Document:

Exhibit
10.8

 

STOCKHOLDERS
RIGHTS AGREEMENT

 

This Stockholders Rights Agreement (this “Rights Agreement”) is
made and entered into as of March 23, 2010, by and between Alma Maritime
Limited, a Marshall Islands corporation (the “Company”), and American
Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights
Agent”).

 

WHEREAS, the Board of Directors of the Company (the “Board of
Directors”) has (a) authorized and declared a grant of one right (the “Right”)
for each share of the Company’s common stock, par value U.S. $0.001 per share
(the “Common Stock”), held of record as of the Close of Business (as
hereinafter defined) on March 23, 2010 (the “Record Date”) and (b) has
further authorized the issuance of one Right in respect of each share of Common
Stock that shall become outstanding (i) at any time between the Record
Date and the earliest of the Distribution Date, the Redemption Date or the
Final Expiration Date (as such terms are hereinafter defined) or (ii) upon
the exercise or conversion, prior to the earlier of the Redemption Date or the
Final Expiration Date, of any option or other security exercisable for or
convertible into shares of Common Stock, which option or other such security is
outstanding on the Distribution Date; and

 

WHEREAS, each Right represents the right of the holder thereof to
purchase one one-thousandth of a share of Series A Participating Preferred
Stock (as such number may hereafter be adjusted pursuant to the provisions
hereof), upon the terms and subject to the conditions set forth herein, having
the rights, preferences and privileges set forth in the Statement of
Designation of Series A Participating Preferred Stock, attached hereto as Exhibit A.

 

NOW THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties hereby agrees as follows:

 

1.             Certain
Definitions.

 

“Acquiring Person” shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of 15% or more of the shares of Common Stock then outstanding, but shall
not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any
employee benefit plan of the Company or of any Subsidiary of the Company, or
any entity holding shares of Common Stock for or pursuant to the terms of any
such plan or (iv) any Exempted Person. 
Notwithstanding the foregoing, no Person shall be deemed to be an
Acquiring Person as the result of an acquisition of shares of Common Stock by
the Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% or more
of the shares of Common Stock of the Company then outstanding; provided,
however, that a Person who (i) becomes the Beneficial Owner of 15% or more
of the shares of Common Stock of the Company then outstanding by reason of
share purchases by the Company and (ii) then after such share purchases by
the Company, becomes the Beneficial Owner of any additional shares of Common
Stock of the Company (other than pursuant to a dividend or distribution paid or
made by the Company on the outstanding shares of Common Stock in shares of
Common Stock or pursuant to a split or subdivision of the outstanding shares of
Common Stock) representing one percent or more of the Common Stock then
outstanding, such Person shall be deemed to be an Acquiring

 

 

Person unless upon becoming the Beneficial Owner of
such additional shares of Common Stock of the Company such Person does not
beneficially own 15% or more of the shares of Common Stock of the Company then
outstanding.  Notwithstanding the
foregoing, (i) if the Board of Directors determines in good faith that a
Person who would otherwise be an “Acquiring Person,” as defined herein, has
become such inadvertently (including, without limitation, because (A) such
Person was unaware that it beneficially owned a percentage of the shares of
Common Stock that would otherwise cause such Person to be an “Acquiring Person,”
as defined herein, or (B) such Person was aware of the extent of the
shares of Common Stock it beneficially owned but had no actual knowledge of the
consequences of such beneficial ownership under this Agreement) and without any
intention of changing or influencing control of the Company, and if such Person
divested or divests as promptly as practicable a sufficient number of shares of
Common Stock so that such Person would no longer be an “Acquiring Person,” as
defined herein, then such Person shall not be deemed to be or to have become an
“Acquiring Person” for any purposes of this Agreement; and (ii) if, as of
the date hereof, any Person is the Beneficial Owner of 15% or more of the
shares of Common Stock outstanding, such Person shall not be or become an “Acquiring
Person,” as defined herein, unless and until such time as such Person shall
become the Beneficial Owner of additional shares of Common Stock (other than
pursuant to a dividend or distribution paid or made by the Company on the
outstanding shares of Common Stock in shares of Common Stock or pursuant to a
split or subdivision of the outstanding shares of Common Stock), unless, upon
becoming the Beneficial Owner of such additional shares of Common Stock, such
Person is not then the Beneficial Owner of 15% or more of the shares of Common
Stock then outstanding.

 

“Adjustment Fraction” shall have the meaning set forth in Section 11(a)(i) hereof.

 

“Affiliate” and “Associate” shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.

 

A Person shall be deemed the “Beneficial Owner” of and shall be
deemed to “Beneficially Own” any securities:

 

(i)            which
such Person or any of such Person’s Affiliates or Associates beneficially owns,
directly or indirectly, for purposes of Section 13(d) of the Exchange
Act and Rule 13d-3 thereunder (or any comparable or successor law or
regulation);

 

(ii)           which
such Person or any of such Person’s Affiliates or Associates has (A) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities), or
upon the exercise of conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a Person
shall not be deemed pursuant to this subsection (ii)(A) to be the
Beneficial Owner of, or to beneficially own, (1) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person’s Affiliates or

 

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Associates until such tendered securities are accepted
for purchase or exchange, or (2) securities which a Person or any of such
Person’s Affiliates or Associates may be deemed to have the right to acquire
pursuant to any merger or other acquisition agreement between the Company and
such Person (or one or more of its Affiliates or Associates) if such agreement
has been approved by the Board of Directors prior to there being an Acquiring
Person; or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security under this
subsection (ii)(B) if the agreement, arrangement or understanding to vote
such security (1) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations of the
Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or

 

(iii)          which
are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) with which such Person or any of such Person’s
Affiliates or Associates has any agreement, arrangement or understanding,
whether or not in writing (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) for the purpose of acquiring, holding, voting (except
to the extent contemplated by the proviso to subsection (ii)(B) above) or
disposing of any securities of the Company; provided, however, that in no case
shall an officer or director of the Company be deemed (x) the Beneficial
Owner of any securities beneficially owned by another officer or director of
the Company solely by reason of actions undertaken by such persons in their
capacity as officers or directors of the Company or (y) the Beneficial
Owner of securities held of record by the trustee of any employee benefit plan
of the Company or any Subsidiary of the Company for the benefit of any employee
of the Company or any Subsidiary of the Company, other than the officer or
director, by reason of any influence that such officer or director may have
over the voting of the securities held in the plan.

 

“Business Day” shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.

 

“Close of Business” on any given date shall mean 5:00 P.M.
New York time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York time, on the next
succeeding Business Day.

 

“Common Stock” shall have the meaning set forth in the
preamble.  Common Stock when used with
reference to any Person other than the Company shall mean the capital stock (or
equity interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons
which ultimately control such first-mentioned Person.

 

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“Common Stock Equivalents” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

“Company” shall have the meaning set forth in the preamble,
subject to the terms of Section 13(a)(iii)(c) hereof.

 

“Current Per Share Market Price” of any security (a “Security”
for purposes of this definition), for all computations other than those made
pursuant to Section 11(a)(iii) hereof, shall mean the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Per Share
Market Price of any Security on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the ten (10) consecutive
Trading Days immediately prior to such date; provided, however,
that in the event that the Current Per Share Market Price of the Security is
determined during a period following the announcement by the issuer of such
Security of (i) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares or (ii) any
subdivision, combination or reclassification of such Security, and prior to the
expiration of the applicable thirty (30) Trading Day or ten (10) Trading
Day period, after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then,
and in each such case, the Current Per Share Market Price shall be
appropriately adjusted to reflect the current market price per share equivalent
of such Security.  The closing price for each
day shall be the last sale price, regular way or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on
the New York Stock Exchange or, if the Security is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last sale price or, if such last sale
price is not reported, the average of the high bid and low asked prices in the
over-the-counter market, as reported by  FINRA or such
other system then in use or, if on any such date the Security is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Security
selected by the Board of Directors.  If
on any such date no market maker is making a market in the Security, the fair
value of such shares on such date as determined in good faith by the Board of
Directors shall be used.  If the
Preferred Shares are not publicly traded, the Current Per Share Market Price of
the Preferred Shares shall be conclusively deemed to be the Current Per Share
Market Price of the shares of Common Stock as determined pursuant to this
definition, as appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof, multiplied by
1,000.  If the Security is not publicly
held or so listed or traded, Current Per Share Market Price shall mean the fair
value per share as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.

 

“Current Value” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

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“Distribution Date” shall mean the earlier of (i) the Close
of Business on the tenth day after the Shares Acquisition Date (or, if the
tenth day after the Shares Acquisition Date occurs before the Record Date, the
Close of Business on the Record Date) or (ii) the Close of Business on the
tenth Business Day (or such later date as may be determined by action of the
Company’s Board of Directors) after the date that a tender or exchange offer by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or pursuant to
the terms of any such plan or an Exempted Person) is first published or sent or
given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, assuming the successful consummation thereof,
such Person would be an Acquiring Person.

 

“Equivalent Shares” shall mean Preferred Shares and any other
class or series of capital stock of the Company which is entitled to the same
rights, privileges and preferences as the Preferred Shares.

 

“Exchange Act” shall mean the U.S. Securities Exchange Act of
1934, as amended.

 

“Exchange Ratio” shall have the meaning set forth in Section 24(a) hereof.

 

“Exempted Person” shall mean each member of the Gallery Services
Group,  Maas Capital Group, the MK Maritime
Group, and any Underwriter and their respective Affiliates.

 

“Exercise Price” shall have the meaning set forth in Section 4(a) hereof.

 

“Expiration Date” shall mean the earliest to occur of: (i) the
Close of Business on the Final Expiration Date, (ii) the Redemption Date,
or (iii) the time at which the Board of Directors orders the exchange of
the Rights as provided in Section 24 hereof.

 

“Final Expiration Date” shall mean March 23, 2020.

 

“FINRA” shall mean the Financial Industry Regulatory Authority.

 

“IPO” shall mean the initial public offering of the Common Stock
registered under the Securities Act of the Company.

 

“Gallery Services Group” shall mean Gallery Services Ltd. and
each of its Affiliates and Associates.

 

“Maas Capital Group” shall mean Maas Capital Investments B.V.,
and each of its Affiliates and Associates.

 

“MK Maritime Group” shall mean MK Maritime LLC, Hans J. Mende,
Fritz Kundrun, the 2008 Irrevocable Trust for Family of Nicola Kundrun, any
other trusts or entities established for the benefit of Hans J. Mende, Fritz
Kundrun or members of their respective families, any other entities controlled
by Hans J. Mende or Fritz Kundrun and members of their respective families, and
each of their respective Affiliates and Associates.

 

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“Person” shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.

 

“Post-event Transferee” shall have the meaning set forth in Section 7(e) hereof.

 

“Preferred Shares” shall mean shares of Series A
Participating Preferred Stock, U.S. $0.001 par value, of the Company.

 

“Pre-event Transferee” shall have the meaning set forth in Section 7(e) hereof.

 

“Principal Party” shall have the meaning set forth in Section 13(b) hereof.

 

“Record Date” shall have the meaning set forth in the recitals
at the beginning of this Rights Agreement.

 

“Redemption Date” shall have the meaning set forth in Section 23(a) hereof.

 

“Redemption Price” shall have the meaning set forth in Section 23(a) hereof.

 

“Rights Agent” shall mean American Stock Transfer & Trust
Company, LLC, or its successor or replacement as provided in Sections 19 and 21
hereof.

 

“Rights Certificate” shall mean a certificate substantially in
the form attached hereto as Exhibit B.

 

“Section 11(a)(ii) Trigger Date” shall have the
meaning set forth in Section 11(a)(iii) hereof.

 

“Section 13 Event” shall mean any event described in clause
(i), (ii) or (iii) of Section 13(a) hereof.

 

“Securities Act” shall mean the U.S. Securities Act of 1933, as
amended.

 

“Shares Acquisition Date” shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided that, if such Person is determined not to have become an
Acquiring Person as defined herein, then no Shares Acquisition Date shall be
deemed to have occurred.

 

“Spread” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

“Subsidiary” of any Person shall mean any corporation or other
entity of which an amount of voting securities sufficient to elect a majority
of the directors or Persons having similar authority of such corporation or
other entity is beneficially owned, directly or indirectly, by such Person, or
any corporation or other entity otherwise controlled by such Person.

 

“Substitution Period” shall have the meaning set forth in Section 11(a)(iii) hereof.

 

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“Summary of Rights” shall mean a summary of this Agreement
substantially in the form attached hereto as Exhibit C.

 

“Total Exercise Price” shall have the meaning set forth in Section 4(a) hereof.

 

“Trading Day” shall mean a day on which the principal national
securities exchange on which a referenced security is listed or admitted to
trading is open for the transaction of business or, if a referenced security is
not listed or admitted to trading on any national securities exchange, a
Business Day.

 

A “Triggering Event” shall be deemed to have occurred upon any
Person, becoming an Acquiring Person.

 

“Underwriter” shall mean any financial institution while and in
the capacity of acting as an underwriter in offerings of Common Stock of the
Company.

 

2.             Appointment
of Rights Agent.  The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of
the Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the shares of Common Stock) in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment.  The Company
may from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.

 

3.             Issuance
of Rights Certificates.

 

(a)           Until
the Distribution Date, (i) the Rights will be evidenced (subject to the
provisions of Sections 3(b) and 3(c) hereof) by the certificates for
shares of Common Stock registered in the names of the holders thereof (which
certificates shall also be deemed to be Rights Certificates) and not by
separate Rights Certificates and (ii) the right to receive Rights
Certificates will be transferable only in connection with the transfer of
shares of Common Stock.  Until the
earlier of the Distribution Date or the Expiration Date, the surrender for
transfer of certificates for shares of Common Stock shall also constitute the
surrender for transfer of the Rights associated with the shares of Common Stock
represented thereby.  As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights Agent will countersign, and the Company will send or cause to be
sent (and the Rights Agent will, if requested, send) by first-class,
postage-prepaid mail, to each record holder of shares of Common Stock as of the
Close of Business on the Distribution Date, at the address of such holder shown
on the records of the Company, a Rights Certificate evidencing one Right for
each share of Common Stock so held, subject to adjustment as provided
herein.  In the event that an adjustment
in the number of Rights per share of Common Stock has been made pursuant to Section 11
hereof, then at the time of distribution of the Rights Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates
representing only whole numbers of Rights are distributed and cash is paid in
lieu of any fractional Rights.  As of the
Distribution Date, the Rights will be evidenced solely by such Rights
Certificates and may be transferred by the transfer of the Rights Certificates
as permitted hereby, separately and apart from any transfer of shares of Common

 

7

 

Stock,
and the holders of such Rights Certificates as listed in the records of the
Company or any transfer agent or registrar for the Rights shall be the record
holders thereof.

 

(b)           On
the Record Date or as soon as practicable thereafter, the Company will send a
copy of the Summary of Rights by first-class, postage-prepaid mail, to each
record holder of shares of Common Stock as of the Close of Business on the
Record Date that requests a Summary of the Rights, at the address of such
holder shown on the records of the Company’s transfer agent and registrar.  With respect to certificates for shares of
Common Stock outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of
the holders thereof together with the Summary of Rights.  Until the Distribution Date (or, if earlier,
the Expiration Date), the surrender for transfer of any certificate for shares
of Common Stock outstanding on the Record Date, with or without a copy of the
Summary of Rights, shall also constitute the transfer of the Rights associated
with the shares of Common Stock represented thereby.

 

(c)           Unless
the Board of Directors by resolution adopted at or before the time of the
issuance of any shares of Common Stock specifies to the contrary, Rights shall
be issued in respect of all shares of Common Stock that are issued after the
Record Date but prior to the earlier of the Distribution Date or the Expiration
Date or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date.  Certificates
representing such shares of Common Stock shall also be deemed to be
certificates for Rights, and shall bear the following legend:

 

THIS
CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS
SET FORTH IN A STOCKHOLDERS RIGHTS AGREEMENT BETWEEN ALMA MARITIME LIMITED AND
AMERICAN STOCK TRANSFER & TRUST COMPANY, AS THE RIGHTS AGENT, DATED AS
OF MARCH 23, 2010 (THE “RIGHTS AGREEMENT”), THE TERMS OF WHICH ARE HEREBY
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF ALMA MARITIME LIMITED UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE
EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
CERTIFICATE.  ALMA MARITIME LIMITED WILL
SEND TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT
CHARGE AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.  UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR
BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON
BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND
VOID.

 

With respect to such certificates containing the foregoing legend,
until the earlier of (i) the Distribution Date or (ii) the Expiration
Date, the Rights associated with the shares of Common

 

8

 

Stock represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any such certificate
shall also constitute the transfer of the Rights associated with the shares of
Common Stock represented thereby.

 

(d)           In
the event that the Company purchases or acquires any shares of Common Stock
after the Record Date but prior to the Distribution Date, any Rights associated
with such shares of Common Stock shall be deemed canceled and retired so that
the Company shall not be entitled to exercise any Rights associated with the
shares of Common Stock which are no longer outstanding.

 

4.             Form of
Rights Certificates.

 

(a)           The
Rights Certificates (and the forms of election to purchase shares of Common
Stock and of assignment to be printed on the reverse thereof) shall be
substantially in the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange or a national market
system, on which the Rights may from time to time be listed or included, or to
conform to usage.  Subject to the
provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date (or in
the case of Rights issued with respect to shares of Common Stock issued by the
Company after the Record Date, as of the date of issuance of such shares of
Common Stock) and on their face shall entitle the holders thereof to purchase
such number of one-thousandths of a Preferred Share as shall be set forth
therein at the price set forth therein (such exercise price per one
one-thousandth of a Preferred Share being hereinafter referred to as the “Exercise
Price” and the aggregate Exercise Price of all Preferred Shares issuable upon
exercise of one Right being hereinafter referred to as the “Total Exercise
Price”), but the number and type of securities purchasable upon the
exercise of each Right and the Exercise Price shall be subject to adjustment as
provided herein.

 

(b)           Any
Rights Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Company’s
Board of Directors has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof,
and any Rights Certificate issued pursuant to Section 6 or Section 11
hereof upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain (to the extent feasible)
the following legend:

 

9

 

THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT).  ACCORDINGLY, THIS
RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND
VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT.

 

5.             Countersignature
and Registration.

 

(a)           The
Rights Certificates shall be executed on behalf of the Company by its Chief
Executive Officer, its Chief Operating Officer, its Chief Financial Officer,
its President or any Vice President, either manually or by facsimile signature,
and by the Secretary or an Assistant Secretary of the Company, either manually
or by facsimile signature, and shall have affixed thereto the Company’s seal
(if any) or a facsimile thereof.  The
Rights Certificates shall be manually countersigned by the Rights Agent and
shall not be valid for any purpose unless countersigned.  In case any officer of the Company who has
signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery
by the Company, such Rights Certificates, nevertheless, may be countersigned by
the Rights Agent and issued and delivered by the Company with the same force
and effect as though the person who signed such Rights Certificates on behalf
of the Company had not ceased to be such officer of the Company; and any Rights
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.

 

(b)           Following
the Distribution Date, the Rights Agent will keep or cause to be kept, at its
office designated for such purposes, books for registration and transfer of the
Rights Certificates issued hereunder. 
Such books shall show the names and addresses of the respective holders
of the Rights Certificates, the number of Rights evidenced on its face by each
of the Rights Certificates and the date of each of the Rights Certificates.

 

6.             Transfer,
Split Up, Combination and Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates.

 

(a)           Subject
to the provisions of Sections 7(e), 14 and 24 hereof, at any time after the
Close of Business on the Distribution Date, and at or prior to the Close of
Business on the Expiration Date, any Rights Certificate or Rights Certificates
may be transferred, split up, combined or exchanged for another Rights Certificate
or Rights Certificates, entitling the registered holder to purchase a like
number of one-thousandths of a Preferred Share (or, following a Triggering
Event, other securities, cash or other assets, as the case may be) as the
Rights Certificate or Rights Certificates surrendered then entitled such holder
to purchase.  Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Rights Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose.  Neither the
Rights

 

10

 

Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.  Thereupon the Rights Agent shall, subject to
Sections 7(e), 14 and 24 hereof, countersign and deliver to the person entitled
thereto a Rights Certificate or Rights Certificates, as the case may be, as so
requested.  The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Rights Certificates.

 

(b)           Upon
receipt by the Company and the Rights Agent of evidence reasonably satisfactory
to them of the loss, theft, destruction or mutilation of a Rights Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company’s request, reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Rights Certificate
if mutilated, the Company will make and deliver a new Rights Certificate of
like tenor to the Rights Agent for delivery to the registered holder in lieu of
the Rights Certificate so lost, stolen, destroyed or mutilated.

 

7.             Exercise
of Rights; Exercise Price; Expiration Date of Rights.

 

(a)           Subject
to Sections 7(e), 23(b) and 24(b) hereof, the registered holder of
any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date and prior to the Close of Business on the Expiration Date by
surrender of the Rights Certificate, with the form of election to purchase on
the reverse side thereof duly executed, to the Rights Agent at the office of
the Rights Agent designated for such purpose, together with payment of the
Exercise Price for each one-thousandth of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) as
to which the Rights are exercised.

 

(b)           The
Exercise Price for each one-thousandth of a Preferred Share issuable pursuant
to the exercise of a Right shall initially be an amount in U.S. dollars equal
to three and one-half (3.5) times the per share public offering price of the
Common Stock in the Company’s IPO, shall be subject to adjustment from time to
time as provided in Sections 11 and 13 hereof and shall be payable in lawful
money of the United States of America in accordance with paragraph (c) below.

 

(c)           Upon
receipt of a Rights Certificate representing exercisable Rights, with the form
of election to purchase duly executed, accompanied by payment of the Exercise
Price for the number of one-thousandths of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) to
be purchased and an amount equal to any applicable transfer tax required to be
paid by the holder of such Rights Certificate in accordance with Section 9(e) hereof,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon
promptly (i) (A) requisition from any transfer agent of the Preferred
Shares (or make available, if the Rights Agent is the transfer agent for the
Preferred Shares) a certificate or certificates for the number of
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets as the case may be) to be purchased and the
Company hereby

 

11

 

irrevocably
authorizes its transfer agent to comply with all such requests or (B) if
the Company shall have elected to deposit the total number of one-thousandths
of a Preferred Share (or, following a Triggering Event, other securities, cash
or other assets as the case may be) issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing such number of one-thousandths of a Preferred Share
(or, following a Triggering Event, other securities, cash or other assets as
the case may be) as are to be purchased (in which case certificates for the
Preferred Shares (or, following a Triggering Event, other securities, cash or
other assets as the case may be) represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights Certificate,
registered in such name or names as may be designated by such holder and (iv) when
appropriate, after receipt thereof, deliver such cash to or upon the order of
the registered holder of such Rights Certificate.  The payment of the Exercise Price (as such
amount may be reduced (including to zero) pursuant to Section 11(a)(iii) hereof)
and an amount equal to any applicable transfer tax required to be paid by the
holder of such Rights Certificate in accordance with Section 9(e) hereof,
may be made in cash or by certified bank check, cashier’s check or bank draft
payable to the order of the Company.  In
the event that the Company is obligated to issue securities of the Company
other than Preferred Shares, pay cash and/or distribute other property pursuant
to Section 11(a) hereof, the Company will make all arrangements
necessary so that such other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when appropriate.

 

(d)           In
case the registered holder of any Rights Certificate shall exercise less than
all the Rights evidenced thereby, a new Rights Certificate evidencing Rights
equivalent to the Rights remaining unexercised shall be issued by the Rights
Agent to the registered holder of such Rights Certificate or to his or her duly
authorized assigns, subject to the provisions of Section 14 hereof.

 

(e)           Notwithstanding
anything in this Agreement to the contrary, from and after the first occurrence
of a Triggering Event, any Rights beneficially owned by (i) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such (a “Post-Event
Transferee”), (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which the Company’s Board of Directors has determined is part of a
plan, arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e) (a “Pre-Event Transferee”) or (iv) any
subsequent transferee receiving transferred Rights from a Post-Event Transferee
or a Pre-Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any

 

12

 

provision
of this Agreement or otherwise.  The
Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to
any holder of Rights Certificates or to any other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or any
of such Acquiring Person’s Affiliates, Associates or transferees hereunder.

 

(f)            Notwithstanding
anything in this Agreement to the contrary, neither the Rights Agent nor the
Company shall be obligated to undertake any action with respect to a registered
holder upon the occurrence of any purported exercise as set forth in this Section 7
unless such registered holder shall, in addition to having complied with the
requirements of Section 7(a), have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Rights Certificate surrendered for such exercise and (ii) provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.

 

8.             Cancellation
and Destruction of Rights Certificates. 
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the
Company or to any of its agents, be delivered to the Rights Agent for cancellation
or in canceled form or, if surrendered to the Rights Agent, shall be canceled
by it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement.  The Company shall deliver to the Rights Agent
for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any Rights Certificate purchased or acquired by the Company otherwise
than upon the exercise thereof.  The
Rights Agent shall deliver all canceled Rights Certificates to the Company, or
shall, at the written request of the Company, destroy such canceled Rights
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.

 

9.             Reservation
and Availability of Preferred Shares.

 

(a)           The
Company covenants and agrees that it will use its best efforts to cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
not reserved for another purpose (and, following the occurrence of a Triggering
Event, out of its authorized and unissued shares of Common Stock and/or other
securities), the number of Preferred Shares (and, following the occurrence of
the Triggering Event, Common Stock and/or other securities) that will be
sufficient to permit the exercise in full of all outstanding Rights.

 

(b)           If
the Company shall hereafter list any of its Preferred Shares on a national
securities exchange, then so long as the Preferred Shares (and, following the
occurrence of a Triggering Event, shares of Common Stock and/or other securities)
issuable and deliverable upon exercise of the Rights may be listed on such
exchange, the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable (but only to the extent that it is
reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.

 

(c)           The
Company shall use its best efforts to (i) file, as soon as practicable
following the earliest date after the first occurrence of a Triggering Event in
which the consideration to be delivered by the Company upon exercise of the
Rights is described in Section

 

13

 

11(a)(ii) or
Section 11(a)(iii) hereof, or as soon as is required by law following
the Distribution Date, as the case may be, a registration statement under the
Securities Act with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing and (iii) cause
such registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities and (B) the
date of expiration of the Rights.  The
Company may temporarily suspend, for a period not to exceed ninety (90) days
after the date set forth in clause (i) of the first sentence of this Section 9(c),
the exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. 
Upon any such suspension, the Company shall issue a public announcement
and notify the Rights Agent that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement and notification to the
Rights Agent at such time as the suspension is no longer in effect.  The Company will also take such action as may
be appropriate under, or to ensure compliance with, the securities or “blue sky”
laws of the various states in connection with the exercisability of the
Rights.  Notwithstanding any provision of
this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction, unless the requisite qualification in such jurisdiction shall
have been obtained, or an exemption therefrom shall be available, and until a
registration statement has been declared effective.

 

(d)           The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares (or other securities of the
Company) delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such securities (subject to payment of the Exercise Price),
be duly and validly authorized and issued and fully paid and nonassessable
shares.

 

(e)           The
Company further covenants and agrees that it will pay when due and payable any
and all federal and state transfer taxes and charges which may be payable in
respect of the original issuance or delivery of the Rights Certificates or of
any Preferred Shares (or other securities of the Company) upon the exercise of
Rights.  The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Rights Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares (or other securities of the Company) in a name other than that of, the
registered holder of the Rights Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depositary receipts for
Preferred Shares (or other securities of the Company) upon the exercise of any
Rights until any such tax shall have been paid (any such tax being payable by
the holder of such Rights Certificate at the time of surrender) or until it has
been established to the Company’s satisfaction that no such tax is due.

 

10.           Record
Date.  Each Person in whose name any
certificate for a number of one-thousandths of a Preferred Share (or other
securities of the Company) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of Preferred Shares (or
other securities of the Company) represented thereon, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered and payment of the Total Exercise Price with
respect to which the Rights have been exercised (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the transfer books of the Company are closed, such

 

14

 

Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
transfer books of the Company are open. 
Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate shall not be entitled to any rights of a holder of Preferred
Shares (or other securities of the Company) for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and
shall not be entitled to receive any notice of any proceedings of the Company,
except as provided herein.

 

11.           Adjustment
of Exercise Price, Number of Shares or Number of Rights.  The Exercise Price, the number and kind of
shares or other property covered by each Right and the number of Rights
outstanding are subject to adjustment from time to time as provided in this Section 11.

 

(a)           (i)            Notwithstanding anything in this
Agreement to the contrary, in the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred
Shares, (C) combine the outstanding Preferred Shares (by reverse stock
split or otherwise) into a smaller number of Preferred Shares, or (D) issue
any shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), then,
in each such event, except as otherwise provided in this Section 11 and Section 7(e) hereof:  (1) the Exercise Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that the
Exercise Price thereafter shall equal the result obtained by dividing the
Exercise Price in effect immediately prior to such time by a fraction (the “Adjustment
Fraction”), the numerator of which shall be the total number of Preferred
Shares (or shares of capital stock issued in such reclassification of the
Preferred Shares) outstanding immediately following such time and the
denominator of which shall be the total number of Preferred Shares outstanding
immediately prior to such time; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of such Right; and (2) the number of one-thousandths of a
Preferred Share (or share of such other capital stock) issuable upon the
exercise of each Right shall equal the number of one-thousandths of a Preferred
Share (or share of such other capital stock) as was issuable upon exercise of a
Right immediately prior to the occurrence of the event described in clauses
(A)-(D) of this Section 11(a)(i), multiplied by the Adjustment
Fraction; provided, however, that, no such adjustment shall be
made pursuant to this Section 11(a)(i) to the extent that there shall
have simultaneously occurred an event described in clause (A), (B), (C) or
(D) of Section 11(n) with a proportionate adjustment being made
thereunder.  Each share of Common Stock
that shall become outstanding after an adjustment has been made pursuant to
this Section 11(a)(i) shall have associated with it the number of
Rights, exercisable at the Exercise Price and for the number of one-thousandths
of a Preferred Share (or shares of such other capital stock) as one share of
Common Stock has associated with it immediately following the adjustment made
pursuant to this Section 11(a)(i).

 

(ii)           Subject
to Section 24 of this Agreement, in the event a Triggering Event shall
have occurred, then promptly following such Triggering Event each holder of a
Right, except as provided in Section 7(e) hereof, shall thereafter
have the right to receive for

 

15

 

each
Right, upon exercise thereof in accordance with the terms of this Agreement and
payment of the Exercise Price in effect immediately prior to the occurrence of
the Triggering Event, in lieu of a number of one-thousandths of a Preferred
Share, such number of shares of Common Stock of the Company as shall equal the
result obtained by multiplying the Exercise Price in effect immediately prior
to the occurrence of the Triggering Event by the number of one-thousandths of a
Preferred Share for which a Right was exercisable (or would have been
exercisable if the Distribution Date had occurred) immediately prior to the
first occurrence of a Triggering Event, and dividing that product by 50% of the
Current Per Share Market Price for shares of Common Stock on the date of
occurrence of the Triggering Event; provided, however, that the
Exercise Price and the number of shares of Common Stock of the Company so
receivable upon exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(e) hereof to reflect any
events occurring in respect of the shares of Common Stock of the Company after
the occurrence of the Triggering Event.

 

(iii)          In
lieu of issuing shares of Common Stock in accordance with Section 11(a)(ii) hereof,
the Company may, if the Company’s Board of Directors determines that such
action is necessary or appropriate and not contrary to the interest of holders
of Rights and, in the event that the number of shares of Common Stock which are
authorized by the Company’s Articles of Incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights, or if any
necessary regulatory approval for such issuance has not been obtained by the
Company, the Company shall: (A) determine the excess of (1) the value
of the shares of Common Stock issuable upon the exercise of a Right (the “Current
Value”) over (2) the Exercise Price (such excess, the “Spread”)
and (B) with respect to each Right, make adequate provision to substitute
for such shares of Common Stock, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the
Company (including, without limitation, shares or units of shares of any series
of preferred stock which the Company’s Board of Directors has deemed to have
the same value as Common Stock (such shares or units of shares of preferred
stock are herein called “Common Stock Equivalents”)), except to the
extent that the Company has not obtained any necessary stockholder or
regulatory approval for such issuance, (4) debt securities of the Company,
except to the extent that the Company has not obtained any necessary
stockholder or regulatory approval for such issuance, (5) other assets or (6) any
combination of the foregoing, having an aggregate value equal to the Current
Value, where such aggregate value has been determined by the Company’s Board of
Directors based upon the advice of a nationally recognized investment banking
firm selected by the Company’s Board of Directors; provided, however, if the
Company shall not have made adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the later of (x) the
first occurrence of a Triggering Event and (y) the date on which the
Company’s right of redemption pursuant to Section 23(a) expires (the
later of (x) and (y) being referred to herein as the “Section 11(a)(ii) Trigger
Date”), then the Company shall be obligated to deliver, upon the surrender
for exercise of a Right and without requiring payment of the Exercise Price,
Common Stock (to the extent available), except to the extent that the Company
has not obtained any necessary stockholder or regulatory approval for such
issuance, and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread.  If
the Company’s Board of Directors shall determine in good faith that it is
likely that sufficient additional Common Stock could be authorized for issuance
upon exercise in full of the Rights or that any necessary regulatory approval
for such issuance will be obtained, the thirty (30) day period set forth above
may be

 

16

 

extended
to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger
Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares or take action to obtain such
regulatory approval (such period, as it may be extended, the “Substitution
Period”).  To the extent that the
Company determines that some action need be taken pursuant to the first and/or
second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights and (y) may suspend the exercisability
of the Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares, to take any action to obtain any
required regulatory approval and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof.  In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect.  For purposes of this Section 11(a)(iii),
the value of the Common Stock shall be the Current Per Share Market Price of
the Common Stock on the Section 11(a)(ii) Trigger Date and the value
of any Common Stock Equivalent shall be deemed to have the same value as the
Common Stock on such date.

 

(b)           In
case the Company shall, at any time after the date of this Agreement, fix a
record date for the issuance of rights, options or warrants to all holders of
Preferred Shares entitling such holders (for a period expiring within
forty-five (45) calendar days after such record date) to subscribe for or
purchase Preferred Shares or Equivalent Shares or securities convertible into
Preferred Shares or Equivalent Shares at a price per share (or having a
conversion price per share, if a security convertible into Preferred Shares or
Equivalent Shares) less than the then Current Per Share Market Price of the
Preferred Shares or Equivalent Shares on such record date, then, in each such
case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record
date, plus the number of Preferred Shares or Equivalent Shares, as the case may
be, which the aggregate offering price of the total number of Preferred Shares
or Equivalent Shares, as the case may be, to be offered or issued (and/or the
aggregate initial conversion price of the convertible securities to be offered
or issued) would purchase at such current market price, and the denominator of
which shall be the number of Preferred Shares and Equivalent Shares (if any)
outstanding on such record date, plus the number of additional Preferred Shares
or Equivalent Shares, as the case may be, to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.  In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Company’s Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights.  Preferred Shares and Equivalent Shares owned
by or held for the account of the Company shall not be deemed outstanding for
the purpose of any such computation. 
Such adjustment shall be made successively whenever such a record date
is fixed, and in the event that such rights, options or warrants are not so
issued, the Exercise Price shall be adjusted to be the Exercise Price which
would then be in effect if such record date had not been fixed.

 

17

 

(c)           In
case the Company shall, at any time after the date of this Agreement, fix a
record date for the making of a distribution to all holders of the Preferred
Shares or of any class or series of Equivalent Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend, if any,
or a dividend payable in Preferred Shares) or subscription rights, options or
warrants (excluding those referred to in Section 11(b)), then, in each
such case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the Current Per
Share Market Price of a Preferred Share or an Equivalent Share on such record
date, less the fair market value per Preferred Share or Equivalent Share (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a
Preferred Share or Equivalent Share, as the case may be, and the denominator of
which shall be such Current Per Share Market Price of a Preferred Share or Equivalent
Share on such record date; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.  Such adjustments
shall be made successively whenever such a record date is fixed, and in the
event that such distribution is not so made, the Exercise Price shall be
adjusted to be the Exercise Price which would have been in effect if such
record date had not been fixed.

 

(d)           Notwithstanding
anything to the contrary, no adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Exercise Price; provided, however, that any adjustments which by reason of
this Section 11(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.  All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share
of Common Stock or other share or one hundred-thousandth of a Preferred Share,
as the case may be.  Notwithstanding the
first sentence of this Section 11(d), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three (3) years from
the date of the transaction which requires such adjustment or (ii) the
Expiration Date.

 

(e)           If
as a result of an adjustment made pursuant to Section 11(a) or 13(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock other than Preferred Shares, thereafter the number
of such other shares so receivable upon exercise of any Right and, if required,
the Exercise Price thereof, shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Shares contained in Sections 11(a), 11(b), 11(c),
11(d), 11(g), 11(h), 11(i), 11(j), 11(k) and 11(l), and the provisions of
Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall apply
on like terms to any such other shares.

 

(f)            All
Rights originally issued by the Company subsequent to any adjustment made to
the Exercise Price hereunder shall evidence the right to purchase, at the adjusted
Exercise Price, the number of one-thousandths of a Preferred Share purchasable
from time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.

 

18

 

(g)           Unless
the Company shall have exercised its election as provided in Section 11(h),
upon each adjustment of the Exercise Price as a result of the calculations made
in Section 11(b) and (c), each Right outstanding immediately prior to
the making of such adjustment shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, that number of Preferred Shares (calculated to
the nearest one hundred-thousandth of a share) obtained by (i) multiplying
(x) the number of Preferred Shares covered by a Right immediately prior to
this adjustment, by (y) the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price, and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment of
the Exercise Price.

 

(h)           The
Company may elect on or after the date of any adjustment of the Exercise Price
as a result of the calculations made in Section 11(b) or (c) to
adjust the number of Rights, in substitution for any adjustment in the number
of Preferred Shares purchasable upon the exercise of a Right.  Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. 
Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
hundred-thousandth) obtained by dividing the Exercise Price in effect
immediately prior to adjustment of the Exercise Price by the Exercise Price in
effect immediately after adjustment of the Exercise Price.  The Company shall make a public announcement
of its election to adjust the number of Rights, indicating the record date for
the adjustment, and, if known at the time, the amount of the adjustment to be
made.  This record date may be the date
on which the Exercise Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least ten (10) days later
than the date of the public announcement. 
If Rights Certificates have been issued, upon each adjustment of the
number of Rights pursuant to this Section 11(h), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to Section 14
hereof, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment.  Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.

 

(i)            Irrespective
of any adjustment or change in the Exercise Price or the number of Preferred
Shares issuable upon the exercise of the Rights, the Rights Certificates
theretofore and thereafter issued may continue to express the Exercise Price
per one one-thousandth of a Preferred Share and the number of one-thousandths
of a Preferred Share which were expressed in the initial Rights Certificates
issued hereunder.

 

(j)            Before
taking any action that would cause an adjustment reducing the Exercise Price
below the par or stated value, if any, of the number of one-thousandths of a
Preferred Share issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may

 

19

 

validly
and legally issue as fully paid and nonassessable shares such number of
one-thousandths of a Preferred Share at such adjusted Exercise Price.

 

(k)           In
any case in which this Section 11 shall require that an adjustment in the
Exercise Price be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event the issuing to
the holder of any Right exercised after such record date of the number of
one-thousandths of a Preferred Share and other capital stock or securities of
the Company, if any, issuable upon such exercise over and above the number of
one-thousandths of a Preferred Share and other capital stock or securities of
the Company, if any, issuable upon such exercise on the basis of the Exercise
Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder’s right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.

 

(l)            Notwithstanding
anything in this Section 11 to the contrary, prior to the Distribution
Date, the Company shall be entitled to make such reductions in the Exercise
Price, in addition to those adjustments expressly required by this Section 11,
as and to the extent that it in its sole discretion shall determine to be
advisable in order that any (i) consolidation or subdivision of the
Preferred Shares or Common Stock, (ii) issuance wholly for cash of any
Preferred Shares or Common Stock at less than the current market price, (iii) issuance
wholly for cash of Preferred Shares or Common Stock or securities which by
their terms are convertible into or exchangeable for Preferred or Common Stock,
(iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders
of its Preferred Shares or Common Stock shall not be taxable to such
stockholders.

 

(m)          The
Company covenants and agrees that, after the Distribution Date, it will not,
except as permitted by Sections 23, 24 or 27 hereof, take (or permit to be
taken) any action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or otherwise eliminate
the benefits intended to be afforded by the Rights.

 

(n)           In
the event the Company shall at any time after the date of this Agreement (A) declare
a dividend on the Common Stock payable in shares of Common Stock, (B) subdivide
the outstanding shares of Common Stock, (C) combine the outstanding Common
Stock (by reverse stock split or otherwise) into a smaller number of shares of
Common Stock, or (D) issue any shares of its capital stock in a
reclassification of the shares of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in Section 11(a) and Section 7(e) hereof:
(1) each share of Common Stock (or shares of capital stock issued in such
reclassification of the Common Stock) outstanding immediately following such
time shall have associated with it the number of Rights as were associated with
one share of Common Stock immediately prior to the occurrence of the event
described in clauses (A)-(D) above; (2) the Exercise Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification shall be adjusted so that the
Exercise Price thereafter shall equal the result obtained by multiplying the
Exercise Price in effect immediately prior to such time by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the event described in clauses (A)-(D) above,
and the denominator of which

 

20

 

shall
be the total number of shares of Common Stock outstanding immediately after
such event; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of such Right; and (3) the number of one-thousandths of a
Preferred Share (or shares of such other capital stock) issuable upon the
exercise of each Right outstanding after such event shall equal the number of
one- thousandths of a Preferred Share (or shares of such other capital stock)
as were issuable with respect to one Right immediately prior to such
event.  Each share of Common Stock that
shall become outstanding after an adjustment has been made pursuant to this Section 11(n) shall
have associated with it the number of Rights, exercisable at the Exercise Price
and for the number of one-thousandths of a Preferred Share (or shares of such
other capital stock) as one share of Common Stock has associated with it
immediately following the adjustment made pursuant to this Section 11(n).  If an event occurs which would require an
adjustment under both this Section 11(n) and Section 11(a)(ii) hereof,
the adjustment provided for in this Section 11(n) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.

 

12.           Certificate
of Adjusted Exercise Price or Number of Shares.  Whenever an adjustment is made as provided in
Sections 11 and 13 hereof, the Company shall promptly (a) prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate and (c) if
a Distribution Date has occurred, mail a brief summary thereof to each holder
of a Rights Certificate in accordance with Section 26 hereof.  Notwithstanding the foregoing sentence, the
failure of the Company to make such certification or give such notice shall not
affect the validity of such adjustment or the force or effect of the
requirement for such adjustment.  The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment contained therein and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such certificate.

 

13.           Consolidation,
Merger or Sale or Transfer of Assets or Earning Power.

 

(a)           In
the event that, following a Triggering Event, directly or indirectly:

 

(i)            the
Company shall consolidate with, or merge with and into, any other Person (other
than a wholly-owned Subsidiary of the Company in a transaction the principal
purpose of which is to change the state of incorporation of the Company and
which complies with Section 11(m) hereof);

 

(ii)           any
Person shall consolidate with the Company, or merge with and into the Company
and the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such merger, all or part of the
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person (or the Company); or

 

(iii)          the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons

 

21

 

(other than the Company or one or more of its wholly
owned Subsidiaries in one or more transactions, each of which individually (and
together) complies with Section 11(m) hereof),

 

then, concurrently with and in each such case:

 

(a)           each
holder of a Right (except as provided in Section 7(e) hereof) shall
thereafter have the right to receive, upon the exercise thereof, at a price
equal to the Total Exercise Price applicable immediately prior to the occurrence
of the Section 13 Event in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid, nonassessable and
freely tradeable shares of Common Stock of the Principal Party (as hereinafter
defined), free of any liens, encumbrances, rights of first refusal or other
adverse claims, as shall be equal to the result obtained by dividing such Total
Exercise Price by 50% of the Current Per Share Market Price of the shares of
Common Stock of such Principal Party on the date of consummation of such Section 13
Event, provided, however, that the Exercise Price and the number of shares of
Common Stock of such Principal Party so receivable upon exercise of a Right
shall be subject to further adjustment as appropriate in accordance with Section 11(e) hereof;

 

(b)           such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement;

 

(c)           the
term “Company” shall thereafter be deemed to refer to such Principal Party, it
being specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal Party following the first occurrence of a Section 13
Event;

 

(d)           such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to ensure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and

 

(e)           upon
the subsequent occurrence of any consolidation, merger, sale or transfer of
assets or other extraordinary transaction in respect of such Principal Party,
each holder of a Right shall thereupon be entitled to receive, upon exercise of
a Right and payment of the Total Exercise Price as provided in this Section 13(a),
such cash, shares, rights, warrants and other property which such holder would
have been entitled to receive had such holder, at

 

22

 

the time of such transaction, owned the shares of
Common Stock of the Principal Party receivable upon the exercise of such Right
pursuant to this Section 13(a), and such Principal Party shall take such
steps (including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with
the terms hereof for such cash, shares, rights, warrants and other property.

 

(f)            For
purposes hereof, the “earning power” of the Company and its Subsidiaries shall
be determined in good faith by the Company’s Board of Directors on the basis of
the operating earnings of each business operated by the Company and its
Subsidiaries during the three fiscal years preceding the date of such
determination (or, in the case of any business not operated by the Company or
any Subsidiary during three full fiscal years preceding such date, during the period
such business was operated by the Company or any Subsidiary).

 

(b)           For
purposes of this Agreement, the term “Principal Party” shall mean:

 

(i)            in
the case of any transaction described in clause (i) or (ii) of Section 13(a) hereof:
(A) the Person that is the issuer of the securities into which the shares
of Common Stock are converted in such merger or consolidation, or, if there is
more than one such issuer, the issuer the shares of Common Stock of which have
the greatest aggregate market value of shares outstanding, or (B) if no
securities are so issued, (x) the Person that is the other party to the
merger, if such Person survives said merger, or, if there is more than one such
Person, the Person the shares of Common Stock of which have the greatest aggregate
market value of shares outstanding or (y) if the Person that is the other
party to the merger does not survive the merger, the Person that does survive
the merger (including the Company if it survives) or (z) the Person
resulting from the consolidation; and

 

(ii)           in
the case of any transaction described in clause (iii) of Section 13(a) hereof,
the Person that is the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or transactions, or, if
more than one Person that is a party to such transaction or transactions
receives the same portion of the assets or earning power so transferred and
each such portion would, were it not for the other equal portions, constitute
the greatest portion of the assets or earning power so transferred, or if the
Person receiving the greatest portion of the assets or earning power cannot be
determined, whichever of such Persons is the issuer of shares of Common Stock
having the greatest aggregate market value of shares outstanding; provided,
however, that in any such case described in the foregoing clause (b)(i) or
(b)(ii), if the shares of Common Stock of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under Section 12
of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the shares of Common Stock of which are and have
been so registered, the term “Principal

 

23

 

Party” shall refer to such other Person, or (2) if
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of which are and have been so registered, the term “Principal
Party” shall refer to whichever of such Persons is the issuer of shares of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly by the
same Person, the rules set forth in clauses (1) and (2) above
shall apply to each of the owners having an interest in the venture as if the
Person owned by the joint venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case shall bear the obligations
set forth in this Section 13 in the same ratio as its interest in such
Person bears to the total of such interests.

 

(c)           The
Company shall not consummate any Section 13 Event unless the Principal
Party shall have a sufficient number of authorized shares of Common Stock that
have not been issued or reserved for issuance to permit the exercise in full of
the Rights in accordance with this Section 13 and unless prior thereto the
Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement confirming that such Principal Party shall, upon
consummation of such Section 13 Event, assume this Agreement in accordance
with Sections 13(a) and 13(b) hereof, that all rights of first refusal
or preemptive rights in respect of the issuance of shares of Common Stock of
such Principal Party upon exercise of outstanding Rights have been waived, that
there are no rights, warrants, instruments or securities outstanding or any
agreements or arrangements which, as a result of the consummation of such
transaction, would eliminate or substantially diminish the benefits intended to
be afforded by the Rights and that such transaction shall not result in a
default by such Principal Party under this Agreement, and further providing
that, as soon as practicable after the date of such Section 13 Event, such
Principal Party will:

 

(i)            prepare
and file a registration statement under the Securities Act with respect to the
Rights and the securities purchasable upon exercise of the Rights on an
appropriate form, use its best efforts to cause such registration statement to
become effective as soon as practicable after such filing and use its best
efforts to cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the Expiration Date, and similarly comply with applicable state securities
laws;

 

(ii)           use
its best efforts to list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on a national securities
exchange; and

 

(iii)          deliver
to holders of the Rights historical financial statements for such Principal
Party which comply in all respects with the requirements for registration on Form F-1
(or any successor form) under the Securities Act.

 

In the event that at any time after the occurrence of a Triggering
Event some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13, the Rights

 

24

 

which have not theretofore been exercised shall thereafter be
exercisable in the manner described in Section 13(a) (without taking
into account any prior adjustment required by Section 11(a)(ii)).

 

(d)           In
case the “Principal Party” for purposes of Section 13(b) hereof has
provision in any of its authorized securities or in its certificate of
incorporation or by-laws or other instrument governing its corporate affairs,
which provision would have the effect of (i) causing such Principal Party
to issue (other than to holders of Rights pursuant to Section 13 hereof),
in connection with, or as a consequence of, the consummation of a Section 13
Event, shares of Common Stock or Equivalent Shares of such Principal Party at
less than the then Current Per Share Market Price thereof or securities
exercisable for, or convertible into, shares of Common Stock or Equivalent
Shares of such Principal Party at less than such then Current Per Share Market
Price, or (ii) providing for any special payment, tax or similar provision
in connection with the issuance of the shares of Common Stock of such Principal
Party pursuant to the provisions of Section 13 hereof, then, in such
event, the Company hereby agrees with each holder of Rights that it shall not
consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with or as a consequence of, the consummation of
the proposed transaction.

 

(e)           The
Company covenants and agrees that it shall not, at any time after the
Distribution Date, effect or permit to occur any Section 13 Event, if (i) at
the time or immediately after such Section 13 Event there are any rights,
warrants or other instruments or securities outstanding or agreements in effect
which would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights, (ii) prior to, simultaneously with or
immediately after such Section 13 Event, the stockholders of the Person
who constitutes, or would constitute, the “Principal Party” for purposes of Section 13(b) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or Associates or (iii) the form or nature of
organization of the Principal Party would preclude or limit the exercisability
of the Rights.

 

(f)            The
provisions of this Section 13 shall similarly apply to successive mergers
or consolidations or sales or other transfers.

 

14.           Fractional
Rights and Fractional Shares.

 

(a)           The
Company shall not be required to issue fractions of Rights or to distribute
Rights Certificates which evidence fractional Rights.  In lieu of such fractional Rights, there
shall be paid to the registered holders of the Rights Certificates with regard
to which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the current market value of a whole Right.  For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant to
this Agreement.

 

25

 

(b)           The
Company shall not be required to issue fractions of Preferred Shares (other
than fractions that are integral multiples of one one-thousandth of a Preferred
Share) upon exercise of the Rights or to distribute certificates which evidence
fractional Preferred Shares (other than fractions that are integral multiples
of one one-thousandth of a Preferred Share). 
Interests in fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided, that such agreement
shall provide that the holders of such depositary receipts shall have all the
rights, privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares represented by such depositary receipts.  In lieu of fractional Preferred Shares that
are not integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of a Preferred Share.  For purposes of this Section 14(b), the
current market value of a Preferred Share shall be one thousand times the
closing price of a share of Common Stock (as determined pursuant to the terms
hereof) for the Trading Day immediately prior to the date of such exercise.

 

(c)           The
Company shall not be required to issue fractions of shares of Common Stock or
to distribute certificates which evidence fractional shares of Common Stock
upon the exercise or exchange of Rights. 
In lieu of such fractional shares of Common Stock, the Company shall pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of
the current market value of a share of Common Stock.  For purposes of this Section 14(c), the
current market value of a share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to the terms hereof) for the
Trading Day immediately prior to the date of such exercise.

 

(d)           The
holder of a Right by the acceptance of the Right expressly waives his or her
right to receive any fractional Rights or any fractional shares (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share) upon exercise of a Right.

 

15.           Rights
of Action.  All rights of action in
respect of this Agreement, excepting the rights of action given to the Rights
Agent under Section 18 hereof, are vested in the respective registered
holders of the Rights Certificates (and, prior to the Distribution Date, the
registered holders of the shares of Common Stock); and any registered holder of
any Rights Certificate (or, prior to the Distribution Date, of the shares of
Common Stock), without the consent of the Rights Agent or of the holder of any
other Rights Certificate (or, prior to the Distribution Date, of the shares of
Common Stock), may, in his or her own behalf and for his or her own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his or her right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement.  Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person subject to this Agreement.

 

26

 

16.           Agreement
of Rights Holders.  Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:

 

(a)           prior
to the Distribution Date, the Rights will be transferable only in connection
with the transfer of the shares of Common Stock;

 

(b)           after
the Distribution Date, the Rights Certificates are transferable only on the
registry books of the Rights Agent if surrendered at the principal office or
offices of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate forms
and certificates fully executed; and

 

(c)           subject
to Sections 6(a) and 7(f) hereof, the Company and the Rights Agent
may deem and treat the person in whose name the Rights Certificate (or, prior
to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the contrary.

 

17.           Rights
Certificate Holder Not Deemed a Stockholder.  No holder, as such, of any Rights Certificate
shall be entitled to vote, receive dividends or be deemed for any purpose to be
the holder of the Preferred Shares or any other securities of the Company which
may at any time be issuable on the exercise of the Rights represented thereby,
nor shall anything contained herein or in any Rights Certificate be construed
to confer upon the holder of any Rights Certificate, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in Section 25
hereof), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by such Rights Certificate shall have been
exercised in accordance with the provisions hereof.

 

18.           The
Rights Agent.

 

(a)           The
Company agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder. 
The Company also agrees to indemnify the Rights Agent for, and to hold
it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent,
for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.  In no event will the Rights Agent be liable
for special, indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of
such loss or damage.

 

27

 

(b)           The
Rights Agent shall be protected and shall incur no liability for, or in respect
of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Rights Certificate or
certificate for the Preferred Shares or shares of Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document reasonably believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.

 

19.           Merger
or Consolidation or Change of Name of Rights Agent.  Any corporation into which the Rights Agent
or any successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Rights Agent or any successor Rights Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Rights Agent or
any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. 
In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have
been countersigned but not delivered, any such successor Rights Agent may adopt
the countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.  In
case at any time the name of the Rights Agent shall be changed and at such time
any of the Rights Certificates shall have been countersigned but not delivered,
the Rights Agent may adopt the countersignature under its prior name and
deliver Rights Certificates so countersigned; and in case at that time any of
the Rights Certificates shall not have been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in its changed
name; and in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.

 

20.           Duties
of Rights Agent.  The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:

 

(a)           The
Rights Agent may consult with legal counsel (who may be legal counsel for the
Company), and the written advice or opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such written advice
or opinion.

 

(b)           Whenever
in the performance of its duties under this Agreement the Rights Agent shall
deem it necessary or desirable that any fact or matter (including, without
limitation, the identity of any Acquiring Person and the determination of
Current Per Share Market Price) be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically

 

28

 

prescribed)
may be deemed to be conclusively proved and established by a certificate signed
by any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or
any Assistant Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.

 

(c)           The
Rights Agent shall be liable hereunder to the Company and any other Person only
for its own negligence, bad faith or willful misconduct.

 

(d)           The
Rights Agent shall not be liable for or by reason of any of the statements of
fact or recitals contained in this Agreement or in the Rights Certificates
(except its countersignature thereof) or be required to verify the same, but
all such statements and recitals are and shall be deemed to have been made by
the Company only.

 

(e)           The
Rights Agent shall not be under any responsibility in respect of the validity
of this Agreement or the execution and delivery hereof (except the due
execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall
it be responsible for any change in the exercisability of the Rights or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23 or 24, or the ascertaining of
the existence of facts that would require any such change or adjustment (except
with respect to the exercise of Rights evidenced by Rights Certificates after
receipt by the Rights Agent of a certificate furnished pursuant to Section 12
describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.

 

(f)            The
Company agrees that it will perform, execute, acknowledge and deliver or cause
to be performed, executed, acknowledged and delivered all such further and
other acts, instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.

 

(g)           The
Rights Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder from any one of the Chairman
of the Board, the Chief Executive Officer, any Vice President, the Chief
Financial Officer, the Secretary or any Assistant Secretary of the Company, and
to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions. 
Any application by the Rights Agent for written instructions from the
Company may, at the option of the Rights Agent, set forth in writing any action
proposed to be taken or omitted by the Rights Agent under this Rights Agreement
and the date on and/or after which such action shall be taken or such omission
shall be effective.  The Rights Agent
shall not be liable for any action taken by, or omission of, the Rights Agent
in accordance with a proposal included in any such application on or after the
date

 

29

 

specified
in such application (which date shall not be less than five (5) Business
Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.

 

(h)           The
Rights Agent and any stockholder, director, officer or employee of the Rights
Agent may buy, sell or deal in any of the Rights or other securities of the
Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement.  Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for any
other legal entity.

 

(i)            The
Rights Agent may execute and exercise any of the rights or powers hereby vested
in it or perform any duty hereunder either itself or by or through its
attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.

 

(j)            No
provision of this Agreement shall require the Rights Agent to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder or in the exercise of its rights if there shall be
reasonable grounds for believing that repayment of such funds or adequate
indemnification against such risk or liability is not reasonably assured to it.

 

(k)           If,
with respect to any Rights Certificate surrendered to the Rights Agent for
exercise or transfer, the certificate attached to the form of assignment or
form of election to purchase, as the case may be, has either not been completed
or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights
Agent shall not take any further action with respect to such requested exercise
or transfer without first consulting with the Company.

 

21.           Change
of Rights Agent.  The Rights Agent or
any successor Rights Agent may resign and be discharged from its duties under
this Agreement upon thirty (30) days’ written notice mailed to the Company and
to each transfer agent of the Preferred Shares and the Common Stock by
registered or certified mail, and to the holders of the Rights Certificates by
first-class mail.  The Company may remove
the Rights Agent or any successor Rights Agent upon thirty (30) days’ written
notice, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Preferred Shares and the Common Stock by
registered or certified mail, and to the holders of the Rights Certificates by
first-class mail.  If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. 
If the Company shall fail to make such appointment within a period of
thirty (30) days after giving notice of such removal or after receiving written
notice of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit his or her Rights Certificate for inspection by the Company),
then the registered holder of any Rights Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights

 

30

 

Agent.  Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of any state of the United
States, in good standing, which is authorized under such laws to exercise
corporate trust or stockholder services powers and is subject to supervision or
examination by federal or state authority and which has at the time of its appointment
as Rights Agent a combined capital and surplus of at least U.S.$100
million.  After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose.  Not
later than the effective date of any such appointment, the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Preferred Shares and the Common Stock, and mail a written notice
thereof to the registered holders of the Rights Certificates.  Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.

 

22.           Issuance
of New Rights Certificates. 
Notwithstanding any of the provisions of this Agreement or of the Rights
to the contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Exercise Price and the number or kind
or class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement.  In addition, in connection with the issuance
or sale of shares of Common Stock following the Distribution Date and prior to
the redemption or expiration of the Rights, the Company (a) shall, with
respect to shares of Common Stock so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of other securities of the Company outstanding at the
date hereof or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company and (b) may, in any other case, if
deemed necessary or appropriate by the Board of Directors of the Company, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued and this sentence shall be null and void ab
initio if, and to the extent that, such issuance or this sentence would create
a significant risk of or result in material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued or would
create a significant risk of or result in such options’ or employee plans’ or
arrangements’ failing to qualify for otherwise available special tax treatment
and (ii) no such Rights Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in lieu of the
issuance thereof.

 

23.           Redemption.

 

(a)           The
Company may, at its option and with the approval of the Board of Directors, at
any time prior to the Close of Business on the earlier of (i) the close of
business on the tenth day following the Shares Acquisition Date and (ii) the
Final Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of U.S. $0.001 per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring

 

31

 

after
the date hereof (such redemption price being herein referred to as the “Redemption
Price”) and the Company may, at its option, pay the Redemption Price either
in shares of Common Stock (based on the Current Per Share Market Price thereof
at the time of redemption) or cash.  Such
redemption of the Rights by the Company may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish.  The date on
which the Board of Directors elects to make the redemption effective shall be
referred to as the “Redemption Date”.

 

(b)           Immediately
upon the action of the Board of Directors of the Company ordering the
redemption of the Rights, evidence of which shall have been filed with the
Rights Agent, and without any further action and without any notice, the right
to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price.  The Company shall promptly give public notice
of any such redemption; provided, however, that the failure to
give or any defect in, any such notice shall not affect the validity of such
redemption.  Within ten (10) days
after the action of the Board of Directors ordering the redemption of the
Rights, the Company shall give notice of such redemption to the Rights Agent
and the holders of the then outstanding Rights by mailing such notice to all
such holders at their last addresses as they appear upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the transfer agent for the Common Stock. 
Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice.  Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.  Neither the Company nor any of its Affiliates
or Associates may redeem, acquire or purchase for value any Rights at any time
in any manner other than that specifically set forth in this Section 23 or
in Section 24 hereof, and other than in connection with the purchase of
shares of Common Stock prior to the Distribution Date.

 

24.           Exchange.

 

(a)           Subject
to applicable laws, rules and regulations, and subject to subsection 24(c) below,
the Company may, at its option, by action of the Board of Directors, at any
time after the occurrence of a Triggering Event, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof)
for shares of Common Stock at an exchange ratio of one share of Common Stock
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the “Exchange Ratio”).  Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding
Common Stock for or pursuant to the terms of any such plan or an Exempted
Person), together with all Affiliates and Associates of such Person, becomes
the Beneficial Owner of 50% or more of the Common Stock then outstanding.

 

(b)           Immediately
upon the action of the Board of Directors ordering the exchange of any Rights
pursuant to Section 24(a) and without any further action and without
any notice, the right to exercise such Rights shall terminate and the only
right thereafter of a holder of such Rights shall be to receive that number of
shares of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio.  The
Company shall give

 

32

 

public
notice of any such exchange; provided, however, that the failure to give, or
any defect in, such notice shall not affect the validity of such exchange.  The Company shall mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent.  Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice.  Each such notice of exchange
will state the method by which the exchange of the shares of Common Stock for
Rights will be effected and, in the event of any partial exchange, the number
of Rights which will be exchanged.  Any
partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.

 

(c)           In
the event that there shall not be sufficient shares of Common Stock issued but
not outstanding or authorized but unissued to permit any exchange of Rights as
contemplated in accordance with Section 24(a), the Company shall either
take such action as may be necessary to authorize additional shares of Common
Stock for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay
cash in an amount equal to the Current Value (as hereinafter defined), in lieu
of issuing shares of Common Stock in exchange therefor, or (ii) issue debt
or equity securities or a combination thereof, having a value equal to the
Current Value, in lieu of issuing shares of Common Stock in exchange for each
such Right, where the value of such securities shall be determined by a
nationally recognized investment banking firm selected by majority vote of the
Board of Directors, or (iii) deliver any combination of cash, property,
shares of Common Stock and/or other securities having a value equal to the
Current Value in exchange for each Right. 
For purposes of this Section 24(c) only, the Current Value
shall mean the product of the Current Per Share Market Price of shares of
Common Stock on the date of the occurrence of the event described above in
subparagraph (a), multiplied by the number of shares of Common Stock for which
the Right otherwise would be exchangeable if there were sufficient shares
available.  To the extent that the
Company determines that some action need be taken pursuant to clauses (i), (ii) or
(iii) of this Section 24(c), the Board of Directors may temporarily
suspend the exercisability of the Rights for a period of up to sixty (60) days
following the date on which the event described in Section 24(a) shall
have occurred, in order to seek any authorization of additional shares of
Common Stock and/or to decide the appropriate form of distribution to be made
pursuant to the above provision and to determine the value thereof.  In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended.

 

(d)           The
Company shall not be required to issue fractions of shares of Common Stock or
to distribute certificates which evidence fractional shares of Common
Stock.  In lieu of such fractional shares
of Common Stock, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional shares of Common Stock would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole share of Common Stock (as determined pursuant
to the terms hereof).

 

(e)           The
Company may, at its option, by majority vote of the Board of Directors, at any
time before any Person has become an Acquiring Person, exchange all or part of
the then outstanding Rights for rights of substantially equivalent value, as
determined

 

33

 

reasonably
and with good faith by the Board of Directors, based upon the advice of one or
more nationally recognized investment banking firms.

 

(f)            Immediately
upon the action of the Board of Directors ordering the exchange of any Rights
pursuant to subsection 24(e) above and without any further action and
without any notice, the right to exercise such Rights shall terminate and the
only right thereafter of a holder of such Rights shall be to receive that
number of rights in exchange therefor as has been determined by the Board of
Directors in accordance with subsection 24(e) above.  The Company shall give public notice of any
such exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange.  The Company shall mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the transfer agent for the shares of Common
Stock of the Company.  Any notice which
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice.  Each
such notice of exchange will state the method by which the exchange of the
Rights will be effected.

 

25.           Notice
of Certain Events.

 

(a)           In
case the Company shall propose to effect or permit to occur any Triggering
Event or Section 13 Event, the Company shall give notice thereof to each
holder of Rights in accordance with Section 26 hereof at least twenty (20)
days prior to occurrence of such Triggering Event or such Section 13
Event.

 

(b)           In
case any Triggering Event or Section 13 Event shall occur, then, in any
such case, the Company shall as soon as practicable thereafter give to each
holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Sections 11(a)(ii) and
13 hereof.

 

26.           Notices.  Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any
Rights Certificate to or on the Company shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Rights Agent) as follows:

 

Alma Maritime Limited

Pandoras 13

Glyfada 16672

Athens, Greece

Attention:  Chief Executive Officer

 

with a copy to:

 

Morgan, Lewis & Bockius LLP

101 Park Avenue

New York, New York 10178

Attention:  Stephen P. Farrell

 

34

 

Subject to the provisions of Section 21 hereof, any notice or
demand authorized by this Agreement to be given or made by the Company or by
the holder of any Rights Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:

 

American Stock Transfer & Trust Company,
LLC

59 Maiden Lane

New York, New York 10038

 

Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Rights Certificate shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.

 

27.           Supplements
and Amendments.  Prior to the
occurrence of a Distribution Date, the Company may supplement or amend this
Agreement in any respect without the approval of any holders of Rights and the
Rights Agent shall, if the Company so directs, execute such supplement or
amendment.  From and after the occurrence
of a Distribution Date, the Company and the Rights Agent may from time to time
supplement or amend this Agreement without the approval of any holders of
Rights in order to (i) cure any ambiguity or omission, (ii) correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) shorten or lengthen
any time period hereunder or (iv) to change or supplement the provisions
hereunder in any manner that the Company may deem necessary or desirable and
that shall not adversely affect the interests of the holders of Rights (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period relating
to when the Rights may be redeemed at such time as the Rights are not then
redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person). 
Upon the delivery of a certificate from an appropriate officer of the
Company that states that the proposed supplement or amendment is in compliance
with the terms of this Section 27, the Rights Agent shall execute such
supplement or amendment.  Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of shares of Common Stock.

 

28.           Successors.  All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

 

29.           Determinations
and Actions by the Board of Directors, etc. 
For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
General Rules and Regulations under the Exchange Act.  The Board of Directors of the Company shall
have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board, or the
Company, or as may be necessary or advisable in the

 

35

 

administration
of this Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the
Agreement).  All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) which are
done or made by the Board in good faith, shall (x) be final, conclusive
and binding on the Company, the Rights Agent, the holders of the Rights
Certificates and all other parties and (y) not subject the Board to any
liability to the holders of the Rights.

 

30.           Benefits
of this Agreement.  Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, the shares of Common Stock) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for
the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, the shares of Common Stock).

 

31.           Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant or restriction
is held by such court or authority to be invalid, void or unenforceable and the
Board of Directors of the Company determines in its good faith judgment that
severing the invalid language from this Agreement would adversely affect the
purpose or effect of this Agreement, the right of redemption set forth in Section 23
hereof shall be reinstated and shall not expire until the Close of Business on
the tenth day following the date of such determination by the Board of
Directors.

 

32.           Governing
Law.  This Agreement and each Right
and each Rights Certificate issued hereunder shall be deemed to be a contract
made under the laws of New York and for all purposes shall be governed by and
construed in accordance with the laws of such jurisdiction applicable to
contracts to be made and performed entirely within such jurisdiction.

 

33.           Counterparts.  This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.

 

34.           Descriptive
Headings.  Descriptive headings of
the several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.

 

REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK

 

36

 

IN WITNESS WHEREOF, the parties have executed this Stockholders Rights
Agreement as of the date first written above.

 

	
   

  	
  ALMA MARITIME LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AMERICAN STOCK TRANSFER & TRUST
  COMPANY, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

[Signature
Page to Stockholders Rights Agreement]

 

 

Exhibit A

 

STATEMENT OF DESIGNATION OF RIGHTS,
PREFERENCES AND PRIVILEGES OF SERIES A PARTICIPATING PREFERRED STOCK OF ALMA
MARITIME LIMITED

 

The undersigned, Stamatis Molaris  and Stewart
Crawford do hereby certify:

 

1.                             That
they are the duly elected and acting Chief Executive Officer and Secretary,
respectively, of Alma Maritime Limited, a Marshall Islands corporation (the “Company”).

 

2.                             That
pursuant to the authority conferred by the Company’s Amended and Restated
Articles of Incorporation to be effective following the sale to the
underwriters of the number of firm shares stated in the final prospectus
related to this Company’s initial public offering of Common Stock (the “Consummation
of the Initial Public Offering”), the Company’s Board of Directors on March 23,
2010 adopted, effective upon Consummation of the Initial Public Offering, the
following resolution designating and prescribing the relative rights,
preferences and limitations of the Company’s Series A Participating
Preferred Stock:

 

RESOLVED, that pursuant to the authority vested in the Board of
Directors (the “Board”) of the Company by the Articles of Incorporation,
the Board hereby establishes a series of preferred stock, par value U.S. $0.001
per share, and fixes the designation and certain powers, preferences and other
special rights of the shares of such series, and certain qualifications,
limitations and restrictions thereon, as follows:

 

“Section 1.             Designation
and Amount.  The shares of such
series shall be designated as “Series A Participating Preferred Stock”.  The Series A Participating Preferred
Stock shall have a par value of U.S. $0.001 per share, and the number of shares
constituting such series shall initially be 1,000,000, which number the Board
may from time to time increase or decrease (but not below the number then
outstanding).

 

Section 2.               Proportional
Adjustment.  In the event the Company
shall at any time after the issuance of any share or shares of Series A
Participating Preferred Stock (i) declare any dividend on the Common Stock
of the Company, par value U.S. $0.001 per share (the “Common Stock”),
payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock or (iii) combine the outstanding Common Stock into a smaller number
of shares, then in each such case the Company shall simultaneously effect a
proportional adjustment to the number of outstanding shares of Series A
Participating Preferred Stock.

 

Section 3.               Dividends
and Distributions.

 

(a)           Subject to the prior
and superior right of the holders of any shares of any series of preferred
stock ranking prior and superior to the shares of Series A Participating
Preferred Stock with respect to dividends, the holders of shares of Series A
Participating Preferred Stock shall be entitled to receive when, as and if
declared by the Board out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December in
each year (each such date being referred to herein as a “Quarterly Dividend
Payment Date”), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares

 

A-1

 

of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating
Preferred Stock.

 

(b)           The Company shall
declare a dividend or distribution on the Series A Participating Preferred
Stock as provided in paragraph (a) above immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock).

 

(c)           Dividends shall
begin to accrue on outstanding shares of Series A Participating Preferred
Stock from the Quarterly Dividend Payment Date immediately preceding the date
of issue of such shares of Series A Participating Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date.  Accrued but unpaid dividends shall not bear
interest.  Dividends paid on the shares
of Series A Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares at the
time outstanding.  The Board may fix a
record date for the determination of holders of shares of Series A
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.

 

Section 4.               Voting
Rights.  The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:

 

(d)           Each share of Series A
Participating Preferred Stock shall entitle the holder thereof to 1,000 votes
on all matters submitted to a vote of the stockholders of the Company.

 

(e)           Except as otherwise
provided herein or required by law, the holders of shares of Series A
Participating Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of stockholders
of the Company.

 

(f)            Except as otherwise
provided herein or required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.

 

A-2

 

Section 5.               Certain
Restrictions.

 

(a)           The Company shall
not declare any dividend on, make any distribution on, or redeem or purchase or
otherwise acquire for consideration any shares of Common Stock after the first
issuance of a share or fraction of a share of Series A Participating
Preferred Stock unless concurrently therewith it shall declare a dividend on,
make a distribution on, or redeem or purchase or otherwise acquire for
consideration the Series A Participating Preferred Stock as required by Section 3
hereof.

 

(b)           Whenever quarterly
dividends or other dividends or distributions payable on the Series A
Participating Preferred Stock as provided in Section 3 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series A Participating Preferred
Stock outstanding shall have been paid in full, the Company shall not (i) declare
or pay dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the Series A
Participating Preferred Stock; (ii) declare or pay dividends on, make any
other distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with Series A
Participating Preferred Stock, except dividends paid ratably on the Series A
Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders
of all such shares are then entitled; (iii) redeem or purchase or
otherwise acquire for consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
the Series A Participating Preferred Stock, provided that the Company may
at any time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Company ranking junior (either
as to dividends or upon dissolution, liquidation or winding up) to the Series A
Participating Preferred Stock; (iv) purchase or otherwise acquire for
consideration any shares of Series A Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Participating
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board) to all holders of such shares upon
such terms as the Board, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.

 

(c)           The Company shall
not permit any subsidiary of the Company to purchase or otherwise acquire for
consideration any shares of stock of the Company unless the Company could,
under paragraph (a) of this Section 5, purchase or otherwise acquire
such shares at such time and in such manner.

 

Section 6.               Reacquired
Shares.  Any shares of Series A
Participating Preferred Stock purchased or otherwise acquired by the Company in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof.  All such shares
shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board, subject to the
conditions and restrictions on issuance set forth herein and, in the Articles
of Incorporation, as then amended.

 

A-3

 

Section 7.               Liquidation,
Dissolution or Winding Up.  Upon any
liquidation, dissolution or winding up of the Company, the holders of shares of
Series A Participating Preferred Stock shall be entitled to receive an
aggregate amount per share equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock plus an amount equal
to any accrued and unpaid dividends on such shares of Series A
Participating Preferred Stock.

 

Section 8.               Consolidation,
Merger, etc.  In case the Company
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to 1,000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged.

 

Section 9.               No
Redemption.  The shares of Series A
Participating Preferred Stock shall not be redeemable.

 

Section 10.             Ranking.  The Series A Participating Preferred
Stock shall rank junior to all other series of the Company’s preferred stock as
to the payment of dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.

 

Section 11.             Amendment.  The Articles of Incorporation of the Company
shall not be further amended in any manner which would materially alter or
change the powers, preference or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority of the outstanding shares of Series A
Participating Preferred Stock, voting separately as a class.

 

Section 12.             Fractional
Shares.  Series A Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder’s fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Participating Preferred Stock.”

 

RESOLVED FURTHER, that the Board hereby authorizes and directs the
President or any Vice President and the Secretary or any Assistant Secretary of
this Company to prepare and file a Statement of Designation of Rights,
Preferences and Privileges in accordance with the foregoing resolution and the
provisions of Marshall Islands law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution.

 

REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK

 

A-4

 

We further declare, under penalty of perjury, that the foregoing
Statement of Designation is the act and deed of the Company and that the facts
stated therein are true and correct.

 

Executed
at                               
on March    , 2010.

 

 

	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Stamatis Molaris

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Stewart Crawford

  
	
   

  	
  Title:

  	
  Chief Financial Officer and Secretary

  

 

A-5

 

Exhibit B

 

FORM OF RIGHTS CERTIFICATE

 

B-1

 

Exhibit C

 

SUMMARY
OF RIGHTS

 

	
  Distribution and Transfer of Rights:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Distribution Date:

  	
   

  	
  The rights will separate from the common stock and become exercisable
  after (1) the 10th day after a person or group acquires ownership of 15%
  or more of the company’s common stock or (2) the 10th business day (or
  such later date as determined by the company’s board of directors) after a
  person or group announces a tender or exchange offer which would result in
  that person or group holding 15% or more of the company’s common stock

  
	
   

  	
   

  	
   

  
	
  Preferred Stock Purchaseable Upon Exercise of Rights:

  	
   

  	
  On the Distribution Date, each holder of a right will be entitled to
  purchase for an amount equal to three and one-half (3.5) times the public
  offering price in the initial public offering of the company’s common stock,
  par value, in the initial public offering of common stock Registered under
  the U.S. Securities Act of 1933 (the “Exercise
  Price”) a fraction (1/1000th) of one share of the company’s preferred
  stock which has similar economic terms as one share of common stock.

  
	
   

  	
   

  	
   

  
	
  Flip-in:

  	
   

  	
  If an acquiring person (an “Acquiring Person”) acquires more
  than 15% of the company’s common stock then each holder of a right (except
  that acquiring person) will be entitled to buy at the Exercise Price, a
  number of shares of the company’s common stock which has a then current market
  value of twice the Exercise Price.

  
	
   

  	
   

  	
   

  
	
  Flip-over:

  	
   

  	
  If after an Acquiring Person acquires more than 15% of the company’s
  common stock, the company merges into another company (either as the
  surviving corporation or as the disappearing entity) or the company sells
  more than 50% of its assets or earning power, then each holder of a right
  (except for those owned by the Acquiring Person) will be entitled to purchase
  at the Exercise Price, a number of shares of common stock of the surviving
  entity which has a then current market value of twice the Exercise Price.

  
	
   

  	
   

  	
   

  
	
  Exchange Provision:

  	
   

  	
  Any time after the date an Acquiring Person obtains more than 15% of
  the company’s common stock and before that Acquiring Person acquires more
  than 50% of the company’s outstanding common stock, the company may exchange
  each right owned

   

  

 

C-1

 

	
   

  	
   

  	
  by all other rights holders, in whole or in part, for one share of
  the company’s common stock.

  
	
   

  	
   

  	
   

  
	
  Redemption of Rights:

  	
   

  	
  The company can redeem the rights at any time prior to a public
  announcement that a person has acquired ownership of 15% or more of the
  company’s common stock.

  
	
   

  	
   

  	
   

  
	
  Expiration of Rights:

  	
   

  	
  The rights expire on the earliest of (1) March 23, 2020 or
  (2) the exchange or redemption of the rights as described above.

  
	
   

  	
   

  	
   

  
	
  Amendment of Terms of Rights:

  	
   

  	
  The terms of the rights and the Stockholder Rights Plan may be
  amended without the consent of the rights holders at any time on or prior to
  the Distribution Date. After the Distribution Date, the terms of the rights
  and the Stockholder Rights Plan may be amended to make changes, which do not
  adversely affect the rights of the rights holders (other than the Acquiring
  Person).

  
	
   

  	
   

  	
   

  
	
  Voting Rights:

  	
   

  	
  The rights will not have any voting rights.

  
	
   

  	
   

  	
   

  
	
  Anti-dilution Provisions:

  	
   

  	
  The rights will have the benefit of certain customary anti-dilution
  protection.

  

 

C-2Exhibit 10.20

 

AXT, INC.

RESTRICTED STOCK AGREEMENT

 

AXT, Inc. has granted
to the Participant named in the Notice of
Grant of Restricted Stock Award (the “Grant Notice”) to which this
Restricted Stock Agreement (together with the Grant Notice, the “Agreement”) is
attached an Award consisting of Shares subject to the terms and conditions set
forth in the Grant Notice and this Agreement. The Award has been granted
pursuant to and shall in all respects be subject to the terms and conditions of
the AXT, Inc. 2007 Equity Incentive Plan (the “Plan  ”),
as amended to the Date of Grant, the provisions of which are incorporated
herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges
receipt of and represents that the Participant has read and is familiar with
the Grant Notice, this Agreement, the Plan and a prospectus for the Plan in the
form most recently registered with the Securities and Exchange Commission (the “Plan Prospectus
”), (b) accepts the Award subject to all of the terms and conditions
of the Grant Notice, this Agreement and the Plan, and (c) agrees to accept
as binding, conclusive and final all decisions or interpretations of the
Committee upon any questions arising under the Grant Notice, this Agreement or
the Plan.

 

1.                                       DEFINITIONS
AND CONSTRUCTION.

 

1.1.                              Definitions. Unless
otherwise defined in the Grant Notice, defined terms not explicitly defined in
this Agreement but defined in the Plan shall have the same definitions as in
the Plan.

 

1.2.                              Construction. Captions and
titles contained herein are for convenience only and shall not affect the
meaning or interpretation of any provision of this Agreement. Except when
otherwise indicated by the context, the singular shall include the plural and
the plural shall include the singular. Use of the term “or” is not intended to
be exclusive, unless the context clearly requires otherwise.

 

2.                                      ADMINISTRATION.

 

All questions of
interpretation concerning the Grant Notice and this Agreement shall be
determined by the Committee. All determinations by the Committee shall be final
and binding upon all persons having an interest in the Award. Any Officer shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, or election which is the responsibility of or which is
allocated to the Company herein, provided the Officer has apparent authority
with respect to such matter, right, obligation, or election.

 

3.                                      THE
AWARD.

 

3.1.                              Grant
and Issuance of Shares. On the Date of Grant, the Participant will acquire
and the Company will issue, subject to the provisions of this Agreement, a
number of Shares equal to the Total Number of Shares set forth in the Grant
Notice. As a condition to the issuance of the Shares, the Participant shall
execute and deliver to the Company along with the 

 

 

Grant Notice (a) the
Joint Escrow Instructions in the form attached to the Grant Notice and (b) the
Assignment Separate from Certificate duly endorsed (with date and number of
shares blank) in the form attached to the Grant Notice.

 

3.2.                              No
Monetary Payment Required. The Participant is not required to make any
monetary payment (other than applicable tax withholding, if any) as a condition
to receiving the Shares, the consideration for which shall be past services
actually rendered and/or future services to be rendered to the Company or for
its benefit.

 

3.3.                              Certificate
Registration. The certificate for the Shares shall be registered
in the name of the Participant, or, if applicable, in the names of the heirs of
the Participant.

 

3.4.                              Issuance
of Shares in Compliance with Law. The issuance of the Shares
shall be subject to compliance with all applicable requirements of federal,
state or foreign law with respect to such securities. No Shares shall be issued
hereunder if their issuance would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Stock may
then be listed. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company’s legal
counsel to be necessary to the lawful issuance of any Shares shall relieve the
Company of any liability in respect of the failure to issue such Shares as to
which such requisite authority shall not have been obtained. As a condition to
the issuance of the Shares, the Company may require the Participant to satisfy
any qualifications that may be necessary or appropriate, to evidence compliance
with any applicable law or regulation and to make any representation or
warranty with respect thereto as may be requested by the Company.

 

4.                                       VESTING
CONDITIONS.

 

4.1.                              Normal
Vesting. Except as provided in Section 4.2, the Shares shall vest and
become Vested Shares as provided in the Grant Notice. No additional Shares will
become Vested Shares following the Participant’s termination of Service for any
reason. Shares that are not Vested Shares (“Un vested Shares”) shall be subject to the reacquisition rights set forth in
Section 5.1 below.

 

4.2.                              Acceleration
of Vesting Upon a Change in Control. In the event of a Change
in Control, the Participant shall be fully and immediately vested in one hundred percent (100%) of the Shares subject to this Award
on the effective date of the Change in Control, so long as the Participant’s
Service has not terminated prior to the effective date of the Change in
Control. The vesting of any Shares and the lapsing of the Company Reacquisition
Right as to any Shares solely by reason of this Section 4.2 shall be
conditioned upon the consummation of the Change in Control.

 

5.                                       COMPANY
REACQUISITION RIGHT.

 

5.1.                              Grant
of Company Reacquisition Right. In the event that (a) the
Participant’s Service terminates for any reason or no reason, with or without
cause, or (b) the 

 

 

Participant, the Participant’s
legal representative, or other holder of the Shares, attempts to sell, exchange,
transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership
Change Event), including, without limitation, any transfer to a nominee or
agent of the Participant, any Unvested Shares, the Company shall automatically
reacquire the Unvested Shares (the number of which shall be determined as of
the earlier to occur of either the event described above in clause (a) or
the event described above in clause (b)), and the Participant shall not be
entitled to any payment therefor (the “Company Reacquisition Right”).

 

5.2.                              Ownership
Change Event. Upon the occurrence of an Ownership Change Event,
any and all new, substituted or additional securities or other property to
which the  Participant is entitled by reason of the Participant’s ownership of
Unvested Shares shall be  Immediately subject to the Company
Reacquisition Right and included in the terms “Shares,”  “Stock,” and “Unvested
Shares” for all purposes of the Company Reacquisition Right with the  same force and
effect as the Unvested Shares immediately prior to the Ownership Change Event.  

 

6.                                       TAX
MATTERS.

 

6.1.                           Tax
Withholding. At the time the Grant Notice is executed, or at
any time thereafter as requested by the Company, the Participant hereby
authorizes withholding from any amounts payable to the Participant, and
otherwise agrees to make adequate provision for, any sums required to satisfy
the federal, state, local and foreign tax withholding obligations of the
Company, if any, which arise in connection with the Award, including, without
limitation, obligations arising upon (a) the transfer of Shares to the
Participant, (b) the lapsing of any Vesting Conditions with respect to any
Shares, (c) the filing of an election to recognize tax liability, or (d) the
transfer by the Participant of any Shares. The Company shall have no obligation
to deliver the Shares or to release any Shares from an escrow established
pursuant to this Agreement until the tax withholding obligations of the Company
have been satisfied by the Participant.

 

6.2.                              Election
Under Section 83(b) of the Code.

 

(a)                                  The Participant
understands that Section 83 of the Code taxes as ordinary income the
difference between the amount paid for the Shares, if anything, and the fair market
value of the Shares as of the date on which the Shares are “substantially
vested,” within the meaning of Section 83. In this context, “substantially
vested” means that the right of the Company to reacquire the Shares pursuant to
the Company Reacquisition Right has lapsed. The Participant understands that he
or she may elect to have his or her taxable income determined at the time he or
she acquires the Shares rather than when and as the Company Reacquisition Right
lapses by filing an election under Section 83(b) of the Code with the
Internal Revenue Service no later than thirty (30) days after the date of
acquisition of the Shares. The Participant understands that failure to make a
timely filing under Section 83(b) will result in his or her
recognition of ordinary income, as the Company Reacquisition Right lapses, on
the difference between the purchase price, if anything, and the fair market
value of the Shares at the time such restrictions lapse, The Pm1icipant further
understands, however, that if Shares with respect to which an election under Section 83(b) has
been made are forfeited to the Company pursuant to its Company Reacquisition
Right, such forfeiture will be treated as a sale on which there is realized

 

 

a loss equal to the excess (if any) of the amount paid (if any) by the
Participant for the forfeited Shares over the amount realized (if any) upon
their forfeiture. If the Participant has paid nothing for the forfeited Shares
and has received no payment upon their forfeiture, the Participant understands
that he or she will be unable to recognize any loss on the forfeiture of the
Shares even though the Participant incurred a tax liability by making an
election under Section 83(b).

 

(b)                                 The Participant
understands that he or she should consult with his or her tax advisor regarding
the advisability of filing with the Internal Revenue Service an election under Section 83(b) of
the Code, which must be filed no later than thirty (30) days after the date of
the acquisition of the Shares pursuant to this Agreement. Failure to file an
election under Section 83(b), if appropriate, may result in adverse tax
consequences to the Participant. The Participant acknowledges that he or she
has been advised to consult with a tax advisor regarding the tax consequences
to the Participant of the acquisition of Shares hereunder. ANY ELECTION UNDER SECTION 83(b) THE
PARTICIPANT WISHES TO MAKE MUST BE FILED NO LATER THAN 30 DAYS AFTER THE DATE
ON WHICH THE PARTICIPANT ACQUIRES THE SHARES. THIS TIME PERIOD CANNOT BE
EXTENDED. THE PARTICIPANT ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION
IS THE PARTICIPANT’S SOLE RESPONSIBILITY, EVEN IF THE PARTICIPANT REQUESTS THE
COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.

 

(c)                                  The Participant
will notify the Company in writing if the Participant files an election
pursuant to Section 83(b) of the Code. The Company intends, in the
event it does not receive from the Participant evidence of such filing, to
claim a tax deduction for any amount which would otherwise be taxable to the
Participant in the absence of such an election.

 

7.                                       ESCROW.

 

7.1.                              Establishment
of Escrow.  To ensure
that Shares subject to the Company Reacquisition Right will be available for
reacquisition, the Participant agrees to deliver to and deposit with an escrow
agent designated by the Company the ‘certificate evidencing the Shares,
together with an Assignment Separate from Certificate with respect to such
certificate duly endorsed (with date and number of shares blank) in the form
attached to the Grant Notice, to be held by the agent under the terms and
conditions of the Joint Escrow Instructions in the form attached to the Grant
Notice (the “Escrow”).
The Company shall bear the expenses of the Escrow.

 

7.2.                              Delivery
of Shares to Participant. The Company shall, to the extent described
in the Joint Escrow Instructions, give to the escrow agent a written notice
directing the escrow agent to deliver such Shares to the Participant. As soon
as practicable after receipt of such notice, the escrow agent shall deliver to
the Participant the Shares specified in such notice, and the Escrow shall terminate
with respect to such Shares.

 

 

8.                                       ADJUSTMENTS
FOR CHANGES IN CAPITAL STRUCTURE.

 

In the event of any stock
dividend, stock split, reverse stock split, recapitalization, merger, combination,
exchange of shares, reclassification, or similar change in the capital structure
of the Company, appropriate adjustments shall be made in the number and class
of shares subject to this Agreement. Any and all new, substituted or additional
securities or other property to which Participant is entitled by reason of his
or her ownership of the Shares will be immediately subject to the provisions of
this Agreement and the Escrow on the same basis as all Shares originally
acquired hereunder and will be included in the terms “Shares” and “Stock” for
all purposes of this Agreement and the Escrow with the same force and effect as
the Shares presently subject thereto. The adjustments determined by the Board
pursuant to this Section 7 shall be final, binding and conclusive.

 

9.                                       LEGENDS.

 

The Company may at any time
place legends referencing the Company Reacquisition Right and any applicable
federal, state or foreign securities law restrictions on all certificates
representing the Shares. The Pm1icipant shall, at the request of the Company, promptly
present to the Company any and all certificates representing the Shares in the possession
of the Participant in order to carry out the provisions of this Section.

 

10.                                 TRANSFERS
IN VIOLATION OF AGREEMENT.

 

No Shares may be sold,
exchanged, transferred (including, without limitation, any transfer to a
nominee or agent of the Pm1icipant), assigned, pledged, hypothecated or
otherwise disposed of, including by operation of law, in any manner which
violates any of the provisions of this Agreement and, except pursuant to an
Ownership Change Event, until the date on which such shares become Vested
Shares, and any such attempted disposition shall be void. The Company shall not
be required (a) to transfer on its books any Shares which will have been transferred
in violation of any of the provisions set forth in this Agreement or (b) to
treat as owner of such Shares or to accord the right to vote as such owner or
to pay dividends to any transferee to whom such Shares will have been so
transferred. In order to enforce its rights under this Section, the Company
shall be authorized to give a stop trm1sfer instruction with respect to the Shares
to the Company’s transfer agent.

 

11.                                 RIGHTS
AS A STOCKHOLDER.

 

The Participant shall have
no rights as a stockholder with respect to any Shares subject to the Award
until the date of the issuance of a certificate for such Shares (as evidenced by
the appropriate entry on the books of the Compm1Y or of a duly authorized
transfer agent of the Company). No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Section 7. Subject to
the provisions of this Agreement, the Participant shall be entitled to all rights
and privileges of a stockholder of the Company with respect to Shares deposited
in the Escrow pursuant to Section 6.

 

 

12.                                 RIGHT
TO CONTINUED SERVICE WITH THE COMPANY.

 

Nothing in this Agreement
shall confer upon the Participant any right to continue in the Service of a
Participating Company or interfere in any way with any right of the Participating
Company Group to terminate the Participant’s Service at any time.

 

13.                                 MISCELLANEOUS
PROVISIONS.

 

13.1.                        Amendment. The Board may
terminate or amend the Plan or this Agreement at any time; provided, however,
that except as provided in Section 4 in connection with a Change in Control,
no such termination or amendment may adversely affect the Participant’s rights
under this Agreement unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Agreement shall be effective unless in writing.
Notwithstanding any other provision of this Agreement to the contrary, the
Board may, in its sole and absolute discretion and without the consent of the
Participant, amend this Agreement, to take effect retroactively or otherwise,
as it deems necessary or advisable for the purpose of conforming this Agreement
to any present or future law, regulation or rule applicable to this
Agreement, including, but not limited to, Section 409 A of the Code and
all applicable guidance promulgated thereunder.

 

13.2.                        Nontransferability
of the Award. The right to acquire Shares pursuant to the Award
may not be assigned or transferred in any manner except by will or by the laws
of descent and distribution. During the lifetime of the Participant, all rights
with respect to this Award shall be exercisable only by the Participant.

 

13.3.                        Further
Instruments. The parties hereto agree to execute such further instruments
and to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.

 

13.4.                        Binding
Effect. Subject to the restrictions on transfer set forth herein, this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their respective
heirs, executors, administrators, successors and assigns.

 

13.5.                        Delivery
of Documents and Notices. Any document relating to participation in
the Plan or any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this Agreement
provides for effectiveness only upon actual receipt of such notice) upon
personal delivery, electronic delivery at the e-mail address, if any, provided
for the Participant by a Participating Company, or upon deposit in the U.S.
Post Office or foreign postal service, by registered or certified mail, or with
a nationally recognized overnight courier service, with postage and fees
prepaid, addressed to the other party at the address of such party set forth in
the Grant Notice or at such other addressed as such party may designate in
writing from time to time to the other party.

 

(a)                                  Description
of Electronic Delivery. The Plan documents, which may include but
do not necessarily include: the Plan, the Grant Notice, this Agreement, the Plan
Prospectus, and any reports of the Company provided generally to the Company’s
stockholders, 

 

 

may be delivered to the
Participant electronically. Such means of electronic delivery may include but
do not necessarily include the delivery of a link to a Company intranet or the
internet site of a third party involved in administering the Plan, the delivery
of the document via e-mail or such other means of electronic delivery specified
by the Company.

 

(b)                                 Consent
to Electronic Delivery. The Participant acknowledges that the
Participant has read Section 13.5(a) of this Agreement and
consents to the electronic delivery of the Plan documents, as described in Section 13.5(a).
The Participant acknowledges that he or she may receive from the Company a
paper copy of any documents delivered electronically at no cost to the
Participant by contacting the Chief Financial Officer of the Company by
telephone or in writing. The Participant further acknowledges that the
Participant will be provided with a paper copy of any documents if the
attempted electronic delivery of such documents fails. Similarly, the
Participant understands that the Participant must provide the Company or any
designated third party administrator with a paper copy of any documents if the attempted
electronic delivery of such documents fails. The Participant may revoke his or
her consent to the electronic delivery of documents described in Section 13.S(a) or
may change the electronic mail address to which such documents are to be
delivered (if Participant has provided an electronic mail address) at any time
by notifying the Company of such revoked consent or revised e-mail address by
telephone, postal service or electronic mail. Finally, the Participant understands
that he or she is not required to consent to electronic delivery of documents
described in Section 13.5(a).

 

13.6.                        Integrated
Agreement. The Grant Notice, this Agreement and the Plan, together
with any employment, service or other agreement between the Participant and a Participating
Company referring to the Award, shall constitute the entire understanding and agreement
of the Participant and the Participating Company Group with respect to the
subject matter contained herein and supersede any prior agreements,
understandings, restrictions, representations, or warranties among the Participant
and the Participating Company Group with respect to such subject matter. To the
extent contemplated herein, the provisions of the Grant Notice, the Agreement
and the Plan shall remain in full force and effect at all times in respect of this
Award.

 

13.7.                        Applicable
Law. This Agreement shall be governed by the laws of the State of Delaware
as such laws are applied to agreements between Delaware residents entered into
and to be performed entirely within the State of Delaware.

 

13.8.                        Counterparts. The Grant
Notice may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.

 

 

	
  Accepted by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  

 

 

AXT, INC.

STOCK
OPTION AGREEMENT

 

AXT, Inc. has
granted to the individual (the “Optionee”)
named in the Notice of Grant of Stock Option
(the “Notice”)
to which this Stock Option Agreement (the “Option
Agreement”) is attached an option (the “Option”) to purchase certain
shares of Stock upon the terms and conditions set forth in the Notice and this
Option Agreement.  The Option has been
granted pursuant to and shall in all respects be subject to the terms and
conditions of the AXT, Inc. 2007 Equity Incentive Plan as set forth in the
Notice (the “Plan”),
as amended to the Date of Option Grant, the provisions of which are
incorporated herein by reference.  By
signing the Notice, the Optionee: (a) represents that the Optionee has
read and is familiar with the terms and conditions of the Notice, the Plan and
this Option Agreement, including the Effect of Termination of Service set forth
in Section 7, (b) accepts the Option subject to all of the terms and
conditions of the Notice, the Plan and this Option Agreement, (c) agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board upon any questions arising under the Notice, the Plan or this Option
Agreement, and (d) acknowledges receipt of a copy of the Notice, the Plan
and this Option Agreement.

 

1.             DEFINITIONS
AND CONSTRUCTION.

 

1.1           Definitions. 
Unless otherwise defined herein, capitalized terms shall have the
meanings assigned to such terms in the Notice or the Plan.

 

1.2           Construction. 
Captions and titles contained herein are for convenience only and shall
not affect the meaning or interpretation of any provision of this Option
Agreement.  Except when otherwise
indicated by the context, the singular shall include the plural and the plural shall
include the singular.  Use of the term “or”
is not intended to be exclusive, unless the context clearly requires otherwise.

 

2.             TAX
CONSEQUENCES.

 

2.1           Tax Status of Option.  This Option is intended to have the tax
status designated in the Notice.

 

(a)           Incentive Stock Option.  If the Notice
so designates, this Option is intended to be an Incentive Stock Option within
the meaning of Section 422(b) of the Code, but the Company does not
represent or warrant that this Option qualifies as such.  The Optionee should consult with the Optionee’s own tax advisor regarding the tax
effects of this Option and the requirements necessary to obtain favorable
income tax treatment under Section 422 of the Code, including, but not
limited to, holding period requirements. 
(NOTE TO OPTIONEE: If the Option is exercised more than three (3) months
after the date on which you cease to be an Employee (other than by reason of
your death or permanent and total disability as defined in Section 22(e)(3) of
the Code), the Option will be treated as a Nonstatutory Stock Option and not as
an Incentive Stock Option to the extent required by Section 422 of the
Code.)

 

1

 

(b)           Nonstatutory Stock Option. 
If the Notice so designates, this Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of Section 422(b) of the Code.

 

2.2           ISO Fair Market Value Limitation.  If the Notice designates this Option as an Incentive Stock Option,
then to the extent that the Option (together with all Incentive Stock Options
granted to the Optionee under all stock option plans of the Participating
Company Group, including the Plan) becomes exercisable for the first time
during any calendar year for shares having a Fair Market Value greater than One
Hundred Thousand Dollars ($100,000), the portion of such options which exceeds
such amount will be treated as Nonstatutory Stock Options.  For purposes of this Section 2.2,
options designated as Incentive Stock Options are taken into account in the
order in which they were granted, and the Fair Market Value of stock is
determined as of the time the option with respect to such stock is
granted.  If the Code is amended to
provide for a different limitation from that set forth in this Section 2.2,
such different limitation shall be deemed incorporated herein effective as of
the date required or permitted by such amendment to the Code.  If the Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of
the limitation set forth in this Section 2.2, the Optionee may designate
which portion of such Option the Optionee is exercising.  In the absence of such designation, the
Optionee shall be deemed to have exercised the Incentive Stock Option portion
of the Option first.  Separate
certificates representing each such portion shall be issued upon the exercise
of the Option.  (NOTE TO OPTIONEE: If the
aggregate Exercise Price of the Option (that is, the Exercise Price multiplied
by the Number of Option Shares) plus the aggregate exercise price of any other
Incentive Stock Options you hold (whether granted pursuant to the Plan or any
other stock option plan of the Participating Company Group) is greater than
$100,000, you should contact the Chief Financial Officer of the Company to
ascertain whether the entire Option qualifies as an Incentive Stock Option.)

 

3.             ADMINISTRATION.

 

All questions of
interpretation concerning this Option Agreement shall be determined by the Committee.  All determinations by the Committee shall be
final and binding upon all persons having an interest in the Option.  Any Officer shall have the authority to act
on behalf of the Company with respect to any matter, right, obligation, determination
or election which is the responsibility of or which is allocated to the Company
herein, provided the Officer has apparent authority with respect to such
matter, right, obligation, determination or election.

 

4.             EXERCISE
OF THE OPTION.

 

4.1           Right to Exercise.  Except as otherwise provided herein, the Option shall
be exercisable on and after the Date of Option Grant (or if later, the Optionee’s
Service commencement date) and prior to the termination of the Option (as
provided in Section 6) in an amount not to exceed the number of Vested
Shares less the number of shares previously acquired upon exercise of the
Option.

 

4.2           Method of Exercise.  Exercise of the Option shall be by electronic
or written notice (the “Exercise Notice”)
in a form authorized by the Company.  An
electronic Exercise Notice must be digitally signed or authenticated by the
Optionee in such manner as 

 

2

 

required by the
notice and transmitted to the Company or an authorized representative of the
Company (including a third-party administrator designated by the Company).  In the event that the Optionee is not
authorized or is unable to provide an electronic Exercise Notice, the Option
shall be exercised by a written Exercise Notice addressed to the Company, which
shall be signed by the Optionee and delivered in person, by certified or
registered mail, return receipt requested, by confirmed facsimile transmission,
or by such other means as the Company may permit, to the Company, or an
authorized representative of the Company (including a third-party administrator
designated by the Company).  Each
Exercise Notice, whether electronic or written, must state the Optionee’s
election to exercise the Option, the number of whole shares of Stock for which
the Option is being exercised and such other representations and agreements as
to the Optionee’s investment intent with respect to such shares as may be
required pursuant to the provisions of this Option Agreement.  Further, each Exercise Notice must be
received by the Company prior to the termination of the Option as set forth in Section 6
and must be accompanied by full payment of the aggregate Exercise Price for the
number of shares of Stock being purchased. 
The Option shall be deemed to be exercised upon receipt by the Company
of such electronic or written Exercise Notice and the aggregate Exercise Price.

 

4.3           Payment of Exercise Price.

 

(a)           Forms of Consideration
Authorized.  Except as otherwise provided below, payment
of the aggregate Exercise Price for the number of shares of Stock for which the
Option is being exercised shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company, or attestation to the
ownership, of whole shares of Stock owned by the Optionee having a Fair Market
Value (as determined by the Company without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less
than the aggregate Exercise Price, (iii) by means of a Cashless Exercise,
as defined in Section 4.3(b), or (iv) by any combination of the
foregoing.

 

(b)           Limitations on Forms of
Consideration.

 

(i)            Tender of Stock. 
Notwithstanding the foregoing, the Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock to the
extent such tender or attestation would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of
the Company’s stock.  The Option may not be
exercised by tender to the Company of shares of Stock unless such shares either
have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.

 

(ii)           Cashless Exercise.  A
“Cashless Exercise”
means the delivery of a properly executed notice together with irrevocable
instructions to a broker in a form acceptable to the Company providing for the
assignment to the Company of the proceeds of a sale or loan with respect to
some or all of the shares of Stock acquired upon the exercise of the Option
pursuant to a program or procedure approved by the Company (including, without
limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of
the Federal Reserve System).  The Company
reserves, at any and all times, the right, in the Company’s sole and absolute discretion, to 

 

3

 

establish, decline
to approve or terminate any such program or procedure, including with respect
to the Optionee notwithstanding that such program or procedures may be
available to others.

 

4.4           Tax Withholding.

 

(a)           In General. 
At the time the Option is exercised, in whole or in part, or at any time
thereafter as requested by the Company, the Optionee hereby authorizes
withholding from payroll and any other amounts payable to the Optionee, and
otherwise agrees to make adequate provision for (including by means of a
Cashless Exercise to the extent permitted by the Company), any sums required to
satisfy the federal, state, local and foreign tax withholding obligations of
the Participating Company Group, if any, which arise in connection with the
Option.  The Company shall have no
obligation to deliver shares of Stock until the tax withholding obligations of
the Participating Company Group have been satisfied by the Optionee.

 

(b)           Withholding in Shares.  The Company
may permit or require the Optionee to satisfy all or any portion of a
Participating Company’s tax withholding obligations upon exercise of the Option
by deducting from the shares of Stock otherwise issuable to the Optionee upon
such exercise a number of whole shares having a fair market value, as
determined by the Company as of the date of exercise, not in excess of the
amount of such tax withholding obligations determined by the applicable minimum
statutory withholding rates.  Any adverse
consequences to the Optionee resulting from the procedure permitted under this
Section, including, without limitation, tax consequences, shall be the sole
responsibility of the Optionee.

 

4.5           Beneficial Ownership of Shares;
Certificate Registration. 
The Optionee hereby authorizes the Company, in its sole discretion, to
deposit for the benefit of the Optionee with any broker with which the Optionee
has an account relationship of which the Company has notice any or all shares
acquired by the Optionee pursuant to the exercise of the Option.  Except as provided by the preceding sentence,
a certificate for the shares as to which the Option is exercised shall be
registered in the name of the Optionee, or, if applicable, in the names of the
heirs of the Optionee.

 

4.6           Restrictions on Grant of the
Option and Issuance of Shares. 
The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such
securities.  The Option may not be
exercised if the issuance of shares of Stock upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the Stock may then be listed. 
In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise
of the Option be in effect with respect to the shares issuable upon exercise of
the Option or (ii) in the opinion of legal counsel to the Company, the
shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act.  THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING
CONDITIONS ARE SATISFIED.  ACCORDINGLY,
THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN
THOUGH THE OPTION IS VESTED.  The
inability of the Company to obtain from any 

 

4

 

regulatory body
having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained.  As a condition to the exercise of the Option,
the Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.

 

4.7           Fractional Shares.  The Company shall not be required to issue
fractional shares upon the exercise of the Option.

 

5.             NONTRANSFERABILITY
OF THE OPTION.

 

During the lifetime of
the Optionee, the Option shall be exercisable only by the Optionee or the
Optionee’s guardian or legal representative. 
The Option shall not be subject in any manner to anticipation,
alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or
garnishment by creditors of the Optionee or the Optionee’s beneficiary, except
transfer by will or by the laws of descent and distribution.  Following the death of the Optionee, the
Option, to the extent provided in Section 7, may be exercised by the
Optionee’s legal representative or by any person empowered to do so under the
deceased Optionee’s will or under the then applicable laws of descent
and distribution.

 

6.             TERMINATION
OF THE OPTION.

 

The Option shall
terminate and may no longer be exercised on the first to occur of (a) the
Option Expiration Date, (b) the last date for exercising the Option
following termination of the Optionee’s Service as described in Section 7,
or (c) a Change in Control to the extent provided in Section 8.

 

7.             EFFECT OF
TERMINATION OF SERVICE.

 

7.1           Option Exercisability.  The Option shall terminate immediately upon the
Optionee’s termination of Service to the extent that it is then unvested and
shall be exercisable after the Optionee’s termination of Service to the extent
it is then vested only during the applicable time period as determined below
and thereafter shall terminate.

 

(a)           Disability.  If the
Optionee’s Service with the Participating Company Group terminates because of
the Disability of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee’s Service terminated, may be exercised by
the Optionee (or the Optionee’s guardian or legal representative) at any time prior
to the expiration of twelve (12) months after the date on which the Optionee’s Service terminated, but in any event no
later than the Option Expiration Date.

 

(b)           Death.  If the
Optionee’s Service with the Participating Company Group terminates because of
the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee’s Service terminated, may be exercised by
the Optionee’s legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee’s death at any time prior to the
expiration of twelve (12) months after the 

 

5

 

date on which the
Optionee’s Service terminated, but in any event no later than the Option
Expiration Date.  The Optionee’s Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee’s termination of Service.

 

(c)           Other Termination of
Service.  If the Optionee’s Service with the Participating Company
Group terminates for any reason, except Disability or death, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee’s Service terminated, may be exercised by the Optionee at any time
prior to the expiration of three (3) months (or such other longer period
of time as determined by the Board, in its discretion) after the date on which
the Optionee’s Service terminated, but in any event no later than the Option
Expiration Date.

 

7.2           Extension if Exercise Prevented
by Law. 
Notwithstanding the foregoing, other than termination of Service for
Cause, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6 or
a sale of shares pursuant to a Cashless Exercise of the Option would violate
the provisions of the Company’s Insider Trading Policy, the Option shall remain
exercisable until three (3) months after the date such exercise or sale,
as the case may be, would no longer be prevented by such provisions, but in any
event no later than the Option Expiration Date.

 

7.3           Extension if Optionee Subject to Section 16(b). 
Notwithstanding the foregoing, if a sale within the applicable time
periods set forth in Section 7.1 of shares acquired upon the exercise of
the Option would subject the Optionee to suit under Section 16(b) of
the Exchange Act, the Option shall remain exercisable until the earliest to
occur of (i) the tenth (10th) day following the date on which a sale of
such shares by the Optionee would no longer be subject to such suit, (ii) the
one hundred and ninetieth (190th) day after the Optionee’s termination of Service, or (iii) the
Option Expiration Date.

 

7.4           Termination for Cause. 
Except as otherwise provided in a contract of employment or service
between a Participating Company and the Optionee, and notwithstanding any other
provision of this Option Agreement to the contrary, if the Optionee’s Service
with the Participating Company Group is terminated for Cause, the Option shall
terminate and cease to be exercisable immediately upon such termination of
Service.

 

8.             CHANGE IN
CONTROL.

 

8.1           Definitions:

 

(a)           An “Ownership Change Event”
shall be deemed to have occurred if any of the following occurs with respect to
the Company:  (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting
stock of the Company; (ii) a merger or consolidation in which the Company
is a party; or (iii) the sale, exchange, or transfer of all or
substantially all, as determined by the Board in its discretion, of the assets
of the Company.

 

(b)           “Change in Control” means, unless such term or an equivalent
term is otherwise defined with respect to an Award by the Optionee’s Award
Agreement or written contract of employment or service, the occurrence of any
of the following:

 

6

 

(i)            an Ownership Change Event or a series of
related Ownership Change Events (collectively, a “Transaction”)
in which the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company’s voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the Company or, in the case of an Ownership
Change Event described in Section 8.1(a)(iii), the entity to which the
assets of the Company were transferred (the “Transferee”),
as the case may be; or

 

(ii)           the liquidation or dissolution of the
Company.

 

For
purposes of the preceding sentence, indirect beneficial ownership shall
include, without limitation, an interest resulting from ownership of the voting
securities of one or more corporations or other business entities which own the
Company or the Transferee, as the case may be, either directly or through one
or more subsidiary corporations or other business entities.  The Board shall have the right to determine
whether multiple sales or exchanges of the voting securities of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.

 

8.2           Effect of Change in
Control on Option.  In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or other business
entity or parent corporation thereof, as the case may be (the “Acquiring Corporation”),
may, without the consent of the Optionee, either assume the Company’s rights
and obligations under the Option or substitute for the Option a substantially
equivalent option for the Acquiring Corporation’s stock.  For purposes of this Section 8.2, the
Option shall be deemed assumed if, following the Change in Control, the Option
confers the right to purchase in accordance with its terms and conditions, for
each share of Stock subject to the Option immediately prior to the Change in
Control, the consideration (whether stock, cash or other securities or
property) to which a holder of a share of Stock on the effective date of the
Change in Control was entitled.  The
Option shall terminate and cease to be outstanding effective as of the date of
the Change in Control to the extent that the Option is neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control.  Notwithstanding the foregoing, shares
acquired upon exercise of the Option prior to the Change in Control and any
consideration received pursuant to the Change in Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. 
Furthermore, notwithstanding the foregoing, if the corporation the stock
of which is subject to the Option immediately prior to an Ownership Change
Event described in Section 8.1(a)(i) constituting a Change in Control
is the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power
of its voting stock is held by another corporation or by other corporations
that are members of an affiliated group within the meaning of Section 1504(a) of
the Code without regard to the provisions of Section 1504(b) of the
Code, the Option shall not terminate unless the Board otherwise provides in its
sole discretion.

 

7

 

9.             ADJUSTMENTS
FOR CHANGES IN CAPITAL STRUCTURE.

 

Subject to any
required action by the stockholders of the Company and the requirements of Section 409A
and 424 of the Code to the extent applicable, in the event of any change in the
Stock effected without receipt of consideration by the Company, whether through
merger, consolidation, reorganization, reincorporation, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares, or similar
change in the capital structure of the Company, or in the event of payment of a
dividend or distribution to the stockholders of the Company in a form other
than Stock (excepting normal cash dividends) that has a material effect on the
Fair Market Value of shares of Stock, appropriate adjustments shall be made in
the number and kind of shares subject to the Option, and in the exercise per
share, in order to prevent dilution or enlargement of the Optionees’ rights
under the Option.  For purposes of the
foregoing, conversion of any convertible securities of the Company shall not be
treated as “effected without receipt of consideration by the Company.”  If a majority of the shares which are of the
same class as the shares that are subject to outstanding Awards are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event) shares of another corporation (the “New Shares”), the Committee may unilaterally
amend the outstanding Options to provide that such Options are exercisable for
New Shares.  In the event of any such
amendment, the number of shares subject to, and the exercise price per share
of, the Option shall be adjusted in a fair and equitable manner as determined
by the Board, in its discretion.  Any
fractional share resulting from an adjustment pursuant to this Section 9
shall be rounded down to the nearest whole number.  The Committee in its sole discretion, may
also make such adjustments in the terms of the Option to reflect, or related
to, such changes in the capital structure of the Company or distributions as it
deems appropriate.  The adjustments
determined by the Committee pursuant to this Section 9 shall be final,
binding and conclusive.

 

10.           RIGHTS AS
A STOCKHOLDER, EMPLOYEE OR CONSULTANT.

 

The Optionee shall
have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for which
the Option has been exercised (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the
Company).  No adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date such certificate is issued, except as provided in Section 9.  If the Optionee is an Employee, the Optionee
understands and acknowledges that, except as otherwise provided in a separate,
written employment agreement between a Participating Company and the Optionee,
the Optionee’s employment is “at will” and is for no specified term.  Nothing in this Option Agreement shall confer
upon the Optionee any right to continue in the Service of a Participating
Company or interfere in any way with any right of the Participating Company
Group to terminate the Optionee’s Service as an Employee or Consultant, as the case
may be, at any time.

 

11.           NOTICE OF
SALES UPON DISQUALIFYING DISPOSITION.

 

The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. 
In addition, if the Notice designates
this Option as an Incentive Stock Option, the Optionee shall (a) promptly
notify the Chief 

 

8

 

Financial
Officer of the Company if the Optionee disposes of any of the shares acquired
pursuant to the Option within one (1) year after the date the Optionee
exercises all or part of the Option or within two (2) years after the Date
of Option Grant and (b) provide the Company with a description of the
circumstances of such disposition.  Until
such time as the Optionee disposes of such shares in a manner consistent with
the provisions of this Option Agreement, unless otherwise expressly authorized
by the Company, the Optionee shall hold all shares acquired pursuant to the
Option in the Optionee’s name (and not in the name of any nominee) for the
one-year period immediately after the exercise of the Option and the two-year
period immediately after Date of Option Grant. 
At any time during the one-year or two-year periods set forth above, the
Company may place a legend on any certificate representing shares acquired
pursuant to the Option requesting the transfer agent for the Company’s stock to notify the Company of any such
transfers.  The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to
the preceding sentence.

 

12.           LEGENDS.

 

The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions, and, if applicable, that
the shares were acquired upon exercise of an Incentive Stock Option on all
certificates representing shares of stock subject to the provisions of this
Option Agreement.  The Optionee shall, at
the request of the Company, promptly present to the Company any and all
certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to carry out the provisions of this
Section.

 

13.           MISCELLANEOUS
PROVISIONS.

 

13.1         Binding Effect. 
Subject to the restrictions on transfer set forth herein, this Option
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.

 

13.2         Termination or Amendment. 
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8 in
connection with a Change in Control, no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the consent
of the Optionee unless such termination or amendment is necessary to comply
with any applicable law or government regulation, including, but not limited
to, Section 409A, or is required to enable the Option, if designated an
Incentive Stock Option in the Notice, to qualify as an Incentive Stock
Option.  No amendment or addition to this
Option Agreement shall be effective unless in writing.

 

13.3         Further Instruments.  The parties hereto agree to execute such
further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Option Agreement.

 

13.4         Delivery of Documents and
Notices.  Any document relating to participation in the
Plan or any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given (except to the extent that this Option
Agreement provides 

 

9

 

for effectiveness
only upon actual receipt of such notice) upon personal delivery, electronic
delivery at the e-mail address, if any, provided for the Optionee by a
Participating Company, or upon deposit in the U.S. Post Office or foreign
postal service, by registered or certified mail, or with a nationally
recognized overnight courier service, with postage and fees prepaid, addressed
to the other party at the address of such party set forth in the Grant Notice
or at such other address as such party may designate in writing from time to
time to the other party.

 

(a)           Description of Electronic Delivery. 
The Plan documents, which may include but do not necessarily include:
the Plan, the Grant Notice, this Option Agreement, the Plan Prospectus, and any
reports of the Company provided generally to the Company’s stockholders, may be
delivered to the Optionee electronically. 
In addition, the Optionee may deliver electronically the Grant Notice
and Exercise Notice called for by Section 4.2 to the Company or to such
third party involved in administering the Plan as the Company may designate
from time to time.  Such means of
electronic delivery may include but do not necessarily include the delivery of
a link to a Company intranet or the Internet site of a third party involved in
administering the Plan, the delivery of the document via e-mail or such other
means of electronic delivery specified by the Company.

 

(b)           Consent
to Electronic Delivery.  The Optionee
acknowledges that the Optionee has read Section 13.4(a) of this
Option Agreement and consents to the electronic delivery of the Plan documents
and the delivery of the Grant Notice and Exercise Notice, as described in Section 13.4(a).  The Optionee acknowledges that he or she may
receive from the Company a paper copy of any documents delivered electronically
at no cost to the Optionee by contacting the Company by telephone or in
writing.  The Optionee further
acknowledges that the Optionee will be provided with a paper copy of any
documents if the attempted electronic delivery of such documents fails.  Similarly, the Optionee understands
that the Optionee must provide the Company or any designated third party
administrator with a paper copy of any documents if the attempted electronic
delivery of such documents fails.  The
Optionee may revoke his or her consent to the electronic delivery of documents
described in Section 13.4(a) or may change the electronic mail
address to which such documents are to be delivered (if Optionee has provided
an electronic mail address) at any time by notifying the Company of such
revoked consent or revised e-mail address by telephone, postal service or
electronic mail.  Finally, the Optionee
understands that he or she is not required to consent to electronic delivery of
documents described in Section 13.4(a).

 

13.5         Integrated Agreement. 
The Notice, this Option Agreement and the Plan constitute the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein or therein and supersedes
any prior agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein.  To the extent contemplated
herein or therein, the provisions of the Notice and the Option Agreement shall
survive any exercise of the Option and shall remain in full force and effect.

 

13.6         Applicable Law. 
This Option Agreement shall be governed by the laws of the State of
Delaware as such laws are applied to agreements between Delaware residents
entered into and to be performed entirely within the State of Delaware.

 

13.7         Counterparts. 
The Notice may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

 

10

 

	
   ̈ Incentive Stock Option

  	
  Optionee:

  	
   

  
	
   ̈ Nonstatutory Stock Option

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  
					

 

STOCK
OPTION EXERCISE NOTICE

 

AXT, Inc.

Attention: Chief
Financial Officer

4281 Technology Drive

Fremont, California 94538

 

Ladies and Gentlemen:

 

1.             Option.  I was granted an option (the “Option”) to purchase shares
of the common stock (the “Shares”)
of AXT, Inc. (the “Company”)
pursuant to the Company’s equity incentive plan identified below  (the “Plan”),
my Notice of Grant of Stock Option (the “Notice”)
and my Stock Option Agreement (the “Option
Agreement”) as follows:

 

	
  Company Equity Incentive Plan:

  	
   

  	
  2007 Equity Incentive
  Plan

  
	
   

  	
   

  	
   

  
	
  Grant Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date of Option Grant:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of Option Shares:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exercise Price per Share:

  	
   

  	
  $

  

 

2.             Exercise of Option. 
I hereby elect to exercise the Option to purchase the following number
of Shares:

 

	
  Total Shares Purchased:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Exercise Price (Total Shares X Price per
  Share)

  	
   

  	
  $

  

 

3.             Payments.  I enclose
payment in full of the total exercise price for the Shares in the following
form(s), as authorized by my Option Agreement:

 

	
   ̈ Cash:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
   ̈ Check:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
   ̈ Tender of Company Stock:

  	
   

  	
  Contact Plan Administrator

  
	
   

  	
   

  	
   

  
	
   ̈ Cashless exercise (same-day sale)

  	
   

  	
  Contact Plan Administrator

  

 

4.             Tax Withholding.  Subject to the
Option Agreement, I authorize payroll withholding and otherwise will make
adequate provision for the federal, state, local and foreign tax withholding
obligations of the Company, if any, in connection with the Option.  If I am exercising a Nonstatutory Stock Option,
I enclose payment in full of my withholding taxes, if any, as follows:

 

1

 

(Contact
Plan Administrator for amount of tax due.)

 

	
   ̈ Cash:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
   ̈ Check:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
   

  
	
   ̈ Tender of Company Stock:

  	
   

  	
  Contact Plan Administrator

  
	
   

  	
   

  	
   

  
	
   ̈ Cashless Exercise (same-day sale)

  	
   

  	
  Contact Plan Administrator

  
					

 

5.             Optionee Information.

 

My address is:

 

 

My Social Security
Number is:

 

6.             Notice of Disqualifying Disposition.  If the Option
is an Incentive Stock Option, I agree that I will promptly notify the Chief
Financial Officer of the Company if I transfer any of the Shares within one (1) year
from the date I exercise all or part of the Option or within two (2) years
of the Date of Option Grant.

 

7.             Binding Effect.  I agree that
the Shares are being acquired in accordance with and subject to the terms,
provisions and conditions of the Option Agreement, to all of which I hereby
expressly assent.  This Agreement shall
inure to the benefit of and be binding upon the my heirs, executors,
administrators, successors and assigns.

 

I understand that
I am purchasing the Shares pursuant to the terms of the Plan, the Notice and my
Option Agreement, copies of which I have received and carefully read and
understand.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature)

  

 

	
  Receipt of the above is hereby acknowledged.

  
	
   

  
	
  AXT, INC.

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  Dated:

  	
   

  	
   

  

 

2

 

AXT, INC.

2007 EQUITY INCENTIVE PLAN

JOINT ESCROW INSTRUCTIONS

(Restricted Stock Award)

 

These Joint Escrow
Instructions are entered into as of
                              ,
200    .

 

RECITALS

 

AXT, Inc., a
Delaware corporation (the “Company”),
and                                         
(the “Participant”)
desire to appoint the Secretary of the Company as their agent (the “Agent”) with respect
to certain certificate(s) evidencing shares of the Company’s common stock
(the “Stock”)
acquired pursuant to the Notice of Grant of Restricted Stock and Restricted
Stock Agreement attached hereto as Exhibit A (collectively the “Agreement”).

 

ESCROW INSTRUCTIONS

 

The Company and the
Participant hereby authorize and direct the Agent to hold the documents and
certificate(s) delivered to the Agent pursuant to these Escrow
Instructions and to take the following actions with respect thereto, and the
Company and the Participant hereby agree as follows:

 

(a)           The Participant hereby delivers
and/or agrees to deliver to the Agent the Participant’s certificate(s) evidencing
the Stock and an Assignment Separate From Certificate executed in blank.  The Participant irrevocably authorizes the
Company to deposit with the Agent any certificate(s) evidencing shares of
the Company’s common stock acquired by the Participant pursuant to the
Agreement which the Company may from time to time issue to the Participant
during the term of these Escrow Instructions.

 

(b)           The provisions of these Escrow
Instructions shall apply for so long as the Stock is subject to the Company
Reacquisition Right set forth in the Agreement (the “Reacquisition Right”).  Upon termination of the Company’s
Reacquisition Right, this escrow shall terminate.

 

(c)           In the event the Company shall
elect to exercise any of the Reacquisition Right, the Company shall give to the
Participant and the Agent a written notice (the “Reacquisition Notice”) which states (a) the
terms and conditions of such reacquisition, determined in accordance with the
provisions of the Agreement, and (b) a time and date for a closing
hereunder at the principal office of the Company.  The Participant and the Company hereby
irrevocably authorize and direct the Agent to close the transaction
contemplated by the Reacquisition Notice in accordance with the terms of the
Reacquisition Notice.  At the closing,
the Agent shall deliver the certificate(s) evidencing the shares of Stock
to be transferred to the Company.  The
balance of any such shares of Stock shall be retained by the Agent and held in
accordance with these Escrow Instructions.

 

(d)           The Company may at any time
release some or all of the Stock from the provisions of these Escrow
Instructions by giving written notice to the Participant and the Agent
directing delivery to the Participant of the shares of Stock to be
released.  The Participant may

 

1

 

request that the Company direct the Agent to release
from the provisions of these Escrow Instructions the shares of Stock which are
no longer subject to the Company’s Reacquisition Right, and the Company shall
give to the Participant and the Agent written notice directing delivery to the
Participant of the shares of Stock to be released.  The Agent shall use its best efforts to cause
the certificate(s) evidencing the Stock held by the Agent to be delivered
to the Participant pursuant to such notice within ten (10) days from
receipt of such notice.

 

(e)           To facilitate the exercise of any
of the Reacquisition Right, and the performance of these instructions, the Participant
does hereby constitute and appoint the Agent as the Participant’s
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all stock certificates, stock assignments, or other
instruments which shall be necessary or appropriate to make such securities
negotiable and complete any transaction herein contemplated.  The Participant understands that such
appointment is coupled with an interest and is irrevocable.  Subject to the provisions of these Escrow
Instructions, the Participant shall exercise all rights and privileges of a
stockholder of the Company while the Stock is held by the Agent; provided,
however, the Participant may not sell, transfer, dispose of, or in any manner
encumber any shares of the Stock while such shares of Stock are held by Agent
hereunder.

 

(f)            If at the time of termination of
this escrow, the Agent shall have in its possession any documents, securities,
or other property belonging to the Participant, the Agent shall deliver all of
same to the Participant and shall be discharged of all further obligations
hereunder.

 

(g)           The Agent’s duties hereunder may
be altered, amended, modified, or revoked only by a writing signed by the
Company and the Participant, and approved by the Agent.

 

(h)           The Agent shall not be personally
liable for any act the Agent may do or omit to do hereunder as escrow agent,
agent for the Company, or attorney in fact for the Participant while acting in
good faith and in the exercise of the Agent’s own good judgment, and any act
done or omitted by the Agent pursuant to the advice of the Agent’s own
attorneys shall be conclusive evidence of such good faith.

 

(i)            The Agent is hereby expressly
authorized to disregard any and all warnings by any of the parties hereto or by
any other person, firm, corporation, or other entity, excepting only orders or
process of courts of law, and is hereby expressly authorized to comply with and
obey orders, judgments, or decrees of any court.  In the event the Agent obeys or complies with
any such order, judgment, or decree of any court, the Agent shall not be liable
to any of the parties hereto or to any other person, firm, corporation, or
other entity by reason of such compliance notwithstanding that any such order,
judgment, or decree shall be subsequently reversed, modified, annulled, set
aside, vacated, or found to have been entered without jurisdiction.

 

(j)            The Agent shall not be liable in
any respect on account of the identity, authorities, or rights of the parties
executing or delivering or purporting to execute or deliver any agreements or
documents called for by the Agreement or any documents or papers deposited or
called for hereunder.

 

(k)           The Agent shall not be liable for
the barring of any rights under the statute of limitations with respect to
these Escrow Instructions or any documents deposited with the Agent.

 

2

 

(l)            By signing these Escrow
Instructions, the Agent becomes a party hereto only for the purpose of said
Escrow Instructions.  The Agent shall not
be considered a party to the Agreement or to any documents or agreements called
for by the Agreement.

 

(m)          The Agent may resign from its
duties hereunder at any time upon written notice to the Company and the
Participant and delivery of all documents and certificates held in this escrow
to the successor escrow agent.  If a
successor escrow agent has not been appointed within thirty (30) days, the
Agent may deliver all such documents and certificates to the Company, at which
time, all further responsibilities and duties of the Agent shall cease.

 

(n)           If prior to the termination of
these Escrow Instructions the Agent shall resign or otherwise cease to operate
as escrow agent, a successor escrow agent shall be designated by the Board of
Directors of the Company.  The Board of
Directors of the Company may, at any time, substitute another party in the
Agent’s place as escrow agent hereunder, and the Participant hereby expressly
accepts such substitution.

 

(o)           All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

 

(1)           if to the Company, to:

 

AXT, Inc.

4281 Technology Drive

Fremont, California 94538

Attn:  Chief Financial Officer

 

(2)           if to the Participant, to the address set forth below the Participant’s
signature below.

 

(3)           if to the Agent, to:

 

Corporate Secretary

AXT, Inc.

4281 Technology Drive

Fremont, California 94538

 

(p)           The provisions of these Escrow
Instructions shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.

 

(q)           These Escrow Instructions shall
be governed, to the fullest extent possible, by the laws contained in the
California Commercial Code, including any regulations or judicial
interpretations with respect thereto.  To
the extent that any matter is not governed by the laws contained in the
California Commercial Code, such matter shall be governed by the laws of the
state of the Participant’s residence as such laws are applied to agreements
between residents of such state entered into and to be performed entirely
within such state.

 

3

 

(r)            The terms and conditions of these
Escrow Instructions, including all terms and conditions incorporated by
reference herein, shall survive the exercise of the option granted pursuant to
the Agreement and shall continue in full force and effect thereafter.

 

(s)         These Escrow Instructions and the
Agreement contain the entire understanding of the Company and the Participant
with respect to the subject matter contained herein, and there are no other
contracts, agreements, understandings, representations, warranties, or
covenants with respect to the subject matter contained herein.

 

IN WITNESS WHEREOF, the
Company and the Participant have executed these Escrow Instructions as of the
date first above written.

 

	
   

  	
  AXT, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PARTICIPANT:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address

  
	
  ESCROW AGENT:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  
					

 

4

 

ASSIGNMENT
SEPARATE FROM CERTIFICATE

 

FOR VALUE RECEIVED
the undersigned does hereby sell, assign and transfer unto

 

(                          )
shares of the
                            
Capital Stock of AXT, Inc. standing in the undersigned’s name on the books
of said corporation represented by Certificate No.                            
herewith and does hereby irrevocably constitute and appoint
                                                                
Attorney to transfer the said stock on the books of said corporation with full
power of substitution in the premises.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name

  

 

Instructions: 
Please do not fill in any blanks other than the signature line.  The purpose of this assignment is to enable
the Company to exercise its Reacquisition Right set forth in the Agreement
without requiring additional signatures on the part of the Participant.

 

 

 

AXT, INC.

NOTICE OF
GRANT OF RESTRICTED STOCK AWARD

 

                                          (the “Participant”)
has been granted an award (the “Award”)
pursuant to the AXT, Inc. 2007 Equity Incentive Plan (the “Plan”) of certain shares of Common
Stock (the “Shares”)
of AXT, Inc., as follows:

 

	
  Grant Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date of Grant:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Number of Shares:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Initial Vesting Date:

  	
   

  	
  The one-year anniversary of the Date of Grant.

  
	
   

  	
   

  	
   

  
	
  Vested Shares:

  	
   

  	
  Except as provided in the Restricted Stock Agreement,
  the number of Vested Shares (disregarding any resulting fractional share) as
  of any date is determined by multiplying the Total Number of Shares by the “Vested Ratio”
  determined as of such date as follows:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Vested Ratio

  
	
   

  	
   

  	
  Prior to Initial Vesting Date

  	
   

  	
  0%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On Initial Vesting Date, provided the Participant’s
  Service has not terminated prior to such date

  	
   

  	
  33%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On each subsequent anniversary of the Initial
  Vesting Date, provided the Participant’s Service has not terminated prior to
  such date

  	
   

  	
  33%

  

 

By their
signatures below, the Company and the Participant agree that the Award is
governed by this Grant Notice and by the provisions of the Plan and the
Restricted Stock Agreement attached to and made a part of this document.  The Participant acknowledges receipt of a
copy of the Plan and the Restricted Stock Agreement, and represents that the
Participant has read and is familiar with the provisions of the Plan, this Grant
Notice and the Restricted Stock Agreement, and hereby accepts the Award subject
to all applicable terms and conditions.

 

	
  AXT, INC.

  	
   

  	
  PARTICIPANT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
  Its:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
  Address

  	
   

  	
  Address

  
	
   

  	
   

  	
   

  

 

ATTACHMENTS:               AXT, Inc. 2007 Equity Incentive Plan,
Restricted Stock Agreement; Joint Escrow Instructions; Assignment Separate from
Certificate

 

 

AXT, INC.

 

TIME
SENSITIVE MATERIAL

YOUR
IMMEDIATE ATTENTION IS REQUIRED

 

	
  TO:

  	
  [Employee Name]

  
	
   

  	
   

  
	
  FROM:

  	
  [Company Officer]

  
	
   

  	
   

  
	
  DATE:

  	
   

  
	
   

  	
   

  
	
  RE:

  	
  Section 83(b) Election in Connection
  with Your Receipt of a Restricted Stock Award

  	 

 

	
  YOUR RESTRICTED STOCK AWARD GRANT DATE:

  	
   

  
	
   

  
	
  SEC. 83(b) ELECTION POSTMARK DEADLINE(1):

  	
   

  

 

On the grant date
above, you acquired unvested shares of the company’s stock pursuant to a
restricted stock award.  The income tax
consequences of your receipt of unvested shares of stock and the subsequent
vesting of those shares are quite complex, and we strongly urge you to consult
with a tax or financial advisor knowledgeable regarding your financial
circumstances and restricted stock award.

 

As described in
the attached memorandum prepared by our legal counsel, you may derive
significant tax benefits by filing with the Internal Revenue Service an
election under Section 83(b) of the Internal Revenue Code (a “Section 83(b) Election”).  However, if you wish to make a Section 83(b) Election,
it must be filed with the IRS no later than
30 days after the date on which you acquired your restricted stock.  THEREFORE, YOUR PROMPT
ATTENTION TO THIS MATTER IS REQUIRED.

 

Please review the
attached memorandum.  If you decide to
file a Section 83(b) Election, a sample form of Section 83(b) Election
is enclosed for your convenience. 
However, as the taxpayer, you are solely responsible for the timely
filing of your Section 83(b) Election.  Please follow the filing instructions
contained in the memorandum.

 

The attached
memorandum is intended only as a general guide. 
Neither the company nor our legal counsel is providing you with tax or
other legal advice.  We strongly
recommend that you consult with your personal tax or financial advisor to
determine whether filing a Section 83(b) Election is appropriate for
you.

 

Enclosures

 

(1) The date
30 days after the date of grant of your restricted stock award.  If the deadline falls on Saturday, Sunday or
a legal holiday, the filing will be timely if the U.S. mail postmark is on the
next day that is not a Saturday, Sunday or a legal holiday.

 

 

 

MEMORANDUM

 

	
  TO:

  	
  AXT, Inc.

  
	
   

  	
   

  
	
  FROM:

  	
  DLA Piper US LLP

  
	
   

  	
   

  
	
  DATE:

  	
  June 12, 2007

  
	
   

  	
   

  
	
  RE:

  	
  Election under Section 83(b) of the
  Internal Revenue Code upon Receipt of Unvested Shares of Stock

  	 

 

As counsel to AXT, Inc.
(the “Company”), we have prepared this memorandum to assist you to alert
participants who receive awards of restricted stock that are subject to the
Company Reacquisition Right of the potential application of an election under Section 83(b) (a
“Section 83(b) Election”) of the Internal Revenue Code of 1986.  A participant who wishes
to make a Section 83(b) Election must file the election with the
Internal Revenue Service (the “IRS”) no later than thirty (30) days after the date
on which the unvested shares were acquired. 
ACCORDINGLY, PROMPT ATTENTION TO THIS MATTER IS REQUIRED.

 

This information
is intended to be a general summary of the issues involved for federal income
tax purposes as of the date set forth above. 
A participant’s particular circumstances may result in consequences
different from those described.  In
addition, the application of state, local, and foreign tax consequences is
beyond the scope of this memorandum. 
Participants are advised, therefore, to consult their own tax advisor
regarding the tax consequences to the participant of the acquisition and
vesting of shares of restricted stock and subsequent sale of the stock.

 

A participant who
acquires unvested shares of stock (“Unvested Shares”) is subject to the Company
Reacquisition Right (the “Reacquisition Right”) set forth in the participant’s
restricted stock agreement.  The
Reacquisition Right grants the Company the right to automatically reacquire
without any monetary payment to the participant (i.e., the participant will
forfeit) any shares remaining unvested on the participant’s termination of
service with the Company.  By filing a Section 83(b) Election
with the IRS no later than thirty (30) days after the acquisition of the
Unvested Shares, the participant may change the amount of ordinary income
recognized and the characterization of any gain recognized on a subsequent sale
of the Unvested Shares.

 

1.             Section 83 and Treatment of Restricted Stock.  If a
participant acquires, without payment of any purchase price, unvested shares of
stock of his employer that is subject to a Reacquisition Right, then the fair
market value of the stock on the date or dates the

 

1

 

Reacquisition Right
lapses (i.e., when the shares vest) is includable in the gross income of the
participant in the year such Reacquisition Right lapses.

 

To avoid the
potential characterization of post-acquisition appreciation as ordinary income
and to defer the payment of tax on such appreciation until the stock is sold,
the participant may file a Section 83(b) Election with the IRS no
later than 30 days after the date on which the restricted stock is transferred
to the participant (i.e., the date on which the award is granted).  The Section 83(b) Election details
the terms of the transaction, and, by making the election, the participant
agrees to report as ordinary income in the year of acquisition the excess, if
any, of the fair market value of the Unvested Shares on the date the
participant acquires them (without regard to the Reacquisition Right) over the
purchase price, if any, actually paid for the Unvested Shares.

 

A Section 83(b) Election
will result in immediate recognition of ordinary income equal to the fair
market value of the Unvested Shares as of the date on which they are awarded to
you.  Although the Section 83(b) Election
states what the participant believes to be the fair market value of the stock,
neither the participant’s nor the Company’s determination of the stock’s fair
market value is binding on the taxing authorities, who might assert that the
stock had a higher fair market value on the grant date than stated on the Section 83(b) Election.  By filing a Section 83(b) Election,
any gain recognized by the participant on the stock attributable to post-exercise
appreciation will be treated as a capital gain and will only be taxed at such
time as the participant sells the stock.

 

2.             Making the Section 83(b) Election.

 

(a)           Federal.  To make a Section 83(b) Election,
the participant must file the election with the IRS Service Center where the
participant files his or her Form 1040 return no later than thirty (30)
days after the date on which the participant acquires Unvested Shares.  A sample form of Section 83(b) Election
is attached to this memorandum.  To
complete the form, the participant should:

 

·                                          Enter the participant’s name, address and
Social Security Number in Item 1.

 

·                                          Enter the number of Unvested Shares
acquired in Item 2.

 

·                                          Enter the date and calendar year of the
acquisition of Unvested Shares in Item 3.

 

·                                          Enter the total fair market value of the
Unvested Shares as of the date of the award, the number of Unvested Shares
acquired and their fair market value per share in Item 5.

 

·                                          Enter the total purchase price, if any,
actually paid for the Unvested Shares the number of Unvested Shares purchased
and the purchase price per share 

 

2

 

in Item 6.  If you did not pay cash consideration, then
the amount paid will be zero.

 

·                                          Sign and date the form.

 

The participant should
mail the fully completed, signed and dated original and one photocopy of the Section 83(b) Election
to the IRS office where the participant files his or her federal income tax
return.  We recommend that the Section 83(b) Election
be sent by certified mail, return receipt requested and that the letter
transmitting the election request that the IRS acknowledge receipt of the
election by signing and dating or received-stamping the enclosed photocopy of
the Section 83(b) Election.  A
self-addressed, stamped envelope must be enclosed for return of the
acknowledgment copy.

 

To be timely filed, the Section 83(b) Election
must be postmarked by the U.S. Postal Service no later than 30 days after the
date on which the participant acquired the Unvested Shares.  This is an absolute deadline.  There is no grace period, and no extension is
available.  If the deadline falls on
Saturday, Sunday or a legal holiday, the filing will be timely if the Section 83(b) Election
is postmarked on the next day that is not a Saturday, Sunday or a legal
holiday.

 

If the participant
files the Section 83(b) Election, he or she must send a photocopy of
the election to the Company for its records. 
The participant should also retain a copy of the Section 83(b) Election.

 

Finally,
the participant must file an additional copy of the section 83(b) Election
with his or her federal income tax return for the taxable year in which the
shares were purchased.

 

(b)           State.  Participants should consult with their personal
tax or financial advisor to determine the state and local tax consequences with
respect to the acquisition of Unvested Shares.

 

3.             Consultation with Tax Advisors.  DLA Piper US LLP
is legal counsel to the Company and not to any individual affiliated with the
Company.  This memorandum is intended
only as a general guide.  It must not be
construed as providing tax or other legal advice.  The tax consequences of restricted stock
awards are complex and subject to change. 
In addition, the circumstances of a particular participant may result in
some variation of the above-described rules, and the application of state,
local, or foreign taxes not described in this memorandum may affect a
participant’s situation.  Accordingly,
participants are urged to consult with their own personal tax or financial
advisor prior to acquiring any restricted stock and prior to the sale of any
such shares.

 

3

 

SAMPLE

 

Internal Revenue Service

 

 

[IRS Service Center

where Form 1040 is
Filed]

 

Re:          Section 83(b) Election

 

Dear Sir or Madam:

 

The following information
is submitted pursuant to section 1.83-2 of the Treasury Regulations in
connection with this election by the undersigned under section 83(b) of
the Internal Revenue Code of 1986, as amended (the “Code”).

 

1.             The name, address and taxpayer
identification number of the taxpayer are:

 

	
  Name:

  	
   

  	
   

  
	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  Social Security Number:

  	
   

  	
   

  
				

 

2.                                       The following is a description of each
item of property with respect to which the election is made:

 

shares of common
stock of AXT, Inc. (the “Shares”), acquired from AXT, Inc. (the “Company”).

 

3.                                       The property was transferred to the
undersigned on:

 

	
  Restricted stock grant
  date:

  	
   

  	
   

  

 

The taxable year for
which the election is made is:

 

Calendar Year

 

4.                                       The nature of the restriction to which
the property is subject:

 

The Shares are subject to
reacquisition by the Company upon the occurrence of certain events.  This reacquisition right lapses with regard
to a portion of the Shares based upon the continued performance of services by
the taxpayer over time.

 

1

 

5.                                       The following is the fair market value at
the time of transfer (determined without regard to any restriction other than a
restriction which by its terms will never lapse) of each property with respect
to which the election is made:

 

$                                    
(                          
Shares at $                    
per share).

 

The property was
transferred to the taxpayer pursuant to the grant of a restricted stock award.

 

6.                                       The following is the amount paid for the
property:

 

None.

 

7.                                       A copy of this election has been
furnished to the Company, the corporation for which the services were performed
by the undersigned.

 

Please acknowledge
receipt of this election by date or received-stamping the enclosed copy of this
letter and returning it to the undersigned. 
A self-addressed stamped envelope is provided for your convenience.

 

 

Very truly yours,

 

 

	
   

  	
   

  	
  Date:

  	
   

  

 

 

Enclosures

cc:  AXT, Inc.

 

2

 

SAMPLE

 

 

	
  Date:

  	
   

  	
   

  	
   

  

 

CERTIFIED MAIL

RETURN RECEIPT REQUESTED

 

Internal Revenue Service

 

 

[IRS Service Center

where Form 1040 is
Filed]

 

Re:          Section 83(b) Election

Name of Taxpayer:

SSN:

 

Dear Sir or Madam:

 

Enclosed please find an
original and one copy of an election under section 83(b) of the
Internal Revenue Code of 1986, as amended.

 

Please acknowledge
receipt of the enclosed by date- or receive-stamping the enclosed copy of the
election and returning it to the undersigned. 
A self-addressed stamped envelope is enclosed for your convenience.

 

Very truly yours,

 

 

	
   

  	
   

  

 

 

Enclosures

 

 

ACKNOWLEDGMENT
OF RECEIPT

OF SECTION 83(b) MATERIALS

 

The undersigned
participant (“Participant”) hereby acknowledges receipt of a sample form for
making an election pursuant to section 83(b) of the Internal Revenue
Code of 1986, as amended, and a memorandum regarding such election in
connection with the Participant’s receipt of a restricted stock award under the
AXT, Inc. 2007 Equity Incentive Plan.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name printed

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