Document:

exv4w18

Exhibit 4.18

EXECUTION COPY

NEITHER THIS WARRANT NOR THE SHARES OBTAINABLE UPON ITS EXERCISE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS
(COLLECTIVELY, THE “ACTS”), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF THE SECURITIES
ACT. CERTAIN RIGHTS RELATING TO THIS WARRANT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT DATED MAY 15, 2008 BY AND AMONG THE HOLDER HEREOF
AND OTHER STOCKHOLDERS OF THE COMPANY (THE “INVESTOR RIGHTS AGREEMENT”). COPIES OF THIS
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

Date of Issuance: May 15, 2008

FINGERHUT DIRECT MARKETING, INC.

COMMON STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received, Goldman, Sachs & Co., or its registered assigns (the
“Holder”), is entitled to subscribe for and purchase from Fingerhut Direct Marketing, Inc., a
Delaware corporation (the “Company”), the Shares (as defined in Section 1 hereof) at the per share
exercise price of $0.01 (the “Exercise Price”) (as adjusted from time to time pursuant to Section 4
hereof), at any time or from time to time prior to or upon the Expiration Date (as defined in
Section 13 hereof), subject to the provisions and upon the terms and conditions hereinafter set
forth.

     This Warrant is subject to the following terms and conditions:

     1. Shares., When Exercisable.

     (a) As used herein, the term “Shares” means up to an aggregate of 86,804,150 shares
of the Company’s common stock, par value $0.00001 per share (the “Common Stock”), it being
understood that the number of Shares issuable hereunder and the Exercise Price are subject
to adjustment from time to time pursuant to Section 4 hereof.

     (b) This Warrant shall be exercisable at any time (and from time to time) in whole
or in part prior to the Expiration Date. Unless otherwise provided herein, the terms and
conditions of this Warrant, and the rights of the Holder hereunder, shall survive the
exercise by the Holder of its rights under this Section 1.

 

 

2. Method of Exercise; Payment.

     (a) Cash Exercise. The purchase rights represented by this Warrant may be exercised
by the Holder, in whole or in part, at any time or from time to time, by the surrender of
this Warrant (together with a duly executed notice of exercise (the “Notice of Exercise”)
in the form attached hereto as Exhibit A) at the Company’s offices at 6509 Flying Cloud
Drive, Eden Prairie, MN 55344 (as such address may be updated from time to time by means of
written notice to the Holder pursuant to Section 5(c) hereof), and by payment to the Company
of an amount (the “Aggregate Exercise Price”) equal to the Exercise Price multiplied by the
number of the Shares being purchased (subject to Section 4(d)), which amount may be paid, at
the election of the Holder, by (i) wire transfer or check payable to the order of the
Company, (ii) cancellation by the Holder of indebtedness or other obligations of the Company
to the Holder pursuant to a written agreement reasonably acceptable to the Company or (iii)
any combination of (i) and (ii). The Holder in whose name any certificate, representing the
Shares issuable upon any exercise of this Warrant will be issued shall be deemed to have
become the holder of record of, and shall be treated for all purposes as the record holder
of, the Shares represented thereby (and such Shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which such surrender
and payment are made. Notwithstanding the foregoing, if an exercise of all or any portion of
this Warrant is being made in connection with a proposed Public Offering or in connection
with any proposed Sale of the Corporation (as defined in the Fourth Amended and Restated
Certificate of Incorporation of the Company as amended from time to time (the
“Certificate”)) or any proposed sale of outstanding shares of Common Stock, then, at the
election of the Holder, such exercise may be conditioned solely upon the consummation of the
Public Offering, Sale of the Corporation or sale, in which case such exercise shall be
effective immediately prior to the consummation of the Public Offering, Sale of the
Corporation or sale. As used in this Section 2, the term “person” means any individual or
any corporation, partnership, trust, limited liability company or other entity or
organization of any kind.

     (b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)
hereof, the Holder may elect to exercise the Warrant without the payment of any additional
consideration by delivering to the Company a duly completed and executed Notice of Exercise
in which the appropriate alternative is initialed by the Holder providing for the payment of
the Aggregate Exercise Price by cancellation of a number of Shares having a Fair Market
Value equal to the Aggregate Exercise Price of the Shares issuable upon such exercise.

     (c) Fair Market Value. For purposes of this Section 2 and Section 10, the
“Fair Market Value” of one Share shall equal:

     (i) the volume weighted average price during regular market hours shares of
the Series B Preferred Stock on the New York Stock Exchange, NASDAQ National Market,
or other national securities exchange on which such shares are listed, whichever is
applicable (or if such shares are not so listed, the

 

 

corresponding price of shares of Common Stock into which such shares of Series
B Preferred Stock are convertible), as reported in a reputable quotation source
designated by the Company or a newspaper of general circulation in the Borough of
Manhattan, City of New York, customarily published on each Business Day, designated
by the Company, for the ten (10) consecutive trading days immediately prior to the
date of determination of Fair Market Value (or, if no sales take place on any such
trading day, the average of the closing bid and asked prices on such trading day);
or

     (ii) if shares of Common Stock are not traded on the NYSE, the NASDAQ
National Market or on a national securities exchange, the Fair Market Value of the
Company shall be equal to the value per share as determined in good faith by the
Board of Directors of the Company; provided, however, that if the Holder
disagrees in its sole discretion with such determination, then determination of Fair
Market Value shall be made in accordance with the Appraisal Procedure (as defined in
the Certificate in effect as of the Date Of Issuance), except that references
therein to the “Required Holders” therein shall be read as the “Holder hereunder.”
Furthermore, Fair Market Value shall equal the quotient of (a) the value of the
Company as a going concern being sold as an entirety by a willing seller (not under
financial duress or necessity) to a willing, unaffiliated buyer, taking into account
factors such as the value of comparable publicly traded companies, any concurrent or
recent equity sales or issuances by the Company, the Company’s net worth, future
earnings, intellectual property and other intangible assets and franchise value due
to synergies, and without applying any minority or illiquidity discount and (b) the
number of Fully Diluted Shares as of the relevant valuation date, excluding any
Rights that are out of the money.

     (d) Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, as promptly as practicable on or after the date of exercise and
in any event within ten (10) days thereafter, the Company at its expense shall issue and
deliver to the Holder entitled to receive the same a certificate or certificates
representing the number of Shares issued upon such exercise. In the event this Warrant is
exercised in part, as promptly as practicable on or after the date of exercise and in any
event within ten (10) days thereafter, the Company at its sole expense will execute and
deliver to the Holder a new Warrant in a form identical to this Warrant exercisable for the
number of Shares for which this Warrant may then be exercised.

     (e) Taxes. The issuance of the Shares upon the exercise of this Warrant,
and the delivery of certificates or other instruments representing such Shares, shall be made
without charge to the Holder for any tax or other charge of whatever nature in respect of
such issuance (other than taxes, if any, based on the net income of the Holder) and the
Company shall bear any such taxes in respect of such issuance.

     3. Stock Fully Paid; Reservation of Shares. All of the Shares issuable upon the
exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise
Price therefor, be fully paid and nonassessable, and the issuance of the Shares will be free from

 

 

all preemptive rights, rights of first refusal or first offer, taxes, liens and charges of
whatever nature. The Company will from time to time take all such action as may be required to
assure that the stated or par value per share of Common Stock is at all times equal to or less than
the then effective Exercise Price per share of Common Stock issuable upon exercise of this Warrant.
During the period within which the rights represented by this Warrant may be exercised, the Company
shall at all times have authorized and reserved for issuance a sufficient number of shares of its
Common Stock to provide for the full exercise of the rights represented by this Warrant and a
sufficient number of shares of its Common Stock to provide for the full conversion of such shares
of Common Stock. The Company shall take all steps necessary to amend its certificate of
incorporation and other organizational documents to provide sufficient reserves of shares of Common
Stock issuable upon full exercise of this Warrant. The Company hereby agrees that its issuance of
this Warrant shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the proper certificates for Shares upon the full
or each partial exercise of this Warrant. The Company further covenants and agrees that if any
shares of Common Stock upon the exercise of this Warrant require approval of any governmental
authority under any Federal or state law before such shares may be validly issued or delivered upon
exercise or conversion, then the Company will in good faith and expeditiously as possible endeavor
to secure such approval. If and so long as the Common Stock issuable upon the exercise of the
rights represented by this Warrant is listed on any national securities exchange, the Company will,
if permitted by the rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such capital stock.

     4. Adjustment of Exercise Price and Number of Shares. The number and kind of
Shares purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be
subject to adjustment from time to time upon the occurrence of certain events, as follows:

     (a) Adjustment for Consolidation, Merger, Sale or Transfer. If while this
Warrant, or, any portion hereof, remains outstanding and unexpired, there shall be (i)
merger or consolidation of the Company with or into another person in which the Company is
not the surviving entity, or a reverse merger in which the Company is the surviving entity
but the shares of the Company’s capital stock outstanding immediately prior to the merger
are converted by virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (ii) a sale or transfer of the Company’s properties and
assets as, or substantially as, an entirety to any other person in one transaction or a
series of related transactions, then, as a part of such merger, consolidation, sale or
transfer, all necessary or appropriate lawful provisions shall be made so that the Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during the period
specified herein and upon payment of the Exercise Price then in effect, the greatest number
of shares of stock or other securities or property that a holder of the Shares deliverable
upon exercise of this Warrant would have been entitled to receive in such merger,
consolidation, sale or transfer if this Warrant had been exercised immediately prior to such
merger, consolidation, sale or transfer, all subject to further adjustment as provided in
this Section 4. If the per Share consideration payable to the Holder for Shares in
connection with any such transaction is in a form other than cash or marketable securities,
then the value of such consideration shall be determined in good

 

 

faith by the Company’s Board of Directors (the “Board of Directors”). The foregoing
provisions of this paragraph shall similarly apply to successive consolidations, mergers,
sales and transfers and to the stock or securities of any other corporation that are at the
time receivable upon the exercise of this Warrant. In all events, appropriate adjustment
shall be made in the application of the provisions of this Warrant (including adjustment of
the Exercise Price and number of Shares purchasable pursuant to the terms and conditions of
this Warrant) with respect to the rights and interests of the Holder after the transaction,
to the end that the provisions of this Warrant shall be applicable after that event, as near
as reasonably may be, in relation to any shares or other property deliverable or issuable
after such merger, consolidation, sale or transfer upon exercise of this Warrant.

     (b) Adjustments for Split, Subdivision or Combination of Shares. If the
Company at any time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split or subdivide any class of securities as to which purchase rights under
this Warrant exist into a different number of securities of the same class, the number of
securities of such class issuable upon exercise of this Warrant immediately prior to such
split or subdivision shall be proportionately increased and the Exercise Price for such
securities of such class shall be proportionately decreased. If the Company at any time
while this Warrant, or any portion hereof, remains outstanding and unexpired shall combine
any class of securities as to which purchase rights under this Warrant exist into a
different number of securities of the same class, the number of securities of such class
issuable upon exercise of this Warrant immediately prior to such combination shall be
proportionately decreased and the Exercise Price for such class of securities shall be
proportionately increased.

     (c) Adjustments for Dividends. If while this Warrant, or any portion
hereof, remains outstanding and unexpired and the holders of shares of Series B Preferred
Stock have actually received a dividend or distribution (whether paid in cash, additional
stock other securities or other property and whether paid before, after or in connection
with the conversion or redemption of Series B Preferred Stock), this Warrant shall represent
the right to acquire, in addition to the number of Shares, and without payment of any
additional consideration therefor, the amount of such dividend or distribution equal to the
pro rata share of the aggregate amount of such dividend or distribution represented by the
Warrants, assuming, for purposes of such pro rata calculation only, the Warrant represents
the number of shares of Series B Preferred Stock that would be convertible into the same
number of shares of Common Stock as the number of Shares underlying the Warrant at such time
(prior to giving effect to such dividend or distribution),

     (d) Further Adjustments. In case at any time or from time to time the
Company shall take any action that affects the Common Stock, other than an action described
herein, then, unless such action will have a materially adverse effect upon the rights of
the Holder, the number of Shares of into which this Warrant is exercisable shall be adjusted
in such a manner and at such time as shall be equitable in the circumstances; provided,
however, that such adjustment shall not result in a reduction in the original

 

 

number of Shares covered by this Warrant. Adjustments pursuant to this Section 4 shall
be made successively whenever any event listed above shall occur.

     (e) Other Agreements. If the Company enters into any agreement with any
Person with respect to the Company’s capital stock that by its terms provides more favorable
anti-dilution or adjustment protections to such Person or its Affiliates thereunder as the
anti-dilution and adjustment provisions set forth in this Section 4, the Company shall
promptly provide a copy of such anti-dilution or adjustment provisions to the Holder and the
Holder, in its sole and absolute discretion, may modify the anti-dilution and adjustment
provisions set forth in this Section 4 to match such anti-dilution and adjustment
provisions.

     (f) Most Favored Nation. To the extent any holder of preferred stock of the Company
actually receives an anti-dilution adjustment to the conversion price of such preferred
stock as a result of any issuance or sale of securities of the Company, the Exercise Price
shall be reduced in the same relative proportion as the reduction in the conversion price of
such preferred stock.

     (g) Notice of Adjustments. Upon any adjustment of the Exercise Price and any
increase or decrease in the Exercise Rate, then, and in each such case, the Company, within
thirty (30) days thereafter, shall give written notice thereof to the Holder at the address
of such Holder as shown on the books of the Company which notice shall state (i) the reason
for such adjustment and (ii) the Exercise Price and the Exercise Rate, in each case as
adjusted and, if applicable, the increased or decreased number of Shares purchasable upon
the exercise of this Warrant, setting forth in reasonable detail the method of calculation
of each.

5. Notices.

(a) In the event that the Company shall propose at any time:

     (i) to declare any dividend or distribution upon its Common Stock (or other
stock or securities at the time receivable upon the exercise of this Warrant)
whether in cash, property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus;

     (ii) to redeem or repurchase any class or series of its capital stock;

     (iii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or other
rights;

     (iv) to effect a capital reorganization, or merge or consolidate with or
into any other corporation, or sell, lease or convey all or substantially all its
property or business, or voluntarily liquidate, dissolve or wind up; or

 

 

     (v) to effect its first firm commitment underwritten public offering (a
“Public Offering”) of its Common Stock under the Securities Act; then, in connection
with each such event, the Company shall send to the Holder: (1) at least twenty (20)
days prior written notice of the date on which a record shall be taken for such
dividend, distribution, redemption or subscription rights (and specifying the date
on which the holders of Common Stock shall be entitled thereto) or for determining
rights to vote, if any; and (2) at least twenty (20) days prior written notice of
the date when the same shall take place, and the date, if any, to be fixed, on which
the holders of record of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the occurrence of such
event. Notwithstanding the above, the twenty (20) days notice requirement may be
shortened or waived upon the written consent of the Holder.

     (b) Any written notice by the Company required or permitted hereunder shall be
given by hand delivery or first class mail, postage prepaid, addressed to the Holder at the
address shown on the books of the Company for the Holder.

     6. Transfers. Each Holder understands that the Company may, as a condition to the
transfer of any of the Securities, require that the request for transfer be accompanied by an
opinion of counsel reasonably satisfactory to the Company, to the effect that the proposed transfer
does not result in a violation of the Securities Act, unless such transfer is covered by an
effective registration statement or by Rule 144 or Rule 144A under the Securities Act; provided,
however, that no transfer by any Holder to any of its Affiliates shall require an opinion of
counsel; provided, further, that such Affiliate in each case agrees to be subject to the
restrictions in this Section 6. Each certificate evidencing the Shares issued upon exercise of this
Warrant, or transfer of such Shares (other than a transfer registered under the Securities Act or
any subsequent transfer of shares so registered) shall be stamped or imprinted with a legend in
substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS (COLLECTIVELY,
THE “ACTS”), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144
OR RULE 144A OF SUCH ACT. CERTAIN RIGHTS RELEATING TO THIS WARRANT ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
DATED MAY 15, 2008 BY AND AMONG THE HOLDER HEREOF AND OTHER STOCKHOLDERS OF THE
COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY.

 

 

     7. Removal of Legend. The foregoing legends shall be removed by the Company (a)
upon any sale of the Warrant or the Shares in accordance with Rule 144 (or any successor provision
thereof) or pursuant to an effective registration statement, (b) at any time after one year (or
such shorter period specified in Rule 144(d) or any successor provision thereof) from the Date of
Issuance of the Warrant upon certification from the Holder that such Holder is not an affiliate of
the Issuer (as defined for purposes of such Rule 144 or any such successor provision) and that, to
the best of such Holder’s knowledge, the Warrant or the Shares were not acquired for purposes of
Rule 144 from the Issuer or any affiliate of the Issuer within the past one year (or such shorter
period) or (c) upon receipt by the Company from the Holder of such certifications as it may
reasonably request to enable it to determine that such legend is no longer required in order to
satisfy the requirements of the Securities Act.

     8. Fractional Shares. No fractional shares will be issued in connection with any
exercise hereunder. Any fraction of a share resulting from any calculation will be rounded up to
the next whole share.

     9. Representations, Warranties and Covenants of the Company. The Company hereby
represents and warrants to the Holder as follows:

     (a) The execution, delivery and performance by the Company of this Warrant has been
duly and validly authorized by all necessary corporate action on the part of the Company,
this Warrant has been duly executed and delivered by the Company and the Warrant is a valid
and binding obligation of the Company enforceable in accordance with its terms.

     (b) The Shares have been duly authorized and reserved for issuance by the Company
and, when issued in accordance with the terms hereof or conversion of the Shares, as
applicable, will be validly issued, fully paid and nonassessable, and free from all
preemptive rights, rights of first refusal or first offer, taxes, liens and charges of
whatever nature.

     (c) The execution and delivery of this Warrant are not, and the issuance of the
Shares upon exercise of this Warrant in accordance with the terms hereof, and of the shares
of Common Stock issuable upon the conversion of the Shares, will not be, inconsistent with
the Company’s Certificate, its bylaws, as then in effect, or any agreement among the equity
holders of the Company and the Company.

     (d) The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business makes such
qualification necessary. The Company has all requisite legal and corporate power and
authority to carry out its business as presently conducted and as proposed to be conducted
and to enter into and discharge its obligations under this Warrant.

     (e) As of the date of original issuance of this Warrant, this Warrant does not (i)
conflict with, result in any breach of any terms or provisions of or constitute (with or

 

 

without notice or lapse of time or both) a default under, the Certificate or bylaws of
the Company, or any material contract, agreement, indenture, loan agreement, receivables
purchase agreement, mortgage, deed of trust or other agreement or instrument to which the
Company is a party or by which it or any of its properties is bound, (ii) result in the
creation or imposition of any lien, adverse claim or other encumbrance upon any of the
properties of the Company pursuant to the terms of any such contract, agreement, indenture,
loan agreement, receivables purchase agreement, mortgage, deed of trust or other agreement
or instrument, or (iii) violate any law or order, rule or regulation applicable to the
Company of any court or of any federal or state regulatory body, administrative agency, or
other governmental instrumentality having jurisdiction over the Company or any of its
properties.

     (f) As of the Date of Issuance, the number of Shares for which this Warrant is or
may become exercisable represents five percent (5%) of the Common Stock outstanding on the
date hereof after giving effect to the exercise, exchange or conversion of all outstanding
securities, rights, options, warrants (including this Warrant), calls, commitments or
agreements of any nature or character (whether debt or equity) that are, directly or
indirectly, exercisable or exchangeable for, or convertible into or otherwise represent the
right to purchase or otherwise receive, directly or indirectly, any such capital stock or
other arrangement to acquire at any time or under any circumstance, capital stock of the
Company or any such other securities (collectively, “Rights”), and assuming that all stock
options and/or shares of capital stock reserved for grant or issuance to officers,
directors, employees and consultants under all agreements, plans or arrangements theretofore
approved by the Board of Directors of the Company have been so granted or issued (as the
case may be), excluding, however, shares of Common Stock which may be issued in respect of
the regular dividend pursuant to Section 1.2 of the Certificate as in effect on the Date of
Issuance (collectively, the “Fully Diluted Shares”). The authorized capital stock of the
Company on the Date of Issuance consists of:

     (i) As of the date hereof, and after giving effect to the filing of the
Certificate and the consummation of the transactions contemplated to occur on the
date hereof, the authorized capital stock of the Company consists of 2,592,550,586
shares of Common Stock, par value $0.00001 per share, and 1,542,577,050 shares of
preferred stock (“Preferred Stock”), of which 791,738,012 shares are designated
Series A Convertible Preferred Stock, par value $0.00001 per share (“Series A
Preferred Stock”) and 750,839,038 shares will be designated Series B Preferred
Stock. As of the date hereof, and after giving effect to the filing of the
Certificate and the consummation of the transactions contemplated to occur on the
date hereof, there are outstanding 749,995,554 shares of Series A Preferred Stock,
750,839,038 shares of Series B Preferred Stock and 162,245,335 shares of Common
Stock. The Company has no other shares of capital stock authorized, issued or
outstanding. A capitalization table presenting the capitalization of the Company
after giving effect to the filing of the Certificate of Incorporation and the
consummation of the transactions contemplated to occur on the date hereof is set
forth on Schedule 9(f) hereto; and

 

 

     (ii) As of the date hereof, after giving effect to the transactions
contemplated hereby, (i) other than (A) outstanding warrants exercisable for
261,054,348 shares of Common Stock, (B) outstanding warrants exercisable for
41,742,458 shares of Series A Preferred Stock and (C) outstanding options to
purchase 33,866,783 shares of Common Stock and, except as set forth in Schedule 9(0,
there are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock of
the Company, or arrangements by which the Company is or may become bound to issue
additional shares of capital stock, nor are any such issuances or arrangements
contemplated other than pursuant to the Company’s stock option plan in existence on
the date hereof, the details of which are set forth on Schedule 9(f) hereto; (ii)
there are no agreements or arrangements under which the Company is or may become
obligated to register the sale of any of its securities under the Securities Act;
(iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to pay
any dividend or make any distribution in respect thereof, except as required by the
Certificate; and (iv) except for 8,402,959 shares of Common Stock reserved for
issuance under the Company’s 2003 and 2005 Option Plans and 152,312,347 additional
supplemental shares of Common Stock reserved for issuance under these or other
incentive plans, the Company has not reserved any shares of capital stock for
issuance pursuant to any stock option plan or similar arrangement.

     (g) The issuance of this Warrant and any Shares shall not require or result in the
issuance of any capital stock of the Company (other than the Shares) pursuant to the
Certificate or bylaws of the Company, or any contract, agreement, indenture, loan agreement,
receivables purchase agreement, mortgage, deed of trust or other agreement or instrument to
which the Company is a party or by which it or any of its properties is bound.

     (h) The representations and warranties contained in Sections 3.07 and 3.09 through
3.18 of the Servicing Agreement, dated as of the Date of Issuance, by and among the Company,
Fingerhut Receivables I, LLC, Goldman Sachs Specialty Lending Group, L.P. and Fortress
Credit Corp. are true and correct.

     (i) The Company is in compliance, and has been in compliance, in all material
respects with all statutes, laws, ordinances, rules or regulations of any domestic or
foreign governmental authority (“Laws”) and judgments, orders, injunction (temporary or
permanent), decrees, rulings or awards of any domestic or foreign court, arbitrator or other
judicial authority or any domestic or foreign governmental authority (“Judgments”), if and
to the extent that any such Laws or Judgments are applicable to the Company or by which any
property or asset of the Company is bound. The Company possesses all material permits,
certificates, licenses, franchises, privileges, approvals, registrations, consents, waivers
or authorizations (“Permits”) required to conduct its business as

 

 

currently conducted and is in compliance with the terms of all such Permits. All such
Permits are in full force and effect.

     (j) The Company has delivered to Holder’s counsel true and complete copies of (i)
the Certificate, (ii) the Company’s by-laws, (iii) each warrant the Company has issued, and
(iv) each stockholders’ agreement the Company has entered into, in each case as amended
through the Date of Issuance. Except as set forth in Schedule 9 hereto or in the
Certificate, there are no options, warrants, puts, calls, rights, convertible or exchange
securities, commitments, contracts, agreements, understandings, arrangements or undertakings
of any kind to which the Company is a party or by which it is bound (A) obligating the
Company to issue, deliver, transfer or sell, or cause to be issued, delivered, transferred
or sold, additional shares of capital stock or any other security of (including any security
convertible into or exercisable for or exchangeable into any capital stock or other security
of) the Company (whether or not such security has voting rights), (B) obligating the Company
to issue, grant, extend or enter into any such option, warrant, call, right, security,
commitment, contract, agreement, understanding, arrangement or undertaking, or (C) otherwise
relating to the Company’s capital stock (including, without limitation, any rights of
holders thereof).

10. Covenants of the Company.

a. Put Right.

     (i) From and after the earliest of five years from the date hereof and the
date a redemption notice is delivered in respect of any capital stock of the
Company, the date upon which a Change of Control Transaction occurs, upon receipt of
a written notice from the Holder (a “Put Notice”), within 30 days of the receipt of
such notice, the Company shall purchase or redeem from the Holder the portion of the
Warrant related to the number of Shares set forth in the Put Notice, or if converted
the number of Shares set forth in the Put Notice, in each case for a purchase price
equal to the Fair Market Value of each Share; provided that the Company will not be
obligated to redeem any Warrant in whole or in part to the extent such redemption
would result in a default under any indebtedness of the Company, unless such default
is waived or any acceleration of such indebtedness is rescinded and cancelled.

     (ii) In connection with the closing of a sale of Shares pursuant to this
Section 10(a), the Holder shall deliver either this Warrant (which shall be reissued
taking into effect the repurchase or redemption of the portion of the Warrant
related to the number of Shares to be sold) or the certificate(s) representing the
Shares to be purchased by the Company duly endorsed by the Holder in favor of the
Company, in each case against payment by the Company to the Holder in immediately
available funds the purchase price to be paid in exchange for such Shares and such
Shares shall be transferred free and clear of any liens or other encumbrances, other
than encumbrances created pursuant to this Agreement or the Company’s organizational
documents.

 

 

     (iii) A “Change of Control Transaction” means:

	 	1.	 	prior to an initial public offering by the
Company, (i) Bain Capital Venture Fund, L.P., BCIP Associates III, LLC,
BCIP Associates LLC and Brookside Capital Partners Fund, L.P.
(collectively, “Bain”), and Battery Venture VI, L.P. and Battery
Investment Partners VI, LLC, (collectively, “Battery”) together with
any of their respective Affiliates shall cease to beneficially own and
control in the aggregate at least 42,5% on a fully diluted basis of the
economic and voting interests in the capital stock of the Company, (ii)
Bain, Battery and any of their Affiliates shall cease to beneficially
own and control in the aggregate at least 66 2/3% of the Series B
Preferred Stock of the Company (or other series of Capital Stock senior
to or pari passu with the Series B Preferred Stock with voting rights
substantially similar to the voting rights of holders of the Series B
Preferred Stock) or (iii) any Person or “group” (within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act) other than Bain, Battery
and any of their Affiliates (a) shall have acquired beneficial
ownership of 20% or more on a fully diluted basis of the voting and/or
economic interest in the capital stock of the Company or (b) shall have
obtained the power (whether or not exercised) to elect a majority of
the members of the board of directors (or similar governing body) of
the Company; provided, however, that, with respect to clause (iii)(a),
(y) an increase in the beneficial ownership by Petters Group Worldwide
LLC and its Affiliates (collectively, the “Petters Group”) of the
voting and/or economic interest in the capital stock of the Company to
more than 20% on a fully diluted basis through the issuance of
dividends shall not constitute a “Change of Control” hereunder and (z)
the acquisition by any Person of 20% or more, on a fully diluted basis,
of the voting and/or economic interests in the capital stock of the
Company solely as a result of transfers of such capital stock by the
Petters Group shall not constitute a “Change of Control” hereunder;

	 	2.	 	following an initial public offering by the
Company, (i) Bain, Battery and any of their Affiliates shall cease to
beneficially own and control in the aggregate at least 30% on a fully
diluted basis of the economic and voting interests in the capital stock
of the Company or (ii) any Person or “group” (within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act) other than Bain, Battery
and any of their Affiliates (a) shall have acquired beneficial
ownership of 20% or more on a fully diluted basis of the voting and/or
economic interest in the capital stock of the Company or (b) shall have
obtained the power (whether or not

 

 

	 	 	 	exercised) to elect a majority of the members of the board of directors (or similar
governing body) of the Company;

	 	3.	 	in connection with an initial public
offering by the Company, any of Bain, Battery or their respective
Affiliates sell more than 25% of the capital stock owned by it
immediately prior to the consummation of such initial public offering
(after giving effect to any conversion of preferred stock) in the
initial public offering.

     11. Rights of Stockholders. Except as may be otherwise provided in this Warrant,
the Certificate or any other agreement to which the Company and any Holder may be a party,
including, without limitation, the Investors Rights Agreement, no Holder, as such, shall be
entitled to vote or receive dividends or be deemed the holder of the Shares or any other securities
of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or upon any corporate
action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of
par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become issuable, as provided herein.

     12. Information Required By Rule 144A. The Company will, upon the request of the
Holder or of any shares of Common Stock issued upon the exercise of this Warrant, provide such
Holder, and any qualified institutional buyer designated by such Holder, such financial and other
information with the information requirements of Rule 144A under the Act in connection with the
resale of the Warrants or such shares of Common Stock, except at such times as the company is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. For purposes of
this Section 12, the term “qualified institutional buyer” shall have the meaning specified in Rule
144A under the Securities Act.

     13. Expiration of Warrant. This Warrant shall expire and shall no longer be
exercisable as of 5:00 p.m., Eastern Time, on May 15, 2018.

     14. Investor Rights Agreement. The Holder of this Warrant, by acceptance hereof,
agrees to become a party to the Investor Rights Agreement.

     15. Miscellaneous.

     (a) This Warrant shall be governed by and construed for all purposes under and in
accordance with the laws of the State of New York.

     (b) The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof.

 

 

     (c) The representations, warranties, covenants and conditions of the respective
parties contained herein or made pursuant to this Warrant shall survive the execution and
delivery of this

     (d) The terms of this Warrant shall be binding upon and shall inure to the benefit
of any successors or assigns of the Company and of the Holder or holders hereof and of the
Shares issued or issuable upon the exercise hereof. The rights of Holder hereunder shall be
assignable, in whole or in part, without the consent of the Company.

     (e) This Warrant, together with all exhibits hereto, constitutes the full and
entire understanding and agreement between the parties with regard to the subjects hereof
and thereof.

     (f) The Company shall not, by amendment of its Certificate or bylaws (by merger or
otherwise), or through any other means, directly or indirectly, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant and shall at all times in good
faith assist in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder against
impairment.

     (g) Upon the surrender of this Warrant, properly endorsed, for registration of
transfer assignment or for exchange at the principal office of the Company, the Company at
its expense will execute and deliver to or upon the order of the Holder a new Warrant or
Warrants identical to this Warrant, in the name of such Holder or as such Holder may direct,
calling in the aggregate on the face or faces thereof for the number of shares of Series B
Preferred Stock called for on the face or faces of the Warrant so surrendered. Upon receipt
of evidence reasonably satisfactory to the Company of the loss, theft, sale, transfer,
destruction or mutilation of this Warrant and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company, at its expense, will execute and deliver to the
Holder, in lieu thereof, a new Warrant of like date and in identical form. Any such new
Warrant shall constitute an original contractual obligation of the Company, whether or not
the allegedly lost, stolen or destroyed Warrant shall be at any time enforceable by anyone.

     (h) This Warrant and any provision hereof may be amended, waived or terminated only
by an instrument in writing signed by the Company and the Holder.

     (i) If any action at law or equity is necessary to enforce or interpret the terms
of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs
and disbursements in addition to any other relief to which it may be entitled.

     (j) Each of the Company and the Holder hereby irrevocably submits to the
jurisdiction of any New York State or Federal court sitting in New York City in any action
or proceeding arising out of or relating to this Warrant, and each of the Company

 

 

and the Holder hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State court or in such Federal
court. Each of the Company and the Holder hereby irrevocably waives, to the fullest extent
permitted under applicable law, the defense of an inconvenient forum to the maintenance of
such action or proceeding. Each of the Company and the Holder hereby agrees, to the fullest
extent permitted under applicable law, that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE COMPANY HEREBY AGREES THAT PROCESS MAY
BE SERVED ON IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ON CT Corporation System, Att:
Service of Process Dept., 111 Eighth Avenue, New York, NY 10011, AND HEREBY APPOINTS CT
Corporation System, AS ITS AGENT TO RECEIVE SUCH SERVICE OF PROCESS. ANY AND ALL SERVICE OF
PROCESS AND ANY OTHER NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE
AGAINST THE COMPANY IF GIVEN BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR
BY ANY OTHER MEANS OR MAIL WHICH REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID, MAILED AS
PROVIDED ABOVE. IN THE EVENT CT CORPORATION SYSTEM SHALL NOT BE ABLE TO ACCEPT SERVICE OF
PROCESS AS AFORESAID AND IF THE COMPANY SHALL NOT MAINTAIN AN OFFICE IN NEW YORK CITY, THE
COMPANY SHALL PROMPTLY APPOINT AND MAINTAIN AN AGENT QUALIFIED TO ACT AS AN AGENT FOR
SERVICE OF PROCESS WITH RESPECT TO THE COURTS SPECIFIED IN THIS SECTION ABOVE, AS THE
COMPANY’S AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON THE COMPANY’S BEHALF SERVICE OF ANY
AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION, SUIT OR PROCEEDING.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized
officer.

	 	 	 	 	 
	 	FINGERHUT DIRECT MARKETING, INC.

 	 
	 	By:  	/s/ Linda R.Witte
 	 
	 	 	Name:  	Linda R. Witte 	 
	 	 	Title:  	Senior Vice President 	 

 

 

	 	 	 	 	 

EXHIBIT A

NOTICE OF EXERCISE

TO: Fingerhut Direct Marketing, Inc.

         Attention: President

     1. The undersigned hereby elects to purchase ______________
(leave blank if you choose
Alternative No. 2 below) shares of Series B Preferred Stock of Fingerhut Direct Marketing, Inc.
(the “Company”) pursuant to the terms of the Series B Preferred Stock Purchase Warrant dated as of
May  , 2008, issued by the Company (the “Warrant”), and tenders herewith payment of the purchase
price of such shares in full. (Initial here if the undersigned elects this alternative).

     2. In lieu of exercising the Warrant for cash or check, the undersigned hereby elects to
effect the net issuance provision of Section 2(b) of the Warrant and receive ________________
(leave blank if you choose Alternative No. 1 above) shares of Series B Preferred Stock of the
Company pursuant to the terms of the Warrant. (Initial here if the undersigned elects this
alternative). ___________

     3. Please issue a certificate or certificates representing said shares of Series B
Preferred Stock in the name of the undersigned or in such other name as is specified below:

 

(Name)

 

 

(Address)

	 	 	 	 	 
	 	
 	 
	 	(Signature and Date) 	 
	 	 	 
	 

 

 

BLUESTEM BRANDS, INC.

AMENDMENT NO. 1

TO

COMMON STOCK PURCHASE WARRANT

     This Amendment No. 1 to Common Stock Purchase Warrant, dated as of March 29, 2011 (this
“Amendment”), amends that certain Common Stock Purchase Warrant with a date of issuance of
May 15, 2008 (the “Warrant”), issued by Bluestem Brands, Inc. (f/k/a Fingerhut Direct
Marketing, Inc.), a Delaware corporation (the “Company”), to Goldman, Sachs & Co. (the
“Holder”), to purchase 86,804,150 shares of the Company’s Common Stock, par value $0.00001
per share (“Common Stock”), at the per share exercise price of $0.01.

     WHEREAS, the Company is contemplating a possible initial public offering of its common stock
(“IPO”), and in contemplation thereof the Company and the Holder desire to amend certain provisions
of the Warrant for the purpose of better positioning the Company for a successful IPO, it being
acknowledged by the parties hereto that such amendments are in the best interests of both the
Company and the Holder, as an equity investor in the Company.

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

     1. Defined Terms. Capitalized terms used but not defined herein will have the
meanings given to them in the Warrant.

     2. Amendments.

     a) Section 2(c)(i) of the Warrant is hereby amended and restated in its entirety to
read as follows:

     “(i) the average per share closing price of the Common Stock on the New York
Stock Exchange, NASDAQ National Market, or other national securities exchange on
which such shares are listed, whichever is applicable, as reported in a reputable
quotation source designated by the Company or a newspaper of general circulation in
the Borough of Manhattan, City of New York, customarily published on each Business
Day, designated by the Company, for the ten (10) consecutive trading days
immediately prior to the date of determination of Fair Market Value (or, if no sales
take place on any such trading day, the average of the closing bid and asked prices
on such trading day); or”

     b) Section 4(g) of the Warrant is hereby amended and restated in its entirety to read
as follows:

     “(g) Notice of Adjustments. Upon any adjustment of the Exercise Price
and any increase or decrease in the number of Shares of Common Stock issuable upon
exercise of this Warrant, then, and in each such case, the Company, within thirty
(30) days thereafter, shall give written notice thereof to the Holder at the address
of such Holder as shown on the books of the Company which notice shall state (i) the
reason for such adjustment and (ii) the Exercise Price and the number

 

 

of Shares of Common Stock issuable upon exercise of this Warrant, in each case as
adjusted and setting forth in reasonable detail the method of calculation of each.
For avoidance of doubt, the effective date of each such adjustment shall be the
effective date of the applicable event described in this Section 4.”

     c) Section 10(a) of the Warrant is hereby amended and restated in its entirety to read
as follows:

     “(a) Put Right.

	 	(i)	 	From and after the earliest of five years from the date hereof
and the date a redemption notice is delivered in respect of any capital stock
of the Company, the date upon which a Change of Control Transaction occurs,
upon receipt of a written notice from the Holder (a “Put Notice”), within 30
days of the receipt of such notice, the Company shall purchase or redeem from
the Holder the portion of the Warrant related to the number of Shares set forth
in the Put Notice, or if converted the number of Shares set forth in the Put
Notice, in each case for a purchase price equal to the Fair Market Value of
each Share; provided that the Company will not be obligated to redeem any
Warrant in whole or in part to the extent such redemption would result in a
default under any indebtedness of the Company, unless such default is waived or
any acceleration of such indebtedness is rescinded and cancelled.
	 
	 	(ii)	 	In connection with the closing of a sale of Shares pursuant to
this Section 10(a), the Holder shall deliver either this Warrant (which shall
be reissued taking into effect the repurchase or redemption of the portion of
the Warrant related to the number of Shares to be sold) or the certificate(s)
representing the Shares to be purchased by the Company duly endorsed by the
Holder in favor of the Company, in each case against payment by the Company to
the Holder in immediately available funds the purchase price to be paid in
exchange for such Shares and such Shares shall be transferred free and clear of
any liens or other encumbrances, other than encumbrances created pursuant to
this Agreement or the Company’s organizational documents.
	 
	 	(iii)	 	A “Change of Control Transaction” shall be deemed to
have occurred if, prior to (but not in connection with) an Initial Public
Offering by the Company,

	 	(1)	 	Bain Capital Venture Fund, L.P., Bain Capital
Venture Fund 2001, L.P., Bain Capital Venture Fund 2007, L.P., BCIP
Associates LLC, BCIP Associates III, LLC, BCIP Associates III-B, LLC,
BCIP Venture Associates, BCIP Venture Associates B, Bain Capital
Venture Investors, LLC , Brookside Capital Partners Fund, L.P.,
Brookside Capital Investors, L.P, and Brookside Capital Management, LLC
(collectively, “Bain”), and Battery Ventures, Battery Investment
Partners VI, Battery Ventures VI,

2

 

	 	 	 	Battery Ventures VI, L.P. and Battery Investment Partners VI, LLC,
(collectively, “Battery”) together with any of their respective
Affiliates shall cease to beneficially own and control in the
aggregate at least 42.5% on a fully diluted basis of the economic and
voting interests in the capital stock of the Company,
	 
	 	(2)	 	Bain, Battery and any of their Affiliates shall
cease to beneficially own and control in the aggregate at least 66 2/3%
of the Series B Preferred Stock of the Company (or other series of
Capital Stock senior to or pari passu with the Series B Preferred Stock
with voting rights substantially similar to the voting rights of
holders of the Series B Preferred Stock) or
	 
	 	(3)	 	any Person or “group” (within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act) other than Bain, Battery
and any of their Affiliates (a) shall have acquired beneficial
ownership of 20% or more on a fully diluted basis of the voting and/or
economic interest in the capital stock of the Company or (b) shall have
obtained the power (whether or not exercised) to elect a majority of
the members of the board of directors (or similar governing body) of
the Company; provided, however, that, with respect to clause
(3)(a), (y) an increase in the beneficial ownership by Petters Group
Worldwide LLC and its Affiliates (collectively, the “Petters
Group”) of the voting and/or economic interest in the capital stock
of the Company to more than 20% on a fully diluted basis through the
issuance of dividends shall not constitute a “Change of Control
Transaction” hereunder and (z) the acquisition by any Person of 20%
or more, on a fully diluted basis, of the voting and/or economic
interests in the capital stock of the Company solely as a result of
transfers of such capital stock by the Petters Group shall not
constitute a “Change of Control Transaction” hereunder.

	 	(iv)	 	Upon an Initial Public Offering, this Section 10(a) shall
terminate, and the Company shall thereafter have no obligation hereunder to
purchase or redeem all or any portion of the Warrant or Shares.
	 
	 	(v)	 	“Initial Public Offering” means the closing of the
Company’s first firm commitment underwritten public offering of its common
stock under the Securities Act of 1933, as amended.”

     3. All Other Terms Unchanged. Except as expressly provided in this Amendment, all of
the provisions, terms and conditions of the Warrants remain in full force and effect.

     4. Conflicting Provisions. Should any of the provisions of this Amendment conflict
with any of the provisions of the Warrants, then the provisions of this Amendment shall apply.

3

 

     5. Counterparts. This Amendment may be executed in one or more counterparts, any one
of which need not contain the signatures of more than one party, but all such counterparts taken
together will constitute one and the same instrument.

[Signature page follows.]

4

 

     IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to Common Stock
Purchase Warrant to be signed by its duly authorized officer, effective as of the date first
written above.

	 	 	 	 	 	 	 	 	 

	 	 	BLUESTEM BRANDS, INC.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Mark P. Wagener
	 	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	GOLDMAN, SACHS & CO.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Jason P. Gelberd
	 	 	 	 	 	 	 
	 	 	Name:	Jason P. Gelberd
	 	 	Title:	Authorized Signatory

5exv10w1

Exhibit 10.1

FINGERHUT DIRECT MARKETING, INC.

2003 EQUITY INCENTIVE PLAN

SECTION 1.

DEFINITIONS

     As used herein, the following terms shall have the meanings indicated below:

     a) “Affiliate” shall mean a Parent or Subsidiary of the Company.

     b) “Committee” shall mean a Committee of two or more directors who shall be
appointed by and serve at the pleasure of the Board. If the Company’s securities are
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, then,
to the extent necessary for compliance with Rule 16b-3, or any successor provision, each of
the members of the Committee shall be a “non-employee director.” Solely for purposes of this
Section 1(a), “non-employee director” shall have the same meaning as set forth in Rule
16b-3, or any successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.

     c) The “Company” shall mean Fingerhut Direct Marketing, Inc., a Delaware
corporation.

     d) “Fair Market Value” as of any date shall mean (i) if such stock is listed on the
Nasdaq National Market, Nasdaq SmallCap Market, or an established stock exchange, the price
of such stock at the close of the regular trading session of such market or exchange on such
date, as reported by The Wall Street Journal or a comparable reporting service, or, if no
sale of such stock shall have occurred on such date, on the next preceding day on which
there was a sale of stock; (ii) if such stock is not so listed on the Nasdaq National
Market, Nasdaq SmallCap Market, or an established stock exchange, the average of the closing
“bid” and “asked” prices quoted by the OTC Bulletin Board, the National Quotation Bureau, or
any comparable reporting service on such date or, if there are no quoted “bid” and “asked”
prices on such date, on the next preceding date for which there are such quotes; or (iii) if
such stock is not publicly traded as of such date, the per share value as determined by the
Board, or the Committee, in its sole discretion by applying principles of valuation with
respect to the Company’s Common Stock.

     e) The “Internal Revenue Code” is the Internal Revenue Code of 1986, as amended
from time to time.

     f) The “Participant” means (i) an employee of the Company or any Affiliate to whom
an incentive stock option has been granted pursuant to Section 9, (ii) a consultant or
advisor to or director, employee or officer of the Company or any Affiliate to whom a
nonqualified stock option has been granted pursuant to Section 10, or (iii) a consultant or
advisor to, or director, employee or officer of the Company or any Affiliate to whom a
Restricted Stock or Restricted Stock Unit award has been granted pursuant to Section 11.

 

 

     g) “Parent” shall mean any corporation which owns, directly or indirectly in an
unbroken chain, fifty percent (50%) or more of the total voting power of the Company’s
outstanding stock.

     h) The “Plan” means the Fingerhut Direct Marketing, Inc. 2003 Equity Incentive
Plan, as amended hereafter from time to time, including the form of Option and Award
Agreements as they may be modified by the Board from time to time.

     i) “Restricted Stock” means shares of Common Stock granted pursuant to Section 11.

     j) “Restricted Stock Units” means units issued pursuant to Section 11 which
evidence the right to receive shares of Common Stock at some future date or occurrence of
some event in the future.

     k) “Stock” shall mean Common Stock of the Company (subject to adjustment as
described in Section 12) reserved for incentive and nonqualified stock options, Restricted
Stock awards and Restricted Stock Unit awards pursuant to this Plan.

     l) A “Subsidiary” shall mean any corporation of which fifty percent (50%) or more
of the total voting power of outstanding stock is owned, directly or indirectly in an
unbroken chain, by the Company.

SECTION 2.

PURPOSE

     The Plan has been established to promote the interests of the Company, its Affiliates and its
stockholders by (i) attracting and retaining exceptional employees, consultants and directors; (ii)
motivating such employees, consultants and directors by means of performance-related incentives to
achieve long-range performance goals; and (iii) enabling such employees, consultants and directors
to participate in the long-term growth and financial success of the Company.

     It is the intention of the Company to carry out the Plan through the granting of stock options
which will qualify as “incentive stock options” under the provisions of Section 422 of the Internal
Revenue Code, or any successor provision, pursuant to Section 9 of this Plan, through the granting
of nonqualified stock options pursuant to Section 10 of this Plan, and through the granting of
Restricted Stock or Restricted Stock Unit awards pursuant to Section 11 of this Plan. Adoption of
this Plan shall be and is expressly subject to the condition of approval by the shareholders of the
Company within 12 months before or after the adoption of the Plan by the Board of Directors. Any
incentive stock options granted after adoption of the Plan by the Board of Directors shall be
treated as nonqualified stock options if shareholder approval is not obtained within such 12-month
period.

 

 

SECTION 3.

EFFECTIVE DATE OF PLAN

     The Plan shall be effective as of the date of adoption by the Board of Directors, subject to
approval by the shareholders of the Company as required in Section 2.

SECTION 4.

ADMINISTRATION

     The Plan shall be administered by the Board of Directors of the Company (hereinafter referred
to as the “Board”) or by a Committee which may be appointed by the Board from time to time or by
one or more officers or agents designated by the Board or Committee (collectively referred to as
the “Administrator”). The Administrator shall have all of the powers vested in it under the
provisions of the Plan, including but not limited to exclusive authority (where applicable and
within the limitations described in the Plan) to determine, in its sole discretion, whether an
incentive stock option, nonqualified stock option or Restricted Stock or Restricted Stock Unit
award shall be granted, the individuals to whom, and the time or times at which, options and awards
shall be granted, the number of shares subject to each option or award, the option price, and terms
and conditions of each option or award. The Administrator shall have full power and authority to
administer and interpret the Plan, to make and amend rules, regulations and guidelines for
administering the Plan, to prescribe the form and conditions of the respective stock option and
Restricted Stock or Restricted Stock Unit award agreements (which may vary from Participant to
Participant) evidencing each option or award and to make all other determinations necessary or
advisable for the administration of the Plan. The Administrator’s interpretation of the Plan, and
all actions taken and determinations made by the Administrator pursuant to the power vested in it
hereunder, shall be conclusive and binding on all parties concerned.

     No member of the Board or the Committee shall be liable for any action taken or determination
made in good faith in connection with the administration of the Plan In the event the Board
appoints a Committee as provided hereunder, any action of the Committee with respect to the
administration of the Plan shall be taken pursuant to a majority vote of the Committee members or
pursuant to the written resolution of all Committee members.

SECTION 5.

PARTICIPANTS

     The Administrator shall from time to time, at its discretion and without approval of the
shareholders, designate those employees of the Company or any Affiliate to whom incentive stock
options shall be granted pursuant to Section 9 of the Plan; those employees, officers, directors,
consultants and advisors of the Company or of any Affiliate to whom nonqualified stock options
shall be granted pursuant to Section 10 of the Plan; and those employees, officers, directors,
consultants and advisors of the Company or any Affiliate to whom Restricted Stock or Restricted
Stock Unit awards shall be granted pursuant to Section 11 of the Plan; provided, however, that
consultants or advisors shall not be eligible to receive stock options or Restricted Stock or
Restricted Stock Unit awards hereunder unless such consultant or advisor renders bona fide services
to the company or Affiliate and such services are not in connection with the offer or

 

 

sale of securities in a capital raising transaction and do not directly or indirectly promote or
maintain a market for the Company’s securities. The Administrator may grant additional
incentive stock options, nonqualified stock options and Restricted Stock or Restricted Stock Unit
awards under this Plan to some or all Participants then holding options or awards or may grant
options and awards solely or partially to new Participants. In designating Participants, the
Administrator shall also determine the number of shares to be optioned or awarded to each such
Participant. The Board may from time to time designate individuals as being ineligible to
participate in the Plan

SECTION 6.

STOCK

     The Stock to be optioned or awarded under this Plan shall consist of authorized but unissued
shares of Stock. Eleven Million Nine Hundred Fifty Thousand (11,950,000) shares of Stock shall be
reserved and available for stock options and Restricted Stock or Restricted Stock Unit awards under
the Plan; provided, however, that the total number of shares of Stock reserved for options and
Restricted Stock or Restricted Stock Unit awards under this Plan shall be subject to adjustment as
provided in Section 12 of the Plan. If (i) any portion of an outstanding stock option or Restricted
Stock or Restricted Stock Unit award under the Plan for any reason expires, (ii) any portion of an
outstanding stock option is terminated prior to the exercise of such option, or (iii) any portion
of a Restricted Stock or Restricted Stock Unit award is terminated prior to the lapsing of any
risks of forfeiture or vesting on such stock or Units, the shares of Stock allocable to such
portion of the option or award shall continue to be reserved for stock options and Restricted Stock
or Restricted Stock Unit awards under the Plan and may be optioned or awarded hereunder.

SECTION 7.

DURATION OF PLAN

     Incentive stock options may be granted pursuant to the Plan from time to time during a period
of ten (10) years from the effective date as defined in Section 3. Nonqualified stock options and
Restricted Stock or Restricted Stock Unit awards may be granted pursuant to the Plan from time to
time after the effective date of the Plan and until the Plan is discontinued or terminated by the
Board. Any incentive stock option granted during such ten-year period and any nonqualified stock
option or Restricted Stock or Restricted Stock Unit award granted prior to the termination of the
Plan by the Board shall remain in full force and effect until the expiration of the option or award
as specified in the written stock option or Restricted Stock or Restricted Stock Unit award
agreement and shall remain subject to the terms and conditions of this Plan.

SECTION 8.

PAYMENT

     Participants may pay for shares upon exercise of stock options granted pursuant to this Plan
with (i) cash, (ii) personal check, (iii) certified check, (iv) mature, previously-owned shares of
the Company’s Common Stock valued at such Stock’s then Fair Market Value, (v) broker-assisted
exercise, or (vi) such other form of payment as may be authorized by the Administrator;

 

 

provided, however, that Optionee shall not be permitted to pay the option price in the form of a
broker-assisted exercise or in the form of mature, previously-acquired shares of Common Stock
until after the effective date of an initial public offering of the Company’s Common Stock; and
provided, further, that Optionee shall not be permitted to pay the option price in the form of a
broker-assisted exercise or in the form of mature, previously-acquired shares of Common Stock if
payment in such form will cause the Company to recognize a compensation expense under generally
accepted accounting principles. The Administrator may, in its sole discretion, limit the forms of
payment available to the Participant and may exercise such discretion any time prior to the
termination of the option granted to the Participant or upon any exercise of the option by the
Participant.

     For purposes of this Section 8, “mature, previously-acquired shares of Common Stock” shall
include shares of Common Stock that were acquired by the Participant through an open-market
purchase, or have been owned by the Participant for a minimum of six months at the time of exercise
or for such other period of time as may be required by generally accepted accounting principles.
“Broker-assisted exercise” means a written notice pursuant to which the Participant, upon exercise
of a stock option, irrevocably instructs a broker or dealer to sell a sufficient number of shares
or loan a sufficient amount of money to pay all or a portion of the exercise price of such option
and/or any related withholding tax obligations and to remit such sums to the Company, and directs
the Company to deliver stock certificates to be issued upon such exercise directly to such broker
or dealer.

     With respect to payment in the form of Common Stock of the Company, the Administrator may
require advance approval or adopt such rules as it deems necessary to assure compliance with Rule
16b-3, or any successor provision, as then in effect, of the General Rules and Regulations under
the Securities Exchange Act of 1934, if applicable.

SECTION 9.

TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS

     Each incentive stock option granted pursuant to this Section 9 shall be evidenced by a written
stock option agreement (the “Option Agreement”). The Option Agreement shall be in such form as may
be approved from time to time by the Administrator and may vary from Participant to Participant;
provided, however, that each Participant and each Option Agreement shall comply with and be subject
to the following terms and conditions:

     a) Number of Shares and Option Price. The Option Agreement shall state the
total number of shares covered by the incentive stock option. To the extent required to
qualify the Option as an incentive stock option under Section 422 of the Internal Revenue
Code, or any successor provision, the option price per share shall not be less than one
hundred percent (100%) of the Fair Market Value of the Common Stock per share on the date
the Administrator grants the option; provided, however, that if a Participant owns stock
possessing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, the option price per share of an
incentive stock option granted to such Participant shall not be less than one hundred ten
percent (110%) of the Fair Market Value of the Common Stock per share on

 

 

the date of the grant of the option. The Administrator shall have full authority and
discretion in establishing the option price and shall be fully protected in so doing.

     b) Term and Exercisability of Incentive Stock Option. The term during which
any incentive stock option granted under the Plan may be exercised shall be established in
each case by the Administrator. To the extent required to qualify the Option as an incentive
stock option under Section 422 of the Internal Revenue Code, or any successor provision, in
no event shall any incentive stock option be exercisable during a term of more than 10 years
after the date on which it is granted; provided, however, that if a Participant owns stock
possessing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its Parent or any Subsidiary, the incentive stock option granted
to such Participant shall be exercisable during a term of not more than five years after the
date on which it is granted.

     The Option Agreement shall state when the incentive stock option becomes exercisable
and shall also state the maximum term during which the option may be exercised. In the event
an incentive stock option is exercisable immediately, the manner of exercise of the option
in the event it is not exercised in full immediately shall be specified in the Option
Agreement. The Administrator may accelerate the exercisability of any incentive stock option
granted hereunder which is not immediately exercisable as of the date of grant.

     c) Nontransferability. No incentive stock option shall be transferable, in
whole or in part, by the Participant other than by will or by the laws of descent and
distribution. During the Participant’s lifetime, the incentive stock option may be exercised
only by the Participant. If the Participant shall attempt any transfer of any incentive
stock option granted under the Plan during the Participant’s lifetime, such transfer shall
be void and the incentive stock option, to the extent not fully exercised, shall terminate.

     d) No Rights as Shareholder. A Participant (or the Participant’s successor
or successors) shall have no rights as a shareholder with respect to any shares covered by
an incentive stock option until the date of the issuance of a stock certificate evidencing
such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property), distributions or other rights for which the record
date is prior to the date such stock certificate is actually issued (except as otherwise
provided in Section 12 of the Plan).

     e) Withholding. The Company or its Affiliate shall be entitled to withhold
and deduct from future wages of the Participant all legally required amounts necessary to
satisfy any and all withholding and employment-related taxes attributable to the
Participant’s exercise of an incentive stock option or a “disqualifying disposition” of
shares acquired through the exercise of an incentive stock option as defined in Code Section
421(b). In the event the Participant is required under the Option Agreement to pay the
Company, or make arrangements satisfactory to the Company respecting payment of, such
withholding and employment-related taxes, the Board may, in its discretion and pursuant to
such rules as it may adopt, permit the Participant to satisfy such obligation, in

 

 

whole or in part, by electing to have the Company withhold shares of Common Stock
otherwise issuable to the Participant as a result of the option’s exercise having a Fair
Market Value equal to the minimum required tax withholding, based on the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes, that are
applicable to the supplemental income resulting from the option. In no event may the Company
or any Affiliate withhold shares having a Fair Market Value in excess of such statutory
minimum required tax withholding. The Participant’s election to have shares withheld for
this purpose shall be made on or before the date the option is exercised or, if later, the
date that the amount of tax to be withheld is determined under applicable tax law. Such
election shall be approved by the Board and otherwise comply with such rules as the Board
may adopt to assure compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, if
applicable.

     f) Other Provisions. The Option Agreement authorized under this Section 9
shall contain such other provisions as the Administrator shall deem advisable. Any such
Option Agreement shall contain such limitations and restrictions upon the exercise of the
option as shall be necessary to ensure that such option will be considered an “incentive
stock option” as defined in Section 422 of the Internal Revenue Code or to conform to any
change therein.

SECTION 10.

TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS

     Each nonqualified stock option granted pursuant to this Section 10 shall be evidenced by a
written Option Agreement. The Option Agreement shall be in such form as may be approved from time
to time by the Administrator and may vary from Participant to Participant; provided, however, that
each Participant and each Option Agreement shall comply with and be subject to the following terms
and conditions:

     a) Number of Shares and Option Price. The Option Agreement shall state the
total number of shares covered by the nonqualified stock option. Unless otherwise determined
by the Administrator, the option price per share shall be one hundred percent (100%) of the
Fair Market Value of the Common Stock per share on the date the Administrator grants the
option.

     b) Term and Exercisability of Nonqualified Stock Option. The term during
which any nonqualified stock option granted under the Plan may be exercised shall be
established in each case by the Administrator. The Option Agreement shall state when the
nonqualified stock option becomes exercisable and shall also state the maximum term during
which the option may be exercised. In the event a nonqualified stock option is exercisable
immediately, the manner of exercise of the option in the event it is not exercised in full
immediately shall be specified in the Option Agreement. The Administrator may accelerate the
exercisability of any nonqualified stock option granted hereunder which is not immediately
exercisable as of the date of grant.

 

 

     c) Withholding. The Company or its Affiliate shall be entitled to withhold
and deduct from future wages of the Participant all legally required amounts necessary to
satisfy any and all withholding and employment-related taxes attributable to the
Participant’s exercise of a nonqualified stock option. In the event the Participant is
required under the Option Agreement to pay the Company or Affiliate, or make arrangements
satisfactory to the Company or Affiliate respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its discretion and pursuant to such
rules as it may adopt, permit the Participant to satisfy such obligation, in whole or in
part, by delivering shares of the Company’s Common Stock or by electing to have the Company
or Affiliate withhold shares of Common Stock otherwise issuable to the Participant having a
Fair Market Value equal to the minimum required tax withholding, based on the minimum
statutory withholding rates for federal and state tax purposes, including payroll taxes,
that are applicable to the supplemental income resulting from the exercise of the
nonqualified stock option. In no event may the Company or Affiliate withhold shares having a
Fair Market Value in excess of such statutory minimum required tax withholding. The
Participant’s election to have shares withheld for this purpose shall be made on or before
the date the option is exercised or, if later, the date that the amount of tax to be
withheld is determined under applicable tax law. Such election shall be approved by the
Administrator and otherwise comply with such rules as the Administrator may adopt to assure
compliance with Rule 16b-3, or any successor provision, as then in effect, of the General
Rules and Regulations under the Securities Exchange Act of 1934, if applicable.

     d) Transferability. The Administrator may, in its sole discretion, permit
the Participant to transfer any or all nonqualified stock options to any member of the
Participant’s “immediate family” as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or more trusts
whose beneficiaries are members of such Participant’s “immediate family” or partnerships in
which such family members are the only partners; provided, however, that the Participant
cannot receive any consideration for the transfer and such transferred nonqualified stock
option shall continue to be subject to the same terms and conditions as were applicable to
such nonqualified stock option immediately prior to its transfer.

     e) No Rights as Shareholder. A Participant (or the Participant’s successor
or successors) shall have no rights as a shareholder with respect to any shares covered by a
nonqualified stock option until the date of the issuance of a stock certificate evidencing
such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property), distributions or other rights for which the record
date is prior to the date such stock certificate is actually issued (except as otherwise
provided in Section 11 of the Plan).

     f) Other Provisions. The Option Agreement authorized under this Section 10
shall contain such other provisions as the Administrator shall deem advisable.

 

 

SECTION 11.

RESTRICTED STOCK AND RESTICTED STOCK UNIT AWARDS

     Each Restricted Stock award granted pursuant to the Plan shall be evidenced by a written
agreement (the “Restricted Stock Agreement”), and each Restricted Stock Unit award granted pursuant
to the Plan shall be evidenced by a written agreement (the “Restricted Stock Unit Agreement”). The
Restricted Stock Agreement and the Restricted Stock Unit Agreement shall be in such form as may be
approved from time to time by the Administrator and may vary from Participant to Participant;
provided, however, that each Participant and each Restricted Stock Agreement and Restricted Stock
Unit Agreement shall comply with and be subject to the following terms and conditions:

     a) Number of Shares.

          i. The Restricted Stock Agreement shall state the total number of shares of Stock
covered by the Restricted Stock award.

          ii. The Restricted Stock Unit Agreement shall state the total number of Restricted
Stock Units covered by the Restricted Stock Unit award and the total number of shares of
Stock which may be delivered in the future with respect thereto.

     b) Risks of Forfeiture; Vesting.

          i. The Restricted Stock Agreement shall set forth the risks of forfeiture, if any,
which shall apply to the shares of Stock covered by the Restricted Stock award, and shall
specify the manner in which such risks of forfeiture shall lapse. The Administrator may, in
its sole discretion, modify the manner in which such risks of forfeiture shall lapse.

          ii. The Restricted Stock Unit Agreement shall set forth the vesting or risks of
forfeiture, if any, which shall apply to the Restricted Stock Units covered by the
Restricted Stock Unit award, and shall specify the time or events which shares of Stock
shall be delivered with respect to any vested or nonforfeitable Restricted Stock Units. The
Administrator may, in its sole discretion, modify the manner in which such vesting or risks
of forfeiture shall lapse, and the time or events which shares of Stock shall be so
delivered.

     c) Issuance of Shares.

          i. With respect to each Restricted Stock award, the Company shall cause to be
issued a stock certificate representing such shares of Stock in the Participant’s name, and
shall deliver such certificate to the Participant; provided, however, that (A) the Company
shall place a legend on such certificate describing the risks of forfeiture and other
transfer restrictions set forth in the Participant’s Restricted Stock Agreement and
providing for the cancellation and return of such certificate if the shares of Stock subject
to the Restricted Stock award are forfeited, and (B) the Company, at its option, may hold
such certificate or certificates until the applicable risks of forfeiture and other transfer
restrictions lapse or terminate.

 

 

          ii. With respect to each Restricted Stock Unit award, no shares of Stock (or
certificates representing such shares) shall be issued at the time the Restricted Stock Unit
award is granted. Such shares, and certificates representing the same, shall be issued at
the time, or upon the occurrence of the events, specified in the applicable Restricted Stock
Unit Agreement.

     d) Rights as Shareholder.

          i. Until the risks of forfeiture have lapsed or the shares subject to a Restricted
Stock award have been forfeited, the Participant shall be entitled to vote the shares of
Stock represented by such stock certificates and shall receive all dividends attributable to
such shares, but the Participant shall not have any other rights as a shareholder with
respect to such shares.

          ii. A Participant (or the Participant’s successor or successors) shall have no
rights as a shareholder with respect to any shares covered by a Restricted Stock Unit award
until the date of the issuance of a stock certificate evidencing such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to the date such
stock certificate is actually issued (except as otherwise provided in Section 11 of the
Plan).

     e) Withholding Taxes. The Company or its Affiliate shall be entitled to
withhold and deduct from future wages of the Participant all legally required amounts
necessary to satisfy any and all withholding and employment-related taxes attributable to
the Participant’s Restricted Stock or Restricted Stock Unit award. The Company may also
require the Participant to pay the Company or Affiliate, or make arrangements satisfactory
to the Company or Affiliate respecting payment of, such withholding and employment-related
taxes. In the event the Participant is required to pay the Company or Affiliate, or make
arrangements satisfactory to the Company or Affiliate respecting payment of, such
withholding and employment-related taxes, the Administrator may, in its discretion and
pursuant to such rules as it may adopt, permit the Participant to satisfy such obligations,
in whole or in part, by delivering shares of Common Stock, including shares of Stock
received pursuant to a Restricted Stock award on which the risks of forfeiture have lapsed.
Such shares shall have a Fair Market Value equal to the minimum required tax withholding,
based on the minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to the supplemental income resulting from the
lapsing of the risks of forfeiture on such Restricted Stock or with respect to delivery of
 shares of Stock with respect to Restricted Stock Unit awards. In no event may the
Participant deliver shares having a Fair Market Value in excess of such statutory minimum
required tax withholding. The Participant’s election to deliver shares of Common Stock for
this purpose shall be made on or before the date that the amount of tax to be withheld is
determined under applicable tax law. Such election shall be approved by the Administrator
and otherwise comply with such rules as the Administrator may adopt to assure compliance
with Rule 16b-3, or any successor

 

 

provision, as then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.

     f) Nontransferability. No Restricted Stock or Restricted Stock Unit award
shall be transferable, in whole or in part, by the Participant, other than by will or by the
laws of descent and distribution, prior to the date the risks of forfeiture described in the
Restricted Stock Agreement have lapsed or prior with respect to a Restricted Stock award,
and prior to the date that the shares of Stock are delivered to the Participant with respect
to a Restricted Stock Unit award. If the Participant shall attempt any transfer of any
Restricted Stock or Restricted Stock Unit award granted under the Plan prior to such date,
such transfer shall be void and the Restricted Stock or Restricted Stock Unit award shall
terminate.

     g) Other Provisions. The Restricted Stock Agreement or Restricted Stock
Unit Agreement authorized under this Section 11 shall contain such other provisions as the
Administrator shall deem advisable.

SECTION 12.

RECAPITALIZATION, SALE, MERGER, EXCHANGE OR LIQUIDATION

     In the event of an increase or decrease in the number of shares of Common Stock resulting from
a subdivision or consolidation of shares, stock dividend, or stock split, the Board may, in its
sole discretion, adjust the number of shares of Stock reserved under Section 6 hereof, the number
of shares of Stock covered by each outstanding stock option and Restricted Stock or Restricted
Stock Unit award, and the price per share thereof to reflect such change. Additional shares which
may be credited pursuant to such adjustment shall be subject to the same restrictions as are
applicable to the shares with respect to which the adjustment relates.

     Unless otherwise provided in the Option Agreement, in the event of an acquisition of the
Company through the sale of substantially all of the Company’s assets and the consequent
discontinuance of its business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of the Company (collectively
referred to as a “transaction”), the Board may provide for one or more of the following:

     a) the equitable acceleration of the exercisability of any outstanding options, the
lapsing of the risks of forfeiture on any Restricted Stock awards and the vesting of or
lapsing of the risks of forfeiture on any Restricted Stock Unit awards; the complete
termination of this Plan, the cancellation of outstanding options not exercised prior to a
date specified by the Board (which date shall give Participants a reasonable period of time
in which to exercise the options prior to the effectiveness of such transaction), the
cancellation of any Restricted Stock awards for which the risks of forfeiture have not
lapsed and the cancellation of any Restricted Stock Unit awards which are not vested or for
which the risks of forfeiture have not lapsed;

 

 

     b) that Participants holding outstanding stock options shall receive, with respect
to each share of Stock subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market Value of such Stock on
the date immediately preceding the effective date of such transaction over the option price
per share of such options; provided that the Board may, in lieu of such cash payment,
distribute to such Participants shares of stock of the Company or shares of stock of any
corporation succeeding the Company by reason of such transaction, such shares having a value
equal to the cash payment herein; that Participants holding outstanding Restricted Stock or
Restricted Stock Unit awards shall receive, with respect to each share of Stock or Unit
subject to such awards, as of the effective date of any such transaction, cash in an amount
equal to the Fair Market Value of such Stock or Unit on the date immediately preceding the
effective date of such transaction; provided that the Board may, in lieu of such cash
payment, distribute to such Participants shares of stock of the Company or shares of stock
of any corporation succeeding the Company by reason of such transaction, such shares having
a value equal to the cash payment herein;

     c) the continuance of the Plan with respect to the exercise of options which were
outstanding as of the date of adoption by the Board of such plan for such transaction and
provide to Participants holding such options the right to exercise their respective options
as to an equivalent number of shares of stock of the corporation succeeding the Company by
reason of such transaction; and

     d) the continuance of the Plan with respect to Restricted Stock or Restricted Stock
Unit

     e) awards for which the risks of forfeiture have not lapsed or which are not vested
as of the date of adoption by the Board of such plan for such transaction and provide to
Participants holding such awards the right to receive an equivalent number of shares of
stock or units of the corporation succeeding the Company by reason of such transaction.

The Board may restrict the rights of or the applicability of this Section 12 to the extent
necessary to comply with Section 16(b) of the Securities Exchange Act of 1934, the Internal Revenue
Code or any other applicable law or regulation. The grant of an option, Restricted Stock or
Restricted Stock Unit award, pursuant to the Plan shall not limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.

SECTION 13.

SECURITIES LAW COMPLIANCE AND

RESTRICTIONS ON TRANSFER

     No shares of Common Stock shall be issued pursuant to the Plan unless and until there has been
compliance, in the opinion of Company’s counsel, with all applicable legal requirements, including
without limitation, those relating to securities laws and stock exchange listing requirements. As a
condition to the issuance of Stock to Participant, the Administrator may require Participant to (i)
represent that the shares of Stock are being acquired for investment and not resale and to make
such other representations as the Administrator shall deem necessary

 

 

or appropriate to qualify the issuance of the shares as exempt from the Securities Act of 1933
and any other applicable securities laws, and (ii) represent that Participant shall not dispose of
the shares of Stock in violation of the Securities Act of 1933 or any other applicable securities
laws or any company policies then in effect.

     As a further condition to the grant of any stock option or the issuance of Stock to
Participant, Participant agrees to the following:

     a) In the event the Company advises Participant that it plans an underwritten
public offering of its Common Stock in compliance with the Securities Act of 1933, as
amended, and the underwriter(s) seek to impose restrictions under which certain shareholders
may not sell or contract to sell or grant any option to buy or otherwise dispose of part or
all of their stock purchase rights of the underlying Common Stock, Participant will not, for
a period not to exceed 180 days from the prospectus, sell or contract to sell or grant an
option to buy or otherwise dispose of any stock option granted to Participant pursuant to
the Plan or any of the underlying shares of Common Stock without the prior written consent
of the underwriter(s) or its representative(s).

     b) In the event the Company makes any public offering of its securities and it is
determined that it is necessary to reduce the number of issued but unexercised stock
purchase rights so as to comply with any state securities or Blue Sky law limitations with
respect thereto, and such determination is affirmed by the Board of Directors, unless the
Board of Directors determines otherwise, (i) the exercisability of the option and the date
on which the option must be exercised shall be accelerated, and (ii) any portion of the
option to the Plan which is not exercised prior to or contemporaneously with such public
offering shall be canceled.

     c) In the event of a transaction (as defined in Section 12 of the Plan),
Participant will comply with Rule 145 of the Securities Act of 1933 and any other
restrictions imposed under other applicable legal or accounting principles if Participant is
an “affiliate” (as defined in such applicable legal and accounting principles) at the time
of the transaction, and Participant will execute any documents necessary to ensure
compliance with such rules.

     The Company reserves the right to place a legend on any stock certificate issued upon the
exercise of an option or upon the grant of a Restricted Stock or Restricted Stock Unit award
pursuant to the Plan to assure compliance with this Section 13.

SECTION 14.

AMENDMENT OF THE PLAN

     The Board may from time to time, insofar as permitted by law, suspend or discontinue the Plan
or revise or amend it in any respect; provided, however, that no such revision or amendment, except
as is authorized in Section 12, shall impair the terms and conditions of any stock option or
Restricted Stock or Restricted Stock Unit award which is outstanding on the date of such revision
or amendment to the material detriment of the Participant without the consent of the Participant.
Notwithstanding the foregoing, no such revision or amendment shall (i) materially increase the
number of shares subject to the Plan except as provided in Section 12

 

 

hereof, (ii) change the designation of the class of employees eligible to receive stock
options or Restricted Stock or Restricted Stock Unit awards, (iii) decrease the price at which
options may be granted, or (iv) materially increase the benefits accruing to Participants under the
Plan, without the approval of the shareholders of the Company if such approval is required for
compliance with the requirements of any applicable law or regulation. Furthermore, the Plan may
not, without the approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal Revenue Code.

SECTION 15.

NO OBLIGATION TO EXERCISE OPTION

     The granting of a stock option shall impose no obligation upon the Participant to exercise
such option. Further, the granting of a stock option or Restricted Stock or Restricted Stock Unit
award hereunder shall not impose upon the Company or any Affiliate any obligation to retain the
Participant in its employ for any period.

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