UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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TAITRON COMPONENTS INCORPORATED
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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Below is Appendix A (Taitron Components Incorporated 2005 Stock Incentive Plan)
to the 2006 Proxy Statement of Taitron Components Incorporated. Appendix A was
inadvertently omitted from the 2006 Proxy Statement of Taitron Components
Incorporated filed under Schedule 14A on April 28, 2006.
Appendix A
TAITRON COMPONENTS INCORPORATED
2005 Stock Incentive Plan
SECTION 1: GENERAL PURPOSE OF PLAN
The name of this plan is the Taitron Components Incorporated 2005 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable Taitron
Components Incorporated, a California corporation (the "Company"), and any
Parent or any Subsidiary to obtain and retain the services of the types of
Employees, Consultants and Directors who will contribute to the Company's long
range success and to provide incentives which are linked directly to increases
in share value which will inure to the benefit of all shareholders of the
Company.
SECTION 2: DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Administrator" shall have the meaning as set forth in Section 3, hereof.
"Board" means the Board of Directors of the Company.
"Cause" means (i) failure by an Eligible Person to substantially perform
his or her duties and obligations to the Company (other than any such failure
resulting from his or her incapacity due to physical or mental illness); (ii)
engaging in misconduct or a fiduciary breach which is or potentially is
materially injurious to the Company or its stockholders; (iii) commission of a
felony; (iv) the commission of a crime against the Company which is or
potentially is materially injurious to the Company; or (v) as otherwise provided
in the Stock Option Agreement or Stock Purchase Agreement or applicable law. For
purposes of this Plan, the existence of Cause shall be determined by the
Administrator in its sole discretion, subject to applicable law.
"Change in Control" shall mean:
(1) The consummation of a merger or consolidation of the Company with or
into another entity or any other corporate reorganization, if more than 80% of
the combined voting power (which voting power shall be calculated by assuming
the conversion of all equity securities convertible (immediately or at some
future time) into shares entitled to vote, but not assuming the exercise of any
warrant or right to subscribe to or purchase those shares) of the continuing or
Surviving Entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned, directly or indirectly, by
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization; provided,
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however, that in making the determination of ownership by the stockholders of
the Company, immediately after the reorganization, equity securities which
persons own immediately before the reorganization as stockholders of another
party to the transaction shall be disregarded; or
(2) The sale, transfer or other disposition of all or substantially all of
the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or 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.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means a committee of the Board designated by the Board to
administer the Plan.
"Company" means Taitron Components Incorporated, a corporation organized
under the laws of the State of Delaware (or any successor corporation).
"Consultant" means a consultant or advisor who is a natural person and who
provides bona fide services to the Company, a Parent or a Subsidiary; provided
such services are not in connection with the offer or sale of securities in a
capital-raising transaction and do not directly or indirectly promote or
maintain a market for the Company's securities.
"Date of Grant" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant or, if a different date
is set forth in such resolution as the Date of Grant, then such date as is set
forth in such resolution.
"Director" means a member of the Board.
"Disability" means that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment; provided, however, for purposes of determining the term of an
ISO pursuant to Section 6.6 hereof, the term Disability shall have the meaning
ascribed to it under Code Section 22(e)(3). The determination of whether an
individual has a Disability shall be determined under procedures established by
the Plan Administrator.
"Eligible Person" means an Employee, Consultant or Director of the
Company, any Parent or any Subsidiary.
"Employee" shall mean any individual who is a common-law employee
(including officers) of the Company, a Parent or a Subsidiary.
"Exercise Price" shall have the meaning set forth in Section 6.3 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Fair Market Value" shall mean the fair market value of a Share,
determined as follows: (i) if the Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in the Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Administrator deems reliable; (ii) if the Stock is quoted on the Nasdaq
System (but clause (i) is not applicable) or any similar system whereby the
stock is regularly quoted by a recognized securities dealer but closing sale
prices are not reported, the Fair Market Value of a share of Stock shall be the
mean between the bid and asked prices for the Stock on the last market trading
day prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Administrator deems reliable; or (iii) in the absence
of an established market for the Stock, the Fair Market Value shall be
determined in good faith by the Administrator and such determination shall be
conclusive and binding on all persons.
"First Refusal Right" shall have the meaning set forth in Section 8.7
hereof.
"ISO" means a Stock Option intended to qualify as an "incentive stock
option" as that term is defined in Section 422(b) of the Code.
"Non-Employee Director" means a member of the Board who is not an Employee
of the Company, a Parent or Subsidiary, who satisfies the requirements of such
term as defined in Rule 16b-3(b)(3)(i) promulgated by the Securities and
Exchange Commission.
"Non-Qualified Stock Option" means a Stock Option not described in Section
422(b) of the Code.
"Offeree" means a Participant who is granted a Purchase Right pursuant to
the Plan.
"Optionee" means a Participant who is granted a Stock Option pursuant to
the Plan.
"Outside Director" means a member of the Board who is not an Employee of
the Company, a Parent or Subsidiary, who satisfies the requirements of such term
as defined in Treasury Regulations (26 Code of Federal Regulation Section
1.162-27(e)(3)).
"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.
"Participant" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in Section 3, to receive grants of
Rights.
"Plan" means this Taitron Components Incorporated 2005 Stock Incentive
Plan, as the same may be amended or supplemented from time to time.
"Purchase Price" shall have the meaning set forth in Section 7.3.
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"Purchase Right" means the right to purchase Stock granted pursuant to
Section 7.
"Rights" means Stock Options and Purchase Rights.
"Repurchase Right" shall have the meaning set forth in Section 8.8 of the
Plan.
"Service" shall mean service as an Employee, Director or Consultant.
"Stock" means Class A Common Stock, par value $0.001 per share, of the
Company.
"Stock Option" or "Option" means an option to purchase shares of Stock
granted pursuant to Section 6.
"Stock Option Agreement" shall have the meaning set forth in Section 6.1.
"Stock Purchase Agreement" shall have the meaning set forth in Section
7.1.
"Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company, if each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.
"Surviving Entity" means the Company if immediately following any merger,
consolidation or similar transaction, the holders of outstanding voting
securities of the Company immediately prior to the merger or consolidation own
equity securities possessing more than 50% of the voting power of the
corporation existing following the merger, consolidation or similar transaction.
In all other cases, the other entity to the transaction and not the Company
shall be the Surviving Entity. In making the determination of ownership by the
stockholders of an entity immediately after the merger, consolidation or similar
transaction, equity securities which the stockholders owned immediately before
the merger, consolidation or similar transaction as stockholders of another
party to the transaction shall be disregarded. Further, outstanding voting
securities of an entity shall be calculated by assuming the conversion of all
equity securities convertible (immediately or at some future time) into shares
entitled to vote.
"Ten Percent Stockholder" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424 of the Code,
Stock constituting more than 10% of the total combined voting power of all
classes of stock of his or her employer corporation or of any Parent or
Subsidiary.
SECTION 3: ADMINISTRATION
3.1 Administrator. The Plan shall be administered by either (i) the Board
or (ii) the Committee (the group that administers the Plan is referred to as the
"Administrator").
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3.2 Powers in General. The Administrator shall have the power and
authority to grant to Eligible Persons, pursuant to the terms of the Plan, (i)
Stock Options, (ii) Purchase Rights or (iii) any combination of the foregoing.
3.3 Specific Powers. In particular, the Administrator shall have the
authority: (i) to construe and interpret the Plan and apply its provisions; (ii)
to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine when Rights are to be granted under the Plan; (v) from time to
time to select, subject to the limitations set forth in this Plan, those
Eligible Persons to whom Rights shall be granted; (vi) to determine the number
of shares of Stock to be made subject to each Right; (vii) to determine whether
each Stock Option is to be an ISO or a Non-Qualified Stock Option; (viii) to
prescribe the terms and conditions of each Stock Option and Purchase Right,
including, without limitation, the Exercise Price, Purchase Price and medium of
payment, vesting provisions and repurchase provisions, and to specify the
provisions of the Stock Option Agreement or Stock Purchase Agreement relating to
such grant or sale; (ix) to amend any outstanding Rights for the purpose of
modifying the time or manner of vesting, the Purchase Price or Exercise Price,
as the case may be, subject to applicable legal restrictions and to the consent
of the other party to such agreement; (x) to determine the duration and purpose
of leaves of absences which may be granted to a Participant without constituting
termination of their employment for purposes of the Plan; (xi) to make decisions
with respect to outstanding Stock Options that may become necessary upon a
change in corporate control or an event that triggers anti-dilution adjustments;
and (xii) to make any and all other determinations which it determines to be
necessary or advisable for administration of the Plan.
3.4 Decisions Final. All decisions made by the Administrator pursuant to
the provisions of the Plan shall be final and binding on the Company and the
Participants.
3.5 The Committee. The Board may, in its sole and absolute discretion,
from time to time, and for any period of time during which the Company's Stock
is registered pursuant to Section 12 of the Exchange Act shall, delegate any or
all of its duties and authority with respect to the Plan to the Committee whose
members are to be appointed by and to serve at the pleasure of the Board. From
time to time, the Board may increase or decrease the size of the Committee, add
additional members to, remove members (with or without cause) from, appoint new
members in substitution therefore, and fill vacancies, however caused, in the
Committee. The Committee shall act pursuant to a vote of the majority of its
members or, in the case of a committee comprised of only two members, the
unanimous consent of its members, whether present or not, or by the unanimous
written consent of the majority of its members and minutes shall be kept of all
of its meetings and copies thereof shall be provided to the Board. Subject to
the limitations prescribed by the Plan and the Board, the Committee may
establish and follow such rules and regulations for the conduct of its business
as it may determine to be advisable. During any period of time during which the
Company's Stock is registered pursuant to Section 12 of the Exchange Act, all
members of the Committee shall be Non-Employee Directors and Outside Directors.
3.6 Indemnification. In addition to such other rights of indemnification
as they may have as Directors or members of the Committee, and to the extent
allowed by applicable law, the
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Administrator and each of the Administrator's consultants shall be indemnified
by the Company against the reasonable expenses, including attorney's fees,
actually incurred in connection with any action, suit or proceeding or in
connection with any appeal therein, to which the Administrator or any of its
consultants may be party by reason of any action taken or failure to act under
or in connection with the Plan or any option granted under the Plan, and against
all amounts paid by the Administrator or any of its consultants in settlement
thereof (provided that the settlement has been approved by the Company, which
approval shall not be unreasonably withheld) or paid by the Administrator or any
of its consultants 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 Administrator or any of its
consultants did not act in good faith and in a manner which such person
reasonably believed to be in the best interests of the Company, and in the case
of a criminal proceeding, had no reason to believe that the conduct complained
of was unlawful; provided, however, that within 60 days after institution of any
such action, suit or proceeding, such Administrator or any of its consultants
shall, in writing, offer the Company the opportunity at its own expense to
handle and defend such action, suit or proceeding.
SECTION 4: STOCK SUBJECT TO THE PLAN
4.1 Stock Subject to the Plan. Subject to adjustment as provided in
Section 9, 1,000,000 shares of Stock shall be reserved and available for
issuance under the Plan. Stock reserved hereunder may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
4.2 Basic Limitation. The maximum number of shares with respect to which
Options, awards or sales of Stock may be granted under the Plan to any
Participant in any one calendar year shall be 100,000 shares. The number of
shares that are subject to Rights under the Plan shall not exceed the number of
shares that then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available a
sufficient number of shares to satisfy the requirements of the Plan.
4.3 Additional shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that shares issued under
the Plan are reacquired by the Company pursuant to the terms of any forfeiture
provision, right of repurchase or right of first refusal, such shares shall
again be available for the purposes of the Plan.
SECTION 5: ELIGIBILITY
Eligible Persons who are selected by the Administrator shall be eligible
to be granted Rights hereunder subject to limitations set forth in this Plan;
provided, however, that only Employees shall be eligible to be granted ISOs
hereunder.
SECTION 6: TERMS AND CONDITIONS OF OPTIONS.
6.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company
(the "Stock
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Option Agreement"). Such Option shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and conditions
which are not inconsistent with the Plan and which the Administrator deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the
various Stock Option Agreements entered into under the Plan need not be
identical.
6.2 Number of shares. Each Stock Option Agreement shall specify the number
of shares of Stock that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 9, hereof. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Non-Qualified
Stock Option.
6.3 Exercise Price.
6.3.1 In General. Each Stock Option Agreement shall state the price
at which shares subject to the Stock Option may be purchased (the "Exercise
Price"), which shall, with respect to Incentive Stock Options, be not less than
100% of the Fair Market Value of the Stock on the Date of Grant. In the case of
Non-Qualified Stock Options, the Exercise Price shall be determined in the sole
discretion of the Administrator; provided, however, that the Exercise Price
shall be no less than 100% of the Fair Market Value of the shares of Stock on
the Date of Grant of the Non-Qualified Stock Option.
6.3.2 Ten Percent Stockholder. A Ten Percent Stockholder shall not
be eligible for designation as an Optionee or Purchaser, unless (i) the Exercise
Price of a Non-Qualified Stock Option is at least 110% of the Fair Market Value
of a Share on the Date of Grant, or (ii) in the case of an ISO, the Exercise
Price is at least 110% of the Fair Market Value of a Share on the Date of Grant
and such ISO by its terms is not exercisable after the expiration of five years
from the Date of Grant.
6.3.3 Non-Applicability. The Exercise Price restriction applicable
to Non-Qualified Stock Options required by Sections 6.3.1 and 6.3.2(i) shall be
inoperative if a determination is made by counsel for the Company that such
Exercise Price restrictions are not required in the circumstances under
applicable federal or state securities laws.
6.3.4 Payment. The Exercise Price shall be payable in a form
described in Section 8 hereof.
6.4 Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise or with the disposition of
shares acquired by exercising an Option.
6.5 Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option becomes exercisable. In the case of an
Optionee who is not an officer of the Company, a Director or a Consultant, an
Option shall become exercisable at least as rapidly as 20% per year over the
five-year period commencing on the Date of Grant. Subject to the preceding
sentence, the exercise provisions of any Stock Option Agreement shall be
determined by the Administrator, in its sole discretion, subject to applicable
law.
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6.6 Term. The Stock Option Agreement shall specify the term of the Option.
No Option shall be exercised after the expiration of ten years after the date
the Option is granted. In the case of an ISO granted to a Ten Percent
Stockholder, the ISO shall not be exercised after the expiration of five years
after the date the ISO is granted. Unless otherwise provided in the Stock Option
Agreement, no Option may be exercised (i) ninety (90) days after the date the
Optionee's Service with the Company, its Parent or its Subsidiaries terminates
if such termination is for any reason other than death, Disability or Cause,
(ii) one (1) year after the date the Optionee's Service with the Company and its
subsidiaries terminates if such termination is a result of death or Disability,
and (iii) if the Optionee's Service with the Company and its Subsidiaries
terminates for Cause, all outstanding Options granted to such Optionee shall
expire as of the commencement of business on the date of such termination. The
Administrator may, in its sole discretion, waive the accelerated expiration
provided for in (i) or (ii). Outstanding Options that are not vested at the time
of termination of employment for any reason shall expire at the close of
business on the date of such termination.
6.7 Leaves of Absence. For purposes of Section 6.6 above, to the extent
required by applicable law, Service shall be deemed to continue while the
Optionee is on a bona fide leave of absence. To the extent applicable law does
not require such a leave to be deemed to continue while the Optionee is on a
bona fide leave of absence, such leave shall be deemed to continue if, and only
if, expressly provided in writing by the Administrator or a duly authorized
officer of the Company, Parent or Subsidiary for whom Optionee provides his or
her services.
6.8 Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Administrator may modify, extend or assume
outstanding Options (whether granted by the Company or another issuer) or may
accept the cancellation of outstanding Options (whether granted by the Company
or another issuer) in return for the grant of new Options for the same or a
different number of shares and at the same or a different Exercise Price.
Without limiting the foregoing, the Administrator may amend a previously granted
Option to fully accelerate the exercise schedule of such Option (including
without limitation, in connection with a Change in Control) and provide that
upon the exercise of such Option, the Optionee shall receive shares of
restricted Stock that are subject to repurchase by the Company at the Exercise
Price paid for the Option in accordance with Section 8.8.1 with such Company's
right to repurchase at such price lapsing at the same rate as the exercise
provisions set forth in Optionee's Stock Option Agreement. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair the Optionee's rights or increase the Optionee's obligations
under such Option. However, a termination of the Option in which the Optionee
receives a cash payment equal to the difference between the Fair Market Value
and the Exercise Price for all shares subject to exercise under any outstanding
Option shall not be deemed to impair any rights of the Optionee or increase the
Optionee's obligations under such Option.
SECTION 7: TERMS AND CONDITIONS OF AWARDS OR SALES
7.1 Stock Purchase Agreement. Each award or sale of shares of Stock under
the Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board deems appropriate for inclusion in a Stock
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Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.
7.2 Duration of Offers. Unless otherwise provided in the Stock Purchase
Agreement, any right to acquire shares of Stock under the Plan (other than an
Option) shall automatically expire if not exercised by the Purchaser within
thirty (30) days after the grant of such right was communicated to the Purchaser
by the Company.
7.3 Purchase Price.
7.3.1 In General. Each Stock Purchase Agreement shall state the
price at which the Stock subject to such Stock Purchase Agreement may be
purchased (the "Purchase Price"), which, with respect to Stock Purchase Rights,
shall be determined in the sole discretion of the Administrator; provided,
however, that the Purchase Price shall be no less than 100% of the Fair Market
Value of the shares of Stock on either the Date of Grant or the date of purchase
of the Purchase Right.
7.3.2 Ten Percent Stockholders. A Ten Percent Stockholder shall not
be eligible for designation as a Purchaser unless the Purchase Price (if any) is
at least 100% of the Fair Market Value of a Share.
7.3.3 Non Applicability. The Purchase Price restrictions required by
Sections 7.3.1 and 7.3.2 shall be inoperative if a determination is made by
counsel for the Company that such Purchase Price restrictions are not required
in the circumstances under applicable federal or state securities laws.
7.3.4 Payment of Purchase Price. The Purchase Price shall be payable
in a form described in Section 8.
7.4 Withholding Taxes. As a condition to the purchase of shares, the
Purchaser shall make such arrangements as the Board may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such purchase.
SECTION 8: PAYMENT; RESTRICTIONS
8.1 General Rule. The entire Purchase Price or Exercise Price of shares
issued under the Plan shall be payable in full by, as applicable, cash or check
for an amount equal to the aggregate Purchase Price or Exercise Price for the
number of shares being purchased, or in the discretion of the Administrator,
upon such terms as the Administrator shall approve, (i) in the case of an
Option, by a copy of instructions to a broker directing such broker to sell the
Stock for which such Option is exercised, and to remit to the Company the
aggregate Exercise Price of such Options (a "cashless exercise"), (ii) in the
case of an Option or a sale of Stock, by paying all or a portion of the Exercise
Price or Purchase Price for the number of shares being purchased by tendering
Stock owned by the Optionee, duly endorsed for transfer to the Company, with a
Fair Market Value on the date of delivery equal to the aggregate Purchase Price
of the Stock with respect to which such Option or portion thereof is thereby
exercised or Stock acquired (a "stock-for-stock exercise") or (iii) by a
stock-for-stock exercise by means of attestation whereby the Optionee identifies
for delivery specific shares of Stock already owned by Optionee and receives
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a number of shares of Stock equal to the difference between the Option shares
thereby exercised and the identified attestation shares of Stock (an
"attestation exercise").
8.2 Withholding Payment. The Purchase Price or Exercise Price shall
include payment of the amount of all federal, state, local or other income,
excise or employment taxes subject to withholding (if any) by the Company or any
parent or subsidiary corporation as a result of the exercise of a Stock Option.
The Optionee may pay all or a portion of the tax withholding by cash or check
payable to the Company, or, at the discretion of the Administrator, upon such
terms as the Administrator shall approve, by (i) cashless exercise or
attestation exercise; (ii) stock-for-stock exercise; (iii) in the case of an
Option, by paying all or a portion of the tax withholding for the number of
shares being purchased by withholding shares from any transfer or payment to the
Optionee ("Stock Withholding"); or (iv) a combination of one or more of the
foregoing payment methods. Any shares issued pursuant to the exercise of an
Option and transferred by the Optionee to the Company for the purpose of
satisfying any withholding obligation shall not again be available for purposes
of the Plan. The Fair Market Value of the number of shares subject to Stock
Withholding shall not exceed an amount equal to the applicable minimum required
tax withholding rates.
8.3 Services Rendered. At the discretion of the Administrator, shares of
Stock may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award.
8.4 Promissory Note. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, in the discretion of the Administrator, upon
such terms as the Administrator shall approve, all or a portion of the Exercise
Price or Purchase Price (as the case may be) of shares issued under the Plan may
be paid with a full-recourse promissory note; provided, however, that payment of
any portion of the Exercise Price by promissory note shall not be permitted
where such loan would be prohibited by applicable laws, regulations and rules of
the Securities and Exchange Commission and any other governmental agency having
jurisdiction. However, in the event there is a stated par value of the shares
and applicable law requires, the par value of the shares, if newly issued, shall
be paid in cash or cash equivalents. The shares shall be pledged as security for
payment of the principal amount of the promissory note and interest thereon. The
interest rate payable under the terms of the promissory note shall not be less
than the minimum rate (if any) required to avoid the imputation of additional
interest under the Code. Subject to the foregoing, the Administrator (at its
sole discretion) shall specify the term, interest rate, amortization
requirements (if any) and other provisions of such note. Unless the
Administrator determines otherwise, shares of Stock having a Fair Market Value
at least equal to the principal amount of the loan shall be pledged by the
holder to the Company as security for payment of the unpaid balance of the loan
and such pledge shall be evidenced by a pledge agreement, the terms of which
shall be determined by the Administrator, in its discretion; provided, however,
that each loan shall comply with all applicable laws, regulations and rules of
the Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.
8.5 Exercise/Pledge. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so allows and if Stock is publicly traded, in the discretion
of the Administrator, upon such terms as the Administrator shall approve,
payment may be made all or in part by the
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delivery (on a form prescribed by the Administrator) of an irrevocable direction
to pledge shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
8.6 Written Notice. The purchaser shall deliver a written notice to the
Administrator requesting that the Company direct the transfer agent to issue to
the purchaser (or to his designee) a certificate for the number of shares of
Stock being exercised or purchased or, in the case of a cashless exercise or
share withholding exercise, for any shares that were not sold in the cashless
exercise or withheld.
8.7 First Refusal Right. Each Stock Option Agreement and Stock Purchase
Agreement may provide that the Company shall have the right of first refusal
(the "First Refusal Right"), exercisable in connection with any proposed sale,
hypothecation or other disposition of the Stock purchased by the Optionee or
Offeree pursuant to a Stock Option Agreement or Stock Purchase Agreement; and in
the event the holder of such Stock desires to accept a bona fide third-party
offer for any or all of such Stock, the Stock shall first be offered to the
Company upon the same terms and conditions as are set forth in the bona fide
offer.
8.8 Repurchase Rights. Each Stock Option Agreement and Stock Purchase
Agreement may provide that the Company may repurchase the Participant's Rights
as provided in this Section 8.8 (the "Repurchase Right").
8.8.1 Repurchase Price. The Repurchase Right shall initially be
exercisable at a price equal to the Purchase Price or Exercise Price, as the
case may be, of such Rights (the "Purchase Price Repurchase Right"); provided,
however, the Purchase Price Repurchase Right shall lapse at a rate of at least
20% per year over five years from the date the Right is granted. Following the
lapse of the Purchase Price Repurchase Right as to any Rights, the Repurchase
Right shall continue to be exercisable as to all Rights at a price equal to the
Fair Market Value of Stock or, in the case of options, the Fair Market Value of
the Stock underlying such unexercised options less the Exercise Price. The
Repurchase Right shall in all cases be subject to Section 8.9 hereof.
8.8.2 Exercise of Repurchase Right. A Repurchase Right may be
exercised only within 90 days after the termination of the Participant's Service
(or in the case of Stock issued upon exercise of an Option or purchased under a
Stock Purchase Agreement, in either case after the date of termination, within
90 days after the date of the exercise or Stock purchase, whichever is
applicable) for cash or for cancellation of indebtedness incurred in purchasing
the shares.
8.9 Termination of Repurchase and First Refusal Rights. Each Stock Option
Agreement and Stock Purchase Agreement that provides for Repurchase Rights
and/or First Refusal Rights shall provide that such Repurchase Rights and/or
First Refusal Rights shall have no effect when the issuer's securities are
publicly traded or a determination is made by counsel for the Company that such
Repurchase Rights and First Refusal Rights are not permitted under applicable
federal or state securities laws.
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8.10 No Transferability. Except as provided herein, a Participant may not
assign, sell or transfer Rights, in whole or in part, other than by will or by
operation of the laws of descent and distribution.
8.10.1 Permitted Transfer of Non-Qualified Option. The
Administrator, in its sole discretion may permit the transfer of a Non-Qualified
Option (but not an ISO or Stock Purchase Right) as follows: (i) by gift to a
member of the Participant's immediate family or (ii) by transfer by instrument
to a trust providing that the Option is to be passed to beneficiaries upon death
of the trustor (either or both (i) or (ii) referred to as a "Permitted
Transferee"). For purposes of this Section 8.10.1, "immediate family" shall mean
the Optionee's spouse (including a former spouse subject to terms of a domestic
relations order); child, stepchild, grandchild, child-in-law; parent,
stepparent, grandparent, parent-in-law; sibling and sibling-in-law, and shall
include adoptive relationships.
8.10.2 Conditions of Permitted Transfer. A transfer permitted under
this Section 8.10 hereof may be made only upon written notice to and approval
thereof by Administrator. A Permitted Transferee may not further assign, sell or
transfer the transferred Option, in whole or in part, other than by will or by
operation of the laws of descent and distribution. A Permitted Transferee shall
agree in writing to be bound by the provisions of this Plan.
SECTION 9: ADJUSTMENTS; MARKET STAND-OFF
9.1 Effect of Certain Changes.
9.1.1 Stock Dividends, Splits, Etc. If there is any change in the
number of outstanding shares of Stock by reason of a stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification, then
(i) the number of shares of Stock available for Rights, (ii) the number of
shares of Stock covered by outstanding Rights and (iii) the Exercise Price or
Purchase Price of any Stock Option or Purchase Right, in effect prior to such
change, shall be proportionately adjusted by the Administrator to reflect any
increase or decrease in the number of issued shares of Stock; provided, however,
that any fractional shares resulting from the adjustment shall be eliminated.
9.1.2 Liquidation, Dissolution, Merger or Consolidation. In the
event of a dissolution or liquidation of the Company, or any corporate
separation or division, including, but not limited to, a split-up, a split-off
or a spin-off, or a sale of substantially all of the assets of the Company; a
merger or consolidation in which the Company is not the Surviving Entity; a
reverse merger in which the Company is the Surviving Entity, but the shares of
Company stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or the transfer of more than 80% of the then outstanding
voting stock of the Company to another person or entity, then, the Company, to
the extent permitted by applicable law, but otherwise in its sole discretion may
provide for: (i) the continuation of outstanding Rights by the Company (if the
Company is the Surviving Entity); (ii) the assumption of the Plan and such
outstanding Rights by the Surviving Entity or its parent; (iii) the substitution
by the Surviving Entity or its parent of Rights with substantially the same
terms for such outstanding Rights; or (iv) the cancellation of such outstanding
Rights without payment of any consideration, provided that if such Rights would
be canceled in accordance with the foregoing, the Participant shall have the
right, exercisable during
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the later of the ten-day period ending on the fifth day prior to such merger or
consolidation or ten days after the Administrator provides the Rights holder a
notice of cancellation, to exercise the vested portion of such Rights in whole
or in part, or, if provided for by the Administrator using its sole discretion
in a notice of cancellation, to exercise such Rights in whole or in part without
regard to any vesting provisions in the Rights agreement.
9.1.3 Further Adjustments. Subject to Section 9.1.2, and to the
extent permitted by applicable law, the Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or Change in Control, to take such further action as it determines
to be necessary or advisable, and fair and equitable to Participants, with
respect to Rights. Such authorized action may include (but shall not be limited
to) establishing, amending or waiving the type, terms, conditions or duration
of, or restrictions on, Rights so as to provide for earlier, later, extended or
additional time for exercise and other modifications, and the Administrator may
take such actions with respect to all Participants, to certain categories of
Participants or only to individual Participants. The Administrator may take such
action before or after granting Rights to which the action relates and before or
after any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or Change in Control that is the reason for such
action.
9.1.4 Par Value Changes. In the event of a change in the Stock of
the Company as presently constituted which is limited to a change of all of its
authorized shares with par value, into the same number of shares without par
value, or a change in the par value, the shares resulting from any such change
shall be "Stock" within the meaning of the Plan.
9.2 Decision of Administrator Final. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive; provided, however, that each ISO granted pursuant
to the Plan shall not be adjusted in a manner that causes such Stock Option to
fail to continue to qualify as an ISO without the prior consent of the Optionee
thereof.
9.3 No Other Rights. Except as hereinbefore expressly provided in this
Section 9, no Participant shall have any rights by reason of any subdivision or
consolidation of shares of Company stock or the payment of any dividend or any
other increase or decrease in the number of shares of Company stock of any class
or by reason of any of the events described in Section 9.1, above, or any other
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class; and, except as provided in this Section 9,
none of the foregoing events shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock subject to
Rights. The grant of a Right pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structures or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or part of its
business or assets.
9.4 Market Stand-Off. Each Stock Option Agreement and Stock Purchase
Agreement shall provide that, in connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the
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Securities Act of 1933, as amended, the Participant shall agree not to sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
repurchase of, or otherwise dispose or transfer for value or otherwise agree to
engage in any of the foregoing transactions with respect to any Stock without
the prior written consent of the Company or its underwriters, for such period of
time from and after the effective date of such registration statement as may be
requested by the Company or such underwriters (the "Market Stand-Off").
SECTION 10: AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Plan at any time and for any
reason. At the time of such amendment, the Board shall determine, upon advice
from counsel, whether such amendment will be contingent on stockholder approval.
SECTION 11: GENERAL PROVISIONS
11.1 General Restrictions.
11.1.1 No View to Distribute. The Administrator may require each
person acquiring shares of Stock pursuant to the Plan to represent to and agree
with the Company in writing that such person is acquiring the shares without a
view towards distribution thereof. The certificates for such shares may include
any legend that the Administrator deems appropriate to reflect any restrictions
on transfer.
11.1.2 Legends. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Administrator may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
laws, and the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
11.1.3 No Rights as Stockholder. Except as specifically provided in
this Plan, a Participant or a transferee of a Right shall have no rights as a
stockholder with respect to any shares covered by the Rights until the date of
the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 9.1, hereof.
11.2 Other Compensation Arrangements. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
11.3 Disqualifying Dispositions. Any Participant who shall make a
"disposition" (as defined in Section 424 of the Code) of all or any portion of
an ISO within two years from the date of grant of such ISO or within one year
after the issuance of the shares of Stock acquired upon exercise of such ISO
shall be required to immediately advise the Company in writing as to the
occurrence of the sale and the price realized upon the sale of such shares of
Stock.
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11.4 Regulatory Matters. Each Stock Option Agreement and Stock Purchase
Agreement shall provide that no shares shall be purchased or sold thereunder
unless and until (i) any then applicable requirements of state or federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel and (ii) if required to do so by the Company, the
Optionee or Offeree shall have executed and delivered to the Company a letter of
investment intent in such form and containing such provisions as the Board or
Committee may require.
11.5 Recapitalizations. Each Stock Option Agreement and Stock Purchase
Agreement shall contain provisions required to reflect the provisions of Section
9.
11.6 Delivery. Upon exercise of a Right granted under this Plan, the
Company shall issue Stock or pay any amounts due within a reasonable period of
time thereafter. Subject to any statutory obligations the Company may otherwise
have, for purposes of this Plan, thirty days shall be considered a reasonable
period of time.
11.7 Other Provisions. The Stock Option Agreements and Stock Purchase
Agreements authorized under the Plan may contain such other provisions not
inconsistent with this Plan, including, without limitation, restrictions upon
the exercise of the Rights, as the Administrator may deem advisable.
SECTION 12: INFORMATION TO PARTICIPANTS
To the extent necessary to comply with California law, the Company each
year shall furnish to Participants its balance sheet and income statement unless
such Participants are limited to key Employees whose duties with the Company
assure them access to equivalent information.
SECTION 13: STOCKHOLDERS AGREEMENT
As a condition to the transfer of Stock pursuant to a Right granted under
this Plan, the Administrator, in its sole and absolute discretion, may require
the Participant to execute and become a party to any agreement by and among the
Company and any of its stockholders which exists on or after the Date of Grant
(the "Stockholders Agreement"). If the Participant becomes a party to a
Stockholders Agreement, in addition to the terms of this Plan and the Stock
Option Agreement or Stock Purchase Agreement (whichever is applicable) pursuant
to which the Stock is transferred, the terms and conditions of Stockholders
Agreement shall govern Participant's rights in and to the Stock; and if there is
any conflict between the provisions of the Stockholders Agreement and this Plan
or any conflict between the provisions of the Stockholders Agreement and the
Stock Option Agreement or Stock Purchase Agreement (whichever is applicable)
pursuant to which the Stock is transferred, the provisions of the Stockholders
Agreement shall be controlling. Notwithstanding anything to the contrary in this
Section 13, if the Stockholders Agreement contains any provisions which would
violate Section 25102(o) of the California Corporations Code if applied to the
Participant, the terms of this Plan and the Stock Option Agreement or Stock
Purchase Agreement (whichever is applicable) pursuant to which the Stock is
transferred shall govern the Participant's rights with respect to such
provisions.
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SECTION 14: EFFECTIVE DATE OF PLAN
The effective date of this Plan is September 11, 2005. The adoption of the
Plan is subject to approval by the Company's stockholders, which approval must
be obtained within 12 months from the date the Plan is adopted by the Board. In
the event that the stockholders fail to approve the Plan within 12 months after
its adoption by the Board, any grants of Options or sales or awards of shares
that have already occurred shall be rescinded, and no additional grants, sales
or awards shall be made thereafter under the Plan.
SECTION 15: TERM OF PLAN
The Plan shall terminate automatically on September 11, 2015, but no later
than prior to the 10th anniversary of the effective date. No Right shall be
granted pursuant to the Plan after such date, but Rights theretofore granted may
extend beyond that date. The Plan may be terminated on any earlier date pursuant
to Section 10 hereof.
SECTION 16: EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused
its authorized officer to execute the same as of September 11, 2005.
TAITRON COMPONENTS Incorporated
/s/ Stewart Wang
-------------------------------
By: Stewart Wang
Its: Chief Executive Officer
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