Document:

psc_syzgypat.htm

Exhibit 10.2

 

SYZYGY LICENSING LLC – PARAMETRIC SOUND CORPORATION

LICENSE AND ROYALTY AGREEMENT

 

THIS LICENSE AND ROYALTY AGREEMENT (“Agreement”) is made on the day and year first written below by and between Syzygy Licensing, LLC, a Nevada limited liability company having an address of 8617 Canyon View Drive, Las Vegas, Nevada 89117 (“Licensor”) and Parametric Sound Corporation, a Nevada corporation having a business address of 1941 Ramrod Avenue, Suite 100, Henderson, Nevada 89014 (“Licensee”).  Licensor and Licensee are sometimes collectively referred to herein as “the Parties.”

RECITALS

WHEREAS, Licensor has developed or owns certain technology relating to improved systems and methods of processing media input to create parametric sound output (the ”Technology”), and is the owner of certain intellectual property in connection with this technology;

WHEREAS, Licensee desires to acquire, and Licensor desires to grant, on the terms and conditions set forth in this Agreement, an exclusive, world-wide right for Licensee to use, manufacture, have manufactured, sell, have sold, offer for sale, distribute, import and/or export products incorporating the Technology in and for any and all commercial purposes.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

 

	
1.

	
DEFINITIONS

	 	 
	  	
1.1

	
Intellectual Property shall include any pending patent applications or issued patents, inventions, developments, improvements, specifications, trade secrets, practices and procedures, and know-how owned by Syzygy that relate(s) to or cover(s) the Technology.

	 	 	 
	  	
1.2

	
Licensed Product(s) shall include any product that is covered by the Intellectual Property.

	 	 	 
	  	
1.3

	
Licensed Patents means the pending patent application identified in EXHIBIT A, and any patent or patent applications related thereto, including any foreign and non-provisional patents and patent applications relating thereto, and any continuations, continuations-in-part, divisions, reissues, re-examinations, and equivalent patents and patent applications relating to the non-provisional and foreign patent applications and patents.

	 	 	 
	  	
1.4

	
Improvements means any improvement, enhancement, alteration, or modification of the Technology, whether invented or developed by Licensor or Licensee.  Licensor shall own all rights in any Improvements developed to the Technology by either party.  However, any such Improvements shall be licensed to Licensee in accordance with the terms of this Agreement.

	 	 	 
	
  

	
1.5

	
Confidential Information means all confidential information relating to and, where applicable, including the Technology, including, but not limited to, any and all information concerning products, trade secrets, inventions, discoveries, designs, improvements, research, development, specifications, technical data, market data, know-how, including information derived from reports, investigations, research, works-in-progress, and all other information which may be designated as confidential.

	 	 	 
	
  

	
1.6

	
Net Sales

	  	  	  
	  	  	
1.6.1

	
Calculation of Licensee’s Net Sales.  Net Sales shall be defined as Licensee’s gross receipts or revenue, computed on a cash basis, for each Licensed Product that is sold, distributed, leased, or otherwise transferred for monetary payment to any third party, less the following:

  

  

  

 

	  	  	
1.6.1.1

	
The actual cost of freight charges or of freight absorption, if any, separately stated in such invoice;

	  	  	  	  
	  	
  

	
1.6.1.2

	
Any trade, quantity or standard trade cash discounts, if any, allowed;

	  	  	  	  
	  	
  

	
1.6.1.3

	
Any tax, duties, imposts or other government charge on the sale, transportation, or delivery which is separately stated on the invoice (unless in the nature of a value added tax, which need not be separately stated);

	  	  	  	  
	  	
  

	
1.6.1.4

	
Any credit and cash refunds for returned goods; and

	  	  	  	  
	  	
  

	
1.6.1.5

	
Any allowances for damaged, obsolete, and defective goods.

	 	 	 	 
	  	
1.7

	
Valid Claim means (a) a claim in an issued and unexpired patent included in the Licensed Patents that: (i) has not been held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction, and not subject to appeal, (ii) has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, (iii) has not been lost through an interference, reexamination or reissue proceeding; or (b) a claim of a pending patent application included in the Licensed Patents.

	 	 
	
2.

	
GRANT OF LICENSE.

	 	 
	  	
2.1

	
Exclusive License.  Subject to all the terms and conditions of this Agreement, Licensor hereby grants to Licensee an exclusive, worldwide license to use, manufacture, have manufactured, sell, have sold, offer for sale, distribute, and import and export the Licensed Products and all Improvements thereto in and for all commercial purposes.

	 	 	 
	  	
2.2

	
Trademarks, Trade Dress, and Copyrights.  Any trademarks or trade dress used by Licensee in connection with the Licensed Products shall inure to the benefit of Licensor.  Any copyrights created by Licensee in connection with the Licensed Products shall be owned solely by Licensor.

	 	 	 
	
3.

	
TERM AND TERMINATION

	 	 
	  	
3.1

	
Term.  The term of this Agreement shall commence upon the formal separation of Parametric Sound Corporation as an independent public entity distinct from and no longer owned by LRAD Corporation (hereinafter referred to as the “Effective Date”) and shall continue in force until twenty years from the Effective Date or until the natural expiration of any patent containing a Valid Claim that covers the Technology, whichever period is longer.

	 	 	 
	
 

	
3.2

	
Licensor’s Option to Terminate or Renegotiate for Failure to Act.  Licensor shall have the option to either renegotiate or terminate this Agreement at any time during the Term should Licensee fail to use commercially reasonable efforts to develop, manufacture, market and/or sell the Licensed Products only if such failure continues following reasonably detailed written notice thereof by Licensor to Licensee and a reasonable opportunity to cure.  The parties agree that any previous license or assignment of any portion of the Technology from Licensor to Licensee shall revert back to Licensor in the event of termination of this Agreement.

	 	 	 
	  	
3.3

	
Default.  If either party commits any material default or breach with respect to any of the provisions of this Agreement, or fails to account for or pay to the other party any payment that becomes due hereunder, then the other party shall have the right to terminate this agreement on 60 days' written notice to the other party if the breaching party fails to cure such breach during the sixty (60) day period.

  

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3.4

	
Sale of Remaining Inventory upon Early Termination.  Upon termination of this Agreement for any reason, Licensee shall provide Licensor with a written inventory of all Licensed Products in the possession of Licensee, or its sublicensees, or that are in the process of being manufactured.  Licensee, and its sublicensees, shall be allowed a period of one (1) year to sell off or otherwise dispose of its remaining inventory of Licensed Products, provided that all Royalties under Section 4 are paid for Licensed Products sold or otherwise disposed of to a third party.

	 	 	 
	  	
3.5

	
Continuing Obligations after Termination.  Upon termination of this Agreement, whether by default, cancellation, termination or normal expiration, Licensee shall not be relieved of any duties or obligations to pay all amounts accrued and due hereunder, and said amounts shall be payable at the effective date of the termination.  In addition, Sections 1, 3.4, 3.5, 4, 6, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, and 19 of this Agreement, and any provisions that specifically provide for survival, shall survive any termination of this Agreement whether by default, cancelation, termination or normal expiration.

	 	 	 
	
4.

	
ROYALTY, PAYMENTS, AND REPORTS

	 	 
	  	
4.1

	
In consideration for the rights conveyed by this Agreement, Licensee shall pay the following to Licensor:

	 	 	 
	  	  	
4.1.1

	
Royalty – 5.0%. Licensee shall pay Licensor a royalty of five percent (5.0%) of the Net Sales of Licensed Products which are either: i) sold or otherwise transferred for monetary payment prior to four (4) years from the Effective Date of this Agreement; or ii) are covered by a Valid Claim of a Licensed Patent issued in a territory in which the Licensed Products are sold.

	 	 	 	 
	
  

	  	
4.1.2

	
Royalty – 3.0%.  In the event that no patent covering a Licensed Product has issued in a territory after four (4) years from the Effective Date of this Agreement, Licensee shall pay Licensor a royalty of three percent (3.0%) of the Net Sales of the Licensed Products in that territory. If a patent issues in a territory after four (4) years from the Effective Date of this Agreement, the royalty shall revert back to five percent (5.0%) of the Net Sales for Licensed Products sold in that territory.

	 	 	 	 
	
  

	  	
4.1.3

	
Reimbursement of Development Costs.  Licensee shall pay to Licensor its costs incurred through the Effective Date in developing, testing and prototyping the Technology.  These costs include, but are not limited to, time charged by Mr. Elwood G. Norris at a rate of $100 per hour, limited to an aggregate of 250 hours prior to the Effective Date. After the Effective Date, Licensee shall bear its own costs to develop, test, prototype, manufacture or otherwise use the Technology as authorized herein and, other than those actions that are reasonably necessary to convey any inventions, developments, improvements, specifications, trade secrets, practices and procedures, and know-how required by this Agreement, Licensor shall have no obligation to perform any such activities or make any Improvements to the Technology. The parties acknowledge that Licensee intends to employ Elwood G. Norris on or after the Effective Date.

	 	 	 	 
	
  

	  	
4.1.4

	
Patent Costs.  Licensee shall reimburse Licensor’s past costs, and shall be responsible for reimbursing all of Licensors’ future costs, in filing for, prosecuting and maintaining any of the Licensed Patents in the United States. Licensee may request that Licensor file patent applications in additional territories, in which case Licensee shall reimburse Licensor for all costs associated therewith. Should Licensee not elect to request patent filings in additional territories, Licensor may do so at its own expense, and Licensee shall not be obligated to reimburse or otherwise pay for the costs associated therewith.

  

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4.1.5

	
Reasonableness of Royalty Rate.  The parties hereby agree that the Royalty payments set forth in this Section represent the value of the licenses granted hereunder for the right to use, manufacture, have manufactured, sell, have sold, offer for sale, distribute, and import and export the Licensed Products and all Improvements.  The parties further agree that any Licensed Patents covering the Licensed Products have utility to Licensee both individually and in the aggregate, and that it would be impracticable to identify each specific Licensed Patent being used. The parties further agree that any Intellectual Property other than patents covering the Licensed Products has utility to Licensee, and that it would be impracticable to identify each specific type of Intellectual Property being used. As such, the parties have elected to (and agree that it is reasonable to) use the aggregate royalty rates provided for in this Section for Licensee’s use of the Intellectual Property.

	 	 	 
	  	
4.2

	
Quarterly Payments.  The Royalties set forth in this Section shall accrue on the Net Sales made day-to-day, on a cash receipts basis, in each calendar quarter.  On or before the thirtieth day following the end of a calendar quarter (i.e. April 30th, July 30th, October 30th, and January 30th), Licensee shall submit payment of all accrued royalties on the Net Sales made in that calendar quarter.

	 	 	 
	  	
4.3

	
Late Payments.  In the event that any payment due hereunder is not received by Licensor within 10 days of the due date for said payment, then Licensor shall be entitled to charge Licensee interest at the rate of five percent (5 %) per annum on said payments accrued from the date such payment was due.

	 	 	 
	  	
4.4

	
Quarterly Reports. Licensee shall provide Licensor with a quarterly report on or before the thirtieth day following the end of a calendar quarter (i.e. April 30th, July 30th, October 30th, and January 30th) detailing the Net Sales made in that calendar quarter.  This quarterly report shall include at least an accounting of the Net Sales made, with any deductions therefore, and of all payments due.

	 	 	 
	  	
4.5

	
Records.  Licensee shall keep records for a reasonable period of time of the Licensed Products manufactured, sold and distributed in sufficient detail to enable the Royalty Payment and any other payments due to Licensor to be determined.  In the event that Licensor disagrees with any such accounting, Licensor or its designated representative shall have the right, upon reasonable notice to Licensee, at Licensor’s expense and no more often than semi-annually to review and inspect the books and records of Licensee relating to the sale and distribution of the Licensed Products during normal business hours of Licensee at the location where such books and records are maintained, but for no more than the preceding two (2) years. In the event that any inspection by Licensor discloses any deficiencies in payments made to Licensor, then Licensee shall pay such additional amounts to Licensor within twenty (20) days following receipt of written notice thereof, together with all documentation necessary to support such additional payment by Licensee.  In the event that any such inspection discloses an overpayment by Licensee, then Licensee shall be entitled to deduct and offset any such overpayment from the subsequent amounts that become due.  In the event that there are no such subsequent payments to become due, then Licensor agrees to pay Licensee the full amount of any such overpayment within twenty (20) days following receipt of written notice thereof from Licensor.

	 	 	 
	
  

	
4.6

	
Payment in U.S. Dollars.  All payments due hereunder shall be made in U.S. Dollars.

  

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4.7

	
Taxes.  Licensee will pay any taxes incurred by it due to the use, manufacture, sale, distribution, or importation or exportation by Licensee of the Licensed Products.

	 	 	 
	
5.

	
FILING, PROSECUTION, MAINTENANCE AND ENFORCEMENT OF LICENSED PATENTS

	 	 
	  	
5.1

	
Patent Protection Applied for by Licensor at Its Discretion.  Licensor may apply for patent protection covering the Technology within the United States at its sole discretion.  Should Licensor decide not to pursue patent protection in the United States on any portion of the Technology, Licensee may request that Licensor do so at Licensee’s expense.  Licensee may request that Licensor apply for patent protection covering the Technology outside of the United States at Licensee’s expense. Should Licensee elect not to apply for patent protection outside the United States, then Licensor may apply for patent protection outside the United States at Licensor’s expense.

	 	 	 
	  	
5.2

	
Licensor to Own All Licensed Patents and Control Prosecution and Maintenance.  All Licensed Patents shall be owned, prosecuted, controlled and maintained solely by Licensor.

	 	 	 
	  	
5.3

	
Licensor may Obtain Patent Protection on Licensee’s Improvements.  Licensor shall be entitled to file patent protection on Licensee’s Improvements at Licensor’s sole discretion.  Licensee agrees that its agents, principals and employees will provide all reasonable assistance in drafting and prosecuting any such patent, whether or not said agents, principals and employees are named as inventors.  Licensee agrees that its agents, principals and employees will execute all documents necessary to transfer ownership of all patents covering the Technology to Licensor.  The costs for any such filings shall be governed by the provisions of Section 4.1.4 of this Agreement.

	 	 	 
	  	
5.4

	
Notification of Infringements of the Licensed Patents.  Licensor and Licensee agree to notify each other in writing of any suspected infringement(s) of the Licensed Patents and provide any evidence therefore.

	 	 	 
	  	
5.5

	
Enforcement and Defense of Licensed Patents. The parties shall confer in good faith regarding the enforcement or defense of any rights under the Licensed Patents, including whether to institute suit for infringement and the strategy for enforcing such rights.  Notwithstanding this cooperation, Licensee shall bear the burden of enforcing the Licensed Patents in the United States and any other territories in which it has elected to obtain patent protection to prevent infringements thereof.  Licensee shall be solely responsible for all attorneys’ fees, costs, and other expenses incurred in the enforcement and defense of the Licensed Patents in the United States and any other territories in which it has elected to obtain patent protection.  Licensor shall also, at its option, have the right to address infringements, institute suit, and join in any legal action for the enforcement or defense of any rights under the Licensed Patents to the extent that it affects Licensor’s rights or causes it damages within a territory.

	 	 	 
	  	
5.6

	
Marking of Licensed Products. Licensee shall comply with the legal standards and requirements of the applicable country or territory for the marking of the Licensed Products and their packaging with a notice of the Licensed Patents.

	 	 	 
	  	
5.7

	
Ownership of Improvements.  Licensor shall own all Improvements made or developed by Licensor or by Licensee.

	 	 	 
	
6.

	
INDEMNIFICATION

	 	 
	  	
6.1

	
Licensee agrees to release, indemnify and hold harmless Licensor, its officers, employees, and agents against any and all losses, expenses, claims, actions, lawsuits, judgments and damages (including attorney’s fees through the appellate level) which may be brought against either party, its officers, employees, and agents as a result of or arising out of any claim of infringement with respect to the use, manufacture, sale, distribution, or importation or exportation by Licensee of the Licensed Products as they relate to the Licensed Patents. This section shall continue after the termination of this Agreement.

  

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6.2

	
Licensee agrees to release, indemnify and hold harmless Licensor, its officers, employees, and agents against any and all losses, expenses, claims, actions, lawsuits, judgments and damages (including attorney’s fees through the appellate level) which may be brought against either party, its officers, employees, and agents as a result of or arising out of any product liability claim with respect to the use, manufacture, sale, distribution, or importation or exportation by Licensee of the Licensed Products. This section shall continue after the termination of this Agreement.

	 	 	 
	
7.

	
SUBLICENSING

	 	 
	  	
7.1

	
Licensee may not sublicense its rights under this Agreement unless it obtains Licensor’s written permission to do so.  Any Licensed Products sold under such a sublicense shall be subject to the provisions of Section 4 of this Agreement; however the royalty rates of any such sublicense may differ from those delineated in Section 4.  The parties agree to negotiate royalty rates of any sublicense in good faith with the intent to provide for gross margins to Licensee and Licensor comparable to those delineated in and/or being the consequence of Section 4.

	 	 	 
	
8.

	
ASSIGNMENT

	 	 
	
 

	
8.1

	
Licensee may not sell, assign, or transfer its rights under this Agreement unless Licensor provides written permission to do so.  Any entity that is the beneficiary of a sale, assignment or transference of this Agreement shall be subject to the provisions of Section 4 of this Agreement.

	 	 	 
	
9.

	
CONFIDENTIALITY

	 	 
	  	
9.1

	
Licensee and Licensor agree that at all times during the term of this Agreement, any extensions thereof, and after termination of the Agreement, they will hold in trust, keep confidential, and not disclose to any third party or make any use or induce or assist others in the use or disclosure of Confidential Information, except as provided for in this Agreement.  Notwithstanding the foregoing, Licensee may disclose Licensor’s Confidential Information to its employees, agents, contractors, and advisors who have a need to know such information; and Licensor may disclose Licensee’s Confidential Information to its employees, agents, contractors, and advisors who have a need to know such information.

	 	 	 
	
10.

	
REPRESENTATIONS AND WARRANTIES OF LICENSOR:

	 	 
	  	
10.1

	
Licensor makes no representations or warranties to Licensee relating to patentability of the Technology, or potential infringement of any third-party intellectual property that may occur by practicing the Technology.

	 	 	 
	
11.

	
GOVERNING LAW

	 	 
	  	
11.1

	
This Agreement, and all matters relating hereto, including any matter or dispute arising out of the Agreement, shall be interpreted, governed, and enforced according to the laws of the United States of America and the State of Nevada, where applicable, and the parties hereto consent to the jurisdiction of any appropriate federal or state court in and for the State of Nevada to resolve such disputes.

  

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12.

	
ATTORNEYS’ FEES

	 	 
	
  

	
12.1

	
In the event that any party hereto shall be in default or breach of this Agreement, said party shall be liable to pay all reasonable attorneys’ fees, court costs, and other related collection costs and expenses incurred by the non-defaulting or non-breaching party in prosecuting its rights hereunder.

	 	 
	
13.

	
BINDING EFFECT

	 	 	 
	
  

	
13.1

	
This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legatees, agents, representatives, officers, directors, successors and assigns.

	 	 
	
14.

	
NO JOINT VENTURE

	 	 	 
	
 

	
14.1

	
The parties hereto expressly disclaim and disavow any partnership, joint venture or fiduciary status or relationship between them and expressly affirm that they have entered into this Agreement as independent contractors and that the same is in all respects an “arms-length” transaction.  No party shall be responsible in any way for the debts or obligations of the other party, nor shall either party have the power to obligate or bind the other party in any manner whatsoever.

	 	 
	
15.

	
CAPTIONS

	 	 	 
	  	
15.1

	
The captions and paragraph headings of this Agreement are solely for the convenience of reference and shall not affect its interpretation.

	 	 	 
	
16.

	
SEVERABILITY

	 	 
	  	
16.1

	
The parties agree that if any part, term, or provision of this Agreement shall be found illegal or in conflict with any valid controlling law, the validity of the remaining provisions shall not be affected thereby.  In the event of the legality of any provision of this Agreement is brought into question because of a decision by a court of competent jurisdiction, the parties agree that either the parties (by written amendment) or the court may narrow the provision in question or delete it entirely so as to comply with the decision of said court.

	 	 	 
	
17.

	
ENTIRE AGREEMENT

	 	 
	  	
17.1

	
This Agreement expresses and contains the entire agreement between the parties with respect to the subject matter hereof and supersedes and replaces any prior agreements between the parties with respect thereto.  Except as expressly provided in this Agreement, there are no agreements, understanding, inducements or arrangements between the parties relating to the subject matter of this Agreement.  No subsequent alteration, amendment, change or addition to this agreement shall be binding upon either party unless reduced in writing and signed by them.

	 	 	 
	
18.

	
PREPARATION OF AGREEMENT

	 	 
	  	
18.1

	
The parties acknowledge and agree that they have both participated in the preparation of this Agreement and, in the event that any question arises regarding its interpretation, no presumption shall be drawn in favor of or against any party hereto with respect to the drafting hereof.

 

  

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19.

	
NOTICES

	 	 
	  	
19.1

	
Any and all notices required or provided for hereunder shall be in writing and shall be delivered, either in person or by certified mail, return receipt requested, postage prepaid to the parties at the addresses set forth in the preamble to this Agreement.  Each party may change the address at which they receive notices by notifying the other parties in accordance with the provisions of this Section.  All notices shall be deemed received upon actual receipt thereof if delivered in person, or within forty-eight (48) hours following the deposit hereof in the United States mail in accordance with the terms of this Section.

 

IN WITNESS WHEREOF, the parties have executed this Agreement and have made it effective as of the day and year first written below.

	
Licensor:

	 	
Licensee:

	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	 	 	By:	 	 
	 	
(signature)

	 	 	
(signature)

	 
	
Name:

	
 

	 	
Name:

	
 

	 
	
Title:

	
 

	 	
Title:

	
 

	 
	Date:	 	 	Date:	 	 

 

 

 

  

8

  

EXHIBIT A – LICENSED PATENTS

	
Docket #  01184-001.PROV

	
IMPROVED PARAMETRIC TRANSDUCER AND SIGNAL PROCESSING SYSTEMS AND METHODS

  

9psc_stockoptplan.htm

Exhibit 10.3

 

2010 STOCK OPTION PLAN

OF

PARAMETRIC SOUND CORPORATION

1.      Purposes of the Plan

The purposes of the 2010 Stock Option Plan (the “Plan”) of Parametric Sound Corporation, a Nevada corporation (the “Company”), are to:

(a) Encourage selected employees, directors and consultants to improve operations and increase profits of the Company;

(b) Encourage selected employees, directors and consultants to accept or continue employment or association with the Company or its Subsidiaries; and

(c) Increase the interest of selected employees, directors and consultants in the Company’s welfare through participation in the growth in value of the common stock of the Company (the “Shares”).

Options granted under the Plan (“Options”) may be “incentive stock options” (“ISOs”) intended to satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”), or “non-qualified stock options” (“NQSOs”). 

 

2.      Eligible Persons

 

Every person who at the date of grant of an Option is an employee of the Company or of any Subsidiary (as defined below) of the Company is eligible to receive NQSOs or ISOs under the Plan.  Every person who at the date of grant is a consultant to, or non-employee director of, the Company or any Subsidiary (as defined below) of the Company is eligible to receive NQSOs under the Plan.  The term “Subsidiary” as used in the Plan means a subsidiary corporation as defined in the applicable provisions (currently Sections 424(f), respectively) of the Code.  The term “employee” (within the meaning of Section 3401(c) of the Code) includes an officer or director who is an employee of the Company.  The term “consultant” includes persons employed by, or otherwise affiliated with, a consultant to the Company.

 

3.      Stock Subject to the Plan; Maximum Number of Grants

 

Subject to the provisions of Section 6(a)(i) of the Plan, the total number of Shares which may be issued under Options granted pursuant to the Plan shall not exceed three million (3,000,000) Shares. The Shares covered by the portion of any grant under the Plan which expires unexercised shall become available again for grants under the Plan.

 

4.      Administration

 

(a) The Plan shall be administered by either the Board of Directors of the Company (the “Board”) or by a committee (the “Committee”) to which administration of the Plan, or of part of the Plan, may be delegated by the Board (in either case, the “Administrator”).  The Board shall appoint and remove members of such Committee, if any, in its discretion in accordance with applicable laws. If necessary in order to comply with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, the Committee shall, in the Board’s discretion, be comprised solely of “non-employee directors” within the meaning of said Rule 16b-3 and “outside directors” within the meaning of Section 162(m) of the Code. The foregoing notwithstanding, the Administrator may delegate nondiscretionary administrative duties to such employees of the Company as it deems proper, and the Board, in its absolute discretion, may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.

 

 

  

1

  

 

(b) Subject to the other provisions of the Plan, the Administrator shall have the authority to, in its discretion: (i) grant Options; (ii) determine the fair market value of the Shares subject to Options; (iii) determine the exercise price of Options granted; (iv) determine the persons to whom, and the time or times at which, Options shall be granted, and the number of shares subject to each Option; (v) interpret the Plan; (vi) prescribe, amend and rescind rules and regulations relating to the Plan; (vii) determine the terms and provisions of each Option granted (which need not be identical), including but not limited to, the time or times at which Options shall be exercisable; (viii) with the consent of the optionee, to modify or amend any Option; (ix) defer (with the consent of the optionee) the exercise date of any Option; (x) authorize any person to execute on behalf of the Company any instrument evidencing the grant of an Option; and (xi) make all other determinations deemed necessary or advisable for the administration of the Plan.  The Administrator may delegate nondiscretionary administrative duties to such employees of the Company as it deems proper.

 

(c) All questions of interpretation, implementation, and application of the Plan shall be determined by the Administrator.  Such determinations shall be final and binding on all persons.

 

5.      Granting of Options; Option Agreement

 

(a) No Options shall be granted under the Plan after 10 years from the date of adoption of the Plan by the Board.

 

(b) Each Option shall be evidenced by a written stock option agreement, in form satisfactory to the Administrator, executed by the Company and the person to whom such Option is granted.

 

(c) The stock option agreement shall specify whether each Option it evidences is an NQSO or an ISO.

 

6.      Terms and Conditions of Options

 

Each Option granted under the Plan shall be subject to the terms and conditions set forth in Section 6(a).   NQSOs shall also be subject to the terms and conditions set forth in Section 6(b), but not those set forth in Section 6(c). ISOs shall also be subject to the terms and conditions set forth in Section (c), but not those set forth in Section 6(b).

 

(a) Terms and Conditions to Which All Options Are Subject.  All Options granted under the Plan shall be subject to the following terms and conditions:

(i) Changes in Capital Structure.  Subject to Section 6(a)(ii), if the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, or recapitalization, combination or reclassification, appropriate adjustments shall be made by the Board in (1) the number and class of shares of stock subject to the Plan and each Option outstanding under the Plan, and (2) the exercise price of each outstanding Option; provided, however, that the Company shall not be required to issue fractional shares as a result of any such adjustments.  Each such adjustment shall be subject to approval by the Board in its sole discretion.

 

  

2

  

 

(ii) Corporate Transactions.  In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each optionee at least 30 days prior to such proposed action.  To the extent not previously exercised, all Options will terminate immediately prior to the consummation of such proposed action; provided, however, that the Administrator, in the exercise of its sole discretion, may permit exercise of any Options prior to their termination, even if such Options were not otherwise exercisable.  In the event of a merger or consolidation of the Company with or into another corporation or entity in which the Company does not survive, or in the event of a sale of all or substantially all of the assets of the Company in which the stockholders of the Company receive securities of the acquiring entity or an affiliate thereof, all Options shall be assumed or equivalent options shall be substituted by the successor corporation (or other entity) or a parent or subsidiary of such successor corporation (or other entity); provided, however, that if such successor does not agree to assume the Options or to substitute equivalent options therefor, the Administrator, in the exercise of its sole discretion, may permit the exercise of any of the Options prior to consummation of such event, even if such Options were not otherwise exercisable.

(iii) Time of Option Exercise.  Subject to Section 5 and Section 6(c)(iii), Options granted under the Plan shall be exercisable in accordance with a schedule as specified in the written stock option agreement relating to such Option. In any case, no Option shall be exercisable until a written stock option agreement in form satisfactory to the Company is executed by the Company and the optionee.

(iv) Option Grant Date.  The date of grant of an Option under the Plan shall be the date as of which the Administrator approves the grant.

(v) Nontransferability of Option Rights.  Except with the express written approval of the Administrator which approval the Administrator is authorized to give only with respect to NQSOs, no Option granted under the Plan shall be assignable or otherwise transferable by the optionee except by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order.  During the life of the optionee, an Option shall be exercisable only by the optionee.

 

 (vi) Payment.  Except as provided below, payment in full, in cash, shall be made for all stock purchased at the time written notice of exercise of an Option is given to the Company, and proceeds of any payment shall constitute general funds of the Company.  The Administrator, in the exercise of its absolute discretion, may authorize any one or more of the following additional methods of payment:

(1) delivery by the optionee of Shares already owned by the optionee for all or part of the Option price, provided the fair market value (determined as set forth in Section 6(a)(x)) of such Shares being delivered is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by delivery of such stock;

(2) the surrender of Shares then issuable upon exercise of the Option, provided the fair market value (determined as set forth in Section 6(a)(x)) of such Shares is equal on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by surrender of such stock;

(3) cancellation of indebtedness of the Company to the optionee or waiver of compensation due or accrued to optionee for services rendered; and

(4) if and so long as the Shares are registered under Section 12(b) or 12(g) of the Exchange Act, and to the extent permitted by law, delivery of a properly executed exercise agreement or notice, together with irrevocable instructions to a brokerage firm designated or approved by the Administrator to deliver promptly to the Company the aggregate amount of proceeds to pay the option exercise price and any withholding tax obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board.

 

  

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(vii) Termination of Employment.  If for any reason other than death or permanent and total disability, an optionee ceases to be employed by the Company or any of its Subsidiaries (such event being called a “Termination”), Options held at the date of Termination (to the extent then exercisable) may be exercised in whole or in part at any time within three months of the date of such Termination, or such other period of not less than 30 days after the date of such Termination as is specified in the Option Agreement or by amendment thereof (but in no event after the Expiration Date); provided, however, that if such exercise of the Option would result in liability for the optionee under Section 16(b) of the Exchange Act, then such three-month period automatically shall be extended until the tenth day following the last date upon which optionee has any liability under Section 16(b) (but in no event after the Expiration Date).  If an optionee dies or becomes permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) while employed by the Company or a Subsidiary or within the period that the Option remains exercisable after Termination, Options then held (to the extent then exercisable) may be exercised, in whole or in part, by the optionee, by the optionee’s personal representative or by the person to whom the Option is transferred by devise or the laws of descent and distribution, at any time within twelve months after the death or twelve months after the permanent and total disability of the optionee or any longer period specified in the Option Agreement or by amendment thereof (but in no event after the Expiration Date). For purposes of this Section 6(a)(vii), “employment” includes service as a director or as a consultant.  For purposes of this Section 6(a)(vii), an optionee’s employment shall not be deemed to terminate by reason of sick leave, military leave or other leave of absence approved by the Administrator, if the period of any such leave does not exceed 90 days or, if longer, if the optionee’s right to reemployment by the Company or any Subsidiary is guaranteed either contractually or by statute.

(viii) Withholding and Employment Taxes.  At the time of exercise of an Option and as a condition thereto, or at such other time as the amount of such obligations becomes determinable (the “Tax Date”), the optionee shall remit to the Company in cash all applicable federal and state withholding and employment taxes.  Such obligation to remit may be satisfied, if authorized by the Administrator in its sole discretion, after considering any tax, accounting and financial consequences, by the optionee’s (1) delivery of a promissory note in the required amount on such terms as the Administrator deems appropriate, (2) tendering to the Company previously owned Shares or other securities of the Company with a fair market value equal to the required amount, or (3) agreeing to have Shares (with a fair market value equal to the required amount) which are acquired upon exercise of the Option withheld by the Company.

(ix) Other Provisions.  Each Option granted under the Plan may contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator, and each ISO granted under the Plan shall include such provisions and conditions as are necessary to qualify the Option as an “incentive stock option” within the meaning of Section 422 of the Code.

 

(x) Determination of Value.  For purposes of the Plan, the fair market value of Shares or other securities of the Company shall be determined as follows:

(1) Fair market value shall be the closing price of such stock on the date before the date the value is to be determined on the principal recognized securities exchange or recognized securities market on which such stock is reported, but if selling prices are not reported, its fair market value shall be the mean between the high bid and low asked prices for such stock on the date before the date the value is to be determined (or if there are no quoted prices for such date, then for the last preceding business day on which there were quoted prices).

(2) In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the Administrator, with reference to the Company’s net worth, prospective earning power, dividend-paying capacity and other relevant factors, including the goodwill of the Company, the economic outlook in the Company’s industry, the Company’s position in the industry, the Company’s management and the values of stock of other corporations in the same or similar line of business.

 

  

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(xi) Option Term.  Subject to Section 6(c)(iii), no Option shall be exercisable more than 10 years after the date of grant, or such lesser period of time as is set forth in the stock option agreement (the end of the maximum exercise period stated in the stock option agreement is referred to in the Plan as the “Expiration Date”).

(b) Terms and Conditions to Which Only NQSOs Are Subject.  Options granted under the Plan which are designated as NQSOs shall be subject to the following terms and conditions:

(i) Exercise Price.

(1) Except as set forth in Section 6(b)(i)(2), the exercise price of an NQSO shall be not less than 85% of the fair market value (determined in accordance with Section 6(a)(x)) of the stock subject to the Option on the date of grant.

(2) To the extent required by applicable laws, rules and regulations, the exercise price of a NQSO granted to any person who owns, directly or by attribution under the Code (currently Section 424(d)), stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any Subsidiary (a “Ten Percent Stockholder”) shall in no event be less than 110% of the fair market value (determined in accordance with Section 6(a)(x)) of the stock covered by the Option at the time the Option is granted.

(c) Terms and Conditions to Which Only ISOs Are Subject. Options granted under the Plan which are designated as ISOs shall be subject to the following terms and conditions:

(i) Exercise Price.

(1) Except as set forth in Section 6(c)(i)(2), the exercise price of an ISO shall be determined in accordance with the applicable provisions of the Code and shall in no event be less than the fair market value (determined in accordance with Section 6(a)(x)) of the stock covered by the Option at the time the Option is granted.

 

 

(2) The exercise price of an ISO granted to any Ten Percent Stockholder shall in no event be less than 110% of the fair market value (determined in accordance with Section 6(a)(x)) of the stock covered by the Option at the time the Option is granted.

(ii) Disqualifying Dispositions.  If stock acquired by exercise of an ISO granted pursuant to the Plan is disposed of in a “disqualifying disposition” within the meaning of Section 422 of the Code (a disposition within two years from the date of grant of the Option or within one year after the transfer such stock on exercise of the Option), the holder of the stock immediately before the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide such other information regarding the Option as the Company may reasonably require.

 

(iii) Term.  Notwithstanding Section 6(a)(xi), no ISO granted to any Ten Percent Stockholder shall be exercisable more than five years after the date of grant.

 

  

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7.      Manner of Exercise

 

(a) An optionee wishing to exercise an Option shall give written notice to the Company at its principal executive office, to the attention of the officer of the Company designated by the Administrator, accompanied by payment of the exercise price and withholding taxes as provided in Sections 6(a)(vi) and 6(a)(viii). The date the Company receives written notice of an exercise hereunder accompanied by payment of the exercise price will be considered as the date such Option was exercised.

 

(b) Promptly after receipt of written notice of exercise of an Option and the payments called for by Section 7(a), the Company shall, without stock issue or transfer taxes to the optionee or other person entitled to exercise the Option, deliver to the optionee or such other person a certificate or certificates for the requisite number of shares of stock.  An optionee or permitted transferee of the Option shall not have any privileges as a stockholder with respect to any shares of stock covered by the Option until the date of issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of such shares.

 

8.      Employment or Consulting Relationship

 

Nothing in the Plan or any Option granted hereunder shall interfere with or limit in any way the right of the Company or of any of its Subsidiaries to terminate any optionee’s employment or consulting at any time, nor confer upon any optionee any right to continue in the employ of, or consult with, the Company or any of its Subsidiaries. 

 

9.      Conditions Upon Issuance of Shares

 

Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended (the “Securities Act”).

 

10.  Non-Exclusivity of the Plan

 

The adoption of the Plan shall not be construed as creating any limitations on the power of the Company to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options other than under the Plan.

 

11.  Amendments to the Plan

 

The Board may at any time amend, alter, suspend or discontinue the Plan. Without the consent of an optionee, no amendment, alteration, suspension or discontinuance may adversely affect outstanding Options except to conform the Plan and ISOs granted under the Plan to the requirements of federal or other tax laws relating to incentive stock options.  No amendment, alteration, suspension or discontinuance shall require stockholder approval unless (a) stockholder approval is required to preserve incentive stock option treatment for federal income tax purposes or (b) the Board otherwise concludes that stockholder approval is advisable.

 

12.  Effective Date of Plan; Termination

 

The Plan shall become effective upon adoption by the Board; provided, however, that no Option shall be exercisable unless and until written consent of the stockholders of the Company, or approval of stockholders of the Company voting at a validly called stockholders’ meeting, is obtained within twelve months after adoption by the Board.  If such stockholder approval is not obtained within such time, Options granted hereunder shall be of the same force and effect as if such approval was obtained except that all ISOs granted hereunder shall be treated as NQSOs. Options may be granted and exercised under the Plan only after there has been compliance with all applicable federal and state securities laws.  The Plan shall terminate within ten years from the date of its adoption by the Board.

 

  

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