Document:

ex4-b.htm

Exhibit 4.(b)

 

MERCANTILE BANK CORPORATION

STOCK INCENTIVE PLAN OF 2016

 

 

SECTION 1

 

Establishment Of Plan; Purpose Of Plan

 

1.1     Establishment of Plan. The Company hereby establishes the STOCK INCENTIVE PLAN OF 2016 for its Directors and certain of its Employees. The Plan permits the grant and award of Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Awards and other stock-based awards and stock-related awards.

 

1.2     Purpose of Plan. The purpose of the Plan is to provide Directors and Employees with an increased incentive to contribute to the long-term performance and growth of the Company and its Subsidiaries, to join the interests of Directors and Employees with the interests of the Company’s shareholders through the opportunity for increased stock ownership and to attract and retain Participants. The Plan is further intended to provide flexibility to the Company in structuring long-term incentive compensation to best promote the foregoing objectives. 

 

1.3     Approval of Plan and Incentive Awards.   The Plan will be effective upon approval by the Company’s shareholders. The Plan contemplates that Directors may be Participants and that the Directors, as members of either the Board or of a committee of the Board, may approve grants of Incentive Awards to Directors. Approval of the Plan by the Company’s shareholders shall constitute authorization and approval of such grants.

 

 

SECTION 2

 

Definitions

 

The following words have the following meanings unless a different meaning plainly is required by the context:

 

2.1     “Act” means the Securities Exchange Act of 1934, as amended. 

 

2.2     “Affiliate” means any organization controlling, controlled by or under common control with the Company.

 

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

 

2.4     “Cause” means "Cause" as defined in a Participant's written employment agreement with the Company or a Subsidiary and, in the absence of such agreement or definition, means, with respect to termination of employment, (1) willful continued failure to perform or willful poor performance of duties (other than due to Disability) after warning and reasonable opportunity to meet reasonable required performance standards; (2) gross negligence causing or putting the Company or any Affiliate at risk of significant damage or harm; (3) misappropriation of or intentional damage to the property of the Company or any Affiliate; (4) conviction of a felony (other than negligent vehicular homicide); (5) intentional act or omission that the Participant knows or should know is significantly detrimental to the interests of the Company or any Affiliate; (6) removal of an Employee by order of or at the direction of a regulatory agency having jurisdiction over the Company or any of its Subsidiaries; or (7) material violation of any employment agreement between the Company (or any Affiliate) and the Participant. The existence of Cause for termination of employment shall in each case be determined by the Committee in its sole discretion and consistent with the definition set forth in this Section 2.4. The Committee may make such determination before or after the termination of employment. 

 

 

 

 

 

 

A Director will be removed for “Cause” for purposes of this Plan if and only if he or she has been removed for cause in compliance with the Company’s Articles of Incorporation and applicable law.

 

2.5     “Change in Control,” unless otherwise defined in an Incentive Award agreement, means (a) the failure of the Continuing Directors at any time to constitute at least a majority of the members of the Board; (b) the acquisition by any Person other than an Excluded Holder of beneficial ownership (within the meaning of Rule 13d-3 issued under the Act) of 30% or more of the outstanding Common Stock or the combined voting power of the Company’s outstanding securities entitled to vote generally in the election of directors; (c) a reorganization, merger or consolidation other than such a transaction (i) that is done for the purpose of reincorporation or (ii) after which the Company’s shareholders immediately prior to the transaction continue to beneficially own more than 50% of the total fair market value and total voting power of the outstanding capital stock of the entity surviving the transaction; (d) a complete liquidation or dissolution of the Company or the sale or disposition of all or substantially all of the assets of the Company; or (e) an occurrence of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A issued under the Act. 

 

2.6     “Code” means the Internal Revenue Code of 1986, as amended. Each reference herein to a section or sections of the Code shall, unless otherwise noted, be deemed to include a reference to the rules and regulations issued under such section or sections of the Code.

 

2.7     “Committee” means the Compensation Committee of the Board or such other committee as the Board may designate from time to time. The Committee shall consist of at least two Directors and all of its members shall be “non-employee directors” as defined in Rule 16b-3 issued under the Act and “outside directors” as defined in Section 162(m) of the Code. 

 

2.8     “Common Stock” means the Company’s common stock, no par value.

 

2.9     “Company” means Mercantile Bank Corporation, a Michigan corporation, and its successors and assigns.

 

 

 

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2.10     “Continuing Directors” means the individuals constituting the Board as of the date this Plan was adopted and any subsequent directors whose election or nomination for election by the Company’s shareholders was approved by a vote of a majority of the individuals who are then Continuing Directors, but specifically excluding any individual whose initial assumption of office occurs as a result of either an actual or threatened solicitation subject to Rule 14a-12(c) of Regulation 14A issued under the Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. 

 

2.11      “Covered Employee” means any Employee who is or may become a “Covered Employee,” as defined in Section 162(m) of the Code, and who is designated, either as an individual Employee or class of Employees, by the Committee within the shorter of (i) 90 days after the beginning of the Performance Period, or (ii) the period of time after the beginning of the Performance Period and before 25% of the Performance Period has elapsed, as a “Covered Employee” under this Plan for such applicable Performance Period.

 

2.12     “Director” means a member of the Board.

 

2.13     “Disability” means a permanent disability as determined by the Committee in its discretion. Notwithstanding the foregoing, with respect to an incentive stock option, "Disability" means permanent and total disability as defined in Code Section 22(e)(3). 

 

2.14     “Employee” means an employee of the Company or one of its Subsidiaries.

 

2.15     “Employee Benefit Plan” means any plan or program established by the Company or a Subsidiary for the compensation or benefit of Employees.

 

2.16     “Excluded Holder” means the Company, a Subsidiary or any Employee Benefit Plan of the Company or a Subsidiary or any trust holding Common Stock or other securities pursuant to the terms of an Employee Benefit Plan.

 

2.17     "Good Reason" means "Good Reason" as defined in a Participant's written employment agreement and, in the absence of such agreement or definition, means any of the following that occurs coincident with or following a Change in Control, if not cured and corrected by the Company or its successor within 30 days after written notice thereof by the Participant to the Company or its successor: (a) material diminution in the Participant's authority, duties or responsibilities as compared to immediately prior to the occurrence of the Change in Control; (b) material reduction in the Participant's annual base salary, as in effect on the effective date of the Change in Control, other than a reduction applied "across the board" to all similarly situated Employees; (c) any requirement that the Participant relocate, by more than 50 miles, the principal location from which the Participant performs services for the Company or Subsidiary as compared to such location immediately prior to the occurrence of the Change in Control; provided, however, that notwithstanding subsection (a) above, the Participant will not have "Good Reason" to terminate employment merely because the Participant is no longer a senior executive of a public company and/or has a change in title, duties, authority, responsibilities or reporting structure as a result of the transaction (including having a reporting relationship within a larger company) provided that the Participant retains a substantially similar level of responsibilities over the other portions and areas of the business for which he or she exercised responsibility prior to the transaction. 

 

 

 

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2.18     “Incentive Award” means the award or grant of a Stock Option, a Stock Appreciation Right, Restricted Stock, a Restricted Stock Unit, a Stock Award, or another stock-based or stock-related award, to a Participant pursuant to the Plan.

 

2.19     “Market Value” shall equal the closing price of Common Stock reported on Nasdaq on the date of grant, exercise or vesting, as applicable, or if Nasdaq is closed on that date, the last preceding date on which Nasdaq was open for trading and on which shares of Common Stock were traded. If the Common Stock is not listed on Nasdaq, the Market Value shall be determined by any means deemed fair and reasonable by the Committee in a manner consistent with the valuation principles of Section 409A of the Code except when the Committee expressly determines not to use Section 409A valuation principles, which determination shall be final and binding on all parties. 

 

2.20     “Mature Shares” means shares of Common Stock that a Participant has owned for at least six months and that meet any other holding requirements established by the Committee for the shares to be used for attestation. 

 

2.21     “Nasdaq” means the NASDAQ National Market, or if the Common Stock is not listed for trading on the NASDAQ National Market on the date in question, then such other United States-based quotation system or stock exchange on which the Common Stock may be traded on the date in question.

 

2.22     “Participant” means a Director or Employee who is granted an Incentive Award under the Plan.

 

2.23     “Performance” means the level of achievement of the performance goals established by the Committee pursuant to Section 10.1.

 

2.24     “Performance Measures” means measures as described in Section 10 on which the performance goals are based.

 

2.25     “Performance Period” means the period of time during which the performance goals must be met to determine the degree of payout, the vesting, or both, with respect to an Incentive Award that is intended to qualify as Performance-Based Compensation.

 

2.26      “Performance-Based Compensation” means compensation under an Incentive Award that satisfies the requirements of Section 162(m) of the Code for certain “performance-based compensation” paid to Covered Employees. Notwithstanding the foregoing, nothing in this Plan shall be construed to mean that an Incentive Award which does not satisfy the requirements for performance-based compensation under Section 162(m) of the Code does not constitute performance-based compensation for other purposes, including Section 409A of the Code.

 

 

 

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2.27     “Person” has the same meaning as set forth in Sections 13(d) and 14(d)(2) of the Act.

 

2.28     “Plan” means the Mercantile Bank Corporation Stock Incentive Plan of 2016 as set forth herein, as it may be amended from time to time.

 

2.29     “Restricted Period” means the period of time during which Restricted Stock, Restricted Stock Units or other stock-based or stock-related awards that are awarded under the Plan are subject to the risk of forfeiture, restrictions on transfer and other restrictions or conditions pursuant to Sections 7 or 8. The Restricted Period may differ among Participants and may have different expiration dates with respect to shares of Common Stock covered by the same Incentive Award. 

 

2.30     “Restricted Stock” means Common Stock awarded to a Participant pursuant to Section 7 of the Plan while such Common Stock remains subject to the risk of forfeiture, restrictions on transfer and other restrictions or conditions pursuant to Section 7.

 

2.31     “Restricted Stock Unit” means an award to a Participant pursuant to Section 7 of the Plan and described as a “Restricted Stock Unit” in Section 7.

 

2.32     “Retirement” means the voluntary termination of employment by a Participant after he or she has attained the age of 65 or such other age as may be determined by the Committee in its sole discretion or as otherwise may be set forth in the Incentive Award agreement or other grant document with respect to a Participant and a particular Incentive Award.

 

2.33     “Stock Appreciation Right” or “SAR” means a right awarded to a Participant pursuant to Section 6 of the Plan, which shall entitle the Participant to receive cash, Common Stock, other property or a combination thereof, as determined by the Committee, in an amount equal to or otherwise based on the excess of (a) the Market Value of a share of Common Stock at the time of exercise over (b) the exercise price of the right, as established by the Committee on the date the award is granted.

 

2.34     “Stock Award” means an award of Common Stock awarded to a Participant pursuant to Section 8 of the Plan.

 

2.35     “Stock Option” means the right to purchase Common Stock at a stated price for a specified period of time. For purposes of the Plan, a Stock Option may be either an incentive stock option within the meaning of Section 422(b) of the Code or a nonqualified stock option. 

 

2.36     “Subsidiary” means any corporation or other entity of which 50% or more of the outstanding voting stock or voting ownership interest is directly or indirectly owned or controlled by the Company or by one or more Subsidiaries of the Company. The term “Subsidiary” includes present and future Subsidiaries of the Company.

 

 

 

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2.37     “Termination” of employment shall be considered to occur on the date on which the Employee is no longer obligated to perform services for the Company or any of its Subsidiaries and the Employee’s right to re-employment is not guaranteed by statute, contract or written policy of the Company, regardless of whether the Employee continues to receive compensation from the Company or any of its Subsidiaries after such date and "Cessation" of service as a Director shall occur on the effective date of the removal or resignation of the Director from the Board. The following shall not be considered such a termination or cessation: (i) a transfer of an employee among the Company and its Subsidiaries; (ii) a leave of absence, duly authorized in writing by the Company, for military service or for any other purpose approved by the Company if the period of such leave does not exceed 90 days; (iii) a leave of absence in excess of 90 days, duly authorized in writing by the Company, provided that the employee’s right to re-employment is guaranteed by statute, contract or written policy of the Company; or (iv) a termination of employment as an officer with continued service as an Employee or Director. 

 

 

SECTION 3

 

Administration

 

3.1     Power and Authority. The Committee shall administer the Plan, and subject to the express provisions of the Plan, the Committee shall be authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of this Plan. Any power or authority of the Committee may also be exercised by the Board, except to the extent that the grant or exercise of such power or authority would cause any Incentive Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Act or cause an Incentive Award intended to qualify for treatment as performance-based compensation under Section 162(m) of the Code not to qualify for such treatment. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control. 

 

The Committee may delegate any, some or all of its record keeping, calculation, payment and other ministerial or administrative authority and responsibility from time to time to and among one or more individuals, who are members of the Committee or Employees of the Company or its Subsidiaries or Affiliates, but all actions taken pursuant to delegated authority and responsibility shall be subject to such review, change and approval by the Committee as the Committee considers appropriate. Except as limited in the Plan, the Committee shall have all of the express and implied powers and duties set forth in the Bylaws of the Company and the Plan, shall have full power and authority to interpret the provisions of the Plan and Incentive Awards granted under the Plan and shall have full power and authority to supervise the administration of the Plan and Incentive Awards granted under the Plan and to make all other determinations and do all things considered necessary or advisable for the administration of the Plan. All determinations, interpretations and selections made by the Committee regarding the Plan shall be final and conclusive. The Committee shall hold its meetings at such times and places as it considers advisable. Action may be taken by a written instrument signed by all of the members of the Committee and any action so taken shall be fully as effective as if it had been taken at a meeting duly called and held. The Committee shall prescribe, amend and rescind rules and regulations for the conduct of its business and shall define terms not otherwise defined herein, in each case as it considers advisable. 

 

 

 

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3.2     Grants or Awards to Participants. In accordance with and subject to the provisions of the Plan, the Committee shall have the authority to determine all provisions of Incentive Awards including, without limitation: (a) the persons who shall be selected as Participants; (b) the nature and, subject to the limitations set forth in Sections 4.1 and 4.2 of the Plan, extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise or purchase price, the manner in which an Incentive Award will vest or become exercisable and the form of payment for the Incentive Award); (c) the time or times when Incentive Awards will be granted; (d) the duration of each Incentive Award; and (e) the restrictions and other conditions to which payment or vesting of Incentive Awards may be subject.

 

Except for Incentive Awards granted with respect to a maximum of five percent of the shares authorized in the first sentence of Section 4.1 and any shares granted to members of the Board or members of the board of directors of a Subsidiary, Incentive Award agreements shall not provide for vesting prior to the first anniversary of the grant date, provided, that the Committee may provide for shorter or earlier vesting in connection with a Change in Control, death, Disability, Retirement or other event or circumstance that the Committee determines to be appropriate. 

 

3.3     Amendments or Modifications of Incentive Awards. Subject to Section 12, the Committee shall have the authority to amend or modify the terms of any outstanding Incentive Award in any manner, provided that the amended or modified terms are not prohibited by the Plan as then in effect and provided that such actions do not cause an Incentive Award not otherwise subject to Section 409A of the Code to become subject to Section 409A of the Code. The Committee shall without limitation, have the authority to: (a) modify the number of shares or other terms and conditions of an Incentive Award; provided that any increase in the number of shares of an Incentive Award other than pursuant to Section 4.3 will be considered to be a new grant with respect to such additional shares for purposes of Section 409A of the Code and such new grant shall be made at Market Value on the date of the new grant; (b) extend the term of an Incentive Award to a date that is no later than the earlier of the latest date upon which the Incentive Award could have expired by its terms under any circumstances or the 10th anniversary of the date of grant (for purposes of clarity, as permitted under Section 409A of the Code, if the term of a Stock Option is extended at a time when the Stock Option exercise price equals or exceeds the Market Value, it will not be an extension of the term of the Stock Option, but instead will be treated as a modification of the Stock Option and a new Stock Option will be treated as having been granted); (c) accelerate the exercisability or vesting or otherwise terminate, waive or modify any restrictions relating to an Incentive Award; (d) accept the surrender of any outstanding Incentive Award; and (e) to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards (such grant of new Incentive Awards will be considered to be a new grant for purposes of Section 409A of the Code and such new grant shall be made at Market Value on the date of the new grant); provided, that Incentive Awards issued under the Plan may not be repriced, replaced, regranted through cancellation or modified without shareholder approval if the effect of such repricing, replacement, regrant or modification would be to reduce the exercise price or base price of such Incentive Awards to the same Participants. 

 

 

 

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3.4     Indemnification of Committee Members. No member or former member of the Committee, or any individual or group to whom authority or responsibility is or has been delegated, shall be personally responsible or liable for any act or omission in connection with the performance of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. Each person who is or was a member of the Committee, and any other individual or group exercising delegated authority or responsibility with respect to the Plan, shall be indemnified and held harmless by the Company from and against any cost, liability or expense imposed or incurred in connection with such person’s or the Committee’s taking or failing to take any action under the Plan or the exercise of discretion or judgment in the administration and implementation of the Plan. This Section 3.4 shall not be construed as limiting the Company’s or any Subsidiary’s ability to terminate or otherwise alter the terms and conditions of the employment of an individual or group exercising delegated authority or responsibility with respect to the Plan, or to discipline any such person. Each such person shall be justified in relying on information furnished in connection with the Plan’s administration by any appropriate person or persons.

 

 

SECTION 4

 

Shares Subject to the Plan

 

4.1     Number of Shares. Subject to adjustment as provided in Section 4.3 of the Plan, the total number of shares available for Incentive Awards under the Plan shall be 500,000 shares of Common Stock. Such shares shall be authorized and may be unissued shares, shares issued and repurchased by the Company (including shares purchased on the open market), shares issued and otherwise reacquired by the Company and shares otherwise held by the Company. 

 

To the extent that any Incentive Award is forfeited, terminates, expires or lapses instead of being exercised, or any Incentive Award is settled for cash, the shares subject to such Incentive Awards not delivered as a result thereof shall again be available for Incentive Awards under this Plan. If the exercise price of any Stock Option or Stock Appreciation Right and/or the tax withholding obligations relating to any Incentive Award are satisfied by delivering shares (either actually or through a signed document affirming a Participant's ownership and delivery of such shares) or withholding shares relating to such Incentive Award, the gross number of shares subject to the Incentive Award shall nonetheless be deemed to have been granted for purposes of the first sentence of this Section 4.1. 

 

 

 

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4.2     Limitation on Incentive Awards. No Participant shall be granted, during any calendar year, Incentive Awards with respect to more than 25% of the total number of shares of Common Stock available for Incentive Awards under the Plan set forth in Section 4.1 of the Plan, subject to adjustment as provided in Section 4.3 of the Plan, but only to the extent that such adjustment will not affect the status of any Incentive Award previously issued or that may thereafter be issued as Performance-Based Compensation. The purpose of this Section 4.2 is to ensure that the Plan provides Performance-Based Compensation, and this Section 4.2 shall be interpreted, administered and amended if necessary to achieve that purpose.

 

4.3     Adjustments.

 

(a)     Stock Dividends and Distributions. If the number of shares of Common Stock outstanding changes by reason of a stock dividend, stock split, recapitalization or other general distribution of Common Stock or other securities to holders of Common Stock, the number and kind of securities subject to outstanding Incentive Awards and available for issuance under the Plan, and the limitation provided in Section 4.2, together with applicable exercise prices and base prices, shall be adjusted in such manner and at such time as shall be equitable under the circumstances. No fractional shares shall be issued pursuant to the Plan and any fractional shares resulting from such adjustments shall be eliminated from the respective Incentive Awards. 

 

(b)     Other Actions Affecting Common Stock. If there occurs, other than as described in Section 4.3(a), any merger, business combination, recapitalization, reclassification, subdivision or combination approved by the Board that would result in the persons who were shareholders of the Company immediately prior to the effective time of any such transaction owning or holding, in lieu of or in addition to shares of Common Stock, other securities, money and/or property (or the right to receive other securities, money and/or property) immediately after the effective time of such transaction, then the outstanding Incentive Awards (including exercise prices and base prices) and reserves for Incentive Awards under the Plan shall be adjusted in such manner and at such time as shall be equitable under the circumstances. It is intended that in the event of any such transaction, Incentive Awards under the Plan shall entitle the holder of each Incentive Award to receive (upon exercise in the case of Stock Options and SARs), in lieu of or in addition to shares of Common Stock, any other securities, money and/or property receivable upon consummation of any such transaction by holders of Common Stock with respect to each share of Common Stock outstanding immediately prior to the effective time of such transaction; upon any such adjustment, holders of Incentive Awards under the Plan shall have only the right to receive in lieu of or in addition to shares of Common Stock such other securities, money and/or other property as provided by the adjustment. 

 

 

 

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SECTION 5

 

Stock Options

 

5.1     Grant. A Participant may be granted one or more Stock Options under the Plan. No Participant shall have any rights as a shareholder with respect to any shares of stock subject to Stock Options granted hereunder until said shares have been issued. For purposes of determining the number of shares available under the Plan, each Stock Option shall count as the number of shares of Common Stock subject to the Stock Option. Stock Options shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee, in its sole discretion, may establish vesting schedules (i) based upon Company performance, or (ii) that extend over a period of time selected by the Committee. In addition, the Committee may vary, among Participants and among Stock Options granted to the same Participant, any and all of the terms and conditions of the Stock Options granted under the Plan. Subject to the limitation imposed by Section 4.2 of the Plan, the Committee shall have complete discretion in determining the number of Stock Options granted to each Participant. The Committee may designate whether or not a Stock Option is to be considered an incentive stock option as defined in Section 422(b) of the Code; provided, that the number of shares of Common Stock that may be designated as subject to incentive stock options for any given Participant shall be limited to that number of shares that become exercisable for the first time by the Participant during any calendar year (under all plans of the Company and its Subsidiaries) and have an aggregate Market Value less than or equal to $100,000 (or such other amount as may be set forth in relevant sections of the Code) and all shares subject to an Incentive Award that have a Market Value in excess of such aggregate amount shall automatically be subject to Stock Options that are not incentive stock options. No Stock Option granted to a Director who is not an Employee shall be considered an incentive stock option under Section 422(b) of the Code. 

 

5.2     Stock Option Agreements. Stock Options shall be evidenced by stock option agreements, certificates of award, or both, containing the terms and conditions applicable to such Stock Options. To the extent not covered by a stock option agreement or certificate of award, the terms and conditions of this Section 5 shall govern.

 

5.3     Stock Option Exercise Price. The per share Stock Option exercise price shall be determined by the Committee, but shall be a price that is equal to or greater than 100% of the Market Value (or such higher amount as may be necessary under Section 5.5 below). The date of grant of a Stock Option shall be the date the Stock Option is authorized by the Committee or a future date specified by the Committee as the date for issuing the Stock Option.

 

5.4     Medium and Time of Payment. The exercise price for each share purchased pursuant to a Stock Option granted under the Plan shall be payable in cash or, if the Committee consents or provides in the applicable stock option agreement or grant, in Mature Shares or other consideration substantially equivalent to cash. The time and terms of payment may be amended with the consent of a Participant before or after exercise of a Stock Option, provided that such amendment would not cause a Stock Option to become subject to Section 409A of the Code. The Committee may implement a program for the broker-assisted cashless exercise of Stock Options. 

 

 

 

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5.5     Stock Options Granted to 10% Shareholders. No Stock Option granted to any Participant who at the time of such grant owns, together with stock attributed to such Participant under Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries may be designated as an incentive stock option, unless such Stock Option provides an exercise price equal to at least 110% of the Market Value and the exercise of the Stock Option after the expiration of five years from the date of grant of the Stock Option is prohibited by its terms.

 

5.6     Limits on Exercisability. Except as set forth in Section 5.5, Stock Options shall be exercisable for such periods, not to exceed 10 years from the date of grant, as may be fixed by the Committee. At the time of exercise of a Stock Option, the holder of the Stock Option, if requested by the Committee, must represent to the Company that the shares are being acquired for investment and not with a view to the distribution thereof. The Committee may in its discretion require a Participant to continue the Participant’s service with the Company or its Subsidiaries for a certain length of time prior to a Stock Option becoming exercisable and may eliminate such delayed vesting provisions.

 

5.7     Restrictions on Transferability. 

 

(a)     General. Unless the Committee otherwise consents or permits (before or after the stock option grant) or unless the stock option agreement or grant provides otherwise, Stock Options granted under the Plan may not be sold, exchanged, transferred, pledged, assigned or otherwise alienated or hypothecated except by will or the laws of descent and distribution, and, as a condition to any transfer permitted by the Committee or the terms of the stock option agreement or grant, the transferee must execute a written agreement permitting the Company to withhold from the shares subject to the Stock Option a number of shares having a Market Value at least equal to the amount of any federal, state or local withholding or other taxes associated with or resulting from the exercise of a Stock Option. All provisions of a Stock Option that are determined with reference to the Participant, including without limitation those that refer to the Participant’s employment with the Company or its Subsidiaries, shall continue to be determined with reference to the Participant after any transfer of a Stock Option.

 

(b)     Other Restrictions. The Committee may impose other restrictions on any shares of Common Stock acquired pursuant to the exercise of a Stock Option under the Plan as the Committee deems advisable, including, without limitation, holding periods or further transfer restrictions, forfeiture or “claw-back” provisions, and restrictions under applicable federal or state securities laws.

 

5.8     Termination of Employment or Cessation of Directorship Status. Unless the Committee otherwise consents or permits (before or after the stock option grant) or unless the stock option agreement or grant provides otherwise:

 

 

 

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(a)     General. If a Participant ceases to be a Director or an Employee for any reason other than the Participant’s death, Disability, Retirement (in the case of Employees only) or termination for Cause, the Participant may exercise his or her Stock Options in accordance with their terms for a period of three months after such termination of employment or directorship status, but only to the extent the Participant was entitled to exercise the Stock Options on the date of termination. 

 

(b)     Death. If a Participant dies while an Employee or Director, the Stock Option issued to such Participant shall be automatically 100% vested and shall be exercisable in accordance with its terms by the personal representative of such Participant or other successor to the interest of the Participant for one year after the Participant’s death, but not beyond the original terms of the Stock Option. If a Participant dies after the termination of employment or directorship other than for Cause but during the time when the Participant could have exercised a Stock Option, the Stock Option shall be exercisable in accordance with its terms by the personal representative of such Participant or other successor to the interest of the Participant for one year after the Participant’s death, but only to the extent that the Participant was entitled to exercise the Stock Option on the date of death or termination of employment or directorship, whichever first occurred, and not beyond the original terms of the Stock Option. 

 

(c)     Disability. If a Participant ceases to be an Employee or Director of the Company or one of its Subsidiaries due to the Participant’s Disability, the Stock Options issued to such Participant shall be automatically 100% vested and the Participant may exercise his or her Stock Options in accordance with their terms for one year following such termination of employment or directorship, but not beyond the original terms of the Stock Options.

 

(d)     Participant Retirement. If a Participant Retires as an Employee, the Participant shall be automatically 100% vested in the Stock Options granted under the Plan to that Participant. The number of vested Stock Options may be exercised in accordance with their terms during the remaining terms of the Stock Options. If an incentive stock option is exercised after the expiration of the three-month period after such Retirement, the Stock Option will thereafter be treated as a non-qualified option. 

 

(e)     Termination for Cause. If a Participant’s employment is terminated for Cause or the Participant is removed as a Director for Cause, the Participant shall have no further right to exercise any Stock Options previously granted and all of the Participant’s outstanding Stock Options shall automatically be forfeited and returned to the Company. The Committee or officers designated by the Committee shall have absolute discretion to determine whether a termination or removal is for Cause.

 

 

 

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SECTION 6

 

Stock Appreciation Rights

 

6.1     Grant. A Participant may be granted one or more Stock Appreciation Rights under the Plan and such SARs shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as shall be determined by the Committee in its sole discretion. A SAR may relate to a particular Stock Option and may be granted simultaneously with or subsequent to the Stock Option to which it relates. Except to the extent otherwise modified in the grant, (i) SARs not related to a Stock Option shall be granted subject to the same terms and conditions applicable to Stock Options as set forth in Section 5, and (ii) all SARs related to Stock Options granted under the Plan shall be granted subject to the same restrictions and conditions and shall have the same vesting, exercisability, forfeiture and termination provisions as the Stock Options to which they relate. SARs may be subject to additional restrictions and conditions. The per-share base price for exercise or settlement of SARs shall be determined by the Committee, but shall be a price that is equal to or greater than the Market Value of such shares. Other than as adjusted pursuant to Section 4.3, the base price of SARs may not be reduced without shareholder approval (including canceling previously awarded SARs and regranting them with a lower base price).

 

6.2     Exercise; Payment. To the extent a SAR relates to a Stock Option, the SAR may be exercised only when the related Stock Option could be exercised and only when the Market Value of the shares subject to the Stock Option exceed the exercise price of the Stock Option. When a Participant exercises such SARs, the Stock Options related to such SARs shall automatically be cancelled with respect to an equal number of underlying shares. Unless the Committee decides otherwise (in its sole discretion), SARs shall only be paid in cash or in shares of Common Stock. For purposes of determining the number of shares available under the Plan, each Stock Appreciation Right shall count as one share of Common Stock, without regard to the number of shares, if any, that are issued upon the exercise of the Stock Appreciation Right and upon such payment. 

 

 

SECTION 7

 

Restricted Stock and Restricted Stock Units

 

7.1     Grant. Subject to the limitations set forth in Sections 4.1 and 4.2 of the Plan, Restricted Stock and Restricted Stock Units may be granted to Participants under the Plan. Shares of Restricted Stock are shares of Common Stock the retention, vesting and/or transferability of which is subject, during specified periods of time, to such conditions (including continued employment and/or achievement of one or more performance goals established by the Committee pursuant to Section 10) and terms as the Committee deems appropriate, but in no case shall the Committee provide for any deferral of compensation after such conditions and terms are satisfied. Restricted Stock Units are Incentive Awards denominated in units of Common Stock under which the issuance of shares of Common Stock is subject to such conditions (including continued employment and/or achievement of one or more performance goals established by the Committee pursuant to Section 10) and terms as the Committee deems appropriate. For purposes of determining the number of shares available under the Plan, each Restricted Stock Unit shall count as the number of shares of Common Stock subject to the Restricted Stock Unit. Unless determined otherwise by the Committee, each Restricted Stock Unit shall be equal to one share of Common Stock and shall entitle a Participant to either shares of Common Stock or an amount of cash determined with reference to the value of shares of Common Stock. To the extent determined by the Committee, Restricted Stock and Restricted Stock Units may be satisfied or settled in cash, in shares of Common Stock or in a combination thereof. Restricted Stock Units shall be settled no later than the 15th day of the third month after the Restricted Stock Units vest. Restricted Stock and Restricted Stock Units granted pursuant to the Plan need not be identical but shall be consistent with the terms of the Plan. Subject to the requirements of applicable law, the Committee shall determine the price, if any, at which awards of Restricted Stock or Restricted Stock Units, or shares of Common Stock issuable pursuant to Restricted Stock Unit awards, shall be sold or awarded to a Participant, which may vary from time to time and among Participants. 

 

 

 

13

 

 

7.2     Restricted Stock Agreements. Awards of Restricted Stock and Restricted Stock Units shall be evidenced by restricted stock or restricted stock unit agreements or certificates of award containing such terms and conditions, consistent with the provisions of the Plan, as the Committee shall from time to time determine. Shares of Restricted Stock not evidenced by a certificate shall be recorded in “book entry” form in the Company’s stock records. Unless the restricted stock or restricted stock unit agreement or certificate of award provides otherwise, awards of Restricted Stock and Restricted Stock Units shall be subject to the terms and conditions set forth in this Section 7.

 

7.3     Vesting. The grant, issuance, retention and vesting of shares of Restricted Stock and Restricted Stock Units and the settlement of Restricted Stock Units shall occur at such time and in such installments as determined by the Committee or under criteria established by the Committee. The Committee shall have the right to make the timing of the grant and/or issuance of, the ability to retain and the vesting and/or the settlement of Restricted Stock Units and shares of Restricted Stock subject to continued employment, passage of time and/or Performance Measures as deemed appropriate by the Committee. In no event shall the grant, issuance, retention, vesting or settlement of shares of Restricted Stock or Restricted Stock Units that is based on Performance Measures or a level of achievement measured against Performance Measures be subject to a performance period of less than one year. No condition that is based upon continued employment or the passage of time shall provide for vesting or settlement in full of Restricted Stock or Restricted Stock Units over a period of less than one year from the date the Award is made, other than as a result of or upon the death, Disability or Retirement of the Participant or a Change in Control. 

 

7.4     Termination of Employment or Cessation of Directorship Status. Unless the Committee otherwise consents or permits (before or after the grant or Restricted Stock or Restricted Stock Units) or unless the restricted stock or restricted stock unit agreement or grant provides otherwise:

 

 

 

14

 

 

(a)     General. Except as set forth in Section 7.4(b) or (c) below, if a Participant ceases to be a Director or Employee during the Restricted Period, the Participant shall have no further right to retain or receive any Restricted Stock or Restricted Stock Units and all Restricted Stock and Restricted Stock Units still subject to restrictions at the date of such termination shall automatically be forfeited and returned to the Company. 

 

(b)     Death, Disability or Retirement. If a Participant's employment or directorship with the Company is terminated or ceases because of death, Disability or (in the case of Employees only) Retirement during the Restricted Period, then all restrictions remaining on any or all shares of Restricted Stock and Restricted Stock Units shall terminate automatically as to all of the respective number of such shares or Restricted Stock Units granted to such Participant and those shares or Restricted Stock Units shall become immediately fully vested and nonforfeitable. 

 

(c)     Termination Not for Cause. If the Company terminates a Participant’s employment other than for Cause, then all restrictions remaining on any or all shares of Restricted Stock and Restricted Stock Units shall terminate automatically with respect to that respective number of such shares or Restricted Stock Units (rounded to the nearest whole number) equal to the respective total number of such shares or Restricted Stock Units granted to such Participant multiplied by the number of full months that have elapsed since the date of grant divided by the total number of full months in the respective Restricted Period; provided, that if such Restricted Stock or Restricted Stock Units are subject to attainment of performance goals, then the restrictions shall not lapse until the end of the applicable performance period and then only after it is determined that the Company shall have attained such performance goals. All remaining shares of Restricted Stock and Restricted Stock Units shall be forfeited and returned to the Company. The Committee may, in its sole discretion, waive the restrictions remaining on and forfeiture of any or all such remaining shares of Restricted Stock and Restricted Stock Units either before or after the termination of a Participant. 

 

(d)     Termination for Cause. If a Participant's employment or service as a Director is terminated for Cause, the Participant shall have no further right to receive any Restricted Stock or Restricted Stock Units and all Restricted Stock and Restricted Stock Units still subject to restrictions at the date of such termination shall automatically be forfeited and returned to the Company. For purposes of the Plan, the Committee or officers designated by the Committee shall have absolute discretion to determine whether a termination is for Cause. 

 

7.5     Restrictions on Transferability.

 

(a)     General. Unless the Committee otherwise consents or permits or unless the terms of the restricted stock or restricted stock unit agreement or grant provide otherwise: (i) neither shares of Restricted Stock nor Restricted Stock Units may be sold, exchanged, transferred, pledged, assigned or otherwise alienated or hypothecated during the Restricted Period except by will or the laws of descent and distribution; and (ii) all rights with respect to Restricted Stock and Restricted Stock Units granted to a Participant under the Plan shall be exercisable during the Participant’s lifetime only by such Participant or his or her guardian or legal representative.

 

 

 

15

 

 

(b)     Other Restrictions. The Committee may impose other restrictions on any shares of Common Stock acquired pursuant to an award of Restricted Stock or issuable pursuant to Restricted Stock Unit awards under the Plan as the Committee considers advisable, including, without limitation, holding periods or further transfer restrictions, forfeiture or “claw-back” provisions, and restrictions under applicable federal or state securities laws.

 

7.6     Legending of Restricted Stock. In addition to any other legend that may be set forth on a Participant’s share certificate, any certificates evidencing shares of Restricted Stock awarded pursuant to the Plan shall bear the following legend:

 

The shares represented by this certificate were issued subject to certain restrictions under the Mercantile Bank Corporation Stock Incentive Plan of 2016 (the “Plan”). This certificate is held subject to the terms and conditions contained in a restricted stock agreement that includes a prohibition against the sale or transfer of the stock represented by this certificate except in compliance with that agreement and that provides for forfeiture upon certain events. Copies of the Plan and the restricted stock agreement are on file in the office of the Secretary of the Company. 

 

The Committee may require that certificates representing shares of Restricted Stock be retained and held in escrow by a designated employee or agent of the Company or any Subsidiary until any restrictions applicable to shares of Restricted Stock so retained have been satisfied or lapsed.

 

7.7     Rights as a Shareholder. A Participant shall have all dividend, liquidation and other rights with respect to Restricted Stock held of record by such Participant as if the Participant held unrestricted Common Stock; provided, that the unvested portion of any award of Restricted Stock shall be subject to any restrictions on transferability or risks of forfeiture imposed pursuant to this Section 7 and the terms and conditions set forth in the Participant’s restricted stock agreement. Unless the Committee otherwise determines or unless the terms of the applicable restricted stock unit agreement or grant provide otherwise, a Participant shall have all dividend and liquidation rights with respect to shares of Common Stock subject to awards of Restricted Stock Units held by such Participant as if the Participant held unrestricted Common Stock. Unless the Committee determines otherwise or unless the terms of the applicable restricted stock or restricted stock unit agreement or grant provide otherwise, any noncash dividends or distributions paid with respect to shares of unvested Restricted Stock and shares of Common Stock subject to unvested Restricted Stock Units shall be subject to the same restrictions and vesting schedule as the shares to which such dividends or distributions relate. Any dividend payment with respect to Restricted Stock or Common Stock subject to awards of Restricted Stock Units shall be made no later than the end of the calendar year in which the dividends are paid to shareholders, or, if later, the 15th day of the third month following the date the dividends are paid to shareholders. 

 

 

 

16

 

 

7.8     Voting Rights. Unless otherwise determined by the Committee, Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those shares during the Restricted Period. Participants shall have no voting rights with respect to shares of Common Stock underlying Restricted Stock Units unless and until such shares are issued and outstanding shares on the Company’s stock ledger. 

 

 

SECTION 8

 

Stock-Based Awards

 

8.1     Grant. Subject to the limitations set forth in Sections 4.1 and 4.2 of the Plan, in addition to any Stock Options, Stock Appreciation Rights, Restricted Stock, or Restricted Stock Units that a Participant may be granted under the Plan, a Participant may be granted one or more other types of awards based on or related to shares of Common Stock (including the grant of Stock Awards). Such awards shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion, but in no case shall the Committee provide for any deferral of compensation after such conditions and terms are satisfied. Notwithstanding the previous sentence, Stock Awards shall be settled no later than the 15th day of the third month after the awards vest. Such awards shall be expressed in terms of shares of Common Stock or denominated in units of Common Stock. For purposes of determining the number of shares available under the Plan, each such unit shall count as the number of shares of Common Stock to which it relates. 

 

8.2     Rights as a Shareholder. 

 

(a)     Stock Awards. A Participant shall have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Stock Award under this Section 8 upon the Participant becoming the holder of record of the Common Stock granted pursuant to such Stock Award; provided, that the Committee may impose such restrictions on the assignment or transfer of Common Stock awarded pursuant to a Stock Award as it considers appropriate. Any dividend payment with respect to a Stock Award shall be made no later than the end of the calendar year in which the dividends are paid to shareholders, or, if later, the 15th day of the third month following the date the dividends are paid to shareholders. 

 

(b)     General. With respect to shares of Common Stock subject to awards granted under the Plan other than Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units and Stock Awards, a Participant shall have such rights as determined by the Committee and set forth in the respective award agreements; and the Committee may impose such restrictions on the assignment or transfer of Common Stock awarded pursuant to such awards as it considers appropriate.

 

 

 

17

 

  

SECTION 9

 

Change in Control

 

If a Change in Control occurs, the parties may agree that outstanding Incentive Awards shall be assumed by, or converted into a substitute award for or with respect to shares of common stock of, the successor or acquiring company (or a parent company thereof) on an economically equivalent basis. The vesting and other terms of any such assumed or substitute award shall be substantially the same as the vesting and other terms and conditions of the original Incentive Award, provided that (a) if the assumed or substituted award is a Stock Option or a Stock Appreciation Right, the number of shares and exercise/base price shall be adjusted in accordance with the principles set forth in Sections 1.424-1(a)(5) and 1.409A-1(b)(5)(v)(D) of the Treasury regulations, and (b) if the assumed or substituted Incentive Award is not a Stock Option or a Stock Appreciation Right, the number of shares covered by the assumed or substitute Award will be based upon the Change in Control transaction value of the Company's outstanding shares of Common Stock. If the original Incentive Award is subject to the satisfaction of any performance conditions, then, unless the Committee determines otherwise, such performance conditions shall be deemed to have been satisfied at the target performance level for purposes of determining the extent to which the Incentive Award is earned. If, within one year following a Change in Control, a Participant's employment or other service terminates due to death or Disability or is terminated by the Company or a successor or acquiring company (or any of its or their Affiliates) without Cause or by the Participant for Good Reason, then any outstanding assumed or substitute awards held by such terminated Participant shall immediately be fully vested, and any outstanding assumed or substitute Stock Options and Stock Appreciation Rights will remain outstanding for at least 180 days after such termination of employment (or, if earlier, until the expiration of their original stated terms.) 

 

Unless the Committee, acting in its discretion, prescribes an economically equivalent alternative approach, if a Change in Control occurs and if the parties do not agree that an outstanding Incentive Award shall be assumed or substituted by the successor or acquiring company (or a parent company thereof) pursuant to this Section, then such Incentive Award will be deemed fully vested and any performance conditions applicable to such Incentive Award will be deemed satisfied at the target performance level for purposes of determining the extent to which the Incentive Award is earned. Each such Incentive Award shall be cancelled immediately prior to the effective time of the Change in Control in exchange for an amount equal to the per share consideration received by the holders of outstanding shares in the Change in Control transaction, reduced in the case of a Stock Option or Stock Appreciation Rights by the exercise or base price for such shares. No consideration will be payable in respect of the cancellation of a Stock Option or Stock Appreciation Right with an exercise or base price per share that is equal to or greater than the value of the Change in Control transaction consideration per share. The amount payable with respect to the cancellation of an outstanding Incentive Award pursuant to this section will be paid in cash, unless the parties to the Change in Control agree that some or all of such amount will be payable in the form of freely tradable shares of common stock of the successor of acquiring company (or a parent company thereof). 

 

 

 

18

 

 

SECTION 10

 

Performance Measures

 

10.1     Performance Measures. Unless and until the Committee proposes for shareholder vote and the shareholders approve a change in the general Performance Measures set forth in this Section 10, the performance goals upon which the payment or vesting of an Incentive Award to a Covered Employee that is intended to qualify as Performance-Based Compensation may be based shall be limited to the following Performance Measures:

 

	 	
(a)
	
Net income (before or after taxes, interest, depreciation, and/or amortization);

	 	
(b)
	
Net income per share;

	 	
(c)
	
Return on equity; 

	 	
(d)
	
Cash earnings;

	 	
(e)
	
Cash earnings per share (reflecting dilution of the Common Stock as the Committee deems appropriate and, if the Committee so determines, net of or including dividends);

	 	
(f)
	
Cash earnings return on equity;

	 	
(g)
	
Operating income;

	 	
(h)
	
Operating income per share;

	 	
(i)
	
Operating income return on equity;

	 	
(j) 
	
Return on assets;

	 	
(k)
	
Cash flow; 

	 	
(l)
	
Cash flow return on capital;

	 	
(m)
	
Return on capital; 

	 	
(n)
	
Productivity ratios;

	 	
(o)
	
Share price (including without limitation growth measures, total shareholder return or comparison to indices);

	 	
(p)
	
Expense or cost levels;

	 	
(q)
	
Margins;

	 	
(r)
	
Operating efficiency;

	 	
(s)
	
Efficiency ratio;

	 	
(t)
	
Customer satisfaction, satisfaction based on specified objective goals or a Company-sponsored customer survey;

	 	
(u)
	
Employee satisfaction, satisfaction based on specified objective goals or a Company-sponsored employee survey;

	 	
(v)
	
Economic value added measurements;

	 	
(w)
	
Market share or market penetration with respect to specific designated products or services, product or service groups and/or specific geographic areas; 

	 	
(x) 
	
Reduction of losses, loss ratios, expense ratios or fixed costs; 

	 	
(y) 
	
Employee turnover; 

	 	
(z) 
	
Specified objective social goals;

 

 

19

 

 

	 	
(aa)
	
Noninterest income;

	 	
(bb)
	
Interest income;

	 	
(cc)
	
Net interest income;

	 	
(dd)
	
Deposit growth; and

	 	
(ee)
	
Loan growth. 

 

One or more Performance Measures may be used to measure the performance of one or more of the Company, its Subsidiaries, its Affiliates or any combination of the foregoing, compared to pre-determined levels, as the Committee may deem appropriate, or compared to the performance of a pre-established peer group, or published or special index that the Committee, in its sole discretion, deems appropriate. The Committee also has the authority to provide for accelerated vesting of any Incentive Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Section 10. 

 

10.2     Evaluation of Performance. The Committee may provide in any such Incentive Award that any evaluation of Performance may include or exclude any of the following events or their effects that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary nonrecurring items as described in Financial Accounting Standards Board Accounting Standards Codification Topic 225-20 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable fiscal year, (f) acquisitions, mergers, divestitures or accounting changes, (g) amortization of goodwill or other intangible assets, (h) discontinued operations, and (i) other special charges or extraordinary items. To the extent such inclusions or exclusions affect Incentive Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility.

 

10.3     Committee Discretion. In the event that applicable tax laws, securities laws, or both, change to permit Committee discretion to alter the governing Performance Measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Incentive Awards that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code and may base vesting on Performance Measures other than those set forth in Section 10.1.

 

10.4     Adjustment of Performance-Based Compensation. Incentive Awards that are designed to qualify as Performance-Based Compensation, and that are held by Covered Employees, may not be increased or adjusted upward. The Committee shall retain the discretion to decrease or adjust such Incentive Awards downward, and such Incentive Awards may be forfeited in whole or in part. 

 

10.5     Performance-Based Compensation Conditioned on Performance. Payment of Performance-Based Compensation to a Participant for a Performance Period under this Plan shall be entirely contingent upon achievement of the performance goals established by the Committee pursuant to this Section 10, the satisfaction of which must be substantially uncertain when established by the Committee for the Performance Period. 

 

 

 

20

 

 

10.6     Time of Determination of Performance Goals by Committee. All performance goals to be made by the Committee for a Performance Period pursuant to this Section 10 shall be established in writing by the Committee during the first 90 days of such Performance Period and before 25% of the Performance Period has elapsed.

 

10.7     Section 162(m) Purpose. It is intended that the Plan may provide performance-based compensation under Section 162(m) of the Code, and the Plan shall be interpreted, administered and amended if necessary to achieve that purpose. 

 

10.8     Objective Standards. Performance-Based Compensation shall be based solely upon objective criteria, consistent with this Section 10, from which an independent third party with knowledge of the facts could determine whether the performance goal or range of goals is met and from that determination could calculate the Performance-Based Compensation to be paid. Although the Committee has authority to exercise reasonable discretion to interpret this Plan and the criteria it shall specify pursuant to this Section 10 of the Plan, it may not amend or waive such criteria after the 90th day of the respective Performance Period. The Committee shall have no authority or discretion to increase any Performance-Based Compensation or to construct, modify or apply the measurement of a Participant’s Performance in a manner that will directly or indirectly increase the Performance-Based Compensation for the Participant for any Performance Period above the amount determined by the applicable objective standards established within the time period set forth in Section 10.6.

 

 

Section 11

 

General Provisions

 

11.1     No Rights to Incentive Awards. No Participant or other person shall have any claim to be granted any Incentive Award under the Plan and there is no obligation of uniformity of treatment of Participants or holders or beneficiaries of Incentive Awards under the Plan. The terms and conditions of Incentive Awards of the same type and the determination of the Committee to grant a waiver or modification of any Incentive Award and the terms and conditions thereof need not be the same with respect to each Participant or the same Participant.

 

11.2     Withholding. The Company or a Subsidiary shall be entitled to: (a) withhold and deduct from future wages of a Participant (or from other amounts that may be due and owing to a Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state, local and other withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, taxes on income deemed to be recognized as a result of grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of Common Stock received upon exercise of an incentive stock option; or (b) require a Participant promptly to remit the amount of such withholding to the Company before taking any action with respect to an Incentive Award. Unless the Committee determines otherwise, withholding may be satisfied by withholding Common Stock to be received upon exercise or vesting of an Incentive Award or by delivery to the Company of previously owned Common Stock. The Company may establish such rules and procedures concerning timing of any withholding election as it deems appropriate. In addition, the Company may reasonably delay the issuance or delivery of shares of Common Stock pursuant to an Incentive Award as it determines appropriate to address tax withholding and other administrative matters.

 

 

 

21

 

 

11.3     Compliance with Laws; Listing and Registration of Shares. All Incentive Awards granted under the Plan (and all issuances of Common Stock or other securities under the Plan) shall be subject to all applicable laws, rules and regulations, and to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the grant of such Incentive Award or the issuance or purchase of shares thereunder, such Incentive Award may not be exercised in whole or in part, or the restrictions on such Incentive Award shall not lapse, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.

 

11.4     No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary from adopting, continuing in effect or discontinuing other or additional compensation arrangements, including the grant of Stock Options and other stock-based and stock-related awards, and such arrangements may be either generally applicable or applicable only in specific cases.

 

11.5     No Right to Employment. The grant of an Incentive Award shall not be construed as giving a Participant the right to be retained as an Employee or Director of the Company or any Subsidiary. The Company or any Subsidiary may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any written agreement with the Participant.

 

11.6     No Liability of Company. The Company and any Subsidiary or Affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant or any other person as to: (a) the non-issuance or non-sale of Common Stock as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; (b) any tax consequence to any Participant or other person due to the receipt, exercise or settlement of any Incentive Award granted hereunder; and (c) any provision of law or legal restriction that prohibits or restricts the transfer of shares of Common Stock issued pursuant to any Incentive Award.

 

 

 

22

 

 

11.7     Suspension of Rights under Incentive Awards. The Company, by written notice to a Participant, may suspend a Participant’s and any transferee’s rights under any Incentive Award for a period not to exceed 60 days while the termination for Cause of that Participant’s employment with the Company and its Subsidiaries is under consideration or while the removal for Cause of the Participant as a Director is under consideration. 

 

11.8     Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable federal law.

 

11.9     Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included, unless such construction would cause the Plan to fail in its essential purposes.

 

11.10     409A. The terms and conditions of all grants under the Plan shall be designed to comply with the applicable requirements, if any, of Code Section 409A. To the extent that any amount or benefit that constitutes "deferred compensation" to a Participant under Code Section 409A or is otherwise payable or distributable to a Participant under the Plan or any Incentive Award agreement solely by reason of the occurrence of a change in control of the Company or due to the Participant's disability or "separation from service" (as such term is defined in Treasury Regulation Section 1.409A-1(h)), such amount or benefit will not be payable or distributable to the Participant by reason of such circumstance unless the Committee determines in good faith that (i) the circumstances giving rise to such change in control, disability or separation from service meet the definition of a change in ownership or effective control, disability or separation from service, as the case may be, in Code Section 409A(a)(2)(A) and applicable regulations, or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A by reason of the short-term deferral exemption or otherwise. Any payment or distribution that otherwise would be made to a Participant who is a specified employee (as hereinafter defined and as determined by the Committee in good faith) on account of separation from service may not be made before the date which is six months after the date of the specified employee's separation from service (or, if earlier upon the specified employee's death) unless the payment or distribution is exempt from the application of Code Section 409A by reason of the short-term deferral exemption or otherwise. A "specified employee" means a specified employee as defined in Code Section 409A(a)(2)(B) and applicable regulations under Code Section 409A, determined in accordance with procedures established by the Committee and applied uniformly with respect to all plans maintained by the Company that are subject to Code Section 409A. 

 

11.11.     Claw Back Conditions. Notwithstanding anything to the contrary contained herein or in an Incentive Award agreement, Incentive Awards and benefits otherwise provided by Incentive Awards made under the Plan shall be subject to the Company's incentive compensation claw back policies as in effect from time to time, and, as applicable, the claw back requirements of Section 954 of the Dodd-Frank Act. 

 

 

 

23

 

 

SECTION 12

 

Termination and Amendment

 

12.1     Board and Committee Actions. The Board may terminate the Plan at any time or may from time to time amend or alter the Plan or any aspect of it; provided, that no such amendment may be made, without the approval of shareholders of the Company, that would (i) except as provided in Section 4.3, reduce the exercise price at which Stock Options, or the base price at which Stock Appreciation Rights, may be granted below the prices provided for in Sections 5.3 and 6.1, respectively, (ii) except as provided in Section 4.3, reduce the exercise price of outstanding Stock Options or the base price of outstanding Stock Appreciation Rights, (iii) increase the individual maximum limits in Section 4.2, or (iv) otherwise amend the Plan in any manner requiring shareholder approval by law or under Nasdaq listing requirements or other applicable Nasdaq rules, and provided further that the Plan may not be amended in any way that causes the Plan to fail to comply with or be exempt from Code Section 409A. 

 

12.2     No Impairment. Notwithstanding anything to the contrary in Section 12.1, no such amendment or alteration to the Plan or to any previously granted award agreement or Incentive Award shall be made which would impair the rights of the holder of the Incentive Award, without such holder’s consent; provided, that no such consent shall be required if the Committee determines in its sole discretion and prior to the date of any Change in Control that such amendment or alteration either is required or advisable in order for the Company, the Plan or the Incentive Award to satisfy any law or regulation or to meet the requirements of or avoid adverse tax or financial accounting consequences under any tax or accounting standard, law or regulation. 

 

 

SECTION 13

 

Effective Date and Duration of the Plan

 

The Plan shall take effect February 25, 2016, subject to approval by the shareholders at the 2016 Annual Meeting of Shareholders or any adjournment thereof or at a Special Meeting of Shareholders. Unless earlier terminated by the Board of Directors, no Incentive Award shall be granted under the Plan after February 24, 2026.

 

 

 

 

 

 

 

 

 

 

24optt20160531_8k.htm

Exhibit 10.1

 

	
Date:
	
27 May, 2016

 

	
To:
	
Ocean Power Technologies Inc.

	 	 
	 	1590 Reed Road
	 	 
	 	Pennington, NJ 08534, USA

  

	
TEL:
	
(+1)609-730-0400

 

	
FAX:
	
(+1)609-730-0404

 

	
Attn:
	
Mr. George H. Kirby 

 

	
CC:
	
Mr. Noji/MES Procurement Department 

 

	
Re:
	
Purchase Order No.HM00538 (Job No.H650511.JIK)

	 	 
	 	Task for NEDO-MES wave power generation project 

   

We, Mitsui Engineering & Shipbuilding Co., Ltd. (hereinafter referred to as “MES”), hereby place orders for the captioned items with you, Ocean Power Technologies, Inc. (hereinafter referred to as “OPT”), to lease and deploy PB3 PowerBuoy off the coast of Kozushima Island, Japan.

 

The total purchase order amount for the scope of supply described below is is $975,587. This includes engineering services as well as the lease of PB3 PowerBuoy. This Purchase Order will be subject to the agreed Terms and Conditions document as signed by both parties on [DATE] as well as to the terms stated in the Addendum section of this purchase order.

 

Scope of Supply:

 

The scope of supply for this purchase order is consistent with OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016

 

	 	
a)
	
Mooring design and resonant control implementation support

 

	 	
b)
	
Support operational and resonant control wave tank test

 

	 	
c)
	
Support survival wave tank test

 

	 	
d)
	
Support MES with deployment permit, approval and social relations support 

 

	 	
e)
	
Testing of PB3 PowerBuoy prior to shipment to Japan 

 

	 	
f)
	
Staging and packaging of PB3 PowerBuoy 

 

	 	
g)
	
Handling logistics and shipping of PB3 PowerBuoy to Japanese port 

 

	 	
h)
	
Six month lease of PB3 Power Buoy

  

 

 

 

 

 

	 	
i)
	
PB3 deployment and commissioning 

 

	 	
j)
	
PB3 monitoring, data analysis and reporting 

 

	 	
k)
	
Project management 

 

MES kindly requests OPT to confirm the forgoing Purchase Order and return to us a copy of this Purchase Order sheet with your signature as your acceptance.

 

 

	
 
	
 
	
Yours faithfully,
	
 

	
 
	
 
	
 
	
 

	
 
	 	/s/ T. Maemura, Manager	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
T. Maemura, Manager
	
 

	 	 	 	 
	 	 	Renewable Energy Project Dept.	 
	 	 	 	 
	 	 	Business Development and Innovation Hq.	 
	 	 	 	 
	 	 	Mitsui Engineering & Shipbuilding Co., Ltd.	 

 

Accepted by 

 

	
/s/ George H. Kirby
	
 
	
 
	
 
	
 

	George H. Kirby	
 
	
 
	 	
 

	President and Chief Executive Officer	 	 	 	 
	 	
 
	
 
	 	
 

	Ocean Power Technologies, Inc.	
 
	
 
	 	
 

	 	 	 	 	 
	Date: May 31, 2016	 	 	 	 

  

 

 

 

 

 

Addendums

 

	
1.
	
References:

 

	 	
a)
	
Terms and Conditions document: Terms_&_Condistions_Amendment_for_OPT_20160518 as agreed and signed by MES and OPT on 23 May, 2016

 

	 	
b)
	
Letter of Intent (LOI) from MES to OPT dated 7th March 2016

 

	 	
c)
	
Proposal for NEDO-MES wave power generation project by OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016

  

 

	
2.
	
Contract Price:

 

	 	
a)
	
For Supply in 2015 Japanese Fiscal Year

 

OPT will submit the results specified in each milestone that has been designated as 2015 Fiscal Year. MES will pay total $138,700 by March 31, 2016. (Per Proposal for NEDO-MES wave power generation project by OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016)

 

	 	
b)
	
For Supply in 2016 Japanese Fiscal Year

 

OPT will submit the results specified in each milestone that has been designated as 2016 Fiscal Year. MES will pay total $374,030 by March 31, 2017. (Per Proposal for NEDO-MES wave power generation project by OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016)

 

	 	
c)
	
For Supply in 2017 Japanese Fiscal Year

 

OPT will submit the results specified in each milestone that has been designated as 2017 Fiscal Year. MES will pay total $462,857 by March 31, 2018. (Per Proposal for NEDO-MES wave power generation project by OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016)

 

[Prerequisite] With respect to the supply in 2016 and 2017 Japanese fiscal year, MES and OPT agree to negotiate in good faith and agree that the terms and conditions in the contract are to be discussed and adjusted. And the contract between MES and OPT will address the possibility for and the result that may occur if MES cannot pass NEDO’s Stage Gate (the scheduled target date of NEDO Stage Gate is June 30 2016) or if a change occurs in the anticipated contract between NEDO and MES.

 

[Prerequisite] With respect to following tasks, shipping of PB3 to Japan, six month lease of PB3, assistance of deployment and commissioning each of which are associated with demonstration period, the timing of submission of the results (deliverables) from OPT and the payment from MES depends on the actual demonstration period.

  

 

 

 

 

     

	
3.
	
Payment Terms:

 

100% contract price of each milestone shall be paid by telegraphic transfer remittance within 30 days after MES’s receipt of the following items (a) and (b):

 

	 	
(a)
	
The OPT deliverables that was specified by Letter of Intent (LOI) from MES to OPT dated 7th March 2016

 

	 	
(b)
	
OPT’s original signed invoice:

 

Address:

 

Mitsui Engineering & Shipbuilding Co., Ltd. Renewable Energy Project Dept.

 

6-4, Tsukiji 5-chome, Chuo-ku, Tokyo 104-8439 Japan

 

Attention: T. Suzuki      Tel: +81-3-3544-3025          Fax: +81-3-3544-3982

 

 

	
4.
	
Milestone of payment:

 

Milestone of the task to be performed and the payment due date and payment amount 

 

Per proposal for NEDO-MES wave power generation project by OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016

 

	 	
a)
	
Payment I: Completion of the following tasks 1.1, 1.2, 1.3, 1.4, March 31, 2016 $138,700

 

2015 Fiscal year total $138,700

   

	
 
	
b)
	
Payment II: Completion of the following tasks 1.5, 1.6, May 31, 2016 $150,004

 

	
 
	
c)
	
Payment III: Completion of the following tasks 2, 3, 4, August 31, 2016 $117,938

 

	 	
d)
	
Payment IV: Completion of the following tasks 5, 6, 7, March 31, 2017 $73,896

 

	 	
e)
	
Payment V: Completion of the following task 8.1 for first month, March 31, 2017 $32,192

 

2016 Fiscal year total $374,030.

    

 

 

 

 

  

	 	
f)
	
Payment VI: Completion of the following task 8.2 for second month, April 30, 2017 $32,192

 

	 	
g)
	
Payment VI: Completion of the following task 8.3 for third month, May 31, 2017 $32,192

 

	 	
h)
	
Payment VI: Completion of the following task 8.4 for fourth month, June 30, 2017 $32,192

 

	 	
i)
	
Payment VI: Completion of the following task 8.5 for fifth month, July 31, 2017 $32,191

 

	 	
j)
	
Payment VI: Completion of the following task 8.6 for sixth month, August 31, 2017 $32,191

 

[Note] Lease fee by task 8.1-8.6 is paid as a monthly installment based on MES’s policy of payment.

   

	
 
	
k)
	
Payment XI: Completion of the following task 9, May 31, 2017 $145,245

 

	
 
	
l)
	
Payment XII: Completion of the following task 10, August 31, 2017 $156,654

 

2017 Fiscal year total $462,857.

 

[Note] Price for “Project management” as Task 11 in LOI is allocated to each task price, based on OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016.

   

2015-2017 Fiscal Year Total is $975,587.

 

[Note] As acceptance date is defined as the following conditions:

 

	 	
1)
	
We have received specified deliverables and confirmed them.

 

	 	
2)
	
We have received invoice of each milestone.

   

 

	
5.
	
Contents of Tasks:

 

By Proposal for NEDO-MES wave power generation project by OPT’s offer “MILESTONES PAYMENT SCHEDULE Revision C” dated March 17, 2016.

 

	
 
	
Task 1.1
	
Design Resonant Control Interface into OPT controller 

  

 

 

 

 

 

	
 
	
Task 1.2
	
Design data recording and reporting mechanism for resonant control system

 

	
 
	
Task 1.3
	
Determine PowerBuoy performance and fatigue life prediction using Kozushima JPD

 

	
 
	
Task 1.4
	
Use 100-year return period conditions to generate design loads and estimate safety factors for the design

 

	
 
	
Task 1.5
	
Utilize 100-year return current information to determine mooring design concept and conditions for wave tank test 

 

	
 
	
Task 1.6
	
Use bathymetry and seabed composition to recommend appropriate method for anchoring and deployment 

   

	
 
	
Task 2
	
Support Operational and Resonant Control Wave Tank Test (includes travel to Japan)

 

	
 
	
Task 3
	
Support Survival Wave Tank Test (includes travel to Japan)

 

	
 
	
Task 4
	
Support MES with deployment permit, approval and social relations support (NK, JP Coast Guard, NEDO, EPSD, TMP)

 

	
 
	
Task 5
	
Testing of PB3 PowerBuoy prior to shipment to Japan

 

	
 
	
Task 6
	
Staging and packaging of PB3 PowerBuoy 

 

	
 
	
Task 7
	
Handling logistics and shipping of PB3 PowerBuoy to Japanese port 

 

	
 
	
Task 8.1-8.6
	
 Total Six month lease of PB3

   

	
 
	
Task 9.1
	
Develop PowerBuoy deployment and operation plan

 

	
 
	
Task 9.2
	
Conduct Pre-Deployment Functional Test and provide test report 

 

	
 
	
Task 9.3
	
OPT Operations and Engineering Support

 

	
 
	
Task 9.4
	
Provide deployment readiness report 

 

	
 
	
Task 9.5
	
Deploy PB3

   

	
 
	
Task 10.1
	
Conduct monitoring of PB3 PowerBuoy and tune performance (Resistive and Resonant Control)

  

 

 

 

 

 

	
 
	
Task 10.2
	
Conduct deployment data analysis over deployment term

 

	
 
	
Task 10.3
	
Issue periodic report over deployment term

   

	
 
	
Task 11
	
Project Management (1.5 years)

 

[Note] OPTis requested to submit a list of deliverables (main components and reports (including drawing and calculation)) of each task, within two weeks upon receipt of this PO.

 

For purpose of clarity, each milestone will be paid separately to OPT as each milestone is completed.

   

 

 

 

 

 

Doc.:WPG-EA001-00

  

	
GENERAL TERMS AND CONDITIONS FOR PURCHASING, MES2011

 

Amendment for Ocean Power Technologies Inc., May 18, 2016

   

	 	
1.
	
DEFINITIONS

  

“Purchase Order” means the purchase order issued on the date of stipulating the goods to be purchased and its terms and conditions. The General Terms and Conditions shall be read as being incorporated thereto. When agreed and finalized, these General Terms and Conditions will remain in effect throughout the duration of the Purchase Order.

“Goods” means any materials, machinery, equipment, article, item, drawings, service or work provided for and agreed to by the parties in the Purchase Order

“Specifications" means the technical aspects agreed on by the parties hereto to fulfill any parts of the Goods, and all Specifications must be included within or referred to by the Purchase Order.

“Seller” means Ocean Power Technologies, Inc. (OPT) and “Buyer” means Mitsui Engineering and Shipbuilding Co., Ltd. (MES). OPT and MES are each a party and collectively the parties.

 

	 	
2.
	
TERM

  

The term of the contractual agreement between the parties, which shall at least include the duration of the project as well as the duration of any lease of Goods (including but not limited to the lease of a PowerBuoy®) shall be specified in the Purchase Order. The parties agreed that term of the lease of a PowerBuoy® shall commence FOB USA PORT to Japan, and shall end FOB USA PORT. Any changes to the lease will need to be by amendment to the Purchase Order and agreed upon in writing by both parties.

 

	 	
3.
	
CONTRACT

  

The Purchase Order shall become a binding contractual agreement between the Seller and the Buyer upon the execution of the Purchaser Order by the Buyer and Seller.

The Purchase Order, together with these General Terms and Conditions and the Specifications and other relevant documents referred therein, shall by this reference be all made a part hereof and shall constitute one element of the entire contractual agreement between the parties. All prior negotiations, proposals, and writings pertaining to any Purchase Order or the subject matter thereof will be superseded and supplanted once the Purchase Order is executed by Buyer and Seller.

 

 

 

 

 

    

The Buyer and Seller agree that these General Terms and Conditions shall apply and shall govern to the Purchase Order, and that in the face of any conflict between these General Terms and Condition and any other specific terms and conditions in a Purchaser Order, that these General Terms and Conditions apply to the exclusion of all others.

 

	 	
4.
	
INSPECTION AND TEST

  

Before dispatching the Goods, the Seller shall carefully inspect and test the Goods in compliance with the Specifications.

The Buyer shall be entitled to attend such inspection and / or test at all reasonable times and places before, during and / or after the manufacture of the Goods.

The Seller shall inform the Buyer of the anticipated date of inspection and / or test that may be specified in the Purchase Order and/or other related documents referred thereto, and the Seller shall inform the Buyer as soon as reasonable prior to the actual date of inspections and/or test in order to allow Buyer and its designated inspection agent to attend the same.

If, as a result of such inspection or test, the Buyer is of the reasonable opinion that the Goods do not comply with or conform to the Purchase Order, the Buyer shall inform the Seller accordingly in writing and the Seller shall take such reasonable steps as may be necessary to ensure such compliance.

The Buyer's attendance at such inspection and / or test shall not be interpreted in any way to imply acceptance of such Goods, and shall not relieve the Seller from any responsibility for supplying the Goods in strict conformity with the Purchase Order and any agreed Specifications referred to therein and for correcting any defects which may be found during the guarantee period.

The Buyer is not obliged to pay for any Goods supplied in error or in excess of the amount ordered in the Purchase Order. Such erroneous or excess Goods shall be returned to the Seller upon the Seller's payment of all shipping and return freight costs.

 

	 	
5.
	
PROGRESS REPORT

  

The Seller shall provide the Buyer with a progress report showing the manufacturing status of the Goods as agreed in the Purchase Order or at any other reasonable time upon the Buyer's reasonable requests without any additional cost to the Buyer, and the Seller shall inform the Buyer of the estimated time of shipment.

 

 

 

2

 

       

	 	
6.
	
CHANGE

  

The Buyer shall have the right, by written supplement mutually agreed in advance by Buyer and Seller, to make changes in the Specifications and drawings for the Goods covered by the Purchase Order.

If such change, which is beyond the scope of the Specifications in the Purchase Order agreed on by the Parties would affect the price or delivery date for the Goods, the Seller shall so notify the Buyer within ten (10) days of the instruction from the Buyer of such change and then both parties shall mutually agree in writing upon commercially reasonable adjustment in the price and / or delivery date to reflect the effect of such change.

While the Buyer and the Seller are in the process of making such adjustment, if mutually agreed and released in writing by both parties, the Seller shall comply with and perform such change in accordance with the terms of the Purchase Order during such time.

No substitutions by the Seller shall be made in the Purchase Order without a prior written permission of the Buyer.

 

	 	
7.
	
PACKING

  

The Goods shall be packed in a reasonable manner so as to ensure adequate protection until they reach their ultimate destination and in compliance with the Buyer's packing requirements as set forth in the Purchase Order.

The cost of all packing, boxing and / or crating, carriage, etc., for the delivery of the Goods from Seller to Buyer is to be included in the price specified in the Purchase Order. The cost of all packing, boxing and/or crating, carriage etc., for delivery of leased Goods from Buyer to Seller is the sole responsibility of the Buyer.

The Buyer's count will be accepted as final and conclusive on shipments not accompanied by the Seller's itemized packing list.

 

	 	
8.
	
DELIVERY

  

The Seller shall deliver the Goods in accordance with these General Terms and Conditions as well as any other specific terms and conditions in the Purchase Order.

These General Terms and Conditions as well as any other specific terms and conditions in the Purchase Order that address matters of delivery shall be interpreted in accordance with "lncoterms 2010" (as amended) . All required documentation associated with the receipt and disposition of the Goods by Buyer such as but not limited to local customs forms, export law compliance forms, and such are the sole responsibility of the Buyer.

 

 

3

 

  

	 	
9.
	
DELAY IN DELIVERY

  

Buyer and Seller shall mutually agree in writing to an overall project schedule that is referenced in the Purchase Order, with clearly documented assumptions, including but not limited to those items such as data and information to be provided by Buyer to Seller in order for Seller to start work in accordance with the agreed schedule. In the event that deliverable-dates must change based upon new or different data/information developed after the Purchase Order is signed, Buyer and Seller can mutually agree to the necessary changes in a written document that will supplement the Purchase Order. Project schedule will be updated by Seller on a regular basis to reflect delivery dates and possible delays, Buyer will be notified accordingly, and the parties will cooperate in effectuating any necessary changes as noted above.

 

	 	
10.
	
GUARANTEE

  

The Seller warrants to the Buyer that the Goods covered by the Purchase Order shall conform to the specifications and other relevant documents referenced in the Purchase Order, including but not limited to a warranty that the Goods shall be reasonably fit and sufficient for the specific research and development, and technology demonstration/assessment purpose for which they are intended, all as evidenced in the Purchase Order and in the Specifications. In addition but not by way of limitation, the Goods shall be of good material, design and workmanship, shall be free from defects as that term may be defined in or referenced by the Purchase Order, and shall satisfactorily fulfill the operating conditions specified in the Purchase Order.

If any defect, as that term may be defined in the Purchase Order, appears, the Buyer shall so notify the Seller in writing within 48 hours of Buyer’s discovery of the defect. Defects may be identified at any time within a time period of six (06) months from the date when the Goods are first energized. Upon mutual agreement that said defect is with Seller’s scope, the Seller shall then at its own expense and as quickly as possible, make such alterations, repairs and replacements as may be reasonably necessary per Seller’s Warranty. Buyer shall refer to the Seller’s Warranty document which will be referenced in the Purchase Order.

 

 

 

4

 

 

However, in no circumstances shall Seller be liable to Buyer nor shall Seller be required to reimburse Buyer for any indirect, special, reliance, incidental or consequential losses, damages or expenses under this contract or any Purchase Order.

A new guarantee shall be applied under the same terms and conditions as those applicable to the original Goods, to parts supplied in replacement of defective parts or to parts renewed in pursuance of this clause for six (06) months after replacement or renewal thereof.

 

	 	
11.
	
PRICE AND PAYMENT

  

Unless otherwise stated, all prices for the Goods corresponding the specific and agreed scope identified in the Purchase Order, are firm and are not subject to price escalation for any reason whatsoever.

Any applicable sales, use, or similar taxes levied in the country of manufacture, export charges, fees, the Seller's profit and all other expenses are included in the price.

The payment due date shall be in accordance with the payment schedule document referenced in the Purchase Order.

 

	 	
12.
	
FORCE MAJEURE

  

A delay in or failure of performance by either party, or its affiliates or suppliers, hereto shall not constitute default under the Purchase Order if and to the extent such delay or failure is caused by Force Majeure, which shall mean acts of God, acts of civil, government, or military authority, acts of terrorism, accidents, restraints affecting shipping or credit, non-arrival or delay of carriers, short or reduced supply of fuel or raw materials or excessive costs thereof, natural disaster epidemics, war (declared or undeclared), or riot and which shall also mean any act that the Seller could not have reasonably foreseen and provided against.

In the event of Force Majeure, the Seller shall promptly notify the Buyer of any such delay and take all reasonable steps to avoid or end such delay.

The date of delivery or of performance shall be extended for a period equal to the duration of Force Majeure.

Neither party shall be entitled to claim compensation for delay or failure caused by Force Majeure.

 

 

 

5

 

     

	 	
13.
	
PATENT

  

The Seller warrants that the Buyer's use of the Goods, in the form in which they are furnished to the Buyer, shall not infringe any valid patent, copyright, trademark, or proprietary information rights of others. Further, the Goods and associated intellectual property are and will remain the sole property of the Seller and their use by the Buyer is for the sole purpose and scope documented and agreed in the Purchase Order. Buyer and Seller agree that any data, information and such pertaining to the Goods are confidential and shall be governed by the Confidentiality Agreement dated August 6, 2010 between Seller and Buyer. The Seller shall at its sole expense hold harmless and defend the Buyer from any suit or proceeding brought against the Buyer based on any such infringement, and shall pay all damages and costs awarded therein against the Buyer.

The Seller shall be promptly notified by the Buyer in writing of the suit or proceeding and shall be given adequate authority, information and assistance (at the Seller's expense) for the defense of same, subject to the right of the Buyer to participate at their expense and to be fully advised by the Seller in advance of all action taken.

In case the Goods, or any part thereof, is in such suit held to constitute infringement and the use of the Goods or parts is enjoined, the Seller shall, at its own expense, either procure for the Buyer the right to use the Goods or parts, or replace same with substantially equal but non-infringing equipment, or modify it so it becomes substantially equal but non-infringing, or if approved by the Buyer remove the Goods and refund the purchase price and the transportation and installation costs thereof and other costs incurred by the Buyer due to the Seller's failure.

 

	 	
14.
	
RISK OF LOSS AND INSURANCE

  

Buyer shall be liable for any loss, theft, damage or destruction suffered by Ocean Power Technologies Inc. (OPT) resulting from the acts or omissions (whether innocent, negligence, reckless, willful or otherwise) of Service Provider or its Personnel, excluding any indirect, incidental, consequential, punitive, special or other similar damages.

Buyer shall maintain, at its own expense, a minimum of (or equivalent):

  

	 	
•
	
Comprehensive General Liability (each occurrence): US$1,000,000 (customary watercraft exclusions must be deleted)

 

 

 

6

 

  

	 	
•
	
Comprehensive General Liability (aggregate): US$2,000,000 (customary watercraft exclusions must be deleted)

	 	
•
	
Workers' Compensation: As required by Local jurisdiction including but not limited to US Longshoremen and Harbor Workers Act, or equivalent

	 	
•
	
Employer's Liability (each accident): US$1,000,000 (including maritime jurisdiction including but not limited to Jones Act, Dead on the High Seas Act, or equivalent)

	 	
•
	
Employer's Liability (each Employee): US$1,000,000 (including maritime jurisdiction including but not limited to Jones Act, Dead on the High Seas Act, or equivalent)

	 	
•
	
Umbrella Policy (each occurrence): US$5,000,000

	 	
•
	
Umbrella Policy (aggregate): US$5,000,000

  

Buyer shall provide to Seller a waiver of subrogation on both the Buyer's General Liability and Workers Compensation policies. In addition, for General Liability, service provider must confirm that their insurance is primary with no contribution by OPT. Buyer shall comply with the terms of insurance pursuant to this contract and will be responsible for all excesses payable on any insurance claim under such insurance unless the relevant claim does not relate in any way to the supply or acts and omissions of Seller.

Buyer shall notify Seller of any insurance claim(s) that may arise within 48 hours of such claim(s) being filed for the sake of keeping Seller fully informed

Buyer shall supply OPT with certificates evidencing the coverage's required herein and the designation of OPT, agents and employees as additional insured. Service Provider must notify OPT immediately upon any termination or reduction in insurance coverage. All other required local, city, state and federal insurance, certificates or disability and unemployment benefits shall also be secured and maintained by Buyer during the Term of the Purchase Order. If the Buyer fails to provide Seller with required certificates in accordance with these contract requirements within 30 days of agreed Goods shipping date to Buyer, Seller will delay shipping until such a time the Buyer fully complies with above insurance requirements.

 

	 	
15.
	
SPECIFIC MARINE INSURANCE COVERAGE

  

Buyer is solely responsible for all insurance liabilities and requirements pertaining to marine operations activities related to the deployment and use of the Goods. The Seller shall be included in all such insurance previsions as an additional insured party.

 

 

 

7

 

  

Buyer shall ensure working conditions meeting recognized professional standards equivalent or similar to those defined by the US Occupational Safety and Health Administration (OSHA) for all Seller’s personnel, agents and affiliates when performing professional activities at Buyer’s site and locations.

 

Contractual insurance requirements FOR BUOY LEASE:

  

Buyer shall provide to Seller proof of insurance a minimum of 30days prior to agreed Goods-shipping-date. Seller shall not be responsible for any premium payments, and Buyer shall provide a direct notice to Seller in the event of cancellation of insurance due to nonpayment of premium or otherwise, within 24 hours of such cancellation.

Buyer’s insurance shall include the following items:

  

	 	
1.
	
Hull & Machinery Insurance

 

	 	
2.
	
Seller as additional insured (with waiver of subrogation) and loss payee

 

	 	
3.
	
Breach of Warranty: Insurance for full value of buoy

 

	 	
4.
	
Insurance shall be provided by reputable insurers to be agreed by Seller (AM BEST rating of insurers minimum of A VII or better)

 

	 	
16.
	
INDEMNITY

  

The Seller hereby will indemnify and hold harmless the Buyer from and against all liability to others and all claims, causes of action and suits of others, including without limitation those by employees, officers, directors, contractors, subcontractors or agents of the Buyer (hereinafter the “Indemnified Parties”) for personal injury (including death) or property damage, arising out of acts, omissions or failure to act of employees, officers, directors, contractors, subcontractors or agents of the Seller or arising out of defects in the Goods supplied by the Seller pursuant to this agreement or any Purchase Order. The foregoing indemnification shall apply only if such acts, omissions, or failure to act of employees are shown beyond doubt to be the sole responsibility of the Seller. The foregoing indemnification shall not apply when such injury or property damage involves the willful misconduct or gross negligence on the part of the Indemnified Parties, and the foregoing indemnification is limited in amount to the total value of the Goods provided by Seller to Buyer under this agreement and any Purchase Order(s), and the foregoing indemnification is limited in time to no more than six (06) months after the Goods have been provided to the Buyer by the Seller.

 

 

 

8

 

    

LIMITATIONS OF LIABILITY – The total liability of Seller (including Seller’s suppliers or manufacturers), on any claim, whether in contract, tort (including negligence), breach of warranty or otherwise, arising out of, connected with, or resulting from the manufacture, sale, lease, storage, delivery, resale, repair, replacement or use of any Goods shall not exceed the price of the specific product or service which gives rise to the claim, with a total value not to exceed the contract value. Seller’s liability on all such claims shall expire upon the expiration of the warranty. In no event shall seller (including seller’s suppliers or manufacturers) be liable to buyer or any third party for any special incidental or consequential, exemplary, or other indirect damages, or for loss of profits or revenues, loss of use of the work or any associated work, cost of capital, claims of customers for service interruptions, and costs incurred in connection with procuring goods.

 

	 	
17.
	
CANCELLATION FOR DEFAULT

  

In the event that either party shall be adjudged bankrupt, or make a general assignment for benefit of creditors, or if a receiver or liquidator shall be appointed, or if a winding up proceeding shall be commenced, or in the event that either party does not correct any default to comply with any of the provisions or requirements of the Purchase Order after a reasonable period of being notified in writing of such default by the other party, then the non-defaulting party may, by written notice to the defaulting party, without prejudice to any other rights or remedies which the non-defaulting party may have, terminate further performance by the defaulting party of the Purchase Order.

In the event of such termination, the non-defaulting party may complete the performance of the Purchase Order by such reasonable means as the non-defaulting party selects. Any amounts due under the terms of the Purchase Order prior to such termination shall be subject to set off of the non-defaulting party’s additional reasonable costs of completing the Purchase Order and other reasonable damages incurred by the non-defaulting party as a result of the default.

 

	 	
18.
	
CANCELLATION FOR CONVENIENCE

  

The Buyer shall have the right to cancel for its convenience further performance of all or any separable part of the Purchase Order at any time by a 30-day written notice to the Seller. Note that Buyer’s right to cancel for convenience shall not be permitted after the Goods have left Seller’s facility for shipment to Buyer. On the date of such cancellation, stated in said notice, the Seller shall discontinue all work pertaining to the Purchase Order, shall place no additional order, shall preserve and protect materials on hand purchased for or committed to the Purchase Order, work in progress, and completed work both in his own and in his suppliers' plants pending the Buyer's instructions, and shall dispose of same in accordance with the Buyer's instructions.

 

 

 

9

 

 

Payment conditions shall be promptly and reasonably determined by the Buyer and the Seller, based on that portion of the work satisfactorily performed in accordance with the terms of the Purchase Order to the date of cancellation, as substantiated by documentation satisfactory to and verified by the Buyer, disposition of work and material on hand, and amounts previously paid by the Buyer.

The Seller shall not be entitled to any prospective profits or damages because of such cancellation.

 

	 	
19.
	
ASSIGNMENT

  

Neither the Buyer nor the Seller shall assign or subcontract the Purchase Order or any part thereof or any amounts due there under without written consent of the other party, which consent shall not be unreasonably provided.

Any such permitted assignment or subcontracting shall not relieve the parties of any of their obligations under the Purchase Order.

 

	 	
20.
	
NO-WAIVER

  

No failure or delay of one party to require performance by the other party of anything contained in the Purchase Order, these General Terms and Conditions, any other specific terms and conditions referenced in the Purchase Order or the Specifications shall in any way adversely affect such party's right to require full performance of such provision after that. No waiver by one party of a breach thereof shall be taken to be a waiver by such party of any succeeding breach of thereof.

 

	 	
21.
	
CORRESPONDENCE

  

Any and all correspondence and notices shall be made in English, in writing to the address as mentioned in the Purchase Order.

 

 

 

10

 

   

	 	
22.
	
ARBITRATION

  

All disputes or controversies which may arise between the Buyer and the Seller, out of or in relation to or in connection with the Purchase Order, or for any breach thereof, shall be finally settled by arbitration in the International Court of Arbitration located in Lausanne, Switzerland. The award rendered by the arbitrators shall be final and binding upon both parties.

 

	 	
23.
	
APPLICABLE LAWS

  

The Purchase Order shall be governed by and construed in accordance with the laws of Japan. The Purchase Order will not be governed by the conflict of law rules of any jurisdiction or the United Nations Convention on Contracts for the International Sale of Goods, the application of which is expressly excluded.

 

	 	
24.
	
SEVERABILITY

  

In the event that any provision of the Purchase Order, or any of its referenced documents including but not limited to these General Terms and Conditions, should be held to be unenforceable or invalid for any reason, then such provision or portion thereof shall be deleted or modified in such a manner so as to make the Purchase Order, or any of its referenced document including but not limited to these General Terms and Conditions, as modified, legal and enforceable to the fullest extent permitted under applicable laws.

 

 

	
 
	
Ocean Power Technologies

Mike Mekhiche

/s/ Mike Mekhiche
	 

  

 

11 

 

 

  

 

 

 

 

 

 

 

 

3.      Letter of Intent. This Letter of intent reflects the current intention of l\1ES and OPT, but for the avoidance of doubt, this Letter of lntent does not constitute a legally binding or enforceable commitment by either MES or OPT with respect to the Proposed Transaction, provided however that Sections 2 and 5 of this letter and the provisions of the Pre-Work Tasks (generally here referred to as the "Commitments") are binding contractual commitments of MES and OPT. The non-binding provisions of this Letter of lntent reflect only the current understanding of the Proposed Transaction and a binding agreement will not exist between MES and OPT unless and until they sign and deliver the contract referred to in Section 2 above, which will contain material terms not set forth in this Letter of lntent.

 

4.     Contracting Process. MES and OPT agree to fully cooperate in the contracting process described in Section 2 above, including as necessary in the separate contractual negotiations between MES and NEDO. MES and OPT also agree to fully cooperate as ncessary to support NEDO's Stage Gate as discussed in Section 2 above.

 

5.     Confidentiality. MES and OPT agree that the terms of this Letter of lntent are confidential and shall be governed by the Confidentiality Agreement dated August 6, 2010 between MES and OPT.

 

This Letter of Intent may be executed in two or more counterparts or by facsimile signature (or both), each of which will be deemed to be an original, but all of which will constitute one and the same agreement.

 

Please indicate your understanding of the terms and conditions set forth in this Letter of Intent by signing and dating in the respective spaces provided below..

 

 

 

	
 
	
Sincerely,  

	
 
	
 
	
 

	
 
	
MITSUI ENGINEERING & SHIPBUILDING CO., LTD.

	
 
	
 
	
 

	
 
	
 
	
 

	
 
	
 
	
 

	
 
	
By:
	
 /s/ Toshihiko Maemura 

	
 
	
Name:
	
 Toshihiko Maemura

	
 
	
Title:
	
Manager, Renewable Energy Project Research & Development Headquarters

 

Agreed to and accepted this 7th day of March, 2016 (the "Effective Date").

 

  

OCEAN POWER TECHNOLOGIES, INC.

 

 

By: /s/ Mike Mekhiche

 

Name: Mike Mekhiche

Vice President, Engineering

 

 

 

 

 

TERM SHEET

Proposed Transaction between MES and OPT

 

 

	 	
1.
	
Mooring Design and Resonant Control Implementation Support

 

	 	
2.
	
Support Operational and Resonant Control Wave Tank Test

 

	 	
3.
	
Support Survival Test Tank Test

 

	 	
4.
	
Support MES with Deployment Permit, Approval and Social Relations Support

 

	 	
5.
	
Testing of APB350 PowerBuoy prior to shipment to Japan

 

	 	
6.
	
Staging and Packaging of APB350 PowerBuoy

 

	 	
7.
	
Handling logistics and Shipping of APB350 PowerBuoy to Japanese Port

 

	 	
8.
	
Six month lease of APB350

 

	 	
9.
	
APB350 Deployment and Commissioning

 

	 	
10.
	
APB350 Monitoring, Data Analysis and Reporting

 

	 	
11.
	
Project Management

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