EXHIBIT 10.1
 
SPECTRE GAMING, INC.

2006 STOCK INCENTIVE PLAN

1.  Purpose. The purpose of this 2006 Stock Incentive Plan (the “Plan”) of
Spectre Gaming, Inc. (the “Company”) is to increase shareholder value and to
advance the interests of the Company by furnishing a variety of economic
incentives (collectively, “Incentives”) designed to attract, retain and motivate
employees and officers, certain key consultants, and directors of the Company.
Incentives may consist of opportunities to purchase or receive shares of Company
common stock or other incentive awards on terms determined under this Plan.

2.  Administration. The Plan shall be administered by the board of directors of
the Company or by a stock option or compensation committee of the board of
directors (the “Committee”). If at any time there is no stock option or
compensation committee, the term “Committee,” as used herein, shall refer to the
board of directors. The Committee, however denominated, shall consist of not
less than two Company directors and shall be appointed from time to time by the
board of directors. During any such time as the Company has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
each member of the Committee shall be (i) a “non-employee director” within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, and (ii) an
“outside director” within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the “Code”), and the regulations promulgated
thereunder. The Committee shall have complete authority to award Incentives
under the Plan, to interpret the Plan, and to make any other determination that
it believes necessary and advisable for the proper administration of the Plan.
The Committee’s decisions on matters relating to the Plan shall be final and
conclusive on the Company and its participants.

3.  Eligible Participants. Officers and employees of the Company or its
subsidiaries, members of the board of directors, and consultants or other
independent contractors who provide services to the Company or its subsidiaries
shall be eligible to receive Incentives under the Plan. Participants may be
designated individually or by groups or categories (for example, by pay grade)
as the Committee deems appropriate. Participation by officers of the Company or
its subsidiaries and any performance objectives relating to such officers must
be approved by the Committee.

4.  Types of Incentives. Incentives under the Plan may be granted in any one or
a combination of the following forms: (a) incentive stock options and
non-statutory stock options; (b) stock appreciation rights (“SARs”); (c) stock
awards; (d) restricted stock and restricted stock units; and (e) performance
awards. Payment of Incentives may be in the form of cash, common stock or
combinations thereof as the Committee shall determine, and with such other
restrictions as it may impose.

5.  Shares Subject to the Plan.

5.1.  Number of Shares. Subject to adjustment as provided in Section 10.6, the
number of shares of common stock that may be issued under the Plan shall not
exceed 2,000,000 shares. Shares of common stock that are issued under the Plan
or are subject to outstanding Incentives will be applied to reduce the maximum
number of shares of common stock remaining available for issuance under the
Plan. Any shares of common stock made subject to SARs granted under this Plan
shall be counted in full against the above share limit regardless of the number
of shares of common stock actually issued upon the exercise of such SARs. The
number of shares of common stock subject to incentive stock options is subject
to the foregoing share limit.

 
 

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5.2.  Cancellation. To the extent that cash in lieu of shares of common stock is
delivered upon the exercise of an SAR pursuant to Section 7.5, the Company shall
be deemed, for purposes of applying the limitation on the number of shares, to
have issued the greater of the number of shares of common stock that it was
entitled to issue upon such exercise or on the exercise of any related option.
In the event that a stock option or SAR granted hereunder expires or is
terminated or cancelled, unexercised, as to any shares of common stock, such
shares may again be issued under the Plan either pursuant to stock options, SARs
or otherwise. In the event that shares of common stock are issued as restricted
stock or pursuant to a stock award and thereafter are forfeited or reacquired by
the Company pursuant to rights reserved upon issuance thereof, such forfeited
and reacquired shares may again be issued under the Plan, either as restricted
stock, pursuant to stock awards or otherwise. The Committee may also determine
to cancel, and agree to the cancellation of, stock options in order to make a
participant eligible for the grant of a stock option at a lower price than the
option to be cancelled.

5.3.  Source of Common Stock. Common stock issued under the Plan in connection
with stock options, SARs, performance shares, restricted stock or stock awards,
may be authorized and unissued shares or shares of treasury stock (if permitted
by applicable law), as designated by the Committee.

6.  Stock Options. A stock option is a right to purchase shares of Company
common stock from the Company. Each stock option granted by the Committee under
this Plan shall be subject to the following terms and conditions:

6.1.  Price. The option price per share shall be determined by the Committee,
subject to adjustment under Section 10.6.

6.2.  Number. The number of shares of common stock subject to a stock option
shall be determined by the Committee, subject to adjustment as provided in
Section 10.6. The number of shares of common stock subject to a stock option
shall be reduced in the same proportion that the holder thereof exercises a SAR
if any SAR is granted in conjunction with or related to the stock option.
Notwithstanding the foregoing, no person shall receive grants of stock options
under the Plan that exceed 500,000 shares during any one fiscal year of the
Company.

6.3.  Duration and Time for Exercise. Subject to earlier termination as provided
in Section 10.4 and to the terms of any applicable stock option agreement
between the Company and a holder, the term of each stock option shall be
determined by the Committee but shall not exceed ten years from the date of
grant. Each stock option shall become exercisable at such time or times during
its term as shall be determined by the Committee at the time of grant. The
Committee may accelerate the exercisability of any stock option. Subject to the
foregoing and with the approval of the Committee, all or any part of the shares
of common stock with respect to which the right to purchase has accrued may be
purchased by the Company at the time of such accrual or at any time or times
thereafter during the term of the option.

6.4.  Manner of Exercise. Subject to any other terms contained in an applicable
stock option agreement, a stock option may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of shares of common
stock to be purchased and accompanied by the full purchase price for such
shares. The option price shall be payable: (a) in United States dollars upon
exercise of the option and may be paid by cash, uncertified or certified check
or bank draft; (b) at the discretion of the Committee, by delivery of shares of
common stock in payment of all or any part of the option price, which shares
shall be valued for this purpose at the Fair Market Value (as defined in Section
10.13) on the date such option is exercised; or (c) at the discretion of the
Committee, by instructing the Company to withhold from the shares of common
stock issuable upon exercise of the stock option shares of common stock in
payment of all or any part of the exercise price and/or any related withholding
tax obligations, which shares shall be valued for this purpose at the Fair
Market Value or in such other manner as may be authorized from time to time by
the Committee. The shares of common stock delivered by the participant pursuant
to clause (b) of this Section 6.4 must have been held by the participant for a
period of not less than six months prior to the exercise of the option, unless
otherwise determined by the Committee. Prior to the issuance of shares of common
stock upon the exercise of a stock option, a participant shall have no rights as
a shareholder.

 
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6.5.  Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, the following additional provisions shall apply to the grant of stock
options which are intended to qualify as incentive stock options (as such term
is defined in Section 422 of the Code):

(a)  The aggregate Fair Market Value (determined as of the time the option is
granted) of the shares of common stock with respect to which incentive stock
options are exercisable for the first time by any participant during any
calendar year (under all of the Company’s plans) shall not exceed $100,000. The
determination will be made by taking incentive stock options into account in the
order in which they were granted. If such excess only applies to a portion of an
incentive stock option, the Committee, in its discretion, will designate which
shares will be treated as shares to be acquired upon exercise of an incentive
stock option.

(b)  Any incentive stock option certificate or agreement authorized under the
Plan shall contain such other provisions as the Committee shall deem advisable,
but shall in all events be consistent with and contain all provisions required
in order to qualify the options as incentive stock options.

(c)  All incentive stock options must be granted within ten years from the
earlier of the date on which this Plan was adopted by the board of directors or
the date this Plan was approved by the Company’s shareholders.

(d)  Subject to paragraph (f) below, unless sooner exercised, all incentive
stock options shall expire no later than ten years after the date of grant.

(e)  Subject to paragraph (f) below, the option price for incentive stock
options shall be not less than the Fair Market Value of the common stock subject
to the option on the date of grant.

(f)  If incentive stock options are granted to any participant who, at the time
such option is granted, would own (within the meaning of Code Section 422) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the employer corporation or of its parent or subsidiary corporation,
(i) the option price for such incentive stock options shall be not less than
110% of the Fair Market Value of the common stock subject to the option on the
date of grant and (ii) such incentive stock options shall expire no later than
five years after the date of grant.

7.  Stock Appreciation Rights. An SAR is a right to receive, without payment to
the Company, a number of shares of common stock, cash or any combination thereof
(provided that, prior to the granting of any grant of an SAR entitling a
participant to a cash payment, the Committee shall confer with legal counsel),
the amount of which is determined pursuant to the formula set forth in Section
7.4 or 7.5, as applicable. An SAR may be granted (a) with respect to any stock
option granted under this Plan, either concurrently with the grant of such stock
option or at such later time as determined by the Committee (as to all or any
portion of the shares of common stock subject to the stock option), or (b)
alone, without reference to any related stock option. Each SAR granted by the
Committee under this Plan shall be subject to the following terms and
conditions:

 
 

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7.1.  Number. Each SAR granted to any participant shall relate to such number of
shares of common stock as shall be determined by the Committee, subject to
adjustment as provided in Section 10.6. In the case of an SAR granted with
respect to a stock option, the number of shares of common stock to which the SAR
pertains shall be reduced in the same proportion that the holder of the option
exercises the related stock option.

7.2.  Duration. Subject to earlier termination as provided in Section 10.4, the
term of each SAR shall be determined by the Committee but shall not exceed ten
years and one day from the date of grant. Unless otherwise provided by the
Committee, each SAR shall become exercisable at such time or times, to such
extent and upon such conditions as the stock option, if any, to which it relates
is exercisable. The Committee may in its discretion accelerate the
exercisability of any SAR.

7.3.  Exercise. An SAR may be exercised, in whole or in part, by giving written
notice to the Company, specifying the number of SARs which the holder wishes to
exercise. Upon receipt of such written notice, the Company shall, within 90 days
thereafter, deliver to the exercising holder certificates for the shares of
common stock or cash or both, as determined by the Committee, to which the
holder is entitled pursuant to Section 7.4 or 7.5.

7.4.  Payment in Stock. Subject to the right of the Committee to deliver cash in
lieu of shares of common stock, the number of shares of common stock which shall
be issuable upon the exercise of an SAR shall be determined by dividing:

(a)  the number of shares of common stock as to which the SAR is exercised
multiplied by the amount of the appreciation in such shares (for this purpose,
the “appreciation” shall be the amount by which the Fair Market Value of the
shares of common stock subject to the SAR on the exercise date exceeds (1) in
the case of an SAR related to a stock option, the purchase price of the shares
of common stock under the stock option or (2) in the case of an SAR granted
alone, without reference to a related stock option, an amount which shall be
determined by the Committee at the time of grant, subject to adjustment under
Section 10.6); by

(b)  the Fair Market Value of a share of common stock on the exercise date.

No fractional shares of common stock shall be issued upon the exercise of an
SAR; instead, the holder of the SAR shall be entitled to receive a cash
adjustment equal to the same fraction of the Fair Market Value of a share of
common stock on the exercise date or to purchase the portion necessary to make a
whole share at its Fair Market Value on the date of exercise.

7.5.  Payment in Cash. Subject to the limitation set forth above in the first
paragraph of this Section 7, in lieu of issuing shares of common stock upon the
exercise of an SAR, the Committee may elect to pay the holder of the SAR cash
equal to the Fair Market Value on the exercise date of any or all of the shares
which would otherwise be issuable.

 
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8.  Stock Awards, Restricted Stock and Restricted Stock Units. A stock award
consists of the transfer or issuance by the Company to a participant of shares
of common stock, without other payment therefor, as additional compensation for
services to the Company. A share of restricted stock consists of shares of
common stock which are sold, transferred or issued by the Company to a
participant at a price, if any, determined by the Committee and subject to
restrictions on their sale or other transfer by the participant. A restricted
stock unit is a right to receive one share of common stock at a future date that
has been granted subject to terms and conditions, including a risk of
forfeiture, established by the Committee. The issuance or transfer of common
stock pursuant to stock awards and the transfer and sale of restricted stock
shall be subject to the following terms and conditions:

8.1.  Number of Shares. The number of shares to be issued, transferred or sold
by the Company to a participant pursuant to a stock award or restricted stock
units or as restricted stock shall be determined by the Committee.

8.2.  Sale Price. The Committee shall determine the price, if any, at which
shares of restricted stock shall be sold to a participant, which may vary from
time to time and among participants and which may be below the Fair Market Value
of such shares of common stock at the date of sale.

8.3.  Restrictions. All shares of restricted stock issued, transferred or sold
hereunder shall be subject to such restrictions as the Committee may determine,
including without limitation any or all of the following:

(a)  a prohibition against the sale, transfer, pledge or other encumbrance of
the shares of restricted stock, such prohibition to lapse at such time or times
(or upon the satisfaction of other kinds of criteria) as the Committee shall
determine (whether in annual or more frequent installments, at the time of the
death, disability or retirement of the holder of such shares, or otherwise);

(b)  a requirement that the holder of shares of restricted stock forfeit, or (in
the case of shares sold to a participant) resell back to the Company at his or
her cost, all or a part of such shares in the event of termination of his or her
employment or consulting engagement during any period in which such shares are
subject to restrictions; or

(c)  such other conditions or restrictions as the Committee may deem advisable.

8.4.  Escrow and Other Arrangements. In order to enforce the restrictions
imposed by the Committee pursuant to Section 8.3, the participant receiving
restricted stock shall enter into an agreement with the Company setting forth
the conditions of the grant. Shares of restricted stock may either be registered
in the name of the participant and deposited, together with a stock power
endorsed in blank, with the Company, or may be uncertificated. Each certificate,
if any, representing shares of restricted stock shall bear a legend in
substantially the following form:

The transferability of this certificate and the shares of common stock
represented by it are subject to the terms and conditions (including conditions
of forfeiture) contained in the 2006 Stock Incentive Plan of Spectre Gaming,
Inc., and an agreement entered into between the registered owner and that
company. Copies of the above-referenced Stock Incentive Plan and agreement are
on file with the Company.

 
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8.5.  End of Restrictions. Subject to Section 10.5, at the end of any time
period during which (or upon the satisfaction of criteria with respect to which)
shares of restricted stock are subject to forfeiture and restrictions on
transfer, such shares will be delivered free of all restrictions to the
participant or to the participant’s legal representative, beneficiary or heir.

8.6.  Rights of Holders of Restricted Stock. Subject to the terms and conditions
of the Plan, each participant receiving restricted stock shall have all the
rights of a shareholder with respect to shares of stock during any period in
which such shares are subject to forfeiture and restrictions on transfer,
including without limitation, the right to vote such shares. Dividends paid in
cash or property other than common stock with respect to shares of restricted
stock shall be paid to the participant currently.

8.7.  Rights of Holders of Restricted Stock Units. Participants who receive
restricted stock units shall have no rights as shareholders with respect to such
restricted stock units until such time as share certificates for common stock
are issued to the participants.

9.  Performance Awards. A performance award is a right to either a number of
shares of common stock (“performance shares”) or a cash amount (“performance
units”) determined (in either case) in accordance with this Section 9 based on
the extent to which the applicable performance goals are achieved. A performance
award shall be of no value to a participant unless and until earned in
accordance with this Section 9.

9.1.  Establishment of Performance Goals. Performance goals applicable to a
performance award shall be established by the Committee in its sole discretion
on or before the date of grant and not more than a reasonable period of time
after the beginning of the relevant performance period. The Committee, in its
sole discretion, may modify the performance goals if it determines that
circumstances have changed and modification is required to reflect the original
intent of the performance goals; provided, however, that no such change or
modification may be made to the extent it increases the amount of compensation
payable to any participant who is a “covered employee” within the meaning of
Code Section 162(m).

9.2.  Levels of Performance Required to Earn Performance Awards. At or about the
same time that performance goals are established for a specific period, the
Committee shall in its absolute discretion establish the percentage of the
performance awards granted for such performance period which shall be earned by
the participant for various levels of performance measured in relation to
achievement of performance goals for such performance period.

9.3.  Other Restrictions. The Committee shall determine the terms and conditions
applicable to any performance award, which may include restrictions on the
delivery of common stock payable in connection with the performance award and
restrictions that could result in the future forfeiture of all or part of any
common stock earned. The Committee may provide that shares of common stock
issued in connection with a performance award be held in escrow and/or legended.

9.4.  Notification to Participants. Promptly after the Committee has established
or modified the performance goals with respect to a performance award, the
participant shall be provided with written notice of the performance goals so
established or modified.

 
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9.5.  Measurement of Performance Against Performance Goals. The Committee shall,
as soon as practicable after the close of a performance period, determine: (a)
the extent to which the performance goals for such performance period have been
achieved; and (b) the percentage of the performance awards earned as a result.
These determinations shall be absolute and final as to the facts and conclusions
therein made and be binding on all parties. Promptly after the Committee has
made the foregoing determination, each participant who has earned performance
awards shall be notified, in writing thereof. For all purposes of this Plan,
notice shall be deemed to have been given the date action is taken by the
Committee making the determination. Participants may not sell, transfer, pledge,
exchange, hypothecate or otherwise dispose of all or any portion of their
performance awards during the performance period, except that performance awards
may be transferable by assignment by a participant to the extent provided in the
applicable performance award agreement.

9.6.  Treatment of Performance Awards Earned. Upon the Committee’s determination
that a percentage of any performance awards have been earned for a performance
period, participants to whom such earned performance awards have been granted
and who have been (or were) in the employ of the Company or a subsidiary thereof
continuously from the date of grant, subject to the exceptions set forth in
Section 9.9, shall be entitled, subject to the other conditions of this Plan, to
payment in accordance with the terms and conditions of their performance awards.
Such terms and conditions may permit or require that any applicable tax
withholding be deducted from the amount payable. Performance awards shall under
no circumstances become earned or have any value whatsoever for any participant
who is not in the employ of the Company or its subsidiaries continuously during
the entire performance period for which such performance award was granted,
except as provided in Section 9.9.

9.7.  Distribution. Distributions payable pursuant to Section 9.6 above shall be
made as soon as practicable after the Committee determines the performance
awards have been earned unless the provisions of Section 9.8 below are
applicable to a participant.

9.8.  Deferral of Receipt of Performance Award Distributions. With the consent
of the Committee, a participant who has been granted a performance award may by
compliance with the then applicable procedures under the Plan irrevocably elect
in writing to defer receipt of all or any part of any distribution associated
with that performance award. The terms and conditions of any such deferral,
including but not limited to, the period of time for, and form of, election; the
manner and method of payout; the plan and form in which the deferred amount
shall be held; the interest equivalent or other payment that shall accrue
pending its payout; and the use and form of dividend equivalents in respect of
stock-based units resulting from such deferral, shall be as determined by the
Committee. The Committee may, at any time and from time to time, but
prospectively only except as hereinafter provided, amend, modify, change,
suspend or cancel any and all of the rights, procedures, mechanics and timing
parameters relating to such deferrals. In addition, the Committee may, in its
sole discretion, accelerate the payout of such deferrals (and any earnings
thereon), or any portion thereof, either in a lump sum or in a series of
payments, but under the following conditions only:

(a)  the federal tax statutes, regulations or interpretations are amended,
modified, or otherwise changed or affected in such a manner as to adversely
alter or modify the tax effect of such deferrals; or

(b)  the participant suffers or incurs an event that would qualify for a
“withdrawal” of contributions that have not been accumulated for two years
without adverse consequences on the tax status of a qualified profit-sharing or
stock bonus plan under the federal tax laws applicable from time to time to such
types of plans.

 
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9.9.  Non-Disqualifying Termination of Employment. Except as otherwise
contemplated by an Incentive agreement, the only exceptions to the requirement
of continuous employment during a performance period for performance award
distribution are termination of a participant’s employment by reason of death
(in which event the performance award may be transferable by will or the laws of
descent and distribution only to such participant's beneficiary designated to
receive the performance award or to the participant's applicable legal
representatives, heirs or legatees), total and permanent disability, with the
consent of the Committee, normal or late retirement or early retirement, with
the consent of the Committee, or transfer of an executive in a spin-off, with
the consent of the Committee, occurring during the performance period applicable
to the subject performance award. In such instance a distribution of the
performance award shall be made, as of the end of the performance period, and
100% of the total performance award that would have been earned during the
performance period shall be earned and paid out; provided, however, in a
spin-off situation the Committee may set additional conditions, such as, without
limiting the generality of the foregoing, continuous employment with the
spin-off entity. If a participant's termination of employment does not meet the
criteria set forth above, but the participant had at least 15 years of
employment with the Company or a subsidiary or any combination thereof, the
Committee may allow distribution of up to 100% of the total performance award
for the performance period(s) in which the termination of employment occurred,
subject to any conditions that the Committee shall determine.

10.  General Provisions.

10.1.  Effective Date. The Plan will become effective upon its approval by the
board of directors. Unless approved by the shareholders within one year after
the date of the Plan’s adoption by the board of directors, the Plan shall not be
effective for the purpose of granting incentive stock options.

10.2.  Duration. The Plan shall remain in effect until all Incentives granted
under the Plan have either been satisfied by the issuance of shares of common
stock or the payment of cash or been terminated under the terms of the Plan and
all restrictions imposed on shares of common stock in connection with their
issuance under the Plan have lapsed. No Incentives may be granted under the Plan
after the tenth anniversary of the date the Plan is approved by the shareholders
of the Company.

10.3.  Limited Transferability of Incentives. No Incentive may be transferred,
pledged or assigned by the holder thereof (except, in the event of the holder’s
death, by will or the laws of descent and distribution to the limited extent
provided in the Plan or the Incentive); and the Company shall not be required to
recognize any attempted assignment of such rights by any participant.
Notwithstanding the preceding sentence, the following transfers and exercises of
stock options are permitted under this Plan:

(a)  stock options may be transferred by the holder thereof to Employee’s
spouse, children, grandchildren or parents (collectively, the “Family Members”),
to trusts for the benefit of Family Members, or to partnerships or limited
liability companies in which Family Members are the only partners or
shareholders; or

(b)  any Incentives held by a participant may be assigned by court order to the
participant’s former spouse in connection with a dissolution of their marriage,
but only if the Committee determines, in its sole discretion, that the order
satisfies such requirements of a “qualified domestic relations order” as are set
forth in paragraphs (1) through (3) of Section 414(p) of the Code, as if the
Plan were a plan described in Code Section 401(a)(13). The federal income and
payroll taxation of any Incentives assigned as provided in the preceding
sentence shall be governed by the Code, Revenue Rulings 2002-22 and 2004-60 (as
applicable), or any other applicable guidance published by the Internal Revenue
Service or the Department of the Treasury.

 
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(c)  During a participant’s lifetime, a stock option or SAR may be exercised
only by him or her, by his or her guardian or legal representative or by any of
the transferees permitted by the preceding two paragraphs (a) and (b).

10.4.  Effect of Termination or Death. In the event that a participant ceases to
be an employee of or consultant to the Company for any reason, including death
or disability, any Incentives may be exercised or shall expire at such times as
may be determined by the Committee or as may be set out in any applicable stock
option agreement.

10.5.  Additional Condition. Notwithstanding anything in this Plan to the
contrary: (a) the Company may, if it shall determine it necessary or desirable
for any reason, at the time of award of any Incentive or the issuance of any
shares of common stock pursuant to any Incentive, require the recipient of the
Incentive, as a condition to the receipt thereof or to the receipt of shares of
common stock issued pursuant thereto, to deliver to the Company a written
representation of present intention to acquire the Incentive or the shares of
common stock issued pursuant thereto for his or her own account for investment
and not for distribution; and (b) if at any time the Company further determines,
in its sole discretion, that the listing, registration or qualification (or any
updating of any such document) of any Incentive or the shares of common stock
issuable pursuant thereto is necessary on any securities exchange or under any
federal or state securities or blue sky law, or that the consent or approval of
any governmental regulatory body is necessary or desirable as a condition of, or
in connection with the award of any Incentive, the issuance of shares of common
stock pursuant thereto, or the removal of any restrictions imposed on such
shares, such Incentive shall not be awarded or such shares of common stock shall
not be issued or such restrictions shall not be removed, as the case may be, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.

10.6.  Adjustment. In the event of any recapitalization, stock dividend, stock
split, combination of shares or other change in the common stock, the number of
shares of common stock then subject to the Plan, including shares subject to
restrictions, options or achievements of performance shares, shall be adjusted
in proportion to the change in outstanding shares of common stock. In the event
of any such adjustments, the purchase price of any option, the performance
objectives of any Incentive, and the shares of common stock issuable pursuant to
any Incentive shall be adjusted as and to the extent appropriate, in the
discretion of the Committee, to provide participants with the same relative
rights before and after such adjustment.

10.7.  Incentive Plans and Agreements. Except in the case of stock awards, the
terms of each Incentive shall be stated in a plan or agreement approved by the
Committee. The Committee may also determine to enter into agreements with
holders of options to reclassify or convert certain outstanding options, within
the terms of the Plan, as incentive stock options or as non-statutory stock
options, and in order to eliminate SARs, with respect to all or part of such
options and any other previously issued options.

10.8.  Withholding.

(a)  The Company shall have the right to withhold from any payments made under
the Plan or to collect as a condition of payment, any taxes required by law to
be withheld. At any time when a participant is required to pay to the Company an
amount required to be withheld under applicable income tax laws in connection
with a distribution of common stock or upon exercise of an option or SAR, the
participant may satisfy this obligation in whole or in part by electing (the
“Election”) to have the Company withhold from the distribution shares of common
stock having a value up to the minimum amount of withholding taxes required to
be collected on the transaction. The value of the shares to be withheld shall be
based on the Fair Market Value of the common stock on the date that the amount
of tax to be withheld shall be determined (the “Tax Date”).

 
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(b)  Each Election must be made prior to the Tax Date. The Committee may
disapprove of any Election, may suspend or terminate the right to make
Elections, or may provide with respect to any Incentive that the right to make
Elections shall not apply to such Incentive. An Election is irrevocable.

10.9.  No Continued Employment, Engagement or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of the Company for any period of time
or to any right to continue his or her present or any other rate of
compensation. Nothing contained in the Plan shall be construed as giving an
employee, a consultant, such persons’ beneficiaries or any other person any
equity or interests of any kind in the assets of the Company or creating a trust
of any kind or a fiduciary relationship of any kind between the Company and any
such person.

10.10.  Deferral Permitted. Payment of cash or distribution of any shares of
common stock to which a participant is entitled under any Incentive shall be
made as provided in the Incentive. Payment may be deferred at the option of the
participant if provided in the Incentive.

10.11.  Amendment of the Plan. The board of directors may amend or discontinue
the Plan at any time. Nevertheless, no such amendment or discontinuance shall
adversely change or impair an outstanding Incentives, without the consent of the
recipient-holders of such Incentives. Further, no such amendment shall, without
approval of the Company’s shareholders, (a) increase the maximum number of
shares of common stock which may be issued to all participants under the Plan,
(b) change or expand the types of Incentives that may be granted under the Plan,
(c) change the class of persons eligible to receive Incentives under the Plan,
or (d) materially increase the benefits accruing to participants under the Plan.

10.12.  Sale, Merger, Exchange or Liquidation. Unless otherwise provided in an
agreement for an Incentive, in the event of an acquisition of the Company
through the sale of substantially all of the Company’s assets or through a
merger, exchange, reorganization or liquidation of the Company or a similar
event as determined by the Committee (collectively a “transaction”), the
Committee shall be authorized, in its sole discretion, to take any and all
action it deems equitable under the circumstances, including but not limited to
any one or more of the following:

(a)  providing that the Plan and all Incentives shall terminate and the holders
of (i) all outstanding vested options shall receive, in lieu of any shares of
common stock they would be entitled to receive under such options, such stock,
securities or assets, including cash, as would have been paid to such
participants if their options had been exercised and such participant had
received common stock immediately prior to such transaction (with appropriate
adjustment for the exercise price, if any), (ii) performance shares and/or SARs
that entitle the participant to receive common stock shall receive, in lieu of
any shares of common stock each participant was entitled to receive as of the
date of the transaction pursuant to the terms of such Incentive, if any, such
stock, securities or assets, including cash, as would have been paid to such
participant if such common stock had been issued to and held by the participant
immediately prior to such transaction, and (iii) any Incentive under this Plan
which does not entitle the participant to receive common stock shall be
equitably treated as determined by the Committee;

 
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(b)  providing that participants holding outstanding vested common-stock-based
Incentives shall receive, with respect to each share of common stock issuable
pursuant to such Incentives as of the effective date of any such transaction, at
the determination of the Committee, cash, securities or other property, or any
combination thereof, in an amount equal to the excess, if any, of the Fair
Market Value of such common stock on a date within ten days prior to the
effective date of such transaction over the option price or other amount owed by
a participant, if any, and that such Incentives shall be cancelled, including
the cancellation without consideration of all options that have an exercise
price below the per share value of the consideration received by the Company in
the transaction;

(c)  providing that the Plan (or replacement plan) shall continue with respect
to Incentives not cancelled or terminated as of the effective date of such
transaction and provide to participants holding such Incentives the right to
earn their respective Incentives on a substantially equivalent basis (taking
into account the transaction and the number of shares or other equity issued by
such successor entity) with respect to the equity of the entity succeeding the
Company by reason of such transaction; and/or

(d)  providing that all unvested, unearned or restricted Incentives, including
but not limited to restricted stock for which restrictions have not lapsed as of
the effective date of such transaction, shall be void and deemed terminated, or,
in the alternative, for the acceleration or waiver of any vesting, earning or
restrictions on any Incentive.

The board of directors may restrict the rights of participants or the
applicability of this Section 10.12 to the extent necessary to comply with
Section 16(b) of the Securities Exchange Act of 1934, the Internal Revenue Code
or any other applicable law or regulation. The grant of an Incentive award
pursuant to the Plan shall not limit in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.

10.13.  Definition of Fair Market Value. For purposes of this Plan, the “Fair
Market Value” of a share of common stock at a specified date shall, unless
otherwise expressly provided in this Plan, be the amount which the Committee or
the board of directors determines in good faith to be 100% of the fair market
value of such a share as of the date in question; provided, however, that
notwithstanding the foregoing, if such shares are listed on a U.S. securities
exchange or are quoted on the Nasdaq National Market or Nasdaq Small-Cap Market
(“Nasdaq”) or another listing service administered by Nasdaq (e.g., the
over-the-counter bulletin board), then Fair Market Value shall be determined by
reference to the last sale price of a share of common stock on such U.S.
securities exchange or Nasdaq on the applicable date (or the closing bid price,
in the case of another listing service). If such U.S. securities exchange or
Nasdaq is closed for trading on such date, or if the common stock does not trade
on such date, then the last sale price used shall be the one on the date the
common stock last traded on such U.S. securities exchange or Nasdaq (or the
closing bid price, in the case of another listing service).

 
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10.14.  Compliance with Code Section 409A. No Incentive shall provide for
deferral of compensation that does not comply with Section 409A of the Code
unless the Committee, at the time of grant, specifically provides that the
Incentive is not intended to comply with Section 409A of the Code.

10.15.  Meaning of “the Company”. The term “Company” shall be understood to mean
Spectre Gaming, Inc., a Minnesota corporation, and any successor entity to that
corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
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