Document:

EXHIBIT 4.21

 

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  SUBJECT TO SECTION 6 BELOW, NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR HOLDER, SATISFACTORY TO COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

WARRANT TO PURCHASE 39,770 SHARES OF COMMON STOCK

	
Warrant No. CSW-13-005

	
June 28, 2013

THIS CERTIFIES THAT, for value received, Silicon Valley Bank (“Holder”) is entitled to subscribe for and purchase 39,770 shares of fully paid and nonassessable Common Stock of Cytori Therapeutics Inc., a Delaware corporation (the “Company”), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth.  As used herein, the term “Common Stock” shall mean Company’s presently authorized common stock, $0.001 par value per share, and any stock into which such common stock may hereafter be converted or exchanged and the term “Warrant Shares” shall mean the shares of Common Stock which Holder may acquire pursuant to this Warrant and any other shares of stock into which such shares of Common Stock may hereafter be converted or exchanged.

This Warrant is issued pursuant to that certain Loan and Security Agreement, dated as of June 28, 2013, by and among Company, the other entities or persons signatory thereto as loan parties, Oxford Finance LLC, a Delaware limited liability company, as agent and lender, and the other financial institutions signatory thereto from time to time as lenders.

1.            Warrant Price.  The “Warrant Price” shall initially be Two dollars and Twenty-Six cents ($2.26) per share, subject to adjustment as provided in Section 7 below.

2.            Conditions to Exercise.  The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending at 5:00 P.M. Pacific time on the seventh anniversary of the date of this Warrant (the “Expiration Date”).

3.            Method of Exercise or Conversion; Payment; Issuance of Shares; Issuance of New Warrant.

(a)           Cash Exercise.  Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by Holder hereof, in whole or in part, by the surrender of the original of this Warrant (together with a duly executed Notice of Exercise in substantially the form attached hereto as Exhibit A) at the principal office of Company (as set forth in Section 19 below) and by payment to Company, by certified or bank check, or wire transfer of immediately available funds, of an amount equal to the then applicable Warrant Price per share multiplied by the number of Warrant Shares then being purchased.  In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, Holder hereof, or as such Holder may direct (subject to the terms of transfer contained herein and upon payment by such Holder hereof of any applicable transfer taxes).  Such delivery shall be made within 30 days after exercise of this Warrant and at Company’s expense and, unless this Warrant has been fully exercised or expired, a new Warrant having terms and conditions substantially identical to this Warrant and representing the portion of the Warrant Shares, if any, with respect to which this Warrant shall not have been exercised, shall also be issued to Holder hereof within 30 days after exercise of this Warrant.

(b)           Conversion.  In lieu of exercising this Warrant as specified in Section 3(a), Holder may from time to time convert this Warrant, in whole or in part, into Warrant Shares by surrender of the original of this Warrant (together with a duly executed Notice of Exercise in substantially the form attached hereto as Exhibit A) at the principal office of Company, in which event Company shall issue to Holder the number of Warrant Shares computed using the following formula:

X = Y (A-B)

               A

 

Where:

 

X = the number of Warrant Shares to be issued to Holder.

 

Y = the number of Warrant Shares purchasable under this Warrant (at the date of such calculation).

 

A = the Fair Market Value of one share of Company’s Common Stock (at the date of such calculation).

 

B = Warrant Price (as adjusted to the date of such calculation).

 

(c)            Fair Market Value.  For purposes of this Section 3, Fair Market Value of one share of Company’s Common Stock shall mean:

(i)            The average of the closing bid and asked prices of Common Stock quoted in the Over-The-Counter Market Summary, the last reported sale price quoted on the Nasdaq Stock Market or on any other exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of the Wall Street Journal for the ten (10) trading days prior to the date of determination of Fair Market Value; or

(ii)            In the event of an exercise in connection with a merger, acquisition or other consolidation in which Company is not the surviving entity, the per share Fair Market Value for the Common Stock shall be the value to be received per share of Common Stock by all holders of the Common Stock in such transaction as determined by the Board of Directors; or

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(iii)          In any other instance, the per share Fair Market Value for the Common Stock shall be as determined in the reasonable good faith judgment of Company’s Board of Directors.

In the event of 3(c)(ii) or 3(c)(iii), above, Company’s Board of Directors shall prepare a certificate, to be signed by an authorized officer of Company, setting forth in reasonable detail the basis for and method of determination of the per share Fair Market Value of the Common Stock.  The Board of Directors will also certify to Holder that this per share Fair Market Value will be applicable to all holders of Company’s Common Stock.  Such certification must be made to Holder at least ten (10) business days prior to the proposed effective date of the merger, consolidation, sale, or other triggering event as defined in 3(c)(ii) or 3(c)(iii).

(d)           Automatic Exercise.  To the extent this Warrant is not previously exercised, it shall be deemed to have been automatically converted in accordance with Sections 3(b) and 3(c) hereof (even if not surrendered) as of immediately before its expiration, involuntary termination or cancellation if the then-Fair Market Value of a Warrant Share exceeds the then-Warrant Price, unless Holder notifies Company in writing to the contrary prior to such automatic exercise.

(e)           Treatment of Warrant Upon Acquisition of Company.

(i)        Certain Definitions.  For the purpose of this Warrant, “Acquisition” means any sale, exclusive license, or other disposition of all or substantially all of the assets of Company, or any reorganization, consolidation, or merger of Company, or sale of outstanding Company securities by holders thereof, where the holders of Company’s securities before the transaction beneficially own less than a majority of the outstanding voting securities of the successor or surviving entity after the transaction.  For purposes of this Section 3(e), “Affiliate” shall mean any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the voting capital stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person’s or entity’s officers, directors, joint venturers or partners, as applicable.

(ii)       Cash Acquisition.  In the event of an Acquisition in which the sole consideration is cash, Holder may either (a)  exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) permit the Warrant to expire automatically upon the consummation of such Acquisition.  Company shall provide Holder with written notice of any proposed Acquisition together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice, which is to be delivered to Holder not less than ten (10) business days prior to the closing of the proposed Acquisition.

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(iii)      Asset Sale.  In the event of an Acquisition that is an arms length sale of all or substantially all of Company’s assets (and only its assets) to a third party that is not an Affiliate of Company (a “True Asset Sale”), Holder may either (a) exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) permit the Warrant to continue until the Expiration Date if Company continues as a going concern following the closing of any such True Asset Sale.  Company shall provide Holder with written notice of any proposed asset sale together with such reasonable information as Holder may request in connection with such asset sale giving rise to such notice, which is to be delivered to Holder not less than ten (10) business days prior to the closing of the proposed asset sale.

(vi)      Assumption of Warrant.  Upon the closing of any Acquisition other than those particularly described in subsections (ii) and (iii) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Warrant Shares issuable upon exercise of the unexercised portion of this Warrant as if such Warrant Shares were outstanding on the record date for the Acquisition and subsequent closing.  The Warrant Price and/or number of Warrant Shares shall be adjusted accordingly.

(v)      Early Termination of Warrant in Certain Other Circumstances.  Notwithstanding the foregoing provisions of Section 3(e)(iv), but subject to the terms of Section 3(d), in the event that the acquiror in an Acquisition does not agree to assume this Warrant at and as of the closing of such Acquisition, this Warrant, to the extent not exercised or converted on or prior to such closing, shall terminate and be of no further force or effect as of immediately following the closing of such Acquisition if all of the following conditions are met:  (A) the acquiror is subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (B) the class of stock or other security of the acquiror that would be received by Holder in connection with such Acquisition were Holder to exercise or convert this Warrant on or prior to the closing thereof is listed for trading on a national securities exchange or approved for quotation on an automated inter-dealer quotation system, and (C) the value (determined as of the closing of such Acquisition in accordance with the definitive agreements therefor) of the acquiror stock and/or other securities that would be received by Holder in respect of each Warrant Share were Holder to exercise or convert this Warrant on or prior to the closing of such Acquisition is equal to or greater than three (3) times the then-effective Warrant Price.

4.            Representations and Warranties of Holder and Company.

(a)            Representations and Warranties by Holder.  Holder represents and warrants to Company as follows:

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(i)        Evaluation.  Holder has substantial experience in evaluating and investing in private placement transactions of securities of companies similar to Company so that Holder is capable of evaluating the merits and risks of its investment in Company and has the capacity to protect its interests.

(ii)       Resale.  Except for transfers to an affiliate of Holder, Holder is acquiring this Warrant and the Warrant Shares issuable upon exercise of this Warrant (collectively the “Securities”) for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof.  Holder does not presently have any agreement, plan or understanding, directly or indirectly, with any person to distribute or effect the distribution of any of the Securities to or through any person.  Holder understands that the Securities have not been registered under the Securities Act of 1933, as amended (the “Act”) by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein.

(iii)       Rule 144.  Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available.  Holder is aware of the provisions of Rule 144 promulgated under the Act.

(iv)      Accredited Investor.  Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

(v)       Opportunity To Discuss.  Holder has had an opportunity, if it so requested, to discuss Company’s business, management and financial affairs with its management and an opportunity to review Company’s facilities.  Holder understands that such discussions, as well as the written information issued by Company, were intended to describe the aspects of Company’s business and prospects which Company believes to be material but were not necessarily a thorough or exhaustive description.

(b)           Representations and Warranties by Company.  Company hereby represents and warrants to Holder that the statements in the following paragraphs of this Section 4(b) are true and correct as of the date hereof.

(i)        Corporate Organization and Authority.  Company (a) is a corporation duly organized, validly existing, and in good standing in its jurisdiction of incorporation; (b) has the corporate power and authority to own and operate its properties and to carry on its business as now conducted and as currently proposed to be conducted; and (c) is qualified as a foreign corporation in all jurisdictions where such qualification is required.

(ii)       Corporate Power.  Company has all requisite corporate power and authority to execute, issue and deliver this Warrant, to issue the Warrant Shares issuable upon exercise or conversion of this Warrant, and to carry out and perform its obligations under this Warrant and any related agreements.

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(iii)      Authorization; Enforceability.  All corporate action on the part of Company, its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of its obligations under this Warrant and for the authorization, issuance and delivery of this Warrant and the Warrant Shares issuable upon exercise of this Warrant has been taken and this Warrant constitutes the legally binding and valid obligation of Company enforceable in accordance with its terms.

(iv)      Valid Issuance of Warrant and Warrant Shares.  This Warrant has been validly issued and is free of restrictions on transfer other than restrictions on transfer set forth herein and under applicable state and federal securities laws.  The Warrant Shares issuable upon conversion of this Warrant, when issued, sold and delivered in accordance with the terms of this Warrant for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Warrant and under applicable state and federal securities laws.  Subject to applicable restrictions on transfer, the issuance and delivery of this Warrant and the Warrant Shares issuable upon exercise or conversion of this Warrant are not subject to any preemptive or other similar rights or any liens or encumbrances except as specifically set forth in Company’s Certificate of Incorporation or this Warrant.  Assuming the truth and accuracy of Holder’s representations and warranties set forth in Section 4(a), no registration under the Act is required for the offer and sale of this Warrant or the issuance of the Warrant Shares, pursuant to the terms of this Warrant and neither Company nor any authorized agent acting on its behalf has or will take any action hereafter that would cause the loss of such exemption.

(v)       No Conflict.  The execution, delivery, and performance of this Warrant will not result in (a) any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice (1) any provision of Company’s Certificate of Incorporation or by-laws; (2) any provision of any judgment, decree, or order to which Company is a party, by which it is bound, or to which any of its material assets are subject; (3) any contract, obligation, or commitment to which Company is a party or by which it is bound; or (4) any statute, rule, or governmental regulation applicable to Company, or (b) the creation of any lien, charge or encumbrance upon any assets of Company.

(vi)      Reports.  Company has previously furnished or made available to Holder complete and accurate copies, as amended or supplemented, of its (a) Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “SEC”), and (b) all other reports filed by Company under Section 13 or subsections (a) or (c) of Section 14 of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) with the SEC since December 31, 2012 (such reports are collectively referred to herein as the “Company Reports”).  The Company Reports constitute all of the documents required to be filed by Company under Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from December 31, 2012 through the date of this Warrant.  The Company Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder when filed.  As of their respective dates of filing with the SEC, the Company Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

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5.            Legends.

(a)            Legend.  Each certificate representing the Warrant Shares shall be endorsed with substantially the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED (UNLESS SUCH TRANSFER IS TO AN AFFILIATE OF HOLDER) UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A “NO ACTION” LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR (IF REASONABLY REQUIRED BY COMPANY) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

Company need not enter into its stock records a transfer of Warrant Shares unless the conditions specified in the foregoing legend are satisfied.  Company may also instruct its transfer agent not to allow the transfer of any of the Warrant Shares unless the conditions specified in the foregoing legend are satisfied.

(b)           Removal of Legend and Transfer Restrictions.  The legend relating to the Act endorsed on a certificate pursuant to paragraph 5(a) of this Warrant shall be removed and Company shall issue a certificate without such legend to Holder if (i) the Securities are registered under the Act and a prospectus meeting the requirements of Section 10 of the Act is available or (ii) Holder provides to Company an opinion of counsel for Holder reasonably satisfactory to Company, a no-action letter or interpretive opinion of the staff of the SEC reasonably satisfactory to Company, or other evidence reasonably satisfactory to Company, to the effect that public sale, transfer or assignment of the Securities may be made without registration and without compliance with any restriction such as Rule 144.

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6.            Condition of Transfer or Exercise of Warrant.

(a)           It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, Holder shall provide Company with a representation in writing that Holder or transferee is acquiring this Warrant and the shares of Common Stock to be issued upon exercise for investment purposes only and not with a view to any sale or distribution, or will provide Company with a statement of pertinent facts covering any proposed distribution; provided, that in the case of a transfer of this Warrant, such requirement shall be deemed satisfied by the execution and delivery to the Company by Holder and the transferee of an Assignment in substantially the form attached hereto as Exhibit B.  As a further condition to any transfer of this Warrant or any or all of the shares of Common Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, Company may request a legal opinion, in form and substance satisfactory to Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act.  Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder, provided that any such transferee is an “accredited investor” within the meaning of Regulation D under the Act.  Furthermore, the Company shall also not require an opinion of counsel if there is no material question as to the availability of Rule 144 promulgated under the Act, unless an opinion of counsel is required by the Company’s transfer agent to effect such transfer.  As further condition to each transfer, at the request of Company, Holder shall surrender this Warrant to Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by Company.

(b)           Notwithstanding anything to the contrary herein, after receipt by Silicon Valley Bank (“Bank”) of this executed Warrant, Bank will transfer all of this Warrant to SVB Financial Group, an Affiliate of Bank (as the term Affiliate is defined under the Securities Act of 1933, as amended). By accepting transfer of this Warrant and as a condition to the effectiveness of such transfer, SVB Financial Group shall be deemed to have made to Company the representations and warranties set forth in Section 4(a) hereof.

7.            Adjustment for Certain Events.  The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a)           Reclassification or Merger.  In case of (i) any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any merger of Company with or into another corporation (other than a merger with another corporation in which Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or (iii) any sale of all or substantially all of the assets of Company, subject to the provisions of Section 3(e) hereof, Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to Holder a new Warrant (in form and substance satisfactory to Holder of this Warrant), or Company shall make appropriate provision without the issuance of a new Warrant, so that Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the Warrant Shares theretofore issuable upon exercise or conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Common Stock then purchasable under this Warrant, or in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of Holder, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Warrant Shares purchasable upon exercise of this Warrant at the time of the transaction.  Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7.  The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers.

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(b)          Subdivision or Combination of Shares.  If Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Common Stock, the Warrant Price shall be proportionately decreased and the number of Warrant Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Warrant Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c)           Stock Dividends and Other Distributions.  If Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Common Stock payable in Common Stock, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Common Stock (except any distribution specifically provided for in Sections 7(a) and 7(b)), then, in each such case, provision shall be made by Company such that Holder shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were Holder of the Warrant Shares as of the record date fixed for the determination of the shareholders of Company entitled to receive such dividend or distribution.

(d)           Adjustment of Number of Shares.  Upon each adjustment in the Warrant Price pursuant to clause (i) of Section 7(c), the number of Warrant Shares purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Warrant Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

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8.            Notice of Adjustments.  Whenever any Warrant Price or the kind or number of securities issuable under this Warrant shall be adjusted pursuant to Section 7 hereof, Company shall prepare a certificate signed by an officer of Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number or kind of shares issuable upon exercise of this Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid) within thirty (30) days of such adjustment to Holder as set forth in Section 19 hereof.

9.            Financial and Other Reports.  If at any time prior to the earlier of the Expiration Date and the complete exercise of this Warrant, Company is no longer subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, Company shall furnish to Holder (a) quarterly unaudited consolidated and, if available, consolidating balance sheets, statements of operations and cash flow statements within 45 days of each fiscal quarter end, in a form acceptable to Holder and certified by Company’s president or chief financial officer, and (b) annual audited consolidated and, if available, consolidating balance sheets, statements of operations and cash flow statements certified by an independent certified public accountant selected by Company and reasonably satisfactory to Holder within 120 days of the fiscal year end or, if sooner, promptly after such time as Company’s Board of Directors receives the audit; provided, however, that Holder execute and deliver to Company a nondisclosure agreement in a form reasonably acceptable to Company prior to receipt of any such reports.

10.          Transferability of Warrant.  This Warrant is transferable on the books of Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 6 and applicable federal and state securities laws.  Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred.  Upon any partial transfer, Company will issue and deliver to Holder a new Warrant with respect to the portion of the Warrant not so transferred.

11.          Reserved.

12.          No Fractional Shares.  No fractional share of Common Stock will be issued in connection with any exercise or conversion hereunder, but in lieu of such fractional share Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect.

13.          Charges, Taxes and Expenses.  Issuance of certificates for shares of Common Stock upon the exercise or conversion of this Warrant shall be made without charge to Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by Company, and such certificates shall be issued in the name of Holder.

14.          No Shareholder Rights Until Exercise.  Except as expressly provided herein, this Warrant does not entitle Holder to any voting rights or other rights as a shareholder of Company prior to the exercise hereof.

15.          Registry of Warrant.  Company shall maintain a registry showing the name and address of the registered Holder of this Warrant.  This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of Company, and Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

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16.          Loss, Theft, Destruction or Mutilation of Warrant.  Upon receipt by Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, on delivery of an indemnity reasonably satisfactory to Company in form and amount, and, if mutilated, upon surrender and cancellation of this Warrant, Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof.

17.          Miscellaneous.

(a)            Issue Date.  The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by Company on the date hereof.

(b)           Successors.  This Warrant shall be binding upon any successors or assigns of Company.

(c)           Headings.  The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

(d)           Saturdays, Sundays, Holidays.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the State of New York, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

(e)            Attorney’s Fees.  In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorney’s fees.

18.         No Impairment.  Company will not, by amendment of its Certificate of Incorporation or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder hereof against impairment; provided, however, that notwithstanding the foregoing, nothing in this Warrant shall restrict or impair Company’s right to effect changes to the rights, preferences, and privileges associated with the Warrant Shares with the requisite consent of the stockholders as may be required to amend its Certificate of Incorporation from time to time so long as such amendment affects the rights, preferences, and privileges granted to Holder associated with the Warrant Shares in the same manner as the other holders of outstanding shares of the same class.

19.          Addresses.  Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt requested, and postage prepaid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as Company or Holder hereof shall have furnished to the other party in accordance with the delivery instructions set forth in this Section 19.

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If to Company:

	
Cytori Therapeutics Inc.

3020 Callan Road

San Diego, California 92121

Phone:  (858) 458-0900

Facsimile:  (858) 450-4335

Attn:  Chief Financial Officer

		
 

	
 

		
With a copy to:

	
Cytori Therapeutics Inc.

3020 Callan Road

San Diego, California 92121

Phone:  (858) 458-0900

Facsimile:  (858) 450-4335

Attn:  In-House Counsel

		 	
		
If to Holder:

	
Silicon Valley Bank

4370 La Jolla Village Drive

Suite 1050

 San Diego, CA 92122

Attn: Kevin Wallace

If mailed by registered or certified mail, return receipt requested, and postage prepaid, notice shall be deemed to be given five (5) days after being sent, and if sent by overnight courier, by hand or by messenger, notice shall be deemed to be given when delivered (if on a business day, and if not, on the next business day), and if sent by facsimile transmission to the facsimile number provided in this Section 19, on the date of transmission, provided that the sender receives a machine-generated confirmation of successful transmission completed before 5:00 p.m. Pacific time (if on a business day, and if not, on the next business day).

 

20.          Notice of Certain Events.  If the Company proposes at any time (a) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for sale any shares of the Company’s capital stock (or other securities convertible into such capital stock), other than (i) pursuant to the Company’s stock option or other compensatory plans, (ii) in connection with commercial credit arrangements or equipment financings, (iii) in connection with strategic transactions for purposes other than capital raising, or (iv) the issuance of any shares of the Company’s capital stock upon the exercise of any warrants outstanding as of the date hereof; (c) to effect any reclassification or recapitalization of any of its stock; or (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up, then, in connection with each such event, the Company shall give Holder:  (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above; and (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event).  Company will also provide information requested by Holder reasonably necessary to enable Holder to comply with Holder’s accounting or reporting requirements; provided, however, that Holder execute and deliver to Company a nondisclosure agreement in a form reasonably acceptable to Company prior to receipt of any such information.

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21.          WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS WARRANT OR THE WARRANT SHARES.

22.         GOVERNING LAW.  THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

[Remainder of page intentionally blank; signature page follows]

- 13 -

IN WITNESS WHEREOF, Company has caused this Warrant to be executed by its officer thereunto duly authorized on the date specified above.

 

	
CYTORI THERAPEUTICS INC.

	
 

	
 

	
By:

	
/s/ Mark E. Saad

	
 

	
Name:       Mark E. Saad

	
 

	
Title:          Chief Financial Officer

	
 

	
 

	
ACCEPTED AND AGREED TO:

	 
	
SILICON VALLEY BANK

	
 

	
 

	
By:

	
/s/ Kevin Wallace

	
 

	
Name:         Kevin Wallace

	
 

	
Title:            Vice President

- 14 -

EXHIBIT A

NOTICE OF EXERCISE

 

To:

 

Cytori Therapeutics Inc.

3020 Callan Road

San Diego, California 92121

Phone:  (858) 458-0900

Facsimile:  (858) 450-4335

Attn:  Chief Financial Officer

 

		1.	The undersigned Warrantholder (“Holder”) elects to acquire shares of the Common Stock (the “Common Stock”) of Cytori Therapeutics Inc. (the “Company”), pursuant to the terms of the Stock Purchase Warrant dated June 28, 2013 (the “Warrant”).

		2.	Holder exercises its rights under the Warrant as set forth below (check one):

		(           )	Holder elects to purchase _____________ shares of Common Stock as provided in Section 3(a) and tenders herewith a check in the amount of $___________ as payment of the purchase price.

 

		(           )	Holder elects to convert the purchase rights into shares of Common Stock as provided in Section 3(b) of the Warrant.

		3.	Holder surrenders the Warrant with this Notice of Exercise.

Holder represents that it is acquiring the aforesaid shares of Common Stock for investment and not with a view to or for resale in connection with distribution and that Holder has no present intention of distributing or reselling the shares.

Please issue a certificate representing the shares of the Common Stock in the name of Holder or in such other name as is specified below:

 

		
Name:

	
 

	
 

		 		
		
Address:

	
 

	
 

		 		
		
Taxpayer I.D.:

	
 

	
 

 

	
 

	
[NAME OF HOLDER]

	
	 		
	
 

	
By:

	
 

	
	
 

	
 

	
Name:

	
 

	
	
 

	
 

	
Title:

	
 

	
	 		
	
 

	
Date:  _______ ___, 20___

	

- 15 -

EXHIBIT B

 

ASSIGNMENT

 

For value received, Silicon Valley Bank hereby sells, assigns and transfers unto

 

Name:                          [ASSIGNEE]

 

Address:

 

Tax ID:

 

that certain Warrant to Purchase Shares of Common Stock issued by Cytori Therapeutics Inc. (the “Company”), on June 28, 2013 (the “Warrant”) together with all rights, title and interest therein.

 

	
SILICON VALLEY BANK

	
 

	 	
	
By:

	
 

	
Name:

	
 

	
Title:

	
 

	 	
	
Date:

 

By its execution below, and for the benefit of the Company, [ASSIGNEE] makes each of the representations and warranties set forth in Section 4(a) of the Warrant and agrees to all other provisions of the Warrant as of the date hereof.

 

	[ASSIGNEE]	
	 		
	
By:

	
 

	
 

	
Name:

	
 

	
 

	
Title:Exhibit 10.1

August 7, 2013

Jeffery A. Surges

 

Dear Jeff:

This letter is written to confirm our agreement regarding the separation of your employment with Merge Healthcare Incorporated (“Merge Healthcare” or the “Company”).  You agree that your last day of employment with Merge Healthcare will be August 8, 2013.

You will receive your final regular pay check on the Company’s next payroll date after August 8, 2013.  This pay check will include your base salary and all unused and accrued paid time off through August 8, 2013, less any applicable deductions for benefits, withholding and taxes.

Conditions to Receipt of Severance Payments and Benefits.

In order to receive the severance payments and other benefits described below, you must (a) return all Company property and equipment by August 8, 2013; (b) sign and not timely revoke the release attached as Exhibit A (the “Release”); (c) sign and return this letter agreement prior to August 8, 2013 (the “Agreement”); and (d) not breach the terms of the Release or any other continuing contractual obligation that you have to Merge Healthcare, including under your Employment Agreement dated November 5, 2010, as amended herein (your “Employment Agreement”) (all of the foregoing referred to as the “Conditions”).  Please read the Release form carefully.  You should consult with an attorney regarding the Release.  You may take up to 21 days from the date of this letter to return the signed Release to the undersigned.  You must sign and return the Release within that 21 day period to be entitled to any severance payments or other benefits.  You will also be given 7 days after you sign and return the Release to revoke it; if you do not, the Release will become effective on the 8th day after we receive it (the “Effective Date”).  The Company will execute the Release as to the Company’s covenants therein within 7 days after the Effective Date.

Severance Payments.

In consideration of the Conditions set forth above, you will receive a total of $225,000.00, payable in 12 bi-monthly payments ($18,750 per payment), less applicable withholding and taxes (the “Severance Payments”).  The Severance Payments will be paid in accordance with Merge Healthcare’s regular payroll schedule, beginning with the first payroll cycle after the date on which the Release becomes effective.

COBRA Benefits:

In addition, as a further severance benefit, Merge Healthcare will pay or provide any accrued benefits and will continue until the earlier of (a) August 8, 2014 or (b) the date on which you become eligible for similar benefits under the benefits plans applicable to senior executives of another employer, welfare benefits to you and/or your family on terms and conditions substantially equivalent to those provided to the Company’s other senior executives or their families.  Specifically, such welfare benefits to be continued are:  medical, dental and vision insurance under the Company’s existing insurance plans.

 

 

Additional Stock Option Vesting Benefits.

As of July 31, 2013, you had vested previously-granted options with respect to 1,157,812.5 shares of Merge Healthcare’s common stock.  Previously-granted options with respect to 642,187.5 shares of Merge Healthcare’s common stock were not vested as of July 31, 2013 and, if not vested on or before your last date of employment, will be automatically cancelled.  You may not exercise any cancelled options in the future.

In consideration of the Conditions, Merge Healthcare has agreed to vest, on the effective date of the Release, previously-granted stock options with respect to 328,125 shares of Merge Healthcare’s common stock that would have vested on or before November 30, 2013 had you remained employed through such date.  All such options shall otherwise remain subject to all applicable terms and conditions contained in the Merge Healthcare 2005 Equity Incentive Plan.

You hereby acknowledge and agree that the foregoing summary of your vested and cancelled options is correct, and that you are not eligible for, or otherwise entitled to receive, any additional options to purchase Merge Healthcare’s common stock.

Please refer to the attached “Benefit Separation Information” handout (Exhibit B) for details regarding your participation in Merge Healthcare’s benefits programs.  Please refer to the attached copy of the Merge Healthcare 2005 Equity Incentive Plan (Exhibit C) for information regarding your continuing rights with respect to stock options that you have been previously granted.

Amendment of your Employment Agreement.

In accordance with Section 7(a) of your Employment Agreement, Merge Healthcare and you hereby agree to modify and amend your Employment Agreement, effective as of August 8, 2013, as follows:

	 	
1)

	
Replace the first sentence of Section 1 with the following:

The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on August 8, 2013.

	 	
2)

	
Replace Section 4(a) with the following:

	 	
(a)

	
Termination by Agreement.  The Company and the Executive hereby agree that the Executive’s employment will terminate on August 8, 2013 and provided that (in the case of clauses (ii) and (iii) below) Executive executes within thirty (30) days after August 8, 2013, and does not revoke, a general release in the form attached hereto as Exhibit A:

	 	
(i)

	
the Company shall pay to the Executive the Executive’s Annual Base Salary through August 8, 2013 in accordance with the Company’s payroll practices;

 

		(ii)	the Company shall pay, in accordance with the Company’s payroll practices over six (6) calendar months, beginning with the Company’s first payroll cycle after August 8, 2013 (or such later date that any right that the Executive has to revoke his general release shall have lapsed), in 12 bi-monthly payments of $18,750.00 per payment (totaling $225,000.00); and

		(iii)	the Company shall pay or provide any accrued benefits and shall continue, for one year after August 8, 2013 (or such earlier date as you shall become eligible for similar benefits applicable to senior executives under the plans of another employer), welfare benefits to the Executive and/or the Executive’s family on terms and conditions substantially equivalent to those provided to other senior executives of the Company or their families at such time (which period shall reduce the Executive’s COBRA coverage period by the same duration).  Specifically, such welfare benefits to be continued are: medical, dental and vision insurance under the Company’s existing insurance plans.

All other provisions of your Employment Agreement shall remain in full force and effect, including the provisions of Section 5, which, by their terms, are designed to apply after the termination of the Executive’s employment.

Return of Company Property.

As required by our Technology and Confidential Information Policy, you are required to return all Merge Healthcare property promptly and, in any event, no later than August 8, 2013.  This will include but is not limited to customer lists, software, documents, keys of any kind (such as key fob, office, file cabinet, building or desk keys), office passes, parking passes, credit cards and all equipment (such as laptop, power supplies, laptop batteries, laptop bag and cell phone) that you have received from Merge Healthcare. You may return this property either in person, by hand-delivery, or via Federal Express.  For FedEx returns, please package the equipment to ensure safe delivery and use Merge Healthcare’s FedEx number previously provided to you. This number allows you to return the property at no cost to you.  Such FedEx package should be sent to:

Merge Healthcare

 Attention:  Alan Thornberry

900 Walnut Ridge Drive

Hartland, WI 53029

In the event that you do not return all Merge Healthcare property, you will not receive your severance payments or other benefits, and we reserve the right to pursue all appropriate remedies allowed by law.

Policies.

Please be aware that from your final day and for the 90-day period thereafter, you will continue to be bound by and subject to the Merge Healthcare Insider Trading Policy.  Also, you will continue to be bound by your non-disclosure, non-competition and/or non-solicitation agreements, even though your employment has terminated, to the extent provided in Section 5 of your Employment Agreement.

Litigation Costs.

Each party hereby agrees that if, after a reasonable attempt to reach a mutual agreement with respect to any controversy or dispute arising under this Agreement, your Employment Agreement or the Release, a party (or any party on his or its behalf) brings an action against the other party under this Agreement, your Employment Agreement or the Release, the non-prevailing party in such litigation will pay all costs, expenses and reasonable attorneys’ fees incurred by the prevailing party in connection with such action.  The provisions of this paragraph shall be in addition to, and interpreted consistently with, the provisions of Paragraph 15 of the Release, including the fourth sentence thereof.

 

On behalf of Merge Healthcare, thank you for your service and contributions.  We wish you success in your future endeavours.

	
Sincerely,

	
 

	
 

	
 

	
MERGE HEALTHCARE INCORPORATED

	
 

	
 

	
 

	
/s/ JUSTIN C. DEARBORN

	
 

	
 

	
 

	
Justin Dearborn

	
 

	
CEO

	
 

Enclosures:  Release Agreement  (Exhibit A)

  Benefit Separation Information  (Exhibit B)

  The Merge Healthcare 2005 Equity Incentive Plan  (Exhibit C)

AGREED:

	
By:

	
/s/  JEFFERY A. SURGES

	
 

	
 

	
Jeffery A. Surges

	
 

	
 

	
 

	
 

	
Date:

	
August 8, 2013

	
 

 

Benefit Separation Information

 

Health Coverage (Medical/Dental/Vision)

If you are currently covered under the medical or dental plans provided by Aetna, or the vision plans provided by VSP, your coverage will be effective until the last day of the month in which you are no longer employed.  Under federal legislation, you and your covered dependants have the right to choose continuation coverage through COBRA.

Merge Healthcare’s COBRA Administrator is Benefit Advantage.  They will be mailing COBRA election paperwork to your home address.  If you do not receive the information within 30 days of your termination date, please contact Merge Healthcare Human Resources.

Life Insurance (Group Life/AD&D and Supplemental Life/AD&D)

Your Group Life Insurance and AD&D coverage provided by Merge Healthcare ends as of the date in which you are no longer employed. You have the ability to convert your life plan into an individual policy.  There is a conversion form that you would need to complete to begin this process.

If you had supplemental life and/or AD&D coverage, you may have the opportunity to convert or port this coverage beyond your separation date.  Notify Human Resources if you are interested in receiving these forms.

Flexible Spending Accounts

Direct deposits into these accounts end on the last paycheck you receive after your last day of employment.  However, you may continue to request reimbursement of eligible expenses incurred through your separation date.  Claims must be submitted by March 31 following the close of the Plan Year.

If COBRA applies and you lose coverage due to a qualifying event, then those who were covered under the Medical Spending Account before the qualifying event may be able to continue participation in the Medical Spending Account by timely electing and paying for COBRA coverage. COBRA is not available if you have a negative account balance as of the qualifying event.  Dependent Care Spending Accounts are not considered health plans; therefore, federal COBRA regulations do not apply.

401K Retirement Plan

The 401(k) Retirement Savings plan is administered with Principal.  The plan number for this plan is #432972.  If you currently have money within the plan there are a number of options available for you to choose from to withdrawal your savings.  Principal will mail you a packet designed to help you decide what to do with the money you have accumulated in your account.  If you have an outstanding 401(k) loan, you will have 60 days to repay the loan in full.  If you choose not to re-pay your loan, it will be reported as taxable income and a 1099 will be issued.  You can contact Principal either by phone (800) 547-7754, or on-line at www.principal.com.

 

 

Stock Options or ESPP

For information regarding Stock Options or shares acquired through ESPP, please contact Julie Ann Schumitsch at julieann.schumitsch@merge.com or call 866.887.1424.

Payroll Check/W2 Future Viewing

Through ADP, our payroll provider, you may continue to access your existing pay statements and W-2 forms 24 hours a day, 7 days a week for up to three years from the date your last statement was issued.

		·	Go to https://portal.adp.com/public/index.htm.

		·	Log in with your Merge ID (EX. John Smith – login: JSmith@Merge)

		·	Then you are able to view your paystubs and W2’s!

Outstanding Expense Reimbursement

In Concur, your account will remain available for two weeks after your termination date to allow for expense report submittal. If more time is needed, please send your request to mergepayroll@merge.com.  You can also request an email address change (to receive expense report status updates) by contacting the payroll team.

Access to Concur Premier

		·	Click this link to access Concur Premier: Travel and Expense: https://www.concursolutions.com

		·	Your username is firstname.lastname@merge.com   Example:  donald.driver@merge.com

		·	Your current password must be used. To reset passwords, please contact mergepayroll@merge.com

Change of Address

In the event your address should change, please notify Human Resources.  They will need to change your address to ensure you receive all tax, 401k, and mailing information promptly.

Return of Company Property

As required by our Technology and Confidential Information Policy, you are required to return all Merge Healthcare property immediately following your final day.  This will include but is not limited to customer lists, software, documents, keys of any kind (such as key fob, office, file cabinets, building or desk keys), parking pass and all equipment (such as laptop, power supplies, laptop batteries, laptop bag and cell phone). You may return this property either in person, by hand-delivery, or via Federal Express.  For FedEx returns, please package the equipment to ensure safe delivery and use the following FedEx number: 2356-5510-1. This number allows you to return the property at no cost to you.  Such FedEx package should be sent to:

 

Merge Healthcare

 Attention:  IT Department

900 Walnut Ridge Drive

Hartland, WI 53029

In the event that you do not return all Merge Healthcare property, you will not receive your severance payment and we reserve the right to pursue all appropriate remedies allowed by law.

 

 

Unemployment Insurance Benefits

In general, the Federal-State Unemployment Insurance Program provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under State law), and meet other eligibility requirements of State law. Each State administers a separate unemployment insurance program within guidelines established by Federal law.

You should contact the State Unemployment agency as soon as possible after becoming unemployed. In some States you can file a claim by telephone or over the internet. To find information for a particular State, you can go to CareerOneStop website: http://www.servicelocator.org/OWSLinks.asp.

Career One Stop

CareerOneStop is a US Department of Labor sponsored Web site that offers career resources and workforce information to job seekers. You can call 877-US2-JOBS (877-872-5627) for information about career services and the location of the one-Stop Career Center near you.

		·	CareerOneStop provides resources to foster talent development, career management, and lifelong learning. www.careeronestop.org

		·	America’s Career InfoNet offers quick access to CareerOneStop’s occupation and industry information. www.careerinfonet.org

		·	America’s Service Locator connects individuals to employment and training opportunities available at local One-Stop Career Centers. www.servicelocator.org

Human Resources Contact Information

Merge Healthcare

Attention: Human Resources

 900 Walnut Ridge Drive

Hartland, WI 53029

Email: hr@merge.com

Phone:  866.231.7876

 

MERGE HEALTHCARE INCORPORATED

2005 EQUITY INCENTIVE PLAN

 

1.             PURPOSE.

The purpose of the Merge Healthcare Incorporated 2005 Equity Incentive Plan (the “Plan”) is to advance the interests of Merge Healthcare Incorporated (the “Company”) and its shareholders by providing Directors, Consultants and those key employees of the Company and its Subsidiaries and Affiliates, upon whose judgment, initiative and efforts the successful conduct of the business of the Company and its Affiliates largely depends, with additional incentive to perform in a superior manner.  A purpose of the Plan also is to attract and retain personnel of experience and ability to the service of the Company and its Affiliates, and to reward such individuals for achievement of corporate and individual performance goals.

2.            DEFINITIONS.

(a)            “Affiliate” means an affiliate as that term is defined in Rule 12b–2 of the General Rules and Regulations of the Exchange Act; provided that, for purposes of determining Employees who may receive grants of Options or Stock Appreciation Rights that are exempt from Code Section 409A, the term “Affiliate” means any corporation in a chain of corporations or other entities beginning with the Company in which each corporation or other entity has a controlling interest in the other entity or corporation, with controlling interest determined pursuant to Treasury regulation section 1.414(c)‐2(b)(2)(i) except that the phrase “at least 20 percent” shall be used in place of the phrase “at least 80 percent” each place such phrase is used therein.

(b)            “Award” means a Stock Grant, a Performance Unit Grant, a Stock Unit Grant or a grant of Stock Appreciation Rights, Non–statutory Stock Options or Incentive Stock Options pursuant to the provisions of this Plan.

(c)            “Board of Directors” or “Board” means the board of directors of the Company.

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

(e)            “Change in Control” of the Company shall have occurred when (i) any “person”, as the term is used in Section 3 of the Exchange Act (other than a Company employee benefit plan) is or becomes the “beneficial owner” as defined in Rule 16a–1 under the Exchange Act, directly or indirectly, of securities of the Company representing 50% or more of the Company’s outstanding securities ordinarily having the right to vote in the election of directors; (ii) individuals who constitute the Board on the date hereof (the “Incumbent Board”), cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three–quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s shareholders was approved by the same nominating committee serving under an Incumbent Board, shall be, for purposes of this clause (ii) considered as though he or she were a member of the Incumbent Board; (iii) consummation of a plan of reorganization, merger, or consolidation, in which the shareholders of the Company own less than 50% of the outstanding voting securities of the surviving entity; or (iv) a sale of substantially all of the Company’s assets, a liquidation or dissolution of the Company or a similar transaction.  Notwithstanding the foregoing, the consummation of the transactions contemplated by the Merger Agreement between the Company, Merge Cedara ExchangeCo Limited and Cedara Software Corp. shall not constitute a Change in Control.

Notwithstanding the foregoing, if an Award provides for the payment of deferred compensation that is subject to (and not exempt from) Code Section 409A, and if payment will be made under such Award upon a Change in Control, then the definition of Change in Control herein shall be deemed amended, to the minimum extent necessary, to conform to the requirements of Code Section 409A and the Administrator may include such an alternate definition of a Change in Control in the agreement or notice governing such Award.

(f)            “Committee” means the Compensation Committee of the Board, consisting of two or more Directors appointed by the Board pursuant to Section 3 hereof who are  “non–employee directors,” as defined in Rule 16b–3 promulgated by the SEC under the Exchange Act and “outside directors” as defined in Treas. Reg. 1.162–27 promulgated under the Code.

(g)            “Common Stock” means the Common Stock of the Company, $.01 par value per share.

(h)            “Consultant” means an individual, corporation, partnership, LLC or LLP providing services to the Company in an independent contractor capacity.

(i)            “Date of Grant” means the date an Award is effective pursuant to the terms hereof.

(j)            “Director” means a Director of the Company or a Subsidiary or Affiliate of the Company who is not also an Employee.

(k)            “Disability” means disability as defined in Code Section 409A.

(l)            “Employee” means any person who is employed by the Company or a Subsidiary or Affiliate of the Company on a full–time or part–time basis.

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

(n)            “Fair Market Value” shall mean, as of any date, (i) the closing price of the Common Stock on the principal national stock exchange on which the shares are listed on such date or, if shares were not traded on such date, then on the next preceding trading day during which a sale occurred; or (ii) if such stock is not listed on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the stock on such date as reported by NASDAQ or such successor quotation system; or (iii) if such stock is not listed on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the stock on such date, as determined in good faith by the Committee; or (iv) if the Common Stock is not publicly traded, the fair market value established by the Committee acting in good faith.

2

(o)            “Incentive Stock Option” means an Option granted by the Committee to a Participant, which Option is designated as an Incentive Stock Option pursuant to Section 9 of this Plan.

(p)            “Non–statutory Stock Option” means an Option granted to a Participant and which is not an Incentive Stock Option.

(q)            “Option” means an Award granted under Section 8 or Section 9 of this Plan.

(r)            “Participant” means an Employee of the Company or a Subsidiary or Affiliate chosen by the Committee to participate in the Plan, a Director of the Company or a Subsidiary or Affiliate of the Company chosen by the Committee to participate in the Plan or a Consultant to the Company or a Subsidiary or Affiliate of the Company chosen by the Committee to participate in the Plan.

(s)            “Performance Unit Grant” means a grant of a unit having a value determined by the Committee, accompanied by such restrictions as may be determined by the Committee under Section 10 of the Plan.

(t)            “Plan Year(s)” means a calendar year or years commencing on or after January 1, 2005.

(u)            “SEC” means the Securities and Exchange Commission.

(v)            “Stock Appreciation Right” means a grant of a right to receive a payment equal to the appreciation in the value of a share of Common Stock accompanied by such restriction as may be determined by the Committee under Section 11 of the Plan.

(w)            “Stock Grant” means a grant of shares of Common Stock accompanied by such restrictions as may be determined by the Committee under Section 7 of the Plan.

(x)            “Stock Unit Grant” means a grant of a unit having a value based on the value of the Company’s Common Stock accompanied by such restrictions as may be determined by the Committee under Section 10 of the Plan.

3

(y)            “Subsidiary” means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.

(z)            “Termination for Misconduct” means the termination of a Participant for gross negligence, commission of a felony or material violation of any established Company policies.

3.            ADMINISTRATION.

3.1            General.  The Plan shall be administered by the Committee.  The members of the Committee shall be appointed by the Board.  The Committee shall act by vote of a majority of its members or unanimous written consent.  The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make whatever determinations and interpretations in connection with the Plan it deems necessary or advisable with respect to Participants.  All determinations and interpretations made by the Committee shall be binding and conclusive on such Participants and on their legal representatives and beneficiaries.  In determining the number of shares of Common Stock with respect to which Options, Stock Appreciation Rights and Stock Grants, Performance Unit Grants or Stock Unit Grants are exercisable, fractional shares will be rounded up to the nearest whole number if the fraction is 0.5 or higher, and down if it is less.

3.2            Limitation on Liability.  No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan, any rule, regulation or procedure adopted by it pursuant thereto or any Awards granted under it.  If a member of the Committee is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of anything done or not done by him or her in such capacity under or with respect to the Plan, the Company shall indemnify such member against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he or she acted in good faith and in a manner reasonably believed to be in the best interests of the Company, and its Subsidiaries and Affiliates and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful.

4.                   TYPES OF AWARDS.

Awards under the Plan may be granted in any one or a combination of:

(a)            Stock Grants;

(b)            Non–statutory Stock Options;

(c)            Incentive Stock Options;

4

(d)            Stock Unit and Performance Unit Grants;

(e)            Stock Appreciation Rights

as defined in paragraphs 7, 8, 9, 10 and 11 of the Plan.

The Committee shall, in its discretion, determine from time to time which Participants will be granted Awards under the Plan, the number of shares of Common Stock subject to each Award, whether each Option will be an Incentive Stock Option or a Non‐statutory Stock Option (except that Incentive Stock Options may not be awarded to Consultants or Directors), the exercise price of an Option or Stock Appreciation Right and the restrictions, if any, which will be applicable to each Stock Grant, Performance Unit Grant or Stock Unit Grant.  In making all such determinations, the Committee shall take into account the duties, responsibilities and performance of each respective Participant, his or her present and potential contributions to the growth and success of the Company, his or her compensation and such other factors as the Committee shall deem relevant to accomplishing the purposes of the Plan.

No Participant shall have any voting or dividend rights or other rights of a shareholder in respect of any shares of Common Stock covered by an Option prior to the time the shares have been issued to the Participant.

5.            STOCK SUBJECT TO THE PLAN.

Subject to adjustment as provided in Section 17, the maximum number of shares reserved for Stock Grants, Stock Appreciation Rights Grants, Performance Unit Grants and Stock Unit Grants and for purchase pursuant to the exercise of Options granted under the Plan is Sixteen Million Five Hundred Thousand (16,500,000) shares of Common Stock.  The maximum aggregate number of shares that may be issued under the Plan through Incentive Stock Options is Five Million (5,000,000).

Of the total shares of Common Stock available under the Plan, Awards with respect to no more than Seven Hundred Fifty Thousand (750,000) shares of Common Stock shall be issued to any Participant in any calendar year.  No Participant may be granted Performance Unit Grants and/or Stock Unit Grants in any calendar year if the value of such Awards exceeds (or would exceed if performance goals are satisfied) 500% of the Participant’s total compensation during the current year (or if greater, 500% of the Participant’s compensation during a prior year).

The shares of Common Stock to be subject to the Plan may be either authorized but unissued shares or shares previously issued and reacquired by the Company.  To the extent that the Plan provides for the issuance of stock certificates with respect to Common Stock, the Company may, in lieu thereof, record the shares on a book entry account maintained by the Company’s transfer agent.  To the extent that Options are granted and Stock Appreciation Rights Grants, Stock Grants, Performance Unit Grants and Stock Unit Grants are made under the Plan, the shares underlying such Options, Stock Appreciation Rights Grants, Stock Grants, Performance Unit Grants and Stock Unit Grants will be unavailable for future grants under the Plan except that, to the extent that the Options, Stock Appreciation Rights Grants, Stock Grants, Performance Unit grants and Stock Unit Grants granted under the Plan terminate, expire, are canceled or are forfeited without having been exercised, new Awards may be made with respect to such shares.

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6.            ELIGIBILITY.

Officers and other Employees (including Employees who also are Directors of the Company or its Subsidiaries or Affiliates) shall be eligible to receive Stock Grants, Performance Unit Grants, Stock Unit Grants, Incentive Stock Options, Stock Appreciation Rights and Non–statutory Stock Options under the Plan.  Directors and Consultants shall be eligible to receive Stock Grants, Stock Unit Grants, Stock Appreciation Rights and Non‐statutory Stock Options under the Plan.

7.            STOCK GRANTS.

7.1            General Terms.  Each Stock Grant may be accompanied by such restrictions, or may be made without any restrictions, as may be determined in the discretion of the Committee.  Such restrictions may include, without limitation, requirements that the Participant remain in the continuous employment of the Company or its Subsidiaries or Affiliates for a specified period of time, or that the Participant meet designated individual performance goals, or that the Company and/or one or more of its Subsidiaries or Affiliates meet designated performance goals.

7.2            Issuance Procedures.  A stock certificate representing the number of shares of Common Stock covered by a Stock Grant shall be registered in the Participant’s name and may be held by the Participant; provided however, if a Stock Grant is subject to certain restrictions, the shares of Common Stock covered by such Stock Grant shall be registered in the Participant’s name and held in custody by the Company.  Unless the Committee determines otherwise, a Participant who has been awarded a Stock Grant shall have the rights and privileges of a shareholder of the Company as to the shares of Common Stock covered by a Stock Grant, including the right to receive dividends and the right to vote such shares.  None of the shares of Common Stock covered by the Stock Grant may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of prior to the expiration or satisfaction of any applicable restrictions or performance requirements.  All of the shares of Common Stock covered by a Stock Grant shall be forfeited and all rights of a Participant who has been awarded such Stock Grant to such shares shall terminate without further obligation on the part of the Company in the event that any applicable restrictions or performance requirements do not expire or are not satisfied.  Upon forfeiture of shares of Common Stock, such shares shall be transferred to the Company without further action by the Participant.  Upon the expiration or satisfaction of any applicable restrictions, whether in the ordinary course or under circumstances set forth in Section 7.3, certificates evidencing shares of Common Stock subject to the related Stock Grant shall be delivered to the Participant, or the Participant’s beneficiary or estate, as the case may be, free of all such restrictions.

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7.3            Accelerated Vesting.

(a)            Termination of Service.  If a Participant terminates service prior to vesting in any Stock Grant, all outstanding unvested Stock Grants shall be forfeited by such Participant; provided, however, that vesting may be accelerated in the sole discretion of the Committee.

(b)            Change in Control.  The vesting of all or part of an outstanding Stock Grant may be accelerated, in the sole discretion of the Board, in the event there is a Change in Control of the Company.

8.            NON–STATUTORY STOCK OPTIONS.

8.1            Grant of Non–statutory Stock Options.

(a)            Grants to Employees and Directors.  The Committee may, from time to time, grant Non–statutory Stock Options to Participants.

(b)            Terms of Non–Statutory Options.  Non–statutory Stock Options granted under this Plan are subject to the following terms and conditions:

(i)            Price.  The purchase price per share of Common Stock deliverable upon the exercise of each Non–statutory Stock Option shall be determined on the date the option is granted.  Such purchase price shall be the Fair Market Value of the Company’s Common Stock on the Date of Grant or such greater amount as determined by the Committee; provided, however, that the purchase price of a Non–statutory Stock Option granted under this Plan may be less than the Fair Market Value of the Common Stock on the date of Grant if the Grant: (i) involves the substitution of a Non–statutory Stock Option under this Plan for an outstanding option under another plan pursuant to a corporate transaction; and (ii) the requirements of Treas. Reg. 1.424–1 would be met if the Non–statutory Stock Option was an Incentive Stock Option.  Shares may be purchased only upon full payment of the purchase price in such manner as the Committee specifies, provided, however, that a Participant may exercise an Option through a cashless exercise as permitted by Federal Reserve Board Regulation T and the Company shall make reasonable efforts to facilitate such exercise.

(ii)            Terms of Options.  The term during which each Non–statutory Stock Option may be exercised shall be fifteen years from the Date of Grant, or such shorter period determined by the Committee.  The Committee shall determine the date on which each Non–statutory Stock Option shall become vested and may provide that a Non–statutory Stock Option shall become vested in installments.  The shares comprising each installment may be purchased in whole or in part at any time after such installment becomes vested.  The Committee may, in its sole discretion, accelerate the time at which any Non–statutory Stock Option becomes vested in whole or in part.

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(iii)            Termination of Service.  Upon the termination of a Participant’s service for any reason other than Termination for Misconduct, the Participant’s Non–statutory Stock Options shall be exercisable only as to those shares which were vested at the date of termination and only for a period of six months following termination unless otherwise determined by the Committee in its sole discretion.

In the event of Termination for Misconduct, all rights under the Participant’s Non–statutory Stock Options shall expire upon termination of employment.

The vesting of all or a part of a Grant or Non–statutory Stock Options may be accelerated, in the sole discretion of the Board, in the event there is a Change in Control of the Company.

(iv)            Options for Cedara Employees.  Notwithstanding anything to the contrary in this Plan, Non–statutory options may be issued under this Plan to employees, former employees, directors and former directors of Cedara Software Corp. (and its affiliates) on the terms and conditions identified in the Merger Agreement between the Company, Merge Cedara ExchangeCo Limited and Cedara Software Corp.

9.            INCENTIVE STOCK OPTIONS.

9.1            Grant of Incentive Stock Options.

The Committee may, from time to time, grant Incentive Stock Options to Employees.  Incentive Stock Options granted pursuant to the Plan shall be subject to the following terms and conditions:

(a)            Price.  The purchase price per share of Common Stock deliverable upon the exercise of each Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Company’s Common Stock on the Date of Grant; provided, however, that the purchase price of an Incentive Stock Option granted under this Plan may be less than the Fair Market Value of the Common Stock on the Date of Grant if the Grant: (i) involves the substitution of an Incentive Stock Option for an outstanding incentive stock option under another plan pursuant to a corporate transaction; and (ii) the requirements of Treas. Reg. 1.424–1 are met with respect to the substitution.  However, if a Participant owns Common Stock representing more than 10% of the total combined voting power of all classes of Common Stock of the Company (or under Section 425(d) of the Code is deemed to own Common Stock representing more than 10% of the total combined voting power of all such classes of Common Stock), the purchase price per share of Common Stock deliverable upon the exercise of each Incentive Stock Option shall not be less than 110% of the Fair Market Value of the Company’s Common Stock on the Date of Grant.  Shares may only be purchased on full payment of the purchase price, provided, however, that a Participant may exercise an Option through a cashless exercise as permitted by Federal Reserve Board Regulation T and the Company shall use reasonable efforts to facilitate such exercise.

(b)            Amounts of Options.  Incentive Stock Options may be granted to any Employee in such amounts as determined by the Committee.  In the case of an option intended to qualify as an Incentive Stock Option, the aggregate Fair Market Value (determined as of the time the option is granted) of the Common Stock with respect to which Incentive Stock Options granted are exercisable for the first time by the Participant during any calendar year (under all plans of the Participant’s employer corporation and its parent and subsidiary corporations) shall not exceed $100,000.  The provisions of this Section 9.1(b) shall be construed and applied in accordance with Section 422(d) of the Code and the regulations, if any, promulgated thereunder.  To the extent an award under this Section 9.1 exceeds this $100,000 limit, the portion of the award in excess of such limit shall be deemed a Non–statutory Stock Option.

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(c)            Terms of Options.  The term during which each Incentive Stock Option may be exercised shall be determined by the Committee, but in no event shall an Incentive Stock Option be exercisable in whole or in part more than ten years from the Date of Grant.  If at the time an Incentive Stock Option is granted to an Employee, the Employee owns Common Stock representing more than 10% of the total combined voting power of the Company (or, under Section 425(d) of the Code, is deemed to own Common Stock representing more than 10% of the total combined voting power of all such classes of Common Stock), the Incentive Stock Option granted to such Employee shall not be exercisable after the expiration of five years from the Date of Grant.

No Incentive Stock Option granted under this Plan is transferable except by will or the laws of descent and distribution and is exercisable in his lifetime only by the Employee to whom it is granted.  After death an Incentive Stock Option may be exercised by the beneficiary described in Section 16 below.

The Committee shall determine the date on which each Incentive Stock Option shall become vested and may provide that an Incentive Stock Option shall become vested in installments.  The shares comprising each installment may be purchased in whole or in part at any time after such installment becomes vested, provided that the amount able to be first exercised in a given year is consistent with the terms of Section 422 of the Code.  The Committee may, in its sole discretion, accelerate the time at which any Incentive Stock Option becomes vested in whole or in part, provided that it is consistent with the terms of Section 422 of the Code.

(d)            Termination of Service.  Upon the termination of a Participant’s service for any reason other than Termination for Misconduct, the Incentive Stock Options shall be exercisable only as to those shares which were vested at the date of termination and only for a period of six months following termination (unless otherwise determined by the Committee in its sole discretion); provided, however, that such option shall not be eligible for treatment as an Incentive Stock Option in the event such option is exercised more than three months following the date of the Participant’s cessation of employment.

In the event of Termination for Misconduct, all rights under the Participant’s Incentive Stock Options shall expire upon termination of employment.

The vesting of all or a part of a grant of Incentive Stock Options may be accelerated, in the sole discretion of the Board, in the event there is a Change in Control of the Company.

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10.          PERFORMANCE UNIT GRANTS AND STOCK UNIT GRANTS.

10.1            General Terms.  Each Stock Unit shall entitle the Participant receiving it to a cash payment equal to the Fair Market Value of a share of Common Stock or the issuance of one share of Common Stock.  Each Performance Unit shall have a value which is established by the Committee.  Each Stock Unit Grant and Performance Unit Grant shall be accompanied by such restrictions as may be determined in the discretion of the Committee.  Such restrictions may include, without limitation, requirements that the Participant remain in the continuous employment of the Company or its Subsidiaries or Affiliates for a specified period of time or that the Participant meets designated individual performance goals, or that the Company and/or one or more of its Subsidiaries or Affiliates meet designated performance goals.

10.2            Payment of Stock Unit or Performance Unit Value.  Upon the expiration or satisfaction of any applicable restrictions or performance requirements with respect to Stock Units or Performance Units, the Participant receiving such Stock Unit Grants or Performance Unit Grants shall be entitled to receive a payout of the Stock Unit or Performance Unit value in cash or in Common Stock.  Unless the Committee determines otherwise, a Participant who has been awarded a Stock Unit or Performance Unit shall not have the right to any amounts as the result of the payment of dividends with respect to the underlying Common Stock.  Stock Units and Performance Units may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of prior to the expiration or satisfaction of any applicable restrictions or performance requirements.

10.3.            Accelerated Vesting.

(a)            Termination of Service.  If a Participant terminates service prior to vesting in any Performance Unit Grant or Stock Unit Grant, all outstanding Stock Unit Grants and Performance Unit Grants shall be forfeited by the Participant provided, however, that vesting may be accelerated in the sole discretion of the Committee.  For purposes of this Section 10.3(a), with respect to Awards that are subject to (and not exempt from) Code Section 409A, a Participant will not be deemed to have terminated service unless he shall have separated from service within the meaning of Code Section 409A, applying the default rules thereof.

(b)            Change in Control.  The vesting of all or a part of an outstanding Stock Unit Grant and Performance Unit Grant may be accelerated, in the sole discretion of the Board, in the event there is a Change in Control of the Company.

11.          STOCK APPRECIATION RIGHTS.

11.1            Grant of Stock Appreciation Rights.

(a)            Grants.  The Committee may, from time to time, grant Stock Appreciation Rights to Participants.  Each Stock Appreciation Right shall entitle the Participant receiving it to a cash payment, or shares of Common Stock with a Fair Market Value, equal to the excess (if any) of the Fair Market Value of a share of the Company’s Common Stock on the date the Stock Appreciation Right is exercised over the grant price for such Stock Appreciation Right.

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(b)            Terms of Stock Appreciation Rights.  Stock Appreciation Rights granted under this Plan are subject to the following terms and conditions:

(i)            Price.  The grant price for each Stock Appreciation Right shall be determined on the date the Stock Appreciation Right is granted.  Such grant price shall be the Fair Market Value of a share of the Company’s Common Stock on the date of Grant or such greater amount as determined by the Committee.

(ii)            Term.  The term during which each Stock Appreciation Right may be exercised shall be fifteen years from the Date of Grant, or such shorter period determined by the Committee.  The Committee shall determine the date on which each Stock Appreciation Right shall become vested and may provide that Stock Appreciation Rights shall become vested in installments.  The Committee may, in its sole discretion, accelerate the time at which any Stock Appreciation Rights may be vested in whole or in part.

(iii)            Termination of Service.

Upon the termination of a Participant’s service for any reason other than Termination for Misconduct, the Participant’s Stock Appreciation Rights shall be exercisable only as to those rights which were vested at the date of termination and only for a period of six months following termination (unless otherwise determined by the Committee in its sole discretion).

In the event of Termination for Misconduct, all rights under the Participant’s Stock Appreciation Rights shall expire upon termination of employment.

The vesting of all or a part of a Grant of Stock Appreciation Rights may be accelerated, in the sole discretion of the Board, in the event there is a Change in Control of the Company.

12.          RIGHTS OF A SHAREHOLDER; NO TRANSFERABILITY.

No Participant shall have any rights as a shareholder with respect to any shares covered by an Award until the date of issuance of such shares.  Nothing in this Plan or in any Award granted confers on any person any right to continue in the employ of the Company or its Affiliates or to continue as a Director of the Company or its Affiliates or to continue as a Consultant to the Company or its Affiliates or interferes in any way with the right of the Company or its Affiliates to terminate a Participant’s services as an officer, Employee, Consultant or Director at any time.

 

No Option or other Award granted under this Plan is transferable except by will or the laws of descent and distribution and is exercisable in his or her lifetime only by the Participant to whom it is granted.  No Option or other Award (or interest or right therein) may be subject to pledge, encumbrance, assignment, levy, attachment or garnishment.

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13.          AGREEMENT WITH GRANTEES.

Each Award of Options or Stock Appreciation Rights will be evidenced by a written agreement, executed by the Participant and the Company or its Subsidiaries or Affiliates which describes the conditions for receiving the Options or Stock Appreciation Rights including the date of grant of the Option or Stock Appreciation Rights Award, the purchase price if any, applicable periods, and any other terms and conditions as may be required by applicable securities law.

The proper officers of the Company shall advise each Participant who is awarded a Stock Grant, Performance Unit Grant or Stock Unit Grant, in writing, of the number of shares to which it pertains and the terms and conditions and any restrictions or performance requirements applicable to such Stock Grant, Performance Unit Grant or Stock Unit Grant; provided they are not inconsistent with the terms, conditions and provisions of the Plan.

14.          RESTRICTIONS ON SHARES.

The Committee may require, before any shares of Common Stock are issued pursuant to this Plan, that the Participant agrees to subject the shares to such holding periods and restrictions as are determined by the Committee.

15.          PERFORMANCE BASED COMPENSATION.

(a)            In General.  All Stock Appreciation Rights, Non–statutory Stock Options and Incentive Stock Options issued to employees employed in the United States are intended to be performance based compensation, within the meaning of the Code Section 162(m)(4)(C) and such Options and Stock Appreciation Rights shall conform to the requirements of Code Section 162(m)(4)(C) and the regulations thereunder.  The Committee may, in its discretion, make Stock Grants, Performance Unit Grants and Stock Unit Grants performance based compensation within the meaning of IRC §162(m)(4)(C).

With respect to Stock Grants, Performance Unit Grants and Stock Unit Grants awarded to Employees employed in the United States that are intended to qualify as “performance based” within the meaning of Code Section 162(m)(4)(C), the Committee shall (i) establish in writing the applicable objective performance goals and all related terms no later than 90 days after the commencement of the period of service to which the performance goals relate (or such earlier or later date as may be applicable deadline for compensation payable hereunder to qualify as “performance based” within the meaning of Code Section 162(m)(4)(C)), and (ii) designate the Awards that are to qualify as “performance based” with the meaning of Code Section 162(m)(4)(C).  After the period over which the performance goals are measured, the Committee shall certify that such performance goals are satisfied and may adjust the Award downward but not upward.

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(b)            Performance Goals.  The performance goals to be used for purposes of grants which are intended to qualify as performance based compensation within the meaning of Code Section 162(m)(4)(C) shall be based on any of the following measures:

(1)            Earnings per share;

(2)            Net income (before or after taxes);

(3)            Net income from continuing operations;

(4)            Return measures (including, but not limited to, return on assets, equity, capital or investment);

(5)            Cash flow (including, but not limited to, operating cash flow and free cash flow);

(6)            Cash flow return on investment;

(7)            Earnings before or after taxes, interest, depreciation and/or amortization;

(8)            Internal rate of return or increase in net present value;

(9)            Dividend payments;

(10)         Gross revenues;

(11)         Gross margins;

(12)         Internal measures widely accepted in the industry.

16.          DESIGNATION OF BENEFICIARY.

A Participant may, with the consent of the Committee, designate a person or persons to receive, in the event of death, any Award to which the Participant would then be entitled.  Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing.  If a Participant fails effectively to designate a beneficiary, then the Participant’s estate will be deemed to be the beneficiary.

17.          ADJUSTMENTS.

In the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, spin–off, reorganization, combination or exchange of shares, or other similar corporate change, or other increase or decrease in such shares without receipt or payment of consideration by the Company, the Committee will make such adjustments to previously granted Awards, to prevent dilution or enlargement of the rights of the Participant, including any or all of the following:

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(a)            adjustments in the aggregate number or kind of shares of Common Stock which may be awarded under the Plan, including the number or kind of shares subject to the per participant limit and the Incentive Stock Option limit specified in Section 5;

(b)            adjustments in the aggregate number or kind of shares of Common Stock covered by Awards already made under the Plan;

(c)            adjustments in the purchase price of outstanding Incentive and/or Non‐statutory Stock Options and the grant price of outstanding Stock Appreciation Rights.

No such adjustments may, however, materially change the value of benefits available to a Participant under a previously granted Award.

Unless the Committee determines otherwise, any such adjustment to an Award that is exempt from Code Section 409A shall be made in a manner that permits the Award to continue to be so exempt, and any adjustment to an Award that is subject to Code Section 409A shall be made in a manner that complies with the provisions thereof.

18.          WITHHOLDING/TAXES TREATMENT/GOVERNMENTAL AUTHORITY.

 

There may be deducted from each distribution of cash and/or Common Stock under the Plan the amount of tax required by any governmental authority to be withheld or paid.  The Company may also require a Participant to take, or the Company may take, any other action as may be required by a governmental authority in connection with any payment or issuance or release of shares under the Plan and the Company may refrain from making any such payment or issuing or releasing any such shares until such action is taken.

Notwithstanding any provisions of this Plan, the Company does not guarantee to any Participant or any other person with an interest in an Award that any Award intended to be exempt from Code Section 409A shall be so exempt, nor that any Award intended to comply with Code Section 409A or Code Section 422 shall so comply, nor will the Company or any Affiliate indemnify, defend or hold harmless any individual with respect to the tax consequences of any such failure.

19.          REGISTRATION OF PLAN AS S–8.

The Company has registered the Plan on a Form S–8 and intends to take such additional action as is necessary in connection with such registration.  The Company may in its sole discretion, however, elect to terminate such registration.

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20.          TERMINATION AND AMENDMENT ON THE PLAN.

The Board of Directors may at any time, and from time to time, suspend, terminate, modify or amend the Plan in any respect.

The Board may determine that shareholder approval of any amendment to this Plan may be advisable for any reason, including but not limited to, for the purpose of obtaining or retaining any statutory or regulatory benefits under tax, securities or other laws or satisfying applicable stock exchange listing requirements.

Such suspension, termination, modification or amendment may not adversely affect the rights of a Participant under an outstanding Award without his or her consent, except the Board may, in connection with a Change in Control and without obtaining the consent of any Participant, either: (i) replace the Awards granted under this Plan with substantially similar awards under another plan of another party to the Change in Control; or (ii) make a cash payment to all Participants with respect to Options and Stock Appreciation Rights equal to the difference between the Fair Market Value of the Common Stock on the date of the Change in Control and the exercise price per share of an Option or the grant price of a Stock Appreciation Right, as the case may be, on the Date of Grant and equal to the value of the Stock Unit Grant or Performance Unit Grant.  Options granted under another plan shall not be substantially similar unless the shares acquired through the exercise of such options are readily tradable on an established securities market.

No Awards under the Plan shall be granted more than ten (10) years after the Amended and Restated Effective Date of the Plan.

Notwithstanding anything in this Plan to the contrary, with regard to Options and Stock Appreciation Rights that are intended to be exempt from Code Section 409A, neither the Board nor any other person may decrease the exercise price of any Option or the grant price of any Stock Appreciation Right nor take any action that would result in a deemed decrease of the exercise price of an Option or grant price of a Stock Appreciation Right under Code Section 409A, after the date of grant, except in accordance with Section 17 and Section 1.409A-1(b)(5)(v)(D) of the Treasury Regulations, or in connection with a transaction which is considered the grant of a new Option or Stock Appreciation Right for purposes of Section 409A of the Code, provided that the new exercise price or grant priceis not less than the Fair Market Value of a share of Common Stock on the new grant date.

21.          EFFECTIVE DATE OF PLAN.

The Plan, as amended and restated herein, shall become effective as of the date that the amended and restated Plan is approved by shareholders at an annual or special meeting of shareholders of the Company (the “Amended and Restated Effective Date”).

 

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22.          APPLICABLE LAW.

 

The Plan will be administered in accordance with the laws of the State of Wisconsin, without reference to conflict of law principles thereof, to the extent not preempted by Federal law as now or hereafter in effect.

 

23.                COMPLIANCE WITH SECTION 16.

With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b–3 or its successors under the Exchange Act.  To the extent any provision of the Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

  

	
Board of Directors Date Adopted:

	
 

	
/s/ Justin C. Dearborn

	
 

	
April 21, 2011

	
 

	
Justin C. Dearborn

	
 

	
 

	
 

	
Chief Executive Officer

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Date Approved by Shareholders:

	
 

	
/s/ Ann G. Mayberry–French

	
 

	
June 2, 2011

	
 

	
Ann G. Mayberry–French

	
 

	
 

	
 

	
Corporate Secretary

	
 

Effective:  May 24, 2005

Amended and Restated Effective Date:  August 19, 2008

Further Amended Effective:  September 21, 2010

Further Amended Effective:  June 2, 2011

 

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