Document:

Unassociated Document

EXHIBIT 10.2

 

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made and entered into as of this 22nd day of February, 2011 by and among Parametric Sound Corporation, a Nevada corporation (the “Company”), and the “Investors” named in that certain Securities Purchase Agreement by and among the Company and the Investors (the “Purchase Agreement”).  Capitalized terms used herein have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein.

 

The parties hereby agree as follows:

 

1.      Certain Definitions.

 

As used in this Agreement, the following terms shall have the following meanings:

 

“Common Stock” means the Company’s common stock, par value $0.001 per share, and any securities into which such shares may hereinafter be reclassified.

 

“Investors” means the Investors identified in the Purchase Agreement and any Affiliate or permitted transferee of any Investor who is a subsequent holder of any Warrants or Registrable Securities.

 

“Prospectus” means (i) the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus, and (ii) any “free writing prospectus” as defined in Rule 405 under the 1933 Act.

 

“Register,” “registered” and “registration” refer to a registration made by preparing and filing a Registration Statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration Statement or document.

 

“Registrable Securities” means (i) the Shares, (ii) the Warrant Shares and (iii) any other securities issued or issuable with respect to or in exchange for Registrable Securities, whether by merger, charter amendment or otherwise; provided, that, a security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible for sale without restriction by the Investors pursuant to Rule 144.

 

“Registration Statement” means any registration statement of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

 

“Required Investors” means the Investors holding a majority of the Registrable Securities.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Shares” means the shares of Common Stock issued pursuant to the Purchase Agreement.

 

 

 

  

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“1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Warrants” means, the warrants to purchase shares of Common Stock issued to the Investors pursuant to the Purchase Agreement, the form of which is attached to the Purchase Agreement as Exhibit A.

 

“Warrant Shares” means the shares of Common Stock issuable upon the exercise of the Warrants.

 

2.      Registration.

 

(a)           Registration Statements.

 

(i)           Promptly following the closing of the purchase and sale of the securities contemplated by the Purchase Agreement (the “Closing Date”) but no later than thirty (30) days after the Closing Date (the “Filing Deadline”), the Company shall prepare and file with the SEC one Registration Statement on Form S-1 (or, if Form S-1 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Registrable Securities), covering the resale of the Registrable Securities.  Subject to any SEC comments, such Registration Statement shall include the plan of distribution attached hereto as Exhibit A; provided, however, that no Investor shall be named as an “underwriter” in the Registration Statement without the Investor’s prior written consent.  Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities.  Such Registration Statement shall not include any shares of Common Stock or other securities for the account of any other holder without the prior written consent of the Required Investors.  The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investors and their counsel prior to its filing or other submission.  If a Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount invested by such Investor for each 30-day period or pro rata for any portion thereof following the Filing Deadline for which no Registration Statement is filed with respect to the Registrable Securities.  Such payments shall constitute the Investors’ exclusive monetary remedy for such events, but shall not affect the right of the Investors to seek injunctive relief.  Such payments shall be made to each Investor in cash no later than three (3) Business Days after the end of each 30-day period.

 

 

 

 

 

  

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(ii)           S-3 Qualification.  Promptly following the date (the “Qualification Date”) upon which the Company becomes eligible to use a registration statement on Form S-3 to register the Registrable Securities or Additional Shares, as applicable, for resale, but in no event more than thirty (30) days after the Qualification Date (the “Qualification Deadline”), the Company shall file a registration statement on Form S-3 covering the Registrable Securities or Additional Shares, as applicable (or a post-effective amendment on Form S-3 to the registration statement on Form S-1) (a “Shelf Registration Statement”) and shall use commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as promptly as practicable thereafter.  If a Shelf Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Qualification Deadline, the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate purchase price paid by such Investor pursuant to the Purchase Agreement attributable to those Registrable Securities that remain unsold at that time for each 30-day period or pro rata for any portion thereof following the date by which such Shelf Registration Statement should have been filed for which no such Shelf Registration Statement is filed with respect to the Registrable Securities or Additional Shares, as applicable.  Such payments shall constitute the Investors’ exclusive monetary remedy for such events, but shall not affect the right of the Investors to seek injunctive relief.  Such payments shall be made to each Investor in cash no later than three (3) Business Days after the end of each 30-day period.

 

(b)           Expenses.  The Company will pay all expenses associated with each registration, including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws, listing fees, reasonable fees and expenses of one counsel to the Investors and the Investors’ reasonable expenses in connection with the registration, but excluding discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals with respect to the Registrable Securities being sold.

 

(c)           Effectiveness.

 

(i)           The Company shall use commercially reasonable efforts to have the Registration Statement declared effective as soon as practicable.  The Company shall notify the Investors by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any Registration Statement is declared effective and shall simultaneously provide the Investors with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby.  If (A)(x) a Registration Statement covering the Registrable Securities is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the SEC shall have informed the Company that no review of the Registration Statement will be made or that the SEC has no further comments on the Registration Statement or (ii) the 90th day after the Closing Date (the 120th day if the Registration Statement is reviewed by the SEC) or (y) a Shelf Registration Statement is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the SEC shall have informed the Company that no review of the Registration Statement will be made or that the SEC has no further comments on the Registration Statement or (ii) the 90th day after the Qualification Deadline (the 120th day if the Registration Statement is reviewed by the SEC), or (B) after a Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement for any reason (including without limitation by reason of a stop order, or the Company’s failure to update the Registration Statement), but excluding any Allowed Delay (as defined below) or the inability of any Investor to sell the Registrable Securities covered thereby due to market conditions, then the Company will make pro rata payments to each Investor, as liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount invested by such Investor for each 30- day period or pro rata for any portion thereof following the date by which such Registration Statement should have been effective (the “Blackout Period”).  Such payments shall constitute the Investors’ exclusive monetary remedy for such events, but shall not affect the right of the Investors to seek injunctive relief.  The amounts payable as liquidated damages pursuant to this paragraph shall be paid monthly within three (3) Business Days of the last day of each 30-day period following the commencement of the Blackout Period until the termination of the Blackout Period.  Such payments shall be made to each Investor in cash.

 

 

 

  

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(ii)           For not more than twenty (20) consecutive days or for a total of not more than forty-five (45) days in any twelve (12) month period, the Company may suspend the use of any Prospectus included in any Registration Statement contemplated by this Section in the event that the Company determines in good faith that such suspension is necessary to (A) delay the disclosure of material non-public information concerning the Company, the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company or (B) amend or supplement the affected Registration Statement or the related Prospectus so that such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading (an “Allowed Delay”); provided, that the Company shall promptly (a) notify each Investor in writing of the commencement of an Allowed Delay, but shall not (without the prior written consent of an Investor) disclose to such Investor any material non-public information giving rise to an Allowed Delay, (b) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable.

 

(d)           Rule 415; Cutback  If at any time the SEC takes the position that the offering of some or all of the Registrable Securities in a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the 1933 Act or requires any Investor to be named as an “underwriter”, the Company shall use its best efforts to persuade the SEC that the offering contemplated by the Registration Statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that none of the Investors is an “underwriter”.  The Investors shall have the right to participate or have their counsel participate in any meetings or discussions with the SEC regarding the SEC’s position and to comment or have their counsel comment on any written submission made to the SEC with respect thereto.  No such written submission shall be made to the SEC to which the Investors’ counsel reasonably objects.  In the event that, despite the Company’s best efforts and compliance with the terms of this Section 2(d), the SEC refuses to alter its position, the Company shall (i) remove from the Registration Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”); provided, however, that the Company shall not agree to name any Investor as an “underwriter” in such Registration Statement without the prior written consent of such Investor.  Any cut-back imposed on the Investors pursuant to this Section 2(d) shall be allocated among the Investors on a pro rata basis and shall be applied first to any Warrant Shares, unless the SEC Restrictions otherwise require or provide or the Investors otherwise agree.  No liquidated damages shall accrue as to any Cut Back Shares until such date as the Company is able to effect the registration of such Cut Back Shares in accordance with any SEC Restrictions (such date, the “Restriction Termination Date” of such Cut Back Shares).  From and after the Restriction Termination Date applicable to any Cut Back Shares, all of the provisions of this Section 2 (including the liquidated damages provisions) shall again be applicable to such Cut Back Shares; provided, however, that (i) the Filing Deadline and the Qualification Deadline, as applicable, for the Registration Statement including such Cut Back Shares shall be ten (10) Business Days after such Restriction Termination Date, and (ii) the date by which the Company is required to obtain effectiveness with respect to such Cut Back Shares under Section 2(c) shall be the 90th day immediately after the Restriction Termination Date.

 

 

 

 

 

  

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(e)      Right to Piggyback Registration.

 

(i)           If at any time following the date of this Agreement that any Registrable Securities remain outstanding (A) there is not one or more effective Registration Statements covering all of the Registrable Securities and (B) the Company proposes for any reason to register any shares of Common Stock under the 1933 Act (other than pursuant to a registration statement on Form S-4 or Form S-8 (or a similar or successor form)) with respect to an offering of Common Stock by the Company for its own account or for the account of any of its shareholders, it shall at each such time promptly give written notice to the holders of the Registrable Securities of its intention to do so (but in no event less than thirty (30) days before the anticipated filing date) and, to the extent permitted under the provisions of Rule 415 under the 1933 Act, include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after receipt of the Company’s notice (a “Piggyback Registration”).  Such notice shall offer the holders of the Registrable Securities the opportunity to register such number of shares of Registrable Securities as each such holder may request and shall indicate the intended method of distribution of such Registrable Securities.

 

(ii)           Notwithstanding the foregoing, (A) if such registration involves an underwritten public offering, the Investors must sell their Registrable Securities to, if applicable, the underwriter(s) at the same price and subject to the same underwriting discounts and commissions that apply to the other securities sold in such offering (it being acknowledged that the Company shall be responsible for other expenses as set forth in Section 2(b)) and subject to the Investors entering into customary underwriting documentation for selling shareholders in an underwritten public offering, and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to Section 2(e)(i) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to cause such registration statement to become effective under the 1933 Act, the Company shall deliver written notice to the Investors and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration; provided, however, that nothing contained in this Section 2(e)(ii) shall limit the Company’s liabilities and/or obligations under this Agreement, including, without limitation, the obligation to pay liquidated damages under this Section 2.

 

 

 

 

 

  

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3.      Company Obligations.  The Company will use commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible:

 

(a)           use commercially reasonable efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Registration Statement as amended from time to time, have been sold, and (ii) the date on which all Registrable Securities covered by such Registration Statement may be sold without restriction pursuant to Rule 144 (the “Effectiveness Period”) and advise the Investors in writing when the Effectiveness Period has expired;

 

(b)           prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the Effectiveness Period and to comply with the provisions of the 1933 Act and the 1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

 

(c)           provide copies to and permit counsel designated by the Investors to review each Registration Statement and all amendments and supplements thereto no fewer than seven (7) days prior to their filing with the SEC and not file any document to which such counsel reasonably objects;

 

(d)           furnish to the Investors and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company (but not later than two (2) Business Days after the filing date, receipt date or sending date, as the case may be) one (1) copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor that are covered by the related Registration Statement;

 

(e)           use commercially reasonable efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such order at the earliest possible moment;

 

(f)           prior to any public offering of Registrable Securities, use commercially reasonable efforts to register or qualify or cooperate with the Investors and their counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Investors and do any and all other commercially reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(f), or (iii) file a general consent to service of process in any such jurisdiction;

 

 

 

  

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(g)           use commercially reasonable efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed;

 

(h)           immediately notify the Investors, at any time prior to the end of the Effectiveness Period, upon discovery that, or upon the happening of any event as a result of which, the Prospectus includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare, file with the SEC and furnish to such holder a supplement to or an amendment of such Prospectus as may be necessary so that such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

 

(i)           otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, including, without limitation, Rule 172 under the 1933 Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant to Rule 424 under the 1933 Act, promptly inform the Investors in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Investors are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve (12) months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder (for the purpose of this subsection 3(i), “Availability Date” means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal quarter); and

 

(j)           With a view to making available to the Investors the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Investors to sell shares of Common Stock to the public without registration, the Company covenants and agrees to:  (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable Securities may be sold without restriction by the holders thereof pursuant to Rule 144 or any other rule of similar effect or (B) such date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act; and (iii) furnish to each Investor upon request, as long as such Investor owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such Investor of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration.

 

 

 

 

  

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4.      Due Diligence Review; Information.  The Company shall make available, during normal business hours upon reasonable advance notice, for inspection and review by the Investors, advisors to and representatives of the Investors (who may or may not be affiliated with the Investors and who are reasonably acceptable to the Company), all financial and other records, all SEC Filings (as defined in the Purchase Agreement) and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees, within a reasonable time period, to supply all such information reasonably requested by the Investors or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investors and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of such Registration Statement.

 

The Company shall not disclose or be required to disclose material nonpublic information to the Investors, or to advisors to or representatives of the Investors, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Investor wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

 

5.      Obligations of the Investors.

 

(a)           Each Investor shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.  At least five (5) Business Days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Investor of the information the Company requires from such Investor if such Investor elects to have any of the Registrable Securities included in the Registration Statement.  An Investor shall provide such information to the Company at least two (2) Business Days prior to the first anticipated filing date of such Registration Statement if such Investor elects to have any of the Registrable Securities included in the Registration Statement.

 

 

 

 

  

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(b)           Each Investor, by its acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

 

(c)           Each Investor agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event pursuant to Section 3(h) hereof, such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities, until the Investor is advised by the Company that such dispositions may again be made.

 

6.      Indemnification.

 

(a)           Indemnification by the Company.  The Company will indemnify and hold harmless each Investor and its officers, directors, members, employees and agents, successors and assigns, and each other person, if any, who controls such Investor within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement or omission or alleged omission of any material fact contained in any Registration Statement, any preliminary Prospectus or final Prospectus, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state in a Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the 1933 Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Investor’s behalf and will reimburse such Investor, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Investor or any such controlling person in writing specifically for use in such Registration Statement or Prospectus.

 

 

 

  

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(b)           Indemnification by the Investors.  Each Investor agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, shareholders and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary Prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto.  In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Investor in connection with any claim relating to this Section 6 and the amount of any damages such Investor has otherwise been required to pay by reason of such untrue statement or omission) received by such Investor upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

 

(c)           Conduct of Indemnification Proceedings.  Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation.  It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties.  No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. No indemnifying party will be liable to any indemnified party under this Agreement for any settlement by such indemnified party effected without the indemnifying party’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.

 

(d)           Contribution.  If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations.  No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation.  In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 6 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

 

 

 

  

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7.      Miscellaneous.

 

(a)           Amendments and Waivers.  This Agreement may be amended only by a writing signed by the Company and the Required Investors.  The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Required Investors.

 

(b)           Notices.  All notices and other communications provided for or permitted hereunder shall be made as set forth in Section 9.4 of the Purchase Agreement.

 

(c)           Assignments and Transfers by Investors.  The provisions of this Agreement shall be binding upon and inure to the benefit of the Investors and their respective successors and assigns.  An Investor may transfer or assign, in whole or from time to time in part, to one or more persons its rights hereunder in connection with the transfer of Registrable Securities by such Investor to such person, provided that such Investor complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after such assignment is effected.

 

(d)           Assignments and Transfers by the Company.  This Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Required Investors, provided, however, that in the event that the Company is a party to a merger, consolidation, share exchange or similar business combination transaction in which the Common Stock is converted into the equity securities of another Person, from and after the effective time of such transaction, such Person shall, by virtue of such transaction, be deemed to have assumed the obligations of the Company hereunder, the term “Company” shall be deemed to refer to such Person and the term “Registrable Securities” shall be deemed to include the securities received by the Investors in connection with such transaction unless such securities are otherwise freely tradable by the Investors after giving effect to such transaction.

 

(e)           Benefits of the Agreement.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

 

 

 

 

  

11

  

 

(f)           Counterparts; Faxes.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  This Agreement may also be executed via facsimile, which shall be deemed an original.

 

(g)           Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

(h)           Severability.  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.  To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect.

 

(i)           Further Assurances.  The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

 

(j)           Entire Agreement.  This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein.  This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

 

(k)           Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.  This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof.  Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.  Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

 

 

 

 

 

  

12

  

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

 

 

	The Company:	PARAMETRIC SOUND CORPORATION
	 	 
	 	By:  /s/ JAMES A. BARNES
	 	Name: James A. Barnes
	 	Title: CFO, Treasurer and Secretary

 

 

                                                                

 

 

 

  

13

  

 

 

	The Investors: 	
SPECIAL SITUATIONS FUND III QP, L.P. 

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.

SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.

	 	 
	 	By:    /s/ ADAM STETTNER
	 	Name: Adam Stettner
	 	Title:   General Partner

 

 

 

                                                               

 

 

  

14

  

 

 

	 	MT. SAVAGE PRODUCTIONS, LLC
	 	 
	 	 
	 	By:  /s/ ELWOOD G. NORRIS
	 	Name: Elwood G. Norris
	 	Title: Manager
	 	 
	 	 
	 	PALERMO TRUST 
	 	 
	 	 
	 	By:  /s/ JAMES A. BARNES
	 	Name: James A. Barnes
	 	Title: Trustee
	 	 
	 	 
	 	SUNRISE MANAGEMENT, INC. 
	 	PROFIT SHARING PLAN
	 	 
	 	 
	 	By:  /s/ JAMES A. BARNES
	 	Name: James A. Barnes
	 	Title: Trustee

 

 

 

 

 

  

15

  

 

Exhibit A

Plan of Distribution

The selling shareholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling shareholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.  These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

The selling shareholders may use any one or more of the following methods when disposing of shares or interests therein:

- ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

- block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

- purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

- an exchange distribution in accordance with the rules of the applicable exchange;

- privately negotiated transactions;

- short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC;

- through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

- broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share;

- a combination of any such methods of sale; and

-- any other method permitted by applicable law.

The selling shareholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.  The selling shareholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

 

  

16

  

 

In connection with the sale of our common stock or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume.  The selling shareholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities.  The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The aggregate proceeds to the selling shareholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any.  Each of the selling shareholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents.  We will not receive any of the proceeds from this offering. Upon any exercise of the warrants by payment of cash, however, we will receive the exercise price of the warrants.

 

The selling shareholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.

 

The selling shareholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be "underwriters" within the meaning of Section 2(11) of the Securities Act.  Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act.  Selling shareholders who are "underwriters" within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling shareholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers.  In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

 

 

 

  

17

  

 

We have advised the selling shareholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling shareholders and their affiliates.  In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.  The selling shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify the selling shareholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

We have agreed with the selling shareholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which all of the shares may be sold without restriction pursuant to Rule 144 of the Securities Act.

 

 

 

 

 

 

 

 

 

 

 

 

18exv10w31

Exhibit 10.31

	 	 	 
		 	CORPORATE POLICY

Subject: Severance - Officers

Policy Number: 3-254.1

Control Point: Director-Employee Relations

Approval Authority: SVP-Human Resources

Signature: Keith Green [Signature on original kept by Legal]

 

Summary of this Policy

This policy sets forth the eligibility requirements and amount of Severance Pay available to
Eligible Officers. Defined terms are italicized. Please see Appendix A for definitions. Further
details can be found in Freddie Mac’s Severance Plan Summary Plan Description.

I. Under what circumstances is Severance Pay provided?

Freddie Mac provides Severance Pay to a Severance Eligible Officer pursuant to the terms of this
Policy In addition, in the event an employee becomes a Severance Eligible Officer as a result of a
Reduction in Force, Freddie Mac also provides Notice Pay, even if the Severance Eligible Officer
does not sign an agreement and release of claims.

A Severance Eligible Officer’s employment is terminated as of the Separation Date. Such former
officer’s eligibility to receive any benefit from or to continue participation in other plans
maintained by the company is governed by the terms and provisions of those plans.

In addition, the provision of Severance Pay to a Severance Eligible Officer is subject to the
approval of Freddie Mac’s regulator.

II. What procedures are followed to determine severance eligibility?

Business-area management will submit to their respective Human Resources Business Partner (“HRBP”)
for review any proposed termination of employment (including any proposed voluntary separation that
could result in Severance Pay) or proposed offer of Comparable Employment prior to discussing the
same with the impacted officer. The Director of Employee Relations in the Human Resources Division
determines whether the employee is a Severance Eligible Officer, and interprets and applies this
policy.

Employee Relations, after consulting with the HRBP, the Legal Division, and possibly business-area
management, also determines whether a job position to be offered to an Eligible Officer is
Comparable Employment. Eligible Officers will be evaluated for Comparable Employment, if at all,
based on criteria including (but not limited to) their historical performance ratings and
management’s assessment of relative skills.

After Employee Relations determines that the employee is a Severance Eligible Officer,
business-area management provides Notice to the Severance Eligible Officer. Business-area
management will give Notice in advance of the

 

 

	 	 	 
		 	CORPORATE POLICY

Separation Date, if at all, to the extent that advance notification is consistent with business
circumstances or required by law.

Business-area management, after consulting with the HRBP, also establishes the Separation Date of a
Severance Eligible Officer.

III. What is required for a Severance Eligible Officer to receive Severance Pay?

As a condition of receiving Severance Pay, a Severance Eligible Officer must sign an agreement and
release of claims. Freddie Mac has exclusive discretion to determine what terms will be included
within the agreement and release of claims. Among other things, the agreement and release of claims
may contain provisions related to the following:

	 	•	 	Full release of claims

	 	•	 	Non-participation in claims against Freddie Mac

	 	•	 	Notice of receipt of subpoenas

	 	•	 	Treatment of confidential information

	 	•	 	Non-competition

	 	•	 	Non-solicitation of Freddie Mac employees

	 	•	 	Notice of future employment

	 	•	 	Return of Freddie Mac property

	 	•	 	Non-disparagement

	 	•	 	Obligation to reasonably cooperate

	 	•	 	Damages in the event of breach

	 	•	 	Preclusion and/or restriction from future Freddie Mac employment

Business-area management may require an Eligible Officer to provide services to Freddie Mac up to
and including the Separation Date as a condition of receiving Severance Pay.

If a Severance Eligible Officer does not receive two-weeks of advance Notice of his/her Separation
Date from Freddie Mac, and does not execute an agreement and release of claims proffered by the
company, then the officer will receive Pay in Lieu of Notice for the two-week period following the
date of Notice, and will receive no Severance Pay.

IV. How long is the Severance Period of a Severance Eligible Officer?

The Severance Period of a Severance Eligible Officer is as specified in the Restrictive Covenant
and Confidentiality Agreement between the Severance Eligible Officer and Freddie Mac. If the
Severance Eligible Officer is entitled to receive Notice Pay, then his/her Severance Period shall
be the Severance Period specified in the Restrictive Covenant and Confidentiality Agreement , minus
the number of days of Notice Pay he/she is entitled to receive. In no event will a Severance
Eligible Officer receive less than four weeks of Severance Pay in addition to Notice Pay.

	 	 	 
	Policy 3-254.1 dated January 24, 2011	 	2

 

	 	 	 
		 	CORPORATE POLICY

V. How does a Severance Eligible Officer receive his/her Severance Pay?

A Severance Eligible Officer has the option of receiving his/her Severance Pay in periodic payments
over the specified Severance Period coinciding with Freddie Mac’s standard payroll procedures.
Alternatively, the Severance Eligible Officer may receive his/her Severance Pay in a Lump Sum. If
the Severance Eligible Officer elects periodic payments, he/she may be eligible to continue his/her
participation in certain benefits plans at a reduced cost, in accordance with the terms of those
plans.

If a former officer receiving Severance Pay dies before receiving his/her entire Severance Pay,
then Freddie Mac will pay the balance to the former employee’s estate or personal representative.

VI. When does a Severance Eligible Officer have to elect Lump Sum or Periodic Payments?

A Severance Eligible Officer must elect whether to receive his/her Severance Pay in a Lump Sum or
in periodic payments by the date he/she signs the required agreement and release of claims. Failure
to make an election upon execution of the agreement and release of claims will result in the
Severance Eligible Officer receiving his/her Severance Pay in a Lump Sum.

VII. When does Severance Pay begin?

Severance Pay will be paid in accordance with the company’s standard payroll practices, and will
begin within 30 days after 1) the company’s receipt of the Severance Eligible Officer’s properly
executed agreement and release of claims, 2) if applicable, expiration of the revocation period
specified in the agreement and release of claims, and (3) (applicable only to Specified Employees)
six months has elapsed since the Separation Date.

If the consideration period noted in the agreement and release of claims extends beyond the
Separation Date and the company has not received the Severance Eligible Officer’s properly executed
agreement and release of claims as of the Separation Date, the company will place the Severance
Eligible Officer on unpaid Leave of Absence until (1) receipt of the properly signed agreement and
release of claims or (2) the end of the consideration period (whichever comes first).

Failure by a Severance Eligible Officer to submit a properly executed agreement and release of
claims within the time period specified in such agreement will result in the proffered agreement
and release of claims being withdrawn by the company.

VIII. What happens to Severance Pay if the employee becomes re-employed by Freddie Mac or renders services

          to Freddie Mac as a vendor or contract worker during the Severance Period?

If a former officer receiving Severance Pay is re-employed by Freddie Mac before the end of the
Severance Period, or renders services to Freddie Mac as a vendor or contract worker during the
Severance Period, the former officer will forfeit any remaining unpaid Severance Pay. If the
former officer received his/her Severance Pay as a Lump Sum, and becomes re-employed by Freddie Mac
or renders services to Freddie Mac as a vendor or contract worker before the end of what would have
been the Severance Period, Freddie Mac reserves the right to require that some or all of the
Severance Pay be repaid as a condition of re-employment or rendering services to Freddie Mac as a
contract worker or vendor.

	 	 	 
	Policy 3-254.1 dated January 24, 2011	 	3

 

	 	 	 
		 	CORPORATE POLICY

IX. Restriction on Specified Employees.

If a Severance Eligible Officer is a Specified Employee, then he/she will not begin receiving
his/her Severance Pay until six (6) months following his/her Separation Date, consistent with Treas. Reg. § 1.409A-3(g)(2), or any successor thereto. If the Severance Eligible Officer elected to
receive his/her Severance Pay in periodic payments within the required election period, then he/she
shall receive six months of Severance Pay in a Lump Sum upon the expiration of the six-month wait
period, and then will receive the balance of his/her Severance Pay in periodic payments according
to the company’s standard payroll procedures.

X. Where can officers find additional information about Freddie Mac’s severance plan?

Officers may find additional information about the company’s severance plan in Freddie Mac’s
Severance Plan Summary Plan Description.

XI. Reservation of Rights

Freddie Mac reserves the right to amend or terminate this Policy or any of its provisions at any
time for any reason in its sole discretion without giving rise to legal liability. Nothing in this
Policy is intended nor shall be interpreted to create a contract of employment or alter the at-will
employment relationship that otherwise may exist between Freddie Mac and such employee, or
otherwise limit the discretion of either Freddie Mac or such employee to terminate the employment
relationship at any time for any reason.

Effective Date: January 24, 2011

☐ New

☒ Replaces Policy 3-254.1 dated July 16, 2010

☒ Reviewed by Legal or Determined that No Legal Review Necessary

Appendix A Definitions

Comparable Employment

Comparable Employment will be assessed on a case-by-case basis. Exact criteria the company will use
include each of the following, all of which must be met for the position to be deemed comparable.

	 	•	 	The content of the job to which the employee may be assigned. To be comparable, the new
position must require substantially the same skill set and technical knowledge.

	 	•	 	The commuting distance associated with the new position. To be comparable, the new
position must not increase the commuting distance for the employee by more than 50 miles
each way, or increase the commuting distance for the employee such that the total commuting
distance exceeds 90 miles each way.

	 	•	 	To be comparable, the employee’s base salary must not decrease by more than 10%.

	 	 	 
	Policy 3-254.1 dated January 24, 2011	 	4

 

	 	 	 
		 	CORPORATE POLICY

Eligible Officer

An employee who is appointed by Freddie Mac as an officer of the company.

Gross Misconduct

The occurrence or existence of any of the following:

	 	•	 	Recurrent or flagrant insubordination related to core job duties and responsibilities;

	 	•	 	Stealing property belonging to Freddie Mac, another employee, or other theft in
connection with employment;

	 	•	 	Committing fraud, including computer fraud;

	 	•	 	Willfully destroying property;

	 	•	 	Inflicting bodily harm on another employee, threatening another employee with a weapon,
or conviction (including any plea of nolo contendere) of a crime;

	 	•	 	Committing harassment or retaliation;

	 	•	 	Engaging in discriminatory behavior or retaliation;

	 	•	 	Engaging in dishonesty, including failure to cooperate fully, promptly and truthfully in
an investigation or failure to keep an investigation appropriately confidential;

	 	•	 	Recurring or habitual tardiness or absenteeism which has resulted in a written
reprimand;

	 	•	 	Intentionally disclosing or intentionally misusing Confidential Information (as that
term is defined in Freddie Mac policy, Code of Conduct, or applicable restrictive covenant
and/or confidentiality agreement between the employee and Freddie Mac);

	 	•	 	Negligently disclosing or negligently misusing Confidential Information (as that term is
defined in Freddie Mac policy, Code of Conduct, or applicable restrictive covenant and/or
confidentiality agreement between the employee and Freddie Mac) resulting in a significant
adverse impact on Freddie Mac or on the business of Freddie Mac; or

	 	•	 	A material breach of any provision of any written policy of Freddie Mac required by law
or established to maintain compliance with applicable legal or regulatory requirements.

Loss of Confidence

Determination by senior executive management in its sole discretion that it no longer maintains a
high level of confidence in an Eligible Officer’s decisions, judgment and/or conduct.

Lump Sum

The payment to a Severance Eligible Officer of the entire amount of Severance Pay in the form of a
single payment, minus lawful deductions (rather than periodic payments over the span of the
Severance Period).

Notice

Oral or written communication from business-area management or an HRBP to a Severance Eligible
Officer about the termination of the officer’s employment, Separation Date, terms of the proffered
agreement and release of claims, and

	 	 	 
	Policy 3-254.1 dated January 24, 2011	 	5

 

	 	 	 
		 	CORPORATE POLICY

expectations concerning his/her continued provision of services to Freddie Mac during the period
between the Notice and the Separation Date.

Notice Pay

The dollar amount of pay based on the number of days of continued pay required by applicable
federal and/or state law upon triggering events, such as group layoffs that occur within a legally
defined period of time. Laws that would trigger Notice Pay include, but are not limited to, the
federal Worker Adjustment and Retraining Notification (“WARN”) Act.

Pay in Lieu of Notice

If a Severance Eligible Officer does not receive two-weeks of advance Notice of his/her Separation
Date from Freddie Mac, and does not execute an agreement and release of claims proffered by the
company, then the employee will receive pay for the two-week period following the date of Notice,
and will receive no Severance Pay.

Position Elimination

Loss of job due to: (a) company reorganization or job abolishment; or (b) a skills gap, i.e., the
duties of an employee’s position have changed recently and so significantly that the employee is no
longer qualified to perform the redesigned job.

Reduction in Force

An elimination of a certain minimum number of jobs that occurs within a defined time-period and
triggers a requirement to pay Notice Pay. Laws that would require Notice Pay include (but are not
limited to) the federal WARN Act.

Senior Executive Officer

An employee who is appointed by Freddie Mac to be employed in the position of Senior Vice President
or above of the company.

Separation Date

The last date on which a Severance Eligible Officer is considered an active employee with Freddie
Mac; also known as the Termination Date.

Severance Eligible Officer

An Eligible Officer whose position is eliminated due to a Position Elimination, Reduction in Force,
or Loss of Confidence.

An Eligible Officer is not a Severance Eligible Officer if such employee:

	 	•	 	at the time of Notice is classified as a temporary employee pursuant to Policy 3-221,
Worker Classifications (as may be amended, replaced or redesignated from time to time);

	 	•	 	is terminated for engaging in Gross Misconduct;

	 	•	 	is regularly scheduled to work fewer than twenty (20) hours per week as of his/her
receipt of Notice;

	 	•	 	is on “Leave of Absence” status as defined in Policy 3-236, Other Excused Absences (as
may be amended, replaced or redesignated from time to time) for thirty (30) or more
calendar days as of his/her receipt of Notice unless otherwise provided by law;

	 	 	 
	Policy 3-254.1 dated January 24, 2011	 	6

 

	 	 	 
		 	CORPORATE POLICY

	 	•	 	fails to provide services to Freddie Mac in accordance with the Notice;

	 	•	 	resigned employment as a result of a new assignment or reporting relationship;

	 	•	 	received a written offer of employment from a Successor, which is an entity that
acquires (through consolidation, reorganization, transfer, sublease, assignment or
otherwise) all or substantially all of the business or assets of any business unit of
Freddie Mac, or an entity that contracts with Freddie Mac to perform activities of the
business unit in which the employee is assigned contemporaneous with the commencement of
the contractual relationship; or

	 	•	 	received a written offer of Comparable Employment from Freddie Mac.

In addition, an Eligible Officer who serves as a Senior Executive Officer is not a Severance
Eligible Officer unless the company’s regulator approves payment of severance pay, and the amount
thereof, to such Senior Executive Officer at the time of termination.

Severance Pay

The dollar amount that will be paid to a Severance Eligible Officer pursuant to the terms of this
Policy. Severance Pay is equal to the Severance Eligible Officer’s base salary (not including
items such as overtime, bonus, retention payments, and/or commissions) as of the Separation Date
that would normally be paid over the length of time designated as the Severance Period, minus
lawful deductions. Alternatively, Severance Pay may be paid in the form of a Lump Sum.

Severance Period

The length of the Severance Period is as specified in the Restrictive Covenant and Confidentiality
Agreement between the Severance Eligible Officer and the company. The Severance Period begins the
day following the Separation Date.

Specified Employee

A Severance Eligible Officer who is identified by Freddie Mac in its sole discretion as of the
Separation Date as a “specified employee” as defined in Treas. Reg. § 1.409A-1(i), or any successor
thereto, and whose Severance Pay is determined by Freddie Mac to be subject to section 409A of the
Internal Revenue Code.

	 	 	 
	Policy 3-254.1 dated January 24, 2011	 	7

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