Document:

ex10-7.htm

Exhibit 10.7

 

STOCK AWARD AGREEMENT

 

THIS STOCK AWARD AGREEMENT (this "Agreement") is entered into as of July 1, 2010, by and between J. Paul Quinn, an individual ("Employee"), and Telanetix, Inc., a Delaware corporation ("Company"), with respect to the following facts:

 

A.           Employee is currently employed by the Company and is a participant in the Company's senior management incentive plans (the "Plans").

 

B.           Employee has earned a certain amount of incentive compensation under the Plans, the aggregate amount of which is set forth in column (a) of Exhibit A (such aggregate amount being referred to as the "Unpaid Incentive Compensation"), payment of which amount has been deferred as a result of the Company's financial condition.

 

C.           The Company maintains that payment of all of the Unpaid Incentive Compensation in cash at the current time would jeopardize the Company's ability to continue as a going concern and the Company cannot provide assurances as to when, if ever, it will be able to pay all of the Unpaid Incentive Compensation in cash.

 

D.           The Company is concurrently entering into a Securities Purchase Agreement and related transactions with Hale Capital Partners or its affiliates (the "Purchase Agreement").

 

E.           As a condition to the closing under the Purchase Agreement, Hale Capital Partners has required that the Company pay out the Unpaid Incentive Compensation partially in cash and partially in unregistered shares of the Company's common stock, $0.0001 par value per share (the shares of such common stock paid in respect of the Unpaid Incentive Compensation being referred to as the "Shares"), in accordance with the terms of this Agreement.

 

F.           Employee will be benefitted by the consummation of the transactions under the Purchase Agreement, and is willing to receive the Unpaid Incentive Compensation partially in cash and partially in Shares in accordance with the terms of this Agreement.

 

NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements herein contained, and intending to be legally bound, the Company and Employee agree as follows:

 

1. Settlement of Unpaid Incentive Compensation.  Subject to the terms and conditions of this Agreement and effective as of the Closing of the Purchase Agreement, the Company shall pay and satisfy its obligations to Employee in respect of the Unpaid Incentive Compensation, and the Employee agrees to accept payment of the Unpaid Incentive Compensation, as follows:

 

1.1 The Company shall pay the Unpaid Incentive Compensation through delivery of the number of Shares set forth in column (b) of Exhibit A, which number equals the amount of the Unpaid Incentive Compensation divided by $0.03852.  The Company shall cause all of the Shares to be issued to Employee as soon as reasonably practicable following the date of this Agreement.

 

1.2 The Company shall pay, and Employee shall accept, up to 30% of the Unpaid Incentive Compensation in cash, which amount shall be withheld and retained by the Company to satisfy taxes owed by Employee in respect of the Unpaid Incentive Compensation.  The amount of the Unpaid Incentive Compensation being paid in cash (the "Cash Payment") is set forth in column (c) of Exhibit A.

 

  

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2. Full Satisfaction. The Company's issuance of the Shares and the payment of the Cash Payment as provided for in this Agreement shall discharge all of the Company's obligations to Employee with respect to the Unpaid Incentive Compensation.

 

3. Company Representations.  The Company represents and warrants to Employee that:

 

3.1 Organization and Qualification.  The Company is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power and authorization to own its properties and to carry on its business as now being conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.  As used in this Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties, assets, operations, results of operations, or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, or on the transactions contemplated hereby, or on the authority or ability of the Company to perform its obligations hereunder.

 

3.2 Authorization; Enforcement; Validity.  The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to issue the Shares in accordance with the terms hereof.  The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including, without limitation, the issuance of the Shares, have been duly authorized by the Company's board of directors, and no filing, consent or other authorization is required by the Company, its board of directors or its stockholders.  This Agreement has been duly executed and delivered by the Company, and constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.

 

3.3 Issuance of Securities.  Upon issuance, the Shares will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of common stock of the Company.

 

3.4 No Conflicts.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of its certificate of incorporation or its bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, any agreement to which the Company is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree applicable to the Company, except in the case of clause (iii) above, for such violations which would not have a Material Adverse Effect.

 

4. Employee Representations.  Employee represents and warrants to the Company that:

 

4.1 Validity; Enforcement.  This Agreement has been duly executed and delivered by Employee and constitutes the legal, valid and binding obligations of Employee, enforceable against Employee in accordance with its terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.

 

  

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4.2 Acknowledgement of Risk.  Employee understands and acknowledges that investment in the Shares involves a high degree of risk. Employee has been advised to carefully consider the risks described in the reports that the Company files with the United States Securities and Exchange Commission (the "SEC"), including the risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 17, 2010, before making an investment decision. If any of the risks identified in that report occur, or any other risk occurs that may not be known or recognized by the Company at this time, the Company's business, financial condition or results of operations could suffer. In that case, the market price of the Shares could decline, and Employee may lose all or part of his investment in the Shares. Employee (i) understands that his investment in the Shares involves a high degree of risk, (ii) is able to bear such risk and is able to afford a complete loss of such investment, (iii) has sought such accounting, legal and tax advice as he has considered necessary to make an informed investment decision with respect to his acquisition of the Shares and (iv) acknowledges and agrees that the Company does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth herein.

 

4.3 Investment Intent. Employee is acquiring the Shares for his own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, and Employee does not presently have any agreement or understanding, directly or indirectly, with any person to distribute any of the Shares; provided, however, that by making the representations herein, Employee does not agree to hold any of the Shares for any minimum or other specific term and reserves the right to dispose of the Shares at any time in accordance with or pursuant to a registration statement or an exemption from the registration requirements of United States federal and state securities laws.

 

4.4 Reliance on Exemptions.  Employee understands that the Shares are being offered and sold to Employee in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and Employee's compliance with, the representations, warranties, agreements, acknowledgments and understandings of Employee set forth herein in order to determine the availability of such exemptions and the eligibility of Employee to acquire the Shares.  At no time was Employee presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or, to its knowledge, any other form of general solicitation or advertising relating to the Shares.

 

4.5 Information.  No prospectus or "offering memorandum" has been delivered to the Employee in connection with the acquisition of the Shares.

 

4.6 No Governmental Review.  Employee understands that no federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Shares or the fairness or suitability of the investment in the Shares nor have such authorities passed upon or endorsed the merits of the offering of the Shares.

 

4.7 Transfer or Resale.  Employee understands that (i) the Shares have not been and are not being registered under the Securities Act of 1933, as amended (the "1933 Act") or any state securities laws, and the Shares may not be offered for sale, sold, assigned or transferred unless subsequently registered thereunder or in accordance with an exemption from registration, and (ii) neither the Company nor any other person is under any obligation to register the Shares under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 

  

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4.8 Legends.  Employee understands that the certificates representing the Shares shall bear any legend required by the securities laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

4.9 Restrictions on Transfer for Affiliates.  Employee understands that if Employee is deemed to be an "affiliate" of the Company (as such term is defined in Rule 144 promulgated under the 1933 Act), the Shares, once issued to Employee, will be considered "control securities" (as such term is defined in Rule 144 promulgated under the 1933 Act) and can only be resold pursuant to an effective resale registration statement under the 1933 Act or an exemption from registration, such as the exemption provided by Rule 144.  Rule 144 imposes certain restrictions on the volume of securities that may be sold, and upon the manner of sale of securities.

 

4.10 Section 16 Restrictions.  Employee understands that Employee may have additional restrictions on transfer of the Shares if Employee is subject to Section 16 of the Securities Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, "Section 16"). Persons subject to Section 16 are subject to short swing profits rules and may be compelled to remit to the Company any profits that such person earns on a purchase and sale, or sale and purchase of the Company's securities that occur within a six month period.  EMPLOYEE IS ADVISED TO CONSULT WITH HIS OR HER OWN SECURITIES ADVISOR WITH RESPECT TO THE ACQUISITION OR DISPOSITION OF ANY SECURITIES OF THE COMPANY.

 

5. Taxes.

 

5.1 General.  All taxes imposed or levied by reason of, in connection with or attributable to this Agreement or the transactions contemplated hereby shall be borne by each party as appropriate under applicable laws.  Employee acknowledges that the general tax treatment upon  receipt of the shares of Shares is that the Employee will be deemed to receive ordinary income equal to the fair market value of the Shares at the time of issuance.  This income is subject to wage withholding taxes for employees or former employees.  Employee's tax basis in the Shares is their fair market value at the time of issuance, and any later appreciation in the value of the shares is taxed as capital gains when the shares are sold.  Employee's holding period in the Shares will start at the time of acquisition, and the capital gains or losses recognized will be either long-term or short-term depending on whether the Shares were held for more than one year before sale.  Utilization of losses is subject to special rules and limitations. Federal, state and local income tax consequences depend on Employee's individual circumstances.

 

  

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5.2 Application of Code Section 409A.  None of the transactions contemplated hereby, nor any actions taken by the parties prior to the date of this Agreement, are or were intended to create a "nonqualified deferred compensation plan" within the meaning, and subject to the requirements, of Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder (collectively, "409A").  For the avoidance of doubt, any delay in payment of all or a portion of the Unpaid Incentive Compensation was, and continues to be, attributable to the Company's inability to pay such amounts without jeopardizing its ability to continue as a going concern, which provides for the continued availability of the short-term deferral exception under 409A.

 

EMPLOYEE HAS BEEN ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE TAX CONSEQUENCES OF HIS OR HER PARTICULAR TRANSACTIONS UNDER THIS AGREEMENT AND THE 2009 EQUITY INCENTIVE PLAN.

 

6. Miscellaneous.

 

6.1 Successors and Assigns.  This Agreement may not be assigned or otherwise transferred by either party without the written consent of the other party.  Any purported assignment in violation of the preceding sentence shall be void.  Notwithstanding the foregoing, the Company may assign this Agreement and its rights and benefits hereunder and may delegate its duties hereunder to an affiliate or to any person which acquires all or substantially all of the business of the Company; provided, however, that the Company shall remain primarily liable for its obligations hereunder.

 

6.2 Entire Agreement; Amendment and Waiver.  This Agreement constitutes the full and entire understanding and agreement between the parties and fully supersede any and all prior agreements or understandings between them pertaining to the subject matter hereof.  Any term of this Agreement may be amended by a signed writing entered into by the parties hereto and the observance of any term hereof may be waived only with the written consent of the party against whom the waiver is to be effective.

 

6.3 Severability.  If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties.  The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

6.4 Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

  

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6.5 Governing Law.  This Agreement will be governed by, and construed in accordance with, the substantive laws of the State of Delaware without reference to the conflicts of laws rules of such state.

 

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

 

[SIGNATURE PAGE FOLLOWS]

 

  

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IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed as of the date first written above:

 

EMPLOYEE:

 

                                                                                            

Name:                                                                                                                                                         

 

 

COMPANY:

Telanetix, Inc. a Delaware corporation

By:  ____________________________________

Name: __________________________________

Title: ___________________________________

 

  

  

  

 

EXHIBIT A

 

	
Employee:  J. Paul Quinn

 

	

Aggregate Unpaid

Incentive Compensation

(a)

	

Number of Shares

(b)

	

Cash Payment

(c)

	
 

$68,446

 

	
 

1,243,827

 

	
 

$20,533.80ex10-8.htm

Exhibit 10.8

TELANETIX, INC.

 

2010 STOCK INCENTIVE PLAN

 

1. Purpose of the Plan

 

The purpose of the Plan is to aid the Company and its Affiliates in recruiting and retaining key employees, directors or consultants of outstanding ability and to motivate such employees, directors or consultants to exert their best efforts on behalf of the Company and its Affiliates by providing incentives through the granting of Awards.  The Company expects that it will benefit from the added interest which such key employees, directors or consultants will have in the welfare of the Company as a result of their proprietary interest in the Company's success.

 

2. Definitions

 

The following capitalized terms used in the Plan have the respective meanings set forth in this Section:

 

	
(a)  

	
Act:  The Securities Exchange Act of 1934, as amended, or any successor thereto.

 

	
(b)  

	
Affiliate:  With respect to any Person, any entity directly or indirectly controlling, controlled by , or under common control with, the such Person and, as to the Company, any other entity designated by the Board in which the Company or an Affiliate has an interest.

 

	
(c)  

	
Award:  An Option or Other Stock-Based Award granted pursuant to the Plan.

 

	
(d)  

	
Board:  The Board of Directors of the Company.

 

	
(e)  

	
Change of Control:  The occurrence of any of the following events:

 

(i) sale of all or substantially all of the assets of the Company to a Person who is not Hale or an Affiliate of Hale, (ii) a sale Shares by the Company, Hale or any of their respective Affiliates resulting in more than 50% of the voting stock of the Company being held by a Person that does not include Hale or any of its Affiliates or (iii) a merger or consolidation of the Company into another Person which is not Hale or an Affiliate of Hale; if and only if any such event listed in (i) through (iii) above results in the inability of Hale to elect a majority of the Board or of the resulting entity.

 

	
(f)  

	
Code:  The Internal Revenue Code of 1986, as amended, or any successor thereto.

 

	
(g)  

	
Committee:  The Compensation Committee of the Board.

 

  

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(h)  

	
Company:  Telanetix, Inc., a Delaware corporation.

 

	
(i)  

	
Effective Date:  The date the Board approves the Plan, or such later date as is designated by the Board.

 

	
(j)  

	
Fair Market Value:  On a given date, (i) for any security as of any date, the last closing trade price for such security on the principal securities exchange or trading market for such security (the "Principal Market") , as reported by Bloomberg Financial Markets ("Bloomberg") , or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Fair Market Value of such security on such date shall be the fair market value established by the Committee in good faith.

 

	
(k)  

	
Hale means Hale Capital Partners, L.P. and its Affiliates.

 

	
(l)  

	
Invested Capital means the amount of capital invested by Hale in the Company and its subsidiaries, whether in the form of debt, equity or otherwise, but excluding investments by Hale made by open market purchases of Shares on the principal trading market for the Shares.

 

	
(m)  

	
Option:  A stock option granted pursuant to Section 6 of the Plan.

 

	
(n)  

	
Option Price:  The purchase price per Share of an Option, as determined pursuant to Section 6(a) of the Plan.

 

	
(o)  

	
Other Stock-Based Awards:  Awards granted pursuant to Section 7 of the Plan.

 

	
(p)  

	
Participant:  An employee, director or consultant who is selected by the Committee to participate in the Plan.

 

	
(q)  

	
Person:  A "person," as such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto).

 

	
(r)  

	
Plan:  The Telanetix, Inc. 2010 Stock Incentive Plan.

 

	
(s)  

	
Shares:  Shares of common stock of the Company.

 

  

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3. Shares Subject to the Plan

 

	
(a)  

	
Shares Subject to Plan.  The total number of Shares which may be issued under the Plan is 89,189,859.  The maximum number of Shares for which Options may be granted during a calendar year to any Participant shall be 18,000,000.  Seventy percent (70%) of the Shares issuable under the Plan shall be granted as Options as soon as practicable following the Effective Date of the Plan, subject to the approval of the Plan by the shareholders of the Company pursuant to the option agreement attached hereto as Exhibit A.  The Shares may consist, in whole or in part, of unissued Shares or treasury Shares.  If any Shares subject to an Award are forfeited, expire or otherwise terminate without issuance of such Shares (the “Returned Shares”), such Shares shall, to the extent of such forfeiture, expiration or termination, again be available for issuance under the Plan.  To the extent that the total number of Shares that may be issued under the Plan have not been issued immediately prior to a Change of Control, the Committee shall grant such unissued Shares in the form of Awards under the Plan immediately prior to such Change of Control, subject to vesting set forth in Section 3(b) below and other terms and conditions of the Awards determined by the Committee.

 

	
(b)  

	
Reserved Shares.  The remaining thirty percent (30%) of the Shares subject to the Plan plus any Returned Shares (collectively, the “Reserved Shares”) will be reserved for future grants of Awards.  The Reserved Shares shall be granted as Awards under the Plan.  Notwithstanding any other provision in the Plan, any grant of an Award with respect to the Reserved Shares shall vest as follows:

 

(i) Fifty percent (50%) of the Reserved Shares subject to an Award (the “Tranche 1 Shares”) shall vest (the “Tranche 1 Vesting Date”) upon Hale receiving cash proceeds in return on its Invested Capital (whether such cash derives from interest payments, debt repayment, dividends, distributions, sale of equity or otherwise) in the Company and its subsidiaries which cash proceeds equal no less than one times its Invested Capital plus a four percent (4%) annual return on such Invested Capital, compounded annually (the "Tranche 1 Return"), and subject to the Participant's continued employment in good standing with the Company on the Tranche 1 Vesting Date.  Notwithstanding the foregoing and the failure of Hale to have achieved the Tranche 1 Return, Tranche 1 Shares shall vest with respect to ten percent (10%) of such Tranche 1 Shares on each of the first, second and third anniversaries of the Effective Date, irrespective of whether such Tranche 1 Shares were issued as of such dates (e.g. if Tranche 1 Shares are granted on the fourth anniversary of the Effective Date, 30% of such grant shall vest upon grant), subject to the Participant's continued employment in good standing with the Company on each such anniversary.

  

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(ii) Sixteen and sixty-fifth one hundredths percent (16.65%) of the Reserved Shares subject to an Award (the “Tranche 2 Shares”) shall vest (the “Tranche 2 Vesting Date”) upon Hale receiving cash proceeds in return on its Invested Capital (whether such cash derives from interest payments, debt repayment, dividends, distributions, sale of equity or otherwise) in the Company and its subsidiaries which cash proceeds equal no less than two times its Invested Capital plus a four percent (4%) annual return on such Invested Capital, compounded annually  and subject to the Participant's continued employment in good standing with the Company on the Tranche 2 Vesting Date.

(iii) Sixteen and sixty-fifth one hundredths percent (16.65%) of the Reserved Shares subject to an Award (the “Tranche 3 Shares”) shall vest (the “Tranche 3 Vesting Date”) upon Hale receiving cash proceeds in return on its Invested Capital (whether such cash derives from interest payments, debt repayment, dividends, distributions, sale of equity or otherwise) in the Company and its subsidiaries which cash proceeds equal no less than three times its Invested Capital plus a four percent (4%) annual return on such Invested Capital, compounded annually  and subject to the Participant's continued employment in good standing with the Company on the Tranche 3 Vesting Date.

(iv) Sixteen and seventieth one hundredths percent (16.7%) of the Reserved Shares subject to an Award (the “Tranche 4 Shares”) shall vest (the “Tranche 4 Vesting Date”) upon Hale receiving cash proceeds in return on its Invested Capital (whether such cash derives from interest payments, debt repayment, dividends, distributions, sale of equity or otherwise) in the Company and its subsidiaries which cash proceeds equal no less than  four times its Invested Capital plus a four percent (4%) annual return on such Invested Capital, compounded annually  and subject to the Participant's continued employment in good standing with the Company on the Tranche 4 Vesting Date.

	
(c)  

	
Termination of Employment.  In the event the Participant’s employment with the Company is terminated for any reason, the Participant shall forfeit any unvested Award and such portion of the Award shall be null and void and of no force or effect.

  

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4. Administration

 

The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are each "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and "outside directors" within the meaning of Section 162(m) of the Code (or any successor section thereto).  The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan (but not the terms of the Plan), and to make any other determinations that it deems necessary or desirable for the administration of the Plan.  The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable.  Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors).  The Committee shall have the full power and authority to establish the terms and conditions of any Award consistent with the provisions of the Plan.  The Committee shall require payment of any amount it may determine to be necessary to withhold for federal, state, local or other taxes as a result of the exercise of an Award.

 

5. Limitations

 

No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date.

 

6. Terms and Conditions of Options

 

Options granted under the Plan shall be non-qualified stock options for federal income tax purposes and shall be subject to the foregoing and the following terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine:

 

	
(a)  

	
Option Price.  The Tranche 1 Shares shall have an Option Price of $0.038520 per Share.  The Tranche 2 Shares shall have an Option Price of $0.07704 per Share.  The Tranche 3 Shares shall have an Option Price of $0.07704 per Share.  The Tranche 4 Shares shall have an Option Price of $0.07704 per Share.

 

	
(b)  

	
Exercisability.  Subject to the vesting conditions set forth in Section 3(b) of the Plan, Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted.  To the extent that the Option Price of an Option is less than Fair Market Value as of the date of grant, the exercisability of the Option shall comply with Section 409A of the Code or fall within an exception under Section 409A of the Code.

 

  

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(c)  

	
Exercise of Options.  Except as otherwise provided in the Plan or in an Option agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable.  For purposes of Section 6 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, the date payment is received by the Company pursuant to clauses (i), (ii), (iii) or (iv) in the following sentence.  The purchase price for the Shares as to which an Option is exercised shall be paid to the Company in full at the time of exercise at the election of the Participant  (i) in cash or its equivalent (e.g., by check), (ii) to the extent permitted by the Committee, in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee; provided, that such Shares have been held by the Participant for no less than six months (or such other period as established from time to time by the Committee or generally accepted accounting principles), (iii) partly in cash and, to the extent permitted by the Committee, partly in such Shares or (iv) such other method approved by the Committee.  No Participant shall have any rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan.

 

7. Other Stock-Based Awards.  Subject to the consent of Hale, the Committee may grant Awards of Shares, Awards of restricted Shares and Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Shares ("Other Stock-Based Awards").  Such Other Stock-Based Awards shall vest in accordance with Section 3(b) of the Plan.  Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan.  Subject to the provisions of the Plan and Hale’s consent, the Committee shall determine (a) the number of Shares to be awarded under (or otherwise related to) such Other Stock-Based Awards, (b) whether such Other Stock-Based Awards shall be settled in cash, Shares or a combination of cash and Shares and (c) and all other terms and conditions of such Awards (other than the vesting provisions, which shall be as set forth in Section 3(b) of the Plan, and provisions ensuring that all Shares so awarded and issued shall be fully paid and non-assessable).

 

8. Adjustments Upon Certain Events

 

Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan:

 

  

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(a)  

	
Generally.  In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination, or transaction or exchange of Shares or other corporate exchange, or any distribution to shareholders of Shares other than regular cash dividends or any transaction similar to the foregoing, the Committee, without liability to any person, shall make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the Option Price and/or (iii) any other affected terms of such Awards.

 

	
(b)  

	
Change of Control. In the event of a Change of Control after the Effective Date, the Committee may, with the consent of Hale, provide for (i) the termination of an Award upon the consummation of the Change of Control, but only if such Award has vested and been paid out or the Participant has been permitted to exercise the Award in full for a period of not less than 10 days prior to the Change of Control, (ii) acceleration of all or any portion of an Award, (iii) the payment of any amount (in cash or, in the discretion of the Committee, in the form of consideration paid to shareholders of the Company in connection with such Change of Control) in exchange for the cancellation of such Award which, in the case of Options, may equal the excess, if any, of the Fair Market Value of the Shares subject to such Options over the Option Price of such Options, and/or (iv) issuance of substitute Awards that will substantially preserve the otherwise applicable terms of any affected Awards previously granted hereunder.

 

9. No Right to Employment or Awards

 

The granting of an Award under the Plan shall impose no obligation on the Company or any Affiliate to continue the employment or service or consulting relationship of a Participant and shall not lessen or affect the Company's or Affiliate's right to terminate the employment or service or consulting relationship of such Participant.  No Participant or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Awards.  The terms and conditions of Awards and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated).

 

10. Successors and Assigns

 

The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors.

 

  

7

  

 

11. Nontransferability of Awards

 

Unless otherwise determined by the Committee, an Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution; provided that any transferees shall be subject to the terms and conditions of the Award.  An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant.

 

12. Amendments or Termination

 

With the consent of Hale, the Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which (a) without the approval of the shareholders of the Company, would (except as is provided in Section 8 of the Plan), increase the total number of Shares reserved for the purposes of the Plan or change the maximum number of Shares for which Awards may be granted to any Participant or (b) without the consent of a Participant, would diminish any of the rights of the Participant under any Award theretofore granted to such Participant under the Plan; provided, however, that the Board may amend the Plan in such manner as it deems necessary to permit the granting of Awards meeting the requirements of the Code or other applicable laws.

 

13. Tax Withholding.

 

The Company shall have the right to make all payments or distributions pursuant to the Plan to a Participant net of any applicable federal, state and local taxes required to be paid or withheld as a result of (a) the grant of any Award, (b) the exercise of an Award, (c) the delivery of Shares or cash, (d) the lapse of any restrictions in connection with any Award or (e) any other event occurring pursuant to the Plan.  The Company or any Affiliate shall have the right to withhold from wages or other amounts otherwise payable to such Participant such withholding taxes as may be required by law, or to otherwise require the Participant to pay such withholding taxes. If the Participant shall fail to make such tax payments as are required, the Company or its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant or to take such other action as may be necessary to satisfy such withholding obligations. The Committee shall be authorized to establish procedures for election by Participants to satisfy such obligation for the payment of such taxes by tendering previously acquired Shares (either actually or by attestation, valued at their then Fair Market Value), or by directing the Company to retain Shares (up to the Participant's minimum required tax withholding rate or such other rate that will not trigger a negative accounting impact) otherwise deliverable in connection with the Award.

 

14. Compliance with Section 409A of the Code.

 

This Plan is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent that an Award or the payment, settlement or deferral thereof is subject to Section 409A of the Code, the Award shall be granted, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. Any provision of this Plan that would cause the grant of an Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code.

 

  

8

  

 

15. Choice of Law

 

The Plan shall be governed by and construed in accordance with the laws of the State of Delaware without regard to conflicts of laws principles.

 

16. Effectiveness of the Plan

 

The Plan shall be effective as of the Effective Date.

 

  

9

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