Document:

Exhibit 10.3

 

Execution Copy

 

TAX SHARING AGREEMENT

 

by and between

 

ALEXANDER & BALDWIN HOLDINGS, INC.,

 

and

 

A & B II, INC.

 

Dated as of June 8, 2011

 

 

TABLE OF CONTENTS

 

	
 
    	
Page
    
	
 
    	
 
    
	
ARTICLE I DEFINITIONS
    	
3
    
	
 
    	
 
    
	
ARTICLE II PREPARATION AND   FILING OF TAX RETURNS
    	
9
    
	
 
    	
 
    
	
Section 2.1
    	
Holdings’ Responsibility
    	
9
    
	
Section 2.2
    	
New A&B’s Responsibility
    	
9
    
	
Section 2.3
    	
Agent
    	
9
    
	
Section 2.4
    	
Manner of Tax Return Preparation
    	
9
    
	
Section 2.5
    	
Tax Services
    	
10
    
	
 
    	
 
    
	
ARTICLE III LIABILITY FOR   TAXES
    	
11
    
	
 
    	
 
    
	
Section 3.1
    	
Holdings’ Liability for Section 2.1 Taxes
    	
11
    
	
Section 3.2
    	
New A&B’s Liability for Section 2.2 Taxes
    	
11
    
	
Section 3.3
    	
Subsequent Adjustments
    	
11
    
	
 
    	
 
    
	
ARTICLE IV DISTRIBUTION   TAXES AND ALLOCATION
    	
11
    
	
 
    	
 
    
	
Section 4.1
    	
Distribution Taxes
    	
11
    
	
Section 4.2
    	
Private Letter Rulings; Tax Opinion
    	
13
    
	
Section 4.3
    	
Carrybacks
    	
14
    
	
Section 4.4
    	
Continuing Covenants
    	
15
    
	
Section 4.5
    	
Allocation of Tax Assets
    	
16
    
	
Section 4.6
    	
Allocation of Certain Tax Items
    	
17
    
	
Section 4.7
    	
Tax Treatment of Equity-Related Compensation
    	
17
    
	
 
    	
 
    
	
ARTICLE V INDEMNIFICATION
    	
18
    
	
 
    	
 
    
	
Section 5.1
    	
Generally
    	
18
    
	
Section 5.2
    	
Inaccurate, Incomplete or Untimely Information
    	
18
    
	
Section 5.3
    	
Adjustments to Payments
    	
18
    
	
Section 5.4
    	
Reporting of Indemnifiable Loss
    	
19
    
	
Section 5.5
    	
No Indemnification for Tax Items
    	
19
    
	
Section 5.6
    	
Double Recovery
    	
19
    
	
 
    	
 
    
	
ARTICLE VI PAYMENTS
    	
19
    
	
 
    	
 
    
	
Section 6.1
    	
In General
    	
19
    
	
Section 6.2
    	
Treatment of Payments
    	
20
    
	
Section 6.3
    	
Prompt Performance
    	
20
    
	
Section 6.4
    	
After Tax Amounts
    	
20
    

 

i

 

	
Section 6.5
    	
Interest
    	
20
    
	
 
    	
 
    
	
ARTICLE VII TAX PROCEEDINGS
    	
20
    
	
 
    	
 
    
	
Section 7.1
    	
Audits
    	
20
    
	
Section 7.2
    	
Notice
    	
21
    
	
Section 7.3
    	
Remedies
    	
21
    
	
Section 7.4
    	
Control of Distribution Tax Proceedings
    	
21
    
	
 
    	
 
    
	
ARTICLE VIII MISCELLANEOUS   PROVISIONS
    	
22
    
	
 
    	
 
    
	
Section 8.1
    	
Effectiveness
    	
22
    
	
Section 8.2
    	
Cooperation and Exchange of Information
    	
22
    
	
Section 8.3
    	
Dispute Resolution
    	
23
    
	
Section 8.4
    	
Notices
    	
24
    
	
Section 8.5
    	
Changes in Law
    	
25
    
	
Section 8.6
    	
Confidentiality
    	
25
    
	
Section 8.7
    	
Assignment
    	
25
    
	
Section 8.8
    	
Affiliates
    	
25
    
	
Section 8.9
    	
Authority
    	
26
    
	
Section 8.10
    	
Entire Agreement
    	
26
    
	
Section 8.11
    	
Governing Law and Jurisdiction
    	
26
    
	
Section 8.12
    	
Counterparts
    	
27
    
	
Section 8.13
    	
Severability
    	
27
    
	
Section 8.14
    	
Parties in Interest
    	
27
    
	
Section 8.15
    	
Failure or Indulgence Not Waiver
    	
27
    
	
Section 8.16
    	
Setoff
    	
27
    
	
Section 8.17
    	
Amendments
    	
27
    
	
Section 8.18
    	
Interpretation
    	
27
    
	
Section 8.19
    	
Coordination with Employee Matters Agreement
    	
28
    
	
Section 8.20
    	
Conflict or Inconsistency Between Agreements
    	
28
    

 

ii

 

TAX SHARING AGREEMENT

 

This Tax Sharing Agreement (this “Agreement”) is entered into as of June 8, 2012 by and between Alexander & Baldwin Holdings, Inc., a Hawaii corporation (“Holdings”), and  A & B II, Inc., a Hawaii corporation and a direct, wholly owned subsidiary of Holdings (“New A&B”).  Holdings and New A&B are sometimes referred to herein individually as a “Party,” and collectively as the “Parties.”  Capitalized terms used herein and not otherwise defined have the respective meanings set forth in Article I.

 

RECITALS

 

WHEREAS, the boards of directors of the Parties have each determined that it is appropriate and desirable to separate the A&B Businesses from the Matson Businesses and accordingly have caused the Parties to enter into the Separation and Distribution Agreement dated as of June 8, 2012 (the “Separation Agreement”);

 

WHEREAS, on June 6, 2012, Holdings and Old A&B consummated a holding company reorganization pursuant to which: (1) A&B Merger Corporation, a Hawaii corporation and a direct, wholly owned subsidiary of Holdings, merged with and into Old A&B (such merger, the “Holding Company Merger”), with Old A&B surviving the Holding Company Merger as a direct, wholly owned subsidiary of Holdings; and (2) promptly following consummation of the Holding Company Merger, Old A&B converted into a Hawaii limited liability company pursuant to Section 414-271 of the Hawaii Business Corporation Act (such conversion, the “Old A&B LLC Conversion” and, together with the Holding Company Merger, the “Holding Company Reorganization”) and was renamed Alexander & Baldwin, LLC (“A&B LLC”).

 

WHEREAS, following the Holding Company Reorganization, (a) A&B LLC was a direct, wholly owned Subsidiary of Holdings and (b) Matson Navigation Company, Inc., a Hawaii corporation (“Matson”), was a direct, wholly owned Subsidiary of A&B LLC;

 

WHEREAS, following the Holding Company Reorganization and prior to the date hereof, McBryde Sugar Company, Limited, a Hawaii corporation (“McBryde Sugar”): (a) converted to a Hawaii limited liability company pursuant to Section 414-271 of the Hawaii Business Corporation Act (the “McBryde LLC Conversion”) and was renamed McBryde Sugar Company, LLC (“McBryde LLC”); and (b) distributed 5.35% of the outstanding stock of ABHI-Crockett, Inc., a Hawaii corporation (“ABHI-Crockett”), to A&B LLC, as a result of which ABHI-Crockett became a direct, wholly owned Subsidiary of A&B LLC;

 

WHEREAS, following the Holding Company Reorganization and prior to the date hereof:  (a) A&B LLC distributed (i) all of the outstanding stock of Matson to Holdings, as 

 

 

a result of which Matson became a direct, wholly owned Subsidiary of Holdings and (ii) all of the outstanding stock of ABHI-Crockett to Holdings, as a result of which ABHI-Crockett became a direct, wholly owned Subsidiary of Holdings; and (b) Holdings contributed all of the outstanding equity interests of A&B LLC to New A&B (the “Contribution”), as a result of which A&B LLC became a direct, wholly owned Subsidiary of New A&B;

 

WHEREAS, prior to the Holding Company Reorganization Old A&B was, and following the Holding Company Reorganization, Holdings (as successor to Old A&B for United States federal income tax purposes) is the common parent of an affiliated group of corporations that files a consolidated United States federal income tax return;

 

WHEREAS, as set forth in the Separation Agreement, and subject to the terms and conditions thereof, the Parties currently intend to effect:  (a) the separation of the Matson Businesses and the A&B Businesses pursuant to the Separation Agreement (together with the Contribution, the “Separation”); and (b) the distribution by Holdings to the holders of outstanding shares of common stock, without par value, of Holdings, on a pro rata basis, of all of the outstanding shares of common stock, without par value, of New A&B, owned by Holdings as of the Distribution Date (which shall represent 100% of the issued and outstanding shares of New A&B common stock) (the “Distribution”);

 

WHEREAS, following the Distribution, (a) New A&B will be the common parent of an affiliated group of corporations that files a consolidated United States federal income tax return and (b) the currently existing affiliated group of which Holdings is the common parent will remain in existence with all of its previous members other than New A&B and the New A&B Affiliates;

 

WHEREAS, Old A&B has received a private letter ruling from the IRS (the “IRS Ruling”) to the effect that, among other things, for United States federal income tax purposes:  (a) the Holding Company Reorganization will qualify as a reorganization within the meaning of section 368(a)(1)(F) of the Code and Old A&B and Holdings will each be a party to the reorganization under section 368(b) of the Code; (b) the McBryde LLC Conversion will be treated as a distribution by McBryde Sugar in complete liquidation under section 332 of the Code; and (c) the Separation and the Distribution, taken together, will qualify as a reorganization under section 368(a)(1)(D) and Holdings and New A&B will each be a party to the reorganization under section 368(b);

 

WHEREAS, the Parties desire to set forth their agreement on the rights and obligations, following the Distribution, of the members of the Holdings Tax Group, on the one hand, and the members of the New A&B Tax Group, on the other hand, with respect to (a) handling and allocating United States federal, state and local and foreign Taxes in periods beginning before the Distribution Date, (b) Taxes resulting from transactions effectuated in connection with the Separation and the Distribution and (c) various other Tax matters.

 

2

 

NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, the Parties mutually covenant and agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

“A&B Businesses” means the real estate development and ownership business and the agricultural production and processing business conducted by the A&B Group.

 

“A&B LLC” has the meaning set forth in the recitals to this Agreement.

 

“Affiliate” has the meaning set forth in Article I of the Separation Agreement.

 

“After Tax Amount” means any additional amount necessary to reflect (through a gross-up mechanism) the hypothetical Tax consequences of the receipt or accrual of any payment required to be made under this Agreement (including payment of an additional amount or amounts hereunder and the effect of the deductions available for interest paid or accrued and for Taxes such as state and local Income Taxes), determined by using the highest marginal corporate Tax rate (or rates, in the case of an item that affects more than one Tax) for the relevant Taxable Period (or portion thereof).

 

“Ancillary Agreements” has the meaning set forth in Section 3.5 of the Separation Agreement.

 

“Audit” means any audit, assessment of Taxes, or other examination by any Taxing Authority, proceeding, or appeal of such a proceeding relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations.

 

“Carryback” has the meaning set forth in Section 4.3(c).

 

“Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto.

 

“Consolidated Return” means any Tax Return reflecting or reporting United States federal, state, local or foreign Income Taxes filed on a consolidated, combined, unitary or similar basis wherein New A&B and one or more New A&B Affiliates join in the filing of such Tax Return (for any Taxable Period or portion thereof) with Holdings and one or more Holdings Affiliates.

 

“Control” means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote.

 

3

 

“Dispute Resolution Commencement Date” has the meaning set forth in Section 8.3.

 

“Dispute” has the meaning set forth in Section 8.3.

 

“Distribution” has the meaning set forth in the recitals to this Agreement.

 

“Distribution Date” means the date on which the Distribution occurs, such date to be determined by, or under the authority of, the Board of Directors of Holdings, in its sole and absolute discretion.

 

“Distribution Taxes”  means any Taxes imposed on Holdings or any Holdings Affiliate resulting from, or arising in connection with, the failure of the Separation and/or the Distribution to be tax-free to Holdings or such Holdings Affiliate under sections 355 and 368(a)(1)(D) of the Code, as the case may be (including, without limitation, any Tax resulting from the application of section 355(d) or 355(e) of the Code to the Distribution) or corresponding provisions of the laws of any other jurisdictions.  Each Tax referred to in the immediately preceding sentence shall be determined using the highest marginal federal and state corporate Income Tax rate for the relevant Taxable Period (or portion thereof).

 

“Employee Matters Agreement” has the meaning set forth in the Separation Agreement.

 

“Filing Party” has the meaning set forth in Section 7.1.

 

“Final Determination” means the final resolution of liability for any Tax for any Taxable Period, by or as a result of: (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii)  a final settlement with the IRS, a closing agreement or accepted offer in compromise under Code section 7121 or 7122, or a comparable agreement under the laws of other jurisdictions, which resolves the entire liability for such Tax for any Taxable Period; (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax; or (iv) any other final disposition, including by reason of the expiration of the applicable statute of limitations.

 

“Holding Company Reorganization” has the meaning set forth in the recitals to this Agreement.

 

“Holdings Affiliate” means any corporation or other entity directly indirectly Controlled by Holdings, but excluding New A&B and any New A&B Affiliate.

 

“Holdings Tax Group” means the Tax Group of which Holdings is the common parent.

 

“Income Tax” means any federal, state, local or foreign Tax based upon, measured by or calculated by reference to net income or profits, net receipts or gross receipts (regardless of whether denominated as an “income tax,” a “franchise tax” or otherwise).

 

4

 

“Income Tax Return” means any Tax Return relating to Income Taxes.

 

“Indemnifiable Loss Deduction” has the meaning set forth in Section 5.3.

 

“Indemnified Loss” has the meaning set forth in Section 5.3.

 

“Indemnifying Party” has the meaning set forth in Section 5.3.

 

“Indemnitee” has the meaning set forth in Section 5.3.

 

“IRS” means the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives, and attorneys.

 

“IRS Ruling” has the meaning set forth in the recitals to this Agreement.

 

“IRS Ruling Documents” means (1) the request for a private letter ruling under sections 332, 355, 368 and various other sections of the Code, filed by Old A&B with the IRS in connection with the Holding Company Reorganization, the McBryde LLC Conversion, the Separation and the Distribution, together with any supplemental filings or ruling requests or other materials subsequently submitted in connection with such request on behalf of Old A&B (or Holdings), its Subsidiaries and shareholders to the IRS, the appendices and exhibits thereto, and any rulings issued by the IRS to Old A&B (or Holdings) in response to such request or (2) any similar filings submitted to, or rulings issued by, any other Taxing Authority in connection with the Holding Company Reorganization, the McBryde LLC Conversion, the Separation or the Distribution.

 

“Matson” has the meaning set forth in the recitals to this Agreement.

 

“Matson Businesses” means the ocean transportation operations, related shoreside operations in Hawaii and intermodal, truck brokerage and logistics services conducted by Matson and the Matson Subsidiaries.

 

“Matson Group” means, for any relevant time beginning immediately after the Distribution, Holdings and each Subsidiary of Holdings at such time.

 

“Matson Group Member” means Holdings, each Person that is a Subsidiary of Holdings immediately after the Distribution, and each Person that becomes a Subsidiary of Holdings after the Distribution.

 

“McBryde Sugar” has the meaning set forth in the recitals to this Agreement.

 

“McBryde LLC” has the meaning set forth in the recitals to this Agreement.

 

“McBryde LLC Conversion” has the meaning set forth in the recitals to this Agreement.

 

5

 

“New A&B Affiliate” means any corporation or other entity directly or indirectly Controlled by New A&B.

 

“New A&B Group” means, for any relevant period beginning immediately after the Distribution, New A&B and each Subsidiary of New A&B at that time.

 

“New A&B Group Member” means New A&B, each Person that is a Subsidiary of New A&B immediately after the Distribution and each Person that becomes a Subsidiary of New A&B after the Distribution.

 

“New A&B Tax Group” means the Tax Group of which New A&B is the common parent.

 

“Non-Income Distribution Taxes” means any Taxes other than Income Taxes imposed on any Party as a result of or in connection with the Distribution that would not have been imposed but for the Distribution.

 

“Old A&B” means Alexander & Baldwin, Inc., a Hawaii corporation, and the owner of one hundred percent (100%) of the outstanding capital stock of Holdings at all times prior to the Holding Company Merger.

 

“Old A&B LLC Conversion” has the meaning set forth in the recitals to this Agreement.

 

“Owed Party” has the meaning set forth in Section 6.1.

 

“Owing Party” has the meaning set forth in Section 6.1.

 

“Payment Period” has the meaning set forth in Section 6.5.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.

 

“Post-Distribution Period”  means a Taxable Period (or portion thereof) beginning after the Distribution Date.

 

“Pre-Distribution Period” means a Taxable Period (or portion thereof) ending on or before the Distribution Date.

 

“Prohibited Act” has the meaning set forth in Section 4.4.

 

“Representation Letter” means an officer’s certificate in which certain representations, warranties and covenants are made on behalf of Holdings, A&B, LLC and New A&B in connection with the issuance of the Tax Opinion.

 

“Restated Tax Saving Amount” has the meaning set forth in Section 5.4.

 

“Restricted Period” has the meaning set forth in Section 4.4.

 

6

 

“Separation” has the meaning set forth in the recitals to this Agreement.

 

“Separation Agreement” has the meaning set forth in the recitals to this Agreement.

 

“Separation Date” means the later of the effective date and time of (1) the Contribution and (2) the transfers of property, assumption of liability, license, undertaking or agreement in connection with the separation of the Matson Businesses and the A&B Businesses, as set forth in the Separation Agreement.

 

“Refund” means any refund (or credit in lieu thereof) of Taxes (including any overpayment of Taxes that can be refunded or, alternatively, applied to other Taxes payable), including any interest paid on or with respect to such refund of Taxes; provided, however, that for purposes of this Agreement, the amount of any Refund required to be paid to another Party shall be reduced by the net amount of any Income Taxes imposed on, related to, or attributable to, the receipt or accrual of such Refund.

 

“Straddle Period” means a Taxable Period that begins on or before and ends after the Distribution Date.

 

“Subsidiary” means, with respect to any specified Person, any corporation, partnership, limited liability company, joint venture or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such specified Person or by any one or more of its Subsidiaries, or by such specified Person and one or more of its Subsidiaries.

 

“Supplemental IRS Ruling Documents” means (1) any request for a Supplemental IRS Ruling and any materials, appendices and exhibits submitted or filed therewith and any Supplemental IRS Rulings issued by the IRS to Old A&B or Holdings in response to any such request and (2) any similar filings submitted to, or rulings issued by, any other Taxing Authority in connection with the Holding Company Reorganization, the McBryde LLC Conversion, the Separation or the Distribution.

 

“Supplemental IRS Ruling” means (1) any ruling issued by the IRS in connection with the Holding Company Reorganization, the McBryde LLC Conversion, the Separation or the Distribution, other than a ruling in response to Old A&B’s initial request for the IRS Ruling, and (2) any similar ruling issued by any other Taxing Authority addressing the application of a provision of the laws of another jurisdiction to the Holding Company Reorganization, the McBryde LLC Conversion, the Separation or the Distribution.

 

“Tax” and “Taxes” include all taxes, charges, fees, duties, levies, imposts or other assessments imposed by any federal, state, local or foreign Taxing Authority, including, but not limited to, income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added and other taxes, and any interest, penalties or additions attributable thereto.

 

7

 

“Tax Asset” means any Tax Item that has accrued for Tax purposes, but has not been used during a Taxable Period, and that could reduce a Tax in another Taxable Period, including, but not limited to, a net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction, credit related to alternative minimum tax and any other Tax credit.

 

“Tax Benefit” means a reduction in the Tax liability of a taxpayer for any Taxable Period.  A Tax Benefit shall be deemed to have been realized or received from a Tax Item in a Taxable Period only if and to the extent that the Tax liability of the taxpayer for such period, after taking into account the effect of the Tax Item on the Tax liability of such taxpayer in the current period and all prior periods, is less than it would have been if such Tax liability were determined without regard to such Tax Item.

 

“Tax Detriment” means an increase in the Tax liability of a taxpayer for any Taxable Period.  A Tax Detriment shall be deemed to have been realized or received from a Tax Item in a Taxable Period only if and to the extent that the Tax liability of the taxpayer for such period, after taking into account the effect of the Tax Item on the Tax liability of such taxpayer in the current period and all prior periods, is more than it would have been if such Tax liability were determined without regard to such Tax Item.

 

“Tax Group” means any United States federal, state, local or foreign affiliated, consolidated, combined, unitary or similar group or fiscal unity that joins in the filing of a single Tax Return.

 

“Tax Item” means any item of income, gain, loss, deduction, credit, recapture of credit or any other attribute or item (including the adjusted basis of property) that may have the effect of increasing or decreasing any Tax.

 

“Tax Opinion” means an opinion issued to Holdings by Skadden, Arps, Slate, Meagher & Flom LLP (which opinion will rely upon the effectiveness of the IRS Ruling), in form and substance acceptable to the Parties substantially to the effect that, among other things, the Separation and the Distribution, taken together, will qualify as a reorganization under section 368 of the Code.

 

“Tax Return” means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund or declaration of estimated tax) supplied or required to be supplied to, or filed or required to be filed with, a Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

 

“Tax Saving Amount” has the meaning set forth in Section 5.3.

 

“Tax Services” has the meaning set forth in Section 2.5(a).

 

8

 

“Taxable Period” means any period for which a liability for Tax is determined.

 

“Taxing Authority” means any governmental authority or any subdivision, agency, commission or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

 

“Transition Services Agreement” means the Transition Services Agreement between Holdings and New A&B dated as of June 8, 2012.

 

“Treasury Regulations” means the final and temporary (but not proposed) income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

 

ARTICLE II

 

PREPARATION AND FILING OF TAX RETURNS

 

Section 2.1             Holdings’ Responsibility.  Holdings shall have sole and exclusive responsibility for the preparation and filing of:

 

(a)        all Consolidated Returns;

 

(b)        all Tax Returns that include only Holdings and/or any Holdings Affiliate; and

 

(c)        any Tax Returns required to be filed for a Taxable Period ending on or before, or that includes, the Distribution Date that are not otherwise described in Section 2.1 or Section 2.2.

 

Section 2.2             New A&B’s Responsibility.  New A&B shall have sole and exclusive responsibility for the preparation and filing of all Tax Returns that include only New A&B and/or any New A&B Affiliate.

 

Section 2.3             Agent.  Subject to the other applicable provisions of this Agreement, New A&B hereby irrevocably designates, and agrees to cause each New A&B Affiliate to so designate, Holdings as its sole and exclusive agent and attorney-in-fact to take such actions (including execution of documents) as are appropriate in any and all matters (including Audits) relating to any Tax Return described in Section 2.1(a) or Section 2.1(c).

 

Section 2.4             Manner of Tax Return Preparation.

 

(a)        Unless otherwise required by a Taxing Authority or by applicable law, the Parties shall prepare and file all Tax Returns, and take all other actions, in a manner consistent with this Agreement, the Separation Agreement, the IRS Ruling Documents and any Supplemental IRS Ruling Documents.  All Tax Returns shall be filed on a timely basis (taking into account applicable extensions) by the Party responsible for filing such Tax Returns under this Agreement.

 

9

 

(b)                       Subject to Section 2.4(a), Holdings and New A&B shall, with respect to any Tax Return described in Section 2.1(a), cooperate in good faith to jointly determine: (1) the manner in which such Tax Return shall be prepared and filed, including the elections, methods of accounting, positions, conventions and principles of taxation to be used and the manner in which any Tax Item shall be reported; (2) whether any extensions may be requested; (3) the elections that will be made on such Tax Return; (4) whether any amended Tax Return(s) shall be filed; (5) whether any claim(s) for refund shall be made; (6) whether any refund shall be paid by way of refund or credited against any liability for the related Tax; and (7)  whether to retain outside firms to prepare or review such Tax Returns.  The Parties shall negotiate in good faith to resolve any Dispute regarding the filing of any Tax Return described in Section 2.1(a) or Section 2.1(c).  Any Dispute that the Parties are unable to resolve shall be settled through the dispute resolution procedure set forth in Section 8.3; provided, however, that if any Dispute regarding the filing of any Tax Return described in Section 2.1(a) or Section 2.1(c) is not resolved at least three (3) days prior to the final due date (including applicable extensions) for such Tax Return, such Tax Return shall be filed as determined by Holdings, and an amended Tax Return shall be filed promptly upon completion of the dispute resolution procedure if necessary to give effect to the resolution of the matter pursuant to Section 8.3.

 

(c)                        Within ninety (90) days after filing the Holdings Tax Group Consolidated Return for the tax year that includes the Distribution Date, Holdings shall notify New A&B of the Tax attributes associated with New A&B and the other members of the New A&B Group, and the Tax bases of the assets and liabilities, transferred to New A&B for United States federal income tax purposes pursuant to the Contribution and the transactions contemplated by the Separation Agreement.  Holdings shall provide New A&B with preliminary estimates of such information on or before January 20, 2013.

 

Section 2.5                                    Tax Services.

 

(a)                       In General.  It is the intention of the Parties that except as specifically provided herein, the Transition Services Agreement shall govern the provision of tax services by Holdings to New A&B and the other members of the New A&B Group (the “Tax Services”).

 

(b)                       Right to Review.  Holdings shall provide or cause to be provided any Tax Return (or portion or excerpt thereof relating exclusively to New A&B or its Subsidiaries) to be filed by Holdings on behalf of New A&B pursuant to Holdings’ provision of Tax Services at least ten (10) business days prior to the due date of such Tax Return, including extensions.  New A&B shall have the right to comment on any such Tax Return (or portion or excerpt thereof, as applicable), and Holdings shall reasonably consider New A&B’s comments.  Any disagreement regarding the content of such a Tax Return shall be resolved as set forth in Section 2.4(b).

 

(c)                        Information.  Holdings shall provide or cause to be provided to New A&B copies of all Tax Returns (or portions or excerpts thereof relating exclusively to New A&B or its Subsidiaries) filed on behalf of New A&B, in each case within fifteen (15) days of filing, pursuant to Holdings’ provision of Tax Services, and shall promptly provide any notices or communications from any Taxing Authority relating to any Tax or Tax Return of New A&B or its Subsidiaries covered by the Tax Services.

 

10

 

(d)                       List of Tax Returns.  As soon as practicable after the Distribution Date, Holdings shall provide to New A&B an updated list of all Tax Returns to be filed by Holdings on behalf of New A&B or its Subsidiaries pursuant to Section 2.1(a) or Section 2.1(c).

 

ARTICLE III

 

LIABILITY FOR TAXES

 

Section 3.1                                    Holdings’ Liability.  Holdings shall be liable for all Taxes due with respect to all Tax Returns described in (a) Section 2.1(a) or Section 2.1(c), but only to the extent that such Taxes relate to or are imposed upon the Matson Businesses, or, in the case of combined state Taxes, to the extent of the Matson Businesses’ relative contribution to state taxable income, and (b) Section 2.1(b).  Holdings shall be liable for any Tax deficiency assessed with respect to the portion of such Tax Returns for which it is responsible.  Holdings shall be entitled to receive and retain all Refunds of Taxes previously paid by Holdings or any of its Subsidiaries with respect to Taxes described in this Section 3.1.

 

Section 3.2                                    New A&B’s Liability.  New A&B shall be liable for all Taxes due with respect to Tax Returns described in (a) Section 2.1(a) or Section 2.1(c), but only to the extent that such Taxes relate to or are imposed upon the A&B Businesses, or, in the case of combined state Taxes, to the extent of the A&B Businesses’ relative contribution to state taxable income, and (b) Section 2.2.  New A&B shall be liable for any Tax deficiency assessed with respect to the portion of such Tax Returns for which it is responsible.  New A&B shall be entitled to receive and retain all Refunds of Taxes previously paid by New A&B or any of its Subsidiaries with respect to Taxes described in this Section 3.2.

 

Section 3.3                                    Subsequent Adjustments.  If, as a result of any payment by Holdings of a Tax in connection with an Audit, adjustment, or amended Tax Return described in Section 2.1, New A&B receives a reciprocal (i.e., arising directly from such adjustment) net Tax Benefit, New A&B shall pay the amount of such Tax Benefit to Holdings.  If, as a result of any payment by New A&B of a Tax in connection with an Audit, adjustment, or amended Tax Return described in Section 2.1 or Section 2.2, Holdings receives a reciprocal net Tax Benefit, Holdings shall pay the amount of such Tax Benefit to New A&B.

 

ARTICLE IV

 

DISTRIBUTION TAXES AND ALLOCATION

 

Section 4.1                                    Distribution Taxes.

 

(a)                       Holdings’ Liability for Distribution Taxes.  Notwithstanding Article III, Holdings shall be liable for one hundred percent (100%) of any Distribution Taxes that are attributable to, or result from, one or more of the following:

 

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(i)             any action or omission by any Matson Group Member that is materially inconsistent with any material or information, or that constitutes a material breach of any material covenant or material representation, pertaining to any Matson Group Member in the IRS Ruling Documents, the IRS Ruling, any Supplemental IRS Ruling Documents, any Supplemental IRS Ruling or the Representation Letter;

 

(ii)          any action or omission by any Matson Group Member after the Distribution Date, including, without limitation, a cessation, transfer to affiliates, or disposition of its active trades or businesses, or an issuance of stock, stock buyback or payment of an extraordinary dividend by any Matson Group Member following the Distribution;

 

(iii)       any acquisition of any stock or assets of any Matson Group Member by one or more other Persons occurring prior to or following the Distribution; or

 

(iv)      any issuance of stock by any Matson Group Member, or change in ownership of stock in any Matson Group Member, that causes section 355(d) or section 355(e) of the Code to apply to the Distribution.

 

(b)                       New A&B’s Liability for Distribution Taxes.  Notwithstanding Article III, New A&B shall be liable for one hundred percent (100%) of any Distribution Taxes that are attributable to, or result from, one or more of the following:

 

(i)             any action or omission by any New A&B Group Member that is materially inconsistent with any material or information, or that constitutes a material breach of any material covenant or material representation, pertaining to any New A&B Group Member in the IRS Ruling Documents, the IRS Ruling, any Supplemental IRS Ruling Documents, any Supplemental IRS Ruling or the Representation Letter;

 

(ii)          any action or omission by any member of the New A&B Group after the Distribution Date, including without limitation, a cessation, transfer to affiliates or disposition of its active trades or businesses, or an issuance of stock, stock buyback or payment of an extraordinary dividend by any member of the New A&B Group following the Distribution;

 

(iii)       any acquisition of any stock or assets of any member of the New A&B Group by one or more other Persons following the Distribution; or

 

(iv)      any issuance of stock by any member of the New A&B Group, or change in ownership of stock in any member of the New A&B Group, that causes section 355(d) or section 355(e) of the Code to apply to the Distribution.

 

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(c)                        First Party Responsible.  The first party to act or fail to act in a manner that results in the imposition of Distribution Taxes shall be liable for one hundred percent (100%) of such Distribution Taxes pursuant to Section 4.1(a) or 4.1(b), as applicable; provided, that if such first party is able to act, and does act, in a manner that results in Distribution Taxes not being imposed, then such first party shall not be liable for any Distribution Taxes imposed as a result of any act or omission by the other party subsequent to the first party’s action or omission.

 

(d)                       No Party Responsible.  If Distribution Taxes are imposed and no Party bears responsibility for the imposition of such taxes under Section 4.1(c), then New A&B shall be liable for fifty percent (50%) of such Distribution Taxes pursuant to Section 4.1(a) or 4.1(b), and Holdings shall be liable for fifty percent (50%), of such Distribution Taxes pursuant to Section 4.1(a) or 4.1(b).

 

(e)                        Liability for Non-Income Distribution Taxes.  The liability for any Non-Income Distribution Taxes shall be borne by New A&B only if such liability arises with respect to assets transferred to New A&B by Holdings or any Holdings Affiliate pursuant to the Separation.  The liability for all other Non-Income Distribution Taxes shall be borne by Holdings.

 

Section 4.2                                    Private Letter Rulings; Tax Opinion.

 

(a)                       Information.  Holdings has provided New A&B with copies of the IRS Ruling Documents submitted on or prior to the date specified in the preamble to this Agreement, and shall provide New A&B with copies of any IRS Ruling Documents or Supplemental IRS Ruling Documents prepared after such date prior to the submission of such IRS Ruling Documents or Supplemental IRS Ruling Documents, as applicable, to a Taxing Authority.  Holdings shall provide New A&B with a copy of the IRS Ruling, a copy of the Representation Letter and a copy of the Tax Opinion.

 

(b)                       Cooperation by New A&B.  New A&B shall cooperate with Holdings, and shall take any and all actions reasonably requested by Holdings, in connection with (i) Holdings’ submission of any IRS Ruling Documents prepared after the date specified in the preamble to this Agreement and (ii) Holdings’ request for the Tax Opinion.

 

(c)                        Supplemental IRS Rulings.

 

(i)             In General.  At the reasonable request of New A&B, Holdings shall cooperate with New A&B and use its reasonable best efforts to seek to obtain, as expeditiously as possible, a Supplemental IRS Ruling or other guidance from the IRS or any other Taxing Authority for the purpose of confirming the continuing validity of any ruling issued by any Taxing Authority addressing the application of the law to the Distribution; provided that Holdings shall not be obligated to seek a Supplemental IRS Ruling if it reasonably believes that seeking such Supplemental IRS Ruling would adversely affect Holdings, its shareholders or any other Matson Group Member.  In no event shall Holdings be required to file any Supplemental IRS Ruling Documents unless New A&B represents that (A) it has read the Supplemental IRS Ruling Documents and (B)

 

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all information and representations, if any, relating to New A&B and the other members of the A&B Group contained in the Supplemental IRS Ruling Documents are true, correct and complete in all material respects.  New A&B shall reimburse Holdings for all reasonable costs and expenses incurred by Holdings and any other Matson Group Member in obtaining a Supplemental IRS Ruling requested by New A&B.  New A&B shall not seek any guidance (whether written or oral) from the IRS or any other Taxing Authority concerning the Distribution except as set forth in this Section 4.2(c).

 

(ii)          Participation Rights.  If Holdings requests a Supplemental IRS Ruling or other guidance after the date specified in the preamble to this Agreement:  (A) Holdings shall keep New A&B informed in a timely manner of all material actions taken or proposed to be taken by Holdings in connection therewith; (B) Holdings shall (1) reasonably in advance of the submission of any such Supplemental IRS Ruling Documents provide New A&B with a draft thereof, (2) reasonably consider New A&B’s comments to such draft, (3) provide New A&B with a final copy of the Supplemental IRS Ruling Documents, (4) provide New A&B with notice reasonably in advance of, and New A&B shall have the right to attend, any meetings with the Taxing Authority (subject to the approval of the Taxing Authority) that relate to such Supplemental IRS Ruling and (5) provide New A&B with a copy of such Supplemental IRS Ruling.

 

Section 4.3                                    Carrybacks.

 

(a)                       The carryback of any loss, credit or other Tax Asset from any Post-Distribution Period shall be in accordance with the provisions of the Code and Treasury Regulations (and any applicable state, local or foreign laws).

 

(b)                       Except to the extent otherwise consented to by Holdings (such consent not to be unreasonably withheld, conditioned or delayed) or prohibited by applicable law, New A&B shall elect to relinquish, waive or otherwise forgo the carryback of any loss, credit or other Tax Asset from any Post-Distribution Period to any Pre-Distribution Period or Straddle Period (a “Carryback”).  In the event that New A&B (or the appropriate member of the  New A&B Group) is prohibited by applicable law to relinquish, waive or otherwise forgo a Carryback (or Holdings consents to a Carryback), Holdings shall cooperate with New A&B, at New A&B’s expense, in seeking from the appropriate Taxing Authority such Refund as reasonably would result from such Carryback, to the extent that such Refund is directly attributable to such Carryback, and shall pay over to New A&B the amount of such Refund within ten (10) days after such Refund is received; provided, however, that New A&B shall indemnify and hold the members of the Matson Group harmless from and against any and all collateral Tax consequences resulting from or caused by any such Carryback, including, without limitation, the loss or postponement of any benefit from the use of Tax Assets generated by a Matson Group Member if (i) such Tax Assets expire unutilized, but would have been utilized but for such Carryback, or (ii) the use of such Tax Assets is postponed to a later taxable period than the taxable period in which such Tax Assets would have been utilized but for such Carryback.

 

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Section 4.4                                    Continuing Covenants.

 

(a)                       In General.  Each of Holdings and New A&B (1) shall not take, and shall not cause or permit any of its Subsidiaries to take, any action reasonably expected to result in an increased Tax liability to the other, a reduction in a Tax Asset  of the other or an increased liability to the other under this Agreement and (2) shall take, or shall cause its Subsidiaries to take, any action reasonably requested by the other that would reasonably be expected to result in a Tax Benefit or avoid a Tax Detriment to the other, provided that such action does not result in any additional cost not fully compensated for by the requesting Party.  The Parties hereby acknowledge that the preceding sentence is not intended to limit, and therefore shall not apply to, the rights of the Parties with respect to matters otherwise covered by this Agreement.

 

(b)                       Distribution Tax Liabilities.

 

(i)             For 24 months following the Distribution Date (the “Restricted Period”), neither Holdings nor New A&B shall (A) redeem or otherwise repurchase any capital stock other than pursuant to open market stock repurchase programs meeting the requirements of Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696, or (B) enter into any agreements or arrangements with respect to transactions or events (including, but not limited to, capital contributions or acquisitions, entering into any partnership or joint venture arrangements, stock issuances, stock acquisitions, option grants, or a series of such transactions or events (but excluding the Distribution)), in the case of each of clauses (A) and (B) above that, if considered part of a plan that includes the Distribution would result in one or more persons acquiring, directly or indirectly, stock of Holdings or New A&B representing a “50-percent or greater interest” therein within the meaning of section 355(d)(4) of the Code (any act inconsistent with the intended tax-free treatment of the Distribution described in the Tax Opinion and any act described in clauses (A) and (B) above, collectively, a “Prohibited Act”). Notwithstanding the foregoing, the following shall not be considered a Prohibited Act: (x) the issuance of any compensatory stock or compensatory stock options, the issuance of any stock pursuant to any equity award, compensatory option, or restricted stock unit, or the repurchase of any restricted stock, if such issuance or repurchase satisfies the conditions of Treasury Regulation § 1.355-7(d)(8)(i); or (y) the issuance of stock to a  retirement plan qualified under section 401(a) or 403(a) of the Code in a transaction that satisfies the requirements of Treasury Regulation § 1.355-7(d)(9).

 

(ii)          Notwithstanding the foregoing, Holdings or New A&B, as the case may be, may take any of the Prohibited Acts, subject to Section 4.1, if it:  (A) first obtains (at its expense) an opinion, in form and substance reasonably acceptable to the other Party, of a nationally recognized law firm or accounting firm reasonably acceptable to the other Party, which opinion may be based on usual and customary factual representations, or (B) obtains a supplemental ruling from the IRS, in each case that such Prohibited Act(s), and any transaction related thereto, will not affect (x) the qualification of the Separation and the Distribution under section 355 and section 368(a)(1)(D) of the 

 

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Code and (y) the nonrecognition of gain to Holdings or to New A&B in the Separation and the Distribution. Holdings or New A&B may also take any of the Prohibited Acts, subject to Section 4.1, with the written consent of the other Party its sole and absolute discretion. During the Restricted Period, Holdings and New A&B shall provide, and shall cause their respective Affiliates to provide, all information reasonably requested by the other Party relating to any transaction involving an acquisition (directly or indirectly) of such other Party’s stock within the meaning of section 355(e) of the Code. The Parties acknowledge that the payment of monetary compensation would not be an adequate remedy for a breach of the obligations described in the Prohibited Acts, and each of Holdings and New A&B consents to the issuance and entry of an injunction to prevent a breach of the obligations contained in the Prohibited Acts, subject to the waiver and consent described in the preceding sentence.

 

(iii)       Notwithstanding anything in this Agreement to the contrary, (A) New A&B shall be responsible for, and shall indemnify and hold Holdings harmless from, any Distribution Taxes resulting from any Prohibited Act taken by New A&B or any of its Affiliates, regardless of whether the exception contained in Section 4.4(b)(ii) is satisfied with respect to such act, and (B) Holdings shall be responsible for, and shall indemnify and hold New A&B harmless from, any Distribution Taxes resulting from any Prohibited Act taken by Holdings or any of its Affiliates, regardless of whether the exception contained in Section 4.4(b)(ii) is satisfied with respect to such act.

 

(c)                        Holdings shall not cause or permit Matson to convert to a limited liability company or liquidate at any time during the Restricted Period.

 

Section 4.5                                    Allocation of Tax Assets.

 

(a)                       Holdings and New A&B shall cooperate, each at its own expense, in determining the allocation of any Tax Assets or Tax liabilities among the Parties in accordance with the Code and Treasury Regulations (and any applicable state, local and foreign laws).  In the absence of controlling legal authority or unless otherwise provided under this Agreement, Tax Assets or Tax liabilities shall be allocated to the legal entity that incurred the cost or burden associated with the creation of such Tax Assets or Tax liabilities.  Holdings and New A&B hereby agree to compute all Taxes for Post-Distribution Periods and Straddle Periods consistently with the determinations made pursuant to this Section 4.5 unless otherwise required by a Final Determination.

 

(b)                       To the extent that the amount of any Tax Asset is later reduced or increased by a Taxing Authority, or as a result of an Audit or carrybacks of Tax Assets from Post-Distribution Periods of either the Holdings Tax Group or the New A&B Tax Group, such reduction or increase shall be allocated to the Party to which such Tax Attribute was allocated pursuant to Section 4.5(a)

 

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Section 4.6                                    Allocation of Certain Tax Items.

 

(a)                       Allocation Between Taxable Periods.  If applicable law requires the Taxable Period of any New A&B Group Member that was a member of the Holdings Tax Group prior to the Distribution Date to end as of the close of the Distribution Date, then Tax Items shall be included in each Taxable Period in accordance with Treasury Regulation § 1.1502-76(b)(2)(i) with no election under Treasury Regulation § 1.1502-76(b)(2)(ii).

 

(b)                       Allocation Within a Straddle Period.  If applicable law does not require the Taxable Period of New A&B and each New A&B Group Member that was a member of the Holdings Tax Group prior to the Distribution Date to end as of the close of the Distribution Date, then the amount of Tax Items attributable to each portion of the Straddle Period shall be determined by means of a closing of the books and records of such New A&B Group Member as of the close of the Distribution Date; provided, that exemptions, allowances or deductions that are calculated on an annual or periodic basis shall be allocated between such portions in proportion to the number of days in each such portion.

 

(c)                        Extraordinary Transactions.  Notwithstanding anything to the contrary in this Agreement, for all Tax purposes, the Parties shall report any transaction that is outside the ordinary course of the normal day-to-day operations of the A&B Businesses that is undertaken, caused or permitted by any New A&B Group Member that occurs on the Distribution Date but after the Distribution as occurring on the date after the Distribution Date pursuant to Treasury Regulation § 1.1502-76(b)(1)(ii)(B) or any similar or analogous provision of state, local or foreign law.  Holdings shall not make a ratable allocation election pursuant to Treasury Regulation § 1.1502-76(b)(2)(ii)(D) or any similar or analogous provision of state, local or foreign law for the tax year in which the Distribution occurs.

 

Section 4.7                                    Tax Treatment of Equity-Related Compensation.

 

(a)                       Holdings or another member of the Holdings Tax Group shall be entitled to claim any Tax deduction relating to (i) the exercise of an option award to purchase Holdings stock, (ii) the vesting of a restricted performance stock right award or restricted stock right award with respect to Holdings stock and (iii) the payment of a cash performance unit award with respect to Holdings stock, in each case, held by an employee or former employee of Holdings or such other member of the Holdings Tax Group at the time of such exercise, vesting or payment.

 

(b)                       New A&B or another member of the New A&B Tax Group shall be entitled to claim any Tax deduction relating to (i) the exercise of an option award to purchase New A&B stock, (ii) the vesting of a restricted performance stock right award or restricted stock right award with respect to New A&B stock and (iii) the payment of a cash performance unit award with respect to New A&B stock, in each case, held by an employee or former employee of New A&B or such other member of the New A&B Tax Group at the time of such exercise, vesting or payment.

 

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ARTICLE V

 

INDEMNIFICATION

 

Section 5.1                                    Generally.  The Holdings Tax Group shall jointly and severally indemnify New A&B, each New A&B Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any and all Taxes or Tax deficiencies for which Holdings or any Holdings Affiliate is liable under this Agreement and any loss, cost, damage or expense, including reasonable attorneys’ fees and costs, that are attributable to, or result from the failure of Holdings or any director, officer or employee to make any payment required to be made under this Agreement.  The New A&B Tax Group shall jointly and severally indemnify Holdings, each Holdings Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any and all Taxes or Tax deficiencies for which New A&B or any New A&B Affiliate is liable under this Agreement and any loss, cost, damage or expense, including reasonable attorneys’ fees and costs, that is attributable to, or results from, the failure of New A&B, any New A&B Affiliate or any director, officer or employee to make any payment required to be made under this Agreement.

 

Section 5.2                                    Inaccurate, Incomplete or Untimely Information.  The Holdings Tax Group shall jointly and severally indemnify New A&B, each New A&B Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any loss, cost, damage, fine, penalty, or other expense of any kind attributable to the negligence of Holdings or any Holdings Affiliate in supplying New A&B or any New A&B Affiliate with inaccurate, incomplete or untimely information, in connection with the preparation of any Tax Return.  The New A&B Tax Group shall jointly and severally indemnify Holdings, each Holdings Affiliate, and their respective directors, officers and employees, and hold them harmless from and against any loss, cost, damage, fine, penalty, or other expense of any kind  attributable to the negligence of New A&B or any New A&B Affiliate in supplying Holdings or any Holdings Affiliate with inaccurate, incomplete or untimely information, in connection with the preparation of any Tax Return.

 

Section 5.3                                    Adjustments to Payments.  Any Party that is entitled to receive a payment (the “Indemnitee”) under this Agreement from another Party (the “Indemnifying Party”) with respect to any Taxes, losses, costs, damages or expenses suffered or incurred by the Indemnitee (an “Indemnified Loss”) shall pay to such Indemnifying Party, or the Indemnifying Party shall pay to the Indemnitee, as applicable, an amount equal to the difference between any “Tax Saving Amount” actually realized by the Indemnitee in the year of the payment and the amount of the Indemnified Loss.  For purposes of this Section 5.3, the “Tax Saving Amount” shall equal the amount by which the Income Taxes of the Indemnitee or any of its affiliates are reduced (including, without limitation, through the receipt of a refund, credit or otherwise), plus any related interest received by the Indemnitee (net of Tax) from a Taxing Authority, as a result of claiming as a deduction or offset on any relevant Tax Return amounts attributable to an Indemnified Loss (the “Indemnifiable Loss Deduction”).

 

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Section 5.4                                    Reporting of Indemnifiable Loss.  In the event that an Indemnitee incurs an Indemnified Loss, such Indemnitee shall claim as a deduction or offset on any relevant Tax Return (including, without limitation, any claim for refund) such Indemnified Loss to the extent such position is supported by “substantial authority” (within the meaning of Section 1.6662-4(d) of the Treasury Regulations) with respect to United States federal, state and local Tax Returns or has similar appropriate authoritative support with respect to any Tax Return other than a United States federal, state or local Tax Return.  Except as otherwise provided in this Agreement, the Indemnitee shall have primary responsibility for the preparation of its Tax Returns and reporting thereon such Indemnifiable Loss Deduction; provided, that the Indemnitee shall consult with, and provide the Indemnifying Party with a reasonable opportunity to review and comment on the portion of the Indemnitee’s Tax Return relating to the Indemnified Loss.  If a Dispute arises between the Indemnitee and the Indemnifying Party as to whether there is “substantial authority” (with respect to United States federal, state and local Tax Returns) or similar appropriate authoritative support (with respect to any Tax Return other than a United States federal, state or local Tax Return) for the claiming of an Indemnifiable Loss Deduction, such Dispute shall be resolved in accordance with the principles and procedures set forth in Section 8.3.  Holdings and New A&B shall act in good faith to coordinate their Tax Return filing positions with respect to the Taxable Periods that include an Indemnifiable Loss Deduction.  Any Tax Saving Amount calculated under Section 5.3 hereof shall be adjusted in the event of an Audit which results in a Final Determination that increases or decreases the amount of the Indemnifiable Loss Deduction reported on any relevant Tax Return of the Indemnitee.  The Indemnitee shall promptly inform the Indemnifying Party of any such Audit and shall attempt in good faith to sustain the Indemnifiable Loss Deduction at issue in the Audit.  Upon receiving a written notice of a Final Determination in respect of an Indemnifiable Loss Deduction, the Indemnitee shall redetermine the Tax Saving Amount attributable to the Indemnifiable Loss  Deduction under Section 5.3 hereof, taking into account the Final Determination (the “Restated Tax Saving Amount”).  If the Restated Tax Saving Amount is greater than the Tax Saving Amount, the Indemnitee shall promptly pay the Indemnifying Party an amount equal to the difference between such amounts.  If the Restated Tax Saving Amount is less than the Tax Saving Amount, then the Indemnifying Party shall pay to the Indemnitee an amount equal to the difference between such amounts promptly after receipt of written notice setting forth the amount due and the computation thereof.

 

Section 5.5                                    No Indemnification for Tax Items.  Nothing in this Agreement shall be construed as a guarantee of the existence or amount of any loss, credit, carryforward, basis or other Tax Item, whether past, present or future, of any Party.

 

Section 5.6                                    Double Recovery.  Notwithstanding anything herein to the contrary, no Party shall be entitled to indemnification hereunder for any amount to the extent such Party has otherwise been reimbursed for such amount.

 

ARTICLE VI

 

PAYMENTS

 

Section 6.1                                    In General.  In the event that one party (the “Owing Party”) is required to make a payment to another party (the “Owed Party”) pursuant to this Agreement, then such payments shall be made according to this Article VI.  All payments shall be made to the Owed Party or to the appropriate Taxing Authority as specified by the Owed Party within the time prescribed for payment in this Agreement, or if no period is prescribed, within twenty (20) days after delivery of written notice of payment owing together with a computation of the amounts due.

 

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Section 6.2             Treatment of Payments.  Unless otherwise required by any Final Determination, the Parties agree that any payments made by one Party to the other Party (other than payments of interest pursuant to Section 6.5 and payments of After Tax Amounts pursuant to Section 6.4) pursuant to this Agreement shall be treated for all Tax and financial accounting purposes as nontaxable payments (dividend distributions or capital contributions, as the case may be) made immediately prior to the Distribution and, accordingly not includible in the taxable income of the recipient.

 

Section 6.3             Prompt Performance.  All actions required to be taken by any Party under this Agreement shall be performed within the time prescribed for performance in this Agreement, or if no period is prescribed, such actions shall be performed promptly.

 

Section 6.4             After Tax Amounts.  If pursuant to a Final Determination it is determined that the receipt or accrual of any payment made under this Agreement (other than payments of interest pursuant to Section 6.5) is subject to any Tax, the Party making such payment shall be liable for (a) the After Tax Amount with respect to such payment and (b) interest at the rate described in Section 6.5 on the amount of such Tax from the date such Tax accrues through the date of payment of such After Tax Amount.  A Party making a demand for a payment pursuant to this Agreement and for a payment of an After Tax Amount with respect to such payment shall separately specify and compute such After Tax Amount.  However, a Party may choose not to specify an After Tax Amount in a demand for payment pursuant to this Agreement without thereby being deemed to have waived its right subsequently to demand an After Tax Amount with respect to such payment.

 

Section 6.5             Interest.  Payments pursuant to this Agreement that are not made within the period prescribed in this Agreement (the “Payment Period”) shall bear interest for the period from and including the date immediately following the last date of the Payment Period through and including the date of payment at a per annum rate equal to twelve percent (12%).  Such interest shall be payable at the same time as the payment to which it relates and shall be calculated on the basis of a year of 365 days and the actual number of days for which due.

 

ARTICLE VII

 

TAX PROCEEDINGS

 

Section 7.1             Audits.  The Party responsible for preparing and filing a Tax Return pursuant to Article II (the “Filing Party”) shall have the right to control, contest, and represent the interests of itself and any of its Affiliates in any Audit relating to such Tax Return; provided, that if the other Party (the “Non-Filing Party”) paid Taxes with respect to such Tax Return pursuant to Section 3.1 or Section 3.2, as applicable, the Non-Filing Party shall be entitled to participate in such Audit, at its own cost and expense and with counsel of its own choosing (such counsel to be reasonably acceptable to the Filing Party), and the Filing Party shall

 

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not resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Audit without the prior written consent of the Non-Filing Party (such consent not to be unreasonably withheld, delayed or conditioned) to the extent that the proposed resolution, settlement or agreement to any deficiency, claim or adjustment relates to Taxes paid by the Non-Filing Party pursuant to Section 3.1 or Section 3.2, as applicable.  The Filing Party’s rights shall extend to any matter pertaining to the management and control of an Audit, including execution of waivers, choice of forum, scheduling of conferences and the resolution or determination of any Tax Item; provided, that the Filing Party and the Non-Filing Party shall jointly determine any such matter in the case of any Audit relating to a Tax Return with respect to which the Non-Filing Party paid Taxes pursuant to Section 3.1 or Section 3.2, applicable.  Each of the Filing Party and the Non-Filing Party shall bear its respective costs incurred in handling, settling, or contesting an Audit, and any costs incurred by both Parties shall be shared equally.  The Filing Party shall advise the Non-Filing Party of all significant Tax issues subject to an Audit by any Taxing Authority, and shall keep the Non-Filing Party fully informed on a timely basis with respect to any proposed contest, compromise or settlement thereof.

 

Section 7.2             Notice.  Within twenty (20) business days after a Party receives a written notice or other information from a Taxing Authority of the existence of a Tax issue that may give rise to an indemnification obligation under this Agreement, such Party shall notify the other Party of such issue, and thereafter shall promptly forward to the other Party copies of notices and material communications with any Taxing Authority relating to such issue.  The failure of one Party to notify the other Party of any matter relating to a particular Tax for a Taxable Period or to take any action specified in this Agreement shall not relieve such other Party of any liability and/or obligation which it may have under this Agreement with respect to such Tax for such Taxable Period, except to the extent that such other Party’s rights under this Agreement are materially prejudiced by such failure.

 

Section 7.3             Remedies.  New A&B agrees that no claim against Holdings and no defense to New A&B’s liabilities or obligations to Holdings under this Agreement shall arise from the resolution by Holdings of any deficiency, claim or adjustment relating to the redetermination of any Tax Item of Holdings or any Holdings Affiliate.

 

Section 7.4             Control of Distribution Tax Proceedings.

 

(a)        Holdings shall have the right to control, contest, and represent the interests of itself and any Holdings Affiliate in any Audits relating to Distribution Taxes for which Holdings bears liability pursuant to Section 4.1(a), Section 4.1(c) or Section 4.1(e), and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Audit.  Holdings’ rights shall extend to any matter pertaining to the management and control of such Audit, including execution of waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item.  New A&B shall be entitled through counsel of its choosing and reasonably acceptable to Holdings to monitor the conduct or settlement of any such Audit by Holdings, and Holdings shall keep New A&B and such counsel fully informed on a timely basis with respect thereto.  Holdings shall provide New A&B and such counsel with such information as either of them may reasonably request (which request may be general or specific), but all costs and expenses incurred in such monitoring shall be borne by New A&B.

 

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(b)        New A&B shall have the right to control, contest, and represent the interests of itself and any New A&B Affiliate in any Audits relating to Distribution Taxes for which New A&B bears liability pursuant to Section 4.1(b), Section 4.1(c) or Section 4.1(e), and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a result of any such Audit.  New A&B’s rights shall extend to any matter pertaining to the management and control of such Audit, including execution of waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item.  Holdings shall be entitled through counsel of its choosing and reasonably acceptable to New A&B to monitor the conduct or settlement of any such Audit by New A&B, and New A&B shall keep Holdings and such counsel fully informed on a timely basis with respect thereto.  New A&B shall provide Holdings and such counsel with such information as either of them may reasonably request (which request may be general or specific), but all costs and expenses incurred in such monitoring shall be borne by Holdings.

 

(c)        Holdings and New A&B shall jointly control and contest any Audits relating to Distribution Taxes for which they both bear liability pursuant to Section 4.1(d); provided, that either Party may assume sole control of any such Audit if such Party acknowledges in writing that it has sole liability for any Distribution Taxes that are reasonably expected to arise in such Audit.

 

ARTICLE VIII

 

MISCELLANEOUS PROVISIONS

 

Section 8.1             Effectiveness.  This Agreement shall become effective on the Separation Date.

 

Section 8.2             Cooperation and Exchange of Information.

 

(a)        Cooperation.  Holdings and New A&B shall each cooperate fully (and each shall cause its respective Affiliates to cooperate fully) with all reasonable requests from another Party hereto, or from an agent, representative or advisor to such Party, in connection with the preparation and filing of Tax Returns, claims for refund, and Audits concerning issues or other matters covered by this Agreement.  Such cooperation shall include, without limitation:

 

(i)    the retention until the expiration of the applicable statute of limitations, and the provision upon request, of Tax Returns, books, records (including information regarding earnings and profits and the ownership and Tax basis of property), documentation and other information relating to the Tax Returns, including accompanying schedules, related work papers, and documents relating to rulings, closing agreements or other determinations by Taxing Authorities;

 

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(ii)   the execution of any document that may be necessary or reasonably helpful in connection with any Tax Proceeding, or the filing of a Tax Return or refund claim by a member of the New A&B Tax Group or the Holdings Tax Group, including certification, to the best of a Party’s knowledge, of the accuracy and completeness of the information it has supplied or any power of attorney required by the applicable Taxing Authority to be provided by one Party to another Party for the performance by such other Party of acts required or permitted under this Agreement; and

 

(iii)  the use of the Party’s reasonable best efforts to obtain any documentation that may be necessary or reasonably helpful in connection with any of the foregoing.

 

Each Party shall use reasonable best efforts to comply in connection with the foregoing matters within ten (10) business days or such shorter period as may be required by the applicable Taxing Authority or otherwise in connection with any Audit.  Each Party shall make its employees and facilities available on a reasonable and mutually convenient basis in connection with the foregoing matters.

 

(b)        Failure to Perform.  If a Party materially fails to comply with any of its obligations set forth in Section 8.1(a) upon reasonable request and notice by the other Party, and such failure results in the imposition of additional Taxes, the non-performing Party shall be liable in full for such additional Taxes notwithstanding anything to the contrary in this Agreement.

 

Section 8.3             Dispute Resolution.  Unless otherwise agreed by the Parties, any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination or validity hereof (“Dispute”) which arises between Holdings and New A&B shall be resolved pursuant to this Section 8.3.  The Dispute shall first be negotiated between the appropriate senior executives of Holdings and New A&B who shall have the authority to resolve the matter.  Such executives shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies, within ten (10) days of receipt by Holdings or New A&B, as applicable, of notice of a Dispute, which date of receipt shall be referred to herein as the “Dispute Resolution Commencement Date.”  If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, then Holdings and New A&B shall jointly retain a nationally recognized accounting firm reasonably acceptable to both Parties to resolve the Dispute.  If Holdings and New A&B cannot mutually agree upon an accounting firm, then any Dispute which Holdings and New A&B cannot resolve within thirty (30) days from the Dispute Resolution Commencement Date shall be resolved by a nationally recognized accounting firm selected by Dispute Prevention & Resolution, Inc. (“DPR”); provided, that, unless the Parties otherwise agree,  DPR shall not select any accounting firm that is then providing auditing or tax services to either of the Parties or their Subsidiaries.  The accounting firm selected by DPR shall act as an arbitrator to resolve all points of disagreement, and its decision shall be final and binding upon all parties involved.  Any such arbitration shall be conducted in Honolulu, Hawaii.  Following the decision of such accounting firm, Holdings and New A&B shall each take or cause to be taken any action necessary to implement the decision of such accounting firm.  Holdings and New A&B shall share equally the administrative costs of the arbitration and such accounting firm’s fees, disbursements and expenses, and shall each bear their respective other costs and expenses related to the arbitration.

 

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Section 8.4             Notices. Notices, offers, requests or other communications required or permitted to be given by any Party pursuant to the terms of this Agreement shall be given in writing to Holdings or New A&B, as applicable, to the following addresses or facsimile numbers:

 

If to Holdings, at:

 

Matson, Inc.

1411 Sand Island Parkway

Honolulu, HI 96803

Attention: Chief Legal Officer

Fax: 808-842-6048

 

and

 

Matson, Inc.

555 12th Street

Oakland, CA 94607

Attention: Chief Legal Officer

Fax: 510-628-7331

 

with a copy to Holdings’ tax department at the same address.

 

If to New A&B, at:

 

Alexander & Baldwin, Inc.

822 Bishop Street

Honolulu, HI 96813

Attention: Chief Legal Officer

Fax: 808-525-6652

 

or to such other address or facsimile number as the party to whom notice is given may have previously furnished to the other in writing as provided herein.  Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested.  All other notices may also be sent by facsimile, confirmed by first class mail.  All notices shall be deemed to have been given when received, if hand-delivered; when receipt is confirmed, if transmitted by facsimile or similar electronic transmission method; one (1) business day after it is sent, if sent by recognized overnight courier; and three (3) days after it is postmarked, if mailed by first class mail or certified mail, return receipt requested, with postage prepaid.

 

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Section 8.5             Changes in Law.

 

(a)        Any reference to a provision of the Code, Treasury Regulations, or a law of another jurisdiction shall include a reference to any applicable successor provision or law.

 

(b)        If, due to any change in applicable law or regulations or their interpretation by any court of law or other governing body having jurisdiction subsequent to the date specified in the preamble to this Agreement, performance of any provision of this Agreement or any transaction contemplated hereby shall become impracticable or impossible, the Parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.

 

Section 8.6             Confidentiality.  Each of the Parties hereto shall hold and cause its directors, officers, employees, advisors and consultants to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information (other than any such information relating solely to the business or affairs of such party) concerning the other Party hereto furnished it by such other Party or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (1) in the public domain through no fault of such Party or (2) later lawfully acquired from other sources not under a duty of confidentiality by the party to which it was furnished), and no Party shall release or disclose such information to any other Person, except its directors, officers, employees, auditors, attorneys, financial advisors, bankers or other consultants who shall be advised of and agree to be bound by the provisions of this Section 8.5.  Each of the Parties hereto shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other Party if it exercises the same care as it takes to preserve confidentiality for its own similar information.

 

Section 8.7             Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  This Agreement may be enforced separately by each member of the Holdings Tax Group and each member of the New A&B Tax Group.  No Party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other Party hereto, and any such assignment shall be void; provided, that Holdings or New A&B may assign this Agreement to a successor entity if such successor entity agrees in writing, reasonably satisfactory to Holdings or New A&B, as applicable, to be bound by the terms of this Agreement as if named as a “Party” hereto.

 

Section 8.8             Affiliates.

 

(a)        Holdings shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any other Matson Group Member; provided, that if it is contemplated that a Matson Group Member may cease to be controlled, directly or indirectly, by Holdings as a result of a transfer of its stock

 

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or other ownership interests to a third party in exchange for consideration in an amount approximately equal to the fair market value of the stock or other ownership interests transferred and such consideration is not distributed outside of the Matson Group to the shareholders of Holdings, then Holdings shall request in writing no later than thirty (30) days prior to such cessation that New A&B execute a release of such Matson Group Member from its obligations under this Agreement effective as of such transfer, provided that Holdings shall succeed to the rights of such Matson Group Member under this Agreement and shall have confirmed in writing the obligations of Holdings and the remaining Matson Group Members with respect to their own obligations and the obligations of the departing Matson Group Member, and that such departing Matson Group Member shall have executed a release of any rights it may have against New A&B by reason of this Agreement.

 

(b)        New A&B shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any other member of the New A&B Group; provided, that if it is contemplated that member of the New A&B Group may cease to be controlled, directly or indirectly, by New A&B as a result of a transfer of its stock or other ownership interests to a third party in exchange for consideration in an amount approximately equal to the fair market value of the stock or other ownership interests transferred and such consideration is not distributed outside of the New A&B Group to the shareholders of New A&B, then New A&B shall request in writing no later than thirty (30) days prior to such cessation that Holdings execute a release of such member of the New A&B Group from its obligations under this Agreement effective as of such transfer, provided that New A&B shall succeed to the rights of such member of the New A&B Group under this Agreement and shall have confirmed in writing the obligations of New A&B and the remaining members of the New A&B Group with respect to their own obligations and the obligations of the departing member of the New A&B Group, and that such departing member of the New A&B Group shall have executed a release of any rights it may have against Holdings by reason of this Agreement

 

Section 8.9             Authority.  Each of the Parties hereto represents, on behalf of itself and its affiliates, to the other that (a) it has the corporate power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other action, (c) it has duly and validly executed and delivered this Agreement and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equity principles.

 

Section 8.10           Entire Agreement.  This Agreement, the Separation Agreement, the other Ancillary Agreements and the Exhibits and Schedules attached hereto and thereto, constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof.

 

Section 8.11           Governing Law and Jurisdiction.  This Agreement shall be construed in accordance with, and all Disputes hereunder shall be governed by, the laws of the State of Hawaii, excluding its conflict of law rules.

 

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Section 8.12           Counterparts. This Agreement, including the Schedules and Exhibits hereto, and the other documents referred to herein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.

 

Section 8.13           Severability.  If any term or other provision of this Agreement or the Schedules or Exhibits attached hereto is determined by a non-appealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

 

Section 8.14           Parties in Interest.  This Agreement, including the Schedules and Exhibits hereto, and the other documents referred to herein, shall be binding upon Holdings, the Holdings Affiliates, New A&B and the New A&B Affiliates, and shall inure solely to the benefit of the Indemnitees that are Matson Group Members and the Indemnitees that are New A&B Group Members and, in each case, their respective permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.

 

Section 8.15           Failure or Indulgence Not Waiver.  No failure or delay on the part of any Party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any failure to exercise, or any single or partial exercise, of any such right preclude other or further exercise thereof or of any other right.

 

Section 8.16           Setoff.  All payments to be made by any Party under this Agreement may be netted against payments due to such Party under this Agreement, but otherwise shall be made without setoff, counterclaim or withholding, all of which are hereby expressly waived.

 

Section 8.17           Amendments.  No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the Parties to this Agreement.

 

Section 8.18           Interpretation.  When a reference is made in this Agreement to an Article or a Section, or to an Exhibit or a Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.  The headings contained in this Agreement, in any Exhibit or Schedule, and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.   Any capitalized term used in any Schedule or Exhibit but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement.

 

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Section 8.19           Coordination with Employee Matters Agreement.  To the extent any covenants or agreements between the Parties with respect to employment Taxes are set forth in the Employee Matters Agreement, such matters shall be governed exclusively by the Employee Matters Agreement and not by this Agreement.

 

Section 8.20           Conflict or Inconsistency Between Agreements.  Except as provided in Section 8.19, in the event of any conflict or inconsistency between any provision of this Agreement and any provision of either the Separation Agreement or any of the other Ancillary Agreements, the applicable provisions of this Agreement shall prevail.

 

[SIGNATURE PAGE FOLLOWS]

 

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WHEREFORE, the Parties have signed this Tax Sharing Agreement effective as of the date first set forth above.

 

 

	
 
    	
ALEXANDER &   BALDWIN HOLDINGS, INC.
    
	
 
    	
on behalf of   itself and the Holdings Affiliates
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Joel M. Wine
    
	
 
    	
Name:
    	
Joel   M. Wine
    
	
 
    	
Title:
    	
Senior   Vice President, Chief Financial Officer and Treasurer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
A & B   II, Inc.
    
	
 
    	
on behalf of   itself and the New A&B Affiliates
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Stanley M. Kuriyama
    
	
 
    	
Name:
    	
Stanley   M. Kuriyama
    
	
 
    	
Title:
    	
President   and Chief Executive Officer
    

 

[Signature Page to Tax Sharing Agreement]Exhibit 10.5

 

OBJET LTD. (FORMERLY OBJET GEOMETRIES LTD.)

AMENDED AND RESTATED 2004 OMNIBUS STOCK OPTION
  AND RESTRICTED STOCK INCENTIVE PLAN

 

APPROVED BY BOARD OF DIRECTORS ON AUGUST 15, 2004

 

AMENDED AND RESTATED BY BOARD OF DIRECTORS ON JULY 9, 2007

 

   1.                       PURPOSE; TYPES OF AWARDS; CONSTRUCTION.

 

Purpose.

 

The purpose of the Objet Ltd. Stock Option and Restricted Stock Incentive Plan (the “Plan”) is to afford an incentive to employees, directors, Office Holders, consultants and any other person or entity whose services the Board of Directors shall decide are considered valuable (collectively “Service Providers”) to Objet Ltd., an Israeli company (the “Company”), or any Subsidiary or Affiliate of the Company which now exists or hereafter is organized or acquired by the Company, to acquire a proprietary interest in the Company, to continue as employees, directors, Office Holders, consultants or suppliers, to increase their efforts on behalf of the Company or any Subsidiary or Affiliate and to promote the success of the Company’s business by providing such individuals (“Grantees”) with opportunities to receive Options to purchase Ordinary Shares, of the Company or to receive Restricted Stock or other Awards pursuant to the Plan.

 

Types of Awards.

 

The Plan is intended to enable the Company to issue Awards under varying tax regimes, including, without limitation:

 

(i)    as “incentive stock options” (“Incentive Stock Options”) to Service Providers who are deemed to be residents of the U.S for purposes of taxation may be granted (a) Incentive Stock Options within the meaning of Section 422 of the United States Internal Revenue Code of 1986, as amended (the “Code”), or the corresponding provision of any subsequently enacted United States federal tax statute, as amended from time to time; (b) “Nonqualified Stock Options” as defined below; or (c) shares of restricted stock awarded under the Plan and subject to restrictions and a risk of forfeiture (“Restricted Stock”);

 

(ii)   pursuant and subject to the provisions of Section 102 of the Israeli Income Tax Ordinance (New Version) 1961, as amended from time to time (the “Ordinance”) and any regulations, rules, orders or procedures promulgated thereunder, including without limitation the Income Tax Rules (Tax Benefits in Stock Issuance to Employees) 5763-2003) (the “Rules”) by the Income Tax Authorities (the “ITA”) and shall be held by a Trustee for the benefit of the Grantees (such Awards, “102 Stock Options”), it being clarified that Awards to Service Providers, including Office Holders and excluding Controlling Shareholders as defined below, in Israel will be 102 Stock Options;

 

 

(iii)  pursuant to Section 3(9) of the Ordinance (such Awards, “3(9) Stock Options”); and

 

(iv)  other stock-based Awards pursuant to Section 12 hereof. Apart from issuance under the relevant tax regimes in the United States of America and the State of Israel, the Plan contemplates issuances to Grantees (as defined below) in other jurisdictions with respect to which the Committee (as defined below) is empowered to make the requisite adjustments in the Plan and set forth the relevant conditions in the Company’s agreement with the Grantee in order to comply with the requirements of the tax regimes in any such jurisdictions.

 

The Plan contemplates the issuance of Awards by the Company, both as a private company and as a publicly traded company.

 

Construction. To the extent any provision herein conflicts with the conditions of any relevant tax law or regulation which are relied upon for tax relief in respect of a particular Option or Stock granted to a Grantee, the provisions of such law or regulation shall prevail over those of the Plan and the Committee is empowered hereunder to interpret and enforce the said prevailing provisions.

 

   2.                       DEFINITIONS.

 

As used in this Plan, the following words and phrases shall have the meanings indicated:

 

   2.1.                                   “Affiliate” shall mean an affiliate of, or person affiliated with, a specified person or company or other trade or business that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person within the meaning of Rule 405 of Regulation C under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, any Subsidiary and for the purpose of Options granted pursuant to Section 102 shall mean an “employing company” within the meaning of Section 102(a) of the Ordinance.

 

   2.2.                                   “Award” shall mean any share of stock, Option, share of Restricted Stock or any other Share-based award, granted to a Grantee under the Plan and any share issued pursuant to the exercise of an Option.

 

   2.3.                                   “Board” shall mean the Board of Directors of the Company.

 

   2.4.                                   “Committee” shall mean a committee established by the Board to administer the Plan.

 

   2.5.                                   “Companies Law” shall mean the Israel Companies Law-1999, as amended.

 

   2.6.                                   “Controlling Shareholder”, as defined under Section 32(9) of the Ordinance.

 

   2.7.                                   “Disability” shall mean (i) the inability of a Grantee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, as determined by a medical doctor satisfactory to the Committee or (ii) as “permanent and total disability” is defined in Section 22(e)(3) of the Code, as amended from time to time.

 

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   2.8.                                   “Employee” means a person who is employed by the Company or its Affiliates, including an individual who is serving as a director or an office holder, but excluding Controlling Shareholder.

 

   2.9.                                   “Exercise Period” shall mean the period in which the Option shall be exercisable.

 

   2.10.                                 “Exercise Price” shall mean the exercise price for each Share of Stock covered by an Option.

 

   2.11.                                 “Fair Market Value” per share as of a particular date shall mean (i) the closing sales price per Share on the securities exchange on which the Stock is principally traded for the last preceding date on which there was a sale of such Stock on such exchange; or (ii) if the Stock is listed on the Nasdaq National Market, the last reported price per Share on the Nasdaq National Market on the last preceding date on which there was a sale of such Stock on the Nasdaq National Market; or (iii) if the Stock is then traded in an over-the-counter market, the average of the closing bid and asked prices for the Stock in such over-the-counter market for the last preceding date on which there was a sale of such Stock in such market; or (iv) if the Stock is listed on the Toronto Stock Exchange, the last reported price per share on the Toronto Stock Exchange on the last preceding date on which there was a sale of such Stock on the Toronto Stock Exchange; or (v) if the Stock is not then listed on a securities exchange or market or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine which determination shall be conclusive and binding on all parties, and shall be made after such consultations with outside legal, accounting and other experts as the Committee may deem advisable, and the Committee may maintain a written record of its method of determining such value. If the Stock is listed or quoted on more than one established stock exchange or national market system, the Committee shall determine the appropriate exchange or system.

 

   2.12.                                 “Grantee” shall mean a person who receives a grant of Options, Restricted Stock or Shares under the Plan, who at the time of grant is an employee, director, Office Holder, supplier or consultant of the Company.

 

   2.13.                                 “Initial Public Offering” shall mean the underwritten initial public offering of Shares and the listing of such shares for trading on any recognized stock exchange or market (including AIM) or over-the-counter or computerized securities trading system.

 

   2.14.                                 “Non-Employee” means a consultant, adviser, service provider, Controlling Shareholder or any other person who is not an Employee.

 

   2.15.                                 “Nonqualified Stock Option” shall mean any Option granted to a U.S. resident or Canadian resident, as the case may be, which Option is not designated as, or does not meet the conditions for an Incentive Stock Option.

 

   2.16.                                 “Office Holder” shall mean any office holder (“nose misra”) as defined in the Companies Law.

 

   2.17.                                 “Options” shall mean all options to purchase Shares granted as 102 Stock Options, 3(9) Stock Options, Incentive Stock Options and Non-Qualified Stock Options, as well as options issued under other tax regimes collectively.

 

   2.18.                                 “Ordinance” shall mean the Israeli Income Tax Ordinance (New Version) 1961, and the regulations promulgated thereunder, all as amended from time to time.

 

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   2.19.                                 “Parent” shall mean any company (other than the Company), which now exists or is hereafter organized, (i) in an unbroken chain of companies ending with the Company if, at the time of granting an Award, each of the companies other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain, or (ii) as defined in Section 424(e) of the Code.

 

   2.20.                                 “Retirement” shall mean a Grantee’s retirement pursuant to applicable law or in accordance with the terms of any tax-qualified retirement plan maintained by the Company or any of its affiliates in which the Grantee participates.

 

   2.21.                                 “Shares” shall mean the shares of the Company of such class as shall be designated by the Board in respect of the relevant Award.

 

   2.22.                                 “Subsidiary” shall mean any company (other than the Company), which now exists or is hereafter organized or acquired by the Company, (i) in an unbroken chain of companies beginning with the Company if, at the time of granting an Award, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain, or (ii) as defined in Section 424(f) of the Code.

 

   2.23.                                 “Ten Percent Shareholder” shall mean a Grantee who, at the time an Incentive Stock Option is granted, owns shares possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary.

 

   2.24.                                 “Trustee” shall mean the trustee appointed by the Committee or the Board, as the case may be, to hold the respective Options, Restricted Stock and/or shares of Stock, (and, in relation with 102 Stock Options, approved by the Israeli tax authorities), if so appointed.

 

   3.                       ADMINISTRATION.

 

To the extent permitted under law and the Articles of Association and bylaws of the Company, the Plan shall be administered by the Committee. However, in the event that the Board does not create a committee to administer the Plan, the Plan shall be administered by the Board in its entirety. Furthermore, in the event that an action necessary for the administration of the Plan is required under law to be taken by the Board, including, but not limited to the decision to grant Options to any director or officer of the Company, as defined under the Companies Law, or to another party, in each case, that under the Companies Law requires additional corporate approvals by the Company, then such action shall be so taken by the Board. In any of the above events, all references herein to the Committee shall be construed as references to the Board.

 

The Committee shall consist of two or more directors of the Company, the final number to be fixed by the Board of Directors. The Board of Directors shall appoint the members of the Committee, may from time to time remove members from, or add members to, the Committee, and shall fill vacancies in the Committee however caused.

 

The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. The Committee may appoint a Secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business, as it shall deem advisable.

 

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Subject to the general terms and conditions of this Plan and applicable law, the Committee shall have full authority in its discretion, from time to time and at any time, to determine any of the following, or to recommend to the Board of Directors any of the following if it is not authorized to take such action according to applicable law: (i) eligible Grantees, (ii) determine the terms and provisions of the Option Agreement including, but not limited to, the number of Shares to be covered by each Option, (iii) the time or times at which the same shall be granted, (iv) the schedule and conditions on which such Options may be exercised and on which such Shares shall be paid for, and (v) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan. The Board shall determine the Fair Market Value (as defined below) of the Shares and it may from time to time adopt such rules and regulations for carrying out the Plan as it may deem appropriate. Grants of Options shall be made pursuant to written notification to Grantees setting out the terms of the grant. The Committee shall be authorized to grant Options to the Grantees under the Plan (other than to Officers and any other party to whom the grant of Options requires additional corporate approvals under the Companies Law or other applicable law, regulation or rules), and shall be entitled to recommend to the Board of Directors the grant of Options to Grantees who are Officers or any other party to whom the grant of Options requires additional corporate approvals under the Companies Law or other applicable law, regulation or rules. Subject to the Companies Law, the Committee shall be authorized to issue Shares underlying Options which have been granted and duly exercised pursuant to the provisions hereof, in accordance the Companies Law and the grant of any Option by the Committee shall be deemed to include an authorization of the issuance of Shares upon the due exercise thereof.

 

Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify Awards to eligible individuals who are foreign nationals or are individuals who are employed outside the United States in recognition of the differences in local law, tax policy, or custom.  The Committee shall have the authority to grant in its discretion to the holder of an outstanding Option, in exchange for the surrender and cancellation of such Option, a new Option having an exercise price lower than provided in the Option so surrendered and canceled and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Plan or to set a new exercise price for the same Option lower than that previously provided in the Option.

 

All decisions, determination and interpretations of the Committee shall be final and binding on all Grantees of any Awards under this Plan, unless otherwise determined by the Board of Directors No member of the Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder.

 

Each member of the Board and the Committee shall be indemnified and held harmless by the Company against any cost or expense (including fees of counsel) reasonably incurred by him, or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Plan unless arising out of such member’s own fraud or bad faith, to the extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the member may have as director, Office Holder or otherwise under the articles of association of the Company, any agreement, any vote of share or disinterested directors, or otherwise.

 

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   4.                       ELIGIBILITY.

 

Options, Restricted Stock and Share may be granted to employees, directors, Office Holders, consultants and suppliers of the Company and any Subsidiary or Affiliate, provided, however, that Incentive Stock Options and 102 Stock Options may be granted only to employees of the Company or a Subsidiary, and 102 Stock Options may be also granted to Office Holders of the Company or a Subsidiary or Affiliate (and who are not “Controlling Shareholders”, as defined in Section 32(9) of the Ordinance). A person who has been granted an Option, Restricted Stock or Share hereunder may be granted additional Options, Restricted Stock or Share, if the Committee shall so determine, subject to the limitations herein. In determining the persons to whom Awards shall be granted and the number of shares to be covered by each Award, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan.

 

Subject to applicable law, 102 Trustee Options may only be granted to Employees and Office Holders of the Company or of any Affiliate thereof, who are Israeli residents (“Eligible 102 Grantees”). Eligible 102 Grantees may receive only 102 Trustee Grants or Non-Trustee Grants. Subject to applicable law, Non-Employees who are Israeli residents who are not Eligible 102 Grantees may only be granted only 3(i) Options under this Plan. Each Option shall be designated in the Option Agreement or other document evidencing the Options granted or Shares issued pursuant to this Plan as one of the following: (a) a 102 Trustee Option (either as a 102 Capital Gains Track Option or a 102 Ordinary Income Track Option), (b) a 102 Non-Trustee Option, (c) a 3(i) Option, (d) Incentive Stock Options, (e) Nonqualified Stock Options, or (f) Restricted Share.

 

Unless otherwise permitted by the Ordinance and the Rules, no 102 Trustee Options may be granted until, thirty (30) days at least after the requisite filings required by the Ordinance and the Rules have been appropriately made with the ITA.

 

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   5.                       SHARES.

 

The initial number of Shares reserved for the grant of Awards under the Plan shall be 17,933,539 Shares. The class of said Shares shall be designated by the Board with respect to each Award and the Notice of grant shall reflect such designation. Any option granted hereunder which should have been expired, cancelled or terminated or forfeited for any reason without having been exercised and therefore returned to the “pool” of reserved Shares thereunder, shall automatically, and without any further action on the part of the Company or any Grantee, be transferred to, and enlarge, the “pool” of reserved Shares under this Plan (the “Added Pool”) and shall again be available for grant for the purposes of this Plan (unless this Plan shall have been terminated) or unless the Board determines otherwise. The Board may increase or decrease the number of Shares to be reserved under the Plan. Such Shares may, in whole or in part, be authorized but unissued Shares, or Shares that shall have been or may be reacquired by the Company (to the extent permitted pursuant to the Companies Law) or by a trustee appointed by the Board under the relevant provisions of the Ordinance, the Companies Law or any equivalent provision. Any of such Shares which may remain unsold and which are not subject to outstanding options at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan, the Company shall at all times reserve a sufficient number of Shares to meet the requirements of the Plan.

 

If any outstanding Award under the Plan (including the Added Pool) should, for any reason, expire, be canceled or be forfeited without having been exercised in full, the Shares allocable to the unexercised, canceled or terminated portion of such Award shall (unless the Plan shall have been terminated) become available for subsequent grants of Awards under the Plan.

 

   6.                       TERMS AND CONDITIONS OF OPTIONS.

 

Each Option granted pursuant to the Plan shall be evidenced by a written agreement between the Company and the Grantee (the “Option Agreement”), in such form and containing such terms and conditions as the Committee shall from time to time approve, which Option Agreement shall comply with and be subject to the following terms and conditions, unless otherwise specifically provided in such Option Agreement. For purposes of interpreting this Section 6, a director’s service as a member of the Board or the services of an Office Holder, as the case may be, shall be deemed to be employment with the Company or its Subsidiary or Affiliate.

 

   6.1.                                   NUMBER OF SHARES. Each Option Agreement shall state the number of Shares to which the Option relates.

 

   6.2.                                   TYPE OF OPTION. Each Option Agreement shall specifically state the type of Option granted thereunder and whether it constitutes a Incentive Stock Option, Nonqualified Stock Option, 102 Stock Option and the relevant track, 3(9) Stock Option, Incentive Stock Options or otherwise, and in the absence of such specification such options shall be deemed Nonqualified Stock Options.

 

   6.3.                                   EXERCISE PRICE. Each Option Agreement shall state the Exercise Price, which, in the case of an Incentive Stock Option, shall not be less than one hundred percent (100%) of the Fair Market Value of the shares of Stock covered by the Option on the date of grant or such other amount as may be required pursuant to the Code. In the case of a Nonqualified Stock Option granted to any Grantee, the per share exercise price shall be equal to the amount determined by the Committee or the Board, as the case may be. In the case of a grant of Options to a Canadian employee, the per share exercise price shall, in any event, not be less than the Fair Market Value. In the case of an Incentive Stock Option granted to any

 

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Ten-Percent Shareholder, the Exercise Price shall be no less than 110% of the Fair Market Value of the shares of Stock covered by the Option on the date of grant. In no event shall the Exercise Price of an Option be less than the par value of the shares for which such Option is exercisable. Subject to Section 3 and to the foregoing, the Committee may reduce the Exercise Price of any outstanding Nonqualified Stock Option. The Exercise Price shall also be subject to adjustment as provided in Section 13 hereof.

 

To the extent applicable, the Board and the Committee, as the case may be, shall consider and apply any of the requirements of Section 409A of the Code when determining per share exercise price for Awards.

 

   6.4.                                   MANNER OF EXERCISE. Subject to Section 6.6 below, an Option may be exercised, as to any or all shares of Stock as to which the Option has become exercisable, by written notice delivered in person or by mail to the Secretary of the Company, specifying the number of shares of Stock with respect to which the Option is being exercised, along with payment of the Exercise Price for such shares in the manner specified in the following sentence. The Exercise Price shall be paid in full with respect to each share, at the time of exercise, either in cash or in such other manner as the Committee shall determine.

 

   6.5.                                   TERM AND VESTING OF OPTIONS. Each Option Agreement shall provide the vesting schedule for the Option as determined by the Committee, provided that (to the extent permitted under law) the Committee shall have the authority to accelerate the vesting of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. Unless otherwise resolved by the Committee and stated in the Option Agreement, and subject to Sections 6.6, 6.7 and 6.11 hereof and the last sentence of this Section 6.5, Options shall vest and become exercisable under the following schedule: twenty-five percent (25%) of the shares of Stock covered by the Option on the first anniversary of the date on which such Option is granted, provided that the Grantee remains continuously employed by or in the service of the Company or its Subsidiary or Affiliate for that one year, and six and one-quarter percent (6.25%) of the shares of Stock covered by the Option at the end of each subsequent quarter, provided that the Grantee remains continuously employed by or in the service of the Company or its Subsidiary or Affiliate for that quarter, over the course of the following three (3) years of continued employment by or service for the Company or its Subsidiary or Affiliate; provided, however, that (to the extent permitted under law) the Committee, in its absolute discretion, may, on such terms and conditions as it may determine to be appropriate, accelerate or otherwise change the time at which such Option or any portion thereof may be exercised. The Option Agreement may contain performance goals and measurements, and the provisions with respect to any Option need not be the same as the provisions with respect to any other Option. The Exercise Period of an Option will be ten (10) years from the date of the Grant of the Option unless otherwise determined by the Committee (to the extent permitted under law); provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, such Exercise Period shall not exceed five (5) years from the date of grant of such Option. After such Exercise Period, all Awards not exercised shall be deemed null and void.  The Exercise Period shall be subject to earlier termination as provided in Sections 6.6, 6.7 and 6.11 hereof.

 

   6.6.                                   TERMINATION.

 

Except as provided in this Section 6.6 and in Sections 6.7 and 6.11 hereof, an Option may not be exercised unless the Grantee is then in the employ of or maintaining a director, Office Holder or consultant or supplier relationship with the Company or a Subsidiary or Affiliate thereof or, in the case of an Incentive Stock Option, a company or a parent or subsidiary company of such company issuing or assuming the Option in a transaction to which

 

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to which Section 424(a) of the Code applies, and unless the Grantee has remained continuously so employed or in the director, Office Holder, supplier, or consultant relationship since the date of grant of the Option. In the event that the employment or director, Office Holder or consultant or supplier relationship of a Grantee shall terminate (other than by reason of death, Disability or Retirement), then subject to Section 6.11, all Options of such Grantee that are vested and exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within the earliest to occur of (i) the thirtieth (30th) day following the Initial Public Offering consummated within twelve (12) months after the date of such termination, or (ii) the closing of a Merger/Sale consummated within twelve (12) months after the date of such termination, and (iii) the ninetieth (90th) day after the date of such termination, if at the time of such termination, the Company has already consummated its Initial Public Offering (or such different period as the Committee shall prescribe); provided, however, that if the Company (or the Subsidiary or Affiliate, when applicable) shall terminate the Grantee’s employment or service for Cause (as defined below) or if following the Grantee’s employment conditions arise or are discovered with respect to the Grantee that would have constituted Cause for termination of his or her employment, all Options theretofore granted to such Grantee (whether vested or not) shall, to the extent not theretofore exercised, terminate on the date of such termination or cessation unless otherwise determined by the Committee.

 

In the case of a Grantee whose principal employer is a Subsidiary or Affiliate, the Grantee’s employment shall also be deemed terminated for purposes of this Section 6.6 as of the date on which such principal employer ceases to be a Subsidiary or Affiliate. Notwithstanding anything to the contrary, the Committee, in its absolute discretion may, on such terms and conditions as it may determine appropriate, extend the periods for which the Options held by any individual may continue to vest and be exercisable; provided, that such Options may lose their status as Incentive Stock Options under applicable law and be deemed Nonqualified Stock Options in the event that the period of vesting and/or exercisability of any option is extended beyond the later of: (i) one hundred and eighty (180) days after the date of cessation of employment or performance of services; or (ii) the applicable period under Section 6.7 below.

 

For purposes of this Plan, the term “Cause” shall mean any of the following resulting from an act or omission of Grantee: (a) fraud, embezzlement or felony or similar act; (b) failure to substantially perform duties as an employee, director, office holder or consultant or to abide by the general policies of the Company (or a Subsidiary or Affiliate, when applicable) applicable to such person (including, without limitation, policies relating to confidentiality, non competition, non solicitation and reasonable workplace conduct); (c) an act of moral turpitude, or any similar act, to the extent that such act causes injury to the reputation, business or business relationship of the Company (or a Subsidiary or Affiliate, when applicable); (d) any other act or omission which in the reasonable opinion of the Company or a Subsidiary or Affiliate could be financially injurious to the Company or a Subsidiary or Affiliate or injurious to the business reputation of the Company or a Subsidiary or Affiliate; (e) any material breach by the Grantee of an agreement between the Company or any Subsidiary or Affiliate and the Grantee; or (f) any other grounds for termination for cause under the

 

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under the Grantee’s employment or consulting agreement with the Company or Subsidiary or Affiliate, to the extent applicable.

 

   6.7.                                   DEATH, DISABILITY OR RETIREMENT OF GRANTEE. If a Grantee shall die while employed by, or performing service for, the Company or a Subsidiary, or within the three (3) months period after the date of termination of such Grantee’s employment or service (or within such different period as the Committee may have provided pursuant to Section 6.6 hereof), or if the Grantee’s employment or service shall terminate by reason of Disability, all Options theretofore granted to such Grantee (to the extent otherwise vested and exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Grantee or by the Grantee’s estate or by a person who acquired the right to exercise such Options by bequest or inheritance or otherwise by result of death or Disability of the Grantee, at any time within one (1) year after the death or Disability of the Grantee (or such different period as the Committee shall prescribe). In the event that an Option granted hereunder shall be exercised by the legal representatives of a deceased or former Grantee, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative to exercise such Option. In the event that the employment or service of a Grantee shall terminate on account of such Grantee’s Retirement, all Options of such Grantee that are exercisable at the time of such Retirement may, unless earlier terminated in accordance with their terms, be exercised at any time within the three (3) month period after the date of such Retirement (or such different period as the Committee shall prescribe).

 

   6.8.                                   SUSPENSION OF VESTING. Unless the Board of Directors or the Committee provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave of absence. Notwithstanding the above, a Service Provider shall not cease to be considered as such in the case of any (a) leave of absence which was pre-approved by the Company, or (b) transfers between locations of the Company or between the Company, any parent or subsidiary, or any successor.

 

   6.9.                                   VOTING PROXY.  The right to vote any Shares acquired hereunder pursuant to an Award of Options, Restricted Stock or Share shall be given by the Grantee or the Grantee’s transferee, pursuant to an irrevocable proxy, to the person or persons designated by the Board. All Awards granted hereunder shall be conditioned upon the execution of such irrevocable proxy. So long as any such shares are held by a Trustee, such shares shall be voted by the Trustee, unless the Trustee is directed otherwise by the Board in the same proportion as the result of the shareholder vote in respect of which the votes held by the Trustee are being cast. Notwithstanding the foregoing, the provisions of this Section 6.9 or of any irrevocable proxy granted pursuant hereto shall be of no force or effect immediately after the consummation of the Company’s Initial Public Offering or the consummation of a Merger/Sale (as defined below).

 

   6.10.                                 OTHER PROVISIONS. The Option Agreements evidencing Awards under the Plan shall contain such other terms and conditions not inconsistent with the Plan as the Committee may determine, including without limitation, provisions in connection with the restrictions on transferring the Awards, and the Grantee’s consent to adhere to lock-up arrangements between the Company and an underwriter involved in a public offering of the Company’s shares.

 

   6.11.                                 NO VESTING OR EXERCISE PRIOR TO IPO OR MERGER/SALE. Notwithstanding anything to the contrary herein or in the Plan (including this Section 6 of this Plan), the vesting and exercisability of the Options granted hereunder with respect to the purchase of Ordinary Shares is, in addition to all other terms and conditions, subject to (a) the Company having consummated the Initial Public Offering (as defined in the Plan) during the

 

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term which the Options would be otherwise vested and exercisable under this Plan and the particular Notice of Grant and Option Agreement or (b) the Company’s consummation of a Merger/Sale (as defined in the Plan), during the term which the Options would be otherwise vested and exercisable under the Plan and Notice of Grant and Option Agreement, in which event of Merger/Sale the Grantee would be entitled to exercise the options that would be otherwise vested and exercisable under the Plan and Notice of Grant and Option Agreement. This Section 6.11 shall not apply after the Initial Public Offering.

 

   7.                       NONQUALIFIED STOCK OPTIONS.

 

Options granted pursuant to this Section 7 are intended to constitute Nonqualified Stock Options and shall be subject to the general terms and conditions specified in Section 6 hereof and other provisions of the Plan, except for said provisions of the Plan applying to Options under a different tax law or regulation.

 

   8.                       INCENTIVE STOCK OPTIONS.

 

Options granted pursuant to this Section 8 are intended to constitute Incentive Stock Options and shall be granted subject to both the following special terms and conditions and the general terms and conditions specified in Section 6 hereof and other provisions of the Plan, except for said provisions of the Plan applying to Options under a different tax law or regulation:

 

   8.1.                                   VALUE OF SHARES. The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the shares of Stock with respect to which all Incentive Stock Options granted under this Plan and all other option plans of any Subsidiary or Affiliate become exercisable for the first time by each Grantee during any calendar year shall not exceed one hundred thousand United States dollars ($100,000) with respect to such Grantee. To the extent that the aggregate Fair Market Value of shares of Stock with respect to which the Incentive Stock Options are exercisable for the first time by any Grantee during any calendar years exceeds one hundred thousand United States dollars ($100,000), such Options shall be treated as Nonqualified Stock Options.  The foregoing shall be applied by taking options into account in the order in which they were granted, with the Fair Market Value of any share of Stock to be determined at the time of the grant of the Option. In the event the foregoing results in the portion of an Incentive Stock Option exceeding the one hundred thousand United States dollars ($100,000) limitation, only such excess shall be treated as a Nonqualified Stock Option.

 

   8.2.                                   TEN PERCENT SHAREHOLDER. In the case of an Incentive Stock Option granted to a Ten Percent Shareholder, (i) the Exercise Price shall not be less than one hundred and ten percent (110%) of the Fair Market Value of the shares of Stock on the date of grant of such Incentive Stock Option, and (ii) the Exercise Period shall not exceed five (5) years from the date of grant of such Incentive Stock Option.

 

   8.3.                                   INCENTIVE STOCK OPTION LOCK-UP PERIOD. No disposition of Shares received pursuant to the exercise of Incentive Stock Options (“ISO Shares”), shall be made by the Grantee within 2 years from the date of grant nor within 1 year after the transfer of such ISO Shares to him. To the extent that the Grantee violates the aforementioned limitations, the Incentive Stock Options shall be deemed to be Nonqualified Stock Options.

 

   8.4.                                   APPROVAL. The status of any ISO Shares shall be subject to approval of the Plan by the Company’s shareholders, such approval to be provided 12 months before or after the date of adoption of the Plan by the Board of Directors.

 

   8.5.                                   EXERCISE FOLLOWING TERMINATION. Notwithstanding anything else

 

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else in this Plan to the contrary, Incentive Stock Options that are not exercised within ninety days following termination of Grantee’s employment in the Company or its Affiliates and subsidiaries, or within one year in case of termination of Grantee’s employment in the Company or its Affiliates and subsidiaries due to a disability (within the meaning of section 22(e)(3) of the Code), shall be deemed to be Nonqualified Stock Options.

 

   8.6.                                   ADJUSTMENTS TO INCENTIVE STOCK OPTIONS. Any Option Agreement providing for the grant of Incentive Stock Options shall indicate that adjustments made pursuant to the Plan with respect to Incentive Stock Options could constitute a “modification” of such Incentive Stock Options (as that term is defined in Section 424(h) of the Code) or could cause adverse tax consequences for the holder of such Incentive Stock Options and that the holder should consult with his or her tax advisor regarding the consequences of such “modification” on his or her income tax treatment with respect to the Incentive Stock Option.

 

   8.7.                                   NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each Grantee who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the Grantee makes a Disqualifying Disposition of any ISO Shares. A “Disqualifying Disposition” is any disposition (including any sale) of such ISO Shares before the later of (a) two years after the date the Grantee was granted the Incentive Stock Option, or (b) one year after the date the Grantee acquired Shares by exercising the Incentive Stock Option. If the Grantee dies before such ISO Shares are sold, these holding period requirements do not apply and no disposition of the ISO Shares will be deemed a Disqualifying Disposition.

 

   9.                       102 STOCK OPTIONS.

 

Options granted pursuant to Section 102 of the Ordinance  shall be granted pursuant to either (a) Section 102(b)(2) thereof as capital gains track options (“102 Capital Gains Track Options”), or (b) Section 102(b)(1) thereof as ordinary income track options (“102 Ordinary Income Track Options”; together with 102 Capital Gains Track Options, “102 Trustee Options”).  The Company may grant only one type of 102 Trustee Option at any given time to all Grantees who are to be granted 102 Trustee Options pursuant to this Plan, and shall file an election with the ITA regarding the type of 102 Trustee Option it chooses to grant before the date of grant of any 102 Trustee Options (the “Election”). Once the Company has filed such Election, it may change the type of 102 Trustee Option that it chooses to grant only after the passage of at least 12 months from the end of the year in which the first grant was made in accordance with the previous Election. Such Election shall also apply to any bonus shares received by any employee as a result of holding the options. For the avoidance of doubt, such Election shall not prevent the Company from granting Options, pursuant to Section 102(c) of the Ordinance without a Trustee (“102 Non-Trustee Options”).

 

Each 102 Trustee Option will be deemed granted on the date stated in a written notice to be provided by the Company, provided that on or before such date (i) the Company has provided such notice to the Trustee and (ii) the Grantee has signed all documents required pursuant to this Section 5.

 

Each 102 Trustee Option granted to an Grantee and each certificate for Shares acquired pursuant to the exercise of any 102 Trustee Option thereof, and any rights granted thereunder, including, without limitation, bonus shares, shall be allocated or issued to and registered in the name of a Trustee and shall be held in trust for the benefit of the Grantee for a period set by the Board of Directors but which shall not be

 

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be less than the requisite period prescribed by the Ordinance and the Rules, i.e., as of the date of the adoption of the Plan, a period of twenty four (24) months for Options granted under the capital gains route and a period of twelve (12) months for Options granted under the ordinary income route, commencing at the date on which the 102 Trustee Options were issued and entrusted with the Trustee, or such other period as may be required by the ITA, during which Options granted or Shares issued by the Company must be held by the Trustee for the benefit of the person to whom they were granted or issued (the “Required Holding Period”). In the case the requirements for a 102 Trustee Option are not met, then the 102 Trustee Option may be treated as a 102 Non-Trustee Option, all in accordance with the provisions of Section 102 and the Rules.  After termination of the Required Holding Period, the Trustee may release such 102 Trustee Option and any such Shares, provided that (i) the Trustee has received an acknowledgment from the ITA that the Grantee has paid any applicable tax due pursuant to the Ordinance or (ii) the Trustee and/or the Company and/or its Affiliate withholds any applicable tax due pursuant to the Ordinance arising from 102 Trustee Options which were granted to him and/or any Shares allocated or issued upon exercise of such Options. The Trustee shall not release any 102 Trustee Options or shares allocated or issued upon exercise of such Option prior to the payment in full of the Grantee’s tax liabilities arising from 102 Trustee Options which were granted to him and/or any Shares allocated or issued upon exercise of such Options.

 

Each 102 Trustee Option (whether a 102 Capital Gains Track Option or a 102 Regular Income Track Option, as applicable) shall be subject to the relevant terms of Section 102 and the Ordinance, which shall be deemed an integral part of the 102 Trustee Option and which shall prevail over any term contained in the Plan or Option Agreement not consistent therewith. Any provision of the Ordinance and any approvals by the Income Tax Commissioner not expressly specified in this Plan or Option Agreement which are necessary to receive or maintain any tax benefit pursuant to Section 102 shall be binding on the Grantee. The Grantee granted a 102 Trustee Option shall comply with the Ordinance and the terms and conditions of the Trust Agreement entered into between the Company and the Trustee. For avoidance of doubt, it is reiterated that compliance with the Ordinance specifically includes compliance with the Rules. Further, the Grantee agrees to execute any and all documents, which the Company and/or its Affiliates and/or the Trustee may reasonably determine to be necessary in order to comply with the Ordinance and, particularly, the Rules.

 

With respect to 102 Trustee Options during the Required Holding Period, the Grantee shall not release from trust or sell, assign, transfer or give as collateral, the Shares received upon the exercise of a 102 Trustee Option and/or any shares received subsequently following any realization of rights derived from Shares (including stock dividends) until the lapse of the Required Holding Period. Notwithstanding the above, if any such sale or release occurs during the Required Holding Period it will result in adverse tax ramifications to the Grantee under Section 102 of the Ordinance and the Rules and/or any other regulations or orders or procedures promulgated thereunder, which shall apply to and shall be borne solely by such Grantee. Subject to the foregoing, the Trustee may, pursuant to a written request from the Grantee, release and transfer such Shares to a designated third party, provided that both of the following conditions have been fulfilled prior to such transfer: (i) payment has been rendered to the tax authorities of all taxes required to be paid upon the release and transfer of the shares, and confirmation of such payment has been received by the Trustee and (ii) the Trustee has received written confirmation from the Company that all requirement for such release and transfer have been fulfilled according to the terms of the Company’s

 

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terms of the Company’s corporate documents, the Plan, the Option Agreement and any applicable law.

 

In the event a stock dividend is declared on Shares which derive from Options granted as 102 Trustee Options, such dividend shall also be subject to the provisions of this Section and the Required Holding Period for such dividend shares shall be measured from the commencement of the Required Holding Period for the Shares with respect to which the dividend was declared.

 

If a 102 Trustee Option is exercised during the Required Holding Period, the Shares issued upon such exercise shall be issued in the name of the Trustee for the benefit of the Grantee. If such an Option is exercised after the Required Holding Period ends, the Shares issued upon such exercise shall, at the election of the Grantee, either (i) be issued in the name of the Trustee, or (ii) be transferred to the Grantee directly, provided that the Grantee first complies with all applicable provisions of the Plan.

 

The foregoing provisions of this Section relating to 102 Trustee Options shall not apply with respect to 102 Non-Trustee Options, which shall, however, be subject to the relevant provisions of Section 102 and the Rules.

 

Upon receipt of a 102 Trustee Option, the Grantee will sign an undertaking to release the Trustee from any liability in respect of any action or decision duly taken and executed in good faith in relation with the Plan, or any 102 Trustee Option or Share granted to him thereunder.

 

   10.                     3(9) STOCK OPTIONS.

 

Options granted pursuant to this Section 10 are intended to constitute 3(9) Stock Options and shall be subject to the general terms and conditions specified in Section 6 hereof and other provisions of the Plan, except for said provisions of the Plan applying to Options under a different tax law or regulation.

 

To the extent required by the Ordinance or the Income Tax Commissioner of the State of Israel or otherwise deemed prudent or advisable by the Committee, the 3(9) Stock Options which shall be granted pursuant to the Plan shall be issued to a Trustee nominated by the Committee in accordance with the provisions of the Ordinance. In such event, the Trustee shall hold such Options in trust, until exercised by the Grantee, pursuant to the Company’s instructions from time to time as set forth in a trust agreement, which will be entered into between the Company and the Trustee. If determined by the Board of Directors or the Committee, and subject to the trust agreement the Trustee shall be responsible for withholding any taxes to which an Grantee may become liable upon the exercise of Options.

 

   11.                     RESTRICTED STOCK.

 

The Committee may award shares of Restricted Stock to any eligible employee, director, Office Holder, consultant or supplier, including under Section 102 of the Ordinance. Each Award of Restricted Stock under the Plan shall be evidenced by a written agreement between the Company and the Grantee (the “Restricted Stock Agreement”), in such form as the Committee shall from time to time approve, which Restricted Stock Agreement shall comply with and be subject to the following terms and conditions, unless otherwise specifically provided in such Agreement:

 

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   11.1.                                 NUMBER OF SHARES. Each Restricted Stock Agreement shall state the number of shares of Restricted Stock to be subject to an Award.

 

   11.2.                                 VESTING. Each Restricted Stock Agreement shall provide the vesting schedule for the Restricted Stock as determined by the Committee, provided that (to the extent permitted under applicable law) the Committee shall have the authority to determine the vesting schedule and accelerate the vesting of any outstanding share Restricted Stock at such time and under such circumstances as it, in its sole discretion, deems appropriate. Unless otherwise resolved by the Committee and stated in the Restricted Stock Agreement, Restricted Stock shall vest in the same vesting schedule as set forth in Section 6.5 hereof.

 

   11.3.                                 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution, for such period as the Committee shall determine from the date on which the Award is granted (the “Restricted Period”). The Committee may also impose such additional or alternative restrictions and conditions on the shares of Restricted Stock as it deems appropriate including the satisfaction of performance criteria. Such performance criteria may include, but are not limited to, sales, earnings before interest and taxes, return on investment, earnings per share, any combination of the foregoing or rate of growth of any of the foregoing, as determined by the Committee. Certificates for shares issued pursuant to Restricted Stock Awards shall bear an appropriate legend referring to such restrictions, and any attempt to dispose of any such shares in contravention of such restrictions shall be null and void and without effect. During the Restricted Period, such certificates shall be held in escrow by an escrow agent appointed by the Committee, or, if a Restricted Stock Award is made pursuant to Section 102, by the Trustee. In determining the Restricted Period of an Award the Committee may provide that the foregoing restrictions shall lapse with respect to specified percentages of the awarded shares on successive anniversaries of the date of such Award. To the extent required by the Ordinance or the Income Tax Commissioner of the State of Israel, the Restricted Stock issued pursuant to Section 102 of the Ordinance shall be issued to the Trustee in accordance with the provisions of the Ordinance and the Restricted Stock shall be held for the benefit of the Grantee for such period as may be required by the Ordinance.

 

   11.4.                                 ADJUSTMENT OF PERFORMANCE GOALS. The Committee may adjust performance goals to take into account changes in law and accounting and tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the inclusion or the exclusion of the impact of extraordinary or unusual items, events or circumstances. The Committee also may adjust the performance goals by reducing the amount to be received by any Grantee pursuant to an Award if and to the extent that the Committee deems it appropriate.

 

   11.5.                                 FORFEITURE. Subject to such exceptions as may be determined by the Committee, if the Grantee’s continuous employment or director or Office Holder or consultant relationship with the Company or any Subsidiary or Affiliate shall terminate for any reason prior to the expiration of the Restricted Period of an Award, any shares remaining subject to restrictions (after taking into account the provisions of Section 11.7) shall thereupon be forfeited by the Grantee and transferred to, and reacquired by, or cancelled by, as the case may be, the Company or a Subsidiary at no cost to the Company or Subsidiary, subject to all applicable law. Upon forfeiture of Restricted Stock, the Grantee shall have no further rights with respect to such Grant.

 

   11.6.                                 OWNERSHIP. During the Restricted Period the Grantee shall possess all incidents of ownership of such shares of Stock, subject to Section 6.9 and Section 11.3, including the right to receive dividends with respect to such shares of Stock and to vote such

 

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shares of Stock.  All distributions, if any, received by a Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of shares, or other similar transaction shall be subject to the restrictions applicable to the original Award.

 

   11.7.                                 ACCELERATED LAPSE OF RESTRICTIONS. Upon the occurrence of any of the events listed in Section 13.2 and subject to Section 13.3, all restrictions then outstanding with respect to shares of Restricted Stock awarded hereunder shall automatically expire and be of no further force and effect. The Committee shall have the authority (and the Agreement may so provide) to cancel all or any portion of any outstanding restrictions prior to the expiration of the Restricted Period with respect to any or all of the shares of Restricted Stock awarded with respect to any or all Grantee on such terms and conditions as the Committee shall deem appropriate.

 

   12.                     OTHER SHARE OR SHARE-BASED AWARDS.

 

The Committee may grant other Awards under the Plan pursuant to which shares of Stock (which may, but need not, be shares of Restricted Stock pursuant to Section 11 hereof), cash or a combination thereof, are or may in the future be acquired or received, or Awards denominated in stock units, including units valued on the basis of measures other than market value. The Committee may also grant stock appreciation rights without the grant of an accompanying option, which rights shall permit the Grantees to receive, at the time of any exercise of such rights, cash equal to the amount by which the Fair Market Value of all shares of Stock in respect to which the right was granted exceeds the exercise price thereof. The Committee may and it is hereby deemed to be an Award under the terms of the Plan granted to Grantees (including employees) the opportunity to purchase shares of Stock of the Company in connection with any public offerings of the Company’s securities. Such other Stock based Awards may be granted alone, in addition to, or in tandem with any Award of any type granted under the plan and must be consistent with the purposes of the Plan.

 

   13.                     EFFECT OF CERTAIN CHANGES.

 

   13.1.                                 GENERAL. In the event of a subdivision of the outstanding share capital of the Company, any payment of a stock dividend (distribution of bonus shares), a recapitalization, a reorganization (which may include a combination or exchange of shares), a consolidation, a stock split, a reverse stock split, a spin-off or other corporate divestiture or division, a reclassification or other similar occurrence, the Committee shall, take the required measures in order to make the appropriate adjustments in one or more of (i) the number of shares of Stock available for Awards, (ii) the number of such shares of Stock covered by outstanding Awards, and (iii) the exercise price per share covered by the Option Awards; provided, however, that any fractional shares resulting from such adjustment shall be rounded down to the nearest whole share and that the Company shall have no obligation to make any cash or other payment with respect to such fractional shares.

 

   13.2.                                 MERGER AND SALE OF COMPANY.

 

13.2.1.                                              In the event of (i) a sale of all or substantially all of the assets of the Company; or (ii) a sale (including an exchange) of all or substantially all of the shares of capital stock of the Company; (iii) a merger, consolidation, amalgamation or like transaction of the Company with or into another corporation, which effects a Change of Control; or (iv) a scheme of arrangement for the purpose of effecting such sale, merger or amalgamation which effects a Change of Control (all such transactions being herein referred to as a “Merger/Sale”), then, without the Grantee’s consent and action, the Committee in its sole

 

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discretion may cause that any Award then outstanding be assumed or an equivalent Award shall be substituted by such successor corporation (“Successor Corporation”) or, in such event that such Merger/Sale transaction is effected through a subsidiary, the parent of such successor corporation, under substantially the same terms as the Award; Change of Control shall mean that immediately subsequent to the event, the shareholders of the Company immediately prior thereto do not own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving successor entity in such merger, consolidation, amalgamation, scheme of arrangement or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving successor in such merger, consolidation, amalgamation, scheme of arrangement or similar transaction.

 

13.2.2.                                              For the purposes of this Section 13.2, the Option shall be considered assumed if, following a Merger/Sale transaction, the option confers on the holder thereof the right to purchase or receive, for each Share underlying an Option immediately prior to the Merger/Sale transaction, the consideration (whether stock, cash, or other securities or property) distributed to or received by holders of Ordinary Shares of the Company in the Merger/Sale transaction for each Share held on the effective date of the Merger/Sale transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if the consideration received in the Merger/Sale transaction does not consist solely of ordinary shares (or their equivalent) of the Successor Corporation, the Board of Directors or the Committee may, with the consent of the Successor Corporation, provide for the per share consideration to be received upon the exercise of the Option to be solely ordinary shares (or their equivalent) of the Successor Corporation equal in Fair Market Value to the per share consideration received by holders of a majority of the outstanding Ordinary Shares in the Merger/Sale transaction, as determined by the Board of Directors or the Committee; and provided further that the Board of Directors or the Committee may determine, in its sole discretion, that in lieu of such assumption or substitution of Options for options of the successor company or its parent or any subsidiary thereof, such Options will be substituted for any other type of asset or property.

 

13.2.3.                                              In such case that such successor corporation or other entity does not agree to assume the Award or to substitute an equivalent Award and, if the Award is an Option (“Option Award”), then the Committee shall, in lieu of such assumption or substitution of the Option Award and in its sole discretion, either (i) provide for the Grantee to have the right to exercise the Option Award as to all of the then vested shares of Stock or any part thereof, including shares of Stock covered by the Option Award which would not otherwise be exercisable, under such terms and conditions as the Committee shall determine; or (ii) provide for the cancellation of each outstanding Option Award at the closing of such Merger/Sale, against payment to the Grantee of an amount in cash equal to (a) the fair market value of each share of Stock covered by the Option Award as reflected under the terms of the Merger/Sale, minus (b) the Exercise Price of each share of Stock covered by the Option Award. Any unvested and outstanding Option Award remaining subsequent to the above shall immediately expire, cease to exist and be of no legal effect.

 

13.2.4.                                              In the event that the Board of Directors determines in good faith that, in the context of a Merger/Sale transaction, certain Options have no monetary value and thus do not entitle the holders of such Options to any consideration under the terms of the Merger/Sale transaction, the Board of Directors may determine that such Options shall terminate effective as of the effective date of the Merger/Sale transaction.

 

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13.2.5.                                                                                      Notwithstanding the foregoing, in the event of a Merger/Sale, the Committee may determine in its sole discretion that upon completion of such Merger/Sale, the terms of any Award be otherwise amended and modified, as the Committee shall deem in good faith to be appropriate, and if an Option Award, that the Option Award shall confer the right to purchase any other security or asset, or any combination thereof, or that its terms be otherwise amended or modified, as the Committee shall deem in good faith to be appropriate.

 

   13.3.                                                            RESERVATION OF RIGHTS. Except as expressly provided in this Section 13, the Grantee of an Award hereunder shall have no rights by reason of any subdivision or consolidation of stock of any class or the payment of any stock dividend (bonus shares) or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, Merger/Sale, or consolidation, divestiture or spin-off of assets or stock of another company; and any issue by the Company of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Stock subject to an Award. The grant of an Award pursuant to the Plan shall not affect in any way the right of power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets or engage in any similar transactions.

 

14.                                                       NON-TRANSFERABILITY OF AWARDS; SURVIVING BENEFICIARY.

 

All Awards granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, and Awards may be exercised or otherwise realized, during the lifetime of the Grantee, only by the Grantee or by his guardian or legal representative, to the extent provided for herein. A Grantee may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Grantee, the executor or administrator of the Grantee’s estate shall be deemed to be the Grantee’s beneficiary. Notwithstanding the forgoing, upon the request of the Grantee, the Committee, at its sole discretion, may permit to transfer the Award to a trust family.

 

As long as the Shares are held by the Trustee in favor of the Grantee, all rights possessed by the Grantee over the Shares are personal, may not be transferred, assigned, pledged or mortgaged, other than by will or laws of descent and distribution.

 

15.                                                       AGREEMENT BY GRANTEE REGARDING TAXES.

 

    15.1.                                                             If the Committee shall so require, as a condition of exercise of an Option, the release of shares of Stock by the Trustee or the expiration of the Restricted Period (each a “Tax Event”), each Grantee shall agree that, no later than the date of the Tax Event, he will pay to the Company or make arrangements satisfactory to the Committee and the Trustee (if applicable) regarding payment of any applicable taxes of any kind required by law to be withheld or paid upon the Tax Event.

 

    15.2.                                                             ALL TAX CONSEQUENCES UNDER ANY APPLICABLE LAW WHICH MAY ARISE FROM THE GRANT OF ANY OPTIONS, SHARES OF STOCK, OR RESTRICTED STOCK, OR IN THE CASE OF AN OPTION, FROM ITS EXERCISE, FROM THE SALE OR DISPOSITION OF THE SHARES OF STOCK OR RESTRICTED STOCK OR FROM ANY OTHER ACT OF THE GRANTEE IN CONNECTION WITH THE FOREGOING SHALL BE BORNE SOLELY BY THE GRANTEE, AND THE GRANTEE

 

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GRANTEE SHALL INDEMNIFY THE COMPANY, ITS SUBSIDIARIES AND AFFILIATES AND THE TRUSTEE, AND SHALL HOLD THEM HARMLESS AGAINST AND FROM ANY LIABILITY FOR ANY SUCH TAX OR PENALTY, INTEREST OR INDEXATION THEREON OR THEREUPON.

 

    15.3.                                                             The Company or any Subsidiary may take such steps as it may deem necessary or appropriate for the withholding of any taxes or funds which the Company or any Subsidiary is required by any law or regulation of any governmental authority, whether federal, provincial, state or local, domestic or foreign, to withhold in connection with any Awards (collectively, “Withholding Obligations”). Such steps may include, by way of example only and not limitation, (i) requiring a Grantees to remit to the Company in cash an amount sufficient to satisfy such Withholding Obligations; (ii) allowing the Grantees to tender Stock to the Company, in the Fair Market Value of which at the tender date, the Committee determines to be sufficient to satisfy such Withholding Obligations where applicable legislation permits; (iii) withholding Stock otherwise issuable upon the exercise of an Award and which have a Fair Market Value at the exercise date sufficient to satisfy such Withholding Obligations; or (iv) any combination of the foregoing. The Company shall not be obligated to honor the exercise of any Options by or on behalf of a Grantee until all tax consequences arising from the exercise of such Options are resolved in a manner acceptable to the Company.

 

    15.4.                                                             Each Grantee shall notify the Company in writing within ten (10) days after the date such Grantee first obtains knowledge of any tax bureau inquiry, audit, assertion, determination, investigation, or question relating in any manner to the value of shares of Stock or Awards granted or received hereunder, and each Grantee agrees to any settlement, closing or other similar agreement in connection with the foregoing. Upon request, a Grantee shall provide to the Company any information or document relating to any event described in the preceding sentence which the Company (in its sole discretion) requires in order to calculate and substantiate any change in the Company’s tax liability as a result of such event.

 

    15.5.                                                             THE GRANTEE IS ADVISED TO CONSULT WITH A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF RECEIVING OR EXERCISING THE OPTIONS.

 

    15.6.                                                             With respect to 102 Non-Trustee Options, if the Grantee ceases to be employed by the Company or any Affiliate, the Grantee shall extend to the Company and/or its Affiliate with whom the Grantee is employed a security or guarantee for the payment of tax due at the time of sale of Shares, all in accordance with the provisions of Section 102 of the Ordinance and the Rules.

 

   16.                                                            RIGHTS AS A STOCKHOLDER; VOTING AND DIVIDENDS.

 

With respect to all Shares (in contrast to unexercised Options) allocated or issued upon the exercise of Options purchased by the Grantee and held by the Trustee, if applicable, the Grantee shall be entitled to receive dividends in accordance with the quantity of such Shares, subject to the provisions of the Company’s Articles of Association, as amended from time to time, and subject to any applicable taxation on distribution of dividends, and when applicable subject to the provisions of Section 102, as aforementioned in section 9, and the rules, regulations or orders promulgated thereunder.

 

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   17.                                                          NO RIGHTS TO EMPLOYMENT.

 

Nothing in the Plan or in any Award granted or agreement entered into pursuant hereto shall confer upon any Grantee the right to continue in the employ of, or in a consultant, director, Office Holder or supplier relationship with, the Company or any Subsidiary or Affiliate or to be entitled to any remuneration or benefits not set forth in the Plan or such agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate such Grantee’s employment or service.  Awards granted under the Plan shall not be affected by any change in duties or position of a Grantee as long as such Grantee continues to be employed by, or in a consultant, Office Holder or director relationship with, the Company or any Subsidiary or Affiliate.

 

   18.                                                          APPROVAL.

 

The Plan shall take effect upon its adoption by the Board (the “Effective Date”), subject to approval of the Plan within one year of the Effective Date, by a majority of the votes cast on the proposal at a meeting or a written consent of shareholders. Upon approval of the Plan by the shareholders of the Company as set forth above, all Awards made under the Plan on or after the Effective Date shall be fully effective as if the shareholders of the Company had approved the Plan on the Effective Date. The Plan shall terminate on the tenth anniversary of such date. Notwithstanding the foregoing, in the event that approval of the Plan by the stockholders of the Company is required under applicable law, in connection with the application of certain tax treatment or pursuant to applicable stock exchange rules or regulations or otherwise, such approval shall be obtained within the time required under the applicable law.

 

   19.                                                          PERIOD DURING WHICH AWARDS MAY BE GRANTED.

 

Awards may be granted pursuant to the Plan from time to time within a period of ten (10) years from the Effective Date. Awards outstanding subsequent to the foregoing ten (10) years shall continue to be governed by the provisions of the Plan.

 

   20.                                                          TERM OF OPTION

 

Anything herein to the contrary notwithstanding, and in addition to the termination of Options under the provisions of Section 6.6 hereof, if any Option, or any part thereof, has not been exercised and the Shares covered thereby not paid for within ten (10) years after the date on which the Option was granted, as set forth in the Notice of Grant in the Grantee’s Option Agreement, such Option, or such part thereof, and the right to acquire such Shares shall terminate, all interests and rights of the Grantee in and to the same shall expire. In the case of Shares held in trust, the Grantee shall elect whether to release such Shares from trust or sell the Shares, thereby realizing a tax event, and upon such release or sale such trust shall expire.

 

   21.                                                          AMENDMENT AND TERMINATION OF THE PLAN.

 

The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that, unless otherwise determined by the Board, an amendment which requires shareholder approval in order for the Plan to continue to comply with any law, regulation or stock exchange requirement shall not be effective unless approved by the requisite vote of stockholders. Except as provided herein, no suspension, termination, modification or amendment of the Plan may adversely affect

 

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adversely affect any Award previously granted, unless the written consent of the Grantee is obtained.

 

   22.                                                          NON-EXCLUSIVITY OF THE PLAN.

 

Neither the adoption of the Plan by the Board nor the submission of the Plan to stockholders of the Company for approval shall be construed as creating any limitations on the power or authority of the Board to adopt such other or additional incentive or other compensation arrangements of whatever nature as the Board may deem necessary or desirable or preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Subsidiary now has lawfully put into effect, including, without limitation, any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits and executive short-term or long-term incentive plans.

 

   23.                                                          MISCELLANEOUS.

 

Each Award awarded under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion. If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires. The use of captions in this Plan or any Option Agreement or Restricted Stock Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such agreement.

 

   24.                                                          GOVERNING LAW.

 

The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the jurisdiction, in which the Grantee is employed or provides Services (excluding the choice of law rules thereof). Certain definitions, which refer to laws other than the laws of such jurisdiction, shall be construed in accordance with such other laws.

 

   25.                                                          MARKET STAND-OFF

 

In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the United States Securities Act of 1933, as amended or equivalent law in another jurisdiction, including the Company’s initial public offering, the Grantee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Plan without the prior written consent of the Company or its underwriters. Such restriction (the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriters, however in any event, such period shall not exceed 180 days. In the event of a

 

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event of a subdivision of the outstanding share capital of the Company, the declaration and payment of a stock dividend (distribution of bonus shares), the declaration and payment of an extraordinary dividend payable in a form other than stock, a recapitalization, a reorganization (which may include a combination or exchange of shares or a similar transaction affecting the Company’s outstanding securities without receipt of consideration), a consolidation, a stock split, a spin-off or other corporate divestiture or division, a reclassification or other similar occurrence, an adjustment in conversion ratio, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Plan until the end of the applicable stand-off period.

 

   26.                                                          CONDITIONS UPON ISSUANCE OF SHARES

 

 26.1.                                                Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option, unless the exercise of such Option and the issuance and delivery of such Shares shall comply with applicable laws as determined by counsel for the Company. 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.

 

 26.2.                                                Investment Representations. As a condition to the exercise of an Option, the Board of Directors may require the person exercising such Option 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, and make other representations as may be required under applicable securities laws if, in the opinion of counsel for the Company, such representations are required, all in form and content specified by the Board of Directors.

 

   27.                                               RULES PARTICULAR TO SPECIFIC COUNTRIES

 

Notwithstanding anything herein to the contrary, the terms and conditions of the Plan may be amended with respect to a particular country by means of an appendix to the Plan, and to the extent that the terms and conditions set forth in any appendix conflict with any provisions of the Plan, the provisions of the appendix shall govern. Terms and conditions set forth in the Appendix shall apply only to Options or Restricted Shares issued to an Grantee or recipient of Restricted Shares under the jurisdiction of the specific country that is the subject of the appendix and shall not apply to Options issued to an Grantee or recipient of Restricted Shares not under the jurisdiction of such country. The adoption of any such appendix shall be subject to the approval of the Board of Directors or Committee.

 

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