Document:

Exhibit

Exhibit 10.80

HA-INTERNATIONAL, LLC

FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2015, 2014 AND 2013

TOGETHER WITH AUDITOR’S REPORT

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Members of
  HA-International, LLC

We have audited the accompanying financial statements of HA-International, LLC (the Company), which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of income, members’ equity and cash flows for the years ended December 31, 2015, 2014 and 2013, and the related notes to the financial statements.  

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.  The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

To the Board of Directors and Members of
  HA-International, LLC
Page two

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HA-International, LLC as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years ended December 31, 2015, 2014 and 2013 in accordance with accounting principles generally accepted in the United States of America.

/s/ DUGAN & LOPATKA
Wheaton, Illinois
February 23, 2016

	
												
	 
	 
	 
	 
	EXHIBIT 1

	 
	 
	 
	 
	 

	HA-INTERNATIONAL, LLC

	BALANCE SHEETS

	DECEMBER 31, 2015 AND 2014

	(in thousands of dollars)

	 
	 
	 
	 
	 

	 
	 
	2015
	 
	2014

	A S S E T S

	 
	 
	 
	 
	 

	CURRENT ASSETS:
	 
	 
	 

	 
	Cash and cash equivalents
	$
	428
	 
	 
	$
	262
	 

	 
	Accounts receivable (less allowance for doubtful accounts
	 
	 
	 

	 
	of $82 and $273 as of 2015 and 2014, respectively)
	17,556
	 
	 
	23,728
	 

	 
	Miscellaneous receivables
	15
	 
	 
	164
	 

	 
	Due from Member, HA-USA
	34
	 
	 
	20
	 

	 
	Due from Member, Hexion
	1,780
	 
	 
	71
	 

	 
	Inventories -
	 
	 
	 

	 
	Finished and in-process goods
	2,061
	 
	 
	2,661
	 

	 
	Raw material and supplies
	2,353
	 
	 
	3,626
	 

	 
	Other current assets
	904
	 
	 
	1,323
	 

	 
	 
	 
	 
	 

	 
	Total current assets
	25,131
	 
	 
	31,855
	 

	 
	 
	 
	 
	 

	PROPERTY AND EQUIPMENT:
	 
	 
	 

	 
	Land and land improvements
	1,486
	 
	 
	1,372
	 

	 
	Buildings
	3,862
	 
	 
	3,831
	 

	 
	Machinery and equipment
	26,734
	 
	 
	26,796
	 

	 
	Construction in process
	310
	 
	 
	208
	 

	 
	 
	 
	 
	 

	 
	Total property and equipment
	32,392
	 
	 
	32,207
	 

	 
	 
	 
	 
	 

	 
	Less accumulated depreciation
	(21,066)
	 
	 
	(19,989)
	 

	 
	 
	 
	 
	 

	 
	Property and equipment, net
	11,326
	 
	 
	12,218
	 

	 
	 
	 
	 
	 

	LONG-TERM RECEIVABLE FROM MEMBER, HEXION
	1,434
	 
	 
	3,195
	 

	 
	 
	 
	 
	 

	OTHER NONCURRENT ASSETS
	259
	 
	 
	46
	 

	 
	 
	 
	 
	 

	GOODWILL, NET
	5,592
	 
	 
	5,592
	 

	 
	 
	 
	 
	 

	INTANGIBLES, NET
	100
	 
	 
	135
	 

	 
	 
	 
	 
	 

	 
	Total assets
	$
	43,842
	 
	 
	$
	53,041
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	LIABILITIES AND MEMBERS' EQUITY

	CURRENT LIABILITIES:
	 
	 
	 

	 
	Accounts payable
	$
	3,895
	 
	 
	$
	4,318
	 

	 
	Drafts payable
	484
	 
	 
	391
	 

	 
	Other current liabilities
	2,020
	 
	 
	2,362
	 

	 
	Due to affiliate of Member, HA-USA
	213
	 
	 
	282
	 

	 
	Loan payable
	4,587
	 
	 
	5,920
	 

	 
	 
	 
	 
	 

	 
	Total current liabilities
	11,199
	 
	 
	13,273
	 

	 
	 
	 
	 
	 

	OTHER NONCURRENT LIABILITIES
	2,014
	 
	 
	2,637
	 

	 
	 
	 
	 
	 

	COMMITMENTS AND CONTINGENCIES
	500
	 
	 
	140
	 

	 
	 
	 
	 
	 

	MEMBERS' EQUITY
	30,129
	 
	 
	36,991
	 

	 
	 
	 
	 
	 

	 
	Total liabilities and members' equity
	$
	43,842
	 
	 
	$
	53,041
	 

The accompanying notes are an integral part of these statements.

	
						
	 
	 
	EXHIBIT 2
	

	 
	 
	 

	HA-INTERNATIONAL, LLC

	STATEMENTS OF MEMBERS' EQUITY

	FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

	(in thousands of dollars)

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	BALANCE, January 1, 2013
	 
	$
	32,758
	

	 
	 
	 

	NET INCOME
	 
	44,373
	

	 
	 
	 

	DISTRIBUTIONS TO MEMBERS:
	 
	 

	Cash
	 
	(42,000)
	

	Tax deposits on behalf of Members, net
	 
	(112)
	

	 
	 
	 

	BALANCE, December 31, 2013
	 
	35,019
	

	 
	 
	 

	NET INCOME
	 
	29,972
	

	 
	 
	 

	DISTRIBUTIONS TO MEMBERS
	 
	(28,000)
	

	 
	 
	 

	BALANCE, December 31, 2014
	 
	36,991
	

	 
	 
	 

	NET INCOME
	 
	31,138
	

	 
	 
	 

	DISTRIBUTIONS TO MEMBERS
	 
	(38,000)
	

	 
	 
	 

	BALANCE, December 31, 2015
	 
	$
	30,129
	

The accompanying notes are an integral part of these statements.

	
												
	 
	 
	 
	 
	 
	EXHIBIT 3

	 
	 
	 
	 
	 
	 

	HA-INTERNATIONAL,LLC

	STATEMENTS OF INCOME

	FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

	(in thousands of dollars)

	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

	 

	 
	2015
	 
	2014
	 
	2013

	 
	 
	 
	 
	 
	 

	NET TRADE SALES
	$
	152,864
	

	 
	$
	182,732
	

	 
	$
	172,913
	

	 
	 
	 
	 
	 
	 

	MEMBER SALES
	7,990
	

	 
	28,537
	

	 
	30,398
	

	 
	 
	 
	 
	 
	 

	Net sales
	160,854
	

	 
	211,269
	

	 
	203,311
	

	 
	 
	 
	 
	 
	 

	COST OF GOODS SOLD
	106,807
	

	 
	158,790
	

	 
	153,712
	

	 
	 
	 
	 
	 
	 

	Gross margin
	54,047
	

	 
	52,479
	

	 
	49,599
	

	 
	 
	 
	 
	 
	 

	EXPENSES:
	 
	 
	 
	 
	 

	Distribution expense
	6,404
	

	 
	6,278
	

	 
	5,926
	

	Sales and marketing expense
	5,890
	

	 
	6,011
	

	 
	5,530
	

	General and administrative expense
	8,310
	

	 
	7,247
	

	 
	6,889
	

	Research and development expense
	1,817
	

	 
	1,785
	

	 
	1,923
	

	 
	 
	 
	 
	 
	 

	Total expenses
	22,421
	

	 
	21,321
	

	 
	20,268
	

	 
	 
	 
	 
	 
	 

	Income before interest, taxes and other expense
	31,626
	

	 
	31,158
	

	 
	29,331
	

	 
	 
	 
	 
	 
	 

	INTEREST EXPENSE, NET
	85
	

	 
	99
	

	 
	48
	

	 
	 
	 
	 
	 
	 

	INCOME TAX EXPENSE
	175
	

	 
	399
	

	 
	297
	

	 
	 
	 
	 
	 
	 

	OTHER OPERATING (INCOME)
	—
	

	 
	—
	

	 
	(16,000)
	

	 
	 
	 
	 
	 
	 

	OTHER EXPENSE, NET
	228
	

	 
	688
	

	 
	613
	

	 
	 
	 
	 
	 
	 

	Net income
	$
	31,138
	

	 
	$
	29,972
	

	 
	$
	44,373
	

The accompanying notes are an integral part of these statements.

	
												
	EXHIBIT 4
	 

	 

	HA-INTERNATIONAL, LLC

	STATEMENTS OF CASH FLOWS

	FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

	(in thousands of dollars)

	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 

	 
	2015
	 
	2014
	 
	2013

	CASH FLOWS FROM OPERATING ACTIVITIES:
	 
	 
	 
	 
	 

	Net income
	$
	31,138
	

	 
	$
	29,972
	

	 
	$
	44,373
	

	Adjustments to reconcile net income to net cash
	 
	 
	 
	 
	 

	provided by operating activities:
	 
	 
	 
	 
	 

	Depreciation
	1,829
	

	 
	1,615
	

	 
	941
	

	Amortization
	35
	

	 
	40
	

	 
	40
	

	Gain on sale/disposal of property and equipment
	(6
	)
	 
	—
	

	 
	14
	

	Net change in operating assets and liabilities -
	 
	 
	 
	 
	 

	Accounts receivable
	6,172
	

	 
	(2,698
	)
	 
	(1,036
	)

	Miscellaneous receivables
	149
	

	 
	106
	

	 
	(104
	)

	Due from Member, HA-USA
	(14
	)
	 
	7
	

	 
	(27
	)

	Due from Member, Hexion
	(1,709
	)
	 
	(71
	)
	 
	0
	

	Inventories
	1,873
	

	 
	840
	

	 
	(1,474
	)

	Other assets
	206
	

	 
	(732
	)
	 
	84
	

	Long-term receivable from Member, Hexion
	1,761
	

	 
	3,472
	

	 
	(6,667
	)

	Accounts payable
	(423
	)
	 
	287
	

	 
	260
	

	Drafts payable
	93
	

	 
	(757
	)
	 
	(604
	)

	Other liabilities
	(604
	)
	 
	2,260
	

	 
	103
	

	Due to affiliate of Member, HA-USA
	(69
	)
	 
	141
	

	 
	(147
	)

	Due to Member, Hexion
	0
	

	 
	(4,247
	)
	 
	(5,825
	)

	 
	 
	 
	 
	 
	 

	Net cash provided by operating activities
	40,431
	

	 
	30,235
	

	 
	29,931
	

	 
	 
	 
	 
	 
	 

	CASH FLOWS FROM INVESTING ACTIVITIES:
	 
	 
	 
	 
	 

	Capital expenditures
	(941
	)
	 
	(4,821
	)
	 
	(3,817
	)

	Cash proceeds from sale of equipment
	9
	

	 
	—
	

	 
	—
	

	Purchase of intangibles
	—
	

	 
	(125
	)
	 
	—
	

	 
	 
	 
	 
	 
	 

	Net cash (used in) investing activities
	(932
	)
	 
	(4,946
	)
	 
	(3,817
	)

	 
	 
	 
	 
	 
	 

	CASH FLOWS FROM FINANCING ACTIVITIES:
	 
	 
	 
	 
	 

	Net borrowings from (payments on) line of credit
	(1,333
	)
	 
	2,747
	

	 
	3,173
	

	Distributions to Members
	(38,000
	)
	 
	(28,000
	)
	 
	(42,000
	)

	Tax deposits on behalf of Members, net
	—
	

	 
	—
	

	 
	(112
	)

	 
	 
	 
	 
	 
	 

	Net cash (used in) financing activities
	(39,333
	)
	 
	(25,253
	)
	 
	(38,939
	)

	 
	 
	 
	 
	 
	 

	CHANGE IN CASH AND CASH EQUIVALENTS
	166
	

	 
	36
	

	 
	(12,825
	)

	 
	 
	 
	 
	 
	 

	NET CASH AND CASH EQUIVALENTS, Beginning of year
	262
	

	 
	226
	

	 
	13,051
	

	 
	 
	 
	 
	 
	 

	NET CASH AND CASH EQUIVALENTS, End of year
	$
	428
	

	 
	$
	262
	

	 
	$
	226
	

	 
	 
	 
	 
	 
	 

	SUPPLEMENTAL DISCLOSURES OF
	 
	 
	 
	 
	 

	CASH FLOW INFORMATION:
	 
	 
	 
	 
	 

	Cash (paid) during the year for -
	 
	 
	 
	 
	 

	Interest expense
	$
	(85
	)
	 
	$
	(99
	)
	 
	$
	(48
	)

	 
	 
	 
	 
	 
	 

	State and local taxes
	$
	(225
	)
	 
	$
	(160
	)
	 
	$
	(398
	)

The accompanying notes are an integral part of these statements.

HA-INTERNATIONAL, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
(in thousands of dollars)

(1)    ORGANIZATION AND BASIS OF PRESENTATION:

HA-International, LLC (the Company) was formed on April 2, 2001, between Borden Chemical Foundry LLC (BCF), a wholly-owned subsidiary of Hexion, Inc. (Hexion), and HA-USA, Inc. (HA-USA) for the purpose of combining their foundry businesses in North America.  

The Company’s capital structure is comprised of Class A interests and Class B interests, each of which are owned 50% by each member.  Class A interests represent the members’ voting rights in accordance with the provisions of the Limited Liability Company Agreement (the LLC Agreement).  Class B interests represent the members’ share of the profits and losses of the Company and the members’ rights to receive distributions of the Company’s assets in accordance with the LLC Agreement.

(2)    NATURE OF OPERATIONS:

The Company produces and sells resin-coated sands for use in metal castings at its Oregon, Illinois facility.  The Company produces and sells refractory coatings (a material used to enhance the surface finish of a casting and reduce defects) at its Toledo, Ohio facility.  Products are sold primarily in North America.  The Company purchases certain dry and liquid resins under Toll Processing Agreements (Tolling Agreements) with Hexion.  The Company also sells resin-coated sands and ceramics, produced at its Oregon, Illinois facility, to Hexion under Tolling Agreements for Hexion’s oilfield operations business.

The Company had contracted with Hexion to receive certain administrative services including information technology, regulatory compliance, purchasing, human resources, and other operational services under an Administrative Services Agreement (the Admin Agreement) through April 1, 2014 (Note 5).  As of April 2014, these administrative services are performed by the Company.

(3)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The financial statements were available to be issued on February 23, 2016, with subsequent events being evaluated through this date.

A summary of HA-International, LLC’s significant accounting policies follows:

Use of Estimates in Preparing Financial Statements -

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The most significant estimates reflected in the accompanying financial statements are the allowance for doubtful accounts, inventory valuation reserve, and incentive compensation reserve.  Actual results could differ from those estimates.

Revenue Recognition -

Sales, net of estimated returns, allowances, and discounts, are recognized when products are shipped and title transfers to customers, assuming collectability is reasonably assured.

- 2 -

(3)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (Continued)

Allowance for Doubtful Accounts -

The Company has a policy for credit insurance on selected accounts.  The allowance for doubtful accounts is estimated using factors such as customer credit ratings, past collection history and experience with our credit insurance provider.  Receivables are charged against the allowance for doubtful accounts when it is probable that the receivable will not be recovered.

Cash and Cash Equivalents -

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Concentrations of Credit Risk -

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and accounts receivable.  Cash is held in one bank, a quality financial institution; however, deposits may exceed federally insured limits.  Concentrations of credit risk with respect to accounts receivable are limited, due to the large number of customers comprising the Company’s customer base and their dispersion across many different industries and geographies.  The Company does not require collateral or other security to support customer receivables.

Inventories -

Inventories are stated at the lower of cost or market using the first-in, first-out method of accounting.

Property and Equipment -

Property and equipment are recorded at cost.  Depreciation is recorded on a straight-line basis over the estimated useful lives ranging from 3 to 18 years.  Major renewals and betterments of property are capitalized.  Repairs, maintenance, and minor renewals are expensed as incurred.

Goodwill -

The Company accounts for its goodwill in conformity with Accounting Standards Codification (ASC) for Goodwill and Other Intangible Assets.  This statement requires that goodwill not be amortized, but instead be tested for impairment at least annually.  The Company determined that there was no impairment in the value of its goodwill during 2015, 2014 or 2013 by utilization of a discounted cash flow analysis.

Intangibles -

Intangibles represent customer lists and patents and are amortized on a straight-line basis over five years.  Intangible assets are also reviewed for impairment when events or changes in circumstances indicate that the carrying value of the intangible assets might not be fully recoverable. 

- 3 -

(3)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (Continued)

Drafts Payable -

The Company’s cash management system provides for the reimbursement of all major bank disbursement accounts daily.  Checks issued, but not presented for payment to the bank, are reflected as drafts payable, and are included in current liabilities in the accompanying financial statements.

Shipping and Handling -

Shipping costs are incurred to move the Company’s products from the production or storage facility to the customer.  Handling costs are incurred from the point the products are removed from inventory until they are provided to the shipper and generally include costs to store, move, and prepare products for shipment.  Due to the nature of the Company’s operations, handling costs incurred prior to shipment are not significant and are included in cost of goods sold.  The Company incurred shipping costs of $6,404, $6,278 and $5,926 for fiscal 2015, 2014 and 2013, respectively.  Shipping costs are classified as distribution expense in the statements of income.  The Company recognized freight revenue of $6,404, $7,442 and $6,522 for fiscal 2015, 2014 and 2013, respectively.  These amounts are recognized as revenue at the time of product shipment and are included in net trade sales in the statements of income.

Research and Development Costs -

Funds are committed to research and development for technical improvement of products that are expected to contribute to operating profits in future years.  All costs associated with research and development are expensed as incurred.

Group and General Insurance -

General insurance premiums are site and activity specific.  Premiums are recorded as prepaid insurance when paid and amortized as an expense based on the term of the policies.  The Company has policies for group insurance, such as medical, dental, and vision.

Royalty Agreements -

The Company has entered into licensing arrangements for the manufacture and sale of designated products in specified geographical areas outside the United States of America.  The licensees pay, and the Company recognizes, royalties at the time the applicable products are sold.  During 2015, 2014 and 2013, the Company recognized royalty income of $83, $75 and $64, respectively.

Taxes -

The Company is a partnership for federal income tax purposes; thus, taxable income and losses flow to the individual members.  No provision for federal income taxes is reflected in these financial statements; however, the Company does incur certain state income and franchise taxes.  These amounts are included in income tax expense on the statements of income.

With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations for years before 2012.  The Company does not expect a material net change in unrecognized tax benefits in the next twelve months.

- 4 -

(3)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  (Continued)

Major Customer -

Approximately 23%, 17% and 18% of the Company’s net sales were derived from one trade customer for the years ended December 31, 2015, 2014 and 2013, respectively.

Reclassifications -

Certain prior year balances have been reclassified in order to conform with the current year’s presentation.

(4)    DEBT OBLIGATIONS:

Loan Payable -

The Company maintains a bank loan and security agreement (the Agreement) that provides for borrowings of up to $15,000, including letters of credit.  The loan is secured by the assets of the Company.  The Agreement has been extended to expire during December, 2016.  At December 31, 2015 and 2014, outstanding borrowings under this Agreement were $4,587 and $5,920, respectively. 

Under the terms of the Agreement, the Company has the ability to borrow funds at either the prime rate plus an applicable margin or at LIBOR plus an applicable margin.  The Company must designate which option it chooses at the time of the borrowing.  For letters of credit issued under the Agreement, the Company pays a per annum fee equal to the LIBOR applicable margin, which varies based upon our debt coverage schedule.  In addition, the Company pays a 0.35% per annum fee on the amount of the average daily unused portion of the commitment.

The Company has certain financial covenants within its loan agreements.  The covenants were met at December 31, 2015, 2014 and 2013.

In 2015, the Company entered into a security agreement granting a lien on certain assets in order to secure a letter of credit totaling $1,152.  In February, 2016, the letter of credit was reduced to $230.  The letter of credit remains in effect until it is cancelled or is substituted with cash collateral of no less than 105% of the letter of credit liability, and may survive the expiration of the Agreement. 

(5)    RELATED PARTIES:

Hexion -

The Company is engaged in various transactions with Hexion in the ordinary course of business.  Through April 1, 2014, the Company contracted with Hexion for certain services such as information technology and corporate administration (Note 1).  Hexion charged a fee in accordance with the Admin Agreement.  The charges for these services under this agreement were $-0-, $368 and $1,472 for the years ended December 31, 2015, 2014 and 2013, respectively.

- 5 -

(5)    RELATED PARTIES:  (Continued)

The Company sells resin-coated proppants to Hexion and purchases resins from Hexion at agreed upon costs under the Tolling Agreements.  The amounts recorded on the statements of income related to Hexion for the years ended December 31 are as follows:

    
	
														
	 
	 
	2015
	 
	2014
	 
	2013
	 

	 
	 
	 
	 
	 
	 
	 
	 

	Member sales
	 
	$
	7,990
	

	 
	$
	28,537
	

	 
	$
	30,298
	

	 

	Cost of goods sold
	 
	70,417
	

	 
	105,872
	

	 
	101,944
	

	 

Additionally, in accordance with the Tolling Agreements, the Company is reimbursed for the cost of assets built for the benefit of Hexion.  The amounts due to/from Hexion resulting from these transactions, and related balance sheet impacts, including a receivable for raw material trade credits used towards purchases of dry and liquid resins, for the years ended December 31 are as follows: 

	
									
	 
	 
	2015
	 
	2014

	Due from Member, Hexion -
	 
	 
	 
	 

	 
	 
	 
	 
	 

	Raw material credits receivable
	 
	$
	1,334
	

	 
	$
	5,333
	

	Equipment receivable
	 
	509
	

	 
	621
	

	Proppant sales receivable
	 
	1,193
	

	 
	2,757
	

	Resin purchases payable
	 
	(1,256
	)
	 
	(8,640
	)

	 
	 
	$
	1,780
	

	 
	$
	71
	

	 
	 
	 
	 
	 

	Long-Term receivable from Member, Hexion -
	 
	 
	 
	 

	 
	 
	 
	 
	 

	Raw material credits receivable
	 
	$
	—
	

	 
	$
	1,334
	

	Equipment receivable
	 
	1,434
	

	 
	1,861
	

	 
	 
	$
	1,434
	

	 
	$
	3,195
	

	 
	 
	 
	 
	 

	Other non-current liabilities -
	 
	 
	 
	 

	 
	 
	 
	 
	 

	Deferred costs related to equipment investment
	 
	$
	1,948
	

	 
	$
	2,554
	

Management believes the charges and allocations of costs and fees paid are reasonable based upon the circumstances; however, the amounts are not necessarily indicative of costs that would have been incurred if the Company operated independently.  

- 6 -

(5)    RELATED PARTIES:  (Continued)

HA-USA -

During 2015, 2014 and 2013, the Company performed accounting services and paid bank fees and other reimbursable expenses on HA-USA’s behalf.  The balance due from HA-USA for these activities was $34 and $20 at December 31, 2015 and 2014, respectively.

Affiliate of Member, HA-USA -

The Company makes payments to affiliates of HA-USA under royalty agreements and for supply purchases.  During 2015, 2014 and 2013, the Company incurred costs of $1,481, $973 and $1,483, respectively.  The amounts due to affiliates of HA-USA were $264 and $323 for the years ended December 31, 2015 and 2014, respectively.

The Company also sells product to HA-USA’s affiliates.  During 2015, 2014 and 2013, the Company sold $164, $152 and $228, respectively.  The balance due from affiliates of HA-USA for these sales was $51 and $41 for the years ended December 31, 2015 and 2014, respectively.

(6)    INTANGIBLE ASSETS:

Intangible assets, including customer lists and patents, which are being amortized, consist of the following as of December 31:

	
																	
	 
	 
	2015
	 
	2014

	 
	 
	Gross Carrying Amount
	 
	Accumulated Amortization
	 
	Gross Carrying Amount
	 
	Accumulated Amortization

	 
	 
	 
	 
	 
	 
	 
	 
	 

	Intangible assets -
	 
	$
	5,590
	

	 
	$
	5,490
	

	 
	$
	5,590
	

	 
	$
	5,455
	

Intangible amortization expense was $35, $40 and $40 for the years ended December 31, 2015, 2014 and 2013, respectively.

Estimated future amortization expense is as follows:
	
						
	Year ending December 31,
	 
	 
	 

	 
	 
	 
	 

	2016
	 
	$
	25
	

	 

	2017
	 
	25
	

	 

	2018
	 
	25
	

	 

	2019
	 
	25
	

	 

	2020
	 
	—
	

	 

	 
	 
	$
	100
	

	 

    

- 7 -

(7)    RETIREMENT BENEFITS:

The Company makes discretionary contributions into a defined contribution retirement savings plan.  These contributions are equal to 2.5% of annual gross wages up to the maximum FICA social security wage base and 5% thereafter to a maximum of $265.  For wages over $265, the Company will contribute 5% into a non-qualified deferred compensation plan up to the eligible employee compensation (Note 8).  In addition, eligible employees may make contributions to the savings plan subject to certain Internal Revenue Service limitations.  Employee contributions are matched by the Company up to a maximum of 5% of base annual compensation.  The Company recorded $792, $791 and $684 in related expense for 2015, 2014 and 2013, respectively.  

During 2014, the plan sponsor was changed from Hexion to the Company.  

(8)    LEASES/COMMITMENTS:

Lease Agreements -

The Company leases office and lab space under a long-term arrangement.  The Company also leases equipment used in its operations under various long-term operating lease agreements.  Total lease expense amounted to $643, $399 and $384 for 2015, 2014 and 2013, respectively.

Future minimum lease payments under operating leases at December 31, 2015, are as follows:
	
						
	Year ending December 31,
	 
	 
	 

	 
	 
	 
	 

	2016
	 
	$
	651
	

	 

	2017
	 
	597
	

	 

	2018
	 
	546
	

	 

	2019
	 
	479
	

	 

	2020
	 
	—
	

	 

	 
	 
	$
	2,273
	

	 

Hosting Agreement -

In 2014, the Company entered into a seven-year agreement with a third party to host software and other IT programs on servers at an off-site location. Total software hosting expense amounted to $969 and $706 for 2015 and 2014, respectively.

Future minimum payments under this agreement at December 31, 2015 are as follows:
	
						
	Year ending December 31,
	 
	 
	 

	 
	 
	 
	 

	2016
	 
	$
	1,007
	

	 

	2017
	 
	1,047
	

	 

	2018
	 
	1,088
	

	 

	2019
	 
	1,131
	

	 

	2020
	 
	1,175
	

	 

	Thereafter
	 
	297
	

	 

	 
	 
	$
	5,745
	

	 

- 8 -

(8)    LEASES/COMMITMENTS:  (Continued)

Deferred Compensation Plan -

During 2014, the Company adopted a non-qualified deferred compensation plan.  The plan is unsecured and participation is limited to a select group of the Company’s management employees.  Under the terms of the plan, a participant may elect to defer base salary and/or bonus, pursuant to such rules as may be established by the Company, up to the maximum percentages for each deferral election as described in the plan.  The deferred compensation liability under this plan was $500 and $140 as of December 31, 2015 and 2014, respectively, and is included in commitments and contingencies.  The Company is not required to fund the plan liability, however, has decided to internally set funds aside by contributing employee deferrals into a rabbi trust, which includes a money market account and investments held in life insurance policies.  The cash surrender value of the life insurance policies was $237 and $25 as of December 31, 2015 and 2014, respectively, and is included in other noncurrent assets.  The funds held in the designated money market account were $261 and $115 as of December 31, 2015 and 2014, respectively, and are included in cash and cash equivalents.  Due to the change in market value of the investments held in the life insurance policies, the Company recorded an unrealized gain of $9 and $-0- as of December 31, 2015 and 2014, respectively.

(9)    MEMBERS’ EQUITY:

The Company paid distributions of $38,000, $28,000 and $42,000 during 2015, 2014 and 2013, respectively.  BCF and HA-USA each received 50% of the total distributions in accordance with their Class B ownership percentages at the date of declaration.

In the event the Company would be dissolved, proceeds to the owners would be based on their relative value of Class B shares at the dissolution date.  Each member has the right of first refusal on any sale transaction of the other member’s interest.Exhibit

OPTION NO.: %%OPTION_NUMBER%-%

ROSETTA STONE INC. 
2009 OMNIBUS INCENTIVE PLAN

COVER SHEET TO 
NONQUALIFIED STOCK OPTION AWARD AGREEMENT  

Rosetta Stone Inc., a Delaware corporation (the “Company”), hereby grants an option to purchase shares of its Class B Common Stock, $.00005 par value (the “Stock”), to the optionee named below (the “Option”).  The terms and conditions of the Option are set forth in the Nonqualified Stock Option Award Agreement and in the Rosetta Stone Inc. 2009 Omnibus Incentive Plan (the “Plan”).
Grant Date:  %%OPTION_DATE%-%
Name of Optionee:  %%FIRST_NAME%-% %%LAST_NAME%-%
Optionee’s Employee Identification Number:  %%EMPLOYEE_IDENTIFIER%-%
Number of Shares Covered by Option:  %%TOTAL_SHARES_GRANTED%-%
Option Price per Share:  $%%OPTION_PRICE%-%
Vesting Start Date: %%VEST_BASE_DATE%-%
Executive understands and agrees that this Non-Qualified Stock Option Award is granted subject to and in accordance with the terms of the Rosetta Stone, Inc. %%EQUITY_PLAN%-% (the "Plan").  Executive further agrees to be bound by the terms of the Plan and the terms of the Non-Qualified Stock Option Award as set forth in the Non-Qualified Stock Option Agreement and any Addenda to such Non-Qualified Stock Option Agreement.  A copy of the Plan is available on www.Etrade.com.
Nothing in this Notice or in the Non-Qualified Stock Option Agreement or in the Plan shall confer upon Executive any right to continue in service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Affiliate employing or retaining Executive) or of Executive, which rights are hereby expressly reserved by each, to terminate Executive's Service at any time for any reason, with or without cause.
Definitions. All capitalized terms in this Cover Sheet shall have the meaning assigned to them in this Cover Sheet or in the Non-Qualified Stock Option Agreement.

ROSETTA STONE INC.

1

ROSETTA STONE INC. 
2009 OMNIBUS INCENTIVE PLAN AS AMENDED 
 
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
This NONQUALIFIED STOCK OPTION AWARD AGREEMENT (this “Agreement”) and the Cover Sheet to which this Agreement is attached (the “Cover Sheet”) are entered into between Rosetta Stone Inc., a Delaware corporation (the “Company”), and Optionee (as that term is defined in the Cover Sheet).  The Board of Directors of the Company has adopted, and the stockholders of the Company have approved, the Rosetta Stone Inc. 2009 Omnibus Incentive Plan, as amended (the “Plan”), the terms of which are incorporated by reference herein in their entirety.  Any term used in this Agreement that is not specifically defined herein shall have the meaning specified in the Plan.
IT IS AGREED:
1.Grant of Option. Subject to the terms of the Plan, this Agreement and the Cover Sheet, on the Grant Date set forth on the Cover Sheet (the “Grant Date”), the Company granted to Optionee an option (the “Option”) to purchase that number of shares of the Company’s common stock, $.00005 par value (the “Stock”), at the Option Price per Share of Stock set forth on the Cover Sheet (the “Option Price”), subject to adjustment as provided in the Plan.
2.    Type of Option.  The Option is a nonqualified stock option which is not intended to be governed by section 422 of the Code and will be interpreted accordingly.
3.    Optionee’s Agreement.  In accepting the Option, Optionee accepts and agrees to be bound by all the terms and conditions of the Plan which pertain to nonqualified stock options granted under the Plan.
4.    Vesting of Option.  Subject to the provisions of the Plan and the provision of this Agreement (including the requirement in Section 6 that Optionee continue to be employed by the Company or a Subsidiary Corporation on the dates set forth below), the Option will vest and become exercisable in accordance with the following terms:
(a)    on the first anniversary of the Vesting Start Date (as set forth on the Cover Sheet), and on each succeeding anniversary date of the Vesting Start Date, the Option will vest with respect to, and may be exercised for up to, one-fourth (1/4th) of the total number of shares of the Stock subject to the Option as set forth on the Cover Sheet (the “Option Shares”), rounded to the nearest whole number of shares, except that on the fourth anniversary of the Vesting Start Date the Option shall vest with respect to the remaining number of Option Shares for which the Option has not previously vested;
(b)    If the Optionee’s employment terminates as a result of the Optionee’s involuntary termination not-for-Cause, any portion of the Option that is vested as of the date of such termination of employment will remain exercisable until the earlier of (i) the date that is sixty (60) days following the date of such termination of the Optionee’s employment or (ii) the Option 

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General Expiration Date.  In the event of such a termination of employment, the portion, if any, of the Option that is unvested as of the date of such termination will immediately vest and become exercisable in an amount equal to (A) the product obtained by multiplying (x) the total number of Option Shares granted under this Agreement by (y) a fraction, the numerator of which is the number of days in the period beginning on the Grant Date and ending on the date of such termination of Employment, and the denominator of which is the number of days in the period beginning on the Grant Date and ending on the fourth anniversary of the Grant Date, minus (B) the number of Option Shares that have vested pursuant to the vesting schedule set forth in Section 4(a) above as of the date of termination; and the portion of the Option that becomes so vested in accordance with this sentence will thereafter remain exercisable for the period of time set forth above in this Section 4(b).  Any portion of the Option that does not vest after application of the preceding sentence will be immediately forfeited upon the date of such termination without any payment or consideration due by the Company;
(c)    upon the termination of employment of the Optionee by the Company without Cause or by the Optionee for Good Reason, in either case, within one year following the occurrence of a Change in Control, any portion of the Option Shares that have not previously vested will vest and the Option shall be exercisable in full; and
(d)    to the extent not exercised, installments of vested Option Shares shall be cumulative and may be exercised in whole or in part.
5.    Manner of Exercise.  
(a)    To the extent that the Option is vested and exercisable in accordance with Section 4 of this Agreement, the Option may be exercised by Optionee at any time, or from time to time, in whole or in part, on or prior to the termination of the Option (as set forth in Section 6 of this Agreement) upon payment of the Option Price for the Option Shares to be acquired in accordance with the terms and conditions of this Agreement and the Plan.
(b)    If Optionee is entitled to exercise the vested and exercisable portion of the Option, and wishes to do so, in whole or part, Optionee shall (i) deliver to the Company a fully completed and executed notice of exercise, in such form as may be designated by the Company in its sole discretion, specifying the exercise date and the number of Option Shares to be purchased pursuant to such exercise and (ii) remit to the Company in a form satisfactory to the Company, in its sole discretion, the Option Price for the Option Shares to be acquired on exercise of the Option, plus an amount sufficient to satisfy any withholding tax obligations of the Company that arise in connection with such exercise (as determined by the Company) in accordance with the provisions of the Plan.
(c)    The Company’s obligation to deliver shares of the Stock to Optionee under this Agreement is subject to and conditioned upon Optionee satisfying all tax obligations associated with Optionee’s receipt, holding and exercise of the Option.  Unless otherwise approved by the Committee, all such tax obligations shall be payable in accordance with the provisions of the Plan.  

3

(d)    The Company and its Affiliates and subsidiaries, as applicable, shall be entitled to deduct from any compensation otherwise due to Optionee the amount necessary to satisfy all such taxes. 
(e)    Upon full payment of the Option Price and satisfaction of all applicable tax obligations, and subject to the applicable terms and conditions of the Plan and the terms and conditions of this Agreement, the Company shall cause certificates for the shares purchased hereunder to be delivered to Optionee or cause an uncertificated book-entry representing such shares to be made in the name of Optionee. 
6.    Termination of Option.  Unless the Option terminates earlier as provided in this Section 6 the Option shall terminate and become null and void at the close of business at the Company’s principal business office on the day before the date of the tenth anniversary of the Grant Date (the “Option General Expiration Date”).  If Optionee ceases to be an employee of the Company or any Subsidiary Corporation for any reason the Option shall not continue to vest after such cessation of service as an employee of the Company or Subsidiary Corporation.
(a)    If Optionee ceases to be an employee of the Company or any Subsidiary Corporation due to death or Disability, (i) the portion of the Option that was exercisable on the date of such cessation shall remain exercisable for, and shall otherwise terminate and become null and void at the close of business at the Company’s principal business office on the day that is six (6) months after the date of such death or Disability, but in no event after the Option General Expiration Date; and (ii) the portion of the Option that was not exercisable on the date of such cessation shall be forfeited and become null and void immediately upon such cessation.  
(b)    If Optionee ceases to be an employee of the Company or a Subsidiary Corporation due to Cause, all of the Option shall be forfeited and become null and void immediately upon such cessation, whether or not then exercisable.  
(c)    If Optionee ceases to be an employee of the Company or a Subsidiary Corporation for any reason other than death, Disability, or Cause, (i) the portion of the Option that was exercisable on the date of such cessation shall remain exercisable for, and shall otherwise terminate and become null and void at the close of business at the Company’s principal business office on the later of (x) the day that is sixty (60) days after the date of such cessation, or (y) the day that is thirty (30) after any blackout period(s) under the Company’s Insider Trading Compliance Policy (as in effect from time to time) to the extent Optionee is then subject to any such blackout period(s), but in no event after the Option General Expiration Date, and (ii) the portion of the Option that was not exercisable on the date of such cessation shall be forfeited and become null and void immediately upon such cessation.
(d)    Upon the death of Optionee prior to the expiration of the Option, Optionee’s executors, administrators or any person or persons to whom the Option may be transferred by will or by the laws of descent and distribution, shall have the right, at any time prior to the termination of the Option to exercise the Option with respect to the number of shares that Optionee would have been entitled to exercise if he were still alive.

4

7.    Tax Withholding.  To the extent that the receipt of the Option, this Agreement or the Cover Sheet, the vesting of the Option or the exercise of the Option results in income to Optionee for federal, state, local or foreign income, employment or other tax purposes with respect to which the Company or its subsidiaries or any Affiliate has a withholding obligation, Optionee shall deliver to the Company at the time of such receipt, vesting or exercise, as the case may be, such amount of money as the Company or its subsidiaries or any Affiliate may require to meet its obligation under applicable tax laws or regulations, and, if Optionee fails to do so, the Company or its subsidiaries or any Affiliate is authorized to withhold from the shares subject to the Option (based on the Fair Market Value of such shares as of the date the amount of tax to be withheld is determined) or from any cash or stock remuneration then or thereafter payable to Optionee any tax required to be withheld by reason of such taxable income, sufficient to satisfy the withholding obligation.
8.    Capital Adjustments and Reorganizations. The existence of the Option shall not affect in any way the right or power of the Company or any company the stock of which is awarded pursuant to this Agreement to make or authorize any adjustment, recapitalization, reorganization or other change in its capital structure or its business, engage in any merger or consolidation, issue any debt or equity securities, dissolve or liquidate, or sell, lease, exchange or otherwise dispose of all or any part of its assets or business, or engage in any other corporate act or proceeding.
9.    Employment Relationship. For purposes of this Agreement, Optionee shall be considered to be in the employment of the Company, any Subsidiary Corporation or any Affiliates as long as Optionee has an employment relationship with the Company, any Subsidiary Corporation or any Affiliates.  The Committee shall determine any questions as to whether and when there has been a termination of such employment relationship, and the cause of such termination, under the Plan and the Committee’s determination shall be final and binding on all persons.
10.    Not an Employment Agreement.  This Agreement is not an employment or service agreement, and no provision of this Agreement shall be construed or interpreted to create an employment or other service relationship between Optionee and the Company, its subsidiaries or any of its Affiliates or guarantee the right to remain employed by the Company, its subsidiaries or any of its Affiliates, for any specified term or require the Company, its subsidiaries  or any Affiliate to employ Optionee for any period of time.
11.    No Rights As Stockholder.  Optionee shall not have any rights as a stockholder with respect to any Option Shares until the date of the issuance of such shares following Optionee’s exercise of the Option pursuant to its terms and conditions and payment of all amounts for and with respect to the shares.  No adjustment shall be made for dividends or other rights for which the record date is prior to the date a certificate or certificates are issued for such shares or an uncertificated book-entry representing such shares is made.
12.    Legend.  Optionee consents to the placing on the certificate for any Option Shares of an appropriate legend restricting resale or other transfer of such shares except in accordance with the Securities Act of 1933 and all applicable rules thereunder.
13.    Notices.  Any notice, instruction, authorization, request, demand or other communications required hereunder shall be in writing, and shall be delivered either by personal 

5

delivery, by telegram, telex, telecopy or similar facsimile means, by certified or registered mail, return receipt requested, or by courier or delivery service, addressed to the Company at the Company’s principal business office address to the attention of the Company’s General Counsel and to Optionee at Optionee’s residential address as it appears on the books and records of the Company, or at such other address and number as a party shall have previously designated by written notice given to the other party in the manner hereinabove set forth.  Notices shall be deemed given when received, if sent by facsimile means (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications sent by facsimile means); and when delivered (or upon the date of attempted delivery where delivery is refused), if hand-delivered, sent by express courier or delivery service, or sent by certified or registered mail, return receipt requested.
14.    Amendment and Waiver. Except as otherwise provided herein or in the Plan or as necessary to implement the provisions of the Plan, this Agreement may be amended, modified or superseded only by written instrument executed by the Company and Optionee.  Only a written instrument executed and delivered by the party waiving compliance hereof shall waive any of the terms or conditions of this Agreement.  Any waiver granted by the Company shall be effective only if executed and delivered by a duly authorized director or officer of the Company other than Optionee.  The failure of any party at any time or times to require performance of any provisions hereof shall in no manner effect the right to enforce the same.  No waiver by any party of any term or condition, or the breach of any term or condition contained in this Agreement, in one or more instances, shall be construed as a continuing waiver of any such condition or breach, a waiver of any other condition, or the breach of any other term or condition.
15.    Dispute Resolution.  In the event of any difference of opinion concerning the meaning or effect of the Plan or this Agreement, such difference shall be resolved by the Committee.
16.    Governing Law and Severability. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.  The invalidity of any provision of this Agreement shall not affect any other provision of this Agreement, which shall remain in full force and effect.
17.    Transfer Restrictions. The Option Shares may not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws or of any applicable requirements of any stock exchange on which the Company’s shares of Stock may be listed.  Optionee also agrees (a) that the Company may refuse to cause the transfer of Option Shares to be registered on the applicable stock transfer records if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (b) that the Company may give related instructions to the transfer agent, if any, to stop registration of the transfer of the Option Shares.
18.    Discretionary Nature of Plan.  The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion. The grant of the Option Shares in this Agreement does not create any contractual right or other right to receive any Option Shares or other Awards in the future. Future Awards, if any, will be at the sole discretion of the Company. 

6

Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the terms and conditions of the Optionee’s employment with the Company.
19.    Successors and Assigns.  This Agreement shall, except as herein stated to the contrary, inure to the benefit of and bind the legal representatives, successors and assigns of the parties hereto.
20.    Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be an original for all purposes but all of which taken together shall constitute but one and the same instrument.
21.    Option Transfer Prohibitions.  The Option granted to Optionee under this Agreement shall not be transferable or assignable by Optionee other than by will or the laws of descent and distribution, and shall be exercisable during Optionee’s lifetime only by him.
22.    Definitions.  The words and phrases defined in this Section 21 shall have the respective meanings set forth below throughout this Agreement, unless the context in which any such word or phrase appears reasonably requires a broader, narrower or different meaning.
(a)    "Cause" shall mean Optionee (i) committed a felony or a crime involving moral turpitude or committed any other act or omission involving fraud, embezzlement or any other act of dishonesty in the course of his employment by the Company or an Affiliate which conduct damaged the Company or an Affiliate; (ii) substantially and repeatedly failed to perform duties of the office held by him or her as reasonably directed by the Company or an Affiliate; (iii) committed gross negligence or willful misconduct with respect to the Company or an Affiliate; (iv) committed a material breach of any employment agreement between the Optionee and the Company or an Affiliate that is not cured within ten (10) days after receipt of written notice thereof from the Company or the Affiliate, as applicable; (v) failed, within ten (10) days after receipt by the Optionee of written notice thereof from the Company or an Affiliate, to correct, cease or otherwise alter any failure to comply with instructions or other action or omission which the Board reasonably believes does or may materially or adversely affect the Company’s or an Affiliate’s business or operations; (vi) committed misconduct which is of such a serious or substantial nature that a reasonable likelihood exists that such misconduct will materially injure the reputation of the Company or an Affiliate; (vii) harassed or discriminated against the Company’s or an Affiliate’s employees, customers or vendors in violation of the Company’s policies with respect to such matters; (viii) misappropriated funds or assets of the Company or an Affiliate for personal use or willfully violated the Company policies or standards of business conduct as determined in good faith by the Board; (ix) failed, due to some action or inaction on the part of the Optionee, to have immigration status that permits the Optionee to maintain full-time employment with the Company or an Affiliate in the United States in compliance with all applicable immigration law; or (x) disclosed trade secrets of the Company or an Affiliate.
(b)    “Change in Control” means (i) the liquidation, dissolution or winding-up of the Company, (ii) the sale, license or lease of all or substantially all of the assets of the Company, or (iii) a share exchange, reorganization, recapitalization, or merger or consolidation of the Company with or into any other corporation or corporations (or other form of business entity) or of any other 

7

corporation or corporations (or other form of business entity) with or into the Company, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company; provided, however, that a Change in Control shall not include any of the aforementioned transactions listed in clauses (i), (ii) and (iii) involving the Company or a Subsidiary Corporation in which the holders of shares of the Company voting stock outstanding immediately prior to such transaction or any Affiliate of such holders continue to hold at least a majority, by voting power, of the capital stock or, by a majority, based on fair market value as determined in good faith by the Board, of the assets, in each case in substantially the same proportion, of (x) the surviving or resulting corporation (or other form of business entity), (y) if the surviving or resulting corporation (or other form of business entity) is a wholly owned subsidiary of another corporation (or other form of business entity) immediately following such transaction, the parent corporation (or other form of business entity) of such surviving or resulting corporation (or other form of business entity) or (z) a successor entity holding a majority of the assets of the Company.  In addition, a Change in Control shall not include a bona fide, firm commitment underwritten public offering of the Stock pursuant to a registration statement declared effective under the Securities Act of 1933, as amended.
(c)    “Disability” shall have the meaning ascribed to such term in the Plan, as it may be amended from time to time.
(d)    “Good Reason” shall have the meaning ascribed to such term in the Optionee’s employment agreement with the Company, or, if none, the Optionee’s resignation from employment with the Company due to (i) a material diminution in Optionee’s annual base salary, duties, authority or responsibilities or (ii) relocation of the Optionee’s primary place of employment to a geographic area more than fifty (50) miles from Optionee’s then-current primary place of employment, without the Optionee’s consent; provided that the Optionee has given thirty (30) days advance written notice to the Company of the initial existence of the condition described in (i) and/or (ii) and the Company has not within such thirty (30) day period remedied the condition.
23.    Acceptance. Optionee agrees that by accepting this Agreement, Optionee confirms that Optionee has read and understands the terms and provisions thereof, and accepts the Option Shares subject to all of the terms and conditions of the Plan and this Agreement.  Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option Shares or disposition of the underlying shares and that Optionee should consult a tax advisor prior to such exercise or disposition.

8

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