	 	11	 
	5.7
	 	Indemnification	 	 	11	 
	 
	 	 	 	 	 	 
	ARTICLE VI APPLICATION FOR BENEFITS	 	 	11	 
	 
	 	 	 	 	 	 
	6.1
	 	Application for Benefits	 	 	11	 
	6.2
	 	Content of Denial	 	 	12	 
	6.3
	 	Appeals	 	 	12	 
	6.4
	 	Arbitration	 	 	12	 
	6.5
	 	Exhaustion of Remedies	 	 	13	 
	 
	 	 	 	 	 	 
	ARTICLE VII MISCELLANEOUS MATTERS	 	 	13	 
	 
	 	 	 	 	 	 
	7.1
	 	Amendment or Termination	 	 	13	 
	7.2
	 	Effect of Reorganization or Transfer of Assets	 	 	13	 
	7.3
	 	Rights of Participants	 	 	13	 
	7.4
	 	Assignment of Benefits	 	 	14	 
	7.5
	 	Other Plans	 	 	14	 
	7.6
	 	Interpretation	 	 	14	 
	7.7
	 	Receipt or Release	 	 	14	 
	7.8
	 	Governing Law	 	 	15	 
	7.9
	 	Section 409A Standards	 	 	15	 
	 
	 	 	 	 	 	 
	Exhibit A Designated Plan Participants
	 	 	A-1	 

ii

 

THE HOUSTON EXPLORATION COMPANY

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

PREAMBLE

     The principal objective of The Houston Exploration Company Supplemental Executive Retirement
Plan (“Plan”) is to help ensure that the Company provides a competitive level of benefits in order
to attract, retain, and motivate selected executives. The Plan is designed to provide retirement
benefits to selected employees that will help the Company meet this objective.

     The Plan was adopted effective January 1, 2006 and was amended and restated as of the
Effective Date (as defined below). The Plan was established for the purpose of providing benefits
to a select group of management or highly compensated employees. The benefits under the Plan are
considered unfunded. Accordingly, it is intended that the Plan be exempt from the requirements of
Parts II, III, and IV of Title I of Employee Retirement Income Security Act of 1974 (“ERISA”)
pursuant to Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA.

ARTICLE I

DEFINITIONS

     1.1 Actuarial Equivalent. The “Actuarial Equivalent” of two (2) forms of benefits shall be
determined using the following actuarial assumptions:

	 	 	 
	Interest rate:

	 	The average of the “applicable interest rate” within the meaning of Section
417(e)(3)(A)(ii)(II) of the Code in effect for the three (3) months preceding the Plan
Year for to which it shall apply (the “Actuarial Equivalent Benefit Interest Rate”).
	 
	 	 
	Mortality:

	 	The “applicable mortality table” within the meaning of Section 417(e)
(3)(A)(ii)(I) of the Code.

     1.2 Board. The Board of Directors of the Company or its delegate.

     1.3 Bonus. “Bonus” shall mean the annual Bonus paid to a participant under the Company’s
annual incentive compensation plan as in effect from time to time.

     1.4 Cause. “Cause” shall (a) have the same meaning as set forth in any written employment agreement between
the Participant and the Company or (b) in the event that the Participant is not a party to a
written employment agreement, “Cause” shall mean: any failure by the Participant to: (i) perform
his principal duties as so required by the Company, or (ii) comply with any material provision of
the Company’s ethics, code of conduct or other employment policies, after written notice of such
failure has been given to the Participant by the Board and such failure shall have continued for
thirty (30) days after receipt of such notice, or (iii) a

1

 

Participant’s grossly negligent or
intentional misconduct which is either materially detrimental to the Company’s financial interest
and reputation or would legally prevent the Participant from serving in the capacity he was hired
to serve, or (iv) a conviction or plea of guilty or no contest by the Participant of a felony or
any other criminal offense involving a moral turpitude any of which has a material adverse affect
on a Participant’s ability to perform the duties of his position or on the financial condition or
profitability of the Company.

     1.5 Change of Control. “Change of Control” shall have the same meaning as set forth in the
Company’s 2004 Long Term Incentive Plan, as amended from time to time.

     1.6 Company. The Houston Exploration Company.

     1.7 Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

     1.8 Early Retirement Date.

          (a) The first day of any month coincident with or next following the month in which the
Participant terminates employment with the Company:

               (i) After becoming eligible for early retirement benefits, but

               (ii) Before his Normal Retirement Date.

          (b) A Participant first becomes eligible for early retirement benefits when:

               (i) He attains age fifty-five (55), and

               (ii) He has at least five (5) full Years of Participation.

     1.9  Effective Date. The effective date of the Plan is January 1, 2006.

     1.10 Eligible Employee. A management level or highly compensated employee of the Company who is designated to
participate in the Plan by the Plan Administrator.

     1.11 ERISA. The Employee Retirement Income Security Act of 1974, as amended.

     1.12 Final Average Salary.

          (a) The Participant’s “Final Average Salary” shall mean the average of the highest consecutive
three (3) years of a Participant’s annual base salary and a Participant’s annual Bonus earned from
the Company during the five (5) year period preceding a Participant’s Termination of Employment
measured from the December 31st immediately prior to the Termination of Employment.

          (b) In the event that the Participant has less than three (3) calendar years of employment
with the Company, his Final Average Salary shall be the average amount of his annualized base
salary and annual Bonus for the entire period.

2

 

          (c) Notwithstanding Paragraph (a) or (b), on or following a Change of Control, Final Average
Salary shall mean the greater of (i) or (ii), where (i) is the amount set forth in Section 1.12(a)
or Section 1.12(b), as applicable, determined as of the Participant’s Retirement and (ii) is the
amount set forth in Section 1.12(a) or 1.12(b), as applicable, determined as though Retirement
occurred on the date of a Change of Control.

     1.13 Good Reason. Good Reason” shall (a) have the same meaning as set forth in any written
employment agreement between the Participant and the Company or (b) in the event that the
Participant is not a party to a written employment agreement, Good Reason shall mean within thirty
(30) days following his knowledge of any of the events set forth below which have not been cured by
the Company within fifteen (15) days following a Participant’s written notice of the occurrence of
any such events: (i) a material and adverse change in (A) the powers, duties, responsibilities or
functions of the Participant or (B) in the Participant’s reporting responsibilities which in either
case of (A) or (B), occurs on or following a Change of Control or (ii) without the Participant’s
prior written consent, the relocation of the Company’s principal executive offices outside the
greater Houston, Texas metropolitan area or requiring the Participant to be based other than at
such principal executive offices of the Company.

     1.14 Normal Retirement Date. The Participant’s sixty-fifth (65th) birthday.

     1.15 Notional Interest. As of any particular date shall mean the Actuarial Equivalent
Benefit Interest rate times 1.2, compounded annually.

     1.16 Offset Amount. The Actuarial Equivalent, calculated using the same form of benefit
that is to be paid to the Participant, of six (6%) percent of a Participant’s Total Compensation
earned for each Year of Service assuming such amounts earned Notional Interest at all times from
the date earned through the date that benefits commence under the Plan. For purposes hereof,
amounts shall be deemed earned for a Year of Service on the January 1 which occurs immediately
following the end of such Year of Service and Notional Interest shall be calculated with respect to
such year commencing as of such on January 1.

     1.17 Participant. An Eligible Employee who has become a participant in the Plan in
accordance with Section 2.1.

     1.18 Plan. The Houston Exploration Supplemental Executive Retirement Plan, as amended from
time to time.

     1.19 Plan Year. The fiscal year of the Plan, which shall be the period beginning on
January 1 and ending on the following December 31; provided, that, for the Plan’s
first Plan Year it shall mean the period from the Effective Date to December 31, 2006.

     1.20 Plan Administrator. The person, persons or entity appointed by the Board pursuant to
Article V to manage, administer, interpret, and construe the Plan.

     1.21 Postponed Retirement Date. The first day on which the Participant terminates
employment with the Company following his Normal Retirement Date.

3

 

     1.22 Retirement. The termination of a Participant’s employment with the Company after he
has satisfied the requirements for benefits under Section 2.2 below.

     1.23 Retirement Date. A Participant’s Normal, Early, or Postponed Retirement Date
(whichever is applicable).

     1.24 Specified Employee. A “Specified Employee” shall have the meaning as set forth in
Section 409A of the Code.

     1.25 Termination of Employment. A Participant’s cessation of service with the Company and
affiliates for any reason whatsoever, voluntary or involuntary, if such termination is within the
meaning of Section 409A(a)(2)(A)(i) of the Code.

     1.26 Total Compensation. For any Year of Service shall mean a Participant’s annual base
salary and annual Bonus paid during such year.

     1.27 Years of Participation. The number of complete and partial Plan Years that the
Participant has been a Participant in the Plan while employed by the Company, beginning with the
first Plan Year in which the Participant commences participation in the Plan pursuant to Section
2.1 of the Plan. A Participant will be credited with one (1) full Year of Participation for each
Plan Year on or after the Effective Date during which the Participant completes twelve (12) months
of continuous service for the Company and is a Participant in the Plan.

     1.28 Years of Service. The number of complete and partial years that a Participant has
been employed by the Company. A Participant will be credited with one (1) full Year of Service for
each computation period during which the Participant completes twelve (12) months of continuous
service for the Company. A computation period shall be the Plan Year. Except as otherwise set
forth in resolutions of the Board:

          (a) Each Participant will receive credit for all full and partial Years of Service with the
Company prior to commencing participation in the Plan, and

          (b) A Participant will be credited with any time while he is on a leave of absence approved by
the Company, including disability leave, up to a maximum of two (2) additional Years of Service.

ARTICLE II

ELIGIBILITY FOR BENEFITS

     2.1 Eligibility to Participate.

          (a) An individual shall become a Participant at the time, and on the conditions specified by
the Plan Administrator.

          (b) The Participants in the Plan as of Effective Date are the individuals specified in Exhibit
A attached hereto. Additional Participants may be added to Exhibit A by the Plan Administrator
without requiring an amendment to the Plan.

4

 

          (c) If it is subsequently determined that the participation of any individual in the Plan is
inconsistent with the Plan being exempt from the requirements of Parts II, III, and IV of Title I
of ERISA, at the election of the Plan Administrator, the present value of the current accrued
benefit payable to that individual shall be paid in a lump sum as soon as administratively possible
after such determination is made, but only to the extent that such payment would not subject the
Participant to taxes and penalties under Section 409A(a)(1)(B) of the Code.

     2.2 Entitlement to Benefits. A Participant shall be entitled to the accrued benefit
determined pursuant to Article III hereof in accordance with the following:

          (a) Normal Retirement. A Participant who has a Termination of Employment on or after
his Normal Retirement Date will be eligible to retire and receive accrued benefits under this Plan
unless the Participant is a Specified Employee in which case distribution of such benefits shall
commence six (6) months after such Participant’s Retirement Date, unless it is determined that
commencement of such distribution prior to the expiration of such six (6) month period would not
violate Section 409A of the Code.

          (b) Early Retirement. A Participant who has a Termination of Employment on or after
his Early Retirement Date shall be eligible to retire and receive accrued benefits at his Early
Retirement Date as determined in accordance with Section 3.1(b) of the Plan. A Participant must
commence distribution of his early retirement benefit upon such termination event and shall not be
permitted to defer receipt of his early retirement benefit, unless the Participant is a Specified
Employee in which case such distribution shall commence six (6) months after such Participant’s
Early Retirement Date, unless it is determined that commencement of such distribution prior to the
expiration of such six (6) month period would not violate Section 409A of the Code.

          (c) Termination of Employment Prior to Retirement. A Participant who has a
Termination of Employment for a reason other than death prior to attaining an Early Retirement
Date, shall receive his accrued benefit under the Plan based on his Years of Service as of his
Termination of Employment and such benefit shall commence upon his Normal Retirement Date as
provided in Paragraph (a).

          (d) Pre-Retirement Death Benefit. In the event of the Participant’s death while still
employed by the Company or an affiliate and after completing five (5) full Years of Participation,
the Participant’s surviving spouse, if any, shall be entitled to receive a survivor benefit upon
such Participant’s death. The amount of the benefit payable to the surviving spouse shall be
determined as if:

               (i) The Participant had terminated employment on the day before his death and

               (ii) Elected to receive his benefit in the form of an Actuarial Equivalent fifty percent (50%)
joint and survivor annuity. The value of the joint and survivor annuity will be the Actuarial
Equivalent of the accrued benefit to which the Participant would
have become entitled assuming he had survived his earliest retirement date (or the date of
death if later), based on his Years of Service and Final Average Salary through the date of his
death.

5

 

          (e) Post-Retirement Death Benefit. In the event of the Participant’s death after
Termination of Employment, no further benefits shall be payable under the Plan unless the
Participant has elected, pursuant to Section 3.2(b), to have benefits payable over the joint lives
of the Participant and the Participant’s spouse, in which case Actuarial Equivalent benefit
payments shall continue over the life of the Participant’s spouse.

     2.3 Forfeiture of Benefits. Notwithstanding anything herein to the contrary, the benefit
payable hereunder to a Participant shall be forfeited if he is discharged for Cause or otherwise
experiences a Termination of Employment prior to being vested in his benefit under the Plan.

ARTICLE III

BENEFITS

     3.1 Amount of Benefit. A Participant who is entitled to benefits in accordance with
Article 2 above will be eligible for a monthly retirement benefit equal to one twelfth (1/12) of
the amount determined in accordance with this Section 3.1.

          (a) The annual retirement benefit payable upon a Termination of Employment which occurs on or
following such Participant’s Normal Retirement Date will be equal to the difference between (i) and
(ii), where (i) is equal to the product of (A) and (B), where (A) is equal to two and one-half
percent (2.5%) of such Participant’s Final Average Salary and (B) is equal to such Participant’s
total Years of Service, not to exceed twenty (20) and (ii) is the Offset Amount (the “Normal
Retirement Benefit”).

          (b) Notwithstanding Section 3.1(a) hereof, if a Participant qualifies for early retirement in
accordance with Section 1.8(b) of the Plan, upon his Early Retirement Date, such Participant’s
early retirement benefit shall be equal to the difference between (i) and (ii), where (i) is equal
to the product of (A), (B) and (C), where (A) is equal to two and one-half percent (2.5%) of such
Participant’s Final Average Salary, (B) is equal to such Participant’s total Years of Service, not
to exceed twenty (20) and (C) is equal to the applicable percentage as set forth in the chart below
and (ii) is the Offset Amount.

	 	 	 	 	 
	Attained Age at Retirement	 	Applicable Percentage
	65
	 	 	100	%
	64
	 	 	95	%
	63
	 	 	90	%
	62
	 	 	85	%
	61
	 	 	80	%
	60
	 	 	75	%
	59
	 	 	70	%
	58
	 	 	65	%
	57
	 	 	60	%
	56
	 	 	55	%
	55
	 	 	50	%

6

 

     3.2 Form of Benefit.

          (a) Except as provided in Paragraph (b) below, Section 2.2(d) and Article IV hereof, the
benefit determined under this Plan will be payable in the form of a single life annuity over the
life of the Participant.

          (b) In accordance with rules and procedures prescribed by the Plan Administrator, a
Participant may elect within thirty (30) days of first becoming eligible to participate in the Plan
to have his benefit be paid in the form of a joint and fifty-percent (50%) survivor annuity payable
over the joint lives of the Participant and the Participant’s spouse that will be the Actuarial
Equivalent of the amount of the Participant’s benefit calculated pursuant to Paragraph (a) above.
If a Participant is not married at such time the payment of benefits are to commence, the benefit
shall be calculated in accordance with Paragraph (a) without regard to any such election. If
permissible under Section 409A of the Code, the Plan Administrator may permit such elections to be
made at a later time.

     3.3 Payment of Benefits.

          (a) Participants are not entitled to receive a distribution of their benefits prior to
Retirement, except as otherwise provided in Article IV of the Plan.

          (b) Benefits will begin on the first day of the month coincident with or next following the
Participant’s Retirement Date. Benefits will continue to be paid on the first day of each
succeeding month.

          (c) The last payment will be on the first day of the month in which the retired Participant
dies unless the Participant has elected that his benefit be paid in an optional form in accordance
with the provisions of Section 3.2(b) above.

     3.4 Vesting. A Participant shall be vested 100% in his benefit payable under this Plan
upon the earlier of completing five (5) full Years of Participation or attaining the age of 65
prior to a Termination of Employment (the “Vesting Date”). If a Participant is not vested in his
benefit under the Plan upon a Termination of Employment, no benefits shall be paid under the Plan.
If a Participant has a Termination of Employment prior to his Vesting Date, but is re-employed by
the Company within three (3) years thereafter and is still eligible to participate in the Plan, as
determined by the Plan Administrator, such Participant shall be credited with the same Years of
Service and Years of Participation he had upon such Termination of Employment for purposes of
calculating vesting and benefits hereunder. If a Participant has a Termination of Employment on or
following a Vesting Date and has commenced receiving benefits under the Plan, upon a re-employment
of such Participant by the Company, unless otherwise determined by the Plan
Administrator, such Participant shall continue to receive such benefits and shall not accrue any
additional Years of Service under the Plan.

     3.5 Payees Under Legal Disability.

          (a) If the Plan Administrator believes that any payee is legally incapable of giving a valid
receipt and discharge for any payment due him, the Plan Administrator may have

7

 

the payment, or any
part of it, made to the person(s) or institution that it believes is caring for or supporting the
payee.

          (b) Any payment under Paragraph (a) above shall be a payment for the benefit of the payee and
shall, to the extent thereof, be a complete discharge of any liability under the Plan to the payee.

     3.6 Withholding for Taxes. Any payments out of the Plan may be subject to withholding for
taxes as may be required by any applicable federal or state law. To the extent that the benefit
under this Plan is considered wages for income or employment tax purposes during any period prior
to the time benefits become payable hereunder, the Company may withhold such taxes from the
Participant’s current compensation as may be required by any applicable federal or state law.

     3.7 Mailing of Payments.

          (a) All payments under the Plan shall be delivered in person or mailed to the last address of
the Participant (or, in the case of the death of the Participant, to the last address of his
surviving spouse).

          (b) Each Participant shall be responsible for furnishing the Plan Administrator with his
current address.

     3.8 Grantor Trust. Although the Company is responsible for the payment of all benefits
under the Plan, the Company may, in its discretion, contribute funds or assets (including insurance
policies on the life of any or all Participants) to a grantor trust for the purpose of paying
benefits under this Plan. Such trust may be irrevocable, but assets of the trust shall be subject
to the claims of creditors of the Company. To the extent any benefits provided under the terms of
the Plan are actually paid from the trust, the Company shall have no further obligation with
respect thereto. To the extent any benefits provided under the terms of the Plan are not paid from
the trust, such benefits shall remain the obligation of and shall be paid by the Company. The
Participants shall have the status of unsecured creditors insofar as their legal claim for benefits
under the Plan and the Participants shall have no security interest or preferred claim in or to the
assets of any such grantor trust.

     3.9 Protective Provisions. Each Participant, as a condition of participation, shall be
required to cooperate with the Company by furnishing any and all information requested by the Plan
Administrator to facilitate
payment of benefits hereunder by taking such physical examinations as the Plan Administrator may
deem necessary and by taking such other actions as may be requested by the Plan Administrator. If
the Participant refuses to so cooperate, the Company shall have no further obligation to the
Participant under the Plan.

8

 

ARTICLE IV

CHANGE OF CONTROL

     Notwithstanding anything in this Plan to the contrary, the provisions of this Article IV apply
following a Change of Control to all active Participants in the Plan (“Affected Participants”).

     4.1 Entitlement to Benefits. If the employment of an Affected Participant is terminated by
the Company for any reason other than Cause (or the Affected Participant voluntarily resigns for
Good Reason), at any time within the two (2) year period following a Change of Control, he shall be
paid a lump sum cash payment equal to the Actuarial Equivalent of the Normal Retirement Benefit
computed according to Section 3.1. Such amount shall be paid six (6) months following such
Termination of Employment if the Participant is a Specified Employee and payment earlier than such
date would violate Section 409A of the Code.

     4.2 Special Administrative Committee. Within a reasonable period of time prior to the
occurrence of a Change of Control of the Company, an independent plan administrator (the
“Independent Administrator”), shall be appointed to serve as the Plan Administrator. The
Independent Administrator shall be the independent administrator as so provided for under the trust
established pursuant to Section 3.8 of the Plan. To the extent that the trust does not provide for
such an administrator or no trust exists, then the Board shall appoint a neutral third party to
serve as the Independent Administrator. The Independent Administrator shall serve in such capacity
for the twenty-four (24) month period following the Change of Control. The Independent
Administrator will perform such duties as to ensure that all benefits provided for under the Plan
shall not be reduced in form and payment prior to, in connection with, or within twenty-four (24)
month period following a Change of Control. The Independent Administrator shall serve in such
capacity in accordance with the duties and obligations as set forth under Article 5 of the Plan.

     4.3 Full Vesting. An Affected Participant shall become 100% vested in his benefits upon a
Change of Control whether or not he experiences a Termination of Employment.

ARTICLE V

OPERATION AND ADMINISTRATION OF THE PLAN

     5.1 Plan Administrator Powers. The Plan Administrator shall have all powers necessary to supervise the administration of the
Plan and control its operations. In addition to any powers and authority conferred on the Plan
Administrator elsewhere in the Plan or by law, the Plan Administrator shall have the following
powers and authority:

          (a) To designate agents to carry out responsibilities relating to the Plan.

          (b) To employ such legal, actuarial, accounting, clerical, and other assistance as it may deem
appropriate in administering this Plan.

9

 

          (c) To establish rules and procedures for the conduct of the Plan Administrator’s business and
the administration of this Plan.

          (d) To administer this Plan and to decide all questions which may arise under this Plan. All
determinations by the Plan Administrator shall be binding upon all parties, to the maximum extent
permitted by law. The Plan Administrator shall have discretionary authority in all aspects of the
administration and interpretation of the Plan, including the interpretation and construction of the
Plan and the ability to make determinations of disputed facts.

          (e) To perform or cause to be performed such further acts as it may deem to be necessary or
appropriate in the administration of the Plan.

     5.2 Composition of Plan Administrator.

          (a) The Plan Administrator (who need not be Participants or even employees of the Company)
shall be appointed by the Board of the Company and shall continue until termination of such status
in accordance with the provisions of this Article V. In the event the Board does not designate the
Plan Administrator, the Plan Administrator shall be the Company and the Company’s authorized
officers may act on its behalf in a representative capacity.

          (b) The Plan Administrator or any individual member thereof may resign at any time by giving
written notice to the Board, effective as the date stated in the notice. The Plan Administrator or
any individual member thereof may be removed by the Board at any time.

          (c) In the case of a Plan Administrator or an individual member thereof who is also an
employee of the Company, his status as Plan Administrator shall terminate as of the effective date
of the termination of his employment, except as otherwise provided in resolutions adopted by the
Board.

          (d) Upon the death, resignation, or removal of the Plan Administrator, the Board may appoint a
successor. Notice of the appointment of a successor member shall be given by the Company in
writing to the other members of the Plan Administrator.

     5.3 Plan Administrator Procedure.

          (a) In the event the Plan Administrator is a committee of two or more individuals, a majority
of the members of the Plan Administrator shall constitute a quorum. Any action authorized by a
majority of the members:

               (i) Present at any meeting, or

               (ii) In writing without a meeting, shall constitute the actions of the Plan Administrator.

          (b) The Plan Administrator may designate one or more individuals as authorized to execute any
document or documents on behalf of the Plan Administrator.

10

 

     5.4 Notices and Communications.

          (a) All communications from Participants to the Plan Administrator shall be in writing, on
forms prescribed by the Plan Administrator. These communications shall be mailed or delivered to
the office designated by the Plan Administrator, and shall be deemed to have been given when
received by the Plan Administrator.

          (b) Each communication from the Plan Administrator to a Participant or beneficiary shall be in
writing and may be delivered in person or by mail. These communications shall be deemed to have
been delivered and received by the Participant three (3) days after the date when it is deposited
in the United States Mail with postage prepaid, addressed to the Participant or beneficiary at his
last address of record with the Plan Administrator.

     5.5 Reporting and Disclosure. The Company (and not the Plan Administrator) shall be
responsible for the reporting and disclosure of information required to be reported or disclosed
pursuant to ERISA or any other applicable law.

     5.6 Conflict of Interest. Any member of the Plan Administrator who is also a Participant
shall not be qualified to act or vote on any matter relating solely to himself.

     5.7 Indemnification. To the extent permitted by law, the Certificate of Incorporation of
the Company, the Bylaws of the Company and any indemnity agreements between the Company and its
directors or employees, the Company shall indemnify each member of the Board and of the Plan
Administrator, and any other employee of the Company with duties under the Plan, against expenses
(including any amount paid in settlement) reasonably incurred by him in connection with any claims
against him by reason of his conduct in the performance of his duties under the Plan.

ARTICLE VI

APPLICATION FOR BENEFITS

     6.1 Application for Benefits.

          (a) The Plan Administrator may require any person claiming benefits under the Plan
(“Claimant”) to submit an application therefore, together with such other documents and information
as the Plan Administrator may require.

          (b) Within ninety (90) days following receipt of the application and all necessary documents
and information, the Plan Administrator’s authorized delegate reviewing the claim shall furnish the
Claimant with written notice of the decision rendered with respect to the application.

          (c) Should special circumstances require an extension of time for processing the claim,
written notice of the extension shall be furnished to the Claimant prior to the expiration of the
initial ninety (90) day period.

11

 

               (i) The notice shall indicate the special circumstances requiring an extension of time and the
date by which a final decision is expected to be rendered.

               (ii) In no event shall the period of the extension exceed ninety (90) days from the end of the
initial ninety (90) day period.

     6.2 Content of Denial. In the case of a denial of the Claimant’s application, the written
notice shall sat forth:

          (a) The specific reasons for the denial;

          (b) References to the Plan provisions upon which the denial is based;

          (c) A description of any additional information or material necessary for perfection of the
application (together with an explanation of why the material or information is necessary); and

          (d) An explanation of the Plan’s claims review procedure.

     6.3 Appeals.

          (a) In order to appeal the decision rendered with respect to his application for benefits or
with respect to the amount of his benefits, the Claimant must follow the appeal procedures set
forth in this Section 6.3.

          (b) The appeal must be made, in writing within sixty (60) days after the date of notice of the
decision with respect to the application, the Claimant may request that his
application be given full and fair review by the Plan Administrator. The Claimant may review
all pertinent documents and submit issues and comments in writing in connection with the appeal.

          (c) The decision of the Plan Administrator shall be made promptly, and not later than sixty
(60) days after the Plan Administrator’s receipt of a request for review, unless special
circumstances require an extension of time for processing. In such a case, a decision shall be
rendered as soon as possible, but not later than sixty (60) days following the expiration of the
initial sixty (60) day period.

          (d) The decision on review shall be in writing and shall include specific reasons for the
decision, written in a manner designed to be understood by the Claimant, with specific references
to the pertinent Plan provisions upon which the decision is based.

     6.4 Arbitration. If the claim is denied after review, the Applicant shall submit the claim
to binding arbitration. Such arbitration shall be binding and final. There shall be one
arbitrator, who shall be a retired superior court or federal court judge. The arbitrator shall
have the authority only to enforce the legal and contractual rights of the parties and shall not
add to, modify, disregard or refuse to enforce any contractual provision. The arbitrator shall
have no right, power or jurisdiction to award an Applicant any punitive or exemplary damages of any
kind. All reasonable legal fees and expenses incurred in connection with such arbitration shall be
borne by the non prevailing party. THE PARTICIPANT AND THE COMPANY

12

 

ACKNOWLEDGE AND AGREE THAT BY
BECOMING A PARTICIPANT UNDER THE PLAN, THEY ARE AGREEING TO THIS ARBITRATION PROVISION AND ARE
WAIVING ALL RIGHTS TO A TRIAL BY JURY.

     6.5 Exhaustion of Remedies. No legal action for benefits under the Plan may be brought
unless and until the Claimant has exhausted his remedies under this Article VI.

ARTICLE VII

MISCELLANEOUS MATTERS

     7.1 Amendment or Termination.

          (a) The Board may, at its sole discretion, amend or terminate this Plan at any time or from
time to time, in whole or in part by a duly adopted resolution, provided that, without the consent
of each existing Participant, no amendment or termination may adversely affect that Participant’s
rights to receive accrued benefits as provided in the Plan, as in effect prior to such amendment or
termination.

          (b) The termination of the Plan will result in the immediate vesting of accrued benefits.

          (c) All benefits will be payable at the time the Participant would have otherwise been
eligible to receive benefits under the provisions of this Plan in effect before Plan termination.
However, the Board may elect to accelerate the payment of the benefits under the Plan, and to pay
such benefits in the form of lump sum distributions if such election to accelerate the payment of
benefits would not result in a Participant’s benefits becoming subject to the excise taxes
contemplated by Section 409A of the Code. Any lump sum benefits paid under this Section 7.1(c)
will be the Actuarial Equivalent of the benefits determined under Section 3.1 above, calculated as
of the date the Plan is terminated.

     7.2 Effect of Reorganization or Transfer of Assets.

          (a) In the event of a consolidation, merger, sale, liquidation, or other transfer of
substantially all of the operating assets of the Company to any other company, the ultimate
successor to the business of the Company shall automatically be deemed to have elected to continue
this Plan in full force and effect, in the same manner as if the Plan had been adopted by
resolution of its board of directors.

          (b) The presumption set forth in Paragraph (a) above shall not apply if the successor, by
resolution of its board of directors, elects not to so continue this Plan in effect. In such a
case, the Plan shall terminate as of the effective date set forth in the board resolution.

     7.3 Rights of Participants.

          (a) Nothing contained herein will confer on any Participant the right to be retained in the
service of the Company, nor will it interfere with the Company’s right to discharge or otherwise
deal with Participants without regard to the existence of this Plan. The

13

 

Company reserves the
right to terminate the employment of any Participant without any liability for any claim against
the Company except to the extent provided herein.

          (b) The benefits under the Plan are unfunded. Accordingly, no Participant shall have a
preferred claim on, or a beneficial ownership interest in, any assets of the Company prior to the
time such assets are paid to him in the form of benefits.

          (c) All rights created under the Plan shall be mere unsecured contractual rights of
Participants against the Company. However, nothing in this document shall in any way diminish any
rights of a Participant to pursue his rights as a general creditor of Company with respect to his
benefits under the Plan.

     7.4 Assignment of Benefits. To the maximum extent permitted by law, no benefit under this
Plan may be assigned or alienated. Any purported transfer, assignment, encumbrance, or attachment
thereof shall be void and of no effect. In the event of a dispute involving any individual’s right
to receive the benefit hereunder, the Plan Administrator or the Company may enter an interpleader
action. Payment of the benefit to a court of competent jurisdiction with proper notice to the
appropriate parties in dispute shall be in full satisfaction of all claims against the Plan
Administrator and the Company as to the Plan, and shall be equivalent to a receipt and release
pursuant to Section 7.7.

     7.5 Other Plans. This Plan shall not affect the right of any Participant to participate in
and receive benefits under and in accordance with the provisions of any other employee benefit
plans which are now or hereafter maintained by the Company, unless the terms of such other employee
benefit plan or plans specifically provide otherwise.

     7.6 Interpretation.

          (a) The provisions of this Plan shall in all cases be interpreted in a manner that is
consistent with this Plan satisfying the applicable requirements of ERISA.

          (b) If any provision of the Plan is held invalid or unenforceable, its invalidity or
unenforceability shall not affect any other provisions of the Plan, and the Plan will be construed
and enforced as if the provision had not been included in it.

          (c) Unless the context clearly indicates otherwise, the masculine gender shall include the
feminine, the singular shall include the plural, and the plural shall include the singular.

          (d) Article and section headings are for convenience of reference only and shall not be deemed
to be part of the substance of this instrument or in any way to enlarge or limit the contents of
any Article or Section.

     7.7 Receipt or Release. Any payment to a Participant in accordance with the provisions of
this Plan shall, to the extent thereof, be in full satisfaction of all claims against the Plan
Administrator and the Company, and the Plan Administrator may require such Participant, as a
condition precedent to such payment, to execute a receipt and release to such effect.

14

 

     7.8 Governing Law. Except to the extent preempted by ERISA, this Plan shall be construed,
administered, and governed in all respects in accordance with the laws of the State of Texas. If
any provisions of this instrument shall be held by a court of competent jurisdiction to be invalid
or unenforceable, the remaining provisions hereof shall continue to be fully effective.

     7.9 Section 409A Standards. The Plan shall be effected, interpreted, and applied in a
manner consistent with the standards for nonqualified deferred compensation plans established by
Section 409A of the Code and its interpretive regulations and/or guidance (the “Section 409A
Standards”). To the extent that any terms of the Plan would subject any Participant to gross income
inclusion, interest, or additional tax pursuant to, or would be prohibited by, Section 409A of the
Code, those terms are to that extent superseded by the applicable Section 409A Standards.

15

 

     IN WITNESS WHEREOF The Houston Exploration Company has caused this Plan document to be
executed by its duly authorized officer as of the 25th day of July, 2006.

	 	 	 	 	 
	 	THE HOUSTON EXPLORATION COMPANY

 	 
	 	By:  	/s/ Roger B. Rice
 	 
	 	 	 	 
	 	 	 	 

16

 

	 	 	 	 	 

Exhibit A

Designated Plan Participants

The following designated individuals shall be entitled to the following number of Years of Service
as of the Effective Date.

	 	 	 
	Participant	 	Years of Service
	Bergeron
	 	 
	 
	 	 
	Campbell
	 	 
	 
	 	 
	Hargett
	 	 
	 
	 	 
	Hresko
	 	 
	 
	 	 
	Mueller
	 	 
	 
	 	 
	Ray
	 	 
	 
	 	 
	Rice
	 	 
	 
	 	 
	Sherrick
	 	 
	 
	 	 
	Westmoreland
	 	 

A-1

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