Document:

NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AN

THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

No. [2011-1]

U.S. $ _____,000

Original Issue Date:  October 31, 2011

 SERIES 2011 8% UNSECURED CONVERTIBLE NOTE 

DUE October 31, 2013

THIS NOTE is one of a duly authorized issue of Notes of  GLOBAL CASINOS, INC., a Utah corporation, (the “Company”), designated as its 8%  Unsecured Convertible Notes (the “Notes”) due on __________, 2013 (the “Maturity Date”), in an aggregate principal amount of $800,000 plus accrued and unpaid interest.  

FOR VALUE RECEIVED, the Company promises to pay to _______               , the registered holder hereof (the "Holder"), the principal sum of __________ Thousand and 00/100  Dollars (US $____,000.00)  and to pay interest on the principal sum outstanding from time to time in arrears at the rate of 8% per annum, accruing from October 31, 2011, the date of initial issuance of this Note (the “Issue Date”).  Accrual of interest shall commence on the first such business day to occur after the Issue Date and shall continue to accrue on a daily basis until payment in full of the principal sum has been made or duly provided for.  

The Company shall pay principal and accrued interest on the earlier of (i) the Conversion Date or (ii) the Maturity Date.

This Note is being issued pursuant to the terms of the Subscription Agreement (the “Subscription Agreement”), to which the Company and the Holder (or the Holder’s predecessor in interest) are parties.  Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Subscription Agreement.

This Note is subject to the following additional provisions.

Section 1.       No Collateral/Pari Passu.

(a)

This Note is one of a series of unsecured Notes known as the Series 2011 8% Convertible Notes in a total principal amount of $800,000 plus accrued but unpaid interest.  No payments will be made to the holder of this Note unless a proportional payment (based on outstanding principal amount) is made with respect to all other Notes.  Upon liquidation, this Note will be treated in pari passu with all other Notes and all other unsecured indebtedness of the Company.  

(b)

The Company’s obligations under this Note are unsecured.

Section 2.     No Sale or Transfer.  This Note may not be sold, transferred, assigned, hypothecated or divided into two or more Notes of smaller denominations except to the extent such sale, transfer, assignment, hypothecation or division is in compliance with federal and applicable state securities laws, the compliance with which must be established to the reasonable satisfaction of the Company.

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Section 3. 

No Limitations on Debt.  The existence of this Note does not preclude the Company from incurring other indebtedness (including secured debt and including other Notes which may, by their terms, be senior to the Notes).  

Section 4.

Provisions Regarding Payment of Interest.  Interest hereunder will be paid to the Holder on each Interest Payment Date.  An Interest Payment Date will be the date, from time-to-time, that the Company determines to make an Interest Payment.  If not paid previously, all interest will be payable at the Maturity Date.

Section 5.

(a)

“Event of Default” wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

(i)

Any default in the payment of the principal of or interest on this Note as and when the same shall become due and payable, (whether on the Maturity Date or by acceleration or otherwise);

(ii)

The Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of, this Note or and such failure or breach shall not have been remedied within 30 days after the date on which notice of such failure or breach shall have been given;

(iii)

The Company shall commence a voluntary case under the United States Bankruptcy Code or insolvency laws as now or hereafter in effect or any successor thereto (the “Bankruptcy Code”); or an involuntary case is commenced against the Company under the Bankruptcy Code and the petition is not controverted within 30 days, or is not dismissed within 60 days, after commencement of such involuntary case; or a “custodian” (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or any substantial part of the property of the Company or the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or there is commenced against the Company any such proceeding which remains undismissed for a period of 60 days; or the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or the Company makes a general assignment for the benefit of creditors; or the Company shall fail to pay, or shall state that it is unable to pay its debts generally as they become due; or the Company shall call a meeting of all of its creditors with a view to arranging a composition or adjustment of its debts; or the Company shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company for the purpose of effecting any of the foregoing.

(b)

Remedies.  The Holder may declare a default under Section 5(a)(i) upon not less than 15 days’ written notice to the Company.  If the Company fails to cure an Event of Default within such period (or if the cure cannot be reasonably completed within such period, commence the cure of the Event of Default and diligently pursue such cure), then the principal amount hereof together with all accrued and unpaid interest up to the date of default shall thereafter accrue interest at the default interest rate of 12% per annum and the Holders may:

(i)

Declare all amounts due under the Notes immediately due and owing and exercise all rights with respect thereto permitted by law;

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(ii)

Apply to a court with its seat in Colorado that has jurisdiction over the Company for the appointment of a receiver to manage the assets and operations of the Company;

(iii)

Convert all of the Notes into shares of Common Stock of the Company; or

(iv)

Assert any other remedy available at law or in equity.

 

Section 6.

Prepayment.  The Company may prepay this Note in whole or in part at any time prior to the Maturity Date upon not less than 30 days’ written notice to the Holder.

Section 7.

Definitions.  For the purposes hereof, the following terms shall have the following meanings:

“Business Day” means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of Colorado are authorized or required by law or other government action to close.

“Class B Warrants” shall mean common stock purchase warrants each exercisable for a period of three (3) years to purchase an additional share of Common Stock at an exercise price of $.75 per share. 

“Company” means Global Casinos, Inc., a Utah corporation.

“Conversion Amount” shall mean the total of unpaid principal and accrued but unpaid interest at the date such amount is determined.

“Conversion Price” shall mean $0.50 per share, as adjusted as set forth in Section 8(d), below.

“Conversion Shares” shall mean the shares of the Company’s Common Stock, $.005 par value issued or issuable upon conversion of the Notes.

“Conversion Securities” shall mean, in addition to the Conversion Shares, for every $1.00 in Conversion Amount converted (i) one additional share of Common Stock and (ii) two (2) Class B Warrants.

“Notes” means the Notes, or any of them, as the context may require.

“Holder” means any Person who is a registered holder of this Note as listed in the books of the Company.

“Interest Payment Date” is as defined in the paragraph entitled “FOR VALUE RECEIVED,” above.

“Market Price” at any date shall be deemed to be (i) if the principal trading market for such securities is any exchange, the last reported sale price, on each Trading Day for which determination is made as officially reported on any consolidated tape, (ii) if the principal market for such securities is the over-the-counter market, the closing prices (or, if no closing price, the closing bid price) on such Trading Days as set forth by Nasdaq or the OTC Bulletin Board (whichever is the principal market for the Company’s common stock) as reported at http://finance.yahoo.com or, (iii) if the security is not quoted on Nasdaq or the OTC Bulletin Board), the average bid and asked price as set forth on www.pinksheets.com or (if not available) in the National Quotation Bureau sheet listing such securities for such day.  Notwithstanding the foregoing, if there is no reported closing price or bid price, as the case may be, on any of the ten trading days preceding the event requiring a determination of Market Price hereunder, then the 

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Market Price shall be determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it.

“Material Adverse Effect” means a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of the Company taken as a whole.

“Maturity Date” means the date defined in the first paragraph or (if earlier) the date of any prepayment or acceleration.

“Original Issue Date” shall mean the date this Note is purchased by the initial holder.

“Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

“Trading Day” means a day in which the market on which shares of the Company’s common stock are principally traded is open for trading, whether or not any shares of the Company’s common stock are actually traded on that day.

Section 8.

Conversion.  

a.

Voluntary Conversion.  At any time before this Note has been paid, upon written notice to the Company, the Holder may convert the Conversion Amount into (i) Conversion Shares determined by dividing the Conversion Amount by the Conversion Price and (ii) the Conversion Securities.

b.

Mandatory Conversion.   The Conversion Amount shall automatically be converted into Conversion Shares and Conversion Securities immediately upon the consummation by the Company of the Split-Off of its gaming assets consisting of the sale of all of its interest in Casinos, USA, Inc. and Doc Holliday Casinos II, LLC in a leveraged management buyout more fully described in the Reorganization Term Sheet dated September 26, 2011 (the “Split-Off”).

c.

Limitation on Conversion.

Notwithstanding any other provision hereof, in no event (except (i) as specifically provided herein as an exception to this provision, or (ii) while there is outstanding a tender offer for any or all of the shares of the Company’s Common Stock) shall the Holder be entitled to convert any portion of this Note, or shall the Company have the obligation to convert such Note to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or other convertible securities or of the unexercised portion of warrants or other rights to purchase Common Stock), and (2) the number of shares of Common Stock issuable upon conversion of the Common Stock which are issuable upon the conversion of the Notes with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock (after taking into account the shares to be issued to the Holder upon such conversion).  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, except as otherwise provided in clause (1) of such sentence.  The Holder, by its acceptance of this Note, further agrees that if the Holder transfers or assigns any of the Notes to a party who or which would not be considered such an affiliate, such assignment shall be made subject to the transferee’s or assignee’s specific agreement to be bound by the provisions of this Section 4(C) as if such transferee or assignee were the original Holder hereof.  Nothing herein shall preclude the Holder from disposing of a sufficient number of other shares of Common Stock beneficially owned by the Holder so as to thereafter permit the continued conversion of this Note.  The provisions of this Section 8(c) (i) do not apply to any Holder who is the beneficial owner of 5% or more of the outstanding Common Stock of the Company without regard to the conversion of this Note, and (ii) may be waived by the Holder.

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d.

Manner of Converison.

Conversion shall be effectuated by faxing a Notice of Conversion (as defined below) to the Company as provided in this paragraph.  The Notice of Conversion shall be executed by the Holder of this Note and shall evidence such Holder's intention to convert this Note or a specified portion hereof in the form annexed hereto as Exhibit A. No fractional shares of Common Stock or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share.  The date on which notice of conversion is given (the "Conversion Date") shall be deemed to be the date on which the Holder faxes or otherwise delivers the conversion notice ("Notice of Conversion") to the Company so that it is received by the Company on or before such specified date, provided that, if such conversion would convert the entire remaining principal of this Note, the Holder shall deliver to the Company the original Notes being converted no later than five (5) business days thereafter.  Facsimile delivery of the Notice of Conversion shall be accepted by the Company at facsimile number (303) 449-1045: Attention Clifford L. Neuman.  Certificates representing Common Stock upon conversion (“Conversion Certificates”) will be delivered to the Holder at the address specified in the Notice of Conversion (which may be the Holder’s address for notices as contemplated by the Subscription Agreement or a different address), via express courier, by electronic transfer or otherwise, as provided in Section 8(d)(iii) below, and, if interest is paid by Common Stock, the Interest Payment Date. The Holder shall be deemed to be the holder of the shares issuable to it in accordance with the provisions of this Section 8(c) on the Conversion Date.         

e.

Nature of Conversion Shares and Conversion Securities  Issued.  

(i)

When issued upon conversion of the Notes pursuant to Section 8(a) hereof, the Conversion Shares and Conversion Securities will be legally and validly issued, fully-paid and non-assessable.

(ii)

Upon any conversion, this Note will be deemed cancelled and of no further force and effect, representing only the right to receive the Conversion Shares and Conversion Securities, regardless whether the Holder delivers this Note to the Company for cancellation.

(iii)

As soon as possible after a conversion has been effected (and subject to the Holder having returned the Note to the Company for cancellation), the Company will deliver to the converting holder a certificate or certificates representing the Conversion Shares and Conversion Securities issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified  If any fractional share of Common Stock would be issuable upon any conversion, the Company will pay the holder of the Conversion Shares an amount equal to the Market Price of such fractional share.  

(iv)

The issuance of certificates for Conversion Shares and Conversion Securities will be made without charge.

(v)

The Company will not close its books against the transfer of the Conversion Shares or Conversion Securities issued or issuable in any manner which interferes with the conversion of this Note.

Section 9.

No Impairment.  Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or currency, herein prescribed.  This Note is a direct obligation of the Company.

Section 10.

No Rights as a Shareholder.  This Note shall not entitle the Holder to any of the rights of a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings.

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Section 11.

No recourse shall be had for the payment of the principal of, or the interest on, this Note, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released.

Section 12.

All payments contemplated hereby to be made “in cash” shall be made in immediately available good funds of United States of America currency by wire transfer to an account designated in writing by the Holder to the Company (which account may be changed by notice similarly given).  All payments of cash and each delivery of shares of Common Stock issuable to the Holder as contemplated hereby shall be made to the Holder at the address last appearing on the Note Register of the Company as designated in writing by the Holder from time to time; except that the Holder can designate, by notice to the Company, a different delivery address for any one or more specific payments or deliveries.

Section 13.     

The Holder of the Note, by acceptance hereof, agrees that this Note is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Note or the shares of Common Stock issuable upon conversion thereof except under circumstances which will not result in a violation of the Act or any applicable state Blue Sky or foreign laws or similar laws relating to the sale of securities.

Section 14.   

The Notes will initially be issued in denominations determined by the Company, but are exchangeable for an equal aggregate principal amount of Notes of different denominations, as requested by the Holder surrendering the same.  No service charge will be made for such registration or transfer or exchange.

Section 15.   

The Company shall be entitled to withhold from all payments of principal of, and interest on, this Note any amounts required to be withheld under the applicable provisions of the United States income tax laws or other applicable laws at the time of such payments, and Holder shall execute and deliver all required documentation in connection therewith.

Section 16

This Note has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (the "Act"), and other applicable state and foreign securities laws and the terms of the Subscription Agreement.  In the event of any proposed transfer of this Note, the Company may require, prior to issuance of a new Note in the name of such other person, that it receive reasonable transfer documentation that is sufficient to evidence that such proposed transfer complies with the Act and other applicable state and foreign securities laws and the terms of the Subscription Agreement.  Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 17.

Mutilated, Lost or Stolen Notes.  If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, and adequate indemnity, if requested, all reasonably satisfactory to the Company.

Section 18.

Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of Colorado.  Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of Boulder, Colorado, or the state courts of the State of 

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Colorado sitting in Boulder County, Colorado in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non coveniens, to the bringing of any such proceeding in such jurisdictions. To the extent determined by such court, the Company shall reimburse the Holder for any reasonable legal fees and disbursements incurred by the Holder in enforcement of or protection of any of its rights under any of this Note.

Section 19.

Waiver of Jury Trial; No Other Waivers.    The Company and the Holder hereby waive the right to a trial by jury in any action, proceeding or counterclaim in respect of any matter arising out or in connection with this Note.  Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note.  Any waiver must be in writing.

Section 20.

Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

Section 21.

Obligations Due on a Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next calendar month, the preceding Business Day in the appropriate calendar month).

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer duly authorized for such purpose, as of the date first above indicated.

GLOBAL CASINOS, INC.

By:________________________________

Clifford L. Neuman, President 

Accepted this _____ day of _______ 2011 by the undersigned, thereunto duly authorized, in accordance with the terms stated herein and the Subscription Agreement pursuant to which the undersigned acquired this Note.

Name of Holder:  ___________________

By:______________________________

Tax Identification Number: SS.  __________________

7reeds_s8-ex401.htm

EXHIBIT 4.1

   

REED'S INC.

 

2001 STOCK OPTION PLAN – As Amended December 19, 2011 with regard to Section 8(e)(iii)

 

1.   Purpose. Restrictions on Amount Available Under the Plan. Reed's Inc. 2001 Stock Option Plan (the "Plan") is intended to encourage stock ownership by employees, consultants and directors of Safety 1st Medical (the "Corporation""), and any divisions and Subsidiary Corporations (as hereinafter defined), so that they may acquire or increase their proprietary interest in the Corporation, and to encourage such employees, directors, and consultants to remain in their employ of or associated with the Corporation and to put forth maximum efforts for the success of the Corporation and its business. It is further intended that options granted by the Committee pursuant to Section 6 of this Plan shall constitute "incentive stock options" ("Incentive Stock Options") within the meaning of Section 422 of the Interna! Revenue Code (as hereinafter defined), and the regulations issued thereunder, and options granted by the Committee pursuant to Section 7 of this Plan shall constitute "non-qualified stock options" ("Non-qualified Stock Options").

       

2.   Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated.

    

(a)   "Disability" shall mean an Optionee's inability 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.

   

(b)   "Employer Corporation" is the entity which employs the person granted options under this Plan.

   

(c)   "Fair Market Value" per share as of a particular date shall mean the last sale price of the Corporation's Common Stock as reported in a national securities exchange or the NASDAQ National Market System or, if last sale reporting quotation is not available for the Corporation's Common Stock , the average if the bid and asked prices of the Corporation's Common Stock as reported by NASDAQ or on the OTC Bulletin Board, or if none, National Quotation Bureau Inc.'s "Pink Sheets" or, if such quotations are unavailable, the value determined by the Committee (as hereinafter defined) in accordance with its discretion in making a bona fide, good faith determination of fair market value. The Board of Directors may reject the determination of Fair Market Value made by the Committee, and shall thereupon determine the applicable Fair Market Value. Fair Market Value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse.

   

(d)           "Internal Revenue Code" shall mean the United States Internal Revenue Code of 1986, as amended from time to time (codified at Title 26 of the United States Code), and any successor legislation.

   

(e)   "Options," shall mean Incentive Stock Options and/or Non-qualified Stock Options granted pursuant to this Plan.

    

(f)   "Parent Corporation" shall mean any corporation (other than the Employer Corporation) in an unbroken chain of corporations ending with the Employer Coiporation if, at the time of granting an Option, each of the corporations other than the Employer Corporations own stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

   

(g)    "Subsidiary   Corporation"   shall   mean   any   corporation   (other  than   the   Employer Corporation) in an unbroken chain beginning with the Employer Corporation if, at the time of granting an Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

    

  

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3.   Administration,

(a)   The Plan shall be administered by the Compensation Committee (the "Committee"), consisting of not less than two members of the Board of Directors of the Corporation (the "Board"), or alternatively, in the absence of a designated and qualified committee, the entire Board shall serve as the Committee.

(b)   The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including (without limitation): the authority to grant Options; to determine which Options shall constitute Incentive Stock Options and which Options shall constitute Non-qualified Stock Options; to determine the purchase price of the shares of Common Stock covered by each Option (the "Option Price'"! to determine the persons to whom, and the time or times at which, Options shall be granted, to determine the number of shares to be covered by each Option; to determine Fair Market Value per share; to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the Option Agreements (which need not be identical) entered into in connection with Options granted under the Plan, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan.

   

(c)   The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. One member of the Committee shall be selected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by not less than a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. The secretary need not be a member of the Committee or a member of the Board.

   

(d)   No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option granted hereunder.

4.   Eligibility.

 

(a)   Subject to certain limitations hereinafter set forth, Options may be granted to employees of (including officers), and consultants to and directors of (whether or not they are employees), the Corporation or its present or future divisions and Subsidiary Corporations, provided such persons meet minimum requirements, if any, as may be established by the Committee, in its discretion. In determining the persons to whom Options shall be granted and the number of shares to be covered by each Option, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Corporation and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan. A person to whom an Option has been granted hereunder is sometimes referred to herein as an "Optionee."

 

(b)   An Optionee shall be eligible to receive more than one grant of an Option during the term of the Plan, but only on the terms and subject to the restrictions as hereinafter set forth.

 

5.   Stock.

 

(a)    The stock subject to the Options hereunder shall be shares of the Corporation's common stock, no par value per share ("Common Stock"!. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or that may be reacquired by the Corporation. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall not exceed 500,000. The limitations established by the preceding sentences shall be subjecl to adjustment as provided in Section 8(i) hereof.

    

  

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(b)    In the event that any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such Option (unless the Plan shall have been terminated) shall become available for subsequent grants of Options under the Plan.

6.   Incentive Stock Options.

 

(a)   Options granted pursuant to this Section 6 are intended to constitute Incentive Stock Options and shall be subject to the following special terms and conditions, in addition to the general terms and conditions specified in Section 8 hereof. Consultants and directors who are not employees of the Corporation shall not be entitled to receive Incentive Stock Options.

   

(b)   The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the shares of Common Stock, with respect to which Incentive Stock Options granted under this and any other plan of the Corporation or any Parent Corporation or Subsidiary Corporation are exercisable for the first time by an Optionee during any calendar year, may not exceed the amount set forth in Section 422 (d) of the Internal Revenue Code.

   

(c)   Incentive Stock Options granted under this Plan are intended to satisfy' all requirements for incentive stock options under the Internal Revenue Code and the Treasury Regulations thereunder and, notwithstanding any other provision of this Plan. The Plan and all Incentive Stock Options granted under it shall be so construed, and all contrary provisions shall be so limited in scope and effect and, to the extent they cannot be so limited, they shall be void.

 

7.   Non-qualified Stock Options. Options granted pursuant to this Section 7 are intended to constitute Non-qualified Stock Options and shall be subject only to the general terms and conditions specified in Section 8 hereof.

   

8.   Terms and Conditions at Options. Each Option granted pursuant to the Plan shall be evidenced by a written option agreement between the Corporation and the Optionee, which agreement shall comply with and be subject to the following terms and conditions.

   

(a)   Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates.

   

(b)   Type of Option. Each Option Agreement shall specifically identify the portion, if any, of the Option which constitutes an Incentive Stock Option and the portion, if any, which constitutes a Non-qualified Stock Option

   

(c)   Option Price.

 

(i)    Each Option Agreement shall state the Option Price, which (except as otherwise set forth in paragraphs 8 (c) (ii) hereof) shali not be less than 100% of the Fair Market Value per share on the date of grant of the Option.

 

(ii)    Any Incentive Stock Option granted under the Plan to a person owning more than ten percent of the total combined voting power of the Common Stock shall be at a price of not less than 110% of the Fair Market Value per share on the date of grant of the Option.

 

(iii)    The Option Price shall be subject to adjustment as provided in Section 8(i) hereof

 

(iv)    The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted.

    

  

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(d)   Term of Options. Options shall be exercisable over the exercise period as and at the times the Committee, in its sole discretion, may determine, as reflected in the Option Agreement, provided, however:

     

(i)    The exercise period shall not exceed ten years from the date of grant of the Option.

   

(ii)    Incentive Stock Options granted to a person owning more than ten percent of the total combined voting power of the Common Stock of the Corporation shall be for no more than five years.

 

(iii)    An Option granted under the Plan to an Optionee may, at the election of the Committee, include a provision conditioning or accelerating the receipt of benefits upon the occurrence of specified events, such as a change in control of the Corporation or a dissolution, liquidation, sale of substantially all of the property and assets of the Corporation, or other event.

 

(iv)    The exercise period shall be subject to earlier termination as provided in Sections 8(f) and 8(g) hereof, and furthermore shall be terminated upon surrender of the option by the holder thereof if such surrender has been authorized in advance by the Committee.

 

(e)   Method of Exercise and Medium and Time of Payment.

   

(i)    An Option may be exercised as to any, or all, full shares of Common Stock as to which the Option is exercisable, provided, however, that an Option may not be exercised at any one time as to fewer than 100 shares (or such number of shares as to which the Option is then exercisable if such number of shares is less than 100).

 

(ii)    Each exercise of an Option granted hereunder, whether in whole or in part, shall be by written notice to the Secretary of the Corporation designating the number of shares as to which the Option is exercised, and shall be accompanied by payment in full of the Option Price (in cash or shares) for the number of shares so designated, together with any written statements or investment letter required by or advisable under any applicable security laws.

 

(iii)    The Committee shall determine the methods by which the Option Price may be paid or deemed to be paid and form of such payment (including, without limitation, cash, Common Stock (including by withholding Common Stock deliverable upon exercise).

 

(iv)    The Board of Directors shall have the sole and absolute discretion to determine whether or not property other than cash, shares of Common Stock, or options may be used to purchase the shares of Common Stock hereunder and, if so, to determine the value of the property received.

 

(f)   Termination. Except as provided in this Section 8(f) and in Section 8 (g) hereof, an Option may not be exercised unless the Optionee is then an employee or director of or consultant to the Corporation or a division or Subsidiary Corporation thereof (or a corporation or a Parent or Subsidiary Corporation of such corporation issuing or assuming the option in a transaction to which Section 424(a) of the Internal Revenue Code applies), and unless the Optionee has remained continuously as an employee or director of or consultant to the Corporation since the date of grant of the Option.

 

(i)    If the Optionee ceases to be an employee or director of or consultant to the Corporation (other than by reason of death, Disability or retirement), all Options of such Optionee that are exercisable at the time of such cessation may, unless earlier terminated in accordance with their terms, be exercised at any time within three months after such cessation; provided, however, that if the employment or consulting relationship of an Optionee shall terminate, or if a director shall be removed, for cause, all Options theretofore granted to such Optionee shall, to the extent not theretofore exercised, terminate immediately upon such termination or removal.

    

  

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(ii)    "Nothing in the Plan or in any Option granted pursuant hereto shall confer upon an individual any right to continue in the employ of the Corporation or any of its divisions or Subsidiary Corporations or interfere in any way with the right of the Corporation or its shareholders or any such division or Subsidiary Corporations to terminate such employment or other relationship between the individual and the Corporation or any of its divisions and subsidiary corporations.

   

(g)   Death. Disability or Retirement of Optionee. If an Optionee shall die while a director of, or employed by, or a consultant to, the Corporation or a Subsidiary Corporation, or within three months after the termination or removal of such Optionee's employment or directorship or consulting relationship, other than termination or removal for cause, or if the Optionee's employment or directorship or consulting relationship, shall terminate by reason of Disability or retirement, all Options theretofore granted to such Optionee (whether or not otherwise exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of the death or Disability of the Optionee, at any time within one year after the date of death, Disability or retirement of the Optionee.

   

(h)   Nontransferability.

 

(i)    Options granted under the Plan shall not be transferable other than by will or by the laws of descent, and Options may be exercised, during the lifetime of the Optionee, only by the Optionee and thereafter only by his legal representative.

   

(ii)    Any attempted sale, pledge, assignment, hypothecation or other transfer of an Option contrary to the provisions hereof and, the levy of any execution, attachment or similar process upon an Option shall be null and void and without force or effect and shall result in automatic termination of the Option.

 

(iii)    (A) As a condition to the transfer of any shares of Common Stock issued upon exercise of an Option granted under this Plan, the Corporation may require an opinion of counsel, satisfactory to the Corporation, to the effect that such transfer will not be in violation of the Securities Act of 1933 or any other applicable securities laws or that such transfer has been registered under federal and all applicable state securities laws; (B) Further, the Corporation shall be authorized to refrain from delivering or transferring shares of Common Stock issued under this Plan until the Board of Directors determines that such delivery or transfer will not violate applicable securities laws and the Optionee has tendered to the Corporation any federal, state or local tax owed by the Optionee as a result of exercising the Option, or disposing of any Common Stock, when the Corporation has a legal liability to satisfy such tax; (C) The Corporation shall not be liable for damages due to delay in the delivery or issuance of any stock certificate for any reason whatsoever, including, but not limited to, a delay caused by listing requirements of any securities exchange or any registration requirements under the Securities Act of ]933, the Securities Exchange Act of 1934, or under any other state or federal law, rule or regulation; (D) The Corporation is under no obligation to take any action or incur any expense in order to register or qualify the delivery or transfer of shares of Common Stock under applicable securities laws or to perfect any exemption from such registration or qualification; and (E) Furthermore, the Corporation will have no liability to any Optionee for refusing to deliver or transfer shares of Common Stock if such refusal is based upon the foregoing provisions of this Paragraph.

 

(i)           Effect of Certain Changes.

 

(i)    If there is any change in the number of shares of Common Stock through the declaration of stock dividends, or through recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options, and the price per share of such Options, shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated.

    

  

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(ii)    In the event of a proposed dissolution or liquidation of the Corporation, in the event of any corporate separation or division, including, but not limited to, split-up, split-off or spin-off, or in the event of a merger or consolidation of the Corporation with another corporation, the Committee may (but is not obligated to) provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, corporate separation or division, or merger or consolidation by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, corporate separation or division or merger or consolidation; or the Committee may provide in the alternative, that each Option granted under the Plan shall terminate as of a date to be fixed by the Committee, provided, however, that not less than 30 days' written notice of the date so fixed shall be given to each Optionee, who shall have the right, during the period of 30 days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby. In such case the Committee may (but is not obligated to) provide that Options not otherwise exercisable may be exercised in such circumstances.

    

(iii)    Paragraph (ii) of this Section 8(i) shall not apply to a merger or consolidation in which the Corporation is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Corporation), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised.

   

(iv)    In the event of a change in the Common Stock of the Corporation as presently constituted, which is limited to a change of all its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan.

    

(v)    To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made to the Committee, whose determination in that respect shall be Final, binding and conclusive, provided that each Incentive Stock Option granted pursuant to this Plan shall not be adjusted in a manner that causes such option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422 of the Internal Revenue Code.

 

(vi)    The Committee may, in its sole discretion, grant an Optionee market and/or issuance price anti-dilution protection.

   

(vii)    Except as hereinbefore expressly provided in this Section 8(i), this Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation, and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of price of shares of Common Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets.

     

  

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(j)   Rights as Shareholder - Non-Distributive Intent.

        

(i)    Neither a person to whom  an  Option  is granted,  nor such person's  legal representative, heir, legatee or distribute, shall be deemed to be the holder of, or to have any rights of a holder with respect to, any shares subject to such Option, until after the Option is exercised and the shares are issued to the person exercising such Options.

   

(ii)    Upon exercise of an Option at a time when there is no registration statement in effect under the Securities Act of 1933 relating to the shares issuable upon exercise and available for delivery of a prospectus meeting the requirements of Section 10(a)(3) of said Act, shares may be issued to the Optionee only if the Optionee represents and warrants in writing to the Corporation that the shares purchased are being acquired for investment and not with a view to the distribution thereof.

    

(iii)    "No shares shall be issued upon the exercise of an Option unless and until there shall have been compliance with any then applicable requirements of the Securities and Exchange Commission, or any other regulatory agencies having jurisdiction over the Corporation.

   

(iv)    No adjustment shall be made for dividends (ordinary or extraordinary), whether in cash, securities or other property) or distribution or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 8(i) hereof.

     

(k)           Other Provisions. The Option Agreements authorized under the Plan shall contain such other provisions, including, without limitation, (i) the imposition of restrictions upon the exercise of an Option, and (ii) in the case of an Incentive Stock Option, the inclusion of any condition not inconsistent with such Option qualifying as an Incentive Stock Option, as the Committee shall deem advisable.

 

(l)   Leave of Absence. The Committee shall be entitled to make such rules, regulations, and determinations as it deems appropriate under the Plan in respect of any leave of absence taken by the recipient of any Option awarded hereunder. Without limiting the generality of the foregoing, the Committee shall be entitled to determine: (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning of the Plan; and (ii) the impact, if any, of any such leave of absence on awards under the Plan theretofore made to any recipient who takes such leave of absence.

9.   Agreement by Optionee Regarding Withholding Taxes.   If the Committee shall so require, as a condition of exercise, each Optionee shall agree that:

 

(a)   No later than the date of exercise of any Option granted hereunder, the Optionee will pay to the Corporation or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option, and

   

(b)   The Corporation shall, to the extent permitted or required by law, have the right to deduct federal, state and local taxes of any kind required by law to be withheld upon the exercise of such Option from any payment of any kind otherwise due to the Optionee. For withholding tax purposes, the shares of Common Stock shall be valued on the date the withholding obligations is incurred.

    

(c)   The Corporation shall not be obligated to advisee any Optionee of the existence of any such tax or the amount which the Corporation will be so required to withhold.

10.   Agreement by Optionee With Respect to Section 16. If the Optionee is subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, the grant of this option shall not be effective until such person complies with the reporting requirements of Section 16(a).

 

11.   Term of Plan. Options may be granted pursuant to the Plan from time to time within a period often years from the date the Plan is adopted by the Board, or the date the Plan is approved by the shareholders of the Corporation, whichever is earlier.

     

  

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12.   Amendment and Termination of the Plan.

     

(a)    The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that:

   

(i)           Any amendment that would: (A) materially increase the benefits accruing to participants under the Plan, or (B) increase the number of shares of Common Stock as to which Options may be granted under the Plan or materially modify the requirements as to eligibility for participation in the Plan, shall be subject to the approval of the holders of a majority of the shares of Common Stock of the Corporation presented or represented and entitled to vote at a duly constituted and held meeting of shareholders.

    

(ii)    Any such increase or modification that may result from adjustments authorized by Section 8(i) hereof shall not require such approval.

    

(b)    Except as provided in Section 8 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any Option previously granted, unless the written consent of the Optionee is obtained.

   

13.   Approval of Shareholders. The Plan shall take effect upon its adoption by the Board but shall be subject to the approval of the holders of the shares of Common Stock of the Corporation present or represented and entitled to vote at a duly constituted and held meeting of shareholders, which approval must occur within 12 months after the date the Plan is adopted by the Board.

    

14.   Assumption. The terms and conditions of any outstanding Options granted pursuant to this Plan shall be assumed by, be binding upon and inure to the benefit of any successor corporation to the Corporation and shall continue to be governed by, to the extent applicable, the terms and conditions of this Plan. Such successor corporation shall not be otherwise obligated to assume this Plan.

   

15.   Termination of Right of Action. Every right of action arising out of or in connection with the Plan by or on behalf of the Corporation or of any Subsidiary, or by any shareholder of the Corporation or of any Subsidiary Corporation against any past, present or future member of the Board, or against any employer, or by an employee (past, present or future) against the Corporation or any Subsidiary Corporation will, irrespective of the place where an action may be brought and irrespective of the place of residence of any such shareholder, director or employee, cease and be barred as of the expiration of three years from the date of the act or omission in respect of which such right of action is alleged to have risen.

   

16.   Tax Litieation. The Corporation shall have the right, but not the obligation, to contest, at its expense, any tax ruling or decision, administrative or judicial, on any issue which is related to the Plan and which the Board believes to be important to holders of Options issued under the Plan and to conduct any such contest or any litigation arising therefrom to a final decision.

 

17.   Adoption.

 

(a)    This Plan was approved by die Board of Directors of the Corporation at a meeting on August 10, 2001.

 

(b)    This Plan was approved by the shareholders of the Corporation at a meeting on August 29, 2001.

 

(c)    This Plan was amended by the Board of Directors of the Corporation on December 19, 2011.

 

	 	
Reed's Inc.

 

By /s/ Christopher Reed

 

 

 

8

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