** **

**MACKIE DESIGNS INC.**

 

**THIRD**

**AMENDED AND RESTATED**

**1995 STOCK OPTION PLAN**

 

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**MACKIE DESIGNS INC.**

 

**THIRD AMENDED AND RESTATED**

**1995 STOCK OPTION PLAN**

 

1.     **Purposes**.  Thepurposes of this Mackie Designs Inc. Third Amended and Restated 1995 StockOption Plan (“Plan”) are to:

 

1.1   Closely associate the interests of themanagement of Mackie Designs Inc. (“Company”) and its subsidiaries with theshareholders of the Company by reinforcing the relationship betweenparticipants’ rewards and shareholder gains;

 

1.2   Provide management with an equity ownershipin 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 cancontinue to attract, motivate, and retain key employees who can contributematerially to the Company’s and its subsidiaries’ growth and success; and

 

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

 

2.     **Administration**.  ThisPlan 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 toadminister 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, shallhereinafter be referred to as the “Plan Administrator.”  The Plan Administrator shall administer thePlan in accordance with the following:

 

2.1   ***Incapacity of Plan Administrator***.  No member of the Board or the Committeeshall 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 notbe effective until approved by the full Board.

 

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

 

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remove membersfrom, or add members to, the committee. Vacancies on the committee, however caused, may be filled by theBoard.  The committee shall consistsolely of members who are “Non-Employee Directors” as that term is defined inthe 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 directorsis available to serve on such committee, employee directors may serve on thecommittee; however, during such time, no Options shall be granted to any personif the granting of such Option would not meet the requirements of Section 16(b)of the Exchange Act.  Currently, anon-employee director for purposes of this Section 2 shall be a member of theBoard who meets the definition of “Non-Employee Director” as set forth in the16(b) Rules.  Currently, a non-employeedirector is a member of the Board who (i) is not currently an officer of theCompany or a parent or subsidiary of the Company, or otherwise currentlyemployed by the Company or a parent or subsidiary of the Company; (ii) does notreceive compensation, either directly or indirectly, from the Company or aparent or subsidiary of the Company, for services rendered as a consultant orin any capacity other than as a director, except for an amount that does notexceed the dollar amount for which disclosure would be required pursuant toItem 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 disclosurewould be required pursuant to Item 404(a) of S-K; and (iv) is not engaged in abusiness relationship for which disclosure would be required pursuant to Item404(b) of S-K.

 

2.3   ***Procedures***.  The Board may designate one of the membersof the Plan Administrator as chairman. The Plan Administrator may hold meetings at such times and places as itshall determine.  The acts of a majorityof the members of the Plan Administrator present at meetings at which a quorumexists, or acts reduced to or approved in writing by all Plan Administratormembers, shall be valid acts of the Plan Administrator.

 

2.4   ***Responsibilities***.  Except for the terms and conditionsexplicitly set forth in this Plan, the Plan Administrator shall have theauthority, in its discretion, to determine all matters relating to the Options,including selection of the individuals to be granted Options, the number ofshares 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 thePlan Administrator of any terms or provisions of this Plan or any Option, or ofany rule or regulation promulgated in connection with this Plan, shall beconclusive and binding on all interested parties, so long as suchinterpretation and construction with respect to incentive stock optionscorrespond to the requirements of Section 422 of the Internal Revenue Code of1986, as amended (“Code”), and the regulations issued thereunder, and anyamendment or successor sections or regulations.

 

2.5   ***Section 16(b) Compliance andBifurcation of Plan***.  Ifthe 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 thisPlan then comply in all respects with Rule 16b-3 under the Exchange Act and, ifany Plan provision is later found not to be in compliance

 

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

 

3.     **Stock Subject to This Plan**. The stock subject to this Plan shall be the Company’s common stock(“Common Stock”).  The Company shallhave authorized and have in reserve for issuance at the time of exercise of anyOption a sufficient number of shares of Common Stock to meet the Company’sobligation.  The maximum number ofshares of Common Stock which may be issued under the Plan shall be threemillion 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 forpurposes of this Plan, including for replacement Options which may be grantedin exchange for such expired, exchanged, surrendered, cancelled or terminated Options.

 

4.     **Eligibility**.  Anincentive stock option in accordance with Section 422 of the Code (“IncentiveOption”) may be granted only to an individual who, at the time the option isgranted, is an employee of the Company or a related corporation, as definedbelow, and who the Plan Administrator may from time to time select forparticipation in this Plan.  Members ofthe Board shall not be eligible for grants of Incentive Options unless they arealso 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 relatedcorporations (including non-employee directors), selected non-employee agents,consultants, advisors, persons involved in the sale or distribution of theCompany’s or related corporations’ products and independent contractors of theCompany or any of its related corporations also may receive stock options whichare not qualified under Section 422 of the Code (“Nonqualified Option”) (Qualifiedand Nonqualified Options are included collectively within the term “Options” asused in this Plan).  Any party to whoman Option is granted shall be referred to as an “Optionee.”

 

As used in this Plan, the term “related corporation,” when referring toa subsidiary corporation, shall mean any corporation (other than the Company)in an unbroken chain of corporations beginning with the Company if, at the timeof the granting of the Option, each of the corporations other than the lastcorporation in the unbroken chain owns stock possessing fifty percent (50%) ormore of the total combined voting power of all classes of stock of one of theother corporations in such chain.  Whenreferring to a parent corporation, the term “related corporation” shall meanany corporation (other than the Company) in an unbroken chain of corporationsending with the Company if, at the time of granting of the Option, each of thecorporations 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 ofthe other corporations in such chain.

 

5.     **Terms and Conditions of Options**.  Options granted under this Plan shall be evidenced by writtenagreements which shall contain such terms, conditions, limitations andrestrictions as the Plan Administrator shall deem advisable and which are notinconsistent with

 

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this Plan.  Notwithstanding the foregoing, Optionagreements shall include or incorporate by reference the following terms andconditions:

 

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

 

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

 

5.2.1        ***Incentive Options***.  Subject to subsection 5.2.3, the ExercisePrice of Incentive Options shall be not less than the fair market value pershare of the Common Stock at the time the Incentive Option is granted;

 

5.2.2        ***Incentive Options to Greater than10% Shareholders***.  Withrespect to Incentive Options granted to shareholders then holding greater thanten percent (10%) of the then-issued and outstanding shares of voting stock ofthe Company, the Exercise Price shall be as required by Section 6;

 

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

 

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

 

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

 

No Option shall beexercisable until it has vested.  Thevesting schedule for each Option shall be specified by the Plan Administratorat the time of grant;  provided, that ifno vesting schedule is specified at the time of grant, the Option shall vestaccording to the following schedule:

 

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| **Number of  Years Following Date of Grant** |   | **Percentage  of   Total Option Vested** |   |
|----------------------------------------------|--------|------------------------------------------|--------|
| One                                          |   | 25                                       | %      |
| Two                                          |   | 50                                       | %      |
| Three                                        |   | 75                                       | %      |
| Four                                         |   | 100                                      | %      |

 

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

 

5.4   ***Exercise***.  Subject to the limitations on exercisedescribed in subsection 5.3 above and any additional holding period required byapplicable 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 anyOption.  During an Optionee’s lifetime,any Options granted under this Plan are personal to him or her and areexercisable solely by such Optionee. Options shall be exercised by delivery to the Company of a writtennotice of the number of shares with respect to which the Option is to beexercised, together with payment of the Exercise Price in accordance withSection 5.5.

 

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

 

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

 

5.5.2        ***Delivery of Promissory Note***.  Delivery of a full-recourse promissory noteexecuted by the Optionee; provided that (i) such note if delivered inconnection with an Incentive Option shall, and such note if delivered inconnection with a Nonqualified Option may, bear interest at a rate specified bythe Plan Administrator, but in no case less than the rate required to avoidimputation of interest (taking into account any exceptions to the imputedinterest rules) for federal income tax purposes; (ii) the Plan Administratorshall specify the term and other provisions of such note at the time anIncentive Option is granted or at any time prior to exercise of a NonqualifiedOption; (iii) the Plan Administrator may require that the Optionee pledge theOptionee’s shares to the Company for the purpose of securing the payment ofsuch note, and may require that the certificate representing such shares beheld in escrow to perfect the Company’s security interest; (iv) the noteprovides that ninety (90) days following the Optionee’s termination ofemployment with the Company or a related Corporation, the entire outstandingbalance 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 aftergranting an Option restrict or rescind the right to pay using a promissory noteupon written notification to any Optionee;

 

5.5.3        ***Delivery of Sale Proceeds***.  Delivery of a properly executed writtenexercise notice, together with irrevocable instructions to a broker, all inaccordance with the regulations of the Federal Reserve Board, to promptlydeliver to the Company the amount of sale or loan proceeds to pay the exercise priceand any federal, state or local withholding tax obligations that may arise inconnection with the exercise; provided, that the Plan Administrator may at anytime determine that this section 5.5.3, to the extent the instructions to thebroker call for an immediate sale of the shares, shall not be available to anyOptionee who is subject to Section 16(b) of the Exchange Act if suchtransaction would result in a violation of Section 16(b), or if such Optioneeis not an employee at the time of exercise;

 

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

 

5.6   ***Withholding Tax Requirement***.  The Company or any related entity shall havethe right to retain and withhold from any payment of cash or Common Stock underthis Plan the amount of taxes required by any government to be withheld orotherwise deducted and paid with respect to such payment.  At its discretion, the Company may requirean Optionee receiving shares of Common Stock to reimburse the Company for anysuch taxes required to be withheld by the Company, and may withhold any

 

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distribution inwhole or in part until the Company is so reimbursed.  In lieu of such withholding or reimbursement, the Company shallhave the right to withhold from any other cash amounts due or to become duefrom the Company to the Optionee an amount equal to such taxes or to retain andwithhold a number of shares having a market value not less than the amount ofsuch taxes required to be withheld by the Company to reimburse the Company forany such taxes and cancel (in whole or in part) any such shares sowithheld.  If required by Section 16(b)of the Exchange Act, the election to pay withholding taxes by delivery ofshares 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 periodrequired under Section 16(b) of the Exchange Act for exercises of stockappreciation rights.

 

5.7   ***Non-assignability of Option***.  Options and the rights and privilegesconferred by this Plan shall not be transferred, assigned or pledged in anymanner (whether by operation of law or otherwise) other than by will or by theapplicable laws of descent and distribution, except that the Plan Administratormay also in its discretion allow transferability of Nonqualified Options onlyby gift to members of the Optionee’s family, including grandparents, parents,spouses, siblings, children, grandchildren and great-grandchildren, or trustsor partnerships for the benefit of such family members, or to charitableorganizations.  Options and the rightsand privileges conferred by this Plan shall not be subject to execution,attachment or similar process.  Anyattempt to transfer, assign, pledge or otherwise dispose of any Option or ofany right or privilege conferred by this Plan, contrary to the Code or to theprovisions of this Plan, or the sale or levy or any attachment or similarprocess upon the rights and privileges conferred by this Plan shall be null andvoid.  Notwithstanding the foregoing, anOptionee may, during the Optionee’s lifetime, designate a person who mayexercise the Option after the Optionee’s death by giving written notice of suchdesignation to the Plan Administrator. Such designation may be changed from time to time by the Optionee givingwritten notice to the Plan Administrator revoking any earlier designation andmaking a new designation.  In the eventthat no such designation is made, the executor or personal representative ofthe Optionee’s estate shall have any rights then remaining to the Optionee orhis estate under this Plan.

 

5.8   ***Duration of Option***.  Vested Options shall terminate, to theextent not previously exercised, upon the occurrence of the first of thefollowing events:  (i) the expiration ofthe Option, as designated by the Plan Administrator in accordance with Section5.3 above; (ii)  the date of anOptionee’s termination of employment with the Company or any relatedcorporation for cause (as determined in the sole discretion of the PlanAdministrator); (iii) the expiration of ninety (90) days from the date of anOptionee’s termination of employment with the Company or any relatedcorporation for any reason whatsoever other than cause, death or Disability (asdefined below) unless the exercise period is extended by the Plan Administratoruntil a date not later than the expiration date of the Option; or (iv) theexpiration 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 datenot later than the expiration date of the Option.  If an Optionee’s employment is

 

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terminated bydeath, any Option held by the Optionee shall be exercisable only by the personor persons to whom such Optionee’s rights under such Option shall pass by theOptionee’s will or by the laws of descent and distribution of the state orcounty of the Optionee’s domicile at the time of death.  For purposes of the Plan, unless otherwisedefined in the Agreement, “Disability” shall mean any physical, mental or otherhealth condition which substantially impairs the Optionee’s ability to performhis or her assigned duties for one hundred twenty (120) days or more in any twohundred forty (240) day period or that can be expected to result in death.  The Plan Administrator shall determinewhether an Optionee has incurred a Disability on the basis of medical evidenceacceptable 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 ofemployment.

 

Unless accelerated inaccordance with Section 7, unvested Options shall terminate immediately upontermination of employment of the Optionee by the Company for any reasonwhatsoever, including death or Disability. For purposes of this Plan, transfer of employment between or among theCompany and/or any related corporation shall not be deemed to constitute atermination of employment with the Company or any related corporation.  For purposes of this subsection with respectto Incentive Stock Options, employment shall be deemed to continue while theOptionee 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 tocontinue beyond the first ninety (90) days of such leave, unless the Optionee’sre-employment rights are guaranteed by statute or by contract.

 

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

 

5.10    ***Right to Terminate Employment***.  Nothing in this Plan or in any Option shall confer upon anyOptionee any right to continue in the employ of the Company or of a relatedentity, or to interfere in any way with the right of the Company or of anyrelated corporation to terminate, at will, his or her employment or otherrelationship with the Company at any time.

 

5.11    ***Modification and Amendment ofOption***.  Subject to therequirements of Code Section 422 with respect to Incentive Options and to theterms, conditions and limitations of this Plan, the Plan Administrator maymodify 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 herrights 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 theOptionee.  Unless the Optionee agreesotherwise, any changes or adjustments made to outstanding Incentive Optionsshall be made in such a manner so as not to constitute a “modification”

 

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

 

5.12    ***Limitation on Value for IncentiveOptions***.  As to allIncentive Options, to the extent that the aggregate fair market value of theCommon Stock with respect to which Incentive Options are exercisable for thefirst time by the Optionee during any calendar year (under this Plan and allother incentive stock option plans of the Company, a related corporation or apredecessor corporation) exceeds $100,000, those Options (or the portion of anOption) beyond the $100,000 threshold shall be treated as NonqualifiedOptions.  If the Internal RevenueService publicly rules, issues a private ruling to the Company, any Optionee,or any legatee, personal representative or distributee of an Optionee or issuesregulations changing or eliminating such annual limit, the dollar limitation inthe preceding sentence shall be adjusted correspondingly.

 

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

 

6.1   ***Exercise Price and Term ofIncentive Options***.  IfIncentive 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 orany related corporation, the term of such individual’s Incentive Options shallnot exceed five (5) years and the Exercise Price shall be not less than onehundred ten percent (110%) of the fair market value of the Common Stock at thetime the Incentive Option is granted. This provision shall control notwithstanding any contrary termscontained in an Option agreement or any other document.

 

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

 

7.     **Adjustments Upon Changes in Capitalization**.  The aggregate number and class of shares forwhich Options may be granted under this Plan, the number and class of sharescovered by each outstanding Option and the Exercise Price per share thereof(but not the total price), and each such Option, shall all be proportionatelyadjusted for any increase or decrease in the number of issued shares of CommonStock of the Company resulting from a split-up or consolidation of shares orany 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 forStock***.  Except asprovided in subsection 7.1.2, upon a merger (other than a merger of the Companyin which the holders of Common Stock immediately prior to the merger have thesame proportionate ownership of Common Stock in the surviving corporationimmediately after the merger), consolidation, acquisition of property or stock,

 

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separation,reorganization (other than a mere reincorporation or the creation of a holdingcompany) or liquidation of the Company, as a result of which the shareholdersof the Company receive cash, stock or other property in exchange for or inconnection with their shares of Common Stock, any Option granted under thisPlan shall terminate, but the Optionee shall have the right immediately priorto any such merger, consolidation, acquisition of property or stock,separation, reorganization or liquidation to exercise such Option in whole orin part, to the extent the vesting requirements set forth in the Optionagreement have been satisfied, unless stated otherwise in the Optionee’sindividual Option agreement.

 

7.1.2        ***Conversion of Options on Stockfor Stock Exchange***.  Ifthe shareholders of the Company receive capital stock of another corporation(“Exchange Stock”) in exchange for their shares of Common Stock in anytransaction involving a merger (other than a merger of the Company in which theholders of Common Stock immediately prior to the merger have the sameproportionate ownership of Common Stock in the surviving corporationimmediately after the merger), consolidation, acquisition of property or stock,separation or reorganization (other than a mere reincorporation or the creationof a holding company), all Options granted under this Plan shall be convertedinto options to purchase shares of Exchange Stock unless the Company and theCorporation issuing the Exchange Stock, in their sole discretion, determinethat any or all such Options shall not be converted into options to purchaseshares of Exchange Stock, but instead shall terminate in accordance with theprovisions of subsection 7.1.1.  Theamount and price of converted options shall be determined by adjusting theamount and price of the Options in the same proportion as used for determiningthe number of shares of Exchange Stock the holders of the Common Stock receivein such merger, consolidation, acquisition of property or stock, separation or reorganization.  Unless accelerated by the Board, theexercise limitations set forth in the Option agreement and the Plan shallcontinue to apply for the Exchange Stock.

 

7.1.3        ***Change in Control***.  In the event of a “Change in Control”, asdefined below, of the Company, unless otherwise determined by the Board priorto the occurrence of such Change in Control, any Options or portions of suchOptions outstanding as of the date such Change in Control is determined to haveoccurred that are not yet fully vested on such date shall become immediatelyexercisable in full.

 

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

 

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

 

7.1.4.2     a “Purchase” shall mean the acquisition byany person (as such term is defined in Section 13(d) of the Exchange Act) ofany shares of Common Stock or securities convertible into Common Stock withoutthe prior approval of a majority of the Continuing Directors (as defined below)of the Company, if after making such acquisition such person is the beneficialowner (as such term is defined in Rule 13d-3 under the Exchange Act) directlyor indirectly of Securities of the Company representing twenty percent (20%) ormore 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 ifindividuals who constitute the Board of the Company at the time of adoption ofthis Plan (the “Continuing Directors”) cease for any reason to constitute atleast a majority of the Board, provided that any person becoming a Directorsubsequent to the date of adoption of this Plan whose nomination for electionwas 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 isin connection with an actual threatened election contest relating to theelection of the Directors of the Company, as such terms are used in Rule 14a-11of Regulation 14A under the Exchange Act) shall be deemed to be a ContinuingDirector.

 

7.2   ***Fractional Shares***.  In the event of any adjustment in the numberof shares covered by any Option, any fractional shares resulting from suchadjustment shall be disregarded and each such Option shall cover only thenumber of full shares resulting from such adjustment.

 

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

 

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

 

8.     **Securities Regulation**. Shares shall not be issued with respect to an Option unless the exerciseof such Option and the issuance and delivery of such shares pursuant to theexercise of such Option shall comply with all relevant provisions of law,including, without limitation, any applicable state securities laws, the SecuritiesAct of 1933, as amended, the Exchange Act, the rules and regulationspromulgated thereunder, and the requirements of any stock exchange upon whichthe shares may then be listed, and shall be further subject to the approval ofcounsel for the Company with respect to such compliance, including theavailability of an exemption from registration for the issuance and sale of anyshares under this Plan.  Inability ofthe Company to obtain from any regulatory body having jurisdiction, theauthority deemed by the Company’s counsel to be necessary for the lawfulissuance and sale of any shares under this Plan or the unavailability of anexemption from registration for the issuance and sale of any shares under thisPlan shall relieve the Company of any liability in respect of the non-issuanceor sale of such shares as to which such requisite authority shall not have beenobtained.

 

As a condition to theexercise of any Option, the Company may require the Optionee to represent andwarrant at the time of any such exercise that the shares are being purchasedonly for investment and without any present intention to sell or distributesuch shares if, in the opinion of counsel for the Company, such arepresentation is required by any relevant provision of the aforementionedlaws.  At the option of the Company, astop-transfer order against any shares of stock may be placed on the officialstock books and records of the Company, and a legend indicating that the stockmay not be pledged, sold or otherwise transferred unless an opinion of counselis provided (concurred in by counsel for the Company) stating that suchtransfer is not in violation of any applicable law or regulation, may bestamped on stock certificates in order to assure exemption from registration.  The Plan Administrator may also require suchother action or agreement by the Optionees as may from time to time benecessary to comply with the federal and state securities laws.  THIS PROVISION SHALL NOT OBLIGATE THE COMPANYTO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.  Should any of the Company’s capital stock ofthe same class as the stock subject to Options be listed on a nationalsecurities exchange, all stock issued under this Plan if not previously listedon such exchange shall be authorized by that exchange for listing on suchexchange 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 orterminate this Plan; provided, that except as set forth in Section 7, theapproval of the Company’s shareholders is necessary within twelve (12) monthsbefore or after the adoption by the Board of any amendment which will:

 

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

 

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

 

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

 

Any amendment made tothis Plan which would constitute a “modification” to Incentive Optionsoutstanding on the date of such amendment, shall not be applicable to suchoutstanding Incentive Options, but shall have prospective effect only, unlessthe 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 bythe Board or (ii) the date on which this Plan is approved by the shareholdersof the Company.  No Option may begranted after such termination or during any suspension of this Plan.  The amendment or termination of this Planshall not, without the consent of the option holder, alter or impair any rightsor 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 asit is approved by the Company’s shareholders any time within twelve (12) monthsbefore or after the adoption of this Plan.

 

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