<PAGE>
As filed with the Securities and Exchange Commission on July 1, 1998
Registration No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_______________
SHERIDAN ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0507664
(I.R.S. Employer (State or other jurisdiction of
Identification No.) incorporation or organization)
1000 Louisiana, Suite 800
Houston, Texas 77002
(713) 651-7899
(Address of principal executive offices)
SHERIDAN ENERGY, INC.
1997 FLEXIBLE INCENTIVE PLAN
and
SHERIDAN ENERGY, INC.
1998 FLEXIBLE INCENTIVE PLAN
(Full title of the plan)
Copy to:
MICHAEL A. GERLICH, VICE PRESIDENT ARTHUR S. BERNER, ESQ.
AND CHIEF FINANCIAL OFFICER WINSTEAD SECHREST & MINICK P.C.
SHERIDAN ENERGY, INC. 910 TRAVIS, SUITE 2400
1000 LOUISIANA, SUITE 800 HOUSTON, TEXAS 77002
HOUSTON, TEXAS 77002 (713) 650-2729
(713) 651-7899
(Name and address, including
zip code, and telephone number,
including area code, of agent for service)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
=================================================================================================
PROPOSED PROPOSED
TITLE OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Common Stock, $.01
par value per share 700,000 Shares $3.875 $2,712,500 $800.19
=================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, this registration
statement also covers an indeterminate number of shares as may be required
to cover possible adjustments under the Plan by reason of any stock
dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separate reorganization or the
like of or by the Registrant.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(h) based on the average of the high and low prices
for the Common Stock of the Registrant as quoted in the NASDAQ SmallCap
Market System on June 26, 1998.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
ITEM 1. Plan Information *
ITEM 2. Registrant Information and Employee Plan Annual Information *
__________
* Information required by Part I to be contained in the Section 10(a)
prospectus is omitted from this Registration Statement in accordance with
the Note to Part I of Form S-8.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents (as filed with the Securities and Exchange
Commission (the "Commission") by the Registrant) are incorporated by reference
in this Registration Statement:
(a) The Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 and Quarterly Report on Form 10-QSB for the period ended
March 31, 1998.
(b) All other reports filed by the Registrant pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since December 31, 1997.
(c) The description of the Common Stock contained in the Registrant's
Prospectus filed with the Commission on August 23, 1996 as part of the
Registrant's Registration Statement on Form S-4 (Registration No. 333-10729),
and amendments thereto.
(d) All documents subsequently filed by the Registrant pursuant to
Sections 13(a), 13(c), 14, and 15(d) of the Exchange Act prior to the filing of
a post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Registration Statement and to be part
hereof from the date of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
<PAGE>
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or enterprise, including an
employee benefit plan. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful, except that no indemnification shall be made in
connection with any action or suit by or in the right of the corporation to
procure a judgment in its favor in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses that such court deems proper. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 145 also provides that to the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above, or in
defense of any claim, issue or matter therein, the corporation must indemnify
him against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 145 further provides that any indemnification (unless ordered by a
court) must be made only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth above. Such determination must be made (i) by a majority vote of the
directors who were not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
Section 145 also provides that expenses (including attorneys' fees)
incurred by an officer or director in defending or settling any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
2
<PAGE>
proceeding, upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it is ultimately determined that he is not
entitled to be indemnified by the corporation.
Section 145 further provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, Section 145 shall not exclude any
other rights to which a person seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
Article Thirteenth of the Registrant's Certificate of Incorporation
provides that the Registrant shall indemnify and hold harmless any person who
was or is made a party or is threatened to be made a party to any action, suit
or proceeding, whether civil, criminal, administrative, or investigative, by
reason of the fact that he is or was a director or officer of the Registrant, or
is or was serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, in accordance with provisions corresponding to Section 145.
Section 6 of Article VIII of the Registrant's Bylaws also requires the
Registrant to indemnify its directors and officers to the fullest extent
permitted by Section 145 and the Certificate of Incorporation of the Registrant.
In addition, the Company has entered into indemnification agreements with its
directors and certain of its officers.
Section 145 further provides that a corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the authority to indemnify him
against such liability and expenses under the provisions described in the
preceding paragraphs. The Registrant maintains liability insurance covering its
directors and officers.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
permits a Delaware corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the General Corporation Law of the State of
Delaware (providing for liability of directors for unlawful payment of dividends
or unlawful stock purchases or redemptions), or (iv) for any transaction from
which the director derived an improper personal benefit. Article Twelfth of the
Registrant's Certificate of Incorporation eliminates liability of directors of
the Registrant to the Registrant or its shareholders for monetary damages for
breach of fiduciary duty to the extent permitted by Section 102(b)(7) of the
General Corporation Law of the State of Delaware.
3
<PAGE>
The foregoing discussion is qualified in its entirety by reference to the
General Corporation Law of the State of Delaware and the Registrant's
Certificate of Incorporation and Bylaws.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<C> <S>
4.1 Sheridan Energy, Inc. 1997 Flexible Incentive Plan - filed
herewith.
4.2 Sheridan Energy, Inc. 1998 Flexible Incentive Plan - filed
herewith.
5 Opinion of Winstead Sechrest & Minick P.C. as to the legality
of the securities being registered - filed herewith.
23.1 Consent of Price Waterhouse, LLP, independent public
accountants - filed herewith.
23.2 Consent of Winstead Sechrest & Minick P.C. (included in the
opinion filed as Exhibit 5 to this Registration Statement).
24 Powers of Attorney (included on signature page).
</TABLE>
ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof), which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and
(iii) to include any information with respect to the plan of
distribution not previously disclosed in this Registration
Statement or any material change to such information in the
Registration Statement;
4
<PAGE>
provided, however, that paragraphs (a)(1)(i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions
described in Item 6 above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer of controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication
of such issue.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Houston, State of Texas, on July 1, 1998.
SHERIDAN ENERGY, INC.
/s/ B.A. Berilgen
-------------------------------------------
By: B.A. Berilgen
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned constitutes and appoints B.A. Berilgen and Michael
A. Gerlich, and each of them, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution for him and in his name,
place, and stead, in any and all capacities, to sign and file with the
Securities and Exchange Commission and/or any state securities department or any
other federal or state agency or governmental authority, any and all amendments
and exhibits to this Registration Statement and any other documents in
connection therewith, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or any of them, whether
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the day of July 1, 1998.
Name Title Date
---- ----- ----
/s/ B.A. Berilgen President and Chief Executive
- ------------------------ Officer (Principal Executive July 1, 1998
B.A. Berilgen Officer)
6
<PAGE>
Name Title Date
---- ----- ----
/s/ Michael A. Gerlich Vice President, Director and July 1, 1998
- ------------------------ Chief Financial Officer
Michael A. Gerlich (Principal Financial Officer)
/s/ Jonathan P. Carroll Director July 1, 1998
- ------------------------
Jonathan P. Carroll
/s/ W. Craig Childers Director July 1, 1998
- ------------------------
W. Craig Childers
/s/ D. Bradley Dunn Director July 1, 1998
- ------------------------
D. Bradley Dunn
/s/ David H. Scheiber Director July 1, 1998
- ------------------------
David H. Scheiber
/s/ Jeffrey E. Susskind Director July 1, 1998
- ------------------------
Jeffrey E. Susskind
7
<PAGE>
SHERIDAN ENERGY, INC.
1997 FLEXIBLE INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purposes of the Sheridan Energy, Inc. 1997 Flexible Incentive Plan (the
"Plan") are to promote the interests of Sheridan Energy, Inc. (together with any
successor thereto, the "Company") and its Shareholders by enabling the Company
to (i) attract, motivate and retain key employees and consultants by offering
such key employees and consultants performance-based stock incentives and other
equity interests in the Company and other incentive awards that recognize the
creation of value for the Shareholders of the Company and promote the Company's
long-term growth and success, and (ii) award and retain highly qualified
independent directors and allow them to develop a sense of proprietorship and
personal involvement in the development and financial success of the Company.
To achieve these purposes, eligible persons may receive stock options, Stock
Appreciation Rights, Restricted Stock, Performance Awards, performance stock,
Dividend Equivalent Rights and any other Awards, or any combination thereof.
2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below unless the content otherwise requires:
2.1 "Award" shall mean the grant of a stock option, a Stock Appreciation
Right, a Restricted Stock, a Performance Award, performance stock, a Dividend
Equivalent Right or any other award under the Plan.
2.2 "Board" shall mean the Board of Directors of the Company, as the same
may be constituted from time to time.
2.3 "Change in Control" shall mean, after the effective date of the Plan,
(i) the occurrence of an event of a nature that would be required to be reported
in response to Item 1 or Item 2 of a Form 8-K Current Report of the Company
promulgated pursuant to Sections 13 and 15(d) of the Exchange Act; provided
that, without limitation, such a Change in Control shall be deemed to have
occurred if (a) any "person", as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the Shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the Company's
then outstanding securities or (b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board cease for
any reason to constitute at least a majority thereof, unless the election by the
Board or the nomination
1
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for election by the Company's Shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the two-year period or whose election or nomination for
election was previously so approved; (ii) the Shareholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation that would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than eighty percent (80%) of the combined voting
power of the voting securities of the surviving entity outstanding immediately
after such merger or consolidation; provided, however, that a merger or
consolidation effected to implement a reorganization or recapitalization of the
Company, or a similar transaction (collectively, a "Reorganization"), in which
no "person" acquires more than twenty percent (20%) of the combined voting power
of the Company's then outstanding securities shall not constitute a Change in
Control of the Company; or (iii) the Shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" shall mean the Stock Option and Compensation Committee, if
such a separate committee is appointed by the Board, or, until such time as a
separate committee is appointed, it shall mean the Board. If a separate
committee is appointed, the Committee be "non-employee directors" (as such term
is defined under Rule 16b-3 promulgated under the Exchange Act and any successor
thereunder promulgated during the duration of the Plan). The Board may amend the
Plan to modify the definition of Committee within the limits of Rule 16b-3 to
assure that the Plan is administered in compliance with Rule 16b-3. Initially,
the Committee will consist of not less than two (2) members of the Board who are
appointed by, and serve at the pleasure of, the Board and who are (i) "non-
employee directors" within the meaning of Rule 16b-3 and (ii) "outside
directors," as required under Section 162(m) of the Code and such Treasury
Regulations as may be promulgated thereunder. The Board does not meet the
applicable requirements of Rule 16b-3.
2.6 "Common Stock" shall mean the Common Stock, $.01 par value per share,
of the Company.
2.7 "Designated Beneficiary" shall mean the beneficiary designated by a
Participant in a manner determined by the Committee, to exercise rights of the
Participant in the event of the Participant's death. In the absence of an
effective designation by a Participant the Designated Beneficiary shall be the
Participant's estate.
2.8 "Disability" shall mean permanent and total inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months, as determined in the sole and absolute discretion of the Committee.
2
<PAGE>
2.9 "Dividend Equivalent Right" shall mean the right of the holder thereof
to receive credits based on the cash dividends that would have been paid on the
Shares specified in an Award granting Dividend Equivalent Rights if the Shares
subject to such Award were held by the person to whom the Award is made.
2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
2.11 "Fair Market Value" shall mean with respect to the Shares, as of any
date, (i) the last reported sales price on any stock exchange on which the
Common Stock is traded or, if not reported on such exchange, on the composite
tape, or, in case no such sale takes place on such day, the average of the
reported closing bid and asked quotations on such exchange; (ii) if the Common
Stock is not listed on a stock exchange or no such quotations are available, the
closing price of the Common Stock as reported by the National Market System or
Small Cap Market System of the National Association of Securities Dealers, Inc.,
or, if no such quotations are available, the average of the high bid and low
asked quotations in the over-the-counter market as reported by the National
Quotation Bureau Incorporated, or similar organization; or (iii) in the event
that there shall be no public market for the Common Stock, the fair market value
of the Common Stock as determined (which determination shall be conclusive) in
good faith by the Committee, based upon the value of the Company as a going
concern, as if such Common Stock were publicly owned stock, but without any
discount with respect to minority ownership.
2.12 "Incentive Stock Option" shall mean any stock option awarded under the
Plan which qualifies as an "Incentive Stock Option" under Section 422 of the
Code or any successor provision.
2.13 "Non-Tandem Stock Appreciation Right" shall mean any Stock
Appreciation Right granted alone and not in connection with an Award which is a
stock option.
2.14 "Non-Qualified Stock Option" shall mean any stock option awarded under
the Plan that does not qualify as an Incentive Stock Option.
2.15 "Optionee" shall mean any person who has been granted a stock option
under the Plan and who has executed a written stock option agreement with the
Company reflecting the terms of such grant.
2.16 "Performance Award" shall mean any Award hereunder of Shares, units or
rights based upon, payable in, or otherwise related to, Shares (including
Restricted Stock), or cash of an equivalent value, as die Committee may
determine, at the end of a specified performance period established by the
Committee.
2.17 "Plan" shall mean the Sheridan Energy, Inc. 1997 Flexible Incentive
Plan set forth herein.
3
<PAGE>
2.18 "Reload Option" shall mean a stock option as deemed in subsection
6.6(b) herein.
2.19 "Restricted Stock" shall mean any Award of Shares under the Plan that
are subject to restrictions or risk of forfeiture.
2.20 "Retirement" shall mean termination of employment other than discharge
for cause, after age 65 or on or before age 65 if pursuant to the terms of any
retirement plan maintained by the Company or any of its Subsidiaries in which
such person participates.
2.21 "Shares" shall mean shares of the Company's Common Stock and any
shares of capital stock or other securities of the Company hereafter issued or
issuable upon, in respect of or in substitution or exchange for such Shares.
2.22 "Stock Appreciation Right" shall mean the right of the holder thereof
to receive an amount in cash or Shares equal to the excess of the Fair Market
Value of a Share on the date of exercise over the Fair Market Value of a Share
on the date of the grant (or such other value as may be specified in the
agreement granting the Stock Appreciation Right).
2.23 "Subsidiary" shall mean a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
2.24 "Tandem Stock Appreciation Right" shall mean a Stock Appreciation
Right granted in connection with an Award which is a stock option.
3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Plan shall be administered and interpreted by the
Committee.
3.2 Awards. Subject to the provisions of the Plan and directions from the
Board, the Committee is authorized to:
(a) determine the persons to whom Awards are to be granted;
(b) determine the types and combinations of Awards to be granted,
the number of Shares to be covered by the Award, the pricing of the
Award, the time or times when the Award shall be granted and may be
exercised, the terms, performance criteria or other conditions, vesting
periods or any restrictions for an Award, any restrictions on Shares
acquired pursuant to the exercise of an Award and any other terms and
conditions of an Award;
(c) conclusively interpret the provisions of the Plan;
(d) prescribe, amend and rescind rules and regulations relating
to the Plan or make individual decisions as questions arise, or both;
4
<PAGE>
(e) determine whether, to what extent and under what
circumstances to provide loans from the Company to participants to
purchase Shares subject to Awards under the Plan, and the terms and
conditions of such loans;
(f) rely upon employees of the Company for such clerical and
recordkeeping duties as may be necessary in connection with the
administration of the Plan; and
(g) make all other determinations and take all other actions
necessary or advisable for the administration of the Plan.
3.1 Procedures. A majority of the Committee members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members. All questions of interpretation and application of the Plan or
pertaining to any question of fact or Award granted hereunder shall be decided
by the Committee, whose decision shall be final, conclusive and binding upon the
Company and each other affected party.
4. SHARES SUBJECT TO PLAN
4.1 Limitations. The maximum number of Shares that may be issued with
respect to Awards under the Plan shall not exceed 450,000 unless such maximum
shall be increased or decreased by reason of changes in capitalization of the
Company as hereinafter provided. The Shares issued pursuant to the Plan may be
authorized but unissued Shares, or may be issued Shares which have been
reacquired by the Company.
4.2 Changes. To the extent that any Award under the Plan, or any stock
option or performance award granted under any prior incentive plan of the
Company, shall be forfeited, shall expire or shall be cancelled, in whole or in
part then the number of Shares covered by the Award or stock option so
forfeited, expired or cancelled may again be awarded pursuant to the provisions
of the Plan. In the event that Shares are delivered to the Company in full or
partial payment of the exercise price for the exercise of a stock option granted
under the Plan or any prior incentive plan of the Company, the number of Shares
available for future Awards under the Plan shall be reduced only by the net
number of Shares issued upon the exercise of the option. Awards that may be
satisfied either by the issuance of Shares or by cash or other consideration
shall, until the form of consideration to be paid is finally determined, be
counted against the maximum number of Shares that may be issued under the Plan.
If the Award is ultimately satisfied by the payment of consideration other than
Shares, as, for example, a stock option granted in tandem with a Stock
Appreciation Right that is settled by a cash payment of the stock appreciation,
such Shares may again be made the subject of an Award under the Plan. Awards
will not reduce the number of Shares that may be issued pursuant to the Plan if
the settlement of the Award will not require the issuance of Shares, as, for
example, a Stock Appreciation Right that can be satisfied only by the payment of
cash.
5
<PAGE>
5. ELIGIBILITY
Eligibility for participation in the Plan shall be confined to key
employees, officers and directors of the Company, and consultants providing
services to the Company; provided, however, that Incentive Stock Options may be
granted only to employees of the Company. In making any determination as to
persons to whom Awards shall be granted, the type of Award, and/or the number of
Shares to be covered by the Award, the Committee shall consider the position and
responsibilities of the person, his or her importance to the Company, the duties
of such person, his or her past, present and potential contributions to the
growth and success of the Company, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purposes of the Plan.
6. STOCK OPTIONS
6.1 Grants. The Committee may grant stock options alone or in addition to
other Awards granted under the Plan to any eligible officer, director or other
key employee. Each person so selected shall be offered an option to purchase the
number of Shares determined by the Committee. The Committee shall specify
whether such option is an Incentive Stock Option or Non-Qualified Stock Option
and any other terms and conditions relating to such Award. To the extent that
any stock option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise), such
stock option or the portion thereof which does not qualify shall constitute a
separate Non-Qualified Stock Option. Each such person so selected shall have a
reasonable period of time within which to accept or reject the offered option.
Failure to accept within the period so fixed by the Committee may be treated as
a rejection. Each person who accepts an option shall enter into a written
agreement with the Company, in such form as the Committee may prescribe, setting
forth the terms and conditions of the option, consistent with the provisions of
the Plan. The Optionee and the Company shall enter into option agreements for
Incentive Stock Options and Non-Qualified Stock Options. At any time and from
time to time, the Optionee and the Company may agree to modify an option
agreement so that an incentive Stock Option may be converted to a Non-Qualified
Stock Option.
The Committee may require that an Optionee meet certain conditions before
the option or a portion thereof may vest or be exercised, as, for example, that
the Optionee remain in the employ of the Company for a stated period or periods
of time before the option, or stated portions thereof, may vest or be exercised.
6.2 Option Price. The option exercise price of the Shares covered by each
stock option shall be determined by the Committee; provided, however, that the
option exercise price of an Incentive Stock Option shall not be less than one
hundred percent (100%) of the Fair Market Value of Shares on the date of the
grant of such Incentive Stock Option.
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6.3 Incentive Stock Options Limitations.
(a) In no event shall any person be granted Incentive Stock
Options to the extent that the Shares covered by any Incentive Stock
Options (and any incentive stock options granted under any other plans
of the Company and its Subsidiaries) that may be exercised for the
first time by such person in any calendar year have an aggregate Fair
Market Value in excess of $100,000. For this purpose, the Fair Market
Value of the Shares shall be determined as of the dates on which the
Incentive Stock Options are granted. It is intended that the limitation
on Incentive Stock Options provided in this subsection 6.3(a) be the
maximum limitation on options which may be considered Incentive
Stock Options under the Code.
(b) Notwithstanding anything herein to the contrary, in no event
shall any employee owning more than ten percent (10%) of the total
combined voting power of the Company or any Subsidiary be granted an
Incentive Stock Option hereunder unless the option exercise price shall
be at least one hundred ten percent (110%) of the Fair Market Value of
the Shares subject to such Incentive Stock Option at the time that the
Incentive Stock Option is granted and the term of such Incentive Stock
Option shall not exceed five (5) years.
6.4 Option Term. Subject to subsection 6.3(b) hereof, the term of a stock
option shall be for such period of months or years from the date of its grant as
may be determined by the Committee; provided, however, that no Incentive Stock
Option shall be excisable later than ten (10) years from the date of its grant.
Furthermore, no Incentive Stock Option may be exercised unless, at the time of
such exercise, the Optionee is, and has been continuously since the date of
grant of his or her Incentive Stock Option, employed by the Company, except
that:
(a) An Incentive Stock Option may, to the extent vested, be
exercised within the period of three months after the date the
Participant ceases to be an employee of the Company (or within such
lesser period as may be specified in the applicable option agreement),
provided that the option agreement may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a Non-Qualified Stock Option under the Plan;
(b) If the Optionee dies while in the employ of the Company, or
within three months after the Optionee ceases to be such an employee,
the Incentive Stock Option may, to the extent vested, be exercised by
the Optionee's Designated Beneficiary within the period of one year
after the date of death (or within such lesser period as may be
specified in the applicable option agreement); and
(c) If the Optionee ceases to be an employee of the Company by
reason of the Optionee's Disability, the Incentive Stock Option may be
exercised within the period of one year after the date of Disability
(or within such lesser period as maybe specified in the applicable
option agreement).
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6.5 Vesting of Stock Options.
(a) Each stock option granted hereunder may only be exercised to
the extent that the Optionee is vested in such option. Each stock
option shall vest separately in accordance with the option vesting
schedule, if any, determined by the Committee in its sole discretion,
which will be incorporated in the stock option agreement entered into
between the Company and each Optionee. The option vesting schedule will
be accelerated if, in the sole discretion of the Committee, the
Committee determines that acceleration of the option vesting schedule
would be desirable for the Company.
(b) In the event of the dissolution or liquidation of the
Company, each stock option granted under the Plan shall terminate as of
a date to be fixed by the Board; provided, however, that not less than
thirty (30) days' written notice of the date so fixed shall be given to
each Optionee and each such Optionee shall be fully vested in and shall
have the right during such period to exercise the option, even though
such option would not otherwise be exercisable under the option vesting
schedule. At the end of such period, any unexercised option shall
terminate and be of no other effect.
(c) In the event of a Reorganization (as defined in Section 2.3
hereof):
(1) If there is no plan or agreement respecting the
Reorganization, or if such plan or agreement does not
specifically provide for the change, conversion or exchange of
the Shares under outstanding and unexercised stock options for
other securities than the provisions of subsection 6.5(b) shall
apply as if the Company had dissolved or been liquidated on the
effective date of the Reorganization; or
(2) If there is a plan or agreement respecting the
Reorganization, and if such plan or agreement specifically
provides for the change, conversion or exchange of the Shares
under outstanding and unexercised stock options for securities of
another corporation, then the Board shall adjust the Shares under
such outstanding and unexercised stock options (and shall adjust
the Shares remaining under the Plan which are then available to
be awarded under the Plan, if such plan or agreement makes no
specific provision therefor) in a manner not inconsistent with
the provisions of such plan or agreement for the adjustment
change, conversion or exchange of such Shares and such options.
(3) In the event of a Change in Control of the Company, all
stock options and any associated Stock Appreciation Rights shall
become fully vested and immediately exercisable and the vesting
of all performance-based stock options shall be determined as if
the performance period or cycle applicable to such stock options
had ended immediately upon such Change in Control; provided,
however, that if in the opinion of counsel to the Company the
immediate exercisability of options when taken into consideration
with all other "parachute payments" as defined in Section
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280G of the Code, as amended, would result in an "excess
parachute payment" as defined in such section as well as an
exercise tax imposed by Section 4999 of the Code, such options
and any associated Stock Appreciation Rights shall become fully
vested and immediately exercisable, except as and to the extent
the Committee, in its sole discretion, shall otherwise determine,
and which determination by the Committee shall be based solely
upon maximizing the after-tax benefits to be received by any such
Optionee.
6.6 Exercise of Stock Options.
(a) Stock options may be exercised as to Shares only in amounts
and at intervals of time specified in the written option agreement
between the Company and the Optionee. Each exercise of a stock option,
or any part thereof, shall be evidenced by a notice in writing to the
Company. The purchase price of the Shares as to which an option shall
be exercised shall be paid in full at the time of exercise, and may be
paid to the Company either:
(1) in cash (including check, bank draft or money order);
or
(2) by the delivery of Shares (whether previously owned or
underlying the option being exercised) having a Fair Market Value
equal to the aggregate option rate;
(3) by a combination of cash and Shares; or
(4) by other consideration deemed acceptable by the
Committee in its sole discretion.
(b) If an Optionee delivers Shares (including Shares of
Restricted Stock) already owned by him or her in full or partial
payment of the exercise price for any stock option granted under the
Plan or any prior incentive plan of the Company, or if the Optionee
elects to have the Company reflect that number of Shares out of the
Shares being acquired through the exercise of the option having a Fair
Market Value equal to the exercise price of the stock option being
exercised, the Committee may authorize the automatic grant of a new
option (a "Reload Option") for that number of Shares as shall equal the
number of already owned Shares surrendered (including Shares of
Restricted Stock) or newly acquired Shares being retained in payment of
the option exercise price of the underlying stock option being
exercised. The grant of a Reload Option will become effective upon the
exercise of the underlying stock option. The option exercise price of
the Reload Option shall be the Fair Market Value of a Share on the
effective date of the grant of the Reload Option. Each Reload Option
shall be exercisable no earlier than six (6) months from the date of
its grant and no later than the time when the underlying stock option
being exercised could be last exercised. The Committee may also specify
additional terms, conditions and restrictions for the Reload Option and
the Shares to be acquired upon the exercise thereof.
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(c) The amount, as determined by the Committee, of any federal,
state or local tax required to be withheld by the Company due to the
exercise of a stock option shall be satisfied by payment by the
Optionee to the Company of the amount of such withholding obligation in
cash or other consideration acceptable to the Committee in its sole
discretion, which payment method shall be set forth in the agreement
approved by the Committee relating to the grant of the option or shall
be otherwise approved by the Committee prior to the exercise of the
option.
(d) An Optionee shall not have any of the rights of a
Shareholder of the Company with respect to the Shares covered by a
stock option except to the extent that one or more certificates
representing such Shares shall have been delivered to the Optionee, or
the Optionee has been determined to be a Shareholder of record by the
Company's transfer agent, upon due exercise of the option.
6.7 Date of a Stock Option Grant. The granting of a stock option shall take
place only upon the execution and delivery by the Company and an optionee of an
option agreement. Neither any action taken by the Board nor anything contained
in the Plan or in any resolution adopted or to be adopted by the Board or the
Shareholders of the Company shall constitute the granting of a stock option
under the Plan.
7. STOCK APPRECIATION RIGHTS
7.1 Grants. The Committee may grant to any eligible employee either Non-
Tandem Stock Appreciation Rights or Tandem Stock Appreciation Rights. Stock
Appreciation Rights shall be subject to such terms and conditions as the
Committee shall impose. The grant of the Stock Appreciation Right may provide
that the holder may be paid for the value of the Stock Appreciation Right either
in cash or in Shares, or a combination thereof, at the discretion of the
Committee. In the event of the exercise of a Stock Appreciation Right payable in
Shares, the holder of the Stock Appreciation Right shall receive that number of
whole Shares of stock of the Company having an aggregate Fair Market Value on
the date of exercise equal to the value obtained by multiplying (i) either (a)
in the case of a Tandem Stock Appreciation Right, the difference between the
Fair Market Value of a Share on the date of exercise over the per share exercise
price of the related option, or (b) in the case of a Non-Tandem Stock
Appreciation Right the difference between the Fair Market Value of a Share on
the date of exercise over the Fair Market Value on the date of the grant by (ii)
the number of Shares as to which the Stock Appreciation Right is exercised.
However, notwithstanding the foregoing, the Committee, in its sole discretion,
may place a ceiling on the amount payable upon exercise of a Stock Appreciation
Right but any such limitation shall be specified at the time that the Stock
Appreciation Right is granted.
7.2 Exercisability. A Tandem Stock Appreciation Right may be granted at the
time of the grant of the related stock option or, if the related stock option is
a Non-Qualified Stock Option, at any time thereafter during the term of the
stock option. A Tandem Stock Appreciation Right granted in connection with an
Incentive Stock Option (i) may be exercised at, and only at, the times
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and to the extent the related Incentive Plan Stock Option is exercisable, (ii)
expires upon the termination of the related Incentive Stock Option, (iii) may
not exceed 100% of the difference between the exercise price of the related
Incentive Stock Option and the market price of the Shares subject to the related
Incentive Stock Option at the time the Tandem Stock Appreciation Right is
exercised and (iv) may be exercised at, and only at, such times as the market
price of the Shares subject to the related Incentive Stock Option exceeds the
exercise price of the related Incentive Stock Option. The Tandem Stock
Appreciation Right may be transferred at, and only at, the times and to the
extent the related stock option is transferable. If a Tandem Stock Appreciation
Right is granted, there shall be surrendered and cancelled from the related
option at the time of exercise of the Tandem Stock Appreciation Right, in lieu
of exercise under the related option, that number of Shares as shall equal the
number of Shares as to which the Tandem Stock Appreciation Right shall have been
exercised.
7.3 Certain Limitations on Non-Tandem Stock, Appreciation Rights. A Non-
Tandem Stock Appreciation Right will be exercisable as provided by the Committee
and will have such other terms and conditions as the Committee may determine,
which terms and conditions shall be specified by the Committee prior to the
grant of such right. A Non-Tandem Stock Appreciation Right is subject to
acceleration of vesting or immediate termination in certain circumstances in the
same manner as stock options pursuant to subsections 6.4 and 6.5 of the Plan.
7.4 Limited Stock Appreciation Rights. The Committee is also authorized to
grant "limited stock appreciation rights," either as Tandem Stock Appreciation
Rights or Non-Tandem Stock Appreciation Rights. Limited stock appreciation
rights would become exercisable only upon the occurrence of a Change in Control
or such other event as the Committee may designate at the time of grant or
thereafter.
8. RESTRICTED STOCK
8.1 Grants. The Committee may grant Awards of Restricted Stock for no cash
consideration, for such minimum consideration as may be required by applicable
law, or for such other consideration as may be specified by the grant. The terms
and conditions of the Restricted Stock shall be specifically approved by the
Committee and set forth in the grant agreement. The Committee, in its sole
discretion, may specify any particular rights which the person to whom an Award
of Restricted Stock is made shall have in the Restricted Stock during the
restriction period and the restrictions applicable to the particular Award, the
vesting schedule (which may be based on service, performance or other factors)
and rights to acceleration of vesting (including, without limitation, whether
non-vested Shares are forfeited or vested upon termination of employment).
Further, the Committee may award performance-based Restricted Stock by
conditioning the grant, or vesting or such other factors, such as the release,
expiration or lapse of restrictions upon any such Award (including the
acceleration of any such conditions or terms) of such Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine. The Committee shall also determine when the restrictions shall
lapse or expire and the conditions, if any, under which the Restricted Stock
will be forfeited or sold back to the Company. Each Award
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of Restricted Stock may have different restrictions and conditions. The
Committee, in its discretion, may prospectively change the restriction period
and the restrictions applicable to any particular Award of Restricted Stock.
Unless otherwise set forth in the Plan, Restricted Stock may not be disposed of
by the recipient until the restrictions specified in the Award expire.
8.2 Awards and Certificates. Any Restricted Stock issued hereunder may be
evidenced such manner as the Committee, in its sole discretion, shall deem
appropriate including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of Shares of Restricted Stock awarded hereunder, such
certificate shall bear an appropriate legend with respect to the restrictions
applicable to such Award. The Company may retain, at its option, the physical
custody of any stock certificate representing any awards of Restricted Stock
during the restriction period or require that the Restricted Stock be placed in
escrow or trust, along with a stock power endorsed in blank, until all
restrictions are removed or expire.
9. PERFORMANCE AWARDS
9.1 Grants. A Performance Award may consist of either or both, as the
Committee may determine, of (i) "Performance Shares" or the right to receive
Shares, Restricted Stock or cash of an equivalent value, or any combination
thereof as the Committee may determine, or (ii) "Performance Units," or the
right to receive a fixed dollar amount payable in cash, Common Stock, Restricted
Stock or any combination thereof, as the Committee may determine. The Committee
may grant Performance Awards to any eligible employee, for no cash
consideration, for such minimum consideration as may be required by applicable
law or for such other consideration as may be specified at the time of the
grant. The terms and conditions of Performance Awards shall be specifically
approved by the Committee at or prior to the time of the grant and set forth in
the grant agreement. Such terms and conditions may include provisions
establishing the performance period, the performance criteria to be achieved
during a performance period the criteria used to determine vesting (including
the acceleration thereof), whether Performance Awards are forfeited or vest upon
termination of employment during a performance period and the maximum or minimum
settlement values. Each Performance Award shall have its own terms and
conditions, which shall be determined in the discretion of the Committee. If the
Committee determines, in its sole discretion, that the established performance
measures or objectives are no longer suitable because of a change in the
Company's business, operations, corporate structure or for other reasons that
the Committee deems satisfactory, the Committee may modify the performance
measures or objectives and/or the performance period.
9.2 Terms and Conditions. Performance Awards may be valued by reference to
the Fair Market Value of a Share or according to any formula or method deemed
appropriate by the Committee, in its sole discretion, including, but not limited
to, achievement of specific financial, production, sales, cost or earnings
performance objectives that the Committee believes to be relevant to the
Company's business and for remaining in the employ of the Company for a
specified period of time, or the Company's performance or the performance of its
Common Stock measured against
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the performance of the market the Company's industry segment or its direct
competitors. Performance Awards may be paid in cash, Shares (including
Restricted Stock) or other consideration, or any combination thereof. If payable
in Shares, the consideration for the issuance of the Shares may be the
achievement of the performance objective established at the time of the grant of
the Performance Award. Performance Awards may be payable in a single payment or
in installments and may be payable at a specified date or dates or upon
attaining the performance objective, all at the Committee's discretion. The
extent to which any applicable performance objective has been achieved shall be
conclusively determined by the Committee.
10. DIVIDEND EQUIVALENT RIGHTS
The Committee may grant a Dividend Equivalent Right either as a component
of another Award or as a separate Award, and, in general, each such holder of a
Dividend Equivalent Right that is outstanding on a dividend record date for the
Company's Common Stock shall be credited with an amount equal to the cash or
stock dividends or other distributions that would have been received had the
Shares covered by the Award been issued and outstanding on the dividend record
date. The terms and conditions of the Dividend Equivalent Right shall be
specified by the grant. Dividend equivalents credited to the holder of a
Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional Shares (which may thereafter accrue additional Dividend
Equivalent Rights). Any such reinvestment shall be at the Fair Market Value at
the time thereof. Dividend Equivalent Rights may be settled in cash or Shares,
or a combination thereof, in a single payment or in installments. A Dividend
Equivalent Right granted as a component of another Award may provide that such
Dividend Equivalent Right shall be settled upon exercise, settlement or payment
for or lapse of restrictions on such other Award, and that such Dividend
Equivalent Right shall expire or be forfeited or annulled under the same
conditions as such other Award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms a conditions different from
such other Award.
11. OTHER AWARDS
The Committee may grant to any eligible employee other forms of Awards
based upon, payable in or otherwise related to, in whole or in part, Shares if
the Committee, in its sole discretion, determines that such other form of Award
is consistent with the purposes and restrictions of the Plan. The terms and
conditions of such other form of Award shall be specified by the grant
including, but not limited to, the price, if any, and the vesting schedule, if
any. Such Awards may be granted for no cash consideration, for such minimum
consideration as may be required by applicable law or for such other
consideration as may be specified by the grant.
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12. COMPLIANCE WITH SECURITIES AND OTHER LAWS
In no event shall the Company be required to sell or issue Shares under any
Award if the sale or issuance thereof would constitute a violation of applicable
federal or state securities laws or regulations or a violation of any other law
or regulation of any governmental or regulatory agency or authority or any
national securities exchange. As a condition to any sale or issuance of Shares,
the Company may place legends on Shares, issue stop transfer orders and require
such agreements or undertakings as the Company may deem necessary or advisable
to assure compliance with any such laws or regulations, including, if the
Company or its counsel deems it appropriate, representations from the person to
whom an Award is granted that he or she is acquiring the Shares solely for
investment and not with a view to distribution and that no distribution of the
Shares will be made unless registered pursuant to applicable federal and state
securities laws, or in the opinion of counsel of the Company, such registration
is unnecessary.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR REORGANIZATION
The value of an Award in Shares shall be adjusted from time to time as
follows:
(a) Subject to any required action by Shareholders, the number
of Shares covered by each outstanding Award, and the exercise price,
shall be proportionately adjusted for any increase or decrease in the
number of issued Shares of the Company resulting from a subdivision or
consolidation of Shares or the payment of a stock dividend (but only in
Shares) or any other increase or decrease in the number of Shares
affected without receipt of consideration by the Company.
(b) Subject to any required action by Shareholders, if the
Company shall be the surviving corporation in any Reorganization,
merger or consolidation, each outstanding Award shall pertain to and
apply to the securities to which a holder of the number of Shares
subject to the Award would have been entitled, and if a plan or
agreement reflecting any such event is in effect that specifically
provides for the change, conversion or exchange of Shares, then any
adjustment to Shares relating to an Award hereunder shall not be
inconsistent with the terms of any such plan or agreement.
(c) In the event of a change in the Shares of the Company as
presently constituted, which is limited to a change of par value into
the same number of Shares with a different par value or without par
value, the Shares resulting from any such change shall be deemed to be
the Shares within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose determination
shall be final, binding and conclusive.
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Except as hereinbefore expressly provided in the Plan, any person to whom
an Award is granted shall have no rights by reason of any subdivision or
consolidation of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, reorganization, merger or consolidation
or spinoff of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect and no adjustment by reason thereof
shall be made with respect to, the number or exercise price of Shares subject to
an Award.
The grant of an Award pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
Reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell or transfer all or any part of
its business or assets.
14. AMENDMENT OR TERMINATION OF THE PLAN
14.1 Amendment of the Plan. Notwithstanding anything contained in the Plan
to the contrary, all provisions of the Plan may at any time or from time to time
be modified or amended by the Board; provided, however, that no Award at any
time outstanding under the Plan may be modified, unpaired or cancelled adversely
to the holder of the Award without the consent of such holder; and provided,
further, that the Plan may not be amended without approval by the holders of a
majority of the Shares of the Company represented and voted at a meeting of the
Shareholders (a) to increase the maximum number of Shares subject to Incentive
Stock Options the Plan, (b) to modify the class of employees eligible to receive
Incentive Stock Options or (c) if such approval is otherwise necessary, to
comply with Rule 16b-3 promulgated under the Exchange Act as amended, or to
comply with any other applicable laws, regulations or listing requirements, or
to qualify for an exemption or characterization that is deemed desirable by the
Board.
14.2 Termination of the Plan. The Board may suspend or terminate the Plan
at any time, and such suspension or termination may be retroactive or
prospective. However, no Award may be granted on or after the tenth anniversary
of the adoption of the Plan. Termination of the Plan shall not impair or affect
any Award previously granted hereunder and the rights of the holder of the Award
shall remain in effect until the Award has been exercised in its entirety or has
expired or otherwise has been terminated by the terms of such Award.
15. AMENDMENTS AND ADJUSTMENTS TO AWARDS
The Committee may amend, modify or terminate any outstanding Award with the
Participants consent at any time prior to payment or exercise in any manner not
inconsistent with the terms of the Plan, including, without limitation, (i) to
change the date or dates as of which (A) an option becomes exercisable or (B) a
performance-based Award is deemed earned, (ii) to amend the terms of any
outstanding Award to provide an exercise price per share which is higher or
lower than the then current exercise price per share of such outstanding Award
or (iii) to cancel an Award
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and grant a new Award in substitution therefor under such different terms and
conditions as it determines in its sole and complete discretion to be
appropriate including, but not limited to, having an exercise price per share
which may be higher or lower than the exercise price per share of the cancelled
Award. The Committee is also authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 13 hereof affecting the Company, or the financial statements of the
Company or any Affiliate, or of changes in applicable laws, regulations or
accounting principles), whenever the Committee determines that such adjustments
are appropriate in order to prevent reduction or enlargement of the benefits or
potential benefits intended to be made available under the Plan. Any provision
of the Plan or any agreement regarding an Award to the contrary notwithstanding,
the Committee may cause any Award granted to be cancelled in consideration of a
cash payment or alternative Award made to the holder of such cancelled Award
equal in value to the Fair Market Value of such cancelled Award. The
determinations of value under this Section 15 shall be made by the Committee in
its sole discretion.
16. GENERAL PROVISIONS
16.1 No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company from adopting or continuing in effect other
compensation arrangements, and such arrangements may be either generally
applicable or applicable only in specific cases.
16.2 No Right to Employment. Nothing in the Plan or in any Award, nor the
grant of any Award, shall confer upon or be construed as giving any recipient of
an Award any right to remain in the employ of the Company. Further, the Company
may at any time dismiss a participant in the Plan from employment, free from any
liability or any claim under the Plan, unless otherwise expressly provided in
the Plan or in any Award agreement. No employee, participant or other person
shall have any claim to be granted any Award, and there is no obligation for
uniformity or treatment of employees, participants or holders or beneficiaries
of Awards.
16.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN AND
ANY RULES AND REGULATIONS RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE.
16.4 Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as
to any person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be construed or deemed
amended without in the sole determination of the Committee, materially altering
the intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
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16.5 No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities or other property shall be paid or transferred in
lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be cancelled, terminated or otherwise eliminated.
16.6 Headings. Headings are given to the subsections of the Plan solely as
a convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.
16.7 Effective Date. The Plan shall be effective as of the date of its
approval by the holders of a majority of the Shares of the Company represented
and voting at the next Annual or Special Meeting of Shareholders.
16.8 Non-Transferability of Incentive Stock Options. Incentive Stock
Options shall not be transferable otherwise than by will or the laws of descent
and distribution, and Incentive Stock Options may be exercised, during the
lifetime of the holder, only by the holder. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Incentive Stock Option contrary
to the provisions hereof, or the levy of any execution, attachment or similar
process upon an Incentive Stock Option shall be null and void and without
effect.
17. NAMED EXECUTIVE OFFICERS
17.1 Applicability of Section 17. The provisions of this Section 17 shall
apply only to those executive officers (i) whose compensation is required to be
reported in the Company's proxy statement pursuant to Item 402(a)(3)(i) and (ii)
of Regulation S-K under the general rules and regulations under the Exchange
Act, as amended, and (ii) whose total compensation, including estimated Awards,
is determined by the Committee to possibly be subject to the limitations on
deductions imposed by Section 162(m) of the Code ("Named Executive Officers").
In the event of any inconsistencies between this Section 17 and the other Plan
provisions as they pertain to Named Executive Officers, the provisions of this
Section 17 shall control.
17.2 Establishment of Performance Goals. Awards for Named Executive
Officers, other than stock options and Stock Appreciation Rights, shall be based
on the attainment of certain performance goals. No later than the earlier of (i)
ninety (90) days after the commencement of the applicable fiscal year or such
other award period as may be established by the Committee ("Award Period") and
(ii) the completion of twenty-five percent (25%) of such Award Period, the
Committee shall establish, in writing, the performance goals applicable to each
such Award for Named Executive Officers. At the time the performance goals are
established by the Committee, their outcome must be substantially uncertain. In
addition, the performance goal must state, in terms of an objective formula or
standard, the method for computing the amount of compensation payable to the
Named Executive Officer if the goal is obtained. Such formula or standard shall
be sufficiently objective so that a third party with knowledge of the relevant
performance results could calculate the amount to be paid to the subject Named
Executive Officer. The material terms of the
17
<PAGE>
performance goals for Named Executive Officers and the compensation payable
thereunder shall be submitted to the Shareholders of the Company for their
review and approval. Shareholder approval shall be obtained for such performance
goals prior to any Award being paid to such Named Executive Officer. If the
Shareholders do not approve such performance goals, no amount shall be paid to
such Named Executive Officer for such applicable Award Period under the Plan.
The disclosure of the "material terms" of a performance goal and the
compensation payable thereunder shall be determined under the guidelines set
forth under Section 162(m) of the Code, and the Treasury Regulations thereunder.
17.3 Components of Awards. Each Award of a Named Executive Officer, other
than stock options and Stock Appreciation Rights, shall be based on performance
goals which are sufficiently objective so that a third party having knowledge of
the relevant facts could determine whether the goal was met. Except as provided
in subsection 17.8 herein, performance measures which may serve as determinants
of Named Executive Officers Awards shall be limited to the following measures:
earnings per share; return on assets; return on equity; return on capital; net
profit after taxes; net profit before taxes; economic value added; operating
profits; stock price; market share; and sales or expenses. Within ninety (90)
days following the end of each Award Period, the Committee shall certify in
writing that the performance goals, and any other material terms were satisfied.
Thereafter, Awards shall be made for each Named Executive Officer as determined
by the Committee. The Awards may not vary from the preestablished amount based
on the level of achievement.
17.4 No Mid-Year Change in Awards. Except as provided in subsections 17.8
and 17.9 herein, each Named Executive Officers Awards shall be based exclusively
on the performance measures established by the Committee pursuant to subsection
17.2.
17.5 No Partial Award Period Participation. A Named Executive Officer who
becomes eligible to participate in the Plan after performance goals have been
established in an Award Period pursuant to subsection 17.2 may not participate
in the Plan prior to the next succeeding Award Period, except with respect to
Awards which are stock options or Stock Appreciation Rights.
17.6 Performance Goals. Except as provided in subsection 17.8 herein,
performance goals shall not be changed following their establishment, and Named
Executive Officers shall not receive any payout, except with respect to Awards
which are stock options or Stock Appreciation Rights, when the minimum
performance goals are not met or exceeded.
17.7 Individual Performance and Discretionary Adjustments. Except as
provided in subsection 17.8 herein, subjective evaluations of individual
performance of Named Executive Officers shall not be reflected in their Awards,
other than Awards which are stock options or Stock Appreciation Rights. The
payment of such Awards shall be entirely dependent upon the attainment of the
preestablished performance goals.
17.8 Amendments. No amendment of the Plan with respect to any Named
Executive Officer may be made which would (i) increase the maximum amount that
can be paid to any one
18
<PAGE>
Participant under the Plan, (ii) change the specified performance goal for
payment of Awards, or (iii) modify the requirements as to eligibility for
participation in the Plan, unless the Company's Shareholders have first approved
such amendment in a manner which would permit the deduction under Section 162(m)
of the Code of such payment in the fiscal year it is paid. The Committee shall
amend this Section 17 and such other provisions as it deems appropriate, to
cause amounts payable to Named Executive Officers to satisfy the requirements of
Section 162(m) and the Treasury Regulations promulgated thereunder.
17.9 Stock Options and Stock Appreciation Rights. Notwithstanding any
provision of the Plan (including the provisions of this Section 17) to the
contrary, the amount of compensation which a Named Executive Officer may receive
with respect to stock options and Stock Appreciation Rights which are granted
hereunder is based solely on an increase in the value of the applicable Shares
after the date of grant of such Award. Thus, no stock option may be granted
hereunder to a Named Executive Officer with an exercise price less than the Fair
Market Value of Shares on the date of grant. Furthermore, the maximum number of
Shares (or cash equivalent value) with respect to which stock options or Stock
Appreciation Rights may be granted hereunder to any Named Executive Officer
during any calendar year may not exceed 100,000 Shares, subject to adjustment as
provided in Section 13 hereunder.
17.10 Maximum Amount of Compensation. The maximum amount of compensation
payable as an Award (other than an Award which is a stock option or Stock
Appreciation Right) to any Named Executive Officer during any calendar year may
not exceed $ 1,000,000.
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<PAGE>
SHERIDAN ENERGY, INC.
1998 FLEXIBLE INCENTIVE PLAN
____________________________________
SECTION 1. PURPOSE OF THIS PLAN
The purposes of the Sheridan Energy, Inc. 1998 Flexible Incentive Plan are
to (i) promote the interests of Sheridan Energy, Inc. (the "Company") and its
shareholders by enabling the Company and each of its Subsidiaries (as
hereinafter defined) to (A) attract, motivate and retain their respective
employees and non-employee Directors (as hereinafter defined) by offering such
employees and non-employee Directors performance-based stock incentives and
other equity interests in the Company and other incentive awards and (B)
compensate Consultants (as hereinafter defined) by offering such Consultants
performance-based stock incentives and other equity interests in the Company and
other incentive awards that recognize the creation of value for the shareholders
of the Company and (ii) promote the Company's long-term growth and success. To
achieve these purposes, eligible Persons may receive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Awards, Dividend Equivalent
Rights and any other Awards (as such terms are hereinafter defined), or any
combination thereof.
SECTION 2. DEFINITIONS
As used in this Plan, the following terms shall have the meanings set forth
below unless the context otherwise requires:
2.1 "Award" shall mean the grant of a Stock Option, a Stock
Appreciation Right, Restricted Stock, a Performance Award, a Dividend
Equivalent Right or any other grant of incentive compensation pursuant to
this Plan.
2.2 "Award Period" shall have the meaning set forth in Subsection 172
of this Plan.
2.3 "Book Value" shall mean the excess of the value of the assets of
an entity over the liabilities of such entity (determined in accordance
with United States generally accepted accounting principles, consistently
applied).
2.4 "Board" shall mean the Board of Directors of the Company, as the
same may be constituted from time to time.
2.5 "Cause" shall mean termination of a Participant's employment with
the Company or a Subsidiary upon the occurrence of one or more of the
following events:
(a) The Participant's failure to substantially perform such
Participant's duties with the Company or any Subsidiary as determined
by the Committee or the Board following receipt by the Participant of
written notice of such failure and the Participant's failure to remedy
such failure within thirty (30) days after receipt of
<PAGE>
such notice (other than a failure resulting from the Participant's
incapacity during physical or mental illness);
(b) The Participant's willful failure or refusal to perform
specific directives of the Board, which directives are consistent with
the scope and nature of the Participant's duties and responsibilities,
and which are not remedied by the Participant within thirty (30) days
after being notified in writing of such Participant's failure by the
Board;
(c) The Participant's conviction of a felony; or
(d) A breach of the Participant's fiduciary duty to the Company
or any Subsidiary or willful violation in the course of performing the
Participant's duties for the Company or any Subsidiary of any law,
rule or regulation (other than traffic violations or other minor
offenses). No act or failure to act on the Participant's part shall
be considered willful unless done or omitted to be done in bad faith
and without reasonable belief that the action or omission was in the
best interest of the Company.
2.6 "Change in Control" shall mean, after the Effective Date, (i) the
occurrence of an event of a nature that would be required to be reported by
the Company in response to Item 1 of a Current Report on Form 8-K (or any
successor to such form), whether or not the Company is, in fact, required
to report on such form, promulgated pursuant to the Exchange Act; provided,
without limitation, such a Change in Control shall be deemed to have
occurred if (a) any Person or Group (other than (A) the Company, (B) a
wholly-owned Subsidiary, (C) any employee benefit plan (including, without
limitation, an employee stock ownership plan) adopted by the Company or any
wholly-owned Subsidiary or (D) any trustee or other fiduciary holding
securities under any employee benefit plan adopted by the Company or any
Subsidiary), becomes the "beneficial owner" (as defined in Rule 13d-3 (or
any successor to such rule) promulgated under the Exchange Act), directly
or indirectly, of securities of the Company or any Material Subsidiary
representing fifty percent (50%) or more of the combined voting power of
the Company's or such Material Subsidiary's then outstanding securities or
(b) during any period of twenty-four (24) months, individuals who at the
beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election by the Board or
the nomination for election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of such twenty-four (24) month
period or whose election or nomination for election was previously so
approved; (ii) a Corporate Transaction is consummated, other than a
Corporate Transaction that would result in substantially all of the holders
of voting securities of the Company outstanding immediately prior thereto
owning (directly or indirectly and in substantially the same proportions
relative to each other and in substantially the same proportions relative
to each other) not less than fifty percent (50%) of the combined voting
power of the voting securities of the issuing/surviving/resulting entity
outstanding immediately after such Corporate Transaction or (iii) an
agreement for the sale or other disposition of all or substantially all of
the Company's assets (evaluated on a consolidated basis, without regard to
whether the
<PAGE>
sale or disposition is effected via a sale or disposition of assets of the
Company, the sale or disposition of the securities of one or more
Subsidiaries or the sale or disposition of the assets of one or more
Subsidiaries) is consummated.
2.7 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time (or any successor to such legislation).
2.8 "Committee" shall mean the Stock Option and Compensation
Committee of the Board as such Stock Option and Compensation Committee may
be constituted from time to time; provided, however, membership on the
Committee shall be limited to "Non-Employee Directors" (as that term is
defined in Rule 16b-3 (or any successor to such rule) promulgated under the
Exchange Act) who are also "outside directors," as required pursuant to
Section 162(m) of the Code and such Treasury regulations as may be
promulgated thereunder; and provided further, the Committee will consist of
not less than two (2) Directors. All members of the Committee will serve
at the pleasure of the Board.
2.9 "Common Stock" shall mean the Common Stock, par value $1.00 per
share, of the Company.
2.10 "Company" shall have the meaning set forth in Section 1 of this
Plan.
2.11 "Consultant" shall mean any Person who or which is engaged by the
Company or any Subsidiary to render consulting services.
2.12 "Corporate Transaction" shall mean any recapitalization (other
than a transaction contemplated by Subsection 13 (a)), merger,
consolidation or conversion involving the Company or any exchange of
securities involving the Common Stock (other than a transaction
contemplated by Subsection 13 (a)).
2.13 "Designated Beneficiary" shall mean the beneficiary designated by
a Participant, in a manner authorized by the Committee or the Board, to
exercise the rights of such Participant in the event of such Participant's
death. In the absence of an effective designation by a Participant, the
Designated Beneficiary shall be such Participant's estate.
2.14 "Director" shall mean any member of the Board.
2.15 "Disability" shall mean permanent and total inability to engage
in any substantial gainful activity, even with reasonable accommodation, by
reason of any medically determinable physical or mental impairment which
has lasted or can reasonably be expected to last without material
interruption for a period of not less than twelve (12) months, as
determined in the sole discretion of the Committee or the Board.
2.16 "Dividend Equivalent Right" shall mean the right of the holder
thereof to receive payments based on the cash dividends that would have
been paid on the number of Shares specified in an Award granting Dividend
Equivalent Rights if the number of Shares
<PAGE>
subject to such Award were held by such holder on the record date for
determining shareholders to whom dividends are payable.
2.17 "Effective Date" shall mean May 21, 1998.
2.18 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time (or any successor to such legislation).
2.19 "Fair Market Value" shall mean with respect to the Shares, as of
any date, (i) if the Common Stock is listed or admitted to trade on a
national securities exchange, the closing price of the Common Stock on the
composite tape, as published in the Wall Street Journal, of the principal
national securities exchange on which the Common Stock is so listed or
admitted to trade, on such date or, if there is no trading in Shares on
such date, then the closing price of the Common Stock as quoted on such
composite tape on the next preceding date on which there was trading in
such Shares; (ii) if the Common Stock is not listed or admitted to trade on
a national securities exchange, then the closing price of the Common Stock
as quoted on the National Market System of the NASD; (iii) if the Common
Stock is not listed or admitted to trade on a national securities exchange
or the National Market System of the NASD, the mean between the bid and
asked price for the Common Stock on such date, as furnished by the NASD
through NASDAQ or a similar organization if NASDAQ is no longer reporting
such information; or (iv) if the Common Stock is not listed or admitted to
trade on a national securities exchange or the National Market System of
the NASD and if bid and asked prices for the Common Stock are not so
furnished by the NASD or a similar organization, the value established by
the Board. Fair market value shall be determined without regard to any
restriction other than a restriction which, by its terms, will never lapse.
2.20 "Group" shall have the meaning ascribed to such term in Section
13(d) of the Exchange Act.
2.21 "Incentive Stock Option" shall mean any option to purchase Shares
awarded pursuant to this Plan which qualifies as an "Incentive Stock
Option" pursuant to Section 422 of the Code.
2.22 "Limited Stock Appreciation Rights" shall have the meaning set
forth in Subsection 7.4 of this Plan.
2.23 "Material Subsidiary" shall mean any Subsidiary of which the Book
Value or fair market value (whichever is greater) constitutes fifty percent
(50%) or more of the Book Value of the Company. The fair market value of a
Subsidiary will be determined in good faith by the Board.
2.24 "Named Executive Officer" shall have the meaning set forth in
Subsection 17.1 of this Plan.
<PAGE>
2.25 "NASD" shall mean the National Association of Securities Dealers,
Inc.
2.26 "Non-Qualified Stock Option" shall mean any option to purchase
Shares awarded pursuant to this Plan that does not qualify as an Incentive
Stock Option (including, without limitation, any option to purchase Shares
originally designated as or intended to qualify as an Incentive Stock
Option) but which does not (for whatever reason) qualify as an Incentive
Stock Option.
2.27 "Non-Share Method" shall have the meaning set forth in Subsection
66 of this Plan.
2.28 "Non-Tandem Stock Appreciation Right" shall mean any Stock
Appreciation Right granted alone and not in connection with an Award which
is a Stock Option.
2.29 "Optionee" shall mean any Participant who has been granted and
holds a Stock Option awarded pursuant to this Plan.
2.30 "Participant" shall mean any Person who has been granted and
holds an Award granted pursuant to this Plan.
2.31 "Performance Award" shall mean any Award granted pursuant to this
Plan of Shares, rights based upon, payable in or otherwise related to
Shares (including Restricted Stock) or cash, as the Committee or Board may
determine, at the end of a specified performance period established by the
Committee or Board and may include, without limitation, Performance Shares
or Performance Units.
2.32 "Performance Shares" shall have the meaning set forth in
Subsection 91 of this Plan.
2.33 "Performance Units" shall have the meaning set forth in
Subsection 91 of this Plan.
2.34 "Permitted Modification" shall be deemed to be any modification
of an Award which is made in connection with a Corporate Transaction and
which provides (i) in connection with a Stock Option, that subsequent to
the consummation of the Corporate Transaction (A) the exercise price of
such Stock Option will be proportionately adjusted to reflect the exchange
ratio applicable to the particular Corporate Transaction and/or (B) the
nature and amount of consideration to be received upon exercise of the
Stock Option will be the same (on a per share basis) as was received by
Persons who were holders of shares of Common Stock immediately prior to the
consummation of the Corporate Transaction, (ii) in connection with a Stock
Appreciation Right, that subsequent to the consummation of the Corporate
Transaction (A) the base price of such Stock Appreciation Right will be
proportionately adjusted to reflect the exchange ratio applicable to the
particular Corporate Transaction and/or (B) the benefits to be received by
the holder of such Stock Appreciation Right will be measured based upon the
nature and amount of consideration received (on a
<PAGE>
per share basis) by Persons who were holders of shares of Common Stock
immediately prior to the consummation of the Corporate Transaction, and
(iii) in connection with a Dividend Equivalent Right, that subsequent to
the consummation of the Corporate Transaction the benefits to be received
by the holder of such Dividend Equivalent Right will be measured based upon
the nature and amount of consideration received (on a per share basis) by
Persons who were holders of shares of Common Stock immediately prior to the
consummation of the Corporate Transaction.
2.35 "Person" shall mean an individual, partnership, limited liability
company, corporation, joint stock company, trust, estate, joint venture,
association or unincorporated organization or any other form of business
organization.
2.36 "Plan" shall mean this Sheridan Energy, Inc. Flexible Incentive
Plan as it may be amended from time to time.
2.37 "Reload Option" shall mean a Stock Option as defined in
Subsection 6.6 (b) of this Plan.
2.38 "Reorganization" shall mean any stock split, stock dividend,
reverse stock split, combination of Shares or any other similar increase or
decrease in the number of Shares issued and outstanding.
2.39 "Restricted Stock" shall mean any Shares granted pursuant to this
Plan that are subject to restrictions or substantial risk of forfeiture.
2.40 "Retirement" shall mean termination of employment of an employee
of the Company or any Subsidiary, other than discharge for Cause, after age
65 or on or before age 65 if pursuant to the terms of any retirement plan
maintained by the Company or any Subsidiary in which such employee
participates.
2.41 "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time (or any successor to such legislation).
2.42 "Share Retention Method" shall have the meaning set forth in
Subsection 6.6(c) of this Plan.
2.43 "Shares" shall mean shares of the Common Stock and any shares of
capital stock or other securities hereafter issued or issuable upon, in
respect of or in substitution or exchange for shares of Common Stock.
2.44 "Stock Appreciation Right" shall mean the right of the holder
thereof to receive property or Shares with a Fair Market Value equal to or
cash in an amount equal to the excess of the Fair Market Value of the
aggregate number of Shares subject to such Stock Appreciation Right on the
date of exercise over the Fair Market Value of the aggregate number of
Shares subject to such Stock Appreciation Right on the date of the grant of
such
<PAGE>
Stock Appreciation Right (or such other value as may be specified in the
agreement granting such Stock Appreciation Right). A Stock Appreciation
Right may be a Tandem Stock Appreciation Right, Non-Tandem Stock
Appreciation Right or Limited Stock Appreciation Right.
2.45 "Stock Option" shall mean any Incentive Stock Option or Non-
Qualified Stock Option.
2.46 "Subsidiary" shall mean a subsidiary corporation of the Company,
as defined in Section 424(f) of the Code.
2.47 "Tandem Stock Appreciation Right" shall mean a Stock Appreciation
Right granted in connection with an Award which is a Stock Option.
2.48 "Transactional Consideration" shall have the meaning set forth in
Subsection 13(b) of this Plan.
SECTION 3. ADMINISTRATION OF THIS PLAN
3.1 Committee/Board. This Plan shall be administered and interpreted
by the Committee and/or the Board.
3.2 Awards. (a) Subject to the provisions of this Plan and
directions from the Board, the Committee is authorized to:
(i) determine the Persons to whom Awards are to be
granted;
(ii) determine the types and combinations of Awards to be
granted; the number of Shares to be covered by an Award; the
exercise price of an Award; the time or times when an Award shall
be granted and may be exercised; the terms, performance criteria
or other conditions, vesting periods or any restrictions for an
Award; any restrictions on Shares acquired pursuant to the
exercise of an Award; and any other terms and conditions of an
Award;
(iii) interpret the provisions of this Plan;
(iv) prescribe, amend and rescind rules and regulations
relating to this Plan;
(v) determine whether, to what extent and under what
circumstances to provide loans from the Company to Participants
to exercise Awards granted pursuant to this Plan, and the terms
and conditions of such loans;
<PAGE>
(vi) rely upon employees of the Company for such clerical
and recordkeeping duties as may be necessary in connection with
the administration of this Plan;
(vii) accelerate or defer (with the consent of the
Participant) the vesting of any rights pursuant to an Award; and
(viii) make all other determinations and take all other
actions necessary or advisable for the administration of this
Plan.
(b) Without limiting the Board's right to amend this Plan
pursuant to Section 14, the Board may take all actions authorized by
Subsection 3.2 (a) of this Plan, including, without limitation,
granting such Awards pursuant to this Plan as the Board may deem
necessary or appropriate.
3.3 Procedures. (a) Proceedings by the Board with respect to this
Plan will be conducted in accordance with the articles of incorporation and
bylaws of the Company.
(b) A majority of the Committee members shall constitute a
quorum for action by the Committee. All determinations of the
Committee shall be made by not less than a majority of its members.
(c) All questions of interpretation and application of this Plan
or pertaining to any question of fact or Award granted hereunder will
be decided by the Committee or the Board, whose decision will be
final, conclusive and binding upon the Company and each other affected
party.
SECTION 4. SHARES SUBJECT TO PLAN
4.1 Limitations. The maximum number of Shares that may be issued
with respect to Awards granted pursuant to this Plan shall not exceed
250,000 unless increased or decreased by reason of changes in the
capitalization of the Company as hereinafter provided or by amendment of
this Plan. The Shares issued pursuant to this Plan may be authorized but
unissued Shares, or may be issued Shares which have been reacquired by the
Company.
4.2 Changes. To the extent that any Award granted pursuant to this
Plan shall be forfeited, shall expire or shall be cancelled, in whole or in
part, then the number of Shares covered by the Award so forfeited, expired
or cancelled may again be awarded pursuant to the provisions of this Plan.
In the event that Shares are delivered to the Company in full or partial
payment of the exercise price for the exercise of a Stock Option, the
number of Shares available for future Awards granted pursuant to this Plan
shall be reduced only by the net number of Shares issued upon the exercise
of the Stock Option. Awards that may be satisfied either by the issuance
of Shares or by cash or other consideration shall, until the form of
consideration to be paid is finally determined, be counted against the
maximum number of Shares that may be issued pursuant to this Plan. If the
Award is ultimately
<PAGE>
satisfied by the payment of consideration other than Shares, as, for
example, a Stock Option granted in tandem with a Stock Appreciation Right
that is settled by a cash payment, such Shares may again be made the
subject of an Award granted pursuant to this Plan. Awards will not reduce
the number of Shares that may be issued pursuant to this Plan if the
settlement of the Award will not require the issuance of Shares, as, for
example, a Stock Appreciation Right that can be satisfied only by the
payment of cash.
SECTION 5. ELIGIBILITY
Eligibility for participation in this Plan shall be confined to those
individuals who are employed by the Company or a Subsidiary and such Consultants
and non-employee Directors as may be designated by the Committee or the Board.
In making any determination as to Persons to whom Awards shall be granted, the
type of Award and/or the number of Shares to be covered by the Award, the
Committee or the Board shall consider the position and responsibilities of the
Person, the importance of the Person to the Company, the duties of the Person,
the past, present and potential contributions of the Person to the growth and
success of the Company and such other factors as the Committee or the Board may
deem relevant in connection with accomplishing the purposes of this Plan.
SECTION 6. STOCK OPTIONS
6.1 Grants. The Committee or the Board may grant Stock Options alone
or in addition to other Awards granted pursuant to this Plan to any
eligible Person. Each Person so selected shall be offered a Stock Option
to purchase the number of Shares determined by the Committee or the Board.
The Committee or the Board shall specify whether such Stock Option is an
Incentive Stock Option or Non-Qualified Stock Option and any other terms or
conditions relating to such Award; provided, however only employees of the
Company or a Subsidiary may be granted Incentive Stock Options. To the
extent that any Stock Option designated as an Incentive Stock Option does
not qualify as an Incentive Stock Option (whether because of its
provisions, the failure of the shareholders of the Company to authorize the
issuance of Incentive Stock Options, the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof which does not qualify
shall be deemed to constitute a Non-Qualified Stock Option. Each Person to
be granted a Stock Option shall enter into a written agreement with the
Company, in such form as the Committee or the Board may prescribe, setting
forth the terms and conditions (including, without limitation, the exercise
price and vesting schedule) of the Stock Option. At any time and from time
to time, the Optionee and the Committee or the Board may agree to modify an
option agreement in such respects as they may deem appropriate, including,
without limitation, the conversion of an Incentive Stock Option into a Non-
Qualified Stock Option. The Committee or the Board may require that an
Optionee meet certain conditions before the Stock Option or a portion
thereof may vest or be exercised, as, for example, that the Optionee remain
in the employ of the Company or a Subsidiary for a stated period or periods
of time.
<PAGE>
6.2 Incentive Stock Options Limitations.
(a) In no event shall any individual be granted Incentive Stock
Options to the extent that the Shares covered by any Incentive Stock
Options (and any incentive stock options granted pursuant to any other
plans of the Company or its Subsidiaries) that may be exercised for
the first time by such individual in any calendar year have an
aggregate Fair Market Value in excess of $100,000. For this purpose,
the Fair Market Value of the Shares shall be determined as of the
date(s) on which the Incentive Stock Options are granted. It is
intended that the limitation on Incentive Stock Options provided in
this Subsection 62 be the maximum limitation on Stock Options which
may be considered Incentive Stock Options pursuant to the Code.
(b) The option exercise price of an Incentive Stock Option shall
not be less than one hundred percent (100%) of the Fair Market Value
of the Shares subject to such Incentive Stock Option on the date of
the grant of such Incentive Stock Option.
(c) Notwithstanding anything herein to the contrary, in no event
shall any employee owning more than ten percent (10%) of the total
combined voting power of the Company or any Subsidiary be granted an
Incentive Stock Option unless the option exercise price of such
Incentive Stock Option shall be at least one hundred ten percent
(110%) of the Fair Market Value of the Shares subject to such
Incentive Stock Option on the date of the grant of such Incentive
Stock Option.
(d) In no event shall any individual be granted an Incentive
Stock Option after the expiration of ten (10) years from the date this
Plan is adopted or is approved by the shareholders of the Company (if
shareholder approval is required by Section 422 of the Code).
(e) To the extent shareholder approval of this Plan is required
by Section 422 of the Code, no individual shall be granted an
Incentive Stock Option unless this Plan is approved by the
shareholders of the Company within twelve (12) months before or after
the date this Plan is initially adopted. In the event this Plan is
amended to increase the number of Shares subject to issuance upon the
exercise of Incentive Stock Options or to change the class of
employees eligible to receive Incentive Stock Options, no individual
shall be granted an Incentive Stock Option unless such amendment is
approved by the shareholders of the Company within twelve (12) months
before or after such amendment.
(f) No Incentive Stock Option shall be granted to any employee
owning more than ten percent (10%) of the total combined voting power
of the Company or any Subsidiary unless the term of such Incentive
Stock Option is equal to or less than five (5) years measured from the
date on which such Incentive Stock Option is granted.
<PAGE>
6.3 Option Term. The term of a Stock Option shall be for such period
of time from the date of its grant as may be determined by the Committee or
the Board; provided, however, that no Incentive Stock Option shall be
exercisable later than ten (10) years from the date of its grant.
6.4 Time of Exercise. No Stock Option may be exercised unless it is
exercised prior to the expiration of its stated term and, in connection
with options granted to employees of the Company or its Subsidiaries, at
the time of such exercise, the Optionee is, and has been continuously since
the date of grant of such Stock Option, employed by the Company or a
Subsidiary, except that:
(a) A Stock Option may, to the extent vested as of the date the
Optionee ceases to be an employee of the Company or a Subsidiary, be
exercised during the three-month period immediately following the date
the Optionee ceases (for any reason other than death, Disability or
termination for Cause) to be an employee of the Company or a
Subsidiary (or within such other period as may be specified in the
applicable option agreement), provided that, if the Stock Option has
been designated as an Incentive Stock Option and the option agreement
provides for a longer exercise period, the exercise of such Stock
Option after such three-month period shall be treated as the exercise
of a Non-Qualified Stock Option;
(b) If the Optionee dies while in the employ of the Company or a
Subsidiary, or within three months after the Optionee ceases (for any
reason other than termination for Cause) to be such an employee (or
within such other period as may be specified in the applicable option
agreement), a Stock Option may, to the extent vested as of the date of
the Optionee's death, be exercised by the Optionee's Designated
Beneficiary during the one year period immediately following the date
of the Optionee's death (or within such other period as may be
specified in the applicable option agreement); provided that, if the
Stock Option has been designated as an Incentive Stock Option and the
option agreement provides for a longer exercise period, the exercise
of such Stock Option after such one-year period shall be treated as
the exercise of a Non-Qualified Stock Option;
(c) If the Optionee ceases to be an employee of the Company or a
Subsidiary by reason of the Optionee's Disability, a Stock Option, to
the extent vested as of the date the Optionee ceases to be an employee
of the Company or a Subsidiary, may be exercised during the one year
period immediately following the date on which the Disability is
determined to exist (or within such other period as may be specified
in the applicable option agreement); provided that, if the Stock
Option has been designated as an Incentive Stock Option and the option
agreement provides for a longer exercise period, the exercise of such
Stock Option after such one-year period shall be treated as the
exercise of a Non-Qualified Stock Option; and
<PAGE>
(d) If the Optionee's employment is terminated for Cause, all
Stock Options held by such Optionee shall simultaneously terminate
and will no longer be exercisable.
Nothing contained in this Subsection 64 will be deemed to extend the term
of a Stock Option or to revive any Stock Option which has previously lapsed
or been cancelled, terminated or surrendered. Stock Options granted under
this Plan to Consultants or non-employee Directors will contain such terms
and conditions with respect to the death or disability of a Consultant or
non-employee Director or termination of a Consultant's or non-employee
Director's relationship with the Company as the Committee or the Board
deems necessary or appropriate. Such terms and conditions will be set
forth in the option agreements evidencing the grant of such Stock Options.
6.5 Vesting of Stock Options.
(a) Each Stock Option granted pursuant to this Plan may only be
exercised to the extent that the Optionee is vested in such Stock
Option. Each Stock Option shall vest separately in accordance with
the option vesting schedule determined by the Committee or the Board,
which will be incorporated in the option agreement entered into
between the Company and such Optionee. The option vesting schedule
may be accelerated if, in the sole discretion of the Committee or the
Board, the acceleration of the option vesting schedule would be in the
best interests the Company.
(b) In the event of the dissolution or liquidation of the
Company, each Stock Option granted pursuant to this Plan shall
terminate as of a date to be fixed by the Committee or Board;
provided, however, that not less than thirty (30) days' written notice
of the date so fixed shall be given to each Optionee. During such
period all Stock Options which have not previously been terminated,
exercised or surrendered will (subject to the provisions of
Subsections 63 and 64) fully vest and become exercisable,
notwithstanding the vesting schedule set forth in the option agreement
evidencing the grant of such Stock Option. Upon the date fixed by the
Committee or the Board, any unexercised Stock Options shall terminate
and be of no further effect.
(c) Upon the occurrence of a Change in Control, all Stock
Options and any associated Stock Appreciation Rights shall become
fully vested and immediately exercisable.
6.6 Manner of Exercise of Stock Options.
(a) Except as otherwise provided in this Plan, Stock Options may
be exercised as to Shares only in amounts and at intervals of time
specified in the written option agreement between the Company and the
Optionee. Each exercise of a Stock Option, or any part thereof, shall
be evidenced by a written notice delivered
<PAGE>
by the Optionee to the Company. The purchase price of the Shares as to
which a Stock Option shall be exercised shall be paid in full at the
time of exercise, and may be paid to the Company either:
(i) in cash (including check, bank draft or money order);
or
(ii) by other consideration deemed acceptable by the
Committee or the Board in its sole discretion.
(b) If an Optionee delivers Shares (including Shares of
Restricted Stock) already owned by the Optionee in full or partial
payment of the exercise price for any Stock Option, or if the Optionee
elects to have the Company retain that number of Shares out of the
Shares being acquired through the exercise of the Stock Option having
a Fair Market Value equal to the exercise price of the Stock Option
being exercised, the Committee or the Board may, in its sole
discretion, authorize the grant of a new Stock Option (a "Reload
Option") for that number of Shares equal to the number of already
owned Shares surrendered (including Shares of Restricted Stock) or
newly acquired Shares being retained by the Company in payment of the
option exercise price of the underlying Stock Option being exercised.
The grant of a Reload Option will become effective upon the exercise
of the underlying Stock Option. The option exercise price of the
Reload Option shall be the Fair Market Value of a Share on the
effective date of the grant of the Reload Option. Each Reload Option
shall be exercisable no later than the time when the underlying stock
option being exercised could be last exercised. The Committee or the
Board may also specify additional terms, conditions and restrictions
for the Reload Option and the Shares to be acquired upon the exercise
thereof.
(c) The amount, as determined by the Committee or the Board, of
any federal, state or local tax required to be withheld by the Company
due to the exercise of a Stock Option shall, subject to the
authorization of the Committee or the Board, be satisfied, at the
election of the Optionee, either (a) by payment by the Optionee to the
Company of the amount of such withholding obligation in cash or other
consideration acceptable to the Committee or the Board in its sole
discretion (the "Non-Share Method") or (b) through either the
retention by the Company of a number of Shares out of the Shares being
acquired through the exercise of the Stock Option or the delivery of
already owned Shares having a Fair Market Value equal to the amount of
the withholding obligation (the "Share Retention Method"). If an
Optionee elects to use the Share Retention Method in full or partial
satisfaction of any tax liability resulting from the exercise of a
Stock Option, the Committee or the Board may authorize the grant of a
Reload Option for that number of Shares as shall equal the number of
Shares used to satisfy the tax liabilities of the Optionee arising out
of the exercise of such Stock Option. Such Reload Option will be
granted at the price and on the terms set forth in Subsection 66. The
cash payment or an amount equal to the Fair Market Value of the Shares
so withheld, as the case may be, shall be remitted by the Company to
the appropriate taxing authorities.
<PAGE>
(d) An Optionee shall not have any of the rights of a
shareholder of the Company with respect to the Shares subject to a
Stock Option except to the extent that such Stock Option is exercised
and one or more certificates representing such Shares shall have been
delivered to the Optionee.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 Grants. The Committee or the Board may grant to any eligible
Consultant, non-employee Director or employee of the Company or a
Subsidiary either Non-Tandem Stock Appreciation Rights or Tandem Stock
Appreciation Rights. Stock Appreciation Rights shall be subject to such
terms and conditions as the Committee or the Board shall impose. The grant
of the Stock Appreciation Right may provide that the holder will be paid
for the value of the Stock Appreciation Right either in cash or in Shares,
or a combination thereof, at the sole discretion of the Committee or the
Board. In the event of the exercise of a Stock Appreciation Right payable
in Shares, the holder of the Stock Appreciation Right shall receive that
number of whole Shares having an aggregate Fair Market Value on the date of
exercise equal to the value obtained by multiplying (i) either (a) in the
case of a Tandem Stock Appreciation Right, the difference between the Fair
Market Value of a Share on the date of exercise over the per share exercise
price of the related Stock Option, or (b) in the case of a Non-Tandem Stock
Appreciation Right, the difference between the Fair Market Value of a Share
on the date of exercise over the Fair Market Value on the date of the grant
by (ii) the number of Shares as to which the Stock Appreciation Right is
exercised. However, notwithstanding the foregoing, the Committee or the
Board, in its sole discretion, may place a ceiling on the amount payable
upon exercise of a Stock Appreciation Right, but any such limitation shall
be specified at the time that the Stock Appreciation Right is granted.
7.2 Exercisability. A Tandem Stock Appreciation Right granted in
connection with an Incentive Stock Option (i) may be exercised at, and only
at, the times and to the extent the related Incentive Stock Option is
exercisable, (ii) will expire upon the termination of the related Incentive
Stock Option, (iii) may not exceed 100% of the difference between the
exercise price of the related Incentive Stock Option and the Fair Market
Value of the Shares subject to the related Incentive Stock Option at the
time the Tandem Stock Appreciation Right is exercised and (iv) may be
exercised at, and only at, such times as the Fair Market Value of the
Shares subject to the related Incentive Stock Option exceeds the exercise
price of the related Incentive Stock Option. A Tandem Stock Appreciation
Right may be transferred at, and only at, the times and to the extent the
related Stock Option is transferable. If a Tandem Stock Appreciation Right
is granted, there shall be surrendered and cancelled from the related Stock
Option at the time of exercise of the Tandem Stock Appreciation Right, in
lieu of exercise pursuant to the related Stock Option, that number of
Shares as shall equal the number of Shares as to which the Tandem Stock
Appreciation Right shall have been exercised.
7.3 Certain Limitations on Non-Tandem Stock Appreciation Rights. A
Non-Tandem Stock Appreciation Right will be exercisable as provided by the
Committee
<PAGE>
or the Board and will have such other terms and conditions as the Committee
or the Board may determine. A Non-Tandem Stock Appreciation Right is
subject to acceleration of vesting or immediate termination in certain
circumstances in the same manner as Stock Options pursuant to Subsections
6.4 and 6.5 of this Plan.
7.4 Limited Stock Appreciation Rights. The Committee and the Board
may grant "Limited Stock Appreciation Rights," either as Tandem Stock
Appreciation Rights or Non-Tandem Stock Appreciation Rights. Limited Stock
Appreciation Rights will become exercisable only upon the occurrence of a
Change in Control or such other event as the Committee or the Board may
designate at the time of grant or thereafter.
SECTION 8. RESTRICTED STOCK
8.1 Grants. The Committee or the Board may grant Awards of
Restricted Stock to any Consultant, non-employee Director or employee of
the Company or a Subsidiary for such minimum consideration, if any, as may
be required by applicable law or such greater consideration as may be
determined by the Committee or the Board, in its sole discretion. The terms
and conditions of the Restricted Stock shall be specified by the grant
agreement. The Committee or the Board, in its sole discretion, may specify
any particular rights which the Participant to whom a grant of Restricted
Stock is made shall have in the Restricted Stock during the restriction
period and the restrictions applicable to the particular Award, the vesting
schedule (which may be based on service, performance or other factors) and
rights to acceleration of vesting (including, without limitation, whether
non-vested Shares are forfeited or vested upon termination of employment).
Further, the Committee or the Board may grant performance-based Awards
consisting of Restricted Stock by conditioning the grant, or vesting or
such other factors, such as the release, expiration or lapse of
restrictions upon any such Award (including the acceleration of any such
conditions or terms) of such Restricted Stock upon the attainment of
specified performance goals or such other factors as the Committee or the
Board may determine. The Committee or the Board shall also determine when
the restrictions shall lapse or expire and the conditions, if any, pursuant
to which the Restricted Stock will be forfeited or sold back to the
Company. Each Award of Restricted Stock may have different restrictions and
conditions. Unless otherwise set forth in the grant agreement, Restricted
Stock may not be sold, pledged, encumbered or otherwise disposed of by the
recipient until the restrictions specified in the Award expire. Awards of
Restricted Stock are subject to acceleration of vesting, termination of
restrictions and termination in the same manner as Stock Options pursuant
to Subsections 6.4 and 6.5 of this Plan.
8.2 Awards and Certificates. Any Restricted Stock issued hereunder
may be evidenced in such manner as the Committee or the Board, in its sole
discretion, shall deem appropriate including, without limitation, book-
entry registration or issuance of a stock certificate or certificates. In
the event any stock certificate is issued in respect of Shares of
Restricted Stock, such certificate shall bear an appropriate legend with
respect to the restrictions applicable to such Award. The Company may
retain, at its option, the physical custody of any stock certificate
representing any awards of Restricted Stock during the
<PAGE>
restriction period or require that the certificates evidencing Restricted
Stock be placed in escrow or trust, along with a stock power endorsed in
blank, until all restrictions are removed or expire.
SECTION 9. PERFORMANCE AWARDS
9.1 Grants. A Performance Award may consist of either or both, as
the Committee or the Board may determine, of (i) the right to receive
Shares or Restricted Stock, or any combination thereof as the Committee or
the Board may determine ("Performance Shares"), or (ii) the right to
receive a fixed dollar amount payable in Shares, Restricted Stock, cash or
any combination thereof, as the Committee or the Board may determine
("Performance Units"). The Committee or the Board may grant Performance
Awards to any eligible Consultant, non-employee Director or employee of the
Company or a Subsidiary, for such minimum consideration, if any, as may be
required by applicable law or such greater consideration as may be
determined by the Committee or the Board, in its sole discretion. The terms
and conditions of Performance Awards shall be specified at the time of the
grant and may include provisions establishing the performance period, the
performance criteria to be achieved during a performance period, the
criteria used to determine vesting (including the acceleration thereof),
whether Performance Awards are forfeited or vest upon termination of
employment during a performance period and the maximum or minimum
settlement values. Each Performance Award shall have its own terms and
conditions, which shall be determined in the sole discretion of the
Committee or the Board. If the Committee or the Board determines, in its
sole discretion, that the established performance measures or objectives
are no longer suitable because of a change in the Company's business,
operations, corporate structure or for other reasons that the Committee or
the Board deems satisfactory, the Committee or the Board may modify the
performance measures or objectives and/or the performance period. Awards
of Performance Shares and/or Performance Units are subject to acceleration
of vesting, termination of restrictions and termination in the same manner
as Stock Options pursuant to Subsections 6.4 and 6.5 of this Plan.
9.2 Terms and Conditions. Performance Awards may be valued by
reference to the Fair Market Value of a Share or according to any other
formula or method deemed appropriate by the Committee or the Board, in its
sole discretion, including, but not limited to, achievement of specific
financial, production, sales, cost or earnings performance objectives that
the Committee or the Board believes to be relevant or the Company's
performance or the performance of the Common Stock measured against the
performance of the market, the Company's industry segment or its direct
competitors. Performance Awards may also be conditioned upon the
applicable Participant remaining in the employ of the Company or one of its
Subsidiaries for a specified period. Performance Awards may be paid in
cash, Shares (including Restricted Stock) or other consideration, or any
combination thereof. Performance Awards may be payable in a single payment
or in installments and may be payable at a specified date or dates or upon
attaining the performance objective or objectives, all at the sole
discretion of the Committee or the Board. The extent to which any
applicable performance objective has been achieved shall be conclusively
determined by the Committee or the Board in its sole discretion.
<PAGE>
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
The Committee or the Board may grant a Dividend Equivalent Right to any
eligible Consultant, non-employee Director or employee of the Company or a
Subsidiary, either as a component of another Award or as a separate Award, and,
in general, each such Participant awarded a Dividend Equivalent Right that is
outstanding on a dividend record date for the Common Stock shall be credited
with an amount equal to the cash or stock dividends or other distributions that
would have been received had the Shares subject to the Award been issued and
outstanding on the dividend record date. The terms and conditions of the
Dividend Equivalent Right shall be specified in a dividend equivalent right
agreement which evidences such Award. Dividend Equivalent Rights may be settled
in cash or Shares, or a combination thereof, in a single payment or in
installments. A Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement or payment for or lapse of restrictions on such other
Award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled pursuant to the same conditions as such other Award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other Award.
SECTION 11. OTHER AWARDS
The Committee or the Board may grant to any eligible Consultant, non-
employee Director or employee of the Company or a Subsidiary other forms of
Awards based upon, payable in or otherwise related to, in whole or in part,
Shares, if the Committee or the Board, in its sole discretion, determines that
such other form of Award is consistent with the purposes of this Plan. The
terms and conditions of such other form of Award shall be specified in a written
agreement which sets forth the terms and conditions of such Award, including,
but not limited to, the price, if any, and the vesting schedule, if any, of such
Award. Such Awards may be granted for such minimum consideration, if any, as
may be required by applicable law or for such other greater consideration as may
be determined by the Committee or the Board, in its sole discretion.
SECTION 12. COMPLIANCE WITH SECURITIES AND OTHER LAWS
As a condition to the issuance or transfer of any Award or any security
issuable in connection with such Award, the Company may require an opinion of
counsel, satisfactory to the Company, to the effect that (i) such issuance
and/or transfer will not be in violation of the Securities Act or any other
applicable securities laws and (ii) such issuance and/or transfer will not be in
violation of the rules and regulations of any securities exchange or automated
quotation system on which the Common Stock is listed or admitted to trading.
Further, the Company may refrain from issuing, delivering or transferring any
Award or any security issuable in connection with such Award until the Committee
or the Board has determined that such issuance, delivery or transfer will not
violate such securities laws or rules and regulations and that the recipient has
tendered to the Company any federal, state or local tax owed as a result of such
issuance, delivery or transfer, when the Company has a legal liability to
satisfy such tax. The Company shall not be liable for damages due to delay in
the issuance, delivery or transfer of any Award or any security issuable in
connection with such Award or any agreement, instrument or certificate
evidencing such Award or security for any reason
<PAGE>
whatsoever, including, but not limited to, a delay caused by the listing
requirements of any securities exchange or automated quotation system or any
registration requirements under the Securities Act, the Exchange Act, or under
any other state or federal law, rule or regulation. The Company is under no
obligation to take any action or incur any expense to register or qualify the
issuance, delivery or transfer of any Award or any security issuable in
connection with such Award under applicable securities laws or to perfect any
exemption from such registration or qualification or to list any security on any
securities exchange or automated quotation system. Furthermore, the Company will
have no liability to any person for refusing to issue, deliver or transfer any
Award or any security issuable in connection with such Award if such refusal is
based upon the foregoing provisions of this Section 12. As a condition to any
issuance, delivery or transfer of any Award or any security issuable in
connection with such Award, the Company may place legends on any agreement,
instrument or certificate evidencing such Award or security, issue stop transfer
orders with respect thereto and require such agreements or undertakings as the
Company may deem necessary or advisable to assure compliance with applicable
laws or regulations, including, if the Company or its counsel deems it
appropriate, representations from the recipient of such Award or security to the
effect that such recipient is acquiring such Award or security solely for
investment and not with a view to distribution and that no distribution of the
Award or the security will be made unless registered pursuant to applicable
federal and state securities laws, or in the opinion of counsel to the Company,
such registration is unnecessary.
SECTION 13. ADJUSTMENTS UPON THE OCCURRENCE OF A REORGANIZATION OR
CORPORATE TRANSACTION
(a) In the event of a Reorganization, the number of Shares
subject to this Plan and to each outstanding Award, and the exercise
price of each Award which is based upon Shares, shall (to the extent
deemed appropriate by the Committee or the Board) be proportionately
adjusted (as determined by the Committee or the Board in its sole
discretion) to account for any increase or decrease in the number of
issued and outstanding Shares of the Company resulting from such
Reorganization.
(b) If a Corporate Transaction is consummated and immediately
following the consummation of such Corporate Transaction the Persons
who were holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction do not receive any
securities or other property (hereinafter collectively referred to as
"Transactional Consideration") as a result of such Corporate
Transaction and substantially all of such Persons continue to hold the
shares of Common Stock held by them immediately prior to the
consummation of such Corporate Transaction (in substantially the same
proportions relative to each other), the Awards will remain
outstanding and will (subject to the provisions of Subsections 6.1,
6.5 (c), 7.1, 7.3, 8.1 and 9.1) continue in full force and effect in
accordance with its terms (without any modification) following the
consummation of the Corporate Transaction.
(c) If a Corporate Transaction is consummated and immediately
following the consummation of such Corporate Transaction the Persons
who were
<PAGE>
holders of shares of Common Stock immediately prior to the
consummation of such Corporate Transaction do receive Transactional
Consideration as a result of such Corporate Transaction or
substantially all of such Persons do not continue to hold the shares
of Common Stock held by them immediately prior to the consummation of
such Corporate Transaction (in substantially the same proportions
relative to each other), the terms and conditions of the Awards will
be modified as follows:
(i) If the documentation pursuant to which a Corporate
Transaction will be consummated provides for the assumption (by
the entity issuing Transactional Consideration to the Persons who
were the holders of shares of Common Stock immediately prior to
the consummation of such Corporate Transaction) of the Awards
granted pursuant to this Plan without any modification or
amendment (other than Permitted Modifications and the
modifications contemplated by Subsections 6.1, 6.5, 7.1, 7.3, 8.1
and 9.1 of this Plan), such Awards will remain outstanding and
will continue in full force and effect in accordance with its
terms following the consummation of such Corporate Transaction
(subject to such Permitted Modifications and the provisions of
Subsections 6.1, 6.5, 7.1, 7.3, 8.1 and 9.1.
(ii) If the documentation pursuant to which a Corporate
Transaction will be consummated does not provide for the
assumption by the entity issuing Transactional Consideration to
the Persons who were the holders of shares of Common Stock
immediately prior to the consummation of such Corporate
Transaction of the Awards granted pursuant to this Plan without
any modification or amendment (other than Permitted
Modifications), all vesting restrictions (performance based or
otherwise) applicable to Awards which will not be so assumed will
accelerate and the holders of such Awards may (subject to the
expiration of the term of such Awards) exercise/receive the
benefits of such Awards without regard to such vesting
restrictions during the ten (10) day period immediately preceding
the consummation of such Corporate Transaction. For purposes of
the immediately preceding sentence, all performance based goals
will be deemed to have been satisfied in full. The Company will
provide each Participant holding Awards which will not be so
assumed with reasonable notice of the termination of such vesting
restrictions and the impending termination of such Awards. Upon
the consummation of such a Corporate Transaction, all unexercised
Awards which are not to be so assumed will automatically
terminate and cease to be outstanding.
Nothing contained in this Section 13 will be deemed to extend the term of
an Award or to revive any Award which has previously lapsed or been
cancelled, terminated or surrendered.
<PAGE>
SECTION 14. AMENDMENT OR TERMINATION OF THIS PLAN
14.1 Amendment of This Plan. Notwithstanding anything contained in
this Plan to the contrary, all provisions of this Plan (including, without
limitation, the maximum number of Shares that may be issued with respect to
Awards to be granted pursuant to this Plan) may at any time or from time to
time be modified or amended by the Board; provided, however, that no Award
at any time outstanding pursuant to this Plan may be modified, impaired or
cancelled adversely to the holder of the Award without the consent of such
holder.
14.2 Termination of This Plan. The Board may suspend or terminate
this Plan at any time, and such suspension or termination may be
retroactive or prospective. Termination of this Plan shall not impair or
affect any Award previously granted hereunder and the rights of the holder
of the Award shall remain in effect until the Award has been exercised in
its entirety or has expired or otherwise has been terminated by the terms
of such Award.
SECTION 15. AMENDMENTS AND ADJUSTMENTS TO AWARDS
The Committee or the Board may amend, modify or terminate any outstanding
Award with the Participant's consent at any time prior to payment or exercise in
any manner not inconsistent with the terms of this Plan, including, without
limitation, (i) to change the date or dates as of which and/or the terms and
conditions pursuant to which (A) a Stock Option becomes exercisable or (B) a
Performance Award is deemed earned, (ii) to amend the terms of any outstanding
Award to provide an exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Award or (iii) to
cancel an Award and grant a new Award in substitution therefor under such
different terms and conditions as the Committee or the Board determines in its
sole discretion to be appropriate including, but not limited to, having an
exercise price per share which may be higher or lower than the exercise price
per share of the cancelled Award. The Committee or the Board may also make
adjustments in the terms and conditions of, and the criteria included in
agreements evidencing Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 13 hereof)
affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations or accounting
principles, whenever the Committee or the Board determines that such adjustments
are appropriate to prevent reduction or enlargement of the benefits or potential
benefits intended to be made available pursuant to this Plan. Any provision of
this Plan or any agreement regarding an Award to the contrary notwithstanding,
the Committee or the Board may cause any Award granted to be cancelled in
consideration of a cash payment or alternative Award made to the holder of such
cancelled Award equal in value to the Fair Market Value of such cancelled Award.
The determinations of value pursuant to this Section 15 shall be made by the
Committee or the Board in its sole discretion.
<PAGE>
SECTION 16. GENERAL PROVISIONS
16.1 No Limit on Other Compensation Arrangements. Nothing contained
in this Plan shall prevent the Company from adopting or continuing in
effect other compensation arrangements, and such arrangements may be either
generally applicable or applicable only in specific cases.
16.2 No Right to Employment or Continuation of Relationship. Nothing
in this Plan or in any Award, nor the grant of any Award, shall confer upon
or be construed as giving any Participant any right to remain in the employ
of the Company or a Subsidiary or to continue as a Consultant or non-
employee Director. Further, the Company or a Subsidiary may at any time
dismiss a Participant from employment or terminate the relationship of any
Consultant or non-employee Director with the Company or any Subsidiary,
free from any liability or any claim pursuant to this Plan, unless
otherwise expressly provided in this Plan or in any agreement evidencing an
Award made under this Plan. No Consultant, non-employee Director or
employee of the Company or any Subsidiary shall have any claim to be
granted any Award, and there is no obligation for uniformity of treatment
of any Consultant, non-employee Director or employee of the Company or any
Subsidiary or of any Participants.
16.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND EFFECT OF THIS
PLAN AND ANY RULES AND REGULATIONS RELATING TO THIS PLAN SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
16.4 Severability. If any provision of this Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or as to any individual or Award, or would disqualify this
Plan or any Award under any law deemed applicable by the Committee or the
Board, such provision shall be construed or deemed amended to conform to
applicable law, or if it cannot be construed or deemed amended without, in
the sole determination of the Committee or the Board, materially altering
the intent of this Plan or the Award, such provision shall be stricken as
to such jurisdiction, individual or Award and the remainder of this Plan
and any such Award shall remain in full force and effect.
16.5 No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to this Plan or any Award, and the Committee or the
Board shall determine, in its sole discretion, whether cash, other
securities or other property shall be paid or transferred in lieu of any
fractional Shares or whether such fractional Shares or any rights thereto
shall be cancelled, terminated or otherwise eliminated.
16.6 Headings. Headings are given to the Sections and Subsections of
this Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of this Plan or any provision thereof.
<PAGE>
16.7 Effective Date. The provisions of this Plan that relate to the
grant of Incentive Stock Options shall be effective as of the date of the
approval of this Plan by the shareholders of the Company.
16.8 Transferability of Awards. Awards shall not be transferable
otherwise than by will or the laws of descent and distribution without the
written consent of the Committee or the Board (which may be granted or
withheld at the sole discretion of the Committee or the Board). Awards may
be exercised, during the lifetime of the holder, only by the holder. Any
attempted assignment, transfer, pledge, hypothecation or other disposition
of an Award contrary to the provisions hereof, or the levy of any
execution, attachment or similar process upon an Award shall be null and
void and without effect.
16.9 Rights of Participants. Except as hereinbefore expressly
provided in this Plan, any Person to whom an Award is granted shall have no
rights by reason of any subdivision or consolidation of stock of any class
or the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class or by reason of any dissolution,
liquidation, reorganization, merger or consolidation or spinoff of assets
or stock of another corporation, and any issue by the Company of shares of
stock of any class or securities convertible into shares of stock of any
class shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or exercise price of Shares subject to an
Award.
16.10 No Limitation Upon the Rights of the Company. The grant of an
Award pursuant to this Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, or changes of its
capital or business structure; to merge, convert or consolidate; to
dissolve or liquidate; or sell or transfer all or any part of its business
or assets.
16.11 Date of Grant of an Award. Except as noted in this Section
16.11, the granting of an Award shall take place only upon the execution
and delivery by the Company and the Participant of a written agreement and
neither any other action taken by the Committee or the Board nor anything
contained in this Plan or in any resolution adopted or to be adopted by the
Committee, the Board or the shareholders of the Company shall constitute
the granting of an Award pursuant to this Plan. Solely, for purposes of
determining the Fair Market Value of the Shares subject to an Award, such
Award will be deemed to have been granted as of the date specified by the
Committee or the Board notwithstanding any delay which may elapse in
executing and delivering the applicable agreement.
SECTION 17. NAMED EXECUTIVE OFFICERS
17.1 Applicability of Section 17. The provisions of this Section 17
shall apply only to those executive officers (i) whose compensation is
required to be reported in the Company's proxy statement pursuant to Item
402(a)(3)(i) and (ii) (or any successor thereto) of Regulation S-K (or any
successor thereto) under the general rules and regulations under
<PAGE>
the Exchange Act and (ii) whose total compensation, including estimated
Awards, is determined by the Committee or the Board to possibly be subject
to the limitations on deductions imposed by Section 162(m) of the Code
("Named Executive Officers"). In the event of any inconsistencies between
this Section 17 and the other Plan provisions as they pertain to Named
Executive Officers, the provisions of this Section 17 shall control.
17.2 Establishment of Performance Goals. Awards for Named Executive
Officers, other than Stock Options and Stock Appreciation Rights, shall be
based on the attainment of certain performance goals. No later than the
earlier of (i) ninety (90) days after the commencement of the applicable
fiscal year of the Company or one of its Subsidiaries or such other award
period as may be established by the Committee or the Board ("Award Period")
and (ii) the completion of twenty-five percent (25%) of such Award Period,
the Committee or the Board shall establish, in writing, the performance
goals applicable to each such Award for Named Executive Officers. At the
time the performance goals are established, their outcome must be
substantially uncertain. In addition, the performance goal must state, in
terms of an objective formula or standard, the method for computing the
amount of compensation payable to the Named Executive Officer if the goal
is obtained. Such formula or standard shall be sufficiently objective so
that a third party with knowledge of the relevant performance results could
calculate the amount to be paid to the subject Named Executive Officer.
The material terms of the performance goals for Named Executive Officers
and the compensation payable thereunder shall be submitted to the
shareholders of the Company for their review and approval if and to the
extent required for such compensation to be deductible pursuant to Section
162(m) (or any successor thereto) of the Code, and the Treasury Regulations
thereunder. Shareholder approval, if necessary, shall be obtained for such
performance goals prior to any Award being paid to such Named Executive
Officer. If shareholder approval is required and not received with respect
to such performance goals, no amount shall be paid to such Named Executive
Officer for such applicable Award Period pursuant to this Plan.
17.3 Components of Awards. Each Award granted to a Named Executive
Officer, other than Stock Options and Stock Appreciation Rights, shall be
based on performance goals which are sufficiently objective so that a third
party having knowledge of the relevant facts could determine whether the
goal was met. Except as provided in Subsection 17.8 herein, performance
measures which may serve as determinants of Named Executive Officers'
Awards shall be limited to the following measures: earnings per share;
return on assets; return on equity; return on capital; net profit after
taxes; net profit before taxes; operating profits; stock price; and sales
or expenses. Within ninety (90) days following the end of each Award
Period, the Committee or the Board shall certify in writing that the
performance goals, and any other material terms were satisfied.
Thereafter, Awards shall be made for each Named Executive Officer as
determined by the Committee or the Board. The Awards may not vary from the
pre-established amount based on the level of achievement.
17.4 No Mid-Year Change in Awards. Except as provided in Subsections
17.8 and 17.9 herein, each Named Executive Officer's Awards shall be based
exclusively on the
<PAGE>
performance measures established by the Committee or the Board pursuant to
Subsections 17.2 and 17.3.
17.5 No Partial Award Period Participation. A Named Executive Officer
who becomes eligible to participate in this Plan after performance goals
have been established in an Award Period pursuant to Subsections 17.2 and
173 may not participate in this Plan prior to the next succeeding Award
Period, except with respect to Awards which are Stock Options or Stock
Appreciation Rights .
17.6 Performance Goals. Except as provided in Subsection 17.8 herein,
performance goals shall not be changed following their establishment, and
Named Executive Officers shall not receive any payout, except with respect
to Awards which are Stock Options or Stock Appreciation Rights, when the
minimum performance goals are not met or exceeded.
17.7 Individual Performance and Discretionary Adjustments. Except as
provided in Subsection 17.8 herein, subjective evaluations of individual
performance of Named Executive Officers shall not be reflected in their
Awards, other than Awards which are Stock Options or Stock Appreciation
Rights. The payment of such Awards shall be entirely dependent upon the
attainment of the preestablished performance goals.
17.8 Amendments. No amendment of this Plan with respect to any Named
Executive Officer may be made which would (i) increase the maximum amount
that can be paid to any one Participant pursuant to this Plan, (ii) change
the specified performance goal for payment of Awards, or (iii) modify the
requirements as to eligibility for participation in this Plan, unless the
Company's shareholders have first approved such amendment in a manner which
would permit the deduction under Section 162(m) (or any successor thereto)
of the Code of such payment in the fiscal year it is paid. The Committee
or the Board shall amend this Section 17 and such other provisions as it
deems appropriate, to cause amounts payable to Named Executive Officers to
satisfy the requirements of Section 162(m) (or any successor thereto) and
the Treasury regulations promulgated thereunder.
17.9 Stock Options and Stock Appreciation Rights - Grant Price.
Notwithstanding any provision of this Plan (including the provisions of
this Section 17) to the contrary, the amount of compensation which a Named
Executive Officer may receive with respect to Stock Options and Stock
Appreciation Rights which are granted hereunder is based solely on an
increase in the value of the applicable Shares after the date of grant of
such Award. Thus, no Stock Option may be granted hereunder to a Named
Executive Officer with an exercise price less than the Fair Market Value of
Shares on the date of grant. Furthermore, the maximum number of Shares (or
cash equivalent value) with respect to which Stock Options or Stock
Appreciation Rights may be granted hereunder to any Named Executive Officer
during any calendar year may not exceed 400,000 Shares, subject to
adjustment as provided in Section 13 hereunder.
<PAGE>
17.10 Maximum Amount of Compensation. The maximum amount of
compensation payable as an Award (other than an Award which is a Stock
Option or Stock Appreciation Right) to any Named Executive Officer during
any calendar year may not exceed $1,000,000.
<PAGE>
[WINSTEAD SECHREST & MINICK LETTERHEAD APPEARS HERE]
2400 Bank One Center
910 Travis Street
Houston, Texas 77002-5895 (713)650-8400
DALLAS HOUSTON AUSTIN Fax (713)650-2400
MEXICO CITY www.winstead.com
(713) 650-2729
July 1, 1998
Sheridan Energy, Inc.
1000 Louisiana, Suite 800
Houston, Texas 77002
Gentlemen:
You have requested our opinion as to the legality of the securities of
Sheridan Energy, Inc. (the "Company") being registered on Form S-8 (the
"Registration Statement") to be filed by the Company with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, in
connection with the Sheridan Energy, Inc. 1997 Flexible Incentive Plan (the
"1997 Plan") and the Sheridan Energy, Inc. 1998 Flexible Incentive Plan (the
"1998 Plan" and collectively with the 1997 Plan, the "Plans"). You have also
requested our opinion as to whether such securities will, when sold, be legally
issued, fully paid, and nonassessable. The securities to be registered on the
Registration Statement and issued pursuant to the Plans will be up to 450,000
shares under the 1997 Plan and up to 250,000 Shares under the 1998 Plan (the
"Shares") of common stock of the Company ("Common Stock"), which may be treasury
shares or authorized but unissued shares.
We have examined copies of the Certificate of Incorporation and Bylaws of
the Company and of the resolutions adopted by the Board of Directors and
stockholders of the Company in connection with the adoption of the Plans. We
have also examined such other corporate records and documents, certificates of
corporate officers, and statutes as we have deemed necessary for purposes of
this opinion.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all corporate records, documents and instruments submitted to us
as originals, the conformity to original documents of all documents submitted to
us as conformed, certified or photostatic copies thereof, and the authenticity
of the originals of such photostatic, certified or conformed copies. We have
assumed compliance both in the past and in the future with the terms of the
Plans by the Company and its employees, officers, and Board of Directors, and
any Committees of the Board of Directors, and that all statements in all
certificates of officers of the Company submitted are true and correct.
<PAGE>
Sheridan Energy, Inc.
July 1, 1998
Page 2
Based upon the foregoing and in reliance thereon, we are of the opinion
that the Shares when issued or sold pursuant to and in accordance with the terms
of the Plans will be validly issued, fully paid and nonassessable shares of
Common Stock.
We know that we are named in the Registration Statement, and we hereby
consent to the use of our name in the Registration Statement and to the filing
of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
WINSTEAD SECHREST & MINICK P.C.
By: /s/ Arthur S. Berner
--------------------------
Arthur S. Berner
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated March 27, 1998, which appears on page
24 of Sheridan Energy, Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 1997.
Price Waterhouse LLP
Houston, Texas
July 1, 1998
