Document:

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is entered into as of September 8, 2015 (the “Effective Date”) by and between Iteris, Inc., a Delaware corporation (the “Company”), and Joe Bergera, an individual (the “Executive”).

 

1.             Duties and Responsibilities.

 

1.1          Executive shall serve as the Company’s President and Chief Executive Officer.  Executive shall report to and perform the duties and responsibilities assigned to him by the Company’s Board of Directors.

 

1.2          Executive agrees to devote his full business time and attention to the Company, to use his best efforts to advance the business and welfare of the Company, to render his services under this Agreement fully, faithfully, diligently, competently and to the best of his ability, and not to engage in any other employment activities.  Notwithstanding the foregoing, Executive may also devote reasonable time and attention to civic, charitable or social organizations so long as such activities do not interfere with the performance of Executive’s duties to the Company.  Executive will be permitted to serve on up to two (2) corporate boards, subject to the Company’s prior written approval; provided that (a) the entity does not compete with the Company’s business and (b) the activities related to such board membership(s) do not individually, or in the aggregate, interfere with the performance of Executive’s duties and responsibilities hereunder.

 

1.3          Executive shall be based at the Company’s office located in Santa Ana, California, but Executive may be required to travel from time to time to other geographic locations in connection with the performance of his executive duties.

 

2.             Agreement Term.  The initial term of the Agreement shall be for a period of three (3) years measured from the Effective Date (the “Initial Term”).  Following the Initial Term, the Agreement shall automatically renew for successive one (1) year periods until the date that is ten (10) years after the Effective Date (each, a “Renewal Term”) unless either the Company or Executive provides written notice to the other party of such nonrenewal at least thirty (30) days prior to the Initial Term or the Renewal Term as applicable.  This Agreement shall remain in full force and effect for the lesser of (i) the Initial Term, together with all Renewal Terms or (ii) until Executive’s termination of employment with the Company for any reason or without reason (the “Employment Period”).  The parties agree that the Executive’s employment with the Company during the Initial Term and any Renewal Term shall be on an “at-will” basis, which means that notwithstanding the provisions of this Agreement, either the Executive or the Company may terminate the employment relationship and this Agreement at any time, for any or no reason, with or without Cause (as defined below).

 

3.             Compensation and Benefits.

 

3.1          Base Salary.  Executive’s initial base salary shall be Three Hundred Eighty-Five Thousand Dollars ($385,000) per year (less applicable withholdings), which shall be payable in accordance with the Company’s standard payroll schedule (but in no event less frequent than on a monthly basis), together with such increases as may be approved by the Company’s Compensation Committee from time to time in its sole discretion.  Such annual base salary as increased from time to time shall be referred to herein as the “Base Salary.”

 

1

 

3.2          Bonus.  Executive shall be entitled to participate in any executive bonus plan of the Company then in effect and to receive any bonus compensation in the discretion of the Board or the Company’s Compensation Committee.  The term “Target Bonus” shall mean the bonus potential established for the Executive by the Board or a committee thereof for the applicable fiscal year. Executive will not be eligible for any bonus for any year in the event that his employment terminates at any time on or before the end of a fiscal year except for the Separation Bonus that is specifically provided for herein.  For the fiscal year ending March 31, 2016 (“Fiscal Year 2016”), the Target Bonus shall be $300,000.  The first half of the Bonus for Fiscal Year 2016 ($150,000) will be guaranteed and will be paid on January 31, 2016 provided that Executive shall be employed as of January 31, 2016.  The second half of the Target Bonus for Fiscal Year 2016 will be based on your achievement (in the Board’s discretion) of the performance criteria established by you and the Chairman of the Compensation Committee of the Board within the first thirty (30) days of the commencement of your employment.  The second half of the Target Bonus for Fiscal Year 2016 shall be earned and payable after the end of Fiscal Year 2016 after the annual audit of the Company’s financial statement for Fiscal Year 2016 has been finalized.

 

3.3          Stock Option.  As soon as reasonably practicable following the first day of Executive’s employment with the Company (the “Start Date”), the Board (or the Compensation Committee of the Board) shall grant to Executive an option to purchase up to One Million Three Hundred Fifty Thousand (1,350,000) shares of the Company’s Common Stock (the “Option”) at an exercise price equal to the closing sales price of the Company’s Common Stock on the grant date as reported by the NYSE Market.  The Vesting Commencement Date of the Option shall be Executive’s Start Date.  The Option shall be granted pursuant to and shall be subject to the terms and conditions of the Company’s 2007 Omnibus Incentive Plan (the “Plan”).

 

3.4          Relocation Package.  Subject to the limitation set forth in Section 3.4(g) below, the Company shall provide advances to Executive for the following relocation items; provided that Executive shall have provided the Company with documentation, receipts and other details of such expenses in the form and substance required by the Company’s general expense reimbursement policy:

 

(a)           Real Estate Commissions/Closing Costs on Current Home Sale.  In the event Executive sells his primary residence located in Piedmont, California prior to the third (3rd) anniversary of the Start Date, then the Company shall pay to Executive an amount equal to (i) the actual real estate commission that Executive has paid on the sale of his primary residence up to a maximum commission of six percent (6%) of the actual sale price; (ii) the reasonable and customary seller-paid closing costs on Executive’s sale of such primary residence, and (iii) the reasonable and customary buyer paid closing costs on the purchase of Executive’s first primary residence in Orange County, California prior to the third (3rd) anniversary of the Start Date, including up to a 1% loan origination fee related to the new residence.

 

2

 

(b)           Moving Expenses. In connection with Executive’s relocation to Orange County, California, the Company shall pay to Executive an amount equal to Executive’s actual moving expenses for moving all of his household goods to Orange County; provided that the Company shall only reimburse Executive for one move.

 

(c)           Incidental Expenses.  The Company shall pay to Executive an amount for other documented incidental relocation expenses actually incurred by Executive that are reasonably related to his relocation to Orange County, California; provided however, that such incidental expenses shall not exceed $10,000 in the aggregate.

 

(d)           Temporary Housing.  The Company shall reimburse Executive for temporary living expenses in Orange County, California for up to three (3) months; provided that the monthly reimbursement shall not to exceed $3,000 per month.

 

(e)           House Hunting Trips with Spouse.  The Company shall reimburse Executive for up to two (2) house hunting trips to Orange County with his spouse not to exceed $2,500 in the aggregate, which shall include round-trip airfare, hotel accommodations, rental car costs, meals and related expenses.

 

(f)            Gross Up for Taxable Reimbursements.  All payments pursuant to Sections 3.4(a) through (e) that are reported as taxable income will be grossed up to minimize tax liability to the Executive.  This tax gross up will be limited to a one-time computation based on the principal relocation amounts.

 

(g)           Repayment of Advances.  In the event Executive’s employment with the Company is terminated for Cause or he resigns without Good Reason prior to the first anniversary of the Start Date, Executive shall reimburse the Company for the total amount of payments advanced pursuant to Section 3.4. In the event Executive’s employment with the Company is terminated for Cause or he resigns without Good Reason after the first anniversary of the Start Date but prior to the second anniversary of the Start Date, Executive shall reimburse the Company for fifty percent (50%) of the total amount of payments advanced pursuant to Section 3.4.

 

3.5          Paid Time Off.  Executive shall receive four (4) weeks of paid time off (“PTO”) per calendar year, which amount shall accrue in accordance with and subject to any caps on accrual established by the Company’s vacation policy in effect from time to time for employees of the Company.  In addition, Executive shall be entitled to paid time off for all holidays provided under the Company’s regular holiday schedule.

 

3.6          Group Benefit Plans.  Executive shall, throughout the Employment Period, be eligible to participate in all of the group term life insurance plans, group health plans, accidental death and dismemberment plans, short-term disability programs, retirement plans, profit sharing plans or other plans (for which Executive qualifies) that are available to the officers of the Company as provided under the terms of such plans.

 

3.7          Withholdings.  The Company shall deduct and withhold from any compensation payable to Executive hereunder (including but not limited to, any payments or benefits under this Section 3 and any Separation Benefits, the Termination Benefits and the CIC Termination

 

3

 

Benefits), any and all applicable Federal, State and local income and employment withholding taxes and any other amounts the Company determines are required to be deducted or withheld by the Company under applicable statutes, regulations, ordinances or orders governing or requiring the withholding or deduction of amounts otherwise payable as compensation or wages to employees.

 

4.             Expense Reimbursement.  During the Employment Period, Executive shall be entitled, in accordance with the reimbursement policies in effect from time to time, to receive reimbursement from the Company for reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder, provided Executive furnishes the Company with vouchers, receipts and other details of such expenses in the form required by the Company sufficient to substantiate a deduction for such business expenses under all applicable rules and regulations of federal and state taxing authorities.

 

5.             Termination of Employment.  During the Employment Period, the Executive’s employment with the Company shall be at will and may be terminated by either the Company or Executive at any time, and for any reason.  Upon such termination, Executive (or, in the case of Executive’s death, Executive’s estate and beneficiaries) shall have no further rights to any other compensation or benefits from the Company on or after the termination of employment except as follows:

 

5.1          Termination For Cause or Resignation by Executive.

 

(a)           Separation Benefits.  In the event the Company terminates Executive’s employment with the Company prior to the expiration of the Employment Period for Cause (as defined below) or in the event the Executive resigns from the Company voluntarily (other than for Good Reason following a Change in Control), then the Company shall pay to Executive the following: (i) Executive’s unpaid Annual Salary that has been earned through the termination date of Executive’s employment (the “Termination Date”); (ii) Executive’s accrued but unused vacation; (iii) any accrued but unpaid expenses pursuant to Section 4 above, (iv) such vested accrued benefits, and other benefits and/or payments, if any, as to which the Executive (and his eligible dependents) may be entitled under, and in accordance with the terms and conditions of, the employee benefit arrangements, plans and programs of the Company as of the Termination Date (including, for example, the presentment of the right to continue health benefit coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), as applicable), but not including any severance pay plan; and (v) any other payments as may be required under applicable law.  The benefits provided under subsections (i) through (v) of this Section 5.1(a) are collectively referred to as the “Separation Benefits.”

 

(b)           Definition of Cause.  For purposes of this Agreement, “Cause” shall mean any of the following:  (i) Executive’s misappropriation of the Company’s funds or property, or any attempt by Executive to secure any personal profit related to the business or business opportunities of the Company without the informed, written approval of the Audit Committee of the Company’s Board of Directors; (ii) any unauthorized use or disclosure by Executive of confidential information or trade secrets of the Company (or any parent or subsidiary of the Company); (iii) Executive’s gross negligence or reckless misconduct in the performance of Executive’s duties; (iv) Executive’s continuing failure to perform, or continuing neglect in the 

 

4

 

performance of, duties lawfully assigned to Executive by the Board provided that the Company shall have provided Executive with written notice of such failure or neglect and the Executive has been afforded at least ten (10) business days to cure such failure or neglect; (v) Executive’s conviction of, or plea of nolo contendre to, any felony or misdemeanor involving moral turpitude or fraud, or of any other crime involving material harm to the standing or reputation of the Company; (vi) any other willful misconduct by Executive that the Board determines in good faith has had a material adverse effect upon the business or reputation of the Company; (vii) any other material breach or violation by the Executive of this Agreement, the Company’s written code of conduct, written code of ethics or other written policy of the Company; provided, however, that the Company shall have provided the Executive with written notice that such actions are occurring and the Executive has been afforded at least ten (10) business days to cure.  Notwithstanding the foregoing, in subparagraphs (iv) and (vii), (A) the cure period shall not apply to violations of the Company’s code of conduct, written code of ethics or prohibition against unlawful harassment, and (B) such cure period shall only apply to breaches, violations, failures or neglect that in the Board’s sole judgment are capable of or amenable to such cure.

 

5.2          Termination Upon Death.  If Executive dies during the Employment Period, the Executive’s employment with the Company shall be deemed terminated as of the date of death, and the obligations of the Company to or with respect to Executive shall terminate in their entirety upon such date except as otherwise provided under this Section.  Upon termination of employment due to death, Executive’s estate or beneficiaries shall be entitled to receive (a) the Separation Benefits and (b) salary continuation amount in the aggregate equal to one-half (1/2) Executive’s Base Salary in effect as of the Termination Date.  Subject to Section 8.2, the amount payable to the Executive (or his estate or beneficiaries) pursuant to this Section 5.2 shall be payable in a lump sum.

 

5.3          Termination Upon Disability.  If Executive becomes subject to a Disability (as defined below), then the Company shall have the right, to the extent permitted by law, to terminate the employment of Executive upon thirty (30) days prior written notice in writing to Executive.  Upon termination of employment due to Disability, Executive shall be entitled to receive: (i) the Separation Benefits; (ii) continuation of Executive’s Base Salary (which shall be payable in accordance with the Company’s standard pay policies) until Executive is eligible for short-term disability payments under the Company’s group disability policies; provided however, that in no event shall such period of continued Base Salary exceed ninety (90) days following Executive’s termination of employment; and (iii) any other payments as may be required under applicable law.  For the purposes of this Agreement, the term, “Disability” shall mean a physical or mental impairment which, the Board determines, after consideration and implementation of reasonable accommodations, precludes the Executive from performing his essential job functions for a period longer than three (3) consecutive months or a total of one hundred twenty (120) days in any twelve (12)-month period.

 

5.4          Termination Without Cause.

 

(a)           Termination Benefits.  Subject to Sections 5.4(b) and 6, if the Company terminates Executive’s employment during the Employment Period for any reason (other than for Cause, or in connection with a Change in Control or upon the Executive’s death or Disability), then the Company shall pay to Executive the Separation Benefits as well as the following compensation and benefits (the “Termination Benefits”):

 

5

 

(i)            Salary Continuation.  The Company shall pay to Executive an amount in the aggregate equal to Executive’s Base Salary in effect as of the Termination Date.  Subject to Section 8.2, the amount payable to the Executive pursuant to this Section 5.4(a)(i) shall be payable in equal installments on the Company’s normal payroll dates for the twelve (12) months following the Final Revocation Date (as defined below) in accordance with the usual payroll practices of the Company.

 

(ii)           Separation Bonus.  A lump sum payment equal to pro-rated portion of the Target Bonus established by the Compensation Committee for the Executive for the fiscal year in which Executive’s employment was terminated (or in which Executive resigns for Good Reason following a Change in Control) (the “Separation Bonus”).  The pro-rated portion of the Separation Bonus shall be calculated based upon the number of days which the Executive was actually employed by the Company during the fiscal year in which Executive’s employment ceased.  Subject to Section 8.2 below, the lump sum payment required by this Section shall be paid no later than thirty (30) days following the Final Revocation Date.

 

(iii)          COBRA Reimbursement.  In the event that the Executive properly and timely elects to continue health benefit coverage under COBRA after the Termination Date and the Company received from Executive of a copy of such election and proof of Executive’s timely payment of each COBRA premium, the Company shall promptly reimburse Executive for the amount of each such premium paid by Executive.  Such COBRA premium reimbursements will be paid for by the Company coverage until the earlier of (i) the first twelve (12) months of COBRA continuation, or (ii) such time as Executive subsequently becomes covered by another group health plan.  Executive agrees to notify the Company immediately if he becomes covered by another group health plan.

 

(b)           No Duplication.  Notwithstanding anything to the contrary in this Section 5.4, in no event shall the Executive be entitled to receive any payment or benefit pursuant to this Section 5.4 in connection with a termination of employment that would entitle the Executive to receive any payment or benefit pursuant to Section 5.5 below.

 

5.5          Termination without Cause or Resignation for Good Reason Following a Change in Control.

 

(a)           Termination Benefits.  If, during the twelve (12)-month period following a Change in Control (as defined below), the Executive voluntarily resigns for Good Reason or the Company terminates Executive’s employment for any reason other than for Cause, then the Company shall pay to the Executive the Separation Benefits as well as the following compensation and benefits (the “CIC Termination Benefits”), subject to the conditions set forth in Section 6:

 

(i)            Severance Payment.  A lump sum payment equal to the sum of (A) one hundred twenty-five percent (125%) of the Executive’s Base Salary, as in effect as of the Termination Date, plus (B) the Separation Bonus.  Subject to Section 8.2 below, the lump sum payment required by this Section shall be paid no later than thirty (30) days following the Termination Date.

 

6

 

(ii)           COBRA Reimbursement.  In the event that the Executive properly and timely elects to continue health benefit coverage under COBRA after the Termination Date and the Company received from Executive of a copy of such election and proof of Executive’s timely payment of each COBRA premium, the Company shall promptly reimburse Executive for the amount of each such premium paid by Executive.  Such COBRA premium reimbursements will be paid by the Company for coverage until the earlier of (i) the first twelve (12) months of COBRA continuation, or (ii) such time as Executive subsequently becomes covered by another group health plan.  Executive agrees to notify the Company immediately if he becomes covered by another group health plan.

 

(iii)          Acceleration of Stock Option Vesting.  The Option shall provide that, in the event of Executive’s voluntarily resignation for Good Reason or the termination by the Company of Executive’s employment other than for Cause within twelve (12) months following a Change in Control (such resignation or termination a “CIC Termination”), the Option shall accelerate in part as follows: (A) if the CIC Termination occurs prior to the second anniversary of the Vesting Commencement Date, the Option shall accelerate to the extent to make the Option fifty percent (50%) vested as of the CIC Termination; (B) if the CIC Termination occurs prior to the third anniversary of the Vesting Commencement Date, the Option shall accelerate to the extent to make the Option seventy-five percent (75%) vested as of the CIC Termination; and (C) if the CIC Termination occurs prior to the fourth anniversary of the Vesting Commencement Date, the Option shall accelerate to the extent to make the Option one hundred percent (100%) vested as of the CIC Termination.

 

(b)           Definition of Good Reason.  For the purposes of this Agreement, “Good Reason” shall mean Executive’s voluntary resignation upon any of the following events without Executive’s written consent:  (i) a material reduction in the Executive’s authority, duties or responsibilities (and not simply a change in title or reporting relationships); (ii) a material reduction by the Company in the Executive’s compensation (for avoidance of doubt, a five percent (5%) reduction in the combined level of Base Salary and annual target bonus opportunity shall constitute a material reduction in Executive’s compensation); (iii) a relocation of the Executive’s principal place of work to a location that would increase the Participant’s one-way commute from his or her personal residence (other than the initial relocation contemplated herein) to the new principal place of work by more than forty (40) miles ; or (iv) any breach by the Company of its obligations under this Agreement that results in a material negative change to Executive.  Notwithstanding the foregoing, “Good Reason” shall only be found to exist if the Executive provides written notice (each, a “Good Reason Notice”) to the Company identifying and describing the event resulting in Good Reason within ninety (90) days of the initial existence of such event, the Company does not cure such event within thirty (30) days following receipt of the Good Reason Notice from the Executive and the Executive terminates his employment during the ninety (90)-day period beginning ninety (90) days after the Executive’s delivery of the Good Reason Notice.

 

(c)           Definition of Change in Control.  For the purposes of this Agreement, a “Change in Control” shall mean any of the following transactions effecting a change in ownership or control of the Company that also qualifies as a “change in control event” (as defined in Treasury Regulation Section 1.409A-3(i)(5)):

 

7

 

(i)            a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization more than fifty percent (50%) of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity.

 

(ii)           The sale, transfer or other disposition of all or substantially all of the Company’s assets;

 

(iii)          the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by or in under common control with, the Company), of “beneficial ownership” as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of securities of the Company representing more than fifty percent (50%) of the total combined voting power represented by the Company’s then outstanding voting securities. For purposes of this subsection, the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an associate benefit plan of the Company or of a parent or subsidiary and (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.

 

Notwithstanding anything to the contrary contained herein, a Change in Control may not be deemed to occur in connection with any underwritten public offering of the Company’s securities.

 

5.6          No Mitigation.  The Executive shall not be required to mitigate the amount of any payment provided for in Sections 5.4(a) or 5.5(a) by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Termination Date provided, however, that the COBRA reimbursement provided in Section 5.4(a)(iii) and 5.5(a)(ii) shall be reduced if required by Section 5.4(a)(iii) or 5.5(a)(ii), respectively.

 

6.             Condition to Termination Benefits - General Release.  Notwithstanding any provision to the contrary in this Agreement, the Company’s obligation to pay or provide the Executive with the Termination Benefits or the CIC Termination Benefits, as applicable, shall be conditioned on and subject to the Executive’s executing and not revoking a waiver and general release in a form acceptable to the Company in its sole discretion (the “Release”).  The Company shall provide the Release to the Executive within seven (7) days following the Termination Date. In order to receive the Termination Benefits or the CIC Termination Benefits, as applicable, the Executive will be required to sign and deliver the Release to the Company within twenty-one (21) days after the date it is provided to him, and not revoke it on or before the seventh (7th) day following

 

8

 

the date on which the Release is signed by him (the “Final Revocation Date”).    Notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly or indirectly, result in the Executive designating the calendar year of payment of an amount that is subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations issued thereunder (“Section 409A”), and if a payment that is subject to execution of the release and is subject to Section 409A could be made in more than one taxable year, payment shall be made in the later taxable year to the extent required to comply with Section 409A.

 

7.             Confidentiality, Non-Solicitation; Mutual Non-Disparagement and Cooperation.

 

7.1          Confidentiality. The Company and the Executive acknowledge that the services to be performed by the Executive under this Agreement are unique and extraordinary and, as a result of such employment, the Executive shall be in possession of Confidential Information relating to the business practices of the Company and its subsidiaries and affiliates (collectively, the “Company Group”). The term “Confidential Information” shall mean any and all information (oral and written) relating to the Company Group, or any of their respective activities, or of the clients, customers, acquisition targets, investment models or business practices of the Company Group, other than such information which (i) is generally available to the public or within the relevant trade or industry, other than as the result of breach of the provisions of this Section, or (ii) the Executive is required to disclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law.  The Executive shall not, during his employment nor at any time thereafter (except as may be required in the course of the performance of his duties hereunder and except with respect to any litigation or arbitration involving this Agreement, including the enforcement hereof), directly or indirectly, use, communicate, disclose or disseminate to any person, firm or corporation any Confidential Information acquired by the Executive during, or as a result of, his employment with the Company, without the prior written consent of the Company.  The confidentiality obligations contained in this Section shall be in addition to any other confidentiality agreement entered into between the Company and Executive.

 

7.2          Non-Solicitation. The Executive shall not, except in the furtherance of the Executive’s duties hereunder, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, during the Employment Period (except in the good faith performance of his duties) and for a period of one (1) year thereafter, solicit, aid or induce any employee, representative or agent of the Company Group to leave such employment or retention or to accept employment with or render services to or with any other person, firm, corporation or other entity unaffiliated with the Company Group, or take any action to materially assist or aid any other person, firm, corporation or other entity in identifying, hiring or soliciting any such employee, representative or agent.

 

7.3          Mutual Non-Disparagement. At no time during or within three (3) years after Executive’s cessation of employment for any reason shall the Executive or the Company, directly or indirectly, disparage the other, including the Company Group or any of the Company Group’s past or present employees, officers, directors, attorneys, products or services or the Executive’s performance.  Notwithstanding the foregoing, nothing in this Section shall prevent

 

9

 

the Executive or the Company from making any truthful statement to the extent (a) necessary to rebut any untrue public statements made about him or it; (b) necessary with respect to any litigation, arbitration or mediation involving this Agreement, including, but not limited to, the enforcement of this Agreement; (c) required by law or by any court, arbitrator, mediator or administrative or legislative body (including any committee thereof) with jurisdiction over such person; or (d) made as good faith competitive statements in the ordinary course of business.

 

7.4          Cooperation. Upon the receipt of reasonable notice from the Company (including the Company’s outside counsel), the Executive agrees that while employed by the Company and thereafter, the Executive will respond and provide information with regard to matters of which the Executive has knowledge as a result of the Executive’s employment with the Company, and will provide reasonable assistance to the Company Group and their respective representatives in defense of any claims that may be made against the Company Group (or any member thereof), and will provide reasonable assistance to the Company Group in the prosecution of any claims that may be made by the Company Group (or any member thereof), to the extent that such claims may relate to matters related to the Executive’s period of employment with the Company (or any predecessors).  If the Executive is required to provide any services pursuant to this Section following the cessation of his employment, then the Company: (i) shall promptly compensate the Executive for all time actually incurred in these activities at an hourly rate of pay equal to the Executive’s most recent annual Base Salary divided by 2080 hours; and (ii) shall promptly reimburse the Executive for reasonable out-of-pocket travel, lodging, communication and duplication expenses incurred in connection with the performance of such services and in accordance with the Company’s business expense reimbursement policies.

 

7.5          Injunctive Relief.  Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 7 may result in the material and irreparable injury to the Company, or their respective affiliates or subsidiaries, for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such breach or threat: (a) the Company shall be entitled to a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 7; and (ii) any remaining Termination Benefits or CIC Termination Benefits due to the Executive under Section 5.4 or Section 5.5, respectively, shall be forfeited.  If for any reason it is held that the restrictions under this Section 7 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted or modified to include as much of the duration or scope of identified in this Section as will render such restrictions valid and enforceable.

 

7.6          Return of Company Property.  Upon the cessation of Executive’s employment for any reason or without reason, all Company Group property that is in the possession of the Executive shall be promptly returned to the Company, including, without limitation, all documents, records, notebooks, equipment, price lists, specifications, programs, customer and prospective customer lists, supplier lists and any other materials that contain Confidential Information which are in the possession of the Executive, including all copies thereof.  Anything to the contrary notwithstanding, the Executive shall be entitled to retain (i) papers and other materials of a personal nature, including, but not limited to, photographs, correspondence, personal diaries, calendars and rolodexes, personal files and phone books, (ii) information showing his compensation or relating to reimbursement of expenses, (iii) information that he reasonably believes may be needed for tax purposes and (iv) copies of plans, programs and agreements relating to his employment, or termination thereof, with the Company.

 

10

 

8.             Section 409A.

 

8.1          Interpretation. It is intended that the provisions of this Agreement comply with the requirements of Section 409A or an exemption therefrom and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.  The severance compensation payable under this Agreement is intended to be exempt from Section 409A under the “short-term deferral” exception or the “separation pay” exception.  Distributions upon termination of employment may only be made upon a “separation from service,” as required by Section 409A.  For purposes of Section 409A, each payment under this Agreement shall be treated as a separate payment.  In no event may the Employee, directly or indirectly, designate the calendar year of a payment.  If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause the Executive to incur any additional tax or interest under Section 409A, the Company shall, upon the specific request of the Executive, use its reasonable business efforts to in good faith reform such provision to comply with Section 409A; provided, that to the maximum extent practicable, the original intent and economic benefit to the Executive and the Company of the applicable provision shall be maintained, but the Company shall have no obligation to make any changes that could create any additional economic cost or loss of benefit to the Company.  Notwithstanding the foregoing, the Company shall not have any liability with regard to any failure of this Agreement to comply with Section 409A so long as it has acted in good faith with regard to compliance therewith.

 

8.2          Section 409A Delay.  If required by Section 409A (but only to the extent so required), notwithstanding anything to the contrary in this Agreement, the Termination Benefits and the CIC Termination Benefits to be made to Executive shall be paid or provided no sooner than the first (1st) day of the seventh (7th) month following the Executive’s termination date.

 

8.3          Reimbursements and In-Kind Benefits.  With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.

 

9.             Section 280G of the Code.

 

9.1          Maximum Benefit.  In the event that any payment or benefit, either cash or non-cash, that the Executive has the right to receive from the Company pursuant to this agreement or otherwise (including, but not limited to, accelerated vesting or payment of any deferred compensation, options, restricted stock or any benefits payable to Executive under any plan for the benefit of employees) (the “Covered Payments”) would constitute a “parachute payment” (as defined in Section 280G of the Code), then such payments or other benefits shall be reduced to the largest amount that will not result in receipt by the Executive of an “excess parachute payment” under Section 280G of the Code.

 

11

 

9.2          Order of Reductions.  Any such reduction shall be made in accordance with Section 409A and the following:

 

(a)           the Covered Payments that do not constitute nonqualified deferred compensation subject to Section 409A shall be reduced first; and

 

(b)           all other Covered Payments shall then be reduced as follows: (A) cash payments shall be reduced before non-cash payments; and (B) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date.

 

9.3          Recalculation. If, notwithstanding the initial application of this Section 9, the Internal Revenue Service determines that all or any portion of any Covered Payment constitutes an excess parachute payment (as defined in Section 280G(b) of the Code), this Section 9 will be reapplied based on the Internal Revenue Service’s determination, and the Executive will be required to promptly repay the portion of the Covered Payments required to avoid imposition of an excise tax under Section 4999 of the Code together with interest at the applicable federal rate (as defined in Section 7872(f)(2)(A) of the Code) from the date of the Executive’s receipt of the excess payments until the date of repayment).

 

9.4          Determinations.  Any determination required under this Section 9 shall be made by the Company in its sole discretion.

 

10.          Miscellaneous.

 

10.1        Notices.  Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Company at its principal executive office to the attention of the Secretary, and to the Executive at the address last reflected on the Company’s payroll records, or such other address as either party may hereafter designate in writing to the other. Any such notice shall be delivered in person or shall be enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government. Any such notice shall be deemed given only when received, but if the Executive is no longer employed by the Company or a subsidiary, such notice shall be deemed to have been duly given five (5) business days after the date mailed in accordance with the foregoing provisions of this Section.

 

10.2        Severability. Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

 

12

 

10.3        Binding Effect; Benefits. The Executive may not delegate his duties or assign his rights hereunder.  This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.

 

10.4        Entire Agreement. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof and shall supersede any and all previous contracts, arrangements or understandings between the Company and the Executive. This Agreement may be amended at any time by mutual written agreement of the parties hereto. In the case of any conflict between any express term of this Agreement and any statement contained in any plan, program, arrangement, employment manual, memo or rule of general applicability of the Company, this Agreement shall control.

 

10.5        Governing Law and Jurisdiction. This Agreement and the performance of the parties hereunder shall be governed by the internal laws (and not the law of conflicts) of the State of California. The Company and Executive unconditionally consent to submit to the exclusive jurisdiction of any court, Federal or State, within the State of California having subject matter jurisdiction over any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby (and agree not to commence any action, suit or proceeding relating thereto except in such courts), and further agree that service of any process, summons, notice or document by registered mail to the address set forth below shall be effective service of process for any action, suit or proceeding brought against the Company or the Executive, as the case may be, in any such court.

 

10.6        Remedies.  All rights and remedies provided pursuant to this Agreement or by law shall be cumulative, and no such right or remedy shall be exclusive of any other.  A party may pursue any one or more rights or remedies hereunder or may seek damages or specific performance in the event of another party’s breach hereunder or may pursue any other remedy by law or equity, whether or not stated in this Agreement.

 

10.7        Survivorship. Except as otherwise expressly set forth in this Agreement, the respective rights and obligations of the parties shall survive Executive’s cessation of employment to the extent necessary to carry out the intentions of the parties as embodied in this Agreement. This Agreement shall continue in effect until there are no further rights or obligations of the parties outstanding hereunder and shall not be terminated by either party without the express prior written consent of both parties, except as otherwise expressly set forth in this Agreement.

 

10.8        No Waiver.  The waiver by either party of a breach of any provision of this Agreement shall not operate as, or be construed as, a waiver of any later breach of that provision.

 

10.9        Taxes.  Except as otherwise specifically provided herein, each party agrees to be responsible for its own taxes and penalties.

 

10.10      Counterparts. This Agreement may be executed in counterparts (including by fax or pdf) which, when taken together, shall constitute one and the same agreement of the parties.

 

10.11      Representation of Executive.  Executive represents and warrants to the Company that Executive read and understands this Agreement, has had the opportunity to consult with independent counsel of his choice prior to agreeing to the terms of this Agreement and is

 

13

 

entering into the agreement, knowingly, willingly and voluntarily.  The parties agree that this Agreement shall not be construed for or against either party in any interpretation thereof.

 

[End of Text - Signature page follows]

 

14

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

 

	
 
    	
ITERIS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/S/ KEVIN DALY
    
	
 
    	
Print Name:
    	
Kevin Daly
    
	
 
    	
Title:
    	
CEO (interim)
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/S/ JOE BERGERA
    
	
 
    	
JOE BERGERA
    
					

 

15ex10-1.htm

Exhibit 10.1

 

THIS NOTE, AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE (THE “SECURITIES”) HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT” OR THE “SECURITIES ACT”) SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE AND ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE (EXCEPT AS OTHERWISE PROVIDED BELOW).

 

CONVERTIBLE SUBORDINATED PROMISSORY NOTE

 

Effective ____________________, 2015

 

 

FOR VALUE RECEIVED, Hydrocarb Energy Corporation, a Nevada corporation (the “Corporation”), hereby promises to pay to the order of _______________, an _____________ and/or permitted assigns (the “Holder”), the aggregate principal amount of $________________ (the “Principal”), together with interest on the unpaid Principal amount hereof, upon the terms and conditions hereinafter set forth. This Convertible Subordinated Promissory Note is defined herein as the “Note”, or the “Promissory Note”. The “Effective Date” of this Note shall be ______, 2015. The Holder acquired the Note pursuant to the terms of that certain Subscription Agreement entered into between the Corporation and the Holder dated on or around _____, 2015. Purchasers, assignees and transferees of this Note should note that the Principal balance of the Note as set forth above may not accurately reflect the total balance of Principal then owed under this Note due to the provisions of Section 4(b).  The Holder, any purchasers, assignees and transferees of this Note should also thoroughly read and review Section 5 hereof, which sets forth the terms and conditions upon which this Note (and the amount owed hereunder) will automatically convert into to-be-designated shares of Series B Convertible Preferred Stock of the Corporation upon the designation of such Series B Convertible Preferred Stock with the Secretary of State of Nevada.  This Note was issued with an original issue discount equal to 25% of the original Principal amount of the Note.

 

1.          Payment Terms. The Corporation promises to pay to the Holder the balance of Principal, together with any accrued and unpaid interest due hereunder on _____, 2018 (the “Maturity Date”), unless this Note is earlier (a) prepaid as herein provided; (b) converted into common stock, $0.001 par value per share of the Corporation (“Common Stock”) pursuant to Section 4 below; or (c) subject to an Automatic Preferred Stock Conversion, as described below in Section 5. All payments hereunder shall be made in lawful money of the United States of America. Payment shall be credited first to the accrued Interest then due and payable and the remainder to Principal.

 

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 1 of 14

  

2.          Interest. The Principal of this Note shall accrue interest Quarterly in arrears at the Interest Rate (“Interest” and such interest which is accrued and unpaid as of the applicable determination date, “Accrued Interest”). Accrued Interest shall be added to the Principal Amount of this Note until the earlier to occur of (i) the Automatic Preferred Stock Conversion Date, at which time all Accrued Interest shall be subject to Section 5(a) below, and (ii) January 31, 2016 (the “Interest Payable Date”). Beginning on the Interest Payable Date, interest accruing on this Note after such date shall be payable by the Corporation in cash at the end of each Quarter until the earlier of (a) the Maturity Date; (b) the date this Note is repaid in full; and (c) the Automatic Preferred Stock Conversion Date. All past-due Principal and Interest shall bear Interest at the rate of twelve percent 12% per annum until paid in full (the “Default Rate”). The Interest Rate shall be computed on the basis of the actual number of days elapsed and a year of 365 days. The “Interest Rate” means an annualized percentage interest rate equal to the Average Quarterly Closing Spot Price divided by ten (10), plus two (2). For example, if the Average Quarterly Closing Spot Price was $60.00 for the prior Quarter, the applicable Interest Rate for the next Quarter would be 8% per annum ($60.00 / 10 = 6 + 2 = 8%). The Interest Rate shall reset Quarterly, based on the Average Quarterly Closing Spot Price for the prior Quarter. Notwithstanding the above, in the event that the Average Quarterly Closing Spot Price is $50 or less, the Interest Rate for the applicable following Quarter shall be 0%. Notwithstanding the above, the Interest Rate applicable from the Effective Date until the end of the first full Quarter following the Effective Date shall be [___%] per annum. “Average Quarterly Closing Spot Price” means the average of the Closing Spot Prices for each WTI Trading Day for the then prior Quarter. “Closing Spot Price” means the closing WTI Crude Oil Spot Price. “WTI” means West Texas Intermediate crude oil. “WTI Trading Day” means a day that WTI futures are traded on the New York Mercantile Exchange. “Quarter” means any of the following during any calendar year: the three (3) month period ending March 31, June 30, September 30 or December 31.

(a)            Notwithstanding any provision in this Note, the total liability for payments of Interest and payments in the nature of interest, including all charges, fees, exactions, or other sums which may at any time be deemed to be interest, shall not exceed the limit imposed by the usury laws of the State of Nevada or the applicable laws of the United States of America, whichever shall be higher (the “Maximum Rate”).

(b)            In the event the total liability for payments of Interest and payments in the nature of interest, including, without limitation, all charges, fees, exactions or other sums which may at any time be deemed to be interest, which for any month or other interest payment period exceeds the Maximum Rate, all sums in excess of those lawfully collectible as interest for the period in question (and without further agreement or notice by, among or to the Holder the undersigned) shall be applied to the reduction of the Principal balance, with the same force and effect as though the undersigned had specifically designated such excess sums to be so applied to the reduction of the Principal balance and the Holder had agreed to accept such sums as a premium-free prepayment of Principal; provided, however, that the Holder may, at any time and from time to time, elect, by notice in writing to the undersigned, to waive, reduce or limit the collection of any sums in excess of those lawfully collectible as interest rather than accept such sums as a prepayment of the Principal balance. The undersigned does not intend or expect to pay nor does the Holder intend or expect to charge, accept or collect any interest under this Note greater than the Maximum Rate.

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 2 of 14

  

(c)           If any payment of Principal or interest on this Note shall become due on a Saturday, Sunday or any other day on which national banks are not open for business, such payment shall be made on the next succeeding Business Day. “Business Day” means a day other than (i) a Saturday, (ii) a Sunday or (iii) a day on which commercial banks in Houston, Texas, are authorized or required to be closed for business.

3.          Prepayment. This Note may be prepaid by the Corporation in whole or part at any time (each a “Prepayment”), provided that if any Prepayment is made prior to the first anniversary of the Effective Date, the Corporation shall, in addition to paying applicable Principal and Accrued Interest (as applicable, the “Repayment Amount”), pay the Holder an additional 15% premium on such Repayment Amount. Any partial Prepayment shall be applied first to any Accrued Interest and then to any Principal outstanding.

4.          Holder’s Option to Convert This Note Into Shares.

 

(a)           At any time prior to the earlier of (i) the payment in full by the Corporation of this Note; and (b) the Automatic Preferred Stock Conversion Date, the Holder shall have the option to convert the then outstanding Principal balance and any Accrued Interest under the Note (or any portion thereof), into restricted shares of Common Stock (the “Shares”) of the Corporation (the “Conversion Option”) at the Conversion Price (each a “Conversion”). The “Conversion Price” shall equal $4.00 per Share;

 

(b)           In order to exercise this Conversion Option, the Holder shall provide the Corporation a written notice of its intentions to exercise this Conversion Option, which notice shall set forth the amount of this Promissory Note to be converted, and the calculation of the Conversion Price, which shall be in the form of Exhibit A, attached hereto (“Notice of Conversion”). Within ten (10) Business Days of the Corporation’s receipt of the Notice of Conversion (reflecting a Conversion Price confirmed by the Corporation), the Corporation shall deliver or cause to be delivered to the Holder, written confirmation that the Shares have been issued in the name of the Holder. If the Corporation reasonably believes that there is an error in Holder’s calculation of the Shares issuable in connection with the Notice of Conversion or the Conversion Price provided for therein, the Corporation shall not be obligated to honor such defective Notice of Conversion and shall promptly notify Holder of such errors. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Note to the Corporation until the Holder has converted the entire amount of this Note, in which case, the Holder shall surrender this Note to the Corporation for cancellation within three (3) Business Days of the date the final Notice of Conversion is delivered to the Corporation. Partial conversions of this Note shall have the effect of lowering the outstanding Principal amount of this Note. The Holder and the Corporation shall maintain records showing the actual Principal Amount of this Note, provided that absent manifest error, the Corporation’s records shall control;

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 3 of 14

  

(c)           In the event of the exercise of the Conversion Option, Holder shall cooperate with the Corporation to promptly take any and all additional actions required or requested to make Holder a stockholder of the Corporation including, without limitation, in connection with the issuance of the Shares and providing the Corporation or its legal counsel or Transfer Agent, representations as to financial condition, investment intent and sophisticated investor status as are reasonably requested or required;

 

(d)           Conversion calculations pursuant to this Section 4, shall be rounded to the nearest whole share of common stock;

 

(e)           If the Corporation at any time or from time to time on or after the Effective Date of this Note (the “Original Issuance Date”) effects a subdivision of its outstanding common stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Corporation at any time or from time to time on or after the Original Issuance Date combines its outstanding shares of common stock into a smaller number of shares, the Conversion Price then in effect immediately before the combination shall be proportionately increased; and

 

(f)           On the date of any Conversion, all rights of any Holder with respect to the amount of this Note converted, will terminate, except only for the rights of any such Holder to receive certificates (if applicable) for the number of Shares which this Note has been Converted.

 

5.          Automatic Conversion of this Note Into Series B Convertible Preferred Stock.

(a)           The Principal and all accrued and unpaid Interest hereon (collectively, the “Note Balance”), shall automatically and without any required action by Holder, be converted into that number of fully-paid, non-assessable shares of Series B Convertible Preferred Stock as determined by dividing the Note Balance by the Preferred Stock Conversion Price (with any remaining Note Balance being defined herein as the “Remaining Note Balance”), at such time, if ever, as the Series B Preferred Stock Designation has occurred (an “Automatic Preferred Stock Conversion” and the “Automatic Preferred Stock Conversion Shares”). The date of the occurrence of the Series B Preferred Stock Designation shall be defined herein as the “Automatic Preferred Stock Conversion Date”. The “Preferred Stock Conversion Price” shall equal the Original Issue Price of the Series B Preferred Stock as set forth in the form of Certificate of Designations of the Series B Convertible Preferred Stock in substantially the form attached as Exhibit B hereto (the “Designation”), which forms an integral part of this Note. The “Series B Preferred Stock Designation” shall be defined herein as the earlier of (a) the filing by the Corporation with the Secretary of State of Nevada of the Designation; or (b) the filing by the Corporation with the Secretary of State of Nevada of an amendment to the Corporation’s Certificate of Formation with substantially similar terms as the Designation, as applicable.  By accepting this Note, the Holder agrees and confirms that the Corporation does not currently have any preferred stock authorized, and the Series B Preferred Stock Designation and therefore the Automatic Preferred Stock Conversion is contingent upon the shareholders of the Corporation (i) authorizing the Board of Directors’ ability to designate preferred stock of the Corporation; and/or (ii) authorizing an amendment to the Corporation’s Articles of Incorporation, which there can be no assurance will occur.

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 4 of 14

  

(b)           Following an Automatic Preferred Stock Conversion, the Corporation shall within ten (10) Business Days, notify each Holder that an Automatic Preferred Stock Conversion has occurred, at the address of each Holder which the Corporation then has on record (an “Automatic Preferred Stock Conversion Notice”), provided that the Corporation is not required to receive any confirmation that such Automatic Preferred Stock Conversion Notice was received by a Holder, but instead assuming such Automatic Preferred Stock Conversion Notice was sent to the address which the Corporation then has on record for such Holder, the Automatic Preferred Stock Conversion Notice shall be treated as received by the Holder for all purposes on the third (3rd) Business Day following the date such notice was sent by the Corporation (the “Automatic Preferred Stock Conversion Notice Receipt Date”). Within ten (10) Business Days following the Automatic Preferred Stock Conversion Notice Receipt Date, the Corporation shall (i) issue the Holder the Automatic Preferred Stock Conversion Shares which such Holder is due; and (ii) pay the Holder the Remaining Note Balance; and promptly deliver certificates evidencing such Automatic Preferred Stock Conversion Shares and such Remaining Note Balance to the address of Holder which the Corporation then has on record (a “Delivery”). The Automatic Preferred Stock Conversion Shares issuable in connection with an Automatic Preferred Stock Conversion shall be fully-paid, non-assessable shares of Series B Convertible Preferred Stock. The Automatic Preferred Stock Conversion Shares shall be issued as restricted shares.

 

(c)           The issuance and Delivery by the Corporation of the Automatic Preferred Stock Conversion Shares and if applicable, the Remaining Note Balance, shall fully discharge the Corporation from any and all further obligations under or in connection with this Note, including, but not limited to the Principal and Accrued Interest due hereunder, and shall automatically, and without any required action by the Corporation or the Holder, result in the cancellation, termination and deemed payment in full of the then Note Balance held by Holder or his, her or its assigns.

 

(d)           The Corporation shall be authorized to take whatever action necessary, if any, following the issuance and Delivery of the Automatic Preferred Stock Conversion Shares and, if applicable, the Remaining Note Balance, to reflect the cancellation, termination and payment in full of this Note, which shall not require the approval and/or consent of the Holder, and provided that by agreeing to the terms and conditions of this Note, Holder hereby agrees to release the Corporation from any and all liability whatsoever in connection with the cancellation and termination of the Note following an Automatic Preferred Stock Conversion, which as stated above, shall be automatically cancelled upon the issuance of such Automatic Preferred Stock Conversion Shares (a “Cancellation”).

 

(e)           Notwithstanding the above, the Holder, by accepting this Note hereby covenants that it will, whenever and as reasonably requested by the Corporation, at its sole cost and expense, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Corporation may reasonably require in order to complete, insure and perfect the Cancellation, if such may be reasonably required by the Corporation.

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 5 of 14

  

(f)           In the event that the Delivery of any Automatic Preferred Stock Conversion Shares (or if applicable, the Remaining Note Balance) is unsuccessful and/or any Holder fails to accept such Automatic Preferred Stock Conversion Shares (or if applicable, the Remaining Note Balance), such Automatic Preferred Stock Conversion Shares (and if applicable, the Remaining Note Balance) shall be held by the Corporation and/or the Transfer Agent in trust (without accruing interest) and shall be released to such Holder upon reasonable evidence to the Corporation that such Holder is the legal owner of such Automatic Preferred Stock Conversion Shares (and if applicable, the Remaining Note Balance), provided that the Holder’s failure to accept such Automatic Preferred Stock Conversion Shares and if applicable, the Remaining Note Balance and/or the Corporation’s inability to Deliver such shares or cash shall in no event effect the validity of the Cancellation.

 

(g)           The Automatic Preferred Stock Conversion Right shall supersede and take priority over the Holder’s Conversion Option set forth in Section 4, in the event that there are any conflicts between such rights.

 

6.          Representations and Warranties of the Corporation. The Corporation represents and warrants to Holder as follows:

 

 

(a)           The execution and delivery by the Corporation of this Note (i) are within the Corporation’s corporate power and authority, and (ii) have been duly authorized by all necessary corporate action. Further, the undersigned is a duly authorized representative of the Corporation who has been authorized by a resolution of the Board of Directors to exercise any and all documents necessary to effectuate the transaction contemplated hereby.

 

(b)           This Note is a legally binding obligation of the Corporation, enforceable against the Corporation in accordance with the terms hereof, except to the extent that (i) such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights, and (ii) the availability of the remedy of specific performance or injunctive or other equitable relief is subject to the discretion of the court before which any proceeding therefore may be brought.

 

7.          Events of Default. If an Event of Default (as defined herein or below) occurs (unless all Events of Default have been cured or waived by Holder), Holder may, by written notice to the Corporation, declare the Principal amount then outstanding of, and the Accrued Interest and all other amounts payable on, this Note to be immediately due and payable, or exercise any other rights and remedies provided by law or equity. The following events shall constitute events of default (“Events of Default”) under this Note, and/or any other Events of Default defined elsewhere in this Note shall occur:

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 6 of 14

  

(a)           the Corporation shall fail to pay, when and as due, the Principal or Interest payable hereunder on the due date of such payment, and such payment is not made within ten (10) days following the receipt of written notice of such failure by the Holder to the Corporation; or

 

(b)           the Corporation shall have breached in any respect any material covenant in this Note, and, with respect to breaches capable of being cured, such breach shall not have been cured within ten (10) days following the receipt of written notice of such breach by the Holder to the Corporation; or

 

(c)           the Corporation shall: (i) make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or a trustee for it or a substantial portion of its assets; (ii) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation or statute of any jurisdiction, whether now or hereafter in effect; (iii) have filed against it any such petition or application in which an order for relief is entered or which remains undismissed for a period of ninety (90) days or more; (iv) indicate its consent to, approval of or acquiescence in any such petition, application, proceeding or order for relief or the appointment of a custodian, receiver or trustee for it or a substantial portion of its assets; or (v) suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of ninety (90) days or more; or

 

(d)           the Corporation shall take any action authorizing, or in furtherance of, any of the foregoing.

 

In case any one or more Events of Default shall occur and be continuing and Holder has provided the Corporation written notice of such Event of Default, Holder may proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or for an injunction against a violation of any of the terms hereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. In case of a default in the payment of any Principal of or premium, if any, or Interest on this Note, the Corporation will pay to Holder such further amount as shall be sufficient to cover the reasonable cost and expenses of collection, including, without limitation, reasonable attorneys’ fees, expenses and disbursements. No course of dealing and no delay on the part of Holder in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice Holder’s rights, powers or remedies. No right, power or remedy conferred by this Note upon Holder shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise.

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 7 of 14

  

8.          Subordination.

(a)           Agreement To Subordinate.  The Corporation agrees, and the Holder by accepting the Note agrees, that the payment of all Principal and Interest and all other amounts, if any, owing in respect of the Note (the “Obligations”) is subordinated in right of payment, to the extent and in the manner provided in this Section 8, to the prior payment in full of all existing and future Senior Indebtedness (defined below) of the Corporation and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Note shall in all respects rank pari passu in right of payment with all other indebtedness of the Corporation, and only indebtedness of the Corporation that is Senior Indebtedness shall rank senior to the Note in accordance with the provisions set forth herein.  “Senior Indebtedness” means all present and future obligations of the Corporation to the lenders and the agent for the lenders under that certain Amended and Restated Credit Agreement, originally dated as of August 15, 2014 and amended and restated as of June 10, 2015 by and among the Corporation, the lenders named therein and the agent for lenders named therein (the “A&R Credit Agreement”).

(b)            Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of the Corporation to creditors upon a total or partial liquidation or a total or partial dissolution of the Corporation or in a reorganization of or similar proceeding relating to the Corporation or its property:

(i)           the holders of Senior Indebtedness of the Corporation shall be entitled to receive payment in full in cash of such Senior Indebtedness (including interest accruing after, or which would accrue but for, the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness, whether or not a claim for such interest would be allowed) before the Holder of the Note shall be entitled to receive any payment; and

(ii)           until the Senior Indebtedness of the Corporation is paid in full in cash, any payment or distribution to which the Holder of the Note would be entitled but for the subordination provisions of this Indenture shall be made to holders of such Senior Indebtedness as their interests may appear; provided that neither the foregoing restriction nor any other provision of this Section 8 shall in any way restrict any Conversion or any Automatic Preferred Stock Conversion; and

(iii)           if a distribution is made to the Holder of the Note that, due to the subordination provisions, should not have been made to them, the Holder of the Note is required to hold it in trust for the holders of Senior Indebtedness of the Corporation and pay it over to them as their interests may appear.

(c)            No Payments on Note Until Senior Indebtedness is Paid in Full.  The Corporation shall not pay principal of, premium, if any, or interest on the Note (or pay any other Obligations relating to the Note) and may not purchase, redeem or otherwise retire any Note (collectively, “pay the Note”) until the Senior Indebtedness is paid in full; provided that neither the foregoing restriction nor any other provision of this Section 8 shall in any way restrict any Conversion or any Automatic Preferred Stock Conversion.

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 8 of 14

  

 

(d)  When Distribution Must Be Paid Over. If a distribution is made to the Holder of the Note that, due to the subordination provisions, should not have been made to the Holder, the Holder is required to hold it in trust for the holders of Senior Indebtedness of the Corporation, and pay it over to them as their interests may appear.

(e) Subordination May Not Be Impaired by the Corporation.  No right of any holder of Senior Indebtedness of the Corporation to enforce the subordination of the Indebtedness evidenced by the Note shall be impaired by any act or failure to act by the Corporation or by the Corporation’s failure to comply with this Note.

(f) Reliance by Holders of Senior Indebtedness of the Corporation on Subordination Provisions. The Holder by accepting the Note acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Corporation, whether such Senior Indebtedness was acquired before or after the issuance of the Note, to consent to the issuance of the Note, and to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in consenting to the issuance of the Note and in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness.

Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Corporation may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination provided in this Section 8 or the obligations hereunder of the Holder to the holders of the Senior Indebtedness of the Corporation, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness of the Corporation, or otherwise amend or supplement in any manner Senior Indebtedness of the Corporation, or any instrument evidencing the same or any agreement under which Senior Indebtedness of the Corporation is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness of the Corporation; (iii) release any Person liable in any manner for the payment or collection of Senior Indebtedness of the Corporation; and (iv) exercise or refrain from exercising any rights against the Corporation and any other Person.

 

(g)  No part of this Section 8 may be amended without the consent of the holders of the Senior Indebtedness.

9.          Certain Waivers by the Corporation. Except as expressly provided otherwise in this Note, the Corporation and every endorser or guarantor, if any, of this Note waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assent to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral available to Holder, if any, and to the addition or release of any other party or person primarily or secondarily liable.

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 9 of 14

  

10.          Assignment and Transfer by Holder. If and whenever this Note shall be assigned and transferred, or negotiated, including transfers to substitute or successor trustees, in each case subject to applicable law and an exemption from registration for such transfer, which shall be approved by the Corporation subject to the Holder providing the Corporation a legal opinion for such transfer, which opinion shall be reasonably accepted by the Corporation, the holder hereof shall be deemed the “Holder” for all purposes under this Note.

 

11.          Amendment. This Note may not be changed orally, but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.

12.          Costs and Fees. Anything else in this Note to the contrary notwithstanding, in any action arising out of this Note, the prevailing party shall be entitled to collect from the non-prevailing party all of its attorneys’ fees. For the purposes of this Note, the party who receives or is awarded a substantial portion of the damages or claims sought in any proceeding shall be deemed the “prevailing” party and attorneys’ fees shall mean the reasonable fees charged by an attorney or a law firm for legal services and the services of any legal assistants, and costs of litigation, including, but not limited to, fees and costs at trial and appellate levels.

 

13.          Governing Law. It is the intention of the parties hereto that the terms and provisions of this Note are to be construed in accordance with and governed by the laws of the State of Texas, except as such laws may be preempted by any federal law controlling the rate of Interest which may be charged on account of this Note.

14.          Construction. When used in this Note, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) “or” is not exclusive; (iii) “including” means including without limitation; (iv) words in the singular include the plural and words in the plural include the singular, and words importing the masculine gender include the feminine and neuter genders; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Note shall refer to this Note as a whole and not to any particular provision hereof; (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Note unless otherwise specified; (viii) references to “writing” include printing, typing, lithography and other means of reproducing words in a visible form, including, but not limited to email; (ix) references to “dollars”, “Dollars” or “$” in this Note shall mean United States dollars; (x) reference to a particular statute, regulation or Law means such statute, regulation or Law as amended or otherwise modified from time to time; (xi) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (xii) unless otherwise stated in this Note, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”; (xiii) references to “days” shall mean calendar days; and (xiv) the paragraph headings contained in this Note are for convenience only, and shall in no manner be construed as part of this Note.

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 10 of 14

  

15.          No Third Party Benefit. The provisions and covenants set forth in this Note are made solely for the benefit of the parties to this Note and are not for the benefit of any other person, and no other person shall have any right to enforce these provisions and covenants against any party to this Note, except that the holders of Senior Indebtedness are entitled to enforce their rights under Section 8.

 

16.          Jurisdiction, Venue and Jury Trial Waiver. In any actions predicated upon this Note, venue is properly laid in Texas and the Circuit Court in and for Harris County, Texas, shall have exclusive full subject matter and personal jurisdiction over the parties to determine all issues arising out of or in connection with the execution and enforcement of this Note, provided that the holders of Senior Indebtedness are entitled to enforce their rights under Section 8 in the venue specified in the Amended & Restated Credit Agreement.

 

17.          Interpretation. The term “Corporation” as used herein in every instance shall include the Corporation’s successors, legal representatives and assigns, including all subsequent grantees, either voluntarily by act of the Corporation or involuntarily by operation of law and shall denote the singular and/or plural and the masculine and/or feminine and natural and/or artificial persons, whenever and wherever the contexts so requires or properly applies. The term “Holder” as used herein in every instance shall include the Holder’s successors, legal representatives and assigns (as permitted pursuant to the terms of this Note), as well as all subsequent assignees, endorsees and holders of this Note (subject to the provisions of this Note providing for transfers and assignments by Holder), either voluntarily by act of the parties or involuntarily by operation of law.

18.          WAIVER OF JURY TRIAL. THE COMPANY AND HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THE COMPANY ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL INDUCEMENT TO THE HOLDER IN EXTENDING CREDIT TO THE COMPANY, THAT THE HOLDER WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY TRIAL WAIVER, AND THAT THE COMPANY HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 11 of 14

  

19.          Cumulative Rights. No delay on the part of Holder or any other holder of this Note in the exercise of any power or right under this Note, shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or exercise of any other power or right. Enforcement by the Holder or any other holder of this Note of any security for the payment hereof shall not constitute any election by it of remedies so as to preclude the exercise of any other remedy available to it.

20.          Notices. Any and all notices, requests or other communications hereunder shall be given in writing and delivered by: (a) regular, overnight or registered or certified mail (return receipt requested), with first class postage prepaid; (b) hand delivery; (c) facsimile transmission; or (d) overnight courier service, to the parties at the following addresses or facsimile numbers:

If to the Corporation:

Hydrocarb Energy Corporation

Attn: Kent P. Watts

800 Gessner Road, Suite 375

Houston, Texas 77024

With a copy to:

The Loev Law Firm, PC

Attn: David M. Loev, Esq.

6300 West Loop South, Suite 280

Bellaire, Texas 77401

Phone: (713) 524-4110

Fax: (713) 524-4122

If to the Holder:

To the address of Holder set forth in the Subscription Agreement.

or at such other address or number as shall be designated by either of the parties in a notice to the other party given in accordance with this Section 20, provided that at least ten (10) days prior written notice shall be given for any change. Except as otherwise provided in this Note, all such communications shall be deemed to have been duly given: (A) in the case of a notice sent by regular or registered or certified mail, three business days after it is duly deposited in the mails; (B) in the case of a notice delivered by hand, when personally delivered; (C) in the case of a notice sent by facsimile, upon transmission subject to telephone confirmation of receipt; and (D) in the case of a notice sent by overnight mail or overnight courier service, the next business day after such notice is mailed or delivered to such courier, in each case given or addressed as aforesaid.

21.          Severability. If any term or other provision of this Note is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Note shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Note so as to affect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

 

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 12 of 14

  

22.          Entire Agreement. This Note constitutes the sole and only agreement of the parties hereto and supersedes any prior understanding or written or oral agreements between the parties respecting the subject matter hereof.

[Remainder of page left intentionally blank. Signature page follows.]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 13 of 14

  

IN WITNESS WHEREOF, the undersigned has caused this Convertible Subordinated Promissory Note to be executed and delivered as of the date first above written, to be effective as of the Effective Date set forth above.

 

	
 

	
“Corporation”

 

HYDROCARB ENERGY CORPORATION

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By:______________________

	
 

	
 

	
 

Its:______________________

 

Printed Name:______________________

 

 

	
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Subordinated Promissory Note

  

Page 14 of 14

  

EXHIBIT A

Conversion Election Form

____________, 20__

Hydrocarb Energy Corporation

Attn: Kent P. Watts

800 Gessner Road, Suite 375

Houston, Texas 77024

Re:           Conversion of Convertible Subordinated Promissory Note

Ladies and Gentlemen:

You are hereby notified that, pursuant to, and upon the terms and conditions of that certain Convertible Subordinated Promissory Note of Hydrocarb Energy Corporation (the “Corporation”) dated ______, 2015 in the amount of $________ (the “Note”), held by us, we hereby elect to exercise our Conversion Option (as such term in defined in the Note), in connection with $__________ of the amount currently owed under the Note (including $___________ of accrued interest), effective as of the date of this writing, which amount will convert into ________________ shares of the common stock of the Corporation (the “Conversion”), based on the Conversion Price (as defined in the Note). Please issue certificate(s) for the applicable securities issuable upon the Conversion, in the name of the person provided below.

	
 

	
Very truly yours,

	
 

	
 

	
 

	
___________________________

	
 

	
Name:

	  	  
	  	
If on behalf of Entity:

	  	  
	  	
Entity Name:______________

	  	  
	  	
Signatory’s Position with Entity:

_____________________________

 

Please issue certificate(s) for common stock as follows:

______________________________________________

Name

______________________________________________

Address

______________________________________________

Social Security No./EIN of Shareholder

Please send the certificate(s) evidencing the common stock to:

Attn:___________________________________________

Address:________________________________________

 

 

 

 

 

 

  

  

  

EXHIBIT B

[SERIES B CONVERTIBLE PREFERRED STOCK DESIGNATION]

[Provided Separately]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00249-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00249-of-00352.parquet"}]]