(1) Title of each class of securities to which transaction applies:___________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________
(3) Per unit price of other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined): _________
(4) Proposed maximum aggregate value of transaction: ___________________________________
Security Ownership by Certain Beneficial
Owners and Management and Related Stockholder Matters
Common Stock
The following table sets forth certain
information as of December 7, 2012 with respect to beneficial ownership of our Common Stock by each shareholder known by the Company
to be the beneficial owner of more than 5% of our Common Stock and by each of our directors and executive officers and by all of
the directors, nominees for election as director, and executive officers as a group.
Beneficial Owners
|
|
Amount and
Nature
of Beneficial
Ownership
(1)
|
|
|
Percent of
Class
(2)
|
|
|
|
|
|
|
|
|
Directors and Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dileep Agnihotri
|
|
|
|
|
|
|
|
|
13711 Immanuel Road, Suite 100
|
|
|
|
|
|
|
|
|
Pflugeville, Texas 78660
|
|
|
30,000
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Joseph P. Bartlett
|
|
|
|
|
|
|
|
|
1900 Avenue of the Stars, 20
th
Floor
|
|
|
|
|
|
|
|
|
Los Angeles, California 90067
|
|
|
30,000
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Cary G. Bullock
|
|
|
|
|
|
|
|
|
10 New Bond Street
|
|
|
|
|
|
|
|
|
Worcester, Massachusetts 01606
|
|
|
7,369,547
|
(4)
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
J. Winder Hughes III
|
|
|
|
|
|
|
|
|
PO Box 389
|
|
|
|
|
|
|
|
|
Ponte Vedra, Florida 32004
|
|
|
14,339,688
|
(5)
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
Shawn R. Hughes
|
|
|
|
|
|
|
|
|
717 South Edison Avenue
|
|
|
|
|
|
|
|
|
Tampa, Florida 33606
|
|
|
1,012,500
|
(6)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Gregory M. Landegger
|
|
|
|
|
|
|
|
|
10 New Bond Street
|
|
|
|
|
|
|
|
|
Worcester, Massachusetts 01606
|
|
|
587,500
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Arthur S. Reynolds
|
|
|
|
|
|
|
|
|
230 Park Avenue, Suite 1000
|
|
|
|
|
|
|
|
|
New York, New York 10169
|
|
|
811,103
|
(7)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group
(7 persons)
|
|
|
24,180,338
|
(8)
|
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
Other 5% Beneficial Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Gelbaum and Monica Chavez Gelbaum
|
|
|
|
|
|
|
|
|
Quercus Trust
|
|
|
|
|
|
|
|
|
1835 Newport Blvd.
|
|
|
|
|
|
|
|
|
A109-PMC 467
|
|
|
|
|
|
|
|
|
Costa Mesa, California 92627
|
|
|
62,409,857
|
(9)
|
|
|
35.7
|
%
|
|
|
|
|
|
|
|
|
|
Security Investors, LLC
|
|
|
|
|
|
|
|
|
One Security Benefit Place
|
|
|
|
|
|
|
|
|
Topeka, Kansas 66636
|
|
|
24,441,140
|
(10)
|
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
Robert S. Trump
|
|
|
|
|
|
|
|
|
89 10th Street
|
|
|
|
|
|
|
|
|
Garden City, New York 11530
|
|
|
39,511,798
|
(11)
|
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
The Focus Fund
|
|
|
|
|
|
|
|
|
PO Box 389
|
|
|
|
|
|
|
|
|
Ponte Vedra, Florida 32004
|
|
|
11,595,838
|
(12)
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
Empire Capital Management and Affiliates
|
|
|
|
|
|
|
|
|
One Gorham Island, Suite 201
|
|
|
|
|
|
|
|
|
Westport, Connecticut 06880
|
|
|
26,202,181
|
(13)
|
|
|
4.99
|
%
(13)
|
|
|
|
|
|
|
|
|
|
Kevin B. Kimberlin
c/o Spencer Trask
|
|
|
|
|
|
|
|
|
535 Madison Avenue
|
|
|
|
|
|
|
|
|
New York, NY 10022
|
|
|
28,875,225
|
(14)
|
|
|
19.6
|
%
|
|
|
|
|
|
|
|
|
|
Massachusetts Technology Development Corp.
|
|
|
|
|
|
|
|
|
40 Broad St. Suite 230
|
|
|
|
|
|
|
|
|
Boston, MA 02109
|
|
|
14,908,233
|
(15)
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
BCLF Ventures I, LLC
|
|
|
|
|
|
|
|
|
56 Warren St.
|
|
|
|
|
|
|
|
|
Boston, MA 02119
|
|
|
8,403,041
|
(16)
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
Francis Howard
|
|
|
|
|
|
|
|
|
376 Victoria Place
|
|
|
|
|
|
|
|
|
London, United Kingdom SW1V 1AA
|
|
|
8,500,000
|
(17)
|
|
|
7.0
|
%
|
(1)
|
Includes shares as to which the identified person or entity directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power and/or investment power, as these terms are defined in Rule 13d-3(a) of the Exchange Act. Shares of Common Stock underlying options to purchase shares of Common Stock and securities convertible into shares of Common Stock, which were exercisable or convertible on, or become exercisable or convertible within 60 days after, December 12, 2012 are deemed to be outstanding with respect to a person or entity for the purpose of computing the outstanding shares of Common Stock owned by the particular person and by the group, but are not deemed outstanding for any other purpose.
|
|
|
(2)
|
Based on 120,454,575 shares of Common Stock issued and outstanding on December 12, 2012 plus, with respect to each individual or entity (but not with respect to other individuals or entities), the number of shares of Common Stock underlying options to purchase shares of Common Stock and securities convertible into shares of Common Stock, held by such individual or entity which were exercisable or convertible on, or which become exercisable or convertible within 60 days after, December 12, 2012.
|
|
|
(3)
|
All shares are issuable upon exercise of options.
|
|
|
(4)
|
Includes 625,000 shares issuable upon the exercise of warrants and 6,119,547 shares issuable upon exercise of options.
|
|
|
(5)
|
Includes 3,357,500 shares owned by The Focus Fund. Also includes 8,238,338 shares issuable to The Focus Fund and 153,850 shares issuable to Hughes Capital upon the exercise of warrants or conversion of shares of Series B Convertible Preferred Stock. Mr. Hughes is the Managing Director of both funds and may be deemed to be the beneficial owner of the securities held by such funds; he disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein. Also includes 90,000 shares issuable upon exercise of options.
|
|
|
(6)
|
Includes 910,000 shares issuable upon exercise of options and warrants.
|
|
|
(7)
|
Includes 630,000 shares issuable upon exercise of options and warrants. Also includes 181,103 shares issuable upon the exercise of warrants held by Christine Reynolds, Mr. Reynolds’s wife. Mr. Reynolds disclaims beneficial ownership of the shares issuable to Mrs. Reynolds.
|
|
|
(8)
|
Includes shares issuable upon exercise of options and warrants and conversion of shares of Series B Convertible Preferred Stock, as detailed in notes (3) through (7) above.
|
|
|
(9)
|
This beneficial ownership information is based, in part, on information contained in Amendment No. 8 to the Statement on Schedule 13D filed by The Quercus Trust and Mr. and Mrs. Gelbaum as its trustees on August 13, 2010. Includes 23,987,090 shares issuable upon conversion of shares of Series B Convertible Preferred Stock and 30,411,423 shares issuable upon the exercise of warrants.
|
|
|
(10)
|
This beneficial ownership information is based, in part, on information contained in Amendment No. 4 to the Statement on Schedule 13G filed by Security Investors, LLC on May 10, 2012. Includes 20,833,340 shares issuable upon conversion of shares of Series B Convertible Preferred Stock. Security Investors, LLC is the investment adviser to the following funds (the “Funds”): (i) Security Equity Fund, Mid Cap Value Fund, (ii) SBL Fund Series V (Mid Cap Value), (iii) Security Equity Fund, Mid Cap Value Institutional Fund, (iv) SBL Fund, Series Q (Small Cap Value) and (v) Security Equity Fund, Small Cap Value Fund. Each of the Funds is an investment company registered under the Investment Company Act of 1940, as amended. The securities owned by each Fund are as follows:
|
Fund
|
|
Shares of Common
Stock
|
|
|
Shares of Common
Stock Issuable upon
Conversion of
Shares of Series B
Preferred Stock
|
|
Security Equity Fund, Mid Cap Value Fund
|
|
|
2,701,839
|
|
|
|
8,583,340
|
|
SBL Fund, Series V (Mid Cap Value)
|
|
|
905,961
|
|
|
|
3,083,330
|
|
Security Equity Fund, Mid Cap Value Institutional Fund
|
|
|
-
|
|
|
|
7,937,500
|
|
SBL Fund, Series Q (Small Cap Value)
|
|
|
-
|
|
|
|
1,166,670
|
|
Security Equity Fund, Small Cap Value Fund
|
|
|
-
|
|
|
|
62,500
|
|
As investment adviser to the Funds, Security Investors,
LLC may be deemed to be the beneficial owner of such securities.
(11)
|
Includes 31,773,770 shares issuable upon conversion of shares of Series B Convertible Preferred Stock.
|
|
|
(12)
|
Includes 6,093,840 shares issuable upon conversion of shares of Series B Convertible Preferred Stock and 2,144,498 shares issuable upon the exercise of warrants.
|
|
|
(13)
|
This beneficial ownership information is based, in part, on information contained in Amendment No. 6 to the Statement on Schedule 13G filed by the group consisting of Empire Capital Management LLC and its affiliates on February 14, 2012. Includes 23,198,610 shares issuable upon conversion of outstanding shares of Series B Convertible Preferred Stock. The shares of Series B Convertible Preferred Stock over which Empire Capital Management and its affiliates have shared voting and dispositive power (the "Blocker Securities") are subject to a 4.99% "blocker" provision. The percentage set forth in the column under the heading “Percent of Class” gives effect to such blocker; however, the number of shares of Common Stock set forth in the column under the heading “Amount and Nature of Beneficial Ownership” includes all shares that would be issuable upon full conversion of the Blocker Securities without giving effect to such blocker.
|
|
|
(14)
|
Includes 5,517,250 shares issuable upon conversion of shares of Series B Convertible Preferred Stock and 20,922,108 shares issuable upon the exercise of warrants.
|
|
|
(15)
|
Includes 3,146,130 shares issuable upon conversion of shares of Series B Convertible Preferred Stock and 10,754,832 shares issuable upon the exercise of warrants.
|
|
|
(16)
|
Includes 1,799,670 shares issuable upon conversion of shares of Series B Convertible Preferred Stock and 6,025,098 shares issuable upon the exercise of warrants.
|
|
|
(17)
|
This beneficial ownership information is based, in part, on information contained on Schedule 13G filed by Mr. Howard on March 14, 2012. Includes 1,250,000 shares issuable upon the exercise of warrants.
|
Series A Convertible Preferred Stock
As of December 7, 2012, there were 208,334
shares of Series A Convertible Preferred Stock issued and outstanding, all of which were held by Mr. Gregg Frankel. Shares
of Series A Convertible Preferred Stock are convertible into shares of Common Stock on a 1-for-1 basis. The shares of
Series A Convertible Preferred Stock held by Mr. Frankel represent a beneficial ownership of less than 1% of our issued and outstanding
Common Stock. None of our directors or executive officers owns any shares of Series A Convertible Preferred Stock.
Series B Convertible Preferred Stock
As of December 7, 2012, there were 11,664,993
shares of Series B Convertible Preferred Stock issued and outstanding. The following table sets forth certain information
as of December 7, 2012 with respect to beneficial ownership of our Series B Convertible Preferred Stock by each shareholder known
by the Company to be the beneficial owner of more than 5% of our Series B Convertible Preferred Stock and by each of our directors
and executive officers and by all of the directors, nominees for election as director, and executive officers as a group. Shares
of Series B Convertible Preferred Stock are convertible into shares of Common Stock on a 10-for-1 basis.
Beneficial Owners
|
|
Amount and Nature
of Beneficial
Ownership
(1)
|
|
|
Percent of
Class
(2)
|
|
|
|
|
|
|
|
|
Directors and Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dileep Agnihotri
|
|
|
|
|
|
|
|
|
13711 Immanuel Road, Suite 100
|
|
|
|
|
|
|
|
|
Pflugeville, Texas 78660
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Joseph P. Bartlett
|
|
|
|
|
|
|
|
|
1900 Avenue of the Stars, 20
th
Floor
|
|
|
|
|
|
|
|
|
Los Angeles, California 90067
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Cary G. Bullock
|
|
|
|
|
|
|
|
|
10 New Bond Street
|
|
|
|
|
|
|
|
|
Worcester, Massachusetts 01606
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
J. Winder Hughes III
|
|
|
|
|
|
|
|
|
PO Box 389
|
|
|
|
|
|
|
|
|
Ponte Vedra, Florida 32004
|
|
|
624,769
|
(3)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
Shawn R. Hughes
|
|
|
|
|
|
|
|
|
717 South Edison Avenue
|
|
|
|
|
|
|
|
|
Tampa, Florida 33606
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Gregory M. Landegger
|
|
|
|
|
|
|
|
|
10 New Bond Street
|
|
|
|
|
|
|
|
|
Worcester, Massachusetts 01606
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Arthur S. Reynolds
|
|
|
|
|
|
|
|
|
230 Park Avenue, Suite 1000
|
|
|
|
|
|
|
|
|
New York, New York 10169
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group (7 persons)
|
|
|
624,769
|
(3)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
Other 5% Beneficial Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Gelbaum and Monica Chavez Gelbaum
|
|
|
|
|
|
|
|
|
Quercus Trust
|
|
|
|
|
|
|
|
|
1835 Newport Blvd.
|
|
|
|
|
|
|
|
|
A109-PMC 467
|
|
|
|
|
|
|
|
|
Costa Mesa, California 92627
|
|
|
2,398,709
|
|
|
|
20.6
|
%
|
|
|
|
|
|
|
|
|
|
Security Investors, LLC
|
|
|
|
|
|
|
|
|
One Security Benefit Place
|
|
|
|
|
|
|
|
|
Topeka, Kansas 66636
|
|
|
2,083,334
|
(4)
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
Robert S. Trump
|
|
|
|
|
|
|
|
|
89 10
th
Street
|
|
|
|
|
|
|
|
|
Garden City, New York 11530
|
|
|
3,177,377
|
|
|
|
27.2
|
%
|
|
|
|
|
|
|
|
|
|
The Focus Fund
|
|
|
|
|
|
|
|
|
PO Box 389
|
|
|
|
|
|
|
|
|
Ponte Vedra, Florida 32004
|
|
|
609,384
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
Empire Capital Management and Affiliates
|
|
|
|
|
|
|
|
|
One Gorham Island, Suite 201
|
|
|
|
|
|
|
|
|
Westport, Connecticut 06880
|
|
|
2,319,861
|
|
|
|
19.9
|
%
|
*
|
Less than 1%
|
|
|
(1)
|
Includes shares as to which the identified person or entity directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power and/or investment power, as these terms are defined in Rule 13d-3(a) of the Exchange Act.
|
|
|
(2)
|
Based on 11,664,993 shares of Series B Convertible Preferred Stock issued and outstanding on December 12, 2012.
|
(3)
|
Includes 609,384 shares owned by The Focus Fund and 15,385 shares owned by Hughes Capital. Mr. Hughes is the Managing Director of both funds and may be deemed to be the beneficial owner of the securities held by such funds; he disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
|
|
|
(4)
|
Security Investors, LLC may be deemed to be the beneficial owner of these shares because it is the investment adviser to the following funds (the “Funds”) which own shares of Series B Convertible Preferred Stock: (i) Security Equity Fund, Mid Cap Value Fund, (ii) SBL Fund Series V (Mid Cap Value), (iii) Security Equity Fund, Mid Cap Value Institutional Fund, (iv) SBL Fund, Series Q (Small Cap Value) and (v) Security Equity Fund, Small Cap Value Fund. Each of the Funds is an investment company registered under the Investment Company Act of 1940, as amended. The shares of Series B Convertible Preferred Stock owned by each Fund are as follows:
|
Fund
|
|
Shares of Series B
Convertible
Preferred Stock
|
|
Security Equity Fund, Mid Cap Value Fund
|
|
|
858,334
|
|
SBL Fund, Series V (Mid Cap Value)
|
|
|
308,333
|
|
Security Equity Fund, Mid Cap Value Institutional Fund
|
|
|
793,750
|
|
SBL Fund, Series Q (Small Cap Value)
|
|
|
116,667
|
|
Security Equity Fund, Small Cap Value Fund
|
|
|
6,250
|
|
Votes Available to Certain Beneficial
Owners, Directors and Executive Officers
Each share of Common Stock and each share
of Series A Convertible Preferred Stock entitles the holder thereof to one vote and each share of Series B Convertible Preferred
Stock entitles the holder thereof to ten votes. The holders of the Common Stock and the holders of the Series A Convertible Preferred
Stock vote together as a single class on the election of directors (the holders of Series B Convertible Preferred Stock have exercised
their franchise for election of directors through written consent – see
Directors who are not Nominees for Election at
the Special Meeting
above). The holders of the Common Stock, the holders of the Series A Convertible Preferred Stock and the
holders of the Series B Convertible Preferred Stock (voting together as a single class) and the holders of the Series B Convertible
Preferred Stock (voting as a separate class) vote to approve the amendment to our Certificate of Incorporation. The holders of
the Common Stock, the holders of the Series A Convertible Preferred Stock and the holders of the Series B Convertible Preferred
Stock vote together as a single class on the proposal to ratify the appointment of the auditors.
proposal
ii
APPROVAL
AND ADOPTION OF AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND PREFERRED
STOCK,
TO BIFURCATE THE SERIES B CONVERTIBLE PREFERRED STOCK AND TO CREATE A
NEW
CLASS OF PREFERRED STOCK TO BE DESIGNATED “SERIES C CONVertible
PREFERRED
STOCK’
Our Certificate of Incorporation currently
authorizes the Company to issue 425,000,000 shares of Common Stock, par value $0.001 per share, and 40,000,000 shares of Preferred
Stock, par value $0.01 per share. Of the authorized Preferred Stock, 208,334 shares have been designated “Series A Convertible
Preferred Stock”, 12,000,000 shares have been designated “Series B Convertible Preferred Stock” and the remaining
shares are undesignated, to be issued, from time to time in one or more series, with such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating, optional or other special rights, and such qualifications,
limitations or restrictions thereof, as shall be determined by our Board of Directors
The Board of Directors proposes to amend
the Certificate of Incorporation to effect three changes thereto.
• First, the
amendment would increase the number of authorized shares of Common Stock to 800,000,000 and increase the number of authorized shares
of Preferred Stock to 50,000,000. The additional authorized shares of Common Stock would be a part of the existing class of Common
Stock and, if and when issued, would have the same rights and privileges as the shares of Common Stock now issued and outstanding.
The additional authorized shares of Preferred Stock would be undesignated, to be issued, from time to time in one or more series,
with such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating,
optional or other special rights, and such qualifications, limitations or restrictions thereof, as shall be determined by our Board
of Directors
• Second, the
amendment would reduce the number of shares designated as “Series B Convertible Preferred Stock” from 12,000,000 to
1,000,000 and would re-designate the remaining 11,000,000 shares heretofore designated as “Series B Convertible Preferred
Stock” as “Series B-1 Convertible Preferred Stock”, with the shares in each sub-series having identical voting
powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations
and restrictions except that the shares of Series B-1 Convertible Preferred Stock shall have priority in liquidation.
•
Third, the amendment would designate 15,000,000 shares of the previously authorized but undesignated shares of Preferred Stock
as “Series C Convertible Preferred Stock”, with the voting powers, designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations and restrictions set forth in the Description of the Series C
Convertible Preferred Stock included
in Annex A.
The proposed amendment to our Certificate
of Incorporation is attached hereto as Annex A.
In addition to bifurcating Series B Convertible
Preferred Stock into two sub-series, the proposed amendment reduces from $0.24 to $0.10 the price per shares at which the issuance
or deemed issuance of shares of Common Stock would trigger anti-dilution adjustment to the conversion price of the Series B Convertible
Preferred Stock and the Series B-1 Convertible Preferred Stock.
The proposed amendment also establishes
a new series of Preferred Stock designated as “Series C Convertible Preferred Stock”.
In liquidation, the Series C Convertible
Preferred Stock will rank junior to the Series A Convertible Preferred Stock and senior to all other classes and series of capital
stock, including the Series B Convertible Preferred Stock, the Series B-1 Convertible Preferred Stock and the Common Stock. The
holders of Series C Convertible Preferred Stock will be entitled to a liquidation preference of $0.76 per share, plus all accrued
and unpaid dividends thereon.
The Series C Convertible Preferred Stock
will be convertible into shares of Common Stock at an initial rate of 10-for-1, subject to conventional weighted-average anti-dilution
adjustment in the event we issue or are deemed to issue shares of Common Stock at a price less than $0.076 per share. T
he Series C Convertible Preferred Stock
will be redeemable, at a price equal to $0.76 per share, plus all accrued and unpaid dividends thereon, at the election of the
holders of 66-⅔% of the then-outstanding shares, in three equal annual installments on or after December 31, 2017.
The holders of the Series C Convertible
Preferred Stock will vote together with the holders of the Series B Convertible Preferred Stock and the Series B-1 Convertible
Preferred Stock, as a single class, to elect four of the seven members of our Board of Directors. On all other matters brought
to the shareholders for a vote, except for matters affecting only the rights of the holders of the Series C Convertible Preferred
Stock, or as otherwise required under the Delaware General Corporation Law, the holders of the Series C Convertible Preferred Stock
will vote together with the holders of the Series B Convertible Preferred Stock, the Series B-1 Convertible Preferred Stock, and
the Common Stock, as a single class (with each share having the number of votes equal to the number of shares of Common Stock into
which it is then convertible).
The consent of the holders of 66-⅔%
of the then-outstanding shares of the Series C Convertible Preferred Stock, the Series B Convertible Preferred Stock, and the Series
B-1 Convertible Preferred Stock (considered as a single class, the “Series B/C Convertible Preferred Stock”) shall
be required to (i) amend, repeal or add any provisions to the Certificate of Incorporation or Bylaws which would adversely
alter or change the rights, preferences or privileges of the Series B/C Convertible Preferred Stock; (ii) with certain exceptions,
increase or decrease the number of authorized shares of Series B/C Convertible Preferred Stock; (iii) create or issue any class
or series of shares, or any instruments convertible into any shares, having preference or priority equal or senior to any outstanding
shares of Series B/C Convertible Preferred Stock as to dividends or assets; (iv) pay or declare dividends on any Common Stock (except
dividends payable solely in shares of Common Stock); (v) redeem any shares of Common Stock (other than repurchases from employees,
consultants, officers or directors approved by a disinterested majority of the Board of Directors); (vi) effect any recapitalization
which would adversely alter or change the rights, preferences or privileges of the Series B/C Convertible Preferred Stock; (vii)
with limited exceptions, effect any merger or consolidation with one or more other corporations; (viii) effect the sale of
all or substantially all our assets; (ix) effect the liquidation or dissolution of the Corporation; or (ix) increase or decrease
the size of the Board of Directors.
Of our authorized Common Stock, 120,454,575
shares are issued and outstanding and an additional 133,797 shares are held as treasury shares. 208,334 authorized but unissued
shares of our Common Stock are held in reserve for issuance upon conversion of outstanding shares of Series A Convertible Preferred
Stock and an additional 116,649,930 authorized but unissued shares are held in reserve for issuance upon conversion of outstanding
shares of Series B Convertible Preferred Stock. An aggregate of 140,528,077 authorized but unissued shares of our Common Stock
are reserved for issuance upon exercise of outstanding options and warrants or conversion of other outstanding convertible securities,
and 8,130,706 shares of our authorized but unissued Common Stock have been reserved for issuance pursuant to options and other
incentive stock awards that may be granted in the future under the ThermoEnergy Corporation 2008 Incentive Stock Plan. As a result
of these issuances and reservations, only 8,130,716 shares of our Common Stock remain available for future grants under the Plan.
We have no present commitments, agreements,
or intent to issue additional shares of Common Stock or our Preferred Stock, other than with respect to currently reserved shares
issuable upon conversion of outstanding shares of our Preferred Stock, upon exercise of outstanding stock options, or upon exercise
of outstanding warrants or conversion of outstanding convertible debt except as follows:
• As discussed
in connection with Proposal III below, our Board of Directors has amended the ThermoEnergy Corporation 2008 Incentive Stock
Plan, subject to shareholder approval, to increase by 20,000,000 the number of shares of Common Stock that may be issued, from time to
time, as direct grants or upon exercise of warrants or other rights granted to employees, officers, and directors of, and consultants
to, the Company and its subsidiaries under such Plan.
• As an inducement
to holders of outstanding Common Stock Purchase Warrants to exercise such warrants or to surrender such warrants in exchange for
shares of our Common Stock, in 2011 we agreed with such holders, subject to shareholder approval of the proposed amendment to our
Certificate of Incorporation, to allow such holders to exchange their shares of Series B Convertible Preferred Stock for an equal
number of shares of Series B-1 Convertible Preferred Stock and thereby to obtain priority in liquidation over the holders of Series
B Convertible Preferred Stock who elected not to exercise or surrender their warrants.
• To raise capital
to fund ongoing business operations, we intend to issue, offer and sell shares of the Series C Convertible Preferred Stock to a
group of accredited investors, in a private placement exempt from the registration requirements of the Securities Act of 1933.
The Board of Directors believes that, in
addition to the foregoing intended uses of the proposed additional new shares, it is desirable to increase the number of shares
of Common Stock and of undesignated Preferred Stock to provide the Company with adequate flexibility in the future to be able to
raise capital to fund operations and corporate expansion, such as acquisitions of other companies or of rights in technologies
or the establishment of strategic relationships. At this time, we do not have any specific plans to engage in any such transactions
or to issue any shares of Common Stock in connection with any acquisition or strategic partnership.
Vote Required
Approval of the proposal to amend our Certificate
of Incorporation will require the affirmative vote of the holders of at least a majority of the shares of Common Stock, Series
A Preferred Stock and Series B Convertible Preferred Stock outstanding on the Record Date (considered as a single class), or 118,656,420
votes,
plus
at least a majority of the shares of Series B Convertible Preferred Stock outstanding as of the Record Date,
or 5,832,497 shares of Series B Convertible Preferred Stock (voting separately).
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE
FOR
ADOPTION OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
proposal
iII
APPROVAL OF AMENDMENTS TO THE
THERMOENERGY CORPORATION 2008 INCENTIVE STOCK PLAN
The ThermoEnergy Corporation 2008 Incentive
Stock Plan (the “2008 Plan”) was adopted by the Board of Directors on May 7, 2008 and approved by the shareholders
on June 26, 2008 Amendments to the Plan were adopted by the Board of Directors on January 27, 2010 and approved by the shareholders
of November 18, 2010.
Our Board of Directors believes that long-term
performance is best stimulated through an ownership culture that encourages such performance through the use of stock-based awards.
The 2008 Plan was established to provide certain of our employees, including our executive officers, with incentives to help align
those employees’ interests with the interests of shareholders and with our long-term success. We believe that the use
of stock options and other stock-based awards offers the best approach to achieving our long-term compensation goals. While
the 2008 Plan provides for a variety of stock-based awards, to date we have relied exclusively on stock options to provide equity
incentive compensation. We believe that stock options most effectively focus the attention of our executives and management
on long-term performance and stock price appreciation. Stock options granted to our executive officers have an exercise price equal
to the fair market value of our common stock on the grant date. Our stock options typically vest 25% on the first anniversary
of grant and thereafter in equal quarterly installments over an additional three-year period, and generally expire ten years after
the date of grant. Stock option grants to our executive officers are made in connection with the commencement of employment,
in conjunction with an annual review of total compensation and, occasionally, to meet special retention or performance objectives.
Proposals to grant stock options to our executive officers are made by our CEO to the Compensation and Benefits Committee of our
Board of Directors.
The number of shares of our common stock
remaining available for grant under the 2008 Plan has been reduced to 8,130,706 (representing less than 2.5% of our fully-diluted
capitalization (assuming the conversion of all of our outstanding Preferred Stock, the conversion of all of our outstanding convertible
debt, and the exercise of all of our outstanding options and warrants). In light of the significance we place on equity-based
incentive compensation, on November 19, 2012 our Board of Directors, at the recommendation of the Compensation and Benefits Committee,
adopted the following Resolutions to amend the 2008 Plan (subject to shareholder approval at this Meeting) to increase the number
of shares of our common stock available for grant from 20,000,000 to 40,000,000 and to increase the number of shares with respect
to which automatic stock options shall be granted to non-employee directors from 30,000 to 100,000:
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Resolved:
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That the ThermoEnergy Corporation 2008 Incentive Stock Plan be, and it hereby is, amended, subject to approval by the shareholders of this Corporation, (i) to amend and restate the first sentence of Section 4.1 thereof to read in its entirety as follows: “Subject to adjustment as provided in Section 4.2 hereof, the number of Shares hereby reserved for issuance to Participants under the Plan shall be Forty Million Shares (40,000,000).”; (ii) to amend and restate Section 5.3(a) to read in its entirety as follows: “Subject to the provisions of Section 5.3(d), each person who, subsequent to the Effective Date, is for the first time elected or appointed to the Board and who qualifies, at such time, as a Non-Employee Director, shall automatically be granted a Nonqualified Stock Option to purchase 100,000 Shares, effective as of the date of his or her election or appointment to the Board, on the terms and conditions set forth in the Plan, at an Option Price equal to the Fair Market Value of a Share on the date of grant or, if the date of the grant is not a business day on which the Fair Market Value can be determined, on the last business day preceding the date of grant on which the Fair Market Value can be determined.”; and (iii) to amend and restate Section 5.3(b) to read in its entirety as follows: “Subject to the provisions of Section 5.3(d), each Non-Employee Director who is re-elected as a director at an annual meeting of stockholders shall be granted an additional Nonqualified Stock Option to purchase 100,000 Shares, on the terms and conditions set forth in the Plan, at an option price per share equal to the Fair Market Value of a Share on the date of such annual meeting.”
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Resolved
Further:
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That the amendments to the ThermoEnergy
Corporation 2008 Incentive Stock Plan adopted pursuant to the foregoing Resolution be presented to the shareholders of this Corporation
for their consideration at the 2012 Annual Meeting, with the recommendation of this Board that such amendments be approved.
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Description of the 2008 Plan, as amended
The following is a brief summary of the
2008 Plan, as amended, a copy of which is attached hereto as Annex B. The following summary is qualified in its entirety by reference
to the amended 2008 Plan.
Types of Awards
The 2008 Plan provides for the grant of
non-statutory stock options, restricted stock, stock appreciation rights, incentive stock options intended to qualify under Section
422 of the Internal Revenue Code of 1986, as amended (the “Code”) and other stock-based awards.
Incentive Stock
Options and Non-Statutory
Stock Options
. Optionees receive the right to purchase a specified number of shares of common
stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option
grant. Options may not be granted at an exercise price less than the fair market value of the common stock on the date of grant.
Options may not be granted for a term in excess of ten years. Outstanding options may not be amended to provide an exercise price
per share which is lower than the then current exercise price per share of such outstanding options. The Board of Directors may
not cancel any outstanding options and grant in substitution new options under the 2008 Plan covering the same or a different
number of shares of common stock and having an exercise price per share lower than the then current exercise price per share of
the cancelled options.
Restricted
Stock Awards.
Restricted stock awards entitle recipients to acquire shares of common stock, subject to the Company’s
right to repurchase all or part of such shares from the recipient in the event that the conditions specified in the applicable
award are not satisfied prior to the end of the applicable restriction period established for such award. Restricted stock awards
granted under the 2008 Plan may vest based upon the achievement of specific performance goals, time-based restrictions on vesting
following the attainment of the performance goals, time-based restrictions, and/or restrictions under applicable federal or state
securities laws. Performance criteria for each restricted stock award are intended to qualify for purposes of Section 162(m) of
the Code and will be based on one or more of the performance measures specified in Article 10 of the 2008 Plan.
Stock Appreciation
Rights.
A stock appreciation right (a “SAR”) is an award entitling the holder to exercise to receive, at
the election of the Board of Directors, an amount in cash or common stock, or combination thereof determined in whole or in part
by reference to the appreciation, from and after the date of grant, in the fair market value of a share of common stock. SARs may
be based solely on appreciation in the fair market value of common stock or on a comparison of such appreciation with some other
measure of market growth such as (but not limited to) appreciation in a recognized market index.
Other Stock-Based
Awards.
Under the 2008 Plan, the Board of Directors has the right to grant other awards of common stock or awards otherwise
based upon common stock or other property, including without limitation rights to purchase shares of common stock, having such
terms and conditions as the board may determine.
Eligibility to Receive Awards
Employees, officers, directors, consultants,
advisors and other service providers of the Company (“Participants”) are eligible to be granted awards under the 2008
Plan. The number of shares for stock options to any one participant under the 2008 Plan is not limited. The number of shares for
SAR awards to any one participant is limited to 500,000 per year. The number of shares for restricted stock grants to any
one participant is limited to 250,000 per year. The maximum aggregate grant with respect to awards of Performance Shares
made in any one calendar year to any one participant shall be equal to the fair market value (measured on the date of grant) of
500,000 shares. The maximum aggregate amount awarded with respect to Performance Units in such circumstances may not exceed $250,000.
Stock Available for Awards
Subject to adjustment in connection with
stock splits, reverse splits and the like as provided in the 2008 Plan, the number of shares of our Common Stock reserved for issuance
to Participants under the 2008 Plan is 40,000,000. Any shares covered by an award (or portion of an award) granted under the
2008 Plan which is forfeited or canceled or expires shall be deemed not to have been delivered for purposes of determining the
maximum number of shares available for delivery under the 2008 Plan.
Outstanding Stock Awards.
.
As of December 7, 2012, Options for the
purchase of an aggregate of 11,869,294 shares of common stock had been granted and were outstanding under the 2008 Plan.
No awards of restricted stock, SARs or other stock-based awards have been made under the 2008 Plan. The granting of future awards
under the 2008 Plan is discretionary and we cannot now determine the number or type of awards to be granted in the future to any
particular person or group.
Awards to Non-Employee Directors
Although the granting of awards under the
2008 Plan is generally at the discretion of the Compensation and Benefits Committee of the Board of Directors, the 2008 Plan provides
for automatic grants of stock options to the members of the Board of Directors who are not employees of the Company. Each non-employee
Director who is elected or appointed to the Board for the first time shall automatically be granted a Nonqualified Stock Option
to purchase 100,000 shares of Common Stock. Thereafter, each non-employee Director who is re-elected to the Board of Directors
at an annual shareholders meeting will receive an option to purchase an additional 100,000 shares. All Options granted
to non-employee Directors shall vest and become fully exercisable on the date of the first annual meeting of shareholders occurring
after the end of the fiscal year of the Company during which such Option was granted and shall have a term of ten years.
Administration
The 2008 Plan is administered by the Compensation
and Benefits Committee of the Board of Directors. The Committee has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the 2008 Plan and to interpret its provisions. To the extent permitted by law, the
Committee may delegate authority under the 2008 Plan to one or more officers, except that no officer will be authorized to grant
awards to himself or herself.
Subject to any applicable delegation by
the Committee and any applicable limitations contained in the 2008 Plan, the Committee selects the recipients of awards and determines:
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(i)
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the number of shares of common stock covered by options and the dates upon which such options become exercisable;
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(ii)
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the exercise price of options, which may not be less than 100% of the fair market value of the common stock;
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(iii)
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the duration of the options, which may not exceed 10 years;
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(iv)
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the terms of the stock appreciation rights and the dates or conditions upon which such stock appreciation rights become exercisable; and
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(v)
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the number of shares of common stock subject to any restricted stock or other stock-based awards and the terms and conditions of such awards, including, if applicable, conditions for repurchase, issue price and repurchase price.
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Termination or Amendment
No award may be made under the 2008 Plan
after the completion of ten years from the date on which the plan is approved by the Company’s shareholders, but awards previously
granted may extend beyond that date. The Board of Directors may at any time, suspend or terminate the 2008 Plan, except that no
award designated as subject to Section 162(m) of the Code by the Board of Directors after the date of such amendment shall become
exercisable, realizable or vested, to the extent such amendment was required to grant such award, unless and until such amendment
shall have been approved by our stockholders. In addition, without approval of our stockholders, no amendment may:
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(i)
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increase the number of authorized shares under the 2008 Plan;
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(ii)
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change the designation of the class of participation eligible to receive Incentive Stock Options under the 2008 Plan; or
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(iii)
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make any other changes which require shareholder approval under applicable law or the rules of a stock exchange or trading system on which shares of the Company’s common stock are traded.
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No award may be made that is conditioned
on the approval of the Company’s shareholders of any amendment to the 2008 Plan.
Federal Income Tax Consequences
The following generally summarizes the
United States federal income tax consequences that generally will arise with respect to awards granted under the 2008 Plan. This
summary is based on the tax laws in effect as of the date of this Proxy Statement. Changes to these laws could alter the tax consequences
described below.
Incentive Stock
Options -
A participant will not have income upon the grant of an incentive stock option. Also, except as described below,
a participant will not have income upon exercise of an incentive stock option if the participant has been employed by the Company
or any 50% or more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before
the date the participant exercises the option. If the participant has not been employed during that time, then the participant
will be taxed as described below under “Non-statutory Stock Options.” The exercise of an incentive stock option may
subject the participant to the alternative minimum tax.
A participant will
have income upon the sale of the stock acquired under an incentive stock option at a profit if sales proceeds exceed the exercise
price. The type of income will depend on when the participant sells the stock. If a participant sells the stock more than two years
after the option was granted and one year after the option was exercised, then all the profit will be long-term capital gain. If
the participant sells the stock prior to satisfying these waiting periods, then the participant will have engaged in a disqualifying
event and a portion of the profit will be ordinary income and a portion may be capital gain. This capital gain will be long term
if the participant has held the stock for more than one year and otherwise will be short-term. If a participant sells the stock
at a loss (sales proceeds are less than the exercise price), then the loss will be a capital loss. The capital loss will be long
term if the participant held the stock for more than one year and otherwise will be short term.
Non-statutory Stock
Options -
A participant will not have income upon the grant of a non-statutory stock option. A participant will have compensation
income upon the exercise of a non-statutory stock option equal to the value of the stock on the day the participant exercised the
option less the exercise price. Upon the sale of the stock, the participant will have capital gain or loss equal to the difference
between the sales proceeds and the value of the stock on the day the option was exercised. This capital gain or loss will be long-term
if the participant has held the stock for more than one year or otherwise will be short-term.
Restricted Stock
-
A participant will not have income upon the grant of restricted stock unless an election under Section 83(b) of the Code
is made within 30 days of the date of grant. If a timely Section 83(b) election is made, then a participant will have compensation
income equal to the value of the stock less the purchase price. When the stock is sold, the participant will have a capital gain
or loss equal to the difference between the sales proceeds and the value of the stock on the date of grant. If the participant
does not make an 83(b) election, then when the stock vests, the participant will have compensation income equal to the value of
the stock on the vesting date less the purchase price. When the stock is sold, the participant will have a capital gain or loss
equal to the sales proceeds less the value of the stock on the vesting date. Any capital gain or loss will be long-term if the
participant held the stock for more than one year from the vesting date and otherwise will be short-term.
Stock Appreciation
Rights and Other Stock-Based Awards -
The tax consequences associated with stock appreciation rights and any other stock-based
awards granted under the 2008 Plan will vary depending on the specific terms of any such award. Among the relevant factors are
whether or not the award has a readily ascertainable fair market value, whether or not the award is subject to forfeiture provisions
or restrictions on transfer, the nature of the property to be received by the participant under the award and the participant’s
holding period and tax basis for award or underlying common stock.
Tax Consequences to the Company.
There will be no tax consequences to the Company except that the Company will be entitled to a deduction when a participant
has compensation income. Any such deduction will be subject to the limitations of Section 162(m) of the Code.
General Provisions
Change in Control.
In the event
of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchange or trading system, or unless the Committee shall otherwise specify
in the Award Agreement, the Board, in its sole discretion, may:
(a) elect
to terminate Options or SARs in exchange for a cash payment equal to the amount by which the Fair Market Value of the Shares subject
to such Option or SAR to the extent the Option or SAR has vested exceeds the exercise price with respect to such Shares;
(b) elect
to terminate Options or SARs provided that each Participant is first notified of and given the opportunity to exercise his or her
vested Options or SARs for a specified period of time (of not less than 15 days) from the date of notification and before the Option
or SAR is terminated;
(c) permit
Awards to be assumed by a new parent corporation or a successor corporation (or its parent) and replaced with a comparable Award
of the parent corporation or successor corporation (or its parent);
(d) amend
an Award Agreement or take such other action with respect to an Award that it deems appropriate; or
(e) implement
any combination of the foregoing.
A change in control shall be deemed to
have occurred under any one or more of the following conditions:
(i) if,
within one year of any merger, consolidation, sale of a substantial part of the Company’s assets, or contested election,
or any combination of the foregoing transactions (a “Transaction”), the persons who were directors of the Company immediately
before the Transaction shall cease to constitute a majority of the Board of Directors (x) of the Company or (y) of any successor
to the Company, or (z) if the Company becomes a subsidiary of or is merged into or consolidated with another corporation, of such
corporation (the Company shall be deemed a subsidiary of such other corporation if such other corporation owns or controls, directly
or indirectly, a majority of the combined voting power of the outstanding shares of the capital stock of the Company entitled to
vote generally in the election of directors (“Voting Stock”));
(ii) if,
as a result of a Transaction, the Company does not survive as an entity, or its shares are changed into the shares of another corporation
unless the shareholders of the Company immediately prior to the Transaction own a majority of the outstanding shares of such other
corporation immediately following the Transaction;
(iii) if any
Person becomes, after the date the 2008 Plan is adopted, a beneficial owner directly or indirectly of securities of the Company
representing 50% or more of the combined voting power of the Company’s Voting Stock;
(iv) if
the dissolution or liquidation of the Company is approved by its shareholders; or
(v) if
the members of the Board as of the date the 2008 Plan is adopted (the “Incumbent Board”) cease to represent at least
two-thirds of the Board; provided, that any person becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company’s shareholders, was approved by at least two-thirds of the members comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement in which such person is named as a nominee for director without
objection to such nomination) shall be, for purposes of this paragraph (v), treated as though such person were a member of the
Incumbent Board.
Changes in Capitalization.
In the
event any change is made to the outstanding shares of the Company’s common stock by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change in corporate structure effected without the Company’s
receipt of consideration, appropriate adjustments will be made to: (i) the maximum number and/or class of securities issuable under
the 2008 Plan; (ii) the maximum number and/or class of securities for which any one person may be granted stock options, restricted
stock and restricted stock units under the 2008 Plan per year, (iii) the maximum number and/or class of securities for which grants
may subsequently be made under the automatic grant program for the non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding option under the 2008 Plan and (v) the number and/or
class of securities subject to each outstanding restricted stock or restricted stock award under the 2008 Plan and the issue price
(if any) payable per share. Such adjustments will be designed to preclude any dilution or enlargement of benefits under the 2008
Plan or the outstanding awards thereunder.
Valuation.
The fair market value
per share of the Company’s common stock on any relevant date under the 2008 Plan will be determined as follows:
(i) if
the shares are listed on a national exchange, then the closing price of the share of such stock exchange on such date will be determinative
of fair market value, or
(ii) if
the shares are not at the time listed on a national exchange, then the last reported sales price for the share in the over-the-counter
market on such date, as reported by the National Association of Securities Dealers, Inc. OTC Bulletin Board, the National Quotation
Bureau Incorporated or any similar organization or agency reporting prices in the over-the-counter market will determine the fair
market value.
Shareholder Rights and Transferability
.
No optionee will have any shareholder rights with respect to the option shares until such optionee has exercised the option and
paid the exercise price for the purchased shares. Options are not assignable or transferable other than by will or the laws of
inheritance following optionee’s death, and during the optionee’s lifetime, the option may only be exercised by the
optionee.
An individual whose shares of restricted
stock are awarded under the Plan will have certain shareholder rights with respect to those unvested shares. Accordingly, the participant
will have the right to vote such shares and to receive regular cash dividends paid on such shares, but will not have the right
to transfer such shares prior to vesting.
Amendment and Termination.
The Board
may modify the Plan at any time, subject to any stockholder approval requirements under applicable law or regulation or pursuant
to the listing standards of the stock exchange (or trading system) on which the Company’s common stock is at the time primarily
traded. Unless sooner terminated by the Board, the 2008 Plan will terminate on the earliest of: (i) December 31, 2018, (ii) the
date on which all shares available for issuance under the 2008 Plan have been issued as fully-vested shares or (iii) the termination
of all outstanding options and awards in connection with certain changes in control or ownership.
Deductibility of Executive Compensation
.
Any compensation deemed paid by the Company in connection with the disqualifying disposition of incentive stock option shares or
the exercise of non-statutory options granted under the 2008 Plan should qualify as performance-based compensation for purposes
of Internal Revenue Code Section 162(m) and will not have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of compensation paid to certain of the Company’s executive officers. Accordingly,
the compensation deemed paid with respect to options granted under the 2008 Plan should be deductible by the Company without limitation
under section 162(m). However, any compensation deemed paid by the Company in connection with certain option grants made under
the Plan prior to the 2008 Plan will not qualify as performance-based compensation and will be subject to the $1 million limitation.
In addition, the compensation attributable to the restricted stock awards or restricted stock units will also be subject to the
$1 million limitation, unless the vesting of the shares is tied solely to one or more of the performance milestones described above.
Accounting Treatment
. Stock options
granted to the Company’s employees and non-employee board members, whether vesting is tied to service requirements or performance
milestones, are valued as of the grant date under an appropriate valuation formula, and that value is charged as a direct compensation
expense against the Company’s reported earnings over the designated vesting period of the award in accordance with Accounting
Standards Codification Topics 505 and 718. Option grants made to non-employee consultants under the Plan also result in a
direct charge to the Company’s reported earnings based upon the fair value of the underlying option shares. Such charge will
accordingly include the appreciation of the fair value of the option over the period between the grant date of the option and the
vesting date of each installment of that option for non-employee consultant awards. For shares issuable upon the vesting of restricted
stock awards, the Company recognizes compensation cost equal to the excess of the fair market value of the shares on the date of
the award over the cash consideration (if any) paid for such shares. The accounting treatment for restricted stock awards is applicable
whether vesting is tied to service periods or performance goals.
Equity Compensation Plan Information
The following table sets forth the securities that are authorized
for issuance under our equity compensation plans as of December 31, 2011:
Plan Category
|
|
(A)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
|
|
(B)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
|
|
|
(C)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column A)
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Incentive Stock Plan
|
|
|
7,566,794
|
|
|
$
|
0.34
|
|
|
|
12,433,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
12,107,308
|
|
|
$
|
0.40
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
1,281,103
|
|
|
$
|
0.35
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,955,205
|
|
|
$
|
0.38
|
|
|
|
12,433,206
|
|
OTHER MATTERS
The Board of Directors is not aware of
any other matters to come before the meeting. However, if any other matters properly come before the meeting, it is the intention
of the persons named in the enclosed proxy to vote the proxy in accordance with their judgment in such matters.
December __, 2012
Annex A
Certificate
of Amendment
to
the Certificate of incorporation
of
ThermoEnergy
Corporation
ThermoEnergy Corporation,
a corporation organized and existing under and by virtue of the Delaware General Corporation Law, does hereby certify as follows:
The Board of Directors
of the Corporation has duly adopted, pursuant to Section 242 of the Delaware General Corporation Law, a resolution setting forth
amendments to the Certificate of Incorporation of the Corporation and declaring said amendments to be advisable. The stockholders
of the Corporation have duly approved said amendments, in accordance with Section 242 of the Delaware General Corporation Law.
The resolution setting forth the amendments is as follows:
|
Resolved
:
|
That the Certificate of Incorporation of this Corporation,
as heretofore amended, be further amended by deleting in its entirety the first paragraph of Article Fourth and substituting in
place thereof the following new text:
|
|
“Fourth:
|
The total number
of shares of stock that this Corporation is authorized to issue is eight hundred fifty million (850,000,000) shares, of which
eight hundred million (800,000,000) shares shall be Common Stock, par value $0.001 per share, and fifty million (50,000,000) shares
shall be Preferred Stock, par value $0.01 per share. Of the authorized Preferred Stock, (i) two hundred eight thousand, three
hundred thirty-four (208,334) shares shall be designated “Series A Convertible Preferred Stock” and shall have the
rights, preferences, powers, qualifications, restrictions and limitations set forth in Exhibit A hereto, (ii) one million (1,000.000)
shares shall be designated “Series B Convertible Preferred Stock” and shall have the rights, preferences, powers,
qualifications, restrictions and limitations set forth in Exhibit A hereto, (iii) eleven million (11,000,000) shares shall be
designated “Series B-1 Convertible Preferred Stock” and shall have the rights, preferences, powers, qualifications,
restrictions and limitations set forth in Exhibit A hereto, (iv) fifteen million (15,000,000) shares shall be designated “Series
C Convertible Preferred Stock” and shall have the rights, preferences, powers, qualifications, restrictions and limitations
set forth in Exhibit A hereto, and (v) the remaining shares shall be undesignated. Subject to the limitations prescribed by law
and the provisions of this Certificate of Incorporation, the Board of Directors of this Corporation is authorized to issue the
undesignated Preferred Stock from time to time in one or more series, each of such series to have such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights,
and such qualifications, limitations or restrictions thereof, as shall be determined by the Board of Directors in a resolution
or resolutions providing for the issuance of such Preferred Stock. Subject to the powers, preferences and rights of any Preferred
Stock, including any series thereof, having any preference or priority over, or rights superior to, the Common Stock and except
as otherwise provided by law, the holders of the Common Stock shall have and possess all powers and voting and other rights pertaining
to the stock of this Corporation and each share of Common Stock shall be entitled to one vote.”
|
*
* *
In witness whereof,
the Corporation has caused this Certificate of Amendment to be duly executed this ____ day of __________ 2013.
|
ThermoEnergy Corporation
|
|
|
|
|
|
|
President
|
Exhibit A
Description
of SERIES A Convertible Preferred Stock
Section 1.
Liquidation
Rights
.
(a)
Treatment
at Liquidation, Dissolution or Winding Up
.
(i) In
the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary, before
any payment is made to the holders of any other class or series of the corporation’s capital stock designated to be junior
to the corporation’s Series A Convertible Preferred Stock, par value $.01 per share (the “Series A Preferred Stock”),
including the corporation’s Common Stock, par value $0.001 per share (the “Common Stock”), the holder of each
share of Series A Preferred Stock shall be entitled to be paid from the assets of the corporation available for distribution, pari
passu, an amount equal to the greater of (A) $1.20 (which amount shall be subject to equitable adjustment whenever there shall
occur a stock dividend, distribution, combination of shares, reclassification or other similar event with respect to the Series
A Preferred Stock) plus all dividends declared thereon but unpaid, to and including the date full payment shall be tendered to
the holders of Series A Preferred Stock with respect to such liquidation, dissolution or winding up, or (B) the amount that would
have been payable to the holder of such share had all shares of Series A Preferred Stock been converted to Common Stock pursuant
to Section 2(a) hereof immediately prior to such liquidation, dissolution or winding up.
(ii) If
the assets of the corporation shall be insufficient to permit the payment in full to the holders of the corporation’s Series
A Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, then the entire assets of the corporation
available for such distribution shall be distributed ratably among the holders of Series A Preferred Stock in proportion to the
respective amounts distributable to them.
(b)
Treatment
of Reorganizations, Consolidations, Mergers and Sales of Assets
. A consolidation or merger of the corporation, or a sale of
all or substantially all of the assets of the corporation (other than a merger, consolidation or sale of all or substantially all
of the assets of the corporation in a transaction in which the shareholders of the corporation immediately prior to the transaction
possess more than fifty percent (50%) of the voting securities of the surviving entity (or parent, if any) or the purchaser of
assets immediately after the transaction) shall be regarded as a liquidation, dissolution or winding up of the affairs of the corporation
within the meaning of this Section 1, unless in any such particular event the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the then outstanding shares of Series A Preferred Stock determine that any such particular event shall not, for purposes
of this Section 1, be deemed a liquidation, dissolution or winding up.
(c)
Distributions
Other than Cash
. Whenever the distribution provided for in this Section 1 shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors
of the corporation.
Section 2.
Conversion
.
The holders of Series A Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):
(a)
Right
to Convert; Conversion Ratio
. Each share of Series A Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof, at any time at the office of the corporation or any
transfer agent for the Series A Preferred Stock, into one fully paid and nonassessable share of Common Stock (the “Conversion
Ratio”). Such initial Conversion Ratio shall be subject to adjustment as hereinafter provided.
(b)
Mechanics
of Conversion
. Before any holder of Series A Preferred Stock shall be entitled to convert the same into full shares of Common
Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or
of any transfer agent for the Series A Preferred Stock that may be designated by the corporation, and shall give written notice
to the corporation at such office that such holder elects to convert the same and shall state therein the name of such holder or
the name or names of the nominees of such holder in which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. No fractional shares of Common Stock shall be issued upon conversion of any shares of Series A Preferred Stock.
The corporation shall, as soon as practicable (but, in any event, not later than three (3) business days thereafter), issue and
deliver at such office to such holder of Series A Preferred Stock, or to such holder’s nominee or nominees, a certificate
or certificates for the number of full shares of Common Stock to which such holder shall be entitled as aforesaid, together with
cash in lieu of any fraction of a share as hereinafter provided. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the certificate for the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Common Stock on such date. In lieu of any fractional shares
of Common Stock to which the holder would otherwise be entitled, the corporation shall pay to such holder cash in an amount equal
to such fraction multiplied by the Market Price as of the date of conversion. The term “Market Price” shall mean, on
any date of determination,(i) the closing price of a share of Common Stock on such day as reported on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market (each, a “Trading Market”) (whichever is then the principal
Trading Market on which the Common Stock is listed or traded), or (ii) if the Common Stock is not listed on a Trading Market, the
closing bid price for a share of Common Stock on such day in the over-the-counter market, as reported by the OTC Bulletin Board,
or (iii) if the Common Stock is not then listed or quoted on the OTC Bulletin Board, the closing bid price for a share of Common
Stock on such day in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization
or agency succeeding to its functions of reporting prices) or (iv) if a bid price for a share of Common Stock in the over-the-counter
market is not then reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to
its functions of reporting prices), the fair market value of a share of Common Stock as determined in good faith by the Board of
Directors of the corporation.
(c)
Automatic
Conversion
.
(i) Each
share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Ratio as then
in effect:
(A) on the next Trading Day immediately
following the date on which the Market Price for the Common Stock shall have exceeded $3.00 (adjusted to reflect stock splits,
stock dividends or distributions, and stock combinations or consolidations) for a period of thirty (30) consecutive Trading Days,
or
(B) at the written election of
the holders of not less than sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of Series A Preferred Stock
to require such automatic conversion.
For purposes of this Section 2(c)(i), the
term “Trading Day” shall mean (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common
Stock is not listed on a Trading Market, a day on which the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (iii) if the Common Stock is not then listed or quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices).
(ii) Upon
the occurrence of an event specified in Section 2(c)(i) hereof, all shares of Series A Preferred Stock shall be converted automatically
without any further action by any holder of such shares and whether or not the certificate or certificates representing such shares
are surrendered to the corporation or the transfer agent for the Series A Preferred Stock and the holder of such shares shall be
treated as the owner of the shares of Common Stock into which such shares have been converted; provided, however, that the corporation
shall not be obligated to issue a certificate or certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificate or certificates evidencing such shares of Series A Preferred Stock being converted are either delivered
to the corporation or the transfer agent of the Series A Preferred Stock, or the holder notifies the corporation or such transfer
agent that such certificate or certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the
corporation to indemnify the corporation from any loss incurred by it in connection therewith and, if the corporation so elects,
provides an appropriate indemnity bond. Upon the automatic conversion of Series A Preferred Stock, each holder of Series A Preferred
Stock shall surrender the certificate or certificates representing such holder’s shares of Series A Preferred Stock at the
office of the corporation or of the transfer agent for the Series A Preferred Stock. Thereupon, there shall be issued and delivered
to such holder, promptly (and, in any event, not later than three (3) business days thereafter) at such office and in such holder’s
name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series A Preferred Stock surrendered were convertible on the date on which such automatic conversion
occurred. No fractional shares of Common Stock shall be issued upon the automatic conversion of Series A Preferred Stock. In lieu
of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay to such holder
cash in an amount equal to such fraction multiplied by the Market Price as of the date of conversion.
(d)
Adjustments
to Conversion Ratio for Dividends, Distributions, Subdivisions, Combinations or Consolidations of Common Stock
.
(i) In
the event the corporation shall issue additional shares of Common Stock pursuant to a stock dividend, stock distribution or subdivision,
the Conversion Ratio in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently
with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately adjusted.
(ii) In
the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Conversion Ratio in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be proportionately adjusted.
(e)
Adjustment
for Merger or Reorganization, etc
. Subject to the provisions of Section 1(b), if there shall occur any reorganization, recapitalization,
reclassification, consolidation or merger involving the corporation in which the Common Stock is converted into or exchanged for
securities, cash or other property (other than a transaction covered by Section 2(d)), then, following any such reorganization,
recapitalization, reclassification, consolidation or merger, each share of Series A Preferred Stock shall thereafter be convertible,
in lieu of the Common Stock into which it was convertible prior to such event, into the kind and amount of securities, cash or
other property which a holder of the number of shares of Common Stock of the corporation issuable upon conversion of one share
of Series A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger
would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors of the corporation) shall be made in the application of the provisions in this Section 2 with
respect to the rights and interests thereafter of the holders of the Series A Preferred Stock, to the end that the provisions
set forth in this Section 2 (including provisions with respect to changes in and other adjustments of the Conversion Ratio)
shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable
upon the conversion of the Series A Preferred Stock.
(f)
No
Impairment
. The corporation shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed hereunder by the corporation but shall at all times
in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the holders of Series A Preferred Stock against impairment.
(g)
Certificate
as to Adjustments
. Upon the occurrence of each adjustment or readjustment of the Conversion Ratio pursuant to Section 2(d),
the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish
to each affected holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time
of any affected holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Ratio at the time in effect, and (iii) the number of shares of
Common Stock which at the time would be received upon conversion of each share of Series A Preferred Stock.
(h)
Notices
of Record Date
. In the event of any taking by the corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same
as cash dividends paid in previous quarters) or other distribution, any right to subscribe for, purchase or otherwise acquire any
class of securities or other property, or any other right, the corporation shall mail to each holder of Series A Preferred Stock
at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and the amount and character thereof.
(i)
Common
Stock Reserved
. The corporation shall reserve and keep available out of its authorized but unissued Common Stock such number
of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all Series A Preferred Stock.
(j)
Certain
Taxes
. The corporation shall pay any issue or transfer taxes payable in connection with the conversion of any shares of Series
A Preferred Stock; provided, however, that the corporation shall not be required to pay any tax which may be payable in respect
of any transfer to a name other than that of the holder of such Series A Preferred Stock.
(k)
Closing
of Books
. The corporation shall at no time close its transfer books against the transfer of any Series A Preferred Stock, or
of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Preferred Stock, in any manner which
interferes with the timely conversion or transfer of such Series A Preferred Stock.
Section 3.
Voting
Rights
.
The holders of Series
A Preferred Stock shall be entitled to the following voting rights: (i) those voting rights required by applicable law and as provided
in Section 5 hereof; and (ii) the right to vote (or consent) together with the holders of Common Stock, as a single class, upon
all matters submitted to holders of Common Stock for a vote (or consent). Each share of Series A Preferred Stock shall entitle
the holder thereof to a number of votes equal to the nearest number of whole shares of Common Stock into which such share of Series
A Preferred Stock could have been converted on the date for determination of stockholders entitled to vote at such meeting. The
holders of Series A Preferred Stock shall be entitled to notice of any stockholders’ meeting.
Section 4.
Dividends
.
In the event the Board of Directors of the corporation shall declare a dividend payable upon the then outstanding shares of the
Common Stock (other than a dividend payable entirely in shares of the Common Stock of the corporation for which an adjustment of
the Conversion Ratio is made pursuant to Section 2 hereof), the Series A Preferred Stock shall be entitled to, and the Board of
Directors shall declare at the same time, a dividend upon the then outstanding shares of the Series A Preferred Stock, in priority
to the dividend payable on the Common Stock, payable at the same time as the dividend paid on the Common Stock, in an amount per
share of Series A Preferred Stock equal to the amount payable on the largest number of whole shares of Common Stock into which
each share of Series A Preferred Stock could be converted pursuant to the provisions of Section 2 hereof as of the record date
for the determination of holders of Common Stock entitled to receive such dividends.
Section 5.
Covenants
.
As long as any of the Series A Preferred Stock shall be issued and outstanding, the corporation shall not, whether by reclassification,
merger, consolidation or otherwise, without first obtaining the approval (by vote or written consent as provided by law) of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the shares of Series A Preferred Stock then outstanding:
(i) directly
or indirectly, alter or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of,
the Series A Preferred Stock;
(ii) create
any class or series of shares having preference or priority equal or senior to any outstanding shares of Series A Preferred Stock
as to dividends or assets, or authorize or issue shares of stock of any class or series or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock of the corporation having
preference or priority equal or senior to any outstanding shares of Series A Preferred Stock as to dividends or assets; or
(iii) amend
the corporation’s articles of incorporation in a manner that adversely affects the rights, preferences or privileges of the
holders of Series A Preferred Stock.
Section 6.
Priority
with Respect to Certain Rights
. The Series A Preferred Stock shall, with respect to dividend rights and rights on liquidation,
winding-up and dissolution, rank senior to (i) all shares of Common Stock, and (ii) all classes and series of capital stock of
the corporation, whether authorized now or in the future, that do not expressly provide that they rank senior to, or on parity
with, the Series A Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the corporation.
Section 7.
Reclassification
of Unissued Series A Preferred Stock
. Any authorized but unissued shares of Series A Preferred Stock may be reclassified by
the Board of Directors of the corporation as shares of undesignated Preferred Stock.
Description
of
SERIES
B Convertible Preferred Stock,
SERIES
B-1 Convertible Preferred Stock,
and
SERIES
c Convertible Preferred Stock
Except as expressly set forth herein,
the rights, preferences, powers, qualifications, restrictions and limitations of the Series B Convertible Preferred Stock, the
Series B-1 Convertible Preferred Stock and the Series C Convertible Preferred Stock shall be identical and, except as expressly
set forth herein, the Series B Convertible Preferred Stock, the Series B-1 Convertible Preferred Stock and the Series C Convertible
Preferred Stock shall considered a single series of Preferred Stock. The Series B Convertible Preferred Stock, the Series B-1 Convertible
Preferred Stock and the Series C Convertible Preferred Stock are sometimes referred to herein as the “Series B/C Convertible
Preferred Stock”.
SECTION 1
Designation, Rank
.
(a)
Series
B Convertible Preferred Stock
. The series of preferred stock designated as the “
Series B Convertible Preferred Stock
,”
$0.01 par value (the “
Series B Convertible Preferred Stock”
) will rank, with respect to dividend rights and
rights on liquidation, winding-up and dissolution, senior to (i) all classes of common stock of the Corporation, as they exist
on the date hereof or as such stock may be constituted from time to time (the “
Common Stock”
); and (ii) each
other class of capital stock or series of preferred stock (collectively, with respect to the Series B Convertible Preferred Stock,
the “
Junior Securities”
) to the extent the terms of such stock do not expressly provide that it ranks senior
to or on a parity with the Series B Convertible Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution (in each case, with respect to the Series B Convertible Preferred Stock, the “
Senior or
Parity Securities”
).
The establishment of Senior or Parity Securities is subject to
Section 8
below. For the avoidance of doubt, with respect
to the Series B Convertible Preferred Stock, the series of preferred stock designated as the “
Series A Convertible Preferred
Stock
,” $0.01 par value (the “
Series A Preferred Stock”
), the series of preferred stock designated
as the “
Series B-1 Convertible Preferred Stock
,” $0.01 par value (the “
Series B-1 Convertible Preferred
Stock”
) and the series of preferred stock designated as the “
Series C Convertible Preferred Stock
,”
$0.01 par value (the “
Series C Convertible Preferred Stock”
) shall be deemed to be Senior Securities.
(b)
Series
B-1 Convertible Preferred Stock
. The Series B Convertible Preferred Stock will rank, with respect to dividend rights and rights
on liquidation, winding-up and dissolution, senior to (i) the Common Stock; (ii) the Series B Convertible Preferred Stock,
and (iii) each other class of capital stock or series of preferred stock (collectively, with respect to the Series B-1 Convertible
Preferred Stock. the “
Junior Securities”
) to the extent the terms of such stock do not expressly provide that
it ranks senior to or on a parity with the Series B-1 Convertible Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution (in each case, with respect to the Series B-1 Convertible Preferred Stock. the “
Senior or
Parity Securities”
). The establishment of Senior or Parity Securities is subject to
Section 8
below. For the
avoidance of doubt, with respect to the Series B-1 Convertible Preferred Stock, the Series B-1 Convertible Preferred Stock shall
be deemed to be Junior Securities and the Series A Preferred Stock and the Series C Convertible Preferred Stock shall be deemed
to be Senior Securities.
(c)
Series
C Convertible Preferred Stock
. The Series C Convertible Preferred Stock will rank, with respect to dividend rights and rights
on liquidation, winding-up and dissolution, senior to (i) the Common Stock; (ii) the Series B Convertible Preferred Stock,
(iii) the Series B-1 Convertible Preferred Stock and (iv) each other class of capital stock or series of preferred stock (collectively,
with respect to the Series C Convertible Preferred Stock. the “
Junior Securities”
) to the extent the terms of
such stock do not expressly provide that it ranks senior to or on a parity with the Series C Convertible Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution (in each case, with respect to the Series C Convertible Preferred
Stock. the “
Senior or
Parity Securities”
). The establishment of Senior or Parity Securities is subject
to
Section 8
below. For the avoidance of doubt, with respect to the Series C Convertible Preferred Stock, the Series B Convertible
Preferred Stock and the Series B-1 Convertible Preferred Stock shall be deemed to be Junior Securities and the Series A Preferred
Stock shall be deemed to be Senior Securities.
SECTION 2
Authorized
Number
. The authorized number of shares constituting the Series B Convertible Preferred Stock shall be one million (1,000,000)
shares. The authorized number of shares constituting the Series B-1 Convertible Preferred Stock shall be eleven million (11,000,000)
shares. The authorized number of shares constituting the Series C Convertible Preferred Stock shall be fifteen million (15,000,000)
shares.
SECTION 3
Dividends
.
In the event the Board of Directors of the Corporation shall declare a dividend payable upon the then outstanding shares of the
Common Stock (other than a dividend payable entirely in shares of the Common Stock of the Corporation for which an adjustment of
the Conversion Ratio is made pursuant to
Section 6
hereof), the Series B/C Convertible Preferred Stock shall be entitled
to, and the Board of Directors shall declare at the same time, a dividend upon the then outstanding shares of the Series B/C Convertible
Preferred Stock, in priority to the dividend payable on the Common Stock, payable at the same time as the dividend paid on the
Common Stock, in an amount per share of Series B/C Convertible Preferred Stock equal to the amount payable on the largest number
of whole shares of Common Stock into which each share of Series B/C Convertible Preferred Stock could be converted pursuant to
the provisions of
Section 6
hereof as of the record date for the determination of holders of Common Stock entitled to receive
such dividends.
SECTION 4
Liquidation
Rights
. The “
Stated Value”
of each share of the Series B Convertible Preferred Stock and each shares of
the Series B-1 Convertible Preferred Stock shall be $2.40 (as adjusted for any stock dividends, combinations or splits with respect
to such shares), which is 100% of the Original Series B Issue Price (as defined below). For purposes hereof, “
Original
Series B Issue Price”
shall mean $2.40. The “
Stated Value”
of each share of the Series C Convertible
Preferred Stock shall be $1.52 (as adjusted for any stock dividends, combinations or splits with respect to such shares), which
is 200% of the Original Series C Issue Price (as defined below). For purposes hereof, “
Original Series C Issue Price”
shall mean $0.76. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after
satisfaction of the claims of creditors and payment or distribution of assets is made on any Senior Securities, but before any
payment or distribution of assets and any surplus funds is made on any Junior Securities, including, without limitation, the Common
Stock, first, (a) the holders of the Series C Convertible Preferred Stock shall receive a liquidation preference equal to the Stated
Value of their shares and shall receive an amount equal to all declared and unpaid dividends with respect to their respective shares
through and including the date of distribution, and (b) the holders of any Parity Securities with respect to the Series C
Convertible Preferred Stock shall be entitled to receive an amount equal to the full respective liquidation preferences (including
any premium) to which they are entitled and shall receive an amount equal to all declared and unpaid dividends with respect to
their respective shares through and including the date of distribution; then, (a) the holders of the Series B-1 Convertible Preferred
Stock shall receive a liquidation preference equal to the Stated Value of their shares and shall receive an amount equal to all
declared and unpaid dividends with respect to their respective shares through and including the date of distribution, and (b) the
holders of any Parity Securities with respect to the Series B-1 Convertible Preferred Stock shall be entitled to receive an amount
equal to the full respective liquidation preferences (including any premium) to which they are entitled and shall receive an amount
equal to all declared and unpaid dividends with respect to their respective shares through and including the date of distribution;
and then, (a) the holders of the Series B Convertible Preferred Stock shall receive a liquidation preference equal to the Stated
Value of their shares and shall receive an amount equal to all declared and unpaid dividends with respect to their respective shares
through and including the date of distribution, and (b) the holders of any Parity Securities with respect to the Series B
Convertible preferred Stock shall be entitled to receive an amount equal to the full respective liquidation preferences (including
any premium) to which they are entitled and shall receive an amount equal to all declared and unpaid dividends with respect to
their respective shares through and including the date of distribution. If, upon such a voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the assets of the Corporation are insufficient to pay in full the amounts described above as
payable with respect to any class or series of the Series B/C Convertible Preferred Stock and any Parity Securities, the holders
of such class or series of the Series B/C Convertible Preferred Stock and such Parity Securities will share ratably in any distribution
of assets of the Corporation in proportion to their respective liquidation preferences until such preferences are paid in full.
Thereafter, each holder of Common Stock shall be paid an amount equal to the amount paid to each holder of Series B/C Convertible
Preferred Stock (determined on the basis of the number of shares of Common Stock into which a share of Series B/C Convertible Preferred
Stock is then convertible). Any remaining assets of the Company will be distributed on a pro rata basis to the holders of Common
Stock and Series B/C Convertible Preferred Stock (determined on the basis of the number of shares of Common Stock into which a
share of Series B/C Convertible Preferred Stock is then convertible). The sale or transfer of all or substantially all of the assets
of the Corporation and the merger or consolidation of the Corporation into or with any other Corporation shall be deemed to be
a liquidation for purposes of liquidation preference to the extent that the shareholders of the Corporation immediately preceding
such event do not own a majority of the outstanding shares of the surviving Corporation.
SECTION 5
Voting
Rights
.
(a)
General
.
The holders of Series B/C Convertible Preferred Stock shall be entitled to the following voting rights: (i) those voting rights
required by applicable law and as provided in this
Section 5
and in
Section 8
hereof; and (ii) the right to vote
(or consent) together with the holders of Common Stock and the holders of Series A Preferred Stock, as a single class, upon all
matters submitted to holders of Common Stock for a vote (or consent) other than with respect to the election of directors. Each
share of Series B/C Convertible Preferred Stock shall entitle the holder thereof to a number of votes equal to the nearest number
of whole shares of Common Stock into which such share of Series B/C Convertible Preferred Stock could have been converted on the
date for determination of stockholders entitled to vote at such meeting. The holders of Series B/C Convertible Preferred Stock
shall be entitled to notice of any stockholders’ meeting.
(b)
Election
of Directors
. The holders of the Series B/C Convertible Preferred Stock, voting together as a single class, shall be entitled
to elect four members of the Board of Directors of the Corporation (the
“Series B/C Directors”
), which Series
B/C Directors shall be subject to removal only by a vote of the holders of not less than sixty-six and two-thirds percent (66-⅔%)
of the then-outstanding shares of Series B/C Convertible Preferred Stock as a single class; any vacancy created by the resignation
or removal of a Series B/C Director may be filled either by (i) the vote or consent of the holders of a majority of the then-outstanding
shares of Series B/C Convertible Preferred Stock or (ii) the unanimous vote or consent of the remaining Series B/C Directors. The
holders of the Common Stock, voting together with the holders of Series A Preferred Stock, shall be entitled to elect three members
of the Board of Directors of the Corporation (the
“Common Stock Directors”
), which Common Stock Directors shall
be subject to removal only by a vote of the holders of a majority of the then-outstanding shares of Common Stock (taken together
as a single class with the then-outstanding shares of Series A Preferred Stock); any vacancy created by the resignation or removal
of a Common Stock Director may be filled either by (i) the vote or consent of the holders of a majority of the then-outstanding
shares of Common Stock and Series A Preferred Stock (voting or consenting together as a single class) or (ii) the unanimous vote
or consent of the remaining Common Stock Directors.
SECTION 6
Conversion
.
The holders of Series B/C Convertible Preferred Stock shall have conversion rights as follows (the “
Conversion
Rights
”):
(a)
Right
to Convert
. Shares of Series B/C Convertible Preferred Stock shall be convertible, without the payment of any additional consideration
by the holder thereof, at the option of the holder thereof, at any time after the date of issuance of such shares, at the office
of this Corporation or any transfer agent for the Series B Convertible Preferred Stock into shares of Common Stock, as follows.
Each share of Series B/C Convertible Preferred Stock shall be convertible into the number of fully paid and non-assessable shares
of Common Stock which results from dividing the applicable Conversion Price (as hereinafter defined) in effect at the time of conversion
into the applicable Conversion Value (as hereinafter defined). With respect to the Series B Convertible Preferred Stock and the
Series B-1 Convertible Preferred Stock, the “
Conversion Price
” shall initially be $0.24 and the “
Conversion
Value
” shall initially be $2.40, which is the Original Issuance Price for the Series B Convertible Preferred Stock and
the Series B-1 Convertible Preferred Stock. With respect to the Series C Convertible Preferred Stock, the “
Conversion
Price
” shall initially be $0.076 and the “
Conversion Value
” shall initially be $0.76, which is the
Original Issuance Price for the Series C Convertible Preferred Stock. The Conversion Prices shall be subject to adjustment from
time to time as provided below. The number of shares of Common Stock into which each share of the Series B/C Convertible Preferred
Stock is convertible is hereinafter referred to as the “
Conversion Rate
.” The Conversion Rate is determined
by dividing the Conversion Price, as adjusted from time to time, by the Conversion Value. The initial Conversion Rate is ten (10)
for one (1), meaning each holder will receive 10 shares of Common Stock for each share of Series B/C Convertible Preferred Stock
at the time of conversion.
(b)
Mechanics
of Conversion
. Before any holder of Series B/C Convertible Preferred Stock shall be entitled to convert the same into full
shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series B/C Convertible Preferred Stock that may be designated by the Corporation,
and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein
the name of such holder or the name or names of the nominees of such holder in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. No fractional shares of Common Stock shall be issued upon conversion of any shares of
Series B/C Convertible Preferred Stock. The Corporation shall, as soon as practicable (but, in any event, not later than three
(3) business days thereafter), issue and deliver at such office to such holder of Series B/C Convertible Preferred Stock, or to
such holder’s nominee or nominees, a certificate or certificates for the number of full shares of Common Stock to which such
holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share as hereinafter provided. Such conversion
shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate for
the shares of Series B/C Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled,
the Corporation shall pay to such holder cash in an amount equal to such fraction multiplied by the Market Price as of the date
of conversion. The term “
Market Price
” shall mean, on any date of determination, (i) the closing price of a
share of Common Stock on such day as reported on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market (each, a “
Trading Market
”) (whichever is then the principal Trading Market on which the Common Stock
is listed or traded), or (ii) if the Common Stock is not listed on a Trading Market, the closing bid price for a share of Common
Stock on such day in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board, the closing bid price for a share of Common Stock on such day in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices) or (iv) if a bid price for a share of Common Stock in the over-the-counter market is not then reported by
the National Quotation Bureau Incorporated (or any similar organization or agency succeeding to its functions of reporting prices),
the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation.
(c)
Automatic
Conversion
.
(i) Each
share of Series B/C Convertible Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion
Ratio as then in effect:
(A) on
the next Trading Day immediately following the date on which the Market Price for the Common Stock shall have exceeded three (3)
times the Conversion Price of the Series B Convertible Preferred Stock then effect for a period of sixty (60) consecutive Trading
Days, or
(B) at
the written election of the holders of not less than sixty-six and two-thirds percent (66-⅔%) of the then outstanding shares
of Series B/C Convertible Preferred Stock (considered as a single class) to require such automatic conversion.
For purposes of this
Section 6(c)(i)
,
the term “
Trading Day
” shall mean (i) a day on which the Common Stock is traded on a Trading Market, or (ii)
if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded in the over-the-counter market,
as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not then listed or quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or
any similar organization or agency succeeding to its functions of reporting prices).
(ii) Upon
the occurrence of an event specified in
Section 6(c)(i)
hereof, all shares of Series B/C Convertible Preferred Stock shall
be converted automatically without any further action by any holder of such shares and whether or not the certificate or certificates
representing such shares are surrendered to the Corporation or the transfer agent for the Series B/C Convertible Preferred Stock
and the holder of such shares shall be treated as the owner of the shares of Common Stock into which such shares have been converted;
provided
,
however
, that the Corporation shall not be obligated to issue a certificate or certificates evidencing
the shares of Common Stock issuable upon such conversion unless the certificate or certificates evidencing such shares of Series
B/C Convertible Preferred Stock being converted are either delivered to the Corporation or the transfer agent of the Series B Convertible
Preferred Stock, or the holder notifies the Corporation or such transfer agent that such certificate or certificates have been
lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith and, if the Corporation so elects, provides an appropriate indemnity bond. Upon the automatic
conversion of Series B/C Convertible Preferred Stock, each holder of Series B/C Convertible Preferred Stock shall surrender the
certificate or certificates representing such holder’s shares of Series B/C Convertible Preferred Stock at the office of
the Corporation or of the transfer agent for the Series B/C Convertible Preferred Stock. Thereupon, there shall be issued and delivered
to such holder, promptly (and, in any event, not later than three (3) business days thereafter) at such office and in such holder’s
name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series B/C Convertible Preferred Stock surrendered were convertible on the date on which such automatic
conversion occurred. No fractional shares of Common Stock shall be issued upon the automatic conversion of Series B/C Convertible
Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the Corporation
shall pay to such holder cash in an amount equal to such fraction multiplied by the Market Price as of the date of conversion.
(d)
Anti-dilution
Provisions
. Each Conversion Price is subject to adjustment from time to time as follows:
(i)
Adjustment
for Stock Splits and Combinations
. If the Corporation at any time or from time to time effects a subdivision or combination
of the outstanding Common Stock, the Conversion Price then in effect immediately before the subdivision shall be inversely proportionately
increased or decreased. Any adjustment under this
Section 6(d)(i)
shall become effective as of the date and time the subdivision
or combination becomes effective. For example, if the Corporation affects a 2-for-1 stock dividend, whereby holders of Common Stock
receive one additional share of Common Stock for each share of Common Stock outstanding, then the Conversion Price will be reduced
in half.
(ii)
Adjustment
for Certain Dividends and Distributions
. In the event the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event such a record date is fixed, as of the close of business on such record date, by multiplying the Conversion
Price then in effect by a fraction: (A) the numerator of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such record date; and (B) the denominator of which shall
be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close
of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution;
provided
,
however
, that if such record date is fixed and such dividend is not fully paid, or if such distribution
is not fully made on the date fixed therefor, the Conversion Price shall be recomputed to reflect that such dividend was not fully
paid or that such distribution was not fully made as of the close of business on such record date and thereafter the Conversion
Price shall be adjusted pursuant to this Section as of the time of actual payment of such dividends or distributions.
(iii)
Adjustments
for Other Dividends and Distributions
. Subject to
Section 8
below, in the event the Corporation at any time or from
time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision
shall be made so that the holder shall receive upon exercise of the conversion rights, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation which the holder would have received had the shares of
the Series B/C Convertible Preferred Stock been converted into Common Stock on the date of such event and had it thereafter, during
the period from the date of such event to and including the date of conversion, retained such securities receivable by it as aforesaid
during such period, subject to all other adjustments called for during such period under this
Section 6(d)
with respect
to the rights of the holder.
(iv)
Adjustment
for Reclassification, Exchange and Substitution
. If the Common Stock issuable upon the conversion of shares of the Series B/C
Convertible Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this
Section 6(d)
), then and in such event each holder
shall have the right thereafter, upon conversion, to receive the kind and amount of stock and other securities and property receivable
upon such reorganization or other change in an amount equal to the amount that the holder would have been entitled to have had
it immediately prior to such reorganization, reclassification or change converted such shares, but only to the extent such shares
are actually converted, all subject to further adjustment as provided herein.
(v)
Reorganization,
Mergers, Consolidations or Sales of Assets
. If at any time or from time to time there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of the Common Stock provided for elsewhere
in this
Section 6(d)
) or merger or consolidation of the Corporation with or into another Corporation, or the sale of all
or substantially all of the Corporation’s properties and assets to any other person, then, as a part of such reorganization,
merger, consolidation or sale, provision shall be made so that the holder shall thereafter be entitled to receive upon conversion
of shares of the Series B/C Convertible Preferred Stock (and only to the extent such shares are converted), the number of shares
of stock or other securities or property of the Corporation, or of the successor Corporation resulting from such merger or consolidation
or sale, to which a holder of Common Stock, or other securities, deliverable upon the conversion of such shares would otherwise
have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustments shall
be made in the application of the provisions of this
Section 6(d)
(including adjustments of the Conversion Price then in
effect and the number of shares of Common Stock purchasable upon conversion of such shares) which shall be applicable after such
events;
provided
,
however
, that any such adjustments shall be made so as to insure that the provisions of this
Section
6(d)
applicable after such events shall be as equivalent as may be practicable to the provisions of this
Section 6(d)
applicable before such events.
(e)
Certificate
of Adjustment
. In any case of an adjustment or readjustment of the Conversion Price or the number of shares of Common Stock,
or other securities issuable upon conversion, the Corporation shall promptly compute such adjustment or readjustment in accordance
with the provisions hereof and its chief financial officer shall prepare a certificate showing such adjustment or readjustment,
and shall mail such certificate, by express mail or recognized express delivery (such as DHL), postage prepaid, to the holder at
the holder’s address as shown in the Corporation’s books. The certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or readjustment is based including a statement of: (A) the Conversion Price
at the time in effect, (B) the type and amount, if any, of other property which at the time would be received upon conversion of
the shares of the Series B/C Convertible Preferred Stock, and (C) the adjusted Conversion Rate.
(f)
Fractional
Shares
. No fractional shares of Common Stock shall be issued upon conversion of the Series B/C Convertible Preferred Stock,
and any portion of the Series B/C Convertible Preferred Stock surrendered for conversion which would otherwise result in a fractional
share of Common Stock shall be redeemed for cash in an amount equal to the product of such fraction multiplied by the fair market
value of the Common Stock on the last business day prior to conversion as determined by the Board.
(g)
Conversion
Price Adjustments for Certain Dilutive Issuances, Splits and Combinations
.
(i) The
Conversion Price of the Series B/C Convertible Preferred Stock shall be subject to adjustment from time to time as follows:
(A) If
the Corporation shall issue, at any time on or after January 18, 2013 (the “
Measurement Date
”), any Additional
Stock (as defined below) (1) without consideration, or (2) for a consideration per share less than the lower of (i) $0.10 or (ii)
the Conversion Price for such series in effect immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall forthwith (except as otherwise provided in this
clause
(i)
) be adjusted to a price determined by multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issuance (not including shares excluded from the definition
of Additional Stock by
Section 6(g)(ii)(B)
)
plus the number of shares of Common Stock that the aggregate consideration
received by the Corporation for such issuance would purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance (not including shares excluded from the definition
of Additional Stock by
Section 6(g)(ii)(B)
) plus the number of shares of such Additional Stock. The number of shares issuable
upon such conversion shall be equal to the total consideration received by the Corporation for the outstanding shares of Series
B/C Convertible Preferred Stock divided by the adjusted Conversion Price.
However, the foregoing
calculation shall not take into account shares deemed issued pursuant to
Section 6(g)(i)(E)
below on account of options,
rights or convertible or exchangeable securities (or the actual or deemed consideration therefor), except to the extent (i) such
options, rights or convertible or exchangeable securities have been exercised, converted or exchanged or (ii) the consideration
to be paid upon such exercise, conversion or exchange per share of underlying Common Stock is less than or equal to the per share
consideration for the Additional Stock which has given rise to the Conversion Price adjustment being calculated.
(B) No
adjustment of the Conversion Price for the Series B/C Convertible Preferred Stock shall be made in an amount less than one cent
per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward
and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving
rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving
rise to the adjustment being carried forward. Except to the limited extent provided for in
Sections 6(g)(i)(E)(3)
and
6(g)(i)(E)(4)
,
no adjustment of such Conversion Price pursuant to this
Section 6(g)(i)
shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In
the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by this Corporation for any underwriting
or otherwise in connection with the issuance and sale thereof.
(D) In
the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of Directors irrespective of any accounting treatment.
(E) In
the case of the issuance (whether before, on or after the applicable Measurement Date) of options to purchase or rights to subscribe
for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights
to subscribe for such convertible or exchangeable securities, the following provisions shall apply for all purposes of this
Section 6(g)(i)
and
Section 6(g)(ii)
:
(1) The
aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe
for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in
Section 6(g)(i)(C)
and
Section 6(g)(i)(D)
), if any, received
by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights
for the Common Stock covered thereby.
(2) The
aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options
or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be determined in the manner provided in
Sections 6(g)(i)(C)
and
6(g)(i)(D)
).
(3) In
the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this Corporation
upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including,
but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Prices of the Series B/C Convertible
Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed
to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.
(4) Upon
the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the Conversion Prices of the Series B/C Convertible Preferred
Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to
such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange
of such securities or upon the exercise of the options or rights related to such securities.
(5) The
number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to
Sections 6(g)(i)(E)(1)
and
6(g)(i)(E)(2)
shall be appropriately adjusted to reflect any change, termination or expiration of the type described
in either
Section 6(g)(i)(E)(3)
or
Section 6(g)(i)(E)(4)
.
(ii)
“Additional
Stock”
shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to
Section 6(g)(i)(E)
)
by this Corporation after the Measurement Date other than:
(A) shares
of Common Stock issued pursuant to a transaction described in
Section 6(g)(iii)
below;
(B) shares
of Common Stock issuable or issued to employees, directors or consultants (if in transactions with primarily non-financing purposes)
of this Corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors
of this Corporation;
(C) shares
of Common Stock issued or issuable in connection with acquisition transactions;
(D) shares
of Common Stock issued or issuable to financial institutions or lessors in connection with commercial credit arrangements, equipment
financing
or similar transactions;
(E) shares
of Common Stock issued upon conversion of the Series A Preferred Stock or the Series B/C Convertible Preferred Stock;
(F) the
issuance of Common Stock pursuant to currently outstanding options, warrants, notes, or other rights to acquire Common Stock of
the Company;
(G) stock
splits, stock dividends or like transactions; and
(H) shares
of Common Stock issued or deemed issued upon the issuance or exercise of options, warrants or other rights to acquire shares of
Common Stock or other securities convertible into or exchangeable for shares of Common Stock or upon the issuance or conversion
of securities convertible into shares of Common Stock in a transaction or series of related transactions approved by the holders
of a majority of the then-outstanding shares of Series B/C Convertible Preferred Stock.
(iii) In
the event the Corporation should at any time or from time to time after the Measurement Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred
to as “
Common Stock Equivalents”
) without payment of any consideration by such holder for the additional shares
of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Prices of the Series B/C Convertible Preferred Stock shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate
of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in
Section
6(g)(i)(E)
.
(iv) If
the number of shares of Common Stock outstanding at any time after the Measurement Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series B/C Convertible
Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share
of such series shall be decreased in proportion to such decrease in outstanding shares.
SECTION 7
Reserved
Shares
. So long as any shares of the Series B/C Convertible Preferred Stock remain outstanding, the Corporation agrees to keep
reserved for issuance in connection with the conversion of the Series B/C Convertible Preferred Stock at all times a number of
authorized but unissued shares of Common Stock at least equal to the number of shares of Common Stock issuable upon conversion
at the Conversion Price of all of the Series B/C Convertible Preferred Stock outstanding at such time. The Corporation shall take
all action necessary so that Common Stock so issued will be validly issued, fully paid and non-assessable.
SECTION 8
Protective
Provisions
. In addition to such other consent requirements as may be provided by applicable law, the consent of the holders
of not less than sixty-six and two-thirds percent (66-⅔%) of the then-outstanding shares Series B/C Convertible Preferred
Stock (acting together as a single class) shall be required to (i) amend, repeal or add any provisions to the Certificate
of Incorporation or Bylaws of the Corporation which would adversely alter or change the rights, preferences or privileges of the
Series B/C Convertible Preferred Stock; (ii) increase or decrease the number of authorized shares of Series B/C Convertible Preferred
Stock, except (a) as permitted by
Section 10
below, provided, however, that the number of authorized shares of Series C
Convertible Preferred Stock may be increased without the consent of the holders of the Series B/C Convertible Preferred Stock on
or before April 15, 2013; (iii) create any class or series of shares having preference or priority equal or senior to any outstanding
shares of Series B/C Convertible Preferred Stock as to dividends or assets, or authorize or issue shares of stock of any class
or series or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of the Corporation having preference or priority equal or senior to any outstanding shares of Series
B/C Convertible Preferred Stock as to dividends or assets; (iv) pay or declare dividends on any Common Stock (except dividends
payable solely in shares of Common Stock); (v) redeem any shares of Common Stock (other than repurchases from employees, consultants,
officers or directors approved by a disinterested majority of the Board of Directors of the Corporation); (vi) effect any recapitalization
of the Corporation which would adversely alter or change the rights, preferences or privileges of the Series B/C Convertible Preferred
Stock; (vii) effect any merger or consolidation of the Corporation with one or more other corporations in which the shareholders
of the Corporation immediately after such merger or consolidation hold stock representing less than a majority of the voting power
of the outstanding stock of the surviving corporation; (viii) effect the sale of all or substantially all the Corporation’s
assets; (ix) effect the liquidation or dissolution of the Corporation; or (ix) increase or decrease the size of the Board
of Directors, which will be set at seven (7), including four (4) Series B/C Directors and three (3) Common Stock Directors. In
the event of a proposed action specified in items (i), (ii), (iii), or (vi) above which would affect the holders of either the
Series B Convertible Preferred Stock, the Series B-1 Convertible Preferred Stock or the Series C Convertible Preferred Stock but
not the other holders of the Series B/A Convertible Preferred Stock, the consent of the holders of not less than sixty-six and
two-thirds percent (66-⅔%) of the then-outstanding shares of the affected series and not of all then-outstanding shares of
Series B/C Convertible Preferred Stock shall be required.
Redemption of Series C Convertible
Preferred Stock
.
(a)
Redemption
.
Shares of Series C Convertible Preferred Stock shall be redeemed by the Corporation out of funds lawfully available therefor at
a price per share equal to the Original Issuance Price for the Series C Convertible Preferred Stock, plus all declared but unpaid
dividends thereon (the “
Redemption Price
”), in three annual installments commencing sixty (60) days after receipt
by the Corporation at any time on or after December 31, 2017, from the holders of at least sixty-six and two-thirds percent (66-⅔%)
of the then outstanding shares of Series C Convertible Preferred Stock, of written notice requesting redemption of all shares of
Series C Convertible Preferred Stock (the date of each such installment being referred to as a “
Redemption Date
”).
On each Redemption Date, the Corporation shall redeem, on a pro rata basis in accordance with the number of shares of Series C
Convertible Preferred Stock owned by each holder, that number of outstanding shares of Series C Convertible Preferred Stock determined
by dividing (i) the total number of shares of Series C Convertible Preferred Stock outstanding immediately prior to such Redemption
Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies). If the
Corporation does not have sufficient funds legally available to redeem on any Redemption Date all shares of Series C Convertible
Preferred Stock and of any other class or series of stock to be redeemed on such Redemption Date, the Corporation shall redeem
a pro rata portion of each holder’s redeemable shares of such stock out of funds legally available therefor, based on the
respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were
sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after
the Corporation has funds legally available therefor.
(b)
Redemption
Notice
. Written notice of the mandatory redemption (the “
Redemption Notic
e”) shall be mailed, postage prepaid,
to each holder of record of Series C Convertible Preferred Stock, at its post office address last shown on the records of the Corporation,
or given by electronic communication in compliance with the provisions of the General Corporation Law, not less than 40 days prior
to each Redemption Date. Each Redemption Notice shall state:
(i) the
number of shares of Series C Convertible Preferred Stock held by the holder that the Corporation shall redeem on the Redemption
Date specified in the Redemption Notice;
(ii) the
Redemption Date and the Redemption Price;
(iii) the
date upon which the holder’s right to convert such shares terminates in accordance with Section 6(a); and
(iv) that
the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates
representing the shares of Series C Convertible Preferred Stock to be redeemed.
(c)
Surrender
of Certificates; Payment
. On or before the applicable Redemption Date, each holder of shares of Series C Convertible Preferred
Stock to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as
provided in Section 6(a) hereof, shall surrender the certificate or certificates representing such shares to the Corporation, in
the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable
to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate
shall be canceled and retired. In the event less than all of the shares of Series C Convertible Preferred Stock represented by
a certificate are redeemed, a new certificate representing the unredeemed shares of Series A Preferred Stock shall promptly be
issued to such holder.
(d)
Rights
Subsequent to Redemption
. If the Redemption Notice shall have been duly given, and if on the applicable Redemption Date the
Redemption Price payable upon redemption of the shares of Series C Convertible Preferred Stock to be redeemed on such Redemption
Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor, then notwithstanding
that the certificates evidencing any of the shares of Series C Convertible Preferred Stock so called for redemption shall not have
been surrendered, dividends with respect to such shares of Preferred Stock shall cease to accrue after such Redemption Date and
all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders
to receive the Redemption Price without interest upon surrender of their certificate or certificates therefor.
(e)
Redeemed
or Otherwise Acquired Shares
. Any shares of Series C Convertible Preferred Stock which are redeemed or otherwise acquired by
the Corporation shall be automatically and immediately canceled and shall not be reissued, sold or transferred. Neither the Corporation
nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series C Convertible Preferred Stock
following redemption.
SECTION 9
Reclassification
of Unissued Series B/C Convertible Preferred Stock
. Any authorized but unissued shares of Series B/C Convertible Preferred
Stock may be reclassified at any time by the Board of Directors of the Corporation as shares of undesignated Preferred Stock.
SECTION 10
Waiver
.
Any of the rights of the holders of Series B/C Convertible Preferred Stock set forth herein may be waived by the affirmative consent
or vote of the holders of at least sixty-six and two-thirds percent (66-⅔%) of the then-outstanding shares of Series B/C
Convertible Preferred Stock (acting together as a single class).
***
Annex B
ThermoEnergy
Corporation
2008 Incentive
Stock Plan, as amended
Table
of Contents
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Page
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Article 1.
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Establishment, Objectives, and Duration
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1
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Article 2.
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Definitions
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1
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Article 3.
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Administration
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4
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Article 4.
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Shares Subject to the Plan and Maximum Awards
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4
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Article 5.
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Eligibility and Participation
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5
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Article 6.
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Stock Options
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6
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Article 7.
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Stock Appreciation Rights
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7
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Article 8.
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Restricted Stock
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8
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Article 9.
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Performance Units and Performance Shares
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9
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Article 10.
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Performance Measures
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10
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Article 11.
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Rights of Participants
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10
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Article 12.
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Termination of Employment/Directorship
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11
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Article 13.
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Change in Control
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11
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Article 14.
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Amendment, Modification, and Termination
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12
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Article 15.
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Withholding
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12
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Article 16.
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Successors
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12
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Article 17.
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General Provisions
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13
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Article 1. Establishment, Objectives,
and Duration
1.1 Establishment
of the Plan
. ThermoEnergy Corporation, a Delaware
corporation (the “Company”), hereby adopts the “ThermoEnergy
Corporation 2008 Incentive Stock Plan” (hereinafter referred to as the “Plan”), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares and Performance Units.
1.2 Objectives
of the Plan
. The objectives of the Plan are to optimize the profitability and growth of the Company through incentives that
are consistent with the Company’s goals and that link the personal interests of Participants to those of the Company’s
stockholders, to provide Participants with an incentive for excellence in individual performance, and to promote teamwork among
Participants.
The Plan is further
intended to provide flexibility to the Company and its Subsidiaries in their ability to motivate, attract, and retain the
services of Participants who make significant contributions to the Company’s success and to allow Participants to share in
that success.
1.3 Duration
of the Plan
. The Plan shall remain in effect, subject to the right of the Committee to amend or terminate the Plan at any
time pursuant to Article 14 hereof, until all Shares subject to it shall have been purchased or acquired according to the
Plan’s provisions. However, in no event may an Award of an Incentive Stock Option be granted under the Plan on or after
the tenth (10
th
) anniversary of the Effective Date.
Article 2. Definitions
Whenever used in this
Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1 “Award”
means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or Performance Units.
2.2 “Award
Agreement”
means a written or electronic agreement entered into by the Company and a Participant setting forth the terms
and provisions applicable to an Award granted under this Plan.
2.3 “Beneficial
Owner”
or
“Beneficial Ownership”
shall have the meaning ascribed to such term in Rule 13d-3 of the
General Rules and Regulations under the Exchange Act.
2.4 “Board”
or
“Board of Directors”
means the Board of Directors of the Company.
2.5 “Change
in Control”
shall be deemed to have occurred under any one or more of the following conditions:
i. if,
within one year of any merger, consolidation, sale of a substantial part of the Company’s assets, or contested election,
or any combination of the foregoing transactions (a “Transaction”), the persons who were directors of the Company immediately
before the Transaction shall cease to constitute a majority of the Board of Directors (x) of the Company or (y) of any successor
to the Company, or (z) if the Company becomes a subsidiary of or is merged into or consolidated with another corporation, of such
corporation (the Company shall be deemed a subsidiary of such other corporation if such other corporation owns or controls, directly
or indirectly, a majority of the combined voting power of the outstanding shares of the capital stock of the Company entitled to
vote generally in the election of directors (“Voting Stock”));
ii. if,
as a result of a Transaction, the Company does not survive as an entity, or its shares are changed into the shares of another corporation
unless the stockholders of the Company immediately prior to the Transaction own a majority of the outstanding shares of such other
corporation immediately following the Transaction;
iii. if
any Person becomes, after the date this Plan is adopted, a beneficial owner directly or indirectly of securities of the Company
representing 50% or more of the combined voting power of the Company’s Voting Stock;
iv. the
dissolution or liquidation of the Company is approved by its stockholders; or
v. if
the members of the Board as of the date this Plan is adopted (the “Incumbent Board”) cease to represent at least two-thirds
of the Board; provided, that any person becoming a director subsequent to the date hereof whose election, or nomination for election
by the Company’s stockholders, was approved by at least two-thirds of the members comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement in which such person is named as a nominee for director without objection
to such nomination) shall be, for purposes of this paragraph (v), treated as though such person were a member of the Incumbent
Board.
2.6 “Code”
means the Internal Revenue Code of 1986, as amended from time to time.
2.7 “Committee”
means the Compensation Committee of the Company’s Board of Directors, or such other committee appointed from time to time
by the Board of Directors to administer the Plan. The full Board of Directors, in its discretion, may act as the Committee under
the Plan, whether or not a Committee has been appointed, and shall do so with respect to grants of Awards to non-employee Directors.
The Committee may delegate to one or more members of the Committee or officers of the Company, individually or acting as a committee,
any portion of its authority, except as otherwise expressly provided in the Plan. In the event of a delegation to a member of the
Committee, officer or a committee thereof, the term "Committee" as used herein shall include the member of the Committee,
officer or committee with respect to the delegated authority. Notwithstanding any such delegation of authority, the Committee comprised
of members of the Board of Directors and appointed by the Board of Directors shall retain overall responsibility for the operation
of the Plan.
2.8 “Company”
means ThermoEnergy Corporation, a Delaware corporation, together will all subsidiaries thereof, and any successor thereto as provided
in Article 16 hereof.
2.9 “Covered
Employee”
means a Participant who, as of the date of vesting and/or payout of an Award, or the date the Company or any
of its Subsidiaries is entitled to a tax deduction as a result of the Award, as applicable, is one of the group of “covered
employees,” as defined in the regulations promulgated under Code Section 162(m), or any successor statute.
2.10 “Director”
means any individual who is a member of the Board of Directors of the Company; provided, however, that any Director who is employed
by the Company shall be treated as an Employee under the Plan.
2.11 “Disability”
shall mean a condition whereby the Participant is unable to engage in any substantial gainful activity by reason of any medically
determinable physical impairment which can be expected to result in death or which is or can be expected to last for a continuous
period of not less than twelve months, all as verified by a physician acceptable to, or selected by, the Company.
2.12 “Effective
Date”
shall have the meaning ascribed to such term in Section 1.1 hereof.
2.13 “Employee”
means any employee of the Company or its Subsidiaries.
2.14 “Exchange
Act”
means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.15 “Fair
Market Value”
as of any date and in respect of any Share means the then most recent closing price of a Share reported
by the exchange or other trading system on which Shares are primarily traded or, if deemed appropriate by the Committee for any
reason, the fair market value of Shares shall be as determined by the Committee in such other manner as it may deem appropriate.
In no event shall the fair market value of any Share be less than its par value.
2.16 “Incentive
Stock Option”
or
“ISO”
means an option to purchase Shares granted under Article 6 hereof and that
is designated as an Incentive Stock Option and that is intended to meet the requirements of Code Section 422.
2.17 “Insider”
shall mean an individual who is, on the relevant date, an executive officer, director or ten percent (10%) beneficial owner
of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as
defined under Section 16 of the Exchange Act.
2.18 “Key
Employee
” shall mean, with respect to the Company, an individual
as defined in Code Section
416(i) (without regard to paragraph (5) thereof).
2.19 “Non-Employee
Director
” shall mean any member of the Board of who is neither (i) an employee of the Company nor (ii) a member of the
immediate family of an employee of the Company
.
2.20 “Nonqualified
Stock Option”
or
“NQSO”
means an option to purchase Shares granted under Article 6 hereof
that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements.
2.21 “Option”
means an Incentive Stock Option or a Nonqualified Stock Option.
2.22 “Option
Price”
means the price at which a Share may be purchased by a Participant pursuant to an Option.
2.23 “Participant”
means an Employee, Director or consultant who has been selected to receive an Award or who has an outstanding Award granted under
the Plan.
2.24 “Performance-Based
Exception”
means the performance-based exception from the tax deductibility limitations of Code Section 162(m).
2.25 “Performance
Share”
means an Award granted to a Participant, as described in Article 9 hereof.
2.26 “Performance
Unit”
means an Award granted to a Participant, as described in Article 9 hereof.
2.27 “Period
of Restriction”
means the period during which the transfer of Shares of Restricted Stock is limited in some way (based
on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee,
at its discretion), and the Shares are subject to a substantial risk of forfeiture, pursuant to the Restricted Stock Award Agreement,
as provided in Article 8 hereof.
2.28 “Person”
shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof and the rules promulgated thereunder, including a “group” as defined in Section 13(d) thereof and the
rules promulgated.
2.29 “Restricted
Stock”
means an Award granted to a Participant pursuant to Article 8 hereof.
2.30 “Shares”
means shares of the Company’s common stock, par value $0.001 per share.
2.31 “Stock
Appreciation Right”
or
“SAR”
means an Award, granted alone or in connection with a related Option,
designated as an SAR, pursuant to the terms of Article 7 hereof.
2.32 “Subsidiary”
means any corporation, partnership, joint venture, or other entity in which the Company, directly or indirectly, has a majority
voting interest. With respect to Incentive Stock Options, “Subsidiary” means any entity, domestic or foreign, whether
or not such entity now exists or is hereafter organized or acquired by the Company or by a Subsidiary that is a “subsidiary
corporation” within the meaning of Code Section 424(d) and the rules thereunder.
2.33 “Ten
Percent Shareholder”
means an employee who at the time an ISO is granted owns Shares possessing more than ten percent
of the total combined voting power of all classes of Shares of the Company or any Subsidiary, within the meaning of Code Section
422.
Article 3. Administration
3.1 General
.
Subject to the terms and conditions of the Plan, the Plan shall be administered by the Committee. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. The Committee shall have
the authority to delegate administrative duties to officers of the Company. For purposes of making Awards intended to qualify for
the Performance Based Exception under Code Section 162(m), to the extent required under such Code Section, the Committee shall
be comprised solely of two or more individuals who are “outside directors”, as that term is defined in Code Section
162(m) and the regulations thereunder.
3.2 Authority
of the Committee
. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to
the provisions hereof, the Committee shall have full power to select Employees, Directors and consultants who shall be offered
the opportunity to participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards
in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the Plan’s administration; and amend the terms and conditions of any
outstanding Award as provided in the Plan. Further, the Committee shall make all other determinations that it deems necessary or
advisable for the administration of the Plan. As permitted by law and the terms of the Plan, the Committee may delegate its authority
herein. No member of the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or
any Award granted hereunder.
3.3 Decisions
Binding
. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders
and resolutions of the Committee shall be final, conclusive, and binding on all persons, including the Company, its stockholders,
Directors, Employees, Participants, and their estates and beneficiaries, unless changed by the Board.
Article 4. Shares Subject to the Plan
and Maximum Awards
4.1 Number
of Shares Available for Grants
. Subject to adjustment as provided in Section 4.2 hereof, the number of Shares hereby reserved
for issuance to Participants under the Plan shall be Forty Million Shares (40,000,000). Any Shares covered by an Award (or portion
of an Award) granted under the Plan which is forfeited or canceled or expires shall be deemed not to have been delivered for purposes
of determining the maximum number of Shares available for delivery under the Plan. Shares may be authorized, unissued shares or
Treasury shares. The Committee shall determine the appropriate methodology for calculating the number of Shares issued pursuant
to the Plan.
The following limitations
shall apply to the grant of any Award to a Participant in a fiscal year:
(a)
Stock
Options
: The maximum aggregate number of Shares that may be granted in the form of Stock Options pursuant to Awards granted
in any one fiscal year to any one Participant shall not be limited.
(b)
SARs
:
The maximum aggregate number of Shares that may be granted in the form of Stock Appreciation Rights pursuant to Awards granted
in any one fiscal year to any one Participant shall be 500,000.
(c)
Restricted
Stock
: The maximum aggregate of Shares that may be granted with respect to Awards of Restricted Stock granted in any one fiscal
year to any one Participant shall be 250,000.
(d)
Performance
Shares/Performance Units Awards
: The maximum aggregate grant with respect to Awards of Performance Shares made in any one fiscal
year to any one Participant shall be equal to the Fair Market Value of
250,000
Shares (measured on the date of grant);
the maximum aggregate amount awarded with respect to Performance Units to any one Participant in any one fiscal year may not exceed
$250,000.
4.2 Adjustments
in Authorized Shares
. Upon a change in corporate capitalization, such as a stock split, stock dividend or a corporate transaction,
such as any merger, consolidation, combination, exchange of shares or the like, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368) or any partial or complete liquidation of the Company, (i) the number and class of Shares reserved
for issuance to Participants under the Plan, (ii) the number and class of and/or price of Shares subject to outstanding Awards
granted under the Plan, and (iii) the Award limits set forth in Section 4.1, shall be proportionately adjusted in such manner as
may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement
of rights.
4.3 Adjustment
of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events
. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 4.2 hereof) affecting the Company or the financial statements of the Company or of changes in applicable
laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan; provided that
(i) no such adjustment shall be authorized if, and to the extent that, such adjustment would result in an accounting charge for
any affected outstanding Awards in accordance with Financial Accounting Standard No. 123R (Accounting for Share Based Compensation)
or (ii) unless the Committee determines otherwise at the time such adjustment is considered, no such adjustment shall be authorized
to the extent inconsistent with the Plan’s or any Award’s meeting the requirements of Section 162(m) of the Code, as
from time to time amended.
Article 5. Eligibility and Participation
5.1 Eligibility
.
Persons eligible to participate in this Plan include all Employees, Directors and consultants of the Company and its Subsidiaries.
5.2 Actual
Participation
. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees,
Directors and consultants, those to whom Awards shall be granted and shall determine the nature and amount of each Award, provided
that Incentive Stock Options shall only be awarded to Employees of the Company or its Subsidiaries.
5.3 Stock
Options for Non-Employee Directors
(a)
Subject
to the provisions of Section 5.3(d), each person who, subsequent to the Effective Date, is for the first time elected or appointed
to the Board and who qualifies, at such time, as a Non-Employee Director, shall automatically be granted a Nonqualified Stock Option
to purchase 100,000 Shares, effective as of the date of his or her election or appointment to the Board, on the terms and conditions
set forth in the Plan, at an Option Price equal to the Fair Market Value of a Share on the date of grant or, if the date of the
grant is not a business day on which the Fair Market Value can be determined, on the last business day preceding the date of grant
on which the Fair Market Value can be determined.
(b)
Subject
to the provisions of Section 5.3(d), each Non-Employee Director who is re-elected as a director at an annual meeting of stockholders
shall be granted an additional Nonqualified Stock Option to purchase 100,000 Shares, on the terms and conditions set forth in the
Plan, at an option price per share equal to the Fair Market Value of a Share on the date of such annual meeting.
(c)
All
Options granted to Non-Employee Directors pursuant to this Section 5.3 shall vest and become fully exercisable on the date of the
first annual meeting of stockholders occurring after the end of the fiscal year of the Company during which such Option was granted.
All Options granted to Non-Employee Directors pursuant to this Section 5.3 shall expire on the tenth (10
th
) anniversary
of the date of grant, subject to earlier termination as provided in Article 12.
Article 6. Stock Options
6.1 Grant
of Options
. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon
such terms, and at any time and from time to time as shall be determined by the Committee.
6.2 Award
Agreement
. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of
the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine which
are not inconsistent with the terms of the Plan.
6.3 Option
Price
. The Option Price for each grant of an Option under this Plan shall be as determined by the Committee; provided, however,
the per-share exercise price shall not be less than the Fair Market Value of the Shares on the date of grant.
The Option Price for
each Option shall equal the Fair Market Value of the Shares at the time such option is granted. If an ISO is granted to a Ten Percent
Shareholder the Option Price shall be at least 110 percent (110%) of the Fair Market Value of the Shares subject to the ISO.
6.4 Duration
of Options
. Except as otherwise provided in this Plan, each Option granted to a Participant shall expire at such time as the
Committee shall determine at the time of grant, provided that an ISO must expire no later than the tenth (10
th
) anniversary
of the date the ISO was granted. However, in the case of an ISO granted to a Ten Percent Shareholder, the ISO by its terms shall
not be exercisable after the expiration of five (5) years from the date such ISO is granted.
6.5 Exercise
of Options
. Options shall be exercisable at such times and be subject to such restrictions and conditions as the Committee
shall in each instance approve, which need not be the same for each grant or for each Participant.
6.6 Payment
.
Options shall be exercised by the delivery of a written, electronic or telephonic notice of exercise to the Company or its designated
agent, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment of the
Option Price for the Shares.
Upon the exercise
of any Option, the Option Price for the Shares being purchased pursuant to the Option shall be payable to the Company in full either:
(a) in cash or its equivalent; or
(b) subject to the Committee’s approval, by delivery of previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Shares
that are delivered must have been held by the Participant for at least six (6) months prior to their delivery to satisfy the Option
Price); or (c) by a combination of (a) and (b); or (d) by any other method approved by the Committee in its sole discretion.
Unless otherwise determined by the Committee, the delivery of previously acquired Shares may be done through attestation. No fractional
shares may be tendered or accepted in payment of the Option Price.
Unless otherwise determined
by the Committee, cashless exercises are permitted pursuant to Federal Reserve Board’s Regulation T, subject to applicable
securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan’s purpose
and applicable law.
Subject to any governing
rules or regulations, as soon as practicable after receipt of notification of exercise and full payment, the Company shall deliver
to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares
purchased pursuant to the Option(s).
Unless otherwise determined
by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars.
6.7 Restrictions
on Share Transferability
. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an
Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal
securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded,
or under any blue sky or state securities laws applicable to such Shares.
6.8 Nontransferability
of Options
.
(a)
Incentive
Stock Options
. No ISO granted under the Plan may be sold, transferred, pledged, assigned, encumbered or otherwise alienated
or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under
the Plan shall be exercisable during such Participant’s lifetime only by such Participant.
(b)
Nonqualified
Stock Options
. Except as otherwise provided in the applicable Award Agreement, no NQSO may be sold, transferred, pledged, assigned,
encumbered or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except
as otherwise provided in the applicable Award Agreement, all NQSOs granted to a Participant shall be exercisable during such Participant’s
lifetime only by such Participant.
6.9 Special
Limitation on Grants of Incentive Stock Options.
No ISO shall be granted to an Employee under the Plan or any other ISO plan
of the Company or its Subsidiaries to purchase Shares as to which the aggregate Fair Market Value (determined as of the date of
grant) of the Shares which first become exercisable by the Employee in any calendar year exceeds $100,000. To the extent an Option
initially designated as an ISO exceeds the value limit of this Section 6.9 or otherwise fails to satisfy the requirements
applicable to ISOs, it shall be deemed a NQSO and shall otherwise remain in full force and effect.
Article 7. Stock Appreciation Rights
7.1 Grant
of SARs
. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to
time as shall be determined by the Committee.
Subject to the terms
and conditions of the Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant
and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.
The grant price of
a SAR shall equal the Fair Market Value of a Share on the date of grant.
7.2 SAR
Agreement
. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR,
and such other provisions as the Committee shall determine.
7.3 Term
of SARs
. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion.
7.4 Exercise
of SARs
. SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them.
7.6 Payment
of SAR Amount
. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined
by multiplying:
(a) The
amount by which the Fair Market Value of a Share on the date of exercise exceeds the grant price of the SAR; by
(b) The
number of Shares with respect to which the SAR is exercised.
The payment upon SAR
exercise shall be in Shares. Any Shares delivered in payment shall be deemed to have a value equal to the Fair Market Value on
the date of exercise of the SAR.
7.7 Nontransferability
of SARs
. Except as otherwise provided in a Participant’s Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated, other than by will or by the laws of descent
and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, all SARs granted to a Participant
under the Plan shall be exercisable during such Participant’s lifetime only by such Participant.
Article 8. Restricted Stock
8.1 Grant
of Restricted Stock
. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine.
8.2 Restricted
Stock Agreement
. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine
which are not inconsistent with the terms of this Plan.
8.3 Transferability
.
Except as provided in the Award Agreement, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, encumbered, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established
by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement. All rights with respect
to the Restricted Stock granted to a Participant under the Plan shall be available during such Participant’s lifetime and
prior to the end of the Period of Restriction only to such Participant.
8.4 Other
Restrictions
. The Committee may impose such other conditions and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase
price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals, time-based restrictions
on vesting following the attainment of the performance goals, time-based restrictions, and/or restrictions under applicable federal
or state securities laws.
To the extent deemed
appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s
possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied.
Except as otherwise
provided in the Award Agreement, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become
freely transferable by the Participant after the last day of the applicable Period of Restriction.
8.5 Voting
Rights
. Unless the Committee determines otherwise at the time of grant, Participants holding Shares of Restricted Stock granted
hereunder shall have the right to exercise full voting rights with respect to those Shares during the Period of Restriction.
8.6 Dividends
and Other Distributions
. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder
(whether or not the Company holds the certificate(s) representing such Shares) shall, unless the Committee determines otherwise
at the time of grant, be credited with dividends paid with respect to the underlying Shares while they are so held. The Committee
may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Restricted Shares granted to a Covered Employee is designed to comply with the requirements
of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared
with respect to such Restricted Shares, such that the dividends and/or the Restricted Shares maintain eligibility for the Performance-Based
Exception.
Article 9. Performance Units and Performance
Shares
9.1 Grant
of Performance Units/Shares Awards
. Subject to the terms of the Plan, Performance Units and/or Performance Shares Awards
may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined
by the Committee.
9.2 Award
Agreement
. At the Committee’s discretion, each grant of Performance Units/Shares Awards may be evidenced by an Award
Agreement that shall specify the initial value, the duration of the Award, the performance measures, if any, applicable to the
Award, and such other provisions as the Committee shall determine which are not inconsistent with the terms of the Plan.
9.3 Value
of Performance Units/Shares Awards
. Each Performance Unit shall have an initial value that is established by the Committee
at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date
of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will
determine the number and/or value of Performance Units/Shares Awards that will be paid out to the Participant. For purposes of
this Article 9, the time period during which the performance goals must be met shall be called a “Performance Period.”
9.4 Earning
of Performance Units/Shares Awards
. Subject to the terms of this Plan, after the applicable Performance Period has ended,
the holder of Performance Units/Shares Awards shall be entitled to receive a payout based on the number and value of Performance
Units/Shares Awards earned by the Participant over the Performance Period, to be determined as a function of the extent to which
the corresponding performance goals have been achieved.
9.5 Form
and Timing of Payment of Performance Units/Shares Awards
. Payment of earned Performance Units/Shares Awards shall be as determined
by the Committee and, if applicable, as evidenced in the related Award Agreement. Subject to the terms of the Plan, the
Committee, in its sole discretion, may pay earned Performance Units/Shares Awards in the form of cash or in Shares (or in
a combination thereof) that have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares Awards
at the close of the applicable Performance Period. Such Shares may be delivered subject to any restrictions deemed appropriate
by the Committee. No fractional shares will be issued. The determination of the Committee with respect to the form of payout of
such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award or the resolutions establishing the
Award.
Unless otherwise provided
by the Committee, Participants holding Performance Units/Shares shall be entitled to receive dividend units with respect to dividends
declared with respect to the Shares represented by such Performance Units/Shares. Such dividends may be subject to the same accrual,
forfeiture, and payout restrictions as apply to dividends earned with respect to Shares of Restricted Stock, as set forth in Section
8.6 hereof, as determined by the Committee.
9.6 Nontransferability
.
Except as otherwise provided in a Participant’s Award Agreement, Performance Units/Shares Awards may not be sold, transferred,
pledged, assigned, encumbered, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
Article 10. Performance Measures
Unless and until the
Committee proposes for shareholder vote and the Company’s shareholders approve a change in the general performance measures
set forth in this Article 10, the attainment of which may determine the degree of payout and/or vesting with respect to Awards
to Covered Employees that are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for
purposes of such grants shall be chosen from among:
(a) Earnings
per share;
(b) Net
income (before or after taxes);
(c) Cash
flow (including, but not limited to, operating cash flow and free cash flow);
(d) Gross
revenues;
(e) Gross
margins;
(f) EBITDA;
and
(g) Any
of the above measures compared to peer or other companies.
Performance measures
may be set either at the corporate level, subsidiary level, division level, or business unit level.
Awards that are designed
to qualify for the Performance-Based Exception, and that are held by Covered Employees, may not be adjusted upward (the Committee
shall retain the discretion to adjust such Awards downward).
If applicable tax
and/or securities laws change to permit Committee discretion to alter the governing performance measures without obtaining shareholder
approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval.
Article 11. Rights of Participants
11.1 Employment
.
Nothing in the Plan shall confer upon any Participant any right to continue in the Company’s or its Subsidiaries’ employ,
or as a Director, or interfere with or limit in any way the right of the Company or its Subsidiaries to terminate any Participant’s
employment or directorship at any time.
11.2 Participation
.
No Employee, Director or consultant shall have the right to be selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
11.3 Rights
as a Stockholder
. Except as provided in Sections 8.5, 8.6 and 9.5 or in applicable Award Agreement consistent with such Sections,
a Participant shall have none of the rights of a shareholder with respect to shares of Common Stock covered by any Award until
the Participant becomes the record holder of such Shares, or the Period of Restriction has expired, as applicable.
Article 12. Termination of Employment/Directorship
Upon termination of
the Participant's employment or directorship for any reason other than Disability or death, an Award granted to the Participant
may be exercised by the Participant or permitted transferee at any time on or prior to the earlier of the expiration date of the
Award or the expiration of three (3) months after the date of termination but only if, and to the extent that, the Participant
was entitled to exercise the Award at the date of termination. All Awards or any portion thereof not yet vested or exercisable
or whose Period of Restriction has not expired as of the date of termination (other than a termination by reason of Disability
or death) shall terminate and be forfeited immediately on the date of termination. If the employment or directorship of a Participant
terminates by reason of the Participant's Disability or death, all Awards or any portion thereof not yet vested or exercisable
or whose Period of Restriction has not expired as of the date of a Participant’s Disability or death shall become immediately
vested and/or exercisable on the date of termination due to Disability or death. If the employment or directorship of a Participant
terminates by reason of the Participant's Disability or death, the Participant (or, if appropriate, the Participant's legal representative
or permitted transferee) may exercise such Participant’s rights under any outstanding Award at any time on or prior to the
earlier of the expiration date of the Award or the expiration of six (6) months after the date of Disability or death.
Unless otherwise determined
by the Committee, an authorized leave of absence pursuant to a written agreement or other leave entitling an Employee to reemployment
in a comparable position by law or rule shall not constitute a termination of employment for purposes of the Plan unless the Employee
does not return at or before the end of the authorized leave or within the period for which re-employment is guaranteed by law
or rule. For purposes of this Article, a “termination” includes an event which causes a Participant to lose his eligibility
to participate in the Plan (e.g., an individual is employed by a company that ceases to be a Subsidiary). In the case of a consultant,
the meaning of “termination” or “termination of employment” includes the date that the individual ceases
to provide services to the Company or its Subsidiaries. In the case of a nonemployee director, the meaning of “termination”
includes the date that the individual ceases to be a director of the Company or its Subsidiaries.
Notwithstanding the
foregoing, the Committee shall have the authority to prescribe different rules that apply upon the termination of employment of
a particular Participant, which shall be memorialized in the Participant’s original or amended Award Agreement or similar
document.
An Award that remains
unexercised after the latest date it could have been exercised under any of the foregoing provisions or under the terms of the
Award shall be forfeited.
Article 13. Change in Control
In the event of a
Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing
governmental agencies or national securities exchange or trading system, or unless the Committee shall otherwise specify in the
Award Agreement, the Board, in its sole discretion, may:
(a) elect
to terminate Options or SARs in exchange for a cash payment equal to the amount by which the Fair Market Value of the Shares subject
to such Option or SAR to the extent the Option or SAR has vested exceeds the exercise price with respect to such Shares;
(b) elect
to terminate Options or SARs provided that each Participant is first notified of and given the opportunity to exercise his or her
vested Options or SARs for a specified period of time (of not less than 15 days) from the date of notification and before the Option
or SAR is terminated;
(c) permit
Awards to be assumed by a new parent corporation or a successor corporation (or its parent) and replaced with a comparable Award
of the parent corporation or successor corporation (or its parent);
(d) amend
an Award Agreement or take such other action with respect to an Award that it deems appropriate; or
(e) implement
any combination of the foregoing.
Article 14. Amendment, Modification,
and Termination
14.1 Amendment,
Modification, and Termination
. Subject to the terms of the Plan, the Board may at any time and from time to time, alter,
amend, suspend, or terminate the Plan in whole or in part.
14.2 Awards
Previously Granted
. Notwithstanding any other provision of the Plan to the contrary, no termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent
of the Participant holding such Award.
14.3 Shareholder
Approval Required for Certain Amendments
.
Shareholder approval will be required for any amendment of this Plan that
does any of the following: (a) increases the maximum number of Shares subject to this Plan; (b) changes the designation of the
class of persons eligible to receive ISOs under this Plan; or (c) modifies this Plan in a manner that requires shareholder approval
under applicable law or the rules of a stock exchange or trading system on which Shares are traded.
Article 15. Withholding
The Company shall
have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable taxes (including social security or social charges), domestic or foreign, required by law or regulation to be withheld
with respect to any taxable event arising as a result of this Plan.
The Participant may satisfy, totally or in part, such
Participant’s obligations pursuant to this Section 15 by electing to have Shares withheld, to redeliver Shares acquired under
an Award, or to deliver previously owned Shares that have been held for at least six (6) months, provided that the election is
made in writing on or prior to (i) the date of exercise, in the case of Options and SARs, (ii) the date of payment, in the case
of Performance Units/Shares, and (iii) the expiration of the Period of Restriction in the case of Restricted Stock. Any election
made under this Section 15 may be disapproved by the Committee at any time in its sole discretion. If an election is disapproved
by the Committee, the Participant must satisfy his obligations pursuant to this paragraph in cash.
Article 16. Successors
All obligations of
the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, through merger, consolidation, or otherwise, of all
or substantially all of the business, stock and/or assets of the Company.
Article 17. General Provisions
17.1 Gender
and Number
. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine;
the plural shall include the singular and the singular shall include the plural.
17.2 Severability
.
If any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
17.3 Requirements
of Law
. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
17.4 Securities
Law Compliance
. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions
of Rule 16b-3 or its successors under the Exchange Act, unless determined otherwise by the Board. To the extent any provision
of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Board.
17.5 Listing
.
The Company may use reasonable endeavors to register Shares issued pursuant to Awards with the United States Securities and Exchange
Commission or to effect compliance with the registration, qualification, and listing requirements of any state or foreign securities
laws, stock exchange, or trading system.
17.6 Inability
to Obtain Authority
. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall
not have been obtained.
17.7 No
Additional Rights
. Neither the Award nor any benefits arising under this Plan shall constitute part of an employment contract
between the Participant and the Company or any Subsidiary, and accordingly, subject to Section 14.2, this Plan and the benefits
hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to liability
on the part of the Company for severance payments.
17.8 Noncertificated
Shares
. To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of
such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock
exchange or trading system.
17.9 Governing
Law
. The Plan and each Award Agreement shall be governed by the laws of Delaware, excluding any conflicts or choice of law
rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction.
Unless otherwise provided in the Award Agreement, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction
and venue of the federal or state courts whose jurisdiction covers Little Rock, Arkansas, to resolve any and all issues that may
arise out of or relate to the Plan or any related Award Agreement.
17.10
Compliance with Code Section 409A
. No Award that is subject to Section 409A of the Code
shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of
grant, specifically provides that the Award is not intended to comply with Section 409A of the Code. Notwithstanding any provision
in the Plan to the contrary, with respect to any Award subject to Section 409A, distributions on account of a separation from service
may not be made to Key Employees before the date which is six (6) months after the date of separation from service (or, if earlier,
the date of death of the employee).
Adopted: May 7, 2008
Date of Shareholder Approval: June 26,
2008
Amended: January 27, 2010
Date of Shareholder Approval: November
18, 2010
Amended: November 19, 2012
Date of Shareholder Approval: