Document:

ex10-1.htm

Exhibit 10.1

 

SENIOR SECURED SUPER-PRIORITY

DEBTOR-IN-POSSESSION PROMISSORY NOTE

 

	Original Principal Amount:  U.S. $3,500,000 	 January 23, 2015

 

For value received, Hipcricket, Inc., a Delaware corporation (the “Borrower”), promises to pay to the order of SITO Mobile, Ltd., a Delaware limited liability company (the “DIP Lender”), the lesser of (a) $3,500,000 (the “Stated Principal Amount”) or (b) the amount of advances from time to time outstanding hereunder together with interest and other amounts as provided herein.

 

WHEREAS, on January 20, 2015 (the “Petition Date”), the Borrower filed with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) a voluntary petition for relief (the “Chapter 11 Case”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”);

 

WHEREAS, the Borrower will file a motion (the “Sale Motion”) no later than five (5) days after the Petition Date pursuant to which it intends to effectuate a sale (the “Sale”) of all or substantially all of its assets to the DIP Lender or one of its affiliates, (the “Purchaser”) or an alternative successful bidder, pursuant to section 363 of the Bankruptcy Code, on the terms and conditions described therein;

 

WHEREAS, the Borrower has requested that the DIP Lender provide it with a secured multiple draw term loan credit facility of up to $3,500,000 (the “DIP Facility”) to fund the day-to-day operating working capital needs and chapter 11 administrative costs of the Borrower during the pendency of the Chapter 11 Case and to allow the Borrower to effectuate the Sale, and the Lender is willing to extend such financing to the Borrower on the terms and subject to the conditions set forth herein; and

 

NOW, THERFORE, the Borrower has made this Debtor-in-Possession Promissory Note (this “DIP Note”) in favor of the DIP Lender to evidence the DIP Facility and pursuant to the Interim Order (I) Authorizing The Debtor To (A) Obtain Post-Petition Secured Financing; (B) Utilize Cash Collateral; And (C) Pay Certain Related Fees And Charges; and (II) Scheduling A Final Hearing [Docket No. TBD] (together with any final order approving the DIP Facility, the “DIP Order”).  Capitalized terms not otherwise defined herein have the meanings given thereto in the DIP Order.

 

1.           Advances; Increase in Principal Amount.

 

(a)           Subject to the terms and conditions set forth in this DIP Note, the DIP Lender shall make advances to the Borrower as follows (each individually a “Loan” and collectively, the “Loans”):

 

(i)           On the date hereof, in the amount of $2,200,000.

 

(ii)           Thereafter, on every Monday beginning on February 2, 2015 (unless such date is not a business day at which point funding shall occur on the next succeeding business day) (each, a “Funding Date”) in an amount equal to (A) the sum of (I) actual cash on hand as of the close of business on the immediately preceding business day plus (II) an amount equal to the ”Estimated Collections” set forth in the cash forecast attached hereto as Exhibit A (as modified from time to time with the consent of the DIP Lender in its sole discretion, the “DIP Budget”) for the week in which the Funding Date occurs less (B) the positive amount of “Cash Outflows” that are projected in the DIP Budget for the week in which the Funding Date occurs (the “DIP Formula Borrowing Amount”); provided, that (x), if the DIP Formula Borrowing Amount is a negative number, then the Borrower may borrow an amount equal to the amount by which the DIP Formula Borrowing Amount is negative plus $250,000, (y) if the DIP Formula Borrowing Amount is greater than $250,000 then the Borrower may not borrow, and (z) if the DIP Formula Borrowing Amount is positive but less than $250,000, then the Borrower may borrow an amount up to the difference between $250,000 and the DIP Formula Borrowing Amount.  Each Loan hereunder shall be subject to the terms and conditions set forth in this DIP Note and the aggregate outstanding principal amount of the Loans shall not exceed the Stated Principal Amount.  Any sums advanced pursuant to this DIP Note and subsequently repaid may not be re-borrowed.

  

  

  

(b)           By noon prevailing eastern time on the business day immediately prior to a Funding Date, Borrower shall give the DIP Lender written notice of its request for a Loan and shall specify the Funding Date (which must be the immediately subsequent business day) and the amount of the requested Loan (a “Borrowing Notice”).  The Borrowing Notice (beginning with the Borrowing Notice provided on or before January 30, 2015) shall include (a) a calculation of the requested Loan amount including reasonable detail regarding the cash on hand included in the calculation and the projected Estimated Receipts for the weekly borrowing period, (b) an updated DIP Budget including actuals for prior periods, and (c) a calculation of any variance from the Budget.  The Borrowing Notice shall also be accompanied by a comparison of actual weekly receipts to those set forth in the DIP Budget.  The obligation of DIP Lender to fund is subject to compliance with the terms and conditions of this DIP Note and the DIP Order.  The DIP Lender shall make each properly authorized Loan in immediately available funds by wire transfer to an account designated by Borrower, as soon as practicable, but in no event later than the noon prevailing eastern time on the applicable Funding Date.

 

(c)           The DIP Lender shall not be obligated to make any Loan (including the initial Loan hereunder), or to take, fulfill, or perform any other action hereunder, unless the following conditions are satisfied as of the making of such Loan, in DIP Lender’s reasonable discretion, or waived in writing by DIP Lender in its sole discretion:

 

(i)           This DIP Note and any necessary or appropriate related documents shall have been executed and delivered to DIP Lender in form and substance acceptable to DIP Lender and shall be in full, force and effect.

 

(ii)           The consummation of the transactions contemplated hereby or entered into in contemplation hereof shall not contravene, violate or conflict with, nor involve the DIP Lender in a violation of applicable law or regulation.

 

(iii)           The applicable DIP Budget shall have been approved in writing by the DIP Lender.

 

(iv)           All consents, authorizations and filings, if any, required in connection with the execution, delivery and performance by the Borrower, and the validity and enforceability against the Borrower, of the DIP Note, shall have been obtained or made, and such consents, authorizations and filings shall be in full force and effect.

 

(v)           Prior to the making of the initial Loan, the DIP Lender shall have received a schedule describing all insurance maintained by the Borrower and a loss payee endorsement with respect thereto and for any subsequent Loan such insurance shall be in full force and effect.

 

(vi)           The DIP Lender shall have received a copy of the applicable DIP Order, and such DIP Order shall have been entered by the Bankruptcy Court in form and substance acceptable to the DIP Lender in its sole discretion, and shall be in full force and effect and shall not have been vacated, stayed, reversed, modified or amended.

 

(vii)           The Petition Date shall have occurred and the “first day” orders sought by the Borrower shall have been entered by the Bankruptcy Court and shall have been in form and substance reasonably satisfactory to the DIP Lender. As to the initial Loan, the Borrower shall have filed the Sale Motion, and all pleadings related thereto, including the proposed Bid Procedures, shall be satisfactory to the DIP Lender.

 

(viii)           The Stalking Horse Agreement shall have been executed and delivered and shall not have been terminated.

 

(ix)           No event shall have occurred and be continuing, or would result from the Loan requested thereby, which, with the giving of notice or the passage of time or both, would constitute an Event of Default and no Event of Default shall be continuing.

 

  

  

  

(x)           The Borrower shall have timely delivered a Borrowing Notice related to such Loan, which was in form and substance satisfactory to the DIP Lender and consistent with the DIP Budget.

 

(xi)            The aggregate principal and amount of all DIP Loans extended shall not exceed the Stated Principal Amount.

 

(xii)           The Sale Motion shall not have been withdrawn, revoked, amended or appealed and shall be in full force and effect pending its approval.

 

(xiii)           All information, approvals, documents or other instruments as DIP Lender may reasonably request shall have been received by DIP Lender.

 

(xiv)           The Borrower shall be in compliance with its obligations under the Stalking Horse Agreement and the Bid Procedures Order, after it is entered.

 

2.           Interest; Payments.

 

(a)           The Loans shall bear interest on the unpaid principal amount thereof plus all obligations owing to, and rights of, the Lender pursuant to the DIP Note, including without limitation, all interest, fees, and costs accruing thereon (collectively, the “Obligations”) from the date hereof (the “Effective Date”) to and including the Maturity Date (defined below), at a fixed rate per annum equal to thirteen percent (13%), calculated on the basis of a 360-day year for the actual number of days elapsed.

 

(b)           Accrued, unpaid interest on the Loans shall be compounded on the last day of each calendar month.  After the Maturity Date and/or after the occurrence and during the continuance of an Event of Default (defined below), the Obligations shall bear interest at a rate equal to fifteen percent (15%) per annum, calculated on the basis of a 360-day year for the actual number of days elapsed (the “Default Rate”).

 

(c)             Interest shall be payable, in cash, on the last day of each calendar month, upon prepayment of any portion of the Obligations, on the Maturity Date, and upon payment in full of the Loan.

 

(d)           Notwithstanding anything to the contrary set forth in this Section 2, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate.

 

(f)           The Obligations shall be due and payable on the earlier to occur of (i) the date the Sale is consummated; (ii) April 3, 2015; (iii) upon acceleration of the DIP Note pursuant to the terms hereof; and (iv) the Termination Date (the “Maturity Date”).  On the Maturity Date, the DIP Lender’s obligation to provide Loans shall terminate.

 

(g)           This Note may be prepaid in whole or in part at any time without penalty or premium.  The DIP Lender may apply any such prepayments and any payments made hereunder in any order of priority determined by the DIP Lender in its exclusive judgment.

 

3.           Covenants Unless otherwise agreed to by the DIP Lender in writing, the Borrower covenants and agrees that it will:

 

(a)           Use the proceeds of the Loans solely for operating working capital purposes and chapter 11 administrative costs in the amounts and otherwise in accordance with and for the purposes provided for in the DIP Budget.  Notwithstanding the then applicable DIP Budget, the Borrower may exceed the budgeted amount for any line item (other than professional fees) during any weekly budget period by 10%  (the “Permitted Variance”) excluding any timing difference resulting from the roll-forward of budgeted expenses from previously weekly periods that were unpaid and which may  rolled forward to subsequent periods; provided, that (i) the total amount of the DIP Loans do not exceed the Stated Principal Amount, (ii) none of the proceeds of the DIP Loans shall be used by any party-in-interest to take any action or to otherwise assert any claims or causes of action against the  DIP Lender in any capacity, and (iii) the Permitted Variance shall not apply to the line items related to professional fees for any party-in-interest.

 

  

  

  

(b)           Keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and property and all legal requirements; and, upon the reasonable request of the DIP Lender, provide copies of, or access to, its books and records, and to discuss the business, operations, assets and financial and other condition of Borrower with officers and employees thereof and with their independent certified public accountants.

 

(c)           Promptly give written notice to the DIP Lender: (i) of the occurrence of any Default or Event of Default; (ii) of any (A) default or event of default under any instrument or other material agreement, guarantee or document of Borrower or (B) litigation, investigation or proceeding which may exist at any time between Borrower and any governmental authority; and (iii) of the commencement of any litigation or proceeding against Borrower for acts occurring after the Petition Date (A) in which more than $50,000 of the amount claimed is not covered by insurance or (B) in which injunctive or similar relief is sought.

 

(d)           Use the proceeds of the Loans solely for the purposes permitted by this DIP Note.

 

(e)           At all times, cause all of the Collateral (defined below) to be subject to a first priority perfected security interest in favor of the DIP Lender in accordance with the DIP Order, subject only to the Carve Out and any Permitted Liens (as defined in the DIP Order/Stalking Horse Agreement).

 

(g)           Promptly, from time to time, deliver such other information regarding the operations, business affairs and financial condition of the Borrower as the DIP Lender may request.

 

(h)           If reasonably practicable, at least two (2) business days prior to the date when the Borrower intends to file any such pleading, motion or other document (and, if not reasonably practicable, as soon as reasonably practicable), provide copies of all material pleadings, motions, applications, judicial information, financial information and other documents to be filed by the Borrower in the Chapter 11 Case.

 

(i)           Promptly execute and deliver such documents, instruments and agreements, and take or cause to be taken such acts and actions, as the Lender may reasonably request from time to time to carry out the intent of this DIP Note and the DIP Order.

 

(k)           Not create, incur, assume or suffer to exist any indebtedness other than (i) indebtedness outstanding on the Effective Date; (ii) indebtedness in connection with the Loans; (iii) indebtedness in respect of fees and expenses owed to professionals retained by the Borrower or any official committee in the Chapter 11 Case up to the amounts set forth in the Budget; and (vi) other unsecured indebtedness of Borrower which does not exceed $50,000 in the aggregate at any time outstanding.

 

(l)           Not create, incur, assume or suffer to exist any lien upon any of its assets, whether now owned or hereafter acquired, except for liens that are permitted by the DIP Order.

 

(m)           Not enter into any merger or consolidation or amalgamation or other change of control transaction or engage in any type of business other than of the same general type now conducted by it.

 

(n)           Other than as provided in the Sale Motion, not convey, sell, lease, assign, transfer or otherwise dispose of any assets or property (including, without limitation, tax benefits), other than the sale of inventory or the licensing of intellectual property in the ordinary course of business.

 

(o)           Not make any advance, investment, acquisition, loan, extension of credit or capital contribution to, in or for the benefit of any person.

 

(p)           Subject in all respects to the DIP Budget and other than the key employee incentive plan contemplated thereby to the extent approved by the Bankruptcy Court, not enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any affiliate.

 

  

  

  

(q)           Not incur or apply to the Bankruptcy Court for authority to incur, or suffer to exist, any indebtedness having the priority afforded by section 364(c) or (d) of the Bankruptcy Code (including any superpriority claims) other than the financing provided for under this Agreement, unless the Obligations hereunder are to be irrevocably paid in full, in cash with the proceeds thereof.

 

(r)           Not limit, affect or modify, or apply to the Bankruptcy Court to limit, affect or modify any of the rights of the DIP Lender with respect to the Obligations, including rights with respect to Collateral and the priority thereof.

 

(s)           Except for the Carve Out, not incur, create, assume, suffer or permit any claim to exist or apply to the Bankruptcy Court for the authority to incur, create, assume, suffer or permit any claim to exist against the Borrower or any of its assets which is to be pari passu with, or senior to, the Obligations, unless the Obligations are being irrevocably repaid in full, in cash with the proceeds thereof.

 

4.           Event of Default.

 

(a)           Each of the following events shall constitute an “Event of Default”:

 

(i)           Borrower (A) fails to pay any payment (whether principal, interest, or otherwise) when such amount becomes due and payable under this DIP Note or (B) Borrower defaults in the due performance or observance by it of any other term, covenant, or agreement contained in this DIP Note (and, if such default is capable of being remedied, it has not been remedied within the cure period set forth herein or, if no such cure period is provided, it has not been remedied to the reasonable satisfaction of the DIP Lender) two (2) business days following the occurrence of such event of default);

 

(ii)           any representation, warranty, or statement made by or on behalf of Borrower herein or in any certificate delivered in connection herewith shall prove to be untrue in any material respect on the date on which made or deemed made;

 

(iii)           the security interest granted to the DIP Lender hereunder shall cease to be in full force and effect, or shall cease to create a perfected security interest in, and lien on, the Collateral purported to be created thereby;

 

(iv)           this DIP Note is, or becomes, invalid or ineffective or unenforceable against Borrower, in whole or in part, or Borrower so asserts or at any time denies its liability or Obligations under this DIP Note;

 

(v)           prior to the closing of the Sale, the Bankruptcy Court shall enter an order with respect to Borrower dismissing its Chapter 11 Case or converting it to a case under chapter 7 or any other chapter of the Bankruptcy Code, or appointing a trustee in its Chapter 11 Case or appointing a responsible officer or an examiner with enlarged powers relating to the operation of Borrower’s business (beyond those set forth in sections 1106(a)(3) or (4)) under Bankruptcy Code section 1106(b), in each case, without the consent of the DIP Lender;

 

(vi)           prior to closing of the Sale, entry of any order of the Bankruptcy Court dismissing the Bankruptcy Case, unless as a condition thereto the Obligations are irrevocably paid in cash in full;

 

(vii)           the Bankruptcy Court shall enter an order granting relief from the automatic stay applicable under section 362 of the Bankruptcy Code to the holder of any lien (other than liens in favor of the DIP Lender) or any assets of Borrower having an aggregate value in excess of $50,000;

 

  

  

  

 

(viii)           the Borrower shall seek to, or shall support any other person’s motion to, disallow in whole or in part the Obligations or to challenge the validity, priority, or enforceability of the DIP Lender’s liens and superpriority claims hereunder;

 

(ix)           a DIP Order shall be entered in form and substance that is not acceptable to the DIP Lender in its sole discretion or, from and after the date of entry thereof, any DIP Order shall cease to be in full force and effect or shall have been vacated, stayed, reversed, modified or amended (or the Borrower shall take any step to accomplish any of the foregoing) without the consent of the DIP Lender;

 

(x)           prior to the closing of the Sale, the Borrower shall make any payments on any indebtedness which arose before the Petition Date other than as provided in any of the “first day” orders entered in the Chapter 11 Case or otherwise consented to by the DIP Lender;

 

(xi)           the Sale Motion shall have been withdrawn or is no longer being pursued or the Borrower shall be in breach or shall fail to comply with the terms of the DIP Order, the Bid Procedures Order or the Stalking Horse Agreement in any material respect;

 

(xii)           actual cash receipts from operations for any two consecutive week budget period are less than 80% of such receipts projected in the Budget or on a cumulative basis from the Petition Date; provided, that the Borrower shall not be in default hereunder if the foregoing revenue test is not met during the first three calendar weeks of the Chapter 11 Case;

 

(xiii)           The (A) Bid Procedures Motion is not filed within five (5) days of the Petition Date, (B) the Sale Motion is not filed within seven (7) days of the Petition Date, (C) Bid Procedures Order is not entered within 22 days of the Petition Date, (D) the Sale Order is not entered within 50 days of the Petition Date, and (E) the Sale has not closed by 15 days after the hearing on the Sale Motion;

 

(xiv)           one or more judgments or decrees shall be entered against Borrower involving in the aggregate a post-Petition Date liability (not paid or fully covered by insurance or otherwise considered permitted Indebtedness) of $50,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within the time required by the terms of such judgment;

 

(xv)           this DIP Note or any related document shall cease, for any reason, to be in full force and effect or the Borrower shall so assert in writing, or any such document shall cease to be effective to grant a perfected lien on any material item of Collateral described therein with the priority purported to be created thereby;

 

(xvi)           an application or motion shall be filed by the Borrower for the approval of a superpriority Claim in the Bankruptcy Case or the Bankruptcy Court shall have granted superpriority status to any claim in the Bankruptcy Case, in each case, that is senior to the claims of DIP Lender against Borrower hereunder, without the prior written consent of the DIP Lender; or

 

(xvii)           the final DIP Order shall not be entered by the Bankruptcy Court by the date that is 30 days from the Petition Date.

 

(b)           Upon the occurrence of an Event of Default and after three (3) days’ notice to the Debtor, if any Event of Default shall then be continuing, DIP Lender may, in its sole discretion at any time during the continuance of such Event of Default, take any of the following actions:

 

(i)           declare all or any portion of the outstanding Obligations due and payable, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or notice of any kind, all of which are hereby waived by Borrower;

 

  

  

  

 

(ii)           enforce all liens and security interests in the Collateral;

 

(iii)           institute proceedings to enforce payment of such Obligations;

 

(iv)           terminate the obligation of the DIP Lender to make Loans; and

 

(v)           exercise any other remedies and take any other actions available to it at law, in equity, under this DIP Note, the Bankruptcy Code, other applicable law or pursuant to the DIP Order.

 

(c)           In addition to the foregoing, if any Event of Default shall occur and be continuing, but subject only to any required notice hereunder or under the DIP Order, the DIP Lender may exercise in addition to all other rights and remedies granted to it in this DIP Note and the DIP Order, all rights and remedies of a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, the Borrower expressly agrees that in any such event the DIP Lender, without demand of performance or other demand, advertisement or notice of any kind (except the notice required by the DIP Order or the notice specified below of time and place of public or private sale) to or upon the Borrower or any other person (all and each of which demands, advertisements and/or notices (except the notice required by the DIP Order or the notice specified below of time and place of public or private sale) are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at any of the DIP Lender’s offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The DIP Lender shall have the right upon any such public sale or sales to purchase for cash or by credit bidding all or a part of the Obligations the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption the Borrower hereby releases. The Borrower further agrees, at the DIP Lender’s request, to assemble the Collateral constituting movable tangible personal property make it available to the DIP Lender at places which the DIP Lender shall reasonably select. The DIP Lender shall apply the proceeds of any such collection, recovery, receipt, appropriation, realization or sale to the Obligations in the order reasonably deemed appropriate by the DIP Lender, Borrower remaining liable for any deficiency remaining unpaid after such application, and only after so paying over such net proceeds and after the payment by the Lender of any other amount required by any provision of law, including Section 9-504(l)(c) of the UCC, shall the DIP Lender account for and pay over the surplus, if any, to the Borrower. To the maximum extent permitted by applicable law, the Borrower waives all claims, damages, and demands against the DIP Lender arising out of the repossession, retention or sale of the Collateral except such as arise out of the gross negligence or willful misconduct of the DIP Lender. The Borrower agrees that the DIP Lender need not give more than five (5) days’ notice to the Borrower (which notification may run concurrently with any notice require when the DIP Order) shall be deemed given when mailed, electronically delivered or delivered on an overnight basis, postage prepaid, addressed to the Borrower at its address set forth below) of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. The Borrower shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which the DIP Lender is entitled.

 

(d)           Except as otherwise expressly provided herein and in the DIP Order, the Borrower hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this DIP Note or any Collateral. Borrower shall also pay DIP Lender’s costs of collection if any Obligations are not paid when due, including without limitation court costs, collection expenses, and reasonable out-of-pocket attorneys’ fees and other expenses which DIP Lender may incur or pay in the prosecution or defense of its rights hereunder, whether in judicial proceedings, including bankruptcy court and appellate proceedings, or whether out of court.

 

  

  

  

5.           Security.

 

(a)          To induce the DIP Lender to make the Loans, the Borrower hereby grants to the DIP Lender, as security for the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, a continuing first priority lien and security interest (subject only to the Carve-Out) in and to all assets of the Borrower, including all of the following presently existing or hereafter acquired property, whether owned, leased or otherwise possessed, to which the Borrower now has or at any time in the future may acquire any right, title or interest (capitalized terms used in clause (i) through (xviii) shall have the meanings provided for such term in the Uniform Commercial Code in effect on the date hereof in the State of Delaware (the “UCC”)):

 

(i)           all Accounts;

 

(ii)          all Chattel Paper;

 

(iii)         all Deposit Accounts, including any monies or other property held therein;

 

(iv)         all Documents;

 

(v)          all Equipment;

 

(v)          all General Intangibles, including all intellectual property, including any trademarks or tradenames, and any licenses;

 

(vi)         all Instruments;

 

(vii)        all Inventory;

 

(viii)       all Investment Property;

 

(ix)          all Letter of Credit Rights;

 

(x)           all real property;

 

(xi)          all motor vehicles;

 

(xii)         all Commercial Tort Claims;

 

(xiii)        all books and records pertaining to the Borrower, its business and any property described herein;

 

(xiv)        all other goods and personal property of the Borrower, whether tangible or intangible, wherever located, including money, letters of credit and all rights of payment or performance under letters of credit;

 

(xv)        to the extent not otherwise included, all causes of action and all monies and other property of any kind received therefrom including Avoidance Actions (as defined in the DIP Order);

 

(xvi)       to the extent not otherwise included, all monies and other property of any kind which is received by the Borrower in connection with any refunds with respect to taxes, assessments and other governmental charges;

 

(xvii)      all insurance claims; and

 

(xviii)     to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any proceeds of insurance, indemnity, warranty or guaranty payable to the Borrower from time to time with respect to any of the foregoing.

 

  

  

  

 

(b)           The granting clause herein is intended to supplement (not supersede) that which is provided for in the DIP Order and the Loans and any other indebtedness or obligations, contingent or absolute (including, without limitation, the principal thereof, interest thereon, and costs and expenses owing in connection therewith) which may now or from time to time hereafter be owing by the Borrower to the DIP Lender under the DIP Note shall be secured as set forth herein, in the DIP Order.

 

(c)           The DIP Order provides for the perfection, maintenance, protection, and enforcement of the DIP Lender’s security interest in the Collateral. Upon the request of the DIP Lender, the Borrower shall place notations on the Borrower’s books of account to disclose the DIP Lender’s security interest therein, and to the extent requested by the DIP Lender, the Borrower shall deliver to the Lender all documents, certificates and Instruments necessary or desirable to perfect the DIP Lender’s lien in letters of credit on which the Borrower is named as beneficiary and all acceptances issued in connection therewith. The Borrower shall take such other reasonable steps as are deemed necessary or desirable to maintain the DIP Lender’s security interest in the Collateral.

 

(d)           The Borrower hereby authorizes the DIP Lender to execute and file financing statements or continuation statements, and amendments thereto, on the Borrower’s behalf covering the Collateral. The DIP Lender may file one or more financing statements disclosing the DIP Lender’s security interest under this DIP Note without the signature of the Borrower appearing thereon. The DIP Lender shall pay the costs of, or incidental to, any recording or filing of any financing statements concerning the Collateral. The Borrower agrees that a carbon, photographic, photostatic, or other reproduction of this DIP Note or of a financing statement is sufficient as a financing statement. Until all Obligations have been irrevocable fully satisfied in cash and the DIP Lender shall have no further obligation to make any Loans hereunder, the DIP Lender’s security interest in the Collateral, and all Proceeds and products thereof, shall continue in full force and effect.

 

(e)           Notwithstanding the preceding two paragraphs, or any failure on the part of the Borrower to take any of the actions set forth therein, the liens and security interests granted herein shall be deemed valid, enforceable and perfected by entry of the interim DIP Order and the final DIP Order, as the case may be. No financing statement, notice of lien, mortgage, deed of trust or similar instrument in any jurisdiction or filing office need be filed or any other action taken in order to validate and perfect the liens and security interests granted by or pursuant to this DIP Note and the DIP Order.

 

(f)           Except as specifically provided in the DIP Order with respect to Permitted Liens, the priority of the DIP Lender’s liens on the Collateral shall be senior to all liens existing as of the Petition Date, and for so long as any Obligations shall be outstanding, the Borrower hereby irrevocably waives any right, pursuant to Sections 364(c) or 364(d) of the Bankruptcy Code or otherwise, to grant any Lien of equal or greater priority than the liens securing the Obligations, or to approve a claim of equal or greater priority than the Obligations, unless otherwise permitted or provided for in the DIP Order or effective upon the granting of any such lien or priority, the Obligations shall be irrevocably paid in full in cash and the obligation to make Loans hereunder terminated.

 

(g)           Upon entry of, subject to and in accordance with the DIP Order, the Obligations of the Borrower hereunder and under the other Loan Documents and the DIP Order, shall at all times constitute allowed superpriority claims pursuant to Section 364(c)(1) of the Bankruptcy Code.

 

(h)           It is expressly agreed by the Borrower that, anything herein to the contrary notwithstanding, the Borrower shall remain liable under its post-petition contractual obligations to observe and perform all the conditions and obligations to be observed and performed by it thereunder, and the Lender shall not have any obligation or liability under any contractual obligations by reason of or arising out of this DIP Note unless otherwise agreed to in writing by the DIP Lender, and the DIP Lender shall not be required or obligated in any manner to perform or fulfill any of the obligations of the Borrower under or pursuant to any contractual obligations, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any contractual obligations, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

 

  

  

  

 

(i)           Borrower hereby constitutes and appoints DIP Lender, or any other person whom DIP Lender may designate, as Borrower’s attorney-in-fact (such appointment being coupled with an interest and being irrevocable until DIP Lender’s liens and claims shall have been satisfied), at Borrower’s sole cost and expense, at any time after the occurrence and during the continuance of an Event of Default, (a) to do any act which Borrower is obligated to do hereunder, or (b) to exercise any of the rights and remedies available under the UCC or other applicable law upon an Event of Default to a secured party with a lien having the same priority as the DIP Lender’s lien on the Collateral (and all acts of such attorney-in-fact or designee taken pursuant to this Section are hereby ratified and approved by Borrower, and said attorney or designee shall not be liable for any acts or omissions nor for any error of judgment or mistake of fact or law); provided, however, that Lender shall provide prior or contemporaneous telephonic and electronic notice to Borrower and any creditor or Borrower entitled to notice with respect to any affected Collateral of the exercise of any or all of the stated rights and powers.

 

6.           Miscellaneous.

 

(a)           Borrower hereby waives presentment, demand (except as expressly required herein), notice, protest and all other demands or notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.  No course of action or delay or omission of DIP Lender in exercising any right or remedy hereunder or under any other agreement or undertaking securing or related hereto shall constitute or be deemed to be a waiver of any such right or remedy, and a waiver on the one occasion shall not operate as a bar to or waiver of any such right or remedy on any future occasion.  The rights and remedies of DIP Lender as provided herein shall be cumulative and concurrent and may be pursued singularly, successively or together at the sole discretion of DIP Lender, and may be exercised as often as occasion therefor shall occur, and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release of the same.

 

(b)           Borrower agrees to pay or reimburse the DIP Lender for all of its costs and expenses incurred in connection with the collection or enforcement of or preservation of any rights under this DIP Note, including, without limitation, the fees and disbursements of counsel for the DIP Lender, including attorneys' fees out of court, in trial, on appeal, in bankruptcy proceedings, or otherwise.

 

(c)           This Note shall be binding upon and inure to the benefit of Borrower and DIP Lender and their respective administrators, personal representatives, legal representatives, heirs, successors and assigns, except that Borrower shall not assign or transfer any of its rights and/or obligations hereunder, and any such assignment or transfer purported to be made by Borrower shall be null and void.  DIP Lender may at any time transfer or assign (or grant a participation in) any or all of its rights and/or obligations hereunder without the consent of Borrower.

 

(d)           If any provision of this DIP Note is invalid, illegal, or unenforceable, the balance of this DIP Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

 

(e)           This DIP Note shall be governed by and construed in all respects under the laws of the State of Delaware, without reference to its conflict of laws rules or principles.  Each of the parties submits to the exclusive jurisdiction of any state or federal court sitting in the State of Delaware, in any action or proceeding arising out of or relating to this Note, agrees that all claims in respect of the action or proceeding may be heard and determined in any such court and agrees not to bring any action or proceeding arising out of or relating to this Note in any other court.  Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto.  Each party agrees that service of summons and complaint or any other process that might be served in any action or proceeding may be made on such party by sending or delivering a copy of the process to the party to be served at the address of the party and in the manner provided for the giving of notices in Section 8(h).  Each party agrees that a final, non-appealable judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law.

 

(f)           THE DIP LENDER AND THE BORROWER HEREBY KNOWINGLY VOLUNTARILY, INTENTIONALLY WAIVE THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREIN, OR ARISING OUT OF UNDER OR IN CONNECTION WITH THIS DIP NOTE.

 

  

  

  

 

(g)           Borrower at its expense shall take any lawful actions and execute, deliver, file and register any documents which DIP Lender may in its discretion deem reasonably necessary or appropriate in order to further the purposes of this DIP Note.

 

(h)           All notices or other communications required or permitted hereunder shall be in writing and shall be delivered personally, by facsimile, electronic mail (including PDF format copies) or sent by certified, registered or express air mail, postage prepaid, and shall be deemed given when so delivered personally, or by facsimile, or if mailed, two (2) days after the date of mailing, as follows:

 

If to Borrower:

 

 

HipCricket, Inc.

110 110th Ave. NE,

Suite 410

Bellevue, WA 98005

Attention: Chief Executive Officer

Email: twilson@hiopcricket.com

 

with a copy to (which shall not constitute notice):

Pachulski Stang Ziehl & Jones LLP

10100 Santa Monica Blvd., Suite 1300

Los Angeles, CA  90067

Attn: Ira D. Kharasch, Esq.

Email: ikharasch@pszjlaw.com

Facsimile:  (310) 201-0760

and

Perkins Coie LLP

1201 Third Avenue, Suite 4900

Seattle, WA 98101

Attn: Faith M. Wilson, Esq.

Email:  fwilson@perkinscoie.com

Facsimile:  (206) 359-4237

If to the DIP Lender:

SITO Mobile, Ltd.

100 Town Square Place

Jersey City, NJ 07310

Attention:  Mr. Jerry Hug

Email: jhug@SITOMobile.com

Facsimile:  602-561-8987

 

with a copy to (which shall not constitute notice):

Greenberg Traurig, LLP

200 Park Avenue

New York, 10166

Attention:  Matthew Hinker, Esq.

Email: hinkerm@gtlaw.com

Facsimile: (212) 801-6400

 

and

 

Greenberg Traurig, LLP

200 Park Avenue

New York, 10166

Attention:  Joseph C. Gangitano, Esq.

Email: gangitanoj@gtlaw.com

Facsimile: (212) 309-9572

 

or to such other address as any party hereto shall notify the other parties hereto (as provided above) from time to time.

 

[Signature page is next page]

 

 

  

  

  

IN WITNESS WHEREOF, Borrower has executed this DIP Note as of the date first written above.

 

BORROWER

HipCricket, Inc.

By:       /s/ Todd Wilson                                                                           

Name: Todd Wilson

Title:  Chief Executive OfficerExhibit 10.5

 

 

INOVALON HOLDINGS, INC.

2015 OMNIBUS INCENTIVE PLAN

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(h)                                 “Cash-Based Award” means an award denominated in cash that may be settled in cash and/or Shares, which may be subject to restrictions, as established by the Administrator.

 

 

(i)                                     “Cause” means, either alone or in any combination: (i) a material breach by a Grantee of the terms of any agreement between that Grantee and the Company or an affiliate of the Company, unless the breach is cured within 10 days after written notice thereof to the Grantee (the Board may determine in its sole discretion that a failure is not subject to cure and may dispense with the cure period); (ii) the persistent and willful failure by a Grantee to perform his or her duties or obligations under any such agreement between that Grantee and the Company or an affiliate of the Company or to adhere to any written policies of the Company or such affiliate of the Company; (iii) the appropriation (or attempted appropriation) of a material business opportunity of the Company or an affiliate of the Company, including attempting to secure or securing any personal profit in connection with any transaction entered into on behalf of the Company or such affiliate of the Company, as the case may be; (iv) the misappropriation (or attempted misappropriation) of funds or property of the Company or an affiliate of the Company; (v) the commission (or attempted commission) of any act of theft, fraud, or dishonesty or any act which has or in the reasonable discretion of the Company may have a detrimental effect on the reputation or business of the Company or an affiliate of the Company; (vi) the unauthorized and willful disclosure of confidential information of the Company or an affiliate of the Company (including confidential or proprietary information of their respective clients); or (vii) the conviction of, the criminal indictment for (or its procedural equivalent), or the entering of a guilty plea or a plea of no contest with respect to, a felony or any other crime involving dishonesty, breach of trust, or physical or emotional harm to any person.  No act or failure to act by a Grantee shall be considered “willful” unless done or omitted to be done by such Grantee, either knowingly, intentionally, or with reasonable knowledge or reckless disregard of the foreseeable consequences of such conduct.

 

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

 

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

 

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

 

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

 

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

 

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(m)                             “Common Stock” means the Class A common stock of the Company.

 

(n)                                 “Company” means Inovalon Holdings, Inc., a Delaware corporation, or any successor entity that adopts the Plan in connection with a Corporate Transaction.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(iv)                              any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but (A) the shares of Common Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger, but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or

 

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

 

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

 

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

 

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

 

(v)                                 “Dividend Equivalent Right” means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock, provided that no such right may be granted with respect to Options or SARs.  Dividend Equivalent Rights granted in connection with Restricted Stock Units that performance vest shall be held subject to the vesting of the underlying Restricted Stock Units.

 

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

 

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

 

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

 

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

 

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

 

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

 

(z)                                  “Good Reason” means (i) the material breach by the Company or an affiliate of the Company, as applicable, of a written employment agreement, if any, between a Grantee and the Company or an affiliate of the Company, as applicable, (ii) the assignment of a Grantee without his or her consent to a position, responsibilities, or duties of a materially lesser status or degree of responsibility than his or her position, responsibilities, or duties on the date of a Corporate Transaction or Change of Control, as applicable, as set forth in writing between the Grantee and the Company, (iii) a reduction in a Grantee’s base salary, provided that an across-the-board reduction in the base salary level of substantially all other individuals in positions similar to Grantee’s by the same percentage amount shall not give rise to Good Reason, (iv) the requirement by the Company that a Grantee’s principal place of employment be anywhere other than within 50 miles of the Grantee’s principal place of employment with the Company immediately preceding a Corporate Transaction or Change of Control; or (v) a material breach 

 

5

 

by the Company of this Plan which is not cured by the Company within 30 days following written notice to the Company of such breach.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(hh)                          “Performance Period” means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to, or the amount or entitlement to, an Award.

 

(ii)                                  “Plan” means this 2015 Omnibus Incentive Plan.

 

(jj)                                “Predecessor Plan” means the Company’s Amended and Restated Long-Term Incentive Plan.

 

(kk)                          “Registration Date” means the closing of the first sale to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, of (A) the Common Stock or (B) the same class of securities of a successor corporation (or its Parent) issued pursuant to a Corporate Transaction in exchange for or in substitution of the Common Stock.

 

(ll)                                  “Related Entity” means any Parent or Subsidiary of the Company.

 

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

 

6

 

the Administrator and its determination shall be final, binding and conclusive.  Dividends payable in connection with Restricted Stock that performance vests shall be held subject to the vesting of the underlying Shares of Restricted Stock.

 

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

 

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

 

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

 

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

 

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

 

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

 

3.                                      Stock and Cash Subject to the Plan.

 

(a)                                 Subject to the provisions of Section 10 below, the maximum aggregate number of Shares which may be issued pursuant to all Awards shall be (i) 7,335,430 Shares, plus (ii) any shares that would otherwise return to the Predecessor Plan as a result of forfeiture, termination or expiration of awards previously granted under the Predecessor Plan and outstanding when this Plan becomes effective (ignoring the termination or expiration of the Predecessor Plan for the purpose of determining the number of Shares available for the Plan).  Notwithstanding the foregoing, the maximum aggregate number of Shares that may be issued pursuant to Incentive Stock Options is 7,335,430 Shares.  The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.

 

(b)                                 Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan.  Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, such Shares shall become available for future grant under the Plan.  To the extent not prohibited by the listing requirements of The NASDAQ Global Select Market (or other established stock exchange or national market system on which the Common Stock is traded) or Applicable Law, any Shares covered by an Award which are surrendered (i) in payment of the Award exercise or purchase price (including pursuant to the “net exercise” of an option pursuant to Section 7(b)(v)) or (ii) in satisfaction of 

 

7

 

tax withholding obligations incident to the exercise, vesting or settlement of an Award shall be deemed not to have been issued for purposes of determining the maximum number of Shares which may be issued pursuant to all Awards under the Plan, unless otherwise determined by the Administrator.  SARs payable in Shares shall reduce the maximum aggregate number of Shares which may be issued under the Plan only by the next number of actual Shares issued to the Grantee upon exercise of the SAR.

 

(c)                                  Prior to the end of the transition period described in Section 18, the maximum aggregate amount of cash that may be issued pursuant to Cash-Based Awards under the Plan to Covered Employees is $40,000,000.

 

4.                                      Administration of the Plan.

 

(a)                                 Plan Administrator.

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(vii)                           to reduce, in each case, without stockholder approval, the exercise price of any Option awarded under the Plan and the base appreciation amount of any SAR awarded under the Plan and to cancel, in each case, without stockholder approval, an Option or SAR at a time when its exercise price or base appreciation amount (as applicable) exceeds the Fair Market Value of the underlying Shares, in exchange for another Option, SAR, Restricted Stock, or other Award or for cash;

 

(viii)                        to prescribe, amend and rescind rules and regulations relating to the Plan and to define terms not otherwise defined herein;

 

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

 

(x)                                 to approve corrections in the documentation or administration of any Award;

 

(xi)                              to grant Awards to Employees, Directors and Consultants employed outside the United States or to otherwise adopt or administer such procedures or subplans that the Administrator deems appropriate or necessary on such terms and conditions different from those specified in the Plan as may, in the judgment of the Administrator, be necessary or desirable to further the purpose of the Plan; and

 

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

 

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

 

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

 

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

 

6.                                      Terms and Conditions of Awards.

 

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

 

(b)                                 Designation of Award.  Each Award shall be designated in the Award Agreement.  In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option.  However, notwithstanding such designation, an Option will

 

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

 

(c)                                  Conditions of Award.  Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria.  The performance criteria established by the Administrator for any Awards intended to be Performance-Based Compensation shall be one of, or combination of, the following: net earnings or net income (before or after taxes); earnings per share; revenues or sales (including net sales or revenue growth); net operating profit; return measures (including return on assets, net assets, capital, invested capital, equity, sales, or revenue); cash flow (including operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment); earnings before or after taxes, interest, depreciation, and/or amortization; gross or operating margins; productivity ratios; share price (including growth measures and total stockholder return); expense targets; margins; operating efficiency; market share; working capital targets and change in working capital; economic value added or EVA® (net operating profit after tax minus the sum of capital multiplied by the cost of capital);  or net operating income. The performance criteria established by the Administrator for any Awards not intended to be Performance-Based Compensation may be based on any one of, or combination of, the foregoing or any other performance criteria established by the Administrator.  The performance criteria may be applicable to the Company, Related Entities and/or any individual business units of the Company or any Related Entity and may be measured annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Administrator.  Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.  In addition, to the extent applicable to Awards intended to qualify as Performance-Based Compensation, the performance criteria shall be calculated in accordance with generally accepted accounting principles, but excluding the effect (whether positive or negative) of any change in accounting standards and any extraordinary, unusual or nonrecurring item, as determined by the Administrator, occurring after the establishment of the performance criteria applicable to the Award intended to be Performance-Based Compensation.  Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of performance criteria in order to prevent the dilution or enlargement of the Grantee’s rights with respect to an Award intended to be Performance-Based Compensation.

 

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

 

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

 

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

 

(g)                                  Individual Limitations on Awards.

 

(i)                                     Individual Limit for Options and SARs.  Following the date that the exemption from application of Section 162(m) of the Code described in Section 18 (or any exemption having similar effect) ceases to apply to Awards, the maximum number of Shares with respect to which Options and SARs may be granted to any Grantee in any calendar year shall be 3,667,715 Shares.  In connection with a Grantee’s commencement of Continuous Service, a Grantee may be granted Options and SARs for up to an additional 1,833,858 Shares which shall not count against the limit set forth in the previous sentence.  The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below.  To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitations with respect to a Grantee, if any Option or SAR is canceled, the canceled Option or SAR shall continue to count against the maximum number of Shares with respect to which Options and SARs may be granted to the Grantee.  For this purpose, the repricing of an Option (or in the case of a SAR, the base amount on which the stock appreciation is calculated is reduced to reflect a reduction in the Fair Market Value of the Common Stock) shall be treated as the cancellation of the existing Option or SAR and the grant of a new Option or SAR.

 

(ii)                                  Individual Limit for Restricted Stock and Restricted Stock Units.  Following the date that the exemption from application of Section 162(m) of the Code described in Section 18 (or any exemption having similar effect) ceases to apply to Awards, for awards of Restricted Stock and Restricted Stock Units that are intended to be Performance-Based Compensation, the maximum number of Shares with respect to which such Awards may be granted to any Grantee in any calendar year shall be 

 

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1,833,858 Shares.  The foregoing limitation shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below.

 

(iii)                               Individual Limit for Cash-Based Awards.  Following the date that the exemption from application of Section 162(m) of the Code described in Section 18 (or any exemption having similar effect) ceases to apply to Awards, for Cash-Based Awards that are intended to be Performance-Based Compensation, with respect to each twelve (12) month period that constitutes or is part of each Performance Period, the maximum amount that may be paid to a Grantee pursuant to such Awards shall be $5,000,000.  In addition, the foregoing limitation shall be prorated for any Performance Period consisting of fewer than twelve (12) months by multiplying such limitation by a fraction, the numerator of which is the number of months in the Performance Period and the denominator of which is twelve (12).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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(i)                                     cash;

 

(ii)                                  check;

 

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

 

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

 

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

 

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

 

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

 

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

 

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8.                                      Exercise of Award.

 

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

 

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

 

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

 

(b)                                 Exercise of Award Following Termination of Continuous Service.

 

(i)                                     An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee’s Continuous Service only to the extent provided in the Award Agreement.

 

(ii)                                  Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee’s Continuous Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first.

 

(iii)                               Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee’s Continuous Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement.

 

9.                                      Conditions Upon Issuance of Shares.

 

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

 

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

 

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10.                               Adjustments Upon Changes in Capitalization.  Subject to any required action by the stockholders of the Company and Section 11 hereof, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the numerical limits set forth in Section 6(g), as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii)  any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”  In the event of any distribution of cash or other assets to stockholders other than a normal cash dividend, the Administrator shall also make such adjustments as provided in this Section 10 or substitute, exchange or grant Awards to effect such adjustments (collectively “adjustments”).  Any such adjustments to outstanding Awards will be effected in a manner that precludes the enlargement of rights and benefits under such Awards.  In connection with the foregoing adjustments, the Administrator may, in its discretion, prohibit the exercise of Awards or other issuance of Shares, cash or other consideration pursuant to Awards during certain periods of time. Except as the Administrator determines, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.

 

11.                               Corporate Transactions and Changes in Control.

 

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

 

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

 

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

 

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

 

13.                               Amendment, Suspension or Termination of the Plan.

 

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

 

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

 

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

 

14.                               Reservation of Shares.

 

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

 

(b)                                 The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

 

15.                               No Effect on Terms of Employment/Consulting Relationship.  The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Service, nor shall it interfere in any way with his or her right or the right of the Company or any Related Entity to terminate the Grantee’s Continuous Service at any time, with or without cause, and with or without notice.

 

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

 

18

 

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

 

18.                               Effect of Section 162(m) of the Code.  The numerical limits set forth in Section 6(g) of the Plan shall not be applicable until the expiration of the transition period set forth in Treasury Regulation Section 1.162-27(f). Under such Treasury Regulation, this exemption is available to the Plan for the duration of the period that lasts until the earliest of: (i) the expiration of the Plan; (ii) the material modification of the Plan; (iii) the exhaustion of the maximum number of shares of Common Stock and other compensation available for Awards under the Plan, as set forth in Section 3; (iv) the first meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Company first becomes subject to the reporting obligations of Section 12 of the Exchange Act; or (v) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. Notwithstanding anything herein to the contrary, the Administrator may, in its sole discretion, grant Awards at any time, including after the expiration of the transition period set forth in Treasury Regulation Section 1.162-27(f), that are not intended to (or otherwise do not) qualify as Performance-Based Compensation.

 

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

 

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

 

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

 

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