Document:

Exhibit 10.6

 

SOLAREDGE TECHNOLOGIES, INC.

 

2015 GLOBAL INCENTIVE PLAN

 

ADOPTED BY THE BOARD: JANUARY 28, 2015
 APPROVED BY THE STOCKHOLDERS:                       , 2015
 EFFECTIVE DATE:                        , 2015

 

1.                                      GENERAL.

 

(a)                                 Successor to and Continuation of Prior Plan.

 

(i)                                     The Plan is the successor to and continuation of the Company’s 2007 Global Incentive Plan, as amended and together with attachments thereto (the “Prior Plan”). From and after 12:01 a.m. Eastern time on the Effective Date, no additional stock awards will be granted under the Prior Plan. All stock awards granted under the Prior Plan remain subject to the terms of the Prior Plan. All Awards granted on or after 12:01 a.m. Eastern Time on the Effective Date are subject to the terms of this Plan.

 

(ii)                                  Any shares that would otherwise remain available for future grants under the Prior Plan as of 12:01 a.m. Eastern Time on the Effective Date will cease to be available under the Prior Plan at such time.

 

(iii)                               From and after 12:01 a.m. Eastern time on the Effective Date, a number of shares of Common Stock equal to the total number of shares of common stock subject to outstanding stock awards granted under the Prior Plan that (A) expire or terminate for any reason prior to exercise or settlement, (B) are forfeited because of the failure to meet a contingency or condition required to vest or issue such shares or repurchased at the original issuance price, or (C) are otherwise reacquired or are withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or as consideration for the exercise or purchase price of an award (the “Returning Shares”) will immediately be added to the Share Reserve (as further described in Section 3(a) below) as and when such shares become Returning Shares and become available for issuance pursuant to Stock Awards granted hereunder.

 

(b)                                 Eligible Award Recipients.  Employees, Directors, and Consultants are eligible to receive Awards.

 

(c)                                  Available Awards.  The Plan provides for the grant of the following Awards: (i) Incentive Stock Options; (ii) Nonstatutory Stock Options; (iii) Stock Appreciation Rights; (iv) Restricted Stock Awards; (v) Restricted Stock Unit Awards; (vi) Performance Stock Awards; (vii) Performance Cash Awards; and (viii) Other Stock Awards.

 

(d)                                 Purpose.  This Plan, through the granting of Awards, is intended to help the Company secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock.

 

 

2.                                      ADMINISTRATION.

 

(a)                                 Administration by Board.  The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c).

 

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

 

(i)                                     To determine: (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted; (D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise or otherwise receive cash or Common Stock under the Award; (E) the number of shares of Common Stock subject to, or the cash value of, an Award; and (F) the Fair Market Value applicable to a Stock Award.

 

(ii)                                  To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Award Document or in the written terms of a Performance Cash Award, in a manner and to the extent it will deem necessary or expedient to make the Plan or Award fully effective.

 

(iii)                               To settle all controversies regarding the Plan and Awards granted under it.

 

(iv)                              To accelerate, in whole or in part, or to extend, in whole or in part, the time during which an Award may be exercised or vest, or at which cash or shares of Common Stock may be issued.

 

(v)                                 To suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Document, suspension or termination of the Plan will not materially impair a Participant’s rights under his or her then-outstanding Award without his or her written consent except as provided in subsection (viii) below.

 

(vi)                              To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, adopting amendments relating to Incentive Stock Options and nonqualified deferred compensation under Section 409A of the Code and/or making the Plan or Awards granted under the Plan exempt from or compliant with the requirements for Incentive Stock Options or exempt from or compliant with the requirements for nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any, of applicable law. If required by applicable law or listing requirements, and except as provided in Section 10(a) relating to Capitalization Adjustments, the Company will seek stockholder approval of any amendment of the Plan that (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially expands the types of Awards available for issuance under the Plan. Except as otherwise provided in the Plan (including subsection (viii) below) or an Award Document, no amendment of the

 

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Plan will materially impair a Participant’s rights under an outstanding Award without the Participant’s written consent.

 

(vii)                           To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees, (B) Section 422 of the Code regarding “incentive stock options” or (C) Rule 16b-3 of Exchange Act or any successor rule.

 

(viii)                        To approve forms of Award Documents for use under the Plan and to amend the terms of any one or more outstanding Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Documents for such Awards, subject to any specified limits in the Plan that are not subject to Board discretion. A Participant’s rights under any Award will not be impaired by any such amendment unless the Company requests the consent of the affected Participant, and the Participant consents in writing. However, a Participant’s rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially impair the Participant’s rights. In addition, subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Awards without the affected Participant’s consent (A) to maintain the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code, (B) to change the terms of an Incentive Stock Option, if such change results in impairment of the Award solely because it impairs the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code, (C) to clarify the manner of exemption from, or to bring the Award into compliance with, Section 409A of the Code, or (D) to comply with other applicable laws or listing requirements.

 

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

 

(x)                                 To adopt such procedures and sub-plans as are necessary or appropriate (A) to permit or facilitate participation in the Plan by persons eligible to receive Awards under the Plan who are not citizens of, subject to taxation by, or employed outside, the United States or (B) allow Awards to qualify for special tax treatment in a jurisdiction other than the United States.  Board approval will not be necessary for immaterial modifications to the Plan or any Award Document that are required for compliance with the laws of the relevant jurisdiction.

 

(xi)                              To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Stock Award; (B) the cancellation of any outstanding Stock Award and the grant in substitution therefore of a new (1) Option or SAR, (2) Restricted Stock Award, (3) Restricted Stock Unit Award, (4) Other Stock Award, (5) cash award and/or (6) award of other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of shares of Common Stock as the cancelled Stock Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles.

 

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(c)                                  Delegation to Committee.

 

(i)                                     General.  The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee). Any delegation of administrative powers will be reflected in the charter of the Committee to which the delegation is made, or resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Committee may, at any time, abolish the subcommittee and/or revest in the Committee any powers delegated to any subcommittee. Unless otherwise provided by the Board, delegation of authority by the Board to a Committee, or to an Officer or employee pursuant to Section 2(d), does not limit the authority of the Board, which may continue to exercise any authority so delegated and may concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.

 

(ii)                                  Section 162(m) and Rule 16b-3 Compliance.  The Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3 of the Exchange Act.

 

(d)                                 Delegation to an Officer or Employee.  The Board may delegate to one (1) or more Officers or employees the authority to do one or both of the following: (i) designate Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Stock Awards) and, to the extent permitted by applicable law, the terms of such Awards; and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation will specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Any such Stock Awards will be granted on a form that is substantially the same as the form of Stock Award Document approved by the Committee or the Board for use in connection with such Stock Awards, unless otherwise provided for in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value (as defined below), except that an Officer may calculate or cause to have calculated the Fair Market Value based on a formula or guidelines established under the Plan or by the Board or Committee.

 

(e)                                  Effect of Board’s Decision.  All determinations, interpretations and constructions made by the Board (or a duly authorized Committee, subcommittee, Officer or employee exercising powers delegated by the Board under this Section 2) in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.

 

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3.                                      SHARES SUBJECT TO THE PLAN.

 

(a)                                 Share Reserve.

 

(i)                                     Subject to Section 10(a) relating to Capitalization Adjustments, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards from and after the Effective Date will not exceed 1,443,126 shares of Common Stock (the “Share Reserve”) plus (A) any Returning Shares and (B) shares of Common Stock added as a result of the “evergreen” provision in Section 3(a)(ii).

 

(ii)                                  The Share Reserve will automatically increase on January 1st of each year beginning in 2016 and ending with a final increase on January 1, 2025, in an amount equal to five percent (5%) of the total number of shares of Capital Stock outstanding on December 31st of the preceding calendar year. The Board may provide that there will be no January 1st increase in the Share Reserve for any such year or that the increase in the Share Reserve for any such year will be a smaller number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence.

 

(iii)                               For clarity, the Share Reserve is a limitation on the number of shares of Common Stock that may be issued under the Plan. As a single share may be subject to grant more than once (e.g., if a share subject to a Stock Award is forfeited, it may be made subject to grant again as provided in Section 3(b) below), the Share Reserve is not a limit on the number of Stock Awards that can be granted.

 

(iv)                              Shares may be issued under the terms of this Plan in connection with a merger or acquisition as permitted by NASDAQ Listing Rule 5635(c), NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance will not reduce the number of shares available for issuance under the Plan.

 

(b)                                 Reversion of Shares to the Share Reserve.  If a Stock Award or any portion of a Stock Award (i) expires, is cancelled or forfeited or otherwise terminates without all of the shares covered by the Stock Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than stock), such expiration, cancellation, forfeiture, termination or settlement will not reduce (or otherwise offset) the number of shares of Common Stock that are available for issuance under the Plan. If any shares of Common Stock issued under a Stock Award are forfeited back to, reacquired at no cost by, or repurchased at cost by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited, reacquired or repurchased will revert to and again become available for issuance under the Plan. Any shares retained and not issued by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will not reduce (or otherwise offset) the number of shares of Common Stock that are available for issuance under the Plan. Any shares reacquired by the Company (as distinguished from being retained without issuance by the Company) in satisfaction of tax withholding obligations on a Stock Award, as consideration for the exercise or purchase price of a Stock Award, or with the proceeds paid by the Participant under the terms of a Stock Award, will again become available for issuance under the Plan, but only if such

 

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reacquisition occurs during the period beginning on the Effective Date and ending on the tenth (10th) anniversary of the date on which the Company’s stockholders initially approved the Plan.

 

(c)                                  Incentive Stock Option Limit.  Subject to Section 10(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued on the exercise of Incentive Stock Options will be 10,000,000 shares of Common Stock.

 

(d)                                 Section 162(m) Limitations.  Subject to Section 10(a) relating to Capitalization Adjustments, at such time as the Company is subject to the applicable provisions of Section 162(m) of the Code, the following limitations will apply:

 

(i)                                     A maximum of 1,500,000 shares of Common Stock subject to Options, SARs and Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the Fair Market Value on the date any such Stock Award is granted may be granted under the Plan as “qualified performance-based compensation” under Section 162(m) of the Code to any one Participant during any calendar year. Grants in excess of the foregoing annual limit of any additional Options, SARs or Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the Fair Market Value on the date any such Stock Award is granted will not satisfy the requirements for such “qualified performance-based compensation” unless such additional Stock Awards are separately approved by the Company’s stockholders in a manner that complies with the applicable requirements of Section 162(m) of the Code.

 

(ii)                                  A maximum of 1,500,000 shares of Common Stock subject to Performance Stock Awards may be granted to any one Participant during any one calendar year (whether the grant, vesting or exercise is contingent upon the attainment during the Performance Period of the Performance Goals).

 

(iii)                               A maximum of USD $3,000,000 may be granted as a Performance Cash Award to any one Participant during any one calendar year.

 

If a Performance Stock Award is in the form of an Option, it will count only against the Performance Stock Award limit. If a Performance Stock Award could (but is not required to) be paid out in cash, it will count only against the Performance Stock Award limit.

 

(e)                                  Source of Shares.  The stock issuable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market or otherwise.

 

4.                                      ELIGIBILITY.

 

(a)                                 Eligibility for Specific Stock Awards.  Incentive Stock Options may be granted only to employees of the Company or a “parent corporation” or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however, that Stock Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any “parent” of the Company, as such term is defined

 

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in Rule 405 of the Securities Act, unless (i) the stock underlying such Stock Awards is treated as “service recipient stock” under Section 409A of the Code (for example, because the Stock Awards are granted pursuant to a corporate transaction such as a spin off transaction), or (ii) the Company, in consultation with its legal counsel, has determined that such Stock Awards are otherwise exempt from or comply with the distribution requirements of Section 409A of the Code.

 

(b)                                 Ten Percent Stockholders.  A Ten Percent Stockholder will not be granted an Incentive Stock Option unless the exercise price of such Option is at least 110% of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

 

5.                                      PROVISIONS RELATING TO OPTIONS AND STOCK APPRECIATION RIGHTS.

 

Each Option or SAR will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical; provided, however, that each Award Document will conform to (through incorporation of provisions hereof by reference in the applicable Award Document or otherwise) the substance of each of the following provisions:

 

(a)                                 Term.  Subject to Section 4(b) regarding Ten Percent Stockholders, no Option or SAR will be exercisable after the expiration of 10 years from the date of its grant or such shorter period specified in the Award Document.

 

(b)                                 Exercise Price.  Subject to Section 4(b) regarding Ten Percent Stockholders, the exercise or strike price of each Option or SAR will be not less than 100% of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than 100% of the Fair Market Value of the Common Stock subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant to a corporate transaction and in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.

 

(c)                                  Purchase Price for Options.  The purchase price of Common Stock acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below.  The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment.

 

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The purchase price shall be denominated in U.S. dollars. The permitted methods of payment are as follows:

 

(i)                                     by cash, check, bank draft or money order payable to the Company;

 

(ii)                                  pursuant to a program developed under Regulation T as promulgated by the United States Federal Reserve Board or a successor regulation, or a similar rule in a foreign jurisdiction of domicile of a Participant, that, prior to or contemporaneously with the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the proceeds of sale of such stock;

 

(iii)                               by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;

 

(iv)                              if an Option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company will accept cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or

 

(v)                                 in any other form of legal consideration that may be acceptable to the Board and specified in the applicable Award Document.

 

(d)                                 Exercise and Payment of a SAR.  To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Award Document evidencing such SAR. The appreciation distribution payable on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the SAR) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such SAR (with respect to which the Participant is exercising the SAR on such date), over (B) the aggregate strike price of the number of Common Stock equivalents with respect to which the Participant is exercising the SAR on such date. The appreciation distribution may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Award Document evidencing such SAR.

 

(e)                                  Transferability of Options and SARs.  The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board determines. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and SARs will apply:

 

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(i)                                     Restrictions on Transfer.  An Option or SAR will not be transferable except by will or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws. Except as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration.

 

(ii)                                  Domestic Relations Orders.  Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by U.S. Treasury Regulation 1.421-1(b)(2)  or other applicable law. If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.

 

(iii)                               Beneficiary Designation.  Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice to the Company, in a form approved by the Company (or the designated broker), designate a third party who, on the death of the Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, the executor or administrator of the Participant’s estate will be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws.

 

(f)                                   Vesting Generally.  The total number of shares of Common Stock subject to an Option or SAR may vest and therefore become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR may be exercised.

 

(g)                                  Termination of Continuous Service.  Except as otherwise provided in the applicable Award Document, or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates (other than for Cause and other than upon the Participant’s death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date three (3) months following the termination of the Participant’s Continuous Service and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Document. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR will terminate.

 

(h)                                 Extension of Termination Date.  Except as otherwise provided in the applicable Award Document, or other agreement between the Participant and the Company, if the exercise

 

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of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause and other than upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option or SAR will terminate on the earlier of (i) the expiration of a total period of three (3) months (that need not be consecutive) after the termination of the Participant’s Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements, and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Document. In addition, unless otherwise provided in a Participant’s applicable Award Document, or other agreement between the Participant and the Company, if the sale of any Common Stock received upon exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause) would violate the Company’s insider trading policy, and the Company does not waive the potential violation of the policy or otherwise permit the sale, or allow the Participant to surrender shares of Common Stock to the Company in satisfaction of any exercise price and/or any withholding obligations under Section 9(h), then the Option or SAR will terminate on the earlier of (i) the expiration of a period of months (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Participant’s Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the Company’s insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Document.

 

(i)                                     Disability of Participant.  Except as otherwise provided in the applicable Award Document, or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date 12 months following such termination of Continuous Service, and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Document. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.

 

(j)                                    Death of Participant.  Except as otherwise provided in the applicable Award Document, or other agreement between the Participant and the Company, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii) the Participant dies within the period (if any) specified in this Plan or the applicable Award Document, or other agreement between the Participant and the Company, for exercisability after the termination of the Participant’s Continuous Service (for a reason other than death), then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participant’s estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participant’s death, but only within the period ending on the earlier of (i) the date 18 months following the date of death, and (ii) the expiration of the term of such Option or SAR as set forth in the applicable Award Document. If, after the Participant’s death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR will terminate.

 

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(k)                                 Termination for Cause.  Except as explicitly provided otherwise in a Participant’s Award Document or other individual written agreement between the Company or any Affiliate and the Participant, if a Participant’s Continuous Service is terminated for Cause, the Option or SAR will terminate upon the date on which the event giving rise to the termination for Cause first occurred, and the Participant will be prohibited from exercising his or her Option or SAR from and after the date on which the event giving rise to the termination for Cause first occurred (or, if required by law, the date of termination of Continuous Service). If a Participant’s Continuous Service is suspended pending an investigation of the existence of Cause, all of the Participant’s rights under the Option or SAR will also be suspended during the investigation period.

 

(i)                                     Non-Exempt Employees.  If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the U.S. Fair Labor Standards Act of 1938, as amended, the Option or SAR will not be first exercisable for any shares of Common Stock until at least 6 months following the date of grant of the Option or SAR (although the Award may vest prior to such date). Consistent with the provisions of the U.S. Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Change in Control in which such Option or SAR is not assumed, continued, or substituted, or (iii) upon the non-exempt Employee’s retirement (as such term may be defined in the non-exempt Employee’s applicable Award Document, in another agreement between the non-exempt Employee and the Company, or, if no such definition, in accordance with the Company’s then current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than 6 months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt Employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the U.S. Worker Economic Opportunity Act to ensure that any income derived by a non-exempt Employee in connection with the exercise, vesting or issuance of any shares under any other Stock Award will be exempt from such employee’s regular rate of pay, the provisions of this paragraph will apply to all Stock Awards and are hereby incorporated by reference into such Stock Award Documents.

 

6.                                      PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS AND SARS.

 

(a)                                 Restricted Stock Awards.  Each Restricted Stock Award Document will be in such form and will contain such terms and conditions as the Board deems appropriate. To the extent consistent with the Company’s bylaws, at the Board’s election, shares of Common Stock may be (x) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse, or (y) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Documents may change from time to time, and the terms and conditions of separate Restricted Stock Award Documents need not be identical. Each Restricted Stock Award Document will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

 

(i)                                     Consideration.  A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including

 

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future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.

 

(ii)                                  Vesting.  Shares of Common Stock awarded under the Restricted Stock Award Document may be subject to forfeiture to the Company in accordance with a vesting schedule and subject to such conditions as may be determined by the Board.

 

(iii)                               Termination of Participant’s Continuous Service.  If a Participant’s Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right, any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Document.

 

(iv)                              Transferability.  Common Stock issued pursuant to an Award, and rights to acquire shares of Common Stock under the Restricted Stock Award Document, will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Document, as the Board determines in its sole discretion, so long as such Common Stock remains subject to the terms of the Restricted Stock Award Document.

 

(v)                                 Dividends.  A Restricted Stock Award Document may provide that any dividends paid on Restricted Stock will be subject to the same vesting and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate.

 

(b)                                 Restricted Stock Unit Awards. Each Restricted Stock Unit Award Document will be in such form and will contain such terms and conditions as the Board deems appropriate. The terms and conditions of Restricted Stock Unit Award Documents may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Documents need not be identical. Each Restricted Stock Unit Award Document will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:

 

(i)                                     Consideration.  At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.

 

(ii)                                  Vesting.  At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.

 

(iii)                               Payment.  A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Document.

 

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

 

(v)                                 Dividend Equivalents.  Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Document. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award Document to which they relate.

 

(vi)                              Termination of Participant’s Continuous Service.  Except as otherwise provided in the applicable Restricted Stock Unit Award Document, or other agreement between the Participant and the Company, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.

 

(c)                                  Performance Awards.

 

(i)                                     Performance Stock Awards.  A Performance Stock Award is a Stock Award (covering a number of shares not in excess of that set forth in Section 3(d) above) that is payable (including that may be granted, vest or exercised) contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board, or an authorized Officer or employee), in its sole discretion. In addition, to the extent permitted by applicable law and the applicable Award Document, the Board may determine that cash may be used in payment of Performance Stock Awards.

 

(ii)                                  Performance Cash Awards.  A Performance Cash Award is a cash award (for a dollar value not in excess of that set forth in Section 3(d)(iii) above) that is granted and/or becomes payable contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee (or, if not required for compliance with Section 162(m) of the Code, the Board, or an authorized Officer or employee), in its sole discretion. The Board may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.

 

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(iii)                               Board Discretion.  The Committee (or, if not required for compliance with Section 162(m) of the Code, the Board, or an authorized Officer or employee),  retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for a Performance Period.

 

(iv)                              Section 162(m) Compliance.  Unless otherwise permitted in compliance with the requirements of Section 162(m) of the Code with respect to an Award intended to qualify as “performance-based compensation” thereunder, the Committee will establish the Performance Goals applicable to, and the formula for calculating the amount payable under, the Award no later than the earlier of (A) the date 90 days after the commencement of the applicable Performance Period, and (B) the date on which 25% of the Performance Period has elapsed, and in any event at a time when the achievement of the applicable Performance Goals remains substantially uncertain. Prior to the payment of any compensation under an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee will certify in writing the extent to which any Performance Goals and any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Common Stock). Notwithstanding satisfaction of any completion of any Performance Goals, the number of shares of Common Stock, Options, cash or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further considerations as the Committee, in its sole discretion, will determine.  For avoidance of doubt, nothing in this Plan shall limit the discretion of the Board, the Committee or any other duly authorized delegate of the Board to grant Awards that do not comply with the requirements under Section 162(m) of the Code.

 

(d)                                 Other Stock Awards.  Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than 100% of the Fair Market Value of the Common Stock at the time of grant) may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards.

 

7.                                      GRANTS OF STOCK AWARDS TO NON-EMPLOYEE DIRECTORS.

 

In addition to any other Stock Awards that Directors may be granted on a discretionary basis under the Plan, each Director who at the time of grant is not either (i) an employee of the Company or any of its Subsidiaries, or (ii) a consultant performing material services for the Company or any of its Subsidiaries (“Eligible Director”), shall be automatically granted without the necessity of action by the Board, the following Stock Awards:

 

(a)                                 Initial Stock Award.  On the date that a Director commences service on the Board and satisfies the definition of an Eligible Director, initial Stock Awards shall

 

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automatically be made to that Eligible Director.  Notwithstanding the foregoing, if that date is during a regular quarterly blackout period under the Company’s Insider Trading Policy, then the Initial Grant (as defined below) will be issued upon termination of that regular quarterly blackout period, but not earlier than the day after the completion of two full day trading sessions of the principal exchange or market system upon which the Common Stock trades following the filing of the SEC report on Form 10-Q or Form 10-K that includes financial statements for the most recently completed fiscal quarter of the Company. The Fair Market Value of the Stock Awards shall not exceed Four Hundred Fifty Thousand dollars (USD $450,000) (“Initial Grant”).  Subject to the terms of the Plan, the Compensation Committee shall determine in its sole discretion the type or types of Stock Awards made under an Initial Grant.  The exercise price of any Option granted under the Initial Grant shall be one hundred percent (100%) of the Fair Market Value of the Company’s Common Stock subject to the option on the date the option is granted.  The maximum term of any such Option shall be ten (10) years. The Initial Grant shall generally vest and become exercisable (if applicable) over a period of three (3) years in equal annual installments provided that the Director remains in Continuous Service during that period.  The Initial Grant shall vest in full upon the occurrence of a Change in Control, provided that such Director in still in Continuous Service at such time.  In all other respects, Stock Awards granted pursuant to an Initial Grant shall contain in substance the same terms and conditions as set forth in Section 5 with respect to Options or SARs and Section 6 with respect to other Stock Awards.  If at the time a Director commences service on the Board, the Director does not satisfy the definition of an Eligible Director, such Director shall not be entitled to an Initial Grant at any time, even if such Director subsequently becomes an Eligible Director.

 

(b)                                 Annual Stock Award.  An annual grant of Stock Awards shall automatically be made to each Director who either (1) is re-elected to the Board at the Company’s Annual General Meeting of Stockholders (“Annual Meeting”) or (2) is a continuing Director immediately after such Annual Meeting because the class in which such Director sits was not up for election, and in either case is an Eligible Director on the relevant grant date.  The Fair Market Value of such Stock Awards shall not exceed Two Hundred Thousand Dollars (USD $200,000) (“Annual Grant”).  Subject to the terms of the Plan, the Compensation Committee shall determine in its sole discretion the type or types of Stock Awards made under an Annual Grant.  The date of grant of an Annual Grant is the date immediately following the date of the Annual Meeting at which the Director is re-elected to serve on the Board or immediately after which continues to serve on the Board, as applicable.  Notwithstanding the immediately preceding sentence, if that date is during a regular quarterly blackout period under the Company’s Insider Trading Policy, then the Annual Grant will be issued upon termination of that regular quarterly blackout period, but not earlier than the day after the completion of two full day trading sessions of the principal exchange or market system upon which the Common Stock trades following the filing of the SEC report on Form 10-Q or Form 10-K that includes financial statements for the most recently completed fiscal quarter of the Company.  The exercise price of any Option granted under the Annual Grant shall be one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted.  The maximum term of any such Option shall be ten (10) years.  An Annual Grant shall generally vest and become exercisable (if applicable) on the earlier of the first anniversary of the grant date provided that the Director remains in Continuous Service during that period or the next regular Annual Meeting.  The Annual Grant shall vest in full upon the occurrence of a Change in Control, provided that such Director in still in Continuous Service at such time.  In all other respects, Stock Awards granted

 

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pursuant to an Annual Grant shall contain in substance the same terms and conditions as set forth in Section 5 with respect to Options or SARs and Section 6 with respect to other Stock Awards.

 

Each individual who is appointed as a Director between Annual Meetings and is an Eligible Director at the time of appointment will receive a Stock Award (“Pro-Rata Grant”).  The date of grant of a Pro-Rata Award shall be the date on which such a Director commences service on the Board; provided, however, if that date is during a regular quarterly blackout period under the Company’s Insider Trading Policy, then the Pro-Rata Grant will be issued upon termination of that regular quarterly blackout period, but not earlier than the day after the completion of two full day trading sessions of the principal exchange or market system upon which the Common Stock trades following the filing of the SEC report on Form 10-Q or Form 10-K that includes financial statements for the most recently completed fiscal quarter of the Company.  The Fair Market Value of a Pro-Rata Grant shall not exceed the product of Sixteen Thousand Six Hundred Sixty Six dollars and sixty seven cents (USD $16,666.67) and the number of full 30-day periods from the date of election or appointment to the Board until the scheduled date of the next Annual Meeting (if the next annual meeting has not yet been scheduled, assuming the next annual meeting is scheduled to be held on the same month and day as the immediately preceding annual meeting).  In all other respects, Stock Awards granted pursuant to a Pro-Rata Grant shall contain in substance the same terms and conditions as an Annual Grant.

 

8.                                      COVENANTS OF THE COMPANY.

 

(a)                                 Availability of Shares.  The Company will keep available at all times the number of shares of Common Stock reasonably required to satisfy then-outstanding Stock Awards.

 

(b)                                 Securities Law Compliance.  The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking will not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of cash or Common Stock pursuant to the Award if such grant or issuance would be in violation of any applicable securities law.

 

(c)                                  No Obligation to Notify or Minimize Taxes.  The Company will have no duty or obligation to any Participant to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to, and does not undertake to, provide tax advice or to minimize the tax consequences of an Award to the holder of such Award.

 

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9.                                      MISCELLANEOUS.

 

(a)                                 Use of Proceeds from Sales of Common Stock.  Proceeds from the sale of shares of Common Stock pursuant to Stock Awards will constitute general funds of the Company.

 

(b)                                 Corporate Action Constituting Grant of Awards.  Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date that all necessary corporate action has occurred and all terms of the Award (including, in the case of stock options, the exercise price thereof) are fixed, unless otherwise determined by the Board, regardless of when the documentation evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Document as a result of a clerical error in the papering of the Award Document, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Document.

 

(c)                                  Stockholder Rights.  No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to a Stock Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of shares of Common Stock under, the Stock Award pursuant to its terms, and (ii) the issuance of the Common Stock subject to such Stock Award has been entered into the books and records of the Company.

 

(d)                                 No Employment or Other Service Rights.  Nothing in the Plan, any Award Document or any other instrument executed thereunder or in connection with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or any other capacity or will affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, including, but not limited to, Cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the organizational documents of the Company or an Affiliate (including articles of incorporation and bylaws), and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

 

(e)                                  Change in Time Commitment.  In the event a Participant’s regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee or takes an extended leave of absence), or the Participant’s role or primary responsibilities are changed to a level that, in the Board’s determination does not justify the Participant’s unvested Awards, and such reduction or change occurs after the date of grant of any Award to the Participant, the Board has the right in its sole discretion to (i) make a corresponding reduction in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (ii) in lieu of or in

 

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combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.

 

(f)                                   Incentive Stock Option Limitations.  To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds USD$100,000 (or such other limit established in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or otherwise do not comply with such rules will be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).

 

(g)                                  Investment Assurances.  The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award, and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (i) the issuance of the shares upon the exercise of a Stock Award or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

 

(h)                                 Withholding Obligations.  Unless prohibited by the terms of an Award Document, the Company may, in its sole discretion, satisfy any national, state, local or other tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Award; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such other amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant, including proceeds from the sale of shares of Common Stock issued pursuant to a Stock Award; or (v) by such other method as may be set forth in the Award Document.

 

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(i)                                     Electronic Delivery.  Any reference herein to a “written” agreement or document will include any agreement or document delivered electronically, filed publicly at www.sec.gov (or any successor website thereto), or posted on the Company’s intranet (or other shared electronic medium controlled by the Company to which the Participant has access).

 

(j)                                    Deferrals.  To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code (to the extent applicable to a Participant). Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participant’s termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.

 

(k)                                 Compliance with Section 409A.  Unless otherwise expressly provided for in an Award Document, or other agreement between the Participant and the Company, the Plan and Award Documents will be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A of the Code, to the extent that Section 409A of the Code is applicable to an Award, and, to the extent not so exempt, in compliance with Section 409A of the Code. If the Board determines that any Award granted hereunder is subject to Section 409A of the Code, the Award Document evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and to the extent an Award Document is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the Award Document. Notwithstanding anything to the contrary in this Plan (and unless the Award Document specifically provides otherwise), if the shares of Common Stock are publicly traded, and if a Participant holding an Award that constitutes “deferred compensation” under Section 409A of the Code is a “specified employee” for purposes of Section 409A of the Code and the Participant is otherwise subject to Section 409A of the Code, no distribution or payment of any amount that is due because of a “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six (6) months following the date of such Participant’s “separation from service” or, if earlier, the date of the Participant’s death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump sum on the day after such six (6) month period elapses, with the balance paid thereafter on the original schedule.

 

(i)                                     Clawback/Recovery.  All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Document as the Board determines necessary or appropriate, including, but not limited to, a reacquisition right in respect

 

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of previously acquired shares of Common Stock or other cash or property upon the occurrence of Cause. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company or an Affiliate.

 

10.                               ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.

 

(a)                                 Capitalization Adjustments.  In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a); (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c); (iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to Section 3(d); and (iv) the class(es) and number of securities or other property and value (including price per share of stock) subject to outstanding Stock Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive.

 

(b)                                 Dissolution or Liquidation.  Except as otherwise provided in the Stock Award Document, or other agreement between the Participant and the Company, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Company’s right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Company’s repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service; provided, however, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.

 

(c)                                  Change in Control.  The following provisions will apply to Awards in the event of a Change in Control unless otherwise provided in the instrument evidencing the Award or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of an Award. In the event of a Change in Control, then, notwithstanding any other provision of the Plan, the Board will take one or more of the following actions with respect to each outstanding Award, contingent upon the closing or completion of the Change in Control:

 

(i)                                     arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or continue the Award or to substitute a similar award for the Award (including, but not limited to, an award to acquire the same consideration per share paid to the stockholders of the Company pursuant to the Change in Control);

 

(ii)                                  arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to the Award to the surviving

 

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corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company);

 

(iii)                               accelerate the vesting, in whole or in part, of the Award (and, if applicable, the time at which the Award may be exercised) to a date prior to the effective time of such Change in Control as the Board will determine  (or, if the Board will not determine such a date, to the date that is 5 days prior to the effective date of the Change in Control), with such Award terminating if not exercised (if applicable) at or prior to the effective time of the Change in Control, and with such exercise reversed if the Change in Control does not become effective;

 

(iv)                              arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Award;

 

(v)                                 cancel or arrange for the cancellation of the Award, to the extent not vested or not exercised prior to the effective time of the Change in Control, in exchange for such cash consideration, if any, as the Board, in its reasonable determination, may consider appropriate as an approximation of the value of the canceled Award, taking into account the value of the Common Stock subject to the canceled Award, the possibility that the Award might not otherwise vest in full, and such other factors as the Board deems relevant; and

 

(vi)                              cancel or arrange for the cancellation of the Award, to the extent not vested or not exercised prior to the effective time of the Change in Control, in exchange for a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value in the Change in Control of the property the Participant would have received upon the exercise of the Award immediately prior to the effective time of the Change in Control, over (B) any exercise price payable by such holder in connection with such exercise.

 

The Board need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Board may take different actions with respect to the vested and unvested portions of an Award.

 

In the absence of any affirmative determination by the Board at the time of a Change in Control, each outstanding Award will be assumed or an equivalent Award will be substituted by such successor corporation or a parent or subsidiary of such successor corporation (the “Successor Corporation”), unless the Successor Corporation does not agree to assume the Award or to substitute an equivalent Award, in which case the vesting of such Award will accelerate in its entirety (along with, if applicable, the time at which the Award may be exercised) to a date prior to the effective time of such Change in Control as the Board will determine (or, if the Board will not determine such a date, to the date that is 5 days prior to the effective date of the Change in Control), with such Award terminating if not exercised (if applicable) at or prior to the effective time of the Change in Control, and with such exercise reversed if the Change in Control does not become effective.

 

(d)                                 Acceleration of Awards upon a Change in Control.  An Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Award Document for such Award or as may be provided in any other written

 

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agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.

 

11.                               TERMINATION OR SUSPENSION OF THE PLAN.

 

The Board or the Compensation Committee may suspend or terminate the Plan at any time. The Plan will have no fixed expiration date; provided, however, that no Incentive Stock Option may be granted more than 10 years after the later of (i) the Adoption Date and (ii) the adoption by the Board of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

 

12.                               EFFECTIVE DATE OF PLAN; TIMING OF FIRST GRANT OR EXERCISE.

 

The Plan shall come into existence on the Effective Date and no Award may be granted under the Plan prior to the Effective Date. In addition, no Stock Award may be exercised (or, in the case of a Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, or Other Stock Award, may be granted) and no Performance Cash Award may be settled unless and until the Plan has been approved by the stockholders of the Company, which approval will be within 12 months before or after the Adoption Date.

 

13.                               CHOICE OF LAW.

 

The laws of the State of Delaware will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that state’s conflict of laws rules.

 

14.                               DEFINITIONS.

 

As used in the Plan, the following definitions will apply to the capitalized terms indicated below:

 

(a)                                 “Adoption Date” means the date the Plan is adopted by the Board.

 

(b)                                 “Affiliate” means, at the time of determination, any “parent” or “subsidiary” of the Company, as such terms are defined in Rule 405 of the Securities Act. The Board will have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.

 

(c)                                  “Award” means a Stock Award or a Performance Cash Award.

 

(d)                                 “Award Document” means a written agreement between the Company and a Participant, or a written notice issued by the Company to a Participant, evidencing the terms and conditions of an Award.

 

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

 

(f)                                   “Capital Stock” means each and every class of common stock of the Company, regardless of the number of votes per share.

 

22

 

(g)                                  “Capitalization Adjustment” means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Adoption Date without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other similar equity restructuring transaction, as that term is used in Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.

 

(h)                                 “Cause” will have the meaning ascribed to such term in any written agreement between the Participant and the Company or any Affiliate defining such term and, in the absence of such agreement, such term means, with respect to a Participant, the occurrence of any of the following events: (i) Participant’s failure substantially to perform his or her duties and responsibilities to the Company or any Affiliate or deliberate material violation of a policy of the Company or any Affiliate; (ii) Participant’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in injury to the Company or any Affiliate; (iii) unauthorized use or disclosure by Participant of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company or any Affiliate; or (iv) Participant’s willful breach of any of his or her obligations under any written agreement or covenant with the Company or any Affiliate. The determination as to whether a Participant is being terminated for Cause will be made in good faith by the Company and will be final and binding on the Participant. Any determination by the Company that the Continuous Service of a Participant was terminated with or without Cause for the purposes of outstanding Awards held by such Participant will have no effect upon any determination of the rights or obligations of the Company, any Affiliate or such Participant for any other purpose.

 

(i)                                     “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

 

(i)                                     any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than 35% of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (C) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes

 

23

 

the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur;

 

(ii)                                  there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing 65% or more of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) 65% or more of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;

 

(iii)                               there is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than 50% of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

 

(iv)                              individuals who, on the Adoption Date, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board.

 

Notwithstanding the foregoing definition or any other provision of this Plan, (A) the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company, and (B) the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply.

 

If required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if such transaction is not also a “change in the ownership or effective control of” the Company or “a change in the ownership of a substantial portion of the assets of” the Company as determined under U.S. Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). The Board may, in its sole discretion and without a Participant’s consent, amend the definition of “Change in Control” to conform to the definition of “Change in Control” under Section 409A of the Code, and the regulations thereunder.

 

24

 

(j)                                    “Code” means the U.S. Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.

 

(k)                                 “Committee” means a committee of one (1) or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).

 

(l)                                     “Compensation Committee” means the Compensation Committee of the Board.

 

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

 

(n)                                 “Company” means SolarEdge Technologies, Inc., a Delaware corporation.

 

(o)                                 “Consultant” means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a “Consultant” for purposes of the Plan. Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form Registration Statement on Form S-8 or a successor form under the Securities Act is available to register either the offer or the sale of the Company’s securities to such person.

 

(p)                                 “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the Entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, will not terminate a Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director will not constitute an interruption of Continuous Service. If the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board in its sole discretion, such Participant’s Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. In addition, if required for exemption from or compliance with Section 409A of the Code, the determination of whether there has been a termination of Continuous Service will be made, and such term will be construed, in a manner that is consistent with the definition of “separation from service” as defined under U.S. Treasury Regulation Section 1.409A-1(h) (without regard to any alternative definition thereunder). A leave of absence will be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the applicable Award Document, the Company’s leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.

 

25

 

(q)                                 “Covered Employee” will have the meaning provided in Section 162(m)(3) of the Code.

 

(r)                                    “Director” means a member of the Board.

 

(s)                                   “Disability” means, with respect to a Participant, the inability of such Participant 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 that has lasted or can be expected to last for a continuous period of not less than 12 months as provided in Sections 22(e)(3) and 409A(a)(2)(C)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.

 

(t)                                    “Effective Date” means the date of the underwriting agreement between the Company and the underwriters(s) managing the initial public offering of the Common Stock, pursuant to which the Common Stock is priced for the initial public offering of the Company’s securities pursuant to a registration statement filed and declared effective pursuant to the Securities Act.

 

(u)                                 “Employee” means any person providing services as an employee of the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an “Employee” for purposes of the Plan.

 

(v)                                 “Entity” means a corporation, partnership, limited liability company or other entity.

 

(w)                               “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

(x)                                 “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company, or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities.

 

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

 

(i)                                     If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of Common Stock as of any date of determination will be, unless otherwise determined by the Board, the closing sales price for such stock as quoted on such exchange or market (or the exchange or market with the greatest volume

 

26

 

of trading in the Common Stock) on the date of determination, as reported in a source the Board deems reliable.

 

(ii)                                  Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on the date of determination, then the Fair Market Value will be the closing selling price on the last preceding date for which such quotation exists.

 

(iii)                               In the absence of such markets for the Common Stock, the Fair Market Value will be determined by the Board in good faith and in a manner that complies with Sections 409A and 422 of the Code.

 

(z)                                  “Incentive Stock Option” means an option granted pursuant to Section 5 of the Plan that is intended to be, and that qualifies as, an “incentive stock option” within the meaning of Section 422 of the Code.

 

(aa)                          “Non-Employee Director” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3 of the Exchange Act.

 

(bb)                          “Nonstatutory Stock Option” means any option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option.

 

(cc)                            “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.

 

(dd)                          “Option” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.

 

(ee)                            “Option Agreement” means an Award Document evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.

 

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

 

(gg)                            “Other Stock Award” means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(d).

 

(hh)                          “Other Stock Award Document” means an Award Document evidencing the terms and conditions of an Other Stock Award grant. Each Other Stock Award Document will be subject to the terms and conditions of the Plan.

 

27

 

(ii)                                  “Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of U.S. Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an “affiliated corporation,” and does not receive remuneration from the Company or an “affiliated corporation,” either directly or indirectly, in any capacity other than as a Director, or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code

 

(jj)                                “Own,” “Owned,” “Owner,” “Ownership” means a person or Entity will be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

 

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

 

(ll)                                  “Performance Cash Award” means an award of cash granted pursuant to the terms and conditions of Section 6(c)(ii).

 

(mm)                  “Performance Criteria” means the one or more criteria that the Board will select for purposes of establishing the Performance Goals for a Performance Period.  The Performance Criteria that will be used to establish such Performance Goals may be based on any one of, or combination of, the following as determined by the Board: (1) profit before tax; (2) billings; (3) revenue; (4) net revenue; (5) earnings (which may include earnings before interest, taxes, depreciation and amortization, or some of them, or net earnings); (6) operating income; (7) operating margin; (8) operating profit; (9) controllable operating profit, or net operating profit; (10) net profit; (11) gross margin; (12) operating expenses or operating expenses as a percentage of revenue; (13) net income; (14) earnings per share; (15) total stockholder return calculated either solely with respect to the Company’s performance  or relative to a benchmark; (16) market share; (17) return on assets or net assets; (18) the Company’s stock price; (19) growth in stockholder value relative to a pre-determined index; (20) return on equity; (21) return on invested capital; (22) cash flow (including free cash flow or operating cash flows); (23) cash conversion cycle; (24) economic value added; (25) individual confidential business objectives; (26) contract awards or backlog; (27) overhead or other expense reduction; (28) credit rating; (29) strategic plan development and implementation; (30) succession plan development and implementation; (31) improvement in workforce diversity; (32) customer indicators; (33) new product invention or innovation; (34) attainment of research and development milestones; (35) improvements in productivity; (36) achievement in quality product production and/or performance; and (37) bookings.

 

(nn)                          “Performance Goals” means, for a Performance Period, the one or more goals established by the Board or Committee for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, as appropriate, and in either absolute terms or relative to the performance of one or more comparable companies or the

 

28

 

performance of one or more relevant indices.  Performance Goals for financial Performance Criteria may be determined on either a GAAP or non-GAAP basis.  Unless specified otherwise by the Board (i) in the Award Document at the time the Award is granted or (ii) in such other document setting forth the Performance Goals at the time the Performance Goals are established, the Board will appropriately make adjustments in the method of calculating the attainment of Performance Goals for a Performance Period as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses under the Company’s bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles and (12) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item. In addition, the Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for such Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Document or the written terms of a Performance Cash Award.

 

(oo)                          “Performance Period” means the period of time selected by the Board over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board.

 

(pp)                          “Performance Stock Award” means a Stock Award granted under the terms and conditions of Section 6(c)(i).

 

(qq)                          “Plan” means this 2015 Global Incentive Plan of SolarEdge Technologies, Inc.

 

(rr)                                “Restricted Stock Award” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).

 

(ss)                              “Restricted Stock Award Document” means an Award Document evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Document will be subject to the terms and conditions of the Plan.

 

29

 

(tt)                                “Restricted Stock Unit Award” means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(b).

 

(uu)                          “Restricted Stock Unit Award Document” means an Award Document evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Document will be subject to the terms and conditions of the Plan.

 

(vv)                          “Securities Act” means the U.S. Securities Act of 1933, as amended.

 

(ww)                      “Stock Appreciation Right” or “SAR” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 5.

 

(xx)                          “Stock Appreciation Right Award Document” means an Award Document evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Award Document will be subject to the terms and conditions of the Plan.

 

(yy)                          “Stock Award” means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award, or any Other Stock Award.

 

(zz)                            “Stock Award Document” means an Award Document evidencing the terms and conditions of a Stock Award grant. Each Stock Award Document will be subject to the terms and conditions of the Plan.

 

(aaa)                   “Subsidiary” means, with respect to the Company, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%.

 

(bbb)                   “Ten Percent Stockholder” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Affiliate.

 

END OF DOCUMENT

 

30EX-10.1

 EXHIBIT 10.1 

MATERIAL SUPPLY AGREEMENT 

This Agreement is made and entered into and effective as of November 2, 2009 (the “Effective Date”) by and between Johnson
Matthey Inc., a Pennsylvania corporation (“JMI”) and KemPharm, Inc., an Iowa corporation, with corporate headquarters located at 7 Hawkeye Drive Suite 103 North Liberty, IA 52317 (“Company”). This Agreement may be referenced
in orders and other correspondence related hereto as Agreement No. 656 
 WITNESSETH: 

WHEREAS, Company is in the business of developing, manufacturing and marketing pharmaceutical products and Company wishes to develop
and file with the U.S. Food and Drug Administration new drug applications (“NDA” as further defined hereinbelow) for drug products containing active pharmaceutical ingredient (“API” as further defined hereinbelow), and upon
approval of such application(s), Company will manufacture and market product containing such API to be exclusively supplied by JMI (“Product” as further defined hereinbelow) in the United States of America and its Territories (the
“Territory”); and 
 WHEREAS, JMI is in the business of, among other things, developing, manufacturing and marketing raw
materials, and JMI wishes to supply Company with all of Company’s requirements of API for Product subject to the terms of this Agreement; and 

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 

ARTICLE 1. Definitions 

“Act” means the Federal Food, Drug and Cosmetic Act of 1938, including any amendments thereto and all regulations promulgated
thereunder. 
 “Additional Royalty” has the meaning provided in Section 4(a)(ii). 

“Affiliate” means, with respect to a party hereto, any person or entity directly or indirectly controlling, controlled by or
under common control with, such party, with “control” meaning the ownership or control, directly or indirectly, of at least fifty percent (50%) of the voting equity of such party or person, or possession of the power to direct or
cause the direction of the management and policies of such party, person or entity, whether through the ownership of voting securities, by contract or otherwise. 

“Annual Gross Sales” has the meaning provided in Section 4(a)(i) 

“API” means an active pharmaceutical ingredient which is an ester of hydrocodone or any derivatives consisting or comprising
of KP201 and/or any analogues thereof, and their salt form(s) including those salt form(s) subsequently selected pursuant to 
Section 2(b). 
  

  
 1. 

[*] = Certain confidential information contained in this document, marked by [*], is filed with the Securities and Exchange Commission pursuant to Rule 406
of the Securities Act of 1933, as amended. 

 “API Manufacturing Cost” means JMI’s fully allocated cost of manufacturing
the API for the Product calculated in accordance with GAAP on a consistently applied basis, including but not limited to costs of direct materials, direct labor and manufacturing overheads expended in the production, packaging, quality control and
assurance, and regulatory compliance of the API. 
 “API Specifications” has the meaning provided in Section 9(a).

 “Bankruptcy Law” has the meaning provided in Section 6(d). 

“Calendar Quarter” means any of the three-month periods beginning January 1, April 1, July 1 and
October 1 of any calendar year during the term of this Agreement. 
 “Calendar Year” means any of the twelve-month
periods beginning January and ending December 31 of any year during the term of this Agreement. 
 “cGMP” means
current Good Manufacturing Practices established by the FDA, as amended from time to time. 
 “Commercially Reasonable
Efforts” means efforts and resources equivalent to those normally employed by a reasonable third party in the pharmaceutical industry, when exercising reasonable business practice and judgment, to diligently develop, manufacture,
procure requisite regulatory approvals, market and/or distribute a product of similar market potential at a similar stage in its product life, taking into account the establishment of the Product in the Marketplace, the number of competitors
supplying products competing in the Marketplace, the conditions or prospects of regulatory approval, the profitability of the Product and other relevant factors 

“Commercial Launch” means the first arm’s length transaction by Company with a third-party for the commercial sale
of the Product after NDA Approval is received. 
 “Company” means KemPharm, Inc., a corporation, with corporate
headquarters located at 7 Hawkeye Drive Suite 103, North Liberty, IA 52317. 
 “Company Shares” has the meaning
provided in Section 2(c). 
 “Confidential Information” means or includes (i) any information or data owned or
licensed by a party hereto which such party treats as proprietary and confidential, including, but not limited to, data, documents, trade secrets, methods, processes, techniques, know-how, show-how and scientific and business information, which
information or data is exchanged between the parties pursuant to this Agreement or in contemplation of the transactions contemplated hereby, and (ii) any and all business and technical information or data that are developed pursuant to this
Agreement. 
 “DEA” means the United States Drug Enforcement Administration and any successor agency thereto. 

“DMF” means a drug master file or any supplement thereto for API filed by JMI with the FDA pursuant to the Act. 

“Effective Date” means the effective date of this Agreement first written above. 

“FDA” means the United States Food and Drug Administration and any successor agency thereto. 

  
 2. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 “Firm Quarter” has the meaning provided in Section 3(b). 

“FOB” means Free on Board. 

“GAAP” means generally accepted accounting procedures in effect at the time of application in the United States of America.

 “Gross Sales” means, with respect to Product, the total amount invoiced for sales of such Product in the Territory by
Company and its Affiliates and licensees to an independent third party in bona fide, arms-length transactions. 
 “Initial
Term” has the meaning provided in Section 6(a). 
 “JMI” means Johnson Matthey Inc., a Pennsylvania
corporation having a place of business at 2003 Nolte Dr., West Deptford, NJ 08066. 
 “KP201” means the Company’s
KP201 conjugate technology related to hydrocodone. 
 “Marketplace” means the market for the commercial sale of narcotic
analgesic pharmaceutical drug products in the Territory. 
 “Minimum Royalty” has the meaning provided in
Section 4(a). 
 “NDA” means a new drug application for Product to be filed by Company with the FDA as provided in
Section 2(a). 
 “NDA Approval” means the approval by the FDA of the Product for sale and marketing following
completion of the regulatory approval process for the NDA. 
 “Net Profits” means, with respect to Product, the Gross Sales
of the Product less: (i) distribution fee, (ii) Product Manufacturing Costs paid by Company, (iii) accrued customary trade, cash and quantity discounts, (iv) accrued rebates, adjustments and allowances, including those for
rejections, recall, returns, and floor stock adjustments, (v) accrued Medicaid and other federal or state rebates, chargebacks and similar items, (vi) if included in the aggregate gross invoice price of such Product, sales or
excise taxes (including any such tax as a value added tax or similar tax or charge), and (vii) freight and insurance on shipment of such Product, each such reduction calculated in accordance with GAAP consistently applied. 

“PPI” means the Producer Price Index determined from Table VI of the Producer Prices and Price Index, commodity code 063
for drugs and pharmaceuticals, United States Bureau of Labor Statistics (or if discontinued such equivalent index as is mutually agreed to by the parties). 

“Product” means the pharmaceutical drug product containing API which is the subject of the NDA. 

“Product Manufacturing Costs” means the fully allocated cost of formulating and manufacturing the Product calculated in
accordance with GAAP on a consistently applied basis, including but not limited to costs of direct materials, direct labor and manufacturing overheads expended in the production, packaging, quality control and assurance, and regulatory
compliance of the Product. 
 “Renewal Terms” has the meaning provided in Section 6(a). 

  
 3. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 “Royalty” has the meaning provided in Section 4(a). 

“Term” means the Initial Term and any Renewal Term(s) of this Agreement. 

“Territory” has the meaning provided in the First Recital above. 

ARTICLE 2. Development and Development Costs 

a) Company shall use Commercially Reasonable Efforts to develop, prepare and submit for approval an NDA with the FDA and perform all related
development activities up to and including receiving NDA Approval in conformity in all material respects with all applicable federal, state and local laws, regulations, orders and ordinances pertinent thereto. 

Company will be responsible for manufacturing of the Product submission batches and satisfactory submission thereof to the FDA for the NDA
submission. For the avoidance of doubt, Company shall be the sole owner of KP201, the Product, and the NDA and shall be responsible for managing the regulatory approval process with respect to the NDA, including handling all quality assurance
decisions with respect to approving the Product for commercial sale, recalls and all other product compliance issues with respect to the Product. With respect to KP201, the Product, and any inventions which Company solely owns, Company shall be the
sole owner of, and solely responsible for the preparation, filing, prosecution and maintenance of, any and all existing and/or hereinafter filed or issued patents, including continuations and substitute applications thereof, and all foreign
counterparts thereof, at Company’s sole expense. 
 Company shall keep JMI informed of the progress of the prosecution of the NDA. Upon
receipt of written or oral communications from the FDA or any other regulatory authority relating to the Product and the Product’s NDA, Company shall notify JMI and provide a copy of any written communication as requested as soon as
reasonably practicable but in no case more than fourteen (14) business days from the receipt thereof. 
 b) Subject to JMI receiving
the necessary DEA quota, JMI shall use Commercially Reasonable Efforts to provide the following development services: 
  

			
	Phase 1:	  	JMI will deliver to Company [*] each of API in [*] forms, to be reasonably determined by Company;
		
	Phase 2:	  	Upon Company’s selection and written notification to JMI of the desired [*] form of the API, JMI will scale and optimize the process for commercial production; and
		
	Phase 3:	  	Upon completion of Phase 2, JMI will prepare and ship to Company [*] of cGMP API in the [*] form selected during Phase 2. The parties anticipate the shipment of such [*] cGMP API will be approximately [*] from the Effective Date,
but in no event shall such shipment be earlier than [*] from the date on which Company notifies JMI of the selected [*] form of the API in Phase 2.

 c) In consideration of the development work provided by JMI pursuant to Article 2(b), and the provision of
research and development quantities of API to Company by JMI hereunder, Company shall issue to JMI 564,516 shares of the Company’s Class A common stock (the “Company Shares”) upon completion of Phase 3 as defined in
Section 2(b). The determination of the Company’s Shares is based on the investment described in the first sentence of this Section 2(c) having a value of $[*] at a per share price of $[*]. Prior to the Company’s issuance of
the Company Shares to JMI, JMI shall execute a subscription agreement substantially in the form attached hereto as Exhibit C. 

  
 4. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 d) JMI shall use Commercially Reasonable Efforts to develop reference standards, impurities,
applicable validated analytical methods, and stability profiles for the API in conformity in all material respects with all applicable federal, state and local laws, regulations orders and ordinances pertinent thereto. 

e) JMI shall prepare and submit to the FDA the DMF and maintain, amend, update and supplement such DMF as required by the FDA in order for an
NDA which incorporates the DMF by reference to receive NDA Approval. During the Term JMI shall grant to Company exclusive access to the DMF for reference in connection with Company’s NDA, and JMI shall file with the FDA such written
authorizations as may be reasonably necessary in order to permit such access. 
 f) Subject to receiving the necessary DEA quotas, the
parties will endeavor to meet the NDA development timelines provided in Exhibit A. 
 g) JMI shall use Commercially Reasonable Efforts to
support Company’s preparation, filing, prosecution and maintenance of the NDA. 
 h) Upon receiving NDA Approval, Company shall use
Commercially Reasonable Efforts in its Commercial Launch of the Product in accordance with all specifications set forth in the regulatory filings applicable to the Product. 

ARTICLE 3. Purchase and Sale of API 

a) During the Term Company agrees to purchase from JMI one hundred percent (100%) of Company’s requirements of the API for the
Product in the Territory, subject to the provision of Section 3(h), and JMI shall satisfy such requirements by selling directly to Company such API in accordance with the forecasting provisions in Section 3(b). JMI shall not supply any
third party in the Territory with API during the Term. 
 b) Unless otherwise mutually agreed in writing, at least [*] in advance of
Company’s Commercial Launch hereunder, Company shall provide JMI with a [*] month estimate, by Calendar Quarter, of its requirements of such API. [*] days prior to the start of each Calendar Quarter (the “Firm Quarter”), the
forecast for such quarter shall become a binding order, which, for record purposes only, Company shall provide JMI with a purchase order. Prior to the aforementioned [*] day, Company may modify its forecast for a Firm Quarter by no more than
[*] from the last estimate for such Firm Quarter unless otherwise mutually agreed upon by both parties by providing written notice of such modification to JMI. Moreover, at least [*] days in advance of the Firm Quarter, Company shall update its
estimates for the [*] Calendar Quarters succeeding the Firm Quarter and JMI shall be entitled to rely on the forecast for the [*] in such rolling forecast for the purpose of obtaining the necessary raw materials for the manufacture of such API. 

For example and for illustration purposes only, if Company desires that Commercial Launch of Product begins on [*], Company shall provide to
JMI no later than [*], a forecast of the quantities required for the calendar quarters beginning on [*]. On [*], the forecast for the quarter beginning on [*] (the Firm Quarter in this example), will become a binding order, and Company will provide
JMI with an updated forecast of the quantities required for the calendar quarters beginning on [*]. 

  
 5. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 Additionally, Company will provide JMI with DEA-222 and Certificate of Available Quota
forms in proportion to such forecasts not less than ten (10) days prior to any requested delivery date. If so requested by Company and subject to Article 5, JMI will use Commercially Reasonable Efforts to supply Company with API in
excess of any estimates or forecasts, provided that failure to provide such excess amounts shall not be deemed to be a breach of this Agreement. 

c) For the initial order of API to be used for commercial sale of the Product, the parties will agree on the forecast, including shipment
schedules, at the earliest practicable time and JMI will use Commercially Reasonable Efforts to supply such API as specified in that order. Batch sizes for lots to be used for submission in Company’s NDA will be defined by the Company, subject
to JMI’s agreement, during the validation process, but shall not be less than one-half of the entire batch size required for the completion of the validation process. 

d) API shall be shipped FOB JMI’s West Deptford plant, packed in accordance with DEA and United States Department of Transportation
requirements for interstate shipment. JMI shall ship the quantity of API ordered by Company in accordance with the delivery instructions set forth in each purchase order and mutually agreed prior to shipment. In the event Company is unable for any
reason to supply the necessary DEA Certificate of Available Quota form prior to the requested delivery date, Company shall pay for such Product which will be held by JMI at Company’s risk of loss pending receipt of the appropriate Quota
form from Company. 
 e) Excepting quantity orders, the terms and conditions contained in any purchase order, acknowledgment and invoice
issued by either party in connection with this Agreement shall be void and of no effect. 
 f) JMI shall produce API in conformance with the
applicable API Specifications set forth at Exhibit B. If the FDA modifies the API Specifications as a condition for obtaining NDA Approval and Company so notifies JMI in writing, JMI shall use Commercially Reasonable Efforts to perform its
obligations under this Agreement at no additional cost to Company; provided that in the event that the Specifications are changed in a manner that results in increased costs to JMI, the parties shall negotiate in good faith a price increase to
be reflected in the API Manufacturing Cost that is commensurate with the cost increase. 
 g) Except with respect to JMI’s
responsibility in connection with the DMF as provided in Section 2(e), Company shall be responsible for all regulatory and commercial activities related to Product, including without limitation, performing quality assurance testing and
stability testing, maintaining adverse drug information, complaints and annual reports, so that the Product conforms to all applicable federal, state and local laws, regulations orders and ordinances. 

h) Upon Commercial Launch of the Product, JMI shall identify and qualify an alternative site of JMI or its Affiliates to serve as a secondary
supplier of API, subject to the approval of Company, which approval shall not be unreasonably withheld. In the event JMI is unable to qualify a secondary supplier, Company may qualify a secondary supplier to provide no greater than [*] of the API
for each Calendar Year; provided, however, that in the event JMI is unable to satisfy Company’s requirements, then: (i) Company may purchase from such secondary supplier [*], and (ii) JMI shall [*], if any, [*] the secondary supplier
[*] so long as JMI consents to the [*] such secondary supplier, which consent shall not be unreasonably withheld, and Company does not include the [*] in the calculation of [*] for purposes of calculating the [*]. For the avoidance of doubt, all [*]
calculations will be based on [*] and will be [*]. 

  
 6. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 ARTICLE 4. Price and Payment 

a) Royalty: During the Term Company will pay JMI a royalty on Net Profits. The total royalty shall be calculated as the Minimum Royalty
(defined below) plus the Additional Royalty (defined below). The Minimum Royalty and Additional Royalty are collectively referred to as the “Royalty” or “Royalties”. 

i) Minimum Royalty: JMI will provide Company, free of charge, any API which is delivered for use prior to the completion of the
Product’s validation process. In consideration thereof, during the Term, Company shall pay JMI a minimum royalty on the Net Profits of the Product sold in each Calendar Quarter in accordance with the following tiered royalty rate based on the
Gross Sales of the Product for such Calendar Year (“Annual Gross Sales”) (the foregoing royalty hereinafter the “Minimum Royalty”): 
  

					
	 Annual Gross Sales (in USD) of the Product
	  	Royalty Rate on Net Profits	 
	 For the First $[*]
	  	 	[	*]% 
		
	 From Greater than $[*] up to and including $[*]
	  	 	[	*]% 
		
	 From $[*] to $[*]
	  	 	[	*]% 
		
	 From $[*] or greater
	  	 	[	*]% 

 For clarification and illustration purposes only, calculation of Minimum Royalty will be based on the following examples: the
Minimum Royalty rate on Net Profits will be [*]% until cumulative sales reach $[*] USD after which time the Minimum Royalty rate will fall to the second tier i.e. [*]%; for example if the Gross Sales of the Product in the first three months of a
Calendar Year were $[*], $[*], and $[*] respectively, the Minimum Royalty would be calculated as [*]% of Net Profits from the first $[*] of Annual Gross Sales plus [*]% of Net Profits from the next $[*] in Annual Gross Sales. If the
cumulative Net Profit in any Calendar Quarter is a negative figure (a “Net Loss”), then for purposes of calculating the Minimum Royalty, such Net Loss shall be carried forward and offset against a subsequent Calendar Quarter’s Net
Profit; provided, however, that a Net Loss for any given Calendar Quarter cannot be carried forward beyond the [*] immediately following consecutive Calendar Quarters for purposes of calculating the Minimum Royalty for the subsequent Calendar
Quarters. 
 ii) Additional Royalty: Subject to Section 4(a)(iii), JMI will provide Company, free of charge, any API which is
delivered during the period of time occurring immediately after the completion of the validation process and continuing until API is delivered for use in Company’s Commercial Launch. In consideration thereof, notwithstanding payment of the
Minimum Royalty, Company shall pay JMI an additional royalty on the Net Profits of the Product sold in each Calendar Quarter in accordance with the following tiered royalty rate based on the Annual Gross Sales of the Product in such Calendar Year
(“Additional Royalty”): 
  

					
	 Annual Gross Sales (in USD) of the Product
	  	Royalty Rate on Net Profits	 
	 For the First $[*]
	  	 	[	*]% 
		
	 From Greater than $[*] up to and including $[*]
	  	 	[	*]% 
		
	 From $[*] or greater
	  	 	[	*]% 

  
 7. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 For clarification and illustration purposes only, calculation of Additional Royalty will be based on the
following examples: the Additional Royalty rate on the Net Profits will be [*]% until cumulative sales reach $[*] USD after which time the Additional Royalty rate will fall to the second tier i.e. [*]%; for example if the Annual Gross Sales of the
Product in the first three months of a Calendar Year were $[*], $[*] and $[*], respectively, the Additional Royalty would be calculated as [*]% of Net Profits from the first $[*] of Annual Gross Sales plus [*]% of Net Profits from the next $[*] in
Annual Gross Sales. For purposes of calculating the Additional Royalty, a Net Loss during any Calendar Quarter shall be carried forward and offset against a subsequent Calendar Quarter’s Net Profit; provided, however, that a Net Loss for any
given Calendar Quarter cannot be carried forward beyond the [*] immediately following consecutive Calendar Quarters for purposes of calculating the Additional Royalty for the subsequent Calendar Quarters. 

(iii) After the completion of the validation process relating to the API, JMI and Company may negotiate and agree, in the form of a written
addendum to the Agreement, upon a price per unit which Company shall pay JMI, in lieu of the Additional Royalty, for any API which is delivered during the period of time occurring immediately after the completion of the validation process and
continuing until API is delivered for use in Company’s Commercial Launch. If the parties so agree, Company will pay the agreed price per unit for such API and will not pay the Additional Royalty to JMI. If the parties cannot agree on such a
price per unit of API, JMI will supply such API to Company free of charge and Company will pay Additional Royalty to JMI, pursuant to Section 4(a)(ii). Nothing in this Section 4(a)(iii) affects the required payment of the Minimum Royalty
pursuant to Section 4(a)(i). 
 iv) Sales by Company to its Affiliates shall be made and, for purposes of the calculation of Annual
Gross Sales and Net Profits, shall be deemed third party transactions and shall be deemed to have been made, if not actually made, at the price Company would have charged an unaffiliated buyer in an arm’s length transaction of similar size and
scope. 
 b) Price of API for Commercial Use by Company. Beginning with API delivered for use in Company’s Commercial Launch and
continuing until the expiration or termination of the Initial Term and Renewal Terms, if any, JMI will supply API for a price equal to the API Manufacturing Cost, subject to the following: The parties hereto acknowledge and agree that as
of the Effective Date, JMI is unable to establish the API Manufacturing Cost. Therefore, the parties agree that after the completion of the Product’s validation process and as soon as Commercially Reasonable Efforts permit, JMI will begin to
compute the API Manufacturing Cost. Any Calendar Year-to-year increase in the API Manufacturing Cost in excess of the applicable PPI shall require the good faith negotiation and mutual agreement of the parties. JMI shall maintain true and accurate
records, files and books of account containing all data reasonably required for the full computation and verification of the API Manufacturing Cost for each Calendar Quarter during the term of the Agreement. Such books and records shall be in
accordance with GAAP consistently applied and shall be kept separate from records, files and books of account not pertaining solely to the API. JMI shall permit Company, or at JMI’s option, a mutually agreed independent auditor, at
Company’s expense, to independently audit the API Manufacturing Cost. 
 c) Company shall pay all invoices from JMI for API pursuant to
Sections 4(a)(iii) and 4(b) in full within [*] days after the date of the invoice in the form of a wire, check or money order. Company shall pay JMI any Royalties due under Section 4(a) within [*] days after the end of each Calendar
Quarter in which Product is sold by Company and Net Profits resulting from such sales are greater than zero in the form of wire, check or money order (or other method of payment approved by JMI in writing). Company will make and retain for a period
of [*] years following the termination of this Agreement true and accurate records, files and books of account containing all the data reasonably required for the full computation and verification of Net Profits and Royalties on the Product for
each Calendar Year occurring during the term of the Agreement. Such books and records shall be maintained in accordance 

  
 8. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 
with GAAP consistently applied and shall be kept separate from records, files and books of account not pertaining solely to the Product. Company shall permit JMI or, at Company’s
option, a mutually agreed independent auditor, at JMI’s cost and expense, to inspect relevant books and records during regular business hours upon not less that fourteen (14) business days written notice. 

d) A charge of [*] per month, or the maximum amount permitted by law, whichever is less, shall be due on any amounts due under
Section 4(b) which are more than [*] days past due. Company shall be responsible for any duty, sales, use, excise or other tax applicable (except income taxes) to the sales of API by JMI to Company. 

ARTICLE 5. DEA Quota and Supply Conditions 

a) The parties expect that both the Product and the API will be scheduled under the Federal Controlled Substances Act. JMI and Company are
required to obtain a quota from the DEA before producing the Product or the API. Such quotas are limited; therefore, each of the parties shall use its Commercially Reasonable Efforts to obtain DEA quotas for the Firm Quarter requested by Company,
and to cooperate with the other party to obtain sufficient quotas. 
 b) Each party’s obligation hereunder is subject to obtaining the
necessary DEA quota. Except as provided in Section 3(f), neither party shall be liable to the other for that quantity of Product or API which the other party is unable to supply or take as a result of failure to obtain a DEA quota, provided
that each party has used Commercially Reasonable Efforts to obtain sufficient DEA quota. 
 ARTICLE 6. Term 

a) This Agreement shall become effective as of the Effective Date and shall continue in force i) in the event Company obtains a valid and
enforceable patent relating to KP201 and/or the API, until the later of the earliest date on which all of the Company’s rights in all such patents have expired or the tenth
(10th) anniversary of the date on which the Commercial Launch occurs, or ii) in the event the Company does not obtain a valid and enforceable patent on KP201 or the API, for a period of five
(5) years following Commercial Launch of the Product (in either case of (i) or (ii) being applicable, the “Initial Term”). Upon the expiration of the Initial Term, this Agreement shall automatically continue in force
thereafter for subsequent renewal periods of two (2) years (“Renewal Terms”) unless and until terminated at the expiration of the Initial Term or any Renewal Term by either party providing not less than twelve (12) months written
notice prior to the expiration of the Initial Term or any Renewal Term, as the case may be. 
 b) Notwithstanding the foregoing, the Term
shall terminate upon the unanimous written consent of the parties. 
 c) In the event of a material breach of this Agreement by a party and
subject to Article 13, the other party shall have the right to deliver a written notice of breach to the defaulting party. If such breach is not cured within [*] days after delivery of such notice, the nondefaulting party, at its sole option, may
terminate the term of this Agreement at any time by delivery of written notice of termination to the defaulting party; provided, however, if the breach cannot reasonably be cured despite Commercially Reasonable Efforts within a [*] day period, then
the cure period shall be extended for no more than an additional [*] day period, provided the defaulting party continues to make Commercially Reasonable Efforts to cure the breach. 

d) In the event that a party shall (i) voluntarily commence any proceeding or file any petition seeking relief under any Federal, state
or local bankruptcy, insolvency, liquidation, receivership 

  
 9. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 
or similar law (a “Bankruptcy Law”), (ii) consent to the institution of, or fail to contravene in a timely and appropriate manner, any such proceeding or the filing of any
such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property or assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding or (v) make a general assignment for the benefit of creditors, the other party, at its sole option, may terminate the Term at any time by delivery of written notice of
termination to the party subject to such event. 
 e) In the event that a party shall be subject to the commencement of any involuntary
proceeding or the filing of any involuntary petition in a court of competent jurisdiction seeking (i) relief in respect of such party or of a substantial part of its property or assets under any Bankruptcy Law, (ii) the appointment of
a receiver, trustee, custodian, sequestrator, or similar official for such party or for a substantial part of its property or assets or (iii) the winding-up or liquidation of such party, and such proceeding or petition shall continue
undismissed for [*] days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for [*] days, the other party, at its sole option, may terminate the Term at any time by delivery of written notice of
termination to the party subject to such event. 
 f) Termination for default or breach hereunder or for any other reason shall have no
effect on performance obligations or amounts to be paid which have accrued up to the effective date of such termination. Articles 8, 9, 10, 11 and 15, Section 2(c), and this Section 6(f) shall indefinitely survive the expiration or other
termination of this Agreement. 
 ARTICLE 7. Assignment or Transfer of Interest 

Neither party shall directly or indirectly sell, assign or transfer any part or all of its interest in this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably withheld; provided, however, that a change in control of a party shall not be deemed to constitute a transfer of such party’s interest. Notwithstanding the foregoing, JMI may,
with the prior approval of Company, transfer its interest to an Affiliate of JMI if such Affiliate is a qualified manufacturer. Subject to the first sentence of this Article 7, in the event Company sells or transfers its NDA to the Product, this
Agreement shall also be assigned to the purchaser or transferee and become an obligation of the subsequent NDA holder. 
 ARTICLE 8.
Confidentiality 
 The parties hereto agree that their obligations to maintain the confidentiality of the Confidential Information
shall be not less than the obligations described in the Confidentiality Agreement by and among JMI and Company dated November 28, 2009, a copy of which is attached hereto as Exhibit D, notwithstanding that such agreement may have been
terminated prior to the termination of the confidentiality obligations under this Agreement. The confidentiality obligations under this Agreement shall remain in full force and effect during the Term and shall continue for [*] years beyond the
expiration or termination of this Agreement. 
 ARTICLE 9 Warranties and Limitations 

a) JMI warrants that the API supplied to Company hereunder will conform at the time of shipment from JMI’s West Deptford, New Jersey plant
to the specifications described in Exhibit B attached hereto (the “API Specifications”), as the API Specifications may from time-to-time be amended by mutual written agreement or as required by the FDA, other governmental body in the
United States or the then current edition of the U.S. Pharmacopoeia. 

  
 10. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 b) JMI warrants to Company that JMI has not caused, as of the date of each shipment hereunder of
any articles subject to the provision of the Act, such article, when shipped from JMI’s West Deptford, New Jersey plant, to be adulterated or misbranded within the meaning of the Act or of any applicable state law in which the definitions of
adulteration and misbranding are substantially the same as those contained in the Act, or an article that may not, under the provision of Sections 404, 505, or 512 of the Act, be introduced into interstate commerce. Except as expressly stated in
paragraphs a) and b) of this Article 9, JMI MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY AS TO MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO
THE API WHETHER USED ALONE OR IN COMBINATION WITH OTHER SUBSTANCES. 
 c) JMI will provide Company together with each invoice the results of
all assays required to be run under the API Specifications. Any shipment of API will be deemed accepted by Company no later than [*] days after receipt by Company or its designee of the API. If such shipment of API does not comply with the API
Specifications, has been damaged prior to being provided to the carrier for shipment, or if there is a shortage in the quantity prior to being provided to the carrier for shipment, Company shall promptly notify JMI in writing, but, in any event, not
later than [*] days after receipt. Company or its designee shall promptly return such API to JMI at JMI’s expense, or Company shall undertake such other response as is mutually agreed upon in writing by the parties. JMI shall have the right,
but not the obligation, to retest the rejected API within [*] days after its return from Company. In the event that JMI disputes Company’s determination that API does not meet the API Specifications or has been damaged or is subject to a
shortage in quantity, the parties shall meet to resolve, in good faith, such dispute; provided that written notice by JMI to Company of any such dispute must be made no later than [*] days after Company’s return of the API. 

d) Upon return of any rejected API, and JMI’s agreement, or a final determination in accordance with this Agreement, that such API fails
to comply with JMI’s limited warranty or has been damaged, JMI will replace the API at JMI’s cost and will resubmit to Company within [*] days of receipt of additional raw materials. COMPANY’S EXCLUSIVE REMEDY FOR BREACH OF WARRANTY
SHALL BE DIRECT DAMAGES, AND JMI’s LIABILITY TO COMPANY FOR ANY AND ALL LOSSES OR DAMAGE FROM ANY CAUSE WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ALLEGED NEGLIGENCE, SHALL IN NO EVENT EXCEED THIS OBLIGATION TO REPLACE THE API AND RESUBMIT IT
TO COMPANY, OR IN THE EVENT THAT JMI FAILS TO REPLACE THE API, THEN TO [*] FOR THE [*] A SECONDARY SUPPLIER; provided that JMI’s obligation to [*] for the [*] a secondary supplier is subject to the following conditions: (x) JMI consents to
the [*] such secondary supplier, which consent shall not be unreasonably withheld, and (y) Company shall not include the [*] in the calculation of [*] for purposes of calculating the [*]. For the avoidance of doubt, all [*] calculations will be
based on [*] and will be [*]. Notwithstanding the forgoing, if Company rejects three or more API shipments during any [*] consecutive month period, and JMI agrees, or a final determination is made, that each such shipment failed to comply with
JMI’s limited warranty under this Article 9, then Company may find JMI to be in material breach and exercise its right under Section 6(c) to terminate the Agreement. JMI shall not be liable for, and Company assumes responsibility for, all
personal injury and property damage resulting from the handling, possession, or use of the API following Company’s or its designee’s receipt of the API. 

ARTICLE 10. Limitation on Liability 

Any provision of this Agreement to the contrary notwithstanding, neither party will be liable to the other party for lost profits, production
losses, special, incidental or consequential damages sustained directly by that party, whether such party’s claim is in contract, negligence, strict liability or otherwise. 

  
 11. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 ARTICLE 11. Indemnification  

a) Company agrees to indemnify and hold harmless JMI from all claims, demands, losses, liabilities, damages, and/or expenses (including,
without limitation, attorneys fees) (“Liabilities”) which may be sustained or claimed against JMI arising out of the development, manufacture, making, handling, possession, use, offer for sale, sale, supply or import of the API for
Product, except to the extent that such Liabilities arise or result from JMI’s liability under Section 11(b). The forgoing indemnity is subject to JMI promptly notifying Company in writing of all claims and threatened claims against
JMI for which JMI may be entitled to indemnity hereunder. Company shall have the right to defend and/or settle any such claim and JMI shall give Company such defense. JMI shall have the right to participate in such defense at its cost. 

b) JMI agrees to indemnify and save harmless Company from all Liabilities which may be sustained or claimed by third-parties against Company
based on JMI’s negligence or willful misconduct, which causes API to fail to meet API Specifications, except to the extent of Company’s liability under Section 11(a,) provided however, JMI’s maximum liability under the Agreement
shall not exceed, in the aggregate, [*] Dollars US. The foregoing indemnity is subject to Company promptly notifying JMI in writing of all claims and threatened claims against Company for which Company may be entitled to indemnity hereunder. JMI
shall have the right to defend and/or settle any such claim, and Company shall give JMI such defense. Company shall have the right to participate in such defense at its cost. 

c) JMI shall carry comprehensive general liability insurance, including insurance against claims for bodily injury or property damage, in an
amount of not less than $[*] per occurrence and $[*] in the aggregate. Company shall carry comprehensive general liability insurance, including coverage for claims of product liability, bodily injury or property damage, in an amount not
less than $[*] per occurrence and $[*] in the aggregate, Such policy shall be endorsed to include the following: the policies shall provide for thirty (30) days’ notice to the other Party of cancellation or material change in the
coverage before such cancellation or change takes effect. Each party shall name the other party as additional insured on the insurance policies required to be maintained under this Article. 

ARTICLE 12. Gross Inequities 

It is the intent of the parties hereto that they shall mutually benefit from the terms, conditions and provisions of this Agreement, and in the
event that either party shall suffer a gross inequity resulting from such terms, conditions or provisions, or from a substantial change in circumstances or conditions, the parties shall negotiate in good faith to resolve or remove such inequity. It
is mutually understood and agreed, however, that nothing herein shall be construed to relieve either party of any of its obligations under this Agreement, unless and until such resolution or removal has been agreed to in writing by both parties.

 ARTICLE 13. Force Majeure 

Failure of JMI or Company to perform its obligations under this Agreement, other than the payment of amounts invoiced, shall not subject JMI or
Company to any liability or a breach if such failure is caused or occasioned by an event of force majeure, including but not limited to, an act of God, or the public enemy, fire, explosion, flood, drought, war, riot, sabotage, embargo, strikes,
or other labor trouble, failure in whole or in part, of suppliers to deliver on schedule materials, equipment or machinery, to interruption of or delay in transportation, compliance with any order, regulation or request of any government of
competent jurisdiction or any officer, department, agency or committee thereof, including requisition or allocation or establishment of priority, or by compliance with a request authorized by such governmental authority of any manufacturer for
material to be used by it, or by any 

  
 12. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 
other event or circumstance of like or different character to the foregoing beyond the reasonable control of the nonperforming party. If either party suffers an event of force majeure, it shall
immediately notify the other party and shall use all reasonable efforts to minimize the loss or inconvenience suffered by both parties. Both parties shall cooperate in good faith in order to minimize such loss and inconvenience and to reach an
agreement as to how to proceed. 
 ARTICLE 14. Authorization 

Each party represents and warrants to the other that all corporate action on the part of such party necessary for the authorization, execution
and delivery of this Agreement and the performance of all obligations hereunder has been taken and persons executing this Agreement have due power and authority to do so. 

ARTICLE 15. Other Provisions 

a) In connection with the storage, distribution, sale or marketing of the Product or API pursuant to this Agreement, JMI and Company agree to
use their best efforts to perform such activities in compliance with all applicable federal, state, and local laws, regulations and ordinances, including, but not limited to, the Act, as amended from time to time, and all rules and
regulations promulgated thereunder. 
 b) Nothing contained in this Agreement and no action taken by any party to this Agreement shall be
deemed to constitute such party or any such party’s employees, agents, or representatives to be an employee, agent, or representative of the other party or shall be deemed to create any partnership, joint venture, association, or
syndicate among the parties, or shall be deemed to confer on any party any express or implied right, power, or authority to enter into any agreement or commitment, expressed or implied, or to incur any obligation or liability, on behalf of the other
party. 
 c) The parties shall execute any other instruments or perform any other acts that are or may be reasonably necessary to effectuate
and carry on the obligations created by this Agreement. 
 d) This Agreement shall be binding upon and inure to the benefit of the permitted
successors of the parties. 
 e) As to its subject matter, this Agreement, together with the Confidentiality Agreement, constitutes the
entire agreement of the parties and supersedes all prior agreements between the parties. This Agreement may not be modified or amended except by an instrument in writing executed by the parties. 

f) Failure of either party to exercise any right under this Agreement shall not be deemed to be a waiver thereof. 

g) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute
one and the same instrument. 
 h) This Agreement shall be governed by and construed under the laws of the State of Delaware, excluding its
conflict of law principles. 

  
 13. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 i) Any notice or other communication that a party desires to give to another party shall be in
writing, and shall be deemed effectively given upon personal delivery, delivery by overnight courier, or upon transmission by telegram, telex, or, with receipt confirmed, telecopy, addressed to the other party at the address show below or at
such other address as a party may designate by written notice in accordance with this subparagraph (i). 
  

			
	If to JMI:	  	Johnson Matthey Inc.
		  	2003 Nolte Drive
		  	West Deptford, NJ 08066
		  	Attention: John Fowler, President
		  	Fax: (856) 384-4582
		
	with a copy to:	  	Johnson Matthey Inc.
		  	435 Devon Park Drive Suite 600
		  	Wayne, PA 19087
		  	Attention: Robert Talley, President-Corporate & General Counsel
		  	Fax: (610) 971-3022
		
	If to Company:	  	KemPharm, Inc.
		  	7 Hawkeye Drive, Suite 103
		  	North Liberty, IA 52317
		  	Attention: Travis Mickle, President
		  	Fax: (319) 665-2577
		
	With a copy to:	  	Simmons Perrin Moyer Bergman PLC
		  	115 3rd St. SE, Suite 1200
		  	Cedar Rapids, IA 52401
		  	Attention: Thomas DeBoom
		  	Fax: (319) 366-1917

 j) In the event that any term or provision of this Agreement is invalid or is declared null and void, then
both parties shall agree on a substitute for such invalid and void terms with the intent of achieving the economic intent of the parties. The invalidity or voidness of any term or condition shall not affect the validity of any other term or
condition contained herein nor the Agreement as a whole unless the provisions are the essence of, or inseparable from the remainder of the Agreement. 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. 

 

											
	Johnson Matthey Inc.	 		 	KemPharm, Inc.	 	
						
	By:	 	 /s/ John B. Fowler, IV
	 		 	By:	 	 /s/ Travis C. Mickle
	 	
	Its: President	 		 	Its: President	 	
	Date: May 13, 2010	 		 	Date: May 21, 2010	 	

  
 14. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 EXHIBIT A 

PROPOSED NDA DEVELOPMENT TIMELINES 
 [*]

  
 15. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 EXHIBIT B 

API SPECIFICATIONS 
 None

  
 16. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 EXHIBIT C 

SUBSCRIPTION AGREEMENT 

  
 17. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 SUBSCRIPTION AGREEMENT 

KEMPHARM, INC. 

SUBSCRIPTION AGREEMENT 

CLASS A COMMON 
  

 
 THE SHARES OF SERIES CLASS A COMMON
STOCK OF KEMPHARM, INC. HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS. THESE SHARES CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF, AND
WILL NOT BE TRANSFERRED OF RECORD, EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFERABILITY CONTAINED IN THE GOVERNING DOCUMENTS (DEFINED BELOW), AND APPLICABLE FEDERAL AND STATE SECURITIES LAWS. 

 
  

1. Subscription. Johnson Matthey Inc., a Pennsylvania corporation (the “Subscriber”) hereby agrees to
acquire 564,516 shares of Class A Common Stock of KemPharm, Inc., an Iowa corporation (the “Company”), set forth on the signature page hereof (the “Shares”), in accordance with and subject to the terms
and conditions set forth in this Subscription Agreement. By execution hereof, the Subscriber acknowledges that the Company is relying upon the accuracy and completeness of the Subscriber’s representations contained herein in complying with its
obligations under applicable securities laws. 
 2. Amount and Timing of Payment. The Shares are being issued hereunder
pursuant to that certain Material Supply Agreement effective as of November 2, 2009, by and between Subscriber and the Company as consideration for certain development work performed by Subscriber. Pursuant to said Material Supply Agreement,
the Shares are being issued at a per share price of $[*]. No payment or further consideration is due from Subscriber for issuance of the Shares. 

3. Adoption of Governing Documents. Subscriber hereby accepts, adopts and agrees to be bound by each and every provision of the
Amended and Restated Articles of Incorporation of the Company, including all amendments and restatements of the same as of the date hereof (the “Articles of Incorporation”), and the Company’s Amended and Restated Bylaws, as
amended (the “Bylaws”). The Articles of Incorporation and the Bylaws are collectively referred to as the “Governing Documents.” 

4. Representations, Warranties, Acknowledgements and Agreements of the Company. The Company represents, warrants, acknowledges
and agrees that: 
  

	 	(a)	The Company is duly organized, validly existing and in good standing under the laws of the State of Iowa. 

  

	 	(b)	This Subscription Agreement has been duly authorized by all necessary corporate action on behalf of the Company and is a valid and binding agreement on the part of the Company. All corporate action necessary to the
authorization, issuance, and delivery of the Shares, including, without limitation, the approval by the holders of a majority in interest of the Company’s preferred stock. Upon issuance pursuant to the terms hereof, the Shares will be fully
paid and non-assessable. 

  

	 	(c)	The capitalization of the Company as of the date hereof is set forth on Exhibit A hereto. 

  
 A-1. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 SUBSCRIPTION AGREEMENT 

5. Representations, Warranties, Acknowledgements and Agreements of Subscriber. Subscriber represents, warrants, acknowledges,
agrees and understands that: 
  

	 	(a)	The Shares are a speculative investment that involves a significant degree of financial risk. There is no assurance of any economic, income or other benefit from such investment. Subscriber has such knowledge and
experience in financial, tax, investment and business matters so as to be capable of evaluating the merits and risks of an investment in the Shares. 

  

	 	(b)	Subscriber is a Pennsylvania corporation validly existing in good standing. 

  

	 	(c)	Subscriber has not been offered the Shares by any form of general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper,
magazine, or similar media or broadcast over television, radio, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising. 

 

	 	(d)	Subscriber has had access prior to the execution of this Subscription Agreement to all information Subscriber considered necessary to enable Subscriber to evaluate the merits and risks of a prospective investment in the
Shares. Subscriber has had the opportunity to ask questions of and receive answers from the Company, its officers, or a person or persons acting on its behalf, and to obtain any additional information necessary to verify the accuracy of the
information to which Subscriber has had access. All questions raised by Subscriber have been answered to the full satisfaction of Subscriber. 

  

	 	(e)	Subscriber understands that no Federal or state agency has recommended or endorsed the Shares or made any finding or determinations as to the fairness, accuracy or completeness of the provisions of this Subscription
Agreement, the Governing Documents, the Shares or the issuance of the Shares. 

  

	 	(f)	The Shares have not been registered under the Securities Act or applicable state securities laws, and are being offered and sold in reliance upon exemptions provided in the Securities Act and rules promulgated
thereunder, and applicable state securities laws and regulations (collectively “Applicable Laws”). Subscriber makes the representations and warranties in this Subscription Agreement with the intent that the same may be relied upon
by the Company in complying with such exemptions. 

  

	 	(g)	The Company has no obligation or intention to register the Shares, or file the reports or make public the information required by Rule 144 under the Securities Act relating to trading in restricted securities, and that
Rule 144 may not otherwise be available to permit such trading. Subscriber understands that the Company has no intention of filing any registration statement under the Applicable Laws that would require the Company to include any portion of the
Shares because of the piggy-back rights granted to the Shares. 

  

	 	(h)	Subscriber is acquiring the Shares subscribed for herein for Subscriber’s own account for investment only and without any intention of reselling or distributing such Shares except in accordance with Applicable Laws
and Governing Documents. 

  

	 	(i)	Subscriber shall not sell, pledge, hypothecate, donate or otherwise transfer the Shares, whether or not for consideration, except (i) in accordance with Applicable Laws and the Governing Documents and
(ii) upon the issuance of a favorable legal opinion rendered by counsel for the Company, or such other evidence as may be satisfactory to the Company, to the effect that any such transfer shall not be in violation of Applicable Laws.

  
 A-2. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 SUBSCRIPTION AGREEMENT 

Subscriber agrees that should Subscriber desire to sell, pledge, hypothecate, donate or otherwise transfer the Shares subscribed for herein,
any attorney’s fees incurred in connection with the opinion of counsel obtained by the Company in connection therewith shall be paid in advance by Subscriber. 
  

	 	(j)	Subscriber will need and is able to bear the economic risk of the investment in the Shares for an indefinite period of time. Subscriber has adequate financial or other means for providing for Subscriber’s current
needs and contingencies and has no need for liquidity in this investment. Subscriber will not be readily able to liquidate the investment in the Shares in case of an emergency. 

 

	 	(k)	A notation will be made on the records of the Company regarding restrictions on the transferability of the Shares. The certificates representing the Shares will contain, In addition to any other legends required by the
Governing Documents, a legend substantially to the following effect: 

 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND HAVE BEEN ACQUIRED PURSUANT TO AN INVESTMENT REPRESENTATION ON THE PART OF THE REGISTERED HOLDER OF SUCH SECURITIES FOR THE REGISTERED
HOLDER’S OWN ACCOUNT FOR INVESTMENT, AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED BY THE REGISTERED HOLDER EXCEPT UPON COMPLIANCE WITH THE ARTICLES OF
INCORPORATION AND BYLAWS OF THE COMPANY AND UPON ISSUANCE OF A FAVORABLE OPINION OF COUNSEL FOR THE COMPANY OR SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT TRANSFER OF SUCH SECURITIES
WILL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION THEREUNDER. 
  

	 	(1)	This Subscription Agreement has been duly authorized by all necessary corporate action on behalf of the Subscriber and will be a valid and binding agreement on the part of the Subscriber. All corporate action necessary
to the authorization, issuance, and delivery of the Shares will be taken prior to their issuance. Upon issuance, the Shares will be fully paid and non-assessable. 

6. Conditions and Contingencies. The Subscriber’s and the Company’s respective obligations hereunder shall be subject
to and contingent upon satisfaction of Section 42(b) of the Material Supply Agreement effective as of November 2, 2009 by and between the Subscriber and the Company. 

7. Information Rights. For so long as the Subscriber and/or any of its affiliates is a holder of the Shares, the Company shall
furnish to the Subscriber (i) within 60 days after the end of its 2nd fiscal quarter, or earlier if available, an unaudited balance sheet of the Company as at the end of such quarter and
unaudited statements of income and cash flows of the Company for such two-quarter period, and (ii) within 180 days after the end of each fiscal year, or earlier if available, an audited balance sheet of the Company as at the end of such year
and audited statements of income, stockholders’ equity and changes in cash flow of the Company for such year, in each case prepared in accordance with generally accepted accounting principles consistently applied. 

  
 A-3. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 SUBSCRIPTION AGREEMENT 

8. Irrevocability; Binding Effect. The Subscriber acknowledges and agrees that, once accepted by the Company, the subscription
hereunder is irrevocable, that the Subscriber is not entitled to cancel, terminate or revoke this Subscription Agreement or any agreement of the undersigned hereunder and that this Subscription Agreement and such other agreements shall survive the
death or disability of the Subscriber and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives, and assigns. If the undersigned is more than one person, the
obligations of the undersigned hereunder shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his or her heirs,
executors, administrators, successors, legal representatives, and assigns. 
 9. Modifications; Assignability. Neither this
Subscription Agreement nor any provision hereof shall be waived, modified, discharged or terminated except by an instrument in writing signed by both the Subscriber and the Company. This Subscription Agreement is not assignable by the Subscriber
without the written consent of the Company. 
 10. Counterparts. This Subscription Agreement may be executed through the use
of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all parties. 

11. Entire Agreement. This Subscription Agreement contains the entire agreement of the parties with respect to the subject
matter hereof and there are no representations, covenants or other agreements except as stated or referred to herein. 
 12.
Severability. The invalidity, illegality or unenforceability of any provision of this Subscription Agreement shall not affect the validity, legality or enforceability of the remaining provisions of this Agreement, which shall continue
to be valid and enforceable. In the event any provision of this Agreement is held to be invalid, illegal or unenforceable as written, but valid, legal and enforceable if modified, then such provision shall be deemed to be amended to such extent as
shall be necessary for such provision to be valid, legal and enforceable and it shall be enforced to that extent. 
 13. Governing
Law. This Subscription Agreement shall be construed in accordance with and governed by the laws of the State of Iowa. 

[SIGNATURE PAGE FOLLOWS] 

  
 A-4. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 SUBSCRIPTION AGREEMENT 

SIGNATURE PAGE 
 SIGNATURE OF SUBSCRIBER 

Johnson Matthey Inc. 
  

					
	 /s/ John B. Fowler, IV
	  	

					
			
	By (print name):	  	 John B. Fowler,
IV                                         
     	  	

					
			
	 Its:
	 	 President                                   
                                         
          	  	

					
			
	Date:	 	
 May 13th 2010       
                                         
                
	  	

  

			
	Employer Identification Number:	 	  23-0411710

 (Also include Social Security Numbers if a Trust or Partnership) 

 

			
	Business (Residence) Address:	 	  435 Devon Park Drive, Suite 600, Wayne, PA 19087-1998

  

			
	Mailing Address (if different from above):	 	 Same

 Business: Tel. No. (610) 971.3000; Facsimile No. (610) 971-3022 

ACCEPTANCE: 
 KemPharm, Inc. hereby executes this
Agreement as of the date set forth below. 
  

					
	 /s/ Travis C. Mickle
	 	
			
	 By:
	 	  Travis C. Mickle
	 	
			
	 Its:
	 	  President, CSO
	 	
			
	 Date:
	 	  May 17, 2010
	 	

  
 A-5. 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 EXHIBIT D 

CONFIDENTIALITY AGREEMENT 

  
 19 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 MUTUAL NONDISCLOSURE AND 

CONFIDENTIALITY AGREEMENT 

This Mutual Nondisclosure and Confidentiality Agreement (“Agreement”) is entered into on the 26th day of November, 2008, by and
between Kempharm, INC with principal place of business at 7 Hawkeye Drive Suite 103 North Liberty, Iowa 52317 and Johnson Matthey Inc., with a place of business at 2003 Nolte Drive West Deptford, NJ 08066. 

WHEREAS, one party (“Disclosing Party”) possesses certain confidential proprietary information and in connection with the pursuit,
evaluation and/or feasibility of a business relationship, and/or the consummation of a transaction between the parties (collectively, the “Business Purposes”), Disclosing Party’s confidential proprietary information has and will
become available or disclosed to the other party (“Receiving Party”); and 
 WHEREAS, Disclosing Party desires to prevent the
unauthorized use and disclosure of its confidential proprietary information; 
 NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, and for other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged, the parties agree as follows: 

1. CONFIDENTIAL INFORMATION. Confidential Information shall mean information identified on all strategic and development plans,
financial information, business plans, co-developer identities, business relationships, data, business records, customer lists, project records, market reports, employee lists, business manuals, policies, procedures, information relating to
processes and techniques, technology, research, development, trade secrets, know-how, discoveries, ideas, concepts, specifications, equipment, systems, diagrams, inventions, technical and statistical data, designs, drawings, models, flow charts,
manufacture, purchasing, accounting, engineering, products, marketing, merchandising, pricing, selling, distribution, invention disclosures, patents, patent applications, chemical and molecular structures, synthetic pathways, biological data, safety
data, clinical data, developmental data, development route, manufacturing processes, synthetic techniques, analytical data, and any and all other information which may be disclosed, whether or not in writing, marked as “Confidential” or
“Proprietary” by the Disclosing Party or to which the Receiving Party may be provided access to by Disclosing Party in accordance with this Agreement, or which is generated or learned as a result of or in connection with the Business
Purposes, and is not generally available to the public. 
 2. NON-DISCLOSURE OBLIGATIONS. Receiving Party acknowledges that
Confidential Information will be disclosed to it by Disclosing Party and that such Confidential Information, and any information related thereto disclosed before, during, or after the Business Purposes, is confidential, proprietary, substantial and
valuable to Disclosing Party, and that the unlawful use or disclosure of such Confidential Information will cause irreparable damage and financial loss to Disclosing Party. Receiving Party promises and agrees to receive and use reasonable efforts to
hold Confidential Information in confidence. Without limiting the generality of the foregoing, Receiving Party further promises and agrees: (a) to protect and safeguard the Confidential Information against unauthorized use, publication or
disclosure; (b) not to use any of the Confidential Information except for the Business Purposes; (c) not to, directly or indirectly, in any way, reveal, report, publish, disclose, transfer or otherwise use any of the Confidential
Information except as specifically authorized in writing by Disclosing Party in accordance with this Agreement or the Business Purposes; (d) not to use any Confidential Information to unfairly compete or obtain an unfair advantage vis-a-vis
Disclosing Party in any commercial activity which may be comparable to the commercial activity contemplated by the parties in connection with the Business Purposes; (e) to restrict access to the Confidential Information to those who clearly
need such access to carry out the Business Purposes after an agreement is signed signifying their assent to comply with the provisions of this Agreement; (f) to advise each of the persons to whom it provides access to any of the Confidential
Information that such persons are strictly prohibited from making any use, publishing or otherwise disclosing to others, or permitting others to use for their benefit or to the detriment of Disclosing Party, any of the Confidential Information, and
upon request of Disclosing Party, to provide Disclosing Party with a copy of written agreement to that effect signed by such persons; and (g) to comply with any other reasonable security measures requested in writing by Disclosing Party. 

  
 Page 3 of 3 

[*] = Certain confidential information contained in this document, marked by brackets, is filed with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended. 

 3. EXCEPTIONS. Confidentiality obligations hereunder shall not apply to any
Confidential Information which: (a) is or later becomes generally available to the public without breach of any express or implied obligation of confidentiality by the Receiving Party; (b) written evidence shows Confidential Information is
in the possession of Receiving Party with the full right to disclose prior to its receipt from Disclosing Party; (c) is later acquired by the Receiving Party from a third party without any restriction on disclosure or breach of an express or
implied obligation of confidentiality; (d) Receiving Party can document in writing that Receiving Party independently created such information without reference or use of Confidential Information; or (e) is ordered to be disclosed pursuant
to a court order or governmental agency order which has competent jurisdiction over the parties; provided, however, that Disclosing Party is first given notice and a reasonable opportunity to object to such disclosure or seek a protective order.

 4. RETURN OF CONFIDENTIAL INFORMATION. Receiving Party agrees, upon termination of the Business Purposes or upon the
written request of Disclosing Party, whichever is earlier, to promptly deliver to Disclosing Party all originals, copies, records, notes, memoranda or similar repositories of information and any other written, printed, or tangible materials in the
possession of Receiving Party, embodying, pertaining to or referencing the Confidential Information and to destroy and make permanently irretrievable any and all electronic, optical or digital copies, including back-up and archive copies, in the
possession of Receiving Party, embodying, pertaining to or referencing the Confidential Information, with the exception that the Receiving Party can retain one copy of all Confidential Information for legal purposes, and to have an officer of
Receiving Party certify in writing that Receiving Party has complied with this Section 4. 
 5. NO RIGHT TO CONFIDENTIAL
INFORMATION. Receiving Party hereby agrees and acknowledges that no license, either express or implied, is herein granted to the Receiving Party by Disclosing Party to use any of the Confidential Information except as authorized hereunder.
Receiving Party further agrees that all copyrightable works and designs, relating to methods, compositions, or products of Disclosing Party directly or indirectly resulting from or relating to the Confidential Information or Business Purposes and
the right to market, use, license and franchise Confidential Information or the ideas, concepts, methods or practices embodied therein shall be the exclusive property of Disclosing Party, and Receiving Party has no right or title thereto and hereby
assigns its entire right, title and interest in, to and under the foregoing to Disclosing Party. 
 6. REMEDIES. Receiving
Party understands and acknowledges that the actual or threatened disclosure or misappropriation, of any of the Confidential Information in violation of this Agreement may cause Disclosing Party irreparable harm, the amount of which may be difficult
to ascertain and, therefore, agrees that Disclosing Party shall have the right to apply to a court of competent jurisdiction for an order restraining any such further disclosure or misappropriation and for other such relief as Disclosing Party may
deem appropriate. Such right of Disclosing Party shall be in addition to remedies otherwise available to the Disclosing Party at law or in equity, including reasonable attorneys’ fees incurred in enforcing the provisions of this Agreement. 

7. OBLIGATION TO NEGOTIATE. Nothing in this Agreement requires either party to enter into any other agreement, and unless and
until a complete and definitive agreement is negotiated, agreed, executed and delivered by the parties, neither party will be under any legal obligation of any kind whatsoever with respect to the Business Purposes being explored by the parties,
except for the matters specifically agreed to in this Agreement. 
 8. TERM AND TERMINATION. This Agreement shall commence on
the date first written above. Receiving Party’s right to use the Confidential Information in connection with the Business Purposes shall continue in effect until the 26th day of November, 2011, or until Disclosing Party provides Receiving Party
with written notice of termination of such right, whichever is earlier. Notwithstanding the foregoing, Receiving Party’s obligation with respect to the Confidential Information hereunder shall continue in full force and effect for [*] years
from the date of last disclosure or termination of this Agreement, which ever is later. 
 10. GENERAL PROVISIONS: 

10.1 Successors and Assigns. Receiving Party shall have no right to assign its rights under this Agreement, whether expressly or by
merger, acquisition or by operation of law, without the written consent of Disclosing Party. This Agreement and Receiving Party’s obligations hereunder shall be binding on representatives, permitted assigns, and successors of Receiving Party
and shall inure to the benefit of the representatives, assigns and successors of Disclosing Party. 

  
  

					
	 Initials:    JBF    
	  	A-2.	  	

 10.2 Governing Law. This Agreement shall be construed and enforced in accordance with the
procedural and substantive laws of the State of New York, without regard to its conflicts of laws provisions. 
 10.3 Severability,
Reform and Waiver. If any provision of this Agreement is determined to be void, invalid or unenforceable, the remainder shall be unaffected and shall be enforceable as if the void, invalid or unenforceable part was not a provision of the
Agreement. No waiver by any party of any breach of any provision hereof shall constitute a waiver of any other breach of that or any other provision hereof. 

10.4 Notice. Any notice or communication required or permitted to be given hereunder may be delivered by hand, deposited with an
overnight courier, sent by confirmed email, confirmed facsimile, or mailed by registered or certified mail, return receipt requested, postage prepaid, in each case to the address of the receiving party as listed above or at such other address as may
hereafter be furnished in writing by either party to the other party. Such notice will be deemed to have been given as of the date it is hand delivered, emailed, faxed or three (3) day after deposit in the U.S. Mails. 

10.5 Entire Agreement. This Agreement supersedes and replaces all former agreements or understandings, oral or written, between the
parties regarding the subject matter hereof. This Agreement may not be modified except by a writing signed both by parties. 
 10.6
Effect of Headings. Headings to sections and paragraphs of this Agreement are for reference only, and do not form a part of this Agreement, or effect the interpretation of this Agreement. 

10.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but together shall
constitute one and the same agreement. Facsimile signatures shall be considered original signatures. 
 IN WITNESS WHEREOF, the parties have
entered into this Agreement as of the date written above. 
  

					
	 KEMPHARM, INC.
	 		 	Johnson Matthey, Inc.
			
	 /s/ Travis
Mickle                                        
              12/16/08
	 		 	 /s/ John B. Fowler,
IV                                         
                   12/18/08

	Travis Mickle, President,
CEO                                     Date	 		 	Travis Mickle, President,
CEO                                         
             Date
			
		 		 	 John B. Fowler, IV

		 		 	Print Name and Title

  
  

					
	 Initials:    JBF    
	  	A-3.

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