**Exhibit 10.1**

** **

**CYANOTECH CORPORATION**

 

**2004 INDEPENDENT DIRECTOR STOCK OPTION AND RESTRICTED STOCK GRANT PLAN**

**Amended, Reformed and Restated November 5, 2010**

 

**I.****                                       ****Purposes**

 

Thepurposes of this 2004 Independent Director Stock Option and Restricted StockGrant Plan (the “2004 Plan”) are: i) to provide additional incentive forsecuring and retaining qualified non-employee persons to serve on the Board ofDirectors of Cyanotech Corporation (“Cyanotech” or the “Company”); and ii) toenhance the future growth of the Company by further aligning the independentdirectors interests with the interests of the Company and its stockholders.. Itis intended that all Stock Options granted under the 2004 Plan will be Non-Qualified Stock Options.

 

**II.****                                  ****Definitions**

 

(a)                                 In the 2004Plan, except where the context otherwise indicates, the following definitionsapply:

 

(1)                                 “Company” or “Cyanotech”means Cyanotech Corporation, a Nevada corporation.

 

(2)                                 “Board” meansthe Board of Directors of the Company.

 

(3)                                 “IndependentDirector” means a person who as of any applicable date is a member of theCompany’s Board and is considered “independent” under Nasdaq Rule 4200A.

 

(4)                                 “Share” means ashare of Stock that has been previously: (i) authorized but unissued; or (ii) issuedand reacquired by the Company.

 

(5)                                 “Stock” or “CommonStock” means the common stock, $0.02 par value per share, of the Company,authorized or outstanding on the Effective Date, or any common stock or equitysecurities that may be issued in respect of such Common Stock in the even ofany stock split, combination of Shares, recapitalization or other change in theCompany’s then outstanding Common Stock. **[adjusted by reverse stock split on November 3,2006]**

 

(6)                                 “Stock Option”or “Option” means an option to purchase Shares issued hereunder.

 

(7)                                 “Code” meansthe Internal Revenue Code of 1986, as amended. References herein to any sectionof the Code shall include any successor section of the Code or its successor.

 

(8)                                 “Non-QualifiedStock Option” means an option which does not meet the requirements of Section 422A(b) ofthe Code.

 

(9)                                 “Participant”means any Independent Director of the Company who is granted a Stock Option orStock hereunder.

 

(10)                          “Securities Act”means the Securities Act of 1933, as now in effect or as hereafter amended.

 

(11)                          “Disability”means the Participant so affected is unable to engage in substantial gainfulactivity by reason of any medically determinable physical or mental impairmentwhich can be expected to result in death or which has lasted or can be expectedto last for a continuous period of not less than 12 months. A determination bya majority of the Board, other than the Participant, as to whether theParticipant has incurred a Disability shall be final and conclusive as to allinterested parties.

 

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(12)                          “DesignatedBeneficiary” means the person designated to be entitled, on the death of aParticipant, to any remaining rights arising out of a Stock Option grant. If nosuch designation has been made by the Participant, or if the DesignatedBeneficiary should pre-decease the Participant, any remaining rights arisingout of a Stock Option grant shall inure to the executor or administrator of theParticipant’s estate or to his/her heirs at law if there is no administrationfor the Participant’s estate.

 

(13)                          “Effective Date”means the date on which the 2004 Plan is approved by the stockholders of theCompany.

 

(14)                          “Fair MarketValue” means, with respect to valuation of a share of the Company’s CommonStock on any date herein specified, the closing sale price for such date (onwhich trades have occurred) as quoted by the Nasdaq Small-Cap Market List, orif the Company’s Common Stock is listed on an alternate national securitiesexchange as of such date, the closing sale price reported by such nationalsecurities exchange for such date. If the Common Stock is not included in theNasdaq Small-Cap Market List or is not listed on an alternate nationalsecurities exchange as of such date, “Fair Market Value” shall mean the closingsale price quoted by an established quotation service for over-the-countersecurities. In the event the Common Stock is not publicly traded at the time adetermination of its Fair Market Value is required to be made hereunder, thedetermination of Fair Market Value shall be made by the Board in good faith insuch manner as it deems appropriate. In no event shall the “Fair Market Value”be lower than the par value per share of the Company’s Common Stock.

 

(15)                          “Terminate”means to cease to be a Director of the Company.

 

(16)                          “Termination ofDirectorship” means the cessation of any Participant to be a Director for anyreason whatsoever, voluntarily or involuntarily. A Termination of Directorshipshall be deemed to occur on the actual date of such termination (by death,disability, retirement, resignation, non election or otherwise)

 

**III.****                             ****Grantsof Stock Options and Restricted Stock**

 

(a)                                 **Options**     Options will be granted to persons who arenewly elected Independent Directors of the Company. On the Effective Date, eachnewly elected Independent Director shall receive without the exercise of thediscretion of any person or persons, 10-year Options exercisable for 1,000shares. Thereafter, as of the date of the annual meeting of stockholders ineach year after 2004 that the 2004 Plan is in effect, as provided in Section Vhereof; each Independent Director then elected or continuing in office who didnot previously receive a grant of Options hereunder shall receive, without theexercise of the discretion of any person or persons, 10-year Optionsexercisable for 1,000 Shares. If, as of such annual meeting date, there are notsufficient Shares available under the 2004 Plan to allow for the grant to eacheligible Independent Director of Options of Shares pursuant to Section III(d) for the number of Shares provided herein, each eligible IndependentDirector shall receive Options or Shares for a pro rata share of the totalnumber of Shares available under the 2004 Plan. All Options granted under the2004 Plan shall be (i) at the Option price set forth in subsection (b) ofthis Section III, (ii) subject to the exercise restriction set forthin subsection (c) of this Section III, and (iii) subject toadjustment as provided in Section VII and to the terms and conditions setforth in Section VIII.  **[adjusted for reverse stock split, November 3, 2006]**

 

(b)                                 **PurchasePrice****    **The purchaseprice of Shares issued under each Option (sometimes also referred to as theexercise price) shall be at the Fair Market Value of Shares subject to theOption on the date the Option is granted.

 

(c)                                  **Vesting**     All Options granted hereunder shall vestand become exercisable six months from the date of grant.

 

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(d)                                 **RestrictedStock Grants**     As of thedate of the annual meeting of stockholders in each year after 2004 that the2004 Plan is in effect, as provided in Section V, each IndependentDirector then elected or continuing in office who had previously received astock option grant pursuant to Section III (a) will be issued,without the exercise of the discretion of any person or persons and withoutpayment, 875 Shares of the Company’s fully paid and non-assessable Shares ofCommon Stock; provided, however, for independent directors elected since the September 2009annual stockholders meeting, the annual grant is increased to 2,000 shares foreach independent director other than the Chairman and in the case of theindependent director designated as Chairman, the annual grant shall be 4,000shares; provided further, that for fiscal year 2010, the grant for independentdirectors shall be adjusted to one-half of the 875 share annual grantheretofore plus one-half of the new independent director annual grant of 2,000shares, and in the case of the Chairman of the Board one-half of the new annualgrant of 4,000 shares.  For the avoidanceof any ambiguity, such grants shall be adjusted as of March 24, 2010, netof the grants issued as of September 9, 2009, and result in additionalgrants for fiscal year 2010 to the Chairman of 1,563 shares of the Company’sCommon Stock and to the other independent director members of the Board of 563shares of such Common Stock, in each case to be valued at the closing price onNASDAQ on March 24, 2010. Thereafter, so long as the total number of shares reserved for issuanceunder the 2004 Director Stock Plan have not been exhausted, restricted stockgrants shall be made on the date of the annual stockholders meeting withoutfurther adjustment.  If, as of suchannual meeting date there are not sufficient Shares available under the 2004Plan to allow the grant to each eligible Independent Director of Shares orOptions pursuant to Section III (a) for the number of shares providedherein, each eligible Independent Director will receive Shares or Options for apro rata share of the total number of Shares available under the 2004 Plan. AllShares granted under this Section III(d) are non-transferable for sixmonths following the grant date.  **[amended March 24, 2010]**

 

(e)                                  No IndependentDirector shall be required to forfeit or otherwise return to the Company anyShares of Common Stock issued to him or her as a grant pursuant to the 2004Plan notwithstanding any change in status of such Independent Director whichrenders him or her ineligible to continue as a Participant in the 2004 Plan.Any person who is an Independent Director immediately following the date of theCompany’s Annual Meeting of Stockholders shall be entitled to receive an Optionor Stock grant notwithstanding any change in status of such IndependentDirector which renders such Director ineligible to continue participation inthe 2004 Plan prior to delivery of certificates evidencing Shares of CommonStock.

 

**IV.****                              ****Administration**

 

(a)                                 The 2004 Planshall be administered by the Company’s Chief Executive Officer and ChiefFinancial Officer (“Administrators”). The Administrators are responsible foradministering the 2004 Plan. The Administrators have authority to adopt rules asthey may deem appropriate to carry out the purposes of the 2004 Plan, haveauthority to interpret and construe the provisions of the 2004 Plan and anyagreements and notices under the 2004 Plan and to make determinations pursuantto any 2004 Plan Provision. Each interpretation, determination or order oraction made or taken by the Administrators pursuant to the 2004 Plan is finaland binding on all persons. The Administrators are not liable for any action ordeterminations made in good faith, and are entitled to indemnification andreimbursement in the manner provided in the Company Articles of Incorporationand By-Laws as such documents may be amended from time to time.

 

(b)                                 TheAdministrators may, in their discretion, delegate duties to an officer oremployee or a committee composed of officers or employees of the Company, butit may not delegate its authority to apply and interpret this 2004 Plan.

 

**V.****                                   ****Term**

 

Theterm of this 2004 Plan commences on the Effective Date and will terminate at11:59 PM (Hawaii Standard Time) on the date of the annual meeting ofstockholders in the year 2014. This 2004 Plan shall remain in effect for thepurposes administration of any Stock Options granted pursuant to its provisionsand no such Stock Option granted during the term of this 2004 Plan shall beaffected adversely by the termination of the 2004 Plan.

 

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**VI.****                              ****SharesReserved; Options Grantable and Exercisable**

 

(a)                                 Subject toadjustment as provided in Section VII hereof, a total of 75,000 Sharesshall be subject to issuance under the 2004 Plan. The Shares subject to the2004 Plan shall be and are hereby reserved for issuance pursuant to the 2004Plan. Any of the Shares that are not subject to outstanding Options at thetermination of the 2004 Plan shall cease to be reserved for the purposes of the2004 Plan. If any Option expires or is cancelled prior to its exercise in full,the Shares theretofore subject to such Option will return to the pool ofavailable Shares may again be granted by an Option or Stock Grant under the2004 Plan.  [**reformed March 24,2010 to correct number of shares reserved by original stockholder vote in 2004,and further adjusted by November 3, 2006 reverse stock split]**

 

(b)                                 As to aParticipant, an Option ceases to be exercisable, as to any Share, when theParticipant purchases the Shares or when the Option lapses.

 

**VII.****                         ****Adjustments**

 

(a)                                 The existenceof outstanding Stock Options shall not affect in any way the right or power ofthe Company or its stockholders to make or authorize any or all adjustments,recapitalizations, reorganizations or other changes in the Company’s capitalstructure or its business, or any merger or consolidation of the Company, orany issue of bonds, debentures, preferred or prior preference stock ahead of,or affecting, the Common Stock or the rights thereof, or the dissolution orliquidation of the Company, or any sale or transfer of all or any part of itsassets of business, or any other corporate act or proceeding, whether of asimilar character or otherwise.

 

(b)                                 If the Companyshall effect a subdivision or consolidation of shares or other capitalreadjustment, the payment of a stock dividend, or other increase or reductionof the number of shares of Common Stock outstanding, without receivingcompensation therefor in money, services or property, then: (i) the numberand per share price of shares of Common Stock subject to outstanding StockOptions hereunder shall be appropriately adjusted in such a manner as toentitle a Participant to receive upon exercise of a Stock Option, for the sameaggregate cash consideration, the same total number and class or classes ofShares as the Participant would have received had he or she exercised his orher Stock Option in full immediately prior to the event requiring theadjustment; and (ii) the number and class or classes of shares thenreserved for issuance under the 2004 Plan shall be adjusted by substituting forthe total number of Shares of Common Stock then reserved that number and classor classes of Shares of Common Stock that would have been received by the ownerof an equal number of outstanding Shares of Common Stock as the result of theevent requiring the adjustment.

 

(c)                                  If, whileunexercised Stock Options remain outstanding under the 2004 Plan: (i) theCompany is merged into or consolidated with another corporation undercircumstances where the Company is not the surviving corporation or the CommonStock is converted into other securities, cash or other property in connectionwith such merger or consolidation; (ii) the Company sells or otherwise disposesof substantially all its assets to another person, corporation or entity; (iii) theCompany is liquidated or dissolved; (iv) over 50 percent of theoutstanding Common Stock is acquired by another corporation in exchange forstock (or stock and other securities) of such corporation; or (v) over 50percent of the then outstanding Common Stock is acquired in a singletransaction or a series of related transactions, then after the effective dateof such merger, consolidation, exchange, liquidation, sale or acquisition, asthe case may be, each holder of an outstanding Stock Option shall be entitled,upon exercise of such Stock Option, to receive, in lieu of shares of CommonStock, shares of such stock or other securities of the Company or the survivingor acquiring corporation or such other property at the same rate per share asthe holders of shares of Common Stock received pursuant to the terms of themerger, consolidation, exchange liquidation, sale or acquisition.

 

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(d)                                 Except asexpressly provided herein, the issuance by the Company of shares of stock ofany class, or securities convertible into shares or stock of any class, forcash, property, labor, or services, either upon direct sale, exercise of tightsof warrants to subscribe therefor, or conversion of shares or obligations ofthe Company convertible into such shares or other securities, shall not affect,and no adjustment by reason thereof shall be made with respect to, the number,class or price of Shares of Common Stock then subject to outstanding StockOptions.

 

**VIII.****                    ****Termsand Conditions of Stock Options**

 

(a)                                 During theParticipant’s life, the Stock Option is exercisable only by the Participant orby his or her guardian or legal representative.

 

(b)                                 A Stock Optionunder this 2004 Plan is not assignable or transferable, except by will or bythe laws of descent and distribution or pursuant to a qualified domesticrelations order (as defined in the Code), and is not subject, in whole or inpart, to attachment, execution or levy of any kind.

 

(c)                                  Any StockOption or portion thereof that is exercisable shall be exercisable for the fullamount or for any part thereof.

 

(d)                                 Stock Optionsshall be exercised by the delivery of written notice to the Company settingforth the number of Shares of Common Stock with respect to which the StockOption is to be exercised and, subject to the provisions hereof, the address towhich the certificates representing shares issuable upon the exercise of suchStock Option shall be mailed. In order to be effective, such written noticeshall be accompanied at the time of its delivery to the Company by payment ofthe exercise price of such Shares, which payment shall be made in cash or bycheck, bank draft, or postal or express money order payable to the order of theCompany in an amount (in United States dollars) equal to the exercise price ofsuch Shares or as provided in subsection (e) below. Such notice shall bedelivered in person to the Secretary of the Company, or shall be sent byregistered mail, return receipt requested, to the secretary of the Company, inwhich case, delivery shall be deemed made on the date such notice is depositedin the mail. When Shares are to be issued or delivered pursuant to the 2004Plan, but only to the extent that the Company determines that tax withholdingis required pursuant to applicable law or regulation, the Company shall requirethe Participant to remit to the Company an amount sufficient to satisfyfederal, state and local withholding tax requirements prior to the delivery ofany certificate or certificates for such Shares, which payment may be made inthe manner set forth above or in the manner permitted by clause (c) below.

 

(e)                                  Alternatively,payment of the exercise price may be made, in whole or in part, by delivery ofShares previously issued to the Participant. Unless otherwise permitted by theBoard, payment of the exercise price in Shares shall be made only with Sharesowned by the Participant for at least six (6) months. If payment is madein whole or in part in Shares owned by the Participant, then the Participantshall deliver to the Company, exercised: (i) certificates registered inthe name of such Participant, free of all liens, claims and encumbrances ofevery kind and having a Fair Market Value as of the date of delivery of suchnotice that is not greater than the exercise price of the Shares of CommonStock with respect to which such Stock Option is to be exercised plus anyapplicable tax required to be withheld by the Company, such certificates to beaccompanied by stock powers duly endorsed in blank by the record holder of theShares represented by such certificates; and (ii) if the exercise price ofthe Shares with respect to which such Stock Option is to be exercised exceedssuch Fair Market Value, cash or check, bank draft or postal or express moneyorder payable to the order of the Company in an amount (in United Statesdollars) equal to the amount of such excess.

 

(f)                                   Stock Optionsgranted to any Participant under this 2004 Plan shall be subject to thefollowing conditions:

 

(1)                                 The price pershare shall be as set forth in Section III.

 

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(2)                                 Except asotherwise provided in paragraph (3) below, each Stock Option shall have aterm of ten (10) years from the date such Option is granted and shall vestin accordance with Section III(c) hereof.

 

(3)                                 A Stock Optionshall lapse and expire in the following situations:

 

(i)                   If a Termination ofDirectorship occurs with respect to any Participant, for any reason other thandeath or Disability, any and all unexercised and vested Stock Options held bysuch Participant shall expire: (A) as of 12:01 AM (Hawaii Standard Time)on the date which is three (3) months after the date of such Terminationof Directorship; or (B) on the expiration date of the term of the StockOption, whichever date is earlier.

 

(ii)                If a Termination ofDirectorship occurs with respect to any Participant by reason of the death orDisability of such Participant, any and all unexercised and vested StockOptions shall expire: (A) as of 12:01 AM (Hawaii Standard Time) on thedate which is one (1) year from the date of the Termination ofDirectorship due to such death or Disability; or (B) on the expirationdate of the term of the Stock Option, whichever date is earlier. Any suchvested and unexercised Stock Option may be exercised by the DesignatedBeneficiary of a deceased Participant, or the legal guardian of a disabledParticipant, subject to all applicable provisions of the 2004 Plan.

 

(iii)             In the event of Participant’sTermination of Directorship for any reason other than not being re-elected atan annual meeting of stockholders, including death or disability, any portionof a previously granted Stock Option that was not exercisable on the date ofsuch Termination of Directorship shall automatically expire as of 12:01 AM(Hawaii Standard Time) on the date of Termination of Directorship, and nofurther vesting of such Stock Option shall occur.

 

**IX.****                             ****Powerto Amend**

 

TheBoard of Directors may modify, revise or terminate the 2004 Plan at any timeand from time to time; provided, however, that the 2004 Plan shall not beamended more than once every six (6) months, other than to comport withchanges in the Code, or the regulations thereunder, or the Employee RetirementIncome Security Act of 1974, as amended, or the regulations thereunder; andprovided, further, that without the approval of the holders of at least amajority of the outstanding Shares of the Company’s voting stock, the Board ofDirectors may not (i) materially increase the benefits accruing toParticipants under the 2004 Plan; (ii) change the aggregate number ofShares which may be issued under the 2004 Plan; (iii) reduce the Optionprice at which Options have been granted; or (iv) change the class ofpersons eligible to receive Options. However, no termination or amendment ofthe 2004 Plan may, without the consent of the holder of any Option thenoutstanding adversely affect the rights of such holder under the Option.

 

**X.****                                  ****Exerciseof Options; No Registration**

 

TheCompany shall not be required to sell or issue any shares of Common Stock underany Stock Option or grant Shares if the issuance of such shares shallconstitute a violation by the Participant or the Company of any provision ofany law, statute, or regulation of any governmental authority whether it beFederal or State. Specifically, in connection with the Securities Act, upongrant of Shares or exercise of any Stock Option, unless a registration statementunder the Securities Act is in effect with respect thereto, the Company shallnot be required to issue such shares unless the Board has received evidencesatisfactory to it to the effect that the holder is acquiring such shares ofCommon Stock for investment and not with a view to the distribution thereof,and that such shares of Common Stock may otherwise be issued withoutregistration under the Securities Act or state securities laws. Anydetermination in this connection by the Board shall be final, binding andconclusive. The Company may, but shall in no event be obligated to, registerany securities covered hereby pursuant to the Securities Act. The Company shallnot be obligated to take any affirmative action in order to cause the exerciseof a Stock Option, or the issuance of shares pursuant thereto, to comply withany law or regulation of any governmental authority. Certificates for Stock issuedunder the 2004 Plan are subject to such legends, stock transfer orders andother restrictions as the Company may consider necessary or advisable.

 

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**XI.****                             ****Withholding**

 

Theprovisions of this section shall apply only to the extent that the Companydetermines that tax withholding is required, pursuant to applicable law orregulation, at the time that Shares are to be issued or delivered pursuant tothe 2004 Plan. If the Company determines that tax withholding is required, theCompany shall require the Participant to remit to the Company and amountsufficient to satisfy any applicable federal, state and local withholding taxrequirements prior to the delivery of any certificate or certificates forShares. The Company shall also have the right to withhold from any fees orother compensation payable by the Company to the Participant an amountsufficient to satisfy any applicable federal, state and local withholding taxrequirement.

 

**XII.****                        ****StockOption Agreement**

 

TheStock Options awarded to a Participant shall be evidenced by a separate writtenagreement (the “Stock Option Agreement”) which shall be subject to the termsand provisions of the 2004 Plan, and which shall be signed by the Participantand by a duly authorized officer, other than the Participant, in the name ofand on behalf of the Company. In the event of any inconsistency or conflictbetween the terms of the 2004 Plan and a Stock Option Agreement, the terms ofthe 2004 Plan shall govern.

 

**XIII.****                   ****NoRights as Stockholder**

 

Aholder of a Stock Option shall have no rights as a stockholder with respect toany Shares of Common Stock until the issuance of a certificate for such Shares.Except as otherwise provided in Section VII, no adjustment shall be madefor dividends (ordinary or extraordinary, whether in cash, securities, or otherproperty) or distributions or other rights for which the record date is priorto the date such certificate is issued.

 

**XIV.****                    ****NoRight to Reelection**

 

Nothingin the 2004 Plan is to be deemed to create any obligation on the part of theBoard to nominate any of its members for reelection by the Company’sstockholders, nor confer upon an Independent Director the right to remain amember of the Board for any period of time, or at any particular rate ofcompensation.

 

**XV.****                         ****NoAssignment or Allocation of Benefits**

 

Noright or benefit under this 2004 Plan shall be subject to anticipation,alienation, sale assignment, pledge, encumbrance, or charge and any such actshall be void, except for any transfer pursuant to the Participant’s will orunder the laws of descent and distribution or as otherwise permitted pursuantto Section VIII hereof. No right or benefit hereunder shall in any mannerbe liable for or subject to any debts, contract, liabilities, or torts of theperson entitled to such right or benefit.

 

**XVI.****                    ****Gender,Tense and Headings**

 

Wheneverthe context so requires, words of the masculine gender used herein shallinclude the feminine and neuter, and words used in the singular shall includethe plural. Section headings as used herein are inserted solely forconvenience and reference and constitute no part of the construction of this2004 Plan. The words, “hereunder,” “herein,” “hereof’ and similar compounds ofthe word “here” shall refer to the entire 2004 Plan and not to any particularsection or provision.

 

**XVII.****               ****NoGuarantee of Tax Consequences**

 

TheCompany makes no commitment or guarantee that any federal, state or local taxtreatment will apply or be available to any Non-Employee Director participatingor eligible to participate herein.

 

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**XVIII.****          ****Severability**

 

Inthe event that any provision of this 2004 Plan is held to be illegal, invalidor unenforceable, such provision shall be fully severable, but shall not affectthe remaining provisions of the 2004 Plan, and the 2004 Plan shall be construedand enforced as if the illegal, invalid, or unenforceable provision had notbeen included herein.

 

**XIX.****                   ****StockholderApproval**

 

Notwithstandingany other provision of the 2004 Plan, the 2004 Plan must be approved by theholders of at least a majority of the shares of Stock present, or represented,and entitled to vote thereon, at a duly held stockholders’ meeting within 12months after the date of its adoption by the Board, and no Stock Options or noshares of Common Stock shall be issued under the 2004 Plan until such approvalhas been secured.

 

**XX.****                        ****Interpretations**

 

Theprovisions of the 2004 Plan shall be construed, administered, and governed bythe laws of the State of Hawaii, without giving effect to principles ofconflicts of laws, and, to the extent applicable, the laws of the United Statesof America and the State of Nevada.

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**XXI.****                   ****GovernmentRegulations**

 

The2004 Plan, the granting and exercise of Stock Options and Shares thereunder,and the obligations of the Company to sell and deliver Shares under such StockOptions, are subject to all applicable laws, rules and regulations, and tosuch approvals by any governmental agencies or national securities exchanges asmay be required.

 

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