Exhibit 10.1

 

PACIFIC FINANCIAL CORPORATION

2000 STOCK INCENTIVE COMPENSATION PLAN

 

1.

PURPOSES

1.1         The purpose of the Pacific Financial Corporation 2000 Stock
Incentive Compensation Plan (the “Plan”) is to enhance the long-term shareholder
value of Pacific Financial Corporation, a Washington corporation (the
“Company”), by offering opportunities to employees, persons to whom offers of
employment have been extended, directors, officers, consultants, agents,
advisors and independent contractors of the Company and its Subsidiaries (as
defined in Section 2) to participate in the Company's growth and success, and to
encourage them to remain in the service of the Company and its Subsidiaries and
to acquire and maintain stock ownership in the Company.

2.

DEFINITIONS

For purposes of the Plan, the following terms shall be defined as set forth
below:

 

2.1

Acquired Entities.

“Acquired Entities” has the meaning given in Section 6.2.

 

2.2

Acquisition Transaction.

“Acquisition Transaction” has the meaning given in Section 6.2.

 

2.3

Award.

“Award” means a grant made to a Participant pursuant to the Plan, including,
without limitation, grants of Options, Stock Appreciation Rights, Stock Awards,
Other Stock-Based Awards or any combination of the foregoing.

 

2.4

Board.

“Board” means the Board of Directors of the Company.

 

2.5

Cause.

“Cause” means dishonesty, fraud, misconduct, disclosure of confidential
information, conviction of, or a plea of guilty or no contest to, a felony under
the laws of the United States or any state thereof, habitual absence from work
for reasons other than illness, intentional conduct which causes significant
injury to the Company, habitual abuse of alcohol or a controlled substance, in
each case as determined by the Plan Administrator, and its determination shall
be conclusive and binding.

 

2.6

Change in Control.

 

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“Change in Control” means (i) the consummation of a merger or consolidation of
the Company with or into another entity or any other corporate reorganization,
if more than 50% of the combined voting power of the continuing or surviving
entity’s securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other reorganization
or (ii) 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.

 

2.7

Code.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

2.8

Common Stock.

“Common Stock” means the common stock, par value $1.00 per share, of the
Company.

 

2.9

Disability.

“Disability” means a medically determinable mental or physical impairment or
condition of the Holder which is expected to result in death or which has lasted
or is expected to last for a continuous period of twelve (12) months or more and
which causes the Holder to be unable, in the opinion of the Plan Administrator
on the basis of evidence acceptable to it, to perform his or her duties for the
Company and, in the case of a determination of Disability for purposes of
determining the exercise period for an Incentive Stock Option, to be engaged in
any substantial gainful activity. Upon making a determination of Disability, the
Plan Administrator shall, for purposes of the Plan, determine the date of the
Holder’s termination of employment, service or contractual relationship.

 

2.10

Exchange Act.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

2.11

Fair Market Value.

“Fair Market Value” shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing sales
price for the Common

 

 

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Stock as such price is officially quoted in the composite tape of transactions
on such exchange for a single trading day. If there is no such reported price
for the Common Stock for the date in question, then such price on the last
preceding date for which such price exists shall be determinative of Fair Market
Value.

 

2.12

Grant Date.

“Grant Date” means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.

 

2.13

Holder.

“Holder” means the Participant to whom an Award is granted or the personal
representative of a Holder who has died.

 

2.14

Incentive Stock Option.

“Incentive Stock Option” means an Option to purchase Common Stock granted under
Section 7 with the intention that it qualify as an “incentive stock option” as
that term is defined in Section 422 of the Code.

 

2.15

Involuntary Termination.

“Involuntary Termination” means termination of the Holder’s service to the
Company (or the parent or subsidiary company employing such Holder) or the other
party to the transaction constituting a Change in Control by reason of (i) the
involuntary discharge of such Holder by the Company (or the parent or subsidiary
company employing such Holder) or the other party to the transaction
constituting a Change in Control for reasons other than Cause or (ii) the
voluntary resignation of the Holder following (A) a change in such Holder’s
position with the Company (or its successor or the parent or subsidiary company
that employs such Holder) or the other party to the transaction constituting a
Change in Control that materially reduces such Holder’s level of authority or
responsibility or (B) a reduction in such Holder’s compensation (including base
salary, fringe benefits and participation in bonus or incentive programs based
on corporate performance) by more than 20%.

 

2.16

Nonqualified Stock Option.

“Nonqualified Stock Option” means an Option to purchase Common Stock granted
under Section 7 other than an Incentive Stock Option.

 

2.17

Option.

“Option” means the right to purchase Common Stock granted under Section 7.

 

 

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2.18

Option Shares.

“Option Shares” means the shares of Common Stock issuable upon a Holder’s
exercise of an Option granted under the Plan.

 

2.19

Other Stock-Based Award.

“Other Stock-Based Award” means an Award granted under Section 11.

 

2.20

Participant.

“Participant” means an individual who is a Holder of an Award or, as the context
may require, any employee, director (including directors who are not employees),
officer, consultant, agent, advisor or independent contractor of the Company or
a Subsidiary who has been designated by the Plan Administrator as eligible to
participate in the Plan.

 

2.21

Plan Administrator.

“Plan Administrator” means the Board or any committee designated to administer
the Plan under Section 3.1.

 

2.22

Qualifying Retirement.

“Qualifying Retirement” means retirement from service to the Company or a
Subsidiary by a Participant who is both (i) at least sixty (60) years of age and
(ii) an employee or officer of the Company or a Subsidiary.

 

2.23

Restricted Stock.

“Restricted Stock” means shares of Common Stock granted pursuant to a Stock
Award under Section 10, the rights of ownership of which are subject to
restrictions prescribed by the Plan Administrator.

 

2.24

Securities Act.

“Securities Act” means the Securities Act of 1933, as amended.

 

2.25

Stock Appreciation Right.

“Stock Appreciation Right” means an Award granted under Section 9.

 

2.26

Stock Award.

“Stock Award” means an Award granted under Section 10.

 

2.27

Subsidiary.

 

 

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“Subsidiary,” except as expressly provided otherwise, means any entity that is
directly or indirectly controlled by the Company or in which the Company has a
significant ownership interest, as determined by the Plan Administrator, and any
entity that may become a direct or indirect parent of the Company.

3.

ADMINISTRATION

 

3.1

Plan Administrator.

The Plan shall be administered by the Board or a committee or committees (which
term includes subcommittees) appointed by, and consisting of two or more members
of, the Board. Any such committee shall have the powers and authority vested in
the Board hereunder (including the power and authority to interpret any
provision of the Plan or of any Award). The Board, or any committee thereof
appointed to administer the Plan, is referred to herein as the "Plan
Administrator." If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the
Plan Administrator and the membership of any committee acting as Plan
Administrator for any persons subject or likely to become subject to Section 16
under the Exchange Act the provisions regarding (a) “outside directors” as
contemplated by Section 162(m) of the Code and (b) “Non-Employee Directors” as
contemplated by Rule 16b-3 under the Exchange Act. The Board or Plan
Administrator may delegate the responsibility for administering the Plan with
respect to designated classes of eligible Participants to one or more senior
executive officers or committees thereof, the members of which need not be
members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.

 

3.2

Administration and Interpretation by the Plan Administrator.

Except for the terms, conditions and limitations explicitly set forth in the
Plan, the Plan Administrator shall have exclusive authority, in its absolute
discretion, to determine all matters relating to Awards under the Plan,
including the selection of individuals to be granted Awards, the type of Awards,
the number of shares of Common Stock subject to an Award, all terms, conditions,
restrictions and limitations, if any, of an Award and the terms of any
instrument that evidences the Award. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt,
change and rescind rules and regulations of general application for the Plan's
administration. This authority shall include the sole authority to correct any
defect, supply any omission or reconcile any inconsistency in this Plan and make
all other determinations necessary or advisable for the administration of the
Plan and do everything necessary or appropriate to administer the Plan. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.

 

 

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The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.

4.

STOCK SUBJECT TO THE PLAN

 

4.1

Authorized Number of Shares.

Subject to adjustment from time to time as provided in Section 13.1, a maximum
of 100,000 shares of Common Stock shall be available for issuance under the
Plan. Shares issued under the Plan shall be drawn from authorized and unissued
shares.

 

4.2

Limitations.

(a)          Subject to adjustment from time to time as provided in Section
13.1, not more than 15,000 shares of Common Stock may be made subject to Awards
under the Plan to any individual Participant in the aggregate in any one (1)
calendar year, except that the Company may make additional one-time grants to
newly hired Participants of up to 5,000 shares per such Participant; such
limitation shall be applied in a manner consistent with the requirements of, and
only to the extent required for compliance with, the exclusion from the
limitation on deductibility of compensation under Section 162(m) of the Code.

(b)         Subject to adjustment from time to time as provided in Section 13.1,
not more than 1,000 shares of Common Stock may be made subject to Awards to any
non-employee director in the aggregate in any one calendar year.

 

4.3

Reuse of Shares.

Any shares of Common Stock that have been made subject to an Award that cease to
be subject to the Award (other than by reason of exercise or payment of the
Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan; provided, however, that any such shares shall be counted in accordance
with the requirements of Section 162(m) of the Code if and to the extent
applicable. Shares that are subject to tandem Awards shall be counted only once.
Also, upon a stock-for-stock exercise only the net number of shares will be
deemed to have been used under this Plan.

5.

ELIGIBILITY

Awards may be granted under the Plan to those officers, directors and key
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.

6.

AWARDS

 

 

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6.1

Form and Grant of Awards.

The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards may
include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards and Other Stock-Based Awards.
Awards may be granted singly, in combination or in tandem so that the settlement
or payment of one automatically reduces or cancels the other. Awards may also be
made in combination or in tandem with, in replacement of, as alternatives to, or
as the payment form for, grants or rights under any other employee or
compensation plan of the Company.

 

6.2

Acquired Company Awards.

Notwithstanding anything in the Plan to the contrary, the Plan Administrator may
grant Awards under the Plan in substitution for awards issued under other plans,
or assume under the Plan awards issued under other plans, if the other plans are
or were plans of other acquired entities (“Acquired Entities”) (or the parent of
the Acquired Entity) and the new Award is substituted, or the old Award is
assumed, by reason of a merger, consolidation, acquisition of property or of
stock, reorganization or liquidation (an “Acquisition Transaction”). If a
written agreement pursuant to which an Acquisition Transaction is completed is
approved by the Board and said agreement sets forth the terms and conditions of
the substitution for or assumption of outstanding awards of the Acquired Entity,
said terms and conditions shall be deemed to be the action of the Plan
Administrator without any further action by the Plan Administrator, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such Awards shall be deemed to be Participants and Holders.

7.

AWARDS OF OPTIONS

 

7.1

Grant of Options.

The Plan Administrator is authorized under the Plan, in its sole discretion, to
issue Options as Incentive Stock Options or as Nonqualified Stock Options, which
shall be appropriately designated.

 

7.2

Option Exercise Price.

The exercise price for shares purchased under an Option shall be as determined
by the Plan Administrator, but shall not be less than 100% of the Fair Market
Value of the Common Stock on the Grant Date with respect to Incentive Stock
Options.

 

7.3

Term of Options.

The term of each Option shall be as established by the Plan Administrator or, if
not so established, shall be ten (10) years from the Grant Date.

 

 

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7.4

Exercise of Options.

The Plan Administrator shall establish and set forth in each instrument that
evidences an Option the time at which or the installments in which the Option
shall become exercisable, which provisions may be waived or modified by the Plan
Administrator at any time. If not so established in the instrument evidencing
the Option or otherwise set at the time of grant, the Option will be subject to
the following: (a) (i) 20% of the Option shall vest and become exercisable one
year after the Grant Date and (ii) an additional 20% of the Option shall vest
and become exercisable each successive year thereafter, so that 100% of the
Option shall be fully vested and exercisable on and after the date which is five
(5) years after the Grant Date; (b) in no event shall any additional Option
Shares vest after termination of Holder’s employment by or service to the
Company; and (c) the Plan Administrator may waive or modify the foregoing
schedule at any time.

To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. This Option may only
be exercised to purchase that number of Shares having an aggregate Fair Market
Value on the date of exercise greater than or equal to $2,500 (or the lesser
number of remaining shares covered by this Option).

 

7.5

Payment of Exercise Price.

The exercise price for shares purchased under an Option shall be paid in full to
the Company by delivery of consideration equal to the product of the Option
exercise price and the number of shares purchased. Such consideration must be
paid in cash or check (unless, at the time of exercise, the Plan Administrator
determines not to accept a personal check), except that the Plan Administrator,
in its sole discretion, may, either at the time the Option is granted or at any
time before it is exercised and subject to such limitations as the Plan
Administrator may determine, authorize payment in cash and/or one or more of the
following alternative forms: (a) tendering (either actually or, if and so long
as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange
Act, by attestation) Common Stock already owned by the Holder for at least six
months (or any shorter period necessary to avoid a charge to the Company's
earnings for financial reporting purposes) having a Fair Market Value on the day
prior to the exercise date equal to the aggregate Option exercise price; (b) if
and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, delivery of a properly executed exercise notice, together with
irrevocable instructions, to (i) a third party designated by the Company to
deliver promptly to the Company the aggregate amount of sale proceeds to pay the
Option exercise price and any withholding tax obligations that may arise in
connection with the exercise and (ii) the Company to deliver the certificates
for such purchased shares directly to such third party, all in accordance with
the

 

 

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regulations of the Federal Reserve Board; or (c) such other consideration as the
Plan Administrator may permit.

 

7.6

Post-Termination Exercises.

The Plan Administrator may establish and set forth in each instrument that
evidences an Option whether the Option will continue to be exercisable, and the
terms and conditions of such exercise, if a Holder ceases to be employed by, or
to provide services to, the Company or its Subsidiaries, which provisions may be
waived or modified by the Plan Administrator at any time.

If not so established in the instrument evidencing the Option, the Option will
be exercisable according to the following terms and conditions, which may be
waived or modified by the Plan Administrator at any time.

In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one (1) year if the termination of the Holder's employment or
services are coincident with Disability or, in the case of Nonqualified Stock
Options, a Qualifying Retirement, or (b) within three (3) months after the date
the Holder ceases to be an employee, director, officer, consultant, agent,
advisor or independent contractor of the Company or a Subsidiary if termination
of the Holder's employment or services is for any reason other than death or
Disability, but in no event later than the remaining term of the Option. Any
Option exercisable at the time of the Holder's death may be exercised, to the
extent of the number of shares purchasable by the Holder at the date of the
Holder's death, by the personal representative of the Holder's estate entitled
thereto at any time or from time to time within one (1) year after the date of
death, but in no event later than the remaining term of the Option. In case of
termination of the Holder's employment or services for Cause, the Option shall
automatically terminate upon first discovery by the Company of any reason for
such termination and the Holder shall have no right to purchase any Shares
pursuant to such Option, unless the Plan Administrator determines otherwise. If
a Holder's employment or services with the Company are suspended pending an
investigation of whether the Holder shall be terminated for Cause, all the
Holder's rights under any Option likewise shall be suspended during the period
of investigation.

A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence or short-term break in service
on the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.

 

 

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8.

INCENTIVE STOCK OPTION LIMITATIONS

To the extent required by Section 422 of the Code, Incentive Stock Options shall
be subject to the following additional terms and conditions:

 

8.1

Dollar Limitation.

To the extent the aggregate Fair Market Value (determined as of the Grant Date)
of Common Stock with respect to which Incentive Stock Options are exercisable
for the first time during any calendar year (under the Plan and all other stock
option plans of the Company) exceeds $100,000, such portion in excess of
$100,000 shall be treated as a Nonqualified Stock Option. In the event the
Participant holds two (2) or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options were granted.

 

8.2

10% Shareholders.

If a Participant owns more than 10% of the total voting power of all classes of
the Company's stock, then the exercise price per share of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the Grant Date and the Option term shall not exceed five (5) years. The
determination of 10% ownership shall be made in accordance with Section 422 of
the Code.

 

8.3

Eligible Employees.

Individuals who are not employees of the Company or one of its subsidiary
corporations may not be granted Incentive Stock Options. For purposes of this
Section 8.3, “subsidiary corporation” shall have the meanings attributed to
those terms for purposes of Section 422 of the Code.

 

8.4

Term.

The term of an Incentive Stock Option shall not exceed ten (10) years.

 

8.5

Exercisability.

To qualify for Incentive Stock Option tax treatment, an Option designated as an
Incentive Stock Option must be exercised within three (3) months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total Disability, such Option must be
exercised within one (1) year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract.

 

 

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8.6

Taxation of Incentive Stock Options.

In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two (2) years after the Grant Date
of the Incentive Stock Option and one (1) year from the date the shares are
transferred to the Participant. A Participant may be subject to the alternative
minimum tax at the time of exercise of an Incentive Stock Option. The
Participant shall give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.

 

8.7

Incorporation of Other Provisions.

With respect to Incentive Stock Options, if this Plan does not contain any
provision required to be included herein under Section 422 of the Code, such
provision shall be deemed to be incorporated herein with the same force and
effect as if such provision had been set out in full herein; provided, however,
that to the extent any Option that is intended to qualify as an Incentive Stock
Option cannot so qualify, the Option, to that extent, shall be deemed to be a
Nonqualified Stock Option for all purposes of this Plan.

9.

STOCK APPRECIATION RIGHTS

 

9.1

Grant of Stock Appreciation Rights.

The Plan Administrator may grant a Stock Appreciation Right separately or in
tandem with a related Option.

 

9.2

Tandem Stock Appreciation Rights.

A Stock Appreciation Right granted in tandem with a related Option will give the
Holder the right to surrender to the Company all or a portion of the related
Option and to receive an appreciation distribution (in shares of Common Stock or
cash or any combination of shares and cash, as the Plan Administrator, in its
sole discretion, shall determine at any time) in an amount equal to the excess
of the Fair Market Value for the date the Stock Appreciation Right is exercised
over the exercise price per share of the right, which shall be the same as the
exercise price of the related Option. A tandem Stock Appreciation Right will
have the same other terms and provisions as the related Option. Upon and to the
extent a tandem Stock Appreciation Right is exercised, the related Option will
terminate.

 

9.3

Stand-Alone Stock Appreciation Rights.

A Stock Appreciation Right granted separately and not in tandem with an Option
will give the Holder the right to receive an appreciation distribution in an
amount equal to

 

 

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the excess of the Fair Market Value for the date the Stock Appreciation Right is
exercised over the exercise price per share of the right. A stand-alone Stock
Appreciation Right will have such terms as the Plan Administrator may determine,
except that the term of the right, if not otherwise established by the Plan
Administrator, shall be ten (10) years from the Grant Date.

 

9.4

Exercise of Stock Appreciation Rights.

Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 relating
to the termination of a Holder's employment or services shall apply equally, to
the extent applicable, to the Holder of a Stock Appreciation Right.

10.

STOCK AWARDS

 

10.1

Grant of Stock Awards.

The Plan Administrator is authorized to make Awards of Common Stock or of rights
to receive shares of Common Stock to Participants on such terms and conditions
and subject to such restrictions, if any (which may be based on continuous
service with the Company or the achievement of performance goals related to (i)
sales, gross margin, operating profits or profits, (ii) growth in sales, gross
margin, operating profits or profits, (iii) return ratios related to sales,
gross margin, operating profits or profits, (iv) cash flow, (v) asset management
(including inventory management), or (vi) total shareholder return, where such
goals may be stated in absolute terms or relative to comparison companies), as
the Plan Administrator shall determine, in its sole discretion, which terms,
conditions and restrictions shall be set forth in the instrument evidencing the
Award. The terms, conditions and restrictions that the Plan Administrator shall
have the power to determine shall include, without limitation, the manner in
which shares subject to Stock Awards are held during the periods they are
subject to restrictions and the circumstances under which forfeiture of
Restricted Stock shall occur by reason of termination of the Holder's services
or upon the occurrence of other events.

 

10.2

Issuance of Shares.

Upon the satisfaction of any terms, conditions and restrictions prescribed with
respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall transfer, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock covered by the Award.

 

10.3

Waiver of Restrictions.

 

 

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Notwithstanding any other provisions of the Plan, the Plan Administrator may, in
its sole discretion, waive the forfeiture period and any other terms, conditions
or restrictions on any Restricted Stock under such circumstances and subject to
such terms and conditions as the Plan Administrator shall deem appropriate.

11.

OTHER STOCK-BASED AWARDS

The Plan Administrator may grant other Awards under the Plan pursuant to which
shares of Common Stock (which may, but need not, be shares of Restricted Stock
pursuant to Section 10) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone or in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the Plan's purpose.

12.

ASSIGNABILITY

Except as otherwise specified or approved by the Plan Administrator at the time
of grant of an Award or any time prior to its exercise, no Award granted under
the Plan may be assigned, pledged or transferred by the Holder other than by
will or by the laws of descent and distribution, and during the Holder's
lifetime, such Awards may be exercised only by the Holder. Notwithstanding the
foregoing, and to the extent permitted by Section 422 of the Code, the Plan
Administrator, in its sole discretion, may permit such assignment, transfer and
exercisability and may permit a Holder of such Awards to designate a beneficiary
who may exercise the Award or receive compensation under the Award after the
Holder's death; provided, however, that (i) any Award so assigned or transferred
shall be subject to all the same terms and conditions contained in the
instrument evidencing the Award, (ii) the original Holder shall remain subject
to withholding taxes upon exercise, (iii) any subsequent transfer of an Award
shall be prohibited and (iv) the events of termination of employment or
contractual relationship set forth in subsection 7.6 shall continue to apply
with respect to the original transferor-Holder.

13.

ADJUSTMENTS

 

13.1

Adjustment of Shares.

In the event that, at any time or from time to time, a dividend paid in Common
Stock or stock split (including a reverse stock split) occurs, (i) the maximum
number and class of securities subject to the Plan as set forth in Section 4.1,
(ii) the maximum number and class of securities that may be subject to Awards to
any individual Participant or to a non-employee director as set forth in Section
4.2, and (iii) the number and class of securities subject to any outstanding
Award and the price per share of such securities shall automatically be adjusted
proportionately to reflect the effect of such dividend paid in Common Stock or
stock split.

 

 

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In the event that, at any time or from time to time, a combination or exchange
of shares, merger, consolidation, recapitalization, spin off or other change in
the Company's capital structure occurs resulting in (a) the outstanding shares,
or any securities exchange therefor or received in their place, being exchanged
for a different number or class of securities of the Company or of any other
corporation or (b) new, different or additional securities of the Company or of
any other corporation being received by the holders of shares of Common Stock of
the Company, then the Plan Administrator, in its sole discretion, may make such
equitable adjustments as it deems appropriate under the circumstances in (i) the
maximum number and class of securities subject to the Plan as set forth in
Section 4.1, (ii) the maximum number and class of securities that may be subject
to Awards to any individual Participant or to a non-employee director as set
forth in Section 4.2, and (iii) the number and class of securities that are
subject to any outstanding Award and the per share price of such securities,
without any change in the aggregate price to be paid therefor. Any determination
by the Plan Administrator as to the terms of any of the foregoing adjustments
shall be conclusive and binding on the Company and all Participants.

 

13.2

Dissolution, Liquidation or Change in Control Transactions.

(a)          In the event of the proposed dissolution or liquidation of the
Company, the Company shall notify each Holder at least fifteen (15) days prior
to such proposed action. To the extent not previously exercised, all Awards will
terminate immediately prior to the consummation of such proposed action.

(b)         If, in connection with a Change in Control, an Option does not
remain outstanding and either such Option is not assumed by the surviving entity
or its parent, or the surviving entity or its parent does not substitute options
with substantially the same terms for such Option, such Option shall, unless the
applicable agreement representing an Option provides otherwise, or unless the
Plan Administrator determines otherwise in its sole and absolute discretion,
become exercisable in full, whether or not the vesting requirements set forth in
the Option Agreement have been satisfied, for a period prior to the effective
date of such Change in Control of a duration specified by the Plan
Administrator, and thereafter the Option shall terminate.

(c)          Unless the applicable agreement representing an Award provides
otherwise, or unless the Plan Administrator determines otherwise in its sole and
absolute discretion in connection with any Change in Control, the vesting of
Shares shall be accelerated in connection with a Change in Control which becomes
effective before such Holder’s service to the Company terminates as follows:

(i)           If Options were outstanding at the effective time of the Change in
Control and they are accelerated in full pursuant to Subsection (b) above or
otherwise, the vesting of all Shares shall be accelerated in full whether or not
the vesting requirements set forth in the applicable Award agreement have been
satisfied.

 

 

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(d)          Notwithstanding Subsections (b) and (c) above, if the Company and
the other party to the transaction constituting a Change in Control agree that
such transaction is to be treated as a “pooling of interests” for financial
reporting purposes, and if the Company’s independent public accountants and such
other party’s independent public accountants separately determine in good faith
that the transaction constituting a Change in Control would qualify for
treatment as a “pooling of interests” but for the acceleration of vesting
provided for in Subsections (b) and (c) above, then the acceleration of
exercisability shall not occur to the extent that the Company’s independent
public accountants and such other party’s independent public accountants
separately determine in good faith that such acceleration would preclude the use
of “pooling of interests” accounting for such transaction.

 

13.3

Further Adjustment of Awards.

Subject to the preceding Section 13.2, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, dissolution, liquidation or Change in Control of the Company, as
defined by the Plan Administrator, to take such further action as it determines
to be necessary or advisable, and fair and equitable to Participants, with
respect to Awards. 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, Awards so as to provide for earlier, later, extended or
additional time for exercise, payment or settlement or lifting restrictions,
differing methods for calculating payments or settlements, alternate forms and
amounts of payments and settlements and other modifications, and the Plan
Administrator may take such actions with respect to all Participants, to certain
categories of Participants or only to individual Participants. The Plan
Administrator may take such actions before or after granting Awards to which the
action relates and before or after any public announcement with respect to such
sale, merger, consolidation, reorganization, dissolution, liquidation or Change
in Control that is the reason for such action. Without limiting the generality
of the foregoing, if the Company is a party to a merger or consolidation,
outstanding Awards shall be subject to the agreement of merger or consolidation.
Such agreement, without the Holder’s consent, may provide for:

(a)          the continuation of such outstanding Award by the Company (if the
Company is the surviving corporation);

(b)          the assumption of the Plan and some or all outstanding Awards by
the surviving corporation or its parent;

(c)          the substitution by the surviving corporation or its parent of
Awards with substantially the same terms for such outstanding Awards; or

(d)          the cancellation of such outstanding Awards with or without payment
of any consideration.

 

 

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13.4

Limitations.

The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

 

13.5

Fractional Shares.

In the event of any adjustment in the number of shares covered by any Option,
any fractional shares resulting from such adjustment shall be disregarded and
each such Option shall cover only the number of full shares resulting from such
adjustment.

14.

WITHHOLDING

The Company may require the Holder to pay to the Company in cash the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, exercise, payment or settlement of any Award. The Company shall have
the right to withhold from any Award or any shares of Common Stock issuable
pursuant to an Award or from any cash amounts otherwise due or to become due
from the Company to the Participant an amount equal to such taxes. The Company
may also deduct from any Award any other amounts due from the Participant to the
Company or a Subsidiary.

15.

AMENDMENT AND TERMINATION OF PLAN

 

15.1

Amendment of Plan.

The Plan may be amended by the Board in such respects as it shall deem advisable
including, without limitation, such modifications or amendments as are necessary
to maintain compliance with applicable statutes, rules or regulations; however,
to the extent required for compliance with Section 422 of the Code or any
applicable law or regulation, shareholder approval will be required for any
amendment that will increase the aggregate number of shares as to which
Incentive Stock Options may be granted or change the class of persons eligible
to participate. Amendments made to the Plan which would constitute
“modifications” to Incentive Stock Options outstanding on the date of such
Amendments shall not be applicable to such outstanding Incentive Stock Options
but shall have prospective effect only. The Board may condition the
effectiveness of any amendment on the receipt of shareholder approval at such
time and in such manner as the Board may consider necessary for the Company to
comply with or to avail the Company, the Holders or both of the benefits of any
securities, tax, market listing or other administrative or regulatory
requirement which the Board determines to be desirable. Whenever shareholder
approval is sought, and unless required otherwise by applicable law or exchange
requirements, the proposed action shall require the affirmative vote of holders
of a majority of the shares present, entitled to vote and voting on the matter
without including abstentions or broker non-votes in the denominator.

 

 

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15.2

Termination Of Plan.

The Company's shareholders or the Board may suspend or terminate the Plan at any
time. The Plan will have no fixed expiration date; provided, however, that no
Incentive Stock Options may be granted more than ten (10) years after the
earlier of the Plan's adoption by the Board or approval by the shareholders.

16.

GENERAL

 

16.1

Award Agreements.

Awards granted under the Plan shall be evidenced by a written agreement which
shall contain such terms, conditions, limitations and restrictions as the Plan
Administrator shall deem advisable and which are not inconsistent with the Plan.

 

16.2

Continued Employment or Services; Rights In Awards.

None of the Plan, participation in the Plan as a Participant or any action of
the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.

 

16.3

Registration; Certificates For Shares.

The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.

Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.

 

16.4

No Rights As A Shareholder.

No Option, Stock Appreciation Right or Other Stock-Based Award shall entitle the
Holder to any cash dividend, voting or other right of a shareholder unless and
until the

 

 

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date of issuance under the Plan of the shares that are the subject of such
Award, free of all applicable restrictions.

 

16.5

Compliance With Laws And Regulations.

In interpreting and applying the provisions of the Plan, any Option granted as
an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an “incentive stock option” within the meaning of Section
422 of the Code.

 

16.6

No Trust Or Fund.

The Plan is intended to constitute an “unfunded” plan. Nothing contained herein
shall require the Company to segregate any monies or other property, or shares
of Common Stock, or to create any trusts, or to make any special deposits for
any immediate or deferred amounts payable to any Participant, and no Participant
shall have any rights that are greater than those of a general unsecured
creditor of the Company.

 

16.7

Section 83(b) Election.

Any Holder may, in his or her sole discretion, choose to make an election under
Section 83(b) of the Code in connection with an Option granted to such Holder
pursuant to Section 7 of the Plan.

 

16.8

Severability.

If any provision of the Plan or any Award is determined to be invalid, illegal
or unenforceable in any jurisdiction, or as to any person, or would disqualify
the Plan or any Award under any law deemed applicable by the Plan Administrator,
such provision shall be construed or deemed amended to conform to applicable
laws, or, if it cannot be so construed or deemed amended without, in the Plan
Administrator's determination, materially altering the intent of the Plan or the
Award, such provision shall be stricken as to such jurisdiction, person or
Award, and the remainder of the Plan and any such Award shall remain in full
force and effect.

17.

EFFECTIVE DATE

The Plan's effective date is the date on which it is adopted by the Board, so
long as it is approved by the Company's shareholders at any time within twelve
(12) months of such adoption.

Original Plan adopted by the Board on February 22, 2000 and approved by the
Company's shareholders on April 17, 2000.

 

 

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