Document:

Exhibit 10.5

  

MERCEDES-BENZ AUTO LEASE TRUST 2018-A,

as Issuer,

MERCEDES-BENZ FINANCIAL SERVICES USA LLC,

as Servicer and Administrator,

and

 

CLAYTON FIXED INCOME SERVICES LLC,

as Asset Representations Reviewer

 

 

ASSET REPRESENTATIONS

REVIEW AGREEMENT

Dated as of January 1, 2018

 

 

TABLE OF CONTENTS

 

	 	 	
Page

	 	 	 
	ARTICLE ONE
	USAGE AND DEFINITIONS
	 	 	 
	
Section 1.01.

	
Capitalized Terms; Rules of Usage

	
1

	 	 	 
	ARTICLE TWO
	ENGAGEMENT; ACCEPTANCE
	 	 	 
	
Section 2.01.

	
Engagement; Acceptance

	
3

	
Section 2.02.

	
Confirmation of Status

	
3

	ARTICLE THREE
	ASSET REPRESENTATIONS REVIEW PROCESS
	 	 	 
	
Section 3.01.

	
Review Notices and Identification of Review Assets

	
3

	
Section 3.02.

	
Review Materials

	
4

	
Section 3.03.

	
Performance of Reviews

	
4

	
Section 3.04.

	
Review Report

	
5

	
Section 3.05.

	
Review Representatives

	
5

	
Section 3.06.

	
Dispute Resolution

	
6

	
Section 3.07.

	
Limitations on Review Obligations

	
6

	 	 	 
	ARTICLE FOUR
	ASSET REPRESENTATIONS REVIEWER
	 	 	 
	
Section 4.01.

	
Representations and Warranties of the Asset Representations Reviewer

	
6

	
Section 4.02.

	
Covenants

	
8

	
Section 4.03.

	
Fees and Expenses

	
8

	
Section 4.04.

	
Limitation on Liability

	
9

	
Section 4.05.

	
Indemnification by Asset Representations Reviewer

	
10

	
Section 4.06.

	
Indemnification of Asset Representations Reviewer

	
10

	
Section 4.07.

	
Inspections of Asset Representations Reviewer

	
11

	
Section 4.08.

	
Delegation of Obligations

	
11

	
Section 4.09.

	
Confidential Information

	
11

	
Section 4.10.

	
Personally Identifiable Information

	
12

	 	 	 
	ARTICLE FIVE
	REMOVAL, RESIGNATION
	 	 	 
	
Section 5.01.

	
Eligibility of the Asset Representations Reviewer

	
14

	
Section 5.02.

	
Resignation and Removal of Asset Representations Reviewer

	
14

	
Section 5.03.

	
Successor Asset Representations Reviewer

	
14

	
Section 5.04.

	
Merger, Consolidation or Succession

	
15

 

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	ARTICLE SIX 
	OTHER AGREEMENTS
	 	 	 
	
Section 6.01.

	
Independence of the Asset Representations Reviewer

	
15

	
Section 6.02.

	
No Petition

	
15

	
Section 6.03.

	
Limitation of Liability of Owner Trustee

	
16

	
Section 6.04.

	
Termination of Agreement

	
16

	 
	ARTICLE SEVEN
	MISCELLANEOUS PROVISIONS
	 	 	 
	
Section 7.01.

	
Amendments

	
16

	
Section 7.02.

	
Assignment; Benefit of Agreement; Third Party Beneficiaries

	
17

	
Section 7.03.

	
Notices

	
17

	
Section 7.04.

	
GOVERNING LAW

	
17

	
Section 7.05.

	
WAIVER OF JURY TRIAL

	
18

	
Section 7.06.

	
No Waiver; Remedies

	
18

	
Section 7.07.

	
Severability

	
18

	
Section 7.08.

	
Table of Contents and Headings

	
18

	
Section 7.09.

	
Counterparts

	
18

	 	 	 
	
Schedule A –

	
Representations and Warranties, Review Materials and Tests

	
SA-1

 

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This ASSET REPRESENTATIONS REVIEW AGREEMENT, dated as of January 1, 2018 (as amended, restated, supplemented or otherwise modified from time to time, this “Agreement”), is among MERCEDES-BENZ AUTO LEASE TRUST 2018-A, a Delaware statutory trust (the “Issuer”), MERCEDES-BENZ FINANCIAL SERVICES USA LLC, a Delaware limited liability company, as servicer and administrator (in such capacities, the “Servicer” and the “Administrator”, respectively) and CLAYTON FIXED INCOME SERVICES LLC, a Delaware limited liability company, (the “Asset Representations Reviewer”).

RECITALS

WHEREAS, the Issuer will engage the Asset Representations Reviewer to perform a review of certain motor vehicle leases and leased vehicles for compliance with certain representations and warranties made with respect thereto; and

WHEREAS, the Asset Representations Reviewer desires to perform such review in accordance with the terms of this Agreement.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE ONE

 

USAGE AND DEFINITIONS

Section 1.01.  Capitalized Terms; Rules of Usage.  Capitalized terms used in this Agreement that are not otherwise defined shall have the meanings ascribed thereto in Appendix 1 to the 2018-A Servicing Supplement or, if not defined therein, in Appendix A to the Basic Collateral Agency Agreement, which Appendices are hereby incorporated into and made a part of this Agreement.  Appendix 1 also contains rules of usage applicable to this Agreement.  Whenever used herein, unless the context otherwise requires, the following words and phrases shall have the respective meanings set forth below for all purposes of this Agreement.  In the event of any conflict between a definition appearing below and any other 2018-A Basic Document, the definition appearing below shall control for purposes of this Agreement.

“2018-A Servicing Supplement” means the 2018-A Servicing Supplement, dated as of January 1, 2018, to the Basic Servicing Agreement, among the Servicer, MBFS USA, as Lender, Daimler Trust, as titling trust, and Daimler Title Co., as collateral agent.

“Annual Fee” has the meaning stated in Section 4.03(a).

“Annual Period” means each annual period commencing on the 2018-A Closing Date, in the case of the first such period, and otherwise on the most recent anniversary of the 2018-A Closing Date and ending on the next anniversary of the 2018-A Closing Date.

“ARR Indemnified Person” means each of the Asset Representations Reviewer and its officers, directors, employees and agents.

 

“Basic Collateral Agency Agreement” means the Amended and Restated Basic Collateral Agency Agreement, dated as of March 1, 2009, among Daimler Trust, the Administrative Agent, Daimler Title Co., as collateral agent, and MBFS USA, as lender and as servicer.

“Confidential Information” means oral, written and electronic materials (irrespective of its source or form of communication) furnished before, on or after the date of this Agreement to the Asset Representations Reviewer for the purposes contemplated by this Agreement, including (i) lists of Review Assets and any related Review Materials, (ii) origination and servicing guidelines, policies and procedures, and form contracts and (iii) notes, analyses, compilations, studies or other documents or records prepared by the Servicer, which contain information supplied by or on behalf of the Servicer or its representatives; provided,   that Confidential Information will not include information that (a) is or becomes generally available to the public other than as a result of disclosure by the Information Recipients, (b) was available to, or becomes available to, the Information Recipients on a non-confidential basis from a Person or entity other than the Issuer or the Servicer before its disclosure to the Information Recipients who, to the knowledge of the Information Recipient is not bound by a confidentiality agreement with the Issuer or the Servicer and is not prohibited from transmitting the information to the Information Recipients, (c) is independently developed by the Information Recipients without the use of the Confidential Information, as shown by the Information Recipients’ files and records or other evidence in the Information Recipients’ possession or (d) the Issuer or the Servicer provides permission to the applicable Information Recipients to release.

“Eligible Representations” shall mean those representations identified within the “Tests” included in Schedule A.

“Information Recipients” means the Asset Representations Reviewer and its officers, directors, employees, agents, representatives or affiliates, including legal counsel.

“Issuer PII” means PII furnished by the Issuer, the Servicer or their Affiliates to the Asset Representations Reviewer and PII developed or otherwise collected or acquired by the Asset Representations Reviewer in performing its obligations under this Agreement.

“Personally Identifiable Information”  or “PII” means information in any format about an identifiable individual, including, name, address, phone number, e-mail address, account number(s), identification number(s), any other actual or assigned attribute associated with or identifiable to an individual and any information that when used separately or in combination with other information could identify an individual.

“Review” means the completion by the Asset Representations Reviewer of the procedures listed under “Tests” in Schedule A for each Review Asset as described in Section 3.03.

“Review Assets” means those 2018-A Leases and 2018-A Leased Vehicles identified by the Servicer as requiring a Review by the Asset Representations Reviewer following receipt of a Review Notice according to Section 3.01.

“Review Fee” has the meaning stated in Section 4.03(b).

 

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“Review Materials” means the documents, data, and other information required for each “Test” in Schedule A.

“Review Notice” means a notice delivered to the Asset Representations Reviewer by the Indenture Trustee pursuant to Section 7.02 of the Indenture.

“Review Report” means the report prepared and delivered by the Asset Representations Reviewer pursuant to Section 3.04, which will, among other things, (i) indicate for each Review Asset whether there was a Test Pass, Test Fail or Test Complete for each related Test, (ii) include, for each Test Fail or Test Complete, the related reason for such Test Fail or Test Complete, including (for example) whether the Review Asset was a Test Fail as a result of missing or incomplete Review Materials and (iii) contain a summary of the Review results to be included in the Issuer’s Form 10-D report for the Collection Period in which the Review Report is received.

“Test Complete” has the meaning stated in Section 3.03(c).

“Test Fail” has the meaning stated in Section 3.03(a).

“Test Pass” has the meaning stated in Section 3.03(a).

“Tests” mean the procedures listed in Schedule A, as applied to the process described in Section 3.03.

ARTICLE TWO

 

ENGAGEMENT; ACCEPTANCE

Section 2.01.  Engagement; Acceptance.  The Issuer hereby engages Clayton Fixed Income Services LLC to act as the Asset Representations Reviewer for the Issuer.  Clayton Fixed Income Services LLC accepts the engagement and agrees to perform the obligations of the Asset Representations Reviewer on the terms stated in this Agreement.

Section 2.02.  Confirmation of Status.  The parties confirm that the Asset Representations Reviewer is not responsible for (i) reviewing the 2018-A Leases and 2018-A Leased Vehicles for compliance with the representations and warranties under the 2018-A Servicing Supplement, except as described in this Agreement or (ii) determining whether noncompliance with the representations or warranties constitutes a breach of the 2018-A Servicing Supplement.

ARTICLE THREE

 

ASSET REPRESENTATIONS REVIEW PROCESS

Section 3.01.  Review Notices and Identification of Review Assets.  On receipt of a Review Notice from the Indenture Trustee pursuant to Section 7.02 of the Indenture, the Asset Representations Reviewer will start a Review.  Once a Review Notice has been issued, the Servicer will provide the list of Review Assets to the Asset Representations Reviewer within ten Business Days.

 

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The Asset Representations Reviewer will not be obligated to start a Review until a Review Notice and the related list of Review Assets is received.  The Asset Representations Reviewer is not obligated to verify (i) whether the Indenture Trustee properly determined that a Review Notice was required or (ii) the accuracy or completeness of the list of Review Assets provided by the Servicer.

Section 3.02.  Review Materials.

(a)           Access to Review Materials.  Within 60 days of the delivery of a Review Notice, the Servicer will provide the Asset Representations Reviewer with access to the Review Materials for all Review Assets in one or more of the following ways: (i) by providing access to the Servicer’s systems, either remotely or at an office of the Servicer, (ii) by electronic posting to a password-protected website to which the Asset Representations Reviewer has access, (iii) by providing originals or photocopies at an office of the Servicer or (iv) in another manner agreed by the Servicer and the Asset Representations Reviewer.  The Servicer may redact or remove Personally Identifiable Information from the Review Materials without changing the meaning or usefulness of the Review Materials.  The Asset Representations Reviewer shall be entitled to rely in good faith, without independent investigation or verification, that the Review Materials are accurate and complete in all material respects, and not misleading in any material respect.

(b)           Missing or Insufficient Review Materials.  The Asset Representations Reviewer will review the Review Materials to determine if any Review Materials are missing or insufficient for the Asset Representations Reviewer to perform any Test.  If the Asset Representations Reviewer determines any missing or insufficient Review Materials, the Asset Representations Reviewer will notify the Servicer promptly, and in any event no less than 30 days before completing the Review.  The Servicer will have 60 days to give the Asset Representations Reviewer access to the missing Review Materials or other documents or information to correct the insufficiency.  If the missing Review Materials or other documents have not been provided by the Servicer within 60 days, the related Review Report will report a Test Fail for each Test that requires use of the missing or insufficient Review Materials.

Section 3.03.  Performance of Reviews.

(a)           Test Procedures.  For a Review, the Asset Representations Reviewer will perform, for each Review Asset, the Tests for each Eligible Representation.  In the course of its review, the Asset Representations Reviewer will use the Review Materials listed in Schedule A.  For each Test and Review Asset, the Asset Representations Reviewer will determine if the Test has been satisfied (a “Test Pass”) or if the Test has not been satisfied (a “Test Fail”).

(b)           Review Period.  The Asset Representations Reviewer will complete the Review within 60 days of receiving access to the Review Materials.  However, if additional Review Materials are provided to the Asset Representations Reviewer as described in Section 3.02(b), the Review period will be extended for an additional 30 days.

 

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(c)          Completion of Review for Certain Review Assets.  Following the delivery of the list of the Review Assets and before the delivery of the Review Report by the Asset Representations Reviewer, the Servicer may notify the Asset Representations Reviewer if a Review Asset has been paid in full by the related Lessee or purchased from the Issuer in accordance with the terms of the 2018-A Servicing Agreement.  On receipt of such notice, the Asset Representations Reviewer will immediately terminate all Tests of the related Review Asset, and the Review of such Review Assets will be considered complete (a “Test Complete”).  In this case, the related Review Report will indicate a Test Complete for such Review Asset and the related reason.

(d)           Duplicative Tests.  If the same Test is required for more than one representation and warranty, the Asset Representations Reviewer will only perform the Test once for each Review Asset, but will report the results of the Test for each applicable representation and warranty on the Review Report.

(e)           Termination of Review.  If a Review is in process and the Notes will be paid in full on the next Payment Date, the Servicer will notify the Asset Representations Reviewer no less than five days before that Payment Date.  On receipt of such notice, the Asset Representations Reviewer will terminate the Review immediately and will not be obligated to deliver a Review Report.

Section 3.04.  Review Report.  Within five Business Days after the end of the applicable Review period under Section 3.03(b), the Asset Representations Reviewer will deliver to the Issuer, the Servicer and the Indenture Trustee a Review Report.  The Asset Representations Reviewer will ensure that the Review Report does not contain any Personally Identifiable Information.  On reasonable request of the Servicer, the Asset Representations Reviewer will provide additional details on the Test results.

Section 3.05.  Review Representatives.

(a)           Servicer Representative.  The Servicer will designate one or more representatives who will be available to assist the Asset Representations Reviewer in performing the Review, including responding to requests and answering questions from the Asset Representations Reviewer about access to Review Materials on the Servicer’s originations, leases or other systems, obtaining missing or insufficient Review Materials and/or providing clarification of any Review Materials or Tests.

(b)           Asset Representations Review Representative.  The Asset Representations Reviewer will designate one or more representatives who will be available to the Issuer, the Servicer and the Administrator during the performance of a Review.

(c)            Questions About Review.  The Asset Representations Reviewer will make appropriate personnel available to respond in writing to written questions or requests for clarification of any Review Report from the Indenture Trustee or the Servicer until the earlier of (i) the payment in full of the Notes and (ii) one year after the delivery of the Review Report.  The Asset Representations Reviewer will not be obligated to respond to questions or requests for clarification from Noteholders or any other Person and will direct such Persons to submit written questions or requests to the Servicer.

 

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Section 3.06.  Dispute Resolution.  If a Review Asset that was the subject of a Review becomes the subject of a dispute resolution proceeding under Section 3.11 of the 2018-A Servicing Supplement, the Asset Representations Reviewer will participate in the dispute resolution proceeding on request of a party to the proceeding.  The reasonable out-of-pocket expenses of the Asset Representations Reviewer for its participation in any dispute resolution proceeding will be considered expenses of the requesting party for the dispute resolution and will be paid, in the case of (i) an arbitration, by a party to the dispute resolution as determined by the arbitrator for the dispute resolution, and (ii) a mediation, as the parties shall mutually determine, in each case according to Section 3.11 of the 2018-A Servicing Supplement.  If not paid by a party to the dispute resolution, the expenses will be reimbursed by the Issuer pursuant to Section 4.03(d).

Section 3.07.  Limitations on Review Obligations.

(a)           Review Process Limitations.  The Asset Representations Reviewer will have no obligation (i) to determine whether a Delinquency Trigger has occurred or whether the required percentage of Noteholders has voted to direct a Review under the Indenture; (ii) to determine which 2018-A Leases and 2018-A Leased Vehicles are subject to a Review, (iii) to obtain or confirm the validity of the Review Materials, (iv) to obtain missing or insufficient Review Materials, (v) to take any action or cause any other party to take any action under any of the 2018-A Basic Documents to enforce any remedies for breaches of representations or warranties about the Eligible Representations, (vi) to determine the reason for the delinquency of any Review Asset, the creditworthiness of any Lessee, the overall quality of any Review Asset or the compliance by the Servicer with its covenants with respect to the servicing of such Review Asset, or (vii) to establish cause, materiality or recourse for any failed Test.

(b)           Testing Procedure Limitations.  The Asset Representations Reviewer will only be required to perform the Tests listed under Schedule A, and will not be obligated to perform additional procedures on any Review Asset or to provide any information other than a Review Report.  However, the Asset Representations Reviewer may provide additional information in a Review Report about any Review Asset that it determines in good faith to be material to the Review.

ARTICLE FOUR

 

ASSET REPRESENTATIONS REVIEWER

Section 4.01.  Representations and Warranties of the Asset Representations Reviewer. The Asset Representations Reviewer hereby makes the following representations and warranties as of the 2018-A Closing Date:

 

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(a)          Organization and Qualification.  The Asset Representations Reviewer is duly organized and validly existing as a limited liability company in good standing under the laws of State of Delaware.  The Asset Representations Reviewer is qualified as a foreign limited liability company in good standing and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of its properties or the conduct of its activities requires the qualification, license or approval, unless the failure to obtain the qualifications, licenses or approvals would not reasonably be expected to have a material adverse effect on the Asset Representations Reviewer’s ability to perform its obligations under this Agreement.

(b)          Power, Authority and Enforceability.  The Asset Representations Reviewer has the power and authority to execute, deliver and perform its obligations under this Agreement.  The Asset Representations Reviewer has authorized the execution, delivery and performance of this Agreement.  This Agreement is the legal, valid and binding obligation of the Asset Representations Reviewer enforceable against the Asset Representations Reviewer, except as may be limited by insolvency, bankruptcy, reorganization or other laws relating to the enforcement of creditors’ rights or by general equitable principles.

(c)          No Conflicts and No Violation.  The completion of the transactions  contemplated by this Agreement and the performance of the Asset Representations Reviewer’s obligations under this Agreement will not (i) conflict with, or be a breach or default under, any indenture, mortgage, deed of trust, loan agreement, guarantee or similar document under which the Asset Representations Reviewer is a debtor or guarantor, (ii) result in the creation or imposition of a Lien on the properties or assets of the Asset Representations Reviewer under the terms of any indenture, mortgage, deed of trust, loan agreement, guarantee or similar document, (iii) violate the organizational documents of the Asset Representations Reviewer or (iv) violate a law or, to the Asset Representations Reviewer’s knowledge, an order, rule or regulation of a federal or State court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Asset Representations Reviewer or its properties that applies to the Asset Representations Reviewer, which, in each case, would reasonably be expected to have a material adverse effect on the Asset Representations Reviewer’s ability to perform its obligations under this Agreement.

(d)          No Proceedings.  To the Asset Representations Reviewer’s knowledge, there are no proceedings or investigations pending or threatened in writing before a federal or State court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Asset Representations Reviewer or its properties (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the completion of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that would reasonably be expected to have a material adverse effect on the Asset Representations Reviewer’s ability to perform its obligations under, or the validity or enforceability of, this Agreement.

(e)          Eligibility.  The Asset Representations Reviewer meets the eligibility requirements in Section 5.01.

 

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Section 4.02.  Covenants.  The Asset Representations Reviewer covenants and agrees that:

(a)          Eligibility.  It will notify the Issuer and the Servicer promptly if it no longer meets, or reasonably expects that it will no longer meet, the eligibility requirements in Section 5.01.

(b)          Review Systems; Personnel.  It will maintain business process management and/or other systems necessary to ensure that it can perform each Test and, on execution of this Agreement, will load each Test into these systems.  The Asset Representations Reviewer will ensure that these systems allow for each Review Asset and the related Review Materials to be individually tracked and stored as contemplated by this Agreement.  The Asset Representations Reviewer will maintain adequate staff that is properly trained to conduct Reviews as required by this Agreement.

(c)          Maintenance of Review Materials.  It will maintain copies of any Review Materials, Review Reports and other documents relating to a Review, including internal correspondence and work papers, for a period of at least two years after any termination of this Agreement.

Section 4.03.  Fees and Expenses.

(a)           Annual Fee.  As compensation for its activities hereunder, the Asset Representations Reviewer shall be entitled to receive an annual fee (the “Annual Fee”) with respect to each Annual Period prior to the termination of the Issuer, in an amount equal to $5,000.  The Annual Fee will be paid by the Issuer on the 2018-A Closing Date and on each anniversary of the 2018-A Closing Date until this Agreement is terminated; provided, however, that if the Asset Representations Reviewer resigns or is removed in accordance with Section 5.02, then the Asset Representations Reviewer shall refund to the Issuer a portion of the Annual Fee attributable to the portion of the annual period during which the Asset Representations Reviewer will no longer act as the Asset Representations Reviewer, assuming for purposes of such calculation that the Annual Fee for each day during the annual period is an amount equal to the Annual Fee divided by 365.

(b)           Review Fee.  Following the completion of a Review and the delivery of the related Review Report pursuant to Section 3.04, or the termination of a Review according to Section 3.03(e), and the delivery to the Indenture Trustee and the Servicer of a detailed invoice, the Asset Representations Reviewer will be entitled to a fee of $175 for each Review Asset for which the Review was started (the “Review Fee”), payable by the Issuer.  However, no Review Fee will be charged for any Review Asset which was included in a prior Review or for which no Tests were completed prior to the Asset Representations Reviewer being notified of a termination of the Review according to Section 3.03(c) or due to missing or insufficient Review Materials under Section 3.02(b).  If the detailed invoice is submitted on or before the first day of a month, the Review Fee will be paid by the Issuer according to the priority of payments in the Indenture on the Payment Date in that month.  However, if a Review is terminated according to Section 3.03(e), the Asset Representations Reviewer must submit its invoice for the Review Fee for the terminated Review no later than ten Business Days before the final Payment Date to be reimbursed on such final Payment Date.

 

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(c)           Reimbursement of Travel Expenses.  If the Servicer provides access to the Review Materials at one of its properties, the Issuer will reimburse the Asset Representations Reviewer for its reasonable travel expenses incurred in connection with the Review upon receipt of a detailed invoice.

(d)           Dispute Resolution Expenses.  If the Asset Representations Reviewer participates in a dispute resolution proceeding under Section 3.06 and its reasonable out-of-pocket expenses for participating in the proceeding are not paid by a party to the dispute resolution within 90 days after the end of the proceeding, the Issuer will reimburse the Asset Representations Reviewer for such expenses upon receipt of a detailed invoice.

(e)           Payment of Invoices.  When applicable pursuant to this Section, the fees and expenses of the Asset Representations Reviewer are to be paid via the priority of payments described in Section 5.04(b) or 8.03 of the Indenture, as applicable.  The Asset Representations Reviewer will issue invoices to the Issuer at the notices addresses set forth in Section 11.04 of the Indenture and Issuer shall pay all invoices submitted by the Asset Representations Reviewer within 30 days following the receipt by the Issuer, in accordance with the priority of payments described in Section 5.04(b) or 8.03 of the Indenture, as applicable.  The Administrator shall promptly pay to the Asset Representations Reviewer the amount of any fees, expenses and indemnification amounts not otherwise paid or reimbursed by the Issuer on any Payment Date in accordance with the terms of Section 5.04(b) or 8.03 of the Indenture, as applicable; provided that the Asset Representations Reviewer shall promptly reimburse the Administrator for any such amounts to the extent it subsequently receives payment or reimbursement in respect thereof from the Issuer in accordance with the terms of such Sections.  For the avoidance of doubt, the aggregate limit on the Asset Representations Reviewer fees, expenses and indemnities specified in Section 8.03 of the Indenture shall not apply to payments made or to be made by the Administrator to the Asset Representations Reviewer pursuant to this subsection.

Section 4.04.  Limitation on Liability.  The Asset Representations Reviewer will not be liable to any Person for any action taken, or not taken, in good faith under this Agreement or for errors in judgment.  The Asset Representations Reviewer will, however, be liable for its willful misconduct, bad faith or negligence in performing its obligations under this Agreement, but in no event will it be liable for special, indirect or consequential losses or damages (including lost profit), even if it has been advised of the likelihood of the loss or damage and regardless of the form of action.

Section 4.05.  Indemnification by Asset Representations Reviewer.  The Asset Representations Reviewer will indemnify each of the Issuer, the Seller, the Servicer, the Administrator, the Owner Trustee and the Indenture Trustee and their respective directors, officers, employees and agents for all fees, expenses, losses, damages and liabilities, including any legal fees or expenses incurred in connection with the enforcement of the Asset Representations Reviewer’s indemnification or other obligations hereunder, resulting from the Asset Representations Reviewer’s (i) willful misconduct, bad faith or negligence in performing its obligations under this Agreement and (ii) breach of any of its representations or warranties in this Agreement.  The Asset Representations Reviewer’s obligations under this Section will survive the termination of this Agreement, the termination of the Issuer and the resignation or removal of the Asset Representations Reviewer.

 

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Section 4.06.  Indemnification of Asset Representations Reviewer.

(a)           Indemnification.  The Issuer will, or will cause the Administrator to, indemnify each ARR Indemnified Person for all costs, expenses, losses, damages and liabilities resulting from the performance of its obligations under this Agreement (including the fees and expenses of defending itself against any loss, damage or liability), but excluding any cost, expense, loss, damage or liability resulting from the Asset Representations Reviewer’s (i) willful misconduct, bad faith or negligence or (ii) breach of any of its representations or warranties in this Agreement.

(b)           Proceedings.  Promptly on receipt by an ARR Indemnified Person of notice of a Proceeding against it, such ARR Indemnified Person will, if a claim is to be made under Section 4.06(a), notify the Issuer and the Administrator of the Proceeding.  The Issuer and/or the Administrator may participate in and assume the defense and settlement of a Proceeding at its expense.  If the Issuer or the Administrator notifies an ARR Indemnified Person of its intention to assume the defense of the Proceeding with counsel reasonably satisfactory to such ARR Indemnified Person, and so long as the Issuer, the Servicer or the Administrator assumes the defense of the Proceeding in a manner reasonably satisfactory to such ARR Indemnified Person, the Issuer and the Administrator will not be liable for fees and expenses of counsel to such ARR Indemnified Person unless there is a conflict between the interests of the Issuer or the Administrator, as applicable, and an ARR Indemnified Person.  If there is a conflict, the Issuer, the Servicer or the Administrator will pay for the reasonable fees and expenses of separate counsel to the ARR Indemnified Person.  No settlement of a Proceeding may be made without the approval of the Issuer and the Administrator and the ARR Indemnified Person, which approval will not be unreasonably withheld, conditioned or delayed.

(c)           Survival of Obligations.  The Issuer’s and the Administrator’s obligations under this Section will survive the resignation or removal of the Asset Representations Reviewer and the termination of this Agreement.

(d)           Repayment.  If the Issuer or the Administrator makes any payment under this Section and an ARR Indemnified Person later collects any of the amounts for which the payments were made to it from others, such ARR Indemnified Person will promptly repay the amounts to the Issuer or the Administrator, as applicable.

Section 4.07.  Inspections of Asset Representations Reviewer.  The Asset Representations Reviewer agrees that, with reasonable advance notice not more than once during any year, it will permit authorized representatives of the Issuer, the Servicer or the Administrator, during the Asset Representations Reviewer’s normal business hours, to examine and review its books of account, records, reports and other documents and materials relating to (a) the performance of its obligations under this Agreement, (b) payments of its fees and expenses for its performance of its obligations under this Agreement and (c) a claim made by it under this Agreement.  In addition, the Asset Representations Reviewer will permit representatives of the Issuer, the Servicer or the Administrator to make copies and extracts of any of those documents and to discuss them with the Asset Representations Reviewer’s officers and employees.  Each of the Issuer, the Servicer and the Administrator will, and will cause its authorized representatives to, hold in confidence the foregoing information except if disclosure may be required by Applicable Law or if the Issuer, the Servicer or the Administrator reasonably determines that it is required to make the disclosure under this Agreement or the other 2018-A Basic Documents.  The Asset Representations Reviewer will maintain all relevant books, records, reports and other documents and materials for a period of at least two years after the termination of its obligations under this Agreement.

 

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Section 4.08.  Delegation of Obligations.  The Asset Representations Reviewer may not delegate or subcontract its obligations under this Agreement to any Person without the prior written consent of the Issuer and the Servicer.

Section 4.09.  Confidential Information.

(a)           Treatment.  The Asset Representations Reviewer agrees to hold and treat Confidential Information given to it under this Agreement in confidence and under the terms and conditions of this Section, and will implement and maintain safeguards to further assure the confidentiality of the Confidential Information.  The Confidential Information will not, without the prior written consent of the Issuer and the Servicer, be disclosed or used by any Information Recipient other than for the purposes of performing Reviews of Review Assets or performing its obligations under this Agreement.  The Asset Representations Reviewer agrees that it will not, and will cause its Affiliates to not (i) purchase or sell securities issued by the Servicer or its Affiliates or special purpose entities on the basis of Confidential Information or (ii) use the Confidential Information for the preparation of research reports, newsletters or other publications or similar communications.

(b)           Protection.  The Asset Representations Reviewer will take reasonable measures to protect the secrecy of and avoid disclosure and unauthorized use of Confidential Information, including those measures that it takes to protect its own confidential information and not less than a reasonable standard of care.  The Asset Representations Reviewer acknowledges that Personally Identifiable Information is also subject to the additional requirements in Section 4.10.

(c)           Disclosure.  If the Asset Representations Reviewer is required by applicable law, regulation, rule or order issued by a Governmental Authority to disclose part of the Confidential Information, it may disclose the Confidential Information.  However, before a required disclosure, the Asset Representations Reviewer, if permitted by law, regulation, rule or order, will use its reasonable efforts to provide the Issuer and the Servicer with notice of the requirement and will cooperate, at the Servicer’s expense, in the Issuer’s and the Servicer’s pursuit of a proper protective order or other relief for the disclosure of the Confidential Information.  If the Issuer and the Servicer are unable to obtain a protective order or other proper remedy by the date that the information is required to be disclosed, the Asset Representations Reviewer will disclose only that part of the Confidential Information that it is advised by its legal counsel it is legally required to disclose.

 

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(d)           Responsibility for Information Recipients.  The Asset Representations Reviewer will be responsible for a breach of this Section by its Information Recipients.

(e)           Violation.  The Asset Representations Reviewer agrees that a violation of this Agreement may cause irreparable injury to the Issuer and the Servicer and the Issuer and the Servicer may seek injunctive relief in addition to legal remedies.  If an action is initiated by the Issuer or the Servicer to enforce this Section, the prevailing party will be reimbursed for its fees and expenses, including reasonable attorney’s fees, incurred for the enforcement.

Section 4.10.  Personally Identifiable Information.

(a)            Use of Issuer PII.  The Issuer does not grant the Asset Representations Reviewer any rights to Issuer PII except as otherwise provided in this Agreement.  The Asset Representations Reviewer will use Issuer PII only to perform its obligations under this Agreement or as specifically directed in writing by the Issuer and will only reproduce Issuer PII to the extent necessary for these purposes.  The Asset Representations Reviewer must comply with all laws applicable to PII, Issuer PII and the Asset Representations Reviewer’s business, including any legally required codes of conduct, including those relating to privacy, security and data protection.  The Asset Representations Reviewer will protect and secure Issuer PII.  The Asset Representations Reviewer will implement privacy or data protection policies and procedures that comply with applicable law and this Agreement.  The Asset Representations Reviewer will implement and maintain reasonable and appropriate practices, procedures and systems, including administrative, technical and physical safeguards to (i) protect the security, confidentiality and integrity of Issuer PII, (ii) ensure against anticipated threats or hazards to the security or integrity of Issuer PII, (iii) protect against unauthorized access to or use of Issuer PII and (iv) otherwise comply with its obligations under this Agreement.  These safeguards include a written data security plan, employee training, information access controls, restricted disclosures, systems protections (e.g., intrusion protection, data storage protection and data transmission protection) and physical security measures.

(b)           Additional Limitations.  In addition to the use and protection requirements described in Section 4.10(a), the Asset Representations Reviewer’s disclosure of Issuer PII is also subject to the following requirements:

(i)          The Asset Representations Reviewer will not disclose Issuer PII to its personnel or allow its personnel access to Issuer PII except (A) for the Asset Representations Reviewer personnel who require Issuer PII to perform a Review, (B) with the prior consent of the Issuer or (C) as required by applicable law.  When permitted, the disclosure of or access to Issuer PII will be limited to the specific information necessary for the individual to complete the assigned task.  The Asset Representations Reviewer will inform personnel with access to Issuer PII of the confidentiality requirements in this Agreement and train its personnel with access to Issuer PII on the proper use and protection of Issuer PII.

(ii)         The Asset Representations Reviewer will not sell, disclose, provide or exchange Issuer PII with or to any third party without the prior consent of the Issuer.

 

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(c)           Notice of Breach.  The Asset Representations Reviewer will notify the Issuer promptly in the event of an actual or reasonably suspected security breach, unauthorized access, misappropriation or other compromise of the security, confidentiality or integrity of Issuer PII and, where applicable, immediately take action to prevent any further breach.

(d)           Return or Disposal of Issuer PII.  Except where return or disposal is prohibited by applicable law, promptly on the earlier of the completion of the Review or the request of the Issuer, all Issuer PII in any medium in the Asset Representations Reviewer’s possession or under its control will be (i) destroyed in a manner that prevents its recovery or restoration or (ii) if so directed by the Issuer, returned to the Issuer without the Asset Representations Reviewer retaining any actual or recoverable copies, in both cases, without charge to the Issuer.  Where the Asset Representations Reviewer retains Issuer PII, the Asset Representations Reviewer will limit the Asset Representations Reviewer’s further use or disclosure of Issuer PII to that required by applicable law.

(e)           Compliance; Modification.  The Asset Representations Reviewer will cooperate with and provide information to the Issuer regarding the Asset Representations Reviewer’s compliance with this Section.  The Asset Representations Reviewer and the Issuer agree to modify this Section as necessary for either party to comply with applicable law.

  

(f)            Audit of Asset Representations Reviewer.  The Asset Representations Reviewer will permit the Issuer and its authorized representatives to audit the Asset Representations Reviewer’s compliance with this Section during the Asset Representations Reviewer’s normal business hours on reasonable advance notice to the Asset Representations Reviewer, and not more than once during any year unless circumstances necessitate additional audits.  The Issuer agrees to make reasonable efforts to schedule any audit described in this Section with the inspections described in Section 4.07.  The Asset Representations Reviewer will also permit the Issuer during normal business hours on reasonable advance notice to audit any service providers used by the Asset Representations Reviewer to fulfill the Asset Representations Reviewer’s obligations under this Agreement.

(g)           Affiliates and Third Parties.  If the Asset Representations Reviewer processes the PII of the Issuer’s Affiliates or a third party when performing a Review, and if such Affiliate or third party is identified to the Asset Representations Reviewer, such Affiliate or third party is an intended third-party beneficiary of this Section, and this Agreement is intended to benefit the Affiliate or third party.  The Affiliate or third party may enforce the PII related terms of this Section against the Asset Representations Reviewer as if each were a signatory to this Agreement.

ARTICLE FIVE

 

REMOVAL, RESIGNATION

Section 5.01.  Eligibility of the Asset Representations Reviewer.  The Asset Representations Reviewer must be a Person who (i) is not Affiliated with the Issuer, the Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or any of their Affiliates and (ii) was not, and is not Affiliated with a Person that was, engaged by the Issuer, the Depositor, the Servicer or any Underwriter to perform any due diligence on the 2018-A Leases and 2018-A Leased Vehicles prior to the 2018-A Closing Date.

 

13

Section 5.02.  Resignation and Removal of Asset Representations Reviewer.

(a)           No Resignation.  The Asset Representations Reviewer will not resign as Asset Representations Reviewer unless it determines it is legally unable to perform its obligations under this Agreement and there is no reasonable action that it could take to make the performance of its obligations under this Agreement permitted under applicable law.  In such event, the Asset Representations Reviewer will deliver a notice of its resignation to the Issuer and the Servicer, together with an Opinion of Counsel supporting its determination.

(b)           Removal.  If any of the following events occur, the Issuer, by notice to the Asset Representations Reviewer, may remove the Asset Representations Reviewer and terminate its rights and obligations under this Agreement:

(i)          the Asset Representations Reviewer no longer meets the eligibility requirements in Section 5.01;

(ii)         the Asset Representations Reviewer breaches of any of its representations, warranties, covenants or obligations in this Agreement; or

(iii)        an  Insolvency Event of the Asset Representations Reviewer occurs.

(c)            Notice of Resignation or Removal.  The Issuer will notify the Servicer and the Indenture Trustee of any resignation or removal of the Asset Representations Reviewer.

(d)           Continue to Perform After Resignation or Removal.  The Asset Representations Reviewer will continue to perform its obligations under this Agreement until a successor Asset Representations Reviewer has accepted its engagement according to Section 5.03(b).

Section 5.03.  Successor Asset Representations Reviewer.

(a)            Engagement of Successor Asset Representations Reviewer.  Following the resignation or removal of the Asset Representations Reviewer, the Issuer will engage a successor Asset Representations Reviewer who meets the eligibility requirements of Section 5.01.

(b)           Effectiveness of Resignation or Removal.  No resignation or removal of the Asset Representations Reviewer will be effective until a successor Asset Representations Reviewer has executed and delivered to the Issuer and the Servicer an agreement accepting its engagement and agreeing to perform the obligations of the Asset Representations Reviewer under this Agreement or entering into a new agreement with the Issuer on substantially the same terms as this Agreement.

(c)            Transition and Expenses.  If the Asset Representations Reviewer resigns or is removed, it will cooperate with the Issuer and the Servicer and take all actions reasonably requested to assist the Issuer in making an orderly transition of its rights and obligations under this Agreement to the successor Asset Representations Reviewer.  The Asset Representations Reviewer will pay the reasonable expenses of transitioning its obligations under this Agreement and preparing the successor Asset Representations Reviewer to take on the obligations on receipt of an invoice with reasonable detail of the expenses from the Issuer and the Servicer or the successor Asset Representations Reviewer.

 

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Section 5.04.  Merger, Consolidation or Succession.  Any Person (i) into which the Asset Representations Reviewer is merged or consolidated, (ii) resulting from any merger or consolidation to which the Asset Representations Reviewer is a party or (iii) succeeding to the business of the Asset Representations Reviewer, if that Person meets the eligibility requirements in Section 5.01, will be the successor to the Asset Representations Reviewer under this Agreement.  Such Person will execute and deliver to the Issuer, the Servicer and the Administrator an agreement to assume the Asset Representations Reviewer’s obligations under this Agreement (unless the assumption happens by operation of law).

ARTICLE SIX

OTHER AGREEMENTS

Section 6.01.  Independence of the Asset Representations Reviewer.  The Asset Representations Reviewer will be an independent contractor and will not be subject to the supervision of the Issuer for the manner in which it accomplishes the performance of its obligations under this Agreement.  Unless expressly authorized by the Issuer, the Asset Representations Reviewer will have no authority to act for or represent the Issuer and will not be considered an agent of the Issuer.  Nothing in this Agreement will make the Asset Representations Reviewer and the Issuer members of any partnership, joint venture or other separate entity or impose any liability as such on any of them.  For the avoidance of doubt, the Indenture Trustee will not be responsible for monitoring the performance by the Asset Representations Reviewer of its obligations under this Agreement.

Section 6.02.  No Petition.  Each of the parties to this Agreement covenants and agrees that for a period of one year and one day (or, if longer, any applicable preference period) after payment in full of all Exchange Notes and all outstanding Securities, it will not institute against, or join any Person in instituting against, the Titling Trust, the Initial Beneficiary, the Issuer or the Transferor any bankruptcy, reorganization, arrangement, insolvency or liquidation Proceedings, or other Proceedings under any Insolvency Law in connection with any obligations relating to the 2018-A ABS Notes, the 2018-A Exchange Note or the 2018-A Basic Documents and agrees that it will not cooperate with or encourage others to institute any such Proceeding.

Section 6.03.  Limitation of Liability of Owner Trustee.  It is expressly understood and agreed by the parties hereto that (i) this Agreement is executed and delivered by WTNA, not individually or personally but solely as Owner Trustee of the Issuer, in the exercise of the powers and authority conferred and vested in it, (ii) each of the representations, undertakings and agreements herein made on the part of the Issuer is made and intended not as personal representations, undertakings and agreements by WTNA but is made and intended for the purpose of binding only the Issuer, (iii) nothing herein contained shall be construed as creating any liability on WTNA, individually or personally, to perform any covenant either expressed or implied contained herein of the Issuer, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto, (iv) WTNA has not verified and has made no investigation as to the accuracy or completeness of any representations and warranties made by the Issuer in this Agreement and (v) under no circumstances shall WTNA be personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer under this Agreement or any other related documents.

 

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Section 6.04.  Termination of Agreement.  This Agreement will terminate, except for the obligations under Section 4.05, on the earlier of (i) the payment in full of all outstanding Notes and the satisfaction and discharge of the Indenture and (ii) the date the Issuer is terminated under the Trust Agreement.

ARTICLE SEVEN

MISCELLANEOUS PROVISIONS

Section 7.01.  Amendments.

(a)           The parties may amend this Agreement:

(i)          to clarify an ambiguity, correct an error or correct or supplement any term of this Agreement that may be defective or inconsistent with the other terms of this Agreement or to provide for, or facilitate the acceptance of this Agreement by, a successor Asset Representations Reviewer, in each case without the consent of the Noteholders or any other Person;

(ii)         to add, change or eliminate terms of this Agreement, in each case without the consent of the Noteholders or any other Person, if the Administrator delivers an Officer’s Certificate to the Issuer, the Owner Trustee and the Indenture Trustee stating that the amendment will not have a material adverse effect on the Noteholders; or

(iii)        to add, change or eliminate terms of this Agreement for which an Officer’s Certificate is not or cannot be delivered under Section 7.01(a)(ii), with the consent of the Majority Noteholders.

(b)           Notwithstanding anything to the contrary in this Section, any amendment to this Agreement that affects the rights or the obligation of either the Indenture Trustee or the Owner Trustee will require the consent of the Indenture Trustee or the Owner Trustee, as applicable.

Section 7.02.  Assignment; Benefit of Agreement; Third Party Beneficiaries.

(a)            Assignment.  Except as stated in Section 5.04, this Agreement may not be assigned by the Asset Representations Reviewer without the consent of the Issuer and the Servicer.

(b)           Benefit of Agreement; Third-Party Beneficiaries.  This Agreement is for the benefit of and will be binding on the parties and their permitted successors and assigns.  The Owner Trustee and the Indenture Trustee, for the benefit of the Noteholders, will be third-party beneficiaries of this Agreement and may enforce this Agreement against the Asset Representations Reviewer and the Servicer.  No other Person will have any right or obligation under this Agreement.

 

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Section 7.03.  Notices.

(a)           Notices to Parties.  Unless otherwise expressly specified or permitted by the terms hereof, all notices, requests, demands, consents, waivers or other communications to or from the parties to this Agreement will be in writing.  Notices, requests, demands, consents and other communications will be deemed to have been given and made, (i) upon delivery or, in the case of a letter mailed via registered first class mail, postage prepaid, three days after deposit in the mail and (ii) in the case of (a) a facsimile, when receipt is confirmed by telephone or by reply e-mail or reply facsimile from the recipient, (b) an e-mail, when receipt is confirmed by telephone or by reply e‐mail from the recipient and (c) an electronic posting to a password-protected website, upon printed confirmation of the recipient’s access to such password-protected website, or when notification of such electronic posting is confirmed in accordance with clauses (ii)(b) and (ii)(c) above.

(b)           Notice Addresses.  Any notice, request, demand, consent, waiver or other communication will be addressed as stated in the 2018-A Servicing Supplement or the Administration Agreement, as applicable, or to another address as a party may give by notice to the other parties.

Section 7.04.  GOVERNING LAW.

(a)            THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

Section 7.05.  WAIVER OF JURY TRIAL.  EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ANY 2018-A BASIC DOCUMENT.

Section 7.06.  No Waiver; Remedies.  No party’s failure or delay in exercising a power, right or remedy under this Agreement will operate as a waiver.  No single or partial exercise of a power, right or remedy will preclude any other or further exercise of the power, right or remedy or the exercise of any other power, right or remedy.  The powers, rights and remedies under this Agreement are in addition to any powers, rights and remedies under law.

Section 7.07.  Severability.  If any one or more of the covenants, agreements, provisions or terms of this Agreement is held invalid, illegal or unenforceable, then such covenants, agreements, provisions or terms will be deemed severable from the remaining covenants, agreements, provisions and terms of this Agreement, and will in no way affect the validity, legality or enforceability of the other covenants, agreements, provisions and terms of this Agreement.

 

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Section 7.08.  Table of Contents and Headings.  The Table of Contents and the various headings in this Agreement are included for convenience only and will not affect the meaning or interpretation of any provision of this Agreement.

Section 7.09.  Counterparts.  This Agreement may be executed in any number of counterparts, each of which will be an original, and all of which will together constitute one and the same instrument.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers duly authorized as of the day and year first above written

 

	 	
MERCEDES-BENZ AUTO LEASE TRUST 2018-A, as Issuer

	 	
	 	
By:

	
WILMINGTON TRUST, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Owner Trustee

	 	 	 
	 	
By:

	
	 		
Name:

	 		
Title:

	 	 	 
	 	
MERCEDES-BENZ FINANCIAL SERVICES USA LLC, 

	 	 	as Servicer and Administrator
	 	 	 
	 	
By:

	 
	 		
Name:

	 		
Title:

	 	 	 
	 	
CLAYTON FIXED INCOME SERVICES LLC, 

	 	 	as Asset Representations Reviewer
	 	 	 
	 	
By:

	 
	 		
Name:

	 		
Title:

 

2018-A ARR Agreement

 

SCHEDULE A

REPRESENTATIONS AND WARRANTIES, REVIEW MATERIALS AND TESTS

Representation (1) - Origination

The 2018-A Lease is a Stand-Alone Lease that was originated (a) by a Dealer, (b) on or after August 1, 2012, (c) pursuant to an agreement which allows for recourse to the Dealer in the event of certain defects in the 2018-A Lease (but not for a default by the related Lessee) and (d) in substantial compliance with the Credit and Collection Policy.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the lease agreement was signed by the Lessee and the Lessor

(ii)         Confirm the lease agreement form number and revision date are on the List of Approved Contract Forms

(iii)        Confirm the lease agreement is dated on or after August 1, 2012

(iv)        Confirm the dealer agreement contains provisions which allow for recourse to the Dealer in the event of certain defects in the Lease, outside of  default by the related Lessee

(v)         Confirm there is no evidence the lease agreement is not in compliance with the Credit and Collection Policy

(vi)        If section (i) through (v) are confirmed, then Test Pass

Representation (2) - Leases

The 2018-A Lease constitutes “tangible chattel paper” or “electronic chattel paper” within the meaning of Section 9-102 of the UCC.

Review Materials

		-	
Lease agreement

		-	
Title documents

Procedures to be Performed

(i)          Confirm there is a signature under the appropriate Lessee, Co-lessee and Lessor signature lines within the lease agreement

 

SA-1

(ii)         Confirm the lease agreement reports a monetary obligation greater than zero

(iii)        Confirm the assignment section of the lease agreement lists the  Titling Trust as the sole assignee

(iv)        If sections (i) through (iii) are confirmed, then Test Pass

Representation (3) – Leased Vehicle

The related 2018-A Vehicle is a Mercedes-Benz passenger car or sport utility vehicle that was new at the time of the origination of the related 2018-A Lease and is not powered by a diesel engine.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the vehicle description section of the lease agreement reports that the leased vehicle is a new vehicle

(ii)         Confirm the vehicle description section of the lease agreement reports that the leased vehicle is a Mercedes-Benz passenger car, sport utility vehicle or a smart automobile and is not powered by a diesel engine

(iii)        If sections (i) and (ii) are confirmed, then Test Pass

Representation (4) – Certificate of Title and Lienholder

Each 2018-A Vehicle was titled, or the Servicer has started procedures that will result in the 2018-A Vehicle being titled, in one of the 50 states of the United States or the District of Columbia and the Collateral Agent is or will be noted as lienholder of the 2018-A Vehicle (other than in Kansas, Missouri, Nebraska, Nevada or South Dakota) and such lien is a perfected first priority security interst.

Review Materials

		-	
Lease agreement

		-	
Title documents

		-	
Lease file

Procedures to be Performed

(i)          Confirm the title lists the Collateral Agent as the first priority lienholder or evidence of an application for such title is present

 

SA-2

(ii)         Confirm the Vehicle Identification Number (VIN) listed on the title matches the VIN number on the lease agreement

(iii)        Confirm there is no evidence of any lien that would take priority over the Collateral Agent’s security interest

(iv)        If sections (i) through (iii) are confirmed, then Test Pass

Representation (5) - Lessee

The related Lessee is a Person other than MBFS USA, any Affiliate thereof or a Governmental Authority and, at the time of origination of the 2018-A Lease, based on information provided by the Lessee, the Lessee is located in and has a billing address within a State.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the Lessee is not reported as MBFS USA, an affiliate or a governmental authority

(ii)         Confirm the Lessee’s address as reported on the lease agreement is located within the United States

(iii)        If sections (i) and (ii) are confirmed, then Test Pass

Representation (6) – Closed-End Lease; Payment in Dollars

The 2018-A Lease is payable solely in Dollars in the United States and is a closed-end lease that provides for equal monthly payments by the Lessee, which scheduled payments, if made when due, fully amortize to an amount equal to the Booked Residual Value of the related 2018-A Vehicle based upon the related Contract Rate.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the lease agreement represents a closed end lease

(ii)         Confirm the lease agreement is denominated in US dollars

(iii)        Confirm the monthly payments section of the lease agreement calls for level monthly payments over the entire lease term with the possible exception of the first and last payment

 

SA-3

(iv)        Calculate the product of the level monthly payment with the number of payments due over the lease term and confirm this amount fully amortizes to the Booked Residual Value of the related 2018-A Vehicle based upon the related Contract Rate

(v)         If sections (i) through (iv) are confirmed, then Test Pass

Representation (7) – One Original

There is only one original executed copy or authoritative copy, as applicable, of the 2018-A Lease.  The Servicer, or its custodian, has possession or control of such original or authoritative copy, as applicable, which does not have any marks or notations indicating that it has been pledged, assigned or otherwise conveyed to any Person other than the Titling Trust.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm that the lease agreement is marked as the original copy or authoritative copy, as applicable

(ii)         Confirm there is no evidence that the lease agreement has been pledged, assigned or otherwise conveyed to any Person other than the Titling Trust

(iii)        If sections (i) and (ii) are confirmed, then Test Pass

Representation (8) – Compliance with Law

The 2018-A Lease complied in all material respects at the time it was originated and, as of the 2018-A Cutoff Date, will comply in all material respects with all requirements of federal, State and local laws.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the lease agreement form number and revision date are on the List of Approved Contract Forms

(ii)         Confirm the following sections of the contract are present and completed:

	 	(a)	
Name and address of Lessor

		(b)	
Name and address of Lessee and Co-lessee (if applicable)

		(c)	
Vehicle description

		(d)	
Amount due at lease signing

		(e)	
Amount of monthly payment

 

SA-4

		(f)	
Number of monthly payments

		(g)	
Other charges

		(h)	
Total of Payments

(iii)        Confirm there is an itemization of the amount due at lease signing

(iv)        Confirm there is an itemization of the monthly payment

(v)         Confirm the following disclosures are included on the contract

		(a)	
Early termination

		(b)	
Excessive wear

		(c)	
Purchase option

		(d)	
Insurance requirements

		(e)	
Late charges

(vi)        If sections (i) through (v) are confirmed, then Test Pass

Representation (9) - Enforceability

The 2018-A Lease was fully and properly executed by the parties thereto and such 2018-A Lease represents the legal, valid and binding full-recourse payment obligation of the related Lessee, enforceable against such Lessee in accordance with its terms, except as enforceability is subject to or limited by bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and other similar laws affecting the enforcement of creditors’ rights in general or principles of equity (whether considered in a suit at law or in equity).

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the lease agreement was signed by the Lessor, Lessee and Co-lessee (if applicable)

(ii)         Confirm the lease agreement form number and revision date are on the List of Approved Contract Forms

(iii)        If sections (i) and (ii) are confirmed, then Test Pass

Representation (10) – Title to the Lease and Leased Vehicle

Neither the 2018-A Lease nor the 2018-A Vehicle has been sold, transferred, assigned, pledged or granted by any Dealer to any Person other than the Titling Trust.  The Titling Trust has good and marketable title to such 2018-A Lease and 2018-A Vehicle, free and clear of any Liens (other than Permitted Liens), participations and rights of others, including, to the knowledge of the Servicer, Liens (other than Permitted Liens) or claims for work, labor or material relating to such 2018-A Vehicle.

 

SA-5

Review Materials

		-	
Lease agreement

		-	
Title documents

		-	
Lease file

Procedures to be Performed

(i)          Confirm the assignment section of the lease agreement has been signed by the Dealer and lists the Titling Trust as the assignee

(ii)         Confirm there is no evidence within the lease file that the Lease has been sold, transferred, assigned, pledged or granted by any Dealer to any Person other than the Title Trust

(iii)        Confirm the title shows that the Titling Trust is the owner of the Lease vehicle

(iv)        Confirm the title document does not indicate any additional liens (other than permitted liens)

(v)         If sections (i) through (iv) are confirmed, then Test Pass

Representation (11) – Lease in Full Force and Effect; No Waiver

The 2018-A Lease is in full force and effect and not satisfied, subordinated or rescinded and no provision of the 2018-A Lease has been waived in any manner that causes or could cause such 2018-A Lease to not qualify with the other criteria set forth herein.

Review Materials

		-	
Lease agreement

		-	
Data tape

		-	
Lease file

Procedures to be Performed

(i)          Confirm the lease agreement form number and revision date are on the List of Approved Contracts

(ii)         Confirm within the data tape that the lease has not been paid off as of the 2018-A Cutoff Date

 

SA-6

(iii)        Confirm there is no evidence within the lease file that the Lease has been satisfied, subordinated or rescinded

(iv)        Confirm there is no evidence within the lease file that any provision of the lease has been waived in any manner that would cause the Lease to become invalid

(v)         If sections (i) through (iv) are confirmed, then Test Pass

Representation (12) – No Defenses

The 2018-A Lease is not subject to any right of rescission, cancellation, setoff, claim, counterclaim or any other defense (including defenses arising out of violations of usury laws) of the related Lessee to payment of the amounts due thereunder, and no such right of rescission, cancellation, set-off, claim, counterclaim or any other defense (including defenses arising out of violations of usury laws) has been asserted or threatened.

Review Materials

		-	
Lease file

Procedures to be Performed

(i)          Confirm there is no indication within the lease file that the Lease is subject to any right of rescission, cancellation, setoff, claim or counterclaim that could cause the Lease to become invalid

(ii)         Confirm there is no indication within the lease file of any threats of rescission, cancellation, setoff, claim or counterclaim that could cause the Lease to become invalid

(iii)        If sections (i) and (ii) are confirmed, then Test Pass

Representation (13) - Assignability

The 2018-A Lease is fully assignable and does not require the consent of the related Lessee or any other Person as a condition to any transfer, sale or assignment of the rights thereunder to the Titling Trust.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the lease agreement form number and revision date are on the List of Approved Contracts

 

SA-7

(ii)         Confirm the lease agreement contains language allowing the sale, transfer, assignment, conveyance or pledge of the Lease without the consent of the related Lessee or any other Person

(iii)        If sections (i) and (ii) are confirmed, then Test Pass

Representation (14) – Lease Term

As of its origination date, the 2018-A Lease had an original Lease Term of no less than 12 months and no more than 60 months.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the number of payments as stated on the lease agreement are within the allowable lease term limits

(ii)         If section (i) is confirmed, then Test Pass

Representation (15) - Insurance

As of the time of origination of the 2018-A Lease, the related lease agreement required the related Lessee to obtain physical damage insurance covering the related 2018-A Vehicle.

Review Materials

		-	
Lease agreement

Procedures to be Performed

(i)          Confirm the lease agreement contains language that required the Lessee to obtain and maintain physical damage insurance to the related Leased Vehicle

(ii)         If section (i) is confirmed, then Test Pass

Representation (16) – No Bankruptcy

As of the 2018-A Cutoff Date, the Servicer has not received actual notice that the Lessee on any 2018-A Lease is a debtor in a bankruptcy proceeding.

Review Materials

		-	
Lease file

 

SA-8

Procedures to be Performed

(i)          Confirm the lease file does not contain evidence that the related Lessee or Lease is the subject of any bankruptcy proceeding or insolvency proceeding as of the 2018-A Cutoff Date

(ii)         If section (i) is confirmed, then Test Pass

Representation (17) – No Extensions

The 2018-A Lease has not been extended or otherwise been deferred, but may have been modified in accordance with the Credit and Collection Policy so long as such modification did not cause such 2018-A Lease to not qualify with the other criteria set forth herein.

Review Materials

		-	
Lease agreement

		-	
Data file

		-	
Lease file

Procedures to be Performed

(i)          Confirm the Lease has not been extended, deferred or modified as of the 2018-A Cutoff Date

(ii)         If the Lease has been extended, deferred or modified, confirm that (a) there is no evidence that the extension, deferment or modification violated the Credit and Collection Policy and (b) the Lease, as extended, deferred or modified, meets all other representations

(iii)        If section (i) or section (ii) is confirmed, then Test Pass

Representation (18) – Delinquencies; No Payment Default

As of the 2018-A Cutoff Date, none of the 2018-A Leases is Delinquent by more than 30 days.  As of the 2018-A Cutoff Date, none of the 2018-A Leases is a Defaulted Lease.

Review Materials

		-	
Data tape

Procedures to be Performed

(i)          Confirm the data tape does not indicate that 10% or more of the Base Monthly Payment required to be paid on the Lease was more than 30 days past due as of the 2018-A Cutoff Date

 

SA-9

(ii)         If section (i) is confirmed, then Test Pass

Representation (19) – Securitization Value

As of the 2018-A Cutoff Date, each 2018-A Lease had a Securitization Value not less than $15,000.00 and no more than $200,000.00.

Review Materials

		-	
Lease file

Procedures to be Performed

(i)          Confirm the Lease has a Securitization Value that is greater than or equal to $15,000

(ii)         Confirm the Lease has a Securitization Value that is less than or equal to $200,000

(iii)        If sections (i) and (ii) are confirmed, then Test pass

Representation (20) – FICO Score

As of its origination date, the Lessee under the 2018-A Lease had a FICO score of not less than 651.

Review Materials

		-	
Lease file

Procedures to be Performed

(i)          Confirm the related Lessee’s FICO score was greater than or equal to 651

(ii)         If section (i) is confirmed, then Test Pass

Representation (21) – No Allocation to Other Specified Interest

The 2018-A Lease and the related 2018-A Vehicle allocated to the 2018-A Reference Pool has not been allocated to any Reference Pool other than the 2018-A Reference Pool.

Review Materials

		-	
Lease file

Procedures to be Performed

(i)          Confirm the lease file indicates that the related Lease and Leased Vehicle were allocated to the 2018-A Reference Pool

 

SA-10

(ii)         Confirm the related Lease and Leased Vehicle have not been re-allocated to any other reference pool other than the 2018-A Reference Pool

(iii)        If section (i) and (ii) are confirmed, then Test Pass

Representation (22) – Model Year

The related 2018-A Vehicle has a model year between 2013 and 2017, inclusive.

Review Materials

		-	
Lease agreement

Procedures to be Performed  

(i)          Confirm the vehicle description of the lease agreement indicates that the Leased Vehicle is of a model year between 2013 and 2017

(ii)         If section (i) is confirmed, then Test Pass

 

 

SA-11Exhibit 4.3

 

IXYS CORPORATION

 

1999 EQUITY INCENTIVE PLAN

 

Adopted May 7, 1999
 Approved By Stockholders November 19, 1999
 Termination Date: May 6, 2009

 

1. PURPOSES.

 

(a) Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates.

 

(b) Available Stock Awards. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock appreciation rights, (iv) stock bonuses, (v) rights to acquire restricted stock and (vi) Restricted Stock Units.

 

(c) General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

 

2. DEFINITIONS.

 

(a) “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

 

(b) “Board” means the Board of Directors of the Company.

 

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

 

(d) “Committee” means a committee appointed by the Board in accordance with subsection 3(c).

 

(e) “Common Stock” means the common stock of the Company.

 

(f) “Company” means IXYS Corporation, a Delaware corporation.

 

(g) “Consultant” means any person, including an advisor, (1) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (2) who is a member of the Board of Directors of an Affiliate. However, the term “Consultant” shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a director’s fee by the Company for their services as Directors.

 

 

(h) “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.

 

(i) “Covered Employee” means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

 

(j) “Director” means a member of the Board of Directors of the Company.

 

(k) “Disability” means the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person’s position with the Company or an Affiliate of the Company because of the sickness or injury of the person.

 

(l) “Employee” means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

 

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

 

(n) “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

 

(i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.

 

(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

 

(o) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

 

(p) “Non-Employee Director” means a Director of the Company who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a

 

 

consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

 

(q) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

 

(r) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(s) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.

 

(t) “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

 

(u) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

 

(v) “Outside Director” means a Director of the Company who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

 

(w) “Participant” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

 

(x) “Plan” means this IXYS Corporation 1999 Equity Incentive Plan.

 

(y) “Restricted Stock Unit” means a right to receive a share of Common Stock that is granted pursuant to the terms and conditions of Section 7(d).

 

(z) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

(aa) “Securities Act” means the Securities Act of 1933, as amended.

 

(bb) “Stock Award” means any right granted under the Plan, including an Option, a stock appreciation right, a stock bonus, a right to acquire restricted stock and a Restricted Stock Unit.

 

 

(cc) “Stock Award Agreement” means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

 

(dd) “Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.

 

3. ADMINISTRATION.

 

(a) Administration by Board. The Board will administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).

 

(b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

 

(i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; and the number of shares with respect to which a Stock Award shall be granted to each such person.

 

(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

 

(iii) To amend the Plan or a Stock Award as provided in Section l2.

 

(iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

 

(c) Delegation to Committee.

 

(i) General. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

 

 

(ii) Committee Composition when Common Stock is Publicly Traded. At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Outside Directors, the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

 

4. SHARES SUBJECT TO THE PLAN.

 

(a) Share Reserve. Subject to the provisions of Section 11 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate two million (2,000,000) shares of Common Stock plus an annual increase to be added on the first day of the Company’s fiscal year beginning in 2000 equal to the least of the following amounts (i) 500,000 shares; (ii) three percent (3%) of the Company’s outstanding shares on such date (rounded to the nearest whole share and calculated on a fully diluted basis, that is assuming the exercise of all outstanding stock options and warrants to purchase common stock) or (iii) an amount determined by the Board.

 

(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full (or vested in the case of Restricted Stock), the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. Shares subject to stock appreciation rights exercised in accordance with the Plan shall not be available for subsequent issuance under the Plan. If any Common Stock acquired pursuant to the exercise of an Option shall for any reason be repurchased by the Company under an unvested share repurchase option provided under the Plan, the stock repurchased by the Company under such repurchase option shall not revert to and again become available for issuance under the Plan.

 

(c) Source of Shares. The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

 

(d) Share Reserve Limitation. To the extent required by Section 260.140.45 of Title 10 of the California Code of Regulations, the total number of shares of Common Stock issuable upon exercise of all outstanding Options and the total number of shares of Common Stock provided for under any stock bonus or similar plan of the Company shall not exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Section 260.140.45 of Title 10 of the California Code of Regulations, based on the shares of Common Stock of the Company that are outstanding at the time the calculation is made.

 

 

5. ELIGIBILITY.

 

(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

 

(b) Ten Percent Stockholders.

 

(i) No Ten Percent Stockholder shall be eligible for the grant of an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

 

(ii) A Ten Percent Stockholder shall not be granted a Nonstatutory Stock Option unless the exercise price of such Option is at least (i) one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option.

 

(iii) A Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (i) one hundred percent (100%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the restricted stock award.

 

(c) Section 162(m) Limitation. Subject to the provisions of Section 11 relating to adjustments upon changes in stock, no employee shall be eligible to be granted Options and/or stock appreciation rights covering more than one million five hundred thousand (l,500,000) shares of the Common Stock during any calendar year.

 

(d) Consultants. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdiction.

 

6. OPTION PROVISIONS.

 

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

 

 

(a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date it was granted.

 

(b) Exercise Price of an Incentive Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

 

(c) Exercise Price of a Nonstatutory Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

 

(d) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) by delivery to the Company of other Common Stock, according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other Common Stock) with the Participant or in any other form of legal consideration that may be acceptable to the Board; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.

 

In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement.

 

(e) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(e), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

 

(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and, to such further extent as provided in the Option Agreement; provided, however, that in no event shall a Nonstatutory Stock Option be transferable except as permitted by Section 260.140.41(d) of Title 10 of the California Code of Regulations (as and if applicable) at the time of the grant of the Option, and

 

 

shall be exercisable during the lifetime of the Optionholder only by the Optionholder. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of this subsection 6(f), the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

 

(g) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments which may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised.

 

(h) Minimum Vesting. Notwithstanding the foregoing subsection 6(g), to the extent that the following restrictions on vesting are required by Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then:

 

(i) Options granted to an Employee who is not an Officer, Director or Consultant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment; and

 

(ii) Options granted to Officers, Directors or Consultants may be made fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company.

 

(i) Termination of Continuous Service. In the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement, which period shall not be less than thirty (30) days for Options unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.

 

(j) Extension of Termination Date. An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after

 

 

the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.

 

(k) Disability of Optionholder. In the event an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

 

(l) Death of Optionholder. In the event (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder’s death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

 

(m) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to an unvested share repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate.

 

(n) Re-Load Options. Without in any way limiting the authority of the Board to make or not to make grants of Options hereunder, the Board shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionholder to a further Option (a “Re-Load Option”) in the event the Optionholder exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option shall (i) provide for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the same exercise price and term provisions heretofore described for Options under the Plan.

 

 

Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 10(d) and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and the “Section 162(m) Limitation” on the grants of Options under subsection 5(c) and shall be subject to such other terms and conditions as the Board may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.

 

7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

 

(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

 

(i) Consideration. A stock bonus shall be awarded in consideration for past services actually rendered to the Company for its benefit.

 

(ii) Vesting. Shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

 

(iii) Termination of Participant’s Continuous Service. In the event a Participant’s Continuous Service terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement.

 

(iv) Transferability. Rights to acquire shares of Common Stock under the stock bonus agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.

 

(b) Restricted Stock Awards. Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

 

(i) Purchase Price. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the purchase price under each restricted stock purchase agreement shall be such amount as the Board shall determine and designate in such restricted stock purchase agreement. For restricted stock awards, the purchase price shall not be less than eighty-five percent (85%) of

 

 

the stock’s Fair Market Value on the date such award is made or at the time the purchase is consummated.

 

(ii) Consideration. The purchase price of stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.

 

(iii) Vesting. Shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

 

(iv) Termination of Participant’s Continuous Service. In the event a Participant’s Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the restricted stock purchase agreement.

 

(v) Transferability. Rights to acquire shares of Common Stock under the restricted stock purchase agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.

 

(c) Stock Appreciation Rights.

 

(i) Authorized Rights. The following three types of stock appreciation rights shall be authorized for issuance under the Plan:

 

(1) Tandem Rights. A “Tandem Right” means a stock appreciation right granted appurtenant to an Option which is subject to the same terms and conditions applicable to the particular Option grant to which it pertains with the following exceptions: The Tandem Right shall require the holder to elect between the exercise of the underlying Option for shares of Common Stock and the surrender, in whole or in part, of such Option for an appreciation distribution. The appreciation distribution payable on the exercised Tandem Right shall be in cash (or, if so provided, in an equivalent number of shares of Common Stock based on Fair Market Value on the date of the Option surrender) in an amount up to the excess of (A) the Fair Market Value (on the date of the Option surrender) of the number of shares of Common Stock covered by that portion of the surrendered Option in which the Optionholder is vested over (B) the aggregate exercise price payable for such vested shares.

 

(2) Concurrent Rights. A “Concurrent Right” means a stock appreciation right granted appurtenant to an Option which applies to all or a portion of the shares of Common Stock subject to the underlying Option and which is subject to the same terms and conditions applicable to the particular Option grant to which it pertains with the following exceptions: A Concurrent Right shall be exercised automatically at the same time the underlying Option is exercised with respect to the particular shares of Common Stock to which the Concurrent Right pertains. The appreciation distribution payable on the exercised Concurrent Right shall be in cash (or, if so

 

 

provided, in an equivalent number of shares of Common Stock based on Fair Market Value on the date of the exercise of the Concurrent Right) in an amount equal to such portion as determined by the Board at the time of the grant of the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Concurrent Right) of the vested shares of Common Stock purchased under the underlying Option which have Concurrent Rights appurtenant to them over (B) the aggregate exercise price paid for such shares.

 

(3) Independent Rights. An “Independent Right” means a stock appreciation right granted independently of any Option but which is subject to the same terms and conditions applicable to a Nonstatutory Stock Option with the following exceptions: An Independent Right shall be denominated in share equivalents. The appreciation distribution payable on the exercised Independent Right shall be not greater than an amount equal to the excess of (a) the aggregate Fair Market Value (on the date of the exercise of the Independent Right) of a number of shares of Company stock equal to the number of share equivalents in which the holder is vested under such Independent Right, and with respect to which the holder is exercising the Independent Right on such date, over (b) the aggregate Fair Marker Value (on the date of the grant of the Independent Right) of such number of shares of Company stock. The appreciation distribution payable on the exercised Independent Right shall be in cash or, if so provided, in an equivalent number of shares of Common Stock based on Fair Market Value on the date of the exercise of the Independent Right.

 

(ii) Relationship to Options. Stock appreciation rights appurtenant to Incentive Stock Options may be granted only to Employees. The “Section 162(m) Limitation” provided in subsection 5(c) and any authority to reprice Options shall apply as well to the grant of stock appreciation rights.

 

(iii) Exercise. To exercise any outstanding stock appreciation right, the holder shall provide written notice of exercise to the Company in compliance with the provisions of the Stock Award Agreement evidencing such right. Except as provided in subsection 5(c) regarding the “Section 162(m) Limitation,” no limitation shall exist on the aggregate amount of cash payments that the Company may make under the Plan in connection with the exercise of a stock appreciation right.

 

(d) Restricted Stock Units. Each Restricted Stock Unit agreement shall be in such form and shall contain such terms and conditions as the Board shall determine. The terms and conditions of each grant of an award of Restricted Stock Units may change from time to time, and the terms and conditions of separate Restricted Stock Unit awards (and their Stock Award Agreements) need not be identical; provided, however, that each Stock Award Agreement for a Restricted Stock Unit award shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

 

(i) Award. Each Restricted Stock Unit award shall constitute the agreement by the Company to issue or transfer shares of Common Stock to the Participant in the future in consideration of the performance of services and such other requirements and conditions as determined by the Board and described in the Stock Award Agreement.

 

(ii) Consideration. At the time of grant of a Restricted Stock Unit award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of

 

 

Common Stock subject to the Restricted Stock Unit award. To the extent required by applicable law, the consideration to be paid by the Participant for each share of Common Stock subject to a Restricted Stock Unit award will not be less than the par value of a share of Common Stock. Such consideration may be paid in any form permitted under applicable law, including the performance of services prior to the grant or during the vesting period of the Restricted Stock Unit award.

 

(iii) Vesting. At the time of the grant of a Restricted Stock Unit award, the Board may impose such restrictions or conditions to the vesting of the Restricted Stock Units as it deems appropriate.

 

(iv) Delivery. At the time of grant of the Restricted Stock Unit award the Board shall specify the time or times upon which the shares of Common Stock shall be delivered to the Participant.

 

(v) Payment. A Restricted Stock Unit award may be settled by the delivery of shares of Common Stock. Each Restricted Stock Unit subject to the Restricted Stock Unit award shall entitle the Participant to a share of Common Stock after satisfaction of any vesting requirements and any other restrictions provided for in the Stock Award Agreement.

 

(vi) Additional Restrictions. At the time of the grant of a Restricted Stock Unit award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock subject to a Restricted Stock Unit award after the vesting of such award.

 

(vii) Transferability. Except as otherwise provide for in the Stock Award Agreement, rights to acquire shares of Common Stock under the Restricted Stock Unit award shall not be transferable except by will or by the laws of descent and distribution.

 

(viii) Termination of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit award agreement, Restricted Stock Units that have not vested will be forfeited upon the Participant’s termination of Continuous Service for any reason.

 

8. COVENANTS OF THE COMPANY.

 

(a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

 

(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained.

 

 

9. USE OF PROCEEDS FROM STOCK.

 

Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company.

 

10. MISCELLANEOUS.

 

(a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

 

(b) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.

 

(c) No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant or other holder of Stock Awards any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

(d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.

 

(e) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring the stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the

 

 

Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.

 

(f) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of stock under the Stock Award; or (iii) delivering to the Company owned and unencumbered shares of the Common Stock.

 

(g) Information Obligation. The Company shall deliver copies of any publicly available material to any Participant who requests such material.

 

11. ADJUSTMENTS UPON CHANGES IN STOCK.

 

(a) Capitalization Adjustments. If any change is made in the stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

 

(b) Change in Control—Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then such Stock Awards shall be terminated if not exercised (if applicable) prior to such event.

 

(c) Change in Control—Asset Sale, Merger, Consolidation or Reverse Merger. In the event of (1) a sale of substantially all of the assets of the Company, (2) a merger or consolidation in which the Company is not the surviving corporation or (3) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 11(c)) for those outstanding under the Plan. In the event

 

 

any surviving corporation or acquiring corporation refuses to assume such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full, and the Stock Awards shall terminate if not exercised (if applicable) at or prior to such event. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised (if applicable) prior to such event.

 

(d) Change in Control—Securities Acquisition. In the event of an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or an Affiliate) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full; provided, however, that such acceleration shall not occur if the acquisition described in this subsection 11(d) is the result of or constitutes a transaction of the sort described in subsection 11(c) above, in which case the provisions of subsection 11(c) shall apply.

 

(e) Change in Control—Change in Incumbent Board. In the event that the individuals who, as of the date of the adoption of this Plan, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least fifty percent (50%) of the Board, then with respect to Stock Awards held by persons whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full; provided, however, that such acceleration shall not occur if such change in the Incumbent Board occurs solely as a result of and/or following a transaction of the sort described in subsection 11(c) above, in which case the provisions of subsection 11(c) shall apply. If the election, or nomination for election, by the Company’s stockholders of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board.

 

12. AMENDMENT OF THE PLAN AND STOCK AWARDS.

 

(a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

 

(b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.

 

 

(c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary, or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.

 

(d) No Impairment of Rights. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

 

(e) Amendment of Stock Awards. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

 

13. TERMINATION OR SUSPENSION OF THE PLAN.

 

(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

 

(b) No Impairment of Rights. Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the Participant.

 

14. EFFECTIVE DATE OF PLAN.

 

The Plan shall become effective as determined by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.

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