Exhibit
10.35


 


ADVANCED POWER TECHNOLOGY, INC.


2005 EQUITY INCENTIVE PLAN


 


SECTION 1.           Purpose. The purpose of
the Advanced Power Technology, Inc., 2005 Equity Incentive Plan(this “Plan”) is
to further the interests of Advanced Power Technology, Inc., its subsidiaries
and its shareholders by providing a means whereby key employees, and certain key consultants and the
directors of the Company, or of any subsidiary, who contribute materially to
the success and profitability of the Company may be granted incentive stock
options, nonqualified stock options, and/or Restricted Stock to purchase or
receive the Common Stock (as defined in Section 2) of the Company. The
grants will recognize and reward outstanding individual performances and
contributions and will give such persons a proprietary interest in the Company,
enhancing their motivation to participate in the Company’s continued success
and performance.  This program will also
assist the Company and its subsidiaries in attracting and retaining key
employees qualified corporate directors and
key consultants.  The options
granted under this plan may be incentive stock options, as defined in Section 422
of the Code, or nonqualified options taxed under Section 83 of the Code,
from time to time.  The provisions of this
Plan amend and completely restate the provisions of the Company’s 2005 Stock
Option Plan as approved by the Board on November 9, 2004.


 


SECTION 2.           Definitions. The
following definitions shall apply to this plan:


 


(a)                             “Board”
means the board of directors of the Company.


 


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


 


1





















 


(c)                             “Committee”
means the Compensation Committee consisting of three or more persons appointed
by the Board, at least two of whom shall be non-employee directors. If no
committee is appointed, the term “Committee’
means the Board, except in those instances where the text clearly states
otherwise.


 


(d)                            “Common
Stock” means the Common Stock, $ .01 par value, of the Company or such other
class of shares or securities as to which the Plan may be applicable.


 


(e)                             “Company”
means Advanced Power Technology, Inc.


 


(f)                               “Continuous
Service” means the absence of any interruption or termination of employment
with or service to the Company or any parent or subsidiary of the Company that
now exists or hereafter is organized or is acquired by or acquires the Company.
Continuous Service shall not be considered interrupted in the case of sick
leave, military leave, or any other leave of absence approved by the Company or
in the case of transfers between locations of the Company or between the
Company, its parent its subsidiaries or its successor.


 


(g)                            “Date
of Grant” means the date on which the Committee grants an Option.


 


(h)                            “Director”
means any person who renders services to the Company, or a Subsidiary of the
Company, as a member of either (i) the board of directors of the Company or
(ii) the board of directors of a Subsidiary of the Company.


 


(i)                                “Employee”
means any person employed on an hourly or salaried basis by the Company or any
parent or Subsidiary of the Company that now exists or hereafter is organized
or is acquired by or acquires the Company.


 


2





















 


(j)                                “Exchange
Act” means the Securities Exchange Act of 1934 as amended from time to time.


 


(k)                             “Fair
Market Value” means the fair market value of the Common Stock on the Date of
Grant. If the Common Stock is not publicly traded on the Date of Grant, the
Board shall determine the fair market value of the Shares as of that date using
such factors as the Board considers relevant, such as the price at which recent
sales have been made, the book value of the Common Stock, and the Company’s
current and projected earnings. If the Common Stock is publicly traded on the
Date of Grant, the fair market value on that date is the closing price of the Common Stock as
reported by the National Association of Securities Dealer Automated Quotations
(“NASDAQ”) on that date or, if the Common Stock is listed on a stock exchange,
the closing price of the stock
on that date, reported in the Wall  Street  Journal. If
trading in the stock or a price quotation does not occur on the Date of Grant,
the next preceding date on which the stock was traded or a price was quoted
will determine the fair market value.


 


(l)                                “Incentive
Stock Option” means a stock option granted pursuant to the Plan or any other
plan of the Company or a parent or Subsidiary of the Company (determined at the
Date of Grant) that satisfies the requirements of Section 422 of the Code
and that entitles the Optionee to purchase stock in the Company or in a
corporation that at the time of grant of the option was a parent or Subsidiary
of the Company or predecessor corporation of any such corporation.


 


(m)                          “Non-Employee” means a director and any consultant selected by the
Committee from time to time to receive an option and/or Restricted Stock grant.


 


3





















 


(n)                            “Option”
means any stock option granted pursuant to the Plan.


 


(o)                            “Option
Period” means the period beginning on the Date of Grant and ending on the
earlier of the ending date set by the Committee or (i) in the case of an Option
granted to a Director who is not an Employee, ninety (90) days after the tenth
anniversary of the Date of Grant or (ii) in the case of an Option granted to an
Employee on the tenth anniversary of the Date of Grant.


 


(p)                            “Optionee”
means an Employee or Non-employee
who receives an Option.


 


(q)                            “Person”
means any group, corporation, partnership, association (other than any trust
holding stock for the account of employees of the Company pursuant to any stock
purchase, ownership, or employee benefit plan of the Company), business,
entity, estate, or natural person, and “beneficial ownership” means the direct
or indirect power to dispose or direct the disposition of the security.


 


(r)                               “Plan”
means the Advanced Power Technology, Inc. 2005 Plan.


 


(s)                             “Restricted
Stock” means Common Stock granted to a participant pursuant to the Plan, which
may be forfeitable and/or have restrictions on transfer in any form as defined
in Section 5.


 


(t)                               “Share”
means the Common Stock, as adjusted in accordance with paragraph 13 of the
Plan.


 


4





















 


(u)                            “Subsidiary”
means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.


 


SECTION 3.                                Administration.
This Plan shall be administered by the Committee. The Board is authorized to
appoint a successor to any Committee member who ceases to serve. Members of the
Committee who are either eligible for Options or Restricted Stock or have been
granted Options or Restricted Stock may vote on any matters affecting the
administration of the Plan or the grant of any Options or Restricted Stock pursuant
to the Plan, except that no such member shall act on the granting of an Option or
Restricted Stock to himself, but any such member may be counted in determining
the existence of a quorum at any meeting of the Committee during which action
is taken with respect to the granting of Options or Restricted Stock to him. A
majority of the full Committee constitutes a quorum for purposes of
administering the Plan, and all determinations of the Committee shall be made
by a majority of the members present at a meeting at which a quorum is present
or by the unanimous, written consent of the Committee.  If no Committee has been appointed, the Plan
shall be administered by the Board and all powers enumerated in this Section shall
belong to the Board. Members of the Board who are either eligible for Options or
Restricted Stock or have been granted Options or Restricted Stock may vote on
any matters affecting the administration of the Plan or the grant of any
Options or Restricted Stock pursuant to the Plan, except as provided above. If
at any time an insufficient number of non-employee directors is available to
serve on the Committee, interested members may serve on the Committee; however,
during such time, no Options or Restricted


 


5





















 


Stock shall be granted under this Plan to any
person if the granting of such Option or Restricted Stock would not meet the
requirements of Section 16(b) of the Exchange Act. For purposes of this Section 3,
a non-employee director is a member of the Board who meets the definition of “non-employee
person” as set forth in the rules and regulations promulgated under Section 16(b)
of the Exchange Act.


 


SECTION 4.                                Shares Subject to the Plan. The
stock subject to this Plan shall be the Company’s Common Stock, presently
authorized but unissued or subsequently acquired by the Company. Subject to
adjustment as provided in Section 14 hereof, the aggregate amount of
Common Stock to be granted under this Plan shall not exceed 1,500,000 shares as
such Common Stock was constituted on the effective date of this Plan.  The number of shares of Common Stock available
for issuance as Restricted Stock under this Plan shall at no time exceed 500,000
shares of the total number of all shares of Common Stock authorized for issuance
under this Plan.  If any Option granted
under this Plan shall expire, be surrendered, exchanged for another Option,
canceled or terminated for any reason without having been exercised in full,
the unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan, including for use as replacement options which may be
granted in exchange for such surrendered, canceled or terminated options.


 


SECTION 5.                                Restricted Stock.  The Committee may, from time to time, select
particular Employees and Nonemployees of the Company and its Subsidiaries to
whom the Restricted Stock is to be granted and/or distributed in recognition of
each such Participant’s contribution to the Company’s or the Subsidiary’s
success.


 


6





















 


(a)                                  Grant
of Stock.  All grants of Restricted
Stock under this Section 5 shall be awarded by the Committee.  Each grant of Restricted Stock shall be
evidenced by a Restricted Stock Agreement setting forth the total number of Shares
subject to restrictions, the grant price, and such other terms and conditions
as are approved by the Committee, but, except to the extent permitted herein,
are not inconsistent with the Plan.


 


(b)                                 Grant Value.  The value for Restricted Stock shall be equal
to the Fair Market Value per share of the Common Stock on the Date of Grant.


 


(c)                                  Grant Period.  The grant period will begin and terminate on
the respective dates specified by the Committee, but may not terminate later
than ten years from the Date of Grant. 
The Committee may provide for the vesting of Restricted Stock in
installments and upon such terms, conditions, and restrictions as it may
determine.  In addition to the provisions
contained elsewhere herein concerning automatic acceleration of unvested grants
of Restricted Stock, the Committee shall have the right to accelerate the time
at which any Restricted Stock shall become vested.


 


(d)                                 Termination for
Cause Prior to Vesting.  If a grantee
of Restricted Stock is terminated for cause prior to the time such grant of
Restricted Stock is fully vested, then such termination for cause shall
constitute a failure of vesting and all such new vested Shares shall be
surrendered to the Company for cancellation.


 


7





















 


SECTION 6.                                Participants.


 


(a)                             Eligible Participants. Every Employee and Non-employee, as the Committee in its
sole discretion designates, is eligible to participate in this Plan. The
Committee’s grant of an Option or Restricted Stock to participate in any year
does not require the Committee to make a grant to that participant in any other
year. Furthermore, the Committee may grant different Options or Restricted
Stock under different terms to different participants. The Committee may
consider such factors as it deems pertinent in selecting participants and in
determining the amount of the grant, including, without limitation, (i) the
financial condition of the Company or its Subsidiaries; (ii) expected profits
for the current or future years, (iii) the contributions of a prospective
participant to the profitability and success of the Company or its
Subsidiaries; and (iv) the adequacy of the prospective participant’s other
compensation. Participants may include persons to whom stock, stock options, or
other benefits previously were granted under this or another plan of the
Company or any Subsidiary, whether or not the previously granted benefits have
been fully exercised.


 


(b)                            No Right of Employment. A Participants right, if
any, to continue to serve the Company and its Subsidiaries as an officer,
Employee, Director, consultant
or otherwise will not be enlarged or otherwise affected by his or her
designation as a participant under this Plan, and such designation will not in
any way restrict the right of the Company or any Subsidiary, as the case may
be, to terminate at any time the employment or affiliation of any participant.


 


SECTION 7.                                Option
Requirements. Options granted under this Plan shall be evidenced by
written agreements which shall contain such terms, limitations and restrictions
as the


 


8





















 


Committee shall deem advisable and which are
not inconsistent with this Plan. Notwithstanding the foregoing, each written
agreement shall include (i) the number of Shares that may be purchased by its
exercise, (ii) the intent of the Committee as to whether they intend the Option
to be an Incentive Stock Option or a nonqualified Option, and (iii) such terms
and conditions consistent with the Plan as the Committee shall determine.


 


(a)                             Duration of Option. Each Option may be exercised
only during the Option Period applicable to the Option. The Option Period will
either be the period designated for the Option by the Committee on granting the
Option, or, if no option period is designated by the Committee, the date
specified in Section 2(n) above. At the end of the Option Period the
Option shall expire.


 


(b)                            Exercisability of Options. An Option is
exercisable only if the issuance of Shares pursuant to the exercise would be in
compliance with applicable securities laws, as contemplated by this Plan. To
the extent an Option is either unexercisable or unexercised, the unexercised
portion shall accumulate until the Option both becomes exercisable and is
exercised but in no case beyond the expiration date of the Option determined by
its Option Period.


 


(c)                             Exercisability of Options Granted to Non-Employees. Subject to subsection (d)
of this Section, unless otherwise provided by the Committee on the grant of an
Option to a Non-employee, each
such Option may be exercised to the extent that it is vested (i) on a schedule adopted
by the Committee or (ii) the date the Non-employee
ceases serving as a Non-employee.
If a Non-employee dies before
the end of an Option Period, the Non-employee’s
outstanding Options shall receive a full year of vesting for the year in which
the Non-employee


 


9





















 


dies, regardless of the
date of the Non-employee’s
death, unless otherwise directed by the Committee.


 


(d)                            Acceleration of Vesting and Exercisability. The
Board may in its discretion, provide for the exercise of Options either as to
an increased percentage of shares per year or as to all remaining shares. Such
acceleration of vesting may be declared by the Board at any time before the end
of the Option Period, including, if, applicable, after termination of the
Optionee’s Continuous Service by reason of death, disability, retirement or
termination of employment. At the Board’s discretion, vesting of Options may be
accelerated due to exceptional financial performance of the Company during any
of the years included in the Option Period. 
Such “performance vesting” will be specified in each individual grant,
if applicable, at the Committee’s discretion. The criteria included in any such
“performance vesting” schedule shall be identified and adopted by the
Committee, in it’s discretion, and may be amended as the Committee deems
appropriate.  Further, in the event of a
change of control of the Company’s
ownership, all Options outstanding on the date of change control shall be
immediately 100% vested and exercisable irrespective of the length of time that
has expired since the Option was granted. For this purpose, a “change of
control” will occur on the occurrence of the following events: (i)  the closing of any transaction in which any
Person becomes the beneficial owner of more than fifty percent (50%) of the
total number of voting shares of the Company; (ii) the effective date of a
merger by the Company or a Subsidiary with any other entity, whether or not the
Company and/or a Subsidiary is the surviving entity, or the sale by the Company
and/or a Subsidiary of substantially all of its or their assets to another
entity; or (iii) as the result of, or in connection with, any cash tender or
exchange offer, merger, or other business combination, sale


 


10





















 


of assets or any
combination of the foregoing transactions, the persons who were directors of
the Company before such transactions cease to constitute at least a majority of
the board of directors of the Company or any successor entity.  The foregoing provisions regarding the
automatic acceleration of voting on a “change of control” shall also apply to
all grants of Restricted Stock unless otherwise provided in the Restricted
Stock Agreement.


 


(e)                             Exercise Price. Except as provided in Section 8
(a) and 9, the exercise price of each Share subject to the Option shall equal
the Fair Market Value of the Share on the Option’s Date of Grant.  The exercise price of each Share subject to a
nonqualified Option may be, in the discretion of the Committee, less than Fair
Market Value.


 


(f)                               Termination of Services. If a Non-employee ceases
Continuous Service for any reason other than death or disability, all Options
held by the Nonemployee shall lapse on the earlier of the end of the Option
Period or ninety (90) days following the effective date of the termination of
his services to the Company. If an Employee ceases Continuous Service for any
reason other than death, disability or retirement on or after age 65, all
Options held by the Employee shall lapse three months following the Employee’s
last day of Continuous Service. If an Employee is terminated for cause, any Option
granted hereunder shall automatically terminate as of the first discovery by
the Company of any reason for termination for cause, and such Optionee shall
thereupon have no right to purchase any shares pursuant to such option. “Termination
for cause” shall mean dismissal for dishonesty, conviction or confession of a
crime punishable by law (except misdemeanors), fraud, misconduct including but
not limited to violation of the Company’s drug and alcohol policy and any other
Company policies in effect from time to time, or unauthorized disclosure of
confidential information. If an Optionee’s


 


11





















 


relationship with the
Company or any related corporation is suspended pending an investigation of
whether or not the Optionee shall be terminated for cause, all Optionee’s
rights under any option granted hereunder likewise shall be suspended during
the period of investigation. On the grant of an Option, the Committee may, in
its discretion, extend the time during which the Option may be exercised after
termination of services. Any such Option shall lapse at the earlier of the end
of the Option Period or the end of the period established by the Committee for
exercise after termination of services. The Option may be exercised only for the
number of Shares for which it could have been exercised on such termination
date, subject to any adjustment under Section 14.


 


(g)                            Death. In the case of death of the Optionee, the
beneficiaries designated by the Optionee shall have one year from the Optionee’s
death or to the end of the Option Period, whichever is earlier, to exercise the
Option, provided, however, the Option may be exercised only for the number of
Shares for which it could have be exercised at the time the Optionee died,
subject to any adjustment under Section 14.


 


(h)                            Disability. In the event of termination of
Continuous Service due to total and permanent disability the Option shall lapse
at the earlier of the end of the Option Period or twelve months after the date
of such termination, provided, however, the Option can be exercised only for
the number of Shares for which it could have been exercised at the time the
Optionee became disabled, subject to any adjustment under Section 14.  A total and permanent disability is a
disability which in the opinion of the Company and two independent physicians
causes the Optionee to be unable to perform his or her duties for the
Company.  For purposes of this


 


12





















 


Section, total disability
shall be deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to the
Committee.


 


SECTION 8.           Incentive Stock Options.
Any Option intended to qualify as an Incentive Stock Option shall satisfy the
following requirements in addition to those requirements stated in Section 7
above:


 


(a)                             Ten Percent Shareholders. An Option intended to
qualify as an Incentive Stock Option granted to an individual who, on the Date
of Grant, owns stock possessing more than ten (10) percent of the total
combined voting power of all classes of stock of either the Company or any
parent or Subsidiary, shall be granted at an exercise price of 110 percent of
Fair Market Value on the Date of Grant and shall bear an Option Period no
greater than five years. In calculating stock ownership of any person, the
attribution rules of Section 424(d) of the Code will apply. Furthermore, in calculating stock
ownership, any stock that the individual may purchase under outstanding options
will not be considered.


 


(b)                            Maximum Option Grants. Each Option granted under
the Plan shall be limited so that the aggregate Fair Market Value, determined
on the Date of Grant, of stock in the Company with respect to which any
Incentive Stock Options under the Plan and all other plans of the Company or
its parent or Subsidiaries (within the meaning of Subsection (b) of Section 422(d)
of the Code) may become exercisable by one Optionee for the first time in any
calendar year shall not exceed $100,000.


 


(c)                             Non-Employees. Incentive Stock Options may not be
granted to any Non-employee.


 


13





















 


SECTION 9.           Non-qualified Options.  Any Option not intended to qualify as an
Incentive Stock Option shall be a non-qualified Option. Non-qualified Options
shall satisfy each of the requirements of Section 7 of the Plan.


 


SECTION 10.         Exercise. Subject to the
terms and conditions of the written Option Agreement pursuant to which an
Option is granted, and to any additional holding period required by applicable
law, each Option may be exercised in whole or in part, but may not be exercised
for less than 50 shares, or 10% of the full number of Shares as to which it can
be exercised, whichever is greater; provided however, that only whole shares
will be issued pursuant to the exercise of any Option. A partial exercise of an
Option will not affect the holder’s right to exercise the Option from time to
time in accordance with this Plan as to the remaining Shares subject to the Option.  During an Optionee’s lifetime, any Incentive
Stock 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 notice of the
number of shares with respect to which the Option is exercised, together with
payment of the exercise price.


 


SECTION 11.         Payment of Exercise Price.
Payment of the Option exercise price shall be made in full at the time the
notice of exercise of the Option is delivered to the Company and shall be in
cash, bank certified or cashier’s check, personal check (unless at the time of
exercise the Committee in a particular case determines not to accept a personal
check), or Common Stock of the Company at Fair Market Value or a combination of
such cash, bank certified or cashier’s check, personal check or Common Stock,
in an amount or having a combined value equal to the aggregate purchase price
for the shares subject to the Option or portion thereof being exercised.


 


14





















 


To the extent permitted under the applicable
laws and regulations including Section 16 of the Exchange Act, and with
the consent of the Committee, the Company agrees to cooperate in a “cashless
exercise” of an Option.  The cashless
exercise shall be affected by the Company, Nonemployee or Employee delivering
to a registered securities broker acceptable to the Company instructions to
sell a sufficient number of shares of Common Stock and assigning the sale
proceeds to the Company to cover the costs and expenses associated therewith
for the Common Stock being purchased. At the discretion of the Committee, as
evidenced in each Optionee’s written option agreement, payment may be made
through delivery of a full-recourse promissory note executed by the Optionee;
provided, that (i) such note delivered in connection with an Incentive Stock
Option shall, and such note delivered in connection with a nonqualified stock
option may, in the sole discretion of the Committee, bear interest at a rate
specified by the Committee 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, and (ii) the Committee in its
sole discretion shall specify the term and other provisions of such note at the
time an Incentive Stock Option is granted or at any time prior to exercise of a
nonqualified stock option, and (iii) the Committee 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 in order to perfect the Company’s
security and (iv) the Committee in its sole discretion may at any time restrict
or rescind this right upon notification to the Optionee.


 


SECTION 12.                          Taxes;
Compliance with Law; Approval of Regulatory Bodies.  The Company or any related corporation shall
have the right to retain and withhold from any


 


15





















 


payment of cash or Common Stock under the
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 withhold
any distribution in whole or in part until the Company is so reimbursed. In
lieu thereof, 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 retain and withhold a number of shares having a market value
not less than that 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 either six months prior to the date the option exercise becomes
taxable or during the quarterly ten-day window period required under Section 16(b)
of the Exchange Act for exercises of stock appreciation rights. Options are
exercisable and Shares can be delivered and payments made under this Plan, only
in compliance with all applicable federal and state laws and regulations,
including, without limitation, state and federal securities laws, and the rules
of all stock exchanges on which the Company’s stock is listed at any time. An
Option is exercisable only if either (a) a registration statement pertaining to
the Shares to be issued upon exercise of the Option has been filed with and
declared effective by the Securities and Exchange Commission and remains
effective on the date of exercise, or (b) an exemption from the registration
requirements of applicable securities laws is available. This Plan does not
require the Company, however, to file such a registration statement or to
assure the


 


16





















 


availability of such exemptions. Any
certificate issued to evidence Shares issued under the Plan may bear such
legends and statements, and shall be subject to such transfer restrictions as
the Committee deems advisable to assure compliance with federal and state laws
and regulations and with the requirements of this Section. Each Option may not
be exercised, and Shares may not be issued under this Plan, until the Company
has obtained the consent or approval of every regulatory body, federal or
state, having jurisdiction over such matters as the Committee deems advisable.


 


Each person who acquires the right to exercise an Option that is not an
Incentive Stock Option, by bequest or inheritance, may be required by the
Committee to furnish reasonable evidence of ownership of the Option as a
condition to his exercise of the Option. In addition the Committee may require
such consents and releases of taxing authorities the Committee deems advisable.


 


SECTION 13.         Assignability.  An Option granted under this Plan is not
transferable except by will or the laws of descent and distribution. During the
lifetime of an Optionee, his Options are exercisable only by him.


 


SECTION 14.         Adjustment upon Change in Capitalization.
If a reorganization, merger, consolidation, reclassification, recapitalization,
combination or exchange of shares, stock split, stock dividend, rights
offering, or other expansion or contraction of the Common Stock of the Company
occurs, the number and class of Shares for which Options are authorized to be
granted under this Plan, the number and class of Shares subject to Options
previously granted under this Plan, and the price per Share payable upon
exercise of each Option outstanding under this Plan


 


17





















 


shall be equitably adjusted by the Committee
to reflect such changes. To the extent deemed equitable and appropriate by the
Board, subject to any required action by stockholders, in any merger,
consolidation, reorganization, liquidation or dissolution, any Option granted
under the Plan shall pertain to the securities and other property to which a
holder of the number of Shares of stock covered by the Option would have been
entitled to receive in connection with such event.


 


(a)                             Cash, Stock or Other Property for Stock. Except
as provided in subsection (b) below, 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, 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 consideration in connection with their shares of Common Stock,
any option granted hereunder 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
in whole or in part whether or not the vesting requirements set forth in the
option agreement have been satisfied.


 


(b)                            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


 


18





















 


merger), consolidation,
acquisition of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company), all Options granted
hereunder 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 granted hereunder shall
not be converted into Options to purchase shares of Exchange Stock but instead
shall terminate in accordance with the provision of subsection (a) above.
The amount and price of converted Options shall be determined by adjusting the
amount and price of the Options granted hereunder 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
vesting schedule set forth in the option agreement shall continue to apply
for the Exchange Stock.


 


SECTION 15.         Liability of the Company.
The Company, its parent and any Subsidiary that is in existence or hereafter
comes into existence shall not be liable to any person for any tax consequences
expected but not realized by an Optionee or other person due to the exercise of
an Option or grant of Restricted Stock.


 


SECTION 16.                          Amendment
and Termination of Plan. The Board may alter, amend or terminate
this Plan from time to time without approval of the shareholders. However,
without the approval of the shareholders, no amendment will be effective that:


 


(a)                             materially
increases the benefits accruing to participants under the Plan;


 


19





















 


(b)                            increases
the aggregate number of Shares that may be delivered upon the exercise of
Options granted under the Plan;


 


(c)                             materially
modifies the eligibility requirements for participation in the Plan; or


 


(d)                            amends
the requirements of subparagraphs (a) - (c) of this paragraph.


 


Any amendment, whether with or without the approval of shareholders,
that alters the terms or provisions of an Option granted before the amendment
(unless the alteration is expressly permitted under this Plan) will be
effective only with the consent of the Optionee to whom the Option was granted
or the holder currently entitled to exercise it.


 


SECTION 17.         Expenses of Plan. The
Company or its Subsidiaries shall bear the expenses of administering the Plan.


 


SECTION 18.         Duration of Plan.
Options may be granted under this Plan only during the 10 years immediately
following the effective date of this Plan, unless sooner terminated by the
Board.


 


SECTION 19.         Applicable Law.
The validity, interpretation, and enforcement of this Plan are governed in all
respects by the laws of Oregon and the United States of America.


 


SECTION 20.         Effective Date. The
effective date of this Plan shall be the earlier of (i) the date on which the
Board adopts the Plan or (ii) the date on which the Shareholders approve the
Plan.


 


20





















 


Adopted by the
Board of


Directors on November 9,
2004, as amended February 14, 2005


 


	
  Approved by
  the Shareholders

  
	
  on May 3rd,
  2005

  



 


21