Document:

Exhibit

SECURITY AGREEMENT

This Security Agreement (the “Security Agreement”) is dated effective March 30, 2016 (the “Effective Date”), and is made between LifeVantage Corporation, a Colorado corporation, Lifeline Nutraceuticals Corporation, a Colorado corporation (collectively, “Pledgor”) and ZB, N.A., doing business as Zions First National Bank, a national association (“Secured Party”), pursuant to a Loan Agreement dated on or about the date hereof between Pledgor and Secured Party (as the same may be amended, restated or otherwise modified from time to time, the “Loan Agreement”).  

For good and valuable consideration, receipt of which is hereby acknowledged, Pledgor and Secured Party hereby agree as follows:

1.Definitions.  Except as otherwise provided herein, terms defined in the Loan Agreement shall have the same meanings when used herein.  Terms defined in the singular shall have the same meaning when used in the plural and vice versa.  Terms defined in the Uniform Commercial Code as adopted now or in the future in the State of Utah which are used herein shall have the meanings set forth in the Utah Uniform Commercial Code, except as expressly defined otherwise. However, if a term is defined in Article 9 of the Uniform Commercial Code of the State of Utah differently than in another Article of the Uniform Commercial Code of the State of Utah, the term has the meaning specified in Article 9. As used herein, the term:
(a)    “Collateral” means the collateral described in Section 2, below.
(b)    “Default Rate” means the default interest rate provided in the Notes or the Loan Agreement.
(c)    “Liquidation Costs” means the reasonable costs and out of pocket expenses incurred by Secured Party in obtaining possession of any Collateral, in storage and preparation for sale, lease or other disposition of any Collateral, in the sale, lease, or other disposition of any or all of the Collateral, and/or otherwise incurred in foreclosing on any of the Collateral, including, without limitation, (i) reasonable attorneys fees and legal expenses, (ii) transportation and storage costs, (iii) advertising costs, (iv) sale commissions, (v) sales tax and license fees, (vi) costs for improving or repairing any of the Collateral, and (vii) costs for preservation and protection of any of the Collateral.
(d)    “Note” means the promissory notes of Borrower in favor of Lender dated on or about the date hereof in the aggregate original principal amount of Twelve Million Dollars ($12,000,000), as the same may be amended, restated or otherwise modified from time to time.

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2.    Grant of Security Interest.  Pledgor hereby grants to Secured Party a security interest in all personal property of Pledgor, wherever located, now owned or hereafter acquired or created by Pledgor, including, without limitation, the following (the “Collateral”):
(a)    All inventory as defined in the Uniform Commercial Code, wherever located, all goods, merchandise or other personal property held for sale or lease, names or marks affixed thereto for purposes of selling or identifying the same or the seller or manufacturer thereof and all related rights, title and interest, all raw materials, work or goods in process or materials or supplies of every nature used, consumed or to be used in Pledgor’s business, all packaging and shipping materials, and all other goods customarily or for accounting purposes classified as inventory, of Pledgor, now owned or hereafter acquired or created, all proceeds and products of the foregoing and all additions and accessions to, replacements of, insurance or condemnation proceeds of, and documents covering any of the foregoing, all leases of any of the foregoing, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection, or any other temporary or permanent disposition of any of the foregoing or any interest therein (collectively, the “Inventory”).
(b)    All accounts as defined in the Uniform Commercial Code (including health-care-insurance receivables), accounts receivable, amounts owing to Pledgor under any rental agreement or lease, payments on construction contracts, promissory notes or on any other indebtedness, any rights to payment customarily or for accounting purposes classified as accounts receivable, and all rights to payment, proceeds or distributions under any contract, of Pledgor, presently existing or hereafter created, and all proceeds thereof (collectively, the “Accounts”).
(c)    All equipment and goods as defined in the Uniform Commercial Code, all motor vehicles, including all tires, accessories, spare and repair parts, and tools, wherever located, and all related right, title and interest, of Pledgor, now owned or hereafter acquired or created, all proceeds and products of the foregoing and all additions and accessions to, replacements of, insurance or condemnation proceeds of, and documents covering any of the foregoing, all leases of any of the foregoing, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection, or any other temporary or permanent disposition of any of the foregoing or any interest therein (collectively, the “Equipment”).
(d)    All general intangibles as defined in the Uniform Commercial Code, choses in action, proceeds, contracts, distributions, dividends, refunds, security deposits, judgments, insurance claims, any right to payment of any nature, intellectual property rights or licenses, payment intangibles, licenses, tax refunds, any other rights or assets of Pledgor customarily or for accounting purposes classified as general intangibles, and all documentation and supporting information related to any of the foregoing, all rents, profits and issues thereof, and all proceeds thereof.
(e)    All of the following (collectively, “Financial Obligations Collateral”):
(i)    Any and all promissory notes and instruments payable to or owing to Pledgor or held by Pledgor, whether now existing or hereafter created (collectively, the “Promissory Notes”);
(ii)    Any and all leases under which Pledgor is the lessor, whether now existing or hereafter created (collectively, the “Leases”);

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(iii)    Any and all chattel paper (as defined in the Uniform Commercial Code) (whether tangible or electronic) in favor of, owing to, or held by Pledgor, including, without limitation, any and all conditional sale contracts or other sales agreements, whether Pledgor is the original party or the assignee, whether now existing or hereafter created (collectively, the “Chattel Paper”);
(iv)    Any and all security agreements, collateral and titles to motor vehicles which secure any of the foregoing obligations, whether now existing or hereafter created (collectively, the “Security Agreements Collateral”); and
(v)    All amendments, modifications, renewals, extensions, replacements, additions, and accessions to the foregoing and all proceeds thereof.
(vi)    All deposit accounts (as defined in the Uniform Commercial Code), including without limitation, all deposit accounts, checking accounts, savings accounts, money market accounts, certificates of deposit, depositary accounts, balances, reserves, deposits, debts or any other amounts or obligations owing to Pledgor, including, without limitation, all interest, dividends or distributions accrued or to accrue thereon, whether or not due, now existing or hereafter arising or created, and all proceeds thereof.
(vii)    All investment property (as defined in the Uniform Commercial Code), all interest, dividends or distributions accrued or to accrue thereon, whether or not due, now existing or hereafter arising or created, and all proceeds thereof.
(viii)    All documents (as defined in the Uniform Commercial Code), all amendments, modifications, renewals, extensions, replacements, additions, and accessions thereto, and all proceeds thereof.
(ix)    All letter of credit rights (as defined in the Uniform Commercial Code) (whether or not the letter of credit is evidenced by a writing), all amendments, modifications, renewals, extensions, replacements, additions, and accessions thereto, and all proceeds thereof.
(x)    All supporting obligations (as defined in the Uniform Commercial Code), all amendments, modifications, renewals, extensions, replacements, additions, and accessions thereto, and all proceeds thereof.
(f)    All of the following (collectively, “Intellectual Property”):
(i)    All right, title and interest of Pledgor in and to patent applications and patents, including, without limitation, all proceeds thereof (such as, by way of example, license royalties and proceeds of infringement suits), the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world, and all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof (collectively, the “Patents”);
(ii)    All right, title and interest of Pledgor in and to trademark applications and trademarks, including, without limitation, all renewals thereof, all proceeds thereof (such as, by 

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way of example, license royalties and proceeds of infringement suits), the right to sue for past, present and future infringements, and all rights corresponding thereto throughout the world (collectively, the “Trademarks”), and the good will of the business to which each of the Trademarks relates;
(iii)    All copyrights of Pledgor and all rights and interests of every kind of Pledgor in copyrights and works protectible by copyright, whether now owned or hereafter acquired or created, and all renewals and extensions thereof, and in and to the copyrights and rights and interests of every kind or nature in and to all works based upon, incorporated in, derived from, incorporating or relating to any of the foregoing or from which any of the foregoing is derived, and all proceeds thereof (such as, by way of example, license royalties and proceeds of infringement suits), the right to sue for past, present and future infringements, and all rights corresponding thereto throughout the world (collectively, the “Copyrights”);
(iv)    All of Pledgor’s trade secrets and other proprietary information, now existing or created in the future, and all proceeds thereof (collectively, the “Trade Secrets”);
(v)    All right, title, and interest of Pledgor in, to and under license agreements and contracts concerning Patents, Trademarks, Copyrights, and Trade Secrets now existing or created in the future, all amendments, modifications, and replacements thereof, all royalties and other amounts owing thereunder, and all proceeds thereof (collectively, the “Licenses”); and
(vi)    All internet domain names and addresses of Pledgor now existing or created in the future, and all proceeds thereof.
Notwithstanding anything herein to the contrary, in no event shall the Collateral include, and Pledgor shall not be deemed to have granted a security interest in, any of Pledgor's rights or interests in or under (a) any license, contract, lease, permit, Financial Obligation Collateral or franchise to which Pledgor is a party (or any equipment or inventory subject to a capitalized lease or purchase money lien between Pledgor and any third party that is permitted by the Loan Agreement), or any of its rights or interests thereunder (or with respect to such equipment or inventory) to the extent, but only to the extent, that such a grant would, under the terms of such license, contract, lease, permit, Financial Obligation Collateral or franchise, result in a breach of the terms of, or constitute a default under, such license, lease, contract, permit, Financial Obligation Collateral or franchise (other than to the extent that any such term would be rendered ineffective pursuant to the UCC or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, that immediately upon the ineffectiveness, lapse or termination of any such provision the Collateral shall include, and Pledgor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect or (b) any applications for trademarks and service marks filed in the U.S. Patent and Trademark Office on the basis of the applicant’s intent to use such mark pursuant to 15 U.S.C. Section 1051 unless and until evidence of use of such mark in interstate commerce is submitted to the U.S. Patent and Trademark Office pursuant to 15 U.S.C. Section 1060(a), whereupon, such application shall be deemed automatically included in the Collateral.

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Notwithstanding anything in this Security Agreement to the contrary, the Collateral shall not include any assets of a Foreign Subsidiary, or any equity interests issued by a Foreign Subsidiary (a) in excess of 65% of the voting power of all classes of equity interests of such Foreign Subsidiary entitled to vote in the election of directors or other similar body of such Foreign Subsidiary or (b) to the extent that the pledge thereof is prohibited by the laws of the jurisdiction of such Foreign Subsidiary’s organization or primary operation.  For purposes of the foregoing, “Foreign Subsidiary” means any Subsidiary (i) that is organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia, (ii) that is a corporation, disregarded entity or partnership for U.S. federal income tax purposes, substantially all of the assets of which consist of equity interests and intercompany debt in one or more Subsidiaries described in clause (i) of this definition and (iii) in which a Subsidiary described in clause (i) directly or indirectly owns a majority of the equity interests
Pledgor and Secured Party acknowledge their mutual intent that all security interests contemplated herein are given as a contemporaneous exchange for new value to Pledgor, regardless of when advances to Borrower are actually made or when the Collateral is acquired.
3.    Debts Secured.  The security interest granted by this Security Agreement shall secure (a) all of Borrower’s present and future debts, obligations, and liabilities of whatever nature to Lender under the Notes, and all renewals, extensions, modifications and replacements thereof (including any which increase the original principal amount), (b) all obligations of Borrower arising from the Loan Documents, including, without limitation, this Security Agreement, (c) the Obligations, as defined in the Loan Agreement, and (d) all overdrafts on any account of Pledgor maintained with Lender, now existing or hereafter arising.  Pledgor and Secured Party expressly acknowledge their mutual intent that the security interest created by this Security Agreement secure any and all present and future debts, obligations, and liabilities of Pledgor to Lender under the Notes and Loan Documents without any limitation whatsoever.
4.    Authorization to File Financing Statements.  Pledgor hereby irrevocably authorizes Secured Party at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of Pledgor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code of the State of Colorado, or such other jurisdiction, for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether Pledgor is an organization, the type of organization and any organizational identification number issued to Pledgor and, (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates.  Pledgor agrees to furnish any such information to Secured Party promptly upon Secured Party’s request.  Pledgor also ratifies its authorization for Secured Party to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof.

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5.    Pledgor’s State of Organization.  Pledgor represents and warrants to Lender that, as of the date hereof, it is a Colorado corporation.  Pledgor represents and warrants to Lender that within the last five (5) years it has not changed its state of organization.  No Pledgor shall change its state of organization without giving Secured Party at least thirty (30) days prior written notice to Lender thereof.
6.    Representations and Warranties Concerning Collateral.  Pledgor represents and warrants to Lender that:
(a)    Pledgor is the sole owner of the Collateral owned by it.
(b)    The Collateral is not subject to any security interest, lien, or other encumbrance of any nature whatsoever except Permitted Encumbrances.
(c)    The Accounts are each a bona fide obligation of the obligor identified therein for the amount identified in the records of Pledgor, except for normal and customary disputes which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Accounts.
(d)    To the knowledge of Pledgor, there are no defenses or setoffs to payment of the Accounts which can be asserted by way of defense or counterclaim against Pledgor or Secured Party, except for normal and customary disputes which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Accounts.
(e)    There is presently no default or delinquency in any payment of the Accounts except for any default or delinquency which has been reserved against by Pledgor in accordance with generally accepted accounting principles and, except for normal and customary disputes which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Accounts.
(f)    Pledgor has no knowledge of any fact or circumstance which would materially impair the ability of any obligor on the Accounts to timely perform its obligations thereunder, except those which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Accounts.
(g)    Any services performed or goods sold giving rise to the Accounts have been rendered or sold in compliance in all material respects with applicable laws, ordinances, rules, and regulations and in the ordinary course of Pledgor’s business.
(h)    There have been no extensions, modifications, or other agreements relating to payment of the Accounts, except those granted in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Accounts.
(i)    The Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral are bona fide obligations of the obligors identified therein for the amount identified therein or as otherwise disclosed in writing to Secured Party by Pledgor, except for normal and customary disputes 

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which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Collateral.
(j)    To the knowledge of Pledgor, there are no defenses or setoffs to payment of the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral which can be asserted by way of defense or counterclaim against Pledgor or Secured Party, except for normal and customary disputes which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Collateral.
(k)    There is presently no default or delinquency in any payment of the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral, except for normal and customary disputes which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Collateral.
(l)    Pledgor has no knowledge of any fact or circumstance which would materially impair the ability of any obligor on the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral to timely perform its obligations thereunder, except those which arise in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Collateral .
(m)    Any services performed or goods sold giving rise to the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral have been rendered or sold in compliance in all material respects with applicable laws, ordinances, rules, and regulations.
(n)    There have been no extensions, modifications, or other agreements relating to payment of the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral except as shown upon the face thereof or as otherwise disclosed to Secured Party by Pledgor, except those granted in the ordinary course of business and which, unless no Event of Default is then continuing, do not affect a material portion of the Collateral.
7.    Covenants Concerning Collateral.  Pledgor covenants that:
(a)    Pledgor will keep the Collateral free and clear of any and all security interests, liens, assignments or other encumbrances, except Permitted Encumbrances.
(b)    Pledgor agrees to execute and deliver any applications for certificates of title, certificates of title, and other documents (properly endorsed, if necessary) reasonably requested by Secured Party for perfection or, during the continuation of an Event of Default, enforcement of any security interest or lien, and to give good faith, diligent cooperation to Secured Party with respect thereto, and to perform such other acts reasonably requested by Secured Party for perfection and, during the continuation of an Event of Default, enforcement of any security interest or lien created hereunder, including, without limitation, obtaining control for purposes of perfection with respect to Collateral consisting of deposit accounts, investment property, letter-of-credit rights, and electronic chattel paper.  Secured Party is authorized to file, record, or otherwise utilize such documents as it deems necessary to perfect and/or enforce any security interest or lien granted hereunder.  Notwithstanding anything to the contrary, so long as no Event of Default is continuing 

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and the Secured Party has not given notice to the Pledgor that its rights under this sentence are terminated, Pledgor shall have the right to collect all cash dividends and distributions upon, and exercise all rights (including, without limitation, contractual and governance rights) with respect to, all equity interests and investment property constituting Collateral.
(c)    Pledgor shall not, in any material respect, misuse or conceal the Equipment or, in any material respect, in any way permit the Equipment to be used unlawfully or contrary to the provisions of any insurance coverage.  Risk of loss of the Equipment shall be on Pledgor at all times unless Secured Party takes possession of the Equipment.  Loss of or damage to the Equipment or any part thereof shall not release Pledgor from any of the obligations secured by the Equipment.
(d)    Pledgor shall submit to Secured Party reports as to the Inventory and the Accounts at such times and in such form as Secured Party may reasonably request.  Pledgor will at all times keep accurate and complete, in all material respects, records of the Inventory and the Accounts.
(e)    Until Secured Party exercises its rights as a secured party with respect to the Inventory by taking actual or constructive possession thereof or otherwise during an Event of Default, or by giving notice to Pledgor of its intent to do so pursuant to an Event of Default, Pledgor shall have the right to sell or otherwise dispose of the Inventory in the ordinary course of business.  Except as permitted by the Loan Agreement, no other disposition of the Inventory may be made without the prior written consent of Secured Party.  
(f)    If an Event of Default has occurred and is continuing, all proceeds from the sale or other disposition of the Inventory and Accounts and all collections and other proceeds therefrom shall, at Secured Party’s request, be deposited into an account designated by Secured Party (the “Cash Collateral Account”), which account shall be under the sole and exclusive control of Secured Party.  After such request, such proceeds and collections shall not be commingled with any other funds and shall be promptly and directly deposited into such account in the form in which received by Pledgor.  After such request, such proceeds and collections shall not be deposited in any other account and such Cash Collateral Account shall contain no funds other than such proceeds and collections.  All or any portion of the funds on deposit in such Cash Collateral Account may, in the sole discretion of Secured Party, be applied from time to time as Secured Party elects to payment of obligations secured by this Security Agreement or Secured Party may elect to turn over to Pledgor, from time to time, all or any portion of said funds.
(g)    Pledgor agrees to use diligent and good faith efforts in accordance with its normal practices to collect the Accounts in the ordinary course of business.  After the occurrence and during the continuation of an Event of Default, Secured Party, in its sole discretion, may, upon written notice to Pledgor, notify any and all account debtors to make payment thereon directly to Secured Party, and to take possession of all proceeds from the Accounts, and to take any action which Pledgor might or could take to collect the Accounts, including the right to make any compromise, discharge, or extension of the Accounts.  After the occurrence and during the continuation of an Event of Default, upon request of Secured Party, Pledgor agrees to execute and deliver to Secured Party a notice to Pledgor’s account debtors instructing said account debtors to pay Secured Party.  After the occurrence and during the continuation of an Event of Default, Pledgor further agrees to execute 

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and deliver to Secured Party all other notices and similar documents reasonably requested by Secured Party to facilitate collection of the Accounts.
(h)    All costs of collection of the Accounts, including reasonable attorneys fees and legal expenses, shall be borne solely by Pledgor, whether such costs are incurred by or for Pledgor or Secured Party and whether not legal proceedings are commenced.  In the event Secured Party elects to undertake direct collection of the Accounts during the continuation of an Event of Default, Pledgor agrees to deliver to Secured Party, if so requested, all books, records, and documents in Pledgor’s possession or under its control as may relate to the Accounts or as may be helpful to facilitate such collection.  Secured Party shall have no obligation to cause an attorneys demand letter to be sent, to file any lawsuit, or to take any other legal action in collection of the Accounts.
(i)    Pledgor does hereby make, constitute, and appoint Secured Party and its designees as Pledgor’s true and lawful attorney in fact, with full power of substitution, such power to be exercised in the following manner: (1) after the occurrence and during the continuation of an Event of Default, Secured Party may receive and open all mail addressed to Pledgor and remove therefrom any cash, notes, checks, acceptances, drafts, money orders or other instruments in payment of the Accounts; (2) after the occurrence and during the continuation of an Event of Default, Secured Party may cause mail relating to the Inventory and Accounts to be delivered to a designated address of Secured Party where Secured Party may open all such mail and remove therefrom any cash, notes, checks, acceptances, drafts, money orders, or other instruments in payment of the Accounts; (3) after the occurrence and during the continuation of an Event of Default, Secured Party may endorse  Pledgor’s name upon such notes, checks, acceptances, drafts, money orders, or other forms of payment; (4) after the occurrence and during the continuation of an Event of Default, Secured Party may settle or adjust disputes or claims in respect to the Accounts for amounts and upon such terms as Secured Party, in its sole discretion and in good faith, deems to be advisable, in such case crediting Pledgor with only the proceeds received and collected by Secured Party after deduction of Secured Party’s costs, including reasonable attorneys fees and legal expenses; and (5) Secured Party may do any and all other things reasonably necessary or proper to carry out the intent of this Security Agreement and to perfect and protect the liens and rights of Secured Party created under this Security Agreement.
(j)    Pledgor agrees to use diligent and good faith efforts to collect the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral in the ordinary course of business.  After the occurrence and during the continuation of an Event of Default, upon written notice by Secured Party to Pledgor, Secured Party may at any time terminate such authority.  Upon such termination, Secured Party is authorized by Pledgor, without further act, to notify any and all obligors on that Collateral to make payment thereon directly to Secured Party, to take possession of all proceeds from any such payments, and to take any action which Pledgor might or could take to collect that Collateral, including the right to make any compromise, discharge or extension of that Collateral.  After the occurrence and during the continuation of an Event of Default, upon request of Secured Party, Pledgor agrees to execute and deliver to Secured Party a notice to the obligors on that Collateral instructing said obligors to pay Secured Party.  Pledgor further agrees to execute and deliver to Secured Party all other notices and similar documents reasonably requested by Secured Party to facilitate collection of that Collateral.

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Pledgor hereby irrevocably makes, constitutes, and appoints Secured Party and its designees as Pledgor’s true and lawful attorney in fact, with full power of substitution, to, after the occurrence and during the continuation of an Event of Default, endorse Pledgor’s name upon checks, drafts, money orders, or other forms of payment of the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral or on any other documents relating to collection of that Collateral.

All costs of collection of the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral, including reasonable attorneys fees and legal expenses, shall be borne solely by Pledgor, whether such costs are incurred by or for Pledgor or Secured Party.  After the occurrence and during the continuation of an Event of Default, in the event Secured Party elects to undertake direct collection of that Collateral pursuant to the terms of this Security Agreement, Pledgor agrees to deliver to Secured Party, upon request, all books, records, and documents in Pledgor’s possession or under its control as may relate to that Collateral or as may be helpful to facilitate such collection.

(k)    Immediately upon execution of this Security Agreement, if so requested by Secured Party, Pledgor shall deliver to Secured Party all Promissory Notes and Chattel Paper.  Upon creation of any Promissory Notes or Chattel Paper in the future, Pledgor shall, at the request of Secured Party, deliver the Promissory Notes and Chattel Paper to Secured Party.
(l)    Pledgor shall, promptly upon obtaining knowledge thereof, report to Secured Party in writing any material default on any item of Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral, any material claim or dispute asserted by any obligor on any item of that Collateral, and any other material matters if such affects the value, enforceability or collectability of any material portion of the Collateral.
(m)    Pledgor shall not, without Secured Party’s written consent, make any material settlement, compromise or adjustment of any item of Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral or grant any material discounts, extensions, allowances or credits thereon other than in the ordinary course of business.
(n)    Pledgor will at all times keep accurate and complete, in all material respects, records as to the Promissory Notes, Leases, Chattel Paper, and Security Agreements Collateral and payments thereon.
8.    Right to Perform for Pledgor.  Secured Party may, in its sole discretion and without any duty to do so, elect to discharge taxes, tax liens, security interests, or any other encumbrance upon the Collateral, perform any duty or obligation of Pledgor, pay filing, recording, insurance and other charges payable by Pledgor, or provide insurance as provided herein, in each case if Pledgor fails to do so.  Any such payments advanced by Secured Party shall be repaid by Pledgor upon demand, together with interest thereon from the date of the advance until repaid, both before and after judgment, at the Default Rate,
9.    Time of Essence, Etc.  Time is of the essence of this Security Agreement.  No course of dealing or any delay or failure to assert any default shall constitute a waiver of that default or of any prior or subsequent default.

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10.    Remedies.  Upon the occurrence of any Event of Default, Secured Party shall have the following rights and remedies, in addition to all other rights and remedies existing at law, in equity, or by statute or provided in the Loan Documents:
(a)    Secured Party shall have all the rights and remedies available under the Uniform Commercial Code; 
(b)    Secured Party shall have the right to enter upon any premises leased or owned by Pledgor where the Collateral or records relating thereto may be and take possession of the Collateral and such records; 
(c)    Upon request of Secured Party, Pledgor shall, at the expense of Pledgor, assemble the Collateral and records relating thereto at a place designated by Secured Party and tender the Collateral and such records to Secured Party; 
(d)    Without notice to Pledgor, Secured Party may obtain the appointment of a receiver of the business, property and assets of Pledgor and Pledgor hereby consents to the appointment of Secured Party or such person as Secured Party may designate as such receiver; and
(e)    Secured Party may sell, lease or otherwise dispose of any or all of the Collateral and, after deducting the Liquidation Costs, apply the remainder to pay, or to hold as a reserve against, the obligations secured by this Security Agreement.
(f)    Pledgor shall be liable for all deficiencies owing on any obligations secured by this Security Agreement after liquidation of the Collateral.   Secured Party shall not have any obligation to clean-up or otherwise prepare any Collateral for sale, lease, or other disposition.
(g)    The rights and remedies herein conferred are cumulative and not exclusive of any other rights and remedies and shall be in addition to every other right, power and remedy herein specifically granted or hereafter existing at law, in equity, or by statute which Secured Party might otherwise have, and any and all such rights and remedies may be exercised from time to time and as often and in such order as Secured Party may deem expedient.  No delay or omission in the exercise of any such right, power or remedy or in the pursuance of any remedy shall impair any such right, power or remedy or be construed to be a waiver thereof or of any default or to be an acquiescence therein.
(h)    In the event of breach or default under the terms of this Security Agreement, Pledgor agrees to pay all reasonable out-of-pocket costs and expenses, including reasonable attorneys fees and legal expenses, incurred by or on behalf of Secured Party in enforcing, or exercising any remedies under, this Security Agreement, and any other rights and remedies.  Additionally, Pledgor agrees to pay all Liquidation Costs.  Any and all such costs, expenses, and Liquidation Costs shall be payable by Pledgor upon demand, together with interest thereon from the date of the advance until repaid, both before and after judgment, at the Default Rate.
(i)    Regardless of any breach or default, Pledgor agrees to pay all reasonable out-of-pocket expenses, including reasonable attorneys fees and legal expenses, incurred by Secured Party 

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in any bankruptcy proceedings of any type involving Pledgor, the Collateral, or this Security Agreement, including, without limitation, expenses incurred in modifying or lifting the automatic stay, determining adequate protection, use of cash collateral, or relating to any plan of reorganization.
11.    Notices.  All notices or demands by any party hereto shall be in writing and shall be sent as provided in the Loan Agreement.
12.    Indemnification.  Pledgor shall indemnify Secured Party for any and all claims and liabilities, and for damages which may be awarded or incurred by Secured Party, and for all reasonable attorney fees, legal expenses, and other out-of-pocket expenses incurred in defending such claims, arising from or related to the negotiation, execution, or performance by Secured Party of this Security Agreement, but excluding any such claims based upon breach or default by Secured Party or gross negligence or willful misconduct of Secured Party.  Secured Party shall have the sole and complete control of the defense of any such claims.  Secured Party is hereby authorized to settle or otherwise compromise any such claims as Secured Party in good faith determines shall be in its best interests.
13.    General.  This Security Agreement is made for the sole and exclusive benefit of Pledgor and Secured Party and is not intended to benefit any third party.  No such third party may claim any right or benefit or seek to enforce any term or provision of this Security Agreement.
Secured Party and its officers, directors, employees, representatives, agents, and attorneys, shall not be liable to Pledgor for consequential damages arising from or relating to any breach of contract, tort, or other wrong in connection with or relating to this Security Agreement or the Collateral.

If the incurring of any debt by Borrower or the payment of any money or transfer of property to Secured Party by or on behalf of Pledgor should for any reason subsequently be determined to be “voidable” or “avoidable” in whole or in part within the meaning of any state or federal law (collectively “voidable transfers”), including, without limitation, fraudulent conveyances or preferential transfers under the United States Bankruptcy Code or any other federal or state law, and Secured Party is required to repay or restore any voidable transfers or the amount or any portion thereof, or upon the advice of Secured Party’s counsel is advised to do so, then, as to any such amount or property repaid or restored, including all reasonable costs, expenses, and attorneys fees of Secured Party related thereto, the liability of Pledgor, and each of them, and this Security Agreement, shall automatically be revived, reinstated and restored and shall exist as though the voidable transfers had never been made.

This Security Agreement shall be governed by and construed in accordance with the laws of the State of Utah.  

Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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All references in this Security Agreement to the singular shall be deemed to include the plural if the context so requires and vice versa.  References in the collective or conjunctive shall also include the disjunctive unless the context otherwise clearly requires a different interpretation.

All agreements, representations, warranties and covenants made by Pledgor shall survive the execution and delivery of this Security Agreement, the filing and consummation of any bankruptcy proceedings, and shall continue in effect so long as any obligation to Secured Party secured by this Security Agreement (other than contingent indmnification obligations for which no demand is made) is outstanding and unpaid.  All agreements, representations, warranties and covenants in this Security Agreement shall bind the party making the same and its successors, and shall be to the benefit of and be enforceable by each party for whom made and their respective successors and assigns. 

This Security Agreement, together with the Loan Documents, constitute the entire agreement between Pledgor and Secured Party as to the subject matter hereof and may not be altered or amended except by written agreement signed by Pledgor and Secured Party.  All other prior and contemporaneous agreements, arrangements, and understandings between the parties hereto as to the subject matter hereof are, except as otherwise expressly provided herein, rescinded.  

Upon payment in full of the obligations secured by the security interest granted by this Security Agreement (other than contingent indemnification obligations for which no demand has been made) and the expiration of any obligation of the Lender to extend credit accommodations to the Pledgor, the security interest granted hereby shall terminate.  Upon any such termination, the Secured Party will return to the Pledgor such of the Collateral then in the possession of the Secured Party as has not been sold or otherwise applied pursuant to the terms hereof and execute and deliver to the Pledgor such documents as the Pledgor reasonably requests to evidence such termination.  Any reversion or return of Collateral upon termination of this Security Agreement and any instruments of transfer or termination shall be at the expense of the Plegor and shall be without warranty by, or recourse on, the Secured Party.  As used in this Section, “Pledgor” includes any assigns of the Pledgor, any Person holding a subordinate security interest in any of the Collateral or whoever else may be lawfully entitled to any part of the Collateral.

Upon a sale, lease or other disposition of any Collateral, which sale, lease or other disposition is permitted by the Loan Agreement, the security interest granted hereby with respect to such Collateral shall be automatically release, and upon request of Pledgor, the Secured Party shall execute and deliver such instruments and documents, and take such further action as such Pledgor shall reasonably request to evidence such release.

[Signature Page Follows]

    

13

Dated as of the Effective Date.

	
		
	 
	SECURED PARTY:
ZB, N.A., doing business as Zions First National Bank 

By: /s/ Scott Bramhall, Senior Vice President

	 
	

PLEDGOR:
LifeVantage Corporation, 
a Colorado corporation

By: /s/ Mark Jaggi, Chief Financial Officer

Lifeline Nutraceuticals Corporation, 
a Colorado corporation

By: /s/ Mark Jaggi, DirectorExhibit 10.1

 

EXECUTION VERSION

 

 

YINTECH INVESTMENT HOLDING LIMITED

 

 

2013 SHARE OPTION SCHEME1

 

(approved and adopted by a board resolution passed on 10 December, 2015 )

 

(amended and restated effective as of 18 November, 2015)

 

 

1  Assumed from the Win Yin Financial And Information Service Company Limited (see Explanatory Note on p. 1).

 

 

TABLE OF CONTENTS

 

 

	
 
    	
 
    	
PAGE
    
	
 
    	
 
    	
 
    
	
Section 1. Definitions and Interpretation
    	
 
    	
1
    
	
Section 2. Purpose of the Scheme
    	
 
    	
3
    
	
Section 3. Condition
    	
 
    	
3
    
	
Section 4. Duration, Termination and Administration
    	
 
    	
4
    
	
Section 5. Offer and Grant of Options
    	
 
    	
4
    
	
Section 6. Exercise Price
    	
 
    	
5
    
	
Section 7. Exercise of Options
    	
 
    	
5
    
	
Section 8. Lapse of Option
    	
 
    	
8
    
	
Section 9. Maximum Number of Shares Subject to Options
    	
 
    	
9
    
	
Section 10. Reorganization of Capital Structure
    	
 
    	
9
    
	
Section 11. Share Capital
    	
 
    	
10
    
	
Section 12. Disputes
    	
 
    	
10
    
	
Section 13. Alteration of this Scheme
    	
 
    	
10
    
	
Section 14. Miscellaneous
    	
 
    	
11
    

 

 

Explanatory Note:  In 2015, Yintech Investment Holdings Limited (“Yintech”) initiated a series of transactions constituting a reorganization (the “Reorganization”), pursuant to which a majority of the People’s Republic of China (the “PRC”) subsidiaries of Win Yin Financial And Information Service Company Limited (“Win Yin”) became the wholly owned subsidiaries of Shanghai Qian Zhong Su Investment Co., Ltd., Yintech’s wholly owned PRC subsidiary. In connection with the recently completed reorganization,  Yintech has assumed the Win Yin’s 2013 Pre-IPO Share Option Scheme (the “Scheme”), which was amended and restated to reflect the intent of the parties to the Reorganization that the Shares issued and outstanding under the Scheme be adjusted to relate to securities of Yintech Investment Holding Limited.  Further, on the Assumption Date and in connection with the Reorganization, Yintech assumed the Scheme and all rights, duties and obligations thereunder.

 

Section 1. Definitions and Interpretation. (a) In this Scheme, save where the context otherwise requires, the following expressions have the respective meanings set opposite them:

 

“Adoption Date” being 17 December, 2014, the date on which the Scheme is approved and adopted by a resolution of the shareholders of the Company.

 

“Assumption Date” means 18 November, 2015, the date on which the Scheme was assumed by Yintech Investment Holding Limited.

 

“Auditors” means the auditors for the time being of the Company.

 

“Board” means the board of directors of the Company or a duly authorized committee thereof.

 

“Business Associate” means any advisors, consultants, distributors, contractors, contract manufacturers, agents, customers, business partners, joint venture business partners, service providers of any member of the Group.

 

“Business Day(s)” means any day on which banks in Hong Kong are open for business and the Stock Exchange is open for business of dealing in securities.

 

“Company” prior to the Assumption Date means Win Yin Financial and Information Service Company Limited, a company incorporated in the Cayman Islands, and on and after the Assumption Date, means Yintech Investment Holding Limited.

 

“Director” means any director (including executive director, non-executive director and independent non-executive director) of any member of the Group from time to time.

 

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“Employee” means any employee or officer of any member of the Group.

 

“Exercise Price” means the price per Share at which a Grantee may subscribe for the Shares on the exercise of an Option as described in Section 6.

 

“Grantee” means any Participant who accepts an Offer in accordance with the terms of this Scheme, or (where the context so permits) any person who is entitled to any Option in consequence of the death of the original Grantee.

 

“Group” means the Company and its Subsidiaries.

 

“Hong Kong” means the Hong Kong Special Administrative Region of the PRC.

 

“Offer” means the offer of the grant of an Option made in accordance with Section 5.

 

“Offer Date” means the date on which an Offer is made to a Participant.

 

“Option(s)” means a right granted to subscribe for the Shares pursuant to this Scheme.

 

“Option Period” means a period to be notified by the Board to each Grantee in which an Option granted must be exercised (provided that such period shall not be more than ten years commencing on the Offer Date). The Board may also impose restrictions on the exercise of an Option during the period an Option may be exercised.

 

“Participant(s)” means any Director, Employee or Business Associate who the Board considers, in its sole discretion, has contributed or will contribute to the Group.

 

“PRC” means the People’s Republic of China, for the purposes of this Scheme does not apply to Taiwan, Macau Special Administrative Region and Hong Kong.

 

“Scheme” means this 2013 Share Option Scheme in its present form or as amended from time to time in accordance with the provisions hereof.

 

“Share Registrar” means the share registrar of the Company from time to time.

 

“Shares” means ordinary shares of US$0.001 each in the capital of the Company (or of such other nominal amount as shall result from a sub-division, consolidation, reclassification or reconstruction of the share capital of the Company from time to time).

 

“Stock Exchange” means any internationally recognized stock exchange.

 

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“Subsidiar(ies)” means any entity in which the Company has at any time, directly or indirectly, securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions.

 

“US$” means United States dollars, the lawful currency of the United States.

 

(b)         In this Scheme, save where the context otherwise requires:

 

(i)                                     the headings are inserted for convenience only and shall not limit, vary, extend or otherwise affect the construction of any provision of this Scheme;

 

(ii)                                  references to paragraphs are references to paragraphs of this Scheme;

 

(iii)                               references to any statute or statutory provision shall be construed as references to such statute or statutory provision as respectively amended, consolidated or re-enacted, or as its operation is modified by any other statute or statutory provision (whether with or without modification), and shall include any subsidiary legislation enacted under the relevant statute;

 

(iv)                              expressions in the singular shall include the plural and vice versa;

 

(v)                                 expressions in any gender shall include other genders; and

 

(vi)                              references to persons shall include bodies corporate, corporations, partnerships, sole proprietorships, organizations, associations, enterprises and branches.

 

Section 2. Purpose of the Scheme. The purpose of this Scheme is to recognize and reward the contribution of the Participants to the growth and development of the Group and the proposed listing of the Shares on the Stock Exchange.

 

Section 3. Condition. This Scheme shall take effect subject to the passing of a resolution by the Company shareholders to approve and adopt this Scheme, and to authorize the Board to grant Options to subscribe for the Shares hereunder and to allot, issue and deal with the Shares pursuant to the exercise of any Options granted under this Scheme.

 

If the condition is not satisfied within 30 days after adoption of the Scheme by the Board, this Scheme and any Options granted under this Scheme shall forthwith lapse and no person shall be entitled to any rights or benefits or be under any obligations under or in respect of the Scheme.

 

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Section 4. Duration, Termination and Administration. (a) Subject to Section 3, this Scheme shall be valid and effective for the period of time commencing on the Adoption Date and expiring on the day immediately prior to the earlier of (i) the date which is ten years after the Adoption Date; or (ii) the Company by resolution of the shareholders, or the Board, may at any time terminates the operation of this Scheme, after which period no further Options will be granted but the provisions of this Scheme shall remain in force to the extent necessary to give effect to the exercise of any Options which are granted during the life of the Scheme or otherwise as may be required in accordance with the provisions of this Scheme.

 

(b)                       This Scheme shall be subject to the administration of the Board and the decision of the Board shall be final and binding on all parties. The Board shall have the right (i) to interpret and construe the provisions of the Scheme; (ii) to determine the persons who will be awarded Options under the Scheme, and the number of Options awarded thereto; (iii) to make such appropriate and equitable adjustments to the terms of Options granted under the Scheme as it deems necessary; and (iv) to make such other decisions or determinations as it shall deem appropriate in the administration of the Scheme.

 

(c)                        No member of the Board shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Board nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Scheme may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board) arising out of any act or omission to act in connection with the Scheme unless arising out of such person’s own fraud or bad faith.

 

Section 5. Offer and Grant of Options. (a) On and subject to the terms of this Scheme, the Board shall be entitled at any time during the life of the Scheme to make an Offer to any Participant, as the Board may in its absolute discretion select, to take up Options in respect of such number of Shares as the Board may determine at the Exercise Price. Subject to the terms and conditions of this Scheme, Options may be granted on such terms and conditions in relation to their vesting, exercise or otherwise (e.g. by linking their exercise to the attainment or performance of milestones by any member of the Group, the Grantee or any group of Participants as the Board may determine).

 

(b)                       Options shall entitle the Grantee to subscribe for the Shares on the terms set out in this Scheme save that if, at the time the Grantee wishes to exercise an Option, such exercise of the Option, the issue of the Shares to the Grantee pursuant to the Scheme, the registration of the Grantee as the holder of such Shares, the exercise and enjoyment of the rights attaching to such Shares or the performance of the obligations of the Company or the Grantee

 

4

 

under this Scheme, is not permitted by any applicable laws or regulations, the Options shall not entitle the Grantee to subscribe for the Shares.

 

(c)                        An Offer shall be made to a Participant in the manner and in such form as the Board may from time to time determine requiring the Participant to undertake to hold the Options on the terms to be granted and to be bound by the provisions of this Scheme.

 

(d)                       Any Offer may be accepted in respect of less than the number of Shares to which the offered Option relates.

 

Section 6. Exercise Price. Subject to Section 10, the Exercise Price shall be USD 0.163 per Share.

 

Section 7. Exercise of Options. (a) An Option shall be personal to the Grantee and shall not be assignable or transferable. No Grantee shall in any way sell, transfer, charge, mortgage, encumber or otherwise dispose of or create any interest (legal or beneficial) in favor of any third party over or in relation to any Option or enter into any agreement so to do, except for (A) the transmission of an Option on the death of the Grantee to his personal representatives(s) according to the terms of this Scheme, or (B) the transfer of any Option to any trustee, acting in its capacity as such trustee, of any trust of which the Grantee is a beneficiary. Any breach of the foregoing by a Grantee shall entitle the Company to cancel any Option granted to such Grantee to the extent not already exercised without incurring any liability on the part of the Company.

 

(b)                       A Grantee (or where permitted under  Section 7(d)(ii), his legal personal representative(s)) may exercise his Option in whole or in part by giving notice in the form required by the Company stating that the Option is thereby exercised and specifying the number of Shares to be subscribed; and by a payment for the full amount of the aggregate Exercise Price for the Shares in respect of which the notice is given. Within 5 Business Days after receipt of the notice and payment and, where appropriate, receipt of the Auditors’ or financial advisors’ certificate pursuant to  Section 10(a), the Company shall allot, and shall instruct the Share Registrar to issue, the relevant Shares to the Grantee (or his personal representatives) credited as fully paid and issue to the Grantee (or his personal representatives) a share certificate in respect of the Shares so allotted.

 

(c)                        Except as provided otherwise and subject to the terms and conditions upon which such Option was granted, the vesting period for any Option granted to a Grantee under this Scheme shall be determined by the Board, provided that:

 

(i)                                     in the event a Grantee terminates his employment or service on account of other than (A) his incapacitation or death, or (B) on one or more of the grounds of termination of employment, appointment or directorship specified in Section 8(f), all Options that are unvested as of the date of such termination shall lapse; and

 

5

 

(ii)                                  in the event a Grantee terminates his employment or service on account of incapacitation or death, such Grantee or his personal representative(s) shall be entitled to immediate vesting for 100% of the Options that remain unvested as of the date of such incapacitation or death.

 

(d)                       Subject to (A) the condition specified in Section 3 being fully satisfied, and (B) the terms and conditions on which such Option was granted, Options vested may be exercised by the Grantee at any time during the Option Period, provided that:

 

(i)                                     in the event specified in Section 7(c)(i), the Grantee shall be entitled to exercise the Option up to the vested entitlement of such Grantee as at the date of such termination (to the extent he is entitled to exercise at the date of termination but not already exercised pursuant to the terms of this Scheme and the terms of grant), failing which it will lapse;

 

(ii)                                  in the event specified in Section 7(c)(ii), the Grantee or his personal representative(s) shall be entitled to exercise the Option up to the vested entitlement of such Grantee as at the date of such incapacitation or death (to the extent he is entitled to exercise at the date of incapacitation or death but not already exercised), pursuant to the terms of this Scheme and the terms of grant;

 

(iii)                               if a general offer by way of voluntary offer, takeover or otherwise (other than by way of scheme of arrangement pursuant to Section 7(d)(iv) below) is made to all the holders of Shares (or all such holders other than the offeror and any person controlled by the offeror and any person acting in association or concert with the offeror) and such offer becomes or is declared unconditional prior to the expiry date of the relevant Option, the Company shall forthwith give notice thereof to the Grantee and the Grantee shall be entitled to exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent notified by the Company at any time within such period as shall be notified by the Company;

 

(iv)                              if a general offer for Shares by way of scheme of arrangement is made to all the holders of Shares and has been approved by the necessary number of holders of Shares at the requisite meetings, the Company shall forthwith give notice thereof to the Grantee and the Grantee may at any time thereafter (but before such time as shall be notified by the Company) exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent notified by the Company;

 

(v)                                 in the event a notice is given by the Company to its shareholders to convene a shareholders’ meeting for the purpose of considering and, if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall forthwith give notice thereof to the Grantee and the Grantee may at any time thereafter (but

 

6

 

before such time as shall be notified by the Company) exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent notified by the Company, and the Company shall as soon as possible and in any event no later than three days prior to the date of the proposed shareholders’ meeting, allot, issue and register in the name of the Grantee such number of fully paid Shares which fall to be issued on exercise of such Option; and

 

(vi)                              in the event of a compromise or arrangement, other than a scheme of arrangement contemplated in Section 7(d)(iv) above, between the Company and its members and/or creditors being proposed in connection with a scheme for the reconstruction or amalgamation of the Company, the Company shall give notice thereof to all Grantees on the same day as it first gives notice of the meeting to its members and/or creditors to consider such a scheme or arrangement and the Grantee may at any time thereafter but before such time as shall be notified by the Company exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent notified by the Company, and the Company shall as soon as possible and in any event no later than 3 days prior to the date of the proposed meeting, allot, issue and register in the name of the Grantee such number of fully paid Shares which fall to be issued on exercise of such Option.

 

Upon the occurrence of any of the events referred to in Sections 7(d)(iii) to 7(d)(vi), the Company may in its discretion and notwithstanding the terms of the relevant Option also give notice to a Grantee that his Option may be exercised at any time within such period as shall be notified by the Company and/or to the extent (not being less than the extent to which it could then be exercised in accordance with its terms) notified by the Company. If the Company gives such notice that any Option shall be exercised in part only, the balance of the Option shall lapse.

 

(e)                        The Shares to be allotted and issued upon the exercise of an Option will be subject to the provisions of the articles of association of the Company for the time being in force and will rank pari passu with the fully paid Shares in issue as from the date of exercise of the Option and in particular will entitle the holders to participate in all dividends or other distributions paid or made on or after the date of exercise of the Option other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor is before the date of exercise of the Option, provided always that when the date of exercise of the Option falls on a date upon which the register of members of the Company is closed then the exercise of the Option shall become effective on the next available Business Day on which the register of members of the Company is re-opened.

 

(f)                         The Board may at any time, with the mutual consent of the Grantee, cancel Options previously granted to, but not yet exercised by a Grantee. Where the Company cancels Options and offers Options to the same Grantee, the offer of such new Options may only be made with available

 

7

 

Options to the extent not yet granted (excluding the cancelled Options) within the limit as mentioned in Section 9(a) of this Scheme.

 

Section 8. Lapse of Option. An Option shall lapse automatically (to the extent (A) not already vested in accordance with Section 7(c), and (B) vested but not already exercised) on the earliest of:

 

(a)                       the expiry of the Option Period (subject to the provisions of  Section 4(a));

 

(b)                       the expiry of the periods for exercising the Option as referred to in  Section 7(d)(i), (iii) or (vi);

 

(c)                        subject to the scheme of arrangement becoming effective, the expiry of the period for exercising the Option referred to in Section 7(d)(iv);

 

(d)                       subject to Section 7(d)(v), the date of commencement of the winding up of the Company;

 

(e)                        the date on which the Grantee commits a breach of Section 7(a);

 

(f)                         the date on which:

 

(i)                                     the Grantee (being an Employee or Director of any member of the Group) ceases to be an employee, an officer or a director by reason of the termination of his employment, appointment or directorship on the grounds that he has been guilty of serious misconduct or has been convicted of any criminal offence involving his integrity or honesty or on any other ground on which an employer would be entitled to terminate his employment summarily; provided that whether any of the events specified above occurred in relation to a Grantee shall be solely and conclusively determined by the Board;

 

(ii)                                  the Grantee (being an Employee) serves as an employee, director or officer of any other companies that are not a member of the Group, and/or, whether alone or jointly with others, carried on or be concerned or interested, directly or indirectly, whether as shareholder, employee, director, investor, consultant, adviser, partner or agent in any types of business which are in competition with or in opposition to any business of any member of the Group;

 

(iii)                               the Grantee being a Business Associate is under any contract with the Group, such contract is terminated by reason of breach of contract on the part of the Business Associate or the Grantee ceases to be a Business Associate for any other reason; or

 

(iv)                              the Grantee being a Business Associate, appears either to be unable to pay or have no reasonable prospect to be able to pay debts, or has become insolvent, or has made any arrangements or composition with his or her creditors generally, or ceases or threaten to cease to carry on its business, or is wound up, or has an administrator

 

8

 

or liquidator being appointed for the whole or any part of its undertaking or assets; or has been convicted of any criminal offence involving integrity or honesty,

 

(v)                                 unless the Board otherwise determines, and other than in the circumstances referred to in Section 7(d), the date the Grantee ceases to be a Participant (as determined by a Board resolution) for any reason;

 

(g)                        the date on which the Option is cancelled by the Board as provided in  Section 7(f); and

 

(h)                       the date on which this Scheme terminates pursuant to  Section 4(a).

 

Section 9. Maximum Number of Shares Subject to Options. (a) The total number of Shares which may be issued upon exercise of Options to be granted under this Scheme shall not exceed in aggregate 41,000,000 Shares.

 

(b)                       The maximum number of Shares referred to in Sections 9(a) may be adjusted upon the occurrence of such events and in such manner as described in Section 10.

 

Section 10. Reorganization of Capital Structure. (a) In the event of any alteration in the capital structure of the Company by way of capitalization of profits or reserves, rights issue, sub-division or consolidation of Shares or reduction of share capital of the Company, but excluding, for the avoidance of doubt, any alteration in the capital structure of the Company as a result of an issue of Shares or other securities of the Group as consideration in a transaction to which the Company is a party, the Auditors or the financial advisors engaged by the Company for such purpose shall determine what equitable adjustment is required to be made to:

 

(i)                                     the number and type of Shares or other securities subject to any unexercised Option; and/or

 

(ii)                                  the Exercise Price; and/or

 

(iii)                               the method of exercise of the Options,

 

and the Auditors or such financial advisors shall certify in writing to the Board that such adjustments are in their/his opinion fair and reasonable. The capacity of the Auditors or financial advisors in this paragraph is that of experts and not of arbitrators and their certification shall, in the absence of manifest error, be final and binding on the Company and the Grantees. The costs of the Auditors or financial advisors shall be borne by the Company.

 

(b)                       For the avoidance of doubt, following the date on which the Shares first commence trading on a Stock Exchange the events set forth in Section 10(a) above shall include any dividend or other distribution (whether in the form of cash, Shares or other securities), recapitalization, stock split,

 

9

 

reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, issuance of Shares pursuant to the anti-dilution provisions of securities of the Company, or other similar corporate transaction or event affecting the Shares, or of changes in applicable laws, regulations or accounting principles, in each case in respect of which an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Scheme.

 

(c)                        Any such adjustments shall give each Participant the same proportion of the equity capital of the Company for which such Participant was entitled to subscribe for prior to such adjustments and any adjustments to the advantage of the Participants to the Exercise Price or to the number of Shares subject to the Options must be approved by the shareholders of the Company in general meeting. No adjustment may be made to the extent that Shares would be issued at less than their nominal value.

 

(d)                       If there has been any alteration in the capital structure of the Company as referred to in  Section 10(a), the Company shall, upon receipt of a notice from a Grantee in accordance with Section 7(b), inform the Grantee of such alteration and shall either inform the Grantee of the adjustment to be made in accordance with the certificate of the Auditors or the financial advisors engaged by the Company for such purpose or, if no such certificate has yet been obtained, inform the Grantee of such fact and instruct the Auditors or the financial advisors as soon as practicable thereafter to issue a certificate in that regard in accordance with  Section 10(a).

 

Section 11. Share Capital. The exercise of any Option shall be subject to the shareholders of the Company in general meeting approving any necessary increase in the authorized share capital of the Company. Subject thereto, the Board shall make available sufficient authorized but unissued share capital of the Company to meet subsisting requirements on the exercise of Options.

 

Section 12. Disputes. Any dispute arising in connection with this Scheme (whether as to the number of Shares the subject of an Option, the amount of the Exercise Price or otherwise) may be determined by the Board, the decision of which shall be final and binding on all parties who may be affected thereby.

 

Section 13. Alteration of this Scheme. (a) Subject to the terms set out in the paragraph below, the Board may amend any of the provisions of this Scheme (including without limitation amendments in order to comply with changes in legal or regulatory requirements and in order to waive any restrictions, imposed by the provisions of this Scheme) at any time (but not so as to affect adversely any rights which have accrued to any Grantee at that date).

 

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(b)                       Any change to the authority of the Board in relation to any alteration to the terms of this Scheme must be approved by shareholders of the Company in general meeting.

 

Section 14. Miscellaneous. (a) This Scheme shall not form part of any contract of employment or engagement of services between the Group and any Participant and the rights and obligations of any Participant under the terms of his office, employment or engagement in services shall not be affected by the participation of the Participants in this Scheme or any right which he may have to participate in it and this Scheme shall afford such a Participant no additional rights to compensation or damages in consequence of the termination of such office, employment or engagement for any reason.

 

(b)                       This Scheme shall not confer on any person any legal or equitable right (other than those rights constituting the Options themselves) against the Company directly or indirectly or give rise to any cause of action at law or in equity against the Company.

 

(c)                        The Company shall bear the costs of establishing and administering this Scheme.

 

(d)                       Any notice or other communication between the Company and a Grantee may be sent by prepaid post, by electronic means, or by personal delivery to, in the case of the Company, its principal place of business in the PRC or such other address as notified to the Grantee from time to time and, in the case of the Grantee, his address in the PRC or such other address as notified to the Company from time to time.

 

(e)                        Any notice or other communication served by post:

 

(i)                                     by the Company shall be deemed to have been served 24 hours after the same was put in the post; and

 

(ii)                                  by the Grantee shall not be deemed to have been received until the same shall have been received by the Company.

 

(f)                         Any notice or other communication served by electronic means by the Company or the Grantee shall be deemed to have been served if the sender did not receive a failure of receipt notification.

 

(g)                        All allotments and issues of the Shares will be subject to all necessary consents under any relevant legislation for the time being in force in the PRC, Hong Kong and the Cayman Islands, and a Grantee shall be responsible for obtaining any governmental or other official consent or approval that may be required by any country or jurisdiction in order to permit the grant or exercise of the Option. The Company shall not be responsible for any failure by a Grantee to obtain any such consent or approval or for any tax or other liability to which a Grantee may become subject as a result of his or her participation in this Scheme.

 

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(h)                       This Scheme and all Options granted hereunder shall be governed by and construed in accordance with the laws of the Cayman Islands.

 

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