Document:

ex10_13.htm

Exhibit 10.13

 

LEASE

 

THIS LEASE (the "Lease"), dated as of February 8, 2011, is made by and between HAMBRECHT WINE GROUP L.P., a California limited partnership ("Landlord") and H.D.D. LLC, a California limited liability company ("Tenant").

 

RECITALS

 

	
  

	
A.

	
Landlord is the owner of that certain real property located at 4035 Westside Road, Healdsburg, California (the "Property").

 

	
  

	
B.

	
Tenant desires to lease the Property from Landlord and Landlord desires to lease the Property to Tenant on the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

 

AGREEMENT

 

1.             Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, subject to the terms and conditions contained herein, all of the buildings, grounds, parking areas and other facilities and equipment located at 4035 Westside Road, Healdsburg, California, including but not limited to the cottage; tasting room, lab and cellar (Building No. 2) (the "Tasting Room") and the administrative offices, barrel storage (Building No. 3) (the "Winery"), two water tanks, chiller, and reservoir/holding ponds, including all rights and privileges appurtenant thereto, those improvements constructed thereon, and all equipment and trade fixtures contained therein (the "Premises"), excluding therefrom all of Building No. 4 currently occupied by Alysian Wines and its adjacent parking area.

 

The term Premises shall also include all personal property of Landlord located on the Premises including but not limited to forklifts, office equipment, computers, lab equipment, phones and all other equipment and fixtures relating to the Winery and Tasting Room.

 

2.             Term, Option to Extend, and Right to Purchase Property.

 

(a)           Term.  Subject to Section 2(b), the term of this Lease is for five (5) years (the "Term"), commencing on March 1, 2011 (the "Commencement Date"), and ending on February 29, 2016. Unless otherwise set forth, all references herein to the "Term" shall be deemed to include the Option Term (as defined in Section 2(b)).

 

(b)           Option to Extend. Landlord hereby grants to Tenant one (1) option (the "Option") to extend the Term of this Lease for an additional period of five (5) years (the "Option Term"). The Option must be exercised, if at all, by written notice (the "Option Notice") delivered by Tenant to Landlord not earlier than nine (9) months and not later than four (4) months prior to the end of the initial Term of this Lease. Further, the Option shall not be deemed to be properly exercised if, as of the date of the Option Notice or at the end of the initial Term of this Lease Tenant is in default of this Lease. Provided Tenant has properly and timely exercised the Option, the initial Term of this Lease shall be extended by the Option Term, and all terms, covenants and conditions of this Lease shall remain unmodified and in full force and effect. If Tenant fails to timely give the Option Notice, the Option shall thereupon expire. Monthly Rent (as defined in Section 4) for the Option Term shall be calculated and paid pursuant to Section 4.

  

  

  

 

(c)           Right of First Refusal. In the event Landlord desires to sell the Property, or any portion or interest in the Property (the "Sale Property"), and shall have received an acceptable bona fide offer to purchase the Property or such interest (the "Offer"), Landlord shall give written notice of its intent to sell (the "Notice of Intent to Sell") to Tenant, together with an executed copy of the Offer setting forth all of the terms of the proposed purchase and identifying the prospective purchaser. Tenant shall then have an option to purchase the Sale Property on the same terms and conditions as set forth in the Offer; provided, however, if the terms and conditions of the Offer provide for an exchange of like-kind real property as payment of all or a portion of the purchase price, Tenant may exercise its option to purchase by stating in its written notice of exercise its willingness to participate in an exchange transaction in which Landlord shall identify certain real property which Tenant, at no additional cost or expense to Tenant, shall acquire and exchange with Landlord for the Sale Property on terms and conditions otherwise consistent with the Offer. If no exchange is contemplated in the Offer, Tenant shall have the further option of paying Landlord in cash at closing the full amount of the purchase price of the Sale Property, notwithstanding any non-cash terms set forth in the Offer. If Tenant elects to exercise its option, it shall give Landlord written notice of such election within thirty (30) days after receipt of the Notice of Intent to Sell. If Tenant fails to exercise its option within such thirty (30)-day period, (i) Landlord shall be free to accept an offer to sell the Sale Property on the terms set forth in the Offer at any time within ninety (90) days after the expiration of such thirty (30)-day period; provided (i) the prospective purchaser executes and delivers to Tenant any documents reasonably necessary to acknowledge that Tenant's right to possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease; and (ii) Tenant shall, upon request, deliver to Landlord an acknowledgment of Tenant's failure to exercise the option and Landlord's right to sell the Sale Property pursuant to this Section 2(c). In the event Landlord has not completed such sale of the Sale Property within such ninety (90)-day period, Landlord shall not thereafter sell the Sale Property without first complying with the provisions of this Section 2(c). In the event the Sale Property comprises less than Landlord's entire interest in the Property, the remaining portion of or interest in the Property shall remain subject to this Section 2(c).

 

3.             Condition Upon Delivery.

 

(a)           Improvements. Landlord and Tenant each acknowledge that certain alterations and improvements to the Premises will be needed in order for the Premises to meet the business goals of Tenant. The cost of such improvements is estimated to be at least One Hundred Thousand Dollars ($100,000). Landlord and Tenant each agree to negotiate and, no later than sixty (60) days following the Commencement Date, to enter into a side letter agreement setting forth the manner in which Landlord and Tenant will share the cost of such alterations and improvements.

 

  

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(b)           Acceptance of Premises. Notwithstanding Section 3(a), Tenant hereby accepts the Premises in the condition existing as of the Commencement Date, "AS IS", and also accepts the Premises and this Lease subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, subject to all covenants, conditions and restrictions affecting the Property or Premises and subject to all liens, claims and encumbrances currently existing against the Premises or any part thereof, including all matters disclosed by any of the foregoing or by any exhibits attached hereto.

 

4.             Rent.

 

(a)           Rent. Tenant shall pay to Landlord as rent an amount equal to the sum of the Winery Rent (as defined below) and the Tasting Room Rent (as defined below). Any rent amounts described below shall be payable in twelve (12) monthly installments ("Monthly Rent"). Monthly Rent shall be payable in advance on the first day of each month commencing on the Commencement Date, except for the Tasting Room Rent which shall commence on April 1, 2011. All Monthly Rent shall be paid to Landlord in lawful money of the United States at the address to which notices to Landlord are given, or at such other address as Landlord may give Tenant in writing from time to time.

 

(b)           Initial Winery Rent. Commencing on March 1, 2011 and continuing through August 31, 2011, rent for the Winery (the "Winery Rent") shall be Five Thousand Dollars ($5,000) per month.

 

(c)           Annual Winery Rent. Commencing on September 1, 2011, the Winery Rent shall be calculated on a twelve (12) month basis commencing on September 1 and ending on August 31 of each year during the Term (a "Rent Year"), and shall be determined as follows:

 

(1)           Commencing on September 1, 2011, the Winery Rent for the first Rent Year shall be One Hundred Seventy-One Thousand Dollars ($171,000), which amount is equal to the Estimated Production Value (as defined below) for the first Rent Year, and which is subject to reconciliation to the Actual Production Value (as defined below) for such Rent Year pursuant to Section 4(c)(5) of this Lease.

 

(2)           Commencing on September 1, 2012 and on each September 1 of the Term thereafter (each a "Rent Adjustment Date"), the Winery Rent for the next Rent Year shall be adjusted to be an amount equal to eighty percent (80%) of the Estimated Production Value for such Rent Year which shall be reconciled to the Actual Production Value for such Rent Year pursuant to Section 4(c)(5) of this Lease. Notwithstanding anything contained herein to the contrary, eighty percent (80%) of the Estimated Production Value shall not be less than the product of fifty-seven thousand (57,000) cases multiplied by the then-applicable Per Case Value (as defined below).

 

(3)           Each year's "Estimated Production Value" shall be an amount equal to the Per Case Value multiplied by the number of cases of wine forecasted, in accordance with Section 4(c)(4), to be produced by Tenant in the Winery for such Rent Year. For the first Rent Year, the "Per Case Value" shall be Three Dollars ($3.00). On every Rent Adjustment Date the Per Case Value shall be increased by three percent (3%). As used in this Lease, the term "Actual Production Value" shall refer to the number of cases of wine actually produced by Tenant in the Winery as indicated in the Production Report (as defined below) for a given Rent Year multiplied by the then-applicable Per Case Value,

 

  

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(4)           No later than thirty (30) days prior to each Rent Adjustment Date, Tenant shall, using commercially reasonable estimates, forecast the number of cases of wine to be produced by Tenant in the Winery for the Rent Year commencing on such Rent Adjustment Date and shall submit such written forecast to Landlord (each an "Estimated Production Report"). The Estimated Production Report shall be used to determine that Rent Year's Estimated Production Value pursuant to Section 4(c)(3) of this Lease. The parties hereby acknowledge and agree that fifty-seven thousand (57,000) cases of wine are expected to be produced by Tenant in the Winery during the first Rent Year.

 

(5)           Commencing on September 30, 2012 and on each September 30 of the Term thereafter, the Winery Rent for the immediately preceding Rent Year shall be reconciled pursuant to this Section 4(c)(5) and Tenant shall furnish to Landlord a written statement showing the number of cases of wine actually produced by Tenant in the Winery during the immediately preceding Rent Year (each a "Production Report"). If the production totals set forth in such Production Report exceed the forecasts set forth in the applicable Estimated Production Report, Tenant shall pay to Landlord, no later than November 15 of that Rent Year, an amount equal to the product of the applicable Per Case Value multiplied by the greater of the number of cases of wine actually produced as stated in the Production Report or fifty-seven thousand (57,000) cases, less the Winery Rent previously paid.

 

(d)           Tasting Room Rent. The annual rent to be paid by Tenant to Landlord for the Tasting Room shall be Ninety Thousand Dollars ($90,000) (the "Tasting Room Rent"); provided, however, no Tasting Room Rent shall be due to Landlord until April 1, 2011 and on the first (l') day of each month thereafter during the Term. On every Rent Adjustment Date, the Tasting Room Rent shall be increased by three percent (3%).

 

(e)           Prorations. Monthly Rent for any partial month shall be prorated at the rate of one-thirtieth (1/30th) of the Monthly Rent per day. If this Lease terminates before the expiration date for reasons other than Tenant's default, Month Rent shall be prorated to the date of such termination and shall be reconciled pursuant to Section 4(c)(5).

 

5.             Late Charge; Interest. If any installment of Monthly Rent due from Tenant is not received by Landlord within fifteen (15) business days of the date due, Tenant shall pay to Landlord One Thousand Dollars ($1,000) as a late charge, plus interest at ten percent (10%) per annum. Landlord and Tenant acknowledge and agree that such charges, interest, and fees represent a fair and reasonable estimate of the costs Landlord may incur by reason of Tenant's late payment. Tenant's payment or Landlord's acceptance of any such charges, interest, or fees shall not excuse or cure any default by Tenant under this Lease. Landlord's right to collect such charges, interest, or fees shall not be deemed an extension of the date Monthly Rent is due, or prevent Landlord from exercising any other rights and remedies it may have under this Agreement or under law.

 

  

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6.             Personal Property Taxes.

 

(a)           Tenant Property. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied and assessed on Tenant's personal property installed or located in or on the Premises, and that become payable during the Term. Upon written request by Landlord, Tenant shall furnish Landlord satisfactory evidence of these payments.

 

(b)           Landlord Property. Landlord shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied and assessed on Landlord's personal property, fixtures and equipment installed or located in or on the Premises, and that become payable during the Term. Upon written request by Tenant, Landlord shall furnish Tenant satisfactory evidence of these payments.

 

7.             Real Property Taxes. Landlord shall pay all real property taxes and general and special assessments levied and assessed against the Premises.

 

8.            Use. The Premises shall be used as a winery and tasting room and for activities related to such uses. No use shall be made or permitted to be made of the Premises, nor acts done in or about the Premises, which will in any way conflict with any law, ordinance, rule or regulation affecting the occupancy or use of the Premises which has been or is subsequently enacted or promulgated by any public authority, or which will increase the existing rate of insurance upon the building, or cause a cancellation of any insurance policy covering the building or any part thereof, nor shall Tenant sell, or permit to be kept, used or sold in or about the Premises, any article which may be prohibited by the standard form of fire insurance policy.

 

Permits for the operation of the Premises for the production of alcoholic beverages shall be maintained in accordance with the terms of the Interim Management Agreement, a copy of which is attached hereto as Exhibit A.

 

9.             Utilities. Tenant shall pay for all utilities and services relating to the Premises, including without limitation janitorial, security services, electricity, gas, propane, telephone, cable, Internet service, water, septic, garbage, and recycling services (collectively, "Utilities"). If any Utilities are not separately metered to the Premises or otherwise separately provided for (collectively, "Shared Utilities"), (i) Tenant shall pay to Landlord as additional rent a reasonable portion, to be determined by Landlord in a manner reflecting actual usage, of the charges for such Shared Utilities; and (ii) Landlord shall be responsible for the payment of all charges for such Shared Utilities used by all other tenants or occupants of the Property. Landlord shall use its best efforts to have all utilities separately metered to each tenant within the first year of the Term.

 

10.           Maintenance and Repairs.

 

(a)           Tenant Responsibilities.

 

(1)           General Responsibilities. Subject to Section 10(a)(2), Tenant shall, at Tenant's sole cost and expense, keep, repair and maintain the Premises, including all equipment, trade fixtures, plumbing fixtures, electrical components, interior wall surfaces, floor and floor coverings, any and all alterations and additions made by Tenant, and signs located in the areas which are adjacent to or included with the Premises, in all respects in good repair and in a clean and safe condition. Tenant shall, at Tenant's own expense, immediately replace all interior, exterior or other glass in or about the Premises that may be broken during the Term with glass at least equal to the specification and quality of the glass so replaced.

 

  

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(2)           Limitations. Notwithstanding Section 10(a)(1), Tenant's maintenance and repair responsibilities shall be limited as follows:

 

(A)           Tenant shall not be required to perform any repair or maintenance, regardless of location, if the cost of such repair or maintenance would exceed Five Thousand Dollars ($5,000), except for repairs necessitated solely by Tenant's gross negligence or willful misconduct.

 

(B)           Tenant shall not be required to perform any repair or maintenance on the exterior of the Premises, except that Tenant shall be responsible for any repairs necessitated solely by Tenant's gross negligence or willful misconduct.

 

(C)           Tenant shall not be required to perform any repair or maintenance on any equipment, fixture, system, or component if such equipment, fixture, system, or component is (including any portion thereof) located on the exterior of the Premises, underground, under any floor, on any roof, above any suspended ceiling, or inside any wall or crawlspace.

 

(D)           Tenant shall not be required to perform any repair or maintenance on any structural component of the Premises (including, without limitation, any roof, roof surface, subfloor, foundation, or any structural component of any wall) regardless of location.

 

(E)           Tenant shall not be required to make any capital improvements or replace any equipment located within the Premises.

 

(b)           Landlord Responsibilities.

 

(1)           Repairs to Premises. Landlord shall, at Landlord's sole cost and expense, keep, repair and maintain:

 

(A)           all of the Premises' systems (including any portion thereof) located underground, under any floor, on any roof, above any suspended ceiling, or inside any wall or crawlspace including, with limitation, all electrical and gas systems, plumbing systems, and HVAC systems, in all respects in good repair and in a clean and safe condition; and

 

(B)           all of the Premises' structural components (including, without limitation, any roof, roof surface, subfloor, foundation, or any structural component of any wall or ceiling) regardless of location, in all respects in good repair and in a clean and safe condition.

 

  

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(2)           Common Areas. Landlord shall, at Landlord's sole cost and expense, keep, repair and maintain all common areas of the Property, including, without limitation, all walks, driveways, parking and loading areas, lighting, fences, and lawns and landscaping, in all respects in good repair and in a clean and safe condition.

 

(3)           Major Repairs. Any required repair or maintenance to any portion of the Premises including, without limitation, all improvements, equipment, walls, floors, subfloors, floor coverings, and structural or nonstructural portion of any building where the cost of such repair or maintenance would equal or exceed Five Thousand Dollars ($5,000) shall be the sole responsibility of Landlord, except for repairs necessitated solely by Tenant's gross negligence or willful misconduct.

 

(4)           Building Exteriors. Landlord shall, at Landlord's sole cost and expense, maintain and repair all roofs (including surfaces) and all exterior walls of the Premises, regardless of cost.

 

(c)           All maintenance and repair work undertaken, or caused to be undertaken, by Tenant or Landlord shall be done in a workmanlike manner.

 

11.           Alterations.

 

(a)           Consent of Landlord. Except as provided in Section 12, Tenant shall not make any alterations to any portion of the Premises without Landlord's prior written consent. Unless otherwise provided by written agreement, all alterations shall be done at Tenant's sole cost and shall be done by or under the direction of Landlord, and shall be the property of Landlord and shall remain on and be surrendered with the Premises on expiration or termination of the Term.

 

(b)           Notice. If Tenant makes any alterations to the Premises, as provided herein, the alterations shall not be commenced until two (2) days after Landlord has received notice from Tenant stating the date the installation of the alterations is to commence, so that Landlord can post and record an appropriate notice of non-responsibility.

 

12.           Trade Fixtures. Subject to the provisions of Section 11, Tenant may install and maintain its trade fixtures on the Premises, provided that such fixtures, by reason of the manner in which they are affixed, do not become an integral part of the building or Premises. Tenant, if not in default hereunder, may at any time or from time to time during the Term hereof, or upon the expiration or termination of this Lease, alter or remove any such trade fixtures so installed by Tenant. If not so removed by Tenant on or before the expiration or termination of this Lease, Tenant, upon the request of Landlord so to do, shall thereupon remove the same. Any damage to the Premises caused by any such installation, alteration or removal of such trade fixtures shall be promptly repaired at the expense of Tenant.

 

13.           Mechanics' Liens.

 

(a)           Cost. Except as otherwise agreed on in writing by Landlord and Tenant, Tenant shall pay all costs for construction done by it, or caused to be done by it, on the Premises, permitted by this Lease. Tenant shall keep the Premises free and clear of all mechanics' liens resulting from construction done by or for Tenant.

 

  

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(b)           Validity and Contest of Lien. Tenant shall have the right to contest the correctness or validity of any such lien if, immediately on demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half (1-1/2) times the amount of the claim of the lien. The bond shall meet the requirements of Section 3143 of the California Civil Code and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action).

 

14.           Indemnification.

 

(a)           Indemnification of Landlord. Tenant shall defend, indemnify and hold Landlord harmless from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorney fees and court costs) arising from or relating to Tenant's use of the Premises, the conduct of Tenant's business, any activity, work or things done, permitted or suffered by Tenant or any of Tenant's customers, agents, contractors, or employees in or about the Premises or elsewhere, or any negligence of Tenant or any of Tenant's agents, contractors, or employees.

 

(b)           Indemnification of Tenant. Landlord shall defend, indemnify and hold Tenant harmless from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorney fees and court costs) arising from or relating to Landlord's or any of Landlord's other tenants' use of the Property, the conduct of Landlord's or any of Landlord's other tenants' business, any activity, work or things done, permitted or suffered by Landlord or any of Landlord's other tenants agents, contractors, or employees in or about the Property or elsewhere, or any negligence of Landlord or any of Landlord's other tenants, agents, contractors, or employees.

 

15.           Insurance.

 

(a)           General Liability. Tenant at its sole cost and expense, but for the mutual benefit of Landlord and Tenant as named insureds, shall maintain commercial general liability insurance ("Liability Insurance") on an "occurrence basis" against claims for "personal injury," including without limitation, bodily injury, death or property damage, occurring upon, in or about the Premises and on, in or about the adjoining sidewalks, streets and passageways and for all other areas appurtenant thereto, such insurance to afford immediate minimum protection, at the time of the inception of this Lease, and at all times during the Term, to a limit of not less than Two Million Dollars ($2,000,000) with respect to personal injury or death to any one or more persons or to damage to property. Such insurance shall also include coverage against liability for bodily injury or property damage arising out of the use, by or on behalf of Tenant, or any other person or organization, of any owned, non-owned, leased or hired automotive equipment in the conduct of any and all operations called for under this Lease. The limits of said insurance shall not, however, limit the liability of Tenant hereunder. Tenant shall increase the amount of such insurance from time to time as mandated by Landlord to maintain commercially reasonable amounts of insurance.

 

  

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(b)           Extended Coverage. During the Term, Landlord shall keep the Premises and all improvements, fixtures and personal property therein and thereupon insured against loss or damage by fire and lightning and against loss or damage by other risks embraced by coverage, of the type now known as the broad form of extended coverage, including but not limited to fire, riot and civil commotion, vandalism and malicious mischief, special extended perils (all risk) and sprinkler leakage, and against such other risks or hazards as Landlord may from time to time reasonably designate, in amounts sufficient to prevent Landlord or Tenant from becoming a coinsurer under the terms of the applicable policies, but in any event in an amount not less than the full replacement cost of all such improvements, fixtures and personal property, without deduction for physical depreciation.

 

(c)           Tenant's Personal Property. Tenant shall maintain on all of its personal property, Tenant's improvements, and alterations in, on, or about the Premises, a policy of standard fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least ninety percent (90%) of their full replacement value. The proceeds from any such policy shall be used by Tenant for the replacement of personal property or the restoration of Tenant's improvements or alterations.

 

(d)           Payment of Premiums. Each party shall pay the premiums for the insurance they are required to maintain under this Lease.

 

(e)           Policy Provisions. Each insurance policy maintained by Tenant under this Lease shall contain a provision requiring thirty (30) days' written notice from the insurance company to Landlord before any cancellation or change in the coverage, scope, or amount of the policy. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with the other party at the commencement of the term, and on renewal of the policy, not less than twenty (20) days before expiration of the term of the policy.

 

16.           Waiver of Subrogation.

 

(a)           Waiver. The parties release each other, and their respective authorized representatives, from any claims for damage to any person, or to the Premises and to the fixtures, personal property, Tenant's improvements, and alterations of either Landlord or Tenant in or on the Premises that are caused by or result from the risks insured against under any insurance policies carried by the parties and in force at the time of any such damage.

 

(b)           Insurance. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such policy is obtainable at additional cost. If the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved.

 

  

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17.           Destruction. If the whole or any part of the Premises shall be destroyed by fire or other cause, or be so damaged thereby that they are untenantable and cannot be rendered tenantable within one hundred eighty (180) days from the date of such destruction or damage, this Lease may be terminated by Landlord or Tenant by written notice. Within forty-five (45) days from date of such destruction or damage, Landlord shall give written notice to Tenant as to whether or not the Premises will be rendered tenantable within one hundred eighty (180) days from the date of such destruction or damage. In case the damage or destruction does not permit termination of the Lease as provided above, or neither Landlord nor Tenant elects to terminate the Lease as provided above, Landlord shall within a reasonable time, render said Premises tenantable. The provisions of Sections 1932(2) and. 1933(4) of the California Civil Code shall not apply to this Lease, and Tenant waives the benefit of such provisions.

 

18.           Condemnation. Should the whole or any part of the Premises be condemned and taken by any competent authority for any public or quasi-public use or purpose, all awards payable on account of such condemnation and taking shall be payable to Landlord, and Tenant hereby waives all interest in or claim to such awards, or any part thereof. If the whole of the Premises shall be so condemned and taken, then this Lease shall terminate. If only a part of the Premises is condemned and taken and the remaining portion thereof is not suitable for the purposes for which Tenant has leased said Premises, this Lease shall terminate. If only a part of the Premises is condemned and taken and the remaining portion thereof is suitable for the purposes for which Tenant has leased said Premises, this Lease shall continue, but the rental shall be reduced in an amount proportionate to the value of the portion taken as it related to the total value of the Premises.

 

19.           Assignment and Subletting. Tenant shall not assign, mortgage or pledge this Lease, or any interest therein, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or allow any other person (the agents and servants of Tenant excepted) to occupy or use the Premises, or any portion thereof.

 

20.           Tenant's Obligations Upon Termination. In addition to any other obligation contained in this Lease, upon termination hereof, Tenant shall (i) give Landlord all copies of all keys or opening devices to the Premises; (ii) vacate the Premises and surrender it to Landlord empty of all persons and personal property; (iii) vacate all parking and storage spaces; (iv) deliver the Premises to Landlord in the same condition specified in Section 2(c), normal wear and tear excepted, and in broom-clean condition; and (v) give written notice to Landlord of Tenant's forwarding address.

 

21.           Insolvency and Receivership. Either the appointment of a receiver to take possession of all, or substantially all, of the assets of Tenant or a general assignment by Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency or bankruptcy act, shall constitute a breach of this Lease by Tenant.

 

  

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22.           Default and Re-Entry.

 

(a)           Right of Re-Entry. In the event of any breach of the terms and provisions of this Lease by Tenant, or if Tenant's interest herein, or any part thereof, be assigned or transferred without the written consent of Landlord, either voluntarily or by operation of law, whether by judgment, execution, death, receivership, or any other means, or if Tenant vacates or abandons the Premises, which shall be conclusively presumed if Tenant leaves the Premises closed or unoccupied continuously for twenty (20) days, then in any such event, Landlord, besides other rights or remedies it may have, shall have the immediate right of re-entry and may remove all persons and property from the Premises and may store such property at the cost of and for the account and risk of Tenant.

 

(b)           Possession and Termination. Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or, pursuant to Section 1951.4 of the California Civil Code, and even though Tenant has breached this Lease and abandoned the Premises, continue the Lease in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce, all its rights and remedies under the lease, including the right to recover the rent as it becomes due.

 

(c)           Continuation. If Landlord elects to continue the Lease in effect, it may re-lease the Premises, or any part thereof, for such term or terms (which may be for a term extending beyond the Term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord, in its sole discretion, may deem advisable and shall have the right to make alterations and repairs to the Premises.

 

(d)           Received Rents. Rents received by Landlord from such re-letting shall be applied as follows: (i) first, to the payment of any costs and expenses of such re-letting, including a reasonable attorney's fee and any real estate commission actually paid, and any costs and expenses of such alterations and repairs; (ii) second, to the payment of any indebtedness, other than rent, due hereunder from Tenant to Landlord; (iii) third, to the payment of rent due and unpaid hereunder; and (iv) the residue, if any, shall be held by Landlord and applied in payment of future rent or other obligations as the same may become due and payable hereunder. If the net rent from such re-letting during any month after first applying the rent received to such fees, costs, expenses, and other indebtedness, is less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord, and such deficiency shall be calculated and paid monthly.

 

(e)           Election to Terminate. No such re-entry or taking possession of said Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such re-letting without termination, Landlord may, at any time thereafter, elect to terminate this Lease for such previous breach.

 

  

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(f)           Termination by Landlord. Should Landlord at any time terminate this Lease for any breach, and thereafter seek relief pursuant to Section 1951.2 of the California Civil Code, interest shall be allowed upon unpaid rent for the purposes of Section 1951.2(b) at the rate of ten percent (10%) per annum. Landlord shall be entitled to recover at the time of an award of damages for default the worth of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could reasonably be avoided. Unless otherwise agreed between the parties, any proof by Tenant under Sections 1951.2(a)(2), 1951.2(a)(3), or 1951.2(c)(1) of the California Civil Code, or any successor statutes, as to the amount of rental loss that could be reasonably avoided, shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the leased Premises and in the same geographic vicinity, the real estate brokers so selected shall then select a third real estate broker similarly qualified, and the three so selected shall determine the amount of the rental loss that could be reasonably avoided for the balance of the Term of this Lease after the time of award. The decision of the majority of said brokers shall be final and binding upon the parties hereto.

 

(g)           Remedies Cumulative. The foregoing rights and remedies shall be in addition to and cumulative with any other rights and remedies available to Landlord under the terms of this Lease or any applicable laws, statutes or regulations.

 

23.           Waiver. The waiver by Landlord of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent.

 

24.           Removal of Property. Whenever Landlord shall remove any property of Tenant from the Premises and store the same elsewhere for the account, and at the expense and risk, of Tenant, as provided in Section 22, and Tenant shall fail to pay the cost of storing any such property after it has been stored for a period of thirty (30) days or more, Landlord may sell any or all such property at public or private sale, in such manner and at such times and places as Landlord in its sole discretion may deem proper, without notice to or demand upon Tenant, for the payment of any part of such charges or the removal of any such property, and shall apply the proceeds of such sale: first, to the cost and expenses of such sale, including reasonable attorney's fees actually incurred; second, to the payment of the charges for storing any such property; third, to the payment of any other sums of money which may then or thereafter be due to Landlord from Tenant under any of the terms hereof, and fourth, the balance, if any, to Tenant.

 

25.           Waiver of Damages For Re-Entry. Tenant hereby waives all claims for damages that may be caused by Landlord's re-entering and taking possession of the Premises or removing and storing the property of Tenant as herein provided. Tenant shall hold Landlord harmless from any loss, costs or damages occasioned thereby, and no such re-entry shall be considered or construed to be a forcible entry.

 

26.           Litigation Against Tenant. Should Landlord, without fault on Landlord's part, be made a party to any litigation instituted by or against Tenant, or by or against any person holding under or using the Premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to pay to Landlord the amount of any judgment rendered against Landlord or the Premises or any part thereof, and all costs and expenses, including all attorney's fees, incurred by Landlord in or in connection with such litigation.

 

  

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27.           Subordination.

 

(a)           Effect of Subordination. This Lease, at Landlord's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the Premises and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Tenant's right to possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust, or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date or recording thereof.

 

(b)           Documentation. Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, and failing to do so within ten (10) days after written demand, does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead, to do so. Tenant acknowledges that Tenant's failure to deliver documents referred to above may cause Landlord serious financial damage by causing the failure of a financing or sale transaction. Tenant shall be liable for all consequential damages to Landlord in the event of such failure.

 

28.           Holding Over. If Tenant holds over after the Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month to month only, and not a renewal hereof or an extension for any further, term. In such case, rent shall be payable in the amount and at the time specified in Section 4, and such month to month tenancy shall be subject to every other term, covenant and agreement contained in this Lease.

 

29.           Entry and Inspection. Tenant will permit Landlord and its agents to enter into and upon the Premises at all reasonable times for the purpose of inspecting the same, or for the purpose of protecting the interest therein of Landlord, or to post notices of non-responsibility, or to make alterations or additions to the Premises, including the erection of scaffolding, props or other mechanical devices, or to provide any service provided by Landlord to Tenant hereunder, without any rebate of rent to Tenant for any loss of occupancy or quiet enjoyment of the Premises, or damage, injury or inconvenience thereby occasioned. Tenant will permit Landlord to bring prospective tenants or purchasers upon the Premises, for purposes of inspection or display. Landlord shall give Tenant twenty-four (24) hours' prior notice to any entry or inspection, unless shorter notice is reasonable under the circumstances.

 

  

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30.           Sale or Transfer of Premises. Subject to the provisions of Section 2(c), if Landlord sells or transfers all or any portion of the Premises, Landlord, on consummation of the sale or transfer, shall be released from any liability thereafter accruing under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord can transfer the security deposit or prepaid rent to Landlord's successor and on such transfer Landlord shall be discharged from any further liability in reference to the security deposit or prepaid rent.

 

31.           Estoppel Certificate. Within ten (10) days after written request therefore, Tenant shall execute and deliver to Landlord, in a form provided by or satisfactory to Landlord, a certificate stating that this Lease is in full force and effect, describing any amendments or modifications hereto, acknowledging that this Lease is subordinate or prior, as the case may be, to any encumbrances, and stating any other information Landlord may reasonably request, including the Term, the Monthly Rent, the date to which rent has been paid, the amount of any security deposit or prepaid rent, whether either party hereto is in default under the terms of the Lease, and whether Landlord has completed its construction obligations hereunder (if any). Any person or entity purchasing, acquiring an interest in, or extending financing with respect to the Premises shall be entitled to rely upon any such estoppel certificate. If Tenant fails to deliver such certificate within ten (10) days after Landlord's written request therefore, Tenant shall be liable to Landlord for any damages incurred by Landlord including any profits or other benefits from any financing of the Premises or any interest therein which are lost or made unavailable as a result, directly or indirectly, of Tenant's failure or refusal to timely execute or deliver such estoppel certificate,

 

32.           Signs. Tenant may not erect or have erected any signs at or upon the Premises without the written consent of Landlord.

 

33.           Miscellaneous Provisions.

 

(a)           Notice. Any notice required or permitted under this Agreement shall be given in writing and delivered as described herein. A notice shall be deemed effectively given as follows: (i) upon personal delivery; (ii) one (1) business day after transmission by electronic means, provided such transmission is electronically confirmed as having been successfully transmitted and a copy of such notice is deposited within 24 hours for either overnight delivery or for registered or certified mail, in accordance with clause (iii) or (iv) below, respectively; (iii) one (1) business day after deposit with a reputable overnight courier service, prepaid for overnight delivery; or (iv) three (3) business days after deposit with the United States Postal Service, postage prepaid, registered or certified with return receipt requested. Addresses for notice shall be as follows, or at such other address as such party may designate by ten (10) days' advance written notice to the parties:

 

If to Tenant:

 

H.D.D. LLC

P.O. Box 1532

Healdsburg CA 95448

Attn:   Managers

 

  

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With a copy, which shall not constitute notice, to:

 

Spaulding McCullough & Tansil LLP

90 South E Street, Suite 200

Santa Rosa, California 95404

Attn:  Kevin J. McCullough

 

If to Landlord:

 

Hambrecht Wine Group, L.P.

c/o Hambrecht Wine Management, Inc. 4035 Westside Road

Healdsburg, CA 95448

Attn:   William R. Hambrecht

 

With a copy, which shall not constitute notice, to:

 

WR Hambrecht & Co

Pier 1, Bay 3

San Francisco, CA 94111

Attn:  Helen Miazga

 

(b)           Legal Representation. The parties acknowledge that the law firm of Spaulding McCullough & Tansil LLP has prepared this Lease and represents solely the interests of Tenant. Landlord hereby represents and warrants that such party has received, or has had the opportunity and adequate time to receive, independent tax and legal advise from counsel of such party's choice with respect to the advisability of entering into and performing such party's obligations under this Lease. Each party hereto represents and warrants that such party has read and understands the terms and conditions of this Lease.

 

(c)           Entire Agreement. This Lease constitutes and embodies the entire understanding and agreement of the parties hereto relating to the subject matter hereof and supersedes all prior agreements or understandings of the parties hereto, whether written or oral.

 

(d)           Time of Essence. Time is of the essence with respect to the terms, covenants, and conditions contained herein.

 

(e)           Construction. Any rule of construction to the affect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Lease. Every covenant, term, and provision of this Lease shall be construed simply according to its fair meaning and not strictly for or against any party. All words used herein will be construed to be of the gender or number the circumstances require. Terms that are not specifically defined herein shall be given their ordinary meaning.

 

(f)           Amendments and Waivers. Any term of this Lease may be amended and the observance of any term of this Lease may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the party or parties to be bound thereby. No delay in the exercise of any right or remedy under this Lease shall constitute a waiver thereof and the waiver by any party of any right or remedy under this Lease on any one occasion shall not be deemed a waiver of such right or remedy on any subsequent occasion.

 

  

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(g)           Headings. The titles and subtitles used in this Lease are used for convenience only and shall not be considered in construing or interpreting this Lease.

 

(h)           Governing Law Venue. This Lease shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. The parties consent to the exclusive jurisdiction and venue of the County of Sonoma in the State of California.

 

(i)           Severability. Whenever possible, each provision of this Lease shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Lease shall be or become prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Lease.

 

(j)           Arbitration. Any controversy between the parties involving the construction or application of any of the terms, covenants, or conditions of this Lease shall, on written request of one party served on the other, be submitted to binding arbitration, and such arbitration shall comply with and be governed by the provisions of the California Arbitration Act, Section 1280-1294.2 of the California Code of Civil Procedure. This provision shall not prohibit the parties from filing a judicial action to enable the recording of a notice of pending action or order of attachment, receivership, injunction, or other provisional remedy.

 

(k)           Attorneys' Fees. If any legal action or other proceeding, including arbitration or action for declaratory relief; is brought for the enforcement of this Lease (including any action by Landlord for the recovery of rent or possession of the Premises) or because of an alleged dispute, breach, default, or misrepresentation in connection with this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees and other costs, in addition to any other relief to which the party may be entitled. As used herein, "prevailing party" shall include without limitation: (i) the party who dismisses an action in exchange for sums allegedly due; (ii) the party who receives performance from the other party of an alleged breach of covenant or a desired remedy where that is substantially equal to the relief sought in an action; or (iii) the party determined to be the prevailing party by a court of law or arbitrator.

 

(1)           Counterparts. This Lease may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

  

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written.

 

	 	
LANDLORD:

 

HAMBRECHT WINE GROUP, L.P.,

 a California limited partnership

	 	 
	 	By:	
HAMBRECHT WINE MANAGEMENT INC.,

	 	 	
a California corporation

	 	Its: 	
General Partner

	 	 	 

 

	 	 	
By:

	/s/ William R. Hambrecht
	 	 	 	William R. Hambrecht, Chairman

 

 

	 	

TENANT:

 

H.D.D. LLC,

 a California limited liability company

	 	 
	 	 
	 	By:	/s/ Phillip L. Hurst
	 	 	
Phillip L. Hurst, Manager

	 	 	 
	 	 	 
	 	By:	/s/ Mark De Meulenaere
	 	 	
Mark De Meulenaere, Manager

	 	 	 

 

Exhibit:

A – Interim Management Agreement

  

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EXHIBIT A

 

INTERIM MANAGEMENT AGREEMENTex10_14.htm

EXHIBIT 10.14

 

TRUETT-HURST, INC.

 

2012 STOCK INCENTIVE PLAN

 

1.             Purposes of the Plan.  The purposes of this Plan are to attract and retain the best available personnel, to provide additional incentives to Employees, Directors and Consultants and to promote the success of the Company’s business.

 

2.             Definitions.  The following definitions shall apply as used herein and in the individual Award Agreements except as defined otherwise in an individual Award Agreement.  In the event a term is separately defined in an individual Award Agreement, such definition shall supersede the definition contained in this Section 2.

 

(a)           “Administrator” means the Board or any of the Committees appointed to administer the Plan.

 

(b)           “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

 

(c)           “Applicable Laws” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein.

 

(d)           “Assumed” means that pursuant to a Corporate Transaction either (i) the Award is expressly affirmed by the Company or (ii) the contractual obligations represented by the Award are expressly assumed (and not simply by operation of law) by the successor entity or its Parent in connection with the Corporate Transaction with appropriate adjustments to the number and type of securities of the successor entity or its Parent subject to the Award and the exercise or purchase price thereof which at least preserves the compensation element of the Award existing at the time of the Corporate Transaction as determined in accordance with the instruments evidencing the agreement to assume the Award.

 

(e)           “Award” means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Restricted Stock Unit or other right or benefit under the Plan.

 

(f)            “Award Agreement” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.

 

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

 

(h)            “Cause” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Service, that such termination is for “Cause” as such term (or word of like import) is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s:  (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (ii) dishonesty, intentional misconduct or material breach of any agreement with the Company or a Related Entity; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person; provided, however, that with regard to any agreement that defines “Cause” on the occurrence of or in connection with a Corporate Transaction or a Change in Control, such definition of “Cause” shall not apply until a Corporate Transaction or a Change in Control actually occurs.

 

  

  

  

 

(i)            “Change in Control” means a change in ownership or control of the Company after the Registration Date effected through either of the following transactions:

 

(i)            the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or

 

(ii)           a change in the composition of the Board over a period of twelve (12) months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors.

 

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

 

(k)           “Committee” means any committee composed of members of the Board appointed by the Board to administer the Plan.

 

(l)            “Common Stock” means the common stock of the Company.

 

(m)           “Company” means Truett-Hurst, Inc., a Delaware corporation, or any successor entity that adopts the Plan in connection with a Corporate Transaction.

 

(n)           “Consultant” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.

 

(o)           “Continuing Directors” means members of the Board who either (i) have been Board members continuously for a period of at least twelve (12) months or (ii) have been Board members for less than twelve (12) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.

 

  

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(p)           “Continuous Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant is not interrupted or terminated.  In jurisdictions requiring notice in advance of an effective termination as an Employee, Director or Consultant, Continuous Service shall be deemed terminated upon the actual cessation of providing services to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an Employee, Director or Consultant can be effective under Applicable Laws.  A Grantee’s Continuous Service shall be deemed to have terminated either upon an actual termination of Continuous Service or upon the entity for which the Grantee provides services ceasing to be a Related Entity.  Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement).  Notwithstanding the foregoing, except as otherwise determined by the Administrator, in the event of any spin-off of a Related Entity, service as an Employee, Director or Consultant for such Related Entity following such spin-off shall be deemed to be Continuous Service for purposes of the Plan and any Award under the Plan.  An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.  For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds three (3) months, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such three (3) month period.

 

(q)           “Corporate Transaction” means any of the following transactions, provided, however, that the Administrator shall determine under parts (iv) and (v) whether multiple transactions are related, and its determination shall be final, binding and conclusive:

 

(i)             a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;

 

(ii)            the sale, transfer or other disposition of all or substantially all of the assets of the Company;

 

(iii)           the complete liquidation or dissolution of the Company;

 

(iv)           any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of Common Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than forty percent (40%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger, , but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or

 

  

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(v)           acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction.

 

(r)           “Covered Employee” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code.

 

(s)           “Designated Entity” means any Affiliate or any other entity designated by the Administrator for participation in the Plan.

 

(t)            “Director” means a member of the Board or the board of directors of any Related Entity.

 

(u)           “Disability” means as defined under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy.  If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days.  A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.

 

(v)           “Dividend Equivalent Right” means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock.

 

(w)           “Employee” means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance.  The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.

 

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

 

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

 

(i)           If the Common Stock is listed on one or more established stock exchanges or national market systems, including without limitation The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market of The NASDAQ Stock Market LLC, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Common Stock is listed (as determined by the Administrator) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

  

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(ii)            If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such stock as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

 

(iii)           In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Administrator in good faith.

 

(z)            “Good Reason” means the occurrence of any of the following events or conditions unless consented to by the Grantee (and the Grantee shall be deemed to have consented to any such event or condition unless the Grantee provides written notice of the Grantee’s non-acquiescence within 30 days of the effective time of such event or condition):

 

(i)             a change in the Grantee’s responsibilities or duties which represents a material and substantial diminution in the Grantee’s responsibilities or duties as in effect immediately preceding the change;

 

(ii)            a reduction in the Grantee’s base salary to a level below that in effect at any time within six (6) months preceding the reduction; provided that an across-the-board reduction in the salary level of substantially all other individuals in positions similar to the Grantee’s by the same percentage amount shall not constitute such a salary reduction; or

 

(iii)           requiring the Grantee to be based at any place outside a 50-mile radius from the Grantee’s job location except for reasonably required travel on business.

 

(aa)           “Grantee” means an Employee, Director or Consultant who receives an Award under the Plan.

 

(bb)           “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

 

(cc)           “Non-Qualified Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

 

(dd)           “Officer” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(ee)           “Option” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.

 

(ff)            “Parent” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

  

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(gg)           “Performance-Based Compensation” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code.

 

(hh)           “Plan” means this 2012 Stock Incentive Plan.

 

(ii)      “Registration Date” means the first to occur of (i) the closing of the first sale to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, of (A) the Common Stock or (B) the same class of securities of a successor corporation (or its Parent) issued pursuant to a Corporate Transaction in exchange for or in substitution of the Common Stock; and (ii) in the event of a Corporate Transaction, the date of the consummation of the Corporate Transaction if the same class of securities of the successor corporation (or its Parent) issuable in such Corporate Transaction shall have been sold to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or prior to the date of consummation of such Corporate Transaction.

 

(jj)            “Related Entity” means any Parent or Subsidiary of the Company or a Designated Entity.

 

(kk)           “Replaced” means that pursuant to a Corporate Transaction the Award is replaced with a comparable stock award or a cash incentive program of the Company, the successor entity (if applicable) or Parent of either of them which preserves the compensation element of such Award existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same (or a more favorable) vesting schedule applicable to such Award.  The determination of Award comparability shall be made by the Administrator and its determination shall be final, binding and conclusive.

 

(ll)      “Restricted Stock” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.

 

(mm)           “Restricted Stock Units” means an Award which may be earned in whole or in part upon the passage of time or the attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.

 

(nn)           “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor thereto.

 

(oo)           “SAR” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock.

 

(pp)           “Share” means a share of the Common Stock.

 

  

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(qq)           “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

3.             Stock Subject to the Plan.

 

(a)           Subject to the provisions of Section 10, below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is 10,000 Shares, plus an annual increase to be added on the first day of the Company’s fiscal year beginning after the Registration Date equal to the least of (x) 1,000 Shares, (y) one percent (1%) of the number of Shares outstanding as of such date, or (z) a lesser number of Shares determined by the Administrator.  SARs payable in Shares shall reduce the maximum aggregate number of Shares which may be issued under the Plan only by the net number of actual Shares issued to the Grantee upon exercise of the SAR.  The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.

 

(b)      To the extent not prohibited by the listing requirements of The NASDAQ Stock Market LLC (or other established stock exchange or national market system on which the Common Stock is traded) or Applicable Law, any Shares covered by an Award which are surrendered (i) in payment of the Award exercise or purchase price (including pursuant to the “net exercise” of an option pursuant to Section 7(b)(v)) or (ii) in satisfaction of tax withholding obligations incident to the exercise of an Award shall be deemed not to have been issued for purposes of determining the maximum number of Shares which may be issued pursuant to all Awards under the Plan, unless otherwise determined by the Administrator.

 

4.             Administration of the Plan.

 

(a)           Plan Administrator.

 

(i)           Administration with Respect to Directors and Officers.  With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3.  Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.

 

(ii)           Administration With Respect to Consultants and Other Employees.  With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws.  Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.  The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time.

 

  

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(iii)           Administration With Respect to Covered Employees.  Notwithstanding the foregoing, as of and after the date that the exemption for the Plan under Section 162(m) of the Code expires, as set forth in Section 18 below, grants of Awards to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation.  In the case of such Awards granted to Covered Employees, references to the “Administrator” or to a “Committee” shall be deemed to be references to such Committee or subcommittee.

 

(iv)           Administration Errors.  In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws.

 

(b)           Powers of the Administrator.  Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:

 

(i)             to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;

 

(ii)            to determine whether and to what extent Awards are granted hereunder;

 

(iii)           to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;

 

(iv)           to approve forms of Award Agreements for use under the Plan;

 

(v)            to determine the terms and conditions of any Award granted hereunder;

 

(vi)            to amend the terms of any outstanding Award granted under the Plan, provided that any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent, provided, however, that an amendment or modification that may cause an Incentive Stock Option to become a Non-Qualified Stock Option shall not be treated as adversely affecting the rights of the Grantee;

 

(vii)          to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of award or Award Agreement, granted pursuant to the Plan;

 

(viii)         to grant Awards to Employees, Directors and Consultants employed outside the United States on such terms and conditions different from those specified in the Plan as may, in the judgment of the Administrator, be necessary or desirable to further the purpose of the Plan; and

 

(ix)           to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.

 

  

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The express grant in the Plan of any specific power to the Administrator shall not be construed as limiting any power or authority of the Administrator; provided that the Administrator may not exercise any right or power reserved to the Board.  Any decision made, or action taken, by the Administrator or in connection with the administration of this Plan shall be final, conclusive and binding on all persons having an interest in the Plan.

 

(c)           Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act for the Board, the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on an after-tax basis against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within thirty (30) days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to defend the same.

 

5.             Eligibility.  Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.  Incentive Stock Options may be granted only to Employees of the Company or a Parent or a Subsidiary of the Company.  An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards.  Awards may be granted to such Employees, Directors or Consultants who are residing in non-U.S. jurisdictions as the Administrator may determine from time to time.

 

6.             Terms and Conditions of Awards.

 

(a)           Types of Awards. The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) cash, (iii) an Option, (iv) a SAR, or (v) a similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions.  Such awards include, without limitation, Options, SARs, sales or bonuses of Restricted Stock, Restricted Stock Units or Dividend Equivalent Rights, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative.

 

  

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(b)           Designation of Award.  Each Award shall be designated in the Award Agreement.  In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option.  However, notwithstanding such designation, an Option will qualify as an Incentive Stock Option under the Code only to the extent the $100,000 limitation of Section 422(d) of the Code is not exceeded.  The $100,000 limitation of Section 422(d) of the Code is calculated based on the aggregate Fair Market Value of the Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company).  For purposes of this calculation, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the grant date of the relevant Option.  In the event that the Code or the regulations promulgated thereunder are amended after the date the Plan becomes effective to provide for a different limit on the Fair Market Value of Shares permitted to be subject to Incentive Stock Options, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

 

(c)           Conditions of Award.  Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria.  The performance criteria established by the Administrator may be based on any one of, or combination of, the following:  (i) increase in share price, (ii) earnings per share, (iii) total stockholder return, (iv) operating margin, (v) gross margin, (vi) return on equity, (vii) return on assets, (viii) return on investment, (ix) operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and depreciation, (xvi) economic value added and (xvii) market share.  The performance criteria may be applicable to the Company, Related Entities and/or any individual business units of the Company or any Related Entity.  Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.  In addition, the performance criteria shall be calculated in accordance with generally accepted accounting principles, but excluding the effect (whether positive or negative) of any change in accounting standards and any extraordinary, unusual or nonrecurring item, as determined by the Administrator, occurring after the establishment of the performance criteria applicable to the Award intended to be performance-based compensation.  Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of performance criteria in order to prevent the dilution or enlargement of the Grantee’s rights with respect to an Award intended to be performance-based compensation.

 

(d)           Acquisitions and Other Transactions.  The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction.

 

(e)           Deferral of Award Payment.  The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award.  The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.

 

  

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(f)            Separate Programs.  The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.

 

(g)           Individual Limitations on Awards.

 

(i)           Individual Limit for Options and SARs.  Following the date that the exemption from application of Section 162(m) of the Code described in Section 18 (or any exemption having similar effect) ceases to apply to Awards, the maximum number of Shares with respect to which Options and SARs may be granted to any Grantee in any calendar year shall be five thousand (5,000) Shares.  In connection with a Grantee’s commencement of Continuous Service, a Grantee may be granted Options and SARs for up to an additional two thousand five hundred (2,500) Shares which shall not count against the limit set forth in the previous sentence.  The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below.  To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitations with respect to a Grantee, if any Option or SAR is canceled, the canceled Option or SAR shall continue to count against the maximum number of Shares with respect to which Options and SARs may be granted to the Grantee.  For this purpose, the repricing of an Option (or in the case of a SAR, the base amount on which the stock appreciation is calculated is reduced to reflect a reduction in the Fair Market Value of the Common Stock) shall be treated as the cancellation of the existing Option or SAR and the grant of a new Option or SAR.

 

(ii)           Individual Limit for Restricted Stock and Restricted Stock Units.  Following the date that the exemption from application of Section 162(m) of the Code described in Section 18 (or any exemption having similar effect) ceases to apply to Awards, for awards of Restricted Stock and Restricted Stock Units that are intended to be Performance-Based Compensation, the maximum number of Shares with respect to which such Awards may be granted to any Grantee in any calendar year shall be five thousand (5,000) Shares.  The foregoing limitation shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below.

 

(h)           Deferral. If the vesting or receipt of Shares under an Award is deferred to a later date, any amount (whether denominated in Shares or cash) paid in addition to the original number of Shares subject to such Award will not be treated as an increase in the number of Shares subject to the Award if the additional amount is based either on a reasonable rate of interest or on one or more predetermined actual investments such that the amount payable by the Company at the later date will be based on the actual rate of return of a specific investment (including any decrease as well as any increase in the value of an investment).

 

  

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(i)           Early Exercise.  The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award.  Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.

 

(j)           Term of Award.  The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Award shall be no more than ten (10) years from the date of grant thereof.  However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement.  Notwithstanding the foregoing, the specified term of any Award shall not include any period for which the Grantee has elected to defer the receipt of the Shares or cash issuable pursuant to the Award.

 

(k)           Transferability of Awards.  Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee.  Other Awards shall be transferable (i) by will and by the laws of descent and distribution and (ii) during the lifetime of the Grantee, to the extent and in the manner authorized by the Administrator but only to the extent such transfers are made to family members, to family trusts, to family controlled entities, to charitable organizations, and pursuant to domestic relations orders or agreements, in all cases without payment for such transfers to the Grantee.  Notwithstanding the foregoing, the Grantee may designate one or more beneficiaries of the Grantee’s Award in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator.

 

(l)           Time of Granting Awards.  The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such other later date as is determined by the Administrator.

 

7.             Award Exercise or Purchase Price, Consideration and Taxes.

 

(a)           Exercise or Purchase Price.  The exercise or purchase price, if any, for an Award shall be as follows:

 

(i)            In the case of an Incentive Stock Option:

 

(A)           granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or

 

  

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(B)           granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

 

(ii)            In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

 

(iii)           In the case of Awards intended to qualify as Performance-Based Compensation, the exercise or purchase price, if any, shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

 

(iv)           In the case of SARs, the base appreciation amount shall not be less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

 

(v)            In the case of other Awards, such price as is determined by the Administrator.

 

(vi)           Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such Award.

 

(b)           Consideration.  Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator.  In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law:

 

(i)             cash;

 

(ii)            check;

 

(iii)          surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised;

 

(iv)           with respect to Options, if the exercise occurs on or after the Registration Date, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction;

 

  

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(v)           with respect to Options, payment through a “net exercise” such that, without the payment of any funds, the Grantee may exercise the Option and receive the net number of Shares equal to (i) the number of Shares as to which the Option is being exercised, multiplied by (ii) a fraction, the numerator of which is the Fair Market Value per Share (on such date as is determined by the Administrator) less the exercise price per Share, and the denominator of which is such Fair Market Value per Share (the number of net Shares to be received shall be rounded down to the nearest whole number of Shares); or

 

(vi)           any combination of the foregoing methods of payment.

 

The Administrator may at any time or from time to time, by adoption of or by amendment to the standard forms of Award Agreement described in Section 4(b)(iv), or by other means, grant Awards which do not permit all of the foregoing forms of consideration to be used in payment for the Shares or which otherwise restrict one or more forms of consideration.

 

(c)           Taxes.  No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any non-U.S., federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares.  Upon exercise or vesting of an Award the Company shall withhold or collect from the Grantee an amount sufficient to satisfy such tax obligations, including, but not limited to, by surrender of the whole number of Shares covered by the Award sufficient to satisfy the minimum applicable tax withholding obligations incident to the exercise or vesting of an Award (reduced to the lowest whole number of Shares if such number of Shares withheld would result in withholding a fractional Share with any remaining tax withholding settled in cash).

 

8.             Exercise of Award.

 

(a)           Procedure for Exercise; Rights as a Stockholder.

 

(i)           Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.

 

(ii)           An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised has been made, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(iv).

 

(b)           Exercise of Award Following Termination of Continuous Service.  In the event of termination of a Grantee’s Continuous Service for any reason other than Disability or death (but not in the event of a Grantee’s change of status from Employee to Consultant or from Consultant to Employee), such Grantee may, but only during the post-termination exercise period (but in no event later than the expiration date of the term of such Award as set forth in the Award Agreement), exercise the portion of the Grantee’s Award that was vested at the date of such termination or such other portion of the Grantee’s Award as may be determined by the Administrator.  The Grantee’s Award Agreement may provide that upon the termination of the Grantee’s Continuous Service for Cause, the Grantee’s right to exercise the Award shall terminate concurrently with the termination of Grantee’s Continuous Service.  In the event of a Grantee’s change of status from Employee to Consultant, an Employee’s Incentive Stock Option shall convert automatically to a Non-Qualified Stock Option on the day three (3) months and one day following such change of status.  To the extent that the Grantee’s Award was unvested at the date of termination, or if the Grantee does not exercise the vested portion of the Grantee’s Award within the post-termination exercise period, the Award shall terminate.

 

  

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(c)           Disability of Grantee.  In the event of termination of a Grantee’s Continuous Service as a result of his or her Disability, such Grantee may, but only within six (6) months from the date of such termination (or such longer period as specified in the Award Agreement but in no event later than the expiration date of the term of such Award as set forth in the Award Agreement), exercise the portion of the Grantee’s Award that was vested at the date of such termination; provided, however, that if such Disability is not a “disability” as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Non-Qualified Stock Option on the day three (3) months and one day following such termination.  To the extent that the Grantee’s Award was unvested at the date of termination, or if Grantee does not exercise the vested portion of the Grantee’s Award within the time specified herein, the Award shall terminate.

 

(d)           Death of Grantee.  In the event of a termination of the Grantee’s Continuous Service as a result of his or her death, or in the event of the death of the Grantee during the post-termination exercise period or during the six (6) month period following the Grantee’s termination of Continuous Service as a result of his or her Disability, the Grantee’s estate or a person who acquired the right to exercise the Award by bequest or inheritance may exercise the portion of the Grantee’s Award that was vested as of the date of termination, within six (6) months from the date of death (or such longer period as specified in the Award Agreement but in no event later than the expiration of the term of such Award as set forth in the Award Agreement).  To the extent that, at the time of death, the Grantee’s Award was unvested, or if the Grantee’s estate or a person who acquired the right to exercise the Award by bequest or inheritance does not exercise the vested portion of the Grantee’s Award within the time specified herein, the Award shall terminate.

 

(e)           Extension if Exercise Prevented by Law.  Notwithstanding the foregoing, if the exercise of an Award within the applicable time periods set forth in this Section 8 is prevented by the provisions of Section 9 below, the Award shall remain exercisable until one (1) month after the date the Grantee is notified by the Company that the Award is exercisable, but in any event no later than the expiration of the term of such Award as set forth in the Award Agreement and only in a manner and to the extent permitted under Code Section 409A.

 

9.             Conditions Upon Issuance of Shares.

 

(a)      If at any time the Administrator determines that the delivery of Shares pursuant to the exercise, vesting or any other provision of an Award is or may be unlawful under Applicable Laws, the vesting or right to exercise an Award or to otherwise receive Shares pursuant to the terms of an Award shall be suspended until the Administrator determines that such delivery is lawful and shall be further subject to the approval of counsel for the Company with respect to such compliance.  The Company shall have no obligation to effect any registration or qualification of the Shares under federal or state laws.

 

  

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(b)      As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.

 

10.          Adjustments Upon Changes in Capitalization.  Subject to any required action by the stockholders of the Company and Section 11 hereof, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the maximum number of Shares with respect to which Awards may be granted to any Grantee in any calendar year, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii)  any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  In the event of any distribution of cash or other assets to stockholders other than a normal cash dividend, the Administrator shall also make such adjustments as provided in this Section 10 or substitute, exchange or grant Awards to effect such adjustments (collectively “adjustments”).  Any such adjustments to outstanding Awards will be effected in a manner that precludes the enlargement of rights and benefits under such Awards.  In connection with the foregoing adjustments, the Administrator may, in its discretion, prohibit the exercise of Awards or other issuance of Shares, cash or other consideration pursuant to Awards during certain periods of time. Except as the Administrator determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.

 

11.          Corporate Transactions and Changes in Control.

 

(a)           Termination of Award to Extent Not Assumed in Corporate Transaction.  Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate.  However, all such Awards shall not terminate to the extent they are Assumed in connection with the Corporate Transaction.

 

  

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(b)           Acceleration of Award Upon Corporate Transaction or Change in Control.  The Administrator shall have the authority, exercisable either in advance of any actual or anticipated Corporate Transaction or Change in Control or at the time of an actual Corporate Transaction or Change in Control and exercisable at the time of the grant of an Award under the Plan or any time while an Award remains outstanding, to provide for the full or partial automatic vesting and exercisability of one or more outstanding unvested Awards under the Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such Awards in connection with a Corporate Transaction or Change in Control, on such terms and conditions as the Administrator may specify.  The Administrator also shall have the authority to condition any such Award vesting and exercisability or release from such limitations upon the subsequent termination of the Continuous Service of the Grantee within a specified period following the effective date of the Corporate Transaction or Change in Control.  The Administrator may provide that any Awards so vested or released from such limitations in connection with a Change in Control, shall remain fully exercisable until the expiration or sooner termination of the Award.

 

(c)           Effect of Acceleration on Incentive Stock Options.  Any Incentive Stock Option accelerated under this Section 11 in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded.

 

12.          Effective Date and Term of Plan.  The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company.  It shall continue in effect for a term of ten (10) years unless sooner terminated.  Subject to Section 17, below, and Applicable Laws, Awards may be granted under the Plan upon its becoming effective.

 

13.          Amendment, Suspension or Termination of the Plan.

 

(a)      The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by Applicable Laws.

 

(b)      No Award may be granted during any suspension of the Plan or after termination of the Plan.

 

(c)      No suspension or termination of the Plan (including termination of the Plan under Section 11, above) shall adversely affect any rights under Awards already granted to a Grantee.

 

14.          Reservation of Shares.

 

(a)      The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

 

(b)      The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, 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.

 

  

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15.          No Effect on Terms of Employment/Consulting Relationship.  The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it interfere in any way with his or her right or the right of the Company or any Related Entity to terminate the Grantee’s Continuous Service at any time, with or without cause, including, but not limited to, Cause, and with or without notice.  The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way affected by its determination that the Grantee’s Continuous Service has been terminated for Cause for the purposes of this Plan.

 

16.          No Effect on Retirement and Other Benefit Plans.  Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation.  The Plan is not a “Pension Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.

 

17.          Stockholder Approval.  The grant of Incentive Stock Options under the Plan shall be subject to approval of the Plan by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted excluding Incentive Stock Options issued in substitution for outstanding Incentive Stock Options pursuant to Section 424(a) of the Code.  Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.  The Administrator may grant Incentive Stock Options under the Plan prior to approval by the stockholders, but until such approval is obtained, no such Incentive Stock Option shall be exercisable.  In the event that stockholder approval is not obtained within the twelve (12) month period provided above, all Incentive Stock Options previously granted under the Plan shall be exercisable as Non-Qualified Stock Options.

 

18.          Effect of Section 162(m) of the Code.  Section 162(m) of the Code does not apply to the Plan prior to the Registration Date.  Following the Registration Date, the Plan, and all Awards issued thereunder, are intended to be exempt from the application of Section 162(m) of the Code, which restricts under certain circumstances the Federal income tax deduction for compensation paid by a public company to named executives in excess of $1 million per year.  The exemption is based on Treasury Regulation Section 1.162-27(f), in the form existing on the effective date of the Plan, with the understanding that such regulation generally exempts from the application of Section 162(m) of the Code compensation paid pursuant to a plan that existed before a company becomes publicly held.  Under such Treasury Regulation, this exemption is available to the Plan for the duration of the period that lasts until the earlier of (i) the expiration of the Plan, (ii) the material modification of the Plan, (iii) the exhaustion of the maximum number of shares of Common Stock available for Awards under the Plan, as set forth in Section 3(a), (iv) the first meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Company first becomes subject to the reporting obligations of Section 12 of the Exchange Act, or (v) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.  To the extent that the Administrator determines as of the date of grant of an Award that (i) the Award is intended to qualify as Performance-Based Compensation and (ii) the exemption described above is no longer available with respect to such Award, such Award shall not be effective until any stockholder approval required under Section 162(m) of the Code has been obtained.

 

  

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19.          Unfunded Obligation.  Grantees shall have the status of general unsecured creditors of the Company.  Any amounts payable to Grantees pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended.  Neither the Company nor any Related Entity shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations.  The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or maintenance of any trust or any Grantee account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Related Entity and a Grantee, or otherwise create any vested or beneficial interest in any Grantee or the Grantee’s creditors in any assets of the Company or a Related Entity. The Grantees shall have no claim against the Company or any Related Entity for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.

 

20.          Construction.  Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan.  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.

 

21.          Nonexclusivity of The Plan.  Neither the adoption of the Plan by the Board, the submission of the Plan to the stockholders of the Company for approval, nor any provision of the Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of Awards otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

 

 

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