Document:

Exhibit 10.40

Exhibit 10.40

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is entered into on December 6, 2010, by
and between Michael D. Popielec, an individual (“Executive”) and Ultralife Corporation, a
Delaware corporation (the “Company”).

Recitals

WHEREAS, the Company and Executive desire to establish an agreement pursuant to which
Executive will be retained as the President and Chief Executive Officer of the Company, effective
December 30, 2010 (the “Effective Date”), and to provide for Executive’s employment by the Company
upon the terms and conditions set forth herein.

Agreement

Now, Therefore, in consideration of the mutual covenants contained herein, the parties hereby
agree as follows:

1. Employment. Executive will serve as President and Chief Executive Officer of the
Company for the Employment Term specified in Section 2 below. Executive will report to the Board
of Directors of the Company (the “Board”), and Executive will render such services, consistent with
the foregoing role, as the Board may from time to time direct.

2. Term. The employment of Executive pursuant to this Agreement shall commence on the
Effective Date and shall continue until terminated as provided in this Agreement. (The period
during which Executive is employed under this Agreement is referred to the “Employment Term”).

3. Salary. As compensation for the services rendered by Executive under this
Agreement, the Company shall pay to Executive a base salary initially equal to $450,000 per year
(“Base Salary”) for calendar year 2011, payable to Executive in accordance with the Company’s
payroll practices. The Base Salary shall be subject to adjustment by the Board but may not be
decreased without the consent of Executive.

4. Bonus. In addition to his Base Salary, Executive shall be entitled to participate
in the Company’s executive bonus program. Bonuses shall be paid in accordance with the guidelines
set forth under the bonus program but in all events a bonus shall be paid in the year following the
year to which the bonus relates within thirty (30) days of the Company’s determination of the
amounts of the bonus but in no event later than December 31 of the year following the year for
which the bonus is earned. For 2011, and each year thereafter, the Executive’s Annual Cash Bonus
target shall not be less than 75% of the Executive’s 2011 Base Salary (the “Target Bonus”).
Executive will be entitled to receive Annual Cash Bonuses ranging from 0% to 140% of the Target
Bonus based upon the Executive’s satisfaction of certain quantitative and qualitative performance
metrics to be agreed upon between the Executive and the Company’s Compensation and Management
Committee no later than January 31 of the year for which the bonus applies. Satisfaction of less
than 80% of the Bonus Plan metrics will result
in no bonus. Satisfaction of 80% to 100% of the Bonus Plan metrics will result in bonus
ranges from 20% to 100% of the Target Bonus. Satisfaction of 100% to 125% of the Bonus Plan
metrics will result in bonus ranges from 100% to 140% of the Target Bonus. In no event will the
bonus exceed 140% of the Target Bonus.

 

 

 

5. Executive Benefits.

(a) Stock Options. Executive will be granted options to purchase shares of the
Company’s Common Stock, par value $.01 per share (the “Stock”) as follows:

(i) 50,000 shares on December 30, 2010 with an exercise price determined on that date in
accordance with the Company’s Long Term Incentive Plan, as amended (“LTIP”), with equal vesting on
each of December 30, 2011, December 30, 2012, December 30, 2013 and December 30, 2014,

(ii) 250,000 shares on December 30, 2010 with an exercise price determined on that date in
accordance with the LTIP with equal vesting on each of December 30, 2011, December 30, 2012,
December 30, 2013 and December 30, 2014,

(iii) 200,000 shares on December 30, 2010 with an exercise price of $10 per share with vesting
to begin on the date the Stock first reaches a closing price of $10 for 15 trading days in a 30
trading-day period, with such vesting in equal amounts over the four anniversary dates of that
date.

(iv) 200,000 shares on December 30, 2010 with an exercise price of $15 per share with vesting
to begin on the date the Stock first reaches a closing price of $15 for 15 trading days in a 30
trading-day period, with such vesting in equal amounts over the four anniversary dates of that
date.

(v) 50,000 shares on January 3, 2011 with an exercise price determined on that date in
accordance with the LTIP with equal vesting on each of December 30, 2011, December 30, 2012,
December 30, 2013 and December 30, 2014.

All such options in Sections 5(a) (i), (ii), and (v) above shall terminate on December 30,
2017. All such options in Sections 5(a) (iii) and (iv) above shall terminate as of the later of
December 30, 2017 and five (5) years after the initial date vesting commences, but in no event
later than December 30, 2020. The options set forth at Sections 5(a)(ii), (iii) and (iv) are
conditional and are subject to shareholder approval to increase the number of shares available
under the LTIP to accommodate these options and to also increase the current limitation on maximum
options issuable to an employee in a given year. If such approval is not obtained, such options
shall be null and void.

(b) Employee and Executive Benefits. Executive will be entitled to receive all
benefits provided to senior executives, executives and employees of the Company generally, provided
that in respect to each such plan Executive is otherwise eligible and insurable in accordance with
the terms of such plans.

 

2

 

(c) PTO and Sabbatical. Executive shall be entitled to Paid Time Off, holidays and
sabbatical in accordance with the policies of the Company as they exist from time to time.

(d) Relocation. Executive shall be entitled to the following relocation benefits:

(i) rent in and commute transportation to the Rochester, New York area for up to nine (9)
months, as needed, during 2011 for a total actual expense not to exceed $50,000, and

(ii) payment of all actual reasonable relocation and moving expenses, including expenses
incurred by Executive and spouse for travel to the Rochester, New York area to locate living
accommodations, packing and transporting of household items to the new household and meals, lodging
and travel in connection with the move to the new household, incurred in 2011 in an aggregate
amount not to exceed $60,000, and

(iii) payment of all actual reasonable current house sale/closing costs, including deed
preparation, tax stamps, reasonable attorneys’ fees, real estate transfer taxes and real estate
commission, incurred in 2011 in an aggregate amount not to exceed $120,000.

6. Severance Benefits.

(a) At Will Employment. Executive’s employment shall be “at will.” Either the
Company or Executive may terminate this Agreement and Executive’s employment at any time, with or
without Business Reasons (as defined in Section 7(a) below), in its or his sole discretion, upon
sixty (60) days’ prior written notice of termination.

(b) Involuntary Termination. If at any time during the term of this Agreement, other
than following a Change in Control to which Section 6(c) applies, the Company terminates the
employment of Executive without Business Reasons or a Constructive Termination occurs, then
Executive shall be entitled to receive the following:

(i) salary, any unpaid bonus from the prior year, and the cash value of any accrued Paid Time
Off (consistent with the Company’s Paid Time Off policies then in effect) through the Termination
Date plus continued salary for a period of eighteen (18) months following the Termination Date,
payable in accordance with the Company’s regular payroll schedule as in effect from time to time;
provided, however, that such 18-month period shall be reduced to twelve (12) months if the
Termination Date is on or after June 30, 2012,

(ii) a pro-rata amount (calculated on a per diem basis) of the full year bonus which the
Executive would have earned for the calendar year in which the termination of employment occurred,

(iii) acceleration of vesting of all outstanding stock options and other equity arrangements
(including but not limited to restricted stock, stock appreciation rights, and such instruments)
subject to vesting and held by Executive subject to the provision, however, that the acceleration
shall not cover more than eighteen (18) months from the Termination Date
(and in this regard, all such options and other exercisable rights held by Executive shall
remain exercisable for one year following the Termination Date, or through the original expiration
date of the stock options or other exercisable rights, if earlier),

 

3

 

(iv) continuation of health benefits for Executive, Executive’s spouse and any dependent
children for a period of twelve (12) months after the Termination Date followed by eighteen (18)
months of Executive-paid COBRA eligibility, and

(v) no other compensation, severance or other benefits, except only that this provision shall
not limit any benefits otherwise available to Executive under Section 6(c) in the case of a
termination following a Change in Control.

(c) Change in Control. If at any time during the term of this Agreement a
“Change in Control” occurs (as defined below) and within twelve (12) months of the date of
the Change in Control, the Company terminates the employment of Executive without Business Reasons
or a Constructive Termination occurs, then Executive shall be entitled to receive the following:

(i) salary, any unpaid bonus from the prior year, and the cash value of any accrued Paid Time
Off (consistent with the Company’s Paid Time Off policies then in effect) through the Termination
Date plus an amount equal to eighteen (18) months of Executive’s salary as then in effect, payable
immediately upon the Termination Date,

(ii) one and one-half times the Target Bonus for the Executive for the calendar year in which
the Termination Date occurred,

(iii) acceleration in full of vesting of all outstanding stock options and other equity
arrangements (including but not limited to restricted stock, stock appreciation rights, and such
instruments) subject to vesting and held by Executive (and in this regard, all such options and
other exercisable rights held by Executive shall remain exercisable for eighteen (18) months
following the Termination Date, or through the original expiration date of the stock options or
other exercisable rights, if earlier),

(iv) continuation of health benefits for Executive, Executive’s spouse and any dependent
children for a period of twenty-four (24) months after the Termination Date, and

(v) no other compensation, severance or other benefits.

With respect to the portion, if any, of the severance payments under Section 6(c) that constitutes
nonqualified deferred compensation under the meaning of Section 409A of the Internal Revenue Code
of 1986, as amended and the Treasury Regulations and official guidance issued thereunder
(collectively “Section 409A”), payment of such portion shall be made in a lump sum upon a Change in
Control only if such Change of Control constitutes a “change in control” within the meaning of
Section 409A. To the extent a lump sum payment is not permissible, the payments shall instead be
made in accordance with Section 6(b).

 

4

 

To the extent the vesting and/or accelerated payment of outstanding stock options and other equity
arrangements pursuant to Section 6(c)(iii) would subject Executive to the imposition of tax and/or
penalties under Section 409A, the vesting and/or payment of such stock options and other equity
shall be delayed to the extent necessary to avoid the imposition of such tax and/or penalties.

Executive shall bear all expense of, and be solely responsible for, all federal, state, local or
foreign taxes due with respect to any payment received under this Section 6(c), including, without
limitation, any excise tax imposed by Section 4999 of the Code; provided, however, that all
payments under this Agreement shall be reduced to the extent necessary so that no portion thereof
shall be subject to the excise tax imposed by Section 4999 of the Code but only if, by reason of
such reduction, the net after-tax benefit received by Executive shall exceed the net after-tax
benefit received by Executive if no such reduction was made. For purposes of this Section, “net
after-tax benefit” shall mean (i) the total of all payments and the value of all benefits which
Executive receives or is then entitled to receive from the Company that would constitute “parachute
payments” within the meaning of Section 280G of the Code, less (ii) the amount of all federal,
state and local income taxes payable with respect to the foregoing calculated at the maximum
marginal income tax rate for each year in which the foregoing shall be paid to Executive (based on
the rate in effect for such year as set forth in the Code as in effect at the time of the first
payment of the foregoing), less (iii) the amount of excise taxes imposed with respect to the
payments and benefits described in (i) above by Section 4999 of the Code. The foregoing
determination will be made by the Company’s independent auditors. The Company will direct the
Accounting Firm to submit its determination and detailed supporting calculations to both the
Company and Executive within 15 days after the Date of Termination. If the Accounting Firm
determines that such reduction is required by this Section, the Company shall pay such reduced
amount to Executive in accordance with this Section. If the Accounting Firm determines that no
reduction is necessary under this Section, it will, at the same time as it makes such
determination, furnish the Company and Executive an opinion that Executive will not be liable for
any excise tax under Section 4999 of the Code. The Company and Executive will each provide the
Accounting Firm access to and copies of any books, records, and documents in the possession of the
Company or Executive, as the case may be, reasonably requested by the Accounting Firm, and
otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the
determinations and calculations contemplated by this Section. The fees and expenses of the
Accounting Firm for its services in connection with the determinations and calculations
contemplated by this Section will be borne by the Company.

(d) Termination for Disability. If at any time during the term of this Agreement,
other than following a Change in Control to which Section 6(c) applies, Executive shall become
unable to perform his duties as an employee as a result of incapacity, which gives rise to
termination of employment for Disability, then Executive shall be entitled to receive the
following:

(i) salary, any unpaid bonus from the prior year, and the cash value of any accrued Paid Time
Off (consistent with the Company’s PTO policies then in effect) through the Termination Date plus
continued salary for a period of twelve (12) months following the
Termination Date, payable in accordance with the Company’s regular payroll schedule as in
effect from time to time,

 

5

 

(ii) acceleration in full of vesting of all outstanding stock options held by Executive
subject to the provision, however, that the acceleration shall not cover more than one (1) year
from the Termination Date (and in this regard, all such options and other exercisable rights held
by Executive shall remain exercisable for one year following the Termination Date, or through the
original expiration date of the stock options or other exercisable rights, if earlier),

(iii) continued Company provided health benefits for twelve (12) months, followed by and to
the extent COBRA shall be applicable to the Company, continuation of health benefits for Executive,
Executive’s spouse and any dependent children, at Executive’s cost, for a period of eighteen (18)
months after the twelve (12) months continuation of Company provided health benefits, or such
longer period as may be applicable under the Company’s policies then in effect, provided Executive
makes the appropriate election and payments, and

(iv) no other compensation, severance or other benefits, except only that this provision shall
not limit any benefits otherwise available to Executive under Section 6(c) in the case of a
termination following a Change in Control. Notwithstanding the foregoing, however, the Company may
deduct from the salary specified in clause (i) hereof the amount of any payments then received by
Executive under any disability benefit program maintained by the Company to the extent permissible
under Section 409A.

(e) Voluntary Termination or Involuntary Termination for Business Reasons. If (A)
Executive voluntarily terminates his employment (other than in the case of a Constructive
Termination), or (B) Executive is terminated involuntarily for Business Reasons, then in any such
event Executive or his representatives shall be entitled to receive the following: (i) salary and
the cash value of any accrued Paid Time Off (consistent with the Company’s PTO policies then in
effect) through the Termination Date only, (ii) the right to exercise, for ninety (90) days
following the Termination Date, or through the original expiration date of the stock options, if
earlier, all stock options held by Executive, but only to the extent vested as of the Termination
Date, (iii) to the extent COBRA shall be applicable to the Company, continuation of health benefits
for Executive, Executive’s spouse and any dependent children, at Executive’s cost, for a period of
eighteen (18) months after the Termination Date, or such longer period as may be applicable under
the Company’s policies then in effect, provided Executive makes the appropriate election and
payments, and (iv) no other compensation, severance, or other benefits.

(f) Termination Upon Death. If Executive’s employment is terminated because of death,
then Executive’s representatives shall be entitled to receive the following:

(i) salary and the cash value of any accrued Paid Time Off (consistent with the Company’s PTO
policies then in effect) through the Termination Date,

(ii) except in the case of any such termination following a Change in Control to which Section
6(c) applies, acceleration in full of vesting of all outstanding stock options and other equity
arrangements (including but not limited to restricted stock, stock appreciation rights, and such
instruments) subject to vesting and held by Executive subject to the
provision, however, that the acceleration shall not cover more than one (1) year from the
Termination Date (and in this regard, all such options and other exercisable rights held by
Executive shall remain exercisable for one year following the Termination Date, or through the
original expiration date of the stock options or other exercisable rights, if earlier),

 

6

 

(iii) to the extent COBRA shall be applicable to the Company, continuation of health benefits
for Executive’s spouse and any dependent children, at their cost, for a period of eighteen (18)
months after the Termination Date, or such longer period as may be applicable under the Company’s
policies then in effect provided Executive’s estate makes the appropriate election and payments,

(iv) any benefits payable to Executive or his representatives upon death under insurance or
other programs maintained by the Company for the benefit of the Executive, and

(v) no further benefits or other compensation, except only that this provision shall not limit
any benefits otherwise available to Executive under Section 6(c) in the case of a termination
following a Change in Control.

(g) Exclusivity. The provisions of this Section 6 are intended to be and are
exclusive and in lieu of any other rights or remedies to which Executive or the Company may
otherwise be entitled, either at law, tort or contract, in equity, or under this Agreement, in the
event of any termination of Executive’s employment. Executive shall be entitled to no benefits,
compensation or other payments or rights upon termination of employment other than those benefits
expressly set forth in paragraph (b), (c), (d), (e) or (f) of this Section 6, whichever shall be
applicable and those benefits required to be provided by law.

(h) Termination. The word “termination” and any variant thereof with respect to the
Executive’s employment shall mean a “separation from service” within the meaning provided by
Section 409A. Payments provided for under this Section 6 are contingent upon a termination
satisfying this definition.

7. Definition of Terms. The following terms referred to in this Agreement shall have
the following meanings:

(a) Business Reasons. “Business Reasons” means (i) gross negligence, willful
misconduct or other willful malfeasance by Executive in the performance of his duties, (ii)
Executive’s conviction of a felony, or an other criminal offense involving moral turpitude, (iii)
Executive’s material breach of this Agreement, including without limitation any repeated breach of
Section 8 hereof or of any provision of any confidentiality, non-disclosure or non-competition
agreements between the Company and Executive, provided that, in the case of any such breach, the
Board provides written notice of breach to the Executive, specifically identifying the manner in
which the Board believes that Executive has materially breached this Agreement, and Executive shall
have the opportunity to cure such breach to the reasonable satisfaction of the Board within thirty
(30) days following the delivery of such notice. For purpose of this paragraph, no act or failure
to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in
bad faith or without reasonable belief that
Executive’s action or omission was in the best interests of the Company or its affiliates.
Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the
Board or based upon the advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by Executive in good faith and in the best interests of the Company.
The Board must notify Executive of any event constituting Business Reasons within ninety (90) days
following the Board’s actual knowledge of its existence (which period shall be extended during the
period of any reasonable investigation conducted in good faith by or on behalf of the Board) or
such event shall not constitute Business Reasons under this Agreement.

 

7

 

(b) Disability. “Disability” shall mean that Executive has been unable to
perform his duties as an employee as the result of his incapacity due to physical or mental
illness, and such inability, at least twenty-six (26) weeks after its commencement, is determined
to be total and permanent by a physician selected by the Company or its insurers and acceptable to
Executive or Executive’s legal representative (such Agreement as to acceptability not to be
unreasonably withheld). Termination resulting from Disability may only be effected after at least
sixty (60) days written notice by the Company of its intention to terminate Executive’s employment.
In the event that Executive resumes the performance of substantially all of his duties hereunder
before the termination of his employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.

(c) Termination Date. “Termination Date” shall mean (i) if this Agreement is
terminated on account of death, the date of death; (ii) if this Agreement is terminated for
Disability, the date specified in Section 7(b); (iii) if this Agreement is terminated by the
Company, the date which is indicated in a notice of termination is given to Executive by the
Company in accordance with Sections 6(a) and 9(a) & (b); (iv) if the Agreement is terminated by
Executive, the date which is indicated in a notice of termination given to the Company by Executive
in accordance with Sections 6(a) and 9(a) & (b).

(d) Constructive Termination. A “Constructive Termination” shall be deemed to
occur if (A) (1) Executive’s position changes as a result of an action by the Company such that (w)
Executive shall no longer be President and Chief Executive Officer of the Company, (x) Executive
shall have duties and responsibilities demonstrably less than or inconsistent with those typically
associated with a President and Chief Executive Officer or (y) Executive shall no longer report
directly to the Board or (2) Executive is required to relocate his place of employment, other than
a relocation within fifty (50) miles of the Company’s current Newark, New York headquarters, (3)
there is a reduction in Executive’s base salary or target bonus or (4) there occurs any other
material breach of this Agreement by the Company after a written demand for substantial performance
is delivered to the Board by Executive which specifically identifies the manner in which Executive
believes that the Company has materially breached this Agreement, and the Company has failed to
cure such breach to the reasonable satisfaction of Executive within thirty (30) days following the
delivery of such notice, and (B) within the ninety (90) day period immediately following an action
described in clauses (A)(1) through (4), Executive elects to terminate his employment voluntarily.

 

8

 

(e) For the purposes of this Agreement, “Change in Control” shall mean the first to occur of
any of the following events:

(i) the acquisition by a person, entity or Group of the right to appoint a majority of the
members of the board of directors of the Company;

(ii) the acquisition by a person, entity or Group of more than 50% of outstanding equity
securities of the Company entitled to vote generally in the election of directors of the Company;

(iii) the sale, transfer, liquidation or other disposition of all or substantially all of the
assets of the Company through one transaction or a series of related transactions to one or more
persons that are not, immediately prior to such sale, transfer or other disposition, subsidiaries
of the Company or affiliates of the Company or any of its subsidiaries;

(iv) after any Group which holds, as of the date of the Agreement is signed, in excess of 25%
of the voting securities of the Company has its ownership in the Company’s securities reduced to
less than five (5)% of the combined voting power of the then outstanding equity securities of the
Company, the acquisition by any person, entity or Group through one transaction or a series of
related transactions of beneficial ownership of equity securities of the Company representing 30%
or more of the combined voting power of the then outstanding equity securities of the Company; or

(v) the merger or consolidation of the Company with or into another entity as a result of
which Persons who were stockholders of the Company immediately prior to such merger or
consolidation, do not, immediately thereafter, own, directly or indirectly, securities representing
more than 50% of the combined voting power of all then outstanding securities entitled to vote
generally in the election of directors of the merged or consolidated company.

As used above, “Group” has the meaning set forth in Section 13(d) of the Exchange Act (other than
(i) the Company, any of its subsidiaries or any of their respective affiliates or (ii) any employee
benefit plan of the Company, any of its Subsidiaries or any of their respective affiliates.

8. No Conflicts.

(a) Executive agrees that in his individual capacity he will not enter into any agreement,
arrangement or understanding, whether written or oral, with any supplier, contractor, distributor,
wholesaler, sales representative, representative group or customer, relating to the business of the
Company or any of its subsidiaries, without the express written consent of the Company.

(b) As long as Executive is employed by the Company or any of its subsidiaries, Executive
agrees that he will not, except with the express written consent of the Company, become engaged in,
render services for, or permit his name to be used in connection with, any for-profit business
other than the business of the Company, any of its subsidiaries or any corporation or partnership
in which the Company or any of its subsidiaries have an equity interest.

 

9

 

9. Miscellaneous Provisions.

(a) Notice. Notices and all other communications contemplated by this Agreement shall
be in writing, shall be effective when given, and in any event shall be deemed to have been duly
given (i) when delivered, if personally delivered, (ii) three (3) business days after deposit in
the U.S. mail, if mailed by U.S. registered or certified mail, return receipt requested, or (iii)
one (1) business day after the business day of deposit with Federal Express or similar overnight
courier, if so delivered, freight prepaid. In the case of Executive, notices shall be addressed to
him at the home address which he most recently communicated to the Company in writing. In the case
of the Company, notices shall be addressed to its corporate headquarters, and all notices shall be
directed to the attention of its Corporate Secretary.

(b) Notice of Termination. Any termination by the Company or Executive shall be
communicated by a notice of termination to the other party hereto given in accordance with
paragraph (a) hereof. Such notice shall indicate the specific termination provision in this
Agreement relied upon.

(c) Successors.

(i) Company’s Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or
substantially all of the Company’s business and/or assets shall be entitled to assume the rights
and shall be obligated to assume the obligations of the Company under this Agreement and shall
agree to perform the Company’s obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the absence of a succession.
For all purposes under this Agreement, the term “Company” shall include any successor to the
Company’s business and/or assets which executes and delivers the assumption agreement described in
this subsection (i) or which becomes bound by the terms of this Agreement by operation of law.

(ii) Executive’s Successors. The terms of this Agreement and all rights of Executive
hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

(iii) No Other Assignment of Benefits. Except as provided in this Section 9(c), the
rights of any person to payments or benefits under this Agreement shall not be made subject to
option or assignment, either by voluntary or involuntary assignment or by operation of law,
including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and
any action in violation of this subsection (iii) shall be void.

(d) Waiver. No provision of this Agreement shall be modified, waived or discharged
unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by
an authorized officer of the Company (other than Executive). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same condition or
provision at another time.

 

10

 

(e) Entire Agreement. This Agreement shall supersede any and all prior agreements,
representations or understandings (whether oral or written and whether express or implied) between
the parties with respect to the subject matter hereof.

(f) Severability. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other provision hereof,
which shall remain in full force and effect.

(g) Arbitration and Governing Law. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in Rochester, New York,
in accordance with the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator’s award in any court having jurisdiction. No party shall be entitled
to seek or be awarded punitive damages. All attorneys fees and costs shall be allocated or
apportioned as agreed by the parties or, in the absence of an agreement, in such manner as the
arbitrator or court shall determine to be appropriate to reflect the final decision of the deciding
body as compared to the initial positions in arbitration of each party. This Agreement shall be
construed in accordance with and governed by the laws of the State of New York as they apply to
contracts entered into and wholly to be performed within such State by residents thereof.

(h) Employment Taxes. All payments made pursuant to this Agreement will be subject to
withholding of applicable taxes.

(i) Indemnification. In the event Executive is made, or threatened to be made, a
party to any legal action or proceeding, whether civil or criminal, by reason of the fact that
Executive is or was a director or officer of the Company or serves or served any other entity in
any capacity on behalf of or, at the request of, the Company in any capacity, Executive shall be
indemnified by the Company, and the Company shall pay Executive’s related expenses when and as
incurred, all to the full extent permitted by law, pursuant to Executive’s existing indemnification
agreement with the Company, if any, in the form made available to all Executive and all other
officers and directors or, if it provides greater protection to Executive, to the maximum extent
allowed under the law of the State of the Company’s incorporation.

(j) Legal Fees. The Company will pay directly the reasonable fees and expenses of
counsel retained by Executive in connection with the preparation, negotiation and execution of this
Agreement.

(k) Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which together will constitute one and the same instrument.

 

11

 

(l) Six Month Waiting Period. Notwithstanding anything herein to the contrary, to the
extent that any payments under this Agreement are subject to a six-month waiting period under
Section 409A, any such payments that would be payable before the expiration of six months following
the Executive’s separation from service but for the operation of this sentence shall be made during
the seventh month following the Executive’s separation from service. In the case of taxable
benefits that constitute deferred compensation, the
Company, in lieu of a delay in payment, may require Executive to pay the full costs of such
benefits during the period described in the preceding sentence and reimburse Executive for said
costs within thirty (30) days after the end of such period.

(m) Reimbursement of Expenses. Reimbursements under this Agreement shall only be made
for expenses incurred during the term of this Agreement. Any reimbursements made under this
Agreement shall be made by the end of the year following the year in which the expense was
incurred, and the amount of the reimbursable expenses or in-kind benefits provided in one year
shall not increase or decrease the amount of reimbursable expenses or in-kind benefits provided in
a subsequent year. In order to receive reimbursements under this Agreement, the Executive shall
provide any required supporting documentation by a date reasonably specified by the Company in
accordance with the deadlines set forth in this section.

(n) Section 409A of the Code. It is intended that the payments and benefits provided
for by this Agreement comply with the requirements of Section 409A, and this Agreement shall be
administered and interpreted in a manner consistent with such intention. Each payment under this
Agreement is treated as a separate payment for the purposes of Section 409A.

(o) Employee Confidentiality, Non-Disclosure, Non-Compete, Non-Disparagement and
Assignment Agreement. Contemporaneously herewith, the Executive will execute and deliver the
Company’s standard Employee Confidentiality, Non-Disclosure, Non-Compete, Non-Disparagement and
Assignment Agreement.

(p) LTIP Amendment. The Company hereby agrees to approve and to include as an item in
the proxy for the next annual meeting of its shareholders amendments to the LTIP to increase the
shares available under the LTIP and to increase the current limitation on the maximum options
issuable to an employee in a given year, each to accommodate and cause the effectiveness of the
options set forth in Section 5(a) above. The Company further agrees to recommend to its
shareholders a vote FOR this item.

(q) Termination of Continuing Health Care Coverage. Notwithstanding the terms of Section 6,
in the event Executive is eligible for health care coverage by a subsequent employer, the Company
will no longer be obligated to continue health care or COBRA coverage for Executive.

[signature page follows]

 

12

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	ULTRALIFE CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Bradford T. Whitmore
 

Bradford T. Whitmore
	 	 
	 

	 	 	 	Chair of the Board of Directors	 	 
	 
	 	 	 	 	 	 
	 	 	Michael D. Popielec	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Michael D. Popielec	 	 
	 	 	 	 	 
	 	 	Michael D. Popielec	 	 

 

13Exhibit 10.1

Exhibit 10.1

 

 

IRVINE SENSORS CORPORATION

2011 OMNIBUS INCENTIVE PLAN

 

 

 

 

 

Table of Contents

	 	 	 	 	 	 	 

	 
	 	 	 	 	 	 
	Section 1.
	 	Purpose	 	 	1	 
	 
	 	 	 	 	 	 
	Section 2.
	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 
	Section 3.
	 	Administration	 	 	4	 
	(a)
	 	Power and Authority of the Committee	 	 	4	 
	(b)
	 	Power and Authority of the Board	 	 	5	 
	 
	 	 	 	 	 	 
	Section 4.
	 	Shares Available for Awards	 	 	5	 
	(a)
	 	Shares Available	 	 	5	 
	(b)
	 	Accounting for Awards	 	 	5	 
	(c)
	 	Adjustments	 	 	5	 
	(d)
	 	Section 162(m) Award Limitations Under the Plan	 	 	6	 
	 
	 	 	 	 	 	 
	Section 5.
	 	Eligibility	 	 	6	 
	 
	 	 	 	 	 	 
	Section 6.
	 	Awards	 	 	6	 
	(a)
	 	Options	 	 	6	 
	(b)
	 	Stock Appreciation Rights	 	 	8	 
	(c)
	 	Restricted Stock and Restricted Stock Units	 	 	8	 
	(d)
	 	Performance Awards	 	 	9	 
	(e)
	 	Dividend Equivalents	 	 	9	 
	(f)
	 	Other Stock Grants	 	 	9	 
	(g)
	 	Other Stock-Based Awards	 	 	9	 
	(h)
	 	General	 	 	10	 
	 
	 	 	 	 	 	 
	Section 7.
	 	Amendment and Termination; Adjustments	 	 	12	 
	(a)
	 	Amendments to the Plan	 	 	12	 
	(b)
	 	Amendments to Awards	 	 	12	 
	(c)
	 	Correction of Defects, Omissions and Inconsistencies	 	 	12	 
	 
	 	 	 	 	 	 
	Section 8.
	 	Income Tax Withholding	 	 	12	 
	 
	 	 	 	 	 	 
	Section 9.
	 	General Provisions	 	 	13	 
	(a)
	 	No Rights to Awards	 	 	13	 
	(b)
	 	Award Agreements	 	 	13	 
	(c)
	 	Plan Provisions Control	 	 	13	 
	(d)
	 	No Rights of Stockholders	 	 	13	 
	(e)
	 	No Limit on Other Compensation Arrangements	 	 	13	 
	(f)
	 	No Right to Employment 	 	 	13	 
	(g)
	 	Governing Law 	 	 	14	 
	(h)
	 	Severability 	 	 	14	 
	(i)
	 	No Trust or Fund Created	 	 	14	 
	(j)
	 	Other Benefits 	 	 	14	 

 

ii

 

	 	 	 	 	 	 	 

	(k)
	 	No Fractional Shares	 	 	14	 
	(l)
	 	Headings	 	 	14	 
	(m)
	 	Section 16 Compliance; Section 162(m) Administration	 	 	14	 
	(n)
	 	Conditions Precedent to Issuance of Shares	 	 	15	 
	 
	 	 	 	 	 	 
	Section 10.
	 	Effective Date of the Plan	 	 	15	 
	 
	 	 	 	 	 	 
	Section 11.
	 	Term of the Plan	 	 	15	 

 

iii

 

IRVINE SENSORS CORPORATION

2011 OMNIBUS INCENTIVE PLAN

Section 1. Purpose

The purpose of the Plan is to promote the interests of the Company and its stockholders by
aiding the Company in attracting and retaining employees, officers, consultants, advisors and
directors capable of assuring the future success of the Company, to offer such persons incentives
to continue in the Company’s employ or service and to afford such persons an opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in the Company.

Section 2. Definitions

As used in the Plan, the following terms shall have the meanings set forth below:

(a) “Affiliate” shall mean (i) any entity that, directly or indirectly through one or more
intermediaries, is controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in each case as determined by the Committee.

(b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted
Stock Unit, Performance Award, Dividend Equivalent, Other Stock Grant or Other Stock-Based Award
granted under the Plan.

(c) “Award Agreement” shall mean any written agreement, contract or other instrument or
document evidencing an Award granted under the Plan. Each Award Agreement shall be subject to the
applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent
with the Plan) determined by the Committee.

(d) “Board” shall mean the Board of Directors of the Company.

(e) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any
regulations promulgated thereunder.

(f) “Committee” shall mean one or more committees of Directors designated by the Board to
administer the Plan, of which the Company’s compensation committee shall initially be the primary
committee. The primary Committee shall be comprised of at least two Directors but not less than
such number of Directors as shall be required to permit Awards granted under the Plan to qualify
under Rule 16b-3 and Section 162(m) of the Code, and each member of the primary Committee shall be
a “Non-Employee Director” and an “Outside Director.” Any secondary Committee shall be comprised of
at least two Directors.

(g) “Company” shall mean Irvine Sensors Corporation, a Delaware corporation, and any successor
corporation.

(h) “Director” shall mean a member of the Board, including any Non-Employee Director.

 

 

 

(i) “Dividend Equivalent” shall mean any right granted under Section 6(e) of the Plan.

(j) “Eligible Person” shall mean any employee, officer, consultant, advisor or director
providing services to the Company or any Affiliate who the Committee determines to be an Eligible
Person. An Eligible Person must be a natural person.

(k) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(l) “Fair Market Value” shall mean, with respect to any property (including, without
limitation, any Shares or other securities), the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the Committee.
Notwithstanding the foregoing, and unless otherwise determined by the Committee, the Fair Market
Value of a Share as of a given date shall be, if the Shares are then quoted on the OTCBB, the last
closing sales price of one Share as reported on the OTCBB on such date or, if no trades of Shares
have occurred on the OTCBB on such date, on the most recent preceding date when the Shares traded.

(m) “Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan that
is intended to qualify as an “incentive stock option” in accordance with the terms of Section 422
of the Code or any successor provision.

(n) “Misconduct” shall mean (i) the commission of any act of fraud, embezzlement or dishonesty
by Participant, (ii) any unauthorized use or disclosure by such person of confidential information
or trade secrets of the Company (or of any Affiliate), or (iii) any other intentional misconduct by
such person adversely affecting the business or affairs of the Company (or any Affiliate) in a
material manner. However, if the term or concept has been defined in an employment agreement
between the Company and Participant, then Misconduct shall have the definition set forth in such
employment agreement. The foregoing definition shall not in any way preclude or restrict the right
of the Company (or any Affiliate) to discharge or dismiss any Participant or other person in the
Service of the Company (or any Affiliate) for any other acts or omissions but such other acts or
omissions shall not be deemed, for purposes of the Plan, to constitute grounds for termination for
Misconduct.

(o) “Non-Employee Director” shall mean any Director who is not also an employee of the Company
or an Affiliate within the meaning of Rule 16b-3 (which term “Non-Employee Director” is defined in
this paragraph for purposes of the definition of “Committee” only and is not intended to define
such term as used elsewhere in the Plan).

(p) “Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan
that is not an Incentive Stock Option.

(q) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

(r) “Other Stock Grant” shall mean any right granted under Section 6(f) of the Plan.

(s) “Other Stock-Based Award” shall mean any right granted under Section 6(g) of the Plan.

 

 

 

(t) “Outside Director” shall mean any Director who is an “outside director” within the meaning
of Section 162(m) of the Code.

(u) “Participant” shall mean an Eligible Person designated to be granted an Award under the
Plan.

(v) “Performance Award” shall mean any right granted under Section 6(d) of the Plan.

(w) “Performance Goal” shall mean one or more of the following performance goals, either
individually, alternatively or in any combination, applied on a corporate, subsidiary or business
unit basis: revenue, cash flow, gross profit, earnings before interest and taxes, earnings before
interest, taxes, depreciation and amortization and net earnings, earnings per share, margins
(including one or more of gross, operating and net income margins), returns (including one or more
of return on assets, equity, investment, capital and revenue and total stockholder return), stock
price, economic value added, working capital, market share, cost reductions, workforce satisfaction
and diversity goals, employee retention, customer satisfaction, completion of key projects and
strategic plan development and implementation. Such goals may reflect absolute entity or business
unit performance or a relative comparison to the performance of a peer group of entities or other
external measure of the selected performance criteria. Pursuant to rules and conditions adopted by
the Committee on or before the 90th day of the applicable performance period for which Performance
Goals are established, the Committee may appropriately adjust any evaluation of performance under
such goals to exclude the effect of certain events, including any of the following events: asset
write-downs; litigation or claim judgments or settlements; changes in tax law, accounting
principles or other such laws or provisions affecting reported results; severance, contract
termination and other costs related to exiting certain business activities; and gains or losses
from the disposition of businesses or assets or from the early extinguishment of debt.

(x) “Permanent Disability” shall mean a physical or mental impairment which, the Committee in
good faith determines, after consideration and implementation of reasonable accommodations,
precludes the Participant from performing his essential job functions for a period longer than
three consecutive months or a total of one hundred twenty (120) days in any twelve month period (or
such longer period as may be required to comply with the Family Medical Leave Act or other
applicable law).

(y) “Person” shall mean any individual or entity, including a corporation, partnership,
limited liability company, association, joint venture or trust.

(z) “Plan” shall mean the Irvine Sensors Corporation 2011 Omnibus Incentive Plan, as amended
from time to time, the provisions of which are set forth herein.

(aa) “Qualified Performance Based Award” shall have the meaning set forth in Section 6(d) of
the Plan.

(bb) “Restricted Stock” shall mean any Share granted under Section 6(c) of the Plan.

 

 

 

(cc) “Restricted Stock Unit” shall mean any unit granted under Section 6(c) of the Plan
evidencing the right to receive a Share (or evidencing the right to receive a cash payment equal to
the Fair Market Value of a Share if explicitly so provided in the Award Agreement) at some future
date.

(dd) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission
under the Exchange Act, or any successor rule or regulation.

(ee) “Section 162(m)” shall mean Section 162(m) of the Code and the applicable Treasury
Regulations promulgated thereunder.

(ff) “Securities Act” shall mean the Securities Act of 1933, as amended.

(gg) “Service” shall mean the performance of services for the Company (or any Affiliate) by a
person in the capacity of an employee, a member of the board of directors or a consultant, except
to the extent otherwise specifically provided in the Award Agreement.

(hh) “Share” or “Shares” shall mean a share or shares of common stock, $0.01 par value per
share, of the Company or such other securities or property as may become subject to Awards pursuant
to an adjustment made under Section 4(c) of the Plan.

(ii) “Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.

Section 3. Administration

(a) Power and Authority of the Committee. The Plan shall be administered by the Board
and the primary Committee. The Board may designate a secondary Committee to have concurrent
authority to administer the Plan, provided that the secondary Committee shall not have any
authority (i) with regard to grants of Options to be made to officers or directors of the Company
or any Affiliate who are subject to Section 16 of the Exchange Act, (ii) in such a manner as would
cause the Plan not to comply with the requirements of Section 162(m) of the Code or (iii) in such a
manner as would contravene Section 157 of the Delaware General Corporation Law. Any Awards made to
members of the Committee, however, should be authorized by a disinterested majority of the Board.
Subject to the express provisions of the Plan and to applicable law, the Committee shall have full
power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to
be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered
by (or the method by which payments or other rights are to be determined in connection with) each
Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms
and conditions of any Award or Award Agreement and accelerate the exercisability of any Option or
waive any restrictions relating to any Award; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited or suspended; (vii) interpret and administer the Plan and any
instrument or agreement, including an Award Agreement, relating to the Plan; (viii) establish,
amend, suspend or waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee
deems necessary or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and other decisions under
or with respect to the Plan or any Award or Award Agreement shall be within the sole discretion of
the Committee, may be made at any time and shall be final, conclusive and binding upon any Eligible
Person and any holder or beneficiary of any Award.

 

 

 

(b) Power and Authority of the Board. Notwithstanding anything to the contrary
contained herein, the Board may, at any time and from time to time, without any further action of
the Committee, exercise the powers and duties of the Committee under the Plan.

Section 4. Shares Available for Awards

(a) Shares Available. Subject to adjustment as provided in Section 4(c) of the Plan,
the aggregate number of Shares that may be issued under the Plan shall be 46,500,000. Shares to be
issued under the Plan may be either authorized but unissued Shares or Shares re-acquired and held
in treasury. Any Shares that are used by a Participant as full or partial payment to the Company
of the purchase price relating to an Award, or in connection with the satisfaction of tax
obligations relating to an Award, shall again be available for granting Awards (other than
Incentive Stock Options) under the Plan. In addition, if any Shares covered by an Award or to
which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates
without delivery of any Shares, then the number of Shares counted against the aggregate number of
Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be available for granting Awards under the Plan. Notwithstanding the
foregoing, (i) the number of Shares available for granting Incentive Stock Options under the Plan
shall not exceed 46,500,000, subject to adjustment as provided in Section 4(c) of the Plan and
subject to the provisions of Section 422 or 424 of the Code or any successor provision and (ii) the
number of Shares available for granting Restricted Stock and Restricted Stock Units shall not
exceed 46,500,000, subject to adjustment as provided in Section 4(c) of the Plan.

(b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the
holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to
which such Award relates shall be counted on the date of grant of such Award against the aggregate
number of Shares available for granting Awards under the Plan. Any Shares that are used by a
Participant as full or partial payment to the Company of the purchase price relating to an Award or
in connection with the satisfaction of tax obligations relating to an Award, shall again be
available for granting Awards under the Plan. In addition, if any Shares covered by an Award or to
which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates
without delivery of any Shares, then the number of Shares counted against the aggregate number of
Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be available for granting Awards under the Plan.

 

 

 

(c) Adjustments. In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or other property) that thereafter may be made the subject of Awards,
(ii) the number and type of Shares (or other securities or other property) subject to outstanding
Awards, (iii) the purchase price or exercise price with respect to any Award and (iv) the
limitations contained in Section 4(d) of the Plan; provided, however, that the number of Shares
covered by any Award or to which such Award relates shall always be a whole number.

(d) Section 162(m) Award Limitations Under the Plan. Notwithstanding any other
provision of the Plan other than Section 4(c), if the Committee provides that this Section 4(d) is
applicable to a particular Award, no Participant receiving such an Award shall be granted: (i)
Options or SARs with respect to more than 15,000,000 Shares in the aggregate within any fiscal year
of the Company; or (ii) Qualified Performance Based Awards which could result in such Participant
receiving more than $1,500,000 in cash or the equivalent Fair Market Value of Shares determined at
the date of grant for each full or partial fiscal year of the Company contained in the performance
period of a particular Qualified Performance Based Award; provided, however, that, if any other
Qualified Performance Based Awards are outstanding for such Participant for a given fiscal year,
such dollar limitation shall be reduced for each such given fiscal year by the amount that could be
received by the Participant under all such Qualified Performance Based Awards, divided, for each
such Qualified Performance Based Award, by the number of full or partial fiscal years of the
Company contained in the performance period of each such outstanding Qualified Performance Based
Award; provided, however, that the limitations set forth in this Section 4(d) shall be subject to
adjustment under Section 4(c) of the Plan only to the extent that such adjustment does not affect
the status of any Award intended under Section 6(d) to qualify as “performance based compensation”
under Section 162(m) of the Code.

Section 5. Eligibility

Any Eligible Person shall be eligible to be designated a Participant. In determining which
Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into
account the nature of the services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as the Committee, in
its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may
only be granted to full-time or part-time employees (which term as used herein includes, without
limitation, officers and directors who are also employees), and an Incentive Stock Option shall not
be granted to an employee of an Affiliate unless such Affiliate
is also a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the
Code or any successor provision.

 

 

 

Section 6. Awards

(a) Options. The Committee is hereby authorized to grant Options to Eligible Persons
with the following terms and conditions and with such additional terms and conditions not
inconsistent with the provisions of the Plan as the Committee shall determine:

(i) Exercise Price. The purchase price per Share purchasable under an Option
shall be determined by the Committee; provided, however, that such purchase price shall not
be less than 100% of the Fair Market Value of a Share on the date of grant of such Option.

(ii) Option Term. The term of each Option shall be fixed by the Committee at
the time of grant, but shall not be longer than 10 years from the date of grant.

(iii) Time and Method of Exercise. The Committee shall determine the time or
times at which an Option may be exercised in whole or in part and the method or methods by
which, and the form or forms (including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, having a Fair Market Value on
the exercise date equal to the applicable exercise price) in which, payment of the exercise
price with respect thereto may be made or deemed to have been made. The Committee shall
have the discretion to grant Options that are exercisable for unvested Shares. Should the
Participant’s Service cease while the Shares issued upon the early exercise of the
Participant’s Options are still unvested, the Company shall have the right to repurchase any
or all of those unvested Shares at a price per share determined by the Committee. The terms
upon which such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Committee and set forth in the Award Agreement. Any repurchases must be
made in compliance with the relevant provisions of Delaware law.

(iv) Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, the following additional provisions shall apply to the grant of stock options
which are intended to qualify as Incentive Stock Options:

(A) The Committee will not grant Incentive Stock Options in which the aggregate
Fair Market Value (determined as of the time the option is granted) of the Shares
with respect to which Incentive Stock Options are exercisable for the first time by
any Participant during any calendar year (under this Plan and all other plans of the
Company and its Affiliates) shall exceed $100,000.

(B) All Incentive Stock Options must be granted within ten years from the
earlier of the date on which this Plan was adopted by the Board or the date this
Plan was approved by the stockholders of the Company.

 

 

 

(C) Unless sooner exercised, all Incentive Stock Options shall expire and no
longer be exercisable no later than 10 years after the date of grant; provided,
however, that in the case of a grant of an Incentive Stock Option to a Participant
who, at the time such Option is granted, owns (within the meaning of Section 422 of
the Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its Affiliate, such Incentive Stock Option
shall expire and no longer be exercisable no later than 5 years from the date of
grant.

(D) The purchase price per Share for an Incentive Stock Option shall be not
less than 100% of the Fair Market Value of a Share on the date of grant of the
Incentive Stock Option; provided, however, that, in the case of the grant of an
Incentive Stock Option to a Participant who, at the time such Option is granted,
owns (within the meaning of Section 422 of the Code) stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or of its
Affiliate, the purchase price per Share purchasable under an Incentive Stock Option
shall be not less than 110% of the Fair Market Value of a Share on the date of grant
of the Inventive Stock Option.

(E) Any Incentive Stock Option authorized under the Plan shall contain such
other provisions as the Committee shall deem advisable, but shall in all events be
consistent with and contain all provisions required in order to qualify the Option
as an Incentive Stock Option.

(b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock
Appreciation Rights to Eligible Persons subject to the terms of the Plan and any applicable Award
Agreement. Each Stock Appreciation Right granted under the Plan shall confer on the holder upon
exercise the right to receive a number of Shares equal to the excess of (a) the Fair Market Value
of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (b) the grant price of the Stock
Appreciation Right as determined by the Committee, which grant price shall not be less than 100% of
the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject
to the terms of the Plan, the grant price, term, methods of exercise, dates of exercise and any
other terms and conditions (including conditions or restrictions on the exercise thereof) of any
Stock Appreciation Right shall be as determined by the Committee.

(c) Restricted Stock and Restricted Stock Units. The Committee is hereby authorized
to grant Restricted Stock and Restricted Stock Units to Eligible Persons with the following terms
and conditions and with such additional terms and conditions not inconsistent with the provisions
of the Plan as the Committee shall determine:

(i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall
be subject to such restrictions as the Committee may impose (including, without limitation,
a restriction on or prohibition against the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or in combination
at such time or times, in such installments or otherwise as the Committee may deem
appropriate.

 

 

 

(ii) Issuance of Shares. Any Restricted Stock granted under the Plan may be
evidenced in such manner as the Board may deem appropriate, including book-entry
registration or issuance of a stock certificate or certificates which certificate or
certificates shall be held by the Company. Such certificate or certificates shall be
registered in the name of the Participant and shall bear an appropriate legend referring to
the restrictions applicable to such Restricted Stock.

(iii) Forfeiture. Except as otherwise determined by the Committee, upon a
Participant’s termination of Service (as determined under criteria established by the
Committee) during the applicable restriction period, all Shares of Restricted Stock and
Restricted Stock Units at such time subject to restriction shall be forfeited and
reacquired by the Company; provided, however, that the Committee may, when it finds that a
waiver would be in the best interest of the Company, waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock
Units.

(d) Performance Awards. The Committee is hereby authorized to grant Performance
Awards to Eligible Persons subject to the terms of the Plan. A Performance Award granted under the
Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted
Stock and Restricted Stock Units), other securities, other Awards or other property and (ii) shall
confer on the holder thereof the right to receive payments, in whole or in part, upon the
achievement of such performance goals during such performance periods as the Committee shall
establish. Subject to the terms of the Plan, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any Performance Award
granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any
other terms and conditions of any Performance Award shall be determined by the Committee. From
time to time, the Committee may designate an Award granted pursuant to the Plan as an award of
“qualified performance-based compensation” within the meaning of Section 162(m) of the Code (a
“Qualified Performance Based Award”). Qualified Performance Based Awards shall, to the extent
required by Section 162(m), be conditioned solely on the achievement of one or more objective
Performance Goals, and such Performance Goals shall be established by the Committee within the time
period prescribed by, and shall otherwise comply with the requirements of, Section 162(m). The
Committee shall also certify in writing that such Performance Goals have been met prior to payment
of the Qualified Performance Based Awards to the extent required by Section 162(m).

(e) Dividend Equivalents. The Committee is hereby authorized to grant Dividend Equivalents to Eligible Persons under
which the Participant shall be entitled to receive payments (in cash, Shares, other securities,
other Awards or other property as determined in the discretion of the Committee) equivalent to the
amount of cash dividends paid by the Company to holders of Shares with respect to a number of
Shares determined by the Committee. Subject to the terms of the Plan, such Dividend Equivalents
may have such terms and conditions as the Committee shall determine.

(f) Other Stock Grants. The Committee is hereby authorized, subject to the terms of
the Plan, to grant to Eligible Persons Shares without restrictions thereon as are deemed by the
Committee to be consistent with the purpose of the Plan. Subject to the terms of the Plan and any
applicable Award Agreement, such Other Stock Grant may have such terms and conditions as the
Committee shall determine.

 

 

 

(g) Other Stock-Based Awards. The Committee is hereby authorized to grant to Eligible
Persons, subject to the terms of the Plan, such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to, Shares (including,
without limitation, securities convertible into Shares), as are deemed by the Committee to be
consistent with the purpose of the Plan. Shares or other securities delivered pursuant to a
purchase right granted under this Section 6(g) shall be purchased for such consideration, which may
be paid by such method or methods and in such form or forms (including, without limitation, cash,
Shares, other securities, other Awards or other property or any combination thereof), as the
Committee shall determine, the value of which consideration, as established by the Committee, shall
not be less than 100% of the Fair Market Value of such Shares or other securities as of the date
such purchase right is granted.

(h) General.

(i) Consideration for Awards. Awards may be granted for no cash consideration
or for any cash or other consideration as determined by the Committee and required by
applicable law.

(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in tandem with or in
substitution for any other Award or any award granted under any plan of the Company or any
Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to
or in tandem with awards granted under any such other plan of the Company or any Affiliate
may be granted either at the same time as or at a different time from the grant of such
other Awards or awards.

(iii) Forms of Payment under Awards. Subject to the terms of the Plan and of
any applicable Award Agreement, payments or transfers to be made by the Company or
an Affiliate upon the grant, exercise or payment of an Award may be made in such form
or forms as the Committee shall determine (including, without limitation, cash, Shares,
other securities, other Awards or other property or any combination thereof), and may be
made in a single payment or transfer, in installments or on a deferred basis, in each case
in accordance with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents with respect to installment or deferred payments.

(iv) Limits on Transfer of Awards. No Award (other than Other Stock Grants)
and no right under any such Award shall be transferable by a Participant other than by will
or by the laws of descent and distribution and the Company shall not be required to
recognize any attempted assignment of such rights by any Participant; provided, however,
that, if so determined by the Committee, a Participant may, in the manner established by the
Committee, designate a beneficiary or beneficiaries to exercise the rights of the
Participant and receive any property distributable with respect to any Award upon the

 

 

 

death of the Participant; provided, further, that, if so determined by the Committee, a
Participant may, at any time that such Participant holds such Option, transfer a
Non-Qualified Stock Option to any “Family Member” (as such term is defined in the General
Instructions to Form S-8 (or any successor to such Instructions or such Form) under the
Securities Act), or to an inter vivos or testamentary trust in which Family Members have a
beneficial interest of more than 50% and which provides that such Option is to be
transferred to the beneficiaries upon Participant’s death, provided that the Participant may
not receive any consideration for such transfer, the Family Member may not make any
subsequent transfers other than by will or by the laws of descent and distribution and the
Company receives written notice of such transfer, provided, further, that, if so determined
by the Committee and except in the case of an Incentive Stock Option, Awards may be
transferable as determined by the Committee. Except as otherwise determined by the
Committee, each Award (other than an Incentive Stock Option) or right under any such Award
shall be exercisable during the Participant’s lifetime only by the Participant or, if
permissible under applicable law, by the Participant’s guardian or legal representative.
Except as otherwise determined by the Committee, no Award (other than an Incentive Stock
Option) or right under any such Award may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or other encumbrance thereof
shall be void and unenforceable against the Company or any Affiliate.

(v) Term of Awards. The term of each Award shall be fixed by the Committee at
the time of grant, but shall not be longer than 10 years from the date of grant.

(vi) Restrictions; Securities Exchange Listing. All Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to
such stop transfer orders and other restrictions as the Committee may deem advisable under
the Plan, applicable federal or state securities laws and regulatory requirements, and the
Committee may direct appropriate stop transfer orders and cause other legends to be placed
on the certificates for such Shares or other securities to reflect such restrictions.
If the Shares or other securities are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities covered by an Award unless
and until such Shares or other securities have been and continue to be admitted for trading
on such securities exchange. No Shares or other assets shall be issued or delivered
pursuant to the Plan unless and until there shall have been compliance with all applicable
requirements of applicable securities laws, including the filing and effectiveness of the
Form S-8 registration statement for the Shares issuable pursuant to the Plan, and all
applicable listing requirements of any stock exchange or trading system on which Common
Stock is then traded. No Shares shall be issued or delivered pursuant to the Plan if doing
so would violate any internal policies of the Company.

(vii) Prohibition on Repricing. Except as provided in Section 4(c) of the
Plan, no Option or Stock Appreciation Right may be amended to reduce its initial exercise or
grant price and no Option or Stock Appreciation Right shall be canceled and replaced with
Options or Stock Appreciation Rights having a lower exercise or grant price, without the
approval of the stockholders of the Company.

 

 

 

(viii) Additional California Restrictions on Exercise, Minimum Vesting and
Transferability; California Information Requirements. If the Award is not exempt from
California securities laws, the provisions of California Code of Regulations Sections
260.140.41, 260.140.42, 260.140.45 and 260.140.46, as the same may be amended from time to
time by the Commissioner of Corporations of the State of California, shall apply to such
Award.

Section 7. Amendment and Termination; Adjustments

(a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue or
terminate the Plan at any time; provided, however, that, notwithstanding any other provision of the
Plan or any Award Agreement, without the approval of the stockholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be made that, absent such
approval:

(i) violates the rules or regulations of any securities exchange that are applicable to
the Company;

(ii) causes the Company to be unable, under the Code, to grant Incentive Stock Options
under the Plan;

(iii) increases the number of shares authorized under the Plan as specified in Section
4(a);

(iv) permits the award of Options or Stock Appreciation Rights at a price less than
100% of the Fair Market Value of a Share on the date of grant of such Option or Stock
Appreciation Right, as prohibited by Sections 6(a)(i) and 6(b) of the Plan or the repricing
of Options or Stock Appreciation Rights, as prohibited by Section 6(h)(vii) of the Plan; or

(v) would prevent the grant of Options or Stock Appreciation Rights that would qualify
under Section 162(m) of the Code.

(b) Amendments to Awards. The Committee may waive any conditions of or rights of the
Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided
herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, if such action would adversely
affect the rights of the holder of such Award, without the consent of the Participant or holder or
beneficiary thereof.

(c) Correction of Defects, Omissions and Inconsistencies. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award or Award
Agreement in the manner and to the extent it shall deem desirable to implement or maintain the
effectiveness of the Plan.

 

 

 

Section 8. Income Tax Withholding

In order to comply with all applicable federal, state or local income tax laws or regulations,
the Company may take such action as it deems appropriate to ensure that all applicable federal,
state or local payroll, withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such Participant. In order to
assist a Participant in paying all or a portion of the federal, state and local taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an
Award, the Committee, in its discretion and subject to such additional terms and conditions as it
may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the
Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of
such taxes (but only to the extent of the minimum amount required to be withheld under applicable
laws or regulations) or (ii) delivering to the Company Shares other than Shares issuable upon
exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market
Value equal to the amount of such taxes (but only to the extent of the minimum amount required to
be withheld under applicable laws or regulations). The election, if any, must be made on or before
the date that the amount of tax to be withheld is determined.

Section 9. General Provisions

(a) No Rights to Awards. No Eligible Person or other Person shall have any claim to
be granted any Award under the Plan, and there is no obligation for uniformity of treatment of
Eligible Persons or holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to different
Participants.

(b) Award Agreements. No Participant will have rights under an Award granted to such
Participant unless and until an Award Agreement shall have been duly executed on behalf of the
Company and, if requested by the Company, signed by the Participant.

(c) Plan Provisions Control. In the event that any provision of an Award Agreement
conflicts with or is inconsistent in any respect with the terms of the Plan as set forth herein or
subsequently amended, the terms of the Plan shall control.

(d) No Rights of Stockholders. Except with respect to Shares of Restricted Stock as
to which the Participant has been granted the right to vote, neither a Participant nor the
Participant’s legal representative shall be, or have any of the rights and privileges of, a
stockholder of the Company with respect to any Shares issuable to such Participant upon the
exercise or payment of any Award, in whole or in part, unless and until such Shares have been
issued in the name of such Participant or such Participant’s legal representative without
restrictions thereto.

(e) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall
prevent the Company or any Affiliate from adopting or continuing in effect other or additional
compensation arrangements, and such arrangements may be either generally applicable or applicable
only in specific cases.

 

 

 

(f) No Right to Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ, or as giving a director of the Company or an
Affiliate the right to continue as a director or an Affiliate of the Company or any Affiliate, nor
will it affect in any way the right of the Company or an Affiliate to terminate a Participant’s
employment or Service at any time, with or without cause. In addition, the Company or an Affiliate
may at any time dismiss a Participant from employment, or terminate the term of a director of the
Company or an Affiliate, free from any liability or any claim under the Plan or any Award, unless
otherwise expressly provided in the Plan or in any Award Agreement. Nothing in this Plan shall
confer on any person any legal or equitable right against the Company or any Affiliate, directly or
indirectly, or give rise to any cause of action at law or in equity against the Company or an
Affiliate. The Awards granted hereunder shall not form any part of the wages or salary of any
Eligible Person for purposes of severance pay or termination indemnities, irrespective of the
reason for termination of employment. Under no circumstances shall any person ceasing to be an
employee of the Company or any Affiliate be entitled to any compensation for any loss of any right
or benefit under the Plan which such employee might otherwise have enjoyed but for termination of
employment, whether such compensation is claimed by way of damages for wrongful or unfair
dismissal, breach of contract or otherwise. By participating in the Plan, each Participant shall
be deemed to have accepted all the conditions of the Plan and the terms and conditions of any rules
and regulations adopted by the Committee and shall be fully bound thereby.

(g) Governing Law. The validity, construction and effect of the Plan or any Award,
and any rules and regulations relating to the Plan or any Award, shall be determined in accordance
with the internal laws, and not the law of conflicts, of the State of Delaware.

(h) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering the purpose or intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the
remainder of the Plan or any such Award shall remain in full force and effect.

(i) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Company or any Affiliate and an Eligible
Person or any other Person. To the extent that any Person acquires a right to receive payments
from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company or any Affiliate.

(j) Other Benefits. No compensation or benefit awarded to or realized by any
Participant under the Plan shall be included for the purpose of computing such Participant’s
compensation under any compensation-based retirement, disability, or similar plan of the Company
unless required by law or otherwise provided by such other plan.

 

 

 

(k) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant
to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of
any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.

(l) Headings. Headings are given to the Sections and subsections of the Plan solely
as a convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.

(m) Section 16 Compliance; Section 162(m) Administration. The Plan is intended to
comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time,
and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3.
If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the
provision shall be deemed inoperative. The Board of Directors, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with
respect to persons who are officers or directors subject to Section 16 of the Exchange Act without
so restricting, limiting or conditioning the Plan with respect to other Eligible Persons. With
respect to Options and Stock Appreciation Rights, the Company intends to have the Plan administered
in accordance with the requirements for the award of “qualified performance-based compensation”
within the meaning of Section 162(m) of the Code.

(n) Conditions Precedent to Issuance of Shares. Shares shall not be issued pursuant
to the exercise or payment of the purchase price relating to an Award unless such exercise or
payment and the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act,
the rules and regulations promulgated thereunder, the requirements of any applicable stock exchange
and the Delaware General Corporation Law. As a condition to the exercise or payment of the
purchase price relating to such Award, the Company may require that the person exercising or paying the purchase price
represent and warrant that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation and warranty is required by law.

Section 10. Effective Date of the Plan

The Plan shall be effective upon approval by the Company’s stockholders.

Section 10. Term of the Plan

No Award shall be granted under the Plan after the tenth anniversary of the date on which this Plan
was adopted by the Board, or any earlier date of discontinuation or termination established
pursuant to Section 7(a) of the Plan. However, unless otherwise expressly provided in the Plan or
in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and
the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and
the authority of the Board to amend the Plan, shall extend beyond the termination of the
Plan.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00186-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00186-of-00352.parquet"}]]