Document:

Exhibit 10.37

 

Execution Copy

 

THIRD AMENDMENT TO CREDIT
AGREEMENT

 

This THIRD AMENDMENT TO CREDIT AGREEMENT dated November 21,
2005 (this “Amendment”), is made by and among UFP Technologies, Inc.,
a Delaware corporation (“UFP”), Moulded Fibre Technology, Inc., a
Maine corporation (“MFT”), Simco Industries, Inc., a Michigan
corporation (“Simco Industries”), and Simco Automotive Trim, Inc.,
a Michigan corporation (“Simco Auto” and collectively with UFP, MFT and Simco
Industries, the “Borrowers”), and Bank of America, N.A. (as assignee of
Banc of America Leasing & Capital LLC, as successor to Fleet Capital
Corporation) (the “Lender”).

 

WHEREAS, the Borrowers and the Lender are parties to
a Credit and Security Agreement dated as of February 28, 2003, as amended
by that certain First Amendment to Credit Agreement dated as of March 24,
2004 and that certain Second Amendment to Credit Agreement dated as of June 28,
2004 (as further amended, modified, restated and supplemented, the “Credit
Agreement”); and

 

WHEREAS, the Borrowers and the Lender desire to
amend certain provisions of the Credit Agreement, all subject to the terms,
conditions and limitations set forth herein;

 

NOW, THEREFORE, in consideration of the foregoing
and the agreements contained herein, the parties hereby agree as follows:

 

1.                                       Capitalized Terms.

 

Capitalized terms used herein which are defined in
the Credit Agreement have the same meanings herein as therein, except to the
extent that such meanings are amended hereby.

 

2.                                       Amendments. Subject to the satisfaction of the terms and conditions set forth in Section 4
hereof, the Borrowers and the Lender agree that the Credit Agreement is hereby
amended, effective as of the date of this Amendment, as follows:

 

(a)                                  Amendments to Section 1.1 of
the Credit Agreement.

 

(i)                                     Section 1.1
of the Credit Agreement is hereby amended by adding the following new
definitions (to the extent not already included in said Section 1.1) and
inserting the same in the appropriate alphabetical locations and amending the
following definitions (to the extent already included in said Section 1.1)
to read in their entirety as follows:

 

“‘Applicable Margin’
and ‘Applicable Unused Fee Rate’ means, for any Type of Loans (a) for
the Initial Payment Period (as defined below) the following percentages per
annum:

 

	
   

  	
   

  	
  Applicable Margin (% per annum)

  	
   

  	
  Applicable
  Unused Fee Rate

  	
   

  
	
  Class of Loans

  	
   

  	
  Base Rate Loans

  	
   

  	
  Eurodollar Loans

  	
   

  	
  (% per annum)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Revolving Loans

  	
   

  	
  0.00

  	
  %

  	
  1.25

  	
  %

  	
  0.25

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Term Loan

  	
   

  	
  0.00

  	
  %

  	
  1.25

  	
  %

  	
  Not Applicable

  	
   

  

 

 

and (b) for any Payment Period (as defined below)
other than the Initial Payment Period, the respective rates indicated below for
Loans of such Type opposite the applicable Adjusted Fixed Charge Coverage Ratio
indicated below (or as provided in the final paragraph of this definition, for part of
a Payment Period):

 

	
   

  	
   

  	
  Applicable Margin (% per annum)

  	
   

  	
  Applicable Unused

  Fee Rate

  	
   

  
	
  Adjusted Fixed

  	
   

  	
  Revolving Loans

  	
   

  	
  Term Loan

  	
   

  	
  (% per annum)

  	
   

  
	
  Charge Coverage

  Ratio

  	
   

  	
  Base Rate Loans

  	
   

  	
  Eurodollar Loans

  	
   

  	
  Base Rate Loans

  	
   

  	
  Eurodollar Loans

  	
   

  	
  Revolving Loans

  	
   

  	
  Term

  Loan

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Greater than or equal to 1.50 to 1.00

  	
   

  	
  0.00

  	
  %

  	
  1.00

  	
  %

  	
  0.00

  	
  %

  	
  1.00

  	
  %

  	
  0.25

  	
  %

  	
  Not Applicable

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Greater than or equal to 1.25 to 1.00 but less than
  1.50 to 1.00

  	
   

  	
  0.00

  	
  %

  	
  1.25

  	
  %

  	
  0.00

  	
  %

  	
  1.25

  	
  %

  	
  0.25

  	
  %

  	
  Not Applicable

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Greater than or equal to 1.00 to 1.00 but less than
  1.25 to 1.00

  	
   

  	
  0.00

  	
  %

  	
  1.50

  	
  %

  	
  0.00

  	
  %

  	
  1.50

  	
  %

  	
  0.25

  	
  %

  	
  Not Applicable

  	
   

  

 

For purposes hereof, a “Payment
Period” means (i) initially, the period commencing on the Third
Amendment Effective Date to and including the fifth Business Day after the date
of delivery of the financial statements required by subsection 7.1(b) and
the Compliance Certificate required by subsection 7.1(c) for the
fiscal period of the Credit Parties ended December 31, 2005 (the “Initial
Payment Period”), and (ii) thereafter, the period commencing on the
day immediately succeeding the last day of the prior Payment Period to but not
including the fifth Business Day after the earlier of (x) the due date of the
next Compliance Certificate required to be delivered by the Borrowers to the
Lender pursuant to subsection 7.1(c) concurrently with the delivery
by the Borrowers of the financial statements required by subsection 7.1(b) to
be delivered to the Lender for the periods ended March 31st, June 30th,
September 30th and December 31st of each year,
or (y) the date of the actual receipt by the Lender of such Compliance
Certificate. Subject to and in accordance with the final paragraph of this definition,
the Applicable Margin and Applicable Unused Fee Rate shall be effective for
each Payment Period (or in the circumstances described in the final paragraph
of this definition, such portion of a Payment Period).

 

The Applicable Margin and
Applicable Unused Fee Rate for any Payment Period except the Initial Payment
Period shall be determined on the basis of the Compliance Certificates required
to be delivered to the Lender pursuant to subsection 7.1(c) concurrently
with the delivery by the Borrowers of the corresponding financial statements
required by subsection 7.1(b) to be delivered to the Lender for the
periods ended March 31st, June 30th, September 30th
and December 31st of each year, setting forth, among other
things, a calculation of the Adjusted Fixed Charge Coverage Ratio as at the
last day of the fiscal quarter immediately preceding such Payment Period.

 

 

Anything in this Agreement
to the contrary notwithstanding, the Applicable Margin and Applicable Unused
Fee Rate shall be the rates applicable when the Adjusted Fixed Charge Coverage
Ratio is greater than or equal to 1.00 to 1.00 but less than 1.25 to 1.00 if
the Compliance Certificate required to be delivered by subsection 7.1(c) and
the financial statements required by subsection 7.1(b), respectively,
shall not be delivered within five Business Days after the same shall be due
(but only with respect to the portion of such Payment Period prior to the
delivery of such certificate).”

 

“‘Borrowing Base’
means, at the relevant time of reference thereto, an amount determined by the
Lender by reference to the most recent Borrowing Base Certificate/Collateral
Update Certificate delivered to the Lender pursuant to Section 2.1(b) which
is equal to the sum of:

 

(a)                                  85% of Eligible Accounts, provided that at no
time shall more than $500,000 in the aggregate of all outstanding Eligible
Accounts arise from the sale of tooling to account debtors, plus

 

(b)                                                                                 the lesser of:

 

(i)                                     the sum of:

 

(A)                              50% of Eligible Raw Material Inventory,

 

plus

 

(B)                                50% of Eligible Finished Goods Inventory,

 

and

 

(ii)                                  $5,000,000, minus

 

(c)                                  reserves for foreign exchange, interest rate
derivative exposure, letter of credit exposure and such other reserves as the
Lender in its reasonable credit judgment shall deem
appropriate from time to time;

 

In determining the Borrowing
Base from time to time, the Lender may, but shall not be required to, rely upon
reports or analyses generated by the Credit Parties (including, without
limitation, Borrowing Base Certificates/Collateral Update Certificates) and
reports or analyses generated by or on behalf of the Lender. Notwithstanding
anything to the contrary set forth herein, the Lender may in its
reasonable credit judgment at any time and from time to time, adjust the
percentages of Eligible Accounts, Eligible Raw Materials Inventory, Eligible
Finished Goods Inventory and undrawn amount of Documentary LCs included within
the Borrowing Base.”

 

“‘Cash Management Bank’
means Bank of America, N.A., in its capacity as the provider of cash management
services to the Credit Parties.”

 

“‘Eligible Accounts’
means (a) the aggregate face amount of the accounts receivable outstanding
and owed to the Credit Parties as determined in accordance with GAAP
consistently applied and as entered on the books and records of the Credit
Parties in the ordinary course of the business operations of the Credit Parties
which satisfy each of the requirements set forth below,

 

 

minus (b) without duplication, the aggregate amount of any returns,
discounts (which may, at the Lender’s option, be calculated on the shortest
term), claims, credits, chargebacks, contra accounts, aged credit balances,
allowances or excise taxes of any nature (whether issued, owing, granted or
outstanding):

 

(i)                                     the subject goods have been sold and/or services
have been rendered on an absolute sale basis and on an open account basis to an
account debtor which is not (A) the United States government or any agency
thereof or other Person such that the Assignment of Claims Act would apply to
the pledge of receivables of such account debtor, unless the Assignment of
Claims Act has been complied with to the satisfaction of the Lender or (B) an
Affiliate of any Credit Party;

 

(ii)                                  an invoice (in form and substance
acceptable to the Lender) has been sent to the applicable account debtor and
bears an invoice date contemporaneous with or later than the date of sale of
such goods or rendering of such service;

 

(iii)                               the account receivable does not arise from a
sale to the account debtor on a bill-and-hold, guaranteed sale, progress
billing, sale-or-return, sale-on-assignment, sale-on-appraisal, consignment or
any other repurchase or return basis;

 

(iv)                              the account is not evidenced by chattel paper
or an instrument of any kind, and has not been reduced to judgment;

 

(v)                                 the account debtor is not insolvent or the
subject of any bankruptcy or insolvency proceedings of any kind;

 

(vi)                              the account debtor is credit worthy and not
experiencing financial difficulties that could affect the collectability of the
account;

 

(vii)                           the account debtor is an entity organized
under the laws of one of the United States, whose main office is also located
within the United States (including Puerto Rico as within the United States),
or, if the account debtor is not such an entity organized and located within
the United States, the account is insured by a letter of credit issued or
confirmed by a bank acceptable to the Lender or by other credit enhancements,
in each case in form and substance satisfactory to the Lender;

 

(viii)                        the account receivable is a valid and legally
enforceable obligation of the account debtor thereunder, it is not subject to
recoupment, offset (other than discount for prompt payment) or other defense on
the part of such account debtor or to any claim on the part of such
account debtor denying liability thereunder;

 

(ix)                                the account receivable is not subject to any
Lien of any kind except for the Lien of the Lender securing the obligations of
the Credit Parties under this Agreement;

 

(x)                                   the account receivable has not remained
outstanding in whole or in part for more than (A) ninety (90) days
after the invoice date or (B) sixty (60) days after the due date;

 

(xi)                                the account receivable does not arise out of
a transaction (direct or indirect) with an employee, officer, agent, director
or stockholder of any Credit Party;

 

 

(xii)                             the account receivable is not owing from (i) an
account debtor from whom twenty-five percent (25%) or
more of the dollar amount of all accounts receivable are deemed ineligible
under clause (x) above; provided that this clause (xii) shall not apply to any
accounts receivable arising from the sale of tooling to account debtors.

 

(xiii)                          the total unpaid accounts receivable owing
from such account debtor do not exceed thirty percent (30%) of
all Eligible Accounts;

 

(xiv)                         the account receivable constitutes Collateral
in which the Lender has a First Priority Lien securing the Obligations of the
Credit Parties under this Agreement;

 

(xv)                            the Credit Parties have not made an agreement
with the account debtor to extend the time of payment of the subject account
receivable;

 

(xvi)                         the account debtor is
not located in Minnesota (or any other jurisdiction which adopts a statute or
other requirement with respect to which any Person that obtains business from
within such jurisdiction or is otherwise subject to such jurisdiction’s tax law
must file a “Business Activity Report” (or other applicable report) or make any
other required filings in a timely manner in order to enforce its claims in
such jurisdiction’s courts or arising under such jurisdiction’s laws);
provided, that accounts receivable which would be Eligible Accounts but for the
terms of this clause (xvi) shall nonetheless be deemed to be Eligible Accounts
if the Credit Parties have filed a “Business Activity Report” (or other
applicable report) with the applicable state office or are qualified to do
business in such jurisdiction and, at the time the account receivable was
created, was qualified to do business in such jurisdiction or had on file with
the applicable state office a current “Business Activity Report” (or other
applicable report);

 

(xvii)                      the account receivable is denominated in U.S.
Dollars; and

 

(xviii)                   with respect to any account receivable
arising from the sale of tooling to account debtors, such account receivable
has not been rejected by the Lender.

 

provided, however, that (A) the Lender may in its reasonable credit judgment
exclude particular accounts from the definition of Eligible Accounts and may impose
additional and/or more restrictive eligibility or valuation criteria than those
set forth above as preconditions for any account to be deemed to be an Eligible
Account hereunder, and (B) an account deemed to be an Eligible Account at
any one point in time may be excluded by the Lender in its reasonable
credit judgment at a future point in time.”

 

“‘Equipment Term Loan’
means the First Draw Equipment Term Loan and the Second Draw Equipment Term
Loan.

 

“‘Equipment Term Loan
Maturity Date’ means November 21, 2011, or such earlier date as provided
in Section 2.7 or Section 9.1.”

 

“‘Equipment Term Notes’
means the Amended and Restated Equipment Term Notes, each substantially in the form of
Exhibit A-2 annexed hereto, issued by the Borrowers in favor of the
Lender and evidencing the Equipment Term Loan.”

 

“‘First Draw Equipment
Term Loan’ means the First Draw Equipment Term Loan to be made by the
Lender to the Borrowers in the amount of $2,886,000 in accordance with Section 2.2(a)(i)(A).”

 

 

“‘Issuing Lender’
means Bank of America, N.A., in its capacity as an issuer of Letters of Credit
hereunder.”

 

“‘Lender’ means Bank
of America, N.A. or any other party which becomes a lender hereunder.”

 

“‘Loan Documents’
means this Agreement, the Revolving Credit Note, the Equipment Term Notes, the
Real Estate Term Notes, the Forming Equipment Term Notes, the Control
Agreements, the Mortgages, the Stock Pledge Agreement, the Hazardous Materials
Indemnity Agreement, and any other instruments or documents executed and
delivered or to be delivered to the Lender from time to time pursuant to this
Agreement, as the same may be supplemented and amended from time to time
in accordance with their respective terms.”

 

“‘Permitted Acquisitions’
has the meaning assigned to such term in subsection 8.4(c)(iii).”

 

“‘Post-Default Rate’
means, (i) for Term Loans and Revolving Loans (other than the Forming
Equipment Term Loan), a rate per annum equal to the Adjusted Base Rate plus
the Applicable Margin plus two percent (2%), and (ii) for Forming
Equipment Term Loan, a rate per annum equal to the Adjusted Base Rate plus
two percent (2%).”

 

“‘Prime Rate’ means
the rate of interest per annum publicly announced from time to time by Bank of
America, N.A., as its prime rate for commercial loans in effect at its
principal office in Boston, Massachusetts, which rate is not necessarily the
lowest rate charged by Bank of America, N.A. to its most preferred customers;
each change in the Prime Rate shall be effective from and including the date
such change is publicly announced as being effective.”

 

“‘Real Estate Term Loan’
means the Real Estate Term Loan to be made by the Lender to the Borrowers in
the amount of $2,340,000 in accordance with Section 2.2(a)(ii).

 

“‘Real Estate Term Loan
Maturity Date’ means November 21, 2011, or such earlier date as
provided in Section 2.7 or Section 9.1.”

 

“‘Real Estate Term Note’
means the Amended and Restated Real Estate Term Note, substantially in the form of
Exhibit A-3 annexed hereto, issued by the Borrowers in favor of the
Lender and evidencing the Real Estate Term Loan.”

 

 “‘Revolving Credit Commitment’ means
the commitment of the Lender to make Revolving Loans as such commitment may be
reduced from time to time pursuant to Section 2.5. The original maximum
amount of the Revolving Credit Commitment is equal to $17,000,000.”

 

“‘Revolving Credit
Maturity Date’ means February 28, 2009.”

 

“‘Revolving Credit Note’
means the Amended and Restated Revolving Credit Note, substantially in the form of
Exhibit A-1 annexed hereto, issued by the Borrowers in favor of the
Lender.”

 

“‘Second Draw Equipment
Term Loan’ means the Second Draw Equipment Term Loan to be made by the
Lender to the Borrowers in an amount up to $800,000 in accordance with Section 2.2(a)(i)(B).

 

 

“‘Second Draw Equipment
Term Loan Funding Date’ has the meaning assigned to such term in Section 2.2(a)(i)(B).

 

 “‘Special Counsel’ means Edwards Angell
Palmer & Dodge LLP, in its capacity as special counsel to Bank of
America, N.A., as Lender of the credit facilities contemplated hereby.”

 

“‘Third Amendment’
means the Third Amendment to Credit Agreement dated as of November 21,
2005 among the Borrowers and the Lender.”

 

 “‘Third Amendment Effective Date’ means
the date upon which all of the conditions set forth in Section 4 of the
Third Amendment are satisfied, or are waived by the Lender in accordance with Section 10.2
of this Agreement.”

 

(ii)                                  Section 1.1
of the Credit Agreement is hereby amended by deleting the definition of “Availability
Reserve” in its entirety.

 

(b)                                 Amendment to Section 2.1 of
the Credit Agreement. Section 2.1
of the Credit Agreement is hereby amended by deleting subclause (f) thereof
and replacing it in its entirety with the following new subclause (f):

 

“(f)                              Revolving Credit Note. Prior to the Third
Amendment Effective Date, the Borrowers shall prepare, execute and deliver to
the Lender a Revolving Credit Note in the principal amount of the Revolving
Credit Commitment.”

 

(c)                                  Amendments to Section 2.2 of
the Credit Agreement.

 

(i)                                     Section 2.2
of the Credit Agreement (other than Subsection 2.2A thereof) is hereby
deleted in its entirety and replaced with the following new Section 2.2.

 

(ii)                                  “2.2                           Term
Loans.

 

(a)                                  Funding of the
Equipment Term Loan and Real Estate Term Loan.

 

(i)                                     Subject to the terms and
conditions set forth herein, the Lender agrees to fund the Equipment Term Loan
in two (2) separate draws as follows:

 

(A)                              The Lender
agrees to fund $2,886,000 of the Equipment Term Loan (the “First Draw
Equipment Term Loan”) on the Third Amendment Effective Date.

 

(B)                                Upon the
request of the Borrowers, the Lender agrees to fund an additional amount of up
to $800,000 of the Equipment Term Loan (the “Second Draw Equipment Term Loan”)
to the Borrowers, in a single drawing, on any Business Day during the period
beginning on the date which the Lender Forming Equipment Term Loan shall have
been paid in full to a date that is not more than 120 days after the Third
Amendment Effective Date (the date on which the Second Draw Equipment Term Loan
is funded shall hereinafter be referred to as the “Second Draw Equipment
Term Loan Funding Date”).

 

 

Notwithstanding the foregoing, the Lender shall have no obligation to
fund any amounts of the Second Draw Equipment Term Loan if the Forming
Equipment Term Loan shall not have been paid in full within ninety (90) days
after the Third Amendment Effective Date. Principal amounts of the Equipment
Term Loan that have been repaid or prepaid may not be reborrowed.

 

(ii)                                  Subject to the terms and
conditions set forth herein, the Lender agrees to fund the Real Estate Term
Loan on the Third Amendment Effective Date. Principal amounts of the Real
Estate Term Loan that have been repaid or prepaid may not be reborrowed.

 

(b)                                 Interest on the
Term Loans. Subject to Section 2.3 hereof, the outstanding principal
amount of the Term Loans shall bear interest at a rate per annum equal to the
Adjusted Base Rate plus the Applicable Margin. Notwithstanding the foregoing, (i) any
portion of the Term Loans which is not paid when due shall automatically bear
interest until paid in full at the Post-Default Rate, (ii) during the
period when any Event of Default of the type described in clauses (g), (h) or
(i) of Section 9.1 shall have occurred and be continuing, the
outstanding principal balance of the Term Loans shall automatically bear interest,
after as well as before judgment, at the Post-Default Rate, (iii) if there
shall occur and be continuing any Event of Default (other than an Event of
Default of the type described in clauses (g), (h) or (i) of Section 9.1),
following written notice delivered to the Borrowers from the Lender, the
outstanding principal balance of the Term Loans shall bear interest, after as
well as before judgment, at the Post-Default Rate during the period beginning
on the date such Event of Default first occurred, and ending on the date such
Event of Default is cured or waived. Accrued interest on the outstanding
principal balance of the Term Loans shall be payable in arrears on the first
day of each month; provided that
interest accrued at the Post-Default Rate shall be payable on demand, and all
accrued interest on the (x) Equipment Term Loan shall be payable on each date
that any portion of the principal of the Equipment Term Loan shall be payable
hereunder and on the Equipment Term Loan Maturity Date, and (y) Real Estate
Term Loan shall be payable on each date that any portion of the principal of
the Real Estate Term Loan shall be payable hereunder and on the Real Estate
Term Loan Maturity Date. All interest hereunder shall be computed on the basis
of a year of 360 days, and in each case shall be payable for the actual number
of days elapsed (including the first day but excluding the last day).

 

(c)                                  Repayment of
Term Loans.

 

(i)                                     Repayment of
Equipment Term Loan. The Borrowers hereby unconditionally promise to
pay to the Lender monthly principal installments in respect of the Equipment
Term Loan on the first day of each month commencing December 1, 2005 equal in amount to (A) $35,000 each month, from the
Third Amendment Effective Date through and including the Second Draw Equipment
Term Loan Funding Date and (B) from and after the Second Draw Equipment
Term Loan Funding Date, in equal monthly installments calculated based on the
full principal amount of the Equipment Term Loan amortizing on a seven-year
direct reduction amortization schedule; provided that if the Second Draw Term
Effective Date does not occur, the Borrowers shall continue to pay the Lender
the monthly principal installments of the Equipment Term Loan set forth in the
preceding clause (A). To the extent not previously paid, the Equipment Term
Loan shall be due and payable in full on the Equipment Term Loan Maturity Date.

 

(ii)                                  Repayment of
Real Estate Term Loans. The Borrowers hereby unconditionally
promise to pay to the Lender monthly principal installments in respect of the
Real Estate Term Loan on the first day of each month commencing December 1,
2005 equal in amount to $13,000 each month.
To the extent not

 

 

previously paid, the Real
Estate Term Loan shall be due and payable in full on the Real Estate Term Loan
Maturity Date.”

 

(d)                                 Loan Account. The Lender
shall maintain in accordance with its usual practice an account evidencing the
indebtedness of the Borrowers to the Lender in respect of the Term Loan,
including the amounts of principal and interest payable and paid to the Lender
from time to time hereunder. The entries made in the account maintained
pursuant to this subsection 2.2(d) shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of the Lender to maintain such account or any error therein shall not
in any manner affect the obligation of the Borrowers to repay the Term Loan in
accordance with the terms of this Agreement.

 

(e)                                  Term Notes. Prior to the
Third Amendment Effective Date and the Second Draw Equipment Term Loan Funding
Date, as applicable, the Borrowers shall prepare, execute and deliver to the
Lender the Term Notes evidencing the Borrowers’ obligations in respect of the
Term Loans.”

 

(d)                                 Amendment to Article 5 of
the Credit Agreement. Article 5
of the Credit Agreement is hereby amended by the addition thereto of the
following new Section 5.21:

 

“5.21                     Certain Obligations Respecting
Subsidiaries.

 

(a)                                  Each Borrower shall, and shall cause each of
its Subsidiaries to, take such action from time to time as shall be necessary
to ensure that the percentage of the issued and outstanding shares of capital
stock of any class or character owned by it in any Subsidiary on the date
hereof is not at any time decreased, other than by reason of transfers to the
Borrowers.

 

(b)                                 While the Borrowers and the Subsidiaries are
not permitted to form or acquire any Subsidiary without the prior written
consent of the Lender pursuant to subsection 8.4(a), in the event that the
Lender consents to any formation or acquisition of any Subsidiary and such
Subsidiary is formed or acquired, this subsection 5.21(b) shall be
applicable and the Borrower forming or acquiring such Subsidiary will (or if
such Subsidiary is formed or acquired by a Credit Party which is not a
Borrower, the Borrowers will cause such Credit Party to) take or cause to be
taken the following actions:  as soon as
possible but in any case not later than 10 days after the date on which such
Subsidiary is created (or, in the case of a Subsidiary formed or acquired in
connection with a Permitted Acquisition, concurrently with the consummation of
such Permitted Acquisition) (x) cause such Subsidiary to (A) execute and
deliver to the Lender, a counterpart to the Credit Agreement and thereby become
a party thereto as an additional “Credit Party” and “Subsidiary Guarantor”
thereunder and grant to the Lender a First Priority Lien on all “Collateral” of
such Subsidiary Guarantor thereunder, (B) take such other action as shall
be necessary to create and perfect valid and enforceable First Priority Liens
in favor of the Lender on all or substantially all of the assets of such
Subsidiary consistent with the provisions of this Agreement and the applicable
other Loan Documents and (C) deliver proof of corporate action, incumbency
of officers and other documents and opinions as is consistent with those
delivered by each Borrower pursuant to Section 6.1 as of the Effective
Time and (y) execute and deliver to the Lender such pledge agreements or such
addenda or amendments to this Agreement and take such other actions (including
delivering the certificates representing such shares of stock or other equity
interests to the Lender) as shall be necessary to create and perfect valid and

 

 

enforceable First Priority
Liens in favor of the Lender on all of the issued and outstanding stock or
other equity interests of such Subsidiary, all of the foregoing to be in form and
substance reasonably satisfactory to the Lender.”

 

(e)                                  Amendment to Section 7.6  of the Credit Agreement. Section 7.6 of the Credit Agreement is
hereby deleted in its entirety and replaced with the following new Section 7.6:

 

“7.6                           Books and Records; Inspection
Rights.

 

(a)                                  Each Credit Party shall keep proper books of
record and account in which entries are made of all dealings and transactions
in relation to its business and activities which fairly record such
transactions and activities. Each Credit Party shall permit any representatives
designated by the Lender to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants as frequently as
the Lender deems appropriate provided that,
so long as no Default has occurred and is continuing, all such visits shall be
on reasonable prior notice, at reasonable times during regular business hours
of such Credit Party, and provided further
that after the occurrence and during the continuance of any Default, the Lender
may visit at any reasonable times. The Borrowers shall reimburse the
Lender for all examination and inspections costs, internal costs at the rate of
$850 per man-day, plus all out-of-pocket
expenses incurred in connection with such inspections. The Credit Parties will
permit independent appraisers and environmental consultants selected by the
Lender to visit the properties of the Credit Parties and perform appraisals
and examinations of the inventory, equipment and Real Property Assets of the
Credit Parties at such times and with such frequencies as the Lender shall
reasonably request. The Borrowers shall reimburse the Lender for all fees,
costs and expenses charged by such independent appraisers and environmental
consultants for each such appraisal and examination.

 

(b)                                 In addition to and not in limitation of any
other inspection rights set forth in this Section 7.6, each Borrower
shall, and shall cause each Subsidiary to, permit the Lender or any
representatives designated by the Lender (including any third party consultants,
accountants, lawyers and appraisers) to conduct, at the Borrowers’ sole cost
and expense, up to two commercial field examinations of the business,
operations and assets of the Borrowers, including without limitation, the
assets included in the Borrowing Base, in each twelve month period following
the Third Amendment Effective Date, provided, however, that the Lender may conduct, at the Borrowers’
sole cost and expense, field examinations with greater frequency and at such
additional time or times as the Lender, in its sole discretion, may determine.”

 

(f)                                    Amendment to Section 8.4 of
the Credit Agreement.

 

(i)                                     Section 8.4
of the Credit Agreement is hereby amended by deleting subclause (a) thereof
in its entirety and replacing it in its entirety with the following new
subclause (a):

 

“(a)                            The Credit
Parties will not enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution) without the prior written consent of the Lender. The
Credit Parties will not acquire any business or property from, or capital stock
of, or other equity interests in, or be a party to any acquisition of, any
Person without the prior written consent of the Lender, except for purchases of
property to be used in the ordinary course of business, Investments permitted
under Section 8.5 and Capital

 

 

Expenditures. The Credit
Parties will not form or acquire any Subsidiary without the prior written
consent of the Lender; provided that a Credit Party may form or
acquire a Subsidiary to effect a Permitted Acquisition permitted by subsection 8.4(c)(iii) so
long as the Credit Parties comply with the requirements of Section 5.21
with respect to such Subsidiary. The Credit Parties will not issue or sell any
of their capital stock or other equity interests without the prior consent of
the Lender (other than in connection with Equity Rights issued or granted to
members of the Credit Parties’ boards of directors or employees consistent with
the Credit Parties’ past business practices).”

 

(ii)                                  Subsection 8.4(c) of
the Credit Agreement is hereby amended by the addition thereto of a new
subclause (iii):

 

“(iii)                         subject to
Sections 8.1, 8.2 and 8.5 and the proviso in Section 8.4(a), any of the
Credit Parties may acquire all or substantially all of the business and
assets of any corporation, partnership, limited liability company, or other
entity located in and organized under the laws of the United States or any
state thereof (“Permitted Acquisitions”), subject to satisfaction of the
following conditions:

 

(A)                              the aggregate
consideration paid by the Credit Parties in connection with all acquisitions
during any fiscal year shall not exceed $2,000,000;

 

(B)                                the Lender must
be given at least thirty (30) days’ advance notice of each such Permitted
Acquisition;

 

(C)                                the business or
assets so acquired shall be located in the United States and in the same or a
substantially similar line of business as that of the Credit Parties;

 

(D)                               if such
acquisition is structured as a stock or other equity acquisition, then the
entity whose equity interests are being acquired shall be organized under the
laws of the United States and either (i) the Person so acquired shall
become (x) a direct Subsidiary of a Credit Party and (y) a Subsidiary Guarantor
or (ii) such Person shall be merged with and into a Credit Party (provided that such Credit Party shall be the surviving
corporation of such merger and no Change of Control shall occur) and, in any
event, all of the assets of such Person shall become Collateral and all of the
requirements of Section 5.21 shall be satisfied concurrently with the
consummation of such acquisition;

 

(E)                                 after giving
effect to the Permitted Acquisition and the financing thereof, the Credit
Parties must be in pro forma compliance with all financial covenants;

 

(F)                                 the assets so
acquired shall be transferred free and clear of any Liens (other than Liens
permitted by Section 8.2) and no debt or liabilities shall be incurred,
guaranteed, assumed or combined except to the extent otherwise permitted by Section 8.1;

 

(G)                                the Lender
shall have received Lien searches reasonably satisfactory to the Lender with
respect to the assets being acquired;

 

 

(H)                               the Lender
shall have received perfected First Priority Liens (subject only to Liens
permitted by Section 8.2) on substantially all of the assets being
acquired in such Permitted Acquisition;

 

(I)                                    to the extent
requested by the Lender, the Lender shall have received an opinion of counsel
in each applicable jurisdiction reasonably satisfactory to it to the effect
that the Liens granted pursuant to this Agreement are perfected security
interests in such assets and as to such other matters as the Lender may reasonably
require;

 

(J)                                   in connection
with such Permitted Acquisition, the Borrowers shall deliver to the Lender (I)
a copy of the purchase agreement pursuant to which such Permitted Acquisition
will be consummated; (II) a copy of each existing material agreement relating
to the assets to be acquired in such Permitted Acquisition and which is to be
in effect after the consummation of such Permitted Acquisition; (III) a
Compliance Certificate calculating compliance (as of the last day of the then
most recently ended fiscal quarter) with the covenants set forth in Section 8.10
on a pro forma basis, assuming such Permitted
Acquisition had occurred prior to the first day of the earliest fiscal quarter
included in the applicable test period for calculating such compliance; (IV)
such other information or reports as the Lender may reasonably request
with respect to such Permitted Acquisition; (V) to the extent available to the
Credit Parties, historical financial statements for the prior three fiscal
years (provided that if such statements are not
available for the prior three fiscal years, historical financial statements for
not less than the prior four fiscal quarters) of the entity whose assets are
being acquired; and (VI) if the Credit Parties are acquiring any interest in
real property, and if required by the Lender, reports and other information in
form, scope and substance reasonably satisfactory to the Lender and prepared by
environmental consultants reasonably satisfactory to the Lender, concerning any
environmental hazards or liabilities to which any Credit Party is likely to be
subject with respect to such acquired real property;

 

(K)                               the acquisition
shall have been approved by the board of directors of the target Person;

 

(L)                                 immediately
prior to such Permitted Acquisition no Default shall have occurred and be
continuing and after giving effect to such Permitted Acquisition, no Default
shall have occurred and be continuing and, in the reasonable judgment of the
Lender, no Material Adverse Effect could reasonably be expected to result from
such Permitted Acquisition;

 

(M)                            the Lender
shall have completed (i) its business, legal and collateral due diligence,
including a collateral audit and review of the target Person’s books and
records and (ii) its field examination of the accounts receivable,
inventory and related matters of the target Person, which results shall be
satisfactory to the Lender; and

 

(N)                               the Lender
shall have received a certificate, dated the closing date of such Permitted
Acquisition and signed by a Designated Financial Officer, certifying that
Excess Availability under the Revolving Credit Commitment shall

 

 

not be less than $2,000,000
both before and at any time during the period of 60 days after giving effect to
such Permitted Acquisition.

 

(g)                                 Amendment to Section 8.10 of
the Credit Agreement. Section 8.10
of the Credit Agreement is hereby amended by deleting clauses (a), (c) and
(d) thereof in their entirety and replacing clauses (a) and (c) thereof
with the following new clauses (a) and (c):

 

“(a)                            Fixed Charge Coverage Ratio. The Credit
Parties shall not permit the Fixed Charge Coverage Ratio to be less than 1.00
to 1.00 at any time.”

 

“(c)                            Capital Expenditures. The
Credit Parties shall not, and shall not permit any Subsidiary to, make any
Capital Expenditures (including, without limitation, incurring any Capital
Lease Obligations) which, in the aggregate for the Credit Parties and all
Subsidiaries, exceed $5,000,000 at any time during any fiscal year.”

 

(h)                                 Amendment to Section 10.1  of the Credit Agreement. Section 10.1 of the Credit Agreement is
hereby amended by deleting subclause (b) thereof and replacing it in its
entirety with the following new subclause (b):

 

(f)                                    “(b)                           if to the
Lender, to Bank of America, N.A., One Federal Street, Mail Stop: MA5-503-07-19,
Boston, Massachusetts 02110, Attention: Gregory A. Kress, Vice President (Fax
no.:  (617-654-1167), with a copy to
Edwards Angell Palmer & Dodge LLP, 111 Huntington Avenue, Boston, MA
02199-7613, Attention:  David L. Ruediger
(Fax no. (617-227-4420).”

 

(i)                                     Amendments to Exhibits to Credit
Agreement. Exhibits A-1,
A-2, A-3, B-1, B-2, D and J to the Credit Agreement shall be amended in their
entirety as set forth on the Exhibits attached hereto.

 

(j)                                     Amendments to Schedules to Credit
Agreement. Schedules 1.1,
1.4, 4.2, 5.3, 5.5, 5.6, 5.7, 5.9, 5.10, 5.12, 5.13, 5.14, 5.19 and 5.20 to the
Credit Agreement shall be amended in their entirety as set forth on the
Schedules attached hereto.

 

3.                                       No Default; Representations and Warranties,
etc. The Borrowers hereby
represent, warrant and confirm that: (a) the representations and
warranties of the Credit Parties contained in Article 5 of the Credit
Agreement are true and correct on and as of the date hereof as if made on such
date (except to the extent that such representations and warranties expressly
relate to an earlier date); (b) after giving effect to this Amendment, the
Borrowers are in compliance with all of the terms and provisions set forth in
the Credit Agreement and the other Loan Documents; (c) after giving effect
to this Amendment, no Default has occurred and is continuing; and (d) the
execution, delivery and performance by the Borrowers of this Amendment (i) have
been duly authorized by all necessary action on the part of the Borrowers,
(ii) will not violate any applicable law or regulation or the organizational
documents of any Borrower, (iii) will not violate or result in a default
under any indenture, agreement or other instrument binding on any Borrower or
any of its assets, and (iv) do not require any consent, waiver or approval
of or by any Person (other than the Lender) which has not been obtained.

 

4.                                       Conditions to Effectiveness. The effectiveness of this Amendment and the
funding of the First Draw Equipment Term Loan and the Real Estate Term Loan
shall be subject to the satisfaction of the following conditions precedent:

 

(a)                                  Amendment. The Lender shall have received counterparts of this Amendment duly
executed by each of the Borrowers;

 

 

(b)                                 Notes. The Lender shall have received (i) a Revolving Credit Note, (ii) an
Equipment Term Note issued in favor of the Lender in the principal face amount
of $2,886,000, and (iii) a Real Estate Term Note issued in favor of the
Lender in the principal face amount of $2,340,000 each duly executed by each of
the Borrowers;

 

(c)                                  Secretary’s Certificate. The Lender shall have received a
Certificate of the Secretary of each of the Borrowers, certifying as to the
incumbency of such Borrower’s officers, the authenticity of the resolutions
authorizing the transactions contemplated by this agreement and such Borrower’s
bylaws and certificate of incorporation; and

 

(d)                                 Mortgage Amendment. The Lender shall have received a fully
executed and notarized amendment to the existing Mortgage relating to the
Mortgaged Property located at 172 East main Street, Georgetown, Massachusetts
(the “Mortgage Amendment”), together with flood hazard certificates and
such other documents as the Lender may reasonably require, each in form and
substance satisfactory to the Administrative Agent and in proper form for
recording in all appropriate places.

 

(e)                                  Title Endorsement. The Lender shall have received (A) an
endorsement to the existing ALTA mortgagee title insurance policy for the
Mortgaged Property referred to clause (d) above, or unconditional
commitment therefor (the “Policy Endorsement”) issued by the Title
Company in form reasonably acceptable to the Lender, which Policy
Endorsement shall not otherwise modify or amend the existing mortgagee policy
of title insurance except as may be acceptable to the Lender in its sole
discretion; and (B) evidence satisfactory to the Lender that such Borrower
has (I) delivered to the Title Company all certificates and affidavits required
by the Title Company in connection with the issuance of the Policy Endorsement
and (II) paid to the Title Company or to the appropriate public authority all
expenses and premiums of the Title Company in connection with the issuance of
the Policy Endorsement and all recording and stamp taxes (including mortgage
recording and intangible taxes) payable in connection with recording the
Mortgage Amendment in the appropriate real estate records.

 

(f)                                    Environmental Reports. The Lender shall have received and be
satisfied with the Phase I site assessment reports delivered with respect to
the Mortgaged Property located at 172 East main Street, Georgetown,
Massachusetts, and the Lender shall have obtained letters from the
environmental engineering firms that prepared such site assessment reports in form and
substance acceptable to the Lender and permitted the Lender to rely upon such
site assessment reports.

 

(g)                                 Opinion of Counsel. The Lender shall have received a favorable
written opinion (addressed to the Lender and dated as of the date hereof) of
Lynch, Brewer, Hoffman & Fink, LLP, counsel to the Borrowers, with
respect to this Amendment and such other matters as the Lender may reasonably
request, including without limitation matters relating to the Mortgage
Amendment.

 

(h)                                 Collateral Appraisals. The Lender shall have received results of
appraisals performed by independent appraisers engaged directly by the Lender,
of inventory, equipment and Real Property Assets of the Credit Parties, and
such results shall be satisfactory to the Lender in its sole discretion.

 

(i)                                     Financial Officer Certificate. The Lender shall have received a certificate,
dated the Third Amendment Effective Date and signed by a Designated Financial
Officer, confirming compliance with the conditions set forth in paragraphs (a) and
(b) of Section 6.2.

 

 

(j)                                     Lender’s Due Diligence Review. The Lender shall be satisfied with its due
diligence review of the Credit Parties, including, but not limited to,
satisfactory review by the Lender of the inventory, equipment and Real Property
Assets of the Credit Parties.

 

(k)                                  Solvency Assurances. The Lender shall have received a certificate,
dated as of the Third Amendment Effective Date in the form of Exhibit J
to the Credit Agreement, as amended hereby.

 

(l)                                     Evidence of Insurance. The Lender shall have received certificates
from the Credit Parties’ insurance brokers that all insurance required to be
maintained pursuant to Section 7.5 is in full force and effect and that
Bank of America, N.A. has been named as additional insured or loss payee
thereunder to the extent required under Section 7.5.

 

(m)                               Additional Security Documents.

 

(i)                                     All necessary
amendments, modifications or confirmations to the Security Documents (as
defined below) in effect on the Third Amendment Effective Date duly executed
and delivered so as to ensure the continued effectiveness of the security
interests created thereby and the spreading of the liens created thereby to
cover the additional obligations to be incurred by the Credit Parties on the
Second Amendment Effective Date, in each case covering such matters as shall be
requested by the Lender.

 

(ii)                                  Evidence that
such other action as shall be necessary to perfect or record the liens
contemplated by the foregoing clause (i) under applicable law shall have
been taken.

 

5.                                       Post-Closing Matters. The Borrowers shall, within the period
beginning the date hereof and ending on January 5, 2006, deliver to the
Lender, a Landlord Waiver and Consent and where required by the terms of any
lease, the consent of the mortgagee, ground lessor or other party, in form and
substance satisfactory to the Lender, with respect to the premises in Clinton,
Iowa leased by MFT under that certain Lease of Business Property dated as of March 11,
2004 between Clinton Base Company, L.L.C., as landlord and MFT, as tenant, as
the same may be amended.

 

6.                                       Confirmation of Loan Documents. Each Credit Party hereby confirms that the
Obligations under the Credit Agreement shall be entitled to the benefits of the
collateral security provided by the Loan Documents.

 

7.                                       Miscellaneous.

 

(a)                                  Except as specifically amended hereby, all of
the terms and provisions of the Credit Agreement, the other Loan Documents and
all related documents, shall remain in full force and effect.

 

(b)                                 This Amendment may be executed in any
number of counterparts, each of which, when executed and delivered, shall be an
original, but all counterparts shall together constitute one instrument. Delivery
of an executed signature page hereto by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.

 

(c)                                  This Amendment shall be governed by the laws
of The Commonwealth of Massachusetts and shall be binding upon and inure to the
benefit of the parties hereto and their respective

 

 

successors and assigns. This Amendment shall
be deemed to be a sealed instrument as of the date first above written.

 

(d)                                 The Borrowers shall reimburse the Lender for
all reasonable costs and expenses, including reasonable legal fees and
disbursements, incurred by the Lender in connection with this Amendment and the
transactions contemplated hereby.

 

[Signature
pages to follow]

 

 

IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be duly executed under seal by
their respective authorized officers as of the day and year first above
written.

 

	
   

  	
  BORROWERS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  UFP TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/  Ronald J. Lataille

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Ronald J.
  Lataille

  	
   

  
	
   

  	
  Title:

  	
  CFO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MOULDED FIBRE TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/  Ronald J. Lataille

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Ronald J.
  Lataille

  	
   

  
	
   

  	
  Title:

  	
  Treasurer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SIMCO INDUSTRIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/  Ronald J. Lataille

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Ronald J.
  Lataille

  	
   

  
	
   

  	
  Title:

  	
  Treasurer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SIMCO AUTOMOTIVE TRIM, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/  Ronald J. Lataille

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Ronald J.
  Lataille

  	
   

  
	
   

  	
  Title:

  	
  Treasurer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  LENDER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A., as assignee of Banc of

  America Leasing & Capital, LLC (successor to Fleet

  
	
   

  	
  Capital Corporation)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/  Gregory Kress

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
  Title:Exhibit 10.43

 

SUNESIS PHARMACEUTICALS, INC.

2006 EMPLOYMENT COMMENCEMENT INCENTIVE PLAN

 

ADOPTED BY THE BOARD OF DIRECTORS
ON NOVEMBER 29, 2005

 

EFFECTIVE AS OF JANUARY 1,
2006

 

ARTICLE 1

PURPOSE

 

1.1                                 General.

 

(a)                                  Eligible
Stock Award Recipients. Only Eligible Participants may receive Awards
under the Plan.

 

(b)                                 General
Purpose. The purpose of the Plan is to promote the success and enhance the
value of Sunesis Pharmaceuticals, Inc. (the “Company”)
by linking the personal interests of Eligible Participants to those of Company
stockholders and by providing such individuals with an incentive for
outstanding performance to generate superior returns to Company stockholders. The
Plan is further intended to provide flexibility to the Company in its ability
to motivate, attract, and retain the services of Eligible Participants upon
whose judgment, interest, and special effort the successful conduct of the
Company’s operation will be largely dependent.

 

ARTICLE 2

DEFINITIONS AND CONSTRUCTION

 

2.1                                 Definitions. The following words
and phrases shall have the following meanings:

 

(a)                                  “Award” means an
Option, a Restricted Stock award, a Stock Appreciation Right award, a
Performance Share award, a Dividend Equivalents award,  a Stock Payment award, or a Restricted Stock
Unit award granted to an Eligible Participant pursuant to the Plan.

 

(b)                                 “Award Agreement”
means any written agreement, contract, or other instrument or document
evidencing an Award.

 

(c)                                  “Board” means the
Board of Directors of the Company.

 

(d)                                 “Cause” includes one
or more of the following: (i) the commission of an act of fraud,
embezzlement or dishonesty by a Participant that has a material adverse impact
on the Company or any successor or parent or Subsidiary thereof; (ii) a
conviction of, or plea of “guilty” or “no contest” to, a felony by a
Participant; (iii) any unauthorized use or disclosure by a Participant of
confidential information or trade secrets of the Company or any successor or
parent or Subsidiary thereof that has a material adverse impact on any such
entity or (iv) any other intentional misconduct by a Participant that has
a material adverse impact on the Company or any successor or parent

 

 

or Subsidiary thereof. However, if the term or concept
of “Cause” has been defined in an agreement between a Participant and the
Company or any successor or parent or Subsidiary thereof, then “Cause” shall
have the definition set forth in such agreement. The foregoing definition shall
not in any way preclude or restrict the right of the Company or any successor
or parent or Subsidiary thereof to discharge or dismiss any Participant in the
service of such entity for any other acts or omissions, but such other acts or
omissions shall not be deemed, for purposes of this Plan, to constitute grounds
for termination for Cause.

 

(e)                                  “Change of Control”
means and includes each of the following:

 

(1)                                  the
acquisition, directly or indirectly, by any “person” or “group” (as those terms
are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act
and the rules thereunder) of “beneficial ownership” (as determined
pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to
vote generally in the election of directors (“voting securities”) of the
Company that represent 50% or more of the combined voting power of the Company’s
then outstanding voting securities, other than:

 

(A)                              an
acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any person controlled by the Company or by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any person controlled
by the Company, or

 

(B)                                an
acquisition of voting securities by the Company or a corporation owned,
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company;

 

Notwithstanding the foregoing, the following event
shall not constitute an “acquisition” by any person or group for purposes of
this subsection (e): an acquisition of the Company’s securities by the
Company that causes the Company’s voting securities beneficially owned by a
person or group to represent 50% or more of the combined voting power of the
Company’s then outstanding voting securities; provided,
however, that if a person or group shall become the beneficial owner
of 50% or more of the combined voting power of the Company’s then outstanding
voting securities by reason of share acquisitions by the Company as described
above and shall, after such share acquisitions by the Company, become the
beneficial owner of any additional voting securities of the Company, then such
acquisition shall constitute a Change of Control; or

 

(2)                                  during
any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a
director designated by a person who shall have entered into an agreement with
the Company to effect a transaction described in clauses (1) or (3) of
this subsection (e)) whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof; or

 

(3)                                  the
consummation by the Company (whether directly involving the Company or
indirectly involving the Company through one or more intermediaries) of
(x) a merger, consolidation, reorganization, or business combination or
(y) a sale or other disposition

 

2

 

of all or substantially all of the Company’s assets or (z) the
acquisition of assets or stock of another entity, in each case other than a
transaction:

 

(A)                              which
results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by
being converted into voting securities of the Company or the person that, as a
result of the transaction, controls, directly or indirectly, the Company or
owns, directly or indirectly, all or substantially all of the Company’s assets
or otherwise succeeds to the business of the Company (the Company or such
person, the “Successor
Entity”)) directly or indirectly, at least a majority of the
combined voting power of the Successor Entity’s outstanding voting securities
immediately after the transaction, and

 

(B)                                after
which no person or group beneficially owns voting securities representing 50%
or more of the combined voting power of the Successor Entity; provided, however, that no person or group
shall be treated for purposes of this clause (B) as beneficially
owning 50% or more of combined voting power of the Successor Entity solely as a
result of the voting power held in the Company prior to the consummation of the
transaction; or

 

(4)                                  the
Company’s stockholders approve a liquidation or dissolution of the Company.

 

The Committee shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Change of Control of the Company has occurred pursuant to the above definition,
and the date of the occurrence of such Change of Control and any incidental
matters relating thereto.

 

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

 

(g)                                 “Committee” means the Board
or a committee of the Board described in Article 11.

 

(h)                                 “Director” means a member of the
Board.

 

(i)                                     “Disability” means, for purposes of the Plan, that the Participant
qualifies to receive long-term disability payments under the Company’s
long-term disability insurance program, as it may be amended from time to
time.

 

(j)                                     “Dividend Equivalents”
means a right granted to a Participant pursuant to Article 8 to receive
the equivalent value (in cash or Stock) of dividends paid on Stock.

 

(k)                                  “Eligible Participant” means any
Employee who has not previously been an Employee or Director of the Company or
a Subsidiary, or is commencing employment with the Company or a Subsidiary
following a bona fide period of non-employment by the Company or a Subsidiary,
if he or she is granted an Award in connection with his or her commencement of
employment with the Company or a Subsidiary and such grant is an inducement
material to his or her entering into employment with the Company or a
Subsidiary. The Board may in its discretion adopt procedures from time to
time to ensure that an Employee is eligible to participate in the Plan prior to
the granting of any Awards to such Employee under the Plan

 

3

 

(including, without limitation, a requirement, that
each such Employee certify to the Company prior to the receipt of an Award
under the Plan that he or she has not been previously employed by the Company
or a Subsidiary, or if previously employed, has had a bona fide period of
non-employment, and that the grant of Awards under the Plan is an inducement
material to his or her agreement to enter into employment with the Company or a
Subsidiary).

 

(l)                                     “Employee” means any
officer or other employee (as defined in accordance with Section 3401(c) of
the Code) of the Company or any Subsidiary.

 

(m)                               “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

 

(n)                                 “Fair Market Value”
means, as of any date, the value of Stock determined as follows:

 

(1)                                  If
the Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the date of determination, as reported in The Wall
Street Journal or such other source as the Committee deems reliable;

 

(2)                                  If
the Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall be the mean of the closing
bid and asked prices for the Stock on the date prior to the date of
determination as reported in The Wall Street Journal
or such other source as the Committee deems reliable; or

 

(3)                                  In
the absence of an established market for the Stock, the Fair Market Value
thereof shall be determined in good faith by the Committee.

 

(o)                                 “Good Reason” means a
Participant’s voluntary resignation following any one or more of the following
that is effected without the Participant’s written consent: (i) a change
in his or her position following the Change of Control that materially reduces
his or her duties or responsibilities, (ii) a reduction in his or her base
salary following a Change of Control, unless the base salaries of all similarly
situated individuals are similarly reduced, or (iii) a relocation of such Participant’s
place of employment following a Change of Control by more than fifty (50) miles
from such Participant’s place of employment prior to a Change of Control. However,
if the term or concept of “Good Reason” has been defined in an agreement
between a Participant and the Company or any successor or parent or Subsidiary
thereof, then “Good Reason” shall have the definition set forth in such
agreement.

 

(p)                                 “Incentive Stock Option”
means an Option that is intended to meet the requirements of Section 422
of the Code or any successor provision thereto. Incentive Stock Options may not
be granted under the Plan.

 

(q)                                 “Independent Director”
means a Director who is not an Employee of the Company and who qualifies as “independent”
within the meaning of NASD Rule 4200(a)(15), if the Company’s securities
are traded on the Nasdaq National Market, or the requirements of any other
established stock exchange on which the Company’s securities are traded, as
such rules or

 

4

 

requirements may be amended from time to time.

 

(r)                                    “NASD” means the National Association
of Securities Dealers, Inc.

 

(s)                                  “Non-Qualified Stock Option”
means an Option that is not intended to be an Incentive Stock Option.

 

(t)                                    “Option” means a right
granted to a Participant pursuant to Article 5 of the Plan to purchase a
specified number of shares of Stock at a specified price during specified time
periods. An Option must be a Non-Qualified Stock Option.

 

(u)                                 “Participant” means an
Eligible Participant who has been granted an Award pursuant to the Plan.

 

(v)                                 “Performance Share” means a right
granted to a Participant pursuant to Article 8, to receive cash, Stock, or
other Awards, the payment of which is contingent upon achieving certain
performance goals established by the Committee.

 

(w)                               “Plan” means this
Sunesis Pharmaceuticals, Inc. 2006 Employment Commencement Incentive Plan,
as it may be amended from time to time.

 

(x)                                   “Restricted Stock”
means Stock awarded to a Participant pursuant to Article 6 that is subject
to certain restrictions and to risk of forfeiture.

 

(y)                                 “Restricted Stock Unit”
means a right to receive a specified number of shares of Stock during specified
time periods pursuant to Article 8.

 

(z)                                   “Stock” means the
common stock of the Company and such other securities of the Company that may be
substituted for Stock pursuant to Article 10.

 

(aa)                            “Stock Appreciation Right”
or “SAR”
means a right granted pursuant to Article 7 to receive a payment equal to
the excess of the Fair Market Value of a specified number of shares of Stock on
the date the SAR is exercised over the Fair Market Value on the date the SAR
was granted as set forth in the applicable Award Agreement.

 

(bb)                          “Stock Payment” means (a) a
payment in the form of shares of Stock, or (b) an option or other
right to purchase shares of Stock, as part of any bonus, deferred
compensation or other arrangement, made in lieu of all or any portion of the
compensation, granted pursuant to Article 8.

 

(cc)                            “Subsidiary” means any
corporation or other entity of which a majority of the outstanding voting stock
or voting power is beneficially owned directly or indirectly by the Company.

 

5

 

ARTICLE 3

SHARES SUBJECT TO THE PLAN

 

3.1                                 Number of Shares.

 

(a)                                  Subject
to Article 10, the aggregate number of shares of Stock which may be
issued or transferred pursuant to Awards under the Plan shall be 200,000
shares.

 

The payment of Dividend Equivalents in conjunction with any outstanding
Awards shall not be counted against the shares available for issuance under the
Plan.

 

(b)                                 To
the extent that an Award terminates, expires, or lapses for any reason, any
shares of Stock subject to the Award shall again be available for the grant of
an Award pursuant to the Plan. Additionally, any shares of Stock tendered or
withheld to satisfy the grant or exercise price or tax withholding obligation
pursuant to any Award shall again be available for the grant of an Award
pursuant to the Plan. To the extent permitted by applicable law or any exchange
rule, shares of Stock issued in assumption of, or in substitution for, any
outstanding awards of any entity acquired in any form of combination by
the Company or any Subsidiary shall not be counted against shares of Stock
available for grant pursuant to the Plan.

 

3.2                                 Stock Distributed. Any Stock
distributed pursuant to an Award may consist, in whole or in part, of
authorized and unissued Stock, treasury Stock or Stock purchased on the open
market.

 

ARTICLE 4

ELIGIBILITY AND PARTICIPATION

 

4.1                                 Eligibility.

 

(a)                                  General.
Awards may be granted only to Eligible Participants. All Options granted
under the Plan shall be Non-Qualified Stock Options.

 

(b)                                 Foreign
Participants. In order to assure the viability of Awards granted to
Participants employed in foreign countries, the Committee may provide for
such special terms as it may consider necessary or appropriate to
accommodate differences in local law, tax policy, or custom. Moreover, the
Committee may approve such supplements to, or amendments, restatements, or
alternative versions of, the Plan as it may consider necessary or
appropriate for such purposes without thereby affecting the terms of the Plan
as in effect for any other purpose; provided,
however, that no such supplements, amendments, restatements, or
alternative versions shall increase the share limitations contained in Sections
3.1 of the Plan.

 

4.2                                 Actual Participation. Subject to
the provisions of the Plan, the Committee may, from time to time, select from
among all eligible individuals, those to whom Awards shall be granted and shall
determine the nature and amount of each Award. No individual shall have any
right to be granted an Award pursuant to the Plan.

 

ARTICLE 5

STOCK OPTIONS

 

5.1                                 General. Options may be
granted to Eligible Participants on the following terms and conditions:

 

(a)                                  Exercise
Price. The exercise price per share of Stock subject to an Option

 

6

 

shall be determined by the Committee and set forth in
the Award Agreement; provided
that the exercise price for any Option shall not be less than Fair Market Value
of a share of Stock on the date of grant.

 

(b)                                 Time
And Conditions Of Exercise. The Committee shall determine the time or times at
which an Option may be exercised in whole or in part; provided, that the term of any Option
granted under the Plan shall not exceed ten years; and provided, further, that such Option shall
be exercisable for not less than one year after the date of the Participant’s
death. The Committee shall also determine the performance or other conditions,
if any, that must be satisfied before all or part of an Option may be
exercised.

 

(c)                                  Payment.
The Committee shall determine the methods by which the exercise price of an
Option may be paid, the form of payment, including, without
limitation, cash, promissory note bearing interest at no less than such rate as
shall then preclude the imputation of interest under the Code, shares of Stock
held for longer than six months having a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Option or exercised
portion thereof, or other property acceptable to the Committee (including
through the delivery of a notice that the Participant has placed a market sell
order with a broker with respect to shares of Stock then issuable upon exercise
of the Option, and that the broker has been directed to pay a sufficient
portion of the net proceeds of the sale to the Company in satisfaction of the
Option exercise price; provided,
that payment of such proceeds is then made to the Company upon settlement of
such sale), and the methods by which shares of Stock shall be delivered or
deemed to be delivered to Participants. Notwithstanding any other provision of
the Plan to the contrary, no Participant who is a member of the Board or an “executive
officer” of the Company within the meaning of Section 13(k) of the
Exchange Act shall be permitted to pay the exercise price of an Option in any
method which would violate Section 13(k).

 

(d)                                 Evidence
Of Grant. All Options shall be evidenced by a written Award Agreement between
the Company and the Participant. The Award Agreement shall include such
additional provisions as may be specified by the Committee.

 

ARTICLE 6

RESTRICTED STOCK AWARDS

 

6.1                                 Grant of Restricted Stock. Restricted
Stock may be awarded to any Eligible Participant in such amounts and
subject to such terms and conditions as determined by the Committee. All Awards
of Restricted Stock shall be evidenced by a written Restricted Stock Award
Agreement.

 

6.2                                 Issuance and Restrictions. Restricted
Stock shall be subject to such restrictions on transferability and other
restrictions as the Committee may impose (including, without limitation,
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, pursuant to such circumstances, in
such installments, or otherwise, as the Committee determines at the time of the
grant of the Award or thereafter.

 

6.3                                 Forfeiture. Except as otherwise
determined by the Committee at the time of the

 

7

 

grant of the Award or thereafter, upon termination of
employment or service during the applicable restriction period, Restricted
Stock that is at that time subject to restrictions shall be forfeited; provided, however, that the Committee may provide
in any Restricted Stock 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 Committee may in
other cases waive in whole or in part restrictions or forfeiture conditions
relating to Restricted Stock.

 

6.4                                 Certificates For Restricted Stock.
Restricted Stock granted pursuant to the Plan may be evidenced in such
manner as the Committee shall determine. If certificates representing shares of
Restricted Stock are registered in the name of the Participant, certificates
must bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, and the Company may, at its
discretion, retain physical possession of the certificate until such time as
all applicable restrictions lapse.

 

ARTICLE 7

 

STOCK
APPRECIATION RIGHTS

 

7.1                                 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any Eligible Participant selected by the Committee. A Stock
Appreciation Right may be granted (a) in connection and
simultaneously with the grant of an Option, (b) with respect to a
previously granted Option, or (c) independent of an Option. A Stock
Appreciation Right shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose and shall be evidenced
by an Award Agreement.

 

                                                7.2                                 Coupled Stock Appreciation Rights.

 

(a)                                  A Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular Option and shall be exercisable
only when and to the extent the related Option is exercisable.

 

(b)                                 A CSAR may be granted to a Participant
for no more than the number of shares subject to the simultaneously or
previously granted Option to which it is coupled.

 

(c)                                  A CSAR shall entitle the Participant (or
other person entitled to exercise the Option pursuant to the Plan) to surrender
to the Company unexercised a portion of the Option to which the CSAR relates
(to the extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the difference
obtained by subtracting the Option exercise price from the Fair Market Value of
a share of Stock on the date of exercise of the CSAR by the number of shares of
Stock with respect to which the CSAR shall have been exercised, subject to any
limitations the Committee may impose.

 

8

 

7.3                                 Independent Stock Appreciation Rights.

 

(a)                                  An
Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and
shall have a term set by the Committee. An ISAR shall be exercisable in such
installments as the Committee may determine. An ISAR shall cover such
number of shares of Stock as the Committee may determine. The exercise
price per share of Stock subject to each ISAR shall be set by the Committee; provided, however, that, the Committee in its sole and
absolute discretion may provide that the ISAR may be exercised
subsequent to a termination of employment or service, as applicable, or
following a Change of Control, or because of the Participant’s retirement,
death or Disability, or otherwise.

 

(b)                                 An
ISAR shall entitle the Participant (or other person entitled to exercise the
ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR
(to the extent then exercisable pursuant to its terms) and to receive from the
Company an amount determined by multiplying the difference obtained by
subtracting the exercise price per share of the ISAR from the Fair Market Value
of a share of Stock on the date of exercise of the ISAR by the number of shares
of Stock with respect to which the ISAR shall have been exercised, subject to
any limitations the Committee may impose.

 

                                                7.4                                 Payment and Limitations on Exercise.

 

(a)                                  Payment of the amounts determined under Section 7.2(c) and
7.3(b) above shall be in cash, in Stock (based on its Fair Market Value as
of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Committee.

 

(b)                                 To the extent any payment under Section 7.2(c) or
7.3(b) is effected in Stock it shall be made subject to satisfaction of
all provisions of Article 5 above pertaining to Options.

 

 

 

ARTICLE 8

OTHER TYPES OF AWARDS

 

8.1                                 Performance
Share Awards. Any Eligible Participant selected by the Committee may be
granted one or more Performance Share awards which may be denominated in a
number of shares of Stock or in a dollar value of shares of Stock and which may be
linked to any one or more specific performance criteria determined appropriate
by the Committee, in each case on a specified date or dates or over any period
or periods determined by the Committee. In making such determinations, the
Committee shall consider (among such other factors as it deems relevant in
light of the specific type of award) the contributions, responsibilities and
other compensation of the particular Participant.

 

8.2                                 Dividend
Equivalents. Any Eligible Participant selected by the Committee may be
granted Dividend Equivalents based on the dividends declared on the shares of
Stock that are subject to any Award, to be credited as of dividend payment
dates, during the period between the date the Award is granted and the date the
Award is exercised, vests or expires, as determined by the Committee. Such
Dividend Equivalents shall be converted to cash or additional shares of

 

9

 

Stock by such formula and at such time and subject to
such limitations as may be determined by the Committee.

 

8.3                                 Stock
Payments. Any Eligible Participant selected by the Committee may receive
Stock Payments in the manner determined from time to time by the Committee. The
number of shares shall be determined by the Committee and may be based
upon specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date thereafter.

 

8.4                                 Restricted Stock
Units. Any Eligible Participant selected by the Committee may be
granted an award of Restricted Stock Units in the manner determined from time to
time by the Committee. The number of Restricted Stock Units shall be determined
by the Committee and may be linked to the Performance Criteria or other
specific performance criteria determined to be appropriate by the Committee, in
each case on a specified date or dates or over any period or periods determined
by the Committee. Stock underlying a Restricted Stock Unit award will not be
issued until the Restricted Stock Unit award has vested, pursuant to a vesting schedule or
performance criteria set by the Committee. Unless otherwise provided by the
Committee, a Participant awarded Restricted Stock Units shall have no rights as
a Company stockholder with respect to such Restricted Stock Units until such
time as the Restricted Stock Units have vested and the Stock underlying the
Restricted Stock Units has been issued.

 

8.5                                 Term.
The term of any Award of Performance Shares, Dividend Equivalents, Stock
Payments or Restricted Stock Units shall be set by the Committee in its
discretion.

 

8.6                                 Exercise
or Purchase Price. The Committee may establish the exercise or purchase
price of any Award of Performance Shares, Restricted Stock Units or Stock
Payments; provided, however, that such price shall not be less than the par
value of a share of Stock, unless otherwise permitted by applicable state law.

 

8.7                                 Exercise
Upon Termination of Employment or Service. An Award of Performance Shares,
Dividend Equivalents, Restricted Stock Units and Stock Payments shall only
be  exercisable or payable while the
Participant is an Employee or Director of the Company or a Subsidiary; provided, however, that the Committee in its sole and
absolute discretion may provide that an Award of Performance Shares,
Dividend Equivalents, Stock Payments or Restricted Stock Units may be
exercised or paid subsequent to a termination of employment or service, as
applicable, or following a Change of Control, or because of the Participant’s
retirement, death or Disability, or otherwise.

 

8.8                                 Form of
Payment. Payments with respect to any Awards granted under this Article 8
shall be made in cash, in Stock or a combination of both, as determined by the Committee.

 

8.9                                 Award
Agreement. All Awards under this Article 8 shall be subject to such
additional terms and conditions as determined by the Committee and shall be
evidenced by a written Award Agreement.

 

10

 

ARTICLE 9

PROVISIONS APPLICABLE TO AWARDS

 

9.1                                 Stand-Alone and Tandem Awards. Awards
granted pursuant to the Plan may, in the discretion of the Committee, be
granted either alone, in addition to, or in tandem with, any other Award
granted pursuant to the Plan. Awards granted in addition to or in tandem with
other Awards may be granted either at the same time as or at a different
time from the grant of such other Awards.

 

9.2                                 Award Agreement. Awards under the
Plan shall be evidenced by Award Agreements that set forth the terms,
conditions and limitations for each Award which may include the term of an
Award, the provisions applicable in the event the Participant’s employment or
service terminates, and the Company’s authority to unilaterally or bilaterally
amend, modify, suspend, cancel or rescind an Award.

 

9.3                                 Limits on Transfer. No right or
interest of a Participant in any Award may be pledged, encumbered, or hypothecated
to or in favor of any party other than the Company or a Subsidiary, or shall be
subject to any lien, obligation, or liability of such Participant to any other
party other than the Company or a Subsidiary. No Award shall be assigned,
transferred, or otherwise disposed of by a Participant other than by will or
the laws of descent and distribution.

 

9.4                                 Beneficiaries. Notwithstanding Section 9.3,
a Participant may, in the manner determined by the Committee, designate a
beneficiary to exercise the rights of the Participant and to receive any
distribution with respect to any Award upon the Participant’s death. A
beneficiary, legal guardian, legal representative, or other person claiming any
rights pursuant to the Plan is subject to all terms and conditions of the Plan
and any Award Agreement applicable to the Participant, except to the extent the
Plan and Award Agreement otherwise provide, and to any additional restrictions
deemed necessary or appropriate by the Committee. If the Participant is married
and resides in a community property state, a designation of a person other than
the Participant’s spouse as his beneficiary with respect to more than 50% of
the Participant’s interest in the Award shall not be effective without the
prior written consent of the Participant’s spouse. If no beneficiary has been
designated or survives the Participant, payment shall be made to the person
entitled thereto pursuant to the Participant’s will or the laws of descent and
distribution. 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 Committee.

 

9.5                                 Stock Certificates. Notwithstanding
anything herein to the contrary, the Company shall not be required to issue or
deliver any certificates evidencing shares of Stock pursuant to the exercise of
any Award, unless and until the Board has determined, with advice of counsel,
that the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if applicable,
the requirements of any exchange on which the shares of Stock are listed or
traded. All Stock certificates delivered pursuant to the Plan are subject to
any stop-transfer orders and other restrictions as the Committee deems
necessary or advisable to comply with federal, state, or foreign jurisdiction,
securities or other laws, rules and regulations and the rules of any
national securities exchange or automated quotation system on which the Stock
is listed, quoted, or traded. The Committee may place legends on any Stock
certificate to reference restrictions applicable to the Stock. In addition to
the terms and conditions provided herein, the Board may require that a
Participant make such

 

11

 

reasonable covenants, agreements, and representations
as the Board, in its discretion, deems advisable in order to comply with any
such laws, regulations, or requirements. The Committee shall have the right to
require any Participant to comply with
any timing or other restrictions with respect to the settlement or exercise of
any Award, including a window-period limitation, as may be imposed in the
discretion of the Committee.

 

ARTICLE 10

CHANGES IN CAPITAL STRUCTURE

 

10.1                           Adjustments. In the event of any
stock dividend, stock split, combination or exchange of shares, merger,
consolidation, spin-off, recapitalization or other distribution (other than
normal cash dividends) of Company assets to stockholders, or any other change
affecting the shares of Stock or the share price of the Stock, the Committee
shall make such proportionate adjustments, if any, as the Committee in its
discretion may deem appropriate to reflect such change with respect to (i) the
aggregate number and type of shares that may be issued under the Plan
(including, but not limited to, adjustments of the limitations in Sections
3.1); (ii) the terms and conditions of any outstanding Awards (including,
without limitation, any applicable performance targets or criteria with respect
thereto); and (iii) the grant or exercise price per share for any
outstanding Awards under the Plan.

 

10.2                           Effect of a Change of Control When Awards Are
Not Assumed. If a Change of Control occurs and a Participant’s
Awards are not assumed by the surviving or successor entity or its parent or
Subsidiary and such successor does not substitute substantially similar awards
for those outstanding under the Plan, such Awards shall become fully
exercisable and/or payable as applicable, and all forfeiture restrictions on
such Awards shall lapse. Upon, or in anticipation of, a Change of Control, the
Committee may cause any and all Awards outstanding hereunder to terminate
at a specific time in the future and shall give each Participant the right to
exercise such Awards during a period of time as the Committee, in its sole and
absolute discretion, shall determine. The Committee shall have sole discretion
to determine whether an Award has been assumed by the surviving or successor
entity or its parent or Subsidiary or whether such successor has substituted
substantially similar awards for those outstanding under the Plan in connection
with a Change of Control.

 

10.3                           Effect
of Change of Control When Awards Are
Assumed; Termination Following Change of Control.

 

(a)                                  In
the event of a Change of Control where a Participant’s Awards are assumed by
the surviving or successor entity or its parent or Subsidiary or such successor
substitutes substantially similar awards for those outstanding under the Plan,
then fifty percent (50%) of such Participant’s unvested Awards shall become
fully exercisable and/or payable as applicable, and all forfeiture restrictions
on such Awards shall lapse, immediately prior to such Change of Control.

 

(b)                                 In
the event of a Change of Control where a Participant’s Awards are assumed by
the surviving or successor entity or its parent or Subsidiary or such successor
substitutes substantially similar awards for those outstanding under the Plan,
if within twelve (12) months following such Change of Control (i) the
Participant’s employment or service with

 

12

 

the
surviving or successor entity or its parent or Subsidiary is terminated without
Cause or (ii) such Participant voluntarily terminates such Participant’s
employment or service with Good Reason, then such Participant’s remaining
unvested Awards (including any substituted awards) shall become fully
exercisable and/or payable as applicable, and all forfeiture restrictions on
such Awards (including any substituted awards) shall lapse, on the date of
termination. Such Awards (including any substituted awards) shall remain
exercisable, as applicable, until the earlier of the expiration date of the
Award or three (3) months following such Participant’s cessation of
employment or service.

 

10.4                           Outstanding Awards – Certain Mergers.
Subject to any required action by the stockholders of the Company, in the event
that the Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the holders of shares of
Stock receive securities of another corporation), each Award outstanding on the
date of such merger or consolidation shall pertain to and apply to the
securities that a holder of the number of shares of Stock subject to such Award
would have received in such merger or consolidation.

 

10.5                           Outstanding Awards – Other Changes.
In the event of any other change in the capitalization of the Company or
corporate change other than those specifically referred to in this Article 10,
the Committee may, in its absolute discretion, make such adjustments in the
number and class of shares subject to Awards outstanding on the date on
which such change occurs and in the per share grant or exercise price of each
Award as the Committee may consider appropriate to prevent dilution or
enlargement of rights.

 

10.6                           No Other Rights. Except as
expressly provided in the Plan, no Participant shall have any rights by reason
of any subdivision or consolidation of shares of stock of any class, the
payment of any dividend, any increase or decrease in the number of shares of
stock of any class or any dissolution, liquidation, merger, or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan or pursuant to action of the Committee under the Plan, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number of shares of Stock
subject to an Award or the grant or exercise price of any Award.

 

ARTICLE 11

ADMINISTRATION

 

11.1                           Committee. Unless and until the
Board delegates administration to the Committee as set forth below, the Plan
shall be administered by the Board, which shall, in such event, constitute the “Committee”
for the purposes of the Plan. Any action taken by the Board in connection with
the administration of the Plan shall not be deemed approved by the Board unless
such actions are approved by a majority of the Independent Directors. The Board
may delegate administration of the Plan to the Committee, and the term “Committee”
shall apply to any person or persons to whom such authority has been delegated;
provided, however, that such Committee be comprised of a majority of or solely
two or more Independent Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a

 

13

 

subcommittee any of the administrative powers the
Committee is authorized to exercise (and references in the Plan to the Board
shall thereafter be to the Committee or subcommittee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board.

 

The Board may abolish
the Committee at any time and revest in the Board the administration of the
Plan. Any action taken by the Board in connection with the administration of
the Plan shall continue to not be deemed approved by the Board unless such
actions are approved by a majority of the Independent Directors. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board. Vacancies
in the Committee may only be filled by the Board.

 

11.2                           Action by the Committee. A
majority of the Committee shall constitute a quorum. The acts of a majority of
the members present at any meeting at which a quorum is present, and acts
approved in writing by a majority of the Committee in lieu of a meeting, shall
be deemed the acts of the Committee. Each member of the Committee is entitled
to, in good faith, rely or act upon any report or other information furnished
to that member by any officer or other employee of the Company or any
Subsidiary, the Company’s independent certified public accountants, or any executive
compensation consultant or other professional retained by the Company to assist
in the administration of the Plan.

 

11.3                           Authority of Committee. Subject to
any specific designation in the Plan, the Committee has the exclusive power,
authority and discretion to:

 

(a)                                  Adopt
procedures from time to time in the Committee’s discretion to ensure that an
Employee is eligible to participate in the Plan prior to the granting of any
Awards to such Employee under the Plan (including, without limitation, a requirement,
if any, that each such Employee certify to the Company prior to the receipt of
an Award under the Plan that he or she has not been previously employed by the
Company or a Subsidiary, or if previously employed, has had a bona fide period
of non-employment, and that the grant of Awards under the Plan is an inducement
material to his or her agreement to enter into employment with the Company or a
Subsidiary);

 

(b)                                 Designate
Participants to receive Awards;

 

(c)                                  Determine
the type or types of Awards to be granted to each Participant;

 

(d)                                 Determine
the number of Awards to be granted and the number of shares of Stock to which
an Award will relate;

 

(e)                                  Determine
the terms and conditions of any Award granted pursuant to the Plan, including,
but not limited to, the exercise price, grant price, or purchase price, any
reload provision, any restrictions or limitations on the Award, any schedule for
lapse of forfeiture restrictions or restrictions on the exercisability of an
Award, and accelerations or waivers thereof, any provisions related to
non-competition and recapture of gain on an Award, based in each case on such
considerations as the Committee in its sole discretion determines;

 

14

 

(f)                                    Determine
whether, to what extent, and pursuant to what circumstances an Award may be
settled in, or the exercise price of an Award may be paid in cash, Stock,
other Awards, or other property, or an Award may be canceled, forfeited,
or surrendered;

 

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

 

(h)                                 Decide
all other matters that must be determined in connection with an Award;

 

(i)                                     Establish,
adopt, or revise any rules and regulations as it may deem necessary
or advisable to administer the Plan;

 

(j)                                     Interpret
the terms of, and any matter arising pursuant to, the Plan or any Award
Agreement; and

 

(k)                                  Make
all other decisions and determinations that may be required pursuant to
the Plan or as the Committee deems necessary or advisable to administer the
Plan.

 

12.4                           Decisions Binding. The Committee’s
interpretation of the Plan, any Awards granted pursuant to the Plan, any Award
Agreement and all decisions and determinations by the Committee with respect to
the Plan are final, binding, and conclusive on all parties.

 

ARTICLE 12

EFFECTIVE AND EXPIRATION DATE

 

12.1                           Effective Date. The Plan is
effective as of the date of its adoption by the Board (the “Effective Date”).

 

12.2                           Expiration Date. The Plan will
expire on, and no Award may be granted pursuant to the Plan after December 31,
2015 (the “Expiration Date”).
Any Awards that are outstanding on the Expiration Date shall remain in force
according to the terms of the Plan and the applicable Award Agreement. Each
Award Agreement shall provide that it will expire on the tenth anniversary of
the date of grant of the Award to which it relates.

 

ARTICLE 13

AMENDMENT, MODIFICATION, AND TERMINATION

 

13.1                           Amendment, Modification, and Termination.
With the approval of the Board, at any time and from time to time, the
Committee may terminate, amend or modify the Plan; provided, however, that to the extent
necessary and desirable to comply with any applicable law, regulation, or stock
exchange rule, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.

 

13.2                           Awards Previously Granted. No
termination, amendment, or modification of the Plan shall adversely affect in
any material way any Award previously granted pursuant to the Plan without the
prior written consent of the Participant.

 

15

 

ARTICLE 14

GENERAL PROVISIONS

 

14.1                           No Rights to Awards. No
Participant, employee, or other person shall have any claim to be granted any
Award pursuant to the Plan, and neither the Company nor the Committee is
obligated to treat Participants, employees, and other persons uniformly.

 

14.2                           No Stockholders Rights. No Award
gives the Participant any of the rights of a stockholder of the Company unless
and until shares of Stock are in fact issued to such person in connection with
such Award.

 

14.3                           Withholding. The Company or any
Subsidiary shall have the authority and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, local and foreign taxes (including the Participant’s FICA
obligation) required by law to be withheld with respect to any taxable event
concerning a Participant arising as a result of the Plan. The Committee may in
its discretion and in satisfaction of the foregoing requirement allow a
Participant to elect to have the Company withhold shares of Stock otherwise
issuable under an Award (or allow the return of shares of Stock) having a Fair
Market Value equal to the sums required to be withheld. Notwithstanding any
other provision of the Plan, the number of shares of Stock which may be
withheld with respect to the issuance, vesting, exercise or payment of any
Award (or which may be repurchased from the Participant of such Award
within six months after such shares of Stock were acquired by the Participant
from the Company) in order to satisfy the Participant’s federal, state, local
and foreign income and payroll tax liabilities with respect to the issuance,
vesting, exercise or payment of the Award shall be limited to the number of
shares which have a Fair Market Value on the date of withholding or repurchase
equal to the aggregate amount of such liabilities based on the minimum
statutory withholding rates for federal, state, local and foreign income tax
and payroll tax purposes that are applicable to such supplemental taxable
income.

 

14.4                           No Right to Employment or Services.
Nothing in the Plan or any Award Agreement shall interfere with or limit in any
way the right of the Company or any Subsidiary to terminate any Participant’s
employment or services at any time, nor confer upon any Participant any right
to continue in the employ or service of the Company or any Subsidiary.

 

14.5                           Unfunded Status of Awards. The
Plan is intended to be an “unfunded” plan for incentive compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award Agreement shall give the Participant
any rights that are greater than those of a general creditor of the Company or
any Subsidiary.

 

14.6                           Indemnification. To the extent
allowable pursuant to applicable law, each member of the Committee or of the
Board shall be indemnified and held harmless by the Company from any loss,
cost, liability, or expense that may be imposed upon or reasonably
incurred by such member in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action or failure to act pursuant to
the Plan and against and from any and all amounts paid by him or her in
satisfaction of judgment in such action, suit, or proceeding against him or her;
provided, he or she gives the Company an opportunity, at its own
expense, to handle and defend

 

16

 

the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled pursuant to the Company’s Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.

 

14.7                           Relationship to Other Benefits. No
payment pursuant to the Plan shall be taken into account in determining any
benefits pursuant to any pension, retirement, savings, profit sharing, group
insurance, welfare or other benefit plan of the Company or any Subsidiary
except to the extent otherwise expressly provided in writing in such other plan
or an agreement thereunder.

 

14.8                           Expenses. The expenses of
administering the Plan shall be borne by the Company and its Subsidiaries.

 

14.9                           Titles and Headings. The titles
and headings of the Articles and Sections in the Plan are for convenience of
reference only and, in the event of any conflict, the text of the Plan, rather
than such titles or headings, shall control.

 

14.10                     Fractional Shares. No fractional
shares of Stock shall be issued and the Committee shall determine, in its
discretion, whether cash shall be given in lieu of fractional shares or whether
such fractional shares shall be eliminated by rounding up or down as
appropriate.

 

14.11                     Limitations
Applicable to Section 16 Persons. Notwithstanding any other provision
of the Plan, the Plan, and any Award granted or awarded to any Participant who
is then subject to Section 16 of the Exchange Act, shall be subject to any
additional limitations set forth in any applicable exemptive rule under Section 16
of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange
Act) that are requirements for the application of such exemptive rule. To the
extent permitted by applicable law, the Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.

 

14.12                     Government And Other Regulations. The
obligation of the Company to make payment of awards in Stock or otherwise shall
be subject to all applicable laws, rules, and regulations, and to such
approvals by government agencies as may be required. The Company shall be
under no obligation to register pursuant to the Securities Act of 1933, as
amended, any of the shares of Stock paid pursuant to the Plan. If the shares
paid pursuant to the Plan may in certain circumstances be exempt from
registration pursuant to the Securities Act of 1933, as amended, the Company may restrict
the transfer of such shares in such manner as it deems advisable to ensure the
availability of any such exemption.

 

14.13                     Governing Law. The Plan and all
Award Agreements shall be construed in accordance with and governed by the laws
of the State of Delaware.

 

14.14                     SECTION 409A OF THE CODE. In
the event any provision of the Plan, or the application thereof, is or becomes
inconsistent with Section 409A of the Code and any regulations promulgated
thereunder, such provision shall be void or unenforceable or in the sole

 

17

 

discretion of the Committee shall be deemed amended to
comply with Section 409A and any regulations promulgated thereunder. The
other provisions of the Plan shall remain in full force and effect.

 

ARTICLE 15

GENERAL PROVISIONS

 

15.1                           STOCKHOLDER APPROVAL NOT REQUIRED. It is expressly intended that approval of the
Company’s stockholders not be required as a condition of the effectiveness of
the Plan, and the Plan’s provisions shall be interpreted in a manner consistent
with such intent for all purposes. Specifically, Rule 4350(i) promulgated
by the NASD generally requires stockholder approval for stock option plans or
other equity compensation arrangements adopted by companies whose securities
are listed on the Nasdaq National Market pursuant to which stock awards or
stock may be acquired by officers, directors, employees, or consultants of
such companies. NASD Rule 4350(i)(1)(A)(iv) provides an exception to
this requirement for issuances of securities to a person not previously an
employee or director of the issuer, or following a bona fide period of
non-employment, as an inducement material to the individual’s entering into
employment with the issuer; provided, such
issuances are approved by either the issuer’s compensation committee comprised
of a majority of independent directors or a majority of the issuer’s
independent directors.  Awards under the
Plan may only be made to Eligible Participants who have not previously
been an Employee or director of the Company or a Subsidiary, or following a
bona fide period of non-employment by the Company or a Subsidiary, as an
inducement material to the Eligible Participant’s entering into employment with
the Company or a Subsidiary. Awards under the Plan will be approved by (i) the
Company’s Compensation Committee comprised of a majority of the Company’s
Independent Directors or (ii) a majority of the Company’s Independent
Directors. Accordingly, pursuant to NASD Rule 4350(i)(1)(A)(iv), the
issuance of Awards and the shares of Common Stock issuable upon exercise or
vesting of such Awards pursuant to the Plan are not subject to the approval of
the Company’s stockholders.

 

18

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