Document:

Exhibit
4.8

 

EXECUTION
COPY

 

SECOND AMENDMENT TO

CREDIT
AGREEMENT

 

THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (“Second
Amendment”) is made as of the 24th day of August, 2004 by and among AAR CORP.,
a Delaware corporation, (“AAR”), AAR Distribution, Inc., an Illinois
corporation (“Distribution”), AAR Parts Trading, Inc., an Illinois Corporation
(“Parts Trading”), AAR Manufacturing, Inc., an Illinois corporation
(“Manufacturing”), AAR Engine Services, Inc., an Illinois corporation (“Engine
Services”) and AAR Allen Services, Inc., an Illinois corporation (“Allen
Service”) and together with AAR, Distribution, Parts Trading, Manufacturing and
Engine Services, individually a “Borrow” and collectively “Borrowers”, the
financial institutions, party hereto, each as a “Lender” and Merrill Lynch
Capital a division of Merrill Lynch Business Financial Services, Inc.,
individually as a Lender and as Agent.

 

W I T N E S S E T H:

 

WHEREAS, Borrowers, Agent and Lenders entered into a certain Credit
Agreement dated as of May 29, 2003 as amended by a certain First Amendment to
Credit Agreement dated as of January 23, 2004 by and among Borrowers,
Agent and Lenders (said Credit Agreement, as so amended, is hereinafter
referred to as the “Credit Agreement”); and

 

WHEREAS, Borrowers desire to amend and modify certain provisions of the
Credit Agreement and, subject to the terms hereof, Agent and Lenders are
willing to agree to such amendments and modifications;

 

NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and any extension of credit heretofore, now or
hereafter made by Agent and Lenders to Borrowers, the parties hereto hereby
agree as follows:

 

1.             Definitions.  All
capitalized terms used herein without definition shall have the meaning given
to them in the Loan Agreement.

 

2.             Additional
and Amended Definitions.  The following definitions of “AAR-GS
737 Classics Leasing LLC Joint Venture” and “AAR-GS 737 Classics Leasing LLC
Joint Venture Debt Documents” are hereby inserted into Section 1.1 of the
Credit Agreement; the definition of “Borrowing Base” contained in
Section 1.1 of the Credit Agreement is hereby deleted and the following is
inserted in its stead.

 

“AAR-GS 737 Classics Leasing LLC Joint
Venture” means the joint venture relationship pursuant to that certain
Agreement of AAR-GS 737 Classics Leasing LLC by and among AAR International
Financial Services LLC and GS 737 Classics Leasing LLC, which Agreement shall
be in substantially the form delivered by AAR CORP. to Agent on August 24,
2004.

 

“AAR-GS 737 Classics Leasing LLC Joint
Venture Debt Documents” means any agreement, instrument, note, schedules and
exhibits to be executed and/or delivered in

 

 

connection with any Debt incurred by the AAR-GS 737 Classics Leasing
LLC Joint Venture and all amendments and/or modifications or any replacements
(whether effected upon termination or any time thereafter) and/or refinancings
to any of the foregoing (to the extent any such amendment, modification,
replacement or refinancing is permitted hereunder).

 

“Borrowing Base” means, as of any date of calculation, a dollar amount
calculated pursuant to the Borrowing Base Certificate most recently delivered
to Agent in accordance with the terms hereof, equal to the lesser of (x) sixty
percent (60%) of (i) the Net Orderly Liquidation Value multiplied by
(ii) the value of Eligible Inventory calculated on the basis of the lower of
cost or market on a first-in, first-out basis minus the sum of
$5,000,000 plus the amount of any Reserves established by Agent or (y)
ten percent (10%) of the Consolidated Adjusted Net Worth minus
$1,000,000.

 

*              *              *

 

3.                                       Additional
Debt. The following Section (r) is inserted into Section 5.1:

 

“Section 5.1         Debt.   Borrowers
will not, directly or indirectly, create, incur, assume, guarantee or otherwise
become or remain directly or indirectly liable with respect to, any Debt, or
any contingent obligations which would be Debt hereunder if they were
non-contingent, except for:

*              *              *

 

(r)            Debt
incurred by the AAR-GS 737 Classics Leasing LLC Joint Venture (or its
Subsidiaries) pursuant to the AAR-GS 737 Classics Leasing LLC Joint Venture
Debt Documents; provided
that such Debt is non-recourse to any Borrower.”

 

*              *              *

 

4.             Purchase
of Assets, Investments.  Section 5.7 of the Credit Agreement
is hereby deleted and the following is inserted in its stead (new language is
underscored):

 

“Section 5.7         Purchase of Assets,
Investments.              No
Borrower will, and no Borrower will permit any Subsidiary to, directly or indirectly
acquire any assets other than (x) in the ordinary course of business, (y) with
respect to intercompany Debt permitted hereunder or (z) to facilitate a
transaction in which such Borrower or Subsidiary will incur Permitted Mortgage
Debt. No Borrower will and no Borrower will not permit any Subsidiary to,
directly or indirectly make, acquire or own any Investment in any Person other
than (a) Investments set forth on the Information Certificate; (b) Cash
Equivalents; (c) Investments in Domestic Subsidiaries, so long as any such
Domestic Subsidiary has Guaranteed the Obligations and secured such Guarantee
by granting in favor of Agent, for its benefit and the benefit of the Lenders,
a Lien on all or substantially all of that portion of such Domestic Subsidiary’s
assets which, if owed by a Borrower, would constitute Collateral; (d) bank
deposits established in accordance with Section 5.14; (e) Investments in
securities of Account Debtors received pursuant to any plan of reorganization
or similar arrangement upon the bankruptcy or insolvency of such

 

2

 

Account Debtors; (f) loans to officers and employees in an aggregate
principal amount not to exceed $1,000,000 at any time outstanding; (g)
Investments in Subsidiaries formed after the Closing in order to facilitate any
refinancing or replacement of Debt outstanding under the Securitization
Documents; (h) Investments in Subsidiaries formed to facilitate the incurrence
of the Permitted Mortgage Debt, which Investments consist of Borrowers’ Real
Property in Wood Dale, Illinois or Garden City, New Jersey; (i) intercompany
Debt permitted pursuant to Section 5.1; (j) Investments in the Crane Joint
Venture so long as the amount of any such Investment does not exceed One
Million Five Hundred Thousand Dollars ($1,500,000) plus any amount paid by
Borrowers pursuant to Borrowers’ guarantee of the Debt incurred by the Crane
Joint Venture under the Crane Joint Venture Debt Documents; (k) Investments in
the AAR-GS 737 Classics Leasing LLC Joint Venture or its Subsidiaries so long
as the amount of such Investment does not exceed Ten Million Dollars
($10,000,000); and (1) other Investments not exceeding $3,000,000 in any Fiscal
Year and $9,000,000 in the aggregate so long as at the time of any such
Investment, no Event of Default exists and is continuing. Without limiting the
generality of the foregoing, except as otherwise provided above, no Borrower
will, and no Borrower will permit any Subsidiary (except to facilitate a transaction
in which such Subsidiary will incur Permitted Mortgage Debt) to, (i) acquire or
create any Subsidiary or  (ii) engage,
outside of the ordinary course of business, in any joint venture or partnership
with any other Person.

 

5.             Capital
Expenditures. Section 7.1 of the Credit Agreement is hereby deleted
and the following is inserted in its stead:

 

“Capital Expenditures.                         Borrowers will not
permit the aggregate amount of Capital Expenditures for any period set forth
below to exceed the amount set forth below for such period:

 

	
  Period

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 1, 2004 to May 31, 2005 and each
  Fiscal Year thereafter

  	
   

  	
  $

  	
  15,000,000

  	
   

  
					

 

If Borrowers do not utilize the entire amount of Capital Expenditures
permitted in any period set forth above, Borrowers may carry forward to the
immediately succeeding period only seventy-five percent (75%) of such
unutilized amount (with Capital Expenditures made by Borrowers in such
succeeding period applied last to such carried forward amount).”

 

6.             Compliance
Certificate/Capital Expenditures and Borrowing Base Certificate. 

 

Page 3 of Exhibit B to the Credit Agreement (Compliance Certificate) is
hereby deleted and the page 3 of Exhibit B (Compliance Certificate) attached to
this Second Amendment is inserted in its stead. Page 4 of Exhibit C to the
Credit Agreement (Borrowing Base Certificate) is hereby deleted and page 4 of
Exhibit C (Borrowing Base Certificate) attached to this Second Amendment is
inserted in its stead.

 

3

 

7.              Effectiveness.              This Second Amendment shall become
effective upon the satisfaction of each of the following conditions:

 

(a)                                  Agent, Lenders and
Borrowers shall have executed and delivered to each other this Second
Amendment.

 

8.             Pledge
of Interests.              Upon
payment in full of the Debt outstanding under the AAR-GS 737 Classics Leasing
LLC Joint Venture Debt Documents, Borrowers shall deliver to Agent a properly
executed Pledge Supplement or Amendment to Pledge Agreement, as applicable,
with respect to AAR Corp.’s (or its Subsidiaries’) membership    interests in AAR-GS 737 Classics Leasing LLC and
AAR International Financial Services LLC and an acknowledgment by the manager
of AAR-GS 737 Classics Leasing LLC and AAR International Financial Services
LLC, as applicable, of the pledge of such membership interests to Agent for the
benefit of Lenders.

 

9.             Execution
in Counterparts.  This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

 

10.           Continuing
Effect.                Except as
otherwise specifically set out herein, the provisions of the Credit Agreement
shall remain in full force and effect.

 

(Signature Page Follows)

 

4

 

(Signature Page to
Second Amendment to Credit Agreement)

 

IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the day and year specified at the beginning hereof.

 

 

	
   

  	
  MERRILL LYNCH CAPITAL, A

  
	
  AAR DISTRIBUTION, INC.

  	
  DIVISION OF MERRILL LYNCH

  
	
  AAR PARTS TRADING, INC.

  	
  BUSINESS FINANCIAL SERVICES, INC.,

  
	
  AAR MANUFACTURING, INC.

  	
  as Agent and Lender

  
	
  AAR ENGINE SERVICES, INC.

  	
   

  
	
  AAR ALLEN SERVICES, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Timothy J. Romenesko

  	
   

  	
  By:

  	
  /s/ Mark K. Gertzof

  	
   

  
	
  Name: Timothy J. Romenesko

  	
  Name: Mark K. Gertzof

  
	
  Title:

  	
  Vice President

  	
  Title:

  	
  Director

  
								

 

 

(Compliance Certificate)

 

CAPITAL EXPENDITURES

(Section 7.1)

 

Capital Expenditures for the applicable measurement period (the “Defined Period”) are defined as follows:

 

	
  Amount capitalized during the Defined Period by AAR Corp. and its
  Consolidated Subsidiaries as capital expenditures for property, plant, and
  equipment or similar fixed asset accounts, including any such expenditures by
  way of acquisition of a Person or by way of assumption of Debt or other
  obligations, to the extent-reflected as plant, property and equipment

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Plus:

  	
   

  	
  deposits made in the Defined Period in Connection with property,
  plant, and equipment; less deposits of a prior period included above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Less:

  	
   

  	
  Net Cash Proceeds of Asset Dispositions received during the Defined
  Period which (i) Borrowers or a Subsidiary is or are permitted to reinvest
  pursuant to the terms of the Credit Agreement and (ii) are included in
  capital expenditures above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Proceeds of Property Insurance Policies received during the Defined
  Period which (i) Borrower or a Subsidiary is permitted to reinvest pursuant
  to the terms of the Credit Agreement and (ii) are included in capital
  expenditures above

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Capital Expenditures

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   Less:

  	
   

  	
  Portion of Capital Expenditures financed during the Defined Period
  under Capital Leases or other Debt (Debt, for this purpose, does not include
  drawings under the Revolving Loan Commitment)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Portion of Capital Expenditures incurred in connection with
  Borrowers’ maintenance facilities in Oklahoma or Indiana for which Borrowers
  have either been reimbursed or are entitled to be reimbursed by a local,
  state or governmental authority

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Unfinanced and Unreimbursed Capital Expenditures

  	
   

  	
  $

  	
   

  

 

Exhibit B - Page 3

 

	
  Permitted Capital Expenditures (including carry forward of
  $                                  from
  prior fiscal year)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
   

  	
  Yes/No

  	
   

  

 

Exhibit B - Page 4

 

(Borrowing Base)

 

	
  4.

  	
   

  	
  NET
  FORCED PARTS LIQUIDATION PERCENTAGE PER APPRAISAL (To be updated quarterly by
  SH&E or appraisal firm acceptable to Agent)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  TOTAL
  ELIGIBLE PARTS INVENTORY AFTER LIQUIDATION PERCENTAGE (Line 3 multiplied by
  Line 4)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  SIXTY
  PERCENT OF LINE 5

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  TOTAL
  ELIGIBLE AIRCRAFT AND ENGINE INVENTORY (FLV) BEFORE MAXIMUM CAP (To be updated
  quarterly by SH&E or appraisal firm acceptable to Agent)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  MAXIMUM
  CAP — TOTAL ELIGIBLE AIRCRAFT AND ENGINE INVENTORY (FLV — To be updated
  quarterly by SH&E or appraisal firm acceptable to Agent)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  SIXTY
  PERCENT OF THE LESSER OF LINE 7 OR LINE 8

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  TOTAL
  AVAILABLE PARTS INVENTORY AND  AIRCRAFT AND ENGINES INVENTORY PRIOR TO APPLICATION OF EXCLUSIONS AND RESERVES ESTABLISHED BY AGENT PURSUANT TO THE CREDIT AGREEMENT (LINES 6 PLUS LINE 9)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  LESS:
  AT ALL TIMES COLLATERAL AVAILABILITY RESERVE ($5,000,000)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  LESS:
  RENT RESERVES (IF APPLICABLE)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  COLLATERAL
  PORTION OF BORROWING BASE (Line 10 less Line U and Line 12)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  CONSOLIDATED
  NET WORTH COVENANT (AS CALCULATED BELOW) MINUS $1,000,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  REVOLVING
  LOAN COMMITMENT

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
  OUTSTANDING
  REVOLVING LOANS

  	
   

  	
   

  	
   

  

 

Exhibit C - Page 4Exhibit 10.1

 

	
  

  	
  Electro Scientific
  Industries, Inc.

  13900 NW Science Park Dr.

  Portland OR 97229

  

 

Notice of Grant of Stock Options

and Option Agreement

 

	
  Robert DeBakker

  	
  Option
  Number:

  	
  00009595

  
	
  16250 S. Pacific Hwy #57

  	
   

  	
   

  
	
  Lake Oswego, OR United States 97034

  	
   

  	
   

  

 

Effective 9/27/2004 (the Grant Date), you
(Optionee) have been granted a Non-Qualified Stock Option to buy 50,000 shares
of Common Stock of Electro Scientific Industries, Inc. (the Company) at
$17.3200 per share.

 

The total option price of this
option is $866,000.00.

 

Shares in each period will
become fully vested on the date shown.

 

	
  Shares

  	
   

  	
  Vest Type

  	
   

  	
  Full Vest

  	
   

  	
  Expiration

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12,500

  	
   

  	
  On Vest Date

  	
   

  	
  9/27/2005

  	
   

  	
  9/26/2014

  	
   

  
	
  12,500

  	
   

  	
  On Vest Date

  	
   

  	
  9/27/2006

  	
   

  	
  9/26/2014

  	
   

  
	
  12,500

  	
   

  	
  On Vest Date

  	
   

  	
  9/27/2007

  	
   

  	
  9/26/2014

  	
   

  
	
  12,500

  	
   

  	
  On Vest Date

  	
   

  	
  9/27/2008

  	
   

  	
  9/26/2014

  	
   

  

 

By your signature and the
Company’s signature below, you and the Company agree that this option is
governed by the terms and conditions of the attached Option Terms and
Conditions which are incorporated into and made a part of this agreement.

 

	
  /s/ Nicholas Konidaris

  	
   

  	
   

  	
  September 29, 2004

  
	
  Nicholas Konidaris

  	
   

  	
  Date

  	
   

  
	
  President and Chief Executive Officer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Robert DeBakker

  	
   

  	
   

  	
  September 29, 2004

  
	
  Robert DeBakker

  	
   

  	
  Date

  	
   

  

 

 

OPTION TERMS
AND CONDITIONS

Robert
DeBakker

Non-Qualified
Stock Option

 

The Compensation Committee of
the Board of Directors has voted in favor of granting to the Optionee an option
to purchase Common Stock of the Company (the “Option”) in the amount indicated
on the attached notice.

 

1.             The
Option is granted upon the following terms:

 

1.1           Duration of Options.  Subject to
reductions in the Option period as hereinafter provided in the event of
termination of employment or death of the Optionee, the Option shall continue
in effect for a period of 10 years from the Grant Date.

 

1.2           Time of Exercise.  Except as
provided in paragraph 1.5, the Option may be exercised from time to time in the
following amounts: (a) none during the first year following the Grant Date (b)
thereafter not to exceed in any one year 25 percent of the total number of
shares covered by the Option, but if the Optionee does not exercise the Option
in any one year for the full number of shares to which the Optionee is
entitled, the rights shall be cumulative and the Optionee may exercise the
Option for such shares in any subsequent year during the term of the Option.

 

1.3           Limitations on Rights to Exercise. 
Except as provided in paragraph 1.5, the Option may not be exercised
unless at the time of such exercise the Optionee is employed by the Company or
any parent or subsidiary of the Company
and shall have been so employed continuously since the date such option was
granted.

 

1.4           Nonassignability.  The Option is
nonassignable and nontransferable by the Optionee except by will or by the laws
of descent and distribution of the state or country of the Optionee’s domicile
at the time of death, and is exercisable
during the Optionee’s lifetime only by the Optionee.

 

1.5           Termination of Employment.

 

(a)           Unless otherwise determined by the
Board of Directors, if an optionee’s employment or service with the Company
terminates for any reason other than in the circumstances specified in
subsection (b), (c) or (d) below, his or her option may be exercised at any
time before the expiration date of the option or the expiration of three months
after the date of termination, whichever is the shorter period, but only if and
to the extent the optionee was entitled to exercise the option at the date of
termination.

 

(b)           Unless otherwise determined by the
Board of Directors, if an optionee’s employment or service with the Company
terminates because of total disability, his or her option may be exercised at
any time before the expiration date of the option or before the date 12 months
after the date of termination, whichever is the shorter period, but only if and
to the extent the optionee was entitled to exercise the option at the date of
termination.  The term “total
disability” means a medically determinable mental or physical impairment that
is expected to result in death or has lasted or is expected to last for a
continuous period of 12 months or more and that, in the opinion of the Company
and two independent physicians, causes the optionee to be unable to perform his
or her duties as an employee, director, officer or consultant of the Employer
and unable to be engaged in any substantial gainful activity.  Total disability shall be deemed to have
occurred on the first day after the two independent physicians have furnished
their written opinion of total disability to the Company and the Company has
reached an opinion of total disability.

 

(c)           Unless otherwise determined by the
Board of Directors, if an optionee dies while employed by or providing service
to the Company, his or her option may be exercised at any time before the
expiration date of the option or before the date 12 months after the date of
death, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option at the date of death and only by
the person or persons to whom the optionee’s rights under the option shall pass
by the optionee’s will or by the laws of descent and distribution of the state
or country of domicile at the time of death.

 

(d)           In the event an optionee’s employment by the Company or by any parent or
subsidiary of the Company terminates within one year after a change in control
of the Company for any reason other than

 

 

retirement, death, or physical disability (as
defined in Section 1.5(b)), any option held by such optionee may be exercised
with respect to all remaining shares subject thereto, free of any limitation on
the number of shares with respect to which the option may be exercised in any
one year, at any time prior to its expiration date or the expiration of three
months after the date of such termination of employment, whichever is the
shorter period.  A “change in control of
the Company” shall mean a change in control of a nature that would be required
to be reported in response to item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (“Exchange
Act”); provided that, without limitation, such a change in control shall be
deemed to have occurred if (1) any “person” (as such term is used in Sections
13(d) or 14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 20 percent or
more of the combined voting power of the Company’s then outstanding securities;
or (2) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company cease
for any reason to constitute at least a majority thereof unless the election,
or the nomination for election by the Company’s shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.  A change in control of the Company shall not
include any change in control pursuant to a written agreement between the
Company and another person, which agreement is approved and adopted by the
Board of Directors of the Company or pursuant to any tender offer or exchange
offer which the Board of Directors has in any manner recommended acceptance of
to the shareholders of the Company.

 

(e)           To the extent the Option held by any deceased Optionee or by the
Optionee whose employment is terminated shall not have been exercised within
the limited periods provided above, all further rights to purchase shares
pursuant to the Option shall cease and terminate at the expiration of such
periods.

 

(f)             Absence on leave approved by the Employer or
on account of illness or disability shall not be deemed a termination or
interruption of employment or service. 
Unless otherwise determined by the Board of Directors, vesting of
options shall continue during a medical, family, military or other leave of
absence, whether paid or unpaid.

 

1.6           Purchase of Shares.  Shares may be purchased or acquired pursuant
to the Option only upon receipt by the Company of notice in writing from the
Optionee of the Optionee’s intention to exercise, specifying the number of
shares as to which the Optionee desires to exercise the Option and the date on
which the Optionee desires to complete the transaction, which shall not be more
than 30 days after receipt of the notice, and, unless in the opinion of counsel
for the Company such a representation is not required in order to comply with
the Securities Act of 1933, as amended, containing a representation that it is
the Optionee’s present intention to acquire the shares for investment and not
with a view to distribution. On or before the date specified for completion of
the purchase of shares pursuant to the Option, the Optionee must have paid the
Company the full purchase price of such shares in cash, or in shares of Common
Stock of the Company previously acquired and held by the optionee for at least
six months and valued at fair market value of the Common Stock of the Company
on the date of exercise, or in any combination of cash and shares of Common
Stock of the Company.  No shares shall
be issued until full payment therefor has been made, and the Optionee shall
have none of the rights of a shareholder until a certificate for shares is
issued to the Optionee.  The Optionee
shall, upon notification of the amount due, if any, and prior to or
concurrently with delivery of the certificates representing the shares with
respect to which the Option was exercised, pay to the Company amounts necessary
to satisfy any applicable federal, state and local withholding tax
requirements.  If additional withholding
becomes required beyond any amount deposited before delivery of the
certificates, the Optionee shall pay such amount to the Company on demand.

 

1.7           Changes in Capital Structure.  In
the event that the outstanding shares of Common Stock of the Company are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities
of the Company or another corporation, by reason of any reorganization, merger,
consolidation, recapitalization, reclassification,
stock split-up, combination of shares, or dividend payable in shares,
appropriate adjustment shall be made by the Board of Directors in the number and kind of shares for purchase
pursuant to the Option and the corresponding Option price. Any such adjustment made by the Board of
Directors shall be conclusive.

 

1.8           Mergers, Reorganizations, Etc. 
In the event of a merger, consolidation, plan of exchange, acquisition
of property or stock, split-up, split-off, spin-off, reorganization or
liquidation to which the Company is a party or a sale of all or substantially all of the Company’s assets (each, a
“Transaction”), the Board of Directors shall, in its sole discretion and to the extent possible under the structure
of the Transaction, select one of the following alternatives for treating the
Option:

 

(a) The Option shall remain
in effect in accordance with its terms.

 

 

(b) The Option
shall be converted into an option to purchase stock in one or more of the
corporations, including the Company, that are the surviving or acquiring
corporations in the Transaction.  The
amount, type of securities subject thereto and exercise price of the converted
option shall be determined by the Board of Directors of the Company, taking
into account the relative values of the companies involved in the Transaction
and the exchange rate, if any, used in determining shares of the surviving
corporation(s) to be held by holders of shares of the Company following the
Transaction. Unless otherwise determined by the Board of Directors, the
converted option shall be vested only to the extent that the vesting
requirements relating to the Option granted hereunder have been satisfied.

 

(c) The Board
of Directors shall provide a period of 30 days or less before the completion of
the Transaction during which the Option may be exercised to the extent then
exercisable, and upon the expiration of that period the unexercised portion of
the Option shall immediately terminate. 
The Board of Directors may, in its sole discretion, accelerate the
exercisability of the Option so that it is exercisable in full during that
period.

 

1.9           Dissolution of the Company.  In
the event of dissolution of the Company, the Option shall be treated in
accordance with Section 1.8.

 

2.             The
obligations of the Company under this Agreement are subject to the approval of
such state or federal authorities
or agencies, if any, as may have jurisdiction in the matter.  The Company will use its reasonable best
efforts to take such steps as may
be required by state or federal law or applicable regulations, including rules
and regulations of the Securities
and Exchange Commission and any stock exchange on which the Company’s shares
may then be listed, in connection with
the issuance or sale of any shares purchased upon the exercise of the Option.

 

3.             Nothing
in this Agreement shall confer upon the Optionee any right to be continued in
the employment of the Company or
any subsidiary of the Company, or to interfere in any way with the right of the
Company or any subsidiary by whom
the Optionee is employed to terminate the Optionee’s employment at any time,
with or without cause.

 

4.             This
Agreement shall be binding upon and shall inure to the benefit of any successor
or successors of the Company but
except as hereinabove provided the Option herein granted shall not be assigned
or otherwise disposed of by the Optionee.

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