Document:

exv4w2

 

EXHIBIT 4.2

GATEWAY FINANCIAL HOLDINGS, INC.

1999 INCENTIVE STOCK OPTION PLAN

         Gateway Financial Holdings, Inc., a North Carolina corporation (the
“Corporation”), does herein set forth the terms of the its 1999 Incentive Stock
Option Plan (the “Plan”) which was adopted by the Corporation’s Board of
Directors (the “Board”) and the Corporation’s shareholders.

         1.     Purpose of the Plan. The purpose of this Plan is to provide for the
grant of Incentive Stock Options (an “Option” or “Options”) qualifying for the
tax treatment afforded by Section 422 of the Internal Revenue Code of 1986, as
amended, to eligible officers and employees of the Corporation (“Eligible
Employees”) who wish to invest in the Corporation’s common stock, no par value
(the “Common Stock”). The Corporation believes that participation in the
ownership of the Corporation by Eligible Employees will be to the mutual
benefit of the Corporation and Eligible Employees. The existence of this Plan
will make it possible for the Corporation and any of its subsidiaries to
attract capable individuals to employment in key employee positions.

         2.     Administration of the Plan. (a) This Plan shall be administered by
the Compensation Committee of the Board (the “Committee”). The Committee shall
consist of at least three (3) members of the Board, all of whom shall qualify
as disinterested persons as provided in Section 16(b), and the rules and
regulations promulgated thereunder, of the Securities Exchange Act of 1934, as
amended. The members of the Committee shall be appointed by the Board and
shall serve at the pleasure of the Board, which may remove members from, add
members to, or fill vacancies in the Committee.

                  (b) The Committee shall decide to whom Options shall be granted under
this Plan, the number of shares as to which Options shall be granted, the
Option Price (as hereinafter defined) for such shares and such additional terms
and conditions for such Options as the Committee deems appropriate. Also, the
Committee shall determine when Limited Stock Appreciation rights (as
hereinafter described) shall be available in place of outstanding Options. The
Committee shall interpret the Plan and prescribe, amend and rescind any rules
and regulations regarding the Plan. All interpretations and constructions of
the Plan by the Committee shall be final and conclusive.

                  (c) A majority of the Committee shall constitute a quorum and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved unanimously in writing by the Committee, shall be considered
as valid actions by the Committee.

                  (d) The Committee may designate any officers or employees of the
Corporation to assist in the administration of this Plan. The Committee may
authorize such individuals to execute documents on its behalf and may delegate
to them such other ministerial and limited discretionary duties as the
Committee may deem fit.

         3.     Shares of Common Stock Subject to the Plan. The number of shares of
Common Stock that shall be available initially for Options under this Plan is
two hundred seventy three thousand two hundred and seventy six (273,276),
subject to adjustment as provided in Paragraph 14 hereof. Common Stock subject
to Options which expire or terminate prior to exercise of the Options shall
lapse and such shares shall again be available for future grants of Options
under this Plan.

         4.     Eligibility. Options under this Plan may be granted to any Eligible
Employee as determined by the Committee. An individual may hold more than one
Option under this or other plans adopted by the Corporation.

         5.     Grant of Options. (a) The Committee may authorize the grant of
Options to certain current officers and employees of the Corporation. Such
Options shall be granted based upon the past service and the continued
participation of those individuals in the management of the Corporation.

                  (b) Upon the forfeiture of an Option for whatever reason prior to the
expiration of the Option Period (as defined in Paragraph 9 hereof) the shares
of Common Stock covered by a forfeited Option shall be available for the
granting of additional Options to Eligible Employees during the remaining term
of this Plan upon such terms and conditions as may be determined by the
Committee. The number of additional Options to be granted
to specific Eligible Employees during the term of this Plan shall be
determined by the Committee as provided in Subparagraph 2(b) hereof.

 

 

         6.     Option Price. (a) The price per share of each Option granted under
this Plan (the “Option Price”) shall be determined by the Committee as of the
effective date of grant of such Option. In no event shall the Option Price be
less than 100% of the fair market value of the Common Stock on the date of
grant. If an Optionee (as hereinafter defined) at the time that an Option is
granted owns stock possessing more than ten (10%) of the total combined voting
power of all classes of stock of the Corporation, then the Option Price per
share of each Option granted under this Plan shall be no less than 110% of the
fair market value of the Common Stock on the date of grant and such Option
shall not be exercisable more than five (5) years from the date of grant. An
Option shall be considered as granted on the date that the Committee acts to
grant such Option or such later date as the Committee shall specify in an
Option Agreement (as hereafter defined).

                  (b) The fair market value of a share of Common Stock shall be determined
as follows:

                  (i) If on the date as of which such determination is being made, the
Common Stock is admitted to trading on a securities exchange or exchanges for
which actual sale prices are regularly reported, or actual sale prices are
otherwise regularly published, the fair market value of a share of Common Stock
shall be deemed to be equal to the mean of the closing sale price as reported
on each of the five (5) trading days immediately preceding the date as of which
such determination is made; provided, however, that, if a closing sale price is
not reported for each of the five (5) trading days immediately preceding the
date as of which such determination is made, then the fair market value shall
be equal to the mean of the closing sale prices on those trading days for which
such price is available.

                  (ii) If on the date as of which such determination is made, quotations for
the Common Stock are regularly listed on the National Association of Securities
Dealers Nasdaq system or another comparable system, the fair market value of a
share of Common Stock shall be deemed to be equal to the mean of the average of
the closing bid and asked prices for such Common Stock quoted on such system on
each of the five (5) trading days preceding the date as of which such
determination is made. If a closing bid and asked price is not available for
each of the five (5) trading days, then the fair market value shall be equal to
the mean of the average of the closing bid and asked prices on those trading
days during the five-day period for which such prices are available.

                  (iii) If no such quotations are available, the fair market value of a
share of Common Stock shall be deemed to be the average of the closing bid and
asked prices furnished by a professional securities dealer making a market in
the Common Stock, as selected by the Committee, for the trading date first
preceding the date as of which such determination is made.

         If the Committee determines that the price as determined above does not
represent the fair market value of a share of Common Stock, the Committee may
then consider such other factors as it deems appropriate and then fix the fair
market value for the purposes of this Plan.

         7.     Payment of Option Price. Payment for shares subject to an Option may
be made either in cash or, with the approval of the Committee, in other stock
of the Corporation owned by the person to whom such Option was granted or such
other person as may be entitled to exercise such Option (the “Optionee”). Any
shares of the Corporation’s stock that are delivered in payment of the
aggregate Option Price shall be valued at their fair market value, as
determined by the Committee, on the date of the exercise of such Option.

         8.     Terms and Conditions of Grant of Options. Each Option granted pursuant
to this Plan shall be evidenced by a written Incentive Stock Option Agreement
(the “Option Agreement”) with each Eligible Employee to whom an Option is
granted. The Option Agreement shall be in such form as the Committee shall
adopt and may contain such terms and conditions as the Committee may determine.

         9.     Option Period. Each Option Agreement shall set forth a period during
which such Option may be exercised (the “Option Period”); provided, however,
that the Option Period shall not exceed ten (10) years after the date of grant
of such Option as specified in the Option Agreement.

         10.     Limitations on Grant of Incentive Stock Options. Notwithstanding any
other provision of this Plan, no person shall be granted an Option under this
Plan which would cause such person’s “annual vesting amount” to exceed
$100,000. With respect to any calendar year, a person’s “annual vesting
amount” is the aggregate fair market value of stock subject to incentive stock
options which are first exercisable during
such calendar year.
The aggregate fair market value of stock with respect to which incentive
stock options are first exercisable during

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any calendar year shall be
determined by taking into account all incentive stock options granted to such
person under all incentive stock options plans of the Corporation or of any of
its parent or subsidiary corporations.

         11.     Exercise of Incentive Stock Options. (a) An Option shall be
exercised by written notice to the Committee signed by an Optionee or by such
other person as may be entitled to exercise such Option. The written notice
shall state the number of shares with respect to which an Option is being
exercised and shall either be accompanied by the payment of the aggregate
Option Price for such shares or shall fix a date (not more than ten (10)
business days from the date of such notice) by which the payment of the
aggregate Option Price will be made. An Optionee shall not exercise an Option
to purchase less than 100 shares, unless the Committee otherwise approves, or
unless the partial exercise is for the remaining share available under such
Option.

                  (b) A certificate or certificates for the shares of Common Stock purchased
by the exercise of an Option shall be issued in the regular course of business
subsequent to the exercise of such Option and the payment therefore. During
the Option Period, no person entitled to exercise any Option granted under this
Plan shall have any of the rights or privileges of a shareholder with respect
to any shares of Common Stock issuable upon exercise of such Option, until
certificates representing such shares shall have been issued and delivered and
the individual’s name entered as a shareholder of record on the books of the
Corporation for such shares.

         12.     Effect of Termination of Employment, Retirement, Disability or Death.

                  (a) In the event of the termination of employment of an Optionee either by
reason of (i) being Discharged for Cause or (ii) voluntary separation on the
part of such Optionee for a reason other than retirement or disability, any
Option or Options granted to the Optionee under this Plan, to the extent not
previously exercised or surrendered by the Optionee or expired, shall
immediately terminate. “Discharged for Cause” shall include termination at the
sole discretion of the Board because of such Optionee’s personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses), a
final cease and desist order, or material breach of any provision of any
employment agreement that such Optionee may have with the Corporation.

                  (b) In the event of the termination of employment of an Optionee as a
result of such Optionee’s retirement, such Optionee shall have the right to
exercise any Option or Options granted to the Optionee under this Plan, to the
extent that they have not previously been exercised or surrendered by the
Optionee or expired, for a period of three (3) months after the date of
retirement, but in no event may any Option be exercised later than the end of
the Option Period provided in such Option Agreement in accordance with
Paragraph 9 hereof. Notwithstanding any other provision contained herein, or
in any Option Agreement, upon retirement, any Option then held by an Optionee
shall be exercisable immediately in full. For purposes of this Plan, the term
“retirement” shall mean (i) termination of an Optionee’s employment under
conditions which would constitute retirement under any tax qualified retirement
plan maintained by the Corporation or (ii) attaining age 65.

                  (c) In the event of the termination of employment of an Optionee by reason
of such Optionee’s disability, such Optionee shall have the right to exercise
any Options held by the Optionee, to the extent that they previously have not
been exercised or surrendered by the Optionee or expired, notwithstanding any
limitations placed on the exercise of such Options by this Plan or an Option
Agreement, immediately in full and at any time within twelve (12) months after
the last date on which such Optionee provides services as an officer or an
employee of the Corporation before being disabled, but in no event may any
Option be exercised later than the end of the Option Period provided in the
Option Agreement in accordance with Paragraph 9 hereof. For purposes of this
Plan, the term “disability” shall be defined in the same manner as such term is
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.

                  (d) In the event that an Optionee should die while employed by the
Corporation, or within three (3) months after retirement, any Option or Options
granted to the Optionee under this Plan and not previously exercised or
surrendered by the Optionee or expired shall vest and shall be exercisable,
according to their respective terms, by the personal representative of such
Optionee or by any person or persons who acquired such Options by bequest or
inheritance from such Optionee, notwithstanding any limitations placed on the
exercise of such Options by this Plan or any Option Agreement, immediately in
full and at any time within twelve (12) months after the date of death of such
Optionee, but in no event may any Option be exercised later than the end of the
Option Period provided in such Option Agreement in accordance with Paragraph 9
hereof. Any references herein to an Optionee

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shall be deemed to include any person entitled to exercise an Option under
the terms of this Plan after the death of such Optionee.

         13.     Effect of Plan on Employment Status.. The fact that the Committee has
granted an Option to an Optionee under this Plan shall not confer on such
Optionee any right to employment with the Corporation, or to a position as an
officer or an employee of the Corporation, nor shall it limit the right of the
Corporation to remove such Optionee from any position held by the Optionee or
to terminate the Optionee’s employment at any time.

         14.     Adjustment Upon Changes in Capitalization; Dissolution, Liquidation or
Merger.

                  (a) In the event of a change in the number of shares of the Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital
adjustment, prior to the termination of an Optionee’s rights under this Plan,
equitable proportionate adjustments shall be made by the Committee in (i) the
number and kind of shares which remain available under this Plan and (ii) the
number, kind, and the Option Price of shares subject to unexercised Options
under this Plan. The adjustments to be made shall be determined by the
Committee and shall be consistent with such change or changes in the
Corporation’s total number of outstanding shares; provided, however, that no
adjustment shall change the aggregate Option Price for the exercise of Options
granted under this Plan.

                  (b) The grant of Options under this Plan shall not affect in any way the
right or power of the Corporation or its shareholders to make or authorize any
adjustment, recapitalization, reorganization, or other change in the
Corporation’s capital structure or its business, or any merger of the
Corporation, or to issue bonds, debentures, preferred or other preference stock
ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Corporation, or any sale or transfer of all
or any part of the Corporation’s assets or business.

                  (c) Upon the effective date of the dissolution or liquidation of the
Corporation, or of a reorganization or merger of the Corporation with one
or more other corporations in which the Corporation is not the surviving
corporation, or the transfer of all or substantially all of the assets or
 shares of the Corporation to another person or entity, or a tender offer
approved by the Board (any such transaction being hereinafter referred to
as an “Acceleration Event”), this Plan and any Options granted hereunder
shall terminate unless provision is made in writing in connection with
such Acceleration Event for the continuance of this Plan and for the
assumption of Options granted hereunder, or the substitution for such
Options of new options for the shares of the successor corporation, or a
parent or a subsidiary thereof, with such appropriate adjustments, as may
be determined or approved by the Committee or the successor to the
Corporation, to the number, kind and Option Price of shares subject to
such substituted options in which event this Plan and Options granted
hereunder, or the new options substituted therefore, shall continue in
the manner and under the terms so provided, but any vesting periods or
other restrictions on exercise that would otherwise apply shall no longer
be applicable. Upon the occurrence of any Acceleration Event in which
provision is not made for the continuance of this Plan and for the
assumption of Options granted hereunder, or the substitution for such
Options of new options for the shares of a successor corporation or a
parent or a subsidiary thereof, each Optionee to whom an Option has been
granted under this Plan (or such person’s personal representative, the
executor or administrator of such person’s estate, or any person who
acquired the right to exercise such Option from such person by bequest of
inheritance) shall be entitled, prior the effective date of any
Acceleration Event, (i) to exercise, in whole or in part, the Optionee’s
rights under any Option granted to the Optionee without any regard to any
restrictions on exercise that would otherwise apply, or (ii) to surrender
any such Option to the Corporation in exchange for receipt of cash
equivalent to the amount by which the fair market value of the shares of
Common Stock such person would have received had such person exercised
the Option in full immediately prior to consummation of such Acceleration
Event exceeds the applicable aggregate Option Price. To the extent that
a person, pursuant to this Subparagraph 14(c), has a right to exercise or
surrender any Option on account of a Acceleration Event which such person
otherwise would not have had at that time, such right shall be contingent
upon the consummation of the Acceleration Event.

         15.     Limited Stock Appreciation Rights. (a) In connection with the grant
of any Option under this Plan, the Committee may, in its discretion, by written
notice provide an Optionee with the right (herein sometimes referred to as
“Limited Stock Appreciation Rights”), following a “change in control” of the
Corporation and without regard to any restrictions on exercise that would
otherwise apply, to surrender any unexercised portion
of such Option as such Optionee then may have for a cash payment equal to
the amount by which the fair market

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value (as determined by the Committee) of
the number of shares of Common Stock then subject to such Option exceeds the
aggregate Option Price therefor.

                  (b) When used herein, the phrase “change in control” refers to (i) the
acquisition by any person, group of persons or entity of the beneficial
ownership or power to vote more than twenty (20%) percent of the Corporation’s
outstanding stock or (ii) during any period of two (2) consecutive years, a
change in the majority of the Board unless the election of each new Director
was approved by at least two-thirds of the Directors then still in office who
were Directors at the beginning of such two (2) year period.

                  (c) Limited Stock Appreciation Rights shall be exercised by written
notice to the Corporation as provided in Paragraph 11 hereof at any time prior
to the earlier of (i) the date which is thirty (30) days after the date of
notice of a change in control or (ii) the last day of the Option Period
provided in the Option Agreement, but in no event shall the expiration date be
more than ten (10) years after the date of grant of an Option as specified in
the Option Agreement.

                  (d) Limited Stock Appreciation Rights may be exercised only when the
aggregate market value of Common Stock subject to an Option exceeds the
aggregate Option Price.

         16.     Non-Transferability. Any Option granted under this Plan shall not be
assignable or transferable except, in the case of the death of an Optionee, by
will or by the laws of descent and distribution. In the event of the death of
an Optionee, the personal representative, the executor or the administrator of
such Optionee’s estate, or the person or persons who acquired by bequest or
inheritance the rights to exercise such Option, may exercise or surrender any
Option or portion thereof to the extent not previously exercised or surrendered
by an Optionee or expired, in accordance with the terms of the Option
Agreement, prior to the expiration of the exercise period as specified in
Subparagraph 12(d) hereof.

         17.     Tax Withholding. The employer of a person granted an Option under
this Plan shall have the right to deduct or otherwise effect a withholding or
payment of any amount required by federal or state laws to be withheld or paid
with respect to the grant, exercise or surrender for cash of any Option or the
sale of stock acquired upon the exercise of an Option in order for the employer
to obtain a tax deduction otherwise available as a consequence of such grant,
exercise, surrender for cash, or sale, as the case may be.

         18.     Listing and Registration of Option Shares. Any Option granted under
the Plan shall be subject to the requirement that if at any time the Committee
shall determine, in its sole discretion, that the listing, registration, or
qualification of the shares of Common Stock covered thereby upon any securities
exchange or under any state or federal law or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of such Option or the issuance or purchase of
shares thereunder, such Option may not be exercised in whole or in part unless
and until such listing, registration, or qualification consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.

         19.     Exculpation and Indemnification. In connection with this Plan, no
member of the Committee shall be personally liable for any act or omission to
act in such person’s capacity as a member of the Committee, nor for any mistake
in judgment made in good faith, unless arising out of, or resulting from, such
person’s own bad faith, gross negligence, willful misconduct, or criminal acts.
To the extent permitted by applicable law and regulation, the Corporation
shall indemnify and hold harmless the members of the Committee, and each other
officer of employee of the Corporation to whom any duty or power relating to
the administration or interpretation of this Plan may be assigned or delegated,
from and against any and all liabilities (including any amount paid in
settlement of a claim with approval of the Board) and any costs or expense
(including reasonable counsel fees) incurred by such person arising out of, or
as a result of, such person’s duties, responsibilities, and obligations under
this Plan, other than such liabilities, costs, and expenses as may arise out
of, or result from, the bad faith, gross negligence, willful misconduct, or
criminal acts of such persons.

         20.     Amendment and Modification of the Plan. The Board may at any time and
from time to time amend or modify this Plan in any respect; provided, however,
that no amendment or modification shall be made that increases the total number
of shares covered by this Plan or effects any change in the categories of
persons who may receive Options under this Plan or materially increases the
benefits accruing to Optionees under this Plan unless such change is approved
by the holders of a majority of the shares of Common Stock. Any amendment or

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 modification of this Plan shall not materially reduce the benefits under
any Option theretofore granted to an Optionee under this Plan without the
consent of such Optionee or the permitted transferee thereof.

         21.     Termination and Expiration of the Plan. This Plan may be abandoned,
suspended, or terminated at any time by the Board; provided, however, that
abandonment, suspension, or termination of this Plan shall not affect any
Options then outstanding under this Plan. No Option shall be granted pursuant
to this Plan after ten (10) years from April 22, 1999, the effective date of
this Plan.

         22.     Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as
a basis for interpretation or in construction of this Plan. As used herein,
the masculine gender shall include the feminine and neuter, the singular number
the plural, and vice versa, whenever such meanings are appropriate.

         23.     Expenses of Administration of Plan. All costs and expenses incurred
in the operation and administration of this Plan shall be borne by the
Corporation.

         24.     Governing Law. Without regard to the principles of conflicts of laws,
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.

         25.     Inspection of Plan. A copy of this Plan, and any amendments thereto
or modification thereof, shall be maintained by the Secretary of the
Corporation and shall be shown to any proper person making inquiry about it.

6exv4w2

 

EXHIBIT 4.2

GATEWAY FINANCIAL HOLDINGS, INC.

1999 NONSTATUTORY STOCK OPTION PLAN

         Gateway Financial Holdings, Inc., a North Carolina corporation (the
“Corporation”), does herein set forth the terms of its 1999 Nonstatutory Stock
Option Plan (the “Plan”), which was adopted by the Board of Directors (the
“Board”) of the Corporation and the Corporation’s shareholders.

         1.     Purpose of this Plan. The purpose of this Plan is to provide for the
grant of Nonstatutory Stock Options (the “Options” or singularly, “Option”) to
employees and directors of the Corporation (“Eligible Individuals”) who wish to
invest in the Corporation’s common stock, no par value (the “Common Stock”).
The Board believes the existence of this Plan will make it possible for the
Corporation to attract capable individuals to serve with the Corporation or any
of its subsidiaries and on the Board.

         2.     Administration of this Plan. (a) This Plan shall be administered by
the Board. The Board shall have full power and authority to construe,
interpret and administer this Plan. All actions, decisions, determinations, or
interpretations of the Board shall be final, conclusive, and binding upon all
parties.

                  (b) The Board may designate any officers or employees of the Corporation
to assist in the administration of this Plan. The Board may authorize such
individuals to execute documents on its behalf and may delegate to them such
other ministerial and limited discretionary duties as the Board may see fit.

         3.     Shares of Common Stock Subject to this Plan. The number of shares of
Common Stock that shall be available initially for Options under this Plan is
two hundred seventy three thousand two hundred and seventy six (273,276),
subject to adjustment as provided in Paragraph 12. Common Stock subject to
Options which expire or terminate prior to exercise of the Options shall lapse
and such shares shall again be available for future grants of Options under
this Plan.

         4.     Eligibility. (a) Options under this Plan may be granted to any
employee or director as determined by the Board. An individual may hold more
than one Option under this or other plans adopted by the Corporation.

                  (b) Upon the forfeiture of an Option for whatever reason prior to the
expiration of the Option Period (as defined in Paragraph 8 hereof) the shares
of Common Stock covered by a forfeited Option shall be available for the
granting of additional Options during the remaining term of this Plan upon such
terms and conditions and to such Eligible Individuals as may be determined by
the Board.

         5.     Option Price. (a) The price per share of each Option granted under
this Plan (the “Option Price”) shall be determined by the Board as of the
effective date of grant of such Option. In no event shall such Option Price be
less than 100% of the fair market value of the Common Stock on the date of the
grant. An Option shall be considered as granted on the later of (i) the date
the Board acts to grant such Option, or (ii) such later date as the Board shall
specify in an Option Agreement (as hereinafter defined).

                  (b) The fair market value of a share of Common Stock shall be determined
as follows:

                  (i) If on the date as of which such determination is being made, the
Common Stock is admitted to trading on a securities exchange or exchanges for
which actual sale prices are regularly reported, or actual sale prices are
otherwise regularly published, the fair market value of a share of the Common
Stock shall be deemed to be equal to the mean of the closing sale price as
reported for each of the five (5) trading days immediately preceding the date
as of which such determination is made; provided, however, that, if a closing
sale price is not reported for each of the five (5) trading days immediately
preceding the date as of which such determination is made, then the fair market
value shall be equal to the mean of the closing sale prices on those trading
days for which such price is available.

                  (ii) If on the date as of which such determination is made, quotations for
the Common Stock are regularly listed on the National Association of Securities
Dealers Nasdaq system or another comparable system, the fair market value of a
share of Common Stock shall be deemed to be equal to the mean of the average of
the closing bid and asked prices for the Common Stock quoted on such system on
each of the five (5) trading days preceding the date as of which such
determination is made. If a closing bid and asked price is not available for
each of the five (5)

 

 

trading days, then the fair market value shall be equal to
the mean of the average of the closing bid and asked prices on those trading
days during the five-day period for which such prices are available.

                  (iii) If no such quotations are available, the fair market value of a
share of Common Stock shall be deemed to be the average of the closing bid and
asked prices furnished by a professional securities dealer making a market in
such shares, as selected by the Board, for the trading date first preceding the
date as of which such determination is made.

         If the Board determines that the price as determined above does not
represent the fair market value of a share of Common Stock, the Board may then
consider such other factors as it deems appropriate and then fix the fair
market value for the purposes of this Plan.

         6.     Payment of Option Price. Payment for shares subject to an Option may
be made either in cash or, with the approval of the Board, in other stock of
the Corporation owned by the person to whom such Option was granted or such
other person as may be entitled to exercise such Option (the “Optionee”). Any
shares of the Corporation’s stock that are delivered in payment of the
aggregate Option Price shall be valued at their fair market value, as
determined by the Board, on the date of the exercise of such Option.

         7.     Terms and Conditions of Grant of Options. Each Option granted pursuant
to this Plan shall be evidenced by a written Nonstatutory Stock Option
Agreement (the “Option Agreement”) with each employee or director to whom an
Option is granted. The Option Agreement shall be in the form the Board shall
adopt and may contain such terms and conditions as the Board may determine.

         8.     Option Period. Each Option Agreement shall set forth a period during
which such Option may be exercised (the “Option Period”)’ provided, however,
that the Option Period shall not exceed ten (10) years after the date of grant
of such Option as specified in an Option Agreement.

         9.     Exercise of Options. (a) An Option shall be exercised by written
notice to the Board signed by an Optionee or by such other person as may be
entitled to exercise such Option or to surrender such Option. The written
notice shall state the number of shares with respect to which an Option is
being exercised and shall either be accompanied by the payment of the aggregate
Option Price for such shares or shall fix a date (not more than ten (10)
business days after the date of such notice) by which the payment of the
aggregate Option Price will be made. An Optionee shall not exercise an Option
to purchase less than 100 shares, unless the Board otherwise approves or unless
the partial exercise is for the remaining shares available under such Option.

                  (b) A certificate or certificates for the shares of Common Stock purchased
by the exercise of an Option shall be issued in the regular course of business
following the receipt of the notice of exercise of such Option and the payment
therefor. During the Option Period, no person entitled to exercise any Option
granted under this Plan shall have any of the rights or privileges of a
shareholder with respect to any shares of the Common Stock issuable upon
exercise of such Option, until certificates representing such shares shall have
been issued and delivered and the individual’s name entered as a shareholder of
record on the books of the Corporation for such shares.

         10.     Effect of Leaving the Corporation or Death. (a) In the event that an
Optionee terminates the relationship with the Corporation for any reason other
than retirement, disability, or death, any Option granted to the Optionee under
this Plan, to the extent not previously exercised or surrendered by the
Optionee or expired, shall immediately terminate.

                  (b) In the event of an Optionee’s retirement, such Optionee shall have
the right to exercise an Option granted under this Plan, to the extent that it
has not previously been exercised or surrendered by the Optionee or expired,
for such period of time as may be determined by the Board and specified in the
Option Agreement, but in no event may any Option be exercised later than the
end of the Option Period provided in the Option Agreement. Notwithstanding any
other provision contained this
Plan, or in any Option Agreement, upon retirement, any Option then held by
an Optionee shall be exercisable immediately in full. For purposes of this
Plan, the term “retirement” for a Director shall mean termination of a
Director’s membership on the Board (i) at any time after attaining age 65 with
the approval of the Board; or (ii) at the election of the Director, at any time
after not less than five (5) years service as a member of the Board.

2

 

                   (c) In the event of an Optionee’s disability, such Optionee shall have
the right to exercise an Option granted under this Plan, to the extent that it
has not previously been exercised or surrendered by the Optionee or expired,
for such period of time as may be determined by the Board and specified in the
Option Agreement, but in no event may any Option be exercised later than the
end of the Option Period provided in the Option Agreement. Notwithstanding any
other provision contained this Plan, or in any Option Agreement, upon an
Optionee’s disability, any Option then held by the Optionee shall be
exercisable immediately in full. For purposes of this Plan, the term
“disability” shall be defined as may be determined by the Board.

                  (d) In the event that an Optionee should die while serving on the Board
or as an employee during the Option Period, an Option granted under this Plan,
to the extent that it has not previously been exercised or surrendered by the
Optionee or expired, shall vest and shall be exercisable, in accordance with
the terms of the Option Agreement, by the personal representative of such
Optionee, the executor or administrator of such Optionee’s estate, or by any
person or persons who acquired such Option by bequest or inheritance from such
optionee, notwithstanding any limitations placed on the exercise of such Option
by this Plan or the Option Agreement, at any time within twelve (12) months
after the date of death of such Optionee. In no event may an Option be
exercised later than the end of the Option Period provided in the Option
Agreement. Any references herein to an Optionee shall be deemed to include any
person entitled to exercise an Option after the death of such Optionee under
the terms of this Plan.

         11.     Effect of Plan on Status with Corporation. The fact that an Optionee
has been granted an Option under this Plan shall not confer on such Optionee
any right to continued service on the Board, nor shall it limit the right of
the Corporation to remove such Optionee from service with the Corporation at
any time.

         12.     Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.

                  (a) In the event of a change in the number of shares of Common Stock
outstanding by reason of a stock dividend, stock split, recapitalization,
reorganization, merger, exchange of shares, or other similar capital adjustment
prior to the termination of an Optionee’s rights under this Plan, equitable
proportionate adjustments shall be made by the Board in (i) the number and kind
of shares which remain available under this Plan and (ii) the number, kind, and
the Option Price of shares subject to the unexercised portion of an Option
under this Plan. The adjustments to be made shall be determined by the Board
and shall be consistent with such change or changes in the Corporation’s total
number of outstanding shares; provided, however, that no adjustment shall
change the aggregate Option Price for the exercise of Options granted under
this Plan.

                  (b) The grant of Options under this Plan shall not affect in any way the
right or power of the Corporation or its shareholders to make or authorize any
adjustment, recapitalization, reorganization, or other change in the
Corporation’s capital structure or its business, or any merger or consolidation
of the Corporation, or to issue bonds, debentures, preferred or other
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Corporation, or any sale or transfer
of all or any part of the Corporation’s assets or business.

                  (c) Upon the effective date of the dissolution or liquidation of the
Corporation, or of a reorganization, merger, or consolidation of the
Corporation with one or more other corporations in which the Corporation is not
the surviving corporation, or the transfer of all or substantially all of the
assets or shares of the Corporation to another person or entity, or a tender
offer approved by the Board (any such transaction being hereinafter referred to
as an “Acceleration Event”), this Plan and any Options granted hereunder shall
terminate unless provision is made in writing in connection with such
Acceleration Event for the continuance of this Plan and for the assumption of
Options granted hereunder, or the substitution for such Options of new options
for the shares of the successor corporation, or a parent or a subsidiary
thereof, with such appropriate adjustments as may be determined or approved by
the Board, or the successor to the Corporation, to the number, kind and Option
Price of shares subject to such substituted options. In such event, this Plan
and Options granted hereunder, or the new options substituted therefore, shall
continue in
the manner and under the terms so provided, but any vesting periods or
other restrictions on exercise that would otherwise apply shall no longer be
applicable. Upon the occurrence of any Acceleration Event in which provision
is not made for the continuance of this Plan and for the assumption of Options
granted hereunder, or the substitution for such Options of new options for the
shares of a successor corporation or a parent or a subsidiary thereof, each
Optionee to whom an Option has been granted under this Plan (or such person’s
personal representative, the executor or administrator of such person’s estate,
or any person who acquired the right to exercise such Option from such person
by bequest or inheritance) shall be entitled, prior to the

3

 

                  effective date of
the Acceleration Event, (i) to exercise, in whole or in part, the Optionee’s
rights under any Option granted to the Optionee without any regard to any
restrictions on exercise that would otherwise apply, or (ii) to surrender any
such Option to the Corporation in exchange for receipt of cash equivalent to
the amount by which the fair market value of the shares of Common Stock such
person would have received had such person exercised the Option in full
immediately prior to consummation of the Acceleration Event exceeds the
applicable aggregate Option Price. To the extent that a person, pursuant to
this Subparagraph 12(c) has a right to exercise or surrender any Option on
account of an Acceleration Event which such person otherwise would not have had
at that time, such right shall be contingent upon the consummation of the
Acceleration Event.

         13.     Limited Stock Appreciation Rights. (a) In connection with the grant
of any Option under this Plan, the Board may, in its discretion, by written
notice provide an Optionee with the right (herein sometimes referred to as
“Limited Stock Appreciation Rights”), following a “change in control” of the
Corporation and without regard to any restrictions on exercise that would
otherwise apply, to surrender any unexercised portion of such Option as such
Optionee then may have for a cash payment equal to the amount by which the fair
market value (as determined by the Board) of the number of shares of Common
Stock then subject to such Option exceeds the aggregate Option Price therefor.

                  (b) When used herein, the phrase “change in control” refers to (i) the
acquisition by any person, group of persons or entity of the beneficial
ownership or power to vote more than twenty (20%) percent of the Corporation’s
outstanding stock or (ii) during any period of two (2) consecutive years, a
change in the majority of the Board unless the election of each new Director
was approved by at least two-thirds of the Directors then still in office who
were Directors at the beginning of such two (2) year period.

                  (c) Limited Stock Appreciation Rights shall be exercised by written
notice to the Corporation as provided in Paragraph 11 hereof at any time prior
to the earlier of (i) the date which is thirty (30) days after the date of
notice of a change in control or (ii) the last day of the Option Period
provided in the Option Agreement, but in no event shall the expiration date be
more than ten (10) years after the date of grant of an Option as specified in
the Option Agreement.

                  (d) Limited Stock Appreciation Rights may be exercised only when the
aggregate market value of Common Stock subject to an Option exceeds the
aggregate Option Price.

         14.     Non-Transferability. An Option granted under this Plan shall not be
assignable or transferable except, in the event of the death of an Optionee, by
will or by the laws of descent and distribution. In the event of the death of
an Optionee, his personal representative, the executor or the administrator of
such Optionee’s estate, or the person or persons who acquired by bequest or
inheritance the rights to exercise or to surrender such Options, may exercise
or surrender any Option or portion thereof to the extend not previously
exercisable or surrendered by an Optionee or expired, in accordance with the
terms of the Option Agreement, prior to the expiration of the exercise period
as specified in Subparagraph 10(d) hereof.

         15.     Tax Withholding. The Corporation shall have the right to deduct or
otherwise effect a withholding or payment of any amount required by federal or
state laws to be withheld or paid with respect to the grant, exercise or
surrender for cash of any Option or the sale of stock acquired upon the
exercise of an Option in order for the Corporation or any of its subsidiaries
to obtain a tax deduction otherwise available as a consequence of such grant,
exercise, surrender for cash, or sale, as the case may be.

         16.     Listing and Registration of Option Shares. Any Option granted under
this Plan shall be subject to the requirement that if at any time the Board
shall determine, in its sole discretion, that the listing, registration, or
qualification of the shares covered thereby upon any securities exchange or
under any state or federal law or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the issuance or purchase of
shares thereunder, such Option may not be exercised in whole or in part
unless and until such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board.

         17.     Exculpation and Indemnification. In connection with this Plan, no
member of the Board shall be personally liable for any act or omission to act
in such person’s capacity as a member of the Board, nor for any mistake in
judgment made in good faith, unless arising out of, or resulting from, such
person’s own bad faith, gross

4

 

negligence, willful misconduct, or criminal acts.
To the extent permitted by applicable law and regulation, the Corporation shall
indemnify and hold harmless the members of the Board, and each other officer or
employee of the Corporation to whom any duty or power relating to the
administration or interpretation of this Plan may be assigned or delegated,
from and against any and all liabilities (including any amount paid in
settlement of a claim with the approval of the Board) and any costs or expenses
(including reasonable counsel fees) incurred by such persons arising out of, or
as a result of, any act or omission to act in connection with the performance
of such person’s duties, responsibilities, and obligations under this Plan,
other than such liabilities, costs, and expenses as may arise out of, or result
from, the bad faith, gross negligence, willful misconduct, or criminal acts of
such persons.

         18.     Amendment and Modification of this Plan. The Board may at any time,
and from time to time, amend or modify this Plan in any respect; provided,
however, that no amendment or modification shall be made that increases the
total number of shares covered by this Plan or effects any change in the
category of persons who may receive Options under this Plan or materially
increases the benefits accruing to Optionees under this Plan unless such change
is approved by the holders of a majority of the outstanding shares of the
Common Stock. Any amendment or modification of this Plan shall not materially
reduce the benefits under any Option therefore granted to an Optionee under
this Plan without the consent of such Optionee or any permitted transferee.

         19.     Termination and Expiration of this Plan. This Plan may be abandoned,
suspended, or terminated at any time by the Board; provided, however, that
abandonment, suspension, or termination of this Plan shall not affect any
Options then outstanding under this Plan. No Option shall be granted pursuant
to this Plan after ten (10) years from April 22, 1999, the effective date of
this Plan.

         20.     Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as
a basis for interpretation or in construction of this Plan. As used herein,
the masculine gender shall include the feminine and neuter, the singular
number, the plural, and vice versa, whenever such meanings are appropriate.

         21.     Expenses of Administration of Plan. All costs and expenses incurred
in the operation and administration of this Plan shall be borne by the
Corporation.

         22.     Governing Law. Without regard to the principles of conflicts of laws,
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.

         23. Inspection of Plan. A copy of this Plan, and any amendments thereto or
modifications thereof, shall be maintained by the Secretary of the Corporation
and shall be shown to any proper person making inquiry about it.

5

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