Document:

ex-10.21

Exhibit 10.21

ESCROW AGREEMENT

     THIS ESCROW AGREEMENT (as the same may be amended or modified from time to time pursuant
hereto, this “Escrow Agreement”) is made and entered into as of November ___, 2009, by and among
Vuzix Corporation, a Delaware corporation (“Issuer”), Canaccord Capital Corporation (“Canaccord”),
Canaccord Adams Inc., Bolder Investment Partners, Ltd. (“Bolder”) and Lighthouse Financial Group
LLC (collectively, the “Offering Agents”)(the Issuer and the Offering Agents are sometimes referred
to individually as a “Party” or collectively as the “Parties”), and JPMorgan Chase Bank, National
Association (the “Escrow Agent”).

     WHEREAS, the Issuer has filed with the U.S. Securities and Exchange Commission (the “SEC”) a
Registration Statement on Form S-1 (File No. 333-160417) (as amended from time to time, the
“Registration Statement”) registering under the Securities Act of 1933, as amended, the Issuer’s
sale to the public of up to 50,000,000 units (“Units”), each Unit consisting of one share of the
Issuer’s common stock, par value $0.001 per share, and one-half of one common stock purchase
warrant (the “Offering”);

     WHEREAS, the Issuer has also filed a preliminary prospectus relating to the Offering with the
Ontario Securities Commission (the “OSC”);

     WHEREAS, the Offering shall be made on a best-efforts basis through a syndicate co-led by
Canaccord and Bolder and through certain subagents;

     WHEREAS, the closing of the Offering (the “Closing”) is subject to the Issuer’s receipt of
minimum gross proceeds from the Offering of at least Cdn$6,000,000 (the “Minimum Dollar Amount”)
and is subject to a maximum of Cdn$12,500,000 (the “Maximum Dollar Amount”);

     WHEREAS, in order to purchase Units, a purchaser must deliver the full amount of its purchase
price, in US or Canadian dollars, to the Offering Agents (collectively, the “Payment”);

     WHEREAS, the Parties have agreed that the Payments made by prospective purchasers of Units
will be refunded to such prospective purchasers if the Closing has not occurred within 90 days of
the date on which the Registration Statement is declared effective by the SEC; and

     WHEREAS, in compliance with Rule 15c2-4 under the Securities Exchange Act of 1934, as amended,
the Parties desires to establish an escrow in which funds received from purchasers of Units will be
deposited until the Closing, and the Escrow Agent is willing to serve as Escrow Agent upon the
terms and conditions herein set forth.

     NOW THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

1. Appointment.

	 	1.1.	 	The Parties hereby appoint the Escrow Agent as their escrow agent for the
purposes set forth herein, and the Escrow Agent hereby accepts such appointment under
the terms and conditions set forth herein.  The Escrow Agent is authorized

 

 

	 	 	 	and regulated by the Financial Services Authority in the United Kingdom.
	 
	 	1.2.	 	Each of the Offering Agents hereby authorizes Canaccord to act on its behalf in
connection with the matters set out herein.

2. Establishment of the Escrow Account.

     2.1. The parties hereto shall establish an escrow account at the London branch of the Escrow
Agent, and bearing the designation “Escrow Account for Vuzix Corporation IPO” (the “Escrow
Account”).

     2.2. On or before the date of the initial deposit in the Escrow Account pursuant to this
Agreement, Canaccord shall notify the Escrow Agent in writing of the commencement date of the
Offering (the “Commencement Date”). The Commencement Date shall be no earlier than the first date
on which the Registration Statement has been declared effective by the SEC and the OSC has issued a
receipt in accordance with Multilateral Instrument 11-102 – Passport System of the Canadian
Securities Administrators and National Policy 11-202 – Process for Prospectus Reviews in Multiple
Jurisdictions of the Canadian Securities Administrators evidencing that receipts for the final
Canadian prospectus relating to the Offering have been issued for each province of Canada except
Quebec. The Escrow Agent shall not accept any amounts for deposit in the Escrow Account prior to
its receipt of such notification.

     2.3. The Offering shall continue for a period (the “Offering Period”) from the Commencement
Date through the 90th day after date on which the Registration Statement has been declared
effective by the SEC. The last day of the Offering Period is referred to herein as the “Termination
Date.” Except as provided in Section 4.3 hereof, after the Termination Date, neither the Offering
Agents nor the Issuer shall deposit, and the Escrow Agent shall not accept, any additional amounts
representing payments by prospective purchasers. Canaccord shall provide written notice to the
Escrow Agent as to the Termination Date.

3. Deposits in the Escrow Account.

     3.1. All amounts received from prospective purchasers of the Units shall be deposited in the
Escrow Account, which amounts shall be in the form of checks or wire transfers representing the
payment of money. Wire transfers to the Escrow Account shall be sent in Canadian dollars pursuant
to the following instructions:

Bank: Royal Bank of Canada, Toronto (ROYCCAT2)

Under direct SWIFT advice to JPMorgan Chase Bank, NA
CHASGB2L

For the account of: JPMorgan Chase Bank, NA (CHASGB2L)

Account Number: 095912194132

For Further Credit To: JPM as EA for Vuzix Corp

Account Number: 40625901

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     3.2. Simultaneously with each deposit into the Escrow Account, the Offering Agent making such
deposit (or the Issuer, if such deposit is made by the Issuer) shall inform the Escrow Agent in
writing of the name and address of the prospective purchaser(s), the number of Units subscribed for
by such purchaser(s), and the aggregate dollar amount of such subscription (collectively, the
“Subscription Information”).

     3.3. The Escrow Agent shall not be required to accept any amounts representing payments by
prospective purchasers except during the Escrow Agent’s regular banking hours, which are 9:00 a.m.
to 5:00 p.m. Eastern Time.

     3.4. Amounts deposited in the Escrow Account that have cleared the banking system and have
been collected by the Escrow Agent, together with any investment income or proceeds received by the
Escrow Agent from the investment thereof from time to time pursuant to Section 3.7 below, are
herein referred to as the “Fund.” Amounts deposited in the Escrow Account that have not cleared the
banking system are herein referred to as “uncollected amounts”.

     3.5. The Escrow Agent shall refund any portion of the Fund prior to disbursement of the Fund
in accordance with Section 4 hereof upon the instructions in writing signed by both the Issuer and
Canaccord.

     3.6. If the Escrow Agent receives a deposit into the Escrow Account from an Offering Agent or
any purchaser, on any business day prior to the later of the Termination Date or the last day of
the Collection Period (consisting of the number of business days set forth on the Information
Sheet), the Escrow Agent shall, upon the receipt of a direction (the “Investment Direction”) of
Canaccord and only upon such direction, invest the deposit in such investments as Canaccord may
direct until the Escrow Agent disburses the Fund in accordance with Section 4 hereof. If the Escrow
Agent receives a deposit into the Escrow Account from an Offering Agent or any purchaser together
with an Investment Direction prior to 12:00 p.m. Eastern Time on any business day prior to the
later of the Termination Date or the last day of the Collection Period, the Escrow Agent shall
invest such amounts as so directed on the same day, and if it receives the deposit and Investment
Direction after 12:00 p.m. Eastern Time it may, but is not obligated to, invest the deposit as so
directed on the same day; provided, however, that the Escrow Agent shall invest the deposit as so
directed no later than the next business day. The Escrow Agent shall have no responsibility to the
purchaser, the Issuer or any Offering Agent for any loss upon any such investment (which losses, if
incurred, shall be debited against the Escrow Account). The Escrow Agent shall have no
responsibility or liability to any purchaser, the Issuer or the Offering Agents for the investment
performance or for any failure of any investments.

     3.7. All
Canadian dollar deposits will be held in a non interest bearing account with the Escrow Agent’s London Branch.

4. Disbursement from the Escrow Account.

     4.1. Subject to Section 4.3 below, in the event that at 5:00 p.m. Eastern Time on the
Termination Date the amount constituting the Fund shall be less than the Minimum Dollar Amount, as
indicated by the Subscription Information submitted to the Escrow Agent, then the Escrow Agent
shall promptly but in no event later than five (5) business days after the Termination Date refund
to each prospective purchaser the amount of payment received from such purchaser which is then held
in the Fund or which thereafter clears the banking system, together with any investment income
received thereon, and the Escrow Agent shall notify the

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Issuer and each Offering Agent of its distribution of the Fund. The Offering Agent and Issuer
shall provide wire instructions via facsimile for each prospective purchaser.

     4.2. Subject to Section 4.3 below, in the event that at any time up to 5:00 p.m. Eastern Time
on the Termination Date, the amount constituting the Fund shall be at least equal to the Minimum
Dollar Amount, as indicated by the Subscription Information submitted to the Escrow Agent, the
Escrow Agent shall forthwith notify the Issuer and each Offering Agent of such fact in writing. The
Escrow Agent shall hold the Fund until the Escrow Agent receives, at least one business day prior
to the date on which the Fund is to be disbursed, instructions in writing signed by both the Issuer
and Canaccord as to the disbursement of the Fund.

     4.3. Subject to Section 4.4 below, in the event that at 5:00 p.m. Eastern Time on the
Termination Date, the amount constituting the Fund (counting all amounts deposited in the Escrow
Account from the Commencement Date) shall be greater than the Minimum Dollar Amount, as indicated
by the Subscription Information submitted to the Escrow Agent, the Escrow Agent shall, on the
Termination Date, notify the Issuer and the Offering Agents of such fact in writing. The Escrow
Agent shall hold any portion of the Fund that has not previously been disbursed (in accordance with
Section 4.2) until the Escrow Agent receives, at least one business day prior to the date on which
such portion of the Fund is to be disbursed, instructions in writing signed by both the Issuer and
Canaccord as to the disbursement thereof.

     4.4. In the event that at any time up to 5:00 p.m. Eastern Time on the Termination Date, the
amount constituting the Fund (counting all amounts deposited in the Escrow Account from the
commencement date of the Offering Period) shall be at least equal to the Maximum Dollar Amount, as
indicated by the Subscription Information submitted to the Escrow Agent, the Escrow Agent shall
forthwith notify the Issuer and the Offering Agents of such fact in writing. The Escrow Agent shall
hold the portion of the Fund that has not yet been disbursed (in accordance with Section 4.2) until
the Escrow Agent receives, at least one business day prior to the date on which such portion of the
Fund is to be disbursed, instructions in writing signed by both the Issuer and Canaccord as to the
disbursement thereof.

     4.5. In the event that at 5:00 p.m. Eastern Time on the Termination Date, the amount
constituting the Fund (counting all amounts deposited in the Escrow Account from the commencement
date of the Offering Period) shall be greater than the Maximum Dollar Amount, as indicated by the
Subscription Information submitted to the Escrow Agent, the Escrow Agent shall notify in writing
the Issuer and the Offering Agents of such fact forthwith following the Termination Date. The
Escrow Agent shall hold the portion of the Fund that has not previously been disbursed (in
accordance with Sections 4.2 and 4.5) until the Escrow Agent receives, at least one business day
prior to the date on which such portion of the Fund is to be disbursed, instructions in writing
signed by both the Issuer and Canaccord as to the disbursement thereof.

     4.6. Upon disbursement of the Fund pursuant to the terms of this Section 4, the Escrow Agent
shall be relieved of all further obligations and released from all liability under this Agreement.
It is expressly agreed and understood that in no event shall the aggregate amount of payments made
by the Escrow Agent exceed the amount of the Fund.

	5.	 	Escrow Agent.  

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     5.1. The Escrow Agent shall have only those duties as are specifically and expressly provided
herein, which shall be deemed purely ministerial in nature, and no other duties shall be
implied.  The Escrow Agent shall neither be responsible for, nor chargeable with, knowledge of, nor
have any requirements to comply with, the terms and conditions of any other agreement, instrument
or document between the Parties, in connection herewith, if any, including without limitation the
agency agreement contemplated by that engagement letter dated as of June 24, 2009 by and among the
Issuer, Canaccord and Bolder (the “Underlying Agreement”), nor shall the Escrow Agent be required
to determine if any person or entity has complied with any such  agreements, nor shall any
additional obligations of the Escrow Agent be inferred from the terms of such agreements, even
though reference thereto may be made in this Escrow Agreement.  In the event of any conflict
between the terms and provisions of this Escrow Agreement and those of the Underlying Agreement or
any other agreement among the Parties, the terms and conditions of this Escrow Agreement shall
control. The Escrow Agent may rely upon and shall not be liable for acting or refraining from
acting upon any written notice, document, instruction or request furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper Party or Parties
without inquiry and without requiring substantiating evidence of any kind.  The Escrow Agent shall
be under no duty to inquire into or investigate the validity, accuracy or content of any such
document, notice, instruction or request.  The Escrow Agent shall have no duty to solicit any
payments which may be due it or the Fund nor shall the Escrow Agent have any duty or obligation to
confirm or verify the accuracy or correctness of any amounts deposited with it hereunder.

     5.2. The Escrow Agent shall not be liable for any action taken, suffered or omitted to be
taken by it in good faith except to the extent that a final adjudication of a court of competent
jurisdiction determines that the Escrow Agent’s gross negligence or willful misconduct was the
primary cause of any loss to any Party.  The Escrow Agent may execute any of its powers and perform
any of its duties hereunder directly or through attorneys and shall be liable only for its gross
negligence or willful misconduct (as finally adjudicated in a court of competent jurisdiction) in
the selection of any such attorney.  The Escrow Agent may consult with counsel, accountants and
other skilled persons to be selected and retained by it.  The Escrow Agent shall not be liable for
any action taken, suffered or omitted to be taken by it in accordance with, or in reliance upon,
the advice or opinion of any such counsel, accountants or other skilled persons.  In the event that
the Escrow Agent shall be uncertain or believe there is some ambiguity as to its duties or rights
hereunder or shall receive instructions, claims or demands from any party hereto which, in its
opinion, conflict with any of the provisions of this Escrow Agreement, it shall be entitled to
refrain from taking any action and its sole obligation shall be to keep safely all property held in
escrow until it shall be given a direction in writing by the Issuer and Canaccord which eliminates
such ambiguity or uncertainty to the satisfaction of Escrow Agent or by a final and non-appealable
order or judgment of a court of competent jurisdiction.  The Parties agree to pursue any redress or
recourse in connection with any dispute without making the Escrow Agent a party to the
same.  Anything in this Escrow Agreement to the contrary notwithstanding, in no event shall the
Escrow Agent be liable for special, incidental, punitive, indirect or consequential loss or damage
of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has
been advised of the likelihood of such loss or damage and regardless of the form of action. Any
liability of the Escrow Agent under this Escrow Agreement will be limited to the amount of fees
paid to the Escrow Agent.

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     5.3. All amounts held by the Escrow Agent in the Escrow Account are held by the Escrow Agent
in an account with itself as banker rather than as trustee, and therefore will not be held in
accordance with the client money rules of the FSA (the Financial Services Authority, and any
successor or replacement organisation, following amalgamation, merger or otherwise, recognised
under the Financial Services and Markets Act 2000 (including any statutory modification or
re-enactment thereof or any regulations or orders made thereunder) by which the Escrow Agent is for
the time being regulated or authorised).

     5.4. Any reference in this Agreement to the “FSA Rules” means the rules of the FSA as set out
in the FSA’s Handbook of Rules and Guidance as amended, varied or substituted from time to time.
Where the Escrow Agent is for the time being subject to any FSA Rules in the provision of services
pursuant to this Agreement (including without limitation, in relation to the appointment of agents)
the rights and obligations of the Escrow Agent under the provisions of this Agreement shall be read
and construed as subject to and permitted by such Rules, and the provisions of this Agreement shall
be limited accordingly.

     5.5. The person to whom the Escrow Agent owes the Fund pursuant to clause 2 is the customer of
the Escrow Agent for the purposes of the FSA Rules (the “Customer”). For the purposes of the FSA
Rules, the Escrow Agent shall treat the Customer as a professional client and, notwithstanding that
the Customer may be acting as agent on behalf of another person, the Customer alone shall be
treated as the Escrow Agent’s customer. The Customer is required to notify the Escrow Agent
immediately if at any time it considers that it would no longer fall within the definition of
professional client for the purposes of the FSA Rules.

     5.6. Nothing in the Agreement is intended to exclude or restrict any duty or liability of the
Escrow Agent to the other parties hereto which the Escrow Agent is not permitted to exclude or
restrict by the Financial Services and Markets Act 2000 or the FSA Rules.

6. Succession.

     6.1. The Escrow Agent may resign and be discharged from its duties or obligations hereunder by
giving 30 days advance notice in writing of such resignation to the Parties specifying a date when
such resignation shall take effect.  If the Issuer and Canaccord have failed to appoint a successor
escrow agent prior to the expiration of 30 days following receipt of the notice of resignation, the
Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor
escrow agent or for other appropriate relief, and any such resulting appointment shall be binding
upon all of the parties hereto.  Escrow Agent’s sole responsibility after such 30 day notice period
expires shall be to hold the Fund (without any obligation to reinvest the same) and to deliver the
same to a designated substitute escrow agent, if any, or in accordance with the directions of a
final order or judgment of a court of competent jurisdiction, at which time of delivery Escrow
Agent’s obligations hereunder shall cease and terminate, subject to the provisions of Sections 7
and 8 hereunder.  The Escrow Agent shall have the right to withhold an amount equal to any amount
due and owing to the Escrow Agent, plus any costs and expenses the Escrow Agent shall reasonably
believe may be incurred by the Escrow Agent in connection with the termination of the Escrow
Agreement.

     6.2. Any entity into which the Escrow Agent may be merged or converted or with

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which it may be consolidated, or any entity to which all or substantially all the escrow
business may be transferred, shall be the Escrow Agent under this Escrow Agreement without further
act.

7. Compensation and Reimbursement. Issuer agrees to (a) pay the Escrow Agent for the
services to be rendered hereunder, which unless otherwise agreed in writing shall be as described
in Schedule 2 attached hereto, and (b) pay or reimburse the Escrow Agent upon request for all
expenses, disbursements and advances, including, without limitation reasonable attorney’s fees and
expenses, incurred or made by it in connection with the performance of this Escrow Agreement.

8. Indemnity. The Parties shall jointly and severally indemnify, defend and save harmless
the Escrow Agent and its affiliates and their respective successors, assigns, directors, agents and
employees (the “indemnitees”) from and against any and all losses, damages, claims, liabilities,
penalties, judgments, settlements, litigation, investigations, costs or expenses (including,
without limitation, the fees and expenses of outside counsel)(collectively “Losses”) arising out of
or in connection with (a) the Escrow Agent’s execution and performance of this Escrow Agreement,
tax reporting or withholding, the enforcement of any rights or remedies under or in connection with
this Escrow Agreement, or as may arise by reason of any act, omission or error of the indemnitee,
except in the case of any indemnitee to the extent that such Losses are finally adjudicated by a
court of competent jurisdiction to have been primarily caused by the gross negligence or willful
misconduct of such indemnitee, or (b) its following any instructions or other directions, whether
joint or singular, from the Parties as contemplated in this Agreement, except to the extent that
its following any such instruction or direction is expressly forbidden by the terms hereof. The
Parties hereto acknowledge that the foregoing indemnities shall survive the resignation,
replacement or removal of the Escrow Agent or the termination of this Escrow Agreement.

9. Patriot Act Disclosure/Taxpayer Identification Numbers/Tax.

     9.1. Patriot Act Disclosure.  Section 326 of the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT
Act”) requires the Escrow Agent to implement reasonable procedures to verify the identity of any
person that opens a new account with it.  Accordingly, the Parties acknowledge that Section 326 of
the USA PATRIOT Act and the Escrow Agent’s identity verification procedures require the Escrow
Agent to obtain information which may be used to confirm the Parties identity including without
limitation name, address and organizational documents (“identifying information”). The Parties
agree to provide the Escrow Agent with and consent to the Escrow Agent obtaining from third parties
any such identifying information required as a condition of opening an account with or using any
service provided by the Escrow Agent.

     9.2. Taxpayer Identification Numbers (“TINs”).

          (i) The Parties have provided the Escrow Agent with their respective fully executed Internal
Revenue Service (“IRS”) Form W-8, or W-9 and/or other required documentation.  The Parties each
represent that its correct TIN assigned by the IRS, or any other taxing authority, is set forth in
the delivered forms.

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          (ii) In addition, all interest or other income earned under the Escrow Agreement shall be
allocated to Issuer and reported, as and to the extent required by law, by the Escrow Agent to the
IRS, or any other taxing authority, on IRS Form 1099 or 1042S (or other appropriate form) as income
earned from the Fund by Issuer whether or not said income has been distributed during such
year.  Any other tax returns required to be filed will be prepared and filed by Issuer and/or
Offering Agents with the IRS and any other taxing authority as required by law.  The Parties
acknowledge and agree that Escrow Agent shall have no responsibility for the preparation and/or
filing of any income, franchise or any other tax return with respect to the Fund or any income
earned by the Fund.  The Parties further acknowledge and agree that any taxes payable from the
income earned on the investment of any sums held in the Escrow Account shall be paid by Issuer. In
the absence of joint written direction from the Issuer and Canaccord, all proceeds of the Fund
shall be retained in the Fund and reinvested from time to time by the Escrow Agent as provided in
this Agreement.  Escrow Agent shall withhold any taxes it deems necessary, including but not
limited to required withholding in the absence of proper tax documentation, and shall remit such
taxes to the appropriate authorities.

10. Notices. All communications hereunder shall be in writing and shall be deemed to be
duly given and received: (a) upon delivery, if delivered personally, or upon confirmed transmittal,
if by facsimile; (b) on the next Business Day (as hereinafter defined) if sent by overnight
courier; or (c) four Business Days after mailing if mailed by prepaid registered mail, return
receipt requested, to the appropriate notice address set forth below or at such other address as
any party hereto may have furnished to the other parties in writing by registered mail, return
receipt requested.

	 	 	 
	If to the Issuer:

	 	Vuzix Corporation
	 

	 	75 Town Centre Drive
	 

	 	Rochester, NY 14623
	 

	 	Attn: Paul J. Travers, President and Chief Executive Officer
	 

	 	Fax: (585) 359-4172
	 
	 	 
	with copies to:

	 	Wildeboer Dellelce LLP
	 

	 	Suite 800, Wildeboer Dellelce Place
	 

	 	365 Bay Street
	 

	 	Toronto, Ontario M5H 2V1
	 

	 	Attn: Robert Fonn
	 

	 	Fax: (416) 361-1790
	 
	 	 
	 

	 	Boylan, Brown, Code, Vigdor & Wilson, LLP
	 

	 	2400 Chase Square
	 

	 	Rochester, New York 14604
	 

	 	Attn: Robert F. Mechur
	 

	 	Fax: (585) 232-3528
	 
	 	 
	If to the Offering Agents:

	 	Canaccord Capital Corporation
	 

	 	Suite 2200 – 609 Granville Street
	 

	 	P.O. BOX 10337, Pacific Centre

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	 	Vancouver, British Columbia V7Y 1H2
	 

	 	Attn: David Rentz
	 

	 	Fax: (604) 643-7733
	 
	 	 
	 

	 	Bolder Investment Partners, Ltd.
	 

	 	Suite 800 – 1450 Creekside Drive
	 

	 	Vancouver, British Columbia V6J 5B3
	 

	 	Attn: Paul Woodward
	 

	 	Fax: (604) 714-2326
	 
	 	 
	 

	 	Lighthouse Financial Group LLC
	 

	 	Suite 1430 – 420 Lexington Avenue
	 

	 	New York, New York 10170 4001
	 

	 	Attn: Jeff Morfit
	 

	 	Fax:    u
	 
	 	 
	with copies to:

	 	McCullough O’Connor Irwin LLP
	 

	 	1100 – 888 Dunsmuir Street
	 

	 	Vancouver, British Columbia V6C 3K4
	 

	 	Attn: James Beeby
	 

	 	Fax: (604) 687-7099
	 
	 	 
	 

	 	Dorsey & Whitney LLP
	 

	 	370 – 17th St., Suite 4700
	 

	 	Denver, Colorado 80202
	 

	 	Attn: Kenneth G. Sam
	 

	 	Fax: (303) 629-3450
	 
	 	 
	If to the Escrow Agent:

	 	JPMorgan Chase Bank, National Association
	 

	 	4 New York Plaza, 21st Floor
	 

	 	NY, NY 10004
	 

	 	Attn: Greg Kupchynsky/Rola Tseng
	 

	 	Fax: (212) 623-6168

Notwithstanding the above, in the case of communications delivered to the Escrow Agent pursuant to
(i), (ii) and (iii) of this Section 10, such communications shall be deemed to have been given on
the date received by an officer of the Escrow Agent or any employee of the Escrow Agent who reports
directly to any such officer at the above-referenced office.  In the event that the Escrow Agent,
in its sole discretion, shall determine that an emergency exists, the Escrow Agent may use such
other means of communication as the Escrow Agent deems appropriate.  Any communications received
after 5:00 pm Eastern Time shall be deemed to have been received on the next Business Day.
“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which the
Escrow Agent located at the notice address set forth above is authorized or required by law or
executive order to remain closed.

11. Security Procedures.

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     11.1. In the event funds transfer instructions are given (other than in writing at the time of
execution of this Escrow Agreement), whether in writing, by facsimile or otherwise, the Escrow
Agent is authorized to seek confirmation of such instructions by telephone call-back to the person
or persons designated on schedule 1 hereto (“Schedule 1”), and the Escrow Agent may rely upon the
confirmation of anyone purporting to be the person or persons so designated.  Each funds transfer
instruction shall be executed by an authorized signatory, a list of such authorized signatories is
set forth on Schedule 1.  The persons and telephone numbers for call-backs may be changed only in a
writing actually received and acknowledged by the Escrow Agent. If the Escrow Agent is unable to
contact any of the authorized representatives identified in Schedule 1, the Escrow Agent is hereby
authorized to seek confirmation of such instructions by telephone call-back to any one or more of
Issuer or the applicable Offering Agent’s executive officers, (“Executive Officers”), as the case
may be, which shall include the titles of Chief Executive Officer, President and Executive Vice
President, as the Escrow Agent may select. Such “Executive Officer” shall deliver to the Escrow
Agent a fully executed incumbency certificate, and the Escrow Agent may rely upon the confirmation
of anyone purporting to be any such officer. The Escrow Agent and the beneficiary’s bank in any
funds transfer may rely solely upon any account numbers or similar identifying numbers provided by
Issuer or Offering Agent to identify (a) the beneficiary, (b) the beneficiary’s bank, or (c) an
intermediary bank.  The Escrow Agent may apply any of the escrowed funds for any payment order it
executes using any such identifying number, even when its use may result in a person other than the
beneficiary being paid, or the transfer of funds to a bank other than the beneficiary’s bank or an
intermediary bank designated. The Parties acknowledge that these security procedures are
commercially reasonable.

     11.2. Issuer acknowledges that repetitive funds transfer instructions may be given to the
Escrow Agent for one or more beneficiaries where only the date of the requested transfer, the
amount of funds to be transferred, and/or the description of the payment shall change within the
repetitive instructions (“Standing Settlement Instructions”).  Accordingly, Issuer shall deliver to
Escrow Agent such specific Standing Settlement Instructions only for each respective beneficiary as
set forth in Exhibit A to this Escrow Agreement, by facsimile or other written instruction.  Escrow
Agent may rely solely upon such Standing Settlement Instructions and all identifying information
set forth therein for each beneficiary.  Escrow Agent and the Offering Agents agree that such
Standing Settlement Instructions shall be effective as the funds transfer instructions of Issuer,
without requiring a verifying callback, whether or not authorized, if such Standing Settlement
Instructions are consistent with previously authenticated Standing Settlement Instructions for that
beneficiary.  The Parties and Escrow Agent acknowledge that such Standing Settlement Instructions
are a security procedure and are commercially reasonable.

12. Compliance with Court Orders.  In the event that any escrow property shall be attached,
garnished or levied upon by any court order, or the delivery thereof shall be stayed or enjoined by
an order of a court, or any order, judgment or decree shall be made or entered by any court order
affecting the property deposited under this Escrow Agreement, the Escrow Agent is hereby expressly
authorized, in its sole discretion, to obey and comply with all writs, orders or decrees so entered
or issued, which it is advised by legal counsel of its own choosing is binding upon it, whether
with or without jurisdiction, and in the event that the Escrow Agent obeys or complies with any
such writ, order or decree it shall not be liable to any of the parties hereto or to any other
person, entity, firm or corporation, by reason of such compliance notwithstanding such

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writ, order or decree be subsequently reversed, modified, annulled, set aside or vacated.

13. Miscellaneous. The provisions of this Escrow Agreement may be waived, altered, amended
or supplemented, in whole or in part, only by a writing signed by the Escrow Agent and the
Parties.  Neither this Escrow Agreement nor any right or interest hereunder may be assigned in
whole or in part by the Escrow Agent or any Party, except as provided in Section 6, without the
prior consent of the Escrow Agent and the other parties.  This Escrow Agreement shall be governed
by and construed under the laws of the State of New York. Each Party irrevocably waives any
objection on the grounds of venue, forum non-conveniens or any similar grounds and irrevocably
consents to service of process by mail or in any other manner permitted by applicable law and
consents to the jurisdiction of the courts located in the State of New York. The Parties further
hereby waive any right to a trial by jury with respect to any lawsuit or judicial proceeding
arising or relating to this Escrow Agreement.  No party to this Escrow Agreement is liable to any
other party for losses due to, or if it is unable to perform its obligations under the terms of
this Escrow Agreement because of, acts of God, fire, war, terrorism, floods, strikes, electrical
outages, equipment or transmission failure, or other causes reasonably beyond its control.  This
Escrow Agreement may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. All signatures of
the parties to this Escrow Agreement may be transmitted by facsimile, and such facsimile will, for
all purposes, be deemed to be the original signature of such party whose signature it reproduces,
and will be binding upon such party.  If any provision of this Escrow Agreement is determined to be
prohibited or unenforceable by reason of any applicable law of a jurisdiction, then such provision
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions thereof, and any such prohibition or
unenforceability in such jurisdiction shall not invalidate or render unenforceable such provisions
in any other jurisdiction. A person who is not a party to this Agreement shall have no right to
enforce any term of this Agreement. The Parties represent, warrant and covenant that each document,
notice, instruction or request provided by such Party to Escrow Agent shall comply with applicable
laws and regulations.  Where, however, the conflicting provisions of any such applicable law may be
waived, they are hereby irrevocably waived by the parties hereto to the fullest extent permitted by
law, to the end that this Escrow Agreement shall be enforced as written.  Except as expressly
provided in Section 8 above, nothing in this Escrow Agreement, whether express or implied, shall be
construed to give to any person or entity other than the Escrow Agent and the Parties any legal or
equitable right, remedy, interest or claim under or in respect of this Escrow Agreement or any
funds escrowed hereunder.

[remainder of this page intentionally left blank]

11

 

     IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date set
forth above.

	 	 	 	 	 	 	 	 	 	 	 
	VUZIX CORPORATION	 	 	 	BOLDER INVESTMENT PARTNERS, LTD.
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	CANACCORD CAPITAL CORPORATION	 	 	 	LIGHTHOUSE FINANCIAL GROUP LLC
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	CANACCORD ADAMS INC.	 	 	 	JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,
	 	 	 	 	 	 	as Escrow Agent
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 	 	 
	Title:

	 	 	 	 	 	Title:
	 	 	 	 

12

 

SCHEDULE 1

Telephone Number(s) and authorized signature(s) for

Person(s) Designated to give Funds Transfer Instructions

Offering Agent:

	 	 	 	 	 	 	 	 	 
	Name 	 	 	 	Telephone Number	 	Signature
	 
	 	 	 	 	 	 	 	 
	1.

	 	Glenda Chin
	 	 	 	604-643-7408	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	2.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	3.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 	 
	 
	If to Issuer:
	 	 	 	 	 	 	 	 	 
	Name 	 	 	 	Telephone Number	 	Signature
	 
	 	 	 	 	 	 	 	 
	1.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	2.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	3.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 	 
	 
	Telephone Number(s) for Call-Backs and

Person(s) Designated to Confirm Funds Transfer Instructions
	 
	Offering Agent:
	 	 	 	 	 	 	 	 	 
	Name	 	 	 	Telephone Number	 	 
	 
	 	 	 	 	 	 	 	 
	1.

	 	Glenda Chin
	 	 	 	604-643-7408	 	 
	 
	 	 	 	 	 	 	 	 
	2.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	3.
	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 

	 	 
	 
	Issuer:
	 	 	 	 	 	 	 	 	 
	Name 	 	 	 	Telephone Number	 	 
	 
	 	 	 	 	 	 	 	 
	1.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	2.
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

13

 

	 	 	 	 	 	 	 	 	 
	Name 	 	 	 	Telephone Number	 	 
	 
	 	 	 	 	 	 	 	 
	3.
	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 

	 	 

Telephone call backs shall be made to both Parties if joint instructions are required pursuant to
the agreement. All funds transfer instructions must include the signature of the person(s)
authorizing said funds transfer and must not be the same person confirming said transfer.

14

 

SCHEDULE 2

Escrow Agent’s Compensation:

$[TBD] per annum without pro-ration for partial years

The fees quoted are based on a review of the transaction documents provided and an internal due
diligence review. JPMorgan reserves the right to revise, modify, change and supplement the fees
quoted herein if the assumptions underlying the activity in the account, level of balances, market
volatility or conditions or other factors change from those used to set our fees.

Extraordinary Services and Out-of Pocket Expenses

Any additional services beyond our standard services as specified above, and all reasonable
out-of-pocket expenses including attorney’s or accountant’s fees and expenses will be considered
extraordinary services for which related costs, transaction charges, and additional fees will be
billed at the Bank’s then standard rate. Disbursements, receipts, investments or tax reporting
exceeding 25 items per year may be treated as extraordinary services thereby incurring additional
charges.

15

 

EXHIBIT A

Standing Settlement Instructions

16exv10w1

Exhibit 10.1

PEBBLEBROOK HOTEL TRUST

2009 EQUITY INCENTIVE PLAN

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	Section         	 	Page	 
	Article I DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	1.01. Affiliate
	 	 	1	 
	1.02. Agreement
	 	 	1	 
	1.03. Board
	 	 	1	 
	1.04. Change in Control
	 	 	1	 
	1.05. Code
	 	 	2	 
	1.06. Committee
	 	 	2	 
	1.07. Common Share
	 	 	2	 
	1.08. Company
	 	 	2	 
	1.09. Completion Date
	 	 	3	 
	1.10. Control Change Date
	 	 	3	 
	1.11. Corresponding SAR
	 	 	3	 
	1.12. Dividend Equivalent Right
	 	 	3	 
	1.13. Exchange Act
	 	 	3	 
	1.14. Fair Market Value
	 	 	3	 
	1.15. Initial Value
	 	 	4	 
	1.16. LTIP Unit
	 	 	4	 
	1.17. Operating Partnership
	 	 	4	 
	1.18. Option
	 	 	4	 
	1.19. Other Equity-Based Award
	 	 	4	 
	1.20. Participant
	 	 	4	 
	1.21. Performance Units
	 	 	4	 
	1.22. Person
	 	 	5	 
	1.23. Plan
	 	 	5	 
	1.24. SAR
	 	 	5	 
	1.25. Share Award
	 	 	5	 
	1.26. Ten Percent Shareholder
	 	 	5	 
	 
	 	 	 	 
	Article II PURPOSES
	 	 	6	 
	 
	 	 	 	 
	Article III ADMINISTRATION
	 	 	6	 
	 
	 	 	 	 
	Article IV ELIGIBILITY
	 	 	7	 
	 
	 	 	 	 
	Article V COMMON SHARES SUBJECT TO PLAN
	 	 	7	 
	 
	 	 	 	 
	5.01. Common Shares Issued
	 	 	7	 
	5.02. Aggregate Limit
	 	 	7	 
	5.03. Reallocation of Shares
	 	 	8	 
	 
	 	 	 	 
	Article VI OPTIONS
	 	 	8	 
	 
	 	 	 	 
	6.01. Award
	 	 	8	 
	6.02. Option Price
	 	 	8	 
	6.03. Maximum Option Period
	 	 	8	 

-i-

 

	 	 	 	 	 
	Section           	 	Page	 
	6.04. Nontransferability
	 	 	9	 
	6.05. Transferable Options
	 	 	9	 
	6.06. Employee Status
	 	 	9	 
	6.07. Exercise
	 	 	9	 
	6.08. Payment
	 	 	10	 
	6.09. Shareholder Rights
	 	 	10	 
	6.10. Disposition of Shares
	 	 	10	 
	 
	 	 	 	 
	Article VII SARS
	 	 	11	 
	 
	 	 	 	 
	7.01. Award
	 	 	11	 
	7.02. Maximum SAR Period
	 	 	11	 
	7.03. Nontransferability
	 	 	11	 
	7.04. Transferable SARs
	 	 	11	 
	7.05. Exercise
	 	 	12	 
	7.06. Employee Status
	 	 	12	 
	7.07. Settlement
	 	 	12	 
	7.08. Shareholder Rights
	 	 	12	 
	 
	 	 	 	 
	Article VIII SHARE AWARDS
	 	 	12	 
	 
	 	 	 	 
	8.01. Award
	 	 	13	 
	8.02. Vesting
	 	 	13	 
	8.03. Employee Status
	 	 	13	 
	8.04. Shareholder Rights
	 	 	13	 
	 
	 	 	 	 
	Article IX PERFORMANCE UNIT AWARDS
	 	 	14	 
	 
	 	 	 	 
	9.01. Award
	 	 	14	 
	9.02. Earning the Award
	 	 	14	 
	9.03. Payment
	 	 	14	 
	9.04. Shareholder Rights
	 	 	14	 
	9.05. Nontransferability
	 	 	14	 
	9.06. Transferable Performance Units
	 	 	15	 
	9.07. Employee Status
	 	 	15	 
	 
	 	 	 	 
	Article X OTHER EQUITY—BASED AWARDS
	 	 	15	 
	 
	 	 	 	 
	10.01. Award
	 	 	15	 
	10.02. Terms and Conditions
	 	 	15	 
	10.03. Payment or Settlement
	 	 	16	 
	10.04. Employee Status
	 	 	16	 
	10.05. Shareholder Rights
	 	 	16	 
	 
	 	 	 	 
	Article XI ADJUSTMENT UPON CHANGE IN COMMON STOCK
	 	 	16	 
	 
	 	 	 	 
	Article XII COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
	 	 	17	 
	 
	 	 	 	 
	Article XIII GENERAL PROVISIONS
	 	 	17	 
	 
	 	 	 	 
	13.01. Effect on Employment and Service
	 	 	17	 

-ii-

 

	 	 	 	 	 
	Section           	 	Page	 
	13.02. Unfunded Plan
	 	 	18	 
	13.03. Rules of Construction
	 	 	18	 
	13.04. Withholding Taxes
	 	 	18	 
	 
	 	 	 	 
	Article XIV change in control
	 	 	18	 
	 
	 	 	 	 
	14.01. Impact of Change in Control
	 	 	18	 
	14.02. Assumption Upon Change in Control
	 	 	19	 
	14.03. Cash-Out Upon Change in Control
	 	 	19	 
	14.04. Limitation of Benefits
	 	 	19	 
	 
	 	 	 	 
	Article XV AMENDMENT
	 	 	21	 
	 
	 	 	 	 
	Article XVI DURATION OF PLAN
	 	 	21	 
	 
	 	 	 	 
	Article XVII EFFECTIVE DATE OF PLAN
	 	 	21	 

-iii-

 

ARTICLE I

DEFINITIONS

1.01. Affiliate

     Affiliate means any entity, whether now or hereafter existing, which controls, is controlled
by, or is under common control with, the Company (including, but not limited to, joint ventures,
limited liability companies and partnerships). For this purpose, the term “control” shall mean
ownership of 50% or more of the total combined voting power or value of all classes of shares or
interests in the entity, or the power to direct the management and policies of the entity, by
contract or otherwise.

1.02. Agreement

     Agreement means a written agreement (including any amendment or supplement thereto) between
the Company and a Participant specifying the terms and conditions of a Share Award, an award of
Performance Units, an Option, SAR or Other Equity-Based Award (including an LTIP) granted to such
Participant.

1.03. Board

     Board means the Board of Trustees of the Company.

1.04. Change in Control

     “Change in Control” shall mean a change in control of the Company which will be deemed to have
occurred after the date hereof if:

	(1)	 	any “person” as such term is used in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d) thereof except that such
term shall not include (A) the Company or any of its subsidiaries, (B) any
trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any of its affiliates, (C) an underwriter temporarily
holding securities pursuant to an offering of such securities, (D) any
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of the Company’s
common shares, or (E) any person or group as used in Rule 13d-1(b) under the
Exchange Act, is or becomes the Beneficial Owner, as such term is defined in
Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of
the Company representing at least 50% of the combined voting power or common
shares of the Company;
	 
	(2)	 	during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new trustee (other than
(A) a trustee designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (1), (3), or (4) of
this Section 1.05 or (B) a trustee whose initial assumption of office

-1-

 

	 	 	is in
connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of trustees of the
Company) whose election by the Board or nomination for election by the
Company’s shareholders was approved by a vote of at least two-thirds (2/3) of
the trustees then still in office who either were trustees at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
	 
	(3)	 	there is consummated a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof) in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company, more
than 50% of the combined voting power and common shares of the Company or such
surviving entity or any parent thereof outstanding immediately after such
merger or consolidation; or
	 
	(4)	 	there is consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company’s assets (or any transaction
having a similar effect, including a liquidation) other than a sale or
disposition by the Company of all or substantially all of the Company’s assets
to an entity, more than fifty percent (50%) of the combined voting power and
common shares of which is owned by shareholders of the Company in substantially
the same proportions as their ownership of the common shares of the Company
immediately prior to such sale.

1.05. Code

     Code means the Internal Revenue Code of 1986, and any amendments thereto.

1.06. Committee

     Committee means the Compensation Committee of the Board; provided, however, that with respect
to awards made to a member of the Board who is not an employee of the Company or an Affiliate,
“Committee” means the Board.

1.07. Common Share

     Common Share means common shares of beneficial interest, par value $0.01 per share, of the
Company.

1.08. Company

     Company means Pebblebrook Hotel Trust, a Maryland real estate investment trust.

-2-

 

1.09. Completion Date

     Completion Date means the later of (i) the initial closing date of the initial public offering
of the Common Shares and (ii) the expiration date of the underwriters’ over-allotment option in the
initial public offering of the Common Shares.

1.10. Control Change Date

     Control Change Date means the date on which a Change in Control occurs. If a Change in
Control occurs on account of a series of transactions, the “Control Change Date” is the date of the
last of such transactions.

1.11. Corresponding SAR

     Corresponding SAR means an SAR that is granted in relation to a particular Option and that can
be exercised only upon the surrender to the Company, unexercised, of that portion of the Option to
which the SAR relates.

1.12. Dividend Equivalent Right

     Dividend Equivalent Right means the right, subject to the terms and conditions prescribed by
the Committee, of a Participant to receive (or have credited) cash, shares or other property in
amounts equivalent to the cash, shares or other property dividends declared on Common Shares with
respect to specified Performance Units or Common Shares subject to an Other Equity-Based Award,
Option or SAR, as determined by the Committee, in its sole discretion. The Committee may provide
that such Dividend Equivalents (if any) shall be distributed only when, and to the extent that, the
underlying award is vested or earned and also may provide that Dividend Equivalents (if any) shall
be deemed to have been reinvested in additional shares of Common Stock or otherwise reinvested.

1.13. Exchange Act

     Exchange Act means the Securities Exchange Act of 1934, as amended.

1.14. Fair Market Value

     Fair Market Value means, on any given date, the reported “closing” price of a Common Share on
the New York Stock Exchange. If, on any given date, the Common Shares are not listed for trading
on the New York Stock Exchange, then Fair Market Value shall be the “closing” price of a Common
Share on such other exchange on which the Common Shares are listed for trading or, if the Common
Shares are not listed on any exchange, the amount determined by the Committee using any reasonable
method in good faith and in accordance with the regulations under Section 409A of the Code.

-3-

 

1.15. Initial Value

     Initial Value means, with respect to a Corresponding SAR, the option price per share of the
related Option and, with respect to an SAR granted independently of an Option, the price per
Common Share as determined by the Committee on the date of grant; provided, however, that the price
shall not be less than the Fair Market Value on the date of grant.

1.16. LTIP Unit

     LTIP Unit means an “LTIP Unit” as defined in the Operating Partnership’s partnership
agreement. An LTIP Unit granted under this Plan represents the right to receive the benefits,
payments or other rights set forth in that partnership agreement, subject to the terms and
conditions of the applicable Agreement and that partnership agreement.

1.17. Operating Partnership

     Operating Partnership means Pebblebrook Hotel, L. P.

1.18. Option

     Option means a share option that entitles the holder to purchase from the Company a stated
number of Common Shares at the price set forth in an Agreement.

1.19. Other Equity-Based Award

     Other Equity-Based Award means any award other than an Option, SAR, a Performance Unit award
or a Share Award which, subject to such terms and conditions as may be prescribed by the Committee,
entitles a Participant to receive Common Shares or rights or units valued in whole or in part by
reference to, or otherwise based on, Common Shares (including securities convertible into Common
Shares) or other equity interests including LTIP Units.

1.20. Participant

     Participant means an employee or officer of the Company or an Affiliate, a member of the
Board, or an individual who provides bona fide services to the Company or an Affiliate (including
an individual who provides services to the Company or an Affiliate by virtue of employment with, or
providing services to, the Operating Partnership), and who satisfies the requirements of Article IV
and is selected by the Committee to receive an award of Performance Units or a Share Award, Option,
SAR, Other Equity-Based Award or a combination thereof.

1.21. Performance Units

     Performance Units means an award, in the amount determined by the Committee, stated with
reference to a specified number of Common Shares or other securities or property, that in

-4-

 

accordance with the terms of an Agreement entitles the holder to receive a payment for each
specified unit equal to the value of the Performance Unit on the date of payment.

1.22. Person

     “Person” means any human being, firm, corporation, partnership, or other entity. “Person” also
includes any human being, firm, corporation, partnership, or other entity as defined in sections
13(d)(3) and 14(d)(2) of the Exchange Act. Notwithstanding the preceding sentence, the term
“Person” does not include (i) the Company or any of its subsidiaries, (ii) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or any Affiliate, (iii)
an underwriter temporarily holding securities pursuant to an offering of such securities or (iv)
any corporation owned, directly or indirectly, by the shareholders of the Company in substantially
the same proportions as their ownership of the Common Shares.

1.23.  Plan

     Plan means this Pebblebrook Hotel Trust 2009 Equity Incentive Plan.

1.24. SAR

     SAR means a share appreciation right that in accordance with the terms of an Agreement
entitles the holder to receive, with respect to each Common Share encompassed by the exercise of
the SAR, the excess, if any, of the Fair Market Value at the time of exercise over the Initial
Value. References to “SARs” include both Corresponding SARs and SARs granted independently of
Options, unless the context requires otherwise.

1.25. Share Award

     Share Award means Common Shares awarded to a Participant under Article VIII.

1.26. Ten Percent Shareholder

     Ten Percent Shareholder means any individual owning more than ten percent (10%) of the total
combined voting power of all classes of shares of the Company or of a “parent corporation” or
“subsidiary corporation” (as such terms are defined in Section 424 of the Code) of the Company. An
individual shall be considered to own any voting shares owned (directly or indirectly) by or for
his or her brothers, sisters, spouse, ancestors or lineal descendants and shall be considered to
own proportionately any voting shares owned (directly or indirectly) by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner or beneficiary.

-5-

 

ARTICLE II

PURPOSES

     The Plan is intended to assist the Company and its Affiliates in recruiting and retaining
individuals and other service providers with ability and initiative by enabling such persons or
entities to participate in the future success of the Company and its Affiliates and to associate
their interests with those of the Company and its shareholders. The Plan is intended to permit the
grant of both Options qualifying under Section 422 of the Code (“incentive stock options”) and
Options not so qualifying, and the grant of SARs, Share Awards, Performance Units, and Other
Equity-Based Awards in accordance with the Plan and any procedures that may be established by the
Committee. No Option that is intended to be an incentive stock option shall be invalid for failure
to qualify as an incentive stock option. The proceeds received by the Company from the sale of
Common Shares pursuant to this Plan shall be used for general corporate purposes.

ARTICLE III

ADMINISTRATION

     The Plan shall be administered by the Committee. The Committee shall have authority to grant
SARs, Share Awards, Performance Units, Options and Other Equity-Based Awards upon such terms (not
inconsistent with the provisions of this Plan), as the Committee may consider appropriate. Such
terms may include conditions (in addition to those contained in this Plan), on the exercisability
of all or any part of an Option or SAR or on the transferability or forfeitability of a Share
Award, an award of Performance Units or an Other Equity-Based Award. Notwithstanding any such
conditions, the Committee may, in its discretion, accelerate the time at which any Option or SAR
may be exercised, or the time at which a Share Award or Other Equity-Based Award may become
transferable or nonforfeitable or the time at which an Other Equity-Based Award or an award of
Performance Units may be settled. In addition, the Committee shall have complete authority to
interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and
rescind rules and regulations pertaining to the administration of the Plan (including rules and
regulations that require or allow Participants to defer the payment of benefits under the Plan);
and to make all other determinations necessary or advisable for the administration of this Plan.
The Committee’s determinations under the Plan (including without limitation, determinations of the
individuals to receive awards under the Plan, the form, amount and timing of such awards, the terms
and provisions of such awards and the Agreements) need not be uniform and may be made by the
Committee selectively among individuals who receive, or are eligible to receive, awards under the
Plan, whether or not such persons are similarly situated. The express grant in the Plan of any
specific power to the Committee shall not be construed as limiting any power or authority of the
Committee. Any decision made, or action taken, by the Committee in connection with the
administration of this Plan shall be final and conclusive. The members of the Committee shall not
be liable for any act done in good faith with respect to this Plan or any Agreement, Option, SAR,
Share Award, Other Equity-Based Award or award of Performance Units. All expenses of administering
this Plan shall be borne by the Company.

-6-

 

ARTICLE IV

ELIGIBILITY

     Any employee of the Company or an Affiliate (including a trade or business that becomes an
Affiliate after the adoption of this Plan) and any member of the Board is eligible to participate
in this Plan. In addition, any other individual who provides significant services to the Company
or an Affiliate (including an individual who provides services to the Company or an Affiliate by
virtue of employment with, or providing services to, the Operating Partnership) is eligible to
participate in this Plan if the Committee, in its sole discretion, determines that the
participation of such individual is in the best interest of the Company. The Committee may also
grant Options, SARs, Share Awards, Performance Units and Other Equity-Based Awards to an individual
as an inducement to such individual becoming eligible to participate in the Plan and prior to the
date that the individual first performs services for the Company, an Affiliate or the Operating
Partnership, provided that such awards will not become vested or exercisable, and no shares shall
be issued or other payment made to such individual with respect to such awards prior to the date
the individual first performs services for the Company, an Affiliate or the Operating Partnership.

ARTICLE V

COMMON SHARES SUBJECT TO PLAN

5.01. Common Shares Issued

     Upon the award of Common Shares pursuant to a Share Award, an Other Equity-Based Award or in
settlement of an award of Performance Units, the Company may deliver to the Participant Common
Shares from its treasury shares or authorized but unissued Common Shares. Upon the exercise of any
Option, SAR or Other Equity-Based Award denominated in Common Shares, the Company may deliver to
the Participant (or the Participant’s broker if the Participant so directs), Common Shares from its
treasury shares or authorized but unissued Common Shares.

5.02. Aggregate Limit

     (a) The maximum aggregate number of Common Shares that may be issued under this Plan pursuant
to the exercise of Options and SARs, the grant of Share Awards or Other Equity-Based Awards and the
settlement of Performance Units is equal to ___percent (___%) of the number of fully diluted
Common Shares (taking into account interests in the Operating Partnership that may become
convertible into Common Shares) outstanding on the Completion Date, including any shares issued
pursuant to the exercise of the underwriters’ over-allotment option on or before the Completion
Date. Other Equity-Based Awards that are LTIP Units shall reduce the maximum aggregate number of
Common Shares that may be issued under this Plan on a one-for-one basis, i.e., each such unit shall
be treated as an award of Common Shares.

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     (b) The maximum number of Common Shares that may be issued under this Plan in accordance with
Section 5.02(a) shall be subject to adjustment as provided in Article XI.

     (c) The maximum number of Common Shares that may be issued upon the exercise of Options that
are incentive stock options or Corresponding SARs that are related to incentive stock options shall
be determined in accordance with Sections 5.02(a) and 5.02(b).

5.03. Reallocation of Shares

     If any award or grant under the Plan (including LTIP Units) expires, is forfeited or is
terminated without having been exercised or is paid in cash without delivery of Common Shares, then
any Common Shares covered by such lapsed, cancelled, expired, unexercised or cash-settled portion
of such award or grant and any forfeited, lapsed, cancelled or expired LTIP Units shall be
available for the grant of other Options, SARs, Share Awards, Other Equity-Based Awards and
settlement of Performance Units under this Plan.

ARTICLE VI

OPTIONS

6.01. Award

     In accordance with the provisions of Article IV, the Committee will designate each individual
to whom an Option is to be granted and will specify the number of Common Shares covered by such
awards. The Committee also will specify whether Dividend Equivalent Rights are granted in
conjunction with the Option.

6.02. Option Price

     The price per Common Share purchased on the exercise of an Option shall be determined by the
Committee on the date of grant, but shall not be less than the Fair Market Value on the date the
Option is granted. Notwithstanding the preceding sentence, the price per Common Share purchased on
the exercise of any Option that is an incentive stock option granted to an individual who is a Ten
Percent Shareholder on the date such option is granted, shall not be less than one hundred ten
percent (110%) of the Fair Market Value on the date the Option is granted. Except as provided in
Article XI, the price per share of an outstanding Option may not be reduced (by amendment,
cancellation and new grant or otherwise) without the approval of shareholders.

6.03. Maximum Option Period

     The maximum period in which an Option may be exercised shall be determined by the Committee on
the date of grant except that no Option shall be exercisable after the expiration of ten years from
the date such Option was granted. In the case of an incentive stock option granted

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to a Participant who is a Ten Percent Shareholder on the date of grant, such Option shall not
be exercisable after the expiration of five years from the date of grant. The terms of any Option
may provide that it is exercisable for a period less than such maximum period.

6.04. Nontransferability

     Except as provided in Section 6.05, each Option granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In the event of any
transfer of an Option (by the Participant or his transferee), the Option and any Corresponding SAR
that relates to such Option must be transferred to the same person or persons or entity or
entities. Except as provided in Section 6.05, during the lifetime of the Participant to whom the
Option is granted, the Option may be exercised only by the Participant. No right or interest of a
Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of
such Participant.

6.05. Transferable Options

     Section 6.04 to the contrary notwithstanding, if the Agreement provides, an Option that is not
an incentive stock option may be transferred by a Participant to the Participant’s children,
grandchildren, spouse, one or more trusts for the benefit of such family members or a partnership
in which such family members are the only partners, on such terms and conditions as may be
permitted under Rule 16b-3 under the Exchange Act as in effect from time to time. The holder of an
Option transferred pursuant to this Section shall be bound by the same terms and conditions that
governed the Option during the period that it was held by the Participant; provided, however, that
such transferee may not transfer the Option except by will or the laws of descent and distribution.
In the event of any transfer of an Option (by the Participant or his transferee), the Option and
any Corresponding SAR that relates to such Option must be transferred to the same person or persons
or entity or entities.

6.06. Employee Status

     For purposes of determining the applicability of Section 422 of the Code (relating to
incentive stock options), or in the event that the terms of any Option provide that it may be
exercised only during employment or continued service or within a specified period of time after
termination of employment or continued service, the Committee may decide to what extent leaves of
absence for governmental or military service, illness, temporary disability, or other reasons shall
not be deemed interruptions of continuous employment or service.

6.07. Exercise

     Subject to the provisions of this Plan and the applicable Agreement, an Option may be
exercised in whole at any time or in part from time to time at such times and in compliance with
such requirements as the Committee shall determine; provided, however, that incentive stock options
(granted under the Plan and all plans of the Company and its Affiliates) may not be first

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exercisable in a calendar year for Common Shares having a Fair Market Value (determined as of
the date an Option is granted) exceeding $100,000. An Option granted under this Plan may be
exercised with respect to any number of whole shares less than the full number for which the Option
could be exercised. A partial exercise of an Option shall not affect the right to exercise the
Option from time to time in accordance with this Plan and the applicable Agreement with respect to
the remaining shares subject to the Option. The exercise of an Option shall result in the
termination of any Corresponding SAR to the extent of the number of shares with respect to which
the Option is exercised.

6.08. Payment

     Subject to rules established by the Committee and unless otherwise provided in an Agreement,
payment of all or part of the Option price may be made in cash, certified check, by tendering
Common Shares or by attestation of ownership of Common Shares or by a broker-assisted cashless
exercise. If Common Shares are used to pay all or part of the Option price, the sum of the cash
and cash equivalent and the Fair Market Value (determined as of the day preceding the date of
exercise) of the shares surrendered must not be less than the Option price of the shares for which
the Option is being exercised.

6.09. Shareholder Rights

     No Participant shall have any rights as a shareholder with respect to Common Shares subject to
an Option until the date of exercise of such Option.

6.10. Disposition of Shares

     A Participant shall notify the Company of any sale or other disposition of Common Shares
acquired pursuant to an Option that was an incentive stock option if such sale or disposition
occurs (i) within two years of the grant of an Option or (ii) within one year of the issuance of
the Common Shares to the Participant. Such notice shall be in writing and directed to the
Secretary of the Company.

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ARTICLE VII

SARS

7.01. Award

     In accordance with the provisions of Article IV, the Committee will designate each individual
to whom SARs are to be granted and will specify the number of Common Shares covered by such awards.
The Committee also will specify whether Dividend Equivalent Rights are granted in conjunction with
the SAR. No Participant may be granted Corresponding SARs (under the Plan and all plans of the
Company and its Affiliates) that are related to incentive stock options which are first exercisable
in any calendar year for Common Shares having an aggregate Fair Market Value (determined as of the
date the related Option is granted) that exceeds $100,000.

7.02. Maximum SAR Period

     The term of each SAR shall be determined by the Committee on the date of grant, except that no
SAR shall have a term of more than ten years from the date of grant. In the case of a
Corresponding SAR that is related to an incentive stock option granted to a Participant who is a
Ten Percent Shareholder on the date of grant, such Corresponding SAR shall not be exercisable after
the expiration of five years from the date of grant. The terms of any SAR may provide that it has a
term that is less than such maximum period.

7.03. Nontransferability

     Except as provided in Section 7.04, each SAR granted under this Plan shall be nontransferable
except by will or by the laws of descent and distribution. In the event of any such transfer, a
Corresponding SAR and the related Option must be transferred to the same person or persons or
entity or entities. Except as provided in Section 7.04, during the lifetime of the Participant to
whom the SAR is granted, the SAR may be exercised only by the Participant. No right or interest of
a Participant in any SAR shall be liable for, or subject to, any lien, obligation, or liability of
such Participant.

7.04. Transferable SARs

     Section 7.03 to the contrary notwithstanding, if the Agreement provides, an SAR, other than a
Corresponding SAR that is related to an incentive stock option, may be transferred by a Participant
to the Participant’s children, grandchildren, spouse, one or more trusts for the benefit of such
family members or a partnership in which such family members are the only partners, on such terms
and conditions as may be permitted under Rule 16b-3 under the Exchange Act as in effect from time
to time. The holder of an SAR transferred pursuant to this Section shall be bound by the same
terms and conditions that governed the SAR during the period that it was held by the Participant;
provided, however, that such transferee may not transfer the SAR except by will or the laws of
descent and distribution. In the event of any transfer of a Corresponding SAR

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(by the Participant or his transferee), the Corresponding SAR and the related Option must be
transferred to the same person or person or entity or entities.

7.05. Exercise

     Subject to the provisions of this Plan and the applicable Agreement, an SAR may be exercised
in whole at any time or in part from time to time at such times and in compliance with such
requirements as the Committee shall determine; provided, however, that a Corresponding SAR that is
related to an incentive stock option may be exercised only to the extent that the related Option is
exercisable and only when the Fair Market Value exceeds the option price of the related Option. An
SAR granted under this Plan may be exercised with respect to any number of whole shares less than
the full number for which the SAR could be exercised. A partial exercise of an SAR shall not
affect the right to exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR. The exercise of a
Corresponding SAR shall result in the termination of the related Option to the extent of the number
of shares with respect to which the SAR is exercised.

7.06. Employee Status

     If the terms of any SAR provide that it may be exercised only during employment or continued
service or within a specified period of time after termination of employment or continued service,
the Committee may decide to what extent leaves of absence for governmental or military service,
illness, temporary disability or other reasons shall not be deemed interruptions of continuous
employment or service.

7.07. Settlement

     At the Committee’s discretion, the amount payable as a result of the exercise of an SAR may be
settled in cash, Common Shares, or a combination of cash and Common Shares. No fractional share
will be deliverable upon the exercise of an SAR but a cash payment will be made in lieu thereof.

7.08. Shareholder Rights

     No Participant shall, as a result of receiving an SAR, have any rights as a shareholder of the
Company or any Affiliate until the date that the SAR is exercised and then only to the extent that
the SAR is settled by the issuance of Common Shares. Notwithstanding the foregoing, the Committee
may provide in an Agreement that the holder of an SAR is entitled to Dividend Equivalents during
the period beginning on the date of the award and ending on the date the SAR is exercised.

ARTICLE VIII

SHARE AWARDS

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8.01. Award

     In accordance with the provisions of Article IV, the Committee will designate each individual
to whom a Share Award is to be made and will specify the number of Common Shares covered by such
awards.

8.02. Vesting

     The Committee, on the date of the award, may prescribe that a Participant’s rights in a Share
Award shall be forfeitable or otherwise restricted for a period of time or subject to such
conditions as may be set forth in the Agreement. By way of example and not of limitation, the
Committee may prescribe that a Participant’s rights in a Share Award shall be forfeitable or
otherwise restricted subject to the attainment of objectives stated with reference to the
Company’s, an Affiliate’s or a business unit’s attainment of objectives stated with respect to
performance criteria established by the Committee.

8.03. Employee Status

     In the event that the terms of any Share Award provide that shares may become transferable and
nonforfeitable thereunder only after completion of a specified period of employment or continuous
service, the Committee may decide in each case to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be deemed interruptions
of continuous employment or service.

8.04. Shareholder Rights

     Unless otherwise specified in accordance with the applicable Agreement, while the Common
Shares granted pursuant to the Share Award may be forfeited or are nontransferable, a Participant
will have all rights of a stockholder with respect to a Share Award, including the right to receive
dividends and vote the shares; provided, however, that during such period (i) a Participant may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares granted pursuant to a
Share Award, (ii) the Company shall retain custody of the certificates evidencing shares granted
pursuant to a Share Award, and (iii) the Participant will deliver to the Company a stock power,
endorsed in blank, with respect to each Share Award. The limitations set forth in the preceding
sentence shall not apply after the shares granted under the Share Award are transferable and are no
longer forfeitable.

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ARTICLE IX

PERFORMANCE UNIT AWARDS

9.01. Award

     In accordance with the provisions of Article IV, the Committee will designate each individual
to whom an award of Performance Units is to be made and will specify the number of Common Shares or
other securities or property covered by such awards. The Committee also will specify whether
Dividend Equivalent Rights are granted in conjunction with the Performance Units.

9.02. Earning the Award

     The Committee, on the date of the grant of an award, shall prescribe that the Performance
Units will be earned, and the Participant will be entitled to receive payment pursuant to the award
of Performance Units, only upon the satisfaction of performance objectives and such other criteria
as may be prescribed by the Committee.

9.03. Payment

     In the discretion of the Committee, the amount payable when an award of Performance Units is
earned may be settled in cash, by the issuance of Common Shares, by the delivery of other
securities or property or a combination thereof. A fractional Common Share shall not be
deliverable when an award of Performance Units is earned, but a cash payment will be made in lieu
thereof. The amount payable when an award of Performance Units is earned shall be paid in a lump
sum.

9.04. Shareholder Rights

     A Participant, as a result of receiving an award of Performance Units, shall not have any
rights as a shareholder until, and then only to the extent that, the award of Performance Units is
earned and settled in Common Shares. After an award of Performance Units is earned and settled in
Common Shares, a Participant will have all the rights of a shareholder as described in Section
8.05.

9.05. Nontransferability

     Except as provided in Section 9.06, Performance Units granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. No right or interest of
a Participant in any Performance Units shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.

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9.06. Transferable Performance Units

     Section 9.05 to the contrary notwithstanding, if the Agreement provides, an award of
Performance Units may be transferred by a Participant to the Participant’s children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a partnership in which such
family members are the only partners, on such terms and conditions as may be permitted under Rule
16b-3 under the Exchange Act as in effect from time to time. The holder of Performance Units
transferred pursuant to this Section shall be bound by the same terms and conditions that governed
the Performance Units during the period that they were held by the Participant; provided, however
that such transferee may not transfer Performance Units except by will or the laws of descent and
distribution.

9.07. Employee Status

     In the event that the terms of any Performance Unit award provide that no payment will be made
unless the Participant completes a stated period of employment or continued service, the Committee
may decide to what extent leaves of absence for government or military service, illness, temporary
disability, or other reasons shall not be deemed interruptions of continuous employment or service.

ARTICLE X

OTHER EQUITY—BASED AWARDS

10.01. Award

     In accordance with the provisions of Article IV, the Committee will designate each individual
to whom an Other Equity-Based Award is to be made and will specify the number of Common Shares or
other equity interests (including LTIP Units) covered by such awards; provided, however, that the
grant of LTIP Units must satisfy the requirements of the partnership agreement of the Operating
Partnership as in effect on the date of grant. The Committee also will specify whether Dividend
Equivalent Rights are granted in conjunction with the Other Equity-Based Award.

10.02. Terms and Conditions

     The Committee, at the time an Other Equity-Based Award is made, shall specify the terms and
conditions which govern the award. The terms and conditions of an Other Equity-Based Award may
prescribe that a Participant’s rights in the Other Equity-Based Award shall be forfeitable,
nontransferable or otherwise restricted for a period of time or subject to such other conditions as
may be determined by the Committee, in its discretion and set forth in the Agreement. Other
Equity-Based Awards may be granted to Participants, either alone or in addition to other awards
granted under the Plan, and Other Equity-Based Awards may be granted in the settlement of other
Awards granted under the Plan.

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10.03. Payment or Settlement

     Other Equity-Based Awards valued in whole or in part by reference to, or otherwise based on,
Common Shares, shall be payable or settled in Common Shares, cash or a combination of Common Shares
and cash, as determined by the Committee in its discretion; provided, however, that any Common
Shares that are issued on account of the conversion of LTIP Units into Common Stock shall not be
issued under the Plan. Other Equity-Based Awards denominated as equity interests other than Common
Shares may be paid or settled in shares or units of such equity interests or cash or a combination
of both as determined by the Committee in its discretion.

10.04. Employee Status

     If the terms of any Other Equity-Based Award provides that it may be earned or exercised only
during employment or continued service or within a specified period of time after termination of
employment or continued service, the Committee may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons shall not be
deemed interruptions of continuous employment or service.

10.05. Shareholder Rights

     A Participant, as a result of receiving an Other Equity-Based Award, shall not have any rights
as a shareholder until, and then only to the extent that, the Other Equity-Based Award is earned
and settled in Common Shares.

ARTICLE XI

ADJUSTMENT UPON CHANGE IN COMMON STOCK

     The maximum number of Common Shares as to which Options, SARs, Performance Units, Share Awards
and Other Equity-Based Awards may be granted and the terms of outstanding Share Awards, Options,
SARs, Performance Units and Other Equity-Based Awards shall be adjusted as determined by the Board
in the event that (i) the Company (a) effects one or more share dividends, extra-ordinary cash
dividends, share split-ups, subdivisions or consolidations of shares or (b) engages in a
transaction to which Section 424 of the Code applies or (ii) there occurs any other event which, in
the judgment of the Board necessitates such action. Any determination made under this Article XI
by the Board shall be final and conclusive.

     The issuance by the Company of shares of any class, or securities convertible into shares of
any class, for cash or property, or for labor or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the maximum number of shares as to
which Options, SARs, Performance Units, Share Awards and Other Equity-Based Awards may

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be granted or the terms of outstanding Share Awards, Options, SARs, Performance Shares or
Other Equity-Based Awards.

     The Committee may make Share Awards and may grant Options, SARs, Performance Units or Other
Equity-Based Awards in substitution for performance shares, phantom shares, stock awards, stock
options, stock appreciation rights, or similar awards held by an individual who becomes an employee
of the Company or an Affiliate in connection with a transaction described in the first paragraph of
this Article XI. Notwithstanding any provision of the Plan (other than the limitation of Section
5.02), the terms of such substituted Share Awards, SARs, Other Equity-Based Awards, Options or
Performance Units shall be as the Committee, in its discretion, determines is appropriate.

ARTICLE XII

COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES

     No Option or SAR shall be exercisable, no Common Shares shall be issued, no certificates for
Common Shares shall be delivered, and no payment shall be made under this Plan except in compliance
with all applicable federal and state laws and regulations (including, without limitation,
withholding tax requirements), any listing agreement to which the Company is a party, and the rules
of all domestic stock exchanges on which the Company’s shares may be listed. The Company shall
have the right to rely on an opinion of its counsel as to such compliance. Any certificate issued
to evidence Common Shares when a Share Award is granted, a Performance Unit or Other Equity-Based
Award is settled or for which an Option or SAR is exercised may bear such legends and statements as
the Committee may deem advisable to assure compliance with federal and state laws and regulations.
No Option or SAR shall be exercisable, no Share Award or Performance Unit shall be granted, no
Common Shares shall be issued, no certificate for Common Shares shall be delivered, and no payment
shall be made under this Plan until the Company has obtained such consent or approval as the
Committee may deem advisable from regulatory bodies having jurisdiction over such matters.

ARTICLE XIII

GENERAL PROVISIONS

13.01. Effect on Employment and Service

     Neither the adoption of this Plan, its operation, nor any documents describing or referring to
this Plan (or any part thereof), shall confer upon any individual or entity any right to continue
in the employ or service of the Company or an Affiliate or in any way affect any right and power of
the Company or an Affiliate to terminate the employment or service of any individual or entity at
any time with or without assigning a reason therefor.

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13.02. Unfunded Plan

     This Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be
required to segregate any assets that may at any time be represented by grants under this Plan.
Any liability of the Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on,
any property of the Company.

13.03. Rules of Construction

     Headings are given to the articles and sections of this Plan solely as a convenience to
facilitate reference. The reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.

13.04. Withholding Taxes

     Each Participant shall be responsible for satisfying any income and employment tax withholding
obligations attributable to participation in the Plan. Unless otherwise provided by the Agreement,
any such withholding tax obligations may be satisfied in cash (including from any cash payable in
settlement of an award of Performance Units, SARs or Other Equity-Based Award) or a cash equivalent
acceptable to the Committee. Any minimum statutory federal, state, district or city withholding
tax obligations also may be satisfied (a) by surrendering to the Company Common Shares previously
acquired by the Participant; (b) by authorizing the Company to withhold or reduce the number of
Common Shares otherwise issuable to the Participant upon the exercise of an Option or SAR, the
settlement of a Performance Unit award or an Other Equity-Based Award (if applicable) or the grant
or vesting of a Share Award; or (c) by any other method as may be approved by the Committee. If
Common Shares are used to pay all or part of such withholding tax obligation, the Fair Market Value
of the shares surrendered, withheld or reduced shall be determined as of the day the tax liability
arises.

ARTICLE XIV

CHANGE IN CONTROL

14.01. Impact of Change in Control.

     Upon a Change in Control, the Committee is authorized to cause (i) outstanding Options and
SARs to become fully exercisable, (ii) outstanding Share Awards to become transferable and
nonforfeitable and (iii) outstanding Performance Units and Other Equity-Based Awards to become
earned and nonforfeitable in their entirety.

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14.02. Assumption Upon Change in Control.

     In the event of a Change in Control, the Committee, in its discretion and without the need for
a Participant’s consent, may provide that an outstanding Option, SAR, Share Award, Performance Unit
or Other Equity-Based Award shall be assumed by, or a substitute award granted by, the surviving
entity in the Change in Control. Such assumed or substituted award shall be of the same type of
award as the original Option, SAR, Share Award, Performance Unit or Other Equity-Based Award being
assumed or substituted. The assumed or substituted award shall have a value, as of the Control
Change Date, that is substantially equal to the value of the original award (or the difference
between the Fair Market Value and the option price or Initial Value in the case of Options and
SARs) as the Committee determines is equitably required and such other terms and conditions as may
be prescribed by the Committee.

14.03. Cash-Out Upon Change in Control.

     In the event of a Change in Control, the Committee, in its discretion and without the need of
a Participant’s consent, may provide that each Option, SAR, Share Award and Performance Unit and
Other Equity-Based Award shall be cancelled in exchange for a payment. The payment may be in
cash, Common Shares or other securities or consideration received by shareholders in the Change in
Control transaction. The amount of the payment shall be an amount that is substantially equal to
(i) the amount by which the price per share received by shareholders in the Change in Control
exceeds the option price or Initial Value in the case of an Option and SAR, or (ii) the price per
share received by shareholders for each Common Share subject to a Share Award, Performance Unit or
Other Equity-Based Award or (iii) the value of the other securities or property in which the
Performance Unit or Other Equity-Based award is denominated. If the option price or Initial Value
exceeds the price per share received by shareholders in the Change in Control transaction, the
Option or SAR may be cancelled under this Section 14.03 without any payment to the Participant.

14.04. Limitation of Benefits

     The benefits that a Participant may be entitled to receive under this Plan and other benefits
that a Participant is entitled to receive under other plans, agreements and arrangements (which,
together with the benefits provided under this Plan, are referred to as “Payments”), may constitute
Parachute Payments that are subject to Code Sections 280G and 4999. As provided in this Section
14.04, the Parachute Payments will be reduced if, and only to the extent that, a reduction will
allow a Participant to receive a greater Net After Tax Amount than a Participant would receive
absent a reduction.

     The Accounting Firm will first determine the amount of any Parachute Payments that are payable
to a Participant. The Accounting Firm also will determine the Net After Tax Amount attributable to
the Participant’s total Parachute Payments.

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     The Accounting Firm will next determine the largest amount of Payments that may be made to the
Participant without subjecting the Participant to tax under Code Section 4999 (the “Capped
Payments”). Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable
to the Capped Payments.

     The Participant will receive the total Parachute Payments or the Capped Payments, whichever
provides the Participant with the higher Net After Tax Amount. If the Participant will receive the
Capped Payments, the total Parachute Payments will be adjusted by first reducing the amount of any
noncash benefits under this Plan or any other plan, agreement or arrangement (with the source of
the reduction to be directed by the Participant) and then by reducing the amount of any cash
benefits under this Plan or any other plan, agreement or arrangement (with the source of the
reduction to be directed by the Participant). The Accounting Firm will notify the Participant and
the Company if it determines that the Parachute Payments must be reduced to the Capped Payments and
will send the Participant and the Company a copy of its detailed calculations supporting that
determination.

     As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time
that the Accounting Firm makes its determinations under this Article XIV, it is possible that
amounts will have been paid or distributed to the Participant that should not have been paid or
distributed under this Section 14.04 (“Overpayments”), or that additional amounts should be paid or
distributed to the Participant under this Section 14.04 (“Underpayments”). If the Accounting Firm
determines, based on either the assertion of a deficiency by the Internal Revenue Service against
the Company or the Participant, which assertion the Accounting Firm believes has a high probability
of success or controlling precedent or substantial authority, that an Overpayment has been made,
the Participant must repay to the Company, without interest; provided, however, that no loan will
be deemed to have been made and no amount will be payable by the Participant to the Company unless,
and then only to the extent that, the deemed loan and payment would either reduce the amount on
which the Participant is subject to tax under Code Section 4999 or generate a refund of tax imposed
under Code Section 4999. If the Accounting Firm determines, based upon controlling precedent or
substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the
Participant and the Company of that determination and the amount of that Underpayment will be paid
to the Participant promptly by the Company.

     For purposes of this Section 14.04, the term “Accounting Firm” means the independent
accounting firm engaged by the Company immediately before the Control Change Date. For purposes of
this Article XIV, the term “Net After Tax Amount” means the amount of any Parachute Payments or
Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and
any State or local income taxes applicable to the Participant on the date of payment. The
determination of the Net After Tax Amount shall be made using the highest combined effective rate
imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped
Payments, as applicable, in effect on the date of payment. For purposes of this Section 14.04, the
term “Parachute Payment” means a payment that is

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described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the
regulations promulgated or proposed thereunder.

     Notwithstanding any other provision of this Section 14.04, the limitations and provisions of
this Section 14.04 shall not apply to any Participant who, pursuant to an agreement with the
Company or the terms of another plan maintained by the Company, is entitled to indemnification for
any liability that the Participant may incur under Code Section 4999.

ARTICLE XV

AMENDMENT

     The Board may amend or terminate this Plan at any time; provided, however, that no amendment
may adversely impair the rights of Participants with respect to outstanding awards. In addition,
an amendment will be contingent on approval of the Company’s shareholders if such approval is
required by law or the rules of any exchange on which the Common Shares are listed or if the
amendment would materially increase the benefits accruing to Participants under the Plan,
materially increase the aggregate number of Common Shares that may be issued under the Plan or
materially modify the requirements as to eligibility for participation in the Plan.

ARTICLE XVI

DURATION OF PLAN

     No Share Award, Performance Unit Award, Option, SAR or Other Equity-Based Award may be granted
under this Plan after the day before the tenth anniversary of the date that the Plan is adopted by
the Board. Share Awards, Performance Unit awards, Options, SARs and Other Equity-Based Awards
granted before such date shall remain valid in accordance with their terms.

ARTICLE XVII

EFFECTIVE DATE OF PLAN

     Options, Share Awards, Performance Units and Other Equity-Based Awards may be granted under
this Plan on and after the date that the Plan is adopted by the Board, provided that, this Plan
shall not be effective unless approved by holders of a majority of the outstanding Common Shares
entitled to vote and present or represented by properly executed and delivered proxies at a duly
held shareholders’ meeting at which a quorum is present or by unanimous consent of the
shareholders, within twelve months before or after the date that the Plan is adopted by the Board.

-21-

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