Document:

10.1 ThirdAREmploymentAgreementMurphy

        Exhibit 10.1
    
THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of January 6, 2015 (the “Effective Date”) by and between PROS, Inc., a Delaware corporation (the “Company”), PROS Holdings, Inc., a Delaware corporation (“PROS Holdings”), and Charles Murphy (the “Employee”), and amends and restates in its entirety that certain Second Amended and Restated Employment Agreement dated as of April 8, 2014, that Amended and Restated Employment Agreement dated as of May 2, 2013, that amended and restated that Employment Agreement dated as of September 30, 2005 between the Employee and the Company, as successor-in-interest to PROS Revenue Management, L.P., as amended on April 2, 2007 and as further amended on March 24, 2009.  The Company and the Employee are sometimes collectively referred to herein as the “Parties” and individually referred to herein as a “Party.”
RECITALS
WHEREAS, the Employee and the Company desire to enter into an employment agreement that amends and restates the Employee’s existing employment agreement and contains the material terms and conditions set forth herein;
WHEREAS, Parties previously provided for a transition plan whereby Employee would transition to part-time employment effective January 31, 2015 and terminate employment as of January 31, 2016;
WHEREAS, the Compensation Committee has elected to extend the Transition Period (as defined in the Second Amended and Restated Employment Agreement) whereby Employee will transition to part-time employment effective March 31, 2015 and shall terminate employment as of March 31, 2016, in exchange for such additional compensation and benefits as described herein; and
WHEREAS, the Parties intend that this Agreement memorialize all of the rights, duties and obligations of the Parties with respect to the employment of Employee with the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is acknowledged, the Parties hereby agree as follows:
1.Position and Duties.  Employee shall be employed by the Company as Executive Vice President and Chief Financial Officer (“CFO”) and will have such corresponding duties and responsibilities as are intrinsic to Employee’s position and such other duties and responsibilities on behalf of the Company and its affiliates as may reasonably be designated from time to time by the Employee’s supervisor.  In addition, and without further compensation, the Employee shall serve as a director and/or officer of one or more of the Company’s affiliates if so elected or appointed from time to time.  Employee agrees to devote Employee’s full time, energy and skill to Employee’s responsibilities and duties to the Company and its affiliates.  Employee agrees to resign as a director and/or officer of the Company and any of its affiliates immediately upon the termination of Employee’s employment for any reason.

2.Transition Position/Duties. Effective at the Company’s sole election (“Transition Date”) and continuing until March 31, 2016 (the “Transition Period”), Employee shall transition his duties and position.  Employee shall retain the title of Executive Vice President, but shall no longer have the position or duties of CFO.  Employee will be relieved of all regular daily job duties at that time and will not be required to come into the office.  Employee’s duties shall be limited to making himself available by telephone for unlimited questions directed to him from PROS Holdings’ Chief Executive Officer, the new CFO, the Chief Operating Officer, the General Counsel and any member of PROS Holdings’ Board of Directors.  As of the Transition Date, Employee shall be removed as a Section 16 officer and as a corporate officer of PROS Holdings and all PROS Holdings’ subsidiaries.  As of June 30, 2015, or earlier at PROS Holdings’ sole election, Employee shall no longer be designated as an “Insider Employee” as that term is defined in the Company’s Insider Trading Policy. 

3.Term of Agreement.  The term of this Agreement (the “Term”) shall be through March 31, 2016 at which time Employee’s employment with Company and this Agreement shall terminate, unless it is earlier terminated as set forth in paragraph 5 below.  The Company’s Compensation Committee may in its sole discretion extend the Term of the Agreement in writing.

4.Compensation.  Employee shall be compensated by the Company for the performance of Employee’s duties and obligations hereunder as follows:

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(a)Salary.  Employee shall be paid a salary of $30,000.00 per month ($360,000 annually), less applicable withholdings and deductions, in accordance with the Company’s normal payroll procedures (the “Salary”).  Effective as of the later of (i) April 1, 2015 and (ii) the Transition Date; and continuing through the end of the Transition Period, Employee’s Salary will be reduced to $8,333.33 per month ($100,000 annually), less applicable withholdings and deductions, in accordance with the Company’s normal payroll procedures.  

(b)Bonus.  For fiscal year 2014, Employee shall be entitled to participate in the Company’s employee bonus plans as authorized by the Board of Directors of PROS Holdings (the “Board”), or the Compensation Committee thereof (the “Compensation Committee”), from time to time (any bonus amounts payable pursuant to such plans being a “Bonus”).  Any Bonus shall be less statutory and other authorized deductions and withholdings and payable in accordance with the terms of the bonus plan.  Pursuant to the Company’s Corporate Governance Guidelines, the Board will consider and make a decision in its sole discretion to recoup, under applicable law, any Bonus awarded to the Employee, if Employee’s fraud or intentional misconduct significantly contributed to a restatement of financial results that led to the awarding of Employee’s Bonus(es).  To the extent Employee remains employed with the Company through January 31, 2015, Employee’s target bonus amount for the fiscal year 2014 Bonus shall be 100% of Employee’s 2014 target bonus (“Bonus Target”).  To the extent Employee remains employed with the Company through March 31, 2015, Employee shall be entitled to receive a Bonus of $75,000.  Employee will not be eligible for any additional Bonus for fiscal year 2015 or 2016 unless the Compensation Committee in its sole discretion extends the Transition Date beyond March 31, 2015 or March 2016, respectively.

(c)Benefits.  Employee shall be eligible, on the same basis as other employees of the Company, to participate in and to receive the benefits of the Company’s employee benefit plans and vacation, holiday and business expense reimbursement policies, each as in effect from time to time.  Such participation shall be subject to (i) the terms of the applicable plan documents, (ii) generally applicable Company policies and (iii) the discretion of the Board or any administrative or other committee provided for in or contemplated by such plan.  Effective as of when Employee becomes a part-time employee, Employee will no longer eligible for full-time group health care coverage.  The Company agrees to reimburse Employee for the premiums required to continue Employee’s group health care coverage through the end of the Transition Period, so long as Employee remains employed by the Company (“COBRA Payment Period”), under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), provided that Employee elects to continue and remains eligible for these benefits under COBRA.  Employee will only receive this COBRA reimbursement if Employee signs, delivers to Company, and does not revoke, a general release and waiver in a form acceptable to the Company (the general form of which is attached hereto as Exhibit A).  The reimbursement payments shall not begin until on or after the general release described above has become effective, and shall be subject to all applicable withholdings and taxes.  Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the payment of the COBRA premiums would result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Internal Revenue Code of 1986, as amended  or any statute or regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of reimbursing the COBRA premiums, Company, in its sole discretion, may elect to instead pay Employee on the first day of each month, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings, for the remainder of the COBRA Payment Period.  Employee may, but is not obligated to, use such payments toward the cost of COBRA premiums.  

5.Termination.  Company and Employee may terminate Employee’s employment prior to the expiration of the Term, pursuant to the provisions set forth below.  Upon the termination (voluntarily or otherwise) of Employee’s employment with the Company, neither Party shall have any continuing obligations or liabilities with respect to compensation, benefits, or severance except as set forth in this Section 5.  

(a)Voluntary Termination; Termination for Cause.  Upon the expiration of this Agreement on March 31, 2016 or if Employee’s employment is voluntarily terminated by Employee other than for Good Reason (a “Voluntary Termination”) or is terminated by the Company for Cause (as defined below) during the Term, Employee shall be entitled to no compensation or benefits from the Company other than accrued and unpaid compensation and benefits through the date of termination (“Termination Date”).  For purposes of this Section 5, a termination of Employee’s employment as a result of Employee’s death or Disability (as defined below) shall constitute a Voluntary Termination.  In the case of Employee’s allegation of Good Reason, (A) Employee shall provide written notice to Company of the event alleged to constitute Good Reason within 60 days of the occurrence of such event, and (B) Company shall have the opportunity to remedy the alleged Good Reason event within 30 days from receipt of notice of such allegation.  In order to resign for Good Reason, Employee must effectuate such resignation within 60 days after notifying Company of the event alleged to constitute Good Reason, provided Company has not cured such condition within 30 days from receipt of the notification.

(b)Termination Without Cause or for Good Reason.  In the event Employee’s employment is terminated before March 31, 2016, by the Company without Cause or by Employee for Good Reason, Employee shall be entitled to accrued and unpaid compensation through the Termination Date.  In addition, provided Employee signs, delivers to Company, and does not revoke, within thirty (30) days 

        

following the Termination Date, a general release and waiver in a form acceptable to the Company (the general form of which is attached hereto as Exhibit A) (the “Severance Conditions”), Employee shall receive the following severance package:

(i)severance equivalent to one hundred percent (100%) of the Employee’s then current annual Salary, less applicable withholding and deductions, paid in equal installments over a twelve (12) month period on Company’s regular paydays, with the first such installment payment made on the first payday following the 30th day after Employee’s Termination Date; and

(ii)to the extent Employee participates in any medical, prescription drug, dental, vision and any other “group health plan” of the Company immediately prior to Employee’s Termination Date, the Company shall pay to Employee in a lump sum a fully taxable cash payment in an amount equal to twelve (12) times the monthly premium cost to Employee of continued coverage for Employee that would be incurred for continuation coverage under such plans in accordance with Section 4980B of the Internal Revenue Code of 1986, as amended, and Part 6 of Title 1 of the Employee Retirement Income Security Act of 1986, as amended, less applicable tax withholding, payable on the first payday following the 30th day after Employee’s Termination Date.  Employee may, but is not obligated to, use such payment toward the cost of continuation coverage premiums; and

(iii)(A) any unpaid Bonus (including full discretionary components thereof) relating to completed bonus periods preceding the Termination Date (for example, (i) if Employee’s employment is terminated in January, prior to the payment of bonuses related to the preceding fiscal year, Employee shall be entitled to the payment of the Bonus related to such preceding year and (ii) if Employee’s employment is terminated in July, prior to the payment of bonuses related to the preceding fiscal quarters, Employee shall be entitled to the payment of the Bonus related to such preceding quarters), if any (the “Unpaid Bonus”), and (B) the Bonus within the Applicable Bonus Plan that Employee would have received at one hundred percent (100%) of performance targets (including full discretionary components thereof) as if the Employee had continued working for the Company throughout the twelve (12) month period following the Termination Date (the “Forward Bonus”).  The Unpaid Bonus shall be payable on the first payday following the 30th day after Employee’s Termination Date, and the Forward Bonus shall be payable in equal installments over a twelve (12) month period on Company’s regular paydays, with the first such installment payment made on the first payday following the 30th day after Employee’s Termination Date; and

(iv)the acceleration of vesting all equity awards (including, without limitation, any awards of stock options, restricted stock, restricted stock units, and/or performance shares or units) issued to the Employee by PROS Holdings with respect to such shares that would have vested following the Termination Date.

(c)Termination without Cause or for Good Reason within the Six Month Period Before or Anytime Following a Change of Control.  In the event Employee’s employment is terminated by the Company or its successor without Cause or by Employee for Good Reason, Employee shall be entitled to accrued and unpaid compensation through the Termination Date.  In addition, provided that such termination of the Employee’s employment occurs during the Term and within six (6) months prior to, or anytime following, a Change of Control, and provided that the Severance Conditions are met, then in lieu of the severance package available under Section 5(b), the Employee shall receive the following severance package:

(i)a lump sum severance payment equivalent to one hundred fifty percent (150%) of the Employee’s then current annual Salary, less applicable withholding and deductions, payable on the first payday following the 30th day after Employee’s Termination Date; and

(ii)to the extent Employee participates in any medical, prescription drug, dental, vision and any other “group health plan” of the Company immediately prior to Employee’s Termination Date, the Company shall pay to Employee in a lump sum a fully taxable cash payment in an amount equal to eighteen (18) times the monthly premium cost to Employee of continued coverage for Employee that would be incurred for continuation coverage under such plans in accordance with Section 4980B of the Internal Revenue Code of 1986, as amended, and Part 6 of Title 1 of the Employee Retirement Income Security Act of 1986, as amended, less applicable tax withholding, payable on the first payday following the 30th day after Employee’s Termination Date.  Employee may, but is not obligated to, use such payment toward the cost of continuation coverage premiums; and

(iii)(A) any unpaid Bonus (including full discretionary components thereof) relating to completed bonus periods preceding the Termination Date (for example, (i) if Employee’s employment is terminated in January, prior to the payment of bonuses related to the preceding fiscal year, Employee shall be entitled to the payment of the Bonus related to such preceding year and (ii) if Employee’s employment is terminated in July, prior to the payment of bonuses related to the preceding fiscal quarters, Employee shall be entitled to the payment of the Bonus related to such preceding quarters), if any(the “CIC Unpaid Bonus”), and (B) the Bonus within the Applicable Bonus Plan that Employee would have received at one hundred percent (100%) of performance targets (including full discretionary components thereof) as if the Employee had continued working for the Company throughout the eighteen (18) month 

        

period following the Termination Date (the “CIC Forward Bonus”).  The CIC Unpaid Bonus and CIC Forward Bonus shall be payable on the first payday following the 30th day after Employee’s Termination Date; and

(iv)the acceleration of vesting all equity awards (including, without limitation, any awards of stock options, restricted stock, restricted stock units, and/or performance shares or units) issued to the Employee by PROS Holdings with respect to such shares that would have vested following the Termination Date.  For the sake of clarity, any equity award with a performance-based component, which is accelerated pursuant to this Section 5(c)(iv) as a result of a termination occurring during either the (a) six month period before a Change of Control or (b) anytime following a Change of Control, such acceleration shall be treated as occurring (x) in anticipation of a Change of Control (as defined in the equity award agreement governing such performance-based award) or (y) following a Change of Control, respectively, and otherwise in accordance with the terms and conditions of the equity award agreement governing such performance- based award.

(d)Acceleration of Equity Awards Following a Change of Control.  Notwithstanding the foregoing, in event of a Change of Control during the term of Employee’s employment with the Company, regardless of whether the Employee’s employment is terminated or not, Employee shall be entitled to the acceleration of vesting all equity awards (including, without limitation, any awards of stock options, restricted stock, restricted stock units, and/or performance shares or units) issued to the Employee by PROS Holdings.

(e)Acceleration of Equity Awards Upon Death or Disability.  Notwithstanding the foregoing, including without limitation Section 5(a), in event of Employee’s Death or Disability, Employee’s employment shall terminate and Employee or Employee’s estate, as applicable, shall be entitled to the acceleration of vesting all equity awards which but for Employee’s Death or Disability would have otherwise have vested by March 31, 2016 (including, without limitation, any awards of stock options, restricted stock, restricted stock units, and/or performance shares or units) issued to the Employee by PROS Holdings (“Acceleration Benefit”), provided that in the event of Employee’s Disability, Employee signs, delivers to Company, and does not revoke, within thirty (30) days following the Termination Date, a general release and waiver in a form acceptable to the Company (the general form of which is attached hereto as Exhibit A).

(f)Definitions.

(i)“Applicable Bonus Plan” shall be the Company’s bonus plan then in effect if such plan contemplates the Employee or, if no bonus plan is then in effect that contemplates the Employee, the bonus plan for the immediately preceding bonus period.

(ii)“Cause” shall mean (a) the unauthorized use or disclosure of the confidential information or trade secrets of the Company by the Employee, which use or disclosure causes material harm to the Company; (b) conviction of or a plea of “guilty” or “no contest” to a felony, or any other crime involving dishonesty or moral turpitude under the laws of the United States; (c) any intentional wrongdoing by Employee, whether by omission or commission, which adversely affects the business or affairs of the Company (or any parent or subsidiary); (d) continued failure to perform assigned duties (other than by reason of Disability) or comply with any Company policy after receiving written notification and following a reasonable cure period; (e) any material breach by the Employee of this Agreement or any other agreement between the Employee and the Company or any of its affiliates after receiving written notification and following a reasonable cure period, if such breach is curable; (f) any failure to cooperate in good faith with the Company in any governmental investigation or formal proceeding, if the Company has requested the Employee’s cooperation.

(iii)“Change of Control” shall mean any transaction including, without limitation, a merger, consolidation, sale of stock or sale of assets, but excluding any assignment as security for indebtedness, after which (a) any Person(s) other than the current stockholders shall own in excess of fifty percent (50%) of the voting stock of PROS Holdings (or the Person into which PROS Holdings shall have been merged or consolidated), have acquired all or substantially all of the consolidated assets of the Company or PROS Holdings; or (b) the persons entitled to elect a majority of the members of Board immediately before the transaction are not entitled to elect a majority of the members of the Board of the surviving entity following the transaction; provided that, in each case, the Change of Control is also a “change in control event” as defined in Section 409A.  For purposes of this definition, “Person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than employee benefit plans sponsored or maintained by PROS Holdings and by entities controlled by PROS Holdings.

(iv)“Disability” shall mean the good-faith determination by the Board after consultation with medical personnel that the Employee has ceased to be able to materially perform Employee’s duties and obligations, with or without reasonable accommodation, due to a mental or physical illness or incapacity that is reasonably expected to materially prevent Employee from performing Employee’s duties and obligations for a period of not less than ninety (90) days for any period of three hundred and sixty-five (365) consecutive calendar days.

        

(v)“Good Reason” shall mean, without the express written consent of Employee, the occurrence of any one or more of the following:

(A)a material diminution in Employee’s authority, duties or responsibilities or the assignment of duties to Employee that are not materially commensurate with Employee’s position with Company, other than where Employee is asked to assume substantially similar duties and responsibilities in a larger entity after any Change of Control;

(B)a material reduction by the Company of the Employee’s Salary other than a reduction which is part of a general reduction affecting all employees;

(C)the relocation of the principal place of the Employee’s service to a location that is more than twenty-five (25) miles from the Employee’s principal place of service as of the Effective Date;

(D)any failure by the Company to continue to provide Employee with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee holding a comparable position with the company, in any material benefit or compensation plans and programs, which results in a material detriment to Employee;

(E)any material breach by the Company of any provision of this Agreement; or

(F)any failure by any successor corporation to assume the Company’s obligations under this Agreement; 

(G)provided, however, the reduction in Employee’s Salary, benefits and/or duties and responsibilities related to Employee’s employment during the Transition Period and described herein shall not be considered Good Reason.

6.Confidential Information.  Employee acknowledges and agrees that the Company considers to be confidential the information and data obtained by him while employed by the Company concerning the actual or anticipated business or affairs of the Company, its subsidiaries or affiliates (collectively, “Confidential Information”) and that such Confidential Information is the property of the Company and/or the respective subsidiary or affiliate.  Therefore, Employee agrees that Employee shall not disclose to any unauthorized person or use for Employee’s own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public or persons knowledgeable in the Company’s industry other than as a result of Employee’s acts or omissions which constitute a breach hereof.  Employee shall deliver to the Company at the termination (whether voluntary or otherwise) of Employee’s employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business or business anticipated to be conducted by the Company within one year of termination, its subsidiaries or affiliates (including, without limitation, trade secrets, business or marketing plans, reports, projections, diskettes, intangible information stored on diskettes, software programs and data compiled with the use of those programs, tangible copies of trade secrets and confidential information, memoranda, credit cards, telephone charge cards, manuals, building keys and passes, cell phones, computers, names and addresses of the Company’s or its subsidiaries’ or affiliates’ customers and potential customers, customer lists, customer contracts, sales information and any and all other similar information or property) which Employee may then possess or have under Employee’s control.  Employee further agrees that in the event Employee discovers any other materials of the Company, its subsidiaries or affiliates in Employee’s possession or control after the Termination Date, Employee will immediately return such property to the Company.

7.Inventions and Patents.  Employee acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which (i) relate to the Company’s or its subsidiaries’ actual or anticipated business, research and development or existing or future products or services or (ii) result from any work performed by Employee for the Company or its subsidiaries, and which are conceived, developed or made by the Employee during the Noncompete Period (“Work Product”) belong to the Company or such subsidiary; provided, however, that this Section 7 does not apply to any invention for which no equipment, supplies, materials, facilities, trade secrets, or other proprietary information of the Company or its subsidiaries was used and which was developed entirely on Employee’s own time, unless (i) the invention relates to the actual or anticipated business of the Company or its subsidiaries or to the Company’s or any of its subsidiaries’ actual or anticipated research or development, or existing or future products or services or (ii) the invention results from any work performed by Employee for the Company or its subsidiaries.  Employee shall promptly disclose such Work Product to the Board and perform all actions requested by the Board (whether during or after the employment period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).  The Parties acknowledge and agree that Work Product is subject to this Section 7 and is Confidential Information unless and to the extent that such Work Product (i) becomes generally known to and available for use by the public or persons knowledgeable in the Company’s industry other than as a result of Employee’s acts or omissions 

        

which constitute a breach of this Agreement or (ii) the Employee discloses such Work Product to the Board and the Board by vote or written consent waives its rights under this Agreement with respect thereto.

8.Non-Compete, Non-Solicitation.

(a)In further consideration of the confidential, proprietary information Company shall provide to Employee during Employee’s employment, which Employee promises not to disclose, as well as the compensation to be paid to Employee hereunder, including the severance payments, if any, Employee agrees to the restrictions set forth in this paragraph.  Employee acknowledges that Employee’s services shall be of special, unique, and extraordinary value to the Company.  Therefore, Employee agrees that, during Employee’s employment and for one (1) year following the termination of Employee’s employment with the Company for any reason (collectively, the “Noncompete Period”), Employee shall not, directly or indirectly, own any interest in, manage, control, or in any manner engage in any business competing with the actual businesses of the Company as of the Termination Date (“Competitor”), within any geographical area in which the Company engages in such businesses (“Restricted Territory”).  Employee further agrees that during the Noncompete Period, Employee will not perform the same or similar services for a Competitor in the Restricted Territory.  Nothing herein shall prohibit Employee from being a passive owner of not more than two percent (2%) of the outstanding capital stock of any class of a corporation which is publicly traded, so long as Employee has no active participation in the business of such corporation.

(b)During the Noncompete Period, Employee shall not directly himself or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company, its subsidiaries or affiliates to leave the employ thereof, or in any way interfere with the relationship between the Company and any employee thereof, (ii) hire any person who was an employee or contractor of the Company or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee, contractor or other business relation of the Company, for whom Employee had material contact (a “Company Material Contact” ) to cease its relationship with Company, or in any way interfere with the relationship between any such Company Material Contact and the Company (including, without limitation, making any negative statements or communications about the Company, its subsidiaries, or affiliates).

(c)If, at the time of enforcement of this Section 8, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law.

(d)Employee acknowledges and agrees that the restrictions contained in this Section 8 are enforceable and reasonable.  Accordingly, should Employee assert in any context that the restrictions contained in this Section 8 are unenforceable or unreasonable, Employee agrees that as of the date of such assertion the Company shall have no further obligation to provide him with the severance packages described in Section 5 above.

9.Non-Disparagement.  Each of the Parties represents and agrees that such Party will not, directly or indirectly, engage during the Noncompete Period in any defamatory, disparaging or critical communication with any other person or entity concerning the business, operations, services, marketing strategies, pricing policies, management, business practices, officers, directors, employees, attorneys, representatives, affiliates, agents affairs and/or financial condition of the other Party, its subsidiaries or affiliates.

10.Injunctive Relief and Additional Remedy.  Employee acknowledges and agrees that any breach or threatened breach by Employee of any of the provisions of Sections 6, 7, 8, or 9 would result in irreparable injury and damage to the Company and/or its subsidiaries and affiliates for which the Company and/or its subsidiaries and affiliates would have no adequate remedy at law.  The Employee therefore also acknowledges and agrees that in the event of such breach or threatened breach the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions thereof (without posting a bond or other security).  The terms of this Section 10 shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach thereof including, without limitation, the recovery of damages from Employee.  In addition, in the event of an alleged breach or violation by Employee of any of the provisions of Sections 6, 7, 8, or 9, the Noncompete Period shall be tolled with respect to such provision until such breach or violation has been duly cured.

11.Waiver of Jury Trial.  Employee and the Company knowingly and conclusively waive all rights to trial by jury, in any action or proceeding relating any dispute, controversy or claim, of any and every kind or type, whether based on contract, tort, statute, regulations, or otherwise, arising out of, connected with, or relating in any way to this Agreement, the obligations of the Parties hereunder, including without limitation, any dispute as to the existence, validity, construction, interpretation, negotiation, performance, non-performance, breach, termination or enforceability of this Agreement, or Employee’s employment relationship with the Company or the termination thereof (in each case, a “Dispute”).  The Parties shall attempt in good faith to settle any Dispute by mutual discussions within fifteen (15) 

        

days after the date that one Party gives notice to the other Parties of such a Dispute.  THE PARTIES HEREBY EXPRESSLY WAIVE THE RIGHT TO A JURY TRIAL ON ALL MATTERS.

12.Section 409A Compliance.

(a)The Parties intend for this Agreement either to satisfy the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and all applicable guidance promulgated thereunder (“Section 409A”) or to be exempt from the application of Section 409A, and this Agreement shall be construed and interpreted accordingly.  Any amount payable pursuant to this Agreement due to a termination of employment which constitutes a “deferral of compensation” within the meaning of Section 409A shall not be paid unless and until such termination constitutes a “separation from service” within the meaning of Section 409A.  Further, to the extent an amount payable under this Agreement is intended to be exempt from Section 409A, and such exemption is conditioned upon the payment being made upon a “separation from service,” then such payment shall not be paid unless and until Employee has incurred a “separation from service.”  If this Agreement either fails to satisfy the requirements of Section 409A or is not exempt from the application of Section 409A, then the Parties hereby agree to amend or to clarify this Agreement in a timely manner so that this Agreement either satisfies the requirements of Section 409A or is exempt from the application of Section 409A.

(b)Notwithstanding any provision in this Agreement to the contrary, in the event Employee is a “specified employee” as defined in Section 409A, any severance payments or packages, severance benefits, or other amounts payable under this Agreement, that would be subject to the special rule regarding payments to “specified employees” under Section 409A(a)(2)(B) shall be delayed by six months such that the payment is made no earlier than the first date of the seventh month following the Termination Date (or the date of Employee’s death, if earlier).

(c)To ensure satisfaction of the requirements of Section 409A(b)(3), assets shall not be set aside, reserved in a trust or other arrangement, or otherwise restricted for purposes of the payment of amounts payable under this Agreement.

(d)Company hereby informs Employee that the federal, state, local and/or foreign tax consequences (including without limitation those tax consequences implicated by Section 409A) of this Agreement are complex and subject to change.  Employee hereby acknowledges that Company has advised him that Employee should consult with Employee’s own personal tax or financial advisor in connection with this Agreement and its tax consequences.  Employee understands and agrees that Company has no obligation and no responsibility to provide Employee with any tax or other legal advice in connection with this Agreement.  Employee agrees that Employee shall bear sole and exclusive responsibility for any and all adverse federal, state, local, and/or foreign tax consequences (including without limitation those tax consequences implicated by Section 409A) of this Agreement, and fully indemnifies and holds Company harmless therefor.
(e)For purposes of Section 409A, any right to receive a series of installments under this Agreement shall be treated as a right to a series of separate payments.

(f)Notwithstanding anything herein to the contrary, the reimbursement of expenses or in-kind benefits provided pursuant to this Agreement shall be subject to the following conditions:  (1) the expenses eligible for reimbursement or in-kind benefits in one taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits in any other taxable year; (2) the reimbursement of eligible expenses or in-kind benefits shall be made promptly, subject to Company’s applicable policies, but in no event later than the end of the year after the year in which such expense was incurred; and (3) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

13.Limitation on Parachute Payments.

(a)In the event that the payments or other benefits provided for in this Agreement or otherwise payable to Employee (i) constitute “parachute payments” within the meaning of Section 280G(b)(2) of the Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then Employee’s benefits under this Agreement shall be either (a) delivered in full, or (b) delivered to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Employee on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code.  If a reduction in payments or benefits constituting “parachute payments” is necessary pursuant to the foregoing provision, reduction shall occur in the following order:  reduction of cash payments; cancellation of accelerated vesting of stock awards; and reduction of employee benefits.  If acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of Employee’s stock awards.

        

(b)Unless the Company and Employee otherwise agree in writing, any determination required under this Section 13 shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon Employee and the Company for all purposes and may be relied upon by the Company.  For purposes of making the calculations required by this Section 13, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code.  The Employee shall provide to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 13.  The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 13.

14.Attorneys’ Fees.  The prevailing Party in any dispute or claim relating to or arising out of this Agreement shall be entitled to recover from the losing Party all fees and expenses of any nature or kind (including, without limitation, attorney’s fees and expenses) incurred in any such dispute or claim.

15.Interpretation; Venue.  The Company and Employee agree that this Agreement shall be interpreted in accordance with and governed by the laws of the State of Texas, without giving effect to conflicts of law principles.  The trial courts of the County of Harris, State of Texas, and the United States District Court for the Southern District of Texas are courts of competent jurisdiction, and the Parties agree to submit to the jurisdiction of those courts, as applicable.

16.Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.  In view of the personal nature of the services to be performed under this Agreement by Employee, Employee shall not have the right to sell, assign, pledge, hypothecate, donate or otherwise transfer any of Employee’s rights, obligations or benefits hereunder.

17.Third-Party Beneficiary.  The Parties expressly acknowledge and agree that PROS Holdings shall be deemed to be a third-party beneficiary with respect to the terms and provisions of this Agreement and shall be entitled to enforce the terms and provisions hereof.

18.Entire Agreement.  This Agreement constitutes the entire employment agreement between the Company and Employee regarding the terms and conditions of Employee’s employment, with the exception of that certain Stock Option Agreements (the “Option Agreement”) previously entered into between Employee and the Company and that certain Employee Inventions and Proprietary Rights Assignment Agreement, dated January 11, 1999, between the Company and Employee (the “Assignment Agreement”); provided, however, that the provisions of this Agreement shall control if there exists any conflicting provisions in the Option Agreement or the Assignment Agreement.  This Agreement, together with the Option Agreement and the Assignment Agreement, supersedes all prior negotiations, representations or agreements between the Company and Employee, whether written or oral, regarding Employee’s employment by the Company.

19.Severability.  If any one or more of the provisions (or any part thereof) of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions (or any part thereof) shall not in any way be affected or impaired thereby.

20.No Representations.  Employee acknowledges that Employee is not relying, and has not relied, on any promise, representation or statement made by or on behalf of the Company which is not set forth in this Agreement.

21.Notices.  All notices requests, reports and other communications pursuant hereto shall be in writing, either by letter (delivered by hand or commercial delivery service or sent by certified mail, return receipt requested) or facsimile, and addressed to the Employee at Employee’s last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the CEO, or to such other address as either Party may specify by notice to the other actually received.  Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand to such Party at its address specified above, or, if sent by certified mail, return receipt requested, postage prepaid, on the third business day following the date it was deposited in the mail, or in the case of facsimile notice, when transmitted addressed as aforesaid, confirmation received, if the notice is also delivered by hand or mail in the manner described above.  Any Party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given hereunder only when actually received by the Party to which it is addressed.

22.Counterparts.  This Agreement may be executed in any number of counterparts, provided, however, that each of such counterparts when taken together shall constitute one and the same agreement.

23.Amendments.  This Agreement may be modified or amended only by a supplemental written agreement signed by both the Employee and the Company following approval by the Compensation Committee.

        

[Signature Page Immediately Follows]

        

IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the Effective Date.
	
		
	 
	COMPANY:

PROS, INC.
a Delaware corporation

By:  /s/ Andres Reiner
Name: Andres Reiner
Title:  President and CEO
Date: 6 January 2015

	 
	

PROS HOLDINGS:

PROS HOLDINGS, INC.
a Delaware corporation

By:  /s/ Andres Reiner
Name:  Andres Reiner
Title:  President and CEO
Date:  6 January 2015

	 
	

EMPLOYEE:

/s/ Charles H. Murphy
Charles Murphy 

        

EXHIBIT A
FORM OF GENERAL RELEASE
In consideration for the mutual promises described in that certain Third Amended and Restated Employment Agreement (“Employment Agreement”) executed between PROS, Inc., a Delaware corporation (the “Company”) and Charles Murphy (the “Employee”), the parties enter into the following General Release (“General Release”) and agree as follows:
1.Payment of Severance Package.  Notwithstanding anything herein to the contrary, Company agrees to pay Employee the severance package (the “Severance Package”) [or insert: Acceleration Benefit, Bonus Target or COBRA reimbursement, as applicable], as described in the Employment Agreement, in the manner set forth in Sections 5(b) and 5 (c) [or 4(b), 4(c) or 5(d), as applicable ] of the Employment Agreement, as applicable, and continue to abide by the other surviving provisions of the Employment Agreement.

2.Continued Compliance.  Employee agrees to continue to abide by the surviving provisions of the Employment Agreement, which is incorporated herein by reference.

3.General Release.

3.1.Subject to Section 1 above, Employee unconditionally, irrevocably and absolutely releases and discharges Company, and any parent and subsidiary corporations, divisions and affiliated corporations, partnerships or other affiliated entities of Company, past and present, as well as their respective employees, officers, directors, members, managers, stockholders, partners, agents, successors and assigns (collectively, “Released Parties”), from all claims related in any way to the transactions or occurrences between them to date, to the fullest extent permitted by law, including, but not limited to, Employee’s employment with Company, the termination of Employee’s employment, and all other losses, liabilities, claims, charges, demands and causes of action, known or unknown, suspected or unsuspected, arising directly or indirectly out of or in any way connected with Employee’s employment with Company.  This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, including, but not limited to alleged violations of the Texas Labor Code (including but not limited to the Texas Civil Rights Act, the Texas Payday Act, and the Texas Minimum Wage Law), the federal Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, as amended, and all claims for attorneys’ fees, costs and expenses.  Employee expressly waives Employee’s right to recovery of any type, including damages or reinstatement, in any administrative or court action, whether state or federal, and whether brought by Employee or on Employee’s behalf, related in any way to the matters released herein.  However, this general release is not intended to bar any claims that, by statute, may not be waived, such as claims for any challenge to the validity of Employee’s release of claims under the Age Discrimination in Employment Act of 1967, as amended, as set forth in this General Release.

3.2.Employee acknowledges that Employee may discover facts or law different from, or in addition to, the facts or law that Employee knows or believes to be true with respect to the claims released in this General Release and agrees, nonetheless, that this General Release and the release contained in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them.

3.3.Employee declares and represents that Employee intends this General Release to be complete and not subject to any claim of mistake, and that the release herein expresses a full and complete release and Employee intends the release herein to be final and complete.  Employee executes this release with the full knowledge that this release covers all possible claims against the Released Parties, to the fullest extent permitted by law.

4.Indemnification.  The Company and Employee agree that Employee is not releasing any claims Employee may have for indemnification under state or other law or any indemnification agreement in effect between Employee and Company as of the Separation Date (as defined below) or the charter, articles or by-laws of the Company, or under any insurance policy providing directors’ and officers’ coverage for any lawsuit or claim relating to the period when Employee was a director, officer or employee of the Company (if any); provided, however, that (i) Employee’s execution of this General Release is not a concession or guaranty that Employee has any such rights to indemnification, (ii) this General Release does not create any additional rights to indemnification and (iii) the Company retains any defenses it may have to such indemnification or coverage.

5.Representation Concerning Filing of Legal Actions.  Employee represents that, as of the date of this General Release, Employee has not filed any lawsuits, charges, complaints, petitions, claims or other accusatory pleadings against Company or any of the other Released Parties in any court or with any governmental agency.

        

6.Nondisparagement.  Each party agrees that such party will not make any voluntary statements, written or oral, or cause or encourage others to make any such statements that defame, disparage or in any way criticize the personal and/or business reputations, practices or conduct of such party or any of the other Released Parties.

7.Confidentiality and Return of Company Property.  Employee understands and agrees that as a condition of receiving the Severance Package in Paragraph 1, all Company property must be returned to Company on or before the last day of Employee’s employment at Company (“Separation Date”).  By signing this General Release, Employee represents and warrants that Employee will have returned to Company on or before the Separation Date, all Company property, data and information belonging to Company and agrees that Employee will not use or disclose to others (other than his attorney under an obligation of confidentiality and to the extent necessary to provide legal advice to Employee regarding any termination his employment for Good Reason) any confidential or proprietary information of Company or the Released Parties.  In addition, Employee agrees to keep the terms of this General Release confidential between Employee and Company, except that Employee may tell Employee’s immediate family and attorney or accountant, if any, as needed, but in no event should Employee discuss this General Release or its terms with any current or prospective employee of Company.

8.No Admissions.  By entering into this General Release, the Released Parties make no admission that they have engaged, or are now engaging, in any unlawful conduct.  The parties understand and acknowledge that this General Release is not an admission of liability and shall not be used or construed as such in any legal or administrative proceeding.

9.Older Workers’ Benefit Protection Act.  This General Release is intended to satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. 626(f).  Employee is advised to consult with an attorney before executing this General Release.

9.1.Acknowledgments/Time to Consider.  Employee acknowledges and agrees that (a) Employee has read and understands the terms of this General Release; (b) Employee has been advised in writing to consult with an attorney before executing this General Release; (c) Employee has obtained and considered such legal counsel as Employee deems necessary; (d) Employee has been given twenty-one (21) days to consider whether or not to enter into this General Release (although Employee may elect not to use the full 21-day period at Employee’s option); and (e) by signing this General Release, Employee acknowledges that Employee does so freely, knowingly, and voluntarily.

9.2.Revocation/Effective Date.  This General Release shall not become effective or enforceable until the eighth day after Employee signs this General Release.  In other words, Employee may revoke Employee’s acceptance of this General Release within seven (7) days after the date Employee signs it.  Employee’s revocation must be in writing and received by PROS, Inc., 3100 Main Street, Suite 900, Houston, Texas 77002, by 5:00 p.m. Central Time on the seventh day in order to be effective.  If Employee does not revoke acceptance within the seven (7) day period, Employee’s acceptance of this General Release shall become binding and enforceable on the eighth day (the “Effective Date”).

9.3.Preserved Rights of Employee.  This General Release does not waive or release any rights or claims that Employee may have under the Age Discrimination in Employment Act that arise after the execution of this General Release.  In addition, this General Release does not prohibit Employee from challenging the validity of this General Release’s waiver and release of claims under the Age Discrimination in Employment Act of 1967.

10.Severability.  In the event any provision of this General Release shall be found unenforceable, the unenforceable provision shall be deemed deleted and the validity and enforceability of the remaining provisions shall not be affected thereby.

11.Full Defense.  This General Release may be pled as a full and complete defense to, and may be used as a basis for an injunction against, any action, suit or other proceeding that may be prosecuted, instituted or attempted by Employee in breach hereof.

12.Governing Law; Forum.  The validity, interpretation and performance of this General Release shall be construed and interpreted according to the laws of the United States of America and the State of Texas without giving effect to conflicts of law principles.  Employee agrees that any disputes or litigation that may arise with respect to the General Release shall be brought and prosecuted in Harris County, Texas and waives any and all objections to the location of such litigation, including but not limited to objections based on forum non conveniens.  In addition, Employee irrevocably consents to the exclusive personal jurisdiction of the federal and state courts located in Harris County, Texas, as applicable, for any matter arising out of or relating to this General Release.

13.Entire Agreement.  This General Release, including the Employment Agreement incorporated herein by reference, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.  This General Release may be amended or modified only with the 

        

written consent of Employee and the Board of Directors of Company.  No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

THE PARTIES TO THIS GENERAL RELEASE HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN.  WHEREFORE, THE PARTIES HAVE EXECUTED THIS GENERAL RELEASE ON THE DATES SHOWN BELOW.

        

IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the Effective Date.

COMPANY:

PROS, INC.
a Delaware corporation    

By:    /s/ Andres Reiner            
Name:    Andres Reiner            
Title:    Chief Executive Officer        
Date:    April 8, 2014            
    

PROS HOLDINGS: 

PROS HOLDINGS, INC.
a Delaware corporation

By:    /s/ Andres Reiner            
Name:    Andres Reiner            
Title:    Chief Executive Officer        
Date:    April 8, 2014            

EMPLOYEE:

/s/ Charles Murphy                
Charles Murphy

Page 14 of 12    

EXHIBIT A
FORM OF GENERAL RELEASE
In consideration for the mutual promises described in that certain Second Amended and Restated Employment Agreement (“Employment Agreement”) executed between PROS, Inc., a Delaware corporation (the “Company”) and Charles Murphy (the “Employee”), the parties enter into the following General Release (“General Release”) and agree as follows:
1.Payment of Severance Package.  Notwithstanding anything herein to the contrary, Company agrees to pay Employee the severance package (the “Severance Package”) [or insert: Acceleration Benefit or COBRA reimbursement, as applicable], as described in the Employment Agreement, in the manner set forth in Sections 5(b) and 5 (c) [or 4(c) or 5(e), as applicable] of the Employment Agreement, as applicable, and continue to abide by the other surviving provisions of the Employment Agreement.
2.    Continued Compliance.  Employee agrees to continue to abide by the surviving provisions of the Employment Agreement, which is incorporated herein by reference.
3.    General Release.
3.1    Subject to Section 1 above, Employee unconditionally, irrevocably and absolutely releases and discharges Company, and any parent and subsidiary corporations, divisions and affiliated corporations, partnerships or other affiliated entities of Company, past and present, as well as their respective employees, officers, directors, members, managers, stockholders, partners, agents, successors and assigns (collectively, “Released Parties”), from all claims related in any way to the transactions or occurrences between them to date, to the fullest extent permitted by law, including, but not limited to, Employee’s employment with Company, the termination of Employee’s employment, and all other losses, liabilities, claims, charges, demands and causes of action, known or unknown, suspected or unsuspected, arising directly or indirectly out of or in any way connected with Employee’s employment with Company.  This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, including, but not limited to alleged violations of the Texas Labor Code (including but not limited to the Texas Civil Rights Act, the Texas Payday Act, and the Texas Minimum Wage Law), the federal Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, as amended, and all claims for attorneys’ fees, costs and expenses.  Employee expressly waives Employee’s right to recovery of any type, including damages or reinstatement, in any administrative or court action, whether state or federal, and whether brought by Employee or on Employee’s behalf, related in any way to the matters released herein.  However, this general release is not intended to bar any claims that, by statute, may not be waived, such as claims for any challenge to the validity of Employee’s release of claims under the Age Discrimination in Employment Act of 1967, as amended, as set forth in this General Release.
3.2    Employee acknowledges that Employee may discover facts or law different from, or in addition to, the facts or law that Employee knows or believes to be true with respect to the claims released in this General Release and agrees, nonetheless, that this General Release and the release contained in it shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery of them.
3.3    Employee declares and represents that Employee intends this General Release to be complete and not subject to any claim of mistake, and that the release herein expresses a full and complete release and Employee intends the release herein to be final and complete.  Employee executes this release with the full knowledge that this release covers all possible claims against the Released Parties, to the fullest extent permitted by law.
4.    Indemnification.  The Company and Employee agree that Employee is not releasing any claims Employee may have for indemnification under state or other law or any indemnification agreement in effect between Employee and Company as of the Separation Date (as defined below) or the charter, articles or by-laws of the Company, or under any insurance policy providing directors’ and officers’ coverage for any lawsuit or claim relating to the period when Employee was a director, officer or employee of the Company (if any); provided, however, that (i) Employee’s execution of this General Release is not a concession or guaranty that Employee has any such rights to indemnification, (ii) this General Release does not create any additional rights to indemnification and (iii) the Company retains any defenses it may have to such indemnification or coverage.

PROS Charles Murphy Second Amended and Restated Employment Agreement    Page 15 of 12    

5.    Representation Concerning Filing of Legal Actions.  Employee represents that, as of the date of this General Release, Employee has not filed any lawsuits, charges, complaints, petitions, claims or other accusatory pleadings against Company or any of the other Released Parties in any court or with any governmental agency.
6.    Nondisparagement.  Each party agrees that such party will not make any voluntary statements, written or oral, or cause or encourage others to make any such statements that defame, disparage or in any way criticize the personal and/or business reputations, practices or conduct of such party or any of the other Released Parties.
7.    Confidentiality and Return of Company Property.  Employee understands and agrees that as a condition of receiving the Severance Package in Paragraph 1, all Company property must be returned to Company on or before the last day of Employee’s employment at Company (“Separation Date”).  By signing this General Release, Employee represents and warrants that Employee will have returned to Company on or before the Separation Date, all Company property, data and information belonging to Company and agrees that Employee will not use or disclose to others (other than his attorney under an obligation of confidentiality and to the extent necessary to provide legal advice to Employee regarding any termination his employment for Good Reason) any confidential or proprietary information of Company or the Released Parties.  In addition, Employee agrees to keep the terms of this General Release confidential between Employee and Company, except that Employee may tell Employee’s immediate family and attorney or accountant, if any, as needed, but in no event should Employee discuss this General Release or its terms with any current or prospective employee of Company.
8.    No Admissions.  By entering into this General Release, the Released Parties make no admission that they have engaged, or are now engaging, in any unlawful conduct.  The parties understand and acknowledge that this General Release is not an admission of liability and shall not be used or construed as such in any legal or administrative proceeding.
9.    Older Workers’ Benefit Protection Act.  This General Release is intended to satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. 626(f).  Employee is advised to consult with an attorney before executing this General Release.
9.1    Acknowledgments/Time to Consider.  Employee acknowledges and agrees that (a) Employee has read and understands the terms of this General Release; (b) Employee has been advised in writing to consult with an attorney before executing this General Release; (c) Employee has obtained and considered such legal counsel as Employee deems necessary; (d) Employee has been given twenty-one (21) days to consider whether or not to enter into this General Release (although Employee may elect not to use the full 21-day period at Employee’s option); and (e) by signing this General Release, Employee acknowledges that Employee does so freely, knowingly, and voluntarily.
9.2    Revocation/Effective Date.  This General Release shall not become effective or enforceable until the eighth day after Employee signs this General Release.  In other words, Employee may revoke Employee’s acceptance of this General Release within seven (7) days after the date Employee signs it.  Employee’s revocation must be in writing and received by PROS, Inc., 3100 Main Street, Suite 900, Houston, Texas 77002, by 5:00 p.m. Central Time on the seventh day in order to be effective.  If Employee does not revoke acceptance within the seven (7) day period, Employee’s acceptance of this General Release shall become binding and enforceable on the eighth day (the “Effective Date”).
9.3    Preserved Rights of Employee.  This General Release does not waive or release any rights or claims that Employee may have under the Age Discrimination in Employment Act that arise after the execution of this General Release.  In addition, this General Release does not prohibit Employee from challenging the validity of this General Release’s waiver and release of claims under the Age Discrimination in Employment Act of 1967.
10.    Severability.  In the event any provision of this General Release shall be found unenforceable, the unenforceable provision shall be deemed deleted and the validity and enforceability of the remaining provisions shall not be affected thereby.
11.    Full Defense.  This General Release may be pled as a full and complete defense to, and may be used as a basis for an injunction against, any action, suit or other proceeding that may be prosecuted, instituted or attempted by Employee in breach hereof.
12.    Governing Law; Forum.  The validity, interpretation and performance of this General Release shall be construed and interpreted according to the laws of the United States of America and the State of Texas without giving effect to conflicts of law principles.  Employee agrees that any disputes or litigation that may arise with respect to the General Release shall be brought and prosecuted in Harris County, Texas and waives any and all objections to the location of such litigation, including but not limited to objections based 

Page 16 of 13    

on forum non conveniens.  In addition, Employee irrevocably consents to the exclusive personal jurisdiction of the federal and state courts located in Harris County, Texas, as applicable, for any matter arising out of or relating to this General Release.
13.    Entire Agreement.  This General Release, including the Employment Agreement incorporated herein by reference, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.  This General Release may be amended or modified only with the written consent of Employee and the Board of Directors of Company.  No oral waiver, amendment or modification will be effective under any circumstances whatsoever.
THE PARTIES TO THIS GENERAL RELEASE HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN.  WHEREFORE, THE PARTIES HAVE EXECUTED THIS GENERAL RELEASE ON THE DATES SHOWN BELOW.

Page 17 of 13Exhibit 4.2

 

FORM OF WARRANT AGENCY AGREEMENT

 

WARRANT AGENCY AGREEMENT (“Warrant Agreement”) made as of     , 2015 (the “Issuance Date”), between U.S. Rare Earths, Inc., a Delaware corporation, with offices at 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024 (the “Company”), and Manhattan Transfer Registrar Company, with offices at 57 Eastwood Road, Miller Place, New York 11764 (the “Warrant Agent”).

 

WHEREAS, the Company is engaged in a public offering (the “Offering”) of up to        shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), and up to         Warrants (the “Warrants”), with each such Warrant evidencing the right of the holder thereof to purchase one share of Common Stock for $     , subject to adjustment as described herein; and

 

WHEREAS, the Company has filed with the Securities and Exchange Commission a Registration Statement, No. 333-195953 on Form S-1 (as the same may be amended from time to time, the “Registration Statement”) for the registration, under the Securities Act of 1933, as amended (the “Act”) of, among other securities, the Warrants and the Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”), and such Registration Statement was declared effective on         , 2015; and

 

WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange and exercise of the Warrants; and

 

WHEREAS, the Company desires to provide for the provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and

 

WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Warrant Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

 

1. Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company for the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the express terms and conditions set forth in this Warrant Agreement (and no implied terms or conditions).

 

2. Warrants.

 

2.1 Form of Warrant. Each Warrant, whenever issued, shall be issued in registered form only. All of the Warrants shall be represented by one or more book-entries maintained by the Warrant Agent.

 

2.2. Registration.

 

2.2.1. Warrant Register. The Warrant Agent shall maintain books (“Warrant Register”), for the registration of original issuance and the registration of transfer of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof in such denominations and otherwise in accordance with written instructions delivered to the Warrant Agent by the Company. All of the Warrants shall be represented by one or more Warrants and registered in the name of Cede & Co., a nominee of The Depository Trust Company (the “Depository”). Ownership of beneficial interests in the Warrants shall be shown on, and the transfer of such ownership shall be effected through, records maintained (i) by the Depository or its nominee for each Warrant; (ii) by institutions that have accounts with the Depository (such institution, with respect to a Warrant in its account, a “Participant”); or (iii) directly on the book-entry records of the Warrant Agent with respect only to owners of beneficial interests that represent such direct registration.

 

2.2.2. Beneficial Owner; Registered Holder. The term “beneficial owner” shall mean any person in whose name ownership of a beneficial interest in the Warrants evidenced by a Warrant is recorded in the records maintained by the Depository or its nominee. Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the person in whose name such Warrant shall be registered upon the Warrant Register (“registered holder”), as the absolute owner of such Warrant and of each Warrant represented thereby, for the purpose of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

 

3. Terms and Exercise of Warrants.

 

3.1. Exercise Price. Each Warrant shall entitle the registered holder thereof, subject to the provisions of such Warrant and of this Warrant Agreement, to purchase from the Company the number of shares of Common Stock stated therein, at the price of $      per whole share, subject to the subsequent adjustments provided in Section 4 hereof. The term “Exercise Price” as used in this Warrant Agreement refers to the price per share at which Common Stock may be purchased at the time a Warrant is exercised.

 

3.2. Duration of Warrants. A Warrant may be exercised only during the period (“Exercise Period”) commencing on the

 

 

Issuance Date and terminating at 5:00 P.M., New York City time (the “close of business”) on         , 2020 (“Expiration Date”). Each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Warrant Agreement shall cease at the close of business on the Expiration Date.

 

3.3. Exercise of Warrants.

 

3.3.1. Exercise and Payment. Subject to the provisions of this Warrant Agreement, a registered holder may exercise a Warrant by delivering, not later than 5:00 P.M., New York time, on any business day during the Exercise Period (the “Exercise Date”) to the Warrant Agent at its office designated for such purpose (i) the Warrants to be exercised shown on the records of the Depository to an account of the Warrant Agent at the Depository designated for such purpose in writing by the Warrant Agent to the Depository from time to time, (ii) an election to purchase the Warrant Shares underlying the Warrants to be exercised (“Election to Purchase”), properly delivered by the Participant in accordance with the Depository’s procedures, and (iii) the Exercise Price for each Warrant to be exercised, and all applicable taxes and charges due in connection with the exercise of such Warrants, in lawful money of the United States of America by certified or official bank check or by bank wire transfer in immediately available funds.

 

If any of (A) the Warrants, (B) the Election to Purchase, or (C) the Exercise Price therefor, and all applicable taxes and charges due in connection therewith, is received by the Warrant Agent after 5:00 P.M., New York time, on any date, or on a date that is not a business day, the Warrants with respect thereto will be deemed to have been received and exercised on the business day next succeeding such date. For the avoidance of doubt, the “Exercise Date” will be the date the materials in the foregoing sentence are received by the Warrant Agent (if by 5:00 P.M., New York time), or the following business day (if after 5:00 P.M., New York time), regardless of any earlier date written on the materials. If the Warrants are received or deemed to be received after the Expiration Date, the exercise thereof will be null and void and any funds delivered to the Warrant Agent will be returned to the registered holder or Participant, as the case may be, as soon as practicable. In no event will interest accrue on any funds deposited with the Warrant Agent in respect of an exercise or attempted exercise of Warrants. The validity of any exercise of Warrants will be determined by the Company in its sole discretion and such determination will be final and binding upon the registered holder or Participant and the Warrant Agent. Neither the Company nor the Warrant Agent shall have any obligation to inform a registered holder or the Participant, as applicable, of the invalidity of any exercise of Warrants.

 

The Warrant Agent shall deposit all funds received by it in payment of the Exercise Price in the account of the Company maintained with the Warrant Agent for such purpose and shall advise the Company via telephone at the end of each day on which funds for the exercise of the Warrants are received of the amount so deposited to its account. The Warrant Agent shall promptly confirm such telephonic advice to the Company in writing.

 

3.3.2. Issuance of Warrant Shares. The Warrant Agent shall, by 11:00 A.M. New York Time on the business day following the Exercise Date of any Warrant, advise the Company, the transfer agent and registrar, in respect of (a) the number of Warrant Shares indicated on the Election to Purchase as issuable upon such exercise with respect to such exercised Warrants, (b) the instructions of each registered holder or Participant, as the case may be, provided to the Warrant Agent with respect to the notation that shall be made to the records maintained by the Depository, its nominee for each Warrant, or a Participant, as appropriate, evidencing the balance, if any, of the Warrants remaining after such exercise and (c) such other information as the Company shall reasonably request.

 

The Company shall, by 5:00 P.M., New York time, on the third business day next succeeding the Exercise Date of any Warrant and the clearance of the funds in payment of the Exercise Price, use its reasonable best efforts to cause its transfer agent to electronically transmit the Warrant Shares issuable upon exercise to the Depository by crediting the account of the Depository or of the Participant through its Deposit Withdrawal Agent Commission system. The time periods for delivery described in the immediately preceding paragraph shall apply to the electronic transmittals described herein.

 

3.3.3. Valid Issuance. All shares of Common Stock issued by the Company upon the proper exercise of a Warrant in conformity with this Warrant Agreement shall be validly issued, fully paid and non-assessable.

 

3.3.4. No Fractional Exercise. Warrants may be exercised only in whole numbers of Warrant Shares. No fractional Warrant Shares are to be issued upon the exercise of the Warrant, but rather the number of Warrant Shares to be issued shall be rounded up or down, as applicable, to the nearest whole number. If fewer than all the Warrants evidenced by a Warrant are exercised, a notation shall be made to the records maintained by the Depository, its nominee for each Warrant, or a Participant, as appropriate, evidencing the balance of the Warrants remaining after such exercise.

 

3.3.5 No Transfer Taxes. The Company shall not be required to pay any stamp or other tax or charge required to be paid in connection with any transfer involved in the issue of the Warrant Shares upon the exercise of Warrants; and in the event that any such transfer is involved, the Company shall not be required to issue or deliver any Warrant Shares until such tax or other charge shall have been paid or it has been established to the Company’s and the Warrant Agent’s satisfaction that no such tax or other charge is due.

 

3.3.6 Date of Issuance. Each person in whose name any such shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was validly exercised and payment of the Exercise Price was made, irrespective of the date of delivery of such Election to Purchase, except that, if the date of such Election to Purchase and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.

 

 

3.3.7 Cashless Exercise Under Certain Circumstances.

 

(i) The Company shall provide to the Warrant Agent and each registered holder of Warrants prompt written notice of any time that the Company is unable to issue the Warrant Shares via DTC transfer or otherwise (without restrictive legend), because (A) the Commission has issued a stop order with respect to the Registration Statement, (B) the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, (C) the Company has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or (D) otherwise (each a “Restrictive Legend Event”). To the extent that a Restrictive Legend Event occurs after the registered holder has exercised a Warrant in accordance with the terms of the Warrants but prior to the delivery of the Warrant Shares, the Company shall, at the election of the registered holder, which shall be given within five (5) days of receipt of such notice of the Restrictive Legend Event, either (A) rescind the previously submitted Election to Purchase and the Company shall return all consideration paid by registered holder for such shares upon such rescission or (B) treat the attempted exercise as a cashless exercise as described in the next paragraph and refund the cash portion of the exercise price to the registered holder.

 

(ii) If a Restrictive Legend Event has occurred and no exemption from the registration requirements is available, the Warrant shall only be exercisable on a cashless basis. Notwithstanding anything herein to the contrary, the Company shall not be required to make any cash payments or net cash settlement to the registered holder in lieu of issuance of the Warrant Shares. Upon a “cashless exercise”, the Holder shall be entitled to receive the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A)                                       = the VWAP on the Business Day immediately preceding the Exercise Date;

 

(B)                                       = the Exercise Price of the Warrant, as it may have been adjusted hereunder; and

 

(X)                                       = the number of Warrant Shares that would be issuable upon exercise of the Warrant in accordance with the terms of the Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

Upon receipt of an Election to Purchase for a cashless exercise, the Warrant Agent will promptly deliver a copy of the Election to Purchase to the Company to confirm the number of Warrant Shares issuable in connection with the cashless exercise. The Company shall calculate and transmit to the Warrant Agent in a written notice, and the Warrant Agent shall have no duty, responsibility or obligation under this section to calculate, the number of Warrant Shares issuable in connection with any cashless exercise. The Warrant Agent shall be entitled to rely conclusively on any such written notice provided by the Company, and the Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with such written instructions or pursuant to this Warrant Agreement.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (each, a “Trading Market”), the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the OTCQB maintained by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

3.3.8 Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the registered holder the number of Warrant Shares that are not disputed.

 

4. Adjustments.

 

4.1 Adjustment upon Subdivision or Combination of Common Stock. If the Company at any time after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time after the Issuance Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 4.1 shall become effective at the close of business on the date the subdivision or combination becomes effective. The Company shall promptly notify the Warrant Agent in writing of any adjustment to the Warrants and give specific instructions to the Warrant Agent with respect to any adjustments to the warrant register.

 

4.2 Adjustment for Other Distributions. In the event the Company shall fix a record date for the making of a dividend or

 

 

distribution to all holders of Common Stock of any evidences of indebtedness or assets or subscription rights or warrants (excluding those referred to in Section 4.1 or other dividends paid out of retained earnings), then in each such case the Holder will, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock issuable thereupon, and without payment of any additional consideration therefor, the amount of such dividend or distribution, as applicable, which such Holder would hold on the date of such exercise had such Holder been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such dividend or distribution. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

4.3. Reclassification, Consolidation, Purchase, Combination, Sale or Conveyance. If, at any time while the Warrants are outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another person whereby such other person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other person or other persons making or party to, or associated or affiliated with the other persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of a Warrant, the registered holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock, if any, of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the registered holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) and for which shareholders received any equity securities of the Successor Entity, to assume in writing all of the obligations of the Company under this Warrant Agreement in accordance with the provisions of this Section 4.3 pursuant to written agreements and shall, upon the written request of the registered holder of a Warrant, deliver to the registered holder in exchange for this Warrant created by this Warrant Agreement a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity), if any, plus any Alternate Consideration, receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which the Warrant is exercisable immediately prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock, if any, plus any Alternate Consideration (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of such Warrant immediately prior to the consummation of such Fundamental Transaction). Upon the occurrence of any such Fundamental Transaction the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant Agreement and the Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant Agreement and the Warrant with the same effect as if such Successor Entity had been named as the Company herein.

 

The Company shall instruct the Warrant Agent in writing to mail by first class mail, postage prepaid, to each registered holder of a Warrant, written notice of the execution of any such amendment, supplement or agreement. Any supplemented or amended agreement entered into by the successor corporation or transferee shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 4. The Warrant Agent shall have no duty, responsibility or obligation to determine the correctness of any provisions contained in such agreement or such notice, including but not limited to any provisions relating either to the kind or amount of securities or other property receivable upon exercise of warrants or with respect to the method employed and provided therein for any adjustments, and shall be entitled to rely conclusively for all purposes upon the provisions contained in any such agreement. The provisions of this Section 4.3 shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and conveyances of the kind described above.

 

4.4 Other Events. If any event occurs of the type contemplated by the provisions of Section 4.1, 4.2 or 4.3 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features to all holders of Common Stock for no consideration), then the Company’s Board of Directors will, at its discretion and in good faith, make an adjustment in the Exercise Price and the number of Warrant Shares or designate such additional consideration to be deemed issuable upon exercise of a Warrant, so as to protect the rights of the registered holder.

 

 

4.5. Notices of Changes in Warrant. Upon every adjustment of the Exercise Price or the number of shares issuable upon exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the occurrence of any event specified in Sections 4.1 or 4.2, then, in any such event, the Company shall give written notice to each registered holder, at the last address set forth for such holder in the warrant register, of the record date or the effective date of the event. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event. The Warrant Agent shall be entitled to rely conclusively on, and shall be fully protected in relying on, any certificate, notice or instructions provided by the Company with respect to any adjustment of the Exercise Price or the number of shares issued able upon exercise of a Warrant, or any related matter, and the Warrant Agent shall not be liable for any action taken, suffered or omitted to be taken by it in accordance with any such certificate, notice or instructions or pursuant to this Warrant Agreement. The Warrant Agent shall not be deemed to have knowledge of any such adjustment unless and until it shall have received written notice thereof from the Company.

 

5. Transfer and Exchange of Warrants.

 

5.1. Registration of Transfer. The Warrant Agent shall register the transfer, from time to time, of any outstanding Warrant upon the Warrant Register, upon surrender of such Warrant for transfer, properly endorsed with signatures properly medallion signature guaranteed and accompanied by appropriate instructions for transfer, and written confirmation from the Company that such transfer is approved. Upon any such transfer, a new Warrant representing an equal aggregate number of Warrants shall be issued and the old Warrant shall be cancelled by the Warrant Agent. The Warrants so cancelled shall be delivered by the Warrant Agent to the Company from time to time upon request.

 

5.2. Procedure for Surrender of Warrants. Warrants may be surrendered to the Warrant Agent, together with a written request for exchange or transfer reasonably acceptable to Warrant Agent, and thereupon the Warrant Agent shall request written confirmation from the Company that such transfer is approved, and upon receipt of such written confirmation, the Warrant Agent shall issue in exchange therefor one or more new Warrants as requested by the registered holder of the Warrants so surrendered, representing an equal aggregate number of Warrants; provided, however, that except as otherwise provided herein, each Warrant may be transferred only in whole and only to the Depository, to another nominee of the Depository, to a successor depository, or to a nominee of a successor depository; provided further, however, that in the event that a Warrant surrendered for transfer bears a restrictive legend, the Warrant Agent shall not cancel such Warrant and issue new Warrants in exchange therefor until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the new Warrants must also bear a restrictive legend.

 

5.3. Fractional Warrants. The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the issuance of a Warrant for a fraction of a Warrant.

 

6. Limitations on Exercise. The Company shall not, and shall not instruct the Warrant Agent to, effect any exercise of any Warrant, and a registered holder shall not have the right to exercise any portion of a Warrant, to the extent that after giving effect to the issuance of shares of Common Stock after exercise as set forth on the applicable Election to Purchase, the registered holder (together with such registered holder’s Affiliates (as defined in Rule 405 under the Securities Act of 1933), and any other persons acting as a group together with the registered holder or any of the registered holder’s Affiliates), would beneficially own in excess of 4.99% of the Company’s Common Stock. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the registered holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of the Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon exercise of the remaining, non-exercised portion of any Warrant beneficially owned by the registered holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the registered holder that neither the Warrant Agent nor the Company is representing to the registered holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the registered holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 6 applies, the determination of whether a Warrant is exercisable (in relation to other securities owned by the registered holder together with any Affiliates) and of which portion of a Warrant is exercisable shall be in the sole discretion of the registered holder, and the submission of an Election to Purchase shall be deemed to be the registered holder’s determination of whether such Warrant is exercisable (in relation to other securities owned by the registered holder together with any Affiliates) and of which portion of a Warrant is exercisable, and neither the Warrant Agent nor the Company shall have any obligation to verify or confirm the accuracy of such determination and neither of them shall have any liability for any error made by the registered holder. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6, in determining the number of outstanding shares of Common Stock, a registered holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Securities and Exchange Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. The provisions of this Section 6 shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6 to correct this subsection (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a

 

 

successor holder of a Warrant.

 

7. Other Provisions Relating to Rights of Holders of Warrants.

 

7.1. No Rights as Stockholder. Except as otherwise specifically provided herein, a registered holder, solely in its capacity as a holder of a Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant Agreement be construed to confer upon a registered holder, solely in its capacity as the registered holder of a Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the registered holder of the Warrant Shares which it is then entitled to receive upon the due exercise of a Warrant. A Warrant does not entitle the registered holder thereof to any of the rights of a stockholder.

 

7.2. Reservation of Common Stock. The Company shall at all times reserve and keep available a number of its authorized but unissued shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Warrant Agreement.

 

8. Concerning the Warrant Agent and Other Matters.

 

8.1 Concerning the Warrant Agent. The Warrant Agent:

 

a)      shall have no duties or obligations other than those expressly set forth herein and no duties or obligations shall be inferred or implied;

 

b)      may rely on and shall be held harmless and protected by the Company and shall incur no liability for or in respect of any action taken, suffered or omitted to be taken by it in reliance upon any certificate, statement, instrument, opinion, notice, letter, facsimile transmission, telegram or other document, or any security delivered to it, and believed by it to be genuine and to have been made or signed by the proper party or parties, or upon any written or oral instructions or statements from the Company with respect to any matter relating to its acting as Warrant Agent hereunder;

 

c)      may consult with counsel satisfactory to it (including counsel for the Company) and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it in accordance with such advice or opinion of such counsel;

 

d)      shall be held harmless by the Company and any other person in respect of any action taken, suffered or omitted to be taken by the Warrant Agent hereunder in accordance with any determination as to whether or not a Warrant received by the Warrant Agent is duly, completely and correctly executed;

 

e)      shall not be obligated to expend or risk its own funds or to take any action that it believes would expose or subject it to expense or liability or to a risk of incurring expense or liability, unless it has been furnished with assurances of repayment or indemnity satisfactory to it; and

 

f)      shall not be liable or responsible for any failure of the Company to comply with any of its obligations relating to the Registration Statement or this Warrant Agreement, including without limitation obligations under applicable regulation or law.

 

8.2  Payment of Taxes. The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of shares of Common Stock upon the exercise of Warrants, but the Company may require the Common Stock holders to pay any transfer taxes in respect of the Warrants or such shares. The Warrant Agent may refrain from registering any transfer or issue or delivery of any Warrant Shares unless or until the persons requesting the registration or issuance shall have paid to the Warrant Agent for the account of the Company the amount of such tax or charge, if any, or shall have established to the reasonable satisfaction of the Company and the Warrant Agent that such tax or charge, if any, has been paid.

 

8.3  Resignation, Consolidation, or Merger of Warrant Agent.

 

8.3.1. Appointment of Successor Warrant Agent. The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving thirty (30) days’ notice in writing to the Company, or such shorter period of time agreed to by the Company. If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the Warrant Agent or by the holder of the Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the Warrant Agent or the holder of any Warrant may apply to the any court of competent jurisdiction for the appointment of a successor Warrant Agent at the Company’s cost. Pending appointment of a successor to such Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. Any successor Warrant Agent (but not including the initial Warrant Agent), whether appointed by the Company or by such court, shall be a person organized and existing

 

 

under the laws of any state or of the United States of America, in good standing, and authorized under such laws to exercise shareowner services powers and subject to supervision or examination by federal or state authority. After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed, and except for executing and delivering documents as provided in the sentence that follows, the predecessor Warrant Agent shall have no further duties, obligations, responsibilities or liabilities hereunder, but shall be entitled to all rights that survive the termination of this Warrant Agreement and the resignation or removal of the Warrant Agent, including but not limited to its right to indemnity hereunder. If for any reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers, and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties, and obligations.

 

8.3.2. Notice of Successor Warrant Agent. In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the transfer agent for the Common Stock not later than the effective date of any such appointment.

 

8.3.3. Merger or Consolidation of Warrant Agent. Any person into which the Warrant Agent may be merged or converted or with which it may be consolidated or any person resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party or any person succeeding to the shareowner services business of the Warrant Agent or any successor Warrant Agent shall be the successor Warrant Agent under this Warrant Agreement, without any further act or deed. For purposes of this Warrant Agreement, “person” shall mean any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust or other entity, and shall include any successor (by merger or otherwise) thereof or thereto.

 

8.4. Fees and Expenses of Warrant Agent.

 

8.4.1. Remuneration. The Company agrees to pay the Warrant Agent reasonable remuneration in an amount separately agreed to between Company and Warrant Agent for its services as Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for all expenditures (including reasonable counsel fees and expenses) that the Warrant Agent may reasonably incur in the preparation, delivery, administration, execution and amendment of this Warrant Agreement and the exercise and performance of its duties hereunder. The Warrant Agent fees, including postage and any out-of-pocket and/or per item fees incurred by the Warrant Agent, shall be paid in accordance with the payment terms and instructions set forth on each invoice provided to the Company by the Warrant Agent. It is understood and agreed that all services to be performed by Warrant Agent shall cease if full payment for its services has not been received in accordance with such payment terms and conditions, and said services will not commence thereafter until all payment due has been received by Warrant Agent.

 

8.4.2. Further Assurances. The Company agrees to perform, execute, acknowledge, and deliver or cause to be performed, executed, acknowledged, and delivered all such further and other acts, instruments, and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing of the provisions of this Warrant Agreement.

 

8.5. Liability of Warrant Agent.

 

8.5.1. Reliance on Company Statement. Whenever in the performance of its duties under this Warrant Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter may be deemed to be conclusively proved and established by a statement signed by the President of the Company and delivered to the Warrant Agent, and the Warrant Agent is hereby authorized and directed to apply to such officer for advice and instructions in connection with its duties and responsibilities hereunder. Such certificate will be full authorization to the Warrant Agent for any action taken, suffered or omitted to be taken by it in reliance upon such certificate, and the Warrant Agent will not be liable for any such action taken, suffered or omitted to be taken by it in accordance with any such instructions or pursuant to the provisions of this Warrant Agreement.

 

8.5.2. Indemnity. The Warrant Agent shall be liable hereunder only for its own gross negligence, willful misconduct or bad faith (each as determined by a final, non-appealable judgment of a court of competent jurisdiction). The Company agrees to indemnify the Warrant Agent for, and to hold it harmless against, any loss, liability, suit, action, proceeding, judgment, claim, settlement, cost or expense (including reasonable counsel fees and expenses), incurred without gross negligence, willful misconduct or bad faith on the part of the Warrant Agent (each as determined by a final, non-appealable judgment of a court of competent jurisdiction), for any action taken, suffered or omitted to be taken by the Warrant Agent in connection with the preparation, delivery, acceptance, administration, execution and amendment of this Warrant Agreement and the exercise and performance of its duties hereunder, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly, and the costs and expenses of enforcing its rights hereunder.

 

8.5.3. Limitation of Liability. The Warrant Agent’s aggregate liability, if any, during the term of this Warrant Agreement with respect to, arising from, or arising in connection with this Warrant Agreement, or from all services provided or omitted to be provided under this Warrant Agreement, whether in contract, or in tort, or otherwise, is limited to, and shall not exceed, the annual amounts paid or payable hereunder by the Company to Warrant Agent as fees and charges, but not including reimbursable expenses.

 

 

8.5.4 Disputes. In the event any question or dispute arises with respect to the proper interpretation of this Warrant Agreement or the Warrant Agent’s duties hereunder or the rights of the Company or of any holder of a Warrant, the Warrant Agent shall not be required to act and shall not be held liable or responsible for refusing to act until the question or dispute has been judicially settled (and the Warrant Agent may, if it deems it advisable, but shall not be obligated to, file a suit in interpleader or for a declaratory judgment for such purpose) by final judgment rendered by a court of competent jurisdiction, binding on all parties interested in the matter which is no longer subject to review or appeal, or settled by a written document in form and substance satisfactory to the Warrant Agent and executed by the Company and each other interested party. In addition, the Warrant Agent may require for such purpose, but shall not be obligated to require, the execution of such written settlement by all the Warrant holders, as applicable, and all other parties that may have an interest in the settlement.

 

8.5.5 Exclusions. The Warrant Agent shall have no responsibility with respect to the validity of this Warrant Agreement or with respect to the validity of any Warrant; nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Warrant Agreement or in any Warrant; nor shall it be responsible or have any duty to make any calculation or adjustment, or to determine when any calculation or adjustment required under the provisions of this Warrant Agreement, including but not limited to Section 4 hereof, should be made, how it should be made or what it should be, or have any responsibility or liability for the manner, method or amount of any such calculation or adjustment or the ascertaining of the existence of facts that would require any such calculation or adjustment, including but not limited to any calculation or determination of “fair market value” and any calculation or determination made in connection with an exercise of Warrants on a “cashless basis;” nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Warrant Agreement or any Warrant or as to whether any securities will, when issued, be validly authorized and issued, fully paid, non-assessable and free from all preemptive rights, taxes, liens and charges; nor will the Warrant Agent be under any duty or responsibility to ensure compliance with any applicable federal or state securities laws in connection with the issuance, transfer or exchange of Warrants.

 

8.6. Acceptance of Agency. The Warrant Agent hereby accepts the agency established by this Warrant Agreement and agrees to perform the same upon the express terms and conditions herein set forth and among other things, shall account promptly to the Company with respect to Warrants exercised and concurrently account for, and pay to the Company, all moneys received by the Warrant Agent for the purchase of shares of Common Stock through the exercise of Warrants.

 

9. Miscellaneous Provisions.

 

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

 

9.2. Notices. Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the Warrant Agent or by the holder of any Warrant to or on the Company shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows:

 

U.S. Rare Earths, Inc.

5600 Tennyson Parkway, Suite 240

Plano, TX 75024

Attn: Chief Executive Officer

 

Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the holder of any Warrant or by the Company to or on the Warrant Agent shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows:

 

Manhattan Transfer Registrar Company

57 Eastwood Road,

Miller Place, New York 11764

Attn: Legal Department

 

with a copy in each case to:

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attn: Jeff Fessler, Esq.

 

and

 

 

Aegis Capital Corp.

810 Seventh Avenue, 11th Fl

New York, NY 10019

Attn: Compliance Department

 

and

 

McDermott Will & Emery LLP 
 340 Madison Avenue,

New York, NY 10173

Attn: Robert Cohen, Esq.

 

9.3. Applicable law. The validity, interpretation, and performance of this Warrant Agreement and of the Warrants shall be governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. The Company hereby agrees that any action, proceeding or claim against it arising out of or relating in any way to this Warrant Agreement may be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be non-exclusive. The Company hereby waives any objection to such non-exclusive jurisdiction and that such courts represent an inconvenience forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.2 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim.

 

9.4. Persons Having Rights under this Warrant Agreement. Nothing in this Warrant Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto, the registered holders of the Warrants, and, for purposes of Sections 3.3, 9.3 and 9.8, the underwriters named in the Registration Statement (the “Underwriters”), any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof. The Underwriters shall be deemed to be an express third-party beneficiary of this Warrant Agreement with respect to Sections 3.3, 9.3 and 9.8 hereof. All covenants, conditions, stipulations, promises, and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto (and the Underwriters with respect to the Sections 3.3, 9.3 and 9.8 hereof) and their successors and assigns and of the registered holders of the Warrants.

 

9.5. Examination of the Warrant Agreement. A copy of this Warrant Agreement shall be available at all reasonable times at the office of the Warrant Agent designated for such purpose for inspection by the registered holder of any Warrant. Prior to such inspection, the Warrant Agent may require any such holder to submit his Warrant for inspection by it.

 

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

 

9.7. Effect of Headings. The Section headings herein are for convenience only and are not part of this Warrant Agreement and shall not affect the interpretation thereof.

 

9.8 Amendments. This Warrant Agreement may be amended by the parties hereto without the consent of any registered holder for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein or adding or changing any other provisions with respect to matters or questions arising under this Warrant Agreement as the parties may deem necessary or desirable and that the parties deem shall not adversely affect the interest of the registered holders. All other modifications or amendments, including any amendment to increase the Exercise Price or shorten the Exercise Period, shall require the written consent of the Underwriter and the registered holders of a majority of the then outstanding Warrants.

 

9.9      Severability. This Warrant Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Warrant Agreement or of any other term or provision hereof; provided, that if such invalid or unenforceable term affects the rights, duties, obligations or liabilities of the Warrant Agent, the Warrant Agent shall be entitled to resign immediately. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Warrant Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

 

9.10      Force Majeure. In the event either party is unable to perform its obligations under the terms of this Warrant Agreement because of acts of God, strikes, failure of carrier or utilities, equipment or transmission failure or damage that is reasonably beyond its control, or any other cause that is reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Performance under this Warrant Agreement shall resume when the affected party or parties are able to perform substantially that party’s duties; provided, that in no event shall this provision relieve the Company of its indemnification obligations hereunder.

 

9.11      Consequential Damages. Notwithstanding anything in this Warrant Agreement to the contrary, except for

 

 

indemnification of third party claims by the Company pursuant to Section 8.4.2, neither party to this Warrant Agreement shall be liable to the other party for any consequential, indirect, punitive, special or incidental damages of any kind whatsoever (including but not limited to lost profits), even if that party has been advised of or has foreseen the likelihood of such losses or damages and regardless of the form of action.

 

IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the parties hereto as of the day and year first above written.

 

U.S. RARE EARTHS, INC.

 

	
By:
    	
 
    	
 
    
	
Name:
    	
 
    
	
Title: Chief Executive   Officer
    	
 
    
	
 
    	
 
    
	
MANHATTAN TRANSFER   REGISTRAR COMPANY
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
Name:
    	
 
    
	
Title:

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