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EXHIBIT 99.1
ELEMENT 14, INC.
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RULES OF THE ELEMENT 14
UNAPPROVED SHARE OPTION SCHEME
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XXXXXXX XXXX AND XXXX
LONDON
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RULES OF THE ELEMENT 14
UNAPPROVED SHARE OPTION SCHEME
1. DEFINITIONS
1.1 In these Rules the following words and expressions shall have the
following meanings:
"ACQUISITION PRICE" means the price at which each Share subject to an
Option may be acquired on the exercise of that Option determined in
accordance with Rule 2
"APPROPRIATE PERIOD" means six months after Control of the Company has
passed in accordance with Rule 5
"AUDITORS" means the auditors for the time being of the Company (acting
as experts and not as arbitrators)
"BOARD" means the Board of Directors of the Company or a duly authorised
committee of the Board
"COMPANY" means Element 14, Inc. a Delaware Corporation with its
principal place of business in the United Kingdom at Suite 000 Xxx Xxxxxx
Xxxxxxxx Xxxx Xxxxxxxxx XX0 0XX and any successor corporation to all or
substantially all of the assets or voting stock of Element 14, Inc. which
shall by appropriate action adopt the Scheme
"COMMON STOCK" means the Company's common stock consisting of 25,000,000
Shares of Common Stock having a par value of $0.001 per share
"CONTROL" has the same meaning as in section 840 of TA 1988
"CORPORATE TRANSACTIONS" means either of the following shareholder
approved transactions to which the Company is a party:
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(i) a merger or consolidation in which shares possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding shares are transferred to a person or
persons different from the persons holding those shares
immediately prior to such transaction; or
(ii) the sale transfer or other disposition of all or substantially all
of the Company's assets in complete liquidation or dissolution of
the Company
"DATE OF GRANT" means the date on which an Option is, was, or is to be
granted under the Scheme
"ELIGIBLE EMPLOYEE" means any director employee or consultant of any
Participating Company
"EXERCISE SCHEDULE" means the exercise schedule specified in the Grant
Notice pursuant to which an Option is to become exercisable in a series
of instalments over the Option Holder's period of service as an Eligible
Employee
"GRANT NOTICE" means the notice of grant of an Option pursuant to which
an Eligible Employee is notified of the terms of the Option in accordance
with Rule 2
"MARKET VALUE" means the value per share of Common Stock on any relevant
date as shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the NASDAQ National
Market, the Market Value shall be the mid-market closing price per
share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the
NASDAQ National Market. If there is no mid-market closing price
for the Common Stock on the date in question then the Market Value
shall be the mid-market closing price on the last preceding date
for which such quotation exists
(ii) If the Common Stock is at the time listed on any Stock Exchange,
the Market Value shall be the mid-market closing price per share
of Common Stock on the date in question on the Stock Exchange
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determined by the Board to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no mid-market closing
price for the Common Stock on the date in question, then the
Market Value shall be the mid-market closing price on the last
preceding date for which such quotation exists
(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the NASDAQ National Market, then the Market
Value shall be determined by the Board after taking into account
such factors as the Board shall deem appropriate
"MISCONDUCT" means the commission of any act of fraud, embezzlement or
dishonesty by the Option Holder, any unauthorised use or disclosure by
the Option Holder of confidential information or trade secrets of the
Company (or any Parent of Subsidiary), or any other intentional
misconduct by the Option Holder adversely affecting the business or
affairs of the Company (or any Parent or Subsidiary) in a material
manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Company (or any Parent or Subsidiary)
may consider as grounds for the dismissal of the Option Holder or any
other individual in the Service of the Company (or any Parent or
Subsidiary).
"OPTION" means a right to acquire Shares granted (or to be granted) in
accordance with the Rules of this Scheme
"OPTION HOLDER" means an individual to whom an Option has been granted or
his or her personal representatives
"OPTION SHARES" means the number of Shares subject to the Option or
specified in the Grant Notice
"PARENT" means any company (other than the Company) in an unbroken chain
of companies ending with the Company, provided each company in the
unbroken chain (other than the Company) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
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combined voting power of all classes of stock in one of the other
companies in such chain
"PARTICIPATING COMPANY" means the Company and any other company over
which the Company has Control and which is for the time being nominated
by the Board to be a Participating Company
"SCHEME" means the employee share option scheme constituted and governed
by these rules as from time to time amended
"SERVICE" means the Option Holder's performance of services for the
Company (or any Participating Company) in the capacity of an employee
director or consultant
"SHARE" means a share in the Common Stock
"STOCK EXCHANGE" means the American Stock Exchange or the New York Stock
Exchange
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, provided each
corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain
"SUBSISTING OPTION" means an Option which has neither lapsed nor been
exercised
"TA 1988" means The Income and Corporation Taxes Act 1988
1.2 Where the context so admits the singular shall include the plural and
vice versa
1.3 Any reference in the Scheme to any enactment includes a reference to the
enactment as from time to time modified, extended or re-enacted.
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2. GRANT OF OPTIONS
2.1 At any time or times determined by the Board after the adoption of this
Scheme (but not later than the tenth anniversary of such adoption) the
Board may in its absolute discretion select any number of individuals who
may at the intended Date of Grant be Eligible Employees and resolve to
grant them Options to acquire Shares in the Company. Each individual
grant shall be set out in a Grant Notice substantially in the form
annexed to these Rules (marked 'A').
2.2 Each Grant Notice shall specify
2.2.1 the maximum number of Shares over which that individual has been
granted an Option, being determined at the absolute discretion of
the Board;
2.2.2 the Acquisition Price at which Shares may be acquired on the
exercise of any Option. Subject to Rule 7, the Acquisition Price
shall not be less than the Market Value of a Share on the day the
Grant Notice was issued pursuant to Rule 2.1; and
2.2.3 the Exercise Schedule setting out the Vesting of the Option.
2.3 As soon as possible after Options have been granted the Board shall issue
an option certificate in respect of each Option substantially in the form
annexed to these Rules.
2.4 No Option may be transferred assigned or charged and any purported
transfer assignment or charge shall cause the Option to lapse forthwith.
Each option certificate shall carry a statement to this effect.
2.5 It shall be a condition of participation in the Scheme that in the event
of the dismissal of an Option Holder from being an Eligible Employee in
circumstances which could give rise to a claim for wrongful or unfair
dismissal
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he or she shall not become entitled to any damages or any additional
damages by reason of any alteration consequent thereupon of his or her
rights or expectations under the Scheme.
3. EXERCISE OF OPTIONS
3.1 Save as provided in this Rule, no Option shall be capable of being
exercised save to the extent that the dates of employment or service have
been achieved in the relevant Exercise Schedule Provided that the Board
may waive satisfaction of the dates in the Exercise Schedule in its sole
discretion.
3.2 Subject to Rule 3.1 above and Rules 5 and 7 below any Option which has
not lapsed may also be exercised in whole or in part at any time
following the earliest of the following events:
3.2.1 the death of the Option Holder;
3.2.2 the Option Holder ceasing to be an Eligible Employee by reason of
injury or disability.
3.2.3 the Option Holder ceasing to be an Eligible Employee for any
reason other than dismissal on the grounds of Misconduct.
3.3 An Option shall lapse on the earliest of the following events:
3.3.1 nine years 360 days after the Date of Xxxxx;
3.3.2 the first anniversary of the Option Xxxxxx's death;
3.3.3 twelve months after the occurrence of an event set out in Rule
3.2.2 above;
3.3.4 upon the Option Holder ceasing to be an Eligible Employee in any
circumstances other than Rules 3.2.1 or 3.2.2 provided that in the
case set out in Rule 3.2.3 the Board shall be entitled to exercise
its discretion by notice in writing to the Option Holder prior to
such cessation, to determine that such Option shall lapse three
months after such cessation;
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3.3.5 on the effective date of a Corporate Transaction, provided that
the Acquiring Company is required to convert all Options into
equivalent options to acquire shares in the Acquiring Company,
taking into account the relative Market Value of the shares of the
Company and the Acquiring Company.
4. LIMIT ON GRANT
No Options shall be granted pursuant to Rule 2 if such grant would result in the
aggregate of:
4.1 The number of Shares over which Subsisting Options have been granted
under this Scheme;
4.2 The number of Shares which have been issued on the exercise of Options
granted under this Scheme;
4.3 The number of Shares over which Subsisting Options have been granted
under any other share option scheme during the period of ten years ending
on the relevant Date of Grant; and
4.4 The number of Shares which have been issued pursuant to any other
employee share scheme during the period of ten years ending on the
relevant Date of Grant
exceeding 8,000,000 Shares then in issue.
5. TAKE-OVERS AND LIQUIDATIONS
5.1 Following a Corporate Transaction no Option granted under this Scheme
shall accelerate and thereby become exercisable save to the extent
required to comply with any service agreement or contract of employment
of any Eligible Employee as at the date of adoption of these Rules in
which case any Subsisting Option may be exercisable to the extent thereby
permitted and/or be eligible for rollover into a New Option as provided
in Rule 5.2
5.2 If as a result of a Corporate Transaction the Option Holder may, by
agreement with that other company (the "ACQUIRING COMPANY"), within the
Appropriate
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Period, release each Subsisting Option (the "OLD OPTION") for an option
(the "NEW OPTION") which satisfies the conditions that it
(i) is over shares in the Acquiring Company or some other company;
(ii) is a right to acquire such number of such shares as has on the
effective date of such Corporate Transaction an aggregate Market
Value equal to the aggregate Market Value of the shares subject to
the Old Option on the said date;
(iii) has an acquisition price per share such that the aggregate price
payable on the complete exercise equals the aggregate price which
would have been payable on complete exercise of the Old Option;
(iv) is otherwise broadly similar in all its material terms to the Old
Option;
the New Option shall, for all other purposes of this Scheme, be treated
as having been acquired at the same time as the Old Option.
Where any New Options are granted pursuant to this Rule 5.2. Rules 2.4,
3, 4, 5, 6, 7, 8.1 and 8.3 to 8.6 shall, in relation to the New Options,
be construed as if references to the Company and to the Shares were
references to the Acquiring Company or, as the case may be, to the other
company to whose shares the New Options relate, and to the shares in that
other company, but references to Participating Company shall continue to
be construed as if references to the Company were references to Element
14, Inc.
5.3 If the Company passes a resolution for dissolution liquidation or winding
up, any Subsisting Option may be exercised within six months of the
passing of the resolution.
5.4 The exercise of an Option pursuant to the preceding provisions of this
Rule shall be subject to the provisions of Rule 7.
6. VARIATION OF SHARE CAPITAL
In the event of any variation to the Common Stock by way of any stock split,
stock dividend, recapitalisation, combination of shares, exchange of shares or
other change
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affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, capitalisation or rights issue, consolidation,
subdivision or reduction of capital or otherwise the number of Shares subject to
any Option and the Acquisition Price for each of those Shares shall be adjusted
in such manner as the Auditors confirm in writing to be fair and reasonable
Provided that the aggregate amount payable on the exercise of an Option in full
is not increased
7. MANNER OF EXERCISE OF OPTIONS
7.1 Save in accordance with Rules 3 and 5 (and in particular by the Option
Xxxxxx's personal representatives in the case of Rule 3.2.1) no Option
may be exercised by an individual at any time unless he or she is an
Eligible Employee.
7.2 An Option shall be exercised by the Option Holder giving notice to the
Company in writing substantially in the form annexed to these Rules
(marked 'C') of the number of Shares in respect of which he or she wishes
to exercise the Option accompanied by the appropriate payment and the
relevant option certificate and shall be effective on the date of its
receipt by the Company.
7.3 Shares shall be issued pursuant to a notice of exercise within 30 days of
the date of exercise and a definitive share certificate issued to the
Option Holder in respect thereof. Save for any rights determined by
reference to a date preceding the date of allotment or transfer, such
Shares shall rank pari passu with the other shares of the same class in
issue at the date of allotment or transfer.
7.4 When an Option is exercised only in part, the balance shall remain
exercisable on the same terms as originally applied to the whole Option
and a new option certificate shall be issued accordingly by the Company
as soon as possible after the partial exercise.
8. ADMINISTRATION AND AMENDMENT
8.1 Subject to Rule 8.4 the Scheme shall be administered by the Board whose
decision on all disputes shall be final.
8.2 The Board may from time to time amend these Rules provided that
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8.2.1 no amendment may materially affect an Option Holder as regards an
Option granted prior to the amendment being made;
8.2.2 the provisions relating to:
(i) the definition of Eligible Employee;
(ii) the basis for determining an Eligible Employee's
entitlement to, and the terms of, Shares or Options which
may be acquired or granted under the Scheme and for the
adjustment thereof (if any) in the event of a stock split,
stock dividend, recapitalisation combination of shares,
exchange of shares or other change affecting the Common
Stock as a class
shall not be altered to the advantage of Eligible Employees without the
prior approval of shareholders in general meeting (except for minor
amendments to benefit the administration of the scheme, to take account
of a change in legislation or to obtain or maintain favourable tax or
regulatory treatment for Eligible Employees in the scheme or for a
Participating Company).
8.3 The cost of establishing and operating the Scheme shall be borne by the
Participating Companies in such proportions as the Board shall determine.
8.4 The Board shall determine the options which shall be offered under the
Scheme to directors consultants and senior executives of Participating
Companies, and ensure that options granted are related to the performance
of Option Holders and of Participating Companies, and that such options
provide a long term incentive.
8.5 Any notice or other communication under or in connection with the Scheme
may be given by the Company either personally or by post and to the
Company either personally or by post to the secretary; items sent by post
shall be prepaid and shall be deemed to have been received 72 hours after
posting.
8.6 The Company shall at all times keep available sufficient authorised and
unissued Shares to satisfy the exercise to the full extent still possible
of all Options which have neither lapsed nor been fully exercised, taking
account of any other obligations of the Company to issue unissued shares.
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9. TAXATION AND NATIONAL INSURANCE
The Company, in its discretion, shall be entitled to impose any or all of the
following requirements as a condition of the grant or exercise of an Option
namely that the Option Holder shall:
9.1 permit the Company to arrange for any Participating Company which employs
an Option Holder, or former Option Holder, to deduct from salary such
amounts in respect of income tax or National Insurance due and payable by
the Option Holder as any Participating Company shall be required to
collect or pay in respect of the grant or exercise of any Option under
this scheme or any resulting shareholding, or any charge to income tax or
National Insurance due and payable by the Option Holder arising in
respect of such grant or exercise or the holding of shares resulting from
such exercise; and/or
9.2 pay to the Company an amount equal to the amount of income tax due and
payable by the Option Holder that the Company shall be required to
collect or pay in respect of the grant or exercise of any Option under
this scheme or any resulting shareholding, or any charge to income tax
due and payable by the Option Holder arising in respect of such grant or
exercise or the holding of shares resulting from such exercise; and/or
9.3 irrevocably and unconditionally appoint the Company Secretary (or such
other person as the Directors may from time to time nominate) as his or
her attorney (in such form as the Directors may from time to time
specify) to effect the sale of such number of shares whose proceeds,
after deducting any disposal costs and any liability to stamp duty or
stamp duty reserve tax, are sufficient to discharge the payment of income
tax or National Insurance referred to in Rule 9.1 or 9.2 above so far as
the same is permitted by law;
and the Company shall pay the same to the relevant Government collection agency.
