Document:

Exhibit 10.5

 

FORM OF

GCI LIBERTY, INC.
 2018 OMNIBUS INCENTIVE PLAN

 

ARTICLE I

 

PURPOSE OF PLAN; EFFECTIVE DATE

 

1.1                               Purpose.  The purpose of the Plan is to promote the success of the Company by providing a method whereby (i)  eligible officers and employees of the Company and its Subsidiaries, (ii) directors and independent contractors, and (iii) employees of Liberty Media Corporation or Liberty Interactive Corporation, in each case, providing services to the Company and its Subsidiaries, may be awarded additional remuneration for services rendered and may be encouraged to invest in capital stock of the Company, thereby increasing their proprietary interest in the Company’s businesses, encouraging them to remain in the employ or service of the Company or its Subsidiaries, and increasing their personal interest in the continued success and progress of the Company and its Subsidiaries.  The Plan is also intended to aid in (i) attracting Persons of exceptional ability to become officers and employees of the Company and its Subsidiaries and (ii) inducing directors, independent contractors, or employees of Liberty Media Corporation or Liberty Interactive Corporation to agree to provide services to the Company and its Subsidiaries.

 

1.2                               Effective Date.  The Plan shall be effective as of [·], 2018 (the “Effective Date”).

 

ARTICLE II

 

DEFINITIONS

 

2.1                               Certain Defined Terms.  Capitalized terms not defined elsewhere in the Plan shall have the following meanings (whether used in the singular or plural):

 

“Account” has the meaning ascribed thereto in Section 8.2.

 

“Affiliate” of the Company means any corporation, partnership or other business association that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Company.

 

“Agreement” means a stock option agreement, stock appreciation rights agreement, restricted shares agreement, restricted stock units agreement, cash award agreement or an agreement evidencing more than one type of Award, specified in Section 10.5, as any such Agreement may be supplemented or amended from time to time.

 

“Approved Transaction” means any transaction in which the Board (or, if approval of the Board is not required as a matter of law, the stockholders of the Company) shall approve (i) any consolidation or merger of the Company, or binding share exchange, pursuant to which shares of Common Stock of the Company would be changed or converted into or exchanged for cash, securities, or other property, other than

 

 

any such transaction in which the common stockholders of the Company immediately prior to such transaction have the same proportionate ownership of the Common Stock of, and voting power with respect to, the surviving corporation immediately after such transaction, (ii) any merger, consolidation or binding share exchange to which the Company is a party as a result of which the Persons who are common stockholders of the Company immediately prior thereto have less than a majority of the combined voting power of the outstanding capital stock of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors immediately following such merger, consolidation or binding share exchange, (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Company, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company.

 

“Award” means a grant of Options, SARs, Restricted Shares, Restricted Stock Units, Performance Awards, Cash Awards and/or cash amounts under the Plan.

 

“Board” means the Board of Directors of the Company.

 

“Board Change” means, during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board cease for any reason to constitute a majority thereof unless the election, or the nomination for election, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

 

“Cash Award” means an Award made pursuant to Section 9.1 of the Plan to a Holder that is paid solely on account of the attainment of one or more Performance Objectives that have been pre-established by the Committee.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute or statutes thereto.  Reference to any specific Code section shall include any successor section.

 

“Committee” means the committee of the Board appointed pursuant to Section 3.1 to administer the Plan.

 

“Common Stock” means each or any (as the context may require) series of the Company’s common stock.

 

“Company” means GCI Liberty, Inc., an Alaska corporation.

 

“Control Purchase” means any transaction (or series of related transactions) in which any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other than the Company, any Subsidiary of the Company or any employee benefit plan sponsored by the Company or any Subsidiary of the Company or any Exempt Person (as defined below)) shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart

 

2

 

from the rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) under the Exchange Act in the case of rights to acquire the Company’s securities), other than in a transaction (or series of related transactions) approved by the Board.  For purposes of this definition, “Exempt Person” means each of (a) the Chairman of the Board, the President and each of the directors of the Company as of the Effective Date, and (b) the respective family members, estates and heirs of each of the Persons referred to in clause (a) above and any trust or other investment vehicle for the primary benefit of any of such Persons or their respective family members or heirs.  As used with respect to any Person, the term “family member” means the spouse, siblings and lineal descendants of such Person.

 

“Director Award Limitation” has the meaning ascribed thereto in Section 4.1.

 

“Disability” means the inability 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.

 

“Dividend Equivalents” means, with respect to Restricted Stock Units, to the extent specified by the Committee only, an amount equal to all dividends and other distributions (or the economic equivalent thereof) which are payable to stockholders of record during the Restriction Period on a like number and kind of shares of Common Stock.  Notwithstanding any provision of the Plan to the contrary, Dividend Equivalents with respect to a Performance Award may only be paid to the extent the Performance Award is actually paid to the Holder.

 

“Domestic Relations Order” means a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.

 

“Equity Security” shall have the meaning ascribed to such term in Section 3(a)(11) of the Exchange Act, and an equity security of an issuer shall have the meaning ascribed thereto in Rule 16a-1 promulgated under the Exchange Act, or any successor Rule.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute or statutes thereto.  Reference to any specific Exchange Act section shall include any successor section.

 

“Fair Market Value” of a share of any series of Common Stock on any day means (i) for Option and SAR exercise transactions effected on any third-party incentive award administration system provided by the Company, the current high bid price of a share of any series of Common Stock as reported on the consolidated transaction reporting system on the principal national securities exchange on which shares of such series of Common Stock are listed on such day or if such shares are not then listed on a national securities exchange, then as quoted by OTC Markets Group Inc., or (ii) for all other purposes under the Plan, the closing price of a share of such series of Common Stock on such day (or if

 

3

 

such day is not a trading day, (x) on the next succeeding trading day if determining Fair Market Value in connection with the vesting of a restricted stock award or a restricted stock unit, or (y) on the next preceding trading day for all other instances where such day is not a trading day) all as reported on the consolidated transaction reporting system for the principal national securities exchange on which shares of such series of Common Stock are listed on such day or if such shares are not then listed on a national securities exchange, then as quoted by OTC Markets Group Inc.  If for any day the Fair Market Value of a share of the applicable series of Common Stock is not determinable by any of the foregoing means, or if there is insufficient trading volume in the applicable series of Common Stock on such trading day, then the Fair Market Value for such day shall be determined in good faith by the Committee on the basis of such quotations and other considerations as the Committee deems appropriate.

 

“Free Standing SAR” has the meaning ascribed thereto in Section 7.1.

 

“Holder” means a Person who has received an Award under the Plan.

 

“Nonemployee Director” means an individual who is a member of the Board and who is neither an officer nor an employee of the Company or any Subsidiary.

 

“Option” means a stock option granted under Article VI.

 

“Performance Award” means an Award made pursuant to Article IX of the Plan to a Holder that is subject to the attainment of one or more Performance Objectives.

 

“Performance Objective” means a standard established by the Committee to determine in whole or in part whether a Performance Award shall be earned.

 

“Person” means an individual, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind.

 

“Plan” means this GCI Liberty, Inc. 2018 Omnibus Incentive Plan.

 

“Restricted Shares” means shares of any series of Common Stock awarded pursuant to Section 8.1.

 

“Restricted Stock Unit” means a unit evidencing the right to receive in specified circumstances one share of the specified series of Common Stock or, in the discretion of the Company, the equivalent value in cash, which right may be subject to a Restriction Period or forfeiture provisions.

 

“Restriction Period” means a period of time beginning on the date of each Award of Restricted Shares or Restricted Stock Units and ending on the Vesting Date with respect to such Award.

 

“Retained Distribution” has the meaning ascribed thereto in Section 8.3.

 

4

 

“SARs” means stock appreciation rights, awarded pursuant to Article VII, with respect to shares of any specified series of Common Stock.

 

“Section 409A” has the meaning ascribed thereto in Section 10.17.

 

“Subsidiary” of a Person means any present or future subsidiary (as defined in Section 424(f) of the Code) of such Person or any business entity in which such Person owns, directly or indirectly, 50% or more of the voting, capital or profits interests.  An entity shall be deemed a subsidiary of a Person for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.

 

“Tandem SARs” has the meaning ascribed thereto in Section 7.1.

 

“Vesting Date,” with respect to any Restricted Shares or Restricted Stock Units awarded hereunder, means the date on which such Restricted Shares or Restricted Stock Units cease to be subject to a risk of forfeiture, as designated in or determined in accordance with the Agreement with respect to such Award of Restricted Shares or Restricted Stock Units pursuant to Article VIII.  If more than one Vesting Date is designated for an Award of Restricted Shares or Restricted Stock Units, reference in the Plan to a Vesting Date in respect of such Award shall be deemed to refer to each part of such Award and the Vesting Date for such part. The Vesting Date for a particular Award will be established by the Committee and, for the avoidance of doubt, may be contemporaneous with the date of grant.

 

ARTICLE III

 

ADMINISTRATION

 

3.1                               Committee.  The Plan shall be administered by the Compensation Committee of the Board unless a different committee is appointed by the Board.  The Committee shall be comprised of not less than two Persons.  The Board may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed, may fill vacancies in the Committee and may remove members of the Committee.  The Committee shall select one of its members as its chairman and shall hold its meetings at such times and places as it shall deem advisable.  A majority of its members shall constitute a quorum and all determinations shall be made by a majority of such quorum.  Any determination reduced to writing and signed by all of the members shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held.

 

3.2                               Powers.  The Committee shall have full power and authority to grant to eligible Persons Options under Article VI of the Plan, SARs under Article VII of the Plan, Restricted Shares under Article VIII of the Plan, Restricted Stock Units under Article VIII of the Plan, Cash Awards under Article IX of the Plan and/or Performance Awards under Article IX of the Plan, to determine the terms and conditions (which need not be identical) of all Awards so granted, to interpret the provisions of the Plan and any Agreements relating to Awards granted under the Plan and to supervise the administration of the Plan.  The Committee in making an Award may provide for the granting or issuance of additional, replacement or alternative Awards upon the

 

5

 

occurrence of specified events, including the exercise of the original Award.  The Committee shall have sole authority in the selection of Persons to whom Awards may be granted under the Plan and in the determination of the timing, pricing and amount of any such Award, subject only to the express provisions of the Plan.  In making determinations hereunder, the Committee may take into account the nature of the services rendered by the respective employees, officers, independent contractors and Nonemployee Directors, their present and potential contributions to the success of the Company and its Subsidiaries, and such other factors as the Committee in its discretion deems relevant.

 

3.3                               Interpretation.  The Committee is authorized, subject to the provisions of the Plan, to establish, amend and rescind such rules and regulations as it deems necessary or advisable for the proper administration of the Plan and to take such other action in connection with or in relation to the Plan as it deems necessary or advisable.  Each action and determination made or taken pursuant to the Plan by the Committee, including any interpretation or construction of the Plan, shall be final and conclusive for all purposes and upon all Persons.  No member of the Committee shall be liable for any action or determination made or taken by such member or the Committee in good faith with respect to the Plan.

 

3.4                               Awards to Nonemployee Directors.  The Board shall have the same powers as the Committee with respect to awards to Nonemployee Directors and may exercise such powers in lieu of action by the Committee.

 

ARTICLE IV

 

SHARES SUBJECT TO THE PLAN

 

4.1                               Number of Shares.  Subject to the provisions of this Article IV, the maximum number of shares of Common Stock with respect to which Awards may be granted during the term of the Plan shall be 8,000,000 shares.  Shares of Common Stock will be made available from the authorized but unissued shares of the Company or from shares reacquired by the Company, including shares purchased in the open market.  The shares of Common Stock subject to (i) any Award granted under the Plan that shall expire, terminate or be cancelled or annulled for any reason without having been exercised (or considered to have been exercised as provided in Section 7.2), (ii) any Award of any SARs granted under the Plan the terms of which provide for settlement in cash, and (iii) any Award of Restricted Shares or Restricted Stock Units granted under the Plan that shall be forfeited prior to becoming vested (provided that the Holder received no benefits of ownership of such Restricted Shares or Restricted Stock Units other than voting rights and the accumulation of Retained Distributions and unpaid Dividend Equivalents that are likewise forfeited) shall again be available for purposes of the Plan.  Notwithstanding the foregoing, the following shares of Common Stock may not again be made available for issuance as Awards under the Plan: (a) shares of Common Stock not issued or delivered as a result of the net settlement of an outstanding Option or SAR, (b) shares of Common Stock used to pay the purchase price or withholding taxes related to an outstanding Award, or (c) shares of Common Stock repurchased on the open market with the proceeds of an Option purchase price.  Except for Awards described in Section 10.1, no Person may be granted in any calendar year Awards covering more than 1.5 million shares of Common Stock (as such amount may be adjusted from time to time as provided in Section 4.2).  No Person shall receive payment for Cash Awards during any

 

6

 

calendar year aggregating in excess of $10 million.  No Nonemployee Director may be granted during any calendar year Awards having a value determined on the date of grant in excess of $3 million (the “Director Award Limitation”). Awards granted to Nonemployee Directors shall only be subject to the Director Award Limitation.

 

4.2                               Adjustments.

 

(a)                                 If the Company subdivides its outstanding shares of any series of Common Stock into a greater number of shares of such series of Common Stock (by stock dividend, stock split, reclassification, or otherwise) or combines its outstanding shares of any series of Common Stock into a smaller number of shares of such series of Common Stock (by reverse stock split, reclassification, or otherwise) or if the Committee determines that any stock dividend, extraordinary cash dividend, reclassification, recapitalization, reorganization, stock redemption, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase such series of Common Stock or other similar corporate event (including mergers or consolidations other than those which constitute Approved Transactions, adjustments with respect to which shall be governed by Section 10.1(b)) affects any series of Common Stock so that an adjustment is required to preserve the benefits or potential benefits intended to be made available under the Plan, then the Committee, in such manner as the Committee, in its sole discretion, deems equitable and appropriate, shall make such adjustments to any or all of (i) the number and kind of shares of stock which thereafter may be awarded, optioned or otherwise made subject to the benefits contemplated by the Plan, (ii) the number and kind of shares of stock subject to outstanding Awards, and (iii) the purchase or exercise price and the relevant appreciation base with respect to any of the foregoing, provided, however, that the number of shares subject to any Award shall always be a whole number.  The Committee may, if deemed appropriate, provide for a cash payment to any Holder of an Award in connection with any adjustment made pursuant to this Section 4.2.

 

(b)                                 Notwithstanding any provision of the Plan to the contrary, in the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee shall be authorized, in its discretion, (i) to provide, prior to the transaction, for the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, the Award and, if the transaction is a cash merger, provide for the termination of any portion of the Award that remains unexercised at the time of such transaction, or (ii) to cancel any such Awards and to deliver to the Holders cash in an amount that the Committee shall determine in its sole discretion is equal to the fair market value of such Awards on the date of such event, which in the case of Options or SARs shall be the excess of the Fair Market Value (as determined in sub-section (ii) of the definition of such term) of Common Stock on such date over the purchase price of the Options or the base price of the SARs, as applicable. For the avoidance of doubt, if the purchase price of the Options or base price of the SARs, as applicable, is greater than such Fair Market Value, the Options or SARs may be canceled for no consideration pursuant to this section.

 

7

 

(c)                                  No adjustment or substitution pursuant to this Section 4.2 shall be made in a manner that results in noncompliance with the requirements of Section 409A, to the extent applicable.

 

ARTICLE V

 

ELIGIBILITY

 

5.1                               General.  The Persons who shall be eligible to participate in the Plan and to receive Awards under the Plan shall be such Persons who are employees (including officers) of, or Nonemployee Directors, independent contractors or employees of Liberty Media Corporation or Liberty Interactive Corporation providing services to, the Company or its Subsidiaries as the Committee shall select.  Awards may be made to employees, Nonemployee Directors or independent contractors who hold or have held Awards under the Plan or any similar or other awards under any other plan of the Company or any of its Affiliates.

 

ARTICLE VI

 

STOCK OPTIONS

 

6.1                               Grant of Options.  Subject to the limitations of the Plan, the Committee shall designate from time to time those eligible Persons to be granted Options, the time when each Option shall be granted to such eligible Persons, the series and number of shares of Common Stock subject to such Option, and, subject to Section 6.2, the purchase price of the shares of Common Stock subject to such Option.

 

6.2                               Option Price.  The price at which shares may be purchased upon exercise of an Option shall be fixed by the Committee and may be no less than the Fair Market Value of the shares of the applicable series of Common Stock subject to the Option as of the date the Option is granted.

 

6.3                               Term of Options.  Subject to the provisions of the Plan with respect to death, retirement and termination of employment or service, the term of each Option shall be for such period as the Committee shall determine as set forth in the applicable Agreement; provided that such term may not exceed ten years. However, if the term of an Option expires when trading in the Common Stock is prohibited by law or the Company’s insider trading policy, then the term of such Option shall expire on the 30th day after the expiration of such prohibition.

 

6.4                               Exercise of Options.  An Option granted under the Plan shall become (and remain) exercisable during the term of the Option to the extent provided in the applicable Agreement and the Plan and, unless the Agreement otherwise provides, may be exercised to the extent exercisable, in whole or in part, at any time and from time to time during such term; provided, however, that subsequent to the grant of an Option, the Committee, at any time before complete termination of such Option, may accelerate the time or times at which such Option may be exercised in whole or in part (without reducing the term of such Option).

 

8

 

6.5                               Manner of Exercise.

 

(a)                                 Form of Payment.  An Option shall be exercised by written notice to the Company upon such terms and conditions as the Agreement may provide and in accordance with such other procedures for the exercise of Options as the Committee may establish from time to time.  The method or methods of payment of the purchase price for the shares to be purchased upon exercise of an Option and of any amounts required by Section 10.9 shall be determined by the Committee and may consist of (i) cash, (ii) check, (iii) promissory note (subject to applicable law), (iv) whole shares of any series of Common Stock, (v) the withholding of shares of the applicable series of Common Stock issuable upon such exercise of the Option, (vi) the delivery, together with a properly executed exercise notice, of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the purchase price, or (vii) any combination of the foregoing methods of payment, or such other consideration and method of payment as may be permitted for the issuance of shares under the Delaware General Corporation Law.  The permitted method or methods of payment of the amounts payable upon exercise of an Option, if other than in cash, shall be set forth in the applicable Agreement and may be subject to such conditions as the Committee deems appropriate.

 

(b)                                 Value of Shares.  Unless otherwise determined by the Committee and provided in the applicable Agreement, shares of any series of Common Stock delivered in payment of all or any part of the amounts payable in connection with the exercise of an Option, and shares of any series of Common Stock withheld for such payment, shall be valued for such purpose at their Fair Market Value as of the exercise date.

 

(c)                                  Issuance of Shares.  The Company shall effect the transfer of the shares of Common Stock purchased under the Option as soon as practicable after the exercise thereof and payment in full of the purchase price therefor and of any amounts required by Section 10.9, and within a reasonable time thereafter, such transfer shall be evidenced on the books of the Company.  Unless otherwise determined by the Committee and provided in the applicable Agreement, (i) no Holder or other Person exercising an Option shall have any of the rights of a stockholder of the Company with respect to shares of Common Stock subject to an Option granted under the Plan until due exercise and full payment has been made, and (ii) no adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such due exercise and full payment.

 

ARTICLE VII

 

SARS

 

7.1                               Grant of SARs.  Subject to the limitations of the Plan, SARs may be granted by the Committee to such eligible Persons in such numbers, with respect to any specified series of Common Stock, and at such times during the term of the Plan as the Committee shall determine.  A SAR may be granted to a Holder of an Option (hereinafter called a “related Option”) with respect to all or a portion of the shares of Common Stock subject to the related Option (a “Tandem SAR”) or may be granted separately to an eligible Person (a “Free Standing SAR”).  Subject to the limitations of the Plan, SARs shall be exercisable in whole or in part upon notice to the Company upon such terms and conditions as are provided in the Agreement.

 

9

 

7.2                               Tandem SARs.  A Tandem SAR may be granted either concurrently with the grant of the related Option or at any time thereafter prior to the complete exercise, termination, expiration or cancellation of such related Option.  Tandem SARs shall be exercisable only at the time and to the extent that the related Option is exercisable (and may be subject to such additional limitations on exercisability as the Agreement may provide) and in no event after the complete termination or full exercise of the related Option.  Upon the exercise or termination of the related Option, the Tandem SARs with respect thereto shall be canceled automatically to the extent of the number of shares of Common Stock with respect to which the related Option was so exercised or terminated. Subject to the limitations of the Plan, upon the exercise of a Tandem SAR and unless otherwise determined by the Committee and provided in the applicable Agreement, (i) the Holder thereof shall be entitled to receive from the Company, for each share of the applicable series of Common Stock with respect to which the Tandem SAR is being exercised, consideration (in the form determined as provided in Section 7.4) equal in value to the excess of the Fair Market Value of a share of the applicable series of Common Stock with respect to which the Tandem SAR was granted on the date of exercise over the related Option purchase price per share, and (ii) the related Option with respect thereto shall be canceled automatically to the extent of the number of shares of Common Stock with respect to which the Tandem SAR was so exercised.

 

7.3                               Free Standing SARs.  Free Standing SARs shall be exercisable at the time, to the extent and upon the terms and conditions set forth in the applicable Agreement.  The base price of a Free Standing SAR may be no less than the Fair Market Value of the applicable series of Common Stock with respect to which the Free Standing SAR was granted as of the date the Free Standing SAR is granted.  Subject to the limitations of the Plan, upon the exercise of a Free Standing SAR and unless otherwise determined by the Committee and provided in the applicable Agreement, the Holder thereof shall be entitled to receive from the Company, for each share of the applicable series of Common Stock with respect to which the Free Standing SAR is being exercised, consideration (in the form determined as provided in Section 7.4) equal in value to the excess of the Fair Market Value of a share of the applicable series of Common Stock with respect to which the Free Standing SAR was granted on the date of exercise over the base price per share of such Free Standing SAR.  The term of a Free Standing SAR may not exceed ten years. However, if the term of a Free Standing SAR expires when trading in the Common Stock is prohibited by law or the Company’s insider trading policy, then the term of such Free Standing SAR shall expire on the 30th day after the expiration of such prohibition.

 

7.4                               Consideration.  The consideration to be received upon the exercise of a SAR by the Holder shall be paid in cash, shares of the applicable series of Common Stock with respect to which the SAR was granted (valued at Fair Market Value on the date of exercise of such SAR), a combination of cash and such shares of the applicable series of Common Stock or such other consideration, in each case, as provided in the Agreement.  No fractional shares of Common Stock shall be issuable upon exercise of a SAR, and unless otherwise provided in the applicable Agreement, the Holder will receive cash in lieu of fractional shares.  Unless the Committee shall otherwise determine, to the extent a Free Standing SAR is exercisable, it will be exercised automatically for cash on its expiration date.

 

7.5                               Limitations.  The applicable Agreement may provide for a limit on the amount payable to a Holder upon exercise of SARs at any time or in the aggregate, for a limit on the

 

10

 

number of SARs that may be exercised by the Holder in whole or in part for cash during any specified period, for a limit on the time periods during which a Holder may exercise SARs, and for such other limits on the rights of the Holder and such other terms and conditions of the SAR, including a condition that the SAR may be exercised only in accordance with rules and regulations adopted from time to time, as the Committee may determine.  Unless otherwise so provided in the applicable Agreement, any such limit relating to a Tandem SAR shall not restrict the exercisability of the related Option.  Such rules and regulations may govern the right to exercise SARs granted prior to the adoption or amendment of such rules and regulations as well as SARs granted thereafter.

 

7.6                               Exercise.  For purposes of this Article VII, the date of exercise of a SAR shall mean the date on which the Company shall have received notice from the Holder of the SAR of the exercise of such SAR (unless otherwise determined by the Committee and provided in the applicable Agreement).

 

ARTICLE VIII

 

RESTRICTED SHARES AND RESTRICTED STOCK UNITS

 

8.1                               Grant of Restricted Shares.  Subject to the limitations of the Plan, the Committee shall designate those eligible Persons to be granted Awards of Restricted Shares, shall determine the time when each such Award shall be granted, and shall designate (or set forth the basis for determining) the Vesting Date or Vesting Dates for each Award of Restricted Shares, and may prescribe other restrictions, terms and conditions applicable to the vesting of such Restricted Shares in addition to those provided in the Plan.  The Committee shall determine the price, if any, to be paid by the Holder for the Restricted Shares; provided, however, that the issuance of Restricted Shares shall be made for at least the minimum consideration necessary to permit such Restricted Shares to be deemed fully paid and nonassessable.  All determinations made by the Committee pursuant to this Section 8.1 shall be specified in the Agreement.

 

8.2                               Issuance of Restricted Shares.  An Award of Restricted Shares shall be registered in a book entry account (the “Account”) in the name of the Holder to whom such Restricted Shares shall have been awarded.  During the Restriction Period, the Account, any statement of ownership representing the Restricted Shares that may be issued during the Restriction Period and any securities constituting Retained Distributions shall bear a restrictive legend to the effect that ownership of the Restricted Shares (and such Retained Distributions), and the enjoyment of all rights appurtenant thereto, are subject to the restrictions, terms and conditions provided in the Plan and the applicable Agreement.

 

8.3                               Restrictions with Respect to Restricted Shares.  During the Restriction Period, Restricted Shares shall constitute issued and outstanding shares of the applicable series of Common Stock for all corporate purposes.  The Holder will have the right to vote such Restricted Shares, to receive and retain such dividends and distributions, as the Committee may designate, paid or distributed on such Restricted Shares, and to exercise all other rights, powers and privileges of a Holder of shares of the applicable series of Common Stock with respect to such Restricted Shares; except, that, unless otherwise determined by the Committee and provided in the applicable Agreement, (i) the Holder will not be entitled to delivery of the Restricted

 

11

 

Shares until the Restriction Period shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled or waived; (ii) the Company or its designee will retain custody of the Restricted Shares during the Restriction Period as provided in Section 8.2; (iii) other than such dividends and distributions as the Committee may designate, the Company or its designee will retain custody of all distributions (“Retained Distributions”) made or declared with respect to the Restricted Shares (and such Retained Distributions will be subject to the same restrictions, terms and vesting, and other conditions as are applicable to the Restricted Shares) until such time, if ever, as the Restricted Shares with respect to which such Retained Distributions shall have been made, paid or declared shall have become vested, and such Retained Distributions shall not bear interest or be segregated in a separate account; (iv) the Holder may not sell, assign, transfer, pledge, exchange, encumber or dispose of the Restricted Shares or any Retained Distributions or such Holder’s interest in any of them during the Restriction Period; and (v) a breach of any restrictions, terms or conditions provided in the Plan or established by the Committee with respect to any Restricted Shares or Retained Distributions will cause a forfeiture of such Restricted Shares and any Retained Distributions with respect thereto.

 

8.4                               Grant of Restricted Stock Units.  Subject to the limitations of the Plan, the Committee shall designate those eligible Persons to be granted Awards of Restricted Stock Units, the value of which is based, in whole or in part, on the Fair Market Value of the shares of any specified series of Common Stock.  Subject to the provisions of the Plan, including any rules established pursuant to Section 8.5, Awards of Restricted Stock Units shall be subject to such terms, restrictions, conditions, vesting requirements and payment rules as the Committee may determine in its discretion, which need not be identical for each Award.  Such Awards may provide for the payment of cash consideration by the Person to whom such Award is granted or provide that the Award, and any shares of Common Stock to be issued in connection therewith, if applicable, shall be delivered without the payment of cash consideration; provided, however, that the issuance of any shares of Common Stock in connection with an Award of Restricted Stock Units shall be for at least the minimum consideration necessary to permit such shares to be deemed fully paid and nonassessable.  The determinations made by the Committee pursuant to this Section 8.4 shall be specified in the applicable Agreement.

 

8.5                               Restrictions with Respect to Restricted Stock Units.  Any Award of Restricted Stock Units, including any shares of Common Stock which are part of an Award of Restricted Stock Units, may not be assigned, sold, transferred, pledged or otherwise encumbered prior to the date on which the shares are issued or, if later, the date provided by the Committee at the time of the Award.  A breach of any restrictions, terms or conditions provided in the Plan or established by the Committee with respect to any Award of Restricted Stock Units will cause a forfeiture of such Restricted Stock Units and any Dividend Equivalents with respect thereto.

 

8.6                               Issuance of Restricted Stock Units.  Restricted Stock Units shall be issued at the beginning of the Restriction Period, shall not constitute issued and outstanding shares of the applicable series of Common Stock, and the Holder shall not have any of the rights of a stockholder with respect to the shares of Common Stock covered by such an Award of Restricted Stock Units, in each case until such shares shall have been issued to the Holder at the end of the Restriction Period.  If and to the extent that shares of Common Stock are to be issued at the end of the Restriction Period, the Holder shall be entitled to receive Dividend Equivalents with

 

12

 

respect to the shares of Common Stock covered thereby either (i) during the Restriction Period or (ii) in accordance with the rules applicable to Retained Distributions, as the Committee may specify in the Agreement.

 

8.7                               Cash Payments.  In connection with any Award of Restricted Shares or Restricted Stock Units, an Agreement may provide for the payment of a cash amount to the Holder of such Awards at any time after such Awards shall have become vested.  Such cash amounts shall be payable in accordance with such additional restrictions, terms and conditions as shall be prescribed by the Committee in the Agreement and shall be in addition to any other salary, incentive, bonus or other compensation payments which such Holder shall be otherwise entitled or eligible to receive from the Company.

 

8.8                               Completion of Restriction Period.  On the Vesting Date with respect to each Award of Restricted Shares or Restricted Stock Units and the satisfaction of any other applicable restrictions, terms and conditions, (i) all or the applicable portion of such Restricted Shares or Restricted Stock Units shall become vested, (ii) any Retained Distributions with respect to such Restricted Shares and any unpaid Dividend Equivalents with respect to such Restricted Stock Units shall become vested to the extent that the Awards related thereto shall have become vested, and (iii) any cash amount to be received by the Holder with respect to such Restricted Shares or Restricted Stock Units shall become payable, all in accordance with the terms of the applicable Agreement.  Any such Restricted Shares, Restricted Stock Units, Retained Distributions and any unpaid Dividend Equivalents that shall not become vested shall be forfeited to the Company, and the Holder shall not thereafter have any rights (including dividend and voting rights) with respect to such Restricted Shares, Restricted Stock Units, Retained Distributions and any unpaid Dividend Equivalents that shall have been so forfeited.  The Committee may, in its discretion, provide that the delivery of any Restricted Shares, Restricted Stock Units, Retained Distributions and unpaid Dividend Equivalents that shall have become vested, and payment of any related cash amounts that shall have become payable under this Article VIII, shall be deferred until such date or dates as the recipient may elect.  Any election of a recipient pursuant to the preceding sentence shall be filed in writing with the Committee in accordance with such rules and regulations, including any deadline for the making of such an election, as the Committee may provide, and shall be made in compliance with Section 409A.

 

ARTICLE IX

 

CASH AWARDS AND PERFORMANCE AWARDS

 

9.1                               Cash Awards.  In addition to granting Options, SARs, Restricted Shares and Restricted Stock Units, the Committee shall, subject to the limitations of the Plan, have authority to grant to eligible Persons Cash Awards.  Each Cash Award shall be subject to such terms and conditions, restrictions and contingencies, if any, as the Committee shall determine.  Restrictions and contingencies limiting the right to receive a cash payment pursuant to a Cash Award shall be based upon the achievement of single or multiple Performance Objectives over a performance period established by the Committee.  The determinations made by the Committee pursuant to this Section 9.1 shall be specified in the applicable Agreement.

 

13

 

9.2                               Designation as a Performance Award.  The Committee shall have the right to designate any Award of Options, SARs, Restricted Shares or Restricted Stock Units as a Performance Award.  All Cash Awards shall be designated as Performance Awards.

 

9.3                               Performance Objectives.  The grant or vesting of a Performance Award shall be subject to the achievement of Performance Objectives over a performance period established by the Committee based upon one or more of the following business criteria that apply to the Holder, one or more business units, divisions or Subsidiaries of the Company or the applicable sector of the Company, or the Company as a whole, and if so desired by the Committee, by comparison with a peer group of companies: increased revenue; net income measures (including income after capital costs and income before or after taxes); stock price measures (including growth measures and total stockholder return); price per share of Common Stock; market share; earnings per share (actual or targeted growth); earnings before interest, taxes, depreciation and amortization (EBITDA); operating income before depreciation and amortization (OIBDA); economic value added (or an equivalent metric); market value added; debt to equity ratio; cash flow measures (including cash flow return on capital, cash flow return on tangible capital, net cash flow and net cash flow before financing activities); return measures (including return on equity, return on average assets, return on capital, risk-adjusted return on capital, return on investors’ capital and return on average equity); operating measures (including operating income, funds from operations, cash from operations, after-tax operating income, sales volumes, production volumes and production efficiency); expense measures (including overhead cost and general and administrative expense); margins; stockholder value; total stockholder return; proceeds from dispositions; total market value and corporate values measures (including ethics compliance, environmental and safety).  Unless otherwise stated, such a Performance Objective need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria).  The Committee shall have the authority to determine whether the Performance Objectives and other terms and conditions of the Award are satisfied, and the Committee’s determination as to the achievement of Performance Objectives relating to a Performance Award shall be made in writing.

 

9.4                               Section 162(m) of the Code.  Notwithstanding the foregoing provisions, if the Committee intends for a Performance Award to be granted and administered in a manner designed to preserve the deductibility of the compensation resulting from such Award in accordance with Section 162(m) of the Code, then the Performance Objectives for such particular Performance Award relative to the particular period of service to which the Performance Objectives relate shall be established by the Committee in writing (i) no later than 90 days after the beginning of such period and (ii) prior to the completion of 25% of such period.

 

9.5                               Waiver of Performance Objectives.  The Committee shall have no discretion to modify or waive the Performance Objectives or conditions to the grant or vesting of a Performance Award unless such Award is not intended to qualify as qualified performance-based compensation under Section 162(m) of the Code and the relevant Agreement provides for such discretion.

 

14

 

ARTICLE X

 

GENERAL PROVISIONS

 

10.1                        Acceleration of Awards.

 

(a)                                 Death or Disability.  If a Holder’s employment or service shall terminate by reason of death or Disability, notwithstanding any contrary waiting period, installment period, vesting schedule or Restriction Period in any Agreement or in the Plan, unless the applicable Agreement provides otherwise:  (i) in the case of an Option or SAR, each outstanding Option or SAR granted under the Plan shall immediately become exercisable in full in respect of the aggregate number of shares covered thereby; (ii) in the case of Restricted Shares, the Restriction Period applicable to each such Award of Restricted Shares shall be deemed to have expired and all such Restricted Shares and any related Retained Distributions shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement; and (iii) in the case of Restricted Stock Units, the Restriction Period applicable to each such Award of Restricted Stock Units shall be deemed to have expired and all such Restricted Stock Units and any unpaid Dividend Equivalents shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement.

 

(b)                                 Approved Transactions; Board Change; Control Purchase.  In the event of any Approved Transaction, Board Change or Control Purchase, notwithstanding any contrary waiting period, installment period, vesting schedule or Restriction Period in any Agreement or in the Plan, unless the applicable Agreement provides otherwise:  (i) in the case of an Option or SAR, each such outstanding Option or SAR granted under the Plan shall become exercisable in full in respect of the aggregate number of shares covered thereby; (ii) in the case of Restricted Shares, the Restriction Period applicable to each such Award of Restricted Shares shall be deemed to have expired and all such Restricted Shares and any related Retained Distributions shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement; and (iii) in the case of Restricted Stock Units, the Restriction Period applicable to each such Award of Restricted Stock Units shall be deemed to have expired and all such Restricted Stock Units and any unpaid Dividend Equivalents shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement, in each case effective upon the Board Change or Control Purchase or immediately prior to consummation of the Approved Transaction.  The effect, if any, on a Cash Award of an Approved Transaction, Board Change or Control Purchase shall be prescribed in the applicable Agreement.  Notwithstanding the foregoing, unless otherwise provided in the applicable Agreement, the Committee may, in its discretion, determine that any or all outstanding Awards of any or all types granted pursuant to the Plan will not vest or become exercisable on an accelerated basis in connection with an Approved Transaction if effective provision has been made for the taking of such action which, in the opinion of the Committee, is equitable and appropriate to substitute a new Award for such Award or to assume such Award and to make such new or assumed Award, as

 

15

 

nearly as may be practicable, equivalent to the old Award (before giving effect to any acceleration of the vesting or exercisability thereof), taking into account, to the extent applicable, the kind and amount of securities, cash or other assets into or for which the applicable series of Common Stock may be changed, converted or exchanged in connection with the Approved Transaction.

 

10.2                        Termination of Employment or Service.

 

(a)                                 General.  If a Holder’s employment or service shall terminate prior to an Option or SAR becoming exercisable or being exercised (or deemed exercised, as provided in Section 7.2) in full, or during the Restriction Period with respect to any Restricted Shares or any Restricted Stock Units, then such Option or SAR shall thereafter become or be exercisable, and the Holder’s rights to any unvested Restricted Shares, Retained Distributions and related cash amounts and any unvested Restricted Stock Units, unpaid Dividend Equivalents and related cash amounts shall thereafter vest, in each case solely to the extent provided in the applicable Agreement; provided, however, that, unless otherwise determined by the Committee and provided in the applicable Agreement, (i) no Option or SAR may be exercised after the scheduled expiration date thereof; (ii) if the Holder’s employment or service terminates by reason of death or Disability, the Option or SAR shall remain exercisable for a period of at least one year following such termination (but not later than the scheduled expiration of such Option or SAR); and (iii) any termination of the Holder’s employment or service for cause will be treated in accordance with the provisions of Section 10.2(b).  The effect on a Cash Award of the termination of a Holder’s employment or service for any reason, other than for cause, shall be prescribed in the applicable Agreement. For the avoidance of doubt, in the discretion of the Committee, an Award may provide that a Holder’s service shall be deemed to have continued for purposes of the Award while a Holder provides services to the Company, any Subsidiary, or any former affiliate of the Company or any Subsidiary.

 

(b)                                 Termination for Cause.  If a Holder’s employment or service with the Company or a Subsidiary of the Company shall be terminated by the Company or such Subsidiary for “cause” during the Restriction Period with respect to any Restricted Shares or Restricted Stock Units or prior to any Option or SAR becoming exercisable or being exercised in full or prior to the payment in full of any Cash Award (for these purposes, “cause” shall have the meaning ascribed thereto in any employment or consulting agreement to which such Holder is a party or, in the absence thereof, shall include insubordination, dishonesty, incompetence, moral turpitude, other misconduct of any kind and the refusal to perform such Holder’s duties and responsibilities for any reason other than illness or incapacity; provided, however, that if such termination occurs within 12 months after an Approved Transaction or Control Purchase or Board Change, termination for “cause” shall mean only a felony conviction for fraud, misappropriation, or embezzlement), then, unless otherwise determined by the Committee and provided in the applicable Agreement, (i) all Options and SARs and all unpaid Cash Awards held by such Holder shall immediately terminate, and (ii) such Holder’s rights to all Restricted Shares, Restricted Stock Units, Retained Distributions, any unpaid Dividend Equivalents and any related cash amounts shall be forfeited immediately

 

16

 

(c)                                  Miscellaneous.  The Committee may determine whether any given leave of absence constitutes a termination of employment or service; provided, however, that for purposes of the Plan, (i) a leave of absence, duly authorized in writing by the Company for military service or sickness, or for any other purpose approved by the Company if the period of such leave does not exceed 90 days, and (ii) a leave of absence in excess of 90 days, duly authorized in writing by the Company provided the employee’s right to reemployment is guaranteed either by statute or contract, shall not be deemed a termination of employment.  Unless otherwise determined by the Committee and provided in the applicable Agreement, Awards made under the Plan shall not be affected by any change of employment or service so long as the Holder continues to be an employee, director or independent contractor of the Company.

 

10.3                        Right of Company to Terminate Employment or Service.  Nothing contained in the Plan or in any Award, and no action of the Company or the Committee with respect thereto, shall confer or be construed to confer on any Holder any right to continue in the employ or service of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any Subsidiary of the Company to terminate the employment or service of the Holder at any time, with or without cause, subject, however, to the provisions of any employment or consulting agreement between the Holder and the Company or any Subsidiary of the Company, or in the case of a director, to the charter and bylaws, as the same may be in effect from time to time.

 

10.4                        Nonalienation of Benefits.  Except as set forth herein, no right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, garnishment, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, garnish, encumber or charge the same shall be void.  No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the Person entitled to such benefits.

 

10.5                        Written Agreement.  Each Award under the Plan shall be evidenced by a written agreement, in such form as the Committee shall approve from time to time in its discretion, specifying the terms and provisions of such Award which may not be inconsistent with the provisions of the Plan; provided, however, that if more than one type of Award is made to the same Holder, such Awards may be evidenced by a single Agreement with such Holder.  Each grantee of an Option, SAR, Restricted Shares, Restricted Stock Units or Performance Award (including a Cash Award) shall be notified promptly of such grant, and a written Agreement shall be promptly delivered by the Company.  Any such written Agreement may contain (but shall not be required to contain) such provisions as the Committee deems appropriate to insure that the penalty provisions of Section 4999 of the Code will not apply to any stock or cash received by the Holder from the Company.  Any such Agreement may be supplemented or amended from time to time as approved by the Committee as contemplated by Section 10.7(b).

 

10.6                        Nontransferability. Unless otherwise determined by the Committee and expressly provided for in an Agreement, Awards are not transferable (either voluntarily or involuntarily), before or after a Holder’s death, except as follows: (a) during the Holder’s lifetime, pursuant to a Domestic Relations Order, issued by a court of competent jurisdiction, that is not contrary to the terms and conditions of the Plan or any applicable Agreement, and in a form acceptable to the Committee; or (b) after the Holder’s death, by will or pursuant to the applicable laws of descent

 

17

 

and distribution, as may be the case. Any person to whom Awards are transferred in accordance with the provisions of the preceding sentence shall take such Awards subject to all of the terms and conditions of the Plan and any applicable Agreement.

 

10.7                        Termination and Amendment.

 

(a)                                 General.  Unless the Plan shall theretofore have been terminated as hereinafter provided, no Awards may be made under the Plan on or after the fifth anniversary of the Effective Date.  The Plan may be terminated at any time prior to such date and may, from time to time, be suspended or discontinued or modified or amended if such action is deemed advisable by the Committee.

 

(b)                                 Modification.  No termination, modification or amendment of the Plan may, without the consent of the Person to whom any Award shall theretofore have been granted, adversely affect the rights of such Person with respect to such Award.  No modification, extension, renewal or other change in any Award granted under the Plan shall be made after the grant of such Award, unless the same is consistent with the provisions of the Plan.  With the consent of the Holder and subject to the terms and conditions of the Plan (including Section 10.7(a)), the Committee may amend outstanding Agreements with any Holder, including any amendment which would (i) accelerate the time or times at which the Award may be exercised and/or (ii) extend the scheduled expiration date of the Award.  Without limiting the generality of the foregoing, the Committee may, but solely with the Holder’s consent unless otherwise provided in the Agreement, agree to cancel any Award under the Plan and grant a new Award in substitution therefor, provided that the Award so substituted shall satisfy all of the requirements of the Plan as of the date such new Award is made.  Nothing contained in the foregoing provisions of this Section 10.7(b) shall be construed to prevent the Committee from providing in any Agreement that the rights of the Holder with respect to the Award evidenced thereby shall be subject to such rules and regulations as the Committee may, subject to the express provisions of the Plan, adopt from time to time or impair the enforceability of any such provision.

 

10.8                        Government and Other Regulations.  The obligation of the Company with respect to Awards shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including the effectiveness of any registration statement required under the Securities Act of 1933, and the rules and regulations of any securities exchange or association on which the Common Stock may be listed or quoted.  For so long as any series of Common Stock are registered under the Exchange Act, the Company shall use its reasonable efforts to comply with any legal requirements (i) to maintain a registration statement in effect under the Securities Act of 1933 with respect to all shares of the applicable series of Common Stock that may be issuable, from time to time, to Holders under the Plan and (ii) to file in a timely manner all reports required to be filed by it under the Exchange Act. Notwithstanding any other provision in the Plan to the contrary, if, at the time of vesting or exercise of an Award that would otherwise require the Company to issue shares of Common Stock, the Company is prohibited by applicable law from settling such Award in Common Stock, then the Committee may, in its sole discretion, settle such Awards in cash, by payment to the Holder of an amount in cash equal to the then Fair Market Value of the shares otherwise

 

18

 

deliverable upon such vesting or exercise, less the amount of any applicable exercise or purchase price.

 

10.9                        Withholding.  The Company’s obligation to deliver shares of Common Stock or pay cash in respect of any Award under the Plan shall be subject to applicable federal, state and local tax withholding requirements.  Federal, state and local withholding tax due at the time of an Award, upon the exercise of any Option or SAR or upon the vesting of, or expiration of restrictions with respect to, Restricted Shares or Restricted Stock Units or the satisfaction of the Performance Objectives applicable to a Performance Award, as appropriate, may, in the discretion of the Committee, be paid in shares of Common Stock already owned by the Holder or through the withholding of shares otherwise issuable to such Holder, upon such terms and conditions (including the conditions referenced in Section 6.5) as the Committee shall determine.  For the avoidance of doubt, the Committee may, in its discretion, allow for the tax withholding in respect of any Award up to the maximum withholding rate applicable to the Holder. If the Holder shall fail to pay, or make arrangements satisfactory to the Committee for the payment to the Company of, all such federal, state and local taxes required to be withheld by the Company, then the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to such Holder an amount equal to any federal, state or local taxes of any kind required to be withheld by the Company with respect to such Award.

 

10.10                 Nonexclusivity of the Plan.  The adoption of the Plan by the Board shall not be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

 

10.11                 Exclusion from Other Plans.  By acceptance of an Award, unless otherwise provided in the applicable Agreement, each Holder shall be deemed to have agreed that such Award is special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan, program or policy of the Company or any Subsidiary of the Company.  In addition, each beneficiary of a deceased Holder shall be deemed to have agreed that such Award will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of the Holder which is payable to such beneficiary under any life insurance plan of the Company or any Subsidiary of the Company.

 

10.12                 Unfunded Plan.  Neither the Company nor any Subsidiary of the Company shall be required to segregate any cash or any shares of Common Stock which may at any time be represented by Awards, and the Plan shall constitute an “unfunded” plan of the Company.  Except as provided in Article VIII with respect to Awards of Restricted Shares and except as expressly set forth in an Agreement, no Holder shall have voting or other rights with respect to the shares of Common Stock covered by an Award prior to the delivery of such shares.  Neither the Company nor any Subsidiary of the Company shall, by any provisions of the Plan, be deemed to be a trustee of any shares of Common Stock or any other property, and the liabilities of the Company and any Subsidiary of the Company to any Holder pursuant to the Plan shall be those of a debtor pursuant to such contract obligations as are created by or pursuant to the Plan, and the rights of any Holder, former service provider or beneficiary under the Plan shall be limited to

 

19

 

those of a general creditor of the Company or the applicable Subsidiary of the Company, as the case may be.  In its sole discretion, the Board may authorize the creation of trusts or other arrangements to meet the obligations of the Company under the Plan, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

 

10.13                 Governing Law.  The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware.

 

10.14                 Accounts.  The delivery of any shares of Common Stock and the payment of any amount in respect of an Award shall be for the account of the Company or the applicable Subsidiary of the Company, as the case may be, and any such delivery or payment shall not be made until the recipient shall have paid or made satisfactory arrangements for the payment of any applicable withholding taxes as provided in Section 10.9.

 

10.15                 Legends.  Any statement of ownership evidencing shares of Common Stock subject to an Award shall bear such legends as the Committee deems necessary or appropriate to reflect or refer to any terms, conditions or restrictions of the Award applicable to such shares, including any to the effect that the shares represented thereby may not be disposed of unless the Company has received an opinion of counsel, acceptable to the Company, that such disposition will not violate any federal or state securities laws.

 

10.16                 Company’s Rights.  The grant of Awards pursuant to the Plan shall not affect in any way the right or power of the Company to make reclassifications, reorganizations or other changes of or to its capital or business structure or to merge, consolidate, liquidate, sell or otherwise dispose of all or any part of its business or assets.

 

10.17                 Section 409A.  The Plan and the Awards made hereunder are intended to be (i) “stock rights” exempt from Section 409A of the Code (“Section 409A”) pursuant to Treasury Regulations § 1.409A-1(b)(5), (ii) “short-term deferrals” exempt from Section 409A or (iii) payments which are deferred compensation and paid in compliance with Section 409A, and the Plan and each Agreement shall be interpreted and administered accordingly. Any adjustments of Awards intended to be “stock rights” exempt from Section 409A pursuant to Treasury Regulations § 1.409A-1(b)(5) shall be conducted in a manner so as not to constitute a grant of a new stock right or a change in the time and form of payment pursuant to Treasury Regulations §1.409A-1(b)(5)(v). In the event an Award is not exempt from Section 409A, (x) payment pursuant to the relevant Agreement shall be made only on a permissible payment event or at a specified time in compliance with Section 409A, (y) no accelerated payment shall be made pursuant to Section 10.1(b) unless the Board Change, Approved Transaction or Control Purchase constitutes a “change in control event” under Treasury Regulations §1.409A-3(i)(5) or otherwise constitutes a permissible payment event under Section 409A and (z) no amendment or modification of such Award may be made except in compliance with the anti-deferral and anti-acceleration provisions of Section 409A. No deferrals of compensation otherwise payable under the Plan or any Award shall be allowed, whether at the discretion of the Company or the Holder, except in a manner consistent with the requirements of Section 409A.  If a Holder is identified by the Company as a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) on the date on which such Holder has a “separation from service” (other than due to death) within the meaning of Treasury Regulation § 1.409A-1(h), any Award payable or settled on account of

 

20

 

a separation from service that is deferred compensation subject to Section 409A shall be paid or settled on the earliest of (1) the first business day following the expiration of six months from the Holder’s separation from service, (2) the date of the Holder’s death, or (3) such earlier date as complies with the requirements of Section 409A.

 

10.18                 Administrative Blackouts.  In addition to its other powers hereunder, the Committee has the authority to suspend (i) the exercise of Options or SARs and (ii) any other transactions under the Plan as it deems necessary or appropriate for administrative reasons.

 

10.19                 Clawback Policy.  Notwithstanding any other provisions in this Plan, any Award shall be subject to recovery or clawback by the Company under any clawback policy adopted by the Company in accordance with SEC regulations or other applicable law, as amended or superseded from time to time.

 

10.20                 Stock Ownership Guidelines. Any Award shall be subject to any applicable stock ownership guidelines adopted by the Company, as amended or superseded from time to time.

 

21Blueprint

 

Exhibit
10.1

 

SECURITIES PURCHASE AGREEMENT

 

This
SECURITIES PURCHASE
AGREEMENT (the “Agreement”), dated as of
November 20, 2017, by and between SINCERITY APPLIED MATERIALS HOLDINGS
CORP., a Nevada corporation, with headquarters located at
Level 4, 10 Yarra Street, South Yarra, Australia VIC 3141 (the
“Company”), and AUCTUS
FUND, LLC, a Delaware limited liability company, with its
address at 177 Huntington Avenue, 17th Floor, Boston, MA 02115 (the
“Buyer”).

 

WHEREAS:

 

1.1 The Company and the
Buyer are executing and delivering this Agreement in reliance upon
the exemption from securities registration afforded by the rules
and regulations as promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the Securities
Act of 1933, as amended (the “1933 Act”);

 

1.2 Buyer desires to
purchase and the Company desires to issue and sell, upon the terms
and conditions set forth in this Agreement the 12% convertible note
of the Company, in the form attached hereto as Exhibit A, in the
aggregate principal amount of US$112,500.00 (together with any
note(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms
thereof, the “Note”), convertible into shares of common
stock, $0.001 par value per share, of the Company (the
“Common Stock”), upon the terms and subject to the
limitations and conditions set forth in such Note.

 

1.3 The Buyer wishes to
purchase, upon the terms and conditions stated in this Agreement,
such principal amount of Note as is set forth immediately below its
name on the signature pages hereto; and

 

NOW THEREFORE, the Company and the Buyer severally (and not
jointly) hereby agree as follows:

 

(a) PURCHASE AND SALE OF
NOTE.

 

(i) Purchase of Note. On the
Closing Date (as defined below), the Company shall issue and sell
to the Buyer and the Buyer agrees to purchase from the Company such
principal amount of Note as is set forth immediately below the
Buyer’s name on the signature pages hereto.

 

(ii) Form
of Payment. On the Closing Date (as defined below), the
Buyer shall pay the purchase price for the Note to be issued and
sold to it at the Closing (as defined below) (the “Purchase
Price”) by wire transfer of immediately available funds to
the Company, in accordance with the Company’s written wiring
instructions, against delivery of the Note in the principal amount
equal to the Purchase Price as is set forth immediately below the
Buyer’s name on the signature pages hereto, and  the
Company shall deliver such duly executed Note on behalf of the
Company, to the Buyer, against delivery of such Purchase
Price.

 

(iii) Closing
Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 7 and Section 8 below, the
date and time of the issuance and sale of the Note pursuant to this
Agreement (the “Closing Date”) shall be 12:00 noon,
Eastern Standard Time on or about November 20, 2017, or such other
mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the “Closing”) shall
occur on the Closing Date at such location as may be agreed to by
the parties.

 

 

 

 

(b) REPRESENTATIONS AND WARRANTIES OF THE
BUYER. The Buyer represents and warrants to the Company
that:

 

(i) Investment Purpose. As of the
date hereof, the Buyer is purchasing the Note and the shares of
Common Stock issuable upon conversion of or otherwise pursuant to
the Note (including, without limitation, such additional shares of
Common Stock, if any, as are issuable  on account of interest
on the Note  as a result of the events described in Sections
1.3 and 1.4(g) of the Note or  in payment of the Standard
Liquidated Damages Amount (as defined in Section 2(f) below)
pursuant to this Agreement, such shares of Common Stock being
collectively referred to herein as the “Conversion
Shares” and, collectively with the Note, the
“Securities”) for its own account and not with a
present view towards the public sale or distribution thereof,
except pursuant to sales registered or exempted from registration
under the 1933 Act; provided, however, that by making the
representations herein, the Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the
1933 Act.

 

(ii) Accredited
Investor Status. The Buyer is an “accredited
investor” as that term is defined in Rule 501(a) of
Regulation D (an “Accredited Investor”).

 

(iii) Reliance
on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the
truth and accuracy of, and the Buyer’s compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine
the availability of such exemptions and the eligibility of the
Buyer to acquire the Securities.

 

(iv) Information.
The Buyer and its advisors, if any, have been, and for so long as
the Note remains outstanding will continue to be, furnished with
all materials relating to the business, finances and operations of
the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors.
The Buyer and its advisors, if any, have been, and for so long as
the Note remains outstanding will continue to be, afforded the
opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material
nonpublic information and will not disclose such information unless
such information is disclosed to the public prior to or promptly
following such disclosure to the Buyer. Neither such inquiries nor
any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect
Buyer’s right to rely on the Company’s representations
and warranties contained in Section 3 below. The Buyer understands
that its investment in the Securities involves a significant degree
of risk. The Buyer is not aware of any facts that may constitute a
breach of any of the Company's representations and warranties made
herein.

 

(v) Governmental Review. The Buyer
understands that no United States federal or state agency or any
other government or governmental agency has passed upon or made any
recommendation or endorsement of the Securities.

 

 

2

 

 

(vi) Transfer
or Re-sale. The Buyer understands that the sale or re-sale
of the Securities has not been and is not being registered under
the 1933 Act or any applicable state securities laws, and the
Securities may not be transferred unless  the Securities are
sold pursuant to an effective registration statement under the 1933
Act,  the Buyer shall have delivered to the Company, at the
cost of the Company, an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the
Company,  the Securities are sold or transferred to an
“affiliate” (as defined in Rule 144 promulgated under
the 1933 Act (or a successor rule) (“Rule 144”)) of the
Buyer who agrees to sell or otherwise transfer the Securities only
in accordance with this Section 2(f) and who is an Accredited
Investor,  the Securities are sold pursuant to Rule 144, or
 the Securities are sold pursuant to Regulation S under the
1933 Act (or a successor rule) (“Regulation S”), and
the Buyer shall have delivered to the Company, at the cost of the
Company, an opinion of counsel that shall be in form, substance and
scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of
such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is
not applicable, any re-sale of such Securities under circumstances
in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any
state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case). Notwithstanding the
foregoing or anything else contained herein to the contrary, the
Securities may be pledged as collateral in connection with a
bona fide margin
account or other lending arrangement. In the event that the Company
does not accept the opinion of counsel provided by the Buyer with
respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3)
business days of delivery of the opinion to the Company, the
Company shall pay to the Buyer liquidated damages of five percent
(5%) of the outstanding amount of the Note per day plus accrued and
unpaid interest on the Note, prorated for partial months, in cash
or shares at the option of the Buyer (“Standard Liquidated
Damages Amount”). If the Buyer elects to be pay the Standard
Liquidated Damages Amount in shares of Common Stock, such shares
shall be issued at the Conversion Price (as defined in the Note) at
the time of payment.

 

(vii) Legends.
The Buyer understands that the Note and, until such time as the
Conversion Shares have been registered under the 1933 Act may be
sold pursuant to Rule 144 or Regulation S without any restriction
as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares may bear a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the
certificates for such Securities):

 

“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER),
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”

 

 

3

 

 

The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any
Security upon which it is stamped, if, unless otherwise required by
applicable state securities laws, (a) such Security is registered
for sale under an effective registration statement filed under the
1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities
as of a particular date that can then be immediately sold, or (b)
such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or
transfer of such Security may be made without registration under
the 1933 Act, which opinion shall be accepted by the Company so
that the sale or transfer is effected. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from
which the legend has been removed, in compliance with applicable
prospectus delivery requirements, if any. In the event that the
Company does not accept the opinion of counsel provided by the
Buyer with respect to the transfer of Securities pursuant to an
exemption from registration, such as Rule 144 or Regulation S, at
the Deadline, it will be considered an Event of Default pursuant to
Section 3.2 of the Note.

 

(viii) Authorization;
Enforcement. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on
behalf of the Buyer, and this Agreement constitutes a valid and
binding agreement of the Buyer enforceable in accordance with its
terms.

 

(ix) Residency.
The Buyer is a resident of the jurisdiction set forth in the
preamble.

 

(c) REPRESENTATIONS AND WARRANTIES OF THE
COMPANY. The Company represents and warrants to the Buyer
that:

 

(i) Organization and Qualification.
The Company and each of its Subsidiaries (as defined below), if
any, is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other)
to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and
conducted. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified
or in good standing would not have a Material Adverse Effect.
“Material Adverse Effect” means any material adverse
effect on the business, operations, assets, financial condition or
prospects of the Company or its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection
herewith. “Subsidiaries” means any corporation or other
organization, whether incorporated or unincorporated, in which the
Company owns, directly or indirectly, any equity or other ownership
interest.

 

(ii) Authorization;
Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement, the
Note and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this
Agreement, the Note by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Note and the issuance and
reservation for issuance of the Conversion Shares issuable upon
conversion or exercise thereof) have been duly authorized by the
Company’s Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly
executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and
official representative with authority to sign this Agreement and
the other documents executed in connection herewith and bind the
Company accordingly, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Note, each of such
instruments will constitute, a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with
its terms.

 

 

4

 

 

(iii) Capitalization.
As of the date hereof, the authorized capital stock of the Company
consists of: (i) 290,000,000 shares of Common Stock, of which
approximately 48,333,334 shares are issued and outstanding; and
(ii) 10,000,000 shares of preferred stock, of which none are issued
and outstanding. Except as disclosed in the SEC Documents, no
shares are reserved for issuance pursuant to the Company’s
stock option plans, no shares are reserved for issuance pursuant to
securities (other than the Note) exercisable for, or convertible
into or exchangeable for shares of Common Stock and 5,000,000
shares are reserved for issuance upon conversion of the Note. All
of such outstanding shares of capital stock are, or upon issuance
will be, duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the
shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as
disclosed in the SEC Documents, as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of
the Company or any of its Subsidiaries, or arrangements by which
the Company or any of its Subsidiaries is or may become bound to
issue additional shares of capital stock of the Company or any of
its Subsidiaries, (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933
Act and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in
any agreement providing rights to security holders) that will be
triggered by the issuance of the Note or the Conversion Shares. The
Company has filed in its SEC Documents true and correct copies of
the Company’s Certificate of Incorporation as in effect on
the date hereof (“Certificate of Incorporation”), the
Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible
into or exercisable for Common Stock of the Company and the
material rights of the holders thereof in respect thereto. The
Company shall provide the Buyer with a written update of this
representation signed by the Company’s Chief Executive on
behalf of the Company as of the Closing Date.

 

(iv) Issuance
of Shares. The issuance of the
Note is duly authorized and, upon issuance in accordance with the
terms of this Agreement, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights,
taxes, liens, charges and other encumbrances with respect to the
issue thereof. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Note in
accordance with its respective terms, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of
shareholders of the Company and will not impose personal liability
upon the holder thereof.

 

(v) Acknowledgment of Dilution. The
Company understands and acknowledges the potentially dilutive
effect to the Common Stock upon the issuance of the Conversion
Shares upon conversion of the Note. The Company further
acknowledges that its obligation to issue Conversion Shares upon
conversion of the Note in accordance with this Agreement, the Note
is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other
shareholders of the Company.

 

 

5

 

 

(vi) No
Conflicts. The execution, delivery and performance of this
Agreement and the Note by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for
issuance of the Conversion Shares) will not (i) conflict with or
result in a violation of any provision of the Certificate of
Incorporation or By-laws, or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or
an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the
Company or its securities are subject) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor
any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and
neither the Company nor any of its Subsidiaries is in default (and
no event has occurred which with notice or lapse of time or both
could put the Company or any of its Subsidiaries in default) under,
and neither the Company nor any of its Subsidiaries has taken any
action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any
of its Subsidiaries is a party or by which any property or assets
of the Company or any of its Subsidiaries is bound or affected,
except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the
Company and its Subsidiaries, if any, are not being conducted, and
shall not be conducted so long as the Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable
state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory
agency, self-regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Note in accordance with the
terms hereof or thereof or to issue and sell the Note in accordance
with the terms hereof and to issue the Conversion Shares upon
conversion of the Note. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected
on or prior to the date hereof. The Company is not in violation of
the listing requirements of the OTC Pink (the “OTC
Pink”), the OTCQB or any similar quotation system, and does
not reasonably anticipate that the Common Stock will be delisted by
the OTC Pink, the OTCQB or any similar quotation system, in the
foreseeable future nor are the
Company's securities “chilled” by DTC. The
Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the
foregoing.

 

 

6

 

 

(vii) SEC
Documents; Financial Statements. The Company has timely
filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended
(the “1934 Act”) (all of the foregoing filed prior to
the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits
to such documents) incorporated by reference therein, being
hereinafter referred to herein as the “SEC Documents”).
The Company has delivered to the Buyer true and complete copies of
the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1934 Act and
the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As
of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with United
States generally accepted accounting principles, consistently
applied, during the periods involved and fairly present in all
material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 2017, and (ii)
obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the
Company. The Company is subject to the reporting requirements of
the 1934 Act. For the avoidance of doubt, filing of the documents
required in this Section 3(g) via the SEC’s Electronic Data
Gathering, Analysis, and Retrieval system (“EDGAR”)
shall satisfy all delivery requirements of this Section
3(g).

 

(viii) Absence
of Certain Changes. Since June 30, 2017, there has been no
material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial
condition, results of operations, prospects or 1934 Act reporting
status of the Company or any of its Subsidiaries.

 

(ix) Absence
of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or,
to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or,
to the knowledge of the Company, threatened proceeding against or
affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect. The Company and
its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.

 

 

7

 

 

(x) Patents, Copyrights, etc. The
Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets,
trademarks, trademark applications, service marks, service names,
trade names and copyrights (“Intellectual Property”)
necessary to enable it to conduct its business as now operated
(and, as presently contemplated to be operated in the future).
Except as disclosed in the SEC Documents, there is no claim or
action by any person pertaining to, or proceeding pending, or to
the Company’s knowledge threatened, which challenges the
right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its
business as now operated (and, as presently contemplated to be
operated in the future); to the best of the Company’s
knowledge, the Company’s or its Subsidiaries’ current
and intended products, services and processes do not infringe on
any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company and each of its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual
Property.

 

(xi) No
Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company’s officers
has or is expected in the future to have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company’s
officers has or is expected to have a Material Adverse
Effect.

 

(xii) Tax
Status. The Company and each of its Subsidiaries has made or
filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company
and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being
contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for
any such claim. The Company has not executed a waiver with respect
to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. None of the
Company’s tax returns is presently being audited by any
taxing authority.

 

(xiii) Certain
Transactions. Except for arm’s length transactions
pursuant to which the Company or any of its Subsidiaries makes
payments in the ordinary course of business upon terms no less
favorable than the Company or any of its Subsidiaries could obtain
from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of
the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or
partner.

 

 

8

 

 

(xiv) Disclosure.
All information relating to or concerning the Company or any of its
Subsidiaries set forth in this Agreement and provided to the Buyer
pursuant to Section 2(d) hereof and otherwise in connection with
the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein
or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the
Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company’s reports filed
under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933
Act).

 

(xv) Acknowledgment
Regarding Buyer’ Purchase of Securities. The Company acknowledges and agrees that the Buyer
is acting solely in the capacity of arm’s length purchasers
with respect to this Agreement and the transactions contemplated
hereby. The Company further acknowledges that the Buyer is not
acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any statement made by the
Buyer or any of its respective representatives or agents in
connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental
to the Buyer’ purchase of the Securities. The Company further
represents to the Buyer that the Company’s decision to enter
into this Agreement has been based solely on the independent
evaluation of the Company and its
representatives.

 

(xvi) No
Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or
solicited any offers to buy any security under circumstances that
would require registration under the 1933 Act of the issuance of
the Securities to the Buyer. The issuance of the Securities to the
Buyer will not be integrated with any other issuance of the
Company’s securities (past, current or future) for purposes
of any shareholder approval provisions applicable to the Company or
its securities.

 

(xvii) No
Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions,
transaction fees or similar payments relating to this Agreement or
the transactions contemplated hereby.

 

(xviii) Permits;
Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being
conducted (collectively, the “Company Permits”), and
there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the
Company Permits. Neither the Company nor any of its Subsidiaries is
in conflict with, or in default or violation of, any of the Company
Permits, except for any such conflicts, defaults or violations
which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since June 30, 2017,
neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to
possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse
Effect.

 

 

9

 

 

(xix) Environmental
Matters.

 

There
are, to the Company’s knowledge, with respect to the Company
or any of its Subsidiaries or any predecessor of the Company, no
past or present violations of Environmental Laws (as defined
below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or
similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to
the Company’s knowledge, threatened in connection with any of
the foregoing. The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws relating
to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous
Materials”) into the environment, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as
all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated
or approved thereunder.

 

Other
than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or
used by the Company or any of its Subsidiaries, and no Hazardous
Materials were released on or about any real property previously
owned, leased or used by the Company or any of its Subsidiaries
during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of
the Company’s or any of its Subsidiaries’
business.

 

There
are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.

 

(xx) Title
to Property. Except as disclosed in the SEC Documents the
Company and its Subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all
personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of
all liens, encumbrances and defects or such as would not have a
Material Adverse Effect. Any real property and facilities held
under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.

 

(xxi) Internal
Accounting Controls. Except as disclosed in the SEC
Documents the Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment
of the Company’s board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.

 

 

10

 

 

(xxii) Foreign
Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in
the course of his actions for, or on behalf of, the Company, used
any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political
activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any
bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.

 

(xxiii) Solvency.
The Company (after giving effect to the transactions contemplated
by this Agreement) is solvent (i.e., its assets have a fair
market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and
matured) and currently the Company has no information that would
lead it to reasonably conclude that the Company would not, after
giving effect to the transaction contemplated by this Agreement,
have the ability to, nor does it intend to take any action that
would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company
did not receive a qualified opinion from its auditors with respect
to its most recent fiscal year end and, after giving effect to the
transactions contemplated by this Agreement, does not anticipate or
know of any basis upon which its auditors might issue a qualified
opinion in respect of its current fiscal year. For the avoidance of
doubt any disclosure of the Borrower’s ability to continue as
a “going concern” shall not, by itself, be a violation
of this Section 3(w).

 

(xxiv) No
Investment Company. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this
Agreement will not be an “investment company” required
to be registered under the Investment Company Act of 1940 (an
“Investment Company”). The Company is not controlled by
an Investment Company.

 

(xxv)  Insurance.
The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have
a Material Adverse Effect. Upon written request the Company will
provide to the Buyer true and correct copies of all policies
relating to directors’ and officers’ liability
coverage, errors and omissions coverage, and commercial general
liability coverage.

 

(xxvi) Bad
Actor.  No officer or director of the Company
would be disqualified under Rule 506(d) of the Securities Act as
amended on the basis of being a “bad actor” as
that term is established in the September 19, 2013 Small Entity
Compliance Guide published by the SEC.

 

(xxvii) Shell
Status. The Company represents that it is not a
“shell” issuer and has never been a “shell”
issuer, or that if it previously has been a “shell”
issuer, that at least twelve (12) months have passed since the
Company has reported Form 10 type information indicating that it is
no longer a “shell” issuer. Further, the Company will instruct its counsel to
either (i) write a 144- 3(a)(9) opinion to allow for salability of
the Conversion Shares or (ii) accept such opinion from
Holder’s counsel.

 

 

11

 

 

(xxviii)  No-Off
Balance Sheet Arrangements.
There is no transaction, arrangement, or other relationship between
the Company or any of its Subsidiaries and an unconsolidated or
other off balance sheet entity that is required to be disclosed by
the Company in its 1934 Act filings and is not so disclosed or that
otherwise could be reasonably likely to have a Material Adverse
Effect.

 

(xxix) Manipulation
of Price. The Company has not, and to its knowledge no one
acting on its behalf has: (i) taken, directly or indirectly, any
action designed to cause or to result, or that could reasonably be
expected to cause or result, in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased,
or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other
securities of the Company.

 

(xxx) Sarbanes-Oxley
Act. The Company and each
Subsidiary is in material compliance with all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the
date hereof, and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date
hereof.

 

(xxxi) Employee
Relations. Neither the Company
nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company believes
that its and its Subsidiaries’ relations with their
respective employees are good. No executive officer (as defined in
Rule 501(f) promulgated under the 1933 Act) or other key employee
of the Company or any of its Subsidiaries has notified the Company
or any such Subsidiary that such officer intends to leave the
Company or any such Subsidiary or otherwise terminate such
officer’s employment with the Company or any such Subsidiary.
To the knowledge of the Company, no executive officer or other key
employee of the Company or any of its Subsidiaries is, or is now
expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment
of each such executive officer or other key employee (as the case
may be) does not subject the Company or any of its Subsidiaries to
any liability with respect to any of the foregoing matters. The
Company and its Subsidiaries are in compliance with all federal,
state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure
to be in compliance would not, either individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect.

 

(xxxii) Breach
of Representations and Warranties by the Company. The
Company agrees that if the Company breaches any of the
representations or warranties set forth in this Section 3, and in
addition to any other remedies available to the Buyer pursuant to
this Agreement and it being considered an Event of Default under
Section 3.5 of the Note, the Company shall pay to the Buyer the
Standard Liquidated Damages Amount in cash or in shares of Common
Stock at the option of the Company, until such breach is cured. If
the Company elects to pay the Standard Liquidated Damages Amounts
in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment.

 

(d) COVENANTS.

 

(i) Best Efforts. The parties shall
use their commercially reasonable best efforts to satisfy timely
each of the conditions described in Section 7 and 8 of this
Agreement.

 

 

12

 

 

(ii) Form
D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to
provide a copy thereof to the Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as
the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyer at the applicable closing pursuant
to this Agreement under applicable securities or “blue
sky” laws of the states of the United States (or to obtain an
exemption from such qualification), and shall provide evidence of
any such action so taken to the Buyer on or prior to the Closing
Date.

 

(iii) Use
of Proceeds. The Company shall use the proceeds from the
sale of the Note for working capital and other general corporate
purposes and shall not, directly or indirectly, use such proceeds
for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with
its currently existing direct or indirect
Subsidiaries).

 

(iv) Right
of First Refusal. Unless it shall have first delivered to
the Buyer, at least seventy two (72) hours prior to the closing of
such Future Offering (as defined herein), written notice describing
the proposed Future Offering, including the terms and conditions
thereof, and providing the Buyer an option during the seventy two
(72) hour period following delivery of such notice to purchase the
securities being offered in the Future Offering on the same terms
as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding sentence are collectively
referred to as the “Right of First Refusal”) (and
subject to the exceptions described below), the Company will not
conduct any equity financing (including debt with an equity
component) (“Future Offerings”) during the period
beginning on the Closing Date and ending twelve (12) months
following the Closing Date. In the event the terms and conditions
of a proposed Future Offering are amended in any respect after
delivery of the notice to the Buyer concerning the proposed Future
Offering, the Company shall deliver a new notice to the Buyer
describing the amended terms and conditions of the proposed Future
Offering and the Buyer thereafter shall have an option during the
seventy two (72) hour period following delivery of such new notice
to purchase its pro rata share of the securities being offered on
the same terms as contemplated by such proposed Future Offering, as
amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future
Offering. The Right of First Refusal shall not apply to any
transaction involving (i) issuances of securities in a firm
commitment underwritten public offering (excluding a continuous
offering pursuant to Rule 415 under the 1933 Act), (ii) issuances
to employees, officers, directors, contractors, consultants or
other advisors approved by the Board, (iii) issuances to strategic
partners or other parties in connection with a commercial
relationship, or providing the Company with equipment leases, real
property leases or similar transactions approved by the Board (iv)
issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of
which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the
Company. The Right of First Refusal also shall not apply to the
issuance of securities upon exercise or conversion of the
Company’s options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan approved by
the shareholders of the Company.

 

 

13

 

 

(v) Expenses. The Company shall reimburse Buyer for any and all
expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement
and the other agreements to be executed in connection herewith
(“Documents”), including, without limitation,
reasonable attorneys’ and consultants’ fees and
expenses, transfer agent fees, fees for stock quotation services,
fees relating to any amendments or modifications of the Documents
or any consents or waivers of provisions in the Documents, fees for
the preparation of opinions of counsel, escrow fees, and costs of
restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, including, but
not limited to, any and all wire fees, otherwise the Company must
make immediate payment for reimbursement to the Buyer for all fees
and expenses immediately upon written notice by the Buyer or the
submission of an invoice by the Buyer. At Closing, the
Company’s initial obligation with respect to this transaction
is to reimburse Buyer’s legal expenses shall be $2,750.00
plus the cost of wire fees.

 

(vi) Financial
Information. The Company agrees to send or make available
the following reports to the Buyer until the Buyer transfers,
assigns, or sells all of the Securities:  within ten (10) days
after the filing with the SEC, a copy of its Annual Report on Form
10-K its Quarterly Reports on Form 10-Q and any Current Reports on
Form 8-K;  within one (1) day after release, copies of all
press releases issued by the Company or any of its Subsidiaries;
and  contemporaneously with the making available or giving to
the shareholders of the Company, copies of any notices or other
information the Company makes available or gives to such
shareholders. For the avoidance of doubt, filing the documents
required in (i) above via EDGAR or releasing any documents set
forth in (ii) above via a recognized wire service shall satisfy the
delivery requirements of this Section 4(f).

 

(vii) Listing.
The Company shall promptly secure the listing of the Conversion
Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and, so long
as the Buyer owns any of the Securities, shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing
of all Conversion Shares from time to time issuable upon conversion
of the Note. The Company will obtain and, so long as the Buyer owns
any of the Securities, maintain the listing and trading of its
Common Stock on the OTC Pink, OTCQB or any equivalent replacement
exchange, the Nasdaq National Market (“Nasdaq”), the
Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New
York Stock Exchange (“NYSE”), or the NYSE MKT and will
comply in all respects with the Company’s reporting, filing
and other obligations under the bylaws or rules of the Financial
Industry Regulatory Authority (“FINRA”) and such
exchanges, as applicable. The Company shall promptly provide to the
Buyer copies of any material notices it receives from the OTC Pink,
OTCQB and any other exchanges or quotation systems on which the
Common Stock is then listed regarding the continued eligibility of
the Common Stock for listing on such exchanges and quotation
systems. The Company shall pay any and all fees and expenses in
connection with satisfying its obligation under this Section
4(g).

 

(viii) Corporate
Existence. So long as the Buyer beneficially owns any Note,
the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company’s assets, except
in the event of a merger or consolidation or sale of all or
substantially all of the Company’s assets, where the
surviving or successor entity in such transaction (i) assumes the
Company’s obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for
trading on the OTC Pink, OTCQB, Nasdaq, NasdaqSmallCap, NYSE or
AMEX.

 

 

14

 

 

(ix) No
Integration. The Company shall not make any offers or sales
of any security (other than the Securities) under circumstances
that would require registration of the Securities being offered or
sold hereunder under the 1933 Act or cause the offering of the
Securities to be integrated with any other offering of securities
by the Company for the purpose of any stockholder approval
provision applicable to the Company or its securities.

 

(x) Failure to Comply with the 1934
Act. So long as the Buyer beneficially owns the Note, the
Company shall comply with the reporting requirements of the 1934
Act; and the Company shall continue to be subject to the reporting
requirements of the 1934 Act.

 

(xi) Trading
Activities. Neither the Buyer
nor its affiliates has an open short position (or other hedging or
similar transactions) in the common stock of the Company and the
Buyer agree that it shall not, and that it will cause its
affiliates not to, engage in any short sales of or hedging
transactions with respect to the common stock of the
Company.

 

(xii) Restriction
on Activities. Commencing as of
the date first above written, and until the sooner of the six month
anniversary of the date first written above or payment of the Note
in full, or full conversion of the Note, the Company shall not,
directly or indirectly, without the Buyer’s prior written
consent, which consent shall not be unreasonably withheld: (a)
change the nature of its business; (b) sell, divest, acquire,
change the structure of any material assets other than in the
ordinary course of business; or
(c) solicit any offers for, respond to any unsolicited offers for,
or conduct any negotiations with any other person or entity in
respect of any variable rate debt transactions (i.e., transactions
were the conversion or exercise price of the security issued by the
Company varies based on the market price of the Common Stock) above
$500,000, whether a transaction similar to the one contemplated
hereby or any other investment; or (d) file any registration
statements with the SEC.

 

(xiii) Legal
Counsel Opinions. Upon the request of the Buyer from to time
to time, the Company shall be responsible (at its cost) for
promptly (within two (2) business days from Buyer’s request)
supplying to the Company’s transfer agent and the Buyer a
customary legal opinion letter of its counsel (the “Legal
Counsel Opinion”) to the effect that the sale of Conversion
Shares by the Buyer or its affiliates, successors and assigns is
exempt from the registration
requirements of the 1933 Act pursuant to Rule 144 (provided the
requirements of Rule 144 are satisfied and provided the Conversion
Shares are not then registered under the 1933 Act for resale
pursuant to an effective registration statement). Should the
Company’s legal counsel fail for any reason to issue the
Legal Counsel Opinion, the Buyer may (at the Company’s cost)
secure another legal counsel to issue the Legal Counsel Opinion,
and the Company will instruct its transfer agent to accept such
opinion.

 

(xiv) Par
Value.  If the closing bid
price at any time the Note is outstanding falls below $0.001, the
Company shall cause the par value of its Common Stock to be reduced
to $0.0001 or less.

 

(xv) Breach
of Covenants. The Company agrees that if the Company
breaches any of the covenants set forth in this Section 4, and in
addition to any other remedies
available to the Buyer pursuant to this Agreement, it will be
considered an Event of Default under Section 3.4 of the Note, the
Company shall pay to the Buyer the Standard Liquidated Damages
Amount in cash or in shares of Common Stock at the option of the
Buyer, until such breach is cured, or with respect to Section 4(d)
above, the Company shall pay to the Buyer the Standard Liquidated
Damages Amount in cash or shares of Common Stock, at the option of
the Buyer, upon each violation of such provision. If the Company
elects to pay the Standard Liquidated Damages Amounts in shares of
Common Stock, such shares shall be issued at the Conversion Price
at the time of payment.

 

 

15

 

 

(e) Transaction Expense
Amount.  Upon Closing, the Company shall pay Nine
Thousand Seven Hundred Fifty and No/100 United States Dollars
(US$9,750.00) to Auctus Fund Management, LLC (“Auctus
Management”) to cover  the Holder's due diligence,
monitoring, and other transaction costs incurred for services
rendered in connection herewith (the “Transaction Expense
Amount”).  The Transaction Expense Amount shall be
offset against the proceeds of the Note and shall be paid to Auctus
Management upon the execution hereof.

 

(f) Transfer
Agent Instructions. The Company
shall issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of the Buyer or its nominee,
for the Conversion Shares in such amounts as specified from time to
time by the Buyer to the Company upon conversion of the Note in
accordance with the terms thereof (the “Irrevocable Transfer
Agent Instructions”).  In the event that the Borrower
proposes to replace its transfer agent, the Borrower shall provide,
prior to the effective date of such replacement, a fully executed
Irrevocable Transfer Agent Instructions in a form as initially
delivered pursuant to the Purchase Agreement (including but not
limited to the provision to irrevocably reserve shares of Common
Stock in the Reserved Amount) signed by the successor transfer
agent to Borrower and the Borrower. Prior to registration of the
Conversion Shares under the 1933 Act or the date on which the
Conversion Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular date
that can then be immediately sold, all such certificates shall bear
the restrictive legend specified in Section 2(g) of this
Agreement.  The Company warrants that: (i) no instruction
other than the Irrevocable Transfer Agent Instructions referred to
in this Section, and stop transfer instructions to give effect to
Section 2(f) hereof (in the case of the Conversion Shares, prior to
registration of the Conversion Shares under the 1933 Act or the
date on which the Conversion Shares may be sold pursuant to Rule
144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold), will be given
by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the
Note; (ii) it will not direct its transfer agent not to transfer or
delay, impair, and/or hinder its transfer agent in transferring (or
issuing)(electronically or in certificated form) any certificate
for Conversion Shares to be issued to the Buyer upon conversion of
or otherwise pursuant to the Note as and when required by the Note
and this Agreement; and (iii) it will not fail to remove (or
directs its transfer agent not to remove or impairs, delays, and/or
hinders its transfer agent from removing) any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof)
on any certificate for any Conversion Shares issued to the Buyer
upon conversion of or otherwise pursuant to the Note as and when
required by the Note and this Agreement.  Nothing in this
Section shall affect in any way the Buyer’s obligations and
agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale
of the Securities.  If the Buyer provides the Company, at the
cost of the Company, with (i) an opinion of counsel in form,
substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and
such sale or transfer is effected or (ii) the Buyer provides
reasonable assurances that the Securities can be sold pursuant to
Rule 144, the Company shall permit the transfer, and, in the case
of the Conversion Shares, promptly instruct its transfer agent to
issue one or more certificates, free from restrictive legend, in
such name and in such denominations as specified by the
Buyer.  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyer, by
vitiating the intent and purpose of the transactions contemplated
hereby.  Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section may be
inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the
Buyer shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss
and without any bond or other security being
required.

 

 

16

 

 

(g) CONDITIONS PRECEDENT TO THE
COMPANY’S OBLIGATIONS TO SELL. The obligation of the
Company hereunder to issue and sell the Note to the Buyer at the
Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions thereto, provided that
these conditions are for the Company’s sole benefit and may
be waived by the Company at any time in its sole
discretion:

 

(i) The Buyer shall
have executed this Agreement and delivered the same to the
Company.

 

(ii) The
Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.

 

(iii) The
representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date),
and the Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied
with by the Buyer at or prior to the Closing Date.

 

(iv) No
litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated
or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.

 

(h) CONDITIONS PRECEDENT TO THE
BUYER’S OBLIGATION TO PURCHASE. The obligation of the
Buyer hereunder to purchase the Note at the Closing is subject to
the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for the
Buyer’s sole benefit and may be waived by the Buyer at any
time in its sole discretion:

 

(i) The Company shall
have executed this Agreement and delivered the same to the
Buyer.

 

(ii) The
Company shall have delivered to the Buyer the duly executed Note
(in such denominations as the Buyer shall request) and in
accordance with Section 1(b) above.

 

(iii) The
Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyer, shall have
been delivered to and acknowledged in writing by the
Company’s Transfer Agent.

 

(iv) The
representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of
the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date)
and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate or certificates, executed by the
chief executive officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may
be reasonably requested by the Buyer including, but not limited to
certificates with respect to the Company’s Certificate of
Incorporation, By-laws and Board of Directors’ resolutions
relating to the transactions contemplated hereby.

 

 

17

 

 

(v) No litigation,
statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.

 

(vi) No
event shall have occurred which could reasonably be expected to
have a Material Adverse Effect on the Company including but not
limited to a change in the 1934 Act reporting status of the Company
or the failure of the Company to be timely in its 1934 Act
reporting obligations.

 

(vii) The
Conversion Shares shall have been authorized for quotation on the
OTC Pink, OTCQB or any similar quotation system and trading in the
Common Stock on the OTC Pink, OTCQB or any similar quotation system
shall not have been suspended by the SEC or the OTC Pink, OTCQB or
any similar quotation system.

 

(viii) The
Buyer shall have received an officer’s certificate described
in Section 3(c) above, dated as of the Closing Date.

 

(i) GOVERNING LAW;
MISCELLANEOUS.

 

(i) Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Nevada without regard to principles of conflicts of
laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement, the
Note or any other agreement, certificate, instrument or document
contemplated hereby shall be brought only in the state courts of
Massachusetts or in the federal courts located in the state of
Massachusetts. The parties to this Agreement hereby irrevocably
waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack
of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER
TRANSACTION DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall
be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith
is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision of any
agreement. Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or
proceeding in connection with this Agreement or any other
Transaction Document by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law.

 

 

18

 

 

(ii) Counterparts;
Signatures by Facsimile. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and
shall become effective when counterparts have been signed by each
party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by
facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.

 

(iii) Construction;
Headings.  This Agreement shall be deemed to be jointly
drafted by the Company and the Buyer and shall not be construed
against any person as the drafter hereof. The headings of this
Agreement are for convenience of reference only and shall not form
part of, or affect the interpretation of, this
Agreement.

 

(iv) Severability.
In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any provision hereof which may prove
invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision
hereof.

 

(v) Entire Agreement; Amendments.
This Agreement, the Note and the instruments referenced herein
contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set
forth herein or therein, neither the Company nor the Buyer makes
any representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the
majority in interest of the Buyer.

 

(vi) Notices.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable
air courier service with charges prepaid, or (iv) transmitted by
hand delivery, telegram, email, or facsimile, addressed as set
forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other
communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by email or
facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:

 

If to
the Company, to:

 

Sincerity Applied
Materials Holdings Corp.

Level
4, 10 Yarra Street

South
Yarra, Australia VIC 3141

Attn: Zhang Yiwen

E-mail:
info@sincerityplastics.com

 

 

19

 

 

If to
the Buyer:

 

Auctus
Fund, LLC

177
Huntington Avenue, 17th Floor

Boston,
MA 02115

Attn: Lou Posner

Facsimile: (617)
532-6420

 

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

 

Chad
Friend, Esq., LL.M.

Legal
& Compliance, LLC

330
Clematis Street, Suite 217

West
Palm Beach, FL 33401

E-mail:
CFriend@LegalandCompliance.com

 

Each
party shall provide notice to the other party of any change in
address.

 

(vii) Successors
and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or
any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to
Section 2(f), the Buyer may assign its rights hereunder to any
person that purchases Securities in a private transaction from the
Buyer or to any of its “affiliates,” as that term is
defined under the 1934 Act, without the consent of the
Company.

 

(viii) Third
Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.

 

(ix) Survival.
The representations and warranties of the Company and the
agreements and covenants set forth in this Agreement shall survive
the closing hereunder not withstanding any due diligence
investigation conducted by or on behalf of the Buyer. The Company
agrees to indemnify and hold harmless the Buyer and all their
officers, directors, employees and agents for loss or damage
arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and
covenants set forth in this Agreement or any of its covenants and
obligations under this Agreement, including advancement of expenses
as they are incurred.

 

(x) Further Assurances. Each party
shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.

 

(xi) No
Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be
applied against any party.

 

 

 

20

 

 

(xii) Remedies.
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer by vitiating the
intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Agreement will be inadequate
and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Agreement, that the Buyer shall
be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to
an injunction or injunctions restraining, preventing or curing any
breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss
and without any bond or other security being required.

 

(xiii) Publicity.
The Company, and the Buyer shall have the right to review a
reasonable period of time before issuance of any press releases,
SEC, OTCQB or FINRA filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of the Buyer, to make any
press release or SEC, OTCQB (or other applicable trading market) or
FINRA filings with respect to such transactions as is required by
applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release
prior to its release and shall be provided with a copy thereof and
be given an opportunity to comment thereon).

 

(xiv) Indemnification.
In consideration of the Buyer’s execution and delivery of
this Agreement and acquiring the Securities hereunder, and in
addition to all of the Company’s other obligations under this
Agreement or the Note, the Company shall defend, protect, indemnify
and hold harmless the Buyer and its stockholders, partners,
members, officers, directors, employees and direct or indirect
investors and any of the foregoing persons’ agents or other
representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any
and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred
by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or
breach of any representation or warranty made by the Company in
this Agreement or the Note or any other agreement, certificate,
instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company
contained in this Agreement or the Note or any other agreement,
certificate, instrument or document contemplated hereby or thereby
or (c) any cause of action, suit or claim brought or made against
such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out
of or resulting from (i) the execution, delivery, performance or
enforcement of this Agreement or the Note or any other agreement,
certificate, instrument or document contemplated hereby or thereby,
(ii) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of the Buyer or holder of the
Securities as an investor in the Company pursuant to the
transactions contemplated by this Agreement. To the extent that the
foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities
that is permissible under applicable law

 

[signature
page follows]

 

 

 

21

 

 

IN
WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above
written.

 

 

SINCERITY APPLIED MATERIALS HOLDINGS CORP.

 

By:
/s/ Zhang
Yiwen

Name:
Zhang Yiwen

Title:
Chief Executive Officer

 

 

AUCTUS FUND, LLC

 

By: /s/ Lou
Posner

Name: Lou Posner

Title: Managing Director

 

 

AGGREGATE
SUBSCRIPTION AMOUNT:

 

 

Aggregate Principal
Amount of
Note:                                                            

US$112,500.00

 

 

Aggregate Purchase
Price:                                                 

US$112,500.00

 

 

 

22

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00278-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00278-of-00352.parquet"}]]