Document:

VITACOST.COM, INC.

 

2011 INCENTIVE COMPENSATION PLAN

 

1.           Purposes of the Plan.  The purposes of this Plan are:

 

	
  

	
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to attract and retain the best available personnel for positions of substantial responsibility,

 

	
  

	
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to provide incentives to individuals who perform services to the Company, and

 

	
  

	
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to promote the success of the Company’s business.

 

The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.

 

2.           Definitions.  As used herein, the following definitions will apply:

 

(a)           “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.

 

(b)           “Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

 

(c)           “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.

 

(d)           “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan.  The Award Agreement is subject to the terms and conditions of the Plan.

 

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

 

(f)           “Change in Control” means the occurrence of any of the following events:

 

(i)      A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group, (“Person”) acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to own more than 50% of the total voting power of the stock of the Company will not be considered a Change in Control; or

  

 

  

 

(ii)      A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.  For purposes of this clause (ii), if any Person is considered to effectively control the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or

 

(iii)    A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3).  For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

 

For purposes of this Section 2(f), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.

 

(g)           “Code” means the Internal Revenue Code of 1986, as amended.  Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

 

(h)           “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.

 

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

 

(j)            “Company” means Vitacost.com, a Delaware corporation, or any successor thereto.

 

(k)           “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

  

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(l)            “Determination Date” means the latest possible date that will not jeopardize the qualification of an Award granted under the Plan as “performance-based compensation” under Section 162(m) of the Code.

 

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

 

(n)           “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.

 

(o)           “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company.  Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

 

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

 

(q)           “Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is reduced.  The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.

 

(r)           “Fair Market Value” means, as of any date, the value of the Common Stock as the Administrator may determine in good faith by reference to the price of such stock on any established stock exchange or a national market system on the day of determination if the Common Stock is so listed on any established stock exchange or a national market system.  If the Common Stock is not listed on any established stock exchange or a national market system, the value of the Common Stock will be determined as the Administrator may determine in good faith.

 

(s)           “Fiscal Year” means the fiscal year of the Company.

 

(t)           “Incentive Stock Option” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

 

(u)           “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

 

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

 

(w)          “Option” means a stock option granted pursuant to Section 6 of the Plan.

  

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(x)           “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

(y)           “Participant” means the holder of an outstanding Award.

 

(z)           “Performance Goals” will have the meaning set forth in Section 11 of the Plan.

 

(aa)         “Performance Period” means any Fiscal Year of the Company or such other period as determined by the Administrator in its sole discretion.

 

(bb)        “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine pursuant to Section 10.

 

(cc)         “Performance Unit” means an Award which may be earned in whole or in part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.

 

(dd)        “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture.  Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.

 

(ee)         “Plan” means this 2011 Incentive Compensation Plan.

 

(ff)           “Restricted Stock” means Shares issued pursuant to an Award of Restricted Stock under Section 8 of the Plan, or issued pursuant to the early exercise of an Option.

 

(gg)         “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 9.  Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

 

(hh)         “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

 

(ii)            “Section 16(b)” means Section 16(b) of the Exchange Act.

 

(jj)            “Service Provider” means an Employee, Director, or Consultant.

 

(kk)          “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

 

(ll)           “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 7 is designated as a Stock Appreciation Right.

  

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(mm)        “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

3.           Stock Subject to the Plan.

 

(a)           Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares that may be awarded and sold under the Plan is 6,000,000 Shares plus (i) any Shares which have been reserved but not issued pursuant to any awards granted under the Company’s 2007 Stock Award Plan (the “Prior Plan”) as of the date of stockholder approval of this Plan and (ii) any Shares subject to stock options or similar awards granted under the Prior Plan that expire or otherwise terminate without having been exercised in full and Shares issued pursuant to awards granted under the Prior Plan that are forfeited to or repurchased by the Company, with the maximum number of Shares to be added pursuant to these clauses (i) and (ii) equal to an additional 2,000,000 Shares.  The Shares may be authorized, but unissued, or reacquired Common Stock.

 

(b)           Full Value Awards.  Any Shares subject to Awards granted with an exercise price less than the Fair Market Value on the date of grant of such Awards will be counted against the numerical limits of this Section 3 as two (2) Shares for every one (1) Share subject thereto.  Further, if Shares acquired pursuant to any such Award are forfeited or repurchased by the Company and would otherwise return to the Plan pursuant to Section 3(c), two (2) times the number of Shares so forfeited or repurchased will return to the Plan and will again become available for issuance.

 

(c)           Lapsed Awards.  If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, is forfeited to or repurchased by the Company, the unpurchased Shares (or for Awards other than Options and Stock Appreciation Rights, the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated).  Upon exercise of a Stock Appreciation Right settled in Shares, the net number of Shares actually issued pursuant to the portion of the Award so exercised will cease to be available under the Plan.  Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if unvested Shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan.  Shares used to pay the tax and/or exercise price of an Award will become available for future grant or sale under the Plan.  To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan.  Notwithstanding the foregoing provisions of this Section 3(c), subject to adjustment provided in Section 14, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code, any Shares that become available for issuance under the Plan under this Section 3(c).

 

(d)           Share Reserve.  The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.

  

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4.           Administration of the Plan.

 

(a)           Procedure.

 

(i)       Multiple Administrative Bodies.  Different Committees with respect to different groups of Service Providers may administer the Plan.

 

(ii)      Section 162(m).  To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two (2) or more “outside directors” within the meaning of Section 162(m) of the Code.

 

(iii)      Rule 16b-3.  To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.

 

(iv)     Other Administration.  Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.

 

(b)           Powers of the Administrator.  Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:

 

(i)       to determine the Fair Market Value;

 

(ii)      to select the Service Providers to whom Awards may be granted hereunder;

 

(iii)      to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder;

 

(iv)     to determine the terms and conditions of any, and with the approval of the Company’s stockholders, to institute an Exchange Program;

 

(v)      to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

 

(vi)     to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

 

(vii)    to modify or amend each Award (subject to Section 19(c) of the Plan);

 

(viii)   to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

  

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(ix)      to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award pursuant to such procedures as the Administrator may determine; and

 

(x)       to make all other determinations deemed necessary or advisable for administering the Plan.

 

(c)           Effect of Administrator’s Decision.  The Administrator’s decisions, determinations, and interpretations will be final and binding on all Participants and any other holders of Awards.

 

5.           Eligibility.  Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares, and such other cash or stock awards as the Administrator determines may be granted to Service Providers.  Incentive Stock Options may be granted only to Employees.

 

6.           Stock Options.

 

(a)           Limitations.

 

(i)      Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.  However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000 (U.S.), such Options will be treated as Nonstatutory Stock Options.  For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the order in which they were granted.  The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.

 

(ii)      The Administrator will have complete discretion to determine the number of Shares subject to an Option granted to any Participant, provided that during any Fiscal Year, no Participant will be granted an Option covering more than 1,000,000 Shares.  Notwithstanding the limitation in the previous sentence, in connection with his or her initial service as an Employee, an Employee may be granted Options covering up to an additional 2,000,000 Shares.

 

(b)           Term of Option.  The Administrator will determine the term of each Option in its sole discretion; provided, however, that the term will be no more than ten (10) years from the date of grant thereof.  Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

  

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(c)           Option Exercise Price and Consideration.

 

(i)      Exercise Price.  The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, but will be no less than 100% of the Fair Market Value per Share on the date of grant.  In addition, in the case of an Incentive Stock Option granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant.  Notwithstanding the foregoing provisions of this Section 6(c), Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.

 

(ii)      Waiting Period and Exercise Dates.  At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.

 

(iii)     Form of Consideration.  The Administrator will determine the acceptable form(s) of consideration for exercising an Option, including the method of payment, to the extent permitted by Applicable Laws.

 

(d)           Exercise of Option.

 

(i)      Procedure for Exercise; Rights as a Stockholder.  Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement.  An Option may not be exercised for a fraction of a Share.

 

An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Administrator specifies from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with any applicable withholding taxes).  No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.

 

(ii)      Termination of Relationship as a Service Provider.  If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement).  In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination.  Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan.  If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

  

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(iii)      Disability of Participant.  If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement).  In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination.  Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan.  If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

(iv)      Death of Participant.  If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator.  If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution.  In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death.  Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan.  If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

(v)      Other Termination.  A Participant’s Award Agreement may also provide that if the exercise of the Option following the termination of Participant’s status as a Service Provider (other than upon the Participant’s death or Disability) would result in liability under Section 16(b), then the Option will terminate on the earlier of (A) the expiration of the term of the Option set forth in the Award Agreement, or (B) the 10th day after the last date on which such exercise would result in such liability under Section 16(b).  Finally, a Participant’s Award Agreement may also provide that if the exercise of the Option following the termination of the Participant’s status as a Service Provider (other than upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of Shares would violate the registration requirements under the Securities Act, then the Option will terminate on the earlier of (A) the expiration of the term of the Option, or (B) the expiration of a period of three (3) months after the termination of the Participant’s status as a Service Provider during which the exercise of the Option would not be in violation of such registration requirements.

  

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7.           Stock Appreciation Rights.

 

(a)            Grant of Stock Appreciation Rights.  Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.

 

(b)           Number of Shares.  The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Participant, provided that during any Fiscal Year, no Participant will be granted Stock Appreciation Rights covering more than 1,000,000 Shares.  Notwithstanding the limitation in the previous sentence, in connection with his or her initial service as an Employee, an Employee may be granted Stock Appreciation Rights covering up to an additional 2,000,000 Shares.

 

(c)           Exercise Price and Other Terms.  The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan, provided, however, that the exercise price will be not less than 100% of the Fair Market Value of a Share on the date of grant.

 

(d)           Stock Appreciation Right Agreement.  Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

 

(e)           Expiration of Stock Appreciation Rights.  A Stock Appreciation Right granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement; provided, however, that the term will be no more than ten (10) years from the date of grant thereof.  Notwithstanding the foregoing, the rules of Section 6(d) also will apply to Stock Appreciation Rights.

 

(f)           Payment of Stock Appreciation Right Amount.  Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

 

(i)      The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times

 

(ii)      The number of Shares with respect to which the Stock Appreciation Right is exercised.

 

At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

 

8.           Restricted Stock.

 

(a)           Grant of Restricted Stock.  Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.

  

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(b)           Restricted Stock Agreement.  Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine.  Notwithstanding the foregoing sentence, for restricted stock intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during any Fiscal Year no Participant will receive more than an aggregate of 750,000 Shares of Restricted Stock.  Notwithstanding the foregoing limitation, in connection with his or her initial service as an Employee, for restricted stock intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, an Employee may be granted an aggregate of up to an additional 1,000,000 Shares of Restricted Stock.  Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as escrow agent until the restrictions on such Shares have lapsed.

 

(c)           Transferability.  Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.

 

(d)           Other Restrictions.  The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.

 

(e)           Removal of Restrictions.  Except as otherwise provided in this Section 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction.  The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.

 

(f)           Voting Rights.  During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.

 

(g)           Dividends and Other Distributions.  During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement.  If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

 

(h)           Return of Restricted Stock to Company.  On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.

 

(i)           Section 162(m) Performance Restrictions.  For purposes of qualifying grants of Restricted Stock as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals.  The Performance Goals will be set by the Administrator on or before the Determination Date.  In granting Restricted Stock which is intended to qualify under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).

  

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9.           Restricted Stock Units.

 

(a)           Grant.  Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator.  Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such other terms and conditions as the Administrator, in its sole discretion, will determine, including all terms, conditions, and restrictions related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to Section 9(d), may be left to the discretion of the Administrator.  Notwithstanding anything to the contrary in this subsection (a), for Restricted Stock Units intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during any Fiscal Year of the Company, no Participant will receive more than an aggregate of 750,000 Restricted Stock Units.  Notwithstanding the limitation in the previous sentence, for Restricted Stock Units intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, in connection with his or her initial service as an Employee, an Employee may be granted an aggregate of up to an additional 1,000,000 Restricted Stock Units.

 

(b)           Vesting Criteria and Other Terms.  The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant.  After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any restrictions for such Restricted Stock Units.  Each Award of Restricted Stock Units will be evidenced by an Award Agreement that will specify the vesting criteria, and such other terms and conditions as the Administrator, in its sole discretion will determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.

 

(c)           Earning Restricted Stock Units.  Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as specified in the Award Agreement.

 

(d)           Form and Timing of Payment.  Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) set forth in the Award Agreement.  The Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares, or a combination thereof.  Shares represented by Restricted Stock Units that are fully paid in cash again will be available for grant under the Plan.

 

(e)           Cancellation.  On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.

 

(f)           Section 162(m) Performance Restrictions.  For purposes of qualifying grants of Restricted Stock Units as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals.  The Performance Goals will be set by the Administrator on or before the Determination Date.  In granting Restricted Stock Units which are intended to qualify under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).

  

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10.         Performance Units and Performance Shares.

 

(a)           Grant of Performance Units/Shares.  Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion.  The Administrator will have complete discretion in determining the number of Performance Units/Shares granted to each Participant provided that during any Fiscal Year, for Performance Units or Performance Shares intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, (i) no Participant will receive Performance Units having an initial value greater than $1,000,000, and (ii) no Participant will receive more than 750,000 Performance Shares.  Notwithstanding the foregoing limitation, for Performance Shares intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, in connection with his or her initial service, a Service Provider may be granted up to an additional 1,000,000 Performance Shares.

 

(b)           Value of Performance Units/Shares.  Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant.  Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.

 

(c)           Performance Objectives and Other Terms.  The Administrator will set performance objectives or other vesting provisions.  The Administrator may set vesting criteria based upon the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued employment), or any other basis determined by the Administrator in its discretion.

 

(d)           Earning of Performance Units/Shares.  After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved.  After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.

 

(e)           Form and Timing of Payment of Performance Units/Shares.  Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period.  The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.

 

(f)           Cancellation of Performance Units/Shares.  On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.

  

-13-

  

 

(g)           Section 162(m) Performance Restrictions.  For purposes of qualifying grants of Performance Units/Shares as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals.  The Performance Goals will be set by the Administrator on or before the Determination Date.  In granting Performance Units/Shares which are intended to qualify under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).

 

11.         Performance-Based Compensation Under Code Section 162(m).

 

(a)           General.  If the Administrator, in its discretion, decides to grant an Award intended to qualify as “performance-based compensation” under Code Section 162(m), the provisions of this Section 11 will control over any contrary provision in the Plan; provided, however, that the Administrator may in its discretion grant Awards that are not intended to qualify as “performance-based compensation” under Section 162(m) of the Code to such Participants that are based on Performance Goals or other specific criteria or goals but that do not satisfy the requirements of this Section 11.

 

(b)           Performance Goals.  The granting and/or vesting of Awards of Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units and other incentives under the Plan may be made subject to the attainment of performance goals relating to one or more business criteria within the meaning of Code Section 162(m) and may provide for a targeted level or levels of achievement (“Performance Goals”) including (i) earnings per Share, (ii) operating cash flow, (iii) operating income, (iv) profit after-tax, (v) profit before-tax, (vi) return on assets, (vii) return on equity, (viii) return on sales, (ix) revenue, and (x) total shareholder return.  Any Performance Goals may be used to measure the performance of the Company as a whole or a business unit of the Company and may be measured relative to a peer group or index.  The Performance Goals may differ from Participant to Participant and from Award to Award.  Prior to the Determination Date, the Administrator will determine whether any significant element(s) will be included in or excluded from the calculation of any Performance Goal with respect to any Participant.

 

(c)           Procedures.  To the extent necessary to comply with the performance-based compensation provisions of Code Section 162(m), with respect to any Award granted subject to Performance Goals, within the first twenty-five percent (25%) of the Performance Period, but in no event more than ninety (90) days following the commencement of any Performance Period (or such other time as may be required or permitted by Code Section 162(m)), the Administrator will, in writing, (i) designate one or more Participants to whom an Award will be made, (ii) select the Performance Goals applicable to the Performance Period, (iii) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (iv) specify the relationship between Performance Goals and the amounts of such Awards, as applicable, to be earned by each Participant for such Performance Period.  Following the completion of each Performance Period, the Administrator will certify in writing whether the applicable Performance Goals have been achieved for such Performance Period.  In determining the amounts earned by a Participant, the Administrator will have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the Performance Period.  A Participant will be eligible to receive payment pursuant to an Award for a Performance Period only if the Performance Goals for such period are achieved.

  

-14-

  

 

(d)           Additional Limitations.  Notwithstanding any other provision of the Plan, any Award which is granted to a Participant and is intended to constitute qualified performance based compensation under Code Section 162(m) will be subject to any additional limitations set forth in the Code (including any amendment to Section 162(m)) or any regulations and ruling issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m) of the Code, and the Plan will be deemed amended to the extent necessary to conform to such requirements.

 

12.         Leaves of Absence.  Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence.  A Service Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company, or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary.  For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract.  If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months and one day following the commencement of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.

 

13.         Transferability of Awards.  Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant.  If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.

 

14.         Adjustments; Dissolution or Liquidation; Merger or Change in Control.

 

(a)           Adjustments.  In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award, and the numerical Share limits set forth in Sections 3, 6, 7, 8, 9, and 10.

 

(b)           Dissolution or Liquidation.  In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction.  To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

  

-15-

  

 

(c)           Change in Control.  In the event of a merger or Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that each Award will be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation (the “Successor Corporation”).  The Administrator will not be required to treat all Awards similarly in the transaction.

 

In the event that the Successor Corporation does not assume or substitute for the Award, the Award shall terminate if not exercised (if applicable) at or prior to such merger or Change in Control.  The Administratror, in its sole discretion and without the consent of any Participant, may (but is not obligated to) either (i) accelerate the vesting of all Awards (and, if applicable, the time at which such Awards may be exercised) in full or as to some percentage of the Award to a date prior to the merger or Change in Control as the Administrator shall determine or (ii) provide for a cash payment in exchange for the termination of an Award or any portion thereof where such cash payment is equal to the Fair Market Value of the Shares that the Participant would receive if the Award or portion thereof were fully vested and exercised (if applicable) as of the date of the merger or Change in Control (less any applicable exercise price).

 

For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administrator determines to pay cash or a Performance Share or Performance Unit which the Administrator can determine to pay in cash, the fair market value of the consideration received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Performance Share or Performance Unit, for each Share subject to such Award (or in the case of Performance Units, the number of implied shares determined by dividing the value of the Performance Units by the per share consideration received by holders of Common Stock in the Change in Control), to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

 

Notwithstanding anything in this Section 14(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more Performance Goals will not be considered assumed if the Company or its successor modifies any of such Performance Goals without the Participant’s consent; provided, however, a modification to such Performance Goals only to reflect the Successor Corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

 

15.         Tax Withholding

 

(a)           Withholding Requirements.  Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).

  

-16-

  

 

(b)           Withholding Arrangements.  The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum amount required to be withheld, (iii) delivering to the Company already-owned Shares having a Fair Market Value equal to the amount required to be withheld, or (iv) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld.  The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined.  The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

 

16.         No Effect on Employment or Service.  Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.

 

17.         Date of Grant.  The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator.  Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.

 

18.         Term of Plan.  Subject to Section 22 of the Plan, the Plan will become effective upon its adoption by the Board.  It will continue in effect for a term of ten (10) years unless terminated earlier under Section 19 of the Plan.

 

19.         Amendment and Termination of the Plan.

 

(a)           Amendment and Termination.  The Administrator may at any time amend, alter, suspend or terminate the Plan.

 

(b)           Stockholder Approval.  The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

 

(c)           Effect of Amendment or Termination.  No amendment, alteration, suspension, or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company.  Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

  

-17-

  

 

20.         Conditions Upon Issuance of Shares.

 

(a)           Legal Compliance.  Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.

 

(b)           Investment Representations.  As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

 

21.         Inability to Obtain Authority.  The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.

 

22.         Stockholder Approval.  The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted.  Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.

  

-18-Unassociated Document

Exhibit 10.1

 

Employment Agreement

 

 

This Personal Employment Agreement (the “Agreement”) is entered as of this 1st day of July, 2011 (the “Effective Date”), by and between MEDGENICS, INC., a company organized under the laws of the State of Delaware (the “Company”) with principal U.S. offices located at 555 California Avenue, Suite 311, San Francisco, California  94104; and CLARENCE L. “BUTCH” DELLIO, whose address is 4432 Grays Court, Concord, California  94518 (the “Executive”).

 

WITNESSETH

	
WHEREAS,

	
the Company was established for the purpose of engaging in the research and development, production and sale of products and/or services in the areas of life sciences, biotechnology and/or medical devices; and

	
WHEREAS,

	
the Company desires to engage the Executive as Chief Operating Officer; and

	
WHEREAS,

	
the Executive represents that he has the requisite skill and knowledge to serve as such; and

	
WHEREAS,

	
the parties desire to state the terms and conditions of the Executive’s engagement by the Company, effective as of the Effective Date, as set forth below.

NOW THEREFORE, in consideration of the mutual promises, covenants, conditions, representations and warranties set forth herein, and intending to be legally bound hereby, the parties agree as follows:

	
1. 

	
Appointment; Term

	
  

	
1.1

	
The Company hereby appoints the Executive as Chief Operating Officer of the Company and, in such capacity, the Executive shall be subject to the direction of the Company’s Executive Chairman of the Board (the “Chairman”) and the Company’s Chief Executive Officer (the “CEO”).

 

	
  

	
1.2

	
The Executive’s employment hereunder shall be for a term of one (1) year commencing the Effective Date (the “Term”).  The Term shall automatically extend for one (1) additional year on each subsequent anniversary of the Effective Date (the “Automatic Extension”), unless either party provides sixty (60) days advance written notice to the other of such party’s desire not to renew.  If the Automatic Extension is terminated, then Executive’s employment hereunder shall terminate as of the last day of the then current Term, subject to earlier termination pursuant to Section 7 below.

 

	
2. 

	
Position

	
  

	
During the term of this Agreement:

	
  

	
2.1

	
The Executive shall be expected to work on average approximately 50% of an average work week of an executive in a similar position with a public company of similar size and nature as the Company.  The Executive understands and agrees that his duties may require that he work more than 50% of an average work week, but that he shall not be entitled to any over-time pay as a result of any additional hours worked. The parties expect that the Executive will convert to a full-time basis, and shall devote his entire business time, attention and efforts to the performance of his duties and responsibilities under this Agreement and the business and affairs of the Company in the future upon the mutual agreement of the parties.  During the period that the Executive is working on a part-time basis, the Executive may be employed by or provide services to other entities, provided that such entities are not engaged in or related to the therapeutic protein business or in any way competitive with the Company.  During the period that the Executive is working on a full-time basis, the Executive may not be employed by nor provide services to any other entity, nor engage directly or indirectly in any other work or business, without the prior, express, written permission of the Company.

 

	
  

	
2.2

	
The Executive shall be responsible for coordinating the overall execution of the Company’s business plan, as adopted by the Company’s Board of Directors (the “Board”), in cooperation and coordination with the Chairman, the CEO and other members of management.

 

  

 

  

 

	
  

	
2.3

	
The duties, responsibilities, authority and position of the Executive and the organizational structures implicit in them may be changed by the Company from time to time, as the Chairman or the Board deems necessary, and reasonable efforts to work with and accommodate the Executive with such changes will be made; however, the Company retains the right of sole discretion to make such changes.

 

	
  

	
2.4

	
The Executive undertakes to notify the Company, immediately and without delay, of any interest or matter in respect of which he ‎may have a personal interest or is likely to create a conflict of interest with his role in the Company.

 

	
  

	
2.5

	
In the performance of the Executive’s duties under this Agreement, the Executive shall adhere to such employment standards, ethical practices and standards of care and competence as are customary for employees holding similar positions with employers similar to the Company.

 

	
3. 

	
Place of Work

In connection with the Executive’s employment by the Company, the Executive shall be based at the current principal U.S. offices of the Company in San Francisco, California, or at such other place as is otherwise appropriate to the functions being performed by the Company.  Because the majority of the Company’s business is currently located in Israel, the Executive acknowledges that the performance of his duties hereunder may require domestic or international travel.

	
4. 

	
Salary; Bonus

	
  

	
4.1

	
The Company shall pay the Executive as compensation for the employment services hereunder a monthly gross salary (“$12,500”) per month (payable in bi-weekly installments on the 15th and last day of each calendar month), during the term of the Executive’s engagement hereunder (the “Salary”).  Salary and all other compensation payable to the Executive shall be paid minus required payroll withholdings and deductions for federal, state and local income, FICA, unemployment compensation, disability and other similar taxes or assessments.

 

	
  

	
4.2

	
The Salary and additional benefits to which the Executive shall be entitled hereunder (including bonuses) shall be reviewed by the Compensation Committee of the Board on an annual basis; and, in the discretion of the Compensation Committee, the Executive’s Salary may be adjusted and/or additional benefits shall be granted to the Executive hereunder.  It is the intention to increase the Salary by 100% at such time as the parties mutually agree that the Executive shall be a full-time employee.

 

	
  

	
4.3

	
The Executive shall be eligible to receive an annual cash bonus with respect to each fiscal year of the Company during the Term of up to an amount equal to 30% of Salary on an annualized basis, as determined by the Compensation Committee of the Board, in its sole discretion, which shall be based upon objective and subjective corporate and personal performance criteria as established by the Chairman and the Compensation Committee of the Board (the “Goal Bonus”).  If awarded, the Goal Bonus shall be payable at such time as bonuses similar to Goal Bonus are paid to other members of management.

	
5. 

	
Benefits

	
  

	
5.1

	
The Executive shall be entitled to be reimbursed for all normal, usual and necessary actual business expenses arising out of travel, lodging, meals and entertainment whether in the U.S. or abroad, provided Executive provides proper documentation and provided further that such business expenses are within an expense policy approved by the Board.  In addition, the Company shall reimburse the Executive a portion of his regular commuting costs by paying the Executive $100 per month (pro rata for any partial month).

 

	
  

	
5.2

	
The Executive shall be entitled, in addition to U.S. public holidays, to twenty (20) days of paid time off (“PTO Days”) per calendar year, prorated for any partial year and ratably accrued with each pay period. A maximum of one year’s entitlement to PTO Days may be accumulated if unused, beyond which any PTO Days will be forfeited by the Executive if not utilized during the year in which they are allocated.

 

  

2

  

 

	
  

	
5.3

	
The Executive shall be entitled to participate in all senior manager employee benefit plans or programs of the Company for employees located in the United States, whether now offered or offered at any time during the term of this Agreement, including any medical, dental, dependent coverage, disability, retirement, pension or 401(k) plans and sick leave, to the extent Executive is eligible therefor.  The Company, in its sole and absolute discretion, may discontinue, reduce or otherwise change any benefit now or hereafter offered to its work force or senior managers.

 

	
  

	
5.4

	
The Executive shall be granted options to purchase up to 40,000 shares of the Company’s common stock pursuant to the Company’s Stock Incentive Plan, as the same may be amended.  Such options shall vest in four (4) equal annual installments, with options to purchase the first 10,000 shares vesting upon the first anniversary of the Effective Date.  Such options shall have a ten-year term and an exercise price of $3.64 per share and shall be subject to the terms and conditions of the Company’s Stock Incentive Plan, as the same may be amended, and pursuant to the standard form of option agreement which the Company may use.

 

	
  

	
5.5

	
Any tax liability in connection with any of the benefits provided to the Executive, including the options (including with respect to the grant, exercise, sale of the options or the shares receivable upon their exercise) shall be borne solely by the Executive.

 

	
6. 

	
Termination

	
  

	
6.1

	
Voluntary Termination – The Company and the Executive shall each have the right to terminate this Agreement for any reason by giving the other party at least thirty (30) days advance written notice of the effective date of termination.

 

	
  

	
6.2

	
Termination With Cause – The Company may terminate the Executive’s employment immediately upon written notice for cause.  For purposes of this Agreement, termination for “cause” shall mean and include:  (a) conviction of a felony involving moral turpitude or affecting the Company or its subsidiaries; (b) any refusal to carry out a reasonable directive of the Chairman or the Board which involves the business of the Company or its subsidiaries and was capable of being lawfully performed; (c) embezzlement of funds of the Company or its subsidiaries; (d) any breach of the Executive’s fiduciary duties or duties of care to the Company (except for conduct taken in good faith); (e) any breach of this Agreement by the Executive and the failure to cure the same to the satisfaction of the Company within fifteen days of written notice from the Company specifying in reasonable detail such breach; or (f) any conduct (other than in good faith) materially detrimental to the Company or its subsidiaries, including, but not limited to, sexual harassment and violence.

 

	
  

	
6.3

	
Termination Upon Death or Disability - The Company may terminate the Executive’s employment immediately upon the death of the Executive or after having established the Executive’s disability. For purposes of this Agreement, “disability” means a physical or mental infirmity that impairs the Executive’s ability to substantially perform his duties under the Agreement that continues for a period of at least ninety (90) consecutive days.

 

	
  

	
6.4

	
Except as otherwise provided in Section 6.5 below, on the effective date of termination, the Executive, or his estate in the case of death, shall be paid all wages and benefits through the effective date of termination and thereafter all obligations of the Company under this Agreement shall cease.  Upon termination, the Executive shall remain bound by specific obligations set forth in this Agreement, as indicated in the applicable Sections of this Agreement.  From and after the delivery of a notice of termination by either the Executive or the Company, the Executive shall, at the Company’s request, cooperate with the Company and use his best efforts to assist in the integration into the Company’s organization the person or persons who will assume the Executive’s responsibilities.

 

	
  

	
6.5

	
Severance – In the event that the Company terminates the Executive without cause (as defined in Section 6.2), the Company shall continue to pay Salary (as and when provided in Section 4.1) to the Executive for the period ending six (6) months after the effective date of such termination (the “Severance Period”) as severance.  The Executive shall not be entitled to any other benefits set forth in Articles 4 or 5 during the Severance Period.

 

	
7. 

	
Proprietary Information

	
  

	
7.1

	
The Executive acknowledges and agrees that he may have access to confidential and/or proprietary information concerning the business and financial activities of the Company and information and technology regarding the Company’s product research and development, including, without limitation, the Company’s banking, investments, investors, properties, employees, marketing plans, customers, trade secrets, and test results, processes, data and know-how, improvements, inventions, techniques and products (actual or planned). Such information, whether documentary, written, oral or computer generated, even if not patentable, or not protectable or protected by copyright laws, shall be deemed to be and is referred to as “Proprietary Information”.

 

  

3

  

 

	
  

	
7.2

	
Proprietary Information shall be deemed to include any and all proprietary information disclosed by or on behalf of the Company and irrespective of form, but excluding information that (a) was known to the Executive prior to his association with the Company and can be so proven; (b) shall have become a part of the public domain except as a result of a breach of this Agreement by the Executive; or (c) shall have been received by the Executive from a third party having no obligation to the Company.

 

	
  

	
7.3

	
The Executive agrees and declares that all Proprietary Information, patents and other rights in connection therewith shall be the sole property of the Company and its assigns. At all times, both during and after the termination of his employment with the Company for any reason, the Executive will keep in strict confidence and trust all Proprietary Information, and the Executive will not use, disclose or provide access to any Proprietary Information or anything relating to it without the written consent of the Board.

 

	
  

	
7.4

	
Upon termination of his employment with the Company, the Executive will promptly deliver to the Company all documents and materials of any nature pertaining to his work with the Company, and he will not take with him any documents or materials or copies thereof containing any Proprietary Information.

 

	
  

	
7.5

	
The Executive recognizes that the Company has received and may receive confidential or proprietary information from third parties subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. At all times, both during his employment with the Company and for a period of three (3) years after the effective date of termination of his employment with the Company for any reason, the Executive undertakes to keep and hold all such information in strict confidence and trust, and he will not use, disclose or provide access to any of such information without the prior written consent of the Board, except as may be necessary to perform his duties as an employee of the Company and consistent with the Company’s agreement with such third party. Upon termination of his employment with the Company, the Executive shall act with respect to such information as set forth in Section 7.4, mutatis mutandis.

 

	
  

	
7.6

	
The Executive acknowledges that (i) in his relationship with the Company he may have access to material, non-public inside information about the Company, and (ii) the Company is a public company with securities listed and traded on the NYSE Amex and on the AIM Market operated by the London Stock Exchange.  The Executive agrees that he is subject to and shall comply with all laws, rules and regulations, applicable to trading in Company stock, including those prohibiting trading on material, non-public inside information.  In addition, the Executive agrees to comply with the Company’s Code of Business Conduct and Ethics and such other codes or policies of conduct as may be adopted or amended by the Board.

 

	
  

	
7.7

	
The Executive’s undertakings in this Section 7 shall remain in full force and effect after termination of this Agreement or any extension hereof.

 

	
8. 

	
Disclosure and Assignment of Inventions

	
  

	
8.1

	
The Executive understands that the Company is engaged in a continuous program of research, development, production and marketing in connection with its business and that, as an essential part of his employment with the Company, he is expected to make new contributions to and create inventions of value for the Company. Executive agrees to share with the Company all his knowledge and experience, provided however that Executive shall not disclose to the Company any information which Executive has undertaken to third parties to keep confidential or in which third parties have any rights.

 

	
  

	
8.2

	
As of the Effective Date of this Agreement, the Executive undertakes and covenants that he will promptly disclose in confidence to the Company all inventions, improvements, designs, original works of authorship, formulas, concepts, techniques, methods, systems, processes, compositions of matter, computer software programs, databases, mask works, and trade secrets, related to the Company’s business or current or anticipated research and development, whether or not patentable, copyrightable or protectible as trade secrets, that are made or conceived or first reduced to practice or created by him, either alone or jointly with others, during the period of his employment, whether or not in the course of his employment (“Inventions”).

 

  

4

  

 

	
  

	
8.3

	
The Executive agrees that all Inventions that (a) are developed using equipment, supplies, facilities or Proprietary Information of the Company, (b) result from work performed by him for the Company, or (c) relate to the Company’s business or current or anticipated research and development, will be the sole and exclusive property of the Company (“Company Inventions”).

 

	
  

	
8.4

	
The Executive  agrees with the Company that all Company Inventions and all products developed or derived therefrom are and shall be owned exclusively by the Company, and the Executive shall have no rights in or to such Company Inventions.    The Executive hereby irrevocably transfers and assigns to the Company: all right, title and interest in and to (a) the Company Inventions, including all worldwide patent rights (including patent applications and disclosures), copyright rights, mask work rights, trade secret rights, know-how, and any and all other intellectual property or proprietary rights (collectively, “Intellectual Property Rights”) therein, and (b) any and all “Moral Rights” (as defined below) that he may have in or with respect to any Company Invention.  To the extent applicable, all copyrightable works shall be considered works made for hire owned exclusively by the Company.  The Executive also hereby forever waives and agrees never to assert any and all Moral Rights he may have in or with respect to any Company Invention, even after termination of his work on behalf of the Company. “Moral Rights” mean any rights of paternity or integrity, any right to claim authorship of an invention, to object to any distortion, mutilation or other modification of, or other derogatory action in relation to, any invention, whether or not such would be prejudicial to his honor or reputation, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a “moral right”, in all cases.  The Executive will not file any patent applications for Company Inventions other than in the name of the Company (other than such patent applications which are required by law to be filed by such Executive but which shall immediately thereafter be assigned for no or nominal consideration to the Company).

 

	
  

	
8.5

	
To the extent that the Executive owns or controls (presently or in the future) any patent rights, copyright rights, mask work rights, trade secret rights, or any other intellectual property or proprietary rights that block or interfere with the rights assigned to the Company under this Agreement (collectively, “Related Rights”), the Executive hereby grants or will cause to be granted to the Company a non-exclusive, royalty-free, irrevocable, perpetual, transferable, worldwide license (with the right to sublicense) to make, have made, use, offer to sell, sell, import, copy, modify, create derivative works based upon, distribute, sublicense, display, perform and transmit any products, software, hardware, methods or materials of any kind that are covered by such Related Rights, to the extent necessary to enable the Company to exercise all of the rights assigned to the Company under this Agreement.

 

	
  

	
8.6

	
The Executive agrees to assist the Company in every proper way to obtain for the Company and enforce patents, copyrights, mask work rights, and other legal protections for the Company’s Inventions in any and all countries.  The Executive agrees to execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets and other legal protections.  The Executive’s obligations under this Section 8.6 will continue beyond the termination of his employment with the Company, provided that the Company will compensate him at a reasonable rate after such termination for time or expenses actually spent by him at the Company’s request on such assistance. The Executive hereby irrevocably appoints the CEO of the Company, including future CEO’s or corresponding officers of the Company or successor companies, as his attorney-in-fact to execute documents on his behalf for this purpose.

 

	
  

	
8.7

	
The Executive’s undertakings in this Section 8 shall remain in full force and effect after termination of this Agreement or any extension hereof.

 

	
9. 

	
Non-Solicitation

	
  

	
9.1

	
The Executive agrees and undertakes that during the period of his employment and for a period of twelve (12) months following termination of his employment with the Company for any reason, he will not, directly or indirectly, including personally or in any business in which he is an officer, director or shareholder, for any purpose or in any place, solicit, assist in soliciting or employ any person employed by the Company or retained by the Company as a consultant, or any customer or supplier of the Company, on the date of such termination or during the five months preceding such termination.

 

  

5

  

 

	
  

	
9.2

	
If any one or more of the terms contained in this Section 9 shall for any reason be held to be excessively broad with regard to time, geographic scope or activity, the term shall be construed in a manner to enable it to be enforced to the extent compatible with applicable law.

 

	
  

	
9.3

	
The Executive’s undertakings in this Section 9 shall remain in full force and effect after termination of this Agreement or any extension hereof.

 

	
10. 

	
Mutual Representations

	
  

	
10.1

	
The Executive represents and warrants to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof (a) will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound, and (b) do not require the consent of any person or entity.

 

	
  

	
10.2

	
The Company represents and warrants to the Executive that this Agreement has been duly authorized, executed and delivered by the Company and that the fulfillment of the terms hereof (a) will not constitute a default under or conflict with any agreement or other instrument to which it is a party or by which it is bound, and (b) do not require the consent of any person of entity.

 

	
  

	
10.3

	
Each party hereto warrants and represents to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless if enforcement is sought in proceeding in equity or at law).

	
11. 

	
Notice; Addresses

	
  

	
11.1

	
The addresses of the parties for purposes of this Agreement shall be the addresses set forth above, or any other address which shall be provided by due notice.

 

	
  

	
11.2

	
All notices in connection with this Agreement shall be sent by registered mail or delivered by hand to the addresses set forth above, and shall be deemed to have been delivered to the other party at the earlier of the following two dates: if sent by registered mail, as aforesaid, three business days from the date of mailing; if delivered by hand, upon actual delivery or proof of delivery (in the event of a refusal to accept it) at the address of the addressee. Delivery by facsimile or other electronic mail shall be sufficient and be deemed to have occurred upon electronic confirmation of receipt.

	
12. 

	
Miscellaneous

	
  

	
12.1

	
The preamble to this Agreement constitutes an integral part hereof.

 

	
  

	
12.2

	
Headings are included for reference purposes only and are not to be used in interpreting this Agreement.

 

	
  

	
12.3

	
The provisions of this Agreement are in lieu of the provisions of any collective bargaining agreement, and therefore, no collective bargaining agreement shall apply with respect to the relationship between the parties hereto (subject to the applicable provisions of law).

 

	
  

	
12.4

	
No failure, delay or forbearance of either party in exercising any power or right hereunder shall in any way restrict or diminish such party’s rights and powers under this Agreement, or operate as a waiver of any breach or nonperformance by either party of any terms or conditions hereof.

 

	
  

	
12.5

	
Any determination of the invalidity or unenforceability of any provision of the Agreement shall not affect the remaining provisions hereof unless the business purpose of this Agreement is substantially frustrated thereby.

 

	
  

	
12.6

	
This Agreement is personal and non-assignable by the Executive. It shall inure to the benefit of any corporation or other entity with which the Company shall merge or consolidate or to which the Company shall lease or sell all or substantially all of its assets, and may be assigned by the Company to any affiliate of the Company or to any corporation or entity with which such affiliate shall merge or consolidate or which shall lease or acquire all or substantially all of the assets of such affiliate. Any assignee must assume all the obligations of the Company hereunder, but such assignment and assumption shall not serve as a release of prior agreements, promises, covenants, arrangements, communications, representations the Company.

 

  

6

  

 

	
  

	
12.7

	
This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all negotiations, undertakings, agreements, representations or warranties, whether oral or written, by any officer, employee or representative of the Company or any party thereto; and any prior agreement of the parties hereto or of the Executive and the Company in respect of the subject matter contained herein is hereby terminated and cancelled.  Any modification to the Agreement can only be made in writing, signed by the Executive and the Chairman or other executive officer of the Company as designated by the Board.

 

	
  

	
12.8

	
The Company shall have all the rights and remedies at law or in equity.  The Executive recognizes and affirms that in the event of breach of any of the provisions of Section 7 (Confidential Information), 8 (Intellectual Property) or 9 (Non-Solicitation), money damages may be inadequate and there may be no adequate remedy at law.  Accordingly, the Company shall have the right, in addition to any other right or remedy existing in its favor, to enforce such Sections not only by an action or actions for damages, but also by an action or actions for specific performance, injunction and/or other equitable relief without posting any bond or security in order to enforce or prevent any violations (whether anticipatory, continuing or future) of any of the provision of such Sections (provided that the Company can make a showing of harm or damage in an appropriate court proceeding).  All of the provisions of Sections 7, 8 and 9 and this Section 12 shall survive the termination or expiration of this Agreement until the expiration of the applicable statute of limitations.

 

	
  

	
12.9

	
This Agreement will be governed by and construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflict of laws.  Any legal action or proceeding arising under this Agreement will be brought exclusively in the federal or state courts located in the Northern District of California and the parties hereby irrevocably consent to the personal jurisdiction and venue therein.

 

	
  

	
12.10

	
This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event that any signature is delivered by facsimile transmission or by an e-mail which contains a portable document format (.pdf) file of an executed signature page, such signature page shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such signature page were an original thereof.

 

 

 

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

 

	
/s/ Eugene A. Bauer

	 	
/s/ Clarence L. Dellio

	 
	
MEDGENICS, INC.

	 	
Clarence L. Dellio

	 

	
By:

	
Eugene A. Bauer,

	 
	  	
Executive Chairman of the Board of Directors

  

7

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