PROPOSAL 3: APPROVAL OF AMENDMENT TO ASTROTECH
CORPORATION
2011 STOCK INCENTIVE PLAN TO INCREASE
THE AUTHORIZED SHARES
Description of the Proposed Amendment
The Board of Directors,
the Compensation Committee and Astrotech’s management believe that the use of stock based compensation aligns the long-term
interests of management and shareholders by providing incentives to employees who foster the innovation and entrepreneurial spirit
which drives our business strategy and our execution. In 2011, the Board of Directors adopted and shareholders approved the 2011
Stock Incentive Plan, which was amended on June 19, 2014 in order to (i) prohibit the re-pricing of stock options and stock appreciation
rights without stockholder approval, (ii) more narrowly define a change of control to limit the events upon which automatic vesting
of awards will occur and (iii) eliminate any ability to gross-up recipients of awards for tax payments. On May 22, 2014, the Board
of Directors approved an amendment to the 2011 Stock Incentive Plan to increase the aggregate number of shares of our common stock
available under the 2011 Stock Incentive Plan by an additional 2,000,000 shares. If approved by the Company’s shareholders,
the amendment to increase the number of shares will be effective on June 26, 2014, the date of the annual meeting.
Description of the 2011 Stock Incentive
Plan
The principal features
of the 2011 Stock Incentive Plan as of the date of this Proxy Statement are summarized below. This summary does not contain all
the information that may be important to you. A copy of the proposed amendment to increase the number of shares is included as
Annex A to this Proxy Statement and a copy of the complete text of the 2011 Stock Incentive Plan as in effective prior to the amendment
is included as Annex B to this Proxy Statement. The following description is qualified in its entirety by reference to the text
of the 2011 Stock Incentive Plan, as it is proposed to be further amended. You are urged to read the 2011 Stock Incentive Plan
in its entirety.
Administration
. The 2011 Stock Incentive Plan is administered by the Compensation Committee of the Board of Directors. Subject to the terms of
the 2011 Stock Incentive Plan, the Compensation Committee has the power to select the persons eligible to receive awards under
the 2011 Stock Incentive Plan, the type and amount of incentive awards to be awarded, and the terms and conditions of such awards.
The Compensation Committee may delegate its authority under the 2011 Stock Incentive Plan described in the preceding sentence to
officers of the Company, but may not delegate its authority to grant awards under the 2011 Stock Incentive Plan or take any action
in contravention of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or the performance-based compensation exception
under Section 162(m) of the Internal Revenue Code. The Compensation Committee also has the authority to interpret the 2011 Stock
Incentive Plan, and to establish, amend or waive rules necessary or appropriate for the administration of the 2011 Stock Incentive
Plan.
Eligibility
. Any employee or consultant of the Company (or its subsidiary) or a director of the Company who, in the opinion of the Compensation
Committee, is in a position to contribute to the growth, development or financial success of the Company, is eligible to participate
in the 2011 Stock Incentive Plan. In any calendar year, no covered employee described in Section 162(m) of the Internal Revenue
Code may be granted (in the case of stock options and stock appreciation rights), or have vest (in the case of restricted stock
or other stock-based awards), awards relating to more than 800,000 shares of common stock, and the maximum aggregate cash payout
with respect to incentive awards paid in cash to such covered employees may not exceed $5,000,000. Astrotech has not granted stock
based compensation to employees, directors or NEO’s since November 2009. As of the date of this proxy, no allocations of
future awards have been made or considered by the Compensation Committee.
Shares Subject to the
2011 Stock Incentive Plan
. The maximum number of shares of the Company’s common stock, no par value, that may be
delivered pursuant to awards granted under the 2011 Stock Incentive Plan as proposed to be amended is 3,750,000 shares of common
stock. Any shares subject to an award under the 2011 Stock Incentive Plan that are forfeited or terminated, expire unexercised,
lapse or are otherwise cancelled in a manner such that the shares of common stock covered by such award are not issued may again
be used for awards under the 2011 Stock Incentive Plan. A maximum of 1,875,000 shares of common stock may be issued upon exercise
of incentive stock options. The maximum number of shares deliverable pursuant to awards granted under the 2011 Stock Incentive
Plan is subject to adjustment by the Compensation Committee in the event of certain dilutive changes in the number of outstanding
shares. Under the 2011 Stock Incentive Plan, the Company may issue authorized but unissued shares, treasury shares, or shares purchased
by the Company on the open market or otherwise. In addition, the number of shares of common stock available for future awards is
reduced by the net number of shares issued pursuant to an award.
Following adoption of the
New Amendment, the Company is optimistic that ISS will change its position on the Proposed Amendment. The Board believes that the
New Amendment benefits the stockholders of the Company and adequately addresses the concerns of ISS, and as such continues to recommend
a vote
FOR
the approval of Proposal 3 set forth in the Proxy Statement related to the approval of the Proposed Amendment.
Limited Transferability
of Awards. Awards granted under the 2011 Stock Incentive Plan may not be sold, transferred, pledged or assigned, except by will
or the laws of descent and distribution or a qualified domestic relations order. However, the Compensation Committee may, in its
discretion, authorize in the applicable award agreement the transfer, without consideration, of all or a portion of a nonstatutory
stock option for the benefit of immediate family members.
Amendment of the
2011 Stock Incentive Plan
. The Board of Directors has the power and authority to terminate or amend the 2011 Stock Incentive
Plan at any time; provided, however, the Board may not, without the approval of shareholders: (i) other than as a result of a dilutive
event, increase the maximum number of shares which may be issued under the 2011 Stock Incentive Plan; (ii) amend the requirements
as to the class of employees eligible to receive common stock under the 2011 Stock Incentive Plan; (iii) extend the term of the
2011 Stock Incentive Plan; (iv) increase the maximum limits on awards to covered employees as set for compliance with Section 162(m)
of the Internal Revenue Code; (v) decrease the authority
granted to the Compensation Committee under
the 2011 Stock Incentive Plan in contravention of Rule 16b-3 under the Securities Exchange Act of 1934; or (vi) delete or limit
any provisions of the 2011 Stock Incentive Plan that prohibit the repricing of stock options or stock appreciation rights.
In addition, to the extent
that the Compensation Committee determines that the listing requirements of any national securities exchange or quotation system
on which the Company’s common stock is then listed or quoted, or the Internal Revenue Code or regulations promulgated thereunder,
require shareholder approval in order to maintain compliance with such listing requirements or to maintain any favorable tax advantages,
the 2011 Stock Incentive Plan will not be amended without approval of the Company’s shareholders. No amendment to the 2011
Stock Incentive Plan may adversely affect, in any material way, any rights of a holder of an outstanding award under the 2011 Stock
Incentive Plan without such holder’s consent.
Change in Control
. Unless provided otherwise in the applicable award agreement, in the event of a change in control, all outstanding awards shall
become 100% vested, free of all restrictions, immediately and fully exercisable, and deemed earned in full and payable as of the
day immediately preceding the change in control. A “change in control” generally means the occurrence of any one or
more of the following events:
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The acquisition by any individual, entity or group of beneficial ownership of 50% or more of the Company’s
common stock or combined voting power;
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Individuals who constitute the Board of Directors of the Company as of the effective date of the 2011
Stock Incentive Plan, or successors to such members approved by the then Board of Directors, cease for any reason to constitute
at least a majority of the Board of Directors;
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Consummation of a merger or the sale or other disposition of all or substantially all of the assets
of the Company; or
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Any liquidation or dissolution of the Company.
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Award Agreements and Term
. All
awards under the 2011 Stock Incentive Plan will be authorized by the Compensation Committee and evidenced by an award agreement
setting forth the type of incentive being granted, the vesting schedule, and other terms and conditions of exercisability. No stock
options may be exercisable for more than ten years from the date of grant, or, in the case of an incentive stock option granted
to an employee who owns or is deemed to own more than ten percent of the Company’s common stock, five years from the date
of grant. In no event may awards be granted after the expiration of ten years from the effective date of the 2011 Stock Incentive
Plan.
Stock Options
. A grant of a stock
option entitles a participant to purchase from the Company a specified number of shares of common stock at a specified price per
share. In the discretion of the Compensation Committee, stock options may be granted as non-statutory stock options or incentive
stock options, but incentive stock options may only be granted to employees. The exercise price of each stock option is set by
the Compensation Committee, but all stock
options granted under the 2011 Stock Incentive Plan must have an
exercise price that is equal to or greater than 100% of the market value as of the grant date of the shares covered by the option
(except as described in this paragraph). The 2011 Stock Incentive Plan does not allow “discounted” stock options. Thus,
an individual would be able to profit from an option only if the fair market value of the Company’s common stock increases
after the option is granted and vests. An exception may be made only for options that the Company grants to substitute for options
held by employees of companies that the Company acquires, in which case the exercise price preserves the economic value of the
employee’s cancelled stock option from his or her former employer.
An option cannot be exercised until it vests.
The Compensation Committee establishes the vesting schedule at the time the option is granted. Vesting typically requires continued
employment or service by the participant for a period of years. A vested option may be exercised only before it expires. In general,
options expire ten years after grant date.
The aggregate fair market value of the common
stock with respect to which incentive stock options become first exercisable by any participant during any calendar year cannot
exceed $100,000. The purchase price per share of common stock which may be purchased under an incentive stock option must be at
least equal to the fair market value of the Company’s common stock as of the grant date or, if the incentive stock option
is granted to an employee who owns or is deemed to own more than 10% of the Company’s common stock, 110% of the fair market
value of the common stock on the grant date.
The exercise price for shares of common stock
acquired on exercise of a stock option must be made in full at the time of the exercise. Payment may be paid in cash, or, if approved
by the Compensation Committee, delivery of shares of the Company’s common stock that have been held by the optionee with
a fair market value equal to the exercise price of the stock option, the withholding of shares that would otherwise be issuable
upon exercise, participation in a broker-assisted “cashless exercise” arrangement, or payment of any other form of
consideration acceptable to the Compensation Committee.
Stock Appreciation Rights (SARs)
. SARs are awards that are subject to vesting and payment of an exercise price, which provide a participant the right to receive
an amount of money equal to (1) the number of shares exercised, (2) times the amount by which the then-current value of the Company’s
common stock exceeds the exercise price. The exercise price cannot be less than 100% of the fair market value of the common stock
on the grant date. Thus, an individual would be able to profit from an SAR only if the fair market value of the Company’s
common stock increases after the SAR is granted and vests. Each SAR is subject to a vesting schedule established by the Compensation
Committee and expires under the same rules that apply to options.
Restricted Stock
. A grant of restricted
stock is an award of shares of the Company’s common stock subject to restrictions or limitations set forth in the 2011 Stock
Incentive Plan and in the related award agreement. The award agreement for restricted stock will specify the time period during
which such award may be subject to forfeiture and any performance goals that must be met to remove any restrictions on such award.
Except for limitations on transfer or other limitations set forth in the award agreement, holders of restricted stock have all
of the rights of a
shareholder of the Company, including the right to vote the shares,
and, if provided in the award agreement, the right to receive any dividends.
Other Awards
. The Compensation
Committee may grant to any participant other forms of awards payable in shares of the Company’s common stock or cash. The
terms and conditions of such other form of award will be specified in the award agreement. Such awards may be granted for no cash
consideration other than services already rendered, or for such other consideration as may be specified by the award agreement.
Performance-Based Awards
. Awards
may be granted under the 2011 Stock Incentive Plan that are subject to the attainment of pre-established performance goals over
a specified performance period. Performance-based awards may be payable in stock or cash. Performance criteria include (but are
not limited to) such measurements as profits, profit-related return ratios, return measures, cash flows, earnings, net sales growth,
net earnings or income, gross, operating or net profit margins, productivity ratios, share price, turnover of assets, capital or
inventory, expense targets, margins, measures of health, safety or environment, operating efficiency, customer service or satisfaction,
market share, credit quality, debt ratios and working capital targets. Performance shares (also referred to as “restricted
stock units” or “stock awards”) and performance units result in a payment to the participant in shares or cash,
as determined by the Compensation Committee, if the performance goals and/or other vesting criteria (for example, continued service
with the Company) set by the Compensation Committee are satisfied. The award agreement for a performance-based award will specify
the performance period, the performance goals to be achieved during the performance period, and the maximum or minimum settlement
values. Performance shares and performance units that are settled in shares are very similar to awards of restricted stock, except
that in the case of performance shares and performance units, any vested shares are not issued until the payment date specified
in the award. In the case of an award of restricted stock, the shares are issued promptly after the grant date but are subject
to a vesting schedule.
Termination of Employment, Death, Disability
and Retirement
. Unless otherwise provided in an award agreement, upon the termination of a participant’s employment
the non-vested portions of all outstanding awards will terminate immediately. Subject to different provisions which may be specified
in any particular award agreement, the period during which vested awards may be exercised following a termination of employment
are described below. If a participant’s employment is terminated for any reason other than as a result of death, disability,
retirement or for cause, the vested portion of such award is exercisable for the lesser of the expiration date set forth in the
applicable award agreement or 90 days after the date of termination of employment. In the event of the termination of participant’s
employment for cause, all vested awards immediately expire. Upon a participant’s retirement, any vested award will expire
on the earlier of the expiration date set forth in the award agreement for such award or six months after the date of retirement
(three months in the case of incentive stock options). Upon the death or disability of a participant, any vested award will expire
on the earlier of the expiration date set forth in the award agreement or the one year anniversary date of the participant’s
death or disability.
U.S. Federal Income Tax Consequences of 2011 Stock Incentive
Plan
The following is a general summary, as of the
date of this proxy statement, of the United States federal income tax consequences associated with the grant of awards under the
2011 Stock Incentive Plan. The federal tax laws may change and the federal, state and local tax consequences for any participant
will depend upon his or her individual circumstances, thus the tax consequences for any particular individual may be different.
Also, this information may not be applicable to any employees of foreign subsidiaries or to participants who are not residents
of the United States.
Nonstatutory Stock Options and Stock Appreciation
Rights (SARs)
. A participant receiving a nonstatutory stock option, or SAR that has been issued with an exercise price
not less than the fair market value of the Company’s common stock on the grant date, will not recognize income and the Company
will not be allowed a deduction at the time such an option is granted. When a participant exercises a nonstatutory stock option
or SAR, the difference between the exercise price and any higher market value of the stock on the date of exercise will be ordinary
income to the participant and will be claimed as a deduction for federal income tax purposes by the Company. When a participant
disposes of shares acquired by the exercise of the option or SAR, any additional gain or loss will be a capital gain or loss.
Incentive Stock Options
. Incentive
stock options granted under the 2011 Stock Incentive Plan are intended to meet the requirements of Section 422 of the Internal
Revenue Code. A participant receiving a grant of incentive stock options will not recognize taxable income and the Company will
not be allowed a deduction at the time such an option is granted. When a participant exercises an incentive stock option while
employed by the Company (or its subsidiary) or within the three-month (one year for disability) period after termination of employment,
no ordinary income will be recognized by the participant at that time (and no deduction will be allowed to the Company) but the
excess of the fair market value of the shares acquired by such exercise over the exercise price will be taken into account in determining
the participant’s alternative minimum taxable income for purposes of the federal alternative minimum tax applicable to individuals.
If the shares acquired upon exercise are not disposed of until more than two years after the grant date and one year after the
date of transfer of the shares to the participant (i.e., the statutory holding periods), the excess of the sale proceeds over the
aggregate option price of such shares will be long-term capital gain, and the Company will not be entitled to any federal income
tax deduction. Except in the event of death, if the shares are disposed of prior to the expiration of the statutory holding periods
(i.e., a “Disqualifying Disposition”), the excess of the fair market value of such shares at the time of exercise over
the exercise price (but not more than the gain on the disposition if it is a transaction on which a loss, if sustained, would be
recognized) will be ordinary income at the time of such Disqualifying Disposition (and the Company will be entitled to a federal
tax deduction in a like amount), and the balance of any gain will be capital gain. To the extent that the aggregate fair market
value of stock (determined on the grant date) with respect to which incentive stock options become exercisable for the first time
during any calendar year exceeds $100,000, such excess options will be treated as nonstatutory stock options.
Payment Using Shares
. If a participant pays the exercise price of a nonstatutory or incentive stock option with previously-owned shares of the Company’s
common stock, and the transaction is not a Disqualifying Disposition of an incentive stock option, the shares received equal to
the number of shares surrendered are treated as having been received in a tax-free
exchange. The shares received in excess of
the number surrendered will not be taxable if an incentive stock option is being exercised, but will be taxable as ordinary income
to the extent of their fair market value if a nonstatutory stock option is being exercised. The participant does not recognize
income and the Company receives no deduction as a result of the tax-free portion of the exchange transaction.
Restricted Stock,
Performance Units and Performance Shares
. A recipient of restricted stock, performance units or performance shares will
not have taxable income upon grant. Instead, he or she will have ordinary income at the time of vesting equal to the fair market
value on the vesting date of the shares (or cash) received minus any amount paid for the shares. For restricted stock only, a recipient
may instead elect to be taxed at the time of grant by making an election under Section 83(b) of the Internal Revenue Code. When
an award vests or otherwise ceases to be subject to a substantial risk of forfeiture, the excess of the fair market value of the
award on the vesting date or the cessation of the substantial risk of forfeiture over the amount paid, if any, by the participant
for the award will be ordinary income to the participant and deductible for federal income tax purposes by the Company. Upon disposition
of the shares received, the gain or loss recognized by the participant will be treated as capital gain or loss.
Certain Limitations
on Deductibility of Executive Compensation
. With certain exceptions, Section 162(m) of the Internal Revenue Code denies
a deduction to a publicly held corporation for compensation paid to certain executive officers in excess of $1 million per executive
per taxable year (including any deduction with respect to the exercise of a nonstatutory stock option or stock appreciation right,
or the disqualifying disposition of stock purchased pursuant to an incentive stock option). One such exception applies to certain
performance-based compensation as described in Section 162(m), provided that such compensation has been approved by shareholders
and certain other requirements are met. If approved by our shareholders, we believe that the nonstatutory stock options and other
performance-based awards granted under the 2011 Stock Incentive Plan should qualify for the performance-based compensation exception
to Section 162(m).
Section 409A
. Section 409A of the Internal Revenue Code provides certain new requirements for non-qualified deferred compensation arrangements.
These include new requirements with respect to an individual’s election to defer compensation and the individual’s
selection of the timing and form of distribution of the deferred compensation. Section 409A also generally provides that distributions
must be made on or after the occurrence of certain events (e.g., the individual’s separation from service, a predetermined
date, or the individual’s death). Section 409A imposes restrictions on an individual’s ability to change his or her
distribution timing or form of distribution after the compensation has been deferred. For certain individuals who are officers,
Section 409A requires that such individual’s distribution commence no earlier than six months after such officer’s
separation from service.
Awards granted under the
2011 Stock Incentive Plan with a deferral feature will be subject to the requirements of Section 409A. If an award is subject to
and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts
deferred under the award, to the extent vested, which may be prior to when the compensation is actually or constructively received.
Also, if an award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an
additional 20%
federal income tax on compensation recognized
as ordinary income, as well as interest on such deferred compensation.
ERISA
The Company believes that
the 2011 Stock Incentive Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
The 2011 Stock Incentive Plan is not a qualified plan under Section 401(a) of the Internal Revenue Code.
Please note that the proxy
card that accompanied the Proxy Statement previously mailed to you with the notice of the Annual Meeting on or about May 23, 2014
remains valid. If you previously submitted a validly executed proxy card for the Annual Meeting, which proxy has not been subsequently
revoked, and you were a shareholder of record as of the Record Date, your vote will be recorded as indicated on your proxy card.
If you have already delivered a properly executed proxy, you do not need to do anything unless you wish to change your vote.
Please read the Proxy Statement,
as modified by this Supplement, carefully and in its entirety.
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Sincerely,
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Eric Stober
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Chief Financial Officer, Treasurer and Secretary
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June 18, 2014
APPENDIX A
AMENDMENT NO. 1
TO
ASTROTECH CORPORATION
2011 STOCK INCENTIVE PLAN
The Board of Directors of
Astrotech Corporation, a Washington corporation (the “
Company
”), having reserved the right under Section
7.7 of the Astrotech Corporation 2011 Stock Incentive Plan (the “
Plan
”) to amend the Plan, does hereby
amend the Plan, effective ________, 2014 as follows:
1. Section
1.2(t) of the Plan is hereby amended to read as follows:
“
(t) Incentive
Award
. A grant of an award under the Plan to a Grantee, including any Nonstatutory Stock Option, Incentive Stock Option (ISO),
Stock Appreciation Right (SAR), Restricted Stock Award, Restricted Stock Unit or Other Stock-Based Award.”
2. Section
1.2(tt) of the Plan is hereby deleted.
3. Section
1.3(g) of the Plan is hereby deleted and replaced with “Reserved.”
4. Section
1.4(c) of the Plan is hereby amended to read as follows:
“With respect to any Stock
Option or SAR granted to a Covered Employee that is canceled, the number of Shares subject to such Stock Option or SAR shall continue
to count against the maximum number of Shares that may be the subject of Stock Options or SARs granted to such Covered Employee
hereunder and, in this regard, such maximum number shall be determined in accordance with Code Section 162(m).”
5. Section
1.8 of the Plan is hereby amended to read as follows:
“
1.8 Types
of Incentive Awards
The types of
Incentive Awards under the Plan are Stock Options, Stock Appreciation Rights as described in Section 2, Restricted Stock Awards
as described in Section 3, Restricted Stock Units and Other Stock-Based Awards as described in Section 4, or any combination of
the foregoing.”
6. A
new Section 1.9 of the Plan is hereby amended to read as follows:
“
1.9 Prohibition
on Repricing of Incentive Awards.
Notwithstanding
any provision in the Plan to the contrary, and subject to the provisions of Section 6.6 hereof, the terms of outstanding Incentive
Awards may not be amended without the approval of the Company’s shareholders so as to (i) reduce the Option Price or exercise
price of any outstanding Stock Options or SARs or (ii) cancel
any outstanding Stock Options or
SARs in exchange for cash or other Incentive Awards (including substitutions and cash buyouts), or Stock Options or SARs with an
Option Price or exercise price that is less than the Option Price or exercise price of the original Stock Options or SARs.”
7. Section
2.4 of the Plan is hereby deleted and replaced with “Reserved.”
8. Section
3.4 of the Plan is hereby deleted.
9. Section
4.3 of the Plan is hereby deleted.
10. Section
6.8(f) of the Plan is hereby amended to read as follows:
“(f) Consummation
of a Merger, unless immediately following such Merger, (i) substantially all of the holders of the Outstanding Company Voting Securities
immediately prior to Merger beneficially own, directly or indirectly, more than fifty percent (50%) of the common stock of the
corporation resulting from such Merger (or its parent corporation) in substantially the same proportions as their ownership of
Outstanding Company Voting Securities immediately prior to such Merger and (ii) at least a majority of the members of the board
of directors of the corporation resulting from such Merger (or its parent corporation) were members of the Incumbent Board at the
time of the execution of the initial agreement providing for such Merger;”
11. Section
6.8(h) of the Plan is hereby amended to read as follows:
“(h) The
liquidation or dissolution of the Company.”
12. Section
6.9 of the Plan is hereby deleted.
13. A
new Section 7.7(e) is hereby added to the Plan and Sections 7.7(c) and 7.7(d) are hereby amended to read as follows:
“(c) extend
the term of the Plan;
(d) if
the Company is a Publicly Held Corporation (i) increase the maximum limits on Incentive Awards to Covered Employees as set for
compliance with the Performance-Based Exception or (ii) decrease the authority granted to the Committee under the Plan in contravention
of Rule 16b-3 under the Exchange Act to the extent Section 16 of the Exchange Act is applicable to the Company; or
(e) delete
or limit any provisions of this Plan that prohibit the repricing of Stock Options or SARs.”
14. Except
as set forth herein, the other terms and conditions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the
Company has caused these presents to be executed on this ___ day of ___________, 2014, but effective as of the date specified herein.
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ASTROTECH CORPORATION
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By:
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Thomas B. Pickens III
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President and Chief Executive Officer
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