Sonoma Technology, Inc. Employee Bonus Plan

Transcription

1 Sonoma Technology, Inc. Employee Bonus Plan Sonoma Technology, Inc N. McDowell Blvd., Suite D Petaluma, CA Revised January 2016 (Replaces the May 2012 Profit Sharing Plan)

2 Contents and Tables Contents 1. Introduction CASH PORTION OF THE EMPLOYEE BONUS PLAN (CASH PLAN) Cash Pool Eligibility and Participation in the Cash Plan Allocation of the Cash Pool Cash Pool Allocations Among the Six Components of the Cash Plan Cash Pool Allocations Within a Component Total Cash Allocation for an Individual Calculating Annual Revenue Managed Component Penalties for Overruns Applied to the Revenue Management Component STOCK PORTION OF THE EMPLOYEE BONUS PLAN (STOCK PLAN) Stock Pool Eligibility and Participation in the Stock Plan Allocation of the Stock Pool Acceptance of Stock EXHIBIT A. SAMPLE SHAREHOLDERS AGREEMENT Tables 1. Active Officers Component (45% of Non-Discretionary Cash Pool) All Staff Component (20% of Non-Discretionary Cash Pool) Business Development Component (10% of Non-Discretionary Cash Pool) Revenue Management Component (10% of Non-Discretionary Cash Pool) Staff Management Component (10% of Non-Discretionary Cash Pool) Technical Leadership Component (5% of Non-Discretionary Cash Pool) Penalty Calculation for the Revenue Management Component STI Employee Bonus Plan January 2016 i

3 1. Introduction 1. Introduction The Sonoma Technology, Inc. (STI) Employee Bonus Plan (the Plan) has two distinct and separate elements, Cash and Stock. This Plan was previously known as the Profit Sharing Plan. The purpose of the Cash Plan is to enable employees to share in the growth of the Company. The purpose of the Stock Plan is (1) to provide a mechanism for those employees who are responsible for corporate management, staff management, business development, technical leadership, or revenue management, or who have made substantial long-term contributions to the Company, to develop an ownership interest in the Company and (2) to provide a mechanism for long-term ownership transition. The Plan Year is coincident with the STI fiscal year (January through December). Section 2 describes the Cash portion of the Employee Bonus Plan (Cash Plan), and Section 3 describes the Stock portion of the Employee Bonus Plan (Stock Plan). Both elements of the Plan are designed to complement and be consistent with STI s charter objective to be financially sound and profitable and its sub-elements: to have employees have a financial interest in the success of the company; to have project managers understand STI finances and be responsible for the profitability of the business; to invest profits in development of new business areas, hiring, and staff development opportunities; to have a mechanism for long-term ownership and leadership transition; and to maintain a mix of research, development, services, and products that provides stability and maintains profitability and cash flow. The Plan is designed to be objective and can be modified to accommodate STI growth. The Plan is not a contract of employment between STI and its employees. Nothing contained in the Plan shall give any employee the right to remain employed by STI nor shall it interfere with the right of STI to terminate any employee at will. All decisions regarding the Plan are made at the discretion of the STI Board of Directors. Questions about the Plan may be addressed to any member of the Board of Directors. STI Employee Bonus Plan January

4 2. Cash Plan 2. Cash Portion of the Employee Bonus Plan (Cash Plan) 2.1 Cash Pool The Board of Directors determines the total value of the STI Cash Employee Bonus Pool (Cash Pool). Unless extraordinary cash requirements are forecast for the upcoming year, the Cash Pool usually will be approximately one-third of the adjusted annual profit. Adjusted profit is an estimate of the year-end pre-tax profit (before employee bonus plan distribution), less 1. upcoming principal payments for amortization of loans and stock purchases; 2. the excess of planned new equipment purchases over depreciation during the upcoming Plan Year; and 3. any required increase in current operating capital. The amount of the pool is usually determined between December 1 of the Plan Year and March 15 of the following year, based on an estimate of year-end results. Distributions for a given Plan Year will usually be made by March 15 of the following year. 2.2 Eligibility and Participation in the Cash Plan To be eligible to participate in the Cash Plan, employees must be employed either full-time or part-time (not on-call) on the last day of the Plan Year, although the Board of Directors may elect to include certain employees who left STI before year-end. The Cash Plan is divided into six components. (Active Officers are counted exclusively in the Active Officers component and not in any other component.) The components are defined as follows: 1. Active Officers. Active Corporate Officers include Chairman, President, Executive Vice President(s), Senior Vice President(s), and Vice President(s). Directors are not Officers. (See Table 1). 2. All Staff. Participation in this component is proportional to actual salary paid (excluding bonus). (See Table 2). 3. Business Development. This component is for staff who participate in business development activities such as proposals, follow-on work, or other forms of client relations and/or who have built a reputation internally and/or externally which results in business for STI. Participation is proportional within five categories: business development leadership, STI Employee Bonus Plan January

5 2. Cash Plan strategy, writing/costing, reputation, and support/management. Up to 10 points are assigned for each category. Total points are squared, then distributed/weighted. Points are determined and recommended by the Division Manager and approved by the Board of Directors. (See Table 3). 4. Revenue Management. This component is for staff who have revenue management responsibility, including corporate systems managers. Participation is proportional to defined revenue managed categories. (See Table 4). 5. Staff Management. This component is for employees who have staff management responsibility: Team Leaders, Group Managers, Branch Managers, and Division Managers (if they are not Officers). (See Table 5). 6. Technical Leadership. Staff who are at Technical Level III and above are in this component. (See Table 6). Within each component, the Board of Directors assigns staff members to categories based on their level of involvement or responsibility within a particular component based on input from Division Managers. Except for Officers, an employee may be a participant in one or more Cash Plan components. A list of plan participants and their associated categories within each component is updated annually. The Board of Directors may modify staff assignments to categories and may add or remove participants at any time during the year. Typically, changes in designations will be made when an employee joins or leaves STI, and when the job duties of an employee change significantly. Assignments are usually finalized at the end of the year to reflect contributions during that year. Table 1. Active Officers Component (45% of Non-Discretionary Cash Pool). Category Points Chairman 0.8 President 1.0 Executive Vice President 0.8 Senior Vice President 0.7 Vice President 0.5 Note: Active Officers are counted exclusively in the Active Officer Component of the Employee Bonus Plan. STI Employee Bonus Plan January

6 2. Cash Plan Table 2. All Staff Component (20% of Non-Discretionary Cash Pool). Category All Staff (except Active Officers) Points In the All Staff Component, level of participation is proportional to base salary and actual hours worked instead of points Table 3. Business Development (BD) Component (10% of Non-Discretionary Cash Pool). Category Maximum Points Point Allocation BD Lead 1 BD Strategy Developed some leads resulting in wins 1 Developed frequent or major leads resulting in wins 1 Made important contributions to winning technical and/or costing strategies 2 Made major contributions to several winning technical and/or costing strategies 3 Led development of many or large winning technical and/or costing strategies BD Writing/Costing (writing new material) 3 1 Wrote or costed important parts of winning proposals 2 Wrote or costed major parts of winning proposals 3 Wrote or costed major parts of many or large winning proposals Reputation 2 1 Some winning proposals depended on reputation 2 Frequent or large winning proposals depended on reputation BD Support/Management (may include: technical editing, cost spreadsheet development, logistical coordination, support, and management) Significantly participated in editing, costing, coordinating, or supporting winning proposals 1 Substantially edited, costed, supported, or coordinated frequent or large winning proposals STI Employee Bonus Plan January

7 2. Cash Plan Table 4. Revenue Management Component (10% of Non-Discretionary Cash Pool). Category Revenue Managed Points RM Level 5 RM Level 4 RM Level 3 RM Level 2 Manage more than $750,000 annual project/task revenue* Manage $400,000 to $750,000 annual project/task revenue* Manage $200,000 to $400,000 annual project/task revenue* Manage $50,000 to $200,000 annual project/task revenue* RM Level 1 Manage less than $50,000 annual project/task revenue* *Annual revenue managed within budget, not including internal projects Table 5. Staff Management Component (10% of Non-Discretionary Cash Pool). Category Points Division Manager 1.0 Branch Manager 0.65 Group Manager 0.3 Team Leader 0.1 Table 6. Technical Leadership Component (5% of Non-Discretionary Cash Pool). Category Points Principal/Chief 1.0 Senior 0.5 Level III 0.25 STI Employee Bonus Plan January

8 2. Cash Plan 2.3 Allocation of the Cash Pool Cash Pool Allocations Among the Six Components of the Cash Plan The Board of Directors may elect to distribute on a discretionary basis up to 20% of the total Cash Pool to employees who made exceptional contributions to the company. The remaining nondiscretionary Cash Pool will be allocated to eligible participants. The non-discretionary Cash Pool is currently divided among the six components of the Cash Plan as shown above. The Board will review the percentage allocations annually and may modify as necessary Cash Pool Allocations Within a Component For the All Staff (except Officers) Component, allocation points are prorated based on actual hours worked for any participant whose regularly scheduled work week is not 40 hours, or who was not employed by STI for the whole year. For the Business Development Component, up to ten points are assigned for each business development category. Total points are squared and then distributed/weighted. For the Active Officer, Revenue Management, Staff Management, and Technical Leadership Components, the Board of Directors assigns allocation points to each category to reflect the current responsibilities of participants. An individual s allocation factor for a component is determined by dividing his or her points by the total allocation points for that component. The Cash Pool will be allocated to participants in proportion to the resulting allocation factors. If an employee s responsibilities change significantly during the year, his or her allocation points may be prorated to reflect the portion of the year spent at each level of responsibility. All assignments and allocations are made at the sole discretion of the Board Total Cash Allocation for an Individual The total cash allocation for an individual is determined by summing his or her allocation factor multiplied by the cash allotment for each component. Each participant receives a prorated share of the cash allocation for each component based on his or her share of the total points for that component Calculating Annual Revenue Managed Component The following method is used to calculate the annual project/task revenue for Table 4 and for overruns (see Section 2.3.5). An individual s annual project/task revenue managed amount is the sum of that individual s within-budget revenue managed during the Plan Year. For a single-task project, the withinbudget revenue, as calculated by the STI financial management system, is assigned to the individual STI Employee Bonus Plan January

9 2. Cash Plan designated as managing that project. For a project with multiple tasks, the within-budget revenue for each task is assigned one-half to the overall revenue/project manager and one-half to the revenue/task manager who manages the individual task. Internal projects and most R&D projects receive CDL credit; however, revenue credit is not allocated for internal or R&D projects. Over-budget penalties apply to both internal and external projects Penalties for Overruns Applied to the Revenue Management Component To encourage best practices in project and revenue management, revenue managers will be subject to penalties for project overruns for a combination of all revenue they manage during the Plan Year. Project overrun fractions are calculated as follows. Overrun Percentage AnnualProject/Task Overrun Amount(includingfee) AnnualProject/Task Revenue 100 An individual s annual revenue management amount will be the same as that determined for Table 4 (see previous section). An individual s annual revenue management amount is the sum of that individual s within-budget revenue from projects and tasks managed during the Plan Year. For a single-task project, the within-budget revenue, as calculated by the STI financial management system, is assigned to the designated revenue/project manager. For a project with multiple tasks, the within-budget revenue for each task, as calculated by the STI financial management system, is assigned one-half to the overall revenue/project manager and one-half to the revenue/task manager who manages the individual task. Overrun percentages of 2% or less of an individual s total annual revenue management responsibility will be forgiven. Overrun percentages of 10% or more of the total dollars managed will result in the loss of twice the individual s revenue management allocation. The penalty percentage is based on the overrun percentage as shown in Table 7. Allocations surrendered due to overruns will be redistributed to other participants in proportion to their allocation factors. STI Employee Bonus Plan January

10 2. Cash Plan Table 7. Penalty Calculation for the Revenue Management Component. Overrun Percentage Penalty (%) Up to 2.0 Penalty forgiven More than STI Employee Bonus Plan January

11 3. Stock Plan 3. Stock Portion of the Employee Bonus Plan (Stock Plan) 3.1 Stock Pool The Board of Directors determines the total value of the Employee Bonus Stock Pool (Stock Pool) annually. The total Stock Pool will generally be equal to the number of whole shares, which is roughly equivalent to one third of the total Cash Pool (described in Section 2) of the Cash Plan, with the stock valued in accordance with STI s bylaws as of the last day of the Plan Year. 3.2 Eligibility and Participation in the Stock Plan The Board of Directors chooses participants in the Stock Plan each year. The Board of Directors may modify staff assignments to categories and may add or remove participants at any time during the year. Typically, changes in designations will be made when employees join or leave STI, and when corporate and/or management responsibilities of employees change. Assignments are usually finalized at the end of the year to reflect contributions during that year. Eligible participants must have earned payment for more than 3120 hours of work at STI by the end of the Plan Year. Participants must be employed on the last day of the Plan Year, although the Board of Directors may elect to include certain employees who left STI before year-end. Temporary or oncall employees are not eligible to participate in the Stock Plan. Staff members at the Level III or higher in the Technical Leadership Component (see Table 6), Project Managers, and other staff with five or more years of service are eligible for selection by the Board of Directors for stock distributions. For the purpose of determining Stock Plan eligibility, Project Manager is defined as an individual who is officially designated as Project Manager on the STI Staff List, not an individual who has some revenue management responsibility. 3.3 Allocation of the Stock Pool The Board of Directors may elect to distribute on a discretionary basis up to 20% of the total Stock Pool to employees who made exceptional contributions to the company. The discretionary stock distributions may differ from the discretionary cash distributions. The remaining non-discretionary Stock Pool will be allocated to eligible participants in proportion to their non-discretionary cash payment as determined by the Cash Plan, and rounded to the nearest whole share for each participant. STI Employee Bonus Plan January

12 3. Stock Plan The Board of Directors will publish a list of employee assignments and allocation eligibility annually. All assignments are made at the sole discretion of the Board. 3.4 Acceptance of Stock Stock Plan participants may refuse some or all shares of the stock offered. Participants must accept or refuse the stock within five working days of being informed of the number of shares offered. Shareholders will be responsible for any taxes incurred as a result of receiving the stock. In order to receive stock, participants and their spouses (if married) or qualified domestic partners must sign a Shareholders Agreement (see sample in Exhibit A). In brief, shareholders must agree that if they want to sell stock or if they cease employment with STI, the company will have a first option to purchase the stock. The purchase price will be the value of the stock on the date of termination or offer, or a lower price as agreed by both parties. STI will have the option of paying for the stock with a down payment and a promissory note amortized over up to four years with interest as specified in the Shareholders Agreement. If the stock is not purchased by STI, it must be offered to other shareholders in proportion to their current ownership interest in the company at the same price. If an existing shareholder does not exercise his/her option, that person s stock allocation shall be offered first to the remaining shareholders in proportion to their current ownership interest in the company. If a shareholder agrees to sell his/her stock at a price different from the current stock price, the company will have the option to purchase the stock at the different price with a note as above, or for cash. STI Employee Bonus Plan January

13 EXHIBIT A Sonoma Technology, Inc. Employee Bonus Plan SAMPLE Shareholders Agreement STI Employee Bonus Plan January 2016 A-1

14 Sample Shareholders Agreement SHAREHOLDERS AGREEMENT **DATE 3 DAYS BEFORE ISSUE DATE** THIS AGREEMENT entered into this **Date of Stock Cert (issue date)** at Petaluma, California, by and between **name** ("Shareholder") and SONOMA TECHNOLOGY, INC., a California corporation (hereinafter referred to as "Corporation"). RECITALS The undersigned desire to enter into an Agreement which restricts the transferability of the **number** shares of the Corporation to be issued to Shareholder on **Date of Stock Cert (issue date)**. It is intended that all Shareholders who receive, on this date, stock of the Corporation by way of additional compensation shall be parties to shareholders agreements with the same terms and conditions. AGREEMENT NOW, THEREFORE, it is mutually agreed by and between the parties hereto regarding only the **number** shares referred to above, as follows: RIGHT OF FIRST REFUSAL 1. Except as provided herein, no party hereto shall sell, transfer, assign, hypothecate or in any way alienate any of his or her shares or any right or interest therein without the prior written consent of the Shareholders possessing Sixty Percent (60%) or more of the voting control of Corporation, unless he or she shall first have given written notice to the Corporation and all Shareholders of his or her intention to do so which notice must name the proposed transferee and specify the number of shares to be transferred, the price per share, and the terms of payment. 2. (a) In the event the notice provided for in paragraph 1 hereof is given, the Corporation shall have the option for sixty (60) days to purchase all or any part of said shares at the price and on the terms specified in said notice; provided, however, the offer to purchase as specified in said notice is a bona fide offer. STI Employee Bonus Plan January 2017 A-2

15 Sample Shareholders Agreement (b) In the event the option provided in Subsection (a) of this paragraph is not exercised for any reason or is exercised only in part within the time therein provided, then in that event the selling party shall offer such shares of stock to the remaining Shareholders at the price and upon the terms specified in the notice. Said option shall be for a term of thirty (30) days from the date of expiration of the option period described in paragraph 2(a). (c) Exercise of the option shall be by written notice delivered or mailed to the selling party within the aforesaid period following delivery of the notice of intention to sell. (d) The purchase price of said shares shall be payable on the same terms specified in the notice of intention to sell within sixty (60) days from and after the receipt by the selling party of the election to exercise said option. (e) In the event that said option to purchase is not exercised as hereinabove provided, the subject shares of stock may be transferred at any time between 90 days to 180 days from the date of the selling Shareholder's notice, to the person and at the price specified therein. Such person will receive and hold said shares subject to all of the provisions and restrictions of this Agreement. GIFTS TO FAMILY MEMBERS 3. Any Shareholder may make a gift of shares to his or her spouse, registered qualified domestic partner, issue, or other members of his or her immediate family, or to a trust for his or her benefit. The donee shall hold such shares subject to all of the provisions hereof, and shall make no further transfers other than as herein provided except for transfers by way of gift, to a trust or to members of said family. Upon the death, permanent disability, or termination of employment of the original Shareholder--party hereto--the donee or any subsequent donee shall be required to sell said shares to other parties for the price and on the terms that are provided herein. PURCHASE IN THE EVENT OF TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY 4. (a) Upon the termination of employment, the death or permanent disability of a Shareholder, the Corporation shall have the option for sixty (60) days after the occurrence to purchase all or any portion of the shares owned by the party, at a purchase price determined in accordance with Section 6 hereof on the terms provided for in paragraph 7 hereof. Provided, however, to the extent permitted by the California Corporation Code, the Corporation shall be STI Employee Bonus Plan January 2017 A-3

16 Sample Shareholders Agreement obliged to purchase shares upon the death of a Shareholder to the extent the Corporation receives proceeds of a life insurance policy on the death of a Shareholder. (b) In the event the option provided for in Subsection (a) of this paragraph is not exercised for any reason or is exercised only in part within the time therein provided, then in that event the remaining Shareholders have the option for an additional sixty (60) days to purchase all or any portion of the shares owned by the party, at the price determined in accordance with Section 6 hereof on the terms provided for in paragraph 7 hereof. (c) Such option shall be exercised by sending notice thereof, postage prepaid via registered or certified mail, to the selling party or his or her representative at the selling party's last known address or to such other address that the Corporation may have been given notice of. (d) Upon the exercise of the option to purchase stock contained herein, or the purchase by the remaining Shareholders, the certificates representing stock owned by the selling party shall be deposited with the Corporate Secretary for retention as treasury stock or transfer to new owners. (e) In the event the options provided for in paragraphs 4(a) and (b) are not exercised or are only exercised in part, the terminated Shareholder, the estate of a deceased Shareholder or a disabled Shareholder shall have the right to sell his or her shares to a third party subject to the terms of paragraphs 1 and 2 hereof. Any transferee of such shares shall hold such shares subject to all of the provisions and restrictions of this Agreement. PURCHASE IN OTHER EVENTS 5. (a) In the event a Shareholder desires to sell his or her shares of stock in the Corporation for reasons other than those specified in paragraph 4 hereof, said Shareholder shall first offer them for sale to the Corporation. The Corporation shall have the option for sixty (60) days to purchase all or any part of said shares at the price determined in accordance with paragraph 6 hereof, and on the terms provided for in paragraph 7 hereof. (b) In the event the option provided in Subsection (a) of this paragraph is not exercised or is exercised only in part within the time therein provided, then in that event the selling party shall offer such shares of stock to the remaining Shareholders at the price determined in accordance with paragraph 6 hereof, and on the terms provided for in paragraph 7 hereof. Said option shall be for a term of sixty (60) days from the date of receipt of notice. STI Employee Bonus Plan January 2017 A-4

17 Sample Shareholders Agreement (c) Exercise of the option shall be by written notice delivered or mailed to the selling party within the aforesaid period following delivery of the notice of intention to sell. (d) In the event that said option to purchase is not exercised as hereinabove provided, the subject shares of stock may be transferred at any time between 90 days and 180 days from the date of the selling Shareholder's notice, to a third party subject to the terms of paragraphs 1 and 2 hereof. Such person will receive and hold said shares subject to all of the provisions and restrictions of this Agreement. PURCHASE PRICE 6. The price of any shares purchased and sold pursuant to the provisions of Sections 4 and 5 hereof shall be determined quarterly by agreement of the Corporation, acting through its proper officers upon due authorization of its Board of Directors, and Shareholders possessing Sixty Percent (60%) or more of the voting control of the Corporation. Consideration of such price shall be made a regular order of business at the annual meeting of the Shareholders. The last price established preceding the death, permanent disability, or termination of employment of any Shareholder shall be the price of his or her shares for the purposes of this Agreement, notwithstanding the fact that the Corporation and the individual Shareholders for any reason have failed to redetermine such value at any time, or from time to time. (All redetermination prices shall be endorsed upon Attachment A). In the event the price is not determined for any particular quarter, the price shall be the last price established pursuant to this paragraph 6, and shall remain in effect until a new price is established. TERMS OF PURCHASE 7. Unless otherwise agreed upon between the parties hereto, in the event the options provided for in paragraphs 4 and 5 hereof are exercised, the purchase terms shall be as follows: (a) Twenty Percent (20%) of the price thereof shall be paid on or before thirty (30) days from and after the date of exercise of the option or other event requiring the purchase of shares. The balance shall be paid in not more than four (4) equal annual installments, commencing on the anniversary of the date of the first payment. (b) Upon delivery of the certificates representing stock owned by the selling party to the Corporate Secretary and delivery of a promissory note containing the payment terms STI Employee Bonus Plan January 2017 A-5

18 Sample Shareholders Agreement described in paragraphs 7(a) and 7(c), and the initial payment due hereunder to the selling party, the Corporate Secretary shall assign and deliver the purchased shares to the purchasing party. (c) Promissory notes evidencing the balance of the purchase price as hereinabove provided shall bear interest at the greater of 5% or the prime rate of Citibank or its successor as of the date on which the purchasing party exercises its purchase option. In the case of default, the entire sum of principal and interest shall immediately be due and payable. Reasonable attorney s fees may be allowed in the event of the commencement of any suit because of default. CORPORATE RESTRICTIONS 8. The right of the Corporation to exercise any option to purchase any shares subject to this Agreement is subject to the restriction governing the rights of the Corporation to reacquire its own shares contained in the General Corporation Law of the State of California and such other pertinent governmental restrictions as are now, or may hereafter become, effective. SHAREHOLDER'S RIGHT TO PURCHASE 9. In the event of exercise of any option herein given to the remaining Shareholders, each Shareholder shall have the option to purchase that number of shares which equals his or her pro-rata portion of the total of the shares owned by all of the Shareholders who are parties to this Agreement, excluding shares owned by the selling Shareholder or by the party giving notice of the intention to sell, as the case may be. In the event that any one or more of the remaining Shareholders to whom such notice is given, does not desire to purchase his or her pro-rata share, the number of shares then owned by the declining Shareholder shall be likewise excluded in determining the pro-rata portion of the remaining Shareholders who desire to purchase. INSURANCE 10. The Corporation may, at the discretion of the Board of Directors, insure the life of each Shareholder who executes this Agreement for an amount determined by Sixty Percent (60%) or more of the members of the Board of Directors. The Corporation shall be named beneficiary of the policies. The policies, and any proceeds received thereunder, shall be held by the Corporation in trust for the purposes of this Agreement. The Corporation shall have the right to take out insurance on the life of any Shareholder who is a party to this Agreement. The Corporation shall pay all premiums on STI Employee Bonus Plan January 2017 A-6

19 Sample Shareholders Agreement insurance policies taken out by the Corporation pursuant to this Agreement and, if requested, shall give proof of payment to the Shareholders who are parties to this Agreement within fifteen (15) days after the due date of each premium. 11. The Corporation shall be the sole owner of the policies issued to it and may apply to the payment of premiums any dividends therein paid on the policy. 12. To the extent the Corporation receives the entire proceeds of any life insurance policy by reason of the death of a Shareholder, the amount of such proceeds shall be applied within 60 days of receipt of proceeds to the Twenty Percent (20%) down payment set forth in paragraph 7 hereof and as many of the annual payments as such proceeds will cover. 13. In the event that any Shareholder ceases to be a party to this Agreement, pursuant to the provisions hereof, such Shareholder shall have the right to purchase from the Corporation the insurance policy on his or her life for a price equal to the cash value of the policy at the date of the offer of sale. The right to purchase shall be exercised and the price paid contemporaneously with the payment of the price for the stock purchased from said Shareholder. The Corporation shall deliver the policies to the Shareholder and shall execute any necessary instruments of transfer. In the event any policies of insurance subject to the foregoing option are not purchased, such policies shall be released from the terms of this Agreement. MISCELLANEOUS 14. Certificates of stock subject to this Agreement shall be endorsed as follows: Sale, transfer, or hypothecation of the shares represented by this certificate is restricted by the provisions of a Shareholders' Agreement, dated **Date of Shareholder Agreement**, a copy of which may be inspected at the principal office of the Corporation and all the provisions of which are incorporated herein. 15. This Agreement shall cease and terminate on the occurrence of any of the following events, namely: (a) Cessation of the corporate business or enterprise during the lifetime of the stockholders; (b) (c) Bankruptcy, receivership or dissolution of the Corporation; A written mutual agreement of termination between the parties; or STI Employee Bonus Plan January 2017 A-7

20 Sample Shareholders Agreement (d) At such time as only one Shareholder remains, the shares of all others having been transferred. It is the desire and intention of the parties that this Agreement be accorded a liberal interpretation consistent with its declared end and purpose. 16. As used in this Agreement, the expressions "decedent's estate" and "estate of the decedent" and other expressions of similar purport shall be construed broadly to include such person or persons as succeed by Will or law to the position of a deceased stockholder, and are otherwise qualified to fulfill the legal requirements of this Agreement. If a personal representative be appointed for a deceased stockholder, he or she alone on behalf of such decedent's heirs, legatees or devisees shall be qualified to do all necessary acts and duties. 17. Words in the singular number shall include the plural; words in the masculine gender shall include the feminine, and vice versa, when the context in which such words are used indicates that such is the intent. Words in the singular followed by the plural suffix are to be read as singular or plural depending upon the situation under the Agreement at the time of reading. 18. Other provisions: (a) This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, warranties, and understandings of the parties, it being the intention of the parties that this Agreement be totally integrated. (b) No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the parties. (c) No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision hereof, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. (d) This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. (e) This Agreement shall be binding on and shall inure to the benefit of the parties hereto, and their respective heirs, legal representatives, successors and assigns. STI Employee Bonus Plan January 2017 A-8

21 Sample Shareholders Agreement (f) Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over or against any party to this Agreement. 19. For purposes of this Agreement, the term "disability" shall mean the inability for a continuous period of six (6) months, due to a physical or mental ailment, of a Shareholder in performing his regular duties on behalf of Corporation. The term "disability" shall not include the non-performance of services due to retirement or termination of service. 20. In the event there occurs a dissolution of marriage or a legal separation, or proceeding of similar import, between a Shareholder and his or her spouse or registered qualified domestic partner, and the spouse or registered qualified domestic partner has any ownership interest in shares of Corporation, by virtue of the laws of community property of the State of California, or otherwise, the Shareholder shall have the option, for a period of six (6) months from the date of filing a Petition for Dissolution of Marriage or Legal Separation, to acquire the ownership interest of his or her spouse or registered qualified domestic partner in shares of Corporation in accordance with the following terms and conditions: (a) Shareholder shall have the option to purchase the interest of his or her spouse or registered qualified domestic partner in shares of Corporation at a price determined in accordance with paragraph 6 hereof. If elected, the purchase price shall be paid in four (4) equal annual installments commencing one (1) year from the date of filing a Petition for Dissolution or Legal Separation. The purchase price shall be evidenced by a promissory note with a provision for annual payments, together with annual payments of interest on the unpaid balance at the greater of 5% or the prime rate of Citibank or its successor as of the date on which the Shareholder exercises its purchase option. During the five (5) year period of the term of the promissory note, the Shareholder, so long as there is no default on the payments provided in said promissory note, shall be entitled to vote the shares acquired pursuant to the provisions of paragraph 20(a) and to receive any dividends that may be declared thereon. STI Employee Bonus Plan January 2017 A-9

22 Sample Shareholders Agreement (b) Any election by a Shareholder pursuant to paragraph 20 shall be made in writing to the spouse or registered qualified domestic partner affected Shareholder and Corporation within the time periods set forth in paragraph 20. In the event that Shareholder declines to exercise the option described in paragraph 20, the Corporation and the other Shareholders shall have for an indefinite time period the option to purchase the ownership interest of Shareholder's spouse or registered qualified domestic partner according to the terms of paragraph 5, at the price determined in accordance with paragraph 6, and on the terms described in paragraph 7 hereof. above written. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first SHAREHOLDER SONOMA TECHNOLOGY, INC. By **Shareholder s Name** By Lyle R. Chinkin, President STI Employee Bonus Plan January 2017 A-10

23 Sample Shareholders Agreement CONSENT OF SPOUSE OR REGISTERED QUALIFIED DOMESTIC PARTNER I, being the spouse or registered qualified domestic partner of the individual who is party to the within SHAREHOLDERS AGREEMENT, agree and acknowledge that I have read the within Agreement, and that I agree to be bound by its terms so far as our community property is involved. Dated: By Spouse s or registered qualified domestic partner s printed name By Spouse s or registered qualified domestic partner s signature By Lyle R. Chinkin, President STI Employee Bonus Plan January 2017 A-11

24 Sample Shareholders Agreement ATTACHMENT A SHARE PRICE ENDORSEMENT Date 3/12/ /1/1990 6/17/ /5/1992 2/3/1993 1/13/1994 2/21/1995 2/20/1996 3/4/1998 3/10/1999 3/1/ /21/ /19/ /19/2002 3/6/ /18/2003 3/11/ /13/2005 3/9/ /1/2006* 4/22/2008 3/30/2009 3/29/2010 3/29/2011 5/7/2012 4/3/2013 4/9/2014 4/22/2015 4/5/2016 4/27/2017 Valuation Per Share $70.00 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $32.00 $35.00 $38.50 $45.00 $52.50 $70.62 $74.34 $68.64 $55.73 $53.18 $71.51 *Five-to-one stock split was effective 11/1/06. STI Employee Bonus Plan January 2017 A-12