Document:

EX 10.1 Sabra_2009_Performance_Incentive_Plan

SABRA HEALTH CARE REIT, INC.
2009 PERFORMANCE INCENTIVE PLAN

1.  PURPOSE OF PLAN
The purpose of this Sabra Health Care REIT, Inc. 2009 Performance Incentive Plan (this “Plan”) of Sabra Health Care REIT, Inc., a Maryland corporation (the “Corporation”), is to promote the success of the Corporation and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons.
2.      ELIGIBILITY
The Administrator (as such term is defined in Section 3.1) may grant awards under this Plan only to those persons that the Administrator determines to be Eligible Persons.  An “Eligible Person” is any person who is either:  (a) an officer (whether or not a director) or employee of the Corporation or one of its Subsidiaries; (b) a director of the Corporation or one of its Subsidiaries; or (c) an individual consultant or advisor who renders or has rendered bona fide services (other than services in connection with the offering or sale of securities of the Corporation or one of its Subsidiaries in a capital-raising transaction or as a market maker or promoter of securities of the Corporation or one of its Subsidiaries) to the Corporation or one of its Subsidiaries and who is selected to participate in this Plan by the Administrator; provided, however, that a person who is otherwise an Eligible Person under clause (c) above may participate in this Plan only if such participation would not adversely affect either the Corporation’s eligibility to use Form S-8 to register under the Securities Act of 1933, as amended (the “Securities Act”), the offering and sale of shares issuable under this Plan by the Corporation or the Corporation’s compliance with any other applicable laws.  An Eligible Person who has been granted an award (a “participant”) may, if otherwise eligible, be granted additional awards if the Administrator shall so determine.  As used herein, “Subsidiary” means any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation; and “Board” means the Board of Directors of the Corporation.
3.      PLAN ADMINISTRATION
		
	3.1
	The Administrator.  This Plan shall be administered by and all awards under this Plan shall be authorized by the Administrator.  The “Administrator” means the Board or one or more committees appointed by the Board or another committee (within its delegated authority) to administer all or certain aspects of this Plan.  Any such committee shall be comprised solely of one or more directors or such number of directors as may be required under applicable law.  A committee may delegate some or all of its authority to another committee so constituted.  The Board or a committee comprised solely of directors may also delegate, to the extent permitted by the Maryland General Corporation Law and any other applicable law, to one or more officers of the Corporation, its powers under this Plan (a) to designate the officers and employees of the Corporation and its 

1

Subsidiaries who will receive grants of awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions of, such awards.  The Board may delegate different levels of authority to different committees with administrative and grant authority under this Plan.  Unless otherwise provided in the Bylaws of the Corporation or the applicable charter of any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute action by the acting Administrator.
With respect to awards intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), this Plan shall be administered by a committee consisting solely of two or more outside directors (as this requirement is applied under Section 162(m) of the Code); provided, however, that the failure to satisfy such requirement shall not affect the validity of the action of any committee otherwise duly authorized and acting in the matter.  Award grants, and transactions in or involving awards, intended to be exempt under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), must be duly and timely authorized by the Board or a committee consisting solely of two or more non-employee directors (as this requirement is applied under Rule 16b-3 promulgated under the Exchange Act).  To the extent required by any applicable listing agency, this Plan shall be administered by a committee composed entirely of independent directors (within the meaning of the applicable listing agency).
		
	3.2
	Powers of the Administrator.  Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or desirable in connection with the authorization of awards and the administration of this Plan (in the case of a committee or delegation to one or more officers, within the authority delegated to that committee or person(s)), including, without limitation, the authority to:

		
	(a)
	determine eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive an award under this Plan;

		
	(b)
	grant awards to Eligible Persons, determine the price at which securities will be offered or awarded and the number of securities to be offered or awarded to any of such persons, determine the other specific terms and conditions of such awards consistent with the express limits of this Plan, establish the installments (if any) in which such awards shall become exercisable or shall vest (which may include, without limitation, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, establish any applicable performance 

2

 

targets, and establish the events of termination or reversion of such awards;
		
	(c)
	approve the forms of award agreements (which need not be identical either as to type of award or among participants);

		
	(d)
	construe and interpret this Plan and any agreements defining the rights and obligations of the Corporation, its Subsidiaries, and participants under this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the awards granted under this Plan;

		
	(e)
	cancel, modify, or waive the Corporation’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding awards, subject to any required consent under Section 8.6.5;

		
	(f)
	accelerate or extend the vesting or exercisability or extend the term of any or all such outstanding awards (in the case of options or stock appreciation rights, within the maximum seven-year term of such awards) in such circumstances as the Administrator may deem appropriate (including, without limitation, in connection with a termination of employment or services or other events of a personal nature) subject to any required consent under Section 8.6.5;

		
	(g)
	adjust the number of shares of Common Stock subject to any award, adjust the price of any or all outstanding awards or otherwise change previously imposed terms and conditions, in such circumstances as the Administrator may deem appropriate, in each case subject to Sections 4 and 8.6 (subject to the no repricing provision below);

		
	(h)
	determine the date of grant of an award, which may be a designated date after but not before the date of the Administrator’s action (unless otherwise designated by the Administrator, the date of grant of an award shall be the date upon which the Administrator took the action granting an award);

		
	(i)
	determine whether, and the extent to which, adjustments are required pursuant to Section 7 hereof and authorize the termination, conversion, substitution or succession of awards upon the occurrence of an event of the type described in Section 7;

		
	(j)
	acquire or settle (subject to Sections 7 and 8.6) rights under awards in cash, stock of equivalent value, or other consideration (subject to the no repricing provision below); and

3

 

		
	(k)
	determine the fair market value of the Common Stock or awards under this Plan from time to time and/or the manner in which such value will be determined.

Notwithstanding the foregoing and except for an adjustment pursuant to Section 7.1 or a repricing approved by stockholders, in no case may the Administrator (1) amend an outstanding stock option or SAR to reduce the exercise price or base price of the award, (2) cancel, exchange, or surrender an outstanding stock option or SAR in exchange for cash or other awards for the purpose of repricing the award, or (3) cancel, exchange, or surrender an outstanding stock option or SAR in exchange for an option or SAR with an exercise or base price that is less than the exercise or base price of the original award.
		
	3.3
	Binding Determinations.  Any action taken by, or inaction of, the Corporation, any Subsidiary, or the Administrator relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons.  Neither the Board nor any Board committee, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any award made under this Plan), and all such persons shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage or expense (including, without limitation, attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage that may be in effect from time to time.

		
	3.4
	Reliance on Experts.  In making any determination or in taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including employees and professional advisors to the Corporation.  No director, officer or agent of the Corporation or any of its Subsidiaries shall be liable for any such action or determination taken or made or omitted in good faith.

		
	3.5
	Delegation.  The Administrator may delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Corporation or any of its Subsidiaries or to third parties.

4.      SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS
		
	4.1
	Shares Available.  Subject to the provisions of Section 7.1, the capital stock that may be delivered under this Plan shall be shares of the Corporation’s authorized but unissued Common Stock and any shares of its Common Stock held as treasury shares.  For purposes of this Plan, “Common Stock” shall mean the common stock of the Corporation and such other securities or property as may become the subject of awards under this Plan, or may become subject to such awards, pursuant to an adjustment made under Section 7.1.

4

 

		
	4.2
	Share Limits.  The maximum number of shares of Common Stock that may be delivered pursuant to awards granted to Eligible Persons under this Plan (the “Share Limit”) is equal to the sum of the following:

		
	(1)
	1,733,333 shares of Common Stock, plus

		
	(2)
	the number of any shares subject to stock options and stock appreciation rights granted under the Corporation’s 2004 Equity Incentive Plan (the “2004 Plan”) and under the Corporation’s 2002 Non-Employee Director Equity Incentive Plan (the “Director Plan”) and outstanding on December 31, 2008 which expire, or for any reason are cancelled or terminated, after that date without being exercised, plus 

		
	(3)
	1.25 times the number of any shares subject to restricted stock and restricted stock unit awards granted under the 2004 Plan that are outstanding and unvested on December 31, 2008 that are forfeited, terminated, cancelled or otherwise reacquired by the Corporation without having become vested.

Shares issued in respect of any “Full-Value Award” granted under this Plan shall be counted against the foregoing Share Limit as 1.25 shares for every one share actually issued in connection with such award.  (For example, if a stock bonus of 100 shares of Common Stock is granted under this Plan, 125 shares shall be charged against the Share Limit in connection with that award.)  For this purpose, a “Full-Value Award” means any award under this Plan that is  not  a stock option grant or a stock appreciation right grant.
Awards granted under the 2004 Plan after December 31, 2008 and prior to the termination of award grant authority under that plan shall count against the Share Limit as though such awards had been granted under this Plan.
The following limits also apply with respect to awards granted under this Plan:
		
	(a)
	The maximum number of shares of Common Stock that may be delivered pursuant to options qualified as incentive stock options granted under this Plan is 1,733,333 shares.

		
	(b)
	The maximum number of shares of Common Stock subject to those options and stock appreciation rights that are granted during any calendar year to any individual under this Plan is 333,333 shares.

		
	(c)
	Additional limits with respect to Performance-Based Awards are set forth in Section 5.2.3.

Each of the foregoing numerical limits is subject to adjustment as contemplated by Section 4.3, Section 7.1, and Section 8.10.

5

 

		
	4.3
	Awards Settled in Cash, Reissue of Awards and Shares.  To the extent that an award granted under this Plan is settled in cash or a form other than shares of Common Stock, the shares that would have been delivered had there been no such cash or other settlement shall not be counted against the shares available for issuance under this Plan.  In the event that shares of Common Stock are delivered in respect of a dividend equivalent right granted under this Plan, the actual number of shares delivered with respect to the award shall be counted against the share limits of this Plan (including, for purposes of clarity, the limits of Section 4.2 of this Plan).  (For purposes of clarity, if 1,000 dividend equivalent rights are granted and outstanding when the Corporation pays a dividend, and 50 shares are delivered in payment of those rights with respect to that dividend, 50 shares shall be counted against the share limits of this Plan).  To the extent that shares of Common Stock are delivered pursuant to the exercise of a stock appreciation right or stock option granted under this Plan, the number of underlying shares as to which the exercise related shall be counted against the applicable share limits under Section 4.2, as opposed to only counting the shares actually issued.  (For purposes of clarity, if a stock appreciation right relates to 100,000 shares and is exercised at a time when the payment due to the participant is 15,000 shares, 100,000 shares shall be charged against the applicable share limits under Section 4.2 with respect to such exercise.)  Shares that are subject to or underlie awards granted under this Plan which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan shall again be available for subsequent awards under this Plan.  Shares that are exchanged by a participant or withheld by the Corporation as full or partial payment in connection with any award under this Plan, as well as any shares exchanged by a participant or withheld by the Corporation or one of its Subsidiaries to satisfy the tax withholding obligations related to any award, shall not be available for subsequent awards under this Plan.  Refer to Section 8.10 for application of the foregoing share limits with respect to assumed awards.  The foregoing adjustments to the share limits of this Plan are subject to any applicable limitations under Section 162(m) of the Code with respect to awards intended as performance-based compensation thereunder.

		
	4.4
	Reservation of Shares; No Fractional Shares; Minimum Issue.  The Corporation shall at all times reserve a number of shares of Common Stock sufficient to cover the Corporation’s obligations and contingent obligations to deliver shares with respect to awards then outstanding under this Plan (exclusive of any dividend equivalent obligations to the extent the Corporation has the right to settle such rights in cash).  No fractional shares shall be delivered under this Plan.  The Administrator may pay cash in lieu of any fractional shares in settlements of awards under this Plan.  No fewer than 100 shares may be purchased on exercise of any award (or, in the case of stock appreciation or purchase rights, no fewer than 100 rights may be exercised at any one time) unless the total number purchased or exercised is the total number at the time available for purchase or exercise under the award.

6

 

5.      AWARDS
		
	5.1
	Type and Form of Awards.  The Administrator shall determine the type or types of award(s) to be made to each selected Eligible Person.  Awards may be granted singly, in combination or in tandem.  Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of the Corporation or one of its Subsidiaries.  The types of awards that may be granted under this Plan are (subject, in each case, to the no repricing provisions of Section 3.2):

		
	5.1.2
	Stock Options.  A stock option is the grant of a right to purchase a specified number of shares of Common Stock during a specified period as determined by the Administrator.  An option may be intended as an incentive stock option within the meaning of Section 422 of the Code (an “ISO”) or a nonqualified stock option (an option not intended to be an ISO).  The award agreement for an option will indicate if the option is intended as an ISO; otherwise it will be deemed to be a nonqualified stock option.  The maximum term of each option (ISO or nonqualified) shall be seven (7) years.  The per share exercise price for each option shall be not less than 100% of the fair market value of a share of Common Stock on the date of grant of the option.  When an option is exercised, the exercise price for the shares to be purchased shall be paid in full in cash or such other method permitted by the Administrator consistent with Section 5.5.

		
	5.1.3
	Additional Rules Applicable to ISOs.  To the extent that the aggregate fair market value (determined at the time of grant of the applicable option) of stock with respect to which ISOs first become exercisable by a participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to ISOs under this Plan and stock subject to ISOs under all other plans of the Corporation or one of its Subsidiaries (or any parent or predecessor corporation to the extent required by and within the meaning of Section 422 of the Code and the regulations promulgated thereunder), such options shall be treated as nonqualified stock options.  In reducing the number of options treated as ISOs to meet the $100,000 limit, the most recently granted options shall be reduced first.  To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares acquired pursuant to the exercise of an ISO.  ISOs may only be granted to employees of the Corporation or one of its subsidiaries (for this purpose, the term “subsidiary” is used as defined in Section 424(f) of the Code, which generally requires an unbroken chain of ownership of at least 50% of the total combined voting power of all classes of stock of each subsidiary in the chain beginning with the Corporation and ending with 

7

 

the subsidiary in question).  There shall be imposed in any award agreement relating to ISOs such other terms and conditions as from time to time are required in order that the option be an “incentive stock option” as that term is defined in Section 422 of the Code.  No ISO may be granted to any person who, at the time the option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding Common Stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation, unless the exercise price of such option is at least 110% of the fair market value of the stock subject to the option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted.
		
	5.1.4
	Stock Appreciation Rights.  A stock appreciation right or “SAR” is a right to receive a payment, in cash and/or Common Stock, equal to the excess of the fair market value of a specified number of shares of Common Stock on the date the SAR is exercised over the “base price” of the award, which base price shall be set forth in the applicable award agreement and shall be not less than 100% of the fair market value of a share of Common Stock on the date of grant of the SAR.  The maximum term of a SAR shall be seven (7) years.

		
	5.1.5
	Other Awards.  The other types of awards that may be granted under this Plan include: (a) stock bonuses, restricted stock, performance stock, stock units, phantom stock, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Common Stock, upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; (b) any similar securities with a value derived from the value of or related to the Common Stock and/or returns thereon; or (c) cash awards.

		
	5.2
	Section 162(m) Performance-Based Awards.  Without limiting the generality of the foregoing, any of the types of awards listed in Section 5.1.4 above may be, and options and SARs granted to officers and employees (“Qualifying Options” and “Qualifying SARS,” respectively) typically will be, granted as awards intended to satisfy the requirements for “performance-based compensation” within the meaning of Section 162(m) of the Code (“Performance-Based Awards”).  The grant, vesting, exercisability or payment of Performance-Based Awards may depend (or, in the case of Qualifying Options or Qualifying SARs, may also depend) on the degree of achievement of one or more performance goals relative to a pre-established targeted level or levels using one or more of the Business Criteria set forth below (on an absolute basis or relative to the performance of other companies or upon comparisons of any of the indicators of performance relative to other companies) for the Corporation on a consolidated basis or for one or more of the Corporation’s subsidiaries, segments, divisions or 

8

 

business units, or any combination of the foregoing.  Any Qualifying Option or Qualifying SAR shall be subject only to the requirements of Section 5.2.1 and 5.2.3 in order for such award to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code.  Any other Performance-Based Award shall be subject to all of the following provisions of this Section 5.2.
		
	5.2.1
	Class; Administrator.  The eligible class of persons for Performance-Based Awards under this Section 5.2 shall be officers and employees of the Corporation or one of its Subsidiaries.  The Administrator approving Performance-Based Awards or making any certification required pursuant to Section 5.2.4 must be constituted as provided in Section 3.1 for awards that are intended as performance-based compensation under Section 162(m) of the Code.

		
	5.2.2
	Performance Goals.  The specific performance goals for Performance-Based Awards (other than Qualifying Options and Qualifying SARs) shall be, on an absolute or relative basis, established based on one or more of the following business criteria (“Business Criteria”) as selected by the Administrator in its sole discretion:  earnings per share; cash flow (which means cash and cash equivalents derived from either net cash flow from operations or net cash flow from operations, financing and investing activities); stock price; total stockholder return; gross revenue; revenue growth; operating income (before or after taxes); net earnings (before or after interest, taxes, depreciation and/or amortization); return on equity or on assets or on net investment; cost containment or reduction; net sales growth; market share; net operating profit; expense targets; working capital targets relating to inventory and/or accounts receivable; operating margin; planning accuracy (as measured by comparing planned results to actual results); measurably improving quality of care outcomes at company facilities; net sales; earnings before interest, taxes, depreciation, amortization (EBITDA); earnings before interest, taxes, depreciation, amortization, and rents (EBITDAR); pre- or after-tax income (before or after allocation of corporate overhead and bonus); appreciation in and/or maintenance of the price of the Common Stock or any other publicly-traded securities of the Corporation; gross profits; economic value-added models or equivalent metrics; comparisons with various stock market indices; cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; gross margins or cash margin; year-end cash; debt reduction; stockholder equity; operating efficiencies; strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property); establishing relationships with commercial entities with respect to the marketing, distribution and sale of the Corporation’s products (including with group purchasing organizations, distributors and other vendors, co-development, co-marketing, profit sharing, joint venture or 

9

 

other similar arrangements); financial ratios, including those measuring liquidity, activity, profitability or leverage; cost of capital or assets under management; financing and other capital raising transactions (including sales of the Corporation’s equity or debt securities, factoring transactions, sales or licenses of the Corporation’s assets, including its intellectual property, whether in a particular jurisdiction or territory or globally or through partnering transactions); implementation, completion or attainment of measurable objectives with respect to research, development, manufacturing, commercialization, products or projects, production volume levels, acquisitions and divestitures and recruiting and maintaining personnel; funds from operations or adjusted funds from operations (each on an aggregate or per share basis); or any combination thereof.  These terms are used as applied under generally accepted accounting principles or in the financial reporting of the Corporation or of its Subsidiaries.  To qualify awards as performance-based under Section 162(m), the applicable Business Criterion (or Business Criteria, as the case may be) and specific performance goal or goals (“targets”) must be established and approved by the Administrator during the first 90 days of the performance period (and, in the case of performance periods of less than one year, in no event after 25% or more of the performance period has elapsed) and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code.  The terms of the Performance-Based Award may specify the manner, if any, in which performance targets shall be adjusted to mitigate the unbudgeted impact of material, unusual or nonrecurring gains and losses, accounting changes or other extraordinary events not foreseen at the time the targets were set unless the Administrator provides otherwise at the time of establishing the targets.  The applicable performance measurement period may not be less than three months nor more than 10 years.
		
	5.2.3
	Form of Payment; Maximum Performance-Based Award.  Grants or awards under this Section 5.2 may be paid in cash or shares of Common Stock or any combination thereof.  Grants of Qualifying Options and Qualifying SARs to any one participant in any one calendar year shall be subject to the limit set forth in Section 4.2(b).  The maximum number of shares of Common Stock which may be delivered pursuant to Performance-Based Awards (other than Qualifying Options and Qualifying SARs, and other than cash awards covered by the following sentence) that are granted to any one participant in any one calendar year shall not exceed 333,333 shares, either individually or in the aggregate, subject to adjustment as provided in Section 7.1.  In addition, the aggregate amount of compensation to be paid to any one participant in respect of all Performance-Based Awards payable only in cash and not related to shares of Common Stock and granted to that participant in any one calendar year shall not exceed $5,000,000.  Awards that are cancelled during the year 

10

 

shall be counted against these limits to the extent required by Section 162(m) of the Code.
		
	5.2.4
	Certification of Payment.  Before any Performance-Based Award under this Section 5.2 (other than Qualifying Options and Qualifying SARs) is paid and to the extent required to qualify the award as performance-based compensation within the meaning of Section 162(m) of the Code, the Administrator must certify in writing that the performance target(s) and any other material terms of the Performance-Based Award were in fact timely satisfied.

		
	5.2.5
	Reservation of Discretion.  The Administrator will have the discretion to determine the restrictions or other limitations of the individual awards granted under this Section 5.2 including the authority to reduce awards, payouts or vesting or to pay no awards, in its sole discretion, if the Administrator preserves such authority at the time of grant by language to this effect in its authorizing resolutions or otherwise.

		
	5.2.6
	Expiration of Grant Authority.  As required pursuant to Section 162(m) of the Code and the regulations promulgated thereunder, the Administrator’s authority to grant new awards that are intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code (other than Qualifying Options and Qualifying SARs) shall terminate upon the first meeting of the Corporation’s stockholders that occurs in the fifth year following the year in which the Corporation’s stockholders first approve this Plan, subject to any subsequent extension that may be approved by stockholders.

		
	5.3
	Award Agreements.  Each award shall be evidenced by either (1) a written award agreement in a form approved by the Administrator and executed by the Corporation by an officer duly authorized to act on its behalf, or (2) an electronic notice of award grant in a form approved by the Administrator and recorded by the Corporation (or its designee) in an electronic recordkeeping system used for the purpose of tracking award grants under this Plan generally (in each case, an “award agreement”), as the Administrator may provide and, in each case and if required by the Administrator, executed or otherwise electronically accepted by the recipient of the award in such form and manner as the Administrator may require.  The Administrator may authorize any officer of the Corporation (other than the particular award recipient) to execute any or all award agreements on behalf of the Corporation.  The award agreement shall set forth the material terms and conditions of the award as established by the Administrator consistent with the express limitations of this Plan.

		
	5.4
	Deferrals and Settlements.  Payment of awards may be in the form of cash, Common Stock, other awards or combinations thereof as the Administrator shall determine, and with such restrictions as it may impose.  The Administrator may 

11

 

also require or permit participants to elect to defer the issuance of shares or the settlement of awards in cash under such rules and procedures as it may establish under this Plan.  The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend equivalents where the deferred amounts are denominated in shares.
		
	5.5
	Consideration for Common Stock or Awards.  The purchase price for any award granted under this Plan or the Common Stock to be delivered pursuant to an award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator, including, without limitation, one or a combination of the following methods:

		
	•
	services rendered by the recipient of such award;

		
	•
	cash, check payable to the order of the Corporation, or electronic funds transfer;

		
	•
	notice and third party payment in such manner as may be authorized by the Administrator;

		
	•
	the delivery of previously owned shares of Common Stock;

		
	•
	by a reduction in the number of shares otherwise deliverable pursuant to the award; or

		
	•
	subject to such procedures as the Administrator may adopt, pursuant to a “cashless exercise” with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of awards.

In no event shall any shares newly-issued by the Corporation be issued for less than the minimum lawful consideration for such shares or for consideration other than consideration permitted by applicable state law.  Shares of Common Stock used to satisfy the exercise price of an option shall be valued at their fair market value on the date of exercise.  The Corporation will not be obligated to deliver any shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations under Section 8.5 and any other conditions to exercise or purchase have been satisfied.  Unless otherwise expressly provided in the applicable award agreement, the Administrator may at any time eliminate or limit a participant’s ability to pay the purchase or exercise price of any award or shares by any method other than cash payment to the Corporation. 
		
	5.6
	Definition of Fair Market Value.  For purposes of this Plan, “fair market value” shall mean, unless otherwise determined or provided by the Administrator in the circumstances, the last price (in regular trading) for a share of Common Stock as 

12

 

furnished by the National Association of Securities Dealers, Inc. (the “NASD”) through the NASDAQ Global Market Reporting System (the “Global Market”) for the date in question or, if no sales of Common Stock were reported by the NASD on the Global Market on that date, the last price (in regular trading) for a share of Common Stock as furnished by the NASD through the Global Market for the next preceding day on which sales of Common Stock were reported by the NASD.  The Administrator may, however, provide with respect to one or more awards that the fair market value shall equal the last price (in regular trading) for a share of Common Stock as furnished by the NASD through the Global Market on the last trading day preceding the date in question or the average of the high and low trading prices of a share of Common Stock as furnished by the NASD through the Global Market for the date in question or the most recent trading day.  If the Common Stock is no longer listed or is no longer actively traded on the Global Market as of the applicable date, the fair market value of the Common Stock shall be the value as reasonably determined by the Administrator for purposes of the award in the circumstances.  The Administrator also may adopt a different methodology for determining fair market value with respect to one or more awards if a different methodology is necessary or advisable to secure any intended favorable tax, legal or other treatment for the particular award(s) (for example, and without limitation, the Administrator may provide that fair market value for purposes of one or more awards will be based on an average of closing prices (or the average of high and low daily trading prices) for a specified period preceding the relevant date).
		
	5.7
	Transfer Restrictions.

		
	5.7.1
	Limitations on Exercise and Transfer.  Unless otherwise expressly provided in (or pursuant to) this Section 5.7 or required by applicable law: (a) all awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) awards shall be exercised only by the participant; and (c) amounts payable or shares issuable pursuant to any award shall be delivered only to (or for the account of) the participant.

		
	5.7.2
	Exceptions.  The Administrator may permit awards to be exercised by and paid to, or otherwise transferred to, other persons or entities pursuant to such conditions and procedures, including limitations on subsequent transfers, as the Administrator may, in its sole discretion, establish in writing.  Any permitted transfer shall be subject to compliance with applicable federal and state securities laws and shall not be for value (other than nominal consideration, settlement of marital property rights, or for interests in an entity in which more than 50% of the voting interests are held by the Eligible Person or by the Eligible Person’s family members).

13

 

		
	5.7.3
	Further Exceptions to Limits on Transfer.  The exercise and transfer restrictions in Section 5.7.1 shall not apply to:

		
	(a)
	transfers to the Corporation (for example, in connection with the expiration or termination of the award),

		
	(b)
	the designation of a beneficiary to receive benefits in the event of the participant’s death or, if the participant has died, transfers to or exercise by the participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution,

		
	(c)
	subject to any applicable limitations on ISOs, transfers to a family member (or former family member) pursuant to a domestic relations order if approved or ratified by the Administrator,

		
	(d)
	if the participant has suffered a disability, permitted transfers or exercises on behalf of the participant by his or her legal representative, or

		
	(e)
	the authorization by the Administrator of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of awards consistent with applicable laws and the express authorization of the Administrator.

		
	5.8
	International Awards.  One or more awards may be granted to Eligible Persons who provide services to the Corporation or one of its Subsidiaries outside of the United States.  Any awards granted to such persons may be granted pursuant to the terms and conditions of any applicable sub-plans, if any, appended to this Plan and approved by the Administrator.

6.      EFFECT OF TERMINATION OF EMPLOYMENT OR SERVICE ON AWARDS
		
	6.1
	General.  The Administrator shall establish the effect of a termination of employment or service on the rights and benefits under each award under this Plan and in so doing may make distinctions based upon, inter alia, the cause of termination and type of award.  If the participant is not an employee of the Corporation or one of its Subsidiaries and provides other services to the Corporation or one of its Subsidiaries, the Administrator shall be the sole judge for purposes of this Plan (unless a contract or the award otherwise provides) of whether the participant continues to render services to the Corporation or one of its Subsidiaries and the date, if any, upon which such services shall be deemed to have terminated.

		
	6.2
	Events Not Deemed Terminations of Service.  Unless the express policy of the Corporation or one of its Subsidiaries, or the Administrator, otherwise provides, the employment relationship shall not be considered terminated in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence authorized by the 

14

 

Corporation or one of its Subsidiaries, or the Administrator; provided that, unless reemployment upon the expiration of such leave is guaranteed by contract or law or the Administrator otherwise provides, such leave is for a period of not more than three months.  In the case of any employee of the Corporation or one of its Subsidiaries on an approved leave of absence, continued vesting of the award while on leave from the employ of the Corporation or one of its Subsidiaries may be suspended until the employee returns to service, unless the Administrator otherwise provides or applicable law otherwise requires.  In no event shall an award be exercised after the expiration of the term set forth in the applicable award agreement.
		
	6.3
	Effect of Change of Subsidiary Status.  For purposes of this Plan and any award, if an entity ceases to be a Subsidiary of the Corporation a termination of employment or service shall be deemed to have occurred with respect to each Eligible Person in respect of such Subsidiary who does not continue as an Eligible Person in respect of the Corporation or another Subsidiary that continues as such after giving effect to the transaction or other event giving rise to the change in status.

7.      ADJUSTMENTS; ACCELERATION
		
	7.1
	Adjustments.  Subject to Section 7.2, upon (or, as may be necessary to effect the adjustment, immediately prior to): any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split; any merger, combination, consolidation, or other reorganization; any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Common Stock; or any exchange of Common Stock or other securities of the Corporation, or any similar, unusual or extraordinary corporate transaction in respect of the Common Stock; then the Administrator shall equitably and proportionately adjust (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan), (2) the number, amount and type of shares of Common Stock (or other securities or property) subject to any outstanding awards, (3) the grant, purchase, or exercise price (which term includes the base price of any SAR or similar right) of any outstanding awards, and/or (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding awards, in each case to the extent necessary to preserve (but not increase) the level of incentives intended by this Plan and the then-outstanding awards.

Unless otherwise expressly provided in the applicable award agreement, upon (or, as may be necessary to effect the adjustment, immediately prior to) any event or transaction described in the preceding paragraph or a sale of all or substantially all of the business or assets of the Corporation as an entirety, the Administrator shall equitably and proportionately adjust the performance standards applicable to any 

15

 

then-outstanding performance-based awards to the extent necessary to preserve (but not increase) the level of incentives intended by this Plan and the then-outstanding performance-based awards.
It is intended that, if possible, any adjustments contemplated by the preceding two paragraphs be made in a manner that satisfies applicable U.S. legal, tax (including, without limitation and as applicable in the circumstances, Section 424 of the Code, Section 409A of the Code and Section 162(m) of the Code) and accounting (so as to not trigger any charge to earnings with respect to such adjustment) requirements.
Without limiting the generality of Section 3.3, any good faith determination by the Administrator as to whether an adjustment is required in the circumstances pursuant to this Section 7.1, and the extent and nature of any such adjustment, shall be conclusive and binding on all persons.
		
	7.2
	Corporate Transactions - Assumption and Termination of Awards.  Upon the occurrence of any of the following: any merger, combination, consolidation, or other reorganization in connection with which the Corporation does not survive (or does not survive as a public company in respect of its Common Stock); any exchange of Common Stock or other securities of the Corporation in connection with which the Corporation does not survive (or does not survive as a public company in respect of its Common Stock); a sale of all or substantially all the business, stock or assets of the Corporation in connection with which the Corporation does not survive (or does not survive as a public company in respect of its Common Stock); a dissolution of the Corporation; or any other event in which the Corporation does not survive (or does not survive as a public company in respect of its Common Stock); then the Administrator may make provision for a cash payment in settlement of, or for the assumption, substitution or exchange of any or all outstanding share-based awards or the cash, securities or property deliverable to the holder of any or all outstanding share-based awards, based upon, to the extent relevant under the circumstances, the distribution or consideration payable to holders of the Common Stock upon or in respect of such event.  Upon the occurrence of any event described in the preceding sentence, then, unless the Administrator has made a provision for the substitution, assumption, exchange or other continuation or settlement of the award or the award would otherwise continue in accordance with its terms in the circumstances: (1) unless otherwise provided in the applicable award agreement, each then-outstanding option and SAR shall become fully vested, all shares of restricted stock then outstanding shall fully vest free of restrictions, and each other award granted under this Plan that is then outstanding shall become payable to the holder of such award; and (2) each award shall terminate upon the related event; provided that the holder of an option or SAR shall be given reasonable advance notice of the impending termination and a reasonable opportunity to exercise his or her outstanding vested options and SARs (after giving effect to any 

16

 

accelerated vesting required in the circumstances) in accordance with their terms before the termination of such awards (except that in no case shall more than ten days’ notice of the impending termination be required and any acceleration of vesting and any exercise of any portion of an award that is so accelerated may be made contingent upon the actual occurrence of the event).
Without limiting the preceding paragraph, in connection with any event referred to in the preceding paragraph or any change in control event defined in any applicable award agreement, the Administrator may, in its discretion, provide for the accelerated vesting of any award or awards as and to the extent determined by the Administrator in the circumstances.
The Administrator may adopt such valuation methodologies for outstanding awards as it deems reasonable in the event of a cash or property settlement and, in the case of options, SARs or similar rights, but without limitation on other methodologies, may base such settlement solely upon the excess if any of the per share amount payable upon or in respect of such event over the exercise or base price of the award.
In any of the events referred to in this Section 7.2, the Administrator may take such action contemplated by this Section 7.2 prior to such event (as opposed to on the occurrence of such event) to the extent that the Administrator deems the action necessary to permit the participant to realize the benefits intended to be conveyed with respect to the underlying shares.  Without limiting the generality of the foregoing, the Administrator may deem an acceleration to occur immediately prior to the applicable event and/or reinstate the original terms of the award if an event giving rise to an acceleration does not occur.
Without limiting the generality of Section 3.3, any good faith determination by the Administrator pursuant to its authority under this Section 7.2 shall be conclusive and binding on all persons.
		
	7.3
	Other Acceleration Rules.  The Administrator may override the provisions of Section 7.2 by express provision in the award agreement and may accord any Eligible Person a right to refuse any acceleration, whether pursuant to the award agreement or otherwise, in such circumstances as the Administrator may approve.  The portion of any ISO accelerated in connection with an event referred to in Section 7.2 (or such other circumstances as may trigger accelerated vesting of the award) shall remain exercisable as an ISO only to the extent the applicable $100,000 limitation on ISOs is not exceeded.  To the extent exceeded, the accelerated portion of the option shall be exercisable as a nonqualified stock option under the Code.

8.      OTHER PROVISIONS

17

 

		
	8.1
	Compliance with Laws.  This Plan, the granting and vesting of awards under this Plan, the offer, issuance and delivery of shares of Common Stock, and/or the payment of money under this Plan or under awards are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith.  The person acquiring any securities under this Plan will, if requested by the Corporation or one of its Subsidiaries, provide such assurances and representations to the Corporation or one of its Subsidiaries as the Administrator may deem necessary or desirable to assure compliance with all applicable legal and accounting requirements.

		
	8.2
	No Rights to Award.  No person shall have any claim or rights to be granted an award (or additional awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary.

		
	8.3
	No Employment/Service Contract.  Nothing contained in this Plan (or in any other documents under this Plan or in any award) shall confer upon any Eligible Person or other participant any right to continue in the employ or other service of the Corporation or one of its Subsidiaries, constitute any contract or agreement of employment or other service or affect an employee’s status as an employee at will, nor shall interfere in any way with the right of the Corporation or one of its Subsidiaries to change a person’s compensation or other benefits, or to terminate his or her employment or other service, with or without cause.  Nothing in this Section 8.3, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an award agreement.

		
	8.4
	Plan Not Funded.  Awards payable under this Plan shall be payable in shares or from the general assets of the Corporation, and no special or separate reserve, fund or deposit shall be made to assure payment of such awards.  No participant, beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly otherwise provided) of the Corporation or one of its Subsidiaries by reason of any award hereunder.  Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Corporation or one of its Subsidiaries and any participant, beneficiary or other person.  To the extent that a participant, beneficiary or other person acquires a right to receive payment pursuant to any award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

18

 

		
	8.5
	Tax Withholding.  Upon any exercise, vesting, or payment of any award or upon the disposition of shares of Common Stock acquired pursuant to the exercise of an ISO prior to satisfaction of the holding period requirements of Section 422 of the Code, the Corporation or one of its Subsidiaries shall have the right at its option to:

		
	(a)
	require the participant (or the participant’s personal representative or beneficiary, as the case may be) to pay or provide for payment of at least the minimum amount of any taxes which the Corporation or one of its Subsidiaries may be required to withhold with respect to such award event or payment; or

		
	(b)
	deduct from any amount otherwise payable in cash to the participant (or the participant’s personal representative or beneficiary, as the case may be) the minimum amount of any taxes which the Corporation or one of its Subsidiaries may be required to withhold with respect to such cash payment.

In any case where a tax is required to be withheld in connection with the delivery of shares of Common Stock under this Plan, the Administrator may in its sole discretion (subject to Section 8.1) require or grant (either at the time of the award or thereafter) to the participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may establish, that the Corporation reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of shares, valued in a consistent manner at their fair market value or at the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy the minimum applicable withholding obligation on exercise, vesting or payment.  In no event shall the shares withheld exceed the minimum whole number of shares required for tax withholding under applicable law.
		
	8.6
	Effective Date, Termination and Suspension, Amendments.

		
	8.6.1
	Effective Date.  This Plan is effective as of March 27, 2009, the date of its approval by the Board (the “Effective Date”).  This Plan shall be submitted for and subject to stockholder approval no later than twelve months after the Effective Date.  Unless earlier terminated by the Board, this Plan shall terminate at the close of business on the day before the tenth anniversary of the Effective Date.  After the termination of this Plan either upon such stated expiration date or its earlier termination by the Board, no additional awards may be granted under this Plan, but previously granted awards (and the authority of the Administrator with respect thereto, including the authority to amend such awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.

19

 

		
	8.6.2
	Board Authorization.  The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part.  No awards may be granted during any period that the Board suspends this Plan.

		
	8.6.3
	Stockholder Approval.  To the extent then required by applicable law or any applicable listing agency or required under Sections 162, 422 or 424 of the Code to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, any amendment to this Plan shall be subject to stockholder approval.  In addition, the no repricing provision included in Section 3.2 may not be amended without shareholder approval.

		
	8.6.4
	Amendments to Awards.  Without limiting any other express authority of the Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on awards to participants that the Administrator in the prior exercise of its discretion has imposed, without the consent of a participant, and (subject to the requirements of Sections 3.2 and 8.6.5) may make other changes to the terms and conditions of awards.  Any amendment or other action that would constitute a repricing of an award is subject to the limitations set forth in Section 3.2(g).

		
	8.6.5
	Limitations on Amendments to Plan and Awards.  No amendment, suspension or termination of this Plan or amendment of any outstanding award agreement shall, without written consent of the participant, affect in any manner materially adverse to the participant any rights or benefits of the participant or obligations of the Corporation under any award granted under this Plan prior to the effective date of such change.  Changes, settlements and other actions contemplated by Section 7 shall not be deemed to constitute changes or amendments for purposes of this Section 8.6.

		
	8.7
	Privileges of Stock Ownership.  Except as otherwise expressly authorized by the Administrator, a participant shall not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the participant.  Except as expressly required by Section 7.1 or otherwise expressly provided by the Administrator, no adjustment will be made for dividends or other rights as a stockholder for which a record date is prior to such date of delivery.

		
	8.8
	Governing Law; Construction; Severability.

		
	8.8.1
	Choice of Law.  This Plan, the awards, all documents evidencing awards and all other related documents shall be governed by, and construed in accordance with the laws of the State of Maryland.

20

 

		
	8.8.2
	Severability.  If a court of competent jurisdiction holds any provision invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.

		
	8.8.3
	Plan Construction.

		
	(a)
	Rule 16b-3.  It is the intent of the Corporation that the awards and transactions permitted by awards be interpreted in a manner that, in the case of participants who are or may be subject to Section 16 of the Exchange Act, qualify, to the maximum extent compatible with the express terms of the award, for exemption from matching liability under Rule 16b-3 promulgated under the Exchange Act.  Notwithstanding the foregoing, the Corporation shall have no liability to any participant for Section 16 consequences of awards or events under awards if an award or event does not so qualify.

		
	(b)
	Section 162(m).  Awards under Section 5.1.4 to persons described in Section 5.2 that are either granted or become vested, exercisable or payable based on attainment of one or more performance goals related to the Business Criteria, as well as Qualifying Options and Qualifying SARs granted to persons described in Section 5.2, that are approved by a committee composed solely of two or more outside directors (as this requirement is applied under Section 162(m) of the Code) shall be deemed to be intended as performance-based compensation within the meaning of Section 162(m) of the Code unless such committee provides otherwise at the time of grant of the award.  It is the further intent of the Corporation that (to the extent the Corporation or one of its Subsidiaries or awards under this Plan may be or become subject to limitations on deductibility under Section 162(m) of the Code) any such awards and any other Performance-Based Awards under Section 5.2 that are granted to or held by a person subject to Section 162(m) will qualify as performance-based compensation or otherwise be exempt from deductibility limitations under Section 162(m).

		
	8.9
	Captions.  Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference.  Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.

		
	8.10
	Stock-Based Awards in Substitution for Stock Options or Awards Granted by Other Corporation.  Awards may be granted to Eligible Persons in substitution for or in connection with an assumption of employee stock options, SARs, restricted stock or other stock-based awards granted by other entities to persons who are or who will become Eligible Persons in respect of the Corporation or one of its Subsidiaries, in connection with a distribution, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the 

21

 

Corporation or one of its Subsidiaries, directly or indirectly, of all or a substantial part of the stock or assets of the employing entity.  The awards so granted need not comply with other specific terms of this Plan, provided the awards reflect only adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Common Stock in the transaction and any change in the issuer of the security.  Any shares that are delivered and any awards that are granted by, or become obligations of, the Corporation, as a result of the assumption by the Corporation of, or in substitution for, outstanding awards previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons that become employed by the Corporation or one of its Subsidiaries in connection with a business or asset acquisition or similar transaction) shall not be counted against the Share Limit or other limits on the number of shares available for issuance under this Plan.
		
	8.11
	Non-Exclusivity of Plan.  Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Administrator to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.

		
	8.12
	No Corporate Action Restriction.  The existence of this Plan, the award agreements and the awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the stockholders of the Corporation to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Corporation or any Subsidiary, (b) any merger, amalgamation, consolidation or change in the ownership of the Corporation or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stock ahead of or affecting the capital stock (or the rights thereof) of the Corporation or any Subsidiary, (d) any dissolution or liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of all or any part of the assets or business of the Corporation or any Subsidiary, or (f) any other corporate act or proceeding by the Corporation or any Subsidiary.  No participant, beneficiary or any other person shall have any claim under any award or award agreement against any member of the Board or the Administrator, or the Corporation or any employees, officers or agents of the Corporation or any Subsidiary, as a result of any such action.

		
	8.13
	Other Company Benefit and Compensation Programs.  Payments and other benefits received by a participant under an award made pursuant to this Plan shall not be deemed a part of a participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Corporation or any Subsidiary, except where the Administrator expressly otherwise provides or authorizes in writing.  Awards under this Plan may be made in addition to, in combination with, as 

22

 

alternatives to or in payment of grants, awards or commitments under any other plans or arrangements of the Corporation or its Subsidiaries.
9.      DEFINITIONS
Unless otherwise expressly provided in the applicable award agreement, the following terms shall have the meanings set forth in this Section 9 for purposes of awards granted hereunder to the extent any such terms are used with respect to such an award:
A “Change in Control” of the Corporation shall be deemed to have occurred if any of the following events occurs:
		
	(i)
	Any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation (an “Acquiring Person”), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 33 1/3% of the then outstanding voting stock of the Corporation;

		
	(ii)
	A merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 51% of the combined voting power of the voting securities of the Corporation or surviving entity outstanding immediately after such merger or consolidation;

		
	(iii)
	A sale or other disposition by the Corporation of all or substantially all of the Corporation’s assets;

		
	(iv)
	During any period of two (2) consecutive years (beginning on or after the Effective Date), individuals who at the beginning of such period constitute the Board and any new director (other than a director who is a representative or nominee of an Acquiring Person) whose election by the Board or nomination for election by the Corporation’s shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination was previously so approved, no longer constitute a majority of the Board;

provided, however, in no event shall any acquisition of securities, a change in the composition of the Board or a merger or other consolidation pursuant to a plan of reorganization under chapter 11 of the Bankruptcy Code with respect to the Corporation (“Chapter 11 Plan”), or a liquidation under the Bankruptcy Code constitute a Change in Control.  In addition, notwithstanding Sections 12(d)(i), 12(d)(ii), 12(d)(iii) and 12(d)(iv) hereof, a Change in Control shall not be deemed to have occurred in the event of a sale or conveyance in which the Corporation continues as a holding company of an entity or 

23

 

entities that conduct the business or businesses formerly conducted by the Corporation, or any transaction undertaken for the purpose of reincorporating the Corporation under the laws of another jurisdiction, if such transaction does not materially affect the beneficial ownership of the Corporation’s capital stock.
“Disability” with respect to a participant means that the participant has experienced one of the following: (1) the participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (2) the participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the participant’s employer.
“Good Cause” with respect to a participant means (unless otherwise expressly provided in the applicable agreement setting forth the terms and conditions of the award, or another applicable contract with the participant that defines such term for purposes of determining the effect that a “for cause” termination has on the participant’s awards) any one of the following: (A) any criminal conviction of the participant under the laws of the United States or any state or other political subdivision thereof which, in the good faith determination of the Corporation renders the participant unsuitable as an employee or officer of the Corporation or any Subsidiary; (B) the participant’s continued failure to substantially perform the duties reasonably requested by the Corporation and commensurate with the participant’s position and within the participant’s control in such position (other than any such failure resulting from participant’s incapacity due to the participant’s Disability) after a written demand for substantial performance is delivered to the participant by the Corporation, which demand specifically identifies the manner in which the Corporation believes that the participant has not substantially performed the participant’s duties, and which performance is not substantially corrected by the participant within ten (10) days of receipt of such demand; or (C) any material workplace misconduct or willful failure to comply with the Corporation’s general policies and procedures as they may exist from time to time by the Corporation which, in the good faith determination of the Corporation, renders the participant unsuitable as an employee or officer of Corporation.
“Good Reason” with respect to a participant means (unless otherwise expressly provided in the applicable agreement setting forth the terms and conditions of the award, or another applicable contract with the participant that defines such term for purposes of determining the effect that a “good reason” termination has on the participant’s awards) a resignation of the participant’s employment with the Corporation as a result of and within 60 days after the occurrence of any of the following without the participant’s written consent:  (A) a meaningful and detrimental reduction in the participant’s authority, duties or responsibilities, or a meaningful and detrimental change in the participant’s reporting responsibilities, as in effect immediately prior to the participant’s termination of 

24

 

employment; (B) a material reduction in the participant’s annual base salary as in effect immediately prior to the participant’s delivery of notice to the Corporation stating the basis of the participant’s allegation that “Good Reason” exists (the “Good Reason Notice”), a material reduction in the participant’s target annual bonus (expressed as a percentage of base salary), if any, as in effect immediately prior to the circumstances described in the Good Reason Notice, or a material failure to provide the participant with any other form of compensation or material employment benefit being provided to the participant immediately prior to the circumstances described in the Good Reason Notice (excluding however, any reduction in the amount of any annual bonus or the granting or withholding of incentive compensation (including without limitation options or restricted stock units) but including a material reduction to the target amount of the bonus as stated above); or (C) a relocation of the participant’s principal place of employment by more than fifty (50) miles (or the requirement that the participant be based at a different location), provided that such relocation results in a longer commute (measured by actual mileage) for the participant from his or her primary residence to such new location.  Notwithstanding the foregoing, for any of the foregoing circumstances to constitute “Good Reason” hereunder, (x) the participant must deliver the Good Reason Notice to the Corporation within 30 days of the date on which the circumstances creating “Good Reason” have first occurred, (y) such circumstances are not corrected by the Corporation in a manner that is reasonably satisfactory to the participant (including full retroactive correction with respect to any monetary matter) within 30 days of the Corporation’s receipt of the Good Reason Notice from the participant and, (z) the participant thereafter resigns his or her employment within the 60 day time period described above.
A “Separation from Service” shall mean a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.
An “Unforeseeable Emergency” means a severe financial hardship to the participant resulting from (i) an illness or accident of the participant, the participant’s spouse, or a dependent (as defined in Section 152(a) of the Code without regard to paragraphs (b)(1), (b)(2) and (d)(1)(b) thereof) of the participant, (ii) loss of the participant’s property due to casualty, or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant, all as determined by the Administrator in its sole discretion and in all events constituting an “unforeseeable emergency” within the meaning of Section 409A of the Code.

25To subscribe for Shares of Common Stock 

in the private offering of

AFH
ACQUISITION VII, INC.

 

	1.		Date and Fill in the number of Shares being subscribed for and complete
and sign the Signature Page to the Subscription Agreement.

 

	2.		Complete, Sign and Return the Accredited Investor Questionnaire attached to
this Subscription Agreement.

 

	3.		Fax all executed forms to Amir F. Heshmatpour at (310) 382-2507 or e-mail
such executed forms to [●] and then send all signed original documents with a check (if applicable) to:

 

AFH Acquisition VII, Inc.

c/o AFH Holding &
Advisory, LLC

9595 Wilshire Boulevard

Suite 700

Beverly Hills, CA 90212

Attn: Amir F. Heshmatpour

 

	4.		Please make your subscription payable to the order of “AFH Acquisition VII,
Inc.”, including your name and social security number on the check.

 

	5.		For wiring funds directly to the Company’s account, use the following instructions:

 

Wells
Fargo Bank

Wilshire
Crescent Branch

Beverly
Hills, CA 90210

 

Account
Name: AFH Acquisition VII, Inc.

ABA
Number: [●]

Account
Number: [●]

Ref:
Investor name, Social Security Number and Address

 

	6.		Questions regarding completion of the subscription documents
should be directed to Company’s President and Secretary, Amir F. Heshmatpour, at telephone number (310) 492-9898.

 

ALL
SUBSCRIPTION DOCUMENTS MUST BE FILLED IN AND SIGNED EXACTLY AS SET FORTH WITHIN.

 

    	 

    	 

    

  

The Shares may be sold
at one or more closings of the Offering (each a “Closing”, and, collectively, the “Closings”),
anytime during the Offering Period (defined hereafter). An investor may purchase a minimum of two thousand five hundred (2,500)
Shares for a minimum investment amount of $5,000 (the “Investor Minimum Investment”); provided however,
the Company, in its sole discretion, may accept an Investor subscription for an amount less than the Investor Minimum Investment.
The subscription for the Shares will be made in accordance with and subject to the terms and conditions of this Subscription Agreement
and the Memorandum.

 

All subscription funds
will be held in a segregated Company account (the “Account”) until the Closing with respect to such subscription.

 

The offering period during
which the Company will accept subscriptions to purchase the Shares (the “Offering Period”) shall commence on
the date of the Memorandum (the “Commencement Date”) and shall continue until the earliest of: (i) the sale
of the number of Shares constituting the Maximum Offering; (ii) 60 days from the date of the Memorandum (subject to extension by
the Company for two additional 60 day periods without notice to or consent by any investor) and (iii) the termination of the Offering
Period by the Company (the earliest of (i), (ii) or (iii) being referred to as the “Termination Date”).

 

The Company reserves the
right (but is not obligated) to purchase and/or have their respective employees, agents, officers, directors and affiliates purchase
the Shares and all such purchases may be counted towards the Maximum Offering Amount.

  

    	2

    	 

    

 

SUBSCRIPTION AGREEMENT FOR

 AFH ACQUISITION VII, INC.

 

AFH Acquisition VII, Inc.

c/o AFH Holding and Advisory, LLC

9595 Wilshire Blvd., Suite 700

Beverly Hills, CA 90212

 

Ladies and Gentlemen:

 

1. Subscription.
The undersigned (the “Investor”), intending to be legally bound, hereby irrevocably agrees to purchase from
AFH Acquisition VII, Inc. (the “Company”) the number of shares of common stock, par value $.001 per share (the
“Shares”)of the Company as set forth on the signature page to this Subscription Agreement at a purchase price
of $2.00 per Share (the “Purchase Price”). This subscription is submitted to you in accordance with and
subject to the terms and conditions described in this Subscription Agreement and the Confidential Private Placement Memorandum
of the Company, dated September [●], 2012, as amended or supplemented from time to time, including all attachments,
schedules and exhibits thereto (the “Memorandum”), relating to the offering by the Company of a maximum of $1,000,000.00
(the “Maximum Offering Amount”) or 500,000 Shares (the “Offering”). The
Company may increase the Offering to 600,000 Shares and the Maximum Offering Amount to $1,200,000 to cover over-allotments (the
“Over-Allotment Option”). The Shares may be sold at one or more closings of the Offering (each a “Closing”,
and, collectively, the “Closings”), anytime during the Offering Period (defined hereafter). An investor may
purchase a minimum of two thousand five hundred (2,500) Shares for a minimum investment amount
of $5,000 (the “Investor Minimum Investment”); provided however, the Company, in its sole discretion, may accept
an Investor subscription for an amount less than the Investor Minimum Investment. The subscription for the Shares will be made
in accordance with and subject to the terms and conditions of this Subscription Agreement and the Memorandum.

 

All subscription funds will be held in a segregated
Company account (the “Account”) until the Closing with respect to such subscription.

 

The offering period during which the Company
will accept subscriptions to purchase the Shares (the “Offering Period”) shall commence on the date of this
the Memorandum (the “Commencement Date”) and shall continue until the earliest of: (i) the sale of the number
of Shares constituting the Maximum Offering; (ii) 60 days from the date of the Memorandum (subject to extension by the Company
for two additional 60 day periods without notice to or consent by any investor) and (iii) the termination of the Offering Period
by the Company (the earliest of (i), (ii) or (iii) being referred to as the “Termination Date”). In the event
that (i) subscriptions for the Offering are rejected in whole (at the sole discretion of the Company) or (ii) the Offering is terminated
by the Company, then the Company will refund all subscription funds held in the Company’s account to the persons who submitted
such funds, without interest, penalty or deduction. If a subscription is rejected in part (at the sole discretion of the Company)
and the Company accepts the portion not so rejected, the funds for the rejected portion of such subscription will be returned without
interest, penalty, expense or deduction.

 

    	3

    	 

    

 

The Company reserves the right (but is not
obligated) to purchase and/or have their respective employees, agents, officers, directors and affiliates purchase the Shares and
all such purchases may be counted towards the Maximum Offering Amount.

 

The terms of the Offering
are more completely described in the Memorandum and such terms are incorporated herein in their entirety. Certain capitalized terms
used but not otherwise defined herein shall have the respective meanings provided in the Memorandum.

 

2. Payment. The Investor encloses herewith
a check payable to, or will immediately make a wire transfer payment to “AFH Acquisition VII, Inc.” in the full amount
of the Purchase Price of the Shares being subscribed for. Together with the check for, or wire transfer of, the full purchase price,
the Purchaser is delivering a completed and executed signature page to this Subscription Agreement along with a completed and executed
Accredited Investor Questionnaire, the form of which is annexed hereto as Exhibit A (the Subscription Agreement, the Accredited
Investor Questionnaire and any other documents provided in connection with the Offering, collectively the “Transaction
Documents”).

 

3. Deposit of Funds. All payments made
as provided in Section 2 hereof shall be deposited by the Company into a segregated Company bank account. In the event the Company
does not effect a Closing during the Offering Period, the Company will refund all subscription funds, without deduction and/or
interest accrued thereon, and will return the subscription documents to each Investor.

 

4. Acceptance of Subscription. The Investor
understands and agrees that the Company in its sole discretion reserves the right to accept or reject this or any other subscription
for Shares, in whole or in part, notwithstanding prior receipt by the Investor of notice of acceptance of this subscription. The
Company shall have no obligation hereunder until the Company shall execute and deliver to the Investor an executed copy of this
Subscription Agreement. If this subscription is rejected in whole or the Offering is terminated, all funds received from the Investor
will be returned without interest, penalty, deduction or offset, and this Subscription Agreement shall thereafter be of no further
force or effect. If this subscription is rejected in part (at the sole discretion of the Company), the funds for the rejected portion
of this subscription will be returned without interest, penalty, deduction or offset, and this Subscription Agreement will continue
in full force and effect to the extent this subscription was accepted.

 

5. Representations and Warranties. The
Investor hereby acknowledges, represents, warrants and agrees as follows:

 

(a) None of the Shares offered pursuant to
the Memorandum are registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state
securities laws. The Investor understands that the offering and sale of the Shares is intended to be exempt from registration under
the Securities Act, by virtue of Section 4(2) and Section 4(6) thereof and the provisions of Regulation D promulgated thereunder,
based, in part, upon the representations, warranties and agreements of the Investor contained in this Subscription Agreement;

 

    	4

    	 

    

 

(b) The Investor and the Investor’s attorney,
accountant, representative and/or tax advisor, if any (collectively, the “Advisors”), have received the Memorandum,
this Subscription Agreement and all other documents requested by the Investor or its Advisors, if any, and have carefully reviewed
them and understand the information contained therein prior to the execution of this Subscription Agreement;

 

(c) Neither the Securities and Exchange Commission
(the “SEC”) nor any state securities commission has approved the Shares or passed upon or endorsed the merits
of the Offering or confirmed the accuracy or determined the adequacy of the Transaction Documents including the Memorandum. The
Memorandum has not been reviewed by any federal, state or other regulatory authority;

 

(d) All documents, records, and books pertaining
to the investment in the Shares (including, without limitation, the Memorandum) have been made available for inspection by such
Investor and the Advisors, if any;

 

(e) In evaluating the suitability of an investment
in the Company, the Investor has not relied upon any representation or other information (oral or written) other than as stated
in the Memorandum or as contained in documents or answers to questions so furnished to the Investor or its Advisors, if any, by
the Company in writing;

 

(f) The Investor is unaware of, is no way relying
on, and did not become aware of the Offering through or as a result of, in any form of general solicitation or general advertising
including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or
similar media or broadcast over television, radio or over the Internet, in connection with the offering and sale of the Shares
and is not subscribing for Shares and did not become aware of the Offering through or as a result of any seminar or meeting to
which the Investor was invited by, or any solicitation of a subscription by, a person not previously known to the Investor in connection
with investments in securities generally;

 

(g) The Investor has taken no action that would
give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Subscription Agreement
or the transactions contemplated hereby (other than as otherwise described in the Memorandum);

 

(h) The Investor, either alone or together
with its Advisor(s), if any, has such knowledge and experience in financial, tax, and business matters, and, in particular, investments
in securities, so as to enable it to utilize the information made available to it in connection with the Offering to evaluate the
merits and risks of an investment in the Shares and the Company and to make an informed investment decision with respect thereto;

 

(i) The Investor is not relying on the Company,
or any of its respective employees or agents with respect to the legal, tax, economic and related considerations of an investment
in the Shares, and the Investor has relied on the advice of, or has consulted with, only its own Advisor(s);

 

    	5

    	 

    

 

(j) The Investor is acquiring the Shares solely
for such Investor’s own account for investment purposes only and not with a view to or intent of resale or distribution thereof,
in whole or in part. The Investor has no agreement or arrangement, formal or informal, with any person to sell or transfer all
or any part of the Shares, and the Investor has no plans to enter into any such agreement or arrangement. The Investor agrees that
he, she or it will not sell or otherwise transfer the Shares unless they are registered under the Securities Act or unless an exemption
from such registration is available;

 

(k) The Investor
understands and agrees that the purchase of the Shares represents a high risk investment and the Investor is able to afford an
investment in a speculative venture having the risks and objectives of the Company. The Investor must bear the substantial economic
risks of the investment in the Shares indefinitely because none of the Shares may be sold, hypothecated or otherwise disposed of
unless subsequently registered under the Securities Act and applicable state securities laws or an exemption from such registration
is available and may not be sold pursuant to the exemptions provided by Section 4(1) of the Securities Act, in accordance with
the letter from Richard K. Wulff, Chief of the Office of Small Business Policy of the Securities and Exchange Commission’s
Division of Corporation Finance, to Ken Worm of NASD Regulation, dated January 21, 2000 (the “Wulff Letter”). The Wulff
Letter provides that certain private transfers of the shares of common stock also may be prohibited without registration under
federal securities laws. All holders of shares of common stock of a “shell company” will be permitted to sell their
shares of common stock under Rule 144, subject to certain restrictions, starting one year after (i) the completion of a merger
and (ii) the Company’s filing of its “Form 10 information” indicating that the Company is no longer a shell company.
Until this period has elapsed, the Company may not permit resales of the Shares and there can be no assurance that the conditions
necessary to permit such sales under Rule 144 will ever be satisfied. The Investor understands that the Company is under no obligation
to comply with the conditions of Rule 144 or take any other action necessary in order to make available any exemption from registration
for the sale of the Shares. Legends shall be placed on the certificates representing the Shares to the effect that they have not
been registered under the Securities Act or applicable state securities laws and appropriate notations thereof will be made in
the Company's stock books. It is not anticipated that there will be any market for resale of the Shares, and such securities will
not be freely transferable at any time in the foreseeable future;

 

(l) The Investor has adequate means of providing
for such Investor’s current financial needs and foreseeable contingencies and has no need for liquidity of the investment
in the Shares for an indefinite period of time;

 

(m) The Investor is aware that an investment
in the Shares involves a number of very significant risks and has carefully read and considered the matters set forth in the Memorandum
and, in particular, the matters under the caption “Risk Factors” therein and understands any of such risks may materially
adversely affect the Company;

 

(n) The Investor is an “accredited investor”
within the meaning of Regulation D, Rule 501(a), promulgated by the SEC under the Securities Act and has truthfully and accurately
completed the Accredited Investor Questionnaire in the form of Exhibit A attached hereto, and will submit to the Company
such further assurances of such status as may be reasonably requested by the Company;

 

    	6

    	 

    

 

(o) The Investor: (i) if a natural person,
represents that the Investor has reached the age of 21 and has full power and authority to execute and deliver this Subscription
Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation,
partnership, or limited liability company or partnership, or association, joint stock company, trust, unincorporated organization
or other entity, represents that such entity was not formed for the specific purpose of acquiring the Shares, such entity is duly
organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions
contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents,
such entity has full power and authority to execute and deliver this Subscription Agreement, the Transaction Documents and all
other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Shares,
the execution and delivery of this Subscription Agreement has been duly authorized by all necessary action, this Subscription Agreement
has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii)
if executing this Subscription Agreement in a representative or fiduciary capacity, represents that it has full power and authority
to execute and deliver this Subscription Agreement in such capacity and on behalf of the subscribing individual, ward, partnership,
trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Investor is executing this
Subscription Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership,
or other entity has full right and power to perform pursuant to this Subscription Agreement and make an investment in the Company,
and represents that this Subscription Agreement constitutes a legal, valid and binding obligation of such entity. The execution
and delivery of this Subscription Agreement will not violate or be in conflict with any order, judgment, injunction, agreement
or controlling document to which the Investor is a party or by which it is bound;

 

(p) The Investor and its Advisor(s), if any,
have had the opportunity to obtain any additional information, to the extent the Company had such information in its possession
or could acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information contained in the
Memorandum and all documents received or reviewed in connection with the purchase of the Shares and have had the opportunity to
have representatives of the Company provide them with such additional information regarding the terms and conditions of this particular
investment and information concerning the Company deemed relevant by the Investor or the Advisors, if any, and all such requested
information, to the extent the Company had such information in its possession or could acquire it without unreasonable effort or
expense, has been provided to the full satisfaction of the Investor and the Advisors, if any. The Investor is satisfied that the
Investor has received adequate information with respect to all matters which it or the Advisors, if any, consider material to its
decision to make this investment;

 

(q) The Investor represents to the Company
that any information which the Investor has heretofore furnished or is furnishing herewith to the Company is complete and accurate
and may be relied upon by the Company in determining the availability of an exemption from registration under federal and state
securities laws in connection with the offering of securities as described in the Memorandum. The Investor hereby represents that
the address of the Investor furnished at the end of this Subscription Agreement is the undersigned’s principal residence,
if the Investor is an individual, or its principal business if it is a corporation or other entity. The Investor further represents
and warrants that it will notify and supply corrective information to the Company immediately upon the occurrence of any change
therein occurring prior to the Company’s issuance of the Shares;

 

    	7

    	 

    

 

(r) The Investor has significant prior investment
experience, including investments in non-listed and non-registered securities. The Investor is knowledgeable about investment considerations
in development-stage companies. The Investor has a sufficient net worth to sustain a loss of its entire investment in the Company
in the event such a loss should occur. The Investor’s overall commitment to investments which are not readily marketable
is not excessive in view of the Investor’s net worth and financial circumstances and the purchase of the Shares will not
cause such commitment to become excessive. The investment is a suitable one for the Investor;

 

(s) The Investor understands and acknowledges
that the Company is a publicly reporting company under the Securities Exchange Act of 1934, as amended, however there is no trading
market for the Company’s securities and there is no guarantee that the Company’s securities will be approved for trading
on a national exchange or quotation service, or that a trading market will ever develop for the Company’s securities; ;

 

(t) The Investor acknowledges that any estimates
or forward-looking statements or projections included in the Memorandum were prepared by the Company in good faith, but that the
attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Company and should not
be relied upon;

 

(u) No oral or written representations have
been made, or oral or written information furnished, to the Investor or the Advisors, if any, in connection with the offering of
the Shares which are in any way inconsistent with the information contained in the Memorandum;

 

(v) Within five (5) days after receipt of a
request from the Company, the Investor will provide such information and deliver such documents as may reasonably be necessary
to comply with any and all laws and ordinances to which the Company is subject;

 

(w) The Investor acknowledges that none
of the Shares have been recommended by any federal or state securities commission or regulatory authority. In making an investment
decision investors must rely on their own examination of the Company and the terms of the Offering, including the merits and risks
involved. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Subscription
Agreement or the Memorandum. Any representation to the contrary is a criminal offense. The Shares are subject to restrictions on
transferability and resale and may not be transferred or resold except as permitted under the Securities Act, and the applicable
state securities laws, pursuant to registration or exemption therefrom. The Investor should be aware that it will be required to
bear the financial risks of this investment for an indefinite period of time;

 

    	8

    	 

    

 

(x) (For ERISA plans only) The fiduciary
of the ERISA plan represents that such fiduciary has been informed of and understands the Company’s investment objectives,
policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company
is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities.
The Investor fiduciary or Plan (a) is responsible for the decision to invest in the Company; (b) is independent of the Company
or any of its affiliates; (c) is qualified to make such investment decision; and (d) in making such decision, the Investor fiduciary
or Plan has not relied primarily on any advice or recommendation of the Company or any of its affiliates;

 

(y) The Investor should
check the Office of Foreign Assets Control (“OFAC”) website at <http://www.treas.gov/ofac> before making the
following representations. The Investor represents that the amounts invested by it in the Company in the Offering were not
and are not directly or indirectly derived from activities that contravene federal, state or international laws and regulations,
including anti-money laundering laws and regulations. Federal regulations and Executive Orders administered by OFAC prohibit,
among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories,
entities and individuals. The lists of OFAC prohibited countries, territories, persons and entities can be found on the OFAC website
at <http://www.treas.gov/ofac>. In addition, the programs administered by OFAC (the “OFAC Programs”)
prohibit dealing with individuals1 or entities in certain countries regardless
of whether such individuals or entities appear on the OFAC lists;

 

(z) None of: (1) the Investor; (2) any person
controlling, controlled by, or under common control with, the Investor; (3) if the Investor is a privately-held entity, any person
having a beneficial interest in the Investor; or (4) any person for whom the Investor is acting as agent or nominee in connection
with this investment, is a country, territory, individual or entity named on an OFAC list, or a person or entity prohibited under
the OFAC Programs. Please be advised that the Company may not accept any amounts from a prospective investor if such prospective
investor cannot make the representation set forth in the preceding paragraph. The Investor agrees to promptly notify the Company
and the Placement Agent should the Investor become aware of any change in the information set forth in these representations. The
Investor understands and acknowledges that, by law, the Company may be obligated to “freeze the account” of the Investor,
either by prohibiting additional subscriptions from the Investor, declining any redemption requests and/or segregating the assets
in the account in compliance with governmental regulations, and the Placement Agent may also be required to report such action
and to disclose the Investor’s identity to OFAC. The Investor further acknowledges that the Company may, by written notice
to the Investor, suspend the redemption rights, if any, of the Investor if the Company reasonably deems it necessary to do so to
comply with anti-money laundering regulations applicable to the Company and the Placement Agent or any of the Company’s other
service providers. These individuals include specially designated nationals, specially designated narcotics traffickers and other
parties subject to OFAC sanctions and embargo programs;

 

(aa) None of: (1) the Investor;
(2) any person controlling, controlled by, or under common control with, the Investor; (3) if the Investor is a privately-held
entity, any person having a beneficial interest in the Investor; or (4) any person for whom the Investor is acting as agent or
nominee in connection with this investment, is a senior foreign political figure2,
or any immediate family3 member or close associate4
of a senior foreign political figure, as such terms are defined in the footnotes below; and

 

1
These individuals include specially designated nationals, specially designated narcotics traffickers
and other parties subject to OFAC sanctions and embargo programs.

 

2
A “senior foreign political figure” is defined as a senior official in the executive,
legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official
of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a “senior
foreign political figure” includes any corporation, business or other entity that has been formed by, or for the benefit
of, a senior foreign political figure.

 

3
“Immediate family” of a senior foreign political figure typically includes the figure’s
parents, siblings, spouse, children and in-laws.

 

4
A “close associate” of a senior foreign political figure is a person who is widely and
publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who
is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political
figure.

 

    	9

    	 

    

 

(bb)
If the Investor is affiliated with a non-U.S. banking institution (a “Foreign Bank”),
or if the Investor receives deposits from, makes payments on behalf of, or handles other financial transactions related to a Foreign
Bank, the Investor represents and warrants to the Company that: (1) the Foreign Bank has a fixed address, other than solely an
electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank maintains
operating records related to its banking activities; (3) the Foreign Bank is subject to inspection by the banking authority that
licensed the Foreign Bank to conduct banking activities; and (4) the Foreign Bank does not provide banking services to any other
Foreign Bank that does not have a physical presence in any country and that is not a regulated affiliate.

 

(cc)
The Investor acknowledges that if the Investor is a Registered Representative of a Financial Industry Regulatory Authority, Inc.
(“FINRA”) member firm, the Investor must give such firm the notice required by the FINRA’s Conduct Rules, receipt
of which must be acknowledged by such firm on the signature page hereof.

 

(dd) The
Investor hereby acknowledges that neither the Company nor any persons associated with the Company who may provide assistance or
advice in connection with the Offering (other than the placement agent, if one is engaged by the Company) are or are expected to
be members or associated persons of members of FINRA or registered broker-dealers under any federal or state securities laws.

 

(ee) If the
Investor is not a United States person, such Investor shall immediately notify the Company and the Investor hereby represents that
the Investor is satisfied as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe
for the Shares or any use of this Subscription Agreement, including (i) the legal requirements within its jurisdiction for the
purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents
that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase,
holding, redemption, sale or transfer of the Shares. Such Investor’s subscription and payment for, and continued beneficial
ownership of, the Shares will not violate any applicable securities or other laws of the Investor’s jurisdiction.

  

    	10

    	 

    

 

6. Indemnification. The Investor
agrees to indemnify and hold harmless the Company and its respective officers, directors, employees, agents, attorneys, control
persons and affiliates from and against all losses, liabilities, claims, damages, costs, fees and expenses whatsoever (including,
but not limited to, any and all legal and other fees and expenses incurred in investigating, preparing or defending against any
litigation commenced or threatened) based upon or arising out of any actual or alleged false acknowledgment, representation or
warranty, or misrepresentation or omission to state a material fact, or breach by the Investor of any covenant or agreement
made by the Investor herein or in any other document delivered in connection with this Subscription Agreement.

 

7. Irrevocability; Binding Effect. The
Investor hereby acknowledges and agrees that the subscription hereunder is irrevocable by the Investor, except as required
by applicable law, and that this Subscription Agreement shall survive the death or disability of the Investor and shall
be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives,
and permitted assigns. If the Investor is more than one person, the obligations of the Investor hereunder shall be
joint and several and the agreements, representations, warranties, and acknowledgments herein shall be deemed to be made by and
be binding upon each such person and such person's heirs, executors, administrators, successors, legal representatives, and permitted
assigns.

 

8. Modification. This Subscription Agreement
shall not be modified or waived except by an instrument in writing signed by the party against whom any such modification or waiver
is sought.

 

9. Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested,
or delivered against receipt to the party to whom it is to be given (a) if to the Company, at the address set forth above, or (b)
if to the Investor, at the address set forth on the signature page attached hereof (or, in either case, to such other address as
the party shall have furnished in writing in accordance with the provisions of this Section 9). Any notice or other communication
given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address
which shall be deemed given at the time of receipt thereof.

 

10. Assignability. This Subscription
Agreement and the rights, interests and obligations hereunder are not transferable or assignable by the Investor and the
transfer or assignment of the Shares shall be made only in accordance with all applicable laws.

 

    	11

    	 

    

 

11.
Applicable Law. This Subscription Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts entered into and to be wholly performed within said
State. The Investor (1) agrees that any legal suit, action or proceeding arising out of or relating to this Subscription Agreement
will be instituted exclusively in New York State Supreme Court, New York County, or in the United States District Court for the
Southern District of New York, (2) waives any objection which the Investor may have now or hereafter to the venue of such suit,
action or proceeding. The Investor further agrees to accept and acknowledge service of any and all process which may be served
in any such suit, action or proceeding, in the New York State Supreme Court, County of New York, or in the United States District
Court for the Southern District of New York and agrees that service of process upon it, in any such suit, action, or proceeding.
THE INVESTOR AGREES TO WAIVE ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SUBSCRIPTION
AGREEMENT, THE MEMORANDUM OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. 

 

13. Blue Sky Qualification. The purchase
of Shares under this Subscription Agreement is expressly conditioned upon the exemption from qualification of the offer and sale
of the Shares from applicable federal and state securities laws. The Company shall not be required to qualify this transaction
under the securities laws of any jurisdiction and, should qualification be necessary, the Company shall be released from any and
all obligations to maintain its offer, and may rescind any sale contracted, in the jurisdiction.

 

14. Use of Pronouns. All pronouns and
any variations thereof used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons referred to may require.

 

15. Confidentiality. The Investor
acknowledges and agrees that any information or data the Investor has acquired from or about the Company, not otherwise
properly in the public domain, was received in confidence. The Investor agrees not to divulge, communicate or disclose,
except as may be required by law or for the performance of this Agreement, or use to the detriment of the Company or for the benefit
of any other person or persons, or misuse in any way, any confidential information of the Company, including any scientific, technical,
trade or business secrets of the Company and any scientific, technical, trade or business materials that are treated by the Company
as confidential or proprietary, including, but not limited to, ideas, discoveries, inventions, developments and improvements belonging
to the Company and confidential information obtained by or given to the Company about or belonging to third parties.

 

16. Miscellaneous.

 

(a) This Subscription Agreement, together with the Memorandum and
other Transaction Documents, constitutes the entire agreement between the Investor and the Company with respect to the subject
matter hereof and supersedes all prior oral or written agreements and understandings, if any, relating to the subject matter hereof.
The terms and provisions of this Subscription Agreement may be waived, or consent for the departure therefrom granted, only by
a written document executed by the party entitled to the benefits of such terms or provisions.

 

(b) The Investor’s representations and
warranties made in this Subscription Agreement shall survive the execution and delivery hereof.

 

    	12

    	 

    

 

(c) Each of the parties hereto shall pay its
own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection
with this Subscription Agreement and the transactions contemplated hereby whether or not the transactions contemplated hereby are
consummated.

 

(d) This Subscription Agreement may be executed in one or more counterparts
each of which shall be deemed an original, but all of which shall together constitute one and the same instrument.

 

(e) Each provision of this Subscription Agreement
shall be considered separable and, if for any reason any provision or provisions hereof are determined to be invalid or contrary
to applicable law, such invalidity or illegality shall not impair the operation of or affect the remaining portions of this Subscription
Agreement.

 

(f) Paragraph titles are for descriptive purposes
only and shall not control or alter the meaning of this Subscription Agreement as set forth in the text. 

 

(g) It is agreed that a waiver by either party
of a breach of any provision of this Subscription Agreement shall not operate or be construed as a waiver of any subsequent breach
by that same party.

 

(h) The parties agree to execute and deliver
all such further documents, agreements and instruments and take such other and further actions as may be necessary or appropriate
to carry out the purposes and intent of this Subscription Agreement.

 

[Remainder of page intentionally left blank.]

 

    	13

    	 

    

 

 

ANTI MONEY LAUNDERING REQUIREMENTS

 

	The USA PATRIOT Act	 	What is money laundering?	 	How big is the problem and why is it important?
	 	 	 	 	 
	The USA PATRIOT Act is designed to detect, deter, and punish terrorists in the United States and abroad.  The Act imposes new anti-money laundering requirements on brokerage firms and financial institutions.  Since April 24, 2002 all brokerage firms have been required to have new, comprehensive anti-money laundering programs.	 	Money laundering is the process of disguising illegally obtained money so that the funds appear to come from legitimate sources or activities.  Money laundering occurs in connection with a wide variety of crimes, including illegal arms sales, drug trafficking, robbery, fraud, racketeering, and terrorism.	 	The use of the U.S. financial system by criminals to facilitate terrorism or other crimes could well taint our financial markets.  According to the U.S. State Department, one recent estimate puts the amount of worldwide money laundering activity at $1 trillion a year.
	 	 	 	 	 
	To help you understand theses efforts, we want to provide you with some information about money laundering and our steps to implement the USA PATRIOT Act.	 	 	 	 

  

	What are we required to do to eliminate money laundering?
	 
	
        Under new rules required by the USA PATRIOT Act,
our anti-money laundering program must designate a special compliance officer, set up employee training, conduct independent audits,
and establish policies and procedures to detect and report suspicious transaction and ensure compliance with the new laws.
	 	
        As part of our required program, we may ask you to
provide various identification documents or other information. Until you provide the information or documents we need, we may
not be able to effect any transactions for you.

 

    	14

    	 

    

 

AFH ACQUISITION VII, INC.

SIGNATURE PAGE TO

SUBSCRIPTION AGREEMENT

 

Investor hereby elects to purchase under
the Subscription Agreement a total of _______ Shares, at per share purchase price of $2.00 per share or an aggregate purchase price
of $_________ and executes the Subscription Agreement.

 

Date (NOTE: To be completed by Investor): ___________________,
2012

 

If the Investor is an INDIVIDUAL, and
if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:

 

	 	 	 	 
	Print Name(s)	 	Social Security Number(s)	 
	 	 	 	 
	 	 	 	 
	Signature(s) of Investor(s)	 	Signature	 
	 	 	 	 
	 	 	 	 
	Date	 	Address	 

 

If the Investor is a PARTNERSHIP, CORPORATION,
LIMITED LIABILITY COMPANY or TRUST:

 

	 	 	 	 
	Name of Partnership,	 	Federal Taxpayer	 
	Corporation, Limited	 	Identification Number	 
	Liability Company or Trust	 	 	 

 

	By:	 	 	 	 
	Name:	 	 	State of Organization	 
	Title:	 	 	 	 

 

	 	 	 	 
	Date	 	Address	 

 

ACCEPTANCE OF SUBSCRIPTION

 

The foregoing subscription is hereby accepted
by AFH Acquisition VII, Inc. this ____ day of [●] 2012.

 

	 	AFH ACQUISITION VII, INC.
	 	 	 
	 	By:	 
	 	 	Amir H. Heshmatpour, President

 

    	15

    	 

    

 

Exhibit A

 

Form of Accredited Investor Questionnaire

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00218-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00218-of-00352.parquet"}]]