UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
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Definitive
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Definitive
Additional Materials |
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Soliciting
Material Pursuant to Section 240.14a-12 |
HEARTCORE
ENTERPRISES, INC. |
(Name
of Registrant as Specified In Its Charter) |
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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HEARTCORE
ENTERPRISES, INC.
1-2-33,
Higashigotanda, Shinagawa-ku, Tokyo, Japan
August
24, 2023
Dear
Stockholders:
HeartCore
Enterprises, Inc. is holding a Virtual Annual Meeting (the “Annual Meeting”) on Friday, September 29, 2023 at 8:00 a.m.,
Eastern Time. You may attend the Annual Meeting, vote and submit a question during the Annual Meeting by visiting www.virtualshareholdermeeting.com/HTCR2023.
You will need to provide your 16-digit control number that is on your proxy card. The formal Notice of Annual Meeting is set forth in
the enclosed material.
The
matters expected to be acted upon at the Annual Meeting are described in the attached Notice of Annual Meeting and Proxy Statement. Holders
of record of HeartCore Enterprises, Inc.’s common stock at the close of business on August 4, 2023 are entitled to vote at the
Annual Meeting.
It
is important that your views be represented. Even if you plan to virtually attend the Annual Meeting, please vote on the matters to be
considered in advance of the Annual Meeting. You may vote your proxy by telephone or via the Internet or by completing and returning
the enclosed proxy card. Although we encourage you to complete and return a proxy prior to the Annual Meeting to ensure that your vote
is counted, you can cast your vote at the virtual Annual Meeting. If you vote by proxy and also participate in the virtual Annual Meeting,
there is no need to vote again at the Annual Meeting unless you wish to change your vote.
We
appreciate your investment and interest in HeartCore Enterprises, Inc. and urge you to cast your vote as soon as possible.
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Sincerely, |
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/s/
Sumitaka Yamamoto |
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Sumitaka
Yamamoto
Chairman
of the Board, Chief Executive Officer and President |
HEARTCORE
ENTERPRISES, INC.
1-2-33,
Higashigotanda, Shinagawa-ku, Tokyo, Japan
NOTICE
OF VIRTUAL ANNUAL MEETING OF STOCKHOLDERS
Notice
is hereby given that HeartCore Enterprises, Inc., a Delaware corporation (“HeartCore”), will hold a Virtual 2023 Annual Meeting
of Stockholders (the “Annual Meeting”) on Friday, September 29, 2023, beginning at 8:00 a.m., Eastern Time, for the following
purposes, which are described more fully in the accompanying Proxy Statement:
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1. |
To
elect seven directors nominated by HeartCore’s Board of Directors, based on the recommendation of HeartCore’s independent
directors, to serve for a one-year term following approval by the stockholders at the Annual Meeting; |
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2. |
To
approve the HeartCore Enterprises, Inc. 2023 Equity Incentive Plan; |
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3. |
To
ratify the appointment of MaloneBailey, LLP as HeartCore’s independent registered public accounting firm for the fiscal year
ending December 31, 2023; and |
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4. |
To
transact such other business as may properly come before the Annual Meeting and/or any adjournment or postponement thereof. |
HeartCore’s
Board of Directors has fixed the close of business on August 4, 2023 (the “Record Date”) as the record date for the determination
of the stockholders entitled to vote at the Annual Meeting or any adjournments or postponements thereof. Only stockholders of record
at the close of business on the Record Date will be entitled to notice of, and to vote at, the Annual Meeting.
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By
order of the Board of Directors, |
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/s/
Sumitaka Yamamoto |
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Chairman
of the Board, Chief Executive Officer and President |
August
24, 2023
Your
vote is very important. Even if you plan to virtually attend the Annual Meeting, we hope that you will read the Proxy Statement and vote
on the matters to be considered in advance of the Annual Meeting. You may vote your proxy by telephone or via the Internet or by completing
and returning the enclosed proxy card.
TABLE
OF CONTENTS
HEARTCORE
ENTERPRISES, INC.
1-2-33,
Higashigotanda, Shinagawa-ku, Tokyo, Japan
PROXY
STATEMENT
GENERAL
INFORMATION
This
Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the “Board”) of HeartCore Enterprises,
Inc., a Delaware corporation (the “Company,” “HeartCore,” “we,” “our” or “us”),
of proxies to be voted at our 2023 Virtual Annual Meeting of Stockholders (the “Annual Meeting”) and at any adjournment or
postponement of the Annual Meeting. The Annual Meeting will take place on Friday, September 29, 2023, beginning at 8:00 a.m., Eastern
Time, at www.virtualshareholdermeeting.com/HTCR2023. You will need to provide your 16-digit control number that is on your proxy
card to gain access to the Annual Meeting. The Board of Directors of the Company urges you to promptly execute and return your proxy
in the enclosed envelope, even if you plan to attend the Annual Meeting. This is designed to authenticate stockholders’ identities,
to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly.
Any
stockholder submitting a proxy may revoke such proxy at any time prior to its exercise by notifying the Secretary of the Company, in
writing, prior to the Annual Meeting. Any stockholder attending the Annual Meeting may revoke his or her proxy and vote personally by
notifying the Secretary of the Company at the Annual Meeting.
This
Proxy Statement, the Notice of Annual Meeting, and accompanying proxy are being furnished to holders of our common stock, par value $0.0001
per share, at the close of business on August 4, 2023 (the “Record Date”), the record date for the Annual Meeting. Web links
and addresses contained in this Proxy Statement are provided for convenience only, and the content on the referenced websites does not
constitute a part of this Proxy Statement.
QUESTIONS
AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Which
items will be voted on at the Annual Meeting?
Stockholders
will vote on the following items at the Annual Meeting:
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1. |
To
elect seven directors nominated by HeartCore’s Board of Directors, based on the recommendation of HeartCore’s independent
directors, to serve for a one-year term following approval by the stockholders at the Annual Meeting; |
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2. |
To
approve the HeartCore Enterprises, Inc. 2023 Equity Incentive Plan (the “2023 Plan”); |
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3. |
To
ratify the appointment of MaloneBailey, LLP (“MaloneBailey”) as HeartCore’s independent registered public accounting
firm for the fiscal year ending December 31, 2023; and |
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4. |
To
transact such other business as may properly come before the Annual Meeting and/or any adjournment or postponement thereof. |
How
does the Board recommend I vote on each of the proposals presented in this Proxy Statement?
The
Board recommends a vote FOR the election of each of the director nominees to be members of the Board; and FOR
Proposals 2 and 3.
Who
is entitled to vote at the Annual Meeting?
Holders
of our common stock as of the Record Date are entitled to receive the Notice of Annual Meeting and to vote their shares of common stock
at the Annual Meeting. Holders of our common stock are entitled to one vote for each share of common stock held of record on the Record
Date.
How
many shares of common stock are outstanding?
As
of the Record Date, there were 20,842,690 shares of common stock issued and outstanding and entitled to be voted at the Annual
Meeting.
What
is the difference between holding common stock as a stockholder of record and as a beneficial owner?
If
your common stock is registered in your name with our transfer agent, Transhare Corporation (“Transhare”), you are the “stockholder
of record” of those shares. The Notice of Annual Meeting, this Proxy Statement and any accompanying materials have been provided
directly to you by HeartCore.
If
your shares of common stock are held through a broker, bank or other holder of record, you hold your common stock in “street name”
and you are considered the “beneficial owner” of those shares of common stock. This Notice of Annual Meeting and Proxy Statement
and any accompanying documents have been provided to you by your broker, bank or other holder of record. As the beneficial owner, you
have the right to direct your broker, bank or other holder of record how to vote your common stock by using the voting instruction card
or by following their instructions for voting by telephone or on the Internet.
If
you do not give instructions to your broker, your broker can vote your shares with respect to “routine” items, but not with
respect to “non-routine” items. On non-routine items for which you do not give your broker instructions, the shares will
be treated as broker non-votes. Our management believes that Proposal 3 (ratification of the appointment of MaloneBailey as the Company’s
independent registered public accounting firm for the fiscal year ending December 31, 2023) is a “routine” matter for which
brokers will have authority to vote your shares of common stock at the Annual Meeting if you do not give instruction on how to vote your
shares. Consequently, if customers do not give any direction, brokers will be permitted to vote shares of common stock at the Annual
Meeting in relation to Proposal 3. However, Proposals 1 and 2 are non-routine matters for which brokers do not have authority to vote
your shares at the Annual Meeting if you do not provide instructions on how to vote your shares. Therefore, we encourage you to submit
your voting instructions to your broker to ensure your shares of common stock are voted on all proposals at the Annual Meeting.
How
do I vote?
You
can vote your shares in one of two ways: either by proxy or in person (virtually) at the Annual Meeting. If you choose to vote by proxy,
you may do so via the Internet or by telephone, or by signing and returning the proxy card enclosed therein. Each of these procedures
is explained below. Even if you plan to attend (virtually) the Annual Meeting, the Board recommends that you vote by proxy so your shares
of common stock will be voted as directed by you if you are unable to attend the virtual Annual Meeting.
Because
many stockholders will not attend the virtual Annual Meeting personally, it is necessary that a large number of stockholders be represented
by proxy. By following the procedures for voting via the Internet or by telephone, or by signing and returning the enclosed proxy card,
your shares can be voted at the virtual Annual Meeting in the manner indicated. If you sign and return your proxy card, but do not specify
how you want your shares to be voted, they will be voted, in accordance with the Board’s recommendation on Proposals 1, 2 and 3,
and with respect to any other matter that may be presented at the Annual Meeting, in the discretion of the proxy holders named in your
proxy card.
Voting
via the Internet
You
can vote your shares via the Internet by accessing www.virtualshareholdermeeting.com/HTCR2023 and following the instructions contained
on that website. The Internet voting procedures are designed to authenticate your identity and to allow you to vote your shares and confirm
that your voting instructions have been properly recorded. If you vote via the Internet, you do not need to mail a proxy card.
Voting
by Telephone
You
can vote your shares by telephone by calling the number provided on the voting website (www.virtualshareholdermeeting.com/HTCR2023)
and on the proxy card. The telephone voting procedures are designed to authenticate your identity and to allow you to vote your shares
and confirm that your voting instructions have been properly recorded. If you vote via the telephone, you do not need to mail a proxy
card.
Voting
by Mail
You
can vote by mail by filling out the enclosed proxy card and returning it per the instructions on the card.
What
can I do if I change my mind after I vote?
If
you are a stockholder of record, you can revoke your proxy before it is exercised by:
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Giving
written notice to the Corporate Secretary of the Company; |
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Delivering
a valid, later-dated proxy in a timely manner; or |
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Voting
at the virtual Annual Meeting. |
If
you are a beneficial owner of common stock, you may submit new voting instructions by contacting your broker, bank or other holder of
record. All shares of common stock for which proxies have been properly submitted and not revoked will be voted at the Annual Meeting.
Where
can I find the voting results?
We
intend to announce the preliminary voting results at the Annual Meeting and will publish the final results in a Current Report on Form
8-K, which we will file with the Securities and Exchange Commission (the “SEC”) no later than four business days following
the Annual Meeting. If the final voting results are unavailable in time to file a Form 8-K with the SEC within four business days after
the Annual Meeting, we intend to file a Form 8-K to disclose the preliminary results and, within four business days after the final results
are known, will file an additional Form 8-K with the SEC to disclose the final voting results.
What
is a quorum for the Annual Meeting?
The
presence of the holders of 10,421,346 shares of common stock, in person (virtually) or by proxy at the Annual Meeting,
representing a majority of the voting power of all outstanding shares of capital stock of the Company entitled to vote at the Annual
Meeting is necessary to constitute a quorum. If you have returned valid proxy instructions or attend the virtual Annual Meeting, your
common stock will be counted for the purpose of determining whether there is a quorum. Proxies that are marked “abstain”
and proxies relating to “street name” common stock that are returned to us but marked by brokers as “not voted”
will be treated as shares of common stock present for purposes of determining the presence of a quorum on all matters. If there is no
quorum, the chairman of the Annual Meeting may adjourn the Annual Meeting to another date. Abstentions are counted as present and entitled
to vote for purposes of determining a quorum.
What
are broker non-votes?
Generally,
a broker non-vote occurs when a bank, broker or other nominee that holds shares of common stock in “street name” for customers
is precluded from exercising voting discretion on a particular proposal because (i) the beneficial owner has not instructed the bank,
broker or other nominee how to vote, and (ii) the bank, broker or other nominee lacks discretionary voting power to vote the common stock.
A bank, broker or other nominee does not have discretionary voting power with respect to the approval of “non-routine” matters
absent specific voting instructions from the beneficial owners of the common stock.
On
non-routine items for which you do not give your broker instructions, the shares will be treated as broker non-votes. Proposals 1 and
2 are non-routine items. If you do not give your broker instructions with regard to these proposals, brokers will not be permitted to
vote your shares of common stock at the Annual Meeting in relation to these proposals.
Our
management believes that Proposal 3 (ratification of the appointment of MaloneBailey as our independent registered public accounting
firm for the fiscal year ending December 31, 2023) is a “routine” matter for which brokers will have authority to vote your
shares of common stock at the virtual Annual Meeting if you do not give instruction on how to vote your shares. Consequently, if customers
do not give any direction, brokers will be permitted to vote shares of common stock at the Annual Meeting in relation to Proposal 3.
Nevertheless, we encourage you to submit your voting instructions to your broker to ensure your shares of common stock are voted at the
Annual Meeting.
How
many votes are required to approve each of the proposals presented in this Proxy Statement, and how are votes counted?
Proposal
1
With
respect to Proposal 1 (election of directors), election of each director requires the affirmative vote of the majority of the votes present
in person or represented by proxy at the Annual Meeting. “Withhold” votes and broker non-votes are not considered votes cast
for the foregoing purpose, and will have no effect on the election of the director nominees.
Proposals
2 and 3
With
respect to Proposal 2 (approval of the 2023 Plan) and 3 (ratification of auditors), adoption of each of the proposals requires the affirmative
vote of the majority of the votes present and entitled to vote at the Annual Meeting (meaning the number of shares voted “for”
a proposal must exceed the number of shares voted “against” such proposal). With respect to each of Proposals 2 and 3, you
may vote “for,” “against” or “abstain” from voting on each such proposal. Abstentions will have the
effect of a vote “against” the respective proposal. Because broker non-votes are not considered present for the foregoing
purpose, they will have no effect on the vote for Proposals 2 and 3.
How
will my common stock be voted at the Annual Meeting?
At
the Annual Meeting, the Board (the persons named in the proxy card or, if applicable, their substitutes) will vote your shares of common
stock as you instruct. If you submit a proxy but do not indicate how you would like to vote your common stock, your shares will be voted
as the Board recommends, which is as follows:
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FOR
Proposal 1 (election of directors proposal); |
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FOR
Proposal 2 (approval of the 2023 Plan); |
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FOR
Proposal 3 (ratification of auditors). |
What
happens if stockholders approve one or more proposals but not others?
Approval
of any one proposal is not dependent on stockholders approving any other proposal. Therefore, if stockholders approve one proposal, but
not others, the approved proposal would still take effect. Note, however, that if Proposal 3 (ratification of auditors) is not approved,
the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if
the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm
at any time during the fiscal year if it determines that such a change would be in the best interests of the Company and its stockholders.
Who
will pay for the cost of the Annual Meeting and this proxy solicitation?
We
will pay the costs associated with the Annual Meeting and solicitation of proxies, including the costs of transmitting the proxy materials.
In addition to these mailed proxy materials, our directors and officers may also solicit proxies in person, by telephone or by other
means of communication. Our directors and officers will not be paid any additional compensation for soliciting proxies. We may also reimburse
brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
MATTERS
TO COME BEFORE THE ANNUAL MEETING
PROPOSAL
1—ELECTION OF DIRECTORS
Officers,
Directors and Director Nominees
Our
Board currently is comprised of nine directors: Sumitaka Yamamoto, Kimio Hosaka, Prakash Sadasivam, Ferdinand Groenewald, Yoshitomo Yamano,
Heather Neville, Yuki Tan, Takeshi Omoto, and Yuta Katai. Messrs. Tan and Omoto and Mrs. Katai are not standing for re-election at the
Annual Meeting and therefore, their terms of office will end at the Annual Meeting. Based on the recommendation of our independent directors,
the Board has nominated the following seven directors to stand for election as directors at the Annual Meeting:
Sumitaka
Yamamoto
Kimio
Hosaka
Prakash
Sadasivam
Ferdinand
Groenewald
Yoshitomo
Yamano
Heather
Neville
Koji
Sato
Our
Board has determined in its business judgment that four of our seven director nominees (Ferdinand Groenewald, Yoshitomo Yamano, Heather
Neville and Koji Sato) are independent within the meaning of the rules of The Nasdaq Capital Market (“Nasdaq”), the Sarbanes-Oxley
Act of 2002, as amended (“SOX”), and related SEC rules. Therefore, if all seven nominees are elected, a majority of the members
of the Board of Directors will consist of independent directors.
Based
on the recommendation of our independent directors, the Board recommends a vote FOR Messrs. Yamamoto, Hosaka, Sadasivam, Groenewald,
Yamano, Sato and Ms. Neville. If elected, Messrs. Yamamoto, Hosaka, Sadasivam, Groenewald, Yamano, Sato and Ms. Neville will serve until
the 2024 annual meeting of stockholders or until their successors are duly elected and qualified, or their earlier death, resignation
or removal. If any of these nominees is unavailable for election, an event which the Board does not presently anticipate, the persons
named in the enclosed proxy intend to vote the proxies solicited hereby FOR the election of such other nominee or nominees as may be
nominated by the Board.
Vote
Required
Election
of each director requires the affirmative vote of the majority of the votes cast at the Annual Meeting. “Withhold” votes
and broker non-votes are not considered votes cast for the foregoing purpose, and will have no effect on the election of the director
nominees.
Recommendation
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” EACH OF MESSRS. YAMAMOTO, HOSAKA, SADASIVAM, GROENEWALD,
YAMANO, SATO AND MS. NEVILLE.
Below
is biographical and other information about the nominees for election as director, including information concerning the particular experience,
qualifications, attributes and/or skills that led the independent directors and the Board to determine that the nominee should serve
as a director, or each director should continue to serve as a director, as the case may be.
Sumitaka
Yamamoto. Mr. Yamamoto, age 58, has served as our Chairman of the Board of Directors since August 16, 2021 and served as our
Chief Executive Officer and President and been a member of our Board of Directors since May 18, 2021. Mr. Yamamoto is also the founder
of HeartCore Co. and has served as the Chief Executive Officer and member of the Board of Directors of HeartCore Co. since June 2009.
Mr. Yamamoto is a seasoned information technology software programmer. Mr. Yamamoto graduated with a bachelor’s degree in Spanish
from Kansai Gaidai University, Tokyo, Japan. Mr. Yamamoto does not hold, and has not previously held, any directorships in any reporting
companies. We believe that Mr. Yamamoto is qualified to serve on our Board of Directors due to his experience in all aspects of our business
and his ability to provide an insider’s perspective in board discussions about the business and strategic direction of the Company.
We believe that his experience gives him unique insights into our opportunities, challenges and operations.
Kimio
Hosaka. Mr. Hosaka, age 55, has served as our Chief Operating Officer and been a member of our Board of Directors since May 18,
2021. Mr. Hosaka has served as the Chief Operating Officer and member of the Board of Managers of HeartCore Co. since August 2015. Mr.
Hosaka graduated with a bachelor’s degree in physics from Chuo University, Tokyo, Japan. Mr. Hosaka does not hold, and has not
previously held, any directorships in any reporting companies. We believe that Mr. Hosaka is qualified to serve on our Board of Directors
due to his experience in business and operations matters.
Prakash
Sadasivam. Mr. Sadasivam, age 49, has served as our Chief Strategy Officer and been a member of our Board of Directors since
February 1, 2023. Mr. Sadasivam is a technology entrepreneur and the founder of Sigmaways. Under his leadership, Sigmaways has grown
into a global organization with a diverse team of experts in various technology fields. Mr. Sadasivam completed his undergraduate studies
in Computer Science and Engineering from Vellore Institute of Technology in India. He has also completed Management Development for Entrepreneurs
from UCLA, Anderson School of Management. He has also been official member of Forbes Technology Council since 2020.
Ferdinand
Groenewald. Mr. Groenewald, age 39, has been an independent member of our Board of Directors since January 24, 2022. Since
July 31, 2022, Mr. Groenewald has served in several capacities at the CFO Squad which provides outsourced accounting and consulting services.
From January 2, 2022 to July 31, 2022, Mr. Groenewald served as the Chief Accounting Officer of Muscle Maker, Inc., a Nasdaq listed
company. From September 2018 to January 2, 2022, Mr. Groenewald served as the Chief Financial Officer of Muscle Maker, Inc. From January
25, 2018 through May 29, 2018, Mr. Groenewald served as the Vice President of Finance, Principal Financial Officer and Principal Accounting
Officer of Muscle Maker, Inc., Muscle Maker Development, LLC and Muscle Maker Corp., LLC. In addition, from October 2017 through May
29, 2018, he served as the controller of Muscle Maker, Inc. Mr. Groenewald is a certified public accountant with significant experience
in finance and accounting. From July 2018 through August 2018, he served as senior financial reporting accountant of Wrinkle Gardner
& Company, a full service tax, accounting and business consulting firm. From February 2017 to October 2017, Mr. Groenewald served
as Senior Financial Accounting Consultant at Pharos Advisors, Inc. serving a broad range of industries. From November 2013 to February
2017, he served as a Senior Staff Accountant at Financial Consulting Strategies, LLC where he provided a broad range of accounting, financial
reporting, and pre-auditing services to various industries. From August 2015 to December 2015, Mr. Groenewald served as a Financial Reporting
Analyst at Valley National Bank. Mr. Groenewald holds a Bachelor of Science in accounting from the University of South Africa. Mr.
Groenewald serves as a member of the Board of Directors of Syla Technologies Co., Ltd., a publicly reporting company that is listed on
the Nasdaq Capital Market, since December 1, 2022. We believe that Mr. Groenewald is qualified to serve on our Board of Directors
due to his experience in business, financial and public company matters.
Yoshitomo
Yamano. Mr. Yamano, age 53, has been an independent member of our Board of Directors since May 18, 2021. Mr. Yamano was also
an independent member of the Board of Directors of HeartCore Co. from August 2018 through March 2021. Since April 2016, Mr. Yamano has
served as the Chief Executive Officer of Yamano Holdings Corporation. Mr. Yamano graduated with a bachelor’s degree in commerce
from Meiji University, Tokyo, Japan. Mr. Yamano does not hold, and has not previously held, any directorships in any reporting companies.
We believe that Mr. Yamano is qualified to serve on our Board of Directors due to his expertise in business and operations matters.
Heather
Neville. Ms. Neville, age 51, has served as Vice President of People Operations (Human Resources) at PlayStation since January
2021. From June 2019 to January 2021, she was Senior Director of People Operations (Human Resources) at StubHub, an eBay Inc. (Nasdaq:
EBAY) company, and from 2018 to 2019, Ms. Neville served as Senior Director of Go-to-Market Operations at Adobe Inc. (Nasdaq: ADBE).
Prior to that time, she served as Senior Director, North American Business Operations (2017-2018) and Senior Director, Head of HR operations
& Chief of Staff (2015-2017) at eBay Inc. She also previously held various positions at Dell Inc. (NYSE: DELL). Ms. Neville earned
a Bachelor of Arts from Ecole Superieure de Gestion in Paris, France, and a Master of Business Administration from Paris Graduate School
of Management in Paris, France. We believe that Ms. Neville
is qualified to serve on our Board of Directors due to her experience in business, financial and public company matters.
Koji
Sato. Mr. Sato, age 54, is founder and Managing Partner of GIIP Global Advisory, Inc., a multi-country accounting and CFO service
business. He has served as Managing Partner since its founding in 2009. Mr. Sato previously served as Senior Financial Officer and fund
of funds manager for Japanese investors for AIFAM Inc. and as Senior Consultant at KPMG, LLP and PricewaterhouseCoopers Japan (Chuo-Aoyama
Audit Corporation). Mr. Sato received a Masters in Business Administration from University of Southern California, Marshall School of
Business, and a B.S. in Social Science from Hitotsubashi University in Tokyo, Japan. We believe that Mr. Sato is qualified to serve on
our Board of Directors due to his experience in business, financial and accounting matters.
There
are no family relationships among any of the Company’s directors or executive officers.
Our
officers and directors are well qualified as leaders. In their prior positions, they have gained experience in core management skills,
such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development.
Our officers and directors also have experience serving on boards of directors and board committees of other public companies and private
companies, and have an understanding of corporate governance practices and trends, which provides an understanding of different business
processes, challenges, and strategies.
Controlled
Company and Director Independence
The
“controlled company” exception to Nasdaq Capital Market’s rules provide that a company of which more than 50% of the
voting power is held by an individual, group or another company, a “controlled company,” need not comply with certain requirements
of Nasdaq Capital Market’s corporate governance rules. As of the Record Date, Sumitaka Yamamoto, the Chairman of Board, Chief Executive
Officer and President of the Company, beneficially owns 10,495,969 shares of our common stock, which represent approximately 50.36%
of the voting power of our outstanding capital stock. As a result, the Company is a “controlled company”
under Nasdaq Capital Market corporate governance standards. As a controlled company, the Company does not have to comply with certain
corporate governance requirements under Nasdaq Capital Market rules, including the requirements that:
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a
majority of the Company’s Board of Directors to consist of “independent directors” as defined by the applicable
rules and regulations of Nasdaq Capital Market; |
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● |
the
compensation of the Company’s executive officers to be determined, or recommended to the Board of Directors for determination,
by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors
participate or by a Compensation Committee comprised solely of independent directors; and |
|
● |
that
director nominees to be selected, or recommended to the Board of Directors for selection, by independent directors constituting a
majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination committee
comprised solely of independent directors. |
The
Company has determined to avail itself of certain of these exemptions. More specifically, the Company does not have a compensation committee
or a nominating and corporate governance committee. Therefore, for as long as the Company remains a “controlled company,”
the Company will not have the same protections afforded to shareholders of companies that are subject to all of these corporate governance
requirements. If at any time the Company ceases to be a “controlled company” under the rules of Nasdaq Capital Market, the
Company’s Board of Directors will take all action necessary to comply with the corporate governance rules of Nasdaq Capital Market,
including establishing certain committees composed entirely of independent directors, subject to a permitted “phase-in” period.
Notwithstanding
the Company’s status as a controlled company, the Company will remain subject to the corporate governance standards of Nasdaq Capital
Market that require the Company to have an audit committee with at least three independent directors, as well as to be composed entirely
of independent directors.
The
Company’s Board of Directors has affirmatively determined that six of its current nine directors (Ferdinand Groenewald, Yoshitomo
Yamano, Yuki Tan, Takeshi Omoto, Yuta Katai and Heather Neville) are independent directors of the Company within the meaning of Nasdaq
Capital Market’s rules. Therefore, a majority of the members of the current Board of Directors consists of independent directors.
Our
Board has also affirmatively determined that four of our seven director nominees (Messrs. Groenewald, Yamano and Sato, and Ms. Neville)
are independent within the meaning of the Nasdaq rules, SOX, and related SEC rules. Therefore, if all nominees are elected, a majority
of the members of the Board of Directors will consist of independent directors.
Committees
of the Board of Directors
Audit
Committee
We
have established an audit committee, which currently consists of five independent directors: Ferdinand Groenewald, Yoshitomo Yamano,
Yuki Tan, Takeshi Omoto, and Yuta Katai. Mr. Groenewald is the chair of the audit committee. Each of Mr. Groenewald and Mrs. Katai qualifies
as an “audit committee financial expert” under SEC rules. Our audit committee adopted a written charter, a copy of which
is posted on the Corporate Governance section of our website, at www.heartcore.co.jp. If all director nominees are elected, we expect
that the audit committee will consist of the following three individuals: Messrs. Groenewald, Yamano and Sato, and that Mr. Groenewald
will continue to serve as chair of the audit committee.
Our
audit committee is authorized to:
|
● |
approve
and retain the independent auditors to conduct the annual audit of our financial statements; |
|
● |
review
the proposed scope and results of the audit; |
|
● |
review
and pre-approve audit and non-audit fees and services; |
|
● |
review
accounting and financial controls with the independent auditors and our financial and accounting staff; |
|
● |
review
and approve transactions between us and our directors, officers and affiliates; |
|
● |
recognize
and prevent prohibited non-audit services; |
|
● |
establish
procedures for complaints received by us regarding accounting matters; and |
|
● |
oversee
internal audit functions, if any. |
Compensation
Committee
Because
we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq Capital Market, we are not
required to, and do not, have a compensation committee. If and when we are no longer a “controlled company”, we will be required
to establish a compensation committee. We anticipate that such a compensation committee would consist of three directors who will be
“independent” under the rules of the SEC, subject to the permitted “phase-in” period pursuant to the rules of
Nasdaq Capital Market. Upon formation of a compensation committee, we would expect to adopt a compensation committee charter defining
the committee’s primary duties in a manner consistent with the rules of the SEC and Nasdaq Capital Market standards.
Nominating
and Corporate Governance Committee
Because
we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq Capital Market, we are not
required to, and do not, have a nominating and corporate governance committee. If and when we are no longer a “controlled company”,
we will be required to establish a nominating and corporate governance committee. We anticipate that such a nominating and corporate
governance committee would consist of three directors who will be “independent” under the rules of the SEC, subject to the
permitted “phase-in” period pursuant to the rules of Nasdaq Capital Market. Upon formation of a nominating and corporate
governance committee, we would expect to adopt a nominating and corporate governance committee charter defining the committee’s
primary duties in a manner consistent with the rules of the SEC and Nasdaq Capital Market standards.
A
stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies
with the notice and information provisions contained in our bylaws. Such notice must be in writing to our company not less than 90 days
and not more than 120 days prior to the anniversary date of the preceding year’s annual meeting of stockholders or as otherwise
required by requirements of the Exchange Act. In addition, stockholders furnishing such notice must be a holder of record on both (i)
the date of delivering such notice and (ii) the record date for the determination of stockholders entitled to vote at such meeting.
We
have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess.
In general, in identifying and evaluating nominees for director, the Board of Directors considers educational background, diversity of
professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent
the best interests of our stockholders.
Procedures
for Recommending, Nominating and Evaluating Director Candidates
The
Board will consider director candidates recommended by stockholders. A stockholder who wishes to recommend a director candidate for nomination
by the Board at an annual meeting of stockholders or for vacancies of the Board that arise between annual meetings must provide the Board
with sufficient written documentation to permit a determination by the Board whether such candidate meets the required and desired director
selection criteria set forth in our bylaws. A stockholder may nominate one or more persons for election as a director at an annual meeting
of stockholders if the stockholder complies with the notice and information provisions contained in our bylaws. Such notice must be in
writing to our company not less than 90 days and not more than 120 days prior to the anniversary date of the preceding year’s annual
meeting of stockholders or as otherwise required by requirements of the Exchange Act. In addition, stockholders furnishing such notice
must be a holder of record on both (i) the date of delivering such notice and (ii) the record date for the determination of stockholders
entitled to vote at such meeting. Such documentation and the name of the director candidate should be sent by U.S. mail to:
HeartCore
Enterprises, Inc. Board of Directors
c/o
HeartCore Enterprises, Inc.
Attention:
Corporate Secretary
1-2-33,
Higashigotanda, Shinagawa-ku
Tokyo,
Japan
We
have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess.
In general, in identifying and evaluating nominees for director, the Board of Directors considers educational background, diversity of
professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent
the best interests of our stockholders.
The
Board is authorized to use, as it deems appropriate or necessary, an outside consultant to identify and screen potential director candidates.
No outside consultants were used during the fiscal year ended December 31, 2022 to identify or screen potential director candidates.
The Board will reassess the qualifications of a current director, including the director’s attendance and contributions at Board
and committee meetings, prior to recommending a director for reelection.
Code
of Ethics
We
have adopted a code of ethics meeting the requirements of SOX Section 406 that applies to all of our directors, officers (including our
principal executive officer, principal financial officer, principal accounting officer or controller, and any person performing similar
functions) and employees. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct;
provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal
reporting of violations; and provide accountability for adherence to the provisions of the code of ethics.
The
Code of Ethics and Business Conduct is available on our website at www.heartcore.co.jp.
We
are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer,
principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our
website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our
website within four business days following the date of any such amendment to, or waiver from, a provision of our code of ethics.
Board
Leadership Structure and Board’s Role in Risk Oversight
We
have not separated the positions of Chairman of the Board and Chief Executive Officer. Mr. Yamamoto has served as our Chairman of the
Board of Directors since August 16, 2021 and Chief Executive Officer since May 18, 2021. We believe that combining the positions of Chairman
and Chief Executive Officer allows for focused leadership of our organization which benefits us in our relationships with investors,
customers, suppliers, employees and other constituencies. We believe that consolidating the leadership of the Company under Mr. Yamamoto
is the appropriate leadership structure for our Company and that any risks inherent in that structure are balanced by the oversight of
our other independent directors on our Board. However, no single leadership model is right for all companies and at all times. The Board
recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might
be appropriate. Accordingly, the Board may periodically review its leadership structure. In addition, our Board holds executive sessions
in which only independent directors are present.
Our
Board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal
source of risk falls into two categories, financial and product commercialization. The audit committee oversees management of financial
risks, and our Board regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated
with each. The Board regularly reviews plans, results and potential risks related to our business. The Board is also expected to oversee
risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors,
particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which
could have a material adverse effect on the Company.
Procedures
for Contacting the Board
The
Board has established a process for stockholders and other interested parties to send written communications to the Board, the non-management
directors, a particular committee or to individual directors, as applicable. Such communications should be sent by U.S. mail addressed
to:
HeartCore
Enterprises, Inc. Board of Directors
c/o
HeartCore Enterprises, Inc.
Attention:
Corporate Secretary
1-2-33,
Higashigotanda, Shinagawa-ku
Tokyo,
Japan
The
Board has instructed the Corporate Secretary to promptly forward all communications so received to the full Board, the non-management
directors or the individual Board member(s) specifically addressed in the communication. Comments or questions regarding our accounting,
internal controls or auditing matters, our compensation and benefit programs, or the nomination of directors and other corporate governance
matters will remain with the full Board.
Depending
on the subject matter, the Company’s Corporate Secretary will:
|
● |
Forward
the communication to the director or directors to whom it is addressed; |
|
● |
Attempt
to handle the inquiry directly, for example, where it is a request for information about our Company or if it is a stock-related
matter; or |
|
● |
Not
forward the communication if it is primarily commercial in nature or if it relates to a topic that is not relevant to the Board or
a particular committee or is otherwise improper. |
EXECUTIVE
COMPENSATION
2022
Summary Compensation Table
The
following summary compensation table provides information regarding the compensation paid during our fiscal years ended December 31,
2022 and 2021 to certain of our executive officers, who we collectively refer to as our “named executive officers”, or “NEOs”.
Name
and Position | |
Year | |
Salary ($) | | |
Bonus ($) | | |
Stock
Awards ($) | | |
Option
Awards ($) | | |
Non-
Equity Incentive Plan Compensation ($) | | |
Non-
qualified Deferred Compensation Earnings ($) | | |
All
Other Compensation ($) | | |
Total
($) | |
Sumitaka
Yamamoto | |
2022 | |
$ | 508,390 | | |
$ | 138,803 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | | | |
$ | 647,193 | |
Chief
Executive Officer | |
2021 | |
$ | 387,025 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 387,025 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Keisuke
Kuno | |
2022 | |
$ | 103,535 | | |
$ | | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 103,535 | |
CX
DIV. Vice President | |
2021 | |
$ | 130,946 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 130,946 | |
Employment
Agreements
Executive
Employment Agreement with Sumitaka Yamamoto
On
October 28, 2022, we entered into an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant
to the Amendment Agreement, Mr. Yamamoto’s annual salary increased from $381,000 to $450,000, effective November 1, 2022.
Executive
Employment Agreement with Qizhi Gao
On
January 10, 2023, we entered into an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant
to the Amendment Agreement, Mr. Gao’s annual salary increased from $54,012 to $120,222, effective January 1, 2023.
Executive
Employment Agreement with Kimio Hosaka
On
January 10, 2023, we entered into an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant
to the Amendment Agreement, Mr. Hosaka’s annual salary increased from $95,459 to $164,770, effective January 1, 2023.
Executive
Employment Agreement with Hidekazu Miyata
On
January 10, 2023, we entered into an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant
to the Amendment Agreement, Mr. Miyata’s annual salary increased from $75,600 to $112,616, effective January 1, 2023.
Executive
Employment Agreement with Keisuke Kuno
On
January 10, 2023, we entered into an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant
to the Amendment Agreement, Mr. Kuno’s annual salary increased from $109,000 to $152,308, effective January 1, 2023.
Provisions
Applicable to All Executive Employment Agreements
Each
of the Executive Employment Agreements as described above, has an initial term of one year, provided that the term of each agreement
will automatically be extended for one or more additional terms of one year each unless either the Company or applicable executive provides
notice to the other of their desire to not so renew the initial term or renewal term (as applicable) at least 30 days prior to the expiration
of then-current initial term or renewal term (as applicable). Each of the agreements provide that the applicable executive’s employment
with the Company shall be “at will,” meaning that either applicable executive or the Company may terminate the applicable
executive’s employment at any time and for any reason, subject to the other provisions of the agreement.
Each
of the agreements may be terminated by the Company, either with or without “Cause”, or by the applicable executive, either
with or without “Good Reason”.
For
purposes of each agreement, “Cause” means:
|
● |
a
violation of any material written rule or policy of the Company for which violation any employee may be terminated pursuant to the
written policies of the Company reasonably applicable to an executive employee; |
|
|
|
|
● |
misconduct
by the applicable executive to the material detriment of the Company; |
|
|
|
|
● |
the
applicable executive’s conviction (by a court of competent jurisdiction, not subject to further appeal) of, or pleading guilty
to, a felony; |
|
|
|
|
● |
the
applicable executive’s gross negligence in the performance of the applicable executive’s duties and responsibilities
to the Company as described in this Agreement; or |
|
|
|
|
● |
the
applicable executive’s material failure to perform the applicable executive’s duties and responsibilities to the Company
as described in the agreement (other than any such failure resulting from the applicable executive’s incapacity due to physical
or mental illness or any such failure subsequent to the applicable executive being delivered a notice of termination without Cause
by the Company or delivering a notice of termination for Good Reason to the Company), in either case after written notice from the
Board to the applicable executive of the specific nature of such material failure and the applicable executive’s failure to
cure such material failure within 10 days following receipt of such notice. |
For
purposes of each agreement, “Good Reason” means:
|
● |
at
any time following a Change of Control (as defined below), a material diminution by the Company of compensation and benefits (taken
as a whole) provided to the applicable executive immediately prior to a Change of Control; |
|
|
|
|
● |
a
reduction in base salary or target or maximum bonus, other than as part of an across-the-board reduction in salaries of management
personnel; |
|
|
|
|
● |
the
relocation of the applicable executive’s principal executive office to a location more than 50 miles further from the applicable
executive’s principal executive office immediately prior to such relocation; or |
|
|
|
|
● |
a
material breach by the Company of any of the terms and conditions of the agreement which the Company fails to correct within 10 days
after the Company receives written notice from the applicable executive of such violation. |
For
purposes of each agreement a “Change of Control” of the Company will be deemed to have occurred if, after the effective date
of the applicable agreement, (i) the beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of securities representing
more than 50% of the combined voting power of the Company is acquired by any “person” as defined in sections 13(d) and 14(d)
of the Exchange Act (other than the Company, any subsidiary of the Company, or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company), (ii) the merger or consolidation of the Company with or into another corporation where the
shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate
50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger
(or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of the Company immediately prior
to such merger or consolidation, or (iii) the sale or other disposition of all or substantially all of the Company’s assets to
an entity, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at
least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by shareholders of the Company,
immediately prior to the sale or disposition, in substantially the same proportion as their ownership of the Company immediately prior
to such sale or disposition.
In
the event that the Company terminates the term of the applicable agreement or the applicable executive’s employment with Cause,
or if the applicable executive terminates their agreement without good reason, then, subject to any other agreements between the company
with respect to other equity grants made to such executive:
|
● |
the
Company will pay to the applicable executive any unpaid base salary and benefits then owed or accrued, and any unreimbursed expenses; |
|
|
|
|
● |
any
unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the
Company will immediately be forfeited; and |
|
|
|
|
● |
all
of the parties’ rights and obligations under the agreement will cease, other than those rights or obligations which arose prior
to the termination date or in connection with such termination, and subject to the survival provisions of the agreements. |
In
the event that the Company terminates the term of the applicable agreement or the applicable executive’s employment without Cause,
or if the applicable executive terminates their agreement with good reason, then, subject to any other agreements between the company
with respect to other equity grants made to such executive:
|
● |
the
Company will pay to the applicable executive any base salary, bonuses, and benefits then owed or accrued, and any unreimbursed expenses; |
|
|
|
|
● |
the
Company will pay to the applicable executive, in one lump sum, an amount equal to the base salary that would have been paid to the
applicable executive for the remainder of the initial term of the applicable agreement (if the termination occurs during the initial
term of the applicable agreement) or renewal term of the applicable agreement (if the termination occurs during a renewal term of
the applicable agreement); |
|
|
|
|
● |
any
unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the
Company will, to the extent not already vested, be deemed automatically vested; and |
|
|
|
|
● |
all
of the parties’ rights and obligations under the agreement will cease, other than those rights or obligations which arose prior
to the termination date or in connection with such termination, and subject to the survival provisions of the agreements. |
In
the event of the applicable executive’s death or total disability during the term of the applicable agreement, the term of the
applicable agreement and the applicable executive’s employment shall terminate on the date of death or total disability. In the
event of such termination, the Company’s sole obligations hereunder to the applicable executive (or the applicable executive’s
estate) shall be for unpaid base salary, accrued but unpaid bonus and benefits (then owed or accrued and owed in the future), a pro-rata
bonus for the year of termination based on the applicable executive’s target bonus for such year and the portion of such year in
which the applicable executive was employed, and reimbursement of expenses pursuant to the terms hereon through the effective date of
termination, and any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements
with the Company will immediately be forfeited as of the termination date.
In
the event that the term of the applicable agreement is not renewed by either party, any unvested portion of any equity granted to the
applicable executive under the applicable agreement or any other agreements with the Company will immediately be forfeited as of the
expiration of the term of the applicable agreement without any further action of the parties.
If
it is determined that any payment provided to the applicable executive under the applicable agreement or otherwise, whether or not in
connection with a Change of Control (a “Payment”), would constitute an “excess parachute payment” within the
meaning of section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), such that the Payment would be subject
to an excise tax under section 4999 of the Code (the “Excise Tax”), the Company will pay to the applicable executive an additional
amount (the “Gross-Up Payment”) such that the net amount of the Gross-Up Payment retained by the applicable executive after
the payment of any Excise Tax and any federal, state and local income and employment tax on the Gross-Up Payment, shall be equal to the
Excise Tax due on the Payment and any interest and penalties in respect of such Excise Tax.
During
the term of the applicable agreement, the applicable executive is entitled to fringe benefits consistent with the practices of the Company,
and to the extent the Company provides similar benefits to the Company’s executive officers, and is entitled to reimbursement for
all reasonable and necessary out-of-pocket business, entertainment and travel expenses incurred by the applicable executive in connection
with the performance of the applicable executive’s duties hereunder and in accordance with the Company’s expense reimbursement
policies and procedures.
Each
of the agreements provides that, during the term of the applicable agreement, the applicable executive will be entitled to indemnification
and insurance coverage for officers’ liability, fiduciary liability and other liabilities arising out of the applicable executive’s
position with the Company in any capacity, in an amount not less than the highest amount available to any other executive, and such coverage
and protections, with respect to the various liabilities as to which the applicable executive has been customarily indemnified prior
to termination of employment, shall continue for at least six years following the end of the term of the applicable agreement. Any indemnification
agreement entered into between the Company and the applicable executive shall continue in full force and effect in accordance with its
terms following the termination of the applicable.
Each
of the employment agreements contains customary confidentiality provisions, and customary provisions related to Company ownership of
intellectual property conceived or made by the applicable executive in connection with the performance of their duties under the applicable
agreement (i.e., a “work-made-for-hire” provision).
Each
of the agreements contains a non-compete provision which provides that, for the term of the applicable agreement and for a period of
two years thereafter, the applicable executive shall not, directly or indirectly: (i) engage in any other business, association or relationship
of any kind with any business which provides, in whole or in part, the same or similar services and/or products offered by the which
directly or indirectly competes with Company; nor (ii) solicit or accept, or induce any person or entity to reduce goods or services
to Company, or in any manner assist others in the solicitation, acceptance, or inducement of, any business transactions with Company’s
existing and prospective clients, accounts, suppliers and/or other persons or entities with whom the Company has had business relationships
(or whom Company had specifically identified for a prospective business relationship). These restrictions extend to the geographic area
in which Company actively conducted business immediately prior to termination of the applicable agreement.
Each
of the agreements also contains a customary non-solicitation provision, in which the applicable executive agrees that, for the term of
the applicable agreement and for a period of three years thereafter, the applicable executive will not, directly or indirectly solicit
or discuss with any employee of Company the employment of such Company employee by any other commercial enterprise other than Company,
nor recruit, attempt to recruit, hire or attempt to hire any such Company employee on behalf of any commercial enterprise other than
Company, provided that this provision does not prohibit the applicable executive from undertaking a general recruitment advertisement
provided that the foregoing is not targeted towards any person or entity identified above, or from hiring, employing or engaging any
such person or entity who responds to such general recruitment advertisement.
Due
to the application of various states’ laws, there is no assurance that the non-compete provisions or the non-solicitation provisions
as set forth in each of the agreements will be enforced. Each of the agreements contains a “blue pencil” provision that,
in the event that a court determines that any of these restrictions are unenforceable, the parties to the agreement agreed that it is
their desire that the court substitute an enforceable restriction in place of any restriction deemed unenforceable, and that the substitute
restriction be deemed incorporated in the agreement and enforceable against the applicable executive.
Each
of the agreements contains customary representations and warranties by the applicable executive, relating to the agreement, and any securities
of the Company that may be issued to the executive, and contains other customary miscellaneous provisions relating to waivers, assignments,
third party rights, survival of provisions following termination, severability, notices, waiver of jury trials and other provisions.
Each
of the agreements is governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and for all
purposes shall be construed in accordance with the laws of such state, without giving effect to the choice of law provisions of such
state. Each of the agreements provide that all legal proceedings concerning the applicable agreement will be in the state and federal
courts sitting in Santa Clara County, California, provided that each agreement also includes a provision relating to any disputes being
settled by arbitration.
Award
Agreements
On
February 9, 2022, each of the executives for whom an employment agreement was executed was issued a number of shares of restricted stock
pursuant to the Company’s 2021 Equity Incentive Plan. These awards were made pursuant to the form of restricted award agreement
which is attached to the 2021 Equity Incentive Plan. Each of the award agreements provides that the shares vest 25% a year, on each annual
anniversary of the date of the employment agreement, subject to earlier vesting and forfeiture as described in the employment agreements
(as described above). In other words, the grants vest with respect to 25% of the shares on each of February 9, 2023, February 9, 2024,
February 9, 2025 and February 9, 2026. The first 25% shares of restricted stock of 21,454 shares were issued on February 16, 2023.
Name | |
Number
of Shares of Restricted
Stock | |
Sumitaka
Yamamoto | |
| 45,720 | |
Qizhi
Gao | |
| 6,481 | |
Kimio
Hosaka | |
| 11,455 | |
Hidekazu
Miyata | |
| 9,072 | |
Keisuke
Kuno | |
| 13,092 | |
On
February 24, 2022, and effective February 22, 2022, the Audit Committee and the Board of Directors approved the payment by the Company
of a performance-linked executive bonus in the amount of 18,000,000 Japanese Yen (approximately $138,803), to Sumitaka Yamamoto, the
Company’s Chairman of Board, Chief Executive Officer, President and majority stockholder, in consideration of Mr. Yamamoto’s
prior performance for the benefit of the Company and its stockholders.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information on outstanding options and stock awards held by the executive officers as of December 31, 2022.
| |
Option
Awards | |
Stock
Awards | |
Name | |
Number
of Securities Underlying Unexercised Options
(#) Exercisable | | |
Number
of Securities Underlying Unexercised Options
(#) Unexercisable | | |
Option Exercise Price
($) | | |
Option Expiration Date | |
Number
of Shares
or Units
Of Stock
that Have
Not Vested
(#) | | |
Market
Value Per Share Of Shares
Or Units
of Stock
That Have
Not Vested
($) | |
Sumitaka
Yamamoto | |
| - | | |
| - | | |
$ | - | | |
- | |
| 45,720 | | |
$ | 0.91 | |
Keisuke
Kuno | |
| 18,750 | | |
| 56,250 | | |
$ | 2.5 | | |
12/25/2031 | |
| 13,092 | | |
$ | 0.91 | |
Kimio
Hosaka | |
| 25,000 | | |
| 75,000 | | |
$ | 2.5 | | |
12/25/2031 | |
| 11,455 | | |
$ | 0.91 | |
Hidekazu
Miyata | |
| 12,500 | | |
| 37,500 | | |
$ | 2.5 | | |
12/25/2031 | |
| 9,072 | | |
$ | 0.91 | |
Qizhi
Gao | |
| 12,500 | | |
| 37,500 | | |
$ | 2.5 | | |
12/25/2031 | |
| 6,481 | | |
$ | 0.91 | |
Additional
Narrative Disclosure
Retirement
Benefits
We
have not maintained, and do not currently maintain, a defined benefit pension plan, nonqualified deferred compensation plan, 401(k) plan
or other retirement benefits.
Potential
Payments Upon Termination or Change in Control
As
described under “— Employment Agreements” above, each of the executives with whom the Company has entered into employment
agreements are entitled severance if their employment is terminated by the Company without “Cause” or is terminated by the
applicable executive with “Good Reason”, in each case as described above.
Director
Compensation
Other
than as set forth in the table and described more fully below, we did not pay any compensation or make any equity awards or non-equity
awards to any of our non-employee directors during fiscal year 2022. Directors may be reimbursed for travel and other expenses directly
related to their activities as directors. Directors who also serve as employees receive no additional compensation for their service
as directors. During fiscal year 2022, each of Sumitaka Yamamoto, our Chief Executive Officer, and Kimio Hosaka, our Chief Operating
Officer, was a member of our board of directors, as well as an employee, and received no additional compensation for their services as
a director. See the section titled “Executive Compensation” for more information about the compensation for these individuals
for fiscal year 2022.
The
following table presents the total compensation for each person who served as a non-employee director of the Company during fiscal year
2022.
Name | |
Fees
Earned or Paid
in Cash ($) | | |
All
Other Compensation
($) | | |
Total
($) | |
Takeshi
Omoto | |
| 50,963 | | |
| - | | |
| 50,963 | |
Yoshitomo
Yamano | |
| 50,476 | | |
| - | | |
| 50,476 | |
Yuki
Tan | |
| 50,476 | | |
| - | | |
| 50,476 | |
Yuta
Katai | |
| 50,963 | | |
| - | | |
| 50,963 | |
Ferdinand
Groenewald | |
| 52,251 | | |
| - | | |
| 52,251 | |
Independent
Director Agreements
Takeshi
Omoto, Yoshitomo Yamano, Yuki Tan and Yuta Katai entered into the Company’s form of Independent Director Agreement dated as of
February 9, 2022. Previously, Ferdinand Groenewald entered into the Company’s form of Independent Director Agreement.
The
Independent Director Agreements provide that each non-employee director will be compensated as follows:
|
● |
Each
director will be paid the sum of $50,000 annually for director’s service as a director of the Company, to be paid $12,500 each
calendar quarter, payable within five business days of the end of each calendar quarter, and with such amount for any partial calendar
quarter being appropriately prorated. |
|
|
|
|
● |
Each
director shall be paid $4,000 annually for service as a member of the Audit Committee and an additional sum of $3,000 annually for
service as the Chairman of the Audit Committee, with each of these payments to be paid quarterly in equal portions, within five business
days of the end of each calendar quarter, and with any amount for any partial calendar quarter being appropriately prorated. |
During
the term of the applicable independent director agreement, the Company will reimburse the applicable director for all reasonable out-of-pocket
expenses incurred by the applicable director in attending any in-person meetings, provided that the applicable director complies with
the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation
of such expenses. Any reimbursements for allocated expenses (as compared to out-of-pocket expenses of the applicable director in excess
of $500) must be approved in advance by the Company.
Each
of the agreements contains customary confidentiality provisions, and customary provisions related to Company ownership of intellectual
property conceived or made by the applicable director in connection with the performance of their duties under the applicable agreement
(i.e., a “work-made-for-hire” provision).
Each
of the agreement provide that, during the term (which continues as long as the applicable director is serving as a director of the Company),
the applicable director is be entitled to indemnification and insurance coverage for officers’ liability, fiduciary liability and
other liabilities arising out of the applicable director’s position with the Company in any capacity, in an amount not less than
the highest amount available to any other director, and such coverage and protections, with respect to the various liabilities as to
which the applicable director has been customarily indemnified prior to termination of employment, shall continue for at least six years
following the end of the term. Any indemnification agreement entered into between the Company and the applicable director will continue
in full force and effect in accordance with its terms following the termination of the applicable agreement.
Each
of the agreements contains customary representations and warranties by the applicable director, relating to the agreement, and contains
other customary miscellaneous provisions relating to waivers, assignments, third party rights, survival of provisions following termination,
severability, notices, waiver of jury trials and other provisions.
Each
of the agreements is governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and for all
purposes shall be construed in accordance with the laws of such state, without giving effect to the choice of law provisions of such
state. Each of the agreements provide that all legal proceedings concerning the applicable agreement will be in the state and federal
courts sitting in Santa Clara County, California, provided that each agreement also includes a provision relating to any disputes being
settled by arbitration.
2021
Equity Incentive Plan
Overview
The
Board of Directors and stockholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”) on August 6,
2021. Under the 2021 Plan, 2,400,000 shares of common stock are authorized for issuance to employees, directors and independent contractors
(except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction,
or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiary. The 2021 Plan authorizes equity-based
and cash-based incentives for participants. There were 4,330 shares available for award as of the Record Date under the 2021 Plan.
The
purpose of 2021 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through
the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this 2021 Plan, in whole or in part. To the extent then required by applicable
law or any applicable stock exchange or required under the Code to preserve the intended tax consequences of the 2021 Plan, or deemed
necessary or advisable by the Board, the 2021 Plan and any amendment to the 2021 Plan shall be subject to stockholder approval. Unless
earlier terminated by the Board, the 2021 Plan will terminate ten years from the date of adoption.
Authorized
Shares
A
total of 2,400,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2021 Plan. Subject to adjustment
as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased
on January 1, 2022 and on each subsequent January 1, by a number of shares equal to the smaller of (i) 3% of the number of shares of
common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Board.
Additionally,
if any award issued pursuant to the 2021 Plan expires or becomes unexercisable without having been exercised in full, is surrendered
pursuant to an exchange program, as provided in the 2021 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”),
performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares
(or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto
will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). With respect to stock appreciation
rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2021 Plan; all remaining
shares under stock appreciation rights will remain available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated).
Shares that have actually been issued under the 2021 Plan under any award will not be returned to the 2021 Plan and will not become available
for future distribution under the 2021 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted
stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure
to vest, such shares will become available for future grant under the 2021 Plan. Shares used to pay the exercise price of an award or
to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2021 Plan. To the extent
an award under the 2021 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares
available for issuance under the 2021 Plan.
Notwithstanding
the foregoing and, subject to adjustment as provided in the 2021 Plan, the maximum number of shares that may be issued upon the exercise
of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the
Code and regulations promulgated thereunder, any shares that become available for issuance under the 2021 Plan in accordance with the
foregoing.
Plan
Administration
The
Board or one or more committees appointed by the Board will administer the 2021 Plan. In addition, if the Company determines it is desirable
to qualify transactions under the 2021 Plan as exempt under Rule 16b-3 of the Exchange Act, such transactions will be structured with
the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2021 Plan, the administrator
has the power to administer the 2021 Plan and make all determinations deemed necessary or advisable for administering the 2021 Plan,
including the power to determine the fair market value of the Company’s common stock, select the service providers to whom awards
may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2021 Plan,
determine the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any
vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating
thereto), construe and interpret the terms of the 2021 Plan and awards granted under it, prescribe, amend and rescind rules relating
to the 2021 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority to extend the post-termination
exercisability period of awards (provided that no option or stock appreciation right will be extended past its original maximum term),
and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant
under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial
institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards
may be surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price or different
terms, awards of a different type or cash, or by which the exercise price of an outstanding award is increased or reduced. The administrator’s
decisions, interpretations and other actions are final and binding on all participants.
Eligibility
Awards
under the 2021 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary,
members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock
options may be granted only to employees of the Company or a subsidiary.
Stock
Options
Stock
options may be granted under the 2021 Plan. The exercise price of options granted under the 2021 Plan generally must at least be equal
to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable
award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine
the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator,
as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant,
they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award
agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the
absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service.
An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines
the other terms of options.
Stock
Appreciation Rights
Stock
appreciation rights may be granted under the 2021 Plan. Stock appreciation rights allow the recipient to receive the appreciation in
the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights
may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their
stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time
in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months.
In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for
three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration
of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of stock appreciation rights, including
when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common
stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock
appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted
Stock
Restricted
stock may be granted under the 2021 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest
in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted
stock granted to any employee, director or consultant and, subject to the provisions of the 2021 Plan, will determine the terms and conditions
of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator
may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however,
that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients
of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting,
unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of
repurchase or forfeiture.
Restricted
Stock Units
RSUs
may be granted under the 2021 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of
the Company’s common stock. Subject to the provisions of the 2021 Plan, the administrator determines the terms and conditions of
RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement
of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state
securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may
pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the
foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.
Performance
Units and Performance Shares
Performance
units and performance shares may be granted under the 2021 Plan. Performance units and performance shares are awards that will result
in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The
administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which
they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The
administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals
(including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator
in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce
or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall
have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial
value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion,
may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof.
Non-Employee
Directors
The
2021 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options)
under the 2021 Plan. The 2021 Plan includes a maximum limit of $750,000 of equity awards that may be granted to a non-employee director
in any fiscal year, increased to $1,500,000 in connection with his or her initial service. For purposes of this limitation, the value
of equity awards is based on the grant date fair value (determined in accordance with accounting principles generally accepted in the
United States). Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other
than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size
of any potential compensation or equity awards to the Company’s non-employee directors.
Non-transferability
of Awards
Unless
the administrator provides otherwise, the 2021 Plan generally does not allow for the transfer of awards and only the recipient of an
award may exercise an award during their lifetime. If the administrator makes an award transferrable, such award will contain such additional
terms and conditions as the administrator deems appropriate.
Certain
Adjustments
In
the event of certain changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential
benefits available under the 2021 Plan, the administrator will adjust the number and class of shares that may be delivered under the
2021 Plan or the number, and price of shares covered by each outstanding award and the numerical share limits set forth in the 2021 Plan.
Dissolution
or Liquidation
In
the event of the Company’s proposed liquidation or dissolution, the administrator will notify participants as soon as practicable
and all awards will terminate immediately prior to the consummation of such proposed transaction.
Merger
or Change in Control
The
2021 Plan provides that in the event of the Company’s merger with or into another corporation or entity or a “change in control”
(as defined in the 2021 Plan), each outstanding award will be treated as the administrator determines, including, without limitation,
that (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or
an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant,
that the participant’s awards will terminate upon or immediately prior to the consummation of such merger or change in control;
(iii) outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse,
in whole or in part, prior to or upon consummation of such merger or change in control and, to the extent the administrator determines,
terminate upon or immediately prior to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in
exchange for an amount of cash or property, if any, equal to the amount that would have been attained upon the exercise of such award
or realization of the participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt,
if as of the date of the occurrence of the transaction the administrator determines in good faith that no amount would have been attained
upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by the Company without
payment) or (B) the replacement of such award with other rights or property selected by the administrator in its sole discretion; or
(v) any combination of the foregoing. The administrator will not be obligated to treat all awards, all awards a participant holds, or
all awards of the same type, similarly. In the event that awards (or portion thereof) are not assumed or substituted for in the event
of a merger or change in control, the participant will fully vest in and have the right to exercise all of their outstanding options
and stock appreciation rights, including shares as to which such awards would not otherwise be vested or exercisable, all restrictions
on restricted stock and RSUs will lapse and, with respect to awards with performance-based vesting, all performance goals or other vesting
criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, in all cases, unless specifically provided
otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of the Company’s
subsidiary or parents, as applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger
or change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation
right will be exercisable for a period of time determined by the administrator in its sole discretion and the vested option or stock
appreciation right will terminate upon the expiration of such period.
For
awards granted to an outside director, the outside director will fully vest in and have the right to exercise all of their outstanding
options and stock appreciation rights, all restrictions on restricted stock and RSUs will lapse and, for awards with performance-based
vesting, unless specifically provided for in the award agreement, all performance goals or other vesting criteria will be deemed achieved
at 100% of target levels and all other terms and conditions met.
Clawback
Awards
will be subject to any Company clawback policy that the Company is required to adopt pursuant to the listing standards of any national
securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall
Street Reform and Consumer Protection Act or other applicable laws. The administrator also may specify in an award agreement that the
participant’s rights, payments or benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment
upon the occurrence of certain specified events. The Board may require a participant to forfeit, return or reimburse the Company all
or a portion of the award or shares issued under the award, any amounts paid under the award and any payments or proceeds paid or provided
upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws.
Amendment
and Termination
The
administrator has the authority to amend, suspend or terminate the 2021 Plan provided such action does not impair the existing rights
of any participant. The 2021 Plan automatically will terminate on August 6, 2031, unless it is terminated sooner.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies
and Procedures for Related Party Transactions
Under
Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series
of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business,
to which we or our subsidiary were or are a party, or in which we or our subsidiary were or are a participant, in which the amount involved
exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years
and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting
securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will
have a direct or indirect material interest.
We
recognize that transactions between us and any of our directors or executives or with a third party in which one of our officers, directors
or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our
decisions are based on considerations other than the best interests of our Company and stockholders.
The
Audit Committee of the Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between
the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any
such transactions, as reported or disclosed to the Audit Committee by the independent auditors, employees, officers, members of the Board
of Directors or otherwise, and to determine whether the terms of the transaction are not less favorable to us than could be obtained
from an unaffiliated party.
From
time to time, we engage in transactions with related parties. The following is a summary of the related party transactions during the
fiscal years ended December 31, 2022 and 2021, and any proposed transactions, requiring disclosure pursuant to Item 404 of Regulation
S-K. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described
below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Related
Party Transactions
As
of December 31, 2022 and 2021, the Company has a due to related party balance of $402 and $1,110, respectively, from Sumitaka Yamamoto,
the CEO and major shareholder of the Company. The balance is unsecured, non-interest bearing and due on demand. During the year ended
December 31, 2022, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company in
a net amount of $575. During the year ended December 31, 2021, the Company advanced $87,664 to this related party, and the related party
paid expenses of $111,350 on behalf of the Company. As of December 31, 2020, Sumitaka Yamamoto held 467,622 shares issued with repurchase
provision in relation to the stock options the Company granted in May 2016 that he repurchased on behalf of the Company. On November
3, 2021, the Company redeemed 484,056 shares that Sumitaka Yamamoto held on behalf of the Company for $1 and settled the share repurchase
payable to him of $28, resulting in a gain on shares redemption of $27.
As
of December 31, 2022 and 2021, the Company has a loan receivable balance of $294,919 and $386,315, respectively, from Heartcore Technology
Inc., a company controlled by the CEO of the Company. The loan was made to the related party to support its operation. The balance is
unsecured, bears an annual interest of 1.475%, and requires repayments in installments starting from February 2022. During the year ended
December 31, 2021, the Company loaned $55,212 to this related party, and the related party paid expenses of $13,704 on behalf of the
Company. During the year ended December 31, 2022, the Company received repayments of $44,871 from this related party.
In
June 2020, Suzuyo Shinwart Corporation became an over 10% shareholder of the Company. In July 2021, Suzuyo Shinwart Corporation sold
all its shares of the Company to the Company’s CEO and ceased to be the Company’s related party. During the period from January
1, 2021 to July 12, 2021, when Suzuyo Shinwart Corporation was a related party of the Company, the Company has revenues from this related
party of $157,791 from software sales and incurred cost with this related party of $332,669 for software development services provided.
During
the period from January 1, 2022 through January 13, 2022, the Company completed a private placement, in which, it issued 30,000 shares
of common shares at a purchase price of $2.50 per share to the officers of the Company for an aggregate amount of $75,000. During the
period from October 27, 2021 through December 31, 2021, the Company completed a private placement, in which, it issued 30,000 shares
of common shares at a purchase price of $2.50 per share to the officers of the Company for an aggregate amount of $75,000.
Director
Independence
The
Company’s Board of Directors has affirmatively determined that six of its current nine directors (Ferdinand Groenewald, Yoshitomo
Yamano, Yuki Tan, Takeshi Omoto, Yuta Katai and Heather Neville) are independent directors of the Company within the meaning of Nasdaq
Capital Market’s rules. Therefore, a majority of the members of the current Board of Directors consists of independent directors.
Our
Board has also affirmatively determined that four of our seven director nominees (Messrs. Groenewald, Yamano and Sato, and Ms. Neville)
are independent within the meaning of the Nasdaq rules, SOX, and related SEC rules. Therefore, if all nominees are elected, a majority
of the members of the Board of Directors will consist of independent directors.
We
are a “controlled company” under Nasdaq Capital Market rules and are not required to have a majority of independent directors
on the Board. See “Proposal 1—Election of Directors—Corporate Governance—Controlled Company and Director Independence”
for additional information.
PROPOSAL
2—HEARTCORE ENTERPRISES, INC. 2023 EQUITY INCENTIVE PLAN
On
August 1, 2023, the Board approved, and proposed for stockholder approval, the 2023 Plan. A copy of the 2023
Plan is attached as Appendix I to this Proxy Statement.
The
Board’s approval and recommendation of the 2023 Plan follows a review by the independent directors of our existing compensation
program, comparable plans at other companies and trends in long-term compensation, particularly in the industries in which we compete.
The
Board believes the 2023 Plan will serve as an essential element of our compensation program and will be critical to our ability to attract
and retain the highly qualified employees essential for the execution of our business strategy. The Board believes the 2023 Plan, as
proposed, will (i) attract and retain key personnel, and (ii) provide a means whereby directors, officers, employees, consultants, and
advisors of the Company and its subsidiaries can acquire and maintain an equity interest in the Company, or be paid incentive compensation,
including incentive compensation measure by reference to the value of the Company’s common stock, thereby strengthening their commitment
to the welfare of the Company and its subsidiaries and aligning their interests with those of the Company’s stockholders. The 2023
Plan provides for various stock-based incentive awards, including incentive stock options (“ISOs”) and non-qualified stock
options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”),
and other equity-based or cash-based awards.
The
2023 Plan highlights and the summary of the material features of the 2023 Plan appearing below are qualified in their entirety by reference
to the copy of the 2023 Plan attached hereto as Appendix I.
2023
Plan Highlights
Highlights
of the 2023 Plan are as follows:
|
● |
The
Board or a committee of the Board will administer the 2023 Plan. |
|
● |
The
total number of shares of common stock authorized for issuance under the 2023 Plan is 2,000,000 shares, or approximately 9.60%
of the common stock outstanding at the Record Date. |
|
● |
No
non-employee director may be granted awards under the 2023 Plan during any calendar year if such awards would exceed a total value
of $300,000 (calculated in accordance with the terms of the 2023 Plan). |
|
● |
The
exercise price of options and SARs may not be less than the fair market value of the common stock on the date of grant. |
|
● |
In
addition to other vesting requirements, the administrator may condition the vesting of awards on the achievement of specific performance
targets. |
Material
Features of the 2023 Plan
Term
If
approved by the Company’s stockholders, the 2023 Plan will be effective August 1, 2023. The 2023 Plan will terminate on
August 1, 2033, unless the Board terminates it earlier.
Purpose
The
purpose of the 2023 Plan is to provide a means through with the Company and its subsidiaries may attract and retain key personnel, and
to provide a means whereby directors, officer, employees, consultants, and advisors of the Company and its subsidiaries can acquire and
maintain an equity interest in the Company, or be paid incentive compensation, thereby strengthening their commitment to the welfare
of the Company and its subsidiaries and aligning their interests with those of the Company’s stockholders.
Administration
Pursuant
to the terms of the 2023 Plan, the Board or a committee of the Board shall administer the 2023 Plan. The administrator will have the
authority to, among other things, (i) determine fair market value under the 2023 Plan; (ii) select the service providers to whom awards
may be granted; (iii) determine the number of shares to be covered by each award granted under the 2023 Plan; (iv) approve forms of award
agreements for use under the 2023 Plan; (v) determine the terms and conditions, not inconsistent with the terms of the 2023 Plan, of
any award, with such terms and conditions including, but not being limited to, the exercise price, the time or times when awards may
be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any award or the shares relating thereto, based in each case on such factors as the administrator will determine;
(vi) determine whether an award will be settled in shares, cash, other property or in any combination thereof; (vii) construe and interpret
the terms of the 2023 Plan and awards granted pursuant to the 2023 Plan; (viii) prescribe, amend and rescind rules and regulations relating
to the 2023 Plan, including rules and regulations relating to sub-plans; (ix) modify or amend awards; (x) correct any defect, supply
any omission or reconcile any inconsistency in the 2023 Plan or any award agreement and make all other determinations and take such other
actions with respect to the 2023 Plan or any award as the administrator may deem advisable to the extent not inconsistent with the provisions
of the 2023 Plan or applicable law; and (xi) make all other determinations deemed necessary or advisable for administering the 2023 Plan.
The
administrator will have the discretion to select particular performance targets in connection with awards under the 2023 Plan.
Eligibility
Employees,
directors and consultants (except those performing services in connection with the offer or sale of the Company’s securities in
a capital raising transaction, or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiaries
will be eligible to receive awards under the 2023 Plan. ISOs may only be granted to employees.
Grants
The
administrator may, from time to time, grant awards under the 2023 Plan to one or more eligible participants. All awards will vest and
become exercisable in such manner and on such date or dates or upon such event or events as determined by the administrator and as set
forth in any applicable award agreement, including, without limitation, attainment of performance targets, consistent with the terms
of the 2023 Plan.
Maximum
Shares Available
Subject
to the provisions of the 2023 Plan, the maximum aggregate number of shares that may be subject to awards and sold under the 2023 Plan
is 2,000,000. The shares may be authorized but unissued, or reacquired common stock. If an award expires or becomes unexercisable without
having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, RSUs, performance
units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for
awards other than options or SARs, the forfeited or repurchased shares) which were subject thereto will become available for future grant
or sale under the 2023 Plan (unless the 2023 Plan has terminated).
Adjustments
In
the event that any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Company’s common stock occurs, the administrator, in order to prevent diminution or enlargement
of the benefits or potential benefits intended to be made available under the 2023 Plan, will adjust the number and class of shares of
stock that may be delivered under the 2023 Plan and/or the number, class, and price of shares of stock covered by each outstanding award,
and the numerical share limits provided in the 2023 Plan.
Stock
Options
The
administrator may grant options to purchase shares of common stock under the 2023 Plan to eligible participants for such numbers of shares
and having such terms as the administrator designates and consistent with the 2023 Plan. However, ISOs may only be granted to employees
of the Company or its subsidiaries. The administrator will also determine the type of option granted (e.g., ISO) or a combination of
various types of options. Each option granted under the 2023 Plan will be evidenced by an award agreement.
The
exercise price for an option may not be less than 100% of the fair market value of the Company’s common stock on the date the option
is granted; provided, however, that in the case of an ISO granted to an employee who, at the time of the grant, owns stock representing
more than 10% of the voting power of all classes of stock of the Company or any subsidiary, the exercise price will be no less than 110%
of the fair market value on the grant date.
The
term of each option will be stated in the applicable award agreement. In the case of an ISO, the term will be no more than 10 years from
the date of grant. In the case of an ISO granted to a participant who, at the time the ISO is granted, owns stock representing more than
10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary, the term of the ISO will be
five years from the date of grant or such shorter term as may be provided in the award agreement.
Stock
Appreciation Rights
The
administrator may grant SARs under the 2023 Plan to eligible participants having such terms as the administrator designates and consistent
with the 2023 Plan. Each SAR granted under the 2023 Plan will be evidenced by a SAR agreement. The exercise price for a SAR may not be
less than 100% of the fair market value of the Company’s common stock on the date the SAR is granted.
Restricted
Stock
The
administrator may grant shares of restricted stock under the 2023 Plan to eligible participants in such amounts and upon such terms as
the administrator determines and consistent with the 2023 Plan.
Except
as provided in the 2023 Plan or as the administrator determines, shares of restricted stock may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable period of restriction. The administrator, in its sole discretion,
may impose such other restrictions on shares of restricted stock as it may deem advisable or appropriate. Except as otherwise provided
in the 2023 Plan, shares of restricted stock will be released from escrow as soon as practicable after the last day of the period of
restriction or at such other time as the administrator may determine. The administrator, in its discretion, may accelerate the time at
which any restrictions will lapse or be removed.
During
the period of restriction, grantees holding shares of restricted stock granted under the 2023 Plan may exercise full voting rights with
respect to those shares, unless the administrator determines otherwise. During the period of restriction, grantees holding shares of
restricted stock will be entitled to receive all dividends and other distributions paid with respect to such shares, unless the administrator
provides otherwise. If any such dividends or distributions are paid in shares of common stock, the shares will be subject to the same
restrictions on transferability and forfeitability as the shares of restricted stock with respect to which they were paid.
On
the date set forth in the award agreement, the restricted stock for which restrictions have not lapsed will revert to the Company and
again will become available for grant under the 2023 Plan.
Restricted
Stock Units
The
administrator may grant RSUs under the 2023 Plan to eligible participants in such amounts and upon such terms as the administrator determines
and consistent with the 2023 Plan. The administrator will set vesting criteria in its discretion, which, depending on the extent to which
the criteria are met, will determine the number of RSUs that will be paid out to the grantee. The administrator may set vesting criteria
based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued
employment or service), applicable federal or state securities laws, or any other basis determined by the administrator in its discretion.
Upon
meeting the applicable vesting criteria, the grantee will be entitled to receive a payout as determined by the administrator or as set
forth in the applicable award agreement. Notwithstanding the foregoing, at any time after the grant of RSUs, the administrator, in its
sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout. Payment of earned RSUs will be made as
soon as practicable after the date(s) determined by the administrator and set forth in the award agreement. The administrator, in its
sole discretion, may settle earned RSUs in cash, shares of common stock, or a combination of both.
Grantees
will have no voting rights with respect to shares of common stock represented by RSUs until the date of the issuance of such shares.
However, the administrator, in its discretion, may provide in the applicable award agreement that the grantee will be entitled to dividend
equivalent rights with respect to the payment of cash dividends on common stock during the period beginning on the date such award is
granted and ending, with respect to each share subject to the award, on the earlier of the date the award is settled or the date on which
it is terminated. Dividend equivalent rights, if any, shall be paid by crediting the grantee with a cash amount or with additional whole
RSUs as of the date of payment of such cash dividends on common stock, as determined by the administrator. The number of additional RSUs
(rounded to the nearest whole number), if any, to be credited shall be determined by dividing (a) the amount of cash dividends paid on
the dividend payment date with respect to the number of shares of common stock represented by the RSUs previously credited to the grantee
by (b) the fair market value per share of common stock on such date. Such cash amount or additional RSUs will be subject to the same
terms and conditions and will be settled in the same manner and at the same time as the RSUs originally subject to the RSU award. In
the event of a dividend or distribution paid in shares of common stock or other property or any other adjustment made upon a change in
the capital structure of the Company as provided in the 2023 Plan, appropriate adjustments will be made in the grantee’s RSU award
so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other
than regular, periodic cash dividends) to which the grantee would be entitled by reason of the shares of common stock issuable upon settlement
of the award, and all such new, substituted or additional securities or other property shall be immediately subject to the same vesting
conditions as are applicable to the award.
On
the date set forth in the award agreement, all unearned RSUs will be forfeited to the Company.
Performance
Units and Performance Shares
Performance
awards may be granted to eligible participants at any time and from time to time, as will be determined by the Administrator, in its
sole discretion. Each performance unit will have an initial value that is established by the administrator on or before the date of grant.
Each performance share will have an initial value equal to the fair market value of a share of common stock on the date of grant.
The
administrator will set performance objectives or other vesting provisions in its discretion which, depending on the extent to which they
are met, will determine the number or value of performance units/shares that will be paid out to the grantees. Each performance award
will be evidenced by an award agreement that will specify the performance period, and such other terms and conditions as the administrator,
in its sole discretion, will determine.
The
administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals
(including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined
by the administrator in its discretion (“Performance Goals”). Performance Goals shall be established by the administrator
on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial
performance (each, a “Performance Measure”), subject to the terms of the 2023 Plan.
Performance
Measures may be based upon one or more of the following, as determined by the administrator: (1) revenue; (2) sales; (3) expenses; (4)
operating income; (5) gross margin; (6) operating margin; (7) earnings before any one or more of: stock-based compensation expense, interest,
taxes, depreciation and amortization; (8) pre-tax profit; (9) net operating income; (10) net income; (11) economic value added; (12)
free cash flow; (13) operating cash flow; (14) balance of cash, cash equivalents and marketable securities; (15) stock price; (16) earnings
per share; (17) return on stockholder equity; (18) return on capital; (19) return on assets; (20) return on investment; (21) total stockholder
return; (22) employee satisfaction; (23) employee retention; (24) market share; (25) customer satisfaction; (26) product development;
(27) research and development expenses; (28) completion of an identified special project; and (29) completion of a joint venture or other
corporate transaction.
After
the applicable performance period has ended, the holder of performance units/shares will be entitled to receive a payout of the number
of performance units/shares earned by the participant over the performance period, to be determined as a function of the extent to which
the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a performance unit/share,
the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance
unit/share.
Payment
of earned performance units or performance shares will be made as soon as practicable after the expiration of the applicable performance
period. The administrator, in its sole discretion, may pay earned performance units/shares in the form of cash, in shares of common stock
(which have an aggregate fair market value equal to the value of the earned performance units/shares at the close of the applicable performance
period) or in a combination thereof.
On
the date set forth in the award agreement, all unearned or unvested performance units or performance shares will be forfeited to the
Company, and again will be available for grant under the 2023 Plan.
Restricted
stock and RSUs granted to officers and employees may be granted with the intent that the award satisfy the “Performance-Based Exception”
(any such award intended to satisfy the Performance-Based Exception, a “Qualified Performance-Based Award”). The grant, vesting,
or payment of a Qualified Performance-Based Award may depend on the degree of achievement of one or more performance goals relative to
a pre-established targeted level or levels using one or more performance targets as determined by the administrator (on an absolute or
relative (including, without limitation, relative to the performance of one or more other companies or upon comparisons of any of the
indicators of performance relative to one or more other companies) basis, any of which may also be expressed as a growth or decline measure
relative to an amount or performance for a prior date or period) for the Company on a consolidated basis or for one or more of the Company’s
subsidiaries, segments, divisions, or business or operational units, or any combination of the foregoing. The performance period applicable
to any performance units or performance shares may not be less than three months nor more than 10 years. To satisfy the Performance-Based
Exception, the performance measure(s) applicable to the Qualified Performance-Based Award and specific performance formula, goal or goals
(“targets”) must be established and approved by the administrator during the first 90 days of the applicable performance
period (and, in the case of performance periods of less than one year, in no event after 25% or more of the performance period has elapsed)
and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code.
Participants
shall have no voting rights with respect to shares of common stock represented by performance share awards until the date of the issuance
of such shares of common stock, if any. However, the administrator, in its discretion, may provide in the award agreement evidencing
any performance share award that the participant shall be entitled to dividend equivalent rights with respect to the payment of cash
dividends on common stock during the period beginning on the date the award is granted and ending, with respect to each share subject
to the award, on the earlier of the date on which the performance shares are settled or the date on which they are forfeited. Such dividend
equivalent rights, if any, shall be credited to the participant either in cash or in the form of additional whole performance shares
as of the date of payment of such cash dividends on common stock, as determined by the administrator and as provided in the 2023 Plan.
Dividend equivalent rights shall not be paid with respect to performance units.
Other
Equity-Based Awards and Other Cash-Based Awards
The
administrator may grant other equity-based awards and other cash-based awards under the 2023 Plan to eligible persons, pursuant to the
terms of the 2023 Plan.
Amendment
and Termination
The
administrator may amend, alter, suspend or terminate the 2023 Plan. However, the Company will obtain stockholder approval of any amendment
to the extent necessary and desirable to comply with applicable laws.
Federal
Income Tax Effects of the 2023 Plan
The
federal income tax consequences applicable to the Company in connection with ISOs, NQSOs, SARs, restricted stock, RSUs and performance
awards are complex and depend, in large part, on the surrounding facts and circumstances. A participant should consult with his or her
tax advisor regarding the taxation of awards under the Plan. Under current federal income tax laws, however, a participant will generally
recognize income with respect to grants of stock options, SARs, restricted stock, RSUs and performance awards as described below.
Stock
Options
Stock
options may be granted in the form of ISOs or NQSOs. ISOs are eligible for favorable tax treatment under the Code. To meet the Code requirements,
the maximum value of ISOs that first become exercisable in any one year (determined as of the dates of grants of the ISOs) is limited
to $100,000. Under the Code, persons do not realize compensation income upon the grant of an ISO or NQSO. At the time of exercise of
a NQSO, the holder realizes compensation income in the amount of the difference between the grant price and the fair market value of
the Company stock on the date of exercise multiplied by the number of shares for which the option is exercised. At the time of exercise
of an ISO, no compensation income, however, is recognized but the difference between the grant price and the fair market value of the
Company’s common stock on the date of exercise multiplied by the number of shares for which the option is exercised is an item
of tax preference which may require the payment of alternative minimum tax. The tax basis for determining capital gain or loss from the
sale of stock acquired pursuant to a NQSO is the fair market value of the stock or the date of exercise. If the shares acquired on exercise
of an ISO are held for at least two years after grant of the option and one year after exercise, the excess of the amount realized on
sale over the exercise price is taxed as capital gains. If the shares acquired on exercise of an ISO are disposed of, including disposition
by gift, within two years after grant or one year of exercise, the holder realizes compensation income equal to the excess of the fair
market value of shares on the date of exercise over the option price. Additional amounts realized are taxed as capital gains. The Company
generally is entitled to a deduction under the Code at the time and equal to the amount of compensation income realized by the holder
of an option under the 2023 Plan.
Compensation
income recognized by the exercise of NQSOs is subject to Federal Insurance Contributions Act (“FICA”) and Medicare taxes
when the optionee is an employer and self-employment tax when the optionee is a director. Compensation income realized upon the premature
disposition of stock acquired pursuant to an ISO is not subject to FICA and Medicare taxes.
SARs
and RSUs
SARs
are taxed on the date of exercise and RSUs are taxed on the date of vesting. A participant is taxed on the amount he or she is paid upon
exercise of an SAR or vesting of an RSU. The Company accrues a corresponding deduction. The amount taxed is also subject to FICA and
Medicare taxes in the case of an employee and self-employment tax in the case of a director.
Restricted
Stock
Participants
recognize as taxable income the fair market value of restricted stock on the date the restriction period ends. The amount taxed is subject
to FICA and Medicare taxes in the case of an employee and self-employment tax in the case of a director. The Company is entitled to a
corresponding tax deduction at the same time. Dividends paid during the restricted period are taxable compensation/income to the participant
and are deductible by the Company. The value of the stock on the date the restriction period ends becomes the participant’s tax
basis for determining subsequent capital gain or loss on the sale of the stock. A participant may elect to have the fair market value
of restricted stock taxed to him or her at the time of grant. In this event, the participant recognizes no income when the restrictions
lapse. The participant’s tax basis in the stock, for determining capital gain or loss upon the subsequent sale of the stock, is
the fair market value of the stock on the date of grant. In this event, the Company accrues a tax deduction equal to the amount of income
recognized by the participant on the grant date, and the participant does not accrue a tax deduction or benefit in the event the stock
is subsequently forfeited.
Performance
Awards
Cash
payments pursuant to performance awards are taxable as compensatory income to a participant when it is paid and the Company accrues a
corresponding income tax deduction in this amount. The amount taxed is subject to FICA and Medicare taxes.
Code
Section 162(m)
Section
162(m) of the Code limits the deductibility by the Company of compensation paid to the CEO and the other four most highly compensated
executives. Section 162(m) of the Code provides an exception to this deduction limitation for certain “qualified performance-based
compensation.” Payments or grants under the 2023 Plan are intended to qualify as “qualified performance-based compensation”
under the Code and applicable regulations.
Code
Section 280G and 4999
A
20% excise tax is imposed under Code Section 4999 on participants who receive certain payments in connection with a change of control
of the Company and the Company cannot deduct such payments. It is possible that the value of accelerated vesting and lapse of restrictions
on 2023 Plan awards could constitute change of control payments and that (i) the value of the acceleration could be subject to the excise
tax, (ii) this could cause other Company change of control payments to be subject to the tax, and (iii) in this event, the Company would
not be able to deduct these items for income tax purposes.
New
Plan Benefits
As
of the Record Date, approximately 80 employees, five non-employee directors and nine consultants are
eligible to participate in the 2023 Plan. The benefits or amounts that the Company’s Chief Executive Officer, the other named executive
officers, other employees or non-employee directors may receive under the 2023 Plan are not determinable because all benefits or amounts
are at the discretion of the administrator.
To
date, the Company has not granted any stock-based compensation awards to employees, including officers, or non-employee directors.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information as of December 31, 2022, regarding our compensation plans under which equity securities are authorized
for issuance:
Plan
Category | |
Number
of Securities
to be Issued
Upon Exercise
of Outstanding Options, Warrants
and Rights | | |
Weighted- average Exercise
Price of Outstanding Options, Warrants
and Rights | | |
Number
of Securities Remaining Available
for Future
Issuance Under
Equity Compensation Plans (Excluding Securities Reflected
in Column
(a)) | |
| |
(a) | | |
(b) | | |
(c) | |
Equity
compensation plans approved by security holders | |
| 1,622,320 | | |
| 2.37 | | |
| 777,680 | (1) |
Equity
compensation plans not approved by security holders | |
| — | | |
| — | | |
| — | |
Total | |
| 1,622,320 | | |
| 2.37 | | |
| 777,680 | |
(1)
This represents shares of common stock issuable pursuant to the 2021 Equity Incentive Plan (the “2021 Plan”).
The
Board of Directors and stockholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”) on August 6,
2021. Under the 2021 Plan, 2,400,000 shares of common stock are authorized for issuance to employees, directors and independent contractors
(except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction,
or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiary. The 2021 Plan authorizes equity-based
and cash-based incentives for participants.
There
were 4,330 and 777,680 shares available for award under the 2021 Plan as of the Record Date and December 31, 2022, respectively.
Vote
Required
The
affirmative vote of a majority of the shares entitled to vote on this proposal and present in person or represented by proxy at the Annual
Meeting is required to approve the 2023 Plan.
Recommendation
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE 2023 PLAN.
PROPOSAL
3—RATIFICATION OF THE APPOINTMENT OF
THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MaloneBailey
acted as our independent registered public accounting firm for the fiscal year ended December 31, 2022. The Audit Committee has appointed
MaloneBailey to act in that capacity for the fiscal year ending December 31, 2023.
A
representative of MaloneBailey is expected to be present virtually at the Annual Meeting.
Although
the Company is not required to submit this appointment to a vote of the stockholders, the Audit Committee believes that it is appropriate
as a matter of policy to request that stockholders ratify the appointment of MaloneBailey as principal independent registered public
accounting firm. If the stockholders do not ratify the appointment, the Audit Committee will investigate the reasons for stockholder
rejection and consider whether to retain MaloneBailey or will appoint another independent registered public accounting firm. Even if
the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its
stockholders.
The
following is a summary of fees paid or to be paid to MaloneBailey, LLP, our independent registered public accounting firm, for the fiscal
years ended December 31, 2022 and 2021.
| |
Years
Ended December 31, | |
| |
2022 | | |
2021 | |
Audit
Fees | |
$ | 560,000 | | |
$ | 400,000 | |
Audit
Related Fees | |
$ | - | | |
$ | 140,000 | |
Tax
Fees | |
$ | - | | |
$ | - | |
All
Other Fees | |
$ | - | | |
$ | - | |
Total | |
$ | 560,000 | | |
$ | 540,000 | |
Audit
Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and
services that are normally provided by our independent registered public accounting firm in connection with regulatory filings. The above
amounts include interim procedures and audit fees, as well as attendance at Board meetings.
Audit-Related
Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance
of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest
services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax
Fees. Tax fees consist of fees billed for tax planning services and tax advice. The board of directors must specifically approve
all other tax services.
All
Other Fees. Other services are services provided by the independent registered public accounting firm that do not fall within the
established audit, audit-related, and tax services categories. The board of directors preapproves specified other services that do not
fall within any of the specified prohibited categories of services.
Pre-Approval
Policy
Since
formation of our audit committee, all of the foregoing services were pre-approved by our audit committee. Our audit committee will pre-approve
all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject
to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to
the completion of the audit).
REPORT
OF THE AUDIT COMMITTEE
The
primary function of the Audit Committee is to assist the Board of Directors in its oversight of the Company’s financial reporting
processes. Management is responsible for the Company’s financial statements and overall reporting process, including the system
of internal controls. The independent auditors are responsible for conducting annual audits and quarterly reviews of the Company’s
financial statements and expressing an opinion as to the conformity of the annual financial statements with generally accepted accounting
principles.
The
Audit Committee submits the following report pursuant to the SEC rules:
|
● |
The
Audit Committee has reviewed and discussed with management and with MaloneBailey, the Company’s independent registered public
accounting firm, the audited consolidated financial statements of the Company for the fiscal year ended December 31, 2022 (the “2022
Financial Statements”). |
|
|
|
|
● |
MaloneBailey
has advised the management of the Company and the Audit Committee that it has discussed with them all the matters required to be
discussed by applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC. |
|
|
|
|
● |
The
Audit Committee has received from MaloneBailey the written disclosures and the letter required by applicable requirements of the
PCAOB regarding MaloneBailey’s communications with the Audit Committee concerning independence and has discussed MaloneBailey’s
independence with them, and based on this evaluation and discussion, recommended that MaloneBailey be selected as the independent
registered public accounting firm for the Company for the fiscal year ending December 31, 2023. |
|
|
|
|
● |
Based
upon the aforementioned review, discussions and representations of MaloneBailey, the Audit Committee recommended to the Board of
Directors that the 2022 Financial Statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2022. |
|
Submitted
by the Audit Committee of the Board of Directors: |
|
|
|
Ferdinand
Groenewald, Chair |
|
Yoshitomo
Yamano |
|
Yuki
Tan |
|
Takeshi
Omoto |
|
Yuta
Katai |
Vote
Required
The
affirmative vote of the shares present and entitled to vote at the Annual Meeting is required to ratify the appointment of MaloneBailey
as our independent registered public accounting firm. You may vote “for,” “against” or “abstain”
from voting on Proposal 3. Abstentions will have the effect of a vote “against” Proposal 3. Because broker non-votes are
not considered present for the foregoing purpose, they will have no effect on the vote on Proposal 3.
Recommendation
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” RATIFICATION OF MALONEBAILEY AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of our common stock as of the Record Date by:
|
● |
each
person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; |
|
● |
each
of our current named executive officers and directors that beneficially own shares of our common stock; and |
|
● |
all
our executive officers and directors as a group. |
All
such information provided by the stockholders who are not executive officers or directors reflects their beneficial ownership as of the
Record Date. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares. Unless
otherwise noted below, the address for each beneficial owner listed on the table is c/o HeartCore Enterprises, Inc., 1-2-33, Higashigotanda,
Shinagawa-ku, Tokyo, Japan.
Name
and Address of Beneficial Owner | |
Number
and Nature
of Shares Beneficially Owned
(1) | | |
Percentage
of Outstanding Common
Stock | |
Directors
and Executive Officers: | |
| | |
| |
Sumitaka
Yamamoto | |
| 10,495,969 | | |
| 50.4 | % |
Keisuke
Kuno | |
| 56,611 | | |
| * | |
Kimio
Hosaka | |
| 92,532 | | |
| * | |
Prakash
Sadasivam | |
| 2,500,000 | | |
| 12.0 | % |
Ferdinand
Groenewald | |
| - | | |
| - | |
Yoshitomo
Yamano | |
| - | | |
| - | |
Yuki
Tan | |
| - | | |
| - | |
Takeshi
Omoto | |
| - | | |
| - | |
Yuta
Katai | |
| - | | |
| - | |
All
executive officers and directors as a group (11 persons) (2) | |
| 13,145,112 | | |
| 63.1 | % |
| |
| | | |
| | |
Other
5% Stockholders: | |
| | | |
| | |
Daishin
Yasui | |
| 2,325,425 | | |
| 11.2 | % |
|
(1) |
The
percentages in the table have been calculated based on 20,842,690 shares of our common stock outstanding on the Record Date.
To calculate a stockholder’s percentage of beneficial ownership, we include in the numerator and denominator the common stock
outstanding and all shares of our common stock issuable to that person in the event of the exercise of outstanding options and other
derivative securities owned by that person which are exercisable within 60 days of the Record Date. Common stock options and derivative
securities held by other stockholders are disregarded in this calculation. Therefore, the denominator used in calculating beneficial
ownership among our stockholders may differ. Unless we have indicated otherwise, each person named in the table has sole voting power
and sole investment power for the shares listed opposite such person’s name. |
|
|
|
|
(2) |
Includes
the directors and named executive officers listed above, as well as (i) 72,048 shares beneficially owned by Hidekazu Miyata, our
Chief Technical Officer, and (ii) 21,620 shares beneficially owned by Qizhi Gao, our Chief Financial Officer. |
OTHER
MATTERS
Management
does not know of any other business that may be considered at the Annual Meeting. However, if any matters other than those referred to
above should properly come before the Annual Meeting, it is the intention of the persons named in the accompanying form of proxy to vote
the proxies held by them in accordance with their best judgment. Stockholders are urged to vote on the matters to be considered
in advance of the Annual Meeting. You may vote your proxy by telephone or via the Internet or by completing and returning the enclosed
proxy card.
The
Company will bear the costs of its solicitation of proxies. In addition to the use of the mail, proxies may be solicited by electronic
mail, personal interview, telephone, telegram and telefax by the directors, officers and employees of the Company. Arrangements will
also be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and the Company may reimburse such custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith.
ANNUAL
REPORT
A
copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, including the financial statements filed as part
of the Annual Report (the “2022 Form 10-K”), accompanies this Proxy Statement. We will provide stockholders with additional
copies of the 2022 Form 10-K, without charge, upon written request to HeartCore Enterprises, Inc., Attention: Corporate Secretary, 1-2-33,
Higashigotanda, Shinagawa-ku, Tokyo, Japan. The 2021 Form 10-K and the exhibits thereto also are available, free of charge, from the
SEC’s website (http://www.sec.gov.).
“HOUSEHOLDING”
OF PROXY MATERIALS
The
SEC has adopted rules that permit companies and intermediaries (e.g. brokers) to satisfy the delivery requirements for proxy statements
and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual
report addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means
extra convenience for stockholders and cost savings for companies.
A
number of brokers with accountholders who are stockholders will be householding our proxy materials. As indicated in the notice previously
provided by these brokers to stockholders, a single proxy statement and annual report will be delivered to multiple stockholders sharing
an address unless contrary instructions have been received from an affected stockholder. Once you have received notice from your broker
or us that they will be householding communications to your address, householding will continue until you are notified otherwise.
Stockholders
who currently receive multiple copies of the proxy materials at their address and would like to request householding of their communications
should contact their broker or, if a stockholder is a direct holder of shares of our common stock, they should submit a written request
to our transfer agent, Transhare Corporation, Bayside Center 1, 17755 US Highway 19 N, Suite 140, Clearwater FL 33764.
To
delist yourself from householding in the future you may write us at HeartCore Enterprises, Inc., Attention: Corporate Secretary, 1-2-33,
Higashigotanda, Shinagawa-ku, Tokyo, Japan, or call +81-3-6409-6966. Upon written or oral request directed to the Company at the address
or phone number listed above, we will deliver promptly a separate copy of the proxy materials.
STOCKHOLDER
PROPOSALS FOR 2024 ANNUAL MEETING OF STOCKHOLDERS
Stockholder
proposals submitted for inclusion in the proxy statement and form of proxy for the 2024 Annual Meeting of Stockholders must be received
at the corporate offices of the Company, addressed to the attention of Corporate Secretary, HeartCore Enterprises, Inc., 1-2-33, Higashigotanda,
Shinagawa-ku, Tokyo, Japan, no later than April 26, 2024. The proposals must comply with the rules of the SEC relating to stockholder
proposals.
Our
bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election
as directors at our annual meeting of stockholders must provide timely notice of their intent in writing. To be timely, a stockholder’s
notice must be delivered to the Company’s Corporate Secretary at our principal executive offices not less than 90 days nor more
than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event
that the date of the annual meeting is advanced by more than 30 days, or delayed by more than 90 days, from such anniversary date, or
if no annual meeting was held in the preceding year, notice by a stockholder to be timely must be so delivered not earlier than the 120th
day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting and
the 10th day following the day on which the public announcement of the date of such meeting is first made by the Company. Our bylaws
also specify certain requirements as to the form and content of a stockholder’s notice for an annual meeting. A copy of the full
text of these bylaw provisions may be obtained by writing to our Secretary at the address indicated above.
|
By
Order of the Board of Directors, |
|
|
|
/s/
Sumitaka Yamamoto |
|
Chairman
of the Board, Chief Executive Officer and President |
August
24, 2023
Appendix
I
HeartCore
Enterprises, Inc.
2023
Equity Incentive Plan
Article
I. Purposes and Definitions
Section
1.01 Purposes of this Plan; Structure.
|
(a) |
The
purposes of this Plan are (i) to attract and retain the best available personnel for positions of substantial responsibility, (ii)
to provide additional incentive to Employees, Directors and Consultants, and (ii) to promote the success of the Company’s business. |
|
|
|
|
(b) |
This
Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted
Stock Units, Performance Awards, Cash-Based Awards and Other Stock-Based Awards. |
|
|
|
|
(c) |
This
Plan shall be effective at the time that this Plan has been approved by the stockholders of the Company and the Company has complied
with the filing and notice requirements related thereto pursuant to the Securities Act, the Exchange Act and the rules and regulations
of the Nasdaq Capital Market. For the avoidance of doubt, the Company’s 2021 Equity Incentive Plan currently remains in effect. |
Section
1.02 Definitions.
As used herein, the following definitions will apply:
|
(a) |
“Administrator”
means the Board or any of its Committees as will be administering this Plan, in accordance with Section 2.02. |
|
|
|
|
(b) |
“Affiliate”
means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with
such Person. |
|
|
|
|
(c) |
“Applicable
Laws” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not
limited to the related issuance of shares of Common Stock, including but not limited to under U.S. federal and state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted
and the applicable laws of any non-U.S. country or jurisdiction where Awards are, or will be, granted under this Plan. |
|
|
|
|
(d) |
“Award”
means, individually or collectively, a grant under this Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted
Stock Units, Performance Units, Performance Shares, Cash-Based Award or Other Stock-Based Award. |
|
|
|
|
(e) |
“Award
Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted
under this Plan, which Award Agreement shall be is subject to the terms and conditions of this Plan. |
|
|
|
|
(f) |
“Board”
means the Board of Directors of the Company. |
|
|
|
|
(g) |
“Cash-Based
Award” means an Award denominated in cash and granted pursuant to Section 3.06. |
|
(h) |
“Change
in Control” means the occurrence of any of the following events, subject to the provisions of Section 1.03: |
|
(i) |
Change
in Ownership of the Company. A change in the ownership of the Company which occurs on the date that any one person, or more than
one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock
held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however,
that for purposes of this Section 1.02(h)(i), the acquisition of additional stock by any one Person, who is considered to own more
than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. Further,
if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in
ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior
to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the
stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under
this Section 1.02(h)(i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting
from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case
may be, either directly or through one or more subsidiary corporations or other business entities. |
|
|
|
|
(ii) |
Change
in Effective Control of the Company. A change in the effective control of the Company which occurs on the date that a majority
of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this Section 1.02(h)(ii),
if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the
same Person will not be considered a Change in Control. |
|
|
|
|
(iii) |
Change
in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion of the
Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending
on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market
value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately
prior to such acquisition or acquisitions; provided, however, that for purposes of this Section 1.02(h)(iii), the following will
not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that
is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to:
(1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock,
(2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company,
(3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding
stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly
or indirectly, by a Person described in clause (B)(3) of this Section 1.02(h)(iii). For purposes of this Section 1.02(h)(iii), gross
fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without
regard to any liabilities associated with such assets. |
|
(i) |
“Code”
means the Internal Revenue Code of 1986, as amended, and reference to a specific section of the Code or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such section or regulation. |
|
|
|
|
(j) |
“Committee”
means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or by a duly authorized
committee of the Board, in accordance with Section 2.02. |
|
|
|
|
(k) |
“Common
Stock” means the common stock, par value $0.0001 per share, of the Company. |
|
|
|
|
(l) |
“Company”
means HeartCore Enterprises, Inc., a Delaware corporation, or any successor thereto. |
|
|
|
|
(m) |
“Consultant”
means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render bona fide services to
such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction,
and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form
S-8 promulgated under the Securities Act, and provided further, that a Consultant will include only those persons to whom the issuance
of Shares may be registered under Form S-8 promulgated under the Securities Act. |
|
(n) |
“Control”
of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities, by contract, or otherwise.” Controlled”, “Controlling”
and “under common Control with” have correlative meanings. Without limiting the foregoing a Person (the “Controlled
Person”) shall be deemed Controlled by (a) any other Person (the “10% Owner”) (i) owning beneficially, as meant
in Rule 13d-3 under the Exchange Act, securities entitling such Person to cast 10% or more of the votes for election of directors
or equivalent governing authority of the Controlled Person or (ii) entitled to be allocated or receive 10% or more of the profits,
losses, or distributions of the Controlled Person; (b) an officer, director, general partner, partner (other than a limited partner),
manager, or member (other than a member having no management authority that is not a 10% Owner ) of the Controlled Person; or (c)
a spouse, parent, lineal descendant, sibling, aunt, uncle, niece, nephew, mother-in-law, father-in-law, sister-in-law, or brother-in-law
of an Affiliate of the Controlled Person or a trust for the benefit of an Affiliate of the Controlled Person or of which an Affiliate
of the Controlled Person is a trustee. |
|
|
|
|
(o) |
“Director”
means a member of the Board. |
|
|
|
|
(p) |
“Disability”
means total and permanent disability as defined in Code Section 22(e)(3), provided that in the case of Awards other than Incentive
Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with
uniform and non-discriminatory standards adopted by the Administrator from time to time. |
|
|
|
|
(q) |
“Dividend
Equivalent Right” means the right of a Participant, granted at the discretion of the Administrator or as otherwise provided
by this Plan, to receive a credit for the account of such Participant in an amount equal to the cash dividends paid on one Share
for each Share represented by an Award held by such Participant. |
|
|
|
|
(r) |
“Employee”
means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company, provided
that neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment”
by the Company or any Parent or Subsidiary of the Company. |
|
|
|
|
(s) |
“Exchange
Act” means the Securities Exchange Act of 1934, as amended. |
|
|
|
|
(t) |
“Exchange
Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same
type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants
would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the
Administrator, and/or (iii) the exercise price of an outstanding Award is reduced or increased. The Administrator will determine
the terms and conditions of any Exchange Program in its sole discretion. |
|
|
|
|
(u) |
“Fair
Market Value” means, as of any date, the value of Common Stock determined as follows: |
|
(i) |
If
the Common Stock is listed on any established stock exchange or a national market system (other than an over-the counter market,
which will not be considered an established stock exchange of national market system for the purposes of this definition), including
without limitation the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market
of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or, if no closing sales price was
reported on that date, as applicable, on the last trading date such closing sales price was reported) as quoted on such exchange
or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; |
|
|
|
|
(ii) |
If
the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value
of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no
bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were reported), as reported
in The Wall Street Journal or such other source as the Administrator deems reliable; |
|
(iii) |
In
the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator. |
|
(v) |
“Fiscal
Year” means the fiscal year of the Company. |
|
|
|
|
(w) |
“Incentive
Stock Option” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option
within the meaning of Code Section 422 and the regulations promulgated thereunder. |
|
|
|
|
(x) |
“Nonstatutory
Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option. |
|
|
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|
(y) |
“Officer”
means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder. |
|
|
|
|
(z) |
“Option”
means a stock option granted pursuant to this Plan. |
|
|
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|
(aa) |
“Outside
Director” means a Director who is not an Employee. |
|
|
|
|
(bb) |
“Other
Stock-Based Award” means an Award denominated in Shares and granted pursuant to Section 3.06. |
|
|
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|
(cc) |
“Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in Code Section 424(e). |
|
|
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|
(dd) |
“Participant”
means the holder of an outstanding Award. |
|
|
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|
(ee) |
“Performance
Award” means an Award of Performance Shares or Performance Units. |
|
|
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|
(ff) |
“Performance
Award Formula” means, for any Performance Award, a formula or table established by the Administrator pursuant to Section 3.05
which provides the basis for computing the value of a Performance Award at one or more levels of attainment of the applicable Performance
Goal(s) measured as of the end of the applicable Performance Period. |
|
|
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|
(gg) |
“Performance
Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or
other vesting criteria as the Administrator may determine pursuant to Section 3.05. |
|
|
|
|
(hh) |
“Performance
Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria
as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing
pursuant to Section 3.05. |
|
|
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|
(ii) |
“Period
of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore,
the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement
of target levels of performance, or the occurrence of other events as determined by the Administrator. |
|
|
|
|
(jj) |
“Person”
means an individual, corporation, partnership (including a general partnership, limited partnership or limited liability partnership),
limited liability company, association, trust or other entity or organization, including a government, domestic or foreign, or political
subdivision thereof, or an agency or instrumentality thereof. |
|
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|
(kk) |
“Plan”
means this 2023 Equity Incentive Plan. |
|
|
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|
(ll) |
“Restricted
Stock” means Shares issued pursuant to an Award of Restricted Stock under Section 3.03, or issued pursuant to the early exercise
of an Option. |
|
(mm) |
“Restricted
Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant
to Section 3.04. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company. |
|
|
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|
(nn) |
“Rule
16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to this Plan. |
|
|
|
|
(oo) |
“Section
16(b)” means Section 16(b) of the Exchange Act. |
|
|
|
|
(pp) |
“Securities
Act” means the Securities Act of 1933, as amended. |
|
|
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|
(qq) |
“Service
Provider” means an Employee, Director or Consultant. |
|
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|
(rr) |
“Share”
means a share of the Common Stock, as adjusted in accordance with Section 4.05. |
|
|
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|
(ss) |
“Stock
Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 3.02 is designated
as a Stock Appreciation Right. |
|
|
|
|
(tt) |
“Subsidiary”
means a “subsidiary corporation,” whether now or hereafter existing, as defined in Code Section 424(f). |
Section
1.03 Additional Interpretations. For purposes of Section 1.02(h), persons will be considered
to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock,
or similar business transaction with the Company. Notwithstanding the foregoing, a transaction will not be deemed a Change in Control
unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended
from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or
may be promulgated thereunder from time to time. Further and for the avoidance of doubt, a transaction will not constitute a Change in
Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create
a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately
before such transaction.
Article
II. Stock Subject to this Plan;
Administration.
Section
2.01 Stock Subject to this Plan.
|
(a) |
Subject
to the provisions of Section 2.01(a) and Section 4.05, the maximum aggregate number of Shares that may be subject to Awards and sold
under this Plan is 2,000,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. |
|
|
|
|
(b) |
If
an Award expires or becomes un-exercisable without having been exercised in full, is surrendered pursuant to an Exchange Program,
or, with respect to Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is forfeited to or repurchased
by the Company due to the failure to vest, the unpurchased Shares (or for Awards other than Options or Stock Appreciation Rights
the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under this Plan (unless
this Plan has terminated). With respect to Stock Appreciation Rights, only Shares actually issued pursuant to a Stock Appreciation
Right will cease to be available under this Plan; all remaining Shares under Stock Appreciation Rights will remain available for
future grant or sale under this Plan (unless this Plan has terminated). Shares that have actually been issued under this Plan under
any Award will not be returned to this Plan and will not become available for future distribution under this Plan; provided, however,
that if Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are
repurchased by the Company or are forfeited to the Company due to the failure to vest, such Shares will become available for future
grant under this Plan. Shares used to pay the exercise price of an Award or to satisfy the tax withholdings related to an Award will
become available for future grant or sale under this Plan. To the extent an Award under this Plan is paid out in cash rather than
Shares, such cash payment will not result in reducing the number of Shares available for issuance under this Plan. Notwithstanding
the foregoing and, subject to adjustment as provided in Section 4.05, the maximum number of Shares that may be issued upon the exercise
of Incentive Stock Options will equal the aggregate Share number stated in Section 2.01(a), plus, to the extent allowable under Code
Section 422 and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under this Plan pursuant
to Section 2.01(b) and Section 2.01(c). |
|
|
|
|
(c) |
The
Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to
satisfy the requirements of this Plan. |
Section
2.02 Administration of this Plan.
|
(i) |
Compensation
Committee. To the extent required by Applicable Laws, the Compensation Committee of the Board shall administer this Plan. |
|
|
|
|
(ii) |
Rule
16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
will be structured to satisfy the requirements for exemption under Rule 16b-3. |
|
|
|
|
(iii) |
Other
Administration. Other than as provided above, this Plan will be administered by (A) the Board or (B) a Committee other than the
Compensation Committee, which Committee will be constituted to satisfy Applicable Laws. |
|
(b) |
Powers
of the Administrator. Subject to the provisions of this Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator will have the authority, in its discretion: |
|
(i) |
to
determine the Fair Market Value; |
|
|
|
|
(ii) |
to
select the Service Providers to whom Awards may be granted hereunder; |
|
|
|
|
(iii) |
to
determine the number of Shares to be covered by each Award granted hereunder; |
|
|
|
|
(iv) |
to
approve forms of Award Agreements for use under this Plan; |
|
|
|
|
(v) |
to
determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder, with such terms
and conditions including, but not being limited to, the exercise price, the time or times when Awards may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine; |
|
|
|
|
(vi) |
to
determine whether an Award will be settled in Shares, cash, other property or in any combination thereof; |
|
|
|
|
(vii) |
to
institute and determine the terms and conditions of an Exchange Program; |
|
|
|
|
(viii) |
to
construe and interpret the terms of this Plan and Awards granted pursuant to this Plan; |
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(ix) |
to
prescribe, amend and rescind rules and regulations relating to this Plan, including rules and regulations relating to sub-plans established
for the purpose of satisfying applicable non-U.S. laws or for qualifying for favorable tax treatment under applicable non-U.S. laws; |
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(x) |
to
modify or amend each Award (subject to Section 4.14(c)), including but not limited to the discretionary authority to extend the post-termination
exercisability period of Awards; provided, however, that in no case will an Option or Stock Appreciation Right be extended beyond
its original maximum term; |
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(xi) |
to
allow Participants to satisfy tax withholding obligations in a manner prescribed in Section 4.05(d); |
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(xii) |
to
authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted
by the Administrator; |
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(xiii) |
to
allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that otherwise would be due to such Participant
under an Award; |
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(xiv) |
to
prescribe, amend or rescind rules, guidelines and policies relating to this Plan, or to adopt sub-plans or supplements to, or alternative
versions of, this Plan, including, without limitation, as the Administrator deems necessary or desirable to comply with the laws
of, or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose residents may be granted Awards; |
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(xv) |
to
correct any defect, supply any omission or reconcile any inconsistency in this Plan or any Award Agreement and to make all other
determinations and take such other actions with respect to this Plan or any Award as the Administrator may deem advisable to the
extent not inconsistent with the provisions of this Plan or applicable law; and |
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(xvi) |
to
make all other determinations deemed necessary or advisable for administering this Plan. |
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(c) |
Option
or Stock Appreciation Right Repricing. The Administrator shall have the authority, without additional approval by the stockholders
of the Company, to approve a program providing for either (a) the cancellation of outstanding Options or Stock Appreciation Rights
having exercise prices per share greater than the then Fair Market Value of a Share (“Underwater Awards”) and the grant
in substitution therefor of new Options or Stock Appreciation Rights covering the same or a different number of shares but with an
exercise price per share equal to the Fair Market Value per share on the new grant date or payments in cash, or (b) the amendment
of outstanding Underwater Awards to reduce the exercise price thereof to the Fair Market Value per share on the date of amendment. |
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(d) |
Effect
of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and
binding on all Participants and any other holders of Awards and will be given the maximum deference permitted by Applicable Laws |
Section
2.03 Eligibility. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted
Stock Units, Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
Section
2.04 Indemnification. In addition to such other rights of indemnification as they may have as
members of the Board or the Administrator or as officers or employees of the Company or any of its Affiliates, to the extent permitted
by applicable law, members of the Board or the Administrator and any officers or employees of the Company or any of its Affiliates to
whom authority to act for the Board, the Administrator or the Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding,
or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act
under or in connection with this Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that
such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60)
days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at
its own expense to handle and defend the same.
Article
III. Awards.
Section
3.01 Stock Options.
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(a) |
Grant
of Options. Subject to the terms and provisions of this Plan, the Administrator, at any time and from time to time, may grant
Options in such amounts as the Administrator, in its sole discretion, will determine. |
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(b) |
Option
Agreement. Each Award of an Option will be evidenced by an Award Agreement that will specify the exercise price, the term of
the Option, the number of Shares subject to the Option, the exercise restrictions, if any, applicable to the Option, and such other
terms and conditions as the Administrator, in its sole discretion, will determine. |
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(c) |
Limitations.
Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. Notwithstanding
such designation, however, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent
or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as Nonstatutory Stock Options. For purposes
of this Section 3.01(c), Incentive Stock Options will be taken into account in the order in which they were granted, the Fair Market
Value of the Shares will be determined as of the time the Option with respect to such Shares is granted, and the calculation will
be performed in accordance with Code Section 422 and Treasury Regulations promulgated thereunder. |
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(d) |
Term
of Option. The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the term
will be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a Participant
who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five
(5) years from the date of grant or such shorter term as may be provided in the Award Agreement. |
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(e) |
Option
Exercise Price and Consideration. |
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(i) |
Exercise
Price. The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option will be determined by the
Administrator, subject to the following: |
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(1) |
In
the case of an Incentive Stock Option: |
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(A) |
granted
to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than
one hundred ten percent (110%) of the Fair Market Value per Share (or the fair market value per Share as determined in accordance
with Treas. Reg. 1.409A-1(b)(5)(iv)(A)) on the date of grant; |
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(B) |
granted
to any Employee other than an Employee described in Section 3.01(e)(i)(1)(A), the per Share exercise price will be no less than one
hundred percent (100%) of the Fair Market Value per Share on the date of grant; |
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(2) |
In
the case of a Nonstatutory Stock Option, the per Share exercise price will be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant (or the fair market value per Share as determined in accordance with Treas. Reg. 1.409A-1(b)(5)(iv)(A)). |
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(3) |
Notwithstanding
the foregoing provisions of this Section 3.01(e), Options may be granted with a per Share exercise price of less than one hundred
percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent
with, Code Section 424(a). |
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(ii) |
Waiting
Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may
be exercised and will determine any conditions that must be satisfied before the Option may be exercised. |
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(iii) |
Form
of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration
at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to the extent permitted
by Applicable Laws; (4) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which such Option will be exercised and provided further that accepting such Shares will not result
in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (5) consideration
received by the Company under a broker assisted (or other) cashless exercise program (whether through a broker or otherwise) implemented
by the Company in connection with this Plan; (6) by net exercise; (7) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws; or (8) any combination of the foregoing methods of payment. In making its determination
as to the type of consideration to accept, the Administrator will consider if acceptance of such consideration may be reasonably
expected to benefit the Company. |
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(i) |
Procedure
for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of this Plan and
at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not
be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (i) notice of exercise (in
such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment
for the Shares with respect to which the Option is exercised (together with applicable tax withholding). Full payment may consist
of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and this Plan. Shares
issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name
of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder
will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or
cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as provided in Section 4.05. Exercising an Option in
any manner will decrease the number of Shares thereafter available, both for purposes of this Plan and for sale under the Option,
by the number of Shares as to which the Option is exercised. |
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(ii) |
Termination
of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s
termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option within such
period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified
time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination.
Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option will revert to this Plan. If after termination the Participant does
not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered
by such Option will revert to this Plan. |
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(iii) |
Disability
of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant
may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement).
In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the
Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is
not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to this Plan. If
after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate,
and the Shares covered by such Option will revert to this Plan. |
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(iv) |
Death
of Participant. If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s
death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death
(but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement),
by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death
in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be
exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred
pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified
time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless
otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares
covered by the unvested portion of the Option will immediately revert to this Plan. If the Option is not so exercised within the
time specified herein, the Option will terminate, and the Shares covered by such Option will revert to this Plan. . |
Section
3.02 Stock Appreciation Rights.
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(a) |
Grant
of Stock Appreciation Rights. Subject to the terms and conditions of this Plan, a Stock Appreciation Right may be granted to
Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion. |
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(b) |
Number
of Shares. The Administrator will have complete discretion to determine the number of Shares subject to any Award of Stock Appreciation
Rights. |
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(c) |
Exercise
Price and Other Terms. The per Share exercise price for the Shares that will determine the amount of the payment to be received
upon exercise of a Stock Appreciation Right as set forth in Section 3.02(f) will be determined by the Administrator and will be no
less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject
to the provisions of this Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights
granted under this Plan. Stock Appreciation Rights which have become exercisable may be exercised by delivery of written or electronic
notice of exercise to the Company in accordance with the terms of the Award Agreement, specifying the number of Stock Appreciation
Rights to be exercised and the date on which such Stock Appreciation Rights were awarded and vested. |
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(d) |
Stock
Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the
exercise price, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, will determine. |
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(e) |
Expiration
of Stock Appreciation Rights. A Stock Appreciation Right granted under this Plan will expire upon the date determined by the
Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section
3.01(d) relating to the maximum term and Section 3.01(f) relating to exercise also will apply to Stock Appreciation Rights. |
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(f) |
Payment
of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment
from the Company in an amount determined by multiplying (i) the difference between the Fair Market Value of a Share on the date of
exercise over the exercise price; and (ii) the number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent
value, or in some combination thereof. |
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(g) |
Deemed
Exercise of Stock Appreciation Rights. If, on the date on which a Stock Appreciation Rights would otherwise terminate or expire,
the Stock Appreciation Right by its terms remains exercisable immediately prior to such termination or expiration and, if so exercised,
would result in a payment to the holder of such Stock Appreciation Right, then any portion of such Stock Appreciation Right which
has not previously been exercised shall automatically be deemed to be exercised as of such date with respect to such portion. |
Section
3.03 Restricted Stock.
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(a) |
Grant
of Restricted Stock. Subject to the terms and provisions of this Plan, the Administrator, at any time and from time to time,
may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine. |
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(b) |
Restricted
Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction,
the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless
the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on
such Shares have lapsed. |
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(c) |
Transferability.
Except as provided in this Section 3.03 or as the Administrator determines, Shares of Restricted Stock may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction. |
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(d) |
Other
Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as
it may deem advisable or appropriate. |
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(e) |
Removal
of Restrictions. Except as otherwise provided in this Section 3.03, Shares of Restricted Stock covered by each Restricted Stock
grant made under this Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or
at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any
restrictions will lapse or be removed. |
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(f) |
Voting
Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares, unless the Administrator determines otherwise. |
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(g) |
Dividends
and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled
to receive all dividends and other distributions paid with respect to such Shares, unless the Administrator provides otherwise. If
any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and
forfeitability as the Shares of Restricted Stock with respect to which they were paid. |
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(h) |
Return
of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have
not lapsed will revert to the Company and again will become available for grant under this Plan. |
Section
3.04 Restricted Stock Units.
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(a) |
Grant.
Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator
determines that it will grant Restricted Stock Units under this Plan, it will advise the Participant in an Award Agreement of the
terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units. |
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(b) |
Vesting
Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which, depending on the extent to which
the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator
may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but
not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the
Administrator in its discretion. |
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(c) |
Earning
Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as
determined by the Administrator or as set forth in the applicable Award Agreement. Notwithstanding the foregoing, at any time after
the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must
be met to receive a payout. |
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(d) |
Form
and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) determined
by the Administrator and set forth in the Award Agreement. The Administrator, in its sole discretion, may settle earned Restricted
Stock Units in cash, Shares, or a combination of both. |
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(e) |
Voting
Rights, Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to Shares represented
by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company). However, the Administrator, in its discretion, may provide in the
Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to Dividend Equivalent Rights with
respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with
respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated.
Dividend Equivalent Rights, if any, shall be paid by crediting the Participant with a cash amount or with additional whole Restricted
Stock Units as of the date of payment of such cash dividends on Stock, as determined by the Administrator. The number of additional
Restricted Stock Units (rounded to the nearest whole number), if any, to be credited shall be determined by dividing (a) the amount
of cash dividends paid on the dividend payment date with respect to the number of Shares represented by the Restricted Stock Units
previously credited to the Participant by (b) the Fair Market Value per Share on such date. Such cash amount or additional Restricted
Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time as the
Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in
Shares or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section
4.05, appropriate adjustments shall be made in the Participant’s Restricted Stock Unit Award so that it represents the right
to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic
cash dividends) to which the Participant would be entitled by reason of the Shares issuable upon settlement of the Award, and all
such new, substituted or additional securities or other property shall be immediately subject to the same vesting conditions as are
applicable to the Award. |
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(f) |
Cancellation.
On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company. |
Section
3.05 Performance Units and Performance Shares.
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(a) |
Issuance.
Performance Awards may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator,
in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units and Performance
Shares granted to each Participant. |
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(b) |
Value
of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or
before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date
of grant. |
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(c) |
Performance
Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions (including, without
limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will
determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during
which the performance objectives or other vesting provisions must be met will be called the “Performance Period.” Each
Performance Awards will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions
as the Administrator, in its sole discretion, will determine. |
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(d) |
Performance
Targets and Goals. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, business
unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities
laws, or any other basis determined by the Administrator in its discretion (“Performance Goals”). Performance Goals shall
be established by the Administrator on the basis of targets to be attained (“Performance Targets”) with respect to one
or more measures of business or financial performance (each, a “Performance Measure”), subject to the following: |
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(i) |
Performance
Measures. Performance Measures shall be calculated in accordance with the Company’s financial statements,
or, if such measures are not reported in the Company’s financial statements, they shall be calculated in accordance with generally
accepted accounting principles, a method used generally in the Company’s industry, or in accordance with a methodology established
by the Administrator prior to the grant of the Performance Award. As specified by the Administrator, Performance Measures may be
calculated with respect to the Company and its Subsidiaries consolidated therewith for financial reporting purposes, one or more
Subsidiaries or such division or other business unit of any of them selected by the Administrator. Unless otherwise determined by
the Administrator prior to the grant of the Performance Award, the Performance Measures applicable to the Performance Award shall
be calculated prior to the accrual of expense for any Performance Award for the same Performance Period and excluding the effect
(whether positive or negative) on the Performance Measures of any change in accounting standards or any unusual or infrequently occurring
event or transaction, as determined by the Administrator, occurring after the establishment of the Performance Goals applicable to
the Performance Award. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period
to period for the calculation of Performance Measures in order to prevent the dilution or enlargement of the Participant’s
rights with respect to a Performance Award. Performance Measures may be based upon one or more of the following, as determined by
the Administrator: (1) revenue; (2) sales; (3) expenses; (4) operating income; (5) gross margin; (6) operating margin; (7) earnings
before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; (8) pre-tax profit;
(9) net operating income; (10) net income; (11) economic value added; (12) free cash flow; (13) operating cash flow; (14) balance
of cash, cash equivalents and marketable securities; (15) stock price; (16) earnings per share; (17) return on stockholder equity;
(18) return on capital; (19) return on assets; (20) return on investment; (21) total stockholder return; (22) employee satisfaction;
(23) employee retention; (24) market share; (25) customer satisfaction; (26) product development; (27) research and development expenses;
(28) completion of an identified special project; and (29) completion of a joint venture or other corporate transaction. |
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(ii) |
Performance
Targets. Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final
value of a Performance Award determined under the applicable Performance Award Formula by the Performance Target level attained during
the applicable Performance Period. A Performance Target may be stated as an absolute value, an increase or decrease in a value, or
as a value determined relative to an index, budget or other standard selected by the Administrator. |
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(e) |
Earning
of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be
entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to
be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been
achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance
objectives or other vesting provisions for such Performance Unit/Share. |
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(f) |
Form
and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units or Performance Shares will be made as
soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay
earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof. |
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(g) |
Cancellation
of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units or Performance
Shares will be forfeited to the Company, and again will be available for grant under this Plan. |
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(h) |
Qualified
Performance-Based Awards. Restricted Stock and Restricted Stock Units granted to officers and Employees of the Company or any
Parent or Subsidiary of the Company (within the meaning of Code Section 424) may be granted with the intent that the award satisfy
the “Performance-Based Exception” (any such award intended to satisfy the Performance-Based Exception, a “Qualified
Performance-Based Award”). The grant, vesting, or payment of a Qualified Performance-Based Awards may depend on the degree
of achievement of one or more performance goals relative to a pre-established targeted level or levels using one or more performance
targets as determined by the Administrator (on an absolute or relative (including, without limitation, relative to the performance
of one or more other companies or upon comparisons of any of the indicators of performance relative to one or more other companies)
basis, any of which may also be expressed as a growth or decline measure relative to an amount or performance for a prior date or
period) for the Company on a consolidated basis or for one or more of the Company’s Subsidiaries, segments, divisions, or business
or operational units, or any combination of the foregoing. The performance period applicable to any Performance Units or Performance
Shares may not be less than three (3) months nor more than ten (10) years. To satisfy the Performance-Based Exception, the performance
measure(s) applicable to the Qualified Performance-Based Award and specific performance formula, goal or goals (“targets”),
including must be established and approved by the Administrator during the first ninety (90) days of the applicable Performance Period
(and, in the case of Performance Periods of less than one year, in no event after 25% or more of the Performance Period has elapsed)
and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code. |
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(i) |
Voting
Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to Shares represented
by Performance Share Awards until the date of the issuance of such Shares, if any (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). However, the Administrator, in its discretion, may provide
in the Award Agreement evidencing any Performance Share Award that the Participant shall be entitled to Dividend Equivalent Rights
with respect to the payment of cash dividends on Stock during the period beginning on the date the Award is granted and ending, with
respect to each share subject to the Award, on the earlier of the date on which the Performance Shares are settled or the date on
which they are forfeited. Such Dividend Equivalent Rights, if any, shall be credited to the Participant either in cash or in the
form of additional whole Performance Shares as of the date of payment of such cash dividends on Stock, as determined by the Administrator.
The number of additional Performance Shares (rounded to the nearest whole number), if any, to be so credited shall be determined
by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of Shares represented by
the Performance Shares previously credited to the Participant by (b) the Fair Market Value per Share on such date. Dividend Equivalent
Rights, if any, shall be accumulated and paid to the extent that the related Performance Shares become nonforfeitable. Settlement
of Dividend Equivalent Rights may be made in cash, Shares, or a combination thereof as determined by the Administrator, and may be
paid on the same basis as settlement of the related Performance Share as provided in Section 3.05(e). Dividend Equivalent Rights
shall not be paid with respect to Performance Units. In the event of a dividend or distribution paid in Shares or other property
or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.05, appropriate adjustments
shall be made in the Participant’s Performance Share Award so that it represents the right to receive upon settlement any and
all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant
would be entitled by reason of the Shares issuable upon settlement of the Performance Share Award, and all such new, substituted
or additional securities or other property shall be immediately subject to the same Performance Goals as are applicable to the Award. |
Section 3.06 Cash-Based
Awards and Other Stock-Based Awards. Cash-Based Awards and Other Stock-Based Awards shall be
evidenced by Award Agreements in such form as the Administrator shall establish. Such Award Agreements may incorporate all or any of
the terms of this Plan by reference and shall comply with and be subject to the following terms and conditions.
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(a) |
Grant
of Cash-Based Awards. Subject to the provisions of this Plan, the Administrator, at any time and from time to time, may grant
Cash-Based Awards to Participants in such amounts and upon such terms and conditions, including the achievement of performance criteria,
as the Administrator may determine. |
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(b) |
Grant
of Other Stock-Based Awards. The Administrator may grant other types of equity-based or equity-related Awards not otherwise described
by the terms of this Plan (including the grant or offer for sale of unrestricted securities, stock-equivalent units, stock appreciation
units, securities or debentures convertible into common stock or other forms determined by the Administrator) in such amounts and
subject to such terms and conditions as the Administrator shall determine. Other Stock-Based Awards may be made available as a form
of payment in the settlement of other Awards or as payment in lieu of compensation to which a Participant is otherwise entitled.
Other Stock-Based Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based
on the value of a Share and may include, without limitation, Awards designed to comply with or take advantage of the applicable local
laws of jurisdictions other than the United States. |
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(c) |
Value
of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a monetary payment amount or payment range as
determined by the Administrator. Each Other Stock-Based Award shall be expressed in terms of Shares or units based on such Shares,
as determined by the Administrator. The Administrator may require the satisfaction of such Service requirements, conditions, restrictions
or performance criteria, including, without limitation, Performance Goals as described in Section 3.05, as shall be established by
the Administrator and set forth in the Award Agreement evidencing such Award. If the Administrator exercises its discretion to establish
performance criteria, the final value of Cash-Based Awards or Other Stock-Based Awards that will be paid to the Participant will
depend on the extent to which the performance criteria are met. The establishment of performance criteria with respect to the grant
or vesting of any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall follow procedures
substantially equivalent to those applicable to Performance Awards set forth in Section 3.05. |
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(d) |
Payment
or Settlement of Cash-Based Awards and Other Stock-Based Awards. Payment or settlement, if any, with respect to a Cash-Based
Award or an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash, Shares or other securities
or any combination thereof as the Administrator determines. The determination and certification of the final value with respect to
any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall comply with the requirements
applicable to Performance Awards set forth in Section 3.05. To the extent applicable, payment or settlement with respect to each
Cash-Based Award and Other Stock-Based Award shall be made in compliance with the requirements of Section 409A. |
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(e) |
Voting
Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to Shares represented
by Other Stock-Based Awards until the date of the issuance of such Shares (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company), if any, in settlement of such Award. However, the Administrator,
in its discretion, may provide in the Award Agreement evidencing any Other Stock-Based Award that the Participant shall be entitled
to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such
Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or
the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid in accordance with the provisions set
forth in Section 3.04(e). Dividend Equivalent Rights shall not be granted with respect to Cash-Based Awards. In the event of a dividend
or distribution paid in Shares or other property or any other adjustment made upon a change in the capital structure of the Company
as described in Section 4.05, appropriate adjustments shall be made in the Participant’s Other Stock-Based Award so that it
represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than
regular, periodic cash dividends) to which the Participant would be entitled by reason of the Shares issuable upon settlement of
such Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same vesting
conditions and performance criteria, if any, as are applicable to the Award. |
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(f) |
Nontransferability
of Cash-Based Awards and Other Stock-Based Awards. Prior to the payment or settlement of a Cash-Based Award or Other Stock-Based
Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance,
or garnishment by creditors of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution. The Administrator may impose such additional restrictions on any Shares issued in settlement of Cash-Based
Awards and Other Stock-Based Awards as it may deem advisable, including, without limitation, minimum holding period requirements,
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 state securities laws or foreign law applicable to such Shares. |
Section
3.07 Form of Award Agreements. A form of Award Agreement for a grant of Options is attached hereto
as Exhibit A, a form of Award Agreement for a grant of Stock Appreciation Rights is attached hereto as Exhibit B, a form of Award Agreement
for a grant of Restricted Stock is attached hereto as Exhibit C; and a form of Award Agreement for a grant of Restricted Stock Units
is attached hereto as Exhibit D, provided that the Administrator shall have the discretion to modify such forms and to replace such forms
with any other agreement as determined by the Administrator. In the event of a conflict between the terms of any Award Agreement and
the provisions in the body of this Plan, the terms of the Award Agreement shall control.
Article
IV. Additional Provisions Applicable to this Plan and Awards
Section
4.01 Outside Director Limitations. No Outside Director may be granted, in any Fiscal Year, Awards
with a grant date fair value (computed as of the date of grant in accordance with U.S. generally accepted accounting principles) of more
than $300,000. Any Awards granted to an individual while he or she was an Employee, or while he or she was a Consultant but not an Outside
Director, will not count for purposes of the limitations under this Section 4.01.
Section
4.02 Compliance With Code Section 409A. Awards will be designed and operated in such a manner
that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment,
settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise
determined in the sole discretion of the Administrator. This Plan and each Award Agreement under this Plan is intended to meet the requirements
of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole
discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Code Section
409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that
the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A.
In no event will the Company have any obligation under the terms of this Plan to reimburse a Participant for any taxes or other costs
that may be imposed on Participant as a result of Section 409A.
Section
4.03 Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise,
vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee
in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company,
its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by
the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave, any Incentive Stock Option
held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory
Stock Option.
Section
4.04 Limited Transferability of Awards. Unless determined otherwise by the Administrator, Awards
may not be sold, pledged, assigned, hypothecated, or otherwise transferred in any manner other than by will or by the laws of descent
and distribution, and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an
Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
Section
4.05 Adjustments; Dissolution, Merger, Etc.
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(a) |
Adjustments.
In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase,
or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the
Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to
be made available under this Plan, will adjust the number and class of shares of stock that may be delivered under this Plan and/or
the number, class, and price of shares of stock covered by each outstanding Award, and the numerical Share limits of Section 2.01. |
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(b) |
Dissolution
or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant
as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised,
an Award will terminate immediately prior to the consummation of such proposed action. |
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(c) |
Change
in Control. |
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(i) |
Unless
otherwise specifically set forth in an Award Agreement, in the event of a merger of the Company with or into another corporation
or other entity or a Change in Control, each outstanding Award will be treated as the Administrator determines (subject to the provisions
of Section 4.05(c)(ii) without a Participant’s consent, including, without limitation, that (i) Awards will be assumed, or
substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an Affiliate thereof) with appropriate
adjustments as to the number and kind of shares and prices; (ii) upon written notice to a Participant, that the Participant’s
Awards will terminate upon or immediately prior to the consummation of such merger or Change in Control; (iii) outstanding Awards
will vest and become exercisable, realizable, or payable, or restrictions applicable to an Award will lapse, in whole or in part
prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon
or immediately prior to the effectiveness of such merger or Change in Control; (iv) (A) the termination of an Award in exchange for
an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization
of the Participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of
the date of the occurrence of the transaction the Administrator determines in good faith that no amount would have been attained
upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company
without payment), or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion;
or (v) any combination of the foregoing. In taking any of the actions permitted under this Section 4.05(c), the Administrator will
not be obligated to treat all Awards, all Awards held by a Participant, or all Awards of the same type, similarly. |
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(ii) |
In
the event that the successor corporation does not assume or substitute for the Award (or portion thereof), the Participant will fully
vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to
which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will
lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed
achieved at one hundred percent (100%) of target levels and all other terms and conditions met, in all cases, unless specifically
provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any
of its Subsidiaries or Parents, as applicable. In addition, if an Option or Stock Appreciation Right is not assumed or substituted
in the event of a merger or Change in Control, the Administrator will notify the Participant in writing or electronically that the
Option or Stock Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion,
and the Option or Stock Appreciation Right will terminate upon the expiration of such period. |
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(iii) |
For
the purposes of this Section 4.05(c) and Section 4.05(d), an Award will be considered assumed if, following the merger or Change
in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the merger
or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in
Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that
if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the
exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, Performance Unit, or Performance
Share, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the merger or Change in Control. |
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(iv) |
Notwithstanding
anything in this Section 4.05(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more
performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the
Participant’s consent, in all cases, unless specifically provided otherwise under the applicable Award Agreement or other written
agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable; provided, however, a modification
to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be
deemed to invalidate an otherwise valid Award assumption. |
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(v) |
Notwithstanding
anything in this Section 4.05(c) to the contrary, and unless otherwise provided in an Award Agreement, if an Award that vests, is
earned or paid-out under an Award Agreement is subject to Code Section 409A and if the change in control definition contained in
the Award Agreement does not comply with the definition of “change of control” for purposes of a distribution under Code
Section 409A, then any payment of an amount that is otherwise accelerated under this Section 4.05(c) will be delayed until the earliest
time that such payment would be permissible under Code Section 409A without triggering any penalties applicable under Code Section
409A. |
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(vi) |
The
Administrator may, without affecting the number of Shares reserved or available hereunder, authorize the issuance or assumption of
benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such
terms and conditions as it may deem appropriate, subject to compliance with Section 409A and any other applicable provisions of the
Code. |
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(d) |
Outside
Director Awards. In the event of a Change in Control, with respect to Awards granted to an Outside Director, the Outside Directors
will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares underlying such
Award, including those Shares which would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted
Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria
will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, unless specifically
provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any
of its Subsidiaries or Parents, as applicable. |
Section
4.06 Tax Withholding.
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(a) |
Withholding
Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof) or such earlier time as
any tax withholding obligation is due, the Company will have the power and the right to deduct or withhold, or require a Participant
to remit to the Company, an amount sufficient to satisfy federal, state, local, non-U.S. or other taxes (including the Participant’s
FICA obligation) required to be withheld with respect to such Award (or exercise thereof). |
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(b) |
Withholding
Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time,
may permit a Participant to satisfy such tax withholding obligation, in whole or in part by such methods as the Administrator shall
determine, including, without limitation, (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash
or Shares having a fair market value equal to the minimum statutory amount required to be withheld or such greater amount as the
Administrator may determine if such amount would not have adverse accounting consequences, as the Administrator determines in its
sole discretion, (iii) delivering to the Company already-owned Shares having a fair market value equal to the minimum statutory amount
required to be withheld or such greater amount as the Administrator may determine, in each case, provided the delivery of such Shares
will not result in any adverse accounting consequences, as the Administrator determines in its sole discretion, (iv) selling a sufficient
number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion
(whether through a broker or otherwise) equal to the amount required to be withheld, or (v) any combination of the foregoing methods
of payment. The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be
withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal
income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to
be determined or such greater amount as the Administrator may determine if such amount would not have adverse accounting consequences,
as the Administrator determines in its sole discretion. The fair market value of the Shares to be withheld or delivered will be determined
as of the date that the taxes are required to be withheld. |
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(c) |
Tax
Withholding in General. The Company shall have the right to deduct from any and all payments made under this Plan, or to require
the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local
and foreign taxes (including social insurance), if any, required by law to be withheld by the Company or any of its Affiliates with
respect to an Award or the Shares acquired pursuant thereto. The Company shall have no obligation to deliver Shares, to release Shares
from an escrow established pursuant to an Award Agreement, or to make any payment in cash under this Plan until the Company or its
Affiliate’s, as applicable, withholding obligations have been satisfied by the Participant. |
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(d) |
Withholding
in or Directed Sale of Shares. The Company shall have the right, but not the obligation, to deduct from the Shares issuable to
a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole Shares
having a Fair Market Value, as determined by the Administrator, equal to all or any part of the tax withholding obligations of any
the Company or its Affiliates, as applicable. The Fair Market Value of any Shares withheld or tendered to satisfy any such tax withholding
obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Administrator may require
a Participant to direct a broker, upon the vesting, exercise or settlement of an Award, to sell a portion of the shares subject to
the Award determined by the Administrator in its discretion to be sufficient to cover the tax withholding obligations of the Company
or its Affiliates, as applicable, and to remit an amount equal to such tax withholding obligations to the Company or its Affiliates,
as applicable, in cash. |
Section
4.07 Compliance with Securities Laws. The grant of Awards and the issuance of Shares pursuant
to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities
and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised
or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise
or issuance be in effect with respect to the shares issuable pursuant to the Award, or (b) in the opinion of legal counsel to the Company,
the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority,
if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any shares under this Plan 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. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications
that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or
warranty with respect thereto as may be requested by the Company.
Section
4.08 No Effect on Employment or Service. Neither this Plan nor any Award will confer upon a Participant
any right with respect to continuing the Participant’s relationship as a Service Provider with the Company or its Subsidiaries
or Parents, as applicable, nor will they interfere in any way with the Participant’s right or the right of the Company and its
Subsidiaries or Parents, as applicable to terminate such relationship at any time, with or without cause, to the extent permitted by
Applicable Laws.
Section
4.09 Repurchase Rights. Shares issued under this Plan may be subject to one or more repurchase
options, or other conditions and restrictions as determined by the Administrator in its discretion at the time the Award is granted.
The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing
such transfer restrictions prior to the receipt of Shares hereunder and shall promptly present to the Company any and all certificates
representing Shares acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
Section
4.10 Fractional Shares. The Company shall not be required to issue fractional shares upon the
exercise or settlement of any Award.
Section
4.11 Forfeiture Events.
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(a) |
All
Awards under this Plan will be subject to recoupment under any clawback policy that the Company is required to adopt pursuant to
the listing standards of any national securities exchange or association on which the Company’s securities are listed or as
is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other Applicable Laws. In addition, the
Administrator may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Administrator determines
necessary or appropriate, including but not limited to a reacquisition right regarding previously acquired Shares or other cash or
property. Unless this Section 4.11 is specifically mentioned and waived in an Award Agreement or other document, no recovery of compensation
under a clawback policy or otherwise will be an event that triggers or contributes to any right of a Participant to resign for “good
reason” or “constructive termination” (or similar term) under any agreement with the Company or a Subsidiary or
Parent of the Company. |
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(b) |
Notwithstanding
any other provision of this Plan, if the Participant’s service to the Company or any of its Affiliates as a Service Provider
is terminated or ceases for any reason, then any Award which has not vested as of such time in accordance with its terms shall automatically
be forfeited and cancelled and shall cease to vest, be exercisable or otherwise provide any benefit to Participant, provided that
such provision may be modified in any Award Agreement. |
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(c) |
The
Administrator may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award
will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of additional of specified events as determined
by the Administrator, in addition to any otherwise applicable vesting or performance conditions of an Award. |
Section
4.12 Date of Grant. The date of grant of an Award will be, for all purposes, the date on which
the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice
of the determination will be provided to each Participant within a reasonable time after the date of such grant.
Section
4.13 Term of Plan. This Plan will become effective
upon its adoption by the Board. It will continue in effect for a term of ten (10) years from the date adopted by the Board, unless terminated
earlier under Section 4.14.
Section
4.14 Amendment and Termination of this Plan.
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(a) |
Amendment
and Termination. The Administrator may at any time amend, alter, suspend or terminate this Plan. |
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(b) |
Stockholder
Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws. |
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(c) |
Effect
of Amendment or Termination. No amendment, alteration, suspension or termination of this Plan will impair the rights of any Participant,
unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by
the Participant and the Company. Termination of this Plan will not affect the Administrator’s ability to exercise the powers
granted to it hereunder with respect to Awards granted under this Plan prior to the date of such termination. |
Section
4.15 Conditions Upon Issuance of Shares.
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(a) |
Legal
Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance
and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company
with respect to such compliance. |
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(b) |
Investment
Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent
and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention
to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. |
Section
4.16 Inability to Obtain Authority. The inability of the Company to obtain authority from any
regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the
Shares under any state, federal or non-U.S. law or under the rules and regulations of the Securities and Exchange Commission, the stock
exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration,
qualification or rule compliance is deemed by the Company’s counsel to be necessary or advisable for the issuance and sale of any
Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite
authority, registration, qualification or rule compliance will not have been obtained.
Section
4.17 Stockholder Approval. This Plan will be presented for approval by the stockholders of the
Company within twelve (12) months after the date this Plan is adopted by the Board. Such stockholder approval will be obtained in the
manner and to the degree required under Applicable Laws. No Option granted under this Plan may be treated as an Incentive Stock Option
if this Plan is not approved by stockholders of the Company within twelve (12) months after the date this Plan is adopted by the Board.
Section
4.18 Retirement and Welfare Plans. Neither Awards made under this Plan nor Shares or cash paid
pursuant to such Awards may be included as “compensation” for purposes of computing the benefits payable to any Participant
under the Company’s or any of its Affiliates’ retirement plans (both qualified and non-qualified) or welfare benefit plans
unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant’s benefit.
Section
4.19 Beneficiary Designation. Subject to local laws and procedures, each Participant may file
with the Company a written designation of a beneficiary who is to receive any benefit under this Plan to which the Participant is entitled
in the event of such Participant’s death before he or she receives any or all of such benefit. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant’s lifetime. If a married Participant designates a beneficiary other
than the Participant’s spouse, the effectiveness of such designation may be subject to the consent of the Participant’s spouse.
If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participant’s death, the
Company will pay any remaining unpaid benefits to the Participant’s legal representative.
Section
4.20 Severability. If any one or more of the provisions (or any part thereof) of this Plan shall
be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable,
and the validity, legality and enforceability of the remaining provisions (or any part thereof) of this Plan shall not in any way be
affected or impaired thereby.
Section
4.21 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit,
impair, or otherwise affect the Company’s or any of its Affiliate’s right or power to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer
all or any part of its business or assets; or (b) limit the right or power of the Company any of its Affiliates to take any action which
such entity deems to be necessary or appropriate.
Section
4.22 Unfunded Obligation. Participants shall have the status of general unsecured creditors of
the Company. Any amounts payable to Participants pursuant to this Plan shall be considered unfunded and unsecured obligations for all
purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. Neither the Company nor any
of its Affiliates shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special
accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust
investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance
of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Administrator, the
Company or any of its Affiliates and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s
creditors in any assets of the Company or any of its Affiliates. The Participants shall have no claim against the Company or any of its
Affiliates for any changes in the value of any assets which may be invested or reinvested by the Company with respect to this Plan.
Section
4.23 Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation,
construction and performance of this Plan and each Award Agreement, and any and all claims, proceedings or causes of action relating
to this Plan or any Award Agreement or arising from this this Plan or any Award Agreement or the transactions contemplated herein or
therein, including, without limitation, tort claims, statutory claims and contract claims, shall be interpreted, construed, governed
and enforced under and solely in accordance with the substantive and procedural laws of the State of Delaware, in each case as in effect
from time to time and as the same may be amended from time to time, and as applied to agreements performed wholly within the State of
Delaware.
***
Exhibit
A
Form
of Option Award Agreement
HeartCore
Enterprises, Inc.
Option
Award Agreement
This
grant of an Award to purchase Shares is made pursuant to this Option Award Agreement (this “Agreement”) as of [_______________]
(the “Effective Date”) by HeartCore Enterprises, Inc., a Delaware corporation (the “Company”) under the HeartCore
Enterprises, Inc. 2023 Equity Incentive Plan (the “Plan”), to [__________________] (the “Participant”). Under
applicable provisions of the Internal Revenue Code of 1986, as amended, the Option is treated as [an incentive option][a non-qualified
option].
By
signing this cover sheet, you hereby accept the Option (as defined below) and agree to all of the terms and conditions described in this
Agreement and in the Plan.
Participant
Name: |
_____________________________ |
Signature:
|
_____________________________ |
HeartCore
Enterprises, Inc.
By: |
_________________________ |
Name: |
_________________________ |
Title: |
_________________________ |
This
is not a stock certificate or a negotiable instrument. This grant of Option is a
voluntary,
revocable grant from the Company and Participant hereby acknowledges that the Company has no obligation to make additional grants in
the future.
UPON
RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING ENTRY WILL BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO
EVIDENCE THE OPTIONS GRANTED TO YOU.
***
1. |
Grant.
As of the Effective Date, the Company grants to the Participant an option (the “Option”) to purchase on the terms and
conditions hereinafter set forth all or any part of an aggregate of [________________] shares of Common Stock, (the “Option
Shares”), at the purchase price of $[____________] per share (the “Option Price”) pursuant to the terms and conditions
of the Plan. Any capitalized, but undefined, term used in this Agreement shall have the meaning ascribed to it in this Plan. The
Participant shall have the cumulative right to exercise the Option, and the Option is only exercisable, with respect to the following
number of Option Shares on or after the following dates, subject to earlier vesting and forfeiture as set forth in the Plan: |
|
Date |
|
Number
of Options Vested and Shares Which May be Acquired |
|
|
|
|
|
|
|
|
|
The
Administrator may, in its sole discretion, accelerate the date on which the Participant may purchase Option Shares. Any capitalized,
but undefined, term used in this Agreement shall have the meaning ascribed to it in this Plan. |
|
|
2. |
Term.
The Option granted hereunder shall expire in all events at 5:00 p.m., Eastern time on [______________], unless sooner terminated
as provided herein or in the Plan. |
|
|
3. |
Change
in Accounting Treatment. If the Administrator finds that a change in the financial accounting treatment for options granted under
this Agreement or the Plan adversely affects the Company or, in the determination of the Administrator, may adversely affect the
Company in the foreseeable future, the Administrator may, in its discretion, set an accelerated termination date for the Option.
In such event, the Administrator may take whatever other action, including acceleration of any exercise provisions, it deems necessary. |
|
|
4. |
Blackout
Periods. The Administrator reserves the right to suspend or limit the Participant’s rights to exercise and sell Shares
acquired through the exercise of Options to comply with Applicable Requirements and any Company’s insider trading policy, any
Applicable Law, or at any other times that it deems appropriate. |
|
|
5. |
Transfers.
Except as otherwise provided herein or in any separate provisions applicable to this Option, the Option is transferable by the Participant
only by will or pursuant to the laws of descent and distribution in the event of the Participant’s death, in which event the
Option may be exercised by the heirs or legal representatives of the Participant as set forth in this Plan. Any attempt at assignment,
transfer, pledge or disposition of the Option contrary to the provisions hereof or the levy of any execution, attachment or similar
process upon the Option shall be null and void and without effect. Any exercise of the Option by a Person other than the Participant
shall be accompanied by appropriate proofs of the right of such person to exercise the Option. |
|
|
6. |
Adjustments
on Changes in Common Stock. In the event that, prior to the delivery by the Company of all of the Option Shares in respect of
which the Option is granted, there shall be an increase or decrease in the number of issued shares of Common Stock of the Company
as a result of a subdivision or consolidation of Shares or other capital adjustment, or the payment of a stock dividend or other
increase or decrease in such Shares, effected without receipt of consideration by the Company, the remaining number of Option Shares
still subject to the Option and the Option Price therefor shall be adjusted in a manner determined by the Administrator so that the
adjusted number of Option Shares and the adjusted Option Price shall be the substantial equivalent of the remaining number of Option
Shares still subject to the Option and the Option Price thereof prior to such change. For purposes of this Section 7 no adjustment
shall be made as a result of the issuance of Common Stock upon the conversion of other securities of the Company which are convertible
into Shares. |
|
|
7. |
Legal
Requirements. If the listing, registration or qualification of the Option Shares upon any securities exchange or under any federal
or state law, or the consent or approval of any governmental regulatory body is necessary as a condition of or in connection with
the purchase of such Option Shares, the Company shall not be obligated to issue or deliver the certificates representing the Option
Shares as to which the Option has been exercised unless and until such listing, registration, qualification, consent or approval
shall have been effected or obtained. If registration is considered unnecessary by the Company or its counsel, the Company may cause
a legend to be placed on the Option Shares being issued calling attention to the fact that they have been acquired for investment
and have not been registered. |
8. |
Administration.
The Option has been granted pursuant to, and is subject to the terms and provisions of, this Plan. All questions of interpretation
and application of this Plan and the Option shall be determined by the Administrator, and such determination shall be final, binding
and conclusive. The Option shall not be treated as an incentive stock option (as such term is defined in section 422(b) of the Code)
for federal income tax purposes unless expressly indicated as same hereupon. |
|
|
9. |
Severability.
Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the
intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto,
modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’
intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely,
knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel. |
|
|
10. |
Notices.
Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to
be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records
of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be
deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and
with proper postage and registration or certification fees prepaid. |
|
|
11. |
Reservation
of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant
in its applicable capacity as a Service Provider at any time for any reason whatsoever. |
|
|
12. |
Choice
of Law; Jurisdiction. This Agreement, and any and all claims, proceedings or causes of action relating to this Agreement or arising
from this Agreement or the transactions contemplated herein, including, without limitation, tort claims, statutory claims and contract
claims, shall be interpreted, construed, governed and enforced under and solely in accordance with the substantive and procedural
laws of the State of Delaware, in each case as in effect from time to time and as the same may be amended from time to time, and
as applied to agreements performed wholly within the State of Delaware. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED
UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF DELAWARE OR THE FEDERAL COURTS OF THE UNITED STATES
LOCATED IN DELAWARE, AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. |
|
|
13. |
Taxes.
You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding
of such income or other taxes as may be required by law to be paid or withheld in connection with the Options and exercise thereof. |
***
Exhibit
B
Form
of Stock Appreciation Right Award Agreement
HeartCore
Enterprises, Inc.
Stock
Appreciation Rights Award Agreement
Number
of SARs |
|
Grant
Date |
|
Vesting
Schedule |
|
|
|
|
|
|
|
|
|
|
Exercise
Price: $_______________ per share of Common Stock
HeartCore
Enterprises, Inc., a Delaware corporation (the “Company”), hereby grants to [_________] (the “Participant”, also
referred to as “you”) Stock Appreciation Rights (the “SARs”), pursuant to the terms of this Stock Appreciation
Rights Award Agreement (this “Agreement”) and the HeartCore Enterprises, Inc. 2023 Equity Incentive Plan (the “Plan”).
By
signing this cover sheet, you agree to all of the terms and conditions described in this Agreement and in the Plan.
HeartCore
Enterprises, Inc.
This
is not a stock certificate or a negotiable instrument. This grant of SAR is a
voluntary,
revocable grant from the Company and Participant hereby acknowledges that the
Company
has no obligation to make additional grants in the future.
UPON
RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING ENTRY
WILL
BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO
EVIDENCE THE SAR GRANTED TO YOU.
***
HeartCore
Enterprises, Inc.
STOCK
APPRECIATION RIGHTS AWARD AGREEMENT
1. |
SAR/Nontransferability.
This Agreement evidences the grant to you on the Grant Date set forth on the cover page of this Agreement the Stock Appreciation
Rights as set forth therein (the “SARs”) pursuant to the Plan. These SARs represent the right to receive, upon exercise
thereof, an amount in cash as set forth in this Plan. These SARs will NOT be credited with dividends to the extent dividends are
paid on the Common Stock of the Company. Your SARs may not be transferred, assigned, pledged or hypothecated, whether by operation
of law or otherwise, nor may the SARs be made subject to execution, attachment or similar process. Any capitalized, but undefined,
term used in this Agreement shall have the meaning ascribed to it in this Plan. |
|
|
2. |
The
Plan. The SARs are issued in accordance with and is subject to and conditioned upon all of the terms and conditions of this Agreement
and this Plan as amended from time to time; provided, however, that no future amendment or termination of this Plan shall, without
your consent, alter or impair any of your rights or obligations under this Plan, all of which are incorporated by reference in this
Agreement as if fully set forth herein. |
|
|
3. |
Cash
Value Determination upon Vesting and Exercise. Subject to the terms and conditions set forth in this Agreement, the SARs covered
by this grant shall vest on the vesting date set forth on the cover page of this Agreement, subject to earlier vesting and forfeiture
as set forth in the Plan. The payment of the value of the SARs shall be made no later than ten (10) days following exercise. The
payment of amounts with respect to the SARs is subject to the provisions of this Plan and to interpretations, regulations and determinations
concerning this Plan as established from time to time by the Administrator in accordance with the provisions of this Plan, including,
but not limited to, provisions relating to (i) rights and obligations with respect to withholding taxes, (ii) capital or other changes
of the Company and (iii) other requirements of applicable law. |
|
|
4. |
No
Stockholder Rights. SARs are not Shares. Neither the Participant, nor any Person entitled to exercise the Participant’s
rights in the event of the Participant’s death, shall have any of the rights and privileges of a holder of Shares. |
|
|
5. |
Severability.
Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the
intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto,
modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’
intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely,
knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel. |
|
|
6. |
Notices.
Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to
be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records
of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be
deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and
with proper postage and registration or certification fees prepaid. |
|
|
7. |
Reservation
of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant
in its applicable capacity as a Service Provider at any time for any reason whatsoever. |
|
|
8. |
Choice
of Law; Jurisdiction. This Agreement, and any and all claims, proceedings or causes of action relating to this Agreement or arising
from this Agreement or the transactions contemplated herein, including, without limitation, tort claims, statutory claims and contract
claims, shall be interpreted, construed, governed and enforced under and solely in accordance with the substantive and procedural
laws of the State of Delaware, in each case as in effect from time to time and as the same may be amended from time to time, and
as applied to agreements performed wholly within the State of Delaware. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED
UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF DELAWARE OR THE FEDERAL COURTS OF THE UNITED STATES
LOCATED IN DELAWARE AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. |
|
|
9. |
Taxes.
You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding
of such income or other taxes as may be required by law to be paid or withheld in connection with the SARs. |
***
Exhibit
C
Form
of Restricted Stock Award Agreement
HeartCore
Enterprises, Inc.
Restricted
Stock Award Agreement
Number
of Shares |
|
Grant
Date |
|
Vesting
Schedule |
|
|
|
|
|
|
|
|
|
|
HeartCore
Enterprises, Inc., a Delaware corporation (the “Company”), hereby grants to [_________] (the “Participant”, also
referred to as “you”) shares of Restricted Stock (the “Shares”), pursuant to the terms of this Restricted Stock
Award Agreement (this “Agreement”) and the HeartCore Enterprises, Inc. 2023 Equity Incentive Plan (the “Plan”).
By
signing this cover sheet, you agree to all of the terms and conditions described in this Agreement and the Plan.
HeartCore
Enterprises, Inc.
This
is not a stock certificate or a negotiable instrument. This grant of Shares is a
voluntary,
revocable grant from the Company and Participant hereby acknowledges that the
Company
has no obligation to make additional grants in the future.
UPON
RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING ENTRY
WILL
BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO
EVIDENCE THE SHARES GRANTED TO YOU.
***
HeartCore
Enterprises, Inc.
RESTRICTED
STOCK AWARD AGREEMENT
1. |
Award.
This Agreement evidences the grant to Participant on the Grant Date set forth on the cover page of this Agreement the shares of Restricted
Stock as set forth therein (the “Shares”) pursuant to the Plan. Any capitalized, but undefined, term used in this Agreement
shall have the meaning ascribed to it in this Plan. |
|
|
2. |
Non-Transferability
of the Shares. Your Shares may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise,
nor may the Shares be made subject to execution, attachment or similar process. Except as may be required by federal income tax withholding
provisions or by the tax laws of any state, your interests (and the interests of your beneficiaries, if any) under this Agreement
are not subject to the claims of your creditors and may not be voluntarily or involuntarily sold, transferred, alienated, assigned,
pledged, anticipated, or encumbered. Any attempt to sell, transfer, alienate, assign, pledge, anticipate, encumber, charge or otherwise
dispose of any right to benefits payable hereunder shall be void. Your rights to your Shares are no greater than that of other general,
unsecured creditors of the Company. |
|
|
3. |
Vesting.
Subject to the terms and conditions set forth in this Agreement, the Shares covered by this grant shall vest on the vesting date
set forth on the cover page of this Agreement, subject to earlier vesting and forfeiture as set forth in the Plan. |
|
|
4. |
Delivery
of Shares. |
|
(a) |
Vesting.
Shares that vest (together with any payment due pursuant to the terms herein in respect of such Shares) shall be delivered to Participant
(or the person to whom ownership rights may have passed by will or the laws of descent and distribution), on or as soon as administratively
practicable after, the date of such vesting. |
|
|
|
|
(b) |
Certain
Limitations. Notwithstanding the foregoing provisions of this Section 3, delivery of Shares, if any, by reason of Participant’s
termination of employment shall be delayed until the six (6) month anniversary of the date of Participant’s termination of
employment to the extent necessary to comply with Code Section 409A(a)(B)(i), and the determination of whether or not there has been
a termination of Participant’s employment with the Company shall be made by the Administrator consistent with the definition
of “separation from service” (as that phrase is used for purposes of Code Section 409A, and as set forth in Treasury
Regulation Section 1.409A-1(h)). |
5. |
Withholding
Taxes. Participant shall be responsible to pay to the Company the amount of withholding taxes as determined by the Company with
respect to the date the Shares are delivered. If Participant does not arrange for payment of the applicable withholding taxes by
providing such amount to the Company in cash prior to the date established by the Company as the deadline for such payment, Participant
shall be treated as having elected to relinquish to the Company a portion of the Shares that would otherwise have been transferred
to Participant having a fair market value, based on the Fair Market Value of the Common Stock on the business day immediately preceding
the date of delivery of the Shares, equal to the amount of such applicable withholding taxes, in lieu of paying such amount to the
Company in cash. Participant authorizes the Company to withhold in accordance with applicable law from any compensation payable to
him or her any taxes required to be withheld for federal, state or local law in connection with this Agreement. |
|
|
6. |
Legal
Requirements. If the listing, registration or qualification of Shares deliverable in respect of an Shares upon any securities
exchange or under any federal or state law, or the consent or approval of any governmental regulatory body is necessary as a condition
of or in connection with the issuance of such Shares, the Company shall not be obligated to issue or deliver such Shares unless and
until such listing, registration, qualification, consent or approval shall have been effected or obtained. If registration is considered
unnecessary by the Company or its counsel, the Company may cause a legend to be placed on any Shares being issued calling attention
to the fact that they have been acquired for investment and have not been registered. The Administrator may from time to time impose
any other conditions on the Shares it deems necessary or advisable to ensure that Shares are issued and resold in compliance with
the Securities Act of 1933, as amended. |
|
|
7. |
Severability.
Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the
intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto,
modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’
intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely,
knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel. |
8. |
Notices.
Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to
be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records
of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be
deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and
with proper postage and registration or certification fees prepaid. |
|
|
9. |
Reservation
of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant
in its applicable capacity as a Service Provider at any time for any reason whatsoever. |
|
|
10. |
Choice
of Law; Jurisdiction. This Agreement, and any and all claims, proceedings or causes of action relating to this Agreement or arising
from this Agreement or the transactions contemplated herein, including, without limitation, tort claims, statutory claims and contract
claims, shall be interpreted, construed, governed and enforced under and solely in accordance with the substantive and procedural
laws of the State of Delaware, in each case as in effect from time to time and as the same may be amended from time to time, and
as applied to agreements performed wholly within the State of Delaware. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED
UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF DELAWARE OR THE FEDERAL COURTS OF THE UNITED STATES
LOCATED IN DELAWARE AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. |
|
|
11. |
Taxes.
You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding
of such income or other taxes as may be required by law to be paid or withheld in connection with the Restricted Stock. |
***
Exhibit
D
Form
of Restricted Unit Award Agreement
HeartCore
Enterprises, Inc.
Restricted
Unit Award Agreement
Number
of Restricted Stock Units |
|
Grant
Date |
|
Vesting
Schedule/Performance Period/Performance Vesting Requirements |
|
|
|
|
|
|
|
|
|
|
HeartCore
Enterprises, Inc., a Delaware corporation (the “Company”), hereby grants to [_________] (the “Participant”, also
referred to as “you”) the Restricted Stock Units (the “Restricted Stock Units” or “RSUs”), pursuant
to the terms of this Restricted Unit Award Agreement (this “Agreement”) and the HeartCore Enterprises, Inc. 2023 Equity Incentive
Plan (the “Plan”).
By
signing this cover sheet, you agree to all of the terms and conditions described in this Agreement and the Plan.
HeartCore
Enterprises, Inc.
This
is not a stock certificate or a negotiable instrument. This grant of RSUs is a
voluntary,
revocable grant from the Company and Participant hereby acknowledges that the
Company
has no obligation to make additional grants in the future.
UPON
RECEIPT OF YOUR SIGNED AGREEMENT, A BOOKKEEPING ENTRY
WILL
BE ENTERED INTO THE COMPANY’S BOOKS AND RECORDS
TO
EVIDENCE THE RSUs GRANTED TO YOU.
***
HeartCore
Enterprises, Inc.
RESTRICTED
UNIT AWARD AGREEMENT
1. |
Award.
This Agreement evidences the grant to Participant on the Grant Date set forth on the cover page of this Agreement the Restricted
Stock Units as set forth therein (the “Restricted Stock Units” or “RSUs”) pursuant to the Plan. As used herein,
the term “Restricted Stock Unit” or “RSU” shall mean a non-voting unit of measurement which is deemed for
bookkeeping purposes to be equivalent to one outstanding Share solely for purposes of this Plan and this Agreement. The Restricted
Stock Units shall be used solely as a device for the determination of the payment to eventually be made to the Participant if such
Restricted Stock Units vest pursuant to this Award Agreement. The Restricted Stock Units shall not be treated as property or as a
trust fund of any kind. Any capitalized, but undefined, term used in this Agreement shall have the meaning ascribed to it in this
Plan. |
|
|
2. |
Non-Transferability
of the RSUs. Your RSUs may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise, nor
may the RSUs be made subject to execution, attachment or similar process. Except as may be required by federal income tax withholding
provisions or by the tax laws of any state, your interests (and the interests of your beneficiaries, if any) under this Agreement
are not subject to the claims of your creditors and may not be voluntarily or involuntarily sold, transferred, alienated, assigned,
pledged, anticipated, or encumbered. Any attempt to sell, transfer, alienate, assign, pledge, anticipate, encumber, charge or otherwise
dispose of any right to benefits payable hereunder shall be void. Your rights to your RSUs are no greater than that of other general,
unsecured creditors of the Company. |
|
|
3. |
Vesting.
Subject to the terms and conditions set forth in this Agreement, the RSUs covered by this grant shall vest on the vesting date set
forth on the cover page of this Agreement and subject to the satisfaction or attainment of the performance criteria set forth therein,
if any, provided the Participant is employed by the Company on the date of vesting, subject to earlier vesting and forfeiture as
set forth in the Plan. The Administrator may not accelerate vesting of Restricted Stock Units for any reason. |
|
|
4. |
Dividends.
Participant shall not be entitled to any cash, securities or property that would have been paid or distributed as dividends with
respect to the RSUs subject to this Agreement prior to the date the RSUs are delivered to Participant; provided, however, that the
Company shall keep a hypothetical account in which any such items shall be recorded, and shall pay to Participant the amount of such
dividends (in cash or in kind as determined by the Company) on the same date that the RSUs to which such payments or distributions
relate are required to be delivered under this Agreement. |
|
|
5. |
Timing
and Manner of Payment on RSUs. |
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(a) |
On
or as soon as administratively practical following the vesting event pursuant to this Agreement (and in all events not later than
two and one-half (2½) months after such vesting event), the Company shall deliver to the Participant a number of Shares (either
by delivering one or more certificates for such Shares or by entering such Shares in book entry form, as determined by the Company
in its discretion) equal to the number of Shares subject to the RSU that vest on the Vesting Date, less any withholding or expenses
as set forth herein, or may settle the RSU in cash or other payment as provided in this Plan, as determined by the Administrator.
The Company’s obligation to deliver Shares or otherwise make payment with respect to vested RSUs is subject to the condition
precedent that the Participant or other person entitled under this Plan to receive any Shares or payment with respect to the vested
RSUs deliver to the Company any representations or other documents or assurances required pursuant to this Plan. The Participant
shall have no further rights with respect to any RSUs that are paid or that terminate pursuant to this Agreement or this Plan. |
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(b) |
Certain
Limitations. Notwithstanding the foregoing provisions of this Section 3, delivery of Shares or other payment, if any, with respect
to RSUs by reason of Participant’s termination of employment shall be delayed until the six (6) month anniversary of the date
of Participant’s termination of employment to the extent necessary to comply with Code Section 409A(a)(B)(i), and the determination
of whether or not there has been a termination of Participant’s employment with the Company shall be made by the Administrator
consistent with the definition of “separation from service” (as that phrase is used for purposes of Code Section 409A,
and as set forth in Treasury Regulation Section 1.409A-1(h)). |
6. |
Rights
of Participant. Participant shall have none of the rights of a stockholder at any time prior to the delivery of any Shares pursuant
to the RSUs subject to this Agreement, except as expressly set forth in this Plan or herein. |
7. |
Withholding
Taxes. Participant shall be responsible to pay to the Company the amount of withholding taxes as determined by the Company with
respect to the date the RSUs are settled. If Participant does not arrange for payment of the applicable withholding taxes by providing
such amount to the Company in cash prior to the date established by the Company as the deadline for such payment, Participant shall
be treated as having elected to relinquish to the Company a portion of the Shares that would otherwise have been transferred to Participant
having a fair market value, based on the Fair Market Value of the Common Stock on the business day immediately preceding the date
of delivery of the Shares, equal to the amount of such applicable withholding taxes, in lieu of paying such amount to the Company
in cash, or an amount in cash if the RSU is settled in cash. Participant authorizes the Company to withhold in accordance with applicable
law from any compensation payable to him or her any taxes required to be withheld for federal, state or local law in connection with
this Agreement. |
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8. |
Legal
Requirements. If the listing, registration or qualification of Shares deliverable in respect of an RSU upon any Securities Exchange
or any Applicable Requirement, or the consent or approval of any governmental regulatory body is necessary as a condition of or in
connection with the issuance of such Shares, the Company shall not be obligated to issue or deliver such Shares unless and until
such Applicable Requirements shall have been effected or obtained. If registration is considered unnecessary by the Company or its
counsel, the Company may cause a legend to be placed on any Shares being issued calling attention to the fact that they have been
acquired for investment and have not been registered. The Administrator may from time to time impose any other conditions on the
Shares it deems necessary or advisable to ensure that Shares are issued and resold in compliance with the Securities Act of 1933,
as amended. |
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9. |
Severability.
Should a court of competent jurisdiction deem any of the provisions in this Agreement to be unenforceable in any respect, it is the
intention of the parties to this Agreement that this Agreement be deemed, without further action on the part of the parties hereto,
modified, amended and limited to the extent necessary to render the same valid and enforceable. It is further the parties’
intent that all provisions not deemed to be overbroad shall be given their full force and effect. You acknowledge that you are freely,
knowingly and voluntarily entering into this Agreement after having an opportunity for consultation with your own independent counsel. |
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10. |
Notices.
Any notice to be given to the Company shall be addressed to the Administrator at its principal executive office, and any notice to
be given to the Participant shall be addressed to the Participant at the address then appearing on the personnel or other records
of the Company, or at such other address as either party hereafter may designate in writing to the other. Any such notice shall be
deemed to have been duly given when deposited in the United States mail, addressed as aforesaid, registered or certified mail, and
with proper postage and registration or certification fees prepaid. |
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11. |
Reservation
of Right to Terminate. Nothing herein contained shall affect the right of the Company or any Affiliate to terminate the Participant
in its applicable capacity as a Service Provider at any time for any reason whatsoever. |
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12. |
Choice
of Law; Jurisdiction. This Agreement, and any and all claims, proceedings or causes of action relating to this Agreement or arising
from this Agreement or the transactions contemplated herein, including, without limitation, tort claims, statutory claims and contract
claims, shall be interpreted, construed, governed and enforced under and solely in accordance with the substantive and procedural
laws of the State of Delaware, in each case as in effect from time to time and as the same may be amended from time to time, and
as applied to agreements performed wholly within the State of Delaware. ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED
UPON THIS AGREEMENT SHALL BE INSTITUTED SOLELY IN THE COURTS OF THE STATE OF DELAWARE OR THE FEDERAL COURTS OF THE UNITED STATES
LOCATED IN DELAWARE AND EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. |
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13. |
Taxes.
You agree to comply with the appropriate procedures established by the Company, from time to time, to provide for payment or withholding
of such income or other taxes as may be required by law to be paid or withheld in connection with the RSUs. |
***
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