RESTRICTED STOCK ISSUANCE AND ALLOCATION AGREEMENT 2007 EQUITY INCENTIVE PLAN
Exhibit 1
RESTRICTED STOCK ISSUANCE AND ALLOCATION AGREEMENT
2007 EQUITY INCENTIVE PLAN
2007 EQUITY INCENTIVE PLAN
THIS
RESTRICTED STOCK ISSUANCE AND ALLOCATION AGREEMENT (this
“Agreement”) is entered into
as of July 2, 2007 (the “Grant Date”) by and between Fenghua International Limited, a company
incorporated in the British Virgin Islands
(“BVI Company A”), C&F International Holdings Limited,
a company incorporated in the British Virgin Islands
(“BVI Company B”), China Finance Online Co.
Ltd., a company incorporated in the Hong Kong Special Administrative Region, People’s Republic of
China (“China Finance”) and Xxxxxx Xxxx, the chief executive officer of China Finance who
represents the employees of China Finance who are eligible for the 2007 Equity Incentive Plan (each
an “Employee,” and collectively, the “Employees”).
R E C I T A L S
A. China Finance desires to incentivize its management team by providing them an
opportunity to participate in the growth in value of equity of China Finance by owning equity of
China Finance and thereby enhance shareholder value of China Finance.
B. The Board of Directors of China Finance desires to grant the Employees restricted stock
awards covering common shares of China Finance (the “Common Shares”) under the 2007
Equity Incentive Plan of China Finance (the “Plan”) which is incorporated by reference
herein.
C. In
order to bind the Employees together the Common Shares are being held in an entity
controlled by the Employees on behalf of and for the benefit of the Employees.
D. BVI Company B has been formed to hold the restricted Common Shares on behalf
of and exclusively for the benefit of the Employees.
E. BVI Company B is 100% owned by BVI Company A.
F. BVI Company A is 100% owned by Xxxxxx Xxxx, BVI Company A’s sole director, who will transfer
the designated number of common shares of BVI Company A to the Employees once such Employees are
determined to be eligible for the Plan.
G. Employees who are eligible for the Plan include (1) those who are employed by China
Finance on the date this Agreement is entered into; and (2) those who are employed by China Finance
after this Agreement is entered into, including those who are employed as successors to employees
eligible for the Plan who cease to be employed by China Finance.
H. The Plan and this Agreement focus on the performance of the Employees as a team, as
represented by BVI Company B, on an integral basis with an aim to achieve the performance targets
set by China Finance. Therefore, the constitution of the Employees as a team, which includes, but
is not limited to, the number and various positions of Employees eligible for the Plan, and any
change in such constitution, shall not affect the implementation of
the Plan and this Agreement provided that at least one of the Employees eligible for the
Plan continues to be employed by China Finance during the Vesting Term (as defined below) of the
Plan.
AGREEMENT
In
consideration of the mutual covenants herein contained, the parties agree as follows:
1. Issuance of Common Shares. Subject to the terms and conditions of this
Agreement and of the Plan, China Finance hereby issues to BVI Company B 10,558,493 Common
Shares (equivalent to approximately 2,111,699 ADRs), which had been previously repurchased by
China Finance in 2005 (the “Granted Shares”).
2. Vesting Schedule. The Granted Shares shall become activated and vest during the three
years following the Grant Date (the “Vesting Term”) based on China Finance’s achievement
of the Performance Target (as defined below) for each of calendar
year 2008 and calendar year 2009,
as set forth below:
(a) Performance Target and Performance Ratio for 2008.
(i) China Finance has set the Performance Target for calendar year
2008 as Adjusted Earnings (as defined below) in the total amount of U.S. $30 million, as adjusted
pursuant to Section 4 below. At the end of calendar year 2008, China Finance will evaluate its
business performance for the whole year and generate the Performance Ratio for such year.
(ii) Where
the Performance Ratio for calendar year 2008 is equal to or is above
100%, all Granted Shares will be activated, and a number of Activated Shares equal to the proportion of
the period from the Grant Date until the end of calendar year 2008 on a time-based apportionment
basis over the entire Vesting Term will be vested immediately in a lump sum at the end of calendar
year 2008. The remainder of the Activated Shares will vest monthly during the remaining Vesting
Term on a time-based apportionment basis, subject to the continued employment of at least one of
the Employees during the Vesting Term.
(iii) Where
the Performance Ratio for calendar year 2008 is below 100%, whether any Granted Shares will become Activated Shares as of the end of calendar year 2008
will be determined according to the chart as set forth in Section 3 below, and a number of
Activated Shares equal to the proportion of the period from the Grant Date until the end of calendar
year 2008 on a time-based apportionment basis over the entire Vesting Term will be vested
immediately in a lump sum at the end of calendar year 2008. The remainder of the Activated Shares
will vest monthly during the remaining Vesting Term on a time-based apportionment basis, subject
to the continued employment of at least one of the Employees during the Vesting Term.
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(b)
Performance Target and Performance Ratio for 2009.
(i) Granted Shares that have not been activated in calendar year 2008 as set forth
above may be activated based on the Performance Ratio of calendar year 2009 and according to the
chart as set forth in Section 3 below and will vest during the remaining Vesting Term on a
time-based apportionment basis in a manner similar to
Section 2(a)(ii) and (iii), respectively,
subject to the continued employment of at least one of the Employees during the Vesting Term. China
Finance has set a Performance Target for the year of calendar year 2009 as Adjusted Earnings in
the total amount of US $40 million, as adjusted pursuant to Section 4 below.
(ii) Where both the Performance Ratio for 2008 and the Performance Ratio for 2009 are
below 40%, no Granted Shares will be activated or vested. All Granted Shares that have not been
activated and vested by the end of calendar year 2009 under the provisions above will be forfeited
to China Finance, without payment by China Finance of any amount with respect to the Granted
Shares.
(c)
Forfeitures. Any forfeiture of Granted Shares will be effected by China Finance
in such manner and to such degree as the Administrator (as defined in
the Plan), in its sole
discretion, determines, and will in all events be subject to Applicable Laws (as defined
in the Plan). To enforce any restrictions on the Granted Shares, the Administrator may require
BVI Company A to deposit the certificates representing the Granted Shares, with stock assignments
or other transfer instruments approved by the Administrator endorsed in blank, with China Finance
or an agent of China Finance to hold in escrow until the restrictions
have lapsed or terminated.
The Administrator may also cause a legend or legends referencing the
restrictions be placed on
the certificates.
3. Activation
of Granted Shares.
| Activated Proportion | ||||
| of Granted Shares | Activated Proportion of | |||
| Performance Ratio (R) | (X) Formula | Granted Shares (X) | ||
R³100%
|
X= 100% | X=100% | ||
100%>R³95%
|
X= R/1.05 | 95%>X³90% | ||
95%>R³90%
|
X=R/1.1 | 86%>X³82% | ||
90%>R³85%
|
X=R/1.15 | 78%>X³74% | ||
85%>R³80%
|
X=R/1.2 | 71%>X³67% | ||
80%>R³75%
|
X=R/1.4 | 57%>X³54% | ||
75%>R³70%
|
X=R/1.6 | 47%>X³44% | ||
70%>R³65%
|
X=R/1.7 | 41%>X³38% |
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| Activated Proportion | ||||
| of Granted Shares | Activated Proportion of | |||
| Performance Ratio (R) | (X)Formula | Granted Shares (X) | ||
65%>R>60%
|
X=R/1.8 | 36%>X>33% | ||
60%>R>55%
|
X=R/1.9 | 32%>X>29% | ||
55%>R>50%
|
X=R/2 | 28%>X>25% | ||
50%>R>45%
|
X= R/2.25 | 22%>X>20% | ||
45%>R>40%
|
X=R/2.5 | 18%>X>16% | ||
R<40%
|
X=0 | X=0 |
4. Adjustments
to Adjusted Earnings. For purposes of this Agreement, the
calculation of Adjusted Earnings will be adjusted upon the occurrence of the following events:
(a) Acquisitions through Issuance of New Equity.
(i) Before the end of calendar year 2007, if China Finance issues new Common
Shares, preferred shares, convertible bonds and notes or any other securities
exercisable or convertible into Common Shares or preferred shares of China Finance
(“New Equity”), the Performance Target, namely, the Adjusted Earnings per
issued Common Share, in calendar year 2008 will increase by U.S. $0.3 (equal to U.S.
$1.50 per ADR with corresponding earnings per Common Share of US $1.50; each ADR
represents 5 ordinary shares), and the Adjusted Earnings per issued Common Share in
calendar year 2009, if applicable, will increase by U.S. $0.40
(equal to U.S. $2.00
per ADR with corresponding earnings per Common Share or U.S. $2.00).
(ii) In calendar year 2008, if China Finance issues New Equity, the Adjusted
Earnings per issued Common Share in calendar year 2008 will increase by a portion
equal to U.S. $0.30 (equal to U.S. $1.50 per ADR) multiplied by the percentage of
actual days from the completion date of the issuance of Common Shares until the end
of calendar year 2008, and the Adjusted Earnings per issued Common Share in calendar
year 2009, if applicable, will increase by U.S. $0.40 (equal to U.S. $2.00 per ADR).
(iii) In
calendar year 2009, if China Finance issues New Equity, the Adjusted
Earnings per issued Common Share in calendar year 2009 will increase by a portion
equal to U.S. $0.40 (equal to U.S. $2.00 per ADR) multiplied by the percentage of
actual days from the completion date of the issuance of Common Shares until the end
of calendar year 2009.
(b) Strategic Acquisition. In the event that a strategic acquisition
contemplated by China Finance may cause adverse effects to Adjusted Earnings and the
Performance Ratio which is linked with the vesting of Granted Shares for the applicable calendar
year, the business performance of the company to be acquired and relevant costs and expenses
accrued from or in connection with such strategic acquisition may,
upon the request of BVI
Company A and approval of the Board of Directors of China Finance, be excluded from the U.S.
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GAAP net profits of China Finance for the purpose of evaluating China Finance’s
business performance.
(c) Strategic Financing. In the event that China Finance issues New
Equity for a strategic financing purpose and without a particular acquisition target
at the time of such issuance, such issuance of New Equity will not cause any
adjustment in Adjusted Earnings.
(d) Other Circumstances. Adjusted Earnings may be adjusted in
other circumstances unanimously agreed by the Board of Directors of China Finance
and BVI Company A.
5. Allocation of Granted Shares to Employees. Subject to
the terms and conditions of this Agreement, BVI Company B will hold the Granted Shares
on behalf of and exclusively for the benefit of the Employees in the amounts
designated by China Finance.
6. Allocation of Common Shares of BVI Company A. Subject
to the terms and conditions of this Agreement, BVI Company A hereby allocates to
Xxxxxx Xxxx common shares of BVI Company A (the “Allocated BVI Shares”) in an
amount designated by China Finance. Xx. Xxxx agrees to transfer a portion of the
Allocated BVI Shares to the Employees in amounts determined by China Finance once
such Employees are designated to participate in the Plan.
7. Termination of Employment.
(a) If Xxxxxx Xxxx voluntarily ceases to be employed by China Finance
before the expiration of the Vesting Term, (a) any activated and vested Granted Shares
held by BVI Company B corresponding to Xx. Xxxx’x Allocated BVI Shares will be
nonforfeitable and Xx. Xxxx will continue to hold the corresponding Allocated BVI
Shares, (b) 40% of any activated but unvested Granted Shares held by BVI Company B
corresponding to Xx. Xxxx’x Allocated BVI Shares will immediately vest and become
nonforfeitable and Xx. Xxxx will continue to hold the corresponding Allocated
BVI Shares, (c) a percentage of any unactivated and unvested Granted Shares, held by
BVI Company B corresponding to Xx. Xxxx’x Allocated BVI Shares, equal to 40% of the
corresponding activated proportion determined according to Section 3 of this Agreement
will immediately vest and become nonforfeitable and Xx. Xxxx will continue to hold the
corresponding Allocated BVI Shares and (d) any activated but unvested Granted Shares
and any unactivated and unvested Granted Shares (alter effecting clauses (b) and (c)
above) held by BVI Company B corresponding to Xx. Xxxx’x Allocated BVI Shares will be
allocated to Xx. Xxxx’x successor to the chief executive officer position of China
Finance subject to the continued activation and vesting requirements of this Agreement
and all of Xx. Xxxx’x corresponding Allocated BVI Shares will be forfeited to Xx.
Xxxx’x successor to the chief executive officer position of China Finance as of the
termination date, without payment by Xx. Xxxx’x successor of any amount with respect
to the Granted Shares or Allocated BVI Shares. Xx. Xxxx’x
successor will then be
subject to the provisions of this Agreement as if the successor were Xx. Xxxx and to
such other terms and conditions established by China Finance or BVI Company A. Any
further successor to the chief executive officer position of China Finance who holds
Allocated BVI Shares during the Vesting Term will be subject to the provisions of this
Agreement as if the successor were Xx. Xxxx and to such other terms and conditions
established
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by China
Finance or BVI Company A. If Xx. Xxxx involuntarily ceases to be employed by
China Finance before the expiration of the Vesting Term, Section 7(b) will govern the
treatment of the Xx. Xxxx’x Allocated BVI Shares and the Granted Shares held by BVI
Company B corresponding to Xx. Xxxx’x Allocated BVI Shares. For purposes of this
Agreement, Xx. Xxxx, for the period of time in which he serves as chief executive officer
of China Finance, and any successor to the chief executive officer position of China
Finance during the Vesting Term shall be referred to as the “Chief Executive
Officer.”
(b) If Employee is a Core Team Member and involuntarily ceases to be employed by
China Finance before the expiration of the Vesting Term, 100% of the Granted Shares held
by BVI Company B corresponding to Employee’s Allocated BVI Shares Will immediately vest and
become nonforfeitable upon termination of employment, regardless of whether such Granted
Shares have been activated or not and Employee will continue to hold the corresponding
Allocated BVI Shares; provided that (except in the case of the Chief Executive Officer) if
Employee is dismissed by China Finance by reason of Employee’s action or inaction
resulting in material damages to and the interests of China Finance, the Employee’s
Allocated BVI Shares will be immediately forfeited to the Chief Executive Officer of China
Finance without payment by the Chief Executive Officer of any amount with respect to the
Allocated BVI Shares regardless of whether the corresponding Granted Shares have been
activated or not. If Employee voluntarily ceases to be employed by China Finance before
the expiration of the Vesting Term, all of the Employee’s Allocated BVI Shares will be
forfeited to the Chief Executive Officer as of the termination date, without payment by
the Chief Executive Officer of any amount with respect to the Allocated BVI Shares
regardless of whether the corresponding Granted Shares have been activated or not. Any
forfeiture will be effected by the Chief Executive Officer of China Finance in such manner
and to such degree as the Chief Executive Officer, in his or her sole discretion,
determines, and will in all events be subject to Applicable Laws (as defined in the Plan).
(c) If Employee is not a Core Team Member and ceases to be employed by China Finance
for any reason before the expiration of the Vesting Term, all Allocated BVI Shares of the
Employee will be forfeited to the Chief Executive Officer of China Finance as of the
termination date, without payment by the Chief Executive Officer of any amount with
respect to the Allocated BVI Shares regardless of whether the Granted Shares corresponding
to the Employee’s Allocated BVI Shares have been activated or not. Any forfeiture will be
effected by the Chief Executive Officer of China Finance in such manner and to such degree
as the Chief Executive Officer, in his or her sole discretion, determines, and will in all
events be subject to Applicable Laws (as defined in the Plan).
8. Definitions.
(a) “Activated Shares” shall mean Granted Shares that are no longer subject
to performance vesting because of the fulfillment of a Performance Target by China
Finance.
(b) “Adjusted Earnings” shall be calculated based on net profits plus
share-based compensation expenses (including any and all share-based compensation expenses
accrued
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from or in connection with all stock option/share incentives that have been or are to be
granted by China Finance) in accordance with U.S. GAAP.
(c)
“Core Team Member” refers to the key personnel nominated by the Chief
Executive Officer of China Finance and recognized by the Board of
Directors of China Finance.
(d) “Performance Ratio” refers to the ratio of actual Adjusted Earnings that
China Finance has made in a calendar year to the Performance Target for the same year.
(e) “Performance Target” refers to the performance target of the particular
calendar year set by China Finance.
9. No
Assignment or Transfer of Granted Shares that are Unvested; Shareholder Rights.
Except as otherwise provided for in this Agreement, Granted Shares that have not
vested and been activated may not be sold, pledged or otherwise
transferred. Granted Shares that have vested and have been activated may be sold, pledged or otherwise transferred. Otherwise, BVI
Company B will have all shareholder rights with respect to the Granted Shares, including
voting rights.
10. No Assignment or Transfer of Allocated BVI Shares Prior to the Vesting of
Corresponding Granted Shares; Shareholder Rights. Except as
otherwise provided in this
Agreement, the Allocated BVI Shares may not be sold, pledged or otherwise transferred until
the corresponding Granted Shares have been activated and vested pursuant to the terms of this
Agreement. Otherwise, the Employees holding the Allocated BVI Shares
will have all
shareholder rights with respect to the Allocated BVI Shares, including voting rights.
11. Governing Law. This Agreement and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the Hong Kong Special Administrative Region, People’s
Republic of China.
12. Taxes.
(a) BVI Company B shall be liable for any and all taxes, including
withholding taxes, arising out of the issuance or the vesting of the
Granted Shares hereunder. In
the event that China Finance is required to withhold taxes as a result of the issuance or vesting
of the Granted Shares, or subsequent sale of the Granted Shares. BVI Company B shall surrender a
sufficient number of whole Granted Shares or make a cash payment as necessary to cover all
applicable required withholding taxes and required social security insurance contributions at such
time at which such withholding obligations of China Finance arise, unless alternative procedures
for such payment are established by China Finance. BVI Company B will receive a cash refund for any
fraction of a surrendered Granted Share not necessary for required withholding taxes and required
social security insurance contributions.
(b) Regardless
of any action China Finance takes with respect to any or all
income tax, social security insurance, payroll tax, payment on account or other tax-related
withholding (“Tax-Related Items”). BVI Company B acknowledges and agrees that the
ultimate
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liability for all Tax-Related Items legally due by it is and remains BVI Company B’s responsibility
and that China Finance (i) makes no representations nor undertakings regarding the treatment of any
Tax-Related Items in connection with any aspect of this issuance of Granted Shares, including the
vesting of the Granted Shares or the subsequent sale of the Granted
Shares; and (ii) does not commit to structure the terms or any aspect of this issuance of Granted Shares to reduce or
eliminate BVI Company B’s liability for Tax-Related Items. When the withholding obligation of China
Finance on BVI Company B’s tax liabilities arises, BVI Company B shall surrender a sufficient
number of whole Granted Shares or pay China Finance any amount of Tax-Related Items that China
Finance may be required to withhold as a result of BVI Company B’s participation in the Plan or BVI
Company B’s receipt of Granted Shares that cannot he satisfied by the means previously described.
China Finance may refuse to deliver the Granted Shares if BVI Company B fails to comply with BVI
Company B’s obligations in connection with the Tax-Related Items.
(c) Each Employee shall be liable for any and all taxes, including withholding
taxes, arising out of the issuance or the vesting of the BVI Allocated Shares to such Employee
hereunder. In the event that BVI Company A is required to withhold taxes as a result of the
issuance or vesting of the BVI Allocated Shares, or subsequent sale of the BVI Allocated
Shares, the applicable Employee shall surrender a sufficient number of whole BVI Allocated Shares or
make a cash payment as necessary to cover all applicable required withholding taxes and
required social security insurance contributions at such time at which such withholding
obligations of BVI Company A arise, unless alternative procedures for such payment are
established by BVI Company A. The applicable Employee will receive a cash refund for any
fraction of a surrendered BVI Allocated Share not necessary for required withholding taxes and
required social security insurance contributions.
(d) Regardless of any action BVI Company A takes with respect to any or all
Tax-Related Items, each Employee acknowledges and agrees that the ultimate liability for all
Tax-Related Items legally due by the Employee is and remains the Employee’s responsibility and
that BVI Company A (i) makes no representations nor undertakings regarding the treatment of
any Tax-Related Items in connection with any aspect of this issuance
of BVI Allocated Shares,
including the vesting of the BVI Allocated Shares or the subsequent sale of the BVI Allocated
Shares; and (ii) does not commit to structure the terms or any aspect of this issuance of BVI
Allocated Shares to reduce or eliminate the Employees’ liability for Tax-Related Items. When
the withholding obligation of BVI Company A on an Employee’s tax liabilities arises, the
Employee shall surrender a sufficient number of whole BVI Allocated Shares or pay BVI
Company A any amount of Tax-Related Items that BVI Company A may be required to withhold
as a result of the Employee’s participation in the Plan or Employee’s receipt of BVI Allocated
Shares that cannot be satisfied by the means previously described. BV| Company A may refuse
to deliver the BVI Allocated Shares if an Employee fails to comply with Employee’s obligations
in connection with the Tax-Related Items.
13. Plan Information. BVI Company B acknowledges that it has received copies of
the Plan and the Plan prospectus from China Finance and agrees to receive stockholder information,
including copies of any annual report, proxy statement and periodic report, from China Finance’s
website at xxx.xxxxxxxxxxxxxxxxxx.xxx. BVI Company B acknowledges that
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copies of the Plan, Plan prospectus, Plan information and stockholder information are available
upon written or telephonic request to (00) 00 0000 0000.
14. Entire Agreement; Amendment of this Agreement. The Plan and this Agreement
constitute the entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the parties with respect to
the subject matter hereof, and may not be modified adversely to a party without the affected
party’s written consent. In the event of any conflict between the terms and provisions of the Plan
and this Agreement, the Plan terms and provisions shall govern. Certain other important terms
governing this Agreement are contained in the Plan.
15. Notices.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon delivery to the party at its address then on file with
China Finance.
16. Severability. If one or more provisions of this Agreement are held to be
unenforceable under Applicable Law, then (i) such provision shall be excluded from this
Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were
so excluded, and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.
17. Interpretation of this Agreement. All determinations and interpretations of
this Agreement and any other documentation related to this Agreement will be made by the
Administrator, whose determination on these matters will be final and binding on all parties.
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The parties hereto have caused this Agreement to be executed and delivered as of the date
first written above.
| CHINA FINANCE ONLINE CO. LTD. | ||||||||
| By: | /s/ Xxxx Xxxx | |||||||
| Name: | ||||||||
| Its: | Director on the Compensation Committe | |||||||
| C&F INTERNATIONAL HOLDINGS LIMITED | ||||||||
| By: | /s/ Xxxxxx Xxxx | |||||||
| Name: | ||||||||
| Its: | Fenghua International Limited | |||||||
| Sole Director | ||||||||
| FENGHUA INTERNATIONAL LIMITED | ||||||||
| By: | /s/ Xxxxxx Xxxx | |||||||
| Name: | ||||||||
| Its: | Sole Director | |||||||
| XXXXXX XXXX | ||||||||
| Signature: | /s/ Xxxxxx Xxxx | |||||||
| Printed Name: | ||||||||
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