MACKIE DESIGNS INC.

 

THIRD

AMENDED AND RESTATED

1995 STOCK OPTION PLAN

 

--------------------------------------------------------------------------------

 

MACKIE DESIGNS INC.

 

THIRD AMENDED AND RESTATED

1995 STOCK OPTION PLAN

 

1.     Purposes.  The purposes of this Mackie Designs Inc. Third Amended and
Restated 1995 Stock Option Plan (“Plan”) are to:

 

1.1   Closely associate the interests of the management of Mackie Designs Inc.
(“Company”) and its subsidiaries with the shareholders of the Company by
reinforcing the relationship between participants’ rewards and shareholder
gains;

 

1.2   Provide management with an equity ownership in the Company commensurate
with the Company’s and its subsidiaries’ performance as reflected in increased
value of the Company’s common shares;

 

1.3   Maintain competitive compensation levels;

 

1.4   Provide a means whereby the Company can continue to attract, motivate, and
retain key employees who can contribute materially to the Company’s and its
subsidiaries’ growth and success; and

 

1.5   Provide a means whereby the Company and its subsidiaries can continue to
attract, motivate and retain the services of selected non-employee agents,
consultants, advisors, persons involved in the sale or distribution of the
Company’s and its subsidiaries’ products and independent contractors of the
Company and its subsidiaries.

 

2.     Administration.  This Plan shall be administered by the Board of
Directors of the Company (“Board”) or, in the event the Board shall appoint
and/or authorize a committee to administer this Plan, by a committee of the
Board consisting of at least two (2) non-employee directors (“Committee”).  The
administrator of this Plan, whether the Board or Committee, shall hereinafter be
referred to as the “Plan Administrator.”  The Plan Administrator shall
administer the Plan in accordance with the following:

 

2.1   Incapacity of Plan Administrator.  No member of the Board or the Committee
shall vote with respect to the granting of an option created under this Plan
(“Option(s)”) to himself or herself.  Any Option granted to a director for his
or her services as such shall not be effective until approved by the full Board.

 

2.2   Constitution of Plan Administrator.  The following provisions shall apply
to the administration of this Plan with respect to grants made to directors,
officers or other Optionees (as hereinafter defined) affected by Section 16(b)
of the Securities Exchange Act of 1934.  The Plan Administrator shall be
constituted at all times so as to meet the requirements of Section 16(b) of the
Exchange Act, as amended from time to time.  The members of any committee
serving as Plan Administrator shall be appointed by the Board for such term as
the Board may determine. The Board may from time to time

 

2

--------------------------------------------------------------------------------

 

remove members from, or add members to, the committee.  Vacancies on the
committee, however caused, may be filled by the Board.  The committee shall
consist solely of members who are “Non-Employee Directors” as that term is
defined in the rules and regulations promulgated under Section 16(b) of the
Exchange Act, as amended from time to time (the “16(b) Rules”).  If, at any
time, an insufficient number of non-employee directors is available to serve on
such committee, employee directors may serve on the committee; however, during
such time, no Options shall be granted to any person if the granting of such
Option would not meet the requirements of Section 16(b) of the Exchange Act. 
Currently, a non-employee director for purposes of this Section 2 shall be a
member of the Board who meets the definition of “Non-Employee Director” as set
forth in the 16(b) Rules.  Currently, a non-employee director is a member of the
Board who (i) is not currently an officer of the Company or a parent or
subsidiary of the Company, or otherwise currently employed by the Company or a
parent or subsidiary of the Company; (ii) does not receive compensation, either
directly or indirectly, from the Company or a parent or subsidiary of the
Company, for services rendered as a consultant or in any capacity other than as
a director, except for an amount that does not exceed the dollar amount for
which disclosure would be required pursuant to Item 404(a) of Regulation S-K
promulgated under the Exchange Act (“S-K”); (iii) does not possess an interest
in any other transaction for which disclosure would be required pursuant to Item
404(a) of S-K; and (iv) is not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of S-K.

 

2.3   Procedures.  The Board may designate one of the members of the Plan
Administrator as chairman.  The Plan Administrator may hold meetings at such
times and places as it shall determine.  The acts of a majority of the members
of the Plan Administrator present at meetings at which a quorum exists, or acts
reduced to or approved in writing by all Plan Administrator members, shall be
valid acts of the Plan Administrator.

 

2.4   Responsibilities.  Except for the terms and conditions explicitly set
forth in this Plan, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the Options, including
selection of the individuals to be granted Options, the number of shares to be
subject to each Option, the exercise price for such Option (“Exercise Price”),
and all other terms and conditions of the Options.  The interpretation and
construction by the Plan Administrator of any terms or provisions of this Plan
or any Option, or of any rule or regulation promulgated in connection with this
Plan, shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (“Code”), and the regulations issued thereunder, and any
amendment or successor sections or regulations.

 

2.5   Section 16(b) Compliance and Bifurcation of Plan.  If the Company
registers any of its equity securities pursuant to Sections 12(b) and 12(g) of
the Exchange Act, it is the intention of the Company that this Plan then comply
in all respects with Rule 16b-3 under the Exchange Act and, if any Plan
provision is later found not to be in compliance

 

3

--------------------------------------------------------------------------------

 

with such Section, the provision shall be deemed null and void.  In all events,
the Plan shall be construed in favor of its meeting the requirements of Rule
16b-3.  Notwithstanding anything in the Plan to the contrary, the Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to participants who are officers
and directors subject to Section 16(b) of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
participants.

 

3.     Stock Subject to This Plan.  The stock subject to this Plan shall be the
Company’s common stock (“Common Stock”).  The Company shall have authorized and
have in reserve for issuance at the time of exercise of any Option a sufficient
number of shares of Common Stock to meet the Company’s obligation.  The maximum
number of shares of Common Stock which may be issued under the Plan shall be
three million five hundred thousand (3,500,000).  If any Option expires or is
surrendered, exchanged for another Option, cancelled or terminated for any
reason without having been exercised in full, the unpurchased shares subject to
such Option shall again be available for purposes of this Plan, including for
replacement Options which may be granted in exchange for such expired,
exchanged, surrendered, cancelled or terminated Options.

 

4.     Eligibility.  An incentive stock option in accordance with Section 422 of
the Code (“Incentive Option”) may be granted only to an individual who, at the
time the option is granted, is an employee of the Company or a related
corporation, as defined below, and who the Plan Administrator may from time to
time select for participation in this Plan.  Members of the Board shall not be
eligible for grants of Incentive Options unless they are also employees of the
Company or any of its related corporations.  At the discretion of the Plan
Administrator, employees, officers, directors of the Company or any of its
related corporations (including non-employee directors), selected non-employee
agents, consultants, advisors, persons involved in the sale or distribution of
the Company’s or related corporations’ products and independent contractors of
the Company or any of its related corporations also may receive stock options
which are not qualified under Section 422 of the Code (“Nonqualified Option”)
(Qualified and Nonqualified Options are included collectively within the term
“Options” as used in this Plan).  Any party to whom an Option is granted shall
be referred to as an “Optionee.”

 

As used in this Plan, the term “related corporation,” when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock of one of the
other corporations in such chain.  When referring to a parent corporation, the
term “related corporation” shall mean any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock of one of the other corporations in such chain.

 

5.     Terms and Conditions of Options.  Options granted under this Plan shall
be evidenced by written agreements which shall contain such terms, conditions,
limitations and restrictions as the Plan Administrator shall deem advisable and
which are not inconsistent with

 

4

--------------------------------------------------------------------------------

 

this Plan.  Notwithstanding the foregoing, Option agreements shall include or
incorporate by reference the following terms and conditions:

 

5.1   Number of Shares.  Each Option agreement shall state the number of shares
of stock subject to the Option;

 

5.2   Option Price.  The Option agreement shall state the Exercise Price per
share, and the Plan Administrator shall act in good faith to establish the
Exercise Price as follows:

 

5.2.1        Incentive Options.  Subject to subsection 5.2.3, the Exercise Price
of Incentive Options shall be not less than the fair market value per share of
the Common Stock at the time the Incentive Option is granted;

 

5.2.2        Incentive Options to Greater than 10% Shareholders.  With respect
to Incentive Options granted to shareholders then holding greater than ten
percent (10%) of the then-issued and outstanding shares of voting stock of the
Company, the Exercise Price shall be as required by Section 6;

 

5.2.3        Fair Market Value.  With respect to Incentive Options, the fair
market value per share of the Common Stock shall be determined by the Plan
Administrator in good faith at the time the Incentive Option is granted;

 

5.2.4        Nonqualified Options.  The Exercise Price of Nonqualified Options
shall be as is determined by the Plan Administrator in good faith at the time of
their issuance.

 

5.3   Term, Maturity and Vesting.  Subject to the restrictions contained in
Sections 5.8 and 6, the term of each Incentive Option shall be ten (10) years
from the date it is granted unless a shorter period of time is established by
the Plan Administrator, but in no event shall the term of any Incentive Option
exceed ten (10) years.  The term of each Nonqualified Option shall also be ten
(10) years from the date it is granted unless a shorter period of time is
established by the Plan Administrator.  The Plan Administrator shall specify
which Options granted hereunder are Incentive Options and which are Nonqualified
Options.

 

No Option shall be exercisable until it has vested.  The vesting schedule for
each Option shall be specified by the Plan Administrator at the time of grant; 
provided, that if no vesting schedule is specified at the time of grant, the
Option shall vest according to the following schedule:

 

5

--------------------------------------------------------------------------------

 

Number of Years Following Date of Grant

 

Percentage of
Total Option Vested

 

One

 

25

%

Two

 

50

%

Three

 

75

%

Four

 

100

%

 

The Plan Administrator may specify a vesting schedule for all or any portion of
an Option based on the achievement of performance objectives established in
advance of the commencement by the Optionee of services related to the
achievement of the performance objectives.  Performance objectives shall be
expressed in terms of one or more of the following:  return on equity, return on
assets, share price, market share, sales, earnings per share, costs, net
earnings, net worth, inventories, cash and cash equivalents, gross margin or the
Company’s performance relative to its internal business plan.  Performance
objectives may be in respect of the performance of the Company as a whole
(whether on a consolidated or unconsolidated basis), a related corporation, or a
subdivision, operating unit, product or product line of either of the
foregoing.  Performance objectives may be absolute or relative and may be
expressed in terms of a progression or a range.  An option which is exercisable
(in whole or in part) upon the achievement of one or more performance objectives
may be exercised only following written notice to the  Optionee and the Company
by the Plan Administrator that the performance objective has been achieved.

 

5.4   Exercise.  Subject to the limitations on exercise described in subsection
5.3 above and any additional holding period required by applicable law, each
Option may be exercised in whole or in part; provided, however, that only whole
shares will be issued pursuant to the exercise of any Option.  During an
Optionee’s lifetime, any Options granted under this Plan are personal to him or
her and are exercisable solely by such Optionee.  Options shall be exercised by
delivery to the Company of a written notice of the number of shares with respect
to which the Option is to be exercised, together with payment of the Exercise
Price in accordance with Section 5.5.

 

5.5   Payment of Exercise Price.  Payment of the Exercise Price shall be made in
full at the time the written notice of exercise of an Option is delivered to the
Company, and shall be in cash, bank certified or cashier’s check or personal
check (unless at the time of exercise the Plan Administrator in a particular
case determines not to accept a personal check) for the Common Stock being
purchased.  The Plan Administrator can determine in its discretion (i) at the
time an Incentive Option is granted, or (ii) at any time before exercise of
Nonqualified Options, that additional forms of payment will be permitted,
including installment payments on such terms and over such period as the Plan
Administrator may determine.  To the extent permitted by the Plan Administrator
and applicable laws and regulations (including, but not limited to, federal tax
and securities laws and regulations and state corporate law), an option may be
exercised by:

 

6

--------------------------------------------------------------------------------

 

5.5.1        Delivery of Common Stock.  Delivery of shares of Common Stock held
by an Optionee having a fair market value equal to the Exercise Price, such fair
market value to be determined in good faith by the Plan Administrator;

 

5.5.2        Delivery of Promissory Note.  Delivery of a full-recourse
promissory note executed by the Optionee; provided that (i) such note if
delivered in connection with an Incentive Option shall, and such note if
delivered in connection with a Nonqualified Option may, bear interest at a rate
specified by the Plan Administrator, but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes; (ii) the Plan
Administrator shall specify the term and other provisions of such note at the
time an Incentive Option is granted or at any time prior to exercise of a
Nonqualified Option; (iii) the Plan Administrator may require that the Optionee
pledge the Optionee’s shares to the Company for the purpose of securing the
payment of such note, and may require that the certificate representing such
shares be held in escrow to perfect the Company’s security interest; (iv) the
note provides that ninety (90) days following the Optionee’s termination of
employment with the Company or a related Corporation, the entire outstanding
balance under the note shall become due and payable, if not previously due and
payable; and (v) the Plan Administrator in its sole discretion may at any time
after granting an Option restrict or rescind the right to pay using a promissory
note upon written notification to any Optionee;

 

5.5.3        Delivery of Sale Proceeds.  Delivery of a properly executed written
exercise notice, together with irrevocable instructions to a broker, all in
accordance with the regulations of the Federal Reserve Board, to promptly
deliver to the Company the amount of sale or loan proceeds to pay the exercise
price and any federal, state or local withholding tax obligations that may arise
in connection with the exercise; provided, that the Plan Administrator may at
any time determine that this section 5.5.3, to the extent the instructions to
the broker call for an immediate sale of the shares, shall not be available to
any Optionee who is subject to Section 16(b) of the Exchange Act if such
transaction would result in a violation of Section 16(b), or if such Optionee is
not an employee at the time of exercise;

 

5.5.4        Delivery of Withholding Notice.  Delivery of a properly executed
written exercise notice together with instructions to the Company to withhold
upon exercise, from the shares that would otherwise be issued, that number of
shares having a fair market value equal to the Exercise Price.

 

5.6   Withholding Tax Requirement.  The Company or any related entity shall have
the right to retain and withhold from any payment of cash or Common Stock under
this Plan the amount of taxes required by any government to be withheld or
otherwise deducted and paid with respect to such payment.  At its discretion,
the Company may require an Optionee receiving shares of Common Stock to
reimburse the Company for any such taxes required to be withheld by the Company,
and may withhold any

 

7

--------------------------------------------------------------------------------

 

distribution in whole or in part until the Company is so reimbursed.  In lieu of
such withholding or reimbursement, the Company shall have the right to withhold
from any other cash amounts due or to become due from the Company to the
Optionee an amount equal to such taxes or to retain and withhold a number of
shares having a market value not less than the amount of such taxes required to
be withheld by the Company to reimburse the Company for any such taxes and
cancel (in whole or in part) any such shares so withheld.  If required by
Section 16(b) of the Exchange Act, the election to pay withholding taxes by
delivery of shares held by any person who at the time of exercise is subject to
Section 16(b) of the Exchange Act, shall be made during the quarterly 10-day
window period required under Section 16(b) of the Exchange Act for exercises of
stock appreciation rights.

 

5.7   Non-assignability of Option.  Options and the rights and privileges
conferred by this Plan shall not be transferred, assigned or pledged in any
manner (whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution, except that the Plan Administrator
may also in its discretion allow transferability of Nonqualified Options only by
gift to members of the Optionee’s family, including grandparents, parents,
spouses, siblings, children, grandchildren and great-grandchildren, or trusts or
partnerships for the benefit of such family members, or to charitable
organizations.  Options and the rights and privileges conferred by this Plan
shall not be subject to execution, attachment or similar process.  Any attempt
to transfer, assign, pledge or otherwise dispose of any Option or of any right
or privilege conferred by this Plan, contrary to the Code or to the provisions
of this Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred by this Plan shall be null and void. 
Notwithstanding the foregoing, an Optionee may, during the Optionee’s lifetime,
designate a person who may exercise the Option after the Optionee’s death by
giving written notice of such designation to the Plan Administrator.  Such
designation may be changed from time to time by the Optionee giving written
notice to the Plan Administrator revoking any earlier designation and making a
new designation.  In the event that no such designation is made, the executor or
personal representative of the Optionee’s estate shall have any rights then
remaining to the Optionee or his estate under this Plan.

 

5.8   Duration of Option.  Vested Options shall terminate, to the extent not
previously exercised, upon the occurrence of the first of the following events: 
(i) the expiration of the Option, as designated by the Plan Administrator in
accordance with Section 5.3 above; (ii)  the date of an Optionee’s termination
of employment with the Company or any related corporation for cause (as
determined in the sole discretion of the Plan Administrator); (iii) the
expiration of ninety (90) days from the date of an Optionee’s termination of
employment with the Company or any related corporation for any reason whatsoever
other than cause, death or Disability (as defined below) unless the exercise
period is extended by the Plan Administrator until a date not later than the
expiration date of the Option; or (iv) the expiration of one year from (A) the
date of death of the Optionee or (B) cessation of an Optionee’s employment by
reason of Disability (as defined below) unless, the exercise period is extended
by the Plan Administrator until a date not later than the expiration date of the
Option.  If an Optionee’s employment is

 

8

--------------------------------------------------------------------------------

 

terminated by death, any Option held by the Optionee shall be exercisable only
by the person or persons to whom such Optionee’s rights under such Option shall
pass by the Optionee’s will or by the laws of descent and distribution of the
state or county of the Optionee’s domicile at the time of death.  For purposes
of the Plan, unless otherwise defined in the Agreement, “Disability” shall mean
any physical, mental or other health condition which substantially impairs the
Optionee’s ability to perform his or her assigned duties for one hundred twenty
(120) days or more in any two hundred forty (240) day period or that can be
expected to result in death.  The Plan Administrator shall determine whether an
Optionee has incurred a Disability on the basis of medical evidence acceptable
to the Plan Administrator.  Upon making a determination of Disability, the Plan
Administrator shall, for purposes of the Plan, determine the date of an
Optionee’s termination of employment.

 

Unless accelerated in accordance with Section 7, unvested Options shall
terminate immediately upon termination of employment of the Optionee by the
Company for any reason whatsoever, including death or Disability.  For purposes
of this Plan, transfer of employment between or among the Company and/or any
related corporation shall not be deemed to constitute a termination of
employment with the Company or any related corporation.  For purposes of this
subsection with respect to Incentive Stock Options, employment shall be deemed
to continue while the Optionee is on military leave, sick leave or other bona
fide leave of absence (as determined by the Plan Administrator).  The foregoing
not withstanding, employment shall not be deemed to continue beyond the first
ninety (90) days of such leave, unless the Optionee’s re-employment rights are
guaranteed by statute or by contract.

 

5.9   Status of Shareholder.  Neither the Optionee nor any party to which the
Optionee’s rights and privileges under the Option may pass shall be, or shall
have any of the rights or privileges of, a shareholder of the Company with
respect to any of the shares issuable upon the exercise of any Option unless and
until such Option has been exercised.

 

5.10    Right to Terminate Employment.  Nothing in this Plan or in any Option
shall confer upon any Optionee any right to continue in the employ of the
Company or of a related entity, or to interfere in any way with the right of the
Company or of any related corporation to terminate, at will, his or her
employment or other relationship with the Company at any time.

 

5.11    Modification and Amendment of Option.  Subject to the requirements of
Code Section 422 with respect to Incentive Options and to the terms, conditions
and limitations of this Plan, the Plan Administrator may modify or amend
outstanding Options.  The modification or amendment of an outstanding Option
shall not, without the consent of the Optionee, impair or diminish any of his or
her rights or any of the obligations of the Company under such Option.  Except
as otherwise provided in this Plan, no outstanding Option shall be terminated
without the consent of the Optionee.  Unless the Optionee agrees otherwise, any
changes or adjustments made to outstanding Incentive Options shall be made in
such a manner so as not to constitute a “modification”

 

9

--------------------------------------------------------------------------------

 

as defined in Code Section 424(h) and so as not to cause any Incentive Option to
fail to continue to qualify as an “incentive stock option” as defined in Code
Section 422(b).

 

5.12    Limitation on Value for Incentive Options.  As to all Incentive Options,
to the extent that the aggregate fair market value of the Common Stock with
respect to which Incentive Options are exercisable for the first time by the
Optionee during any calendar year (under this Plan and all other incentive stock
option plans of the Company, a related corporation or a predecessor corporation)
exceeds $100,000, those Options (or the portion of an Option) beyond the
$100,000 threshold shall be treated as Nonqualified Options.  If the Internal
Revenue Service publicly rules, issues a private ruling to the Company, any
Optionee, or any legatee, personal representative or distributee of an Optionee
or issues regulations changing or eliminating such annual limit, the dollar
limitation in the preceding sentence shall be adjusted correspondingly.

 

6.     Greater Than 10% Shareholders.  In the case of Incentive Options granted
to employees who own at the time of their grant ten percent (10%) or more of the
then-issued and outstanding voting stock of the Company, the following rules
shall apply:

 

6.1   Exercise Price and Term of Incentive Options.  If Incentive Options are
granted to employees who own more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any related corporation,
the term of such individual’s Incentive Options shall not exceed five (5) years
and the Exercise Price shall be not less than one hundred ten percent (110%) of
the fair market value of the Common Stock at the time the Incentive Option is
granted.  This provision shall control notwithstanding any contrary terms
contained in an Option agreement or any other document.

 

6.2   Attribution Rule.  For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own such shares as are owned by those
persons or entities defined in Code Section 424.  For purposes of this Section
6, stock owned by an employee shall include all stock actually issued and
outstanding immediately before the grant of the Incentive Option to the
employee.

 

7.     Adjustments Upon Changes in Capitalization.  The aggregate number and
class of shares for which Options may be granted under this Plan, the number and
class of shares covered by each outstanding Option and the Exercise Price per
share thereof (but not the total price), and each such Option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or any like capital adjustment, or the payment of any stock dividend.

 

7.1   Effect of Liquidation, Reorganization or Change in Control.

 

7.1.1        Cash, Stock or Other Property for Stock.  Except as provided in
subsection 7.1.2, upon a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock,

 

10

--------------------------------------------------------------------------------

 

separation, reorganization (other than a mere reincorporation or the creation of
a holding company) or liquidation of the Company, as a result of which the
shareholders of the Company receive cash, stock or other property in exchange
for or in connection with their shares of Common Stock, any Option granted under
this Plan shall terminate, but the Optionee shall have the right immediately
prior to any such merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to exercise such Option in whole or in
part, to the extent the vesting requirements set forth in the Option agreement
have been satisfied, unless stated otherwise in the Optionee’s individual Option
agreement.

 

7.1.2        Conversion of Options on Stock for Stock Exchange.  If the
shareholders of the Company receive capital stock of another corporation
(“Exchange Stock”) in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all Options granted under this Plan shall be converted into
options to purchase shares of Exchange Stock unless the Company and the
Corporation issuing the Exchange Stock, in their sole discretion, determine that
any or all such Options shall not be converted into options to purchase shares
of Exchange Stock, but instead shall terminate in accordance with the provisions
of subsection 7.1.1.  The amount and price of converted options shall be
determined by adjusting the amount and price of the Options in the same
proportion as used for determining the number of shares of Exchange Stock the
holders of the Common Stock receive in such merger, consolidation, acquisition
of property or stock, separation or reorganization.  Unless accelerated by the
Board, the exercise limitations set forth in the Option agreement and the Plan
shall continue to apply for the Exchange Stock.

 

7.1.3        Change in Control.  In the event of a “Change in Control”, as
defined below, of the Company, unless otherwise determined by the Board prior to
the occurrence of such Change in Control, any Options or portions of such
Options outstanding as of the date such Change in Control is determined to have
occurred that are not yet fully vested on such date shall become immediately
exercisable in full.

 

7.1.4        Definition of “Change in Control”.  For purposes of this Plan, a
“Change in Control” shall mean (a) the first approval by the Board or by the
stockholders of the Company of an Extraordinary Event, (b) a Purchase, or (c) a
Board Change.  For purposes of the Plan such terms shall have the following
meanings:

 

11

--------------------------------------------------------------------------------

 

7.1.4.1     an “Extraordinary Event” shall mean any of the following actions:
(i) any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common Stock
would be converted into cash, securities or other property, other than a merger
of the Company in which the holders of Common Stock immediately prior to the
merger have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger; (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, the assets of the Company; or, (iii) the adoption of any
plan or proposal for liquidation or dissolution of the Company.

 

7.1.4.2     a “Purchase” shall mean the acquisition by any person (as such term
is defined in Section 13(d) of the Exchange Act) of any shares of Common Stock
or securities convertible into Common Stock without the prior approval of a
majority of the Continuing Directors (as defined below) of the Company, if after
making such acquisition such person is the beneficial owner (as such term is
defined in Rule 13d-3 under the Exchange Act) directly or indirectly of
Securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company’s then outstanding securities (calculated
as provided in paragraph (d) of such Rule 13d-3).

 

7.1.4.3     a “Board Change” shall have occurred if individuals who constitute
the Board of the Company at the time of adoption of this Plan (the “Continuing
Directors”) cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a Director subsequent to the date of adoption
of this Plan whose nomination for election was approved by a vote of at least a
majority of the Continuing Directors (other than a nomination of an individual
whose initial assumption of office is in connection with an actual threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act)
shall be deemed to be a Continuing Director.

 

7.2   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.

 

7.3   Determination of Board to Be Final.  All Section 7 adjustments shall be
made by the Board, and its determination as to what adjustments shall be made,
and the extent of such adjustments, shall be final, binding and conclusive. 
Unless an Optionee agrees otherwise, any change or adjustment to an Incentive
Option shall be made in such a manner so as not to constitute a “modification”
as defined in Code Section 424(h)

 

12

--------------------------------------------------------------------------------

 

and so as not to cause his or her Incentive Option to fail to continue to
qualify as an incentive stock option as defined in Code Section 422(b).

 

8.     Securities Regulation.  Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant to the exercise of such Option shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance,
including the availability of an exemption from registration for the issuance
and sale of any shares under this Plan.  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 under
this Plan or the unavailability of an exemption from registration for the
issuance and sale of any shares under this Plan shall relieve the Company of any
liability in respect of the non-issuance or sale of such shares as to which such
requisite authority shall not have been obtained.

 

As a condition to the exercise of any Option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws.  At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration.  The Plan
Administrator may also require such other action or agreement by the Optionees
as may from time to time be necessary to comply with the federal and state
securities laws.  THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE
REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.  Should any of the Company’s
capital stock of the same class as the stock subject to Options be listed on a
national securities exchange, all stock issued under this Plan if not previously
listed on such exchange shall be authorized by that exchange for listing on such
exchange prior to the issuance of such stock.

 

9.     Amendment and Termination.  This Plan may be amended from time to time as
follows:

 

9.1   Board Action.  The Board may at any time suspend, amend or terminate this
Plan; provided, that except as set forth in Section 7, the approval of the
Company’s shareholders is necessary within twelve (12) months before or after
the adoption by the Board of any amendment which will:

 

9.1.1        increase the number of shares which are to be reserved for the
issuance of Options;

 

13

--------------------------------------------------------------------------------

 

9.1.2        permit the granting of stock options to a class of persons other
than those presently permitted to receive Options; or,

 

9.1.3        require shareholder approval under applicable law, including
Section 16(b) of the Exchange Act.

 

Any amendment made to this Plan which would constitute a “modification” to
Incentive Options outstanding on the date of such amendment, shall not be
applicable to such outstanding Incentive Options, but shall have prospective
effect only, unless the Optionee agrees otherwise.

 

10.      Automatic Termination.  Unless sooner terminated by the Board, this
Plan shall terminate ten (10) years from the earlier of (i) the date on which
this Plan is adopted by the Board or (ii) the date on which this Plan is
approved by the shareholders of the Company.  No Option may be granted after
such termination or during any suspension of this Plan.  The amendment or
termination of this Plan shall not, without the consent of the option holder,
alter or impair any rights or obligations under any option previously granted
under this Plan.

 

11.      Effectiveness of This Plan.  This Plan shall become effective upon
adoption by the Board so long as it is approved by the Company’s shareholders
any time within twelve (12) months before or after the adoption of this Plan.

 

--------------------------------------------------------------------------------