MACKIE DESIGNS INC









 




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.