Exhibit 10.23

 

FLUX POWER HOLDINGS, INC.

a Nevada Corporation

 

2014 EQUITY INCENTIVE PLAN

 

1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain
and motivate Eligible Persons whose present and potential contributions are
important to the success of the Company by offering them an opportunity to
participate in the Company’s future performance through awards of Incentive and
Non-Qualified Stock Options (“Options”), and Stock (“Restricted Stock” or
“Unrestricted Stock”). This Plan is not intended to replace any current plan of,
or awards issued by, the Company, nor will it limit the ability of the Company
to create additional or new plans, or to issue additional or new awards.
Capitalized terms not defined in the text are defined in Section 28.

 

2. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will be effective upon adoption
by the Board (the “Effective Date”) and continuance of the Plan for Incentive
Stock Options shall be subject to approval by the Stockholders within twelve
(12) months after the date the Plan is adopted. Such Stockholder approval shall
be obtained in the manner and to the degree required under the applicable laws.
No Award will be granted after termination of this Plan but all Awards granted
prior to termination will remain in effect in accordance with their terms. So
long as the Company is subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 (or its successor), as amended.

 

3. TERM OF PLAN. Unless earlier terminated as provided herein, this Plan will
terminate ten (10) years from the date this Plan is adopted by the Board.

 

4. SHARES SUBJECT TO THIS PLAN.

 

4.1. Number of Shares Available. Subject to Section 4.2, the total number of
Shares

reserved and available for grant and issuance pursuant to this Plan will be ten
million (10,000,000) (the “Maximum Number”). Not more than the Maximum Number of
shares of Stock shall be granted in the form of Incentive Stock Options. Shares
issued under the Plan will be drawn from authorized and unissued shares or
shares now held or subsequently acquired by the Company.

 

4.1.1. Future Awards. Subject to Section 4.2 and to the fullest extent
permissible under Rule 16b-3 under the Exchange Act and Section 422 of the Code
and any other applicable laws, rules and regulations, (i) if an Award is
canceled, terminates, expires, is forfeited or lapses for any reason without
having been exercised or settled, any shares of Stock subject to the Award will
be added back into the Maximum Number and will again be available for the grant
of an Award under the Plan and (ii) and the number of shares of Stock withheld
to satisfy a Participant’s minimum tax withholding obligations will be added
back into the Maximum Number and will be available for the grant of an Award
under the Plan. Also, only the net numbers of Shares that are issued pursuant to
the exercise of an Award will be counted against the Maximum Number.

 

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However, in the event that prior to the Award’s cancellation, termination,
expiration, forfeiture or lapse, the holder of the Award at any time received
one or more elements of “beneficial ownership” pursuant to such Award (as
defined by the SEC, pursuant to any rule or interpretations promulgated under
Section 16 of the Exchange Act), the Shares subject to such Award will not again
be made available for re-grant under the Plan.

 

4.1.2. Acquired Company Awards. Notwithstanding anything in the Plan to the
contrary, the Plan Administrator may grant Awards under the Plan in substitution
for awards issued under other plans, or assume under the Plan awards issued
under other plans, if the other plans are or were plans of other acquired
entities (“Acquired Entities”) (or the parent of an Acquired Entity) and the new
Award is substituted, or the old award is assumed, by reason of a merger,
consolidation, acquisition of property or stock, reorganization or liquidation
(the “Acquisition Transaction”). In the event that a written agreement pursuant
to which the Acquisition Transaction is completed is approved by the Board and
said agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions will be deemed to be the action of the Plan Administrator without any
further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards will be deemed to be Participants.

 

4.1.3. Reserve of Shares. At all times, the Company will reserve and keep
available a sufficient number of Shares as will be required to satisfy the
requirements of all outstanding Awards granted under this Plan. The Shares to be
issued hereunder upon exercise of an Award may be either authorized but
unissued; supplied to the Plan through acquisitions of Shares on the open
market; Shares purchased under the Plan and forfeited back to the Plan; Shares
surrendered in payment of the exercise price of an option; or Shares withheld
for payment of applicable employment taxes and/or withholding obligations
resulting from the exercise of an Option. The following rules will apply for
purposes of the determination of the number of Shares available for grant under
the Plan:

 

i. Grants. The grant of an Award will reduce the Shares available for grant
under the Plan by the number of Shares subject to such Award.

 

ii. Outstanding. While an Award is outstanding, it will be counted against the
authorized pool of Shares regardless of its vested status.

 

4.2. Adjustments. Should any change be made to the Stock of the Company by
reason of any stock split (including reverse stock split), stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Company’s receipt
of consideration, the Administrator will make the appropriate adjustments to (i)
the maximum number and/or class of securities issuable under the Plan; and (ii)
the number and/or class of securities and the exercise price per Share in effect
under each outstanding Award in order to prevent the dilution or enlargement of
benefits thereunder; provided however, that the number of Shares subject to any
Award will always be a whole number and the Administrator will make such
adjustments as are necessary to insure Awards of whole Shares.

 

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4.3. Limitations on Awards. Notwithstanding any provision in the Plan to the
contrary (but subject to adjustment as provided in Section 4.2), the Maximum
Number of Shares of Stock with respect to one or more Options that may be
granted during any one fiscal year under the Plan to any one Participant will be
one million (1,000,000). Determinations under the preceding sentence will be
made in a manner that is consistent with Section 162(m) of the Code and
regulations promulgated thereunder. The provisions of this Section will not
apply in any circumstance with respect to which the Administrator determines
that compliance with Section 162(m) of the Code is not necessary.

 

4.4. No Repricing. Absent stockholder approval, neither the Administrator nor
the Board will have any authority, with or without the consent of the affected
holders of Awards, to “reprice” an Award in the event of a decline in the price
of Shares after the date of their initial grant either by reducing the exercise
price from the original exercise price or through cancellation of outstanding
Awards in connection with re-granting of Awards at a lower price to the same
individual. This paragraph may not be amended, altered or repealed by the
Administrator or the Board without approval of the stockholders of the Company.

 

4.5. No Reloading. No Option will provide for the automatic grant of replacement
or reload Options upon the Participant exercising the Option and paying the
Exercise Price by tendering Shares of Stock, net exercise or otherwise. This
paragraph may not be amended, altered or repealed by the Administrator or the
Board without approval of the stockholders of the Company.

 

4.6. Maximum Number Limitations. From the date this Plan was first adopted until
twenty four (24) months thereafter, the Company shall not increase the Maximum
Number except as may be required pursuant to Section 4.2.

 

5. ADMINISTRATION OF THIS PLAN.

 

5.1. Authority. Authority to control and manage the operation and administration
of this Plan will be vested in a committee consisting of two (2) or more members
of the Board (the “Committee”) or in the Board acting as the Committee if no
formal Committee is created by the Board. It is intended that the directors
appointed to serve on the Committee will be “non-employee directors” (within the
meaning of Rule 16b-3 promulgated under the Exchange Act) and “outside
directors” (within the meaning of Section 162(m) of the Code) to the extent that
Rule 16b-3 and, if necessary for relief from the limitation under Section 162(m)
of the Code and such relief sought by the Company, Section 162(m) of the Code,
respectively, are applicable. However, the mere fact that a Committee member
will fail to qualify under either of the foregoing requirements will not
invalidate any Award made by the Committee which Award is otherwise validly made
under the Plan. Members of the Committee may be appointed from time to time by,
and will serve at the pleasure of, the Board. As used herein, the term
“Administrator” means the Committee.

 

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5.2. Interpretation. Subject to the express provisions of this Plan, the
Administrator will have the exclusive power, authority and discretion to:

 

(1) construe and interpret this Plan and any agreements defining the rights and
obligations of the Company and Participants under this Plan;

 

(2) select Participants;

 

(3) determine the terms and conditions of any Award granted under the Plan,
including, but not limited to, the Exercise Price, grant price or purchase
price, any restrictions or limitations on the Award, any schedule for lapse of
forfeiture restrictions or restrictions on the exercisability of the Award, and
acceleration or waivers thereof, based in each case on such considerations as
the Administrator in its sole discretion determines that is not inconsistent
with any rule or regulation under any tax or securities laws or includes an
alternative right that does not disqualify an Incentive Stock Option under
applicable regulations. Determinations made by the Administrator under this Plan
need not be uniform but may be made on a Participant-by-Participant basis;

 

(4) determine the number of Shares or other consideration subject to Awards;

 

(5) determine whether Awards will be subject to a condition, or grant a right,
that is not inconsistent with any rule or regulation under any tax or securities
laws or includes an alternative right that does not disqualify an incentive
stock option under applicable regulations;

 

(6) prescribe the form of each Award Agreement, which need not be identical for
each Participant;

 

(7) further define the terms used in this Plan;

 

(8) correct any defect or supply any omission or reconcile any inconsistency in
this Plan or in any Award Agreement;

 

(9) provide for rights of refusal and/or repurchase rights;

 

(10) amend outstanding Award Agreements to provide for, among other things, any
change or modification which the Administrator could have provided for upon the
grant of an Award or in furtherance of the powers provided for herein that does
not disqualify an Incentive Stock Option under applicable regulations unless the
Participant so consents;

 

(11) prescribe, amend and rescind rules and regulations relating to the
administration of this Plan; and

 

(12) make all other determinations necessary or advisable for the administration
of this Plan.

 

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5.3. Decisions Binding. Any decision or action of the Administrator in
connection with this Plan or Awards granted or shares of Stock purchased under
this Plan will be final and binding. The Administrator will not be liable for
any decision, action or omission respecting this Plan, or any Awards granted or
shares of Stock sold under this Plan.

 

5.4. Limitation on Liability. To the extent permitted by applicable law in
effect from time to time, no member of the Committee will be liable for any
action or omission of any other member of the Committee nor for any act or
omission on the member’s own part, excepting only the member’s own willful
misconduct, gross negligence, or bad faith and without reasonable belief that it
was in the best interests of the Company, arising out of or related to this
Plan. The Company will pay expenses incurred by, and satisfy a judgment or fine
rendered or levied against, a present or former member of the Committee in any
action against such person (whether or not the Company is joined as a party
defendant) to impose liability or a penalty on such person for an act alleged to
have been committed by such person while a member of the Committee arising with
respect to this Plan or administration thereof or out of membership on the
Committee or by the Company, or all or any combination of the preceding,
provided, the Committee member was acting in good faith, within what such
Committee member reasonably believed to have been within the scope of his or her
employment or authority and for a purpose which he or she reasonably believed to
be in the best interests of the Company or its stockholders. Payments authorized
hereunder include amounts paid and expenses incurred in settling any such action
or threatened action. The provisions of this section will apply to the estate,
executor, administrator, heirs, legatees or devisees of a Committee member, and
the term “person” as used on this section will include the estate, executor,
administrator, heirs, legatees, or devisees of such person.

 

6. GRANT OF OPTIONS; TERMS AND CONDITIONS OF GRANT.

 

6.1. Grant of Options. One or more Options may be granted to any Eligible
Person. Subject to the express provisions of this Plan, the Administrator will
determine from the Eligible Persons those individuals to whom Options under this
Plan may be granted. Each Option granted under this Plan will be evidenced by an
Award Agreement, which will expressly identify the Option as an Incentive Stock
Option or a Non-Qualified Stock Option. The Shares underlying a grant of an
Option may be in the form of Restricted Stock or Unrestricted Stock.

 

Further, subject to the express provisions of this Plan, the Administrator will
specify the grant date (the “Grant Date”), the number of Shares covered by the
Option, the Exercise Price and the terms and conditions for exercise of the
Options. As soon as practicable after the Grant Date, the Company will provide
the Participant with a written Award Agreement in the form approved by the
Administrator.

 

The Administrator may, in its absolute discretion, grant Options under this Plan
at any time and from time to time before the expiration of this Plan.

 

6.2. General Terms and Conditions. Except as otherwise provided herein, the
Options will be subject to the following terms and conditions and such other
terms and conditions not inconsistent with this Plan as the Administrator may
impose:

 

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6.2.1. Exercise of Option. The Administrator may determine in its discretion
whether any Option will be subject to vesting and the terms and conditions of
any such vesting. The Award Agreement will contain any such vesting schedule.

 

6.2.2. Option Term. Each Option and all rights or obligations thereunder will
expire on such date as will be determined by the Administrator, but not later
than ten (10) years after the Grant Date (five (5) years in the case of an
Incentive Stock Option when the Optionee owns more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company (“Ten Percent
Stockholder”)), and will be subject to earlier termination as hereinafter
provided.

 

6.2.3. Exercise Price. The Exercise Price of any Option will be determined by
the Administrator when the Option is granted and may not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the Grant Date,
and the Exercise Price of any Incentive Stock Option granted to a Ten Percent
Stockholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the Grant Date. Payment for the Shares purchased
will be made in accordance with Section 9 of this Plan. The Administrator is
authorized to issue Options, whether Incentive Stock Options or Non-Qualified
Stock Options, at an option price in excess of the Fair Market Value on the
Grant Date.

 

6.2.4. Method of Exercise. Options may be exercised only by delivery to the
Company of a stock option exercise agreement (the “Exercise Agreement”) in a
form approved by the Administrator (which need not be the same for each
Participant), stating the number of Shares being purchased, the restrictions
imposed on the Shares purchased under such Exercise Agreement, if any, and such
representations and agreements regarding the Participant’s investment intent and
access to information and other matters, if any, as may be required or desirable
by the Company to comply with applicable securities laws, together with payment
in full of the Exercise Price for the number of Shares being purchased. The Form
must be duly executed by Participant and be accompanied by payment in cash, or
by check payable to the Company, in full for the Exercise Price for the number
of Shares being purchased. Alternatively, but only if the Administrator
authorizes at the time of exercise at its sole discretion, and where permitted
by law (i) by surrender of shares of Stock of the Company that have been owned
by the Participant for more than six (6) months or lesser period if the
surrender of Shares is otherwise exempt from Section 16 of the Exchange Act and
if such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares, (ii) by forfeiture of
Shares equal to the value of the exercise price pursuant to a “deemed net-stock
exercise” as provided for in the Plan, (iii) by broker sale by following the
required instructions therefore including as so authorized by the Administrator
and its sole discretion instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds necessary to pay the exercise price
and the amount of any required tax or other withholding obligations, or (iv) by
any combination of the foregoing methods of payment or any other consideration
or method of payment.

 

6.2.5. Transferability of Options. Except as otherwise provided below for
Non-Qualified Stock Options, no Option will be transferable other than by will
or by the laws of descent and distribution and during the lifetime of a
Participant only the Participant, his guardian or legal representative may
exercise an Option, except that Non-Qualified Stock Options may be transferred
to a Participant's former spouse pursuant to a property settlement made part of
an agreement or court order incident to the divorce.

 

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At its discretion, the Administrator may provide for transfer of an Option
(other than an Incentive Stock Option), without payment of consideration, to the
following family members of the Participant, including adoptive relationships: a
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
sister-in-law, niece, nephew, former spouse (whether by gift or pursuant to a
domestic relations order), any person sharing the employee’s household (other
than a tenant or employee), a family-controlled partnership, corporation,
limited liability company and trust, or a foundation in which family members
heretofore described control the management of assets (collectively “Family
Member”). The assigned portion may only be exercised by the person or persons
who acquire a proprietary interest in the Option pursuant to the assignment. The
terms applicable to the assigned portion will be the same as those in effect for
the Option immediately prior to such assignment and will be set forth in such
documents issued to the assignee as the Administrator may deem appropriate. A
request to assign an Option may be made only by delivery to the Company of a
written stock option assignment request in a form approved by the Administrator,
stating the number of Options and Shares underlying Options requested for
assignment, that no consideration is being paid for the assignment, identifying
the proposed transferee, and containing such other representations and
agreements regarding the Participant’s investment intent and access to
information and other matters, if any, as may be required or desirable by the
Company to comply with applicable securities laws.

 

Notwithstanding anything to the contrary in the Plan, the Award or any charter,
by-laws or other instrument or document governing or applicable to the Options
or shares of Common Stock, if and to the extent the Administrator determines
that it is necessary to rely on the 12h-1(f) Exemption with respect to the
Options outstanding under this Plan, each Option, including any Option granted
prior to, on or after the date of any such determination by the Administrator,
will be further restricted as follows, if applicable:

 

(A) The Options and, prior to exercise, the shares of Common Stock to be issued
upon exercise of the Options will be restricted as to transfer by the Optionee
other than to persons who are Family Members through gift or domestic relations
order, or to an executor or guardian of the Optionee upon the death or
disability of the Optionee, until the Company becomes subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act or is no longer
relying on the 12h-1(f) Exemption; provided, that the Optionee may transfer the
Options to the Company, or in connection with a change of control or other
acquisition transaction involving the Company, if, after such transaction, the
Options will no longer be outstanding, and the Company no longer will be relying
on the 12h-1(f) Exemption; and

 

(B) The Options, and the shares of Common Stock issuable upon exercise of such
Options, will be restricted as to any pledge, hypothecation or other transfer,
including any short position, any “put equivalent position” (as defined in Rule
16a-1(h) of the Exchange Act), or any “call equivalent position” (as defined in
Rule 16a-1(b) of the Exchange Act) by the Optionee prior to exercise of an
Option, except in the circumstances permitted until the Company becomes subject
to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act
or is no longer relying on the 12h-1(f) Exemption.

 

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6.2.6. Beneficiaries. Notwithstanding Section 6.2.5, a Participant may, in the
manner determined by the Administrator, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Option upon the Participant’s death. If no beneficiary has been designated or
survives the Participant, payment will be made to the Participant’s estate.
Subject to the foregoing, a beneficiary designation may be changed or revoked by
a Participant at any time, provided the change or revocation is filed with the
Administrator.

 

6.2.7. Exercise After Certain Events.

 

i.Termination of Employment - Employee/Officer

 

(1) Incentive Stock Options.

 

(a) Termination of All Services. If for any reason other than retirement (as
defined below), permanent and total Disability (as defined below) or death, a
Participant Terminates employment with the Company (including employment as an
Officer of the Company), vested Incentive Stock Options held at the date of such
termination may be exercised, in whole or in part, at any time within three (3)
months after the date of such Termination or such lesser period specified in the
Award Agreement (but in no event after the earlier of (i) the expiration date of
the Incentive Stock Option as set forth in the Award Agreement, and (ii) ten
(10) years from the Grant Date (five (5) years for a Ten Percent Stockholder)).

 

(b) Continuation of Services as Consultant. If a Participant granted an
Incentive Stock Option terminates employment but continues as a Consultant or in
a similar capacity to the Company or any of its Subsidiaries, Participant need
not exercise the Incentive Stock Option within three (3) months of Termination
of employment but will be entitled to exercise within three (3) months of
Termination of services to the Company (one (1) year in the event of permanent
and total Disability or death) or such lesser or greater period specified in the
Award Agreement (but in no event after the earlier of (i) the expiration date of
the Option as set forth in the Award Agreement, and (ii) ten (10) years from the
Grant Date). However, if Participant does not exercise within three (3) months
of Termination of employment, the Option will not qualify as an Incentive Stock
Option.

 

(c) Right to Extend Exercise Period. Notwithstanding Section 6.2.7(i)(1)(a)
above, a Participant may, in the manner determined by the Administrator pursuant
to the Award Agreement, need not exercise the Incentive Stock Option within
three (3) months of Termination of employment but will be entitled to exercise
within such period as specified in the Award Agreement (but in no event after
the earlier of (i) the expiration date of the Option as set forth in the Award
Agreement, and (ii) ten (10) years from the Grant Date). However, if Participant
does not exercise within three (3) months of Termination of employment, the
Option will not qualify as an Incentive Stock Option.

 

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(2) Non-Qualified Stock Options.

 

(a) Termination of All Services. If for any reason other than Retirement (as
defined below), permanent and total Disability (as defined below) or death, a
Participant terminates employment with the Company (including employment as an
Officer of the Company), vested Options held at the date of such Termination may
be exercised, in whole or in part, at any time within three (3) months of the
date of such Termination or such lesser period specified in the Award Agreement
(but in no event after the earlier of (i) the expiration date of the Option as
set forth in the Award Agreement, and (ii) ten (10) years from the Grant Date).

 

(b) Continuation of Services as Consultant. If a Participant Terminates
employment but continues as a Consultant or in a similar capacity to the Company
or any of its Subsidiaries, Participant need not exercise the Option within
three (3) months of Termination but will be entitled to exercise within three
(3) months of Termination of services to the Company (one (1) year in the event
of permanent and total Disability or death) or such lesser or greater period
specified in the Award Agreement (but in no event after the earlier of (i) the
expiration date of the Option as set forth in the Award Agreement, and (ii) ten
(10) years from the Grant Date).

 

(c) Right to Extend Exercise Period. Notwithstanding Section 6.2.7(i)(2)(a)
above, a Participant may, in the manner determined by the Administrator pursuant
to the Award Agreement, provide that need not exercise the Option within three
(3) months of Termination but will be entitled to exercise within such period as
specified in the Award Agreement (but in no event after the earlier of (i) the
expiration date of the Option as set forth in the Award Agreement, and (ii) ten
(10) years from the Grant Date).

 

ii. Retirement. If a Participant ceases to be an employee of the Company
(including as an officer of the Company) as a result of Retirement, Participant
need not exercise the Option within three (3) months of Termination of
employment but will be entitled to exercise the Option within the maximum term
of the Option to the extent the Option was otherwise exercisable at the date of
Retirement. However, if a Participant does not exercise within three (3) months
of Termination of employment, the Option will not qualify as an Incentive Stock
Option if it otherwise so qualified. The term “Retirement” as used herein means
such Termination of employment as will entitle the Participant to early or
normal retirement benefits under any then existing pension or salary
continuation plans of the Company excluding 401(k) participants (except as
otherwise covered under other pension or salary continuation plans).

 

iii. Permanent Disability and Death. If a Participant becomes permanently and
totally Disabled while employed by the Company (including as an officer of the
Company), or dies while employed by the Company (including as an Officer of the
Company) or death occurs three (3) months thereafter, vested Options then held
may be exercised by the Participant, the Participant’s personal representative,
or by the person to whom the Option is transferred by will or the laws of
descent and distribution, in whole or in part, at any time within one (1) year
after the Termination of employment because of the Disability or death or any
lesser period specified in the Award Agreement (but in no event after the
earlier of (i) the expiration date of the Option as set forth in the Award
Agreement, and (ii) ten (10) years from the Grant Date).

 

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6.3. Limitations on Grant of Incentive Stock Options.

 

6.3.1. Threshold.  

 

The aggregate Fair Market Value (determined as of the Grant Date) of the Shares
for which Incentive Stock Options may first become exercisable by any
Participant during any calendar year under this Plan, together with that of
Shares subject to Incentive Stock Options first exercisable by such Participant
under any other plan of the Company or any Subsidiary, will not exceed $200,000.
For purposes of this Section, all Options in excess of the $200,000 threshold
will be treated as Non-Qualified Stock Options notwithstanding the designation
as Incentive Stock Options. For this purpose, Options will be taken into account
in the order in which they were granted, and the Fair Market Value of the Shares
will be determined as of the date the Option with respect to such Shares is
granted.

 

6.3.2. Compliance with Section 422 of the Code.  

 

There will be imposed in the Award Agreement relating to Incentive Stock Options
such terms and conditions as are required in order that the Option be an
“incentive stock option” as that term is defined in Section 422 of the Code.

 

6.3.3. Requirement of Employment.  

 

No Incentive Stock Option may be granted to any person who is not an Employee of
the Company or a Subsidiary of the Company.

 

6.4 Risk And Financial Information Pursuant To The 12h-1(F) Exemption.
Notwithstanding anything to the contrary in the Plan, the Award or any charter,
by-laws or other instrument or document governing or applicable to the Options
or shares of Common Stock, if and to the extent the Administrator determines
that it is necessary to rely on the 12h-1(f) Exemption with respect to the
Options outstanding under the Plan, and until the Company becomes subject to the
reporting requirements of Section 13 or Section 15(d) of the Exchange Act or is
no longer relying on the 12h-1(f) Exemption, the Company will, subject to the
last sentence of this Section 6.4, provide to each Optionee the information
described in Rules 701(e)(3), (4) and (5) under the Securities Act every six
months with the financial statements required to be provided thereunder being
not more than 180 days old and with such information provided either by physical
or electronic delivery to each Optionee or by written notice to each Optionee of
the availability of the information on an Internet site that may be
password-protected and of any password needed to access the information. The
information described in Rules 701(e)(3), (4) and (5) consists of (i)
information about the risks associated with investment in Options and the shares
of Common Stock purchased upon exercise of an Option, (ii) the Company’s
financial statements required to be furnished by Part F/S of Form 1-A under
Regulation A of the Securities Act, and (iii) if the Company is relying on Rule
701(d)(2)(ii) under the Act to use the total assets of the Company to determine
the amount of Options that may be granted, the financial statements of the
Company. The Company may request that the Optionee agree to keep the information
to be provided pursuant to this Section 6.4 confidential and shall not be
required to provide such information if an Optionee does not agree to keep the
information confidential.

 

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7. RESTRICTED STOCK AWARDS.

 

7.1. Grant of Restricted Stock Awards. Subject to the terms and provisions of
this Plan, the Administrator is authorized to make awards of Restricted Stock to
any Eligible Person in such amounts and subject to such terms and conditions as
may be selected by the Administrator (a “Restricted Stock Award”). All
Restricted Stock Awards will be evidenced by an Award Agreement.

 

7.2. Issue Date and Vesting Date. At the time of the grant of shares of
Restricted Stock, the Administrator will establish an Issue Date or Issue Dates
and a Vesting Date or Vesting Dates with respect to such Shares. The
Administrator may divide such shares of Restricted Stock into classes and assign
a different Issue Date and/or Vesting Date for each class. If the Participant is
employed by the Company on an Issue Date (which may be the date of grant), the
specified number of shares of Restricted Stock will be issued in accordance with
the provisions of Section 7.6. Provided that all conditions to the vesting of a
share of Restricted Stock imposed hereto are satisfied, such share will vest and
the restrictions will cease to apply to such share.

 

7.3. Conditions to Vesting. Restricted Stock will be subject to such
restrictions on or conditions to vesting as the Administrator may impose
(including, without limitation, as a condition to the vesting of any class or
classes of shares of Restricted Stock, that the Participant or the Company
achieves such performance goals as the Administrator may specify as provided for
in this Plan, limitations on the right to vote Restricted Stock or the right to
receive dividends on the Restricted Stock). These restrictions may lapse
separately or in combination at such times, under such circumstances, in such
installments, time-based, or upon the satisfaction of performance goals as
provided for in this Plan, as the Administrator determines at the time of the
grant of the Award or thereafter.

 

7.4. Voting and Dividends. Unless the Administrator in its sole and absolute
discretion otherwise provides in an Award Agreement, holders of Restricted Stock
will have the right to vote such Restricted Stock and the right to receive any
dividends declared or paid with respect to such Restricted Stock. The
Administrator may require that any dividends paid on Restricted Stock will be
held in escrow until all restrictions on such Restricted Stock have lapsed
and/or the Administrator may provide that any dividends paid on Restricted Stock
must be reinvested in Stock, which may or may not be subject to the same vesting
conditions and restrictions applicable to such Restricted Stock. All
distributions, if any, received by a Participant with respect to Restricted
Stock as a result of any stock split, stock dividend, combination of stock, or
other similar transaction will be subject to the restrictions applicable to the
original Award.

 

7.5. Forfeiture. Except as otherwise determined by the Administrator at the time
of the grant of the Award or thereafter, upon failure to affirmatively accept
the grant of a Restricted Stock Award by execution of a Restricted Stock Award
Agreement, termination of employment during the applicable restriction period,
failure to satisfy the restriction period or failure to satisfy a performance
goal during the applicable restriction period, Restricted Stock that is at that
time subject to restrictions will immediately be forfeited and returned to the
Company; provided, however, that the Administrator may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Administrator may in other cases waive in whole
or in part restrictions or forfeiture conditions relating to Restricted Stock.
The Company also will have the right to require the return of all dividends paid
on such shares, whether by termination of any escrow arrangement under which
such dividends are held or otherwise.

 

11

 

 

7.6. Certificates for Restricted Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Administrator will determine. The
Administrator may provide in an Award Agreement that either (i) the Secretary of
the Company will hold such certificates for the Participant’s benefit pursuant
to the provisions of this Plan until such time as the Restricted Stock is
forfeited to the Company or the restrictions lapse or (ii) such certificates
will be delivered to the Participant, provided, however, that such certificates
will bear a legend or legends that comply with the applicable securities laws
and regulations and make appropriate reference to the restrictions imposed under
this Plan and the Award Agreement.

 

7.7. Restrictions on Transfer Prior to Vesting. Unless otherwise provided, prior
to the vesting of Restricted Stock, Restricted Stock Awards, granted under this
Plan, and any rights and interests therein, including the Restricted Stock
itself, will not be transferable or assignable by the Participant, and may not
be made subject to execution, attachment or similar process, otherwise than by
will or by the laws of descent and distribution or as consistent with the Award
Agreement provisions relating thereto. Unless otherwise provided in this Plan,
during the lifetime of the Participant, a Restricted Stock Award and any rights
and interests therein, will be exercisable only by the Participant, and any
election with respect thereto may be made only by the Participant. Any attempt
to transfer a Restricted Stock Award or any rights and interests therein
including the Restricted Stock itself, will be void and unless the Administrator
determines in its sole and absolute discretion that the attempt was inadvertent
or unintentional, such Award, including the Restricted Stock itself and any
rights and interests therein, will be forfeited by the Participant.

 

7.8. Consequences of Vesting. Upon the vesting of a share of Restricted Stock
pursuant to the terms of the Plan and the applicable Award Agreement, the
restrictions as provided by the Administrator will cease to apply to such share.
Reasonably promptly after a share of Restricted Stock vests, the Company will
cause to be delivered to the Participant to whom such shares were granted, a
certificate evidencing such share, free of the legend referenced with respect to
such restriction. Notwithstanding the foregoing, such share still may be subject
to restrictions on transfer as a result of applicable securities laws or
otherwise pursuant to this Plan.

 

8. UNRESTRICTED STOCK AWARDS. The Administrator may, in its sole discretion,
award Unrestricted Stock to any Participant as a Stock Bonus or otherwise
pursuant to which such Participant may receive shares of Stock free of
restrictions or limitations that would otherwise be applied under Section 7 of
this Plan.

 

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9. PAYMENT FOR SHARE PURCHASES.

 

9.1. Payment. Payment for Shares purchased pursuant to this Plan may be made in
cash (by check) or, where expressly approved for the Participant at the sole
discretion of the Administrator and where permitted by law as follows:

 

9.1.1. Cancellation of Indebtedness. By cancellation of indebtedness of the
Company to the Participant.

 

9.1.2. Surrender of Shares. By surrender of shares of Stock of the Company that
have been owned by the Participant for more than six (6) months or lesser period
if the surrender of Shares is otherwise exempt from Section 16 of the Exchange
Act and, if such shares were purchased from the Company by use of a promissory
note, such note has been fully paid with respect to such shares.

 

9.1.3. Deemed Net-Stock Exercise. By forfeiture of Shares equal to the value of
the exercise price pursuant to a “deemed net-stock exercise” by requiring the
Participant to accept that number of Shares determined in accordance with the
following formula, rounded down to the nearest whole integer:

 

[image_002.jpg] 

 

where:

 

a = net Shares to be issued to Participant

 

b = number of Awards being exercised

 

c = Fair Market Value of a Share

 

d = Exercise price of the Awards

 

9.1.4. Broker-Assisted. By delivering a properly executed exercise notice to the
Company together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds necessary to pay the
exercise price and the amount of any required tax or other withholding
obligations.

 

9.1.5 Combination of Methods. By any combination of the foregoing methods of
payment or any other consideration or method of payment as will be permitted by
applicable corporate law.

 

10. WITHHOLDING TAXES.

 

10.1. Withholding Generally. Whenever Shares are to be issued in satisfaction of
Awards granted under this Plan or Shares are forfeited pursuant to a “deemed
net-stock exercise,” the Company may require the Participant to remit to the
Company by cash, or check payable to the Company, an amount sufficient to
satisfy federal, state and local taxes and FICA withholding requirements prior
to the delivery of any certificate or certificates for such Shares. When, under
applicable tax laws, a Participant incurs tax liability in connection with the
exercise or vesting of any Award, the Company will have the authority and right
to deduct or withhold an amount sufficient to satisfy federal, state, and local
taxes and FICA withholding requirements with respect to such transactions. Any
such payment must be made, or any such withholding may be made, promptly when
the amount of such obligation becomes determinable.

 

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10.2. Stock for Withholding. To the extent permissible under applicable tax,
securities and other laws, the Administrator may, in its sole discretion and
upon such terms and conditions as it may deem appropriate, permit a Participant
to satisfy his or her obligation to pay any such withholding tax, in whole or in
part, with Stock up to an amount not greater than the Company’s minimum
statutory withholding rate for federal and state tax purposes, including payroll
taxes. The Administrator may exercise its discretion, by (i) directing the
Company to apply shares of Stock to which the Participant is entitled as a
result of the exercise of an Award, or (ii) delivering to the Company Shares of
Stock owned by the Participant for more than six (6) months, unless the delivery
of the Shares is otherwise exempt from Section 16 of the Exchange Act. A
Participant who has made an election pursuant to this Section 10.2 may satisfy
his or her withholding obligation only with shares of Stock that are not subject
to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements. The shares of Stock so applied or delivered for the withholding
obligation will be valued at their Fair Market Value as of the date of
measurement of the amount of income subject to withholding.

 

11. PROVISIONS APPLICABLE TO AWARDS.

 

11.1. Acceleration. The Administrator may, in its absolute discretion, without
amendment to the Plan, (i) accelerate the date on which any Award granted under
the Plan becomes exercisable, (ii) waive or amend the operation of Plan
provisions respecting exercise after termination of service or otherwise adjust
any of the terms of such Award and (iii) accelerate the Vesting Date, or waive
any condition imposed hereunder, with respect to any share of Restricted Stock
or otherwise adjust any of the terms applicable to such share.

 

11.2. Compliance with Section 162(m) of the Code. Notwithstanding any provision
of this Plan to the contrary, if the Administrator determines that compliance
with Section 162(m) of the Code is required or desired, all Awards granted under
this Plan to Named Executive Officers will comply with the requirements of
Section 162(m) of the Code. In addition, in the event that changes are made to
Section 162(m) of the Code to permit greater flexibility with respect to any
Award or Awards under this Plan, the Administrator may make any adjustments it
deems appropriate.

 

11.3. Performance Goals. In order to preserve the deductibility of an Award
under Section 162(m) of the Code, the Administrator may determine that any Award
granted pursuant to this Plan to a Participant that is or is expected to become
a Covered Employee will be determined solely on the basis of (a) the achievement
by the Company or Subsidiary of a specified target return, or target growth in
return, on equity or assets, (b) the Company’s stock price, (c) the Company’s
total stockholder return (stock price appreciation plus reinvested dividends)
relative to a defined comparison group or target over a specific performance
period, (d) the achievement by the Company or a Parent or Subsidiary, or a
business unit of any such entity, of a specified target, or target growth in,
net income, earnings per share, earnings before income and taxes, and earnings
before income, taxes, depreciation and amortization, or (e) any combination of
the goals set forth in (a) through (d) above, and will be subject to any
additional limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings issued
thereunder that are requirements for qualification as qualified
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
and the Plan will be deemed amended to the extent deemed necessary by the
Administrator to conform to such requirements. If an Award is made on such
basis, the Administrator will establish goals prior to the beginning of the
period for which such performance goal relates (or such later date as may be
permitted under Section 162(m) of the Code or the regulations thereunder but not
later than ninety (90) days after commencement of the period of services to
which the performance goal relates), and the Administrator has the right for any
reason to reduce (but not increase) the Award, notwithstanding the achievement
of a specified goal. Any payment of an Award granted with performance goals will
be conditioned on the written certification of the Administrator in each case
that the performance goals and any other material conditions were satisfied.

 

14

 

 

In addition, to the extent that Section 409A is applicable, (i)
performance-based compensation will also be contingent on the satisfaction of
pre-established organizational or individual performance criteria relating to a
performance period of at least twelve (12) consecutive months in which the
Eligible Participant performs services, and (ii) performance goals will be
established not later than ninety (90) days after the beginning of any
performance period to which the performance goal relates, provided that the
outcome is substantially uncertain at the time the criteria are established.

 

11.4. Compliance with Section 409A of the Code. Notwithstanding any provision of
this Plan to the contrary, if any provision of this Plan or an Award Agreement
contravenes any regulations or Treasury guidance promulgated under Section 409A
of the Code or could cause an Award to be subject to the interest and penalties
under Section 409A of the Code, such provision of this Plan or any Award
Agreement will be modified to maintain, to the maximum extent practicable, the
original intent of the applicable provision without violating the provisions of
Section 409A of the Code. In addition, in the event that changes are made to
Section 409A of the Code to permit greater flexibility with respect to any Award
under this Plan, the Administrator may make any adjustments it deems
appropriate.

 

11.5. Section 280G of the Code. Notwithstanding any other provision of this Plan
to the contrary, unless expressly provided otherwise in the Award Agreement, if
the right to receive or benefit from an Award under this Plan, either alone or
together with payments that a Participant has a right to receive from the
Company, would constitute a “parachute payment” (as defined in Section 280G of
the Code), all such payments will be reduced to the largest amount that will
result in no portion being subject to the excise tax imposed by Section 4999 of
the Code.

 

15

 

 

11.6. Cancellation of Awards. In the event a Participant’s Continuous Services
has been terminated for “Cause,” he or she will immediately forfeit all rights
to any and all Awards outstanding. The determination by the Board that
termination was for Cause will be final and conclusive. In making its
determination, the Board will give the Participant an opportunity to appear and
be heard at a hearing before the full Board and present evidence on the
Participant's behalf. Should any provision to this Section be held to be invalid
or illegal, such illegality will not invalidate the whole of this Section, but
rather this Plan will be construed as if it did not contain the illegal part or
narrowed to permit its enforcement, and the rights and obligations of the
parties will be construed and enforced accordingly.

 

12. PRIVILEGES OF STOCK OWNERSHIP. No Participant will have any of the rights of
a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock. The Company will issue (or cause to be issued) such stock
certificate promptly upon exercise of the Award. No adjustment will be made for
a dividend or other right for which the record date is prior to the date the
stock certificate is issued.

 

13. RESTRICTION ON SHARES. At the discretion of the Administrator, the Company
may reserve to itself and/or its assignee(s) in the Award Agreement that the
Participant not dispose of the Shares for a specified period of time, or that
the Shares are subject to a right of first refusal or a right to repurchase at
the Shares Fair Market Value at the time of sale. The terms and conditions of
any such rights or other restrictions will be set forth in the Award Agreement
evidencing the Award.

 

14. CERTIFICATES. All certificates for Shares or other securities delivered
under this Plan will be subject to such stock transfer orders, legends and other
restrictions as the Administrator may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.

 

15. ESCROW, PLEDGE OF SHARES. To enforce any restrictions on a Participant’s
Shares, the Administrator may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Administrator, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Administrator may
cause a legend or legends referencing such restrictions to be placed on the
certificates. In connection with any pledge of the Shares, the Participant will
be required to execute and deliver a written pledge agreement in such form, as
the Administrator will from time to time approve.

 

16

 

 

16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.

 

16.1. Compliance With Applicable Laws. An Award will not be effective unless
such Award is in compliance with all applicable federal and state securities
laws, rules and regulations of any governmental body, and the requirements of
any stock exchange or automated quotation system upon which the Shares may then
be listed or quoted, as they are in effect on the Grant Date and also on the
date of exercise or other issuance. Notwithstanding any other provision in this
Plan, the Company will have no obligation to issue or deliver certificates for
Shares under this Plan prior to (i) obtaining any approvals from governmental
agencies that the Company determines are necessary or advisable; and/or (ii)
completion of any registration or other qualification of such Shares under any
state or federal laws or rulings of any governmental body that the Company
determines to be necessary or advisable. The Company will be under no obligation
to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have no
liability for any inability or failure to do so. Upon exercising all or any
portion of an Award, a Participant may be required to furnish representations or
undertakings deemed appropriate by the Company to enable the offer and sale of
the Shares or subsequent transfers of any interest in such Shares to comply with
applicable securities laws. Evidences of ownership of Shares acquired pursuant
to an Award will bear any legend required by, or useful for purposes of
compliance with, applicable securities laws, this Plan or the Award Agreement.

 

16.2. Rule 16b-3 Exemption. During any time when the Company has a class of
equity security registered under Section 12 of the Exchange Act, it is the
intent of the Company that Awards pursuant to the Plan and the exercise of
Awards granted hereunder will qualify for the exemption provided by Rule 16b-3
under the Exchange Act. To the extent that any provision of the Plan or action
by the Board or the Administrator does not comply with the requirements of
Rule 16b-3, it will be deemed inoperative to the extent permitted by law and
deemed advisable by the Board or the Administrator, and will not affect the
validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the
Board or the Administrator may exercise its discretion to modify this Plan in
any respect necessary to satisfy the requirements of, or to take advantage of
any features of, the revised exemption or its replacement.

 

17. No Obligation to Employ. Nothing in this Plan or any Award granted under
this Plan will confer or be deemed to confer on any Participant any right to
continue in the employ of, or to continue any other relationship with, the
Company or to limit in any way the right of the Company to terminate such
Participant’s employment or other relationship at any time, with or without
cause.

 

18. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of outstanding
Awards will not affect the Company’s right to effect adjustments,
recapitalizations, reorganizations or other changes in its or any other
corporation’s capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock, the dissolution or liquidation of the Company’s or any
other corporation’s assets or business or any other corporate act whether
similar to the events described above or otherwise.

 

17

 

 

19. DISSOLUTION, LIQUIDATION, MERGER.

 

19.1. Company Not the Survivor. In the event of a dissolution or liquidation of
the Company, a merger, consolidation, combination or reorganization in which the
Company is not the surviving corporation, or a sale of substantially all of the
assets of the Company (as determined in the sole discretion of the Board), the
Administrator, in its absolute discretion, may cancel each outstanding Award
upon payment in cash or stock, or combination thereof, as determined by the
Board, to the Participant of the amount by which any cash and the fair market
value of any other property which the Participant would have received as
consideration for the Shares covered by the Award if the Award had been
exercised before such liquidation, dissolution, merger, consolidation,
combination, reorganization or sale exceeds the Exercise Price of the Award or
negotiate to have such option assumed by the surviving corporation and, in its
absolute discretion, may accelerate the time within which each outstanding Award
may be exercised, provided however, that the Change of Control in Section 20
will control with respect to acceleration in vesting in the event of a merger,
consolidation, combination or reorganization that results in a change of control
as so defined. The exercise or vesting of any Award that was permissible solely
by reason of this section and the applicable Award Agreement will be conditioned
upon the consummation of the applicable event. Upon consummation of such
dissolution, liquidation, merger, consolidation, combination, reorganization or
sale of substantially all of the assets, any outstanding but unexercised Options
not otherwise canceled, assumed or substituted as provided for above, will
terminate.

 

19.2. Company is the Survivor. In the event of a merger, consolidation,
combination or reorganization in which the Company is the surviving corporation
(“Survivor Event”), the Board, as it was comprised before the Survivor Event,
will determine the appropriate adjustment of the number and kind of securities
with respect to which outstanding Awards may be exercised, and the exercise
price at which outstanding Awards may be exercised. The Board will determine, in
its sole and absolute discretion, when the Company will be deemed to survive for
purposes of this Plan.

 

20. CHANGE OF CONTROL. The Administrator will have the authority, in its
absolute discretion exercisable either in advance of any actual or anticipated
“change of control” in the Company, to fully vest all outstanding Awards. A
“change of control” will mean an event involving one transaction or a related
series of transactions, in which (i) the Company issues securities equal to 50%
or more of the Company’s issued and outstanding voting securities, determined as
a single class, to any individual, firm, partnership, limited liability company,
or other entity, including a “group” within the meaning of Exchange Act Rule
13d-3, (ii) the Company issues voting securities equal to 50% or more of the
issued and outstanding voting stock of the Company in connection with a merger,
consolidation other business combination, (iii) the Company is acquired in a
merger, consolidation, combination or reorganization in which the Company is not
the surviving company, or (iv) all or substantially all of the Company’s assets
are sold or transferred.

 

21. DEFERRAL OF AWARDS. The Administrator may permit or require the deferral of
payment or settlement of any Stock Award subject to such rules and procedures as
it may establish. Payment or settlement of Options may not be deferred unless
such deferral would not cause the provisions of Section 409A of the Code to be
violated.

 

18

 

 

22. NOTIFICATION OF ELECTION UNDER SECTION 83(b) OF THE CODE. If any Participant
will, in connection with the acquisition of shares of Company Stock under the
Plan, make the election permitted under Section 83(b) of the Code (i.e., an
election to include in gross income in the year of transfer the amounts
specified in Section 83(b)), such Participant will notify the Company of such
election within ten days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Code Section 83(b).

 

23. TERMINATION; AMENDMENT. The Board may amend, suspend or terminate this Plan
at any time and for any reason; provided, however, that stockholder approval
will be required for the following types of amendments to this Plan: (i) any
increase in Maximum Number of Common Stock issuable under the Plan or the
maximum number of shares of Common Stock available as incentive stock options,
except for a proportional increase in the Maximum Number or maximum number of
shares of Common Stock available as incentive stock options, as a result of
stock split or stock dividend or (ii) a change in the class of Employees
entitled to be granted Incentive Stock Options. Further, the Board may, in its
discretion, determine that any amendment should be effective only if approved by
the Stockholders even if such approval is not expressly required by this Plan or
by law. No Awards will be made after the termination of the Plan. At any time
and from time to time, the Administrator may amend or modify any outstanding
Award or Award Agreement without approval of the Participant; provided, however,
that no amendment or modification of any Award will adversely affect any
outstanding Award without the written consent of the Participant; provided
further, however, that the original term of any Award may not be extended unless
it would not cause the provisions of Section 409A to be violated. No
termination, amendment, or modification of the Plan will adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant. Notwithstanding any provision herein to the contrary, the
Administrator will have broad authority to amend this Plan or any outstanding
Award under this Plan without approval of the Participant to the extent
necessary or desirable (i) to comply with, or take into account changes in,
applicable tax laws, securities laws, accounting rules and other applicable
laws, rules and regulations, or (ii) to ensure that an Award is not subject to
interest and penalties under Section 409A of the Code or the excise tax imposed
by Section 4999 of the Code.

 

24. TRANSFERS UPON DEATH; NONASSIGNABILITY. Upon the death of a Participant
outstanding Awards granted to such Participant including Options and Stock may
be transferred and exercised only by the executor or administrator of the
Participant's estate or by a person who will have acquired the right to such
exercise by will or by the laws of descent and distribution in accordance with
and as provided for in this Plan. No transfer of an Award by will or the laws of
descent and distribution will be effective to bind the Company unless the
Company will have been furnished with (a) written notice thereof and with a copy
of the will and/or such evidence as the Administrator may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee to
comply with all the terms and conditions of the Award that are or would have
been applicable to the Participant and to be bound by the acknowledgments made
by the Participant in connection with the grant of the Award. Except as
otherwise provided, no Award or interest in it may be transferred, assigned,
pledged or hypothecated by the Participant, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.

 

19

 

 

25. FAILURE TO COMPLY. In addition to the remedies of the Company elsewhere
provided for herein, failure by a Participant (or beneficiary) to comply with
any of the terms and conditions of the Plan or the applicable Award Agreement,
unless such failure is remedied by such Participant (or beneficiary) within ten
days after notice of such failure by the Administrator, will be grounds for the
cancellation and forfeiture of such Award, in whole or in part, as the
Administrator, in its sole discretion, may determine.

 

26. GOVERNING LAW. Except to the extent preempted by any applicable federal law,
this Plan and the rights of all persons under this Plan will be construed in
accordance with and under applicable provisions of the laws of the State of
California, without reference to the principles of conflicts of laws thereunder.

 

27. MISCELLANEOUS. Except as specifically provided in a retirement or other
benefit plan of the company or a related entity, Awards will not be deemed
compensation for purposes of computing benefits or contributions under any
retirement plan of the Company or a related entity, and will not affect any
benefits under any other benefit plan of any kind or any benefit plan
subsequently instituted under which the availability or amount of benefits is
related to level of compensation. This Plan is not a “retirement plan” or
“welfare plan” under the Employee Retirement Income Security Act of 1974, as
amended.

 

28. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:

 

“12h-1(f) Exemption” means the exemption from registration under Section 12(g)
of the Exchange Act by operation of Rule 12h-1(f) of the Exchange Act.

 

“Administrator” means the Committee appointed by the Board to administer this
Plan or if there is no such Committee, the Board itself.

 

“Award” means, individually and collectively, any award under this Plan,
including any Option, Restricted Stock Award, or Unrestricted Stock Award.

 

“Award Agreement” means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.

 

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

 

“Cause” means, termination of employment of a Participant for cause under the
Company's generally applicable policies and procedures or, in the case of a
non-employee director of the Company, for circumstances which would constitute
cause if such policies and procedures were applicable.

 

20

 

 

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

 

“Committee” means the Committee appointed by the Board to administer this Plan.

 

“Company” means Flux Power Holdings, Inc., a Nevada corporation, or any
successor corporation, and its Subsidiary as the context so warrants.

 

“Consultant” means any consultant or advisor to the Company or any of its
Subsidiaries who may be offered securities registrable on Form S-8 under the
Securities Act or pursuant to an offer that is exempt from registration
requirement under Section 5 of the Securities Act under Rule 701 promulgated
under the Securities Act.

 

“Continuous Service” means that the provision of services to the Company or a
Subsidiary in any capacity of employee, director or Consultant that is not
interrupted or terminated. Continuous Service will not be considered interrupted
in the case of (i) any approved leave of absence, (ii) transfers between
locations of the Company or among the Company, any Subsidiary, or any successor,
in any capacity of employee, director or Consultant, or (iii) any change in
status as long as the individual remains in the service of the Company or a
Subsidiary in any capacity of employee, director or Consultant (except as
otherwise provided in the Award Agreement). An approved leave of absence will
include sick leave, maternity or paternity leave, military leave, or any other
authorized personal leave as determined by the Administrator. For purposes of
incentive stock options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.

 

“Covered Employee” means a covered employee as defined in Section 162(m)(3) of
the Code, provided that no employee will be a Covered Employee until the
deduction limitations of Section 162(m) of the Code are applicable to the
Company and any reliance period under Treasury Regulation Section 1.162-27(f)
has expired.

 

“Disability” or “Disabled” means a disability covered under a long-term
disability plan of the Company applicable to a Participant. The Committee may
require such medical or other evidence as it deems necessary to judge the nature
and permanency of the Participant’s condition. Notwithstanding the above, (i)
with respect to an Incentive Stock Option, “Disability” or “Disabled” will mean
permanent and total disability as defined in Section 22(e)(3) of the Code and
(ii) to the extent an Option is subject to Section 409A of the Code, and payment
or settlement of the Option is to be accelerated solely as a result of the
Eligible Participant's Disability, Disability will have the meaning ascribed
thereto under Section 409A of the Code and the Treasury guidance promulgated
thereunder.

 

“Effective Date” has the meaning set forth in Section 2.

 

“Eligible Person” means any (i) director, officer or employee of the Company or
any of its Subsidiaries who, in the opinion of the Committee, is rendering
valuable services to the Company or any of its Subsidiaries, or (ii) Consultant
to the Company or any of its Subsidiaries.

 

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“Employee” means any and all employees of the Company or of a Subsidiary.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time
to time and any successor statute.

 

“Exercise Agreement” has the meaning set forth in Section 6.2.4.

 

“Exercise Price” means the price at which a holder of an Option may purchase the
Shares issuable upon exercise of the Option.

 

“Fair Market Value” means on the date in question:

 

(i) Listed Stock. If the Stock is traded on any established stock exchange or
quoted on a national market system, the closing sales price for the Stock as
quoted on that stock exchange or system for the date the value is to be
determined (the “Value Date”). If no sales are reported as having occurred on
the Value Date, fair market value will be that closing sales price for the last
preceding trading day on which sales of Stock are reported as having occurred.
If no sales are reported as having occurred during the five (5) trading days
before the Value Date, fair market value will be the closing sales price for the
first sale following the grant date and if no sale follows the grant date for
five (5) trading days then the fair market value will be the closing bid for
Stock on the Value Date or the trading date preceding the Value Date. If Stock
is listed on multiple exchanges or systems, fair market value will be based on
sales or bids on the primary exchange or system on which Stock is traded or
quoted.

 

(ii) Stock Quoted by Securities Dealer. If the Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported on any
established stock exchange or quoted on a national market system, fair market
value will be the closing bid for the Stock on the Value Date or the trading
date preceding the Value Date. If no prices are quoted for the Value Date or the
trading date preceding the Value Date, fair market value will be the arithmetic
mean between the high bid and low asked prices on the Value Date or the trading
day preceding the Value Date. Otherwise, fair market value will be determined
using any other reasonable method using actual transactions in such Stock as
reported by such market.

 

(iii) No Established Market. If Stock is not traded on any established stock
exchange or quoted on a national market system and are not quoted by a
recognized securities dealer, the Administrator will determine fair market value
based upon a reasonable application of a reasonable valuation method.

 

“Incentive Stock Option” means an Option within the meaning of Section 422 of
the Code.

 

“Issue Date” means the date established by the Administrator on which stock
certificates representing shares of Restricted Stock will be issued by the
Company pursuant to the terms of this Plan.

 

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“Named Executive Officer” means, if applicable, a Participant who, as of the
date of vesting and/or payout of an Award is one of the group of “covered
employees,” as defined in the regulations promulgated under Section 162(m) of
the Code, or any successor statute.

 

“Non-Qualified Stock Option” means an Option which is not an Incentive Stock
Option.

 

“Officer” means an officer of the Company and an officer who is subject to
Section 16 of the Exchange Act.

 

“Option” means an award of an option to purchase Shares pursuant to Section 6.

 

“Optionee” means the holder of an Option.

 

“Participant” means a person who receives an Award under this Plan.

 

“Plan” means this Flux Power Holdings, Inc. 2012 Equity Incentive Plan, as
amended from time to time.

 

“Restricted Stock Award” means an award of Shares pursuant to Section 7.

 

“Rule 16b-3” means Rule 16b-3 under Section 16(b) of the Exchange Act, as
amended from time to time, and any successor rule.

 

“SEC” means the Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time.

 

“Shares” means shares of the Company’s Stock reserved for issuance under this
Plan, as adjusted pursuant to this Plan, and any successor security.

 

“Stock” means the Common Stock, $.001 par value, of the Company, and any
successor entity.

 

“Stock Award” means an Award of Restricted Stock or Unrestricted Stock.

 

“Subsidiary” means any corporation in an unbroken chain of corporations
beginning with the Company if, at the time of granting of an Award, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

 

“Ten Percent Stockholder” has the meaning set forth in Section 6.2.2.

 

“Termination” or “Terminated” means, for purposes of this Plan with respect to a
Participant, that the Participant has for any reason ceased to provide services
as an employee, officer, director, or Consultant of the Company or any of its
Subsidiaries. An employee will not be deemed to have ceased to provide services
in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of
absence approved by the Administrator; provided, that such leave is for a period
of not exceeding three (3) months, or if longer, so long as reemployment with
the Company granting the option or the corporation assuming or substituting an
option under Section 1.424-1(a) of the Income Tax Regulations upon the
expiration of such leave is guaranteed by contract or statute.

 

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“Unrestricted Stock Award” means an award of Shares pursuant to Section 8.

 

“Vesting Date” will mean the date established by the Administrator on which a
Share of Restricted Stock may vest.

 

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