Document:

ex10_3.htm

Exhibit 10.3

CHANGE IN CONTROL BENEFIT AGREEMENT

AGREEMENT by and among First Security Group, Inc., a Tennessee corporation having its principal offices in Chattanooga, Tennessee (“First Security”), FSGBank, National Association (“Bank”), which is a wholly owned subsidiary of First Security, and Robyn Thomas McWherter (the “Executive”), dated as of the 23rd day of June, 2004.

The parties desire to enter into an agreement in the manner set forth with respect to certain aspects of the Executive’s employment by Bank.

NOW THEREFORE, in consideration of the mutual covenants contained herein, First Security, Bank and the Executive agree as follows:

Section 1            Effective Date and Term.

The effective date (the “Effective Date”) of this Agreement shall be July 1, 2004.  The term of this Agreement shall begin on the Effective Date and continue for so long as Executive shall remain employed by First Security, Bank or any other subsidiary bank or other direct or indirect subsidiary of First Security (individually a “Subsidiary” and collectively the “Subsidiaries”).  For purposes of this Agreement, “Term” shall mean the term of this Agreement as set forth in this Section 1.

Section 2            Termination Upon a Change in Control.

The Executive shall be entitled to receive the benefits described in this Section 2 upon her Involuntary Termination during the twelve (12) month period following a Change in Control.

(a)  Payments and Benefits Provided.

(i)  Lump Sum Payment.  First Security shall pay the Executive a lump sum cash payment within thirty (30) days of the date of Involuntary Termination (the “Termination Date”) equal to the sum of (A) her current annual base salary (“Annual Base Salary”), determined without regard to any proposed or actual reduction in Annual Base Salary that is a Good Reason reduction under subsection (b)(iii), below; and (B) the “target” annual incentive as set forth in First Security’s Wealth Management/Trust Group Incentive Compensation Plan (or any successor thereto), as outlined in Executive’s employment offer letter from First Security.

(ii)  Medical Plan Continuation.  First Security shall continue to make available coverage to the Executive (and Executive’s dependents) under the applicable medical plan (which may include dental, vision, and general health coverage), on the same terms and conditions as are available to active employees of First Security, and its Subsidiaries, for Final Thomas the twelve (12) month period commencing on the Termination Date.  If, because the Executive is no longer an employee of First Security, Bank or any Subsidiary, First Security shall be unable to make available coverage under the medical benefit plan required to be made available pursuant to this subsection to the Executive or to the Executive’s dependents, First Security shall pay to the Executive a lump sum cash payment within sixty (60) days of the Termination Date equal to the aggregate amount First Security would have paid over the twelve (12) month period described above as its portion of the cost of providing the medical plan coverage described above and based on the level of coverage that the Executive had in place as of the Termination Date.  The lump sum shall be determined and payable as an amount that is not reduced by calculating the present value of the stream of payments that First Security would have made over the twelve (12) month period if such coverage had been available.

  

  

  

(iii)  Long-Term Incentive Plan.  The Executive shall be provided the payment or benefit on account of Involuntary Termination as such payment relates to any long-term incentives provided to her in accordance with the terms of the Second Amended and Restated 1999 Long-Term Incentive Plan of First Security Group, Inc., the First Security Group, Inc. 2002 Long-Term Incentive Plan, and any successor to either plan.

(iv)  Retirement Benefit Plan.  The Executive shall be provided the payment or benefit on account of Involuntary Termination as such payment or benefit relates to or is from any supplemental retirement plan established on or after the Effective Date, and any successor to such plan, in accordance with the terms of the applicable plan.

(b)  Definitions.  For purposes of applying this Section 2, the following definitions shall apply:

(i)  “Cause.”  Cause shall mean:

A.  the Executive’s documented material breach of any code of ethics, lending policy, personnel policy or other relevant policy of First Security, Bank or other Subsidiary by which Executive may be employed.

B.  documented material misconduct by the Executive in the performance of job responsibilities.

C.  documented public conduct by the Executive which brings, causes or results in embarrassment, ridicule or other undesirable publicity to the Executive or to First Security, Bank or other Subsidiary.

D.  the Executive’s conviction of a felony involving acts of moral turpitude, theft involving misappropriation of funds or unlawful business conduct.

For purposes of this provision, “documented” shall mean a written finding by the Executive Committee of the First Security Board of Directors (the “Board”), after review of the facts and circumstances, that the Executive has engaged in the conduct described in clauses A, B or C above.

(ii)  “Change in Control” means and includes the occurrence of anyone of the following events but shall specifically exclude a Public Offering:

A.  individuals who, on the Effective Date, constitute the Board (the “Incumbent Directors”), cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director after the Effective Date and whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of First Security as a result of an actual or threatened election contest with respect to the election or removal of directors (“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of any “person” (such term for purposes of this definition being as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (“Exchange Act”) and as used in Section 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Board (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or

B.  any person is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either (I) 20% or more of the then-outstanding shares of common stock of First Security (“Company Common Stock”) or (II) securities of First Security representing 20% or more of the combined voting power of First Security’s then outstanding securities eligible to vote for the election of directors (“Company Voting Securities”); provided, however, that for purposes of this clause (B), the following acquisitions shall not constitute a Change of Control: (w) an acquisition directly from First Security, (x) an acquisition by First Security or a subsidiary of First Security, (y) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by First Security or any subsidiary of First Security, or (z) an acquisition pursuant to a Non-Qualifying Transaction (as defined in clause (C), below); or

  

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C.  the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving First Security or a subsidiary of First Security which requires the approval of the Federal Reserve Board, Federal Deposit Insurance Corporation, the Tennessee Department of Financial Institutions, the Georgia Department of Banking and Finance, the Comptroller of the Currency and/or any other state or federal regulator of federally insured financial institutions (a “Reorganization”), or the sale or other disposition of all or substantially all of First Security’s assets (a “Sale”) or the acquisition of assets or stock of another corporation (an “Acquisition”), unless immediately following such Reorganization, Sale or Acquisition:  (I) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Reorganization, Sale or Acquisition (including, without limitation, a corporation which as a result· of such transaction owns First Security or all or substantially all of First Security’s assets or stock either directly or through one or more subsidiaries, the “Surviving Corporation”) in substantially the same proportions as their ownership, immediately prior to such Reorganization, Sale or Acquisition, of the outstanding Company Common Stock and the outstanding Company Voting Securities, as the case may be, and (II) no person (other than (x) First Security or any subsidiary of First Security, (y) the Surviving Corporation or its ultimate parent corporation, or (z) any employee benefit plan (or related trust) sponsored or maintained by any of the foregoing) is the beneficial owner, directly or indirectly, of 20% or more of the total common stock or 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Surviving Corporation, and (III) at least a majority of the members of the board of directors of the Surviving Corporation were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Reorganization, Sale or Acquisition (any Reorganization, Sale or Acquisition which satisfies all of the criteria specified in (1), (II) and (III) above shall be deemed to be a “Non-Qualifying Transaction”); or

D.  approval by the stockholders of First Security of a complete liquidation or dissolution of First Security.

(iii)  “Good Reason” shall mean the Executive’s voluntary termination of employment after anyone or more of the following events has occurred and not been corrected within fifteen (15) days of written notice from the Executive to the Board, unless the Executive consents to the event in writing delivered to the Board:

A.  assigning the Executive to any duties materially inconsistent with the Executive’s position, duties or responsibilities immediately prior to the termination;

B.  a material reduction in the Executive’s title or material change in reporting responsibilities immediately prior to the termination;

  

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C.  a reduction in the Executive’s Annual Base Salary of ten percent (10%) or more as in effect immediately prior to the termination (or as the same may be increased from time to time), unless any change to any such Annual Base Salary affects all of the individuals whose positions are considered comparable to Executive’s, determined immediately prior to the termination;

D.  requiring the Executive to relocate to an office at a location more than thirty (30) miles from the physical facility of First Security, Bank or any other Subsidiary at which the Executive performed services as an employee immediately prior to the termination; and

E.  First Security (or its successor), Bank or other Subsidiary failing to provide the Executive with substantially the same welfare benefits, perquisites, retirement benefits and other employee programs, as were provided to Executive immediately prior to the termination (unless any change to any such program affects all of the individuals whose positions are considered comparable to Executive’s, determined immediately prior to the termination).

(iv)  “Involuntary Termination” means the Executive’s termination from employment with First Security, Bank or any other Subsidiary involuntarily, including for Good Reason, other than on account of the Executive’s death, disability, retirement or termination for Cause.

(v)  “Public Offering” means the effective time and date of a registration statement filed by First Security under the Securities Act of 1933, for a public offering or any class or series of First Security’s equity securities.

Section 3            Limitation of Additional Payment.

In the event that any payment or distribution by First Security to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a “Payment”), would result in all or a portion of such payment to be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the “Excise Tax”), then the Payments, in the aggregate, will be reduced to the level that does not incur the Excise Tax.

Section 4            Covenant not to Compete; Non-Solicitation; Confidential Information.

(a)  Covenant not to Compete.  Except as otherwise provided herein, during the Term of this Agreement and for a period of twelve (12) months after the Termination Date, the Executive shall not directly or indirectly own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed in a position comparable to the Executive’s position at First Security immediately prior to the Termination Date, any competing business, whether for compensation or otherwise, without the prior written consent of First Security. For the purposes of this Agreement, a “competing business” shall be any business that is a federally insured financial institution, or affiliate of such institution in the territory described on Exhibit A attached hereto.  Notwithstanding the foregoing, ownership as a passive investment of not more than five percent (5%) of the issued and outstanding voting securities of a competing business strictly for investment purposes shall not be a violation of this Section 4.

(b)  Non-Solicitation.  Except as otherwise provided herein, during the Term of this Agreement and for a period of twelve (12) months after the Termination Date, the Executive shall not, directly or indirectly, (i) solicit, without the prior written consent of First Security, anyone or any entity that is a customer of First Security as of the Termination Date or was a customer of First Security during the twelve (12) month period ending on the Termination Date, for the purpose of providing any banking services or products that First Security provided (or could have provided) to such customer; and (ii) without the prior written consent of First Security, (A) solicit the employment of any person employed by First Security at any time during the twelve (12) months prior to the Termination Date, (B) become associated with any person or entity which employs, is provided services by or otherwise has any contractual relationship with any person, employed by First Security in any senior management capacity during the twelve (12) months prior to the Termination Date or (C) otherwise disrupt, impair, damage, or interfere with First Security’s relationship with its employees.

  

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(c)  Restrictions Not Applicable.  Except as provided in the second sentence of this Section 4(c), the restrictions on Executive’s activities following termination of employment set forth in Sections 4(a) and 4(b) shall be in effect only if (a) Executive’s employment is terminated for Cause or (b) Executive is receiving the benefits provided under Section 2.  The restrictions set forth in clause (i) of Section 4(b) shall remain in effect if Executive terminates her employment voluntarily, other than for Good Reason, with respect to those customers of FSG with which Executive did not have a banking relationship as of the date of this Agreement.

(d)  Confidential Information.  The Executive acknowledges that as an employee of First Security, she will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to First Security and its strategic plan and financial operations.  The Executive also recognizes and acknowledges that all confidential information is the exclusive property of First Security, is material and confidential, and is critical to the successful conduct of the business of First Security.  The Executive agrees that she shall not at any time disclose to any other person (except as required by applicable law or in connection with the performance of her duties and responsibilities hereunder), or use for her own benefit or gain, any confidential information of First Security obtained by her incident to her employment with First Security. The term “confidential information” includes, without limitation, financial information, business plans, prospects and opportunities (such as relationships, product developments, or possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of First Security but does not include any information which has become part of the public domain by means other than the Executive’s nonobservance of her obligations hereunder.

(e)  Remedies for Violations of Section 4.

(i)  Cessation of Payments and Repayment of Payments.  The Executive acknowledges that all payments to be made in accordance with this Agreement while employed by First Security, and that all payments to be made in accordance with this Agreement upon termination of employment with First Security, are conditioned upon the Executive fulfilling the covenants contained in this Section 4.  The Executive and First Security acknowledge that this Agreement would not have been entered into and the benefits described in Section 2 would not have been promised in the absence of the Executive’s promises under this Section 4.  The Executive also acknowledges that First Security may require repayment of any payments made in accordance with Section 2 upon any violation by the Executive of the covenants contained in this Section 4 and that First Security may cease any payments that are to be provided but have not been made prior to such violation; provided, however, that for purposes of this subsection (e)(i), the date as of which a violation of this Section 4 shall be deemed to have occurred shall be the date determined by a court of equity or law.

(ii)  Additional Remedies.  In addition to cessation or repayment of payments described in subsection (e)(i), above, the Executive acknowledges and agrees that First Security shall have no adequate remedy and could be irreparably harmed if the Executive breaches or threatens to breach any of the provisions of this Section 4.  The Executive agrees that First Security shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 4, and to specific performance of each of the terms hereof in addition to any other legal or equitable remedies that First Security may have.  The Executive agrees that she shall not, in any equity proceeding relating to the enforcement of the terms of this Section 4, raise the defense that First Security has an adequate remedy at law.

  

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(iii)  Separate and Enforceable Provisions.  The terms and provisions of this Section 4 are intended to be separate and divisible provisions and if, for any reason, anyone or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected.  The parties acknowledge that the potential restrictions on the Executive’s future employment imposed by this Section 4 are reasonable in both duration and geographic scope and in all other respects.  If for any reason any court of competent jurisdiction shall find any provisions of this Section 4 unreasonable in duration or geographic scope or otherwise, the Executive and First Security agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction.

(f)  First Security. Banks and Subsidiaries.  For purposes of this Section 4, the term “First Security” shall also include Bank and all other Subsidiaries.

Section 5            Conflicting Agreements.

The Executive hereby represents and warrants that the execution of this Agreement and the performance of her obligations hereunder will not breach or be in conflict with any other agreement to which she is a party or is bound, and that she is not now subject to any covenants against competition or similar covenants which would affect the performance of her obligation hereunder.

Section 6            Payments; Withholding.

Payments due to Executive by First Security under any provision of the Agreement may be made by Bank in full satisfaction of such payment obligation.  All payments made by First Security or Bank under this Agreement shall be net of any tax or other amounts required to be withheld under applicable law.

Section 7            Superseding Prior Agreements, No Employment Agreement.

This Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter thereof.  This Agreement is not an agreement of employment and nothing herein shall change Executive’s status as an employee at will.

Section 8             Arbitration of Disputes.

Except as otherwise provided in Section 4, any controversy or claim between the parties arising from or relating to this Agreement or any breach thereof shall be settled by arbitration administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules unless such controversy or claim is specifically excepted from arbitration herein.  Any judgment on any award rendered pursuant to any arbitration proceeding conducted in accordance with this Agreement may be entered and enforced in any court having jurisdiction thereof.  The parties agree to keep the subject matter of any arbitration proceeding, the information exchanged in connection with any arbitration proceeding and the results of any arbitration proceeding completely confidential, except as necessary to acquire sources of proof for the arbitration proceeding and to enforce any arbitration award.  Unless otherwise agreed in writing, any arbitration proceeding shall be conducted by a panel of three neutral arbitrators (the “Arbitration Panel”) chosen in accordance with the AAA’s Commercial Arbitration Rules.  Any arbitration proceeding held under this Agreement shall be conducted in Chattanooga, Tennessee unless otherwise agreed.

  

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Section 9            Assignment; Successor and Assigns, etc.

Neither First Security, Bank nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, and without such consent any attempted transfer or assignment shall be null and of no effect; provided, however, that First Security shall assign its rights under this Agreement in the event First Security shall hereafter effect a reorganization, consolidate with or merge into any other entity, or transfer all or substantially all of its properties or assets to any other entity; and provided further that Bank’s interest in this Agreement and the interest of any subsequent assignee under this clause shall automatically be assigned, without the necessity for consent or other action on the part of any party, to First Security or any Subsidiary which may employ Executive at any time after the Effective Date.  This Agreement shall inure to the benefit of and be binding upon First Security, Bank and Executive, their respective successors, executors, administrators, heirs and permitted assigns.

Section 10          Enforceability.

If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

The failure of Executive, First Security or Bank to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive, First Security or Bank may have hereunder, including without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 2, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

First Security shall pay all legal fees, consulting fees and other related expenses incurred by the Executive in seeking to obtain or enforce payment, benefit or right provided in this Agreement; provided, however, that the Executive shall be required to repay any such amounts to First Security to the extent that an arbitrator or a court of competent jurisdiction issues a final, unappealable order setting forth a determination that the position taken by the Executive was frivolous or advanced in bad faith.

Section 11          Waiver.

No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

Section 12          Notice.

Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by registered or certified mail, postage prepaid, to the Executive at the last known address the Executive has filed in writing with First Security or, in the case of First Security or Bank, at the main offices of First Security, attention of the Chairman of the Compensation Committee of the Board.

  

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Section 13          Amendment.

This Agreement may be amended or modified only by a written instrument signed by the Executive and by duly authorized representatives of First Security and Bank.

Section 14          Governing Law.

This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee, without reference to principles of conflicts of laws.  The captions of this Agreement are not part of the provisions hereof and shall have no force and effect.  This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by First Security Group, Inc., by its duly authorized representative, by FSG Bank, by its duly authorized officer, and by the Executive, effective as of the date first above written.

	  	
FIRST SECURITY:

	  	  	  
	  	
FIRST SECURITY GROUP, INC.

	  	  	  
	  	
By:

	  
	  	
Harold Anders,

	  	
Chair, Compensation Committee

	  	  	  
	  	
BANK:

	  
	  	  	  
	  	
FSGBANK, NATIONAL ASSOCIATION

	  	
By:

	  
	  	
Chairman of the Board

	  	  	  
	  	
EXECUTIVE:

	  	  	  
	  	  
	  	
Robyn Thomas McWherter

  

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FIRST AMENDMENT TO THE

CHANGE IN CONTROL BENEFIT AGREEMENT

This First Amendment to the Change in Control Benefit Agreement by and among First Security Group, Inc., a Tennessee corporation having its principal offices in Chattanooga, Tennessee (“First Security”), FSGBank, National Association (“Bank”), which is a wholly owned subsidiary of First Security, and Robyn Thomas (formerly Robyn Thomas McWherter) (the “Executive”), dated as of the 23rd day of June, 2004 (“Agreement”).

W I T N E S S E T H:

WHEREAS, First Security, Bank, and the Executive have previously entered into the Agreement;

WHEREAS, First Security, Bank and the Executive desire to amend the Agreement to address the provisions of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, as well as to make certain other technical changes;

NOW, THEREFORE, in consideration of the premises set forth above and the mutual agreement set forth herein, First Security, Bank and the Executive hereby agree, effective as of the date of the execution of this First Amendment, that the Agreement shall be amended as herein provided:

1.

Section 2(a)(ii) of the Agreement is amended to read as follows:

(ii)  Medical Plan Continuation.  If, at the Termination Date, the Executive participates in one or more health plans maintained by First Security or any Subsidiary (which may include dental, vision, and general health coverage), and the Executive is eligible for and elects to receive continued coverage under such plan(s) in accordance with the Consolidated Omnibus Budge Reconciliation Act of 1985 (“COBRA”) or any successor law, First Security shall reimburse the Executive during the 12-month period following the Termination Date or, if shorter, the period of such actual COBRA continuation coverage, the difference between the total amount of the monthly COBRA premiums actually paid by the Executive for such continued health plan benefits and the total monthly amount of the premiums charged to employees of First Security or any Subsidiary for the same health plan coverage.  Such reimbursement obligation of First Security shall terminate upon the earlier of (i) the 12-month period described above, or (ii) the date the Executive becomes eligible for health coverage under a subsequent employer’s plan without being subject to any preexisting-condition exclusion under that plan, which the Executive shall promptly report to First Security.

Section 2(b)(iii) of the Agreement is amended to read as follows:

(iii)  “Good Reason” shall mean the Executive’s voluntary termination of employment after any one or more of the following events, unless the Executive consents to the event in writing delivered to the Board:

A.  a material diminution in the Executive’s authority, duties, or responsibilities, including a material diminution in the budget over which the Executive retains authority;

  

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B.  a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Executive is required to report;

C.  a material diminution in the Executive’s Annual Base Salary (as the same may be increased from time to time), unless any change to any such Annual Base Salary affects all of the individuals whose positions are considered comparable to that of the Executive (for this purpose, a ten percent (10%) or greater reduction in the Executive’s Annual Base Salary shall be considered as material);

D.  a material change in geographic office location at which the Executive is required to perform services (for this purpose, a change of 30 miles or more shall be considered as material); and

E.  any other action or inaction that constitutes a material breach by First Security or any Subsidiary of the terms of this Agreement.

For purposes of this Section, the Executive must provide the Board with written notice of the condition above within ninety (90) days of its initial existence, and such condition shall not constitute Good Reason in the event the condition is remedied within thirty (30) days of such notice.

3.

A new Section 15 shall be added to the Agreement to read as follows:

Section 15          Compliance with Internal Revenue Code Section 409A .

The compensation and benefits payable under this Agreement are intended to be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules, regulations, and guidance of general application issued thereunder (“Code Section 409A”).  The provisions of this Agreement shall be construed and interpreted in a manner that compensation and benefits are exempt from the application of Code Section 409A, and which does not result in additional tax or interest to the Executive under Code Section 409A.  Notwithstanding the foregoing, if upon the Executive’s termination of employment the Executive is a specified employee, as defined in Code Section 409A, and if any payments under this Agreement would result in additional tax or interest to the Executive pursuant to Code Section 409A, then such payments shall be delayed until the earliest of (a) the date that is at least six months after the Executive terminates employment for reasons other than the Executive’s death, (b) the date of the Executive’s death, or (c) any earlier date that does not result in additional tax or interest to the Executive under Code Section 409A.  As soon as practicable after the expiration of such period, the entire amount of the delayed payments shall be paid to the Executive in a single lump sum.  For purposes of this Agreement, termination of employment shall be construed consistently within the meaning of a “separation from service” within the meaning of Section 409A of the Code.

4.

Except as otherwise amended hereby, all terms and conditions of the Agreement are and shall remain in full force and effect, and all of such terms and conditions are hereby ratified and confirmed by the parties hereto in all respects.

  

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IN WITNESS WHEREOF, this Amendment has been executed as a sealed instrument by First Security Group, Inc., by its duly authorized representative, by FSGBank, National Association, by its duly authorized officer, and by the Executive, and shall be effective as of this the ______ day of _________________, 2008.

	  	
FIRST SECURITY:

	  	  	  
	  	
FIRST SECURITY GROUP, INC.

	  	  	  
	  	
By:

	  
	  	
Chair, Compensation Committee

	  	  	  
	  	
BANK:

	  	  	  
	  	
FSGBANK, NATIONAL ASSOCIATION

	  	
By:

	  
	  	
Chairman of the Board

	  	  	  
	  	
EXECUTIVE:

	  	  	  
	  	  

 

11SGOCO GROUP, LTD.

 

2010 EQUITY COMPENSATION PLAN

 

(AS AMENDED)

 

	
1.

	
PURPOSE OF PLAN

 

The purpose of this Plan is to promote the success of the Corporation and to increase shareholder value by providing an additional means through the grant of Awards to attract, motivate, retain and reward selected employees and other eligible persons of SGOCO Group.

 

	
2.

	
ELIGIBILITY

 

The Administrator may grant Awards under this Plan only to those persons that the Administrator determines to be Eligible Persons; provided, however, that ISOs may only be granted to an Eligible Person who is an employee of SGOCO Group.  Notwithstanding the foregoing, a person who is otherwise an Eligible Person may participate in this Plan only if such participation would not compromise the Corporation’s ability to comply with Applicable Laws (including securities laws).  A Participant may, if otherwise eligible, be granted additional Awards if the Administrator shall so determine.

 

	
3.

	
PLAN ADMINISTRATION

 

	
  

	
3.1.

	
The Administrator.  This Plan shall be administered by, and all Awards under this Plan shall be authorized by, the Administrator.  Any Committee of the Board that serves as the Administrator shall be comprised solely of one or more directors or such number of directors as may be required under Applicable Laws and may delegate some or all of its authority to another Committee so constituted.  Unless otherwise provided in the Memorandum and Articles of Association of the Corporation or the applicable charter of any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members of the Administrator shall constitute action by the acting Administrator.

 

	
  

	
3.2.

	
Powers of the Administrator.  Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or advisable in connection with the authorization of Awards and the administration of this Plan (in the case of a Committee, within the authority delegated to that Committee or person(s)), including, the authority to:

 

	
  

	
3.2.1

	
determine eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive an Award under this Plan;

 

	
  

	
3.2.2

	
grant Awards to Eligible Persons, determine the price at which securities will be offered or awarded and the number of securities to be offered or awarded to any of such persons, determine the other specific terms and conditions of such Awards consistent with the express limits of this Plan, establish the installments (if any) in which such Awards shall become exercisable or shall vest (which may include, performance and/or time-based schedules), or determine that no delayed exercisability or vesting is required, establish any applicable performance targets, establish the events of termination or reversion of such Awards, and determine whether to repurchase any Ordinary Shares acquired by a Participant under an Award;

 

	
  

	
3.2.3

	
approve the forms of Award Documents (which need not be identical either as to type of Award or among Participants);

 

	
  

	
3.2.4

	
construe and interpret this Plan and any agreements defining the rights and obligations of SGOCO Group and Participants under this Plan and other Award Documents, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the Awards granted under this Plan;

 

  

 

  

	
  

	
3.2.5

	
cancel, modify, or waive the Corporation’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards subject to any required consent under Section 8.6.5;

 

	
  

	
3.2.6

	
accelerate or extend the vesting or exercisability or extend the term of any or all such outstanding Awards (in the case of Options or Share Appreciation Rights, within the maximum ten-year term of such Awards) in such circumstances as the Administrator may deem appropriate (including, in connection with a termination of employment or services or other events of a personal nature) subject to any required consent under Section 8.6.5 and provided that no such acceleration or extension would result in the imposition on any Participant of any taxes, penalties and/or interest under Section 409A;

 

	
  

	
3.2.7

	
adjust the number of Shares subject to any Award, adjust the price of any or all outstanding Awards or otherwise change previously imposed terms and conditions, in such circumstances as the Administrator may deem appropriate subject to any required consent under Section 8.6.5 and provided that no such adjustment or change would result in the imposition on any Participant of any taxes, penalties and/or interest under Section 409A;

 

	
  

	
3.2.8

	
determine the date of grant of an Award, which may be a designated date after but not before the date of the Administrator’s action (unless otherwise designated by the Administrator, the date of grant of an Award shall be the date upon which the Administrator took the action granting an Award);

 

	
  

	
3.2.9

	
determine whether, and the extent to which, adjustments are required pursuant to Section 7 and authorize the termination, conversion, substitution or succession of Awards upon the occurrence of an event of the type described in Section 7;

 

	
  

	
3.2.10

	
acquire or settle (subject to Sections 7 and 8.6) rights under Awards in cash, Shares of equivalent value, or other consideration or in any combination thereof;

 

	
  

	
3.2.11

	
determine the Fair Market Value of the Shares or Awards under this Plan from time to time and/or the manner in which such value will be determined;

 

	
  

	
3.2.12

	
implement a program where (A) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise or purchase prices and different terms), Awards of a different type, or cash, or (B) the exercise or purchase price of an outstanding Award is reduced, based in each case on terms and conditions determined by the Administrator in its sole discretion;

 

	
  

	
3.2.13

	
allow any Participant other than a U.S. Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due under an Award;

 

	
  

	
3.2.14

	
impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by or other subsequent transfers of any Shares issued as a result of or under an Award, including, (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers;

 

	
  

	
3.2.15

	
implement any procedures, steps or additional or different requirements as may be necessary to comply with any laws of the PRC that may be applicable to this Plan, any Award or any related documents, including, but not limited to, foreign exchange laws, tax laws and securities laws of the PRC; and

 

	
  

	
3.2.16

	
make all other determinations deemed necessary or advisable for administering the Plan.

 

  

2

  

	
  

	
3.3.

	
Binding Determinations.  Any action taken by, or inaction of, the Corporation, any Subsidiary, or the Administrator relating or pursuant to this Plan and within its authority hereunder or under Applicable Laws shall be within the absolute discretion of that entity or body and shall be final, binding and conclusive upon all persons.  Neither the Board nor any Committee, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan (or any Award made under this Plan), and all such persons shall be entitled to indemnification and reimbursement by SGOCO Group in respect of any claim, loss, damage or expense (including, attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors’ and officers’ liability insurance coverage that may be in effect from time to time.

 

	
  

	
3.4.

	
Reliance on Experts.  In making any determination or in taking or not taking any action under this Plan, the Board or a Committee, as the case may be, may obtain and may rely upon the advice of experts, including employees and professional advisors to the Corporation.  No director, officer or agent of SGOCO Group shall be liable for any such action or determination taken or made or omitted in good faith.

 

	
  

	
3.5.

	
Delegation.  The Administrator may delegate ministerial, non-discretionary functions to individuals who are officers or employees of SGOCO Group or to third parties.

 

	
4.

	
SHARES SUBJECT TO THE PLAN; SHARE LIMITS

 

	
  

	
4.1.

	
Shares Available.  Subject to the provisions of Section 7.1, the capital stock that may be delivered under this Plan shall be the Corporation’s authorized but unissued Shares.

 

	
  

	
4.2.

	
Share Limit.  Subject to Sections 4.3, Section 7.1 and Section 8.10, the maximum number of Shares that may be delivered pursuant to Awards under this Plan is equal to  7% of the aggregate number of Shares outstanding from time to time.

 

	
  

	
4.3.

	
Awards Settled in Cash, Reissue of Awards and Shares.  To the extent that an Award is settled in cash or in a form other than Shares, the Shares that would have been delivered had there been no such cash or other settlement shall not be counted against the Shares available for issuance under this Plan.  In the event that Shares are delivered in respect of a Dividend Equivalent, Share Appreciation Right, Restricted Share Unit or other Award, only the actual number of Shares delivered with respect to the Award shall be counted against the share limit of this Plan.  Shares that are subject to or underlie Awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan shall again be available for subsequent Awards under this Plan.  Shares that are exchanged by a Participant or withheld by the Corporation as full or partial payment in connection with any Award under this Plan, as well as any Shares exchanged by a Participant or withheld by SGOCO Group to satisfy the tax withholding obligations related to any Award under this Plan, shall be available for subsequent Awards under this Plan.  Refer to Section 8.10 for application of the foregoing share limits with respect to assumed awards.

 

	
  

	
4.4.

	
Reservation of Shares; No Fractional Shares; Minimum Issue.  The Corporation shall at all times reserve a number of Shares sufficient to cover the Corporation’s obligations and contingent obligations to deliver Shares with respect to Awards then outstanding under this Plan (exclusive of any Dividend Equivalent obligations to the extent the Corporation has the right to settle such rights in cash).  No fractional shares shall be delivered under this Plan.  The Administrator may pay cash in lieu of any fractional shares in settlement of Awards under this Plan.

 

	
5.

	
AWARDS

 

	
  

	
5.1.

	
Type and Form of Awards.  The Administrator shall determine the type or types of Award(s) to be made to each selected Eligible Person.  Awards may be granted singly, in combination or in tandem.  Awards also may be made in combination or in tandem with, in replacement of, as alternatives to, or as the payment form for grants or rights under any other employee or compensation plan of SGOCO Group.  The following terms and conditions apply to certain of the Awards that may be granted under the Plan:

 

  

3

  

	
  

	
5.1.1

	
Options.  An Option is the grant of a right to purchase for a stated price per Share a specified number of Shares during a specified period as determined by the Administrator.  The Award Document for an Option will indicate whether the Option is intended to be an ISO; otherwise it will be deemed to be an NSO.  The maximum term of each Option (ISO or NSO) shall be ten (10) years.  The per share exercise price for each Option intended to be an ISO shall be not less than 100% of the Fair Market Value of a Share on the date of grant of the Option.  Notwithstanding the foregoing, no ISO may be granted to any Participant who at the time of such grant owns more than ten (10) % of the total combined voting power of all classes of securities of the Corporation, unless (i) the per share exercise price for such ISO is at least 110% of the Fair Market Value of a Share on the date the ISO is granted and (ii) the date on which such ISO terminates is not later than the day preceding the fifth anniversary of the date on which the ISO is granted.  The per share exercise price for an NSO shall be determined by the Administrator in its discretion; provided, however, that the per share exercise price of any NSO granted to a U.S. Participant shall be not less than 100% of the Fair Market Value of a Share on the date of grant of the Option.  When the Option is exercised, the exercise price for the shares to be purchased shall be paid in full in cash or such other method permitted by the Administrator consistent with Section 5.6.

 

	
  

	
5.1.2

	
Additional Rules Applicable to ISOs.  To the extent that the aggregate Fair Market Value (determined at the time of grant of the applicable Option) of Shares with respect to which ISOs first become exercisable by a Participant in any calendar year exceeds $100,000, taking into account both Shares subject to ISOs under this Plan and Shares subject to ISOs under all other plans of SGOCO Group (or any parent or predecessor corporation to the extent required by and within the meaning of Section 422 of the Code and the regulations promulgated thereunder), such Options shall be treated as NSOs.  In reducing the number of Options treated as ISOs to meet the $100,000 limit, the most recently granted Options shall be reduced first.  To the extent a reduction of simultaneously granted Options is necessary to meet the $100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which Shares are to be treated as shares acquired pursuant to the exercise of an ISO.  ISOs may only be granted to employees of the Corporation or one of its subsidiaries (for this purpose, the term “subsidiary” is used as defined in Section 424(f) of the Code).  There shall be imposed in any Award Document relating to ISOs such other terms and conditions as from time to time are required in order that the Option be an “incentive stock option” as that term is defined in Section 422 of the Code.

 

	
  

	
5.1.3

	
Share Appreciation Rights.  A Share Appreciation Right is a right to receive a payment, in cash and/or Shares as specified in the Award or determined by the Administrator, equal to the excess of the Fair Market Value of a specified number of Shares on the date the Share Appreciation Right is exercised over the Base Price as set forth in the applicable Award Document.  The maximum term of a Share Appreciation Right shall be ten (10) years.  The Administrator may grant limited Share Appreciation Rights which are exercisable only upon a Change in Control Event or other specified event and may be payable based on the spread between the Base Price of the Share Appreciation Right and the Fair Market Value of the Shares during a specified period or at a specified time within a specified period before, after or including the date of such event; provided that the terms of any such limited Share Appreciation Rights are established by the Administrator at the time of grant and comply with the distribution rules under Section 409A.

 

	
  

	
5.1.4

	
Restricted Shares.  Restricted Shares are Shares subject to restrictions on transfer and such other restrictions as the Administrator, in its sole discretion, may deem necessary or advisable.  Each Award of Restricted Shares will be evidenced by an Award Document that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine.  Notwithstanding the foregoing, the Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.  During the Period of Restriction, the holder of such Award will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Document.  If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid.

 

  

4

  

	
  

	
5.1.5

	
Restricted Share Units.  Restricted Share Units consist of a Restricted Share, Performance Share or Performance Unit Award that the Administrator, in its sole discretion, permits to be paid out either in cash or in Shares in installments or on a deferred basis, in accordance with Section 5.5.

 

	
  

	
5.2.

	
Performance-Based Awards.  Without limiting the generality of the foregoing, any of the types of Awards above may be granted as Performance-Based Awards in the form of Performance Units, Performance Shares, Options or Share Appreciation Rights.  Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant.  Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.  The grant, vesting, exercisability or payment of Performance-Based Awards may depend on the degree of achievement of one or more performance goals relative to a pre-established targeted level or a level using one or more of the Business Criteria (on an absolute or relative basis) for the Corporation on a consolidated basis or for one or more of the Corporation’s subsidiaries, segments, divisions or business units, or any combination of the foregoing.

 

	
  

	
5.2.1

	
Performance Goals.  The specific performance goals and the applicable performance measurement period for Performance-Based Awards shall be determined by the Administrator in its sole discretion.  Performance targets shall be adjusted to mitigate the unbudgeted impact of material, unusual or nonrecurring gains and losses, accounting changes or other extraordinary events not foreseen at the time the targets were set unless the Administrator provides otherwise at the time of establishing the targets.

 

	
  

	
5.2.2

	
Earning of Performance-Based Awards.  After the applicable performance period has ended, the holder of Performance-Based Awards will be entitled to receive a payout of the number of Performance-Based Awards earned by the Participant over the performance period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved.  After the grant of a Performance-Based Award, the Administrator, in its sole discretion, may revise, reduce or waive any performance objectives for such Performance-Based Awards.

 

	
  

	
5.2.3

	
Reservation of Discretion.  The Administrator will have the discretion to determine the restrictions or other limitations of the individual Awards granted under this Section 5.2, including the authority to reduce Awards, but not to increase Awards, directly or indirectly, payouts or vesting or to pay no Awards, in its sole discretion, if the Administrator preserves such authority at the time of grant by language to this effect in its authorizing resolutions or otherwise.

 

	
  

	
5.3.

	
Award Documents.  Each Award shall be evidenced by an Award Document in the form approved by the Administrator and executed on behalf of the Corporation and, if required by the Administrator, executed by the recipient of the Award.  The Administrator may authorize any officer of the Corporation (other than the particular Award recipient) to execute any or all Award Documents on behalf of the Corporation.

 

	
  

	
5.4.

	
Date of Grant.  The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator and specified in the Award.  Notice of the determination will be provided to each Participant within a reasonable time on or after the date of such grant.

 

	
  

	
5.5.

	
Share Deferrals and Settlements.  Payment of Awards may be in the form of cash, Shares, other Awards or combinations thereof as the Administrator shall determine, and with such restrictions as it may impose.  The Administrator may also require or permit Participants to elect to defer the issuance of Shares or the settlement of Awards in cash under such rules and procedures as it may establish under this Plan; provided, however, that no U.S. Participant shall be permitted to make any such election to defer, unless the rules and procedures providing for such election comply with the deferral elections requirements under Section 409A.  The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of Dividend Equivalents where the deferred amounts are denominated in shares.  Notwithstanding any other provision of the Plan or any agreement entered into by SGOCO Group pursuant to the Plan, SGOCO Group shall not be obligated, and shall have no liability for failure to deliver any Shares under the Plan unless the issuance and delivery of Shares comply with (or are exempt from) all Applicable Laws, including, the Securities Act, U.S. state securities laws and regulations, and the requirements of any securities exchange or quotation system on which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for SGOCO Group with respect to such compliance.

 

  

5

  

	
  

	
5.6.

	
Consideration for Shares or Awards.  The exercise or purchase price for any Award or the Shares to be delivered pursuant to an Award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator, including, one or a combination of the following methods:

 

	
  

	
5.6.1

	
other than for the exercise or purchase price for any Award, services rendered by the recipient of such Award;

 

	
  

	
5.6.2

	
cash, check payable to the order of the Corporation, or electronic funds transfer;

 

	
  

	
5.6.3

	
notice and third party payment in such manner as may be authorized by the Administrator;

 

	
  

	
5.6.4

	
delivery of previously owned Shares;

 

	
  

	
5.6.5

	
reduction in the number of Shares otherwise deliverable pursuant to the Award; or

 

	
  

	
5.6.6

	
subject to such procedures as the Administrator may adopt, pursuant to a “cashless exercise” with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of Awards.

 

In no event shall any Shares newly issued by the Corporation be issued for less than the minimum lawful consideration for such Shares or for consideration other than consideration permitted by Applicable Laws.  In the event that the Administrator allows a Participant to exercise an Award by delivering Shares previously owned by such Participant and unless otherwise expressly provided by the Administrator, any shares delivered which were initially acquired by the Participant from the Corporation (upon exercise of an Option or otherwise) must have been owned by the Participant at least six months as of the date of delivery.  Shares used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise.  The Corporation will not be obligated to deliver any Shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations under Section 8.5 and any other conditions to exercise or purchase have been satisfied.  Unless otherwise expressly provided in the applicable Award Document, the Administrator may at any time eliminate or limit a Participant’s ability to pay the purchase or exercise price of any Award or Shares by any method other than cash payment to the Corporation.  The Administrator may take all actions necessary or advisable to alter the method of exercise of Awards and the exchange and transmittal of proceeds with respect to Participants who are subject to the jurisdiction of PRC laws and regulations in order to comply with applicable PRC foreign exchange and tax regulations.  A Participant may be required to provide evidence that any currency used to pay the exercise price of any Award was acquired and taken out of the jurisdiction in which the Participant resides in accordance with Applicable Laws, including foreign exchange control laws and regulations.  In the event the exercise price for an Award is paid in Renminbi or other foreign currency, as permitted by the Administrator, the amount payable will be determined by conversion from U.S. dollars at the official rate promulgated by the People’s Bank of China for Renminbi, or for jurisdictions other than the PRC, the exchange rate as selected by the Administrator on the date of exercise.

 

	
  

	
5.7.

	
Transfer Restrictions.

 

	
  

	
5.7.1

	
Limitations on Exercise and Transfer.  Unless otherwise expressly provided in (or pursuant to) this Section 5.7, by Applicable Laws and by the Award Document, as the same may be amended, (a) all Awards are non-transferable and shall not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge; (b) Awards shall be exercised only by the Participant; and (c) amounts payable or Shares issuable pursuant to any Award shall be delivered only to (or for the account of) the Participant.

 

  

6

  

	
  

	
5.7.2

	
Exceptions.  The Administrator may permit Awards to be exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant’s immediate family, trusts or other entities controlled by or whose beneficiaries or beneficial owners are the Participant and/or members of the Participant’s immediate family, pursuant to such conditions and procedures, including limitations on subsequent transfers, as the Administrator may establish.  Consistent with Section 8.1, any permitted transfer shall be subject to the condition that the Administrator receive evidence satisfactory to it that the transfer (a) is being made for essentially donative, estate and/or tax planning purposes on a gratuitous or donative basis and without consideration (other than nominal consideration or in exchange for an interest in a qualified transferee), and (b) will not compromise the Corporation’s ability to comply with Applicable Laws (including securities laws).  Notwithstanding the foregoing or anything in Section 5.7.3, ISOs shall be subject to any and all additional transfer restrictions under the Code to the extent necessary to maintain the intended tax consequences of such Awards.

 

	
  

	
5.7.3

	
Further Exceptions to Limits on Transfer.  The exercise and transfer restrictions in Section 5.7.1 shall not apply to:

 

	
  

	
(a)

	
transfers to the Corporation;

 

	
  

	
(b)

	
the designation of a beneficiary to receive benefits in the event of the Participant’s death or, if the Participant has died, transfers to or exercise by the Participant’s beneficiary, or, in the absence of a validly designated beneficiary, transfers by will or the laws of descent and distribution;

 

	
  

	
(c)

	
subject to any applicable limitations on ISOs, transfers to a family member (or former family member) pursuant to a domestic relations order if approved or ratified by the Administrator;

 

	
  

	
(d)

	
if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by his or her legal representative; or

 

	
  

	
(e)

	
the authorization by the Administrator of “cashless exercise” procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with Applicable Laws and the express authorization of the Administrator.

 

	
  

	
5.8.

	
International Awards.  One or more Awards may be granted to Eligible Persons who provide services to SGOCO Group outside of the PRC or the United States.  If necessary, Awards granted to such persons may be granted pursuant to the terms and conditions of any applicable sub-plans, if any, appended to this Plan and approved by the Administrator.

 

	
6.

	
EFFECT OF TERMINATION OF SERVICE ON AWARDS

 

	
  

	
6.1.

	
General.  The Administrator shall establish the effect of a termination of employment or service of a Participant on the rights and benefits under each Award under this Plan and in so doing may make distinctions based upon, inter alia, the cause of termination and type of Award.  Notwithstanding the foregoing, unless the Board expressly otherwise provides, if the Participant is not an employee of SGOCO Group and provides other services to SGOCO Group, the Administrator shall be the sole judge for purposes of this Plan (unless a contract or the Award otherwise provides) of whether the Participant continues to render services to SGOCO Group and the date, if any, upon which such services shall be deemed to have terminated.  Unless the Board otherwise expressly provides, (1) to the extent an outstanding Option granted under this Plan has not become vested and exercisable on the date the Participant’s employment by or service to SGOCO Group terminates, the Administrator shall have the discretion to determine whether and the extent to which the unvested and unexercisable portion of the Option shall terminate, and (2) any Shares subject to a Restricted Share or Restricted Share Unit Award that remain subject to restrictions at the time the Participant’s employment by or service to SGOCO Group terminates shall not vest and SGOCO Group shall have the right to reacquire any such unvested Shares subject to such Award in such manner and on such terms as the Administrator provides, which terms shall include repayment of the lower of the Fair Market Value and the original purchase price of the Restricted Shares, without interest, to the Participant to the extent not prohibited by Applicable Laws.

 

  

7

  

	
  

	
6.2.

	
Events Not Deemed Terminations of Service.  Unless SGOCO Group policy or the Administrator otherwise provides, the employment relationship shall not be considered terminated in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence authorized by SGOCO Group or the Administrator; provided that unless reemployment upon the expiration of such leave is guaranteed by contract or Applicable Laws, such leave is for a period of not more than 90 days.  In the case of any employee of SGOCO Group on an approved leave of absence, continued vesting of the Award while on leave from the employ of SGOCO Group may be suspended until the employee returns to service, unless the Administrator otherwise provides or Applicable Laws otherwise requires.  In no event shall an Award be exercised after the expiration of the term set forth in the applicable Award Document.

 

	
  

	
6.3.

	
Effect of Change of Affiliate Status.  For purposes of this Plan and any Award, if an entity ceases to be an Affiliate of the Corporation, a termination of employment or service shall be deemed to have occurred with respect to each Eligible Person in respect of such Affiliate who does not continue as an Eligible Person in respect of another entity within SGOCO Group after giving effect to the Affiliate’s change in status.

 

	
7.

	
ADJUSTMENTS; ACCELERATION

 

	
  

	
7.1.

	
Adjustments.  Upon or in contemplation of: any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split; any merger, combination, consolidation, or other reorganization; any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Shares (whether in the form of securities or property); any exchange of Shares or other securities of the Corporation, or any similar, unusual or extraordinary corporate transaction in respect of Shares; or a sale of all or substantially all the business or assets of the Corporation as an entirety; then the Administrator shall, in such manner, to such extent (if any) and at such time as it deems appropriate and equitable in the circumstances, take any of the following actions:

 

	
  

	
7.1.1

	
proportionately adjust any or all of (1) the number and type of Shares (or other securities) that thereafter may be made the subject of Awards (including the specific share limits, maximums and numbers of Shares set forth elsewhere in this Plan), (2) the number, amount and type of Shares (or other securities or property) subject to any or all outstanding Awards, (3) the grant, purchase, or exercise price (which term includes the Base Price of any Share Appreciation Right or similar right) of any or all outstanding Awards, (4) the securities, cash or other property deliverable upon exercise or payment of any outstanding Awards, or (5) the performance standards applicable to any outstanding Awards,

 

	
  

	
7.1.2

	
make provision for a cash payment or for the assumption, substitution or exchange of any or all outstanding share-based Awards or the cash, securities or property deliverable to the holder of any or all outstanding share-based Awards, based upon the distribution or consideration payable to holders of the Shares upon or in respect of such event,

 

	
  

	
7.1.3

	
cancel or cause to be canceled any Award that is not vested, exercisable or exercisable at an amount in excess of the Fair Market Value.

 

The Administrator may adopt such valuation methodologies for outstanding Awards as it deems reasonable in the event of a cash or property settlement and, in the case of Options, Share Appreciation Rights or similar rights, but on other methodologies, may base such settlement solely upon the excess if any of the per share amount payable upon or in respect of such event over the exercise or Base Price of the Award.  With respect to any ISO, the Administrator may make such an adjustment that causes the Option to cease to qualify as an ISO without the consent of the affected Participant.

 

In any of such events, the Administrator may take such action prior to such event to the extent that the Administrator deems the action necessary to permit the Participant to realize the benefits intended to be conveyed with respect to the underlying shares in the same manner as is or will be available to shareholders generally.  In the case of any stock split or reverse stock split, if no action is taken by the Administrator, the proportionate adjustments contemplated by clause (a) above shall nevertheless be made.

  

8

  

	
  

	
7.2.

	
Automatic Acceleration of Awards.  Upon a dissolution of the Corporation or other event described in Section 7.1 that the Corporation does not survive (or does not survive as a public company in respect of its Shares), then each then outstanding Option and Share Appreciation Right exercisable at a price below the then current Fair Market Value shall become fully vested, all Restricted Shares or Restricted Share Units then outstanding shall fully vest free of restrictions, and each other Award granted under this Plan that is then outstanding shall become payable to the holder of such Award; provided that such acceleration provision shall not apply, unless otherwise expressly provided by the Administrator, with respect to any Award to the extent that the Administrator has made a provision for the substitution, assumption, exchange or other continuation or settlement of the Award, or the Award would otherwise continue in accordance with its terms, in the circumstances.

 

	
  

	
7.3.

	
Possible Acceleration of Awards.  Without limiting Section 7.2, in the event of a Change in Control Event, the Administrator may, in its discretion, provide that any outstanding Option or Share Appreciation Right exercisable at a price below the then current Fair Market Value shall become fully vested, that any Restricted Shares and Restricted Share Units then outstanding shall fully vest free of restrictions, and that any other Award granted under this Plan that is then outstanding shall be payable to the relevant Participant.  The Administrator may take such action with respect to all Awards then outstanding or only with respect to certain specific Awards identified by the Administrator in the circumstances.

 

	
  

	
7.4.

	
Early Termination of Awards.  Any Award that has been accelerated as required or contemplated by Section 7.2 or 7.3 (or would have been so accelerated but for Section 7.5, 7.6 or 7.7) shall terminate upon the related event referred to in Section 7.2 or 7.3, as applicable, subject to any provision that has been expressly made by the Administrator, through a plan of reorganization or otherwise, for the survival, substitution, assumption, exchange or other continuation or settlement of such Award and provided that, in the case of Options and Share Appreciation Rights exercisable at a price below the then current Fair Market Value that will not survive, be substituted for, assumed, exchanged, or otherwise continued or settled in the transaction, the holder of such Award shall be given reasonable advance notice of the impending termination and a reasonable opportunity to exercise his or her outstanding Options and Share Appreciation Rights in accordance with their terms before the termination of such Awards (except that in no case shall more than ten days’ notice of accelerated vesting and the impending termination be required and any acceleration may be made contingent upon the actual occurrence of the event).

 

	
  

	
7.5.

	
Other Acceleration Rules.  Any acceleration of Awards pursuant to this Section 7 shall comply with Applicable Laws and, if necessary to accomplish the purposes of the acceleration or if the circumstances require, may be deemed by the Administrator to occur a limited period of time not greater than 30 days before the event.  Without limiting the generality of the foregoing, the Administrator may deem an acceleration to occur immediately prior to the applicable event and/or reinstate the original terms of an Award if an event giving rise to an acceleration does not occur.  The Administrator may override the provisions of Sections 7.2, 7.3, 7.4 and/or 7.6 by express provision in the Award Document and may accord any Participant a right to refuse any acceleration, whether pursuant to the Award Document or otherwise, in such circumstances as the Administrator may approve.  The portion of any ISO accelerated in connection with a Change in Control Event or any other action permitted hereunder shall remain exercisable as an ISO only to the extent the applicable $100,000 limitation on ISOs is not exceeded.  To the extent exceeded, the accelerated portion of the Option shall be exercisable as an NSO.

 

	
  

	
7.6.

	
Possible Rescission of Acceleration.  If the vesting of an Award has been accelerated expressly in anticipation of an event or upon shareholder approval of an event and the Administrator later determines that the event will not occur, the Administrator may rescind the effect of the acceleration as to any then outstanding and unexercised or otherwise unvested Awards.

 

	
  

	
7.7.

	
Golden Parachute Limitation.  Notwithstanding anything else contained in this Section 7 to the contrary, in no event shall an Award be accelerated under this Plan to an extent or in a manner which would not be fully deductible by SGOCO Group for federal income tax purposes because of Section 280G of the Code, nor shall any payment hereunder be accelerated to the extent any portion of such accelerated payment would not be deductible by SGOCO Group because of Section 280G of the Code.  If a Participant would be entitled to benefits or payments hereunder and under any other plan or program that would constitute “parachute payments” as defined in Section 280G of the Code, then to the extent permitted by the regulations under Section 409A, the Participant may by written notice to SGOCO Group designate the order in which such parachute payments will be reduced or modified so that SGOCO Group is not denied federal income tax deductions for any “parachute payments” because of Section 280G of the Code.  Notwithstanding the foregoing, an employment or other agreement with the Participant may expressly provide, by specific reference to the Code Section 280G limitations, for benefits in excess of amounts determined by applying the foregoing Section 280G limitations.

 

  

9

  

	
8.

	
OTHER PROVISIONS

 

	
  

	
8.1.

	
Compliance with Laws.  This Plan, the granting and vesting of Awards under this Plan, the offer, issuance and delivery of Shares, the acceptance of promissory notes and/or the payment of money under this Plan or under Awards are subject to compliance with all Applicable Laws, including securities laws to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for SGOCO Group, be necessary or advisable in connection therewith.  The person acquiring any securities under this Plan will, if requested by SGOCO Group, provide such assurances and representations to SGOCO Group as the Administrator may deem necessary or advisable to assure compliance with all Applicable Laws and applicable accounting requirements.

 

	
  

	
8.2.

	
No Rights to Awards.  No person shall have any claim or rights to be granted an Award (or additional Awards, as the case may be) under this Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary.

 

	
  

	
8.3.

	
No Employment/Service Contract.  Nothing contained in this Plan (or in any other documents under this Plan or in any Award Document) shall confer upon any Eligible Person or other Participant any right to continue in the employ or other service of SGOCO Group, constitute any contract or agreement of employment or other service or affect an employee’s status as an employee at will, nor shall interfere in any way with the right of SGOCO Group to change a person’s compensation or other benefits, or to terminate his or her employment or other service, with or without cause.  Nothing in this Section 8.3, however, is intended to adversely affect any express independent right of such person under a separate employment or service contract other than an Award Document.

 

	
  

	
8.4.

	
Plan Not Funded.  Awards payable under this Plan shall be payable in Shares or from the general assets of the Corporation, and no special or separate reserve, fund or deposit shall be made to assure payment of such Awards.  No Participant, beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including Shares, except as expressly otherwise provided) of SGOCO Group by reason of any Award hereunder.  Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between SGOCO Group and any Participant, beneficiary or other person.  To the extent that a Participant, beneficiary or other person acquires a right to receive payment pursuant to any Award hereunder, such right shall be no greater than the right of any unsecured general creditor of SGOCO Group.

 

	
  

	
8.5.

	
Tax Withholding.  Upon any exercise, vesting, or payment of any Award or upon the disposition of Shares acquired pursuant to the exercise of an ISO prior to satisfaction of the holding period requirements of Section 422 of the Code, SGOCO Group shall have the right at its option to:

 

	
  

	
8.5.1

	
require the Participant to pay or provide for payment of at least the minimum amount of any taxes which SGOCO Group may, in the opinion of counsel for SGOCO Group, be required to withhold with respect to such Award event or payment; or

 

	
  

	
8.5.2

	
deduct from any amount otherwise payable in cash to the Participant (i) the minimum amount of any taxes that SGOCO Group may be required to withhold with respect to such cash payment and (ii) such additional amount as may be required under PRC laws and regulations.

 

In any case where a tax is required to be withheld (including taxes in the PRC where applicable) in connection with the delivery of Shares under this Plan (including the sale of Shares as may be required to comply with foreign exchange rules in the PRC for Participants who are subject to the jurisdiction of PRC laws and regulations), the Administrator may in its sole discretion (subject to Section 8.1) grant (either at the time of the Award or thereafter) to the Participant the right to elect, pursuant to such rules and subject to such conditions as the Administrator may establish, to have the Corporation reduce the number of Shares to be delivered by (or otherwise reacquire) the appropriate number of Shares, valued in a consistent manner at their Fair Market Value or at the sales price in accordance with authorized procedures for cashless exercises, necessary to satisfy the minimum applicable withholding obligation on exercise, vesting or payment.  In no event shall the Shares withheld exceed the minimum whole number of Shares required for tax withholding under Applicable Laws, as determined by the Administrator.  The Corporation may, with the Administrator’s approval, accept one or more promissory notes from any Eligible Person in connection with taxes required to be withheld upon the exercise, vesting or payment of any Award under this Plan; provided that any such note shall be subject to terms and conditions established by the Administrator and the requirements of Applicable Laws.

  

10

  

	
  

	
8.6.

	
Effective Date, Termination and Suspension, Amendments.

 

	
  

	
8.6.1

	
Effective Date.  This Plan shall be effective as of the Effective Date.  Unless earlier terminated by the Board, (1) no additional Awards may be granted under this Plan at the close of business on the day before the tenth anniversary of the Effective Date; and (2) no ISOs may be granted under this Plan at the close of business on the day before the tenth anniversary of the earlier of the Effectve Date or the date this Plan is adopted by the Board.  After the termination of the  right to make Award under this Plan either upon such stated expiration date or its earlier termination by the Board, previously granted Awards (and the authority of the Administrator with respect thereto, including the authority to amend such Awards) shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.

 

	
  

	
8.6.2

	
Board Authorization.  The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part.  No Awards may be granted during any period that the Board suspends this Plan.

 

	
  

	
8.6.3

	
Shareholder Approval.  To the extent then required by Applicable Laws, including, pursuant to the requirements of any applicable national securities exchange or other listing  requirements or under Section 422 or 424 of the Code to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, any amendment to this Plan or any Award Document shall be subject to shareholder approval.

 

	
  

	
8.6.4

	
Amendments to Awards.  Without limiting any other express authority of the Administrator under (but subject to) the express limits of this Plan and subject to the requirements of Sections 3.2, 8.6.3 and 8.6.5, the Administrator by agreement or resolution may waive conditions of or limitations on Awards to Participants that the Administrator in the prior exercise of its discretion has imposed, without the consent of a Participant, may make other changes to the terms and conditions of Awards.

 

	
  

	
8.6.5

	
Limitations on Amendments to Plan and Awards.  No amendment, suspension or termination of this Plan or change of or affecting any outstanding Award shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations of SGOCO Group under any Award granted under this Plan prior to the effective date of such change.  Changes, settlements and other actions contemplated by Section 7 shall not be deemed to constitute changes or amendments for purposes of this Section 8.6.

 

	
  

	
8.7.

	
Privileges of Share Ownership.  Except as otherwise expressly authorized by the Administrator or this Plan, a Participant shall not be entitled to any privilege of share ownership as to any Shares not actually delivered to and held of record by the Participant.  No adjustment will be made for dividends or other rights as a shareholder for which a record date is prior to such date of delivery.

 

	
  

	
8.8.

	
Governing Law; Construction; Severability.

 

	
  

	
8.8.1

	
Choice of Law.  This Plan, the Awards, the Award Documents and all other related documents shall be governed by, and construed in accordance with, the laws of the State of New York.

 

	
  

	
8.8.2

	
Severability.  If a court of competent jurisdiction holds any provision invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.

 

  

11

  

	
  

	
8.9.

	
Captions.  Captions and headings are given to the sections and subsections of this Plan solely as a convenience to facilitate reference.  Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.

 

	
  

	
8.10.

	
Share-Based Awards in Substitution for Options or Awards Granted by Other Corporation.  Awards may be granted to Eligible Persons under this Plan in substitution for or in connection with an assumption of employee stock options, share appreciation rights, restricted shares or other share-based Awards granted by other entities to persons who are or who will become Eligible Persons in respect of SGOCO Group, in connection with a distribution, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by SGOCO Group, directly or indirectly, of all or a substantial part of the stock or assets of the employing entity.  The Awards so granted need not comply with other specific terms of this Plan, provided that the Awards reflect only adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Shares in the transaction and any change in the issuer of the security.  Any shares that are delivered and any Awards that are granted by, or become obligations of, the Corporation, as a result of the assumption by the Corporation of, or in substitution for, outstanding Awards previously granted by an acquired company (or previously granted by a predecessor employer (or direct or indirect parent thereof) in the case of persons who become employed by SGOCO Group in connection with a business or asset acquisition or similar transaction) (a) shall not be counted against the share limit set forth in Section 4.2 or other limits on the number of shares available for issuance under this Plan and (b) need not comply with the exercise price provisions of Section 5.1.1.

 

	
  

	
8.11.

	
Non-Exclusivity of Plan.  Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Administrator to grant Awards or authorize any other compensation, with or without reference to the Shares, under any other plan or authority.

 

	
  

	
8.12.

	
No Corporate Action Restriction.  The existence of this Plan, the Award Documents and the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Corporation to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Corporation or any Subsidiary, (b) any merger, amalgamation, consolidation or change in the ownership of the Corporation or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stock ahead of or affecting the capital stock (or the rights thereof) of the Corporation or any Subsidiary, (d) any dissolution or liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of all or any part of the assets or business of the Corporation or any Subsidiary, or (f) any other corporate act or proceeding by the Corporation or any Subsidiary.  No Participant, beneficiary or any other person shall have any claim under any Award or Award Document against any member of the Board or the Administrator, or the Corporation or any employees, officers or agents of the Corporation or any Subsidiary, as a result of any such action.

 

	
  

	
8.13.

	
Other Benefit and Compensation Programs.  Payments and other benefits received by a Participant under an Award made pursuant to this Plan shall not be deemed a part of a Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Corporation or any Subsidiary, except where the Administrator expressly otherwise provides or authorizes in writing.  Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of grants, Awards or commitments under any other plans or arrangements of the Corporation or its Subsidiaries.

 

	
  

	
8.14.

	
Section 409A.  If any provision of the Plan or an Award Document contravenes any provision of Section 409A with respect to a Participant or could cause a Participant to be subject to accelerated taxation and penalties and/or interest under Section 409A (“Penalties”), such provision of the Plan or any Award Document shall be automatically modified to avoid the imposition of Penalties and to maintain, to the maximum extent practicable, the original intent of the applicable provision.

 

	
  

	
8.15.

	
Compliance with PRC Laws and Regulations.  When required by PRC laws and regulations, Participants who are domestic individuals of the PRC shall duly fulfill reporting, registration and other obligations as required by such laws and regulations.

 

  

12

  

	
9.

	
DEFINITIONS

 

	
  

	
9.1.

	
“Administrator” means the Board or one or more Committees appointed by the Board or another Committee (within its delegated authority) to administer all or certain aspects of this Plan in accordance with Section 3.

 

	
  

	
9.2.

	
“Affiliate” means any entity if, at the time of granting of an Award (a) the Corporation, directly or indirectly, owns at least 50% of the combined voting power of all classes of stock or such entity or at least 50% of the ownership interest in such entity, or (b) such entity, directly or indirectly, owns at least 50% of the combined voting power of all classes of stock of the Corporation.

 

	
  

	
9.3.

	
“Applicable Laws” means any applicable legal requirements relating to the administration of and the issuance of securities under equity securities-based compensation plans, including, the requirements of U.S. state corporate laws, U.S. federal and state securities laws, U.S. federal law, the Code, the laws of the Cayman Islands, the laws of the PRC, and any rules or regulations thereunder and the requirements of any securities exchange or quotation system on which the Shares may then be listed or quoted and the applicable laws of any other country or jurisdiction where Awards are granted under the Plan.  For all purposes of this Plan, references to statutes and regulations shall be deemed to include any successor statutes or regulations, to the extent reasonably appropriate as determined by the Administrator.

 

	
  

	
9.4.

	
“Award Document” means the written or electronic agreement setting forth the material terms and conditions of an Award as established by the Administrator consistent with the express limitations of this Plan.

 

	
  

	
9.5.

	
“Awards” means, individually or collectively (a) Options, Share Appreciation Rights, Restricted Shares, Restricted Share Units, Performance Shares, Performance Units, Dividend Equivalents, share bonuses, share units, phantom shares, or similar rights to purchase or acquire Shares, whether at a fixed or variable price or ratio related to the Shares, upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; or (b) any similar securities with a value derived from the value of or related to the Shares and/or returns thereon.

 

	
  

	
9.6.

	
“Base Price” means, with respect to any Share Appreciation Right, the Fair Market Value of a Share on the date such Share Appreciation Right was granted.

 

	
  

	
9.7.

	
“Board” means the board of directors of the Corporation.

 

	
  

	
9.8.

	
“Business Criteria” means the business criteria applicable to an Award as selected by the Administrator in its sole discretion.  Business Criteria may include, the following: earnings per share, cash flow (which means cash and cash equivalents derived from either net cash flow from operations or net cash flow from operations, financing and investing activities), total shareholder return, gross revenue, revenue growth, operating income (before or after taxes), net earnings (before or after interest, taxes, depreciation and/or amortization), return on equity, on assets or on net investment, cost containment or reduction, or any combination thereof.  These terms are used as applied under generally accepted accounting principles or in SGOCO Group’s financial reporting.

 

	
  

	
9.9.

	
“Change in Control Event” means any of the following:

 

	
  

	
9.9.1

	
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (1) the then-outstanding Shares of the Corporation (the “Outstanding Corporation Shares”) or (2) the combined voting power of the then-outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Corporation Voting Securities”); provided, however, that, for purposes of this definition, the following acquisitions shall not constitute a Change in Control Event: (A) any acquisition directly from the Corporation, (B) any acquisition by the Corporation, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any Affiliate of the Corporation or a successor, or (D) any acquisition by any entity pursuant to a transaction that complies with Sections 9.9.3 (1), (2) and (3) below;

 

  

13

  

	
  

	
9.9.2

	
Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Corporation’s shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board (including for these purposes, the new members whose election or nomination was so approved, without counting the member and his predecessor twice) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

 

	
  

	
9.9.3

	
Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Corporation or any of its Subsidiaries, a sale or other disposition of all or substantially all of the assets of the Corporation, the acquisition of assets or stock of another entity by the Corporation or any of its Subsidiaries, or a scheme of arrangement under Section 86 of the Cayman Islands Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) (each, a “Business Combination”), in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Corporation Shares and the Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding ordinary or common shares and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, an entity that, as a result of such transaction, owns the Corporation or all or substantially all of the Corporation’s assets directly or through one or more subsidiaries (a “Parent”)) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Corporation Shares and the Outstanding Corporation Voting Securities, as the case may be, (2) no Person (excluding any entity resulting from such Business Combination or a Parent or any employee benefit plan (or related trust) of the Corporation or such entity resulting from such Business Combination or Parent) beneficially owns, directly or indirectly, 50% or more of, respectively, the then-outstanding ordinary or common shares of the entity resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such entity, except to the extent that the ownership in excess of 50% existed prior to the Business Combination, and (3) at least a majority of the members of the board of directors or trustees of the entity resulting from such Business Combination or a Parent were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

 

	
  

	
9.9.4

	
Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation other than in the context of a transaction that does not constitute a Change in Control Event under clause (c) above.

 

Anything in the foregoing to the contrary notwithstanding, a transaction shall not constitute a Change in Control Event if its sole purpose is to change the legal jurisdiction of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the Persons who held the Corporation’s securities immediately before such transaction.  In addition, a sale by the Corporation of its securities in a transaction, the primary purpose of which is to raise capital for the Corporation’s operations and business activities, shall not constitute a Change in Control Event.

 

	
  

	
9.10.

	
“Code” means the U.S. Internal Revenue Code of 1986, as amended.  Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

 

	
  

	
9.11.

	
“Committee” means a committee of the Board or such other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 3.

 

  

14

  

	
  

	
9.12.

	
“Corporation” means SGOCO Technology, Ltd., a company organized under the laws of the Cayman Islands, or any successor corporation thereto.

 

	
  

	
9.13.

	
“Dividend Equivalent” means a credit, made at the discretion of the Administrator, to the account of a Participant in an amount equal to the value of dividends paid on one Share for each Share represented by an Award held by such Participant.

 

	
  

	
9.14.

	
“Effective Date” means the date of the approval of this Plan by the shareholders of the Corporation.

 

	
  

	
9.15.

	
“Eligible Person” means any person who is either: (a) an officer (whether or not a director) or employee of SGOCO Group (or any subsidiaries of SGOCO Group); (b) a director of SGOCO Group; or (c) an individual consultant or advisor who renders or has rendered bona fide services (other than services in connection with the offering or sale of securities of SGOCO Group in a capital-raising transaction or as a market maker or promoter of SGOCO Group’s securities) to SGOCO Group and who is selected to participate in this Plan by the Administrator.

 

	
  

	
9.16.

	
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

 

	
  

	
9.17.

	
“Fair Market Value” means, as of any date, the value of Shares determined as follows:

 

	
  

	
9.17.1

	
If the Shares are listed on one or  more established stock exchanges or national market systems, including without limitation, The Nasdaq Global Market and The New York Stock Exchange, its Fair Market Value shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Shares are listed (as determined by the Administrator) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in the Wall Street Journal or such other source as the Administrator deems reliable;

 

	
  

	
9.17.2

	
If the Shares are regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such shares as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean between high bid and low asked prices for the Shares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in the Wall Street Journal or such other source as the Administrator deems reliable; or

 

	
  

	
9.17.3

	
In the absence of an established market for the Shares of the type described in (a) and (b) above, the Fair Market Value thereof shall be determined by the Administrator in good faith and in its discretion by reference to (i) the price of the latest third party transactions involving the Shares and the development of the Corporation’s business operations and the general economic and market conditions since such sale, (ii) an independent valuation of the Shares; or (iii) such other methodologies or information as the Administrator determines to be indicative of Fair Market Value, relevant.

 

Anything in the foregoing to the contrary notwithstanding, the Administrator also may adopt a different methodology for determining Fair Market Value with respect to one or more Awards if a different methodology is necessary or advisable to secure any intended favorable tax, legal or other treatment for the particular Award(s) (for example, the Administrator may provide that Fair Market Value for purposes of one or more Awards will be based on an average of closing prices (or the average of high and low daily trading prices) for a specified period preceding the relevant date) provided, however, that any such methodology complies with Applicable Laws.

 

	
  

	
9.18.

	
“ISO” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder, as designated in the applicable Award Document.

 

	
  

	
9.19.

	
“NSO” means an Option not intended to qualify as an ISO, as designated in the applicable Award Document, or an ISO that does not so qualify or ceases to so qualify.

 

  

15

  

	
  

	
9.20.

	
“Option” means an Award granted to an Eligible Person pursuant to Section 5.1.1.

 

	
  

	
9.21.

	
“Participant” means an Eligible Person that has been granted an Award under the Plan.

 

	
  

	
9.22.

	
“Performance-Based Award” means a Performance Unit, Performance Share Option or Share Appreciation Right granted to an Eligible Person pursuant to Section 5.2.

 

	
  

	
9.23.

	
“Performance Share” means an Award granted to an Eligible Person pursuant to Section 5.2.

 

	
  

	
9.24.

	
“Performance Unit” means an Award granted to an Eligible Person pursuant to Section 5.2.

 

	
  

	
9.25.

	
“Period of Restriction” means the period during which the transfer of Restricted Shares are subject to restrictions and, therefore, the Shares are intended to be subject to a substantial risk of forfeiture for U.S. federal income tax purposes.  Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.

 

	
  

	
9.26.

	
“Plan” means this SGOCO Technology, Ltd. 2010 Equity Compensation Plan.

 

	
  

	
9.27.

	
“PRC” means the People’s Republic of China.

 

	
  

	
9.28.

	
“Restricted Share Unit” means an Award granted to an Eligible Person pursuant to Section 5.1.5.

 

	
  

	
9.29.

	
“Restricted Shares” means an Award granted to an Eligible Person pursuant to Section 5.1.4.

 

	
  

	
9.30.

	
“Renminbi” means Chinese Renminbi, the official currency of the PRC.

 

	
  

	
9.31.

	
“Section 409A” means Section 409A of the Code and any regulations and other Treasury guidance promulgated thereunder.

 

	
  

	
9.32.

	
“Securities Act” means the U.S. Securities Act of 1933, as amended.

 

	
  

	
9.33.

	
“SGOCO Group” means the Corporation and its Affiliates, collectively.

 

	
  

	
9.34.

	
“Share Appreciation Right” means an Award granted to an Eligible Person pursuant to Section 5.1.3.

 

	
  

	
9.35.

	
“Shares” means the ordinary shares of the Corporation, par value US $0.001, and such other securities or property as may become the subject of Awards under this Plan, or may become subject to such Awards pursuant to an adjustment made under Section 7.1.

 

	
  

	
9.36.

	
“Subsidiary” means any corporation or other entity (i) a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation or (ii) that is controlled by the Corporation directly or indirectly by contract or otherwise.

 

	
  

	
9.37.

	
“U.S. Participant” means a Participant who is a U.S. taxpayer.

 

  

16

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