Document:

Exhibit 10.1

 

MESABA HOLDINGS, INC.

 

1994 STOCK OPTION PLAN

 

(As amended by the Board of Directors

on August 29, 1995 & July 1, 1997)

 

(Formerly known as the AirTran Corporation

1994 Stock Option Plan)

 

 

MESABA HOLDINGS, INC.

1994 STOCK OPTION PLAN

 

TABLE OF CONTENTS

 

	
  Purpose

  	
   

  
	
  Shares Subject to the Plan

  	
   

  
	
  Administration of the Plan

  	
   

  
	
  Grant of
  Options

  	
   

  
	
  Terms and Conditions of
  Options

  	
   

  
	
  (a)Option
  Period

  	
   

  
	
  (b)Exercise
  Price

  	
   

  
	
  (c)Exercise
  of Option

  	
   

  
	
  (d)Payment of
  Purchase Price upon Exercise

  	
   

  
	
  (e)Exercise
  in the Event of Death or Termination of Employment

  	
   

  
	
  (f)Nontransferability

  	
   

  
	
  (g)Investment Representation

  	
   

  
	
  (h)Adjustments
  in Event of Change in Common Stock

  	
   

  
	
  (i)Incentive Stock Options

  	
   

  
	
  (j)No Rights as Shareholder

  	
   

  
	
  (k)No Rights to
  Continued Employment

  	
   

  
	
  Compliance
  with Other Laws and Regulations

  	
   

  
	
  Disposition
  of Shares

  	
   

  
	
  Amendment and
  Discontinuance

  	
   

  
	
  Effective Date of the Plan

  	
   

  
	
  Name

  	
   

  
	
  Effect on Other Stock Plans

  	
   

  

 

 

MESABA HOLDINGS, INC.

1994 STOCK OPTION PLAN

 

(As amended by the Board of Directors

on August 29, 1995 and July 1, 1997)

(Formerly known as the AirTran Corporation

1994 Stock Option Plan)

 

1.                                       Purpose. 
The purpose of this Plan is to provide a means whereby Mesaba Holdings, Inc.
(the “Company”) may, through the grant of incentive stock options and
nonqualified stock options to Key Employees, as defined below, attract and
retain persons of ability as employees and motivate such employees to exert
their best efforts on behalf of the Company, its shareholders and any Subsidiary.  By affording Key Employees the opportunity to
acquire proprietary interests in the Company and any Subsidiary and by
providing them incentives to put forth maximum efforts for the success of the
Company’s business, the Plan seeks to contribute to the attainment of those
objectives.

 

As used herein, the term “Committee”
shall mean the committee appointed by the Board of Directors of the Company in
accordance with Section 3.  The term
“Subsidiary” shall mean any corporation which at the time an option is
granted under this Plan qualifies as a subsidiary of the Company under the
definition of “subsidiary corporation” contained in Section 424(f) of
the Internal Revenue Code of 1986, as amended from time to time (the “Code”),
or any similar provision hereafter enacted, except that such term shall not
include any corporation which is classified as a foreign corporation pursuant
to Section 7701 of the Code.  The
term “Key Employees” means those employees (including officers and
directors who are also employees) of the Company or of any Subsidiary, who, in
the judgment of the Committee referred to in Section 3 below, are
considered especially important to the future of the Company.  The term “incentive stock options”
means options to purchase Common Stock ($.01 par value) of the Company (the “Stock”)
which at the time such options are granted under this Plan qualify as incentive
stock options within the meaning of Section 422 of the Code.  The term “nonqualified stock options”
means options to purchase stock which at the time such options are granted
under this Plan do not qualify as incentive stock options.

 

2.                                       Shares Subject to the Plan.  Options may be granted by the Company from
time to time to Key Employees to purchase an aggregate of 800,000 shares of the
Stock, and such number of shares shall be reserved for options granted under
the Plan (subject to adjustment as provided in Section 5(h)).  The shares issued upon exercise of options
granted under the Plan may be authorized and unissued shares or shares held by
the Company (whether acquired specifically for issuance under the Plan or
otherwise) which are available under applicable law to be issued under the
Plan.  If any option granted under the
Plan shall terminate, expire or, with the consent of the optionee, be canceled
as to any shares, new options may thereafter be granted under the Plan covering
the number of shares subject to the option which was thus terminated, expired
or canceled.

 

3.                                       Administration of the Plan.  The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the “Board”)
appointed by the Board and serving at the Board’s pleasure, or such other
committee as the Board may from time to time

 

 

appoint to serve
as such pursuant to this Section 3. 
Such Committee shall consist of not less than two members of the
Board.  Any grants of options to officers
who are subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), shall be made only by a Committee of two or more
directors, each of whom is a “disinterested person” as defined in Rule 16b-3(c)(2) of
the Exchange Act.

 

The Committee shall have
plenary authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to grant options;  to determine the purchase price of the Stock
covered by each option, the term of each option, the employees to whom, and the
time or times which, options shall be granted and the number of shares covered by
each option; to designate options as incentive stock options or nonqualified
options; with the consent of an optionee, to modify or amend an Option; to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the Board;
to interpret the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of the
option agreements (which need not be identical); with the consent of an
optionee, to modify or amend an option; to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
option previously granted by the Board; and to make all other determinations
deemed necessary or advisable for the administration of the Plan.  The Committee may delegate to one or more of
its members or to one or more agents such administrative duties as it may deem
advisable, and the Committee or any person to whom it has delegated its duties
as aforesaid may employ one or more persons to render advice with respect to
the responsibility the Committee or such person may have under the Plan.

 

The Committee may employ
attorneys, consultants, accountants or other persons and the Committee, the
Company and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons.  All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all persons to whom options have been granted under the Plan, the Company
and all other interested persons.  No
member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to that Plan or
the grant of any options made hereunder, and all members of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation.

 

4.                                       Grant of Options.  Subject to the provisions of the Plan, the
Committee shall (a) determine and designate from time to time those Key
Employees to whom options are to be granted; (b) authorize the granting of
incentive stock options, nonqualified stock options, or a combination of
incentive stock options and nonqualified stock options; (c) determine the
number of shares subject to each option; and (d) determine the time or
times when and the manner in which each option shall be exercisable and the
duration of the exercise period; provided, however, that (i) no
option shall be granted after the expiration of 10 years from the Effective
Date of the Plan specified in Section 9 below and (ii) the aggregate
fair market value (determined as of the date the option is granted) of stock
for which all of an employee’s incentive stock options first become exercisable
during any calendar year shall not exceed $100,000.  No director of the Company who is not also an
employee of the Company or any Subsidiary shall be entitled to receive any
option under the Plan.

 

5.                                       Terms and Conditions of Options.  Each option granted under the Plan shall be
evidenced by an agreement in a form approved by the Committee.  Such agreement shall be

 

 

subject to the
following express terms and conditions and to such other terms and conditions
as the Committee may deem appropriate:

 

(a)                                  Option Period.  Each option agreement shall specify the
period for which the option thereunder is granted and shall provide that the
option shall expire at the end of such period. 
The Committee may extend such period provided that, in the case of in
incentive stock option, such extension shall not disqualify the option as an
incentive stock option.  In no case shall
such period, including any such extensions, exceed 10 years from the date of
grant; provided, however, that in the case of an incentive stock option
granted to an individual who, at the time of grant, owns stock possessing more
than 10% of the total combined voting power of all classes of capital stock of
the Company (a “Ten Percent Shareholder”), such period, including extensions,
shall not exceed five years from the date of grant.

 

(b)                                 Exercise Price.  The exercise price per share of Stock shall
be determined by the Committee at the time each option is granted and shall be
not less than (i) the fair market value or (ii) in the case of an
incentive stock option granted to a Ten Percent Shareholder, 110% of the fair
market value of one share of the Stock on the date the option is granted, as
determined by the Committee.

 

For purposes of this Section 5,
the “fair market value” of the Stock shall be determined as follows:

 

(A) if the Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such
exchange, the fair market value on any given day shall be the closing sale
price for the Stock, or if no sale is made on such day, the closing bid price
for such day on such exchange;

 

(B) if the Stock is not listed on a national
securities exchange, the fair market value on any given day shall be the
closing sale price for the Stock as reported on the NASDAQ National Market
System on such day, or if no sale is made on such day, the closing bid price
for such day as entered by a market maker for the Stock;

 

(C) if the Stock is not listed on a national
securities exchange, is not admitted to unlisted trading privileges on any such
exchange, and is not eligible for inclusion in the NASDAQ National Market
System, the fair market value on any given day shall be the average of the
closing representative bid and asked prices as reported by the National
Quotation Bureau, Inc. or, if the Stock is not quoted on the National
Association of Securities Dealers Automated Quotations System, then as reported
in any publicly available compilation of the bid and asked prices of the Stock
in any over-the-counter market on which the Stock is traded; or

 

(D) if there exists no public trading market for
the Stock of the Company, the fair market value on any given day shall be an
amount determined by the Committee in such manner as it may reasonably
determine in its discretion, provided that such amount shall not be less than
the book value per share as reasonably determined by the Committee as of the
date of determination nor less than the par value of the Stock.

 

(c)                                  Exercise of Option.  No part of any option may be exercised until
the optionee shall have remained in the employ of the Company or of a
Subsidiary for such period after the date on which the option is granted as the
Committee may specify in the option

 

 

agreement, and the option
agreement may provide for exercisability in installments; provided, however,
that no option may be exercised for a period of six months after the date of
grant.  Options granted under this Plan
may be exercised without regard to the status of previously granted options.

 

(d)                                 Payment of Purchase Price
upon Exercise.  Each option shall
provide that the purchase price of the shares as to which an option shall be
exercised shall be paid to the Company at the time of exercise in cash; provided,
however, that the Committee may determine, in its sole discretion, other
forms of consideration to be appropriate for payment of the purchase price of
the shares as to which an option shall be exercised, including, but not limited
to, shares of Stock already owned by the optionee having a total fair market
value, as determined by the Committee, equal to the purchase price, or a
combination of cash and Stock having a total fair market value, as so
determined, equal to the purchase price.

 

The Company may make
loans to such option holders as the Committee, in its discretion, may determine
(including a holder who is a director or officer of the Company) in connection
with the exercise of options granted under the Plan; provided, however,
that the Committee shall have no discretion to authorize the making of any loan
where the possession of such discretion or the making of such loan would result
in a “modification” (as defined in Section 424(h) of the Code) of any
incentive stock option.  Such loans shall
be subject to the following terms and conditions and such other terms and
conditions not inconsistent with the Plan as the Committee shall determine:

 

(i)                                     Such
loans shall bear interest at such rates as the Committee shall determine from
time to time, which rates may be below then current market rates (except in the
case of incentive stock options).

 

(ii)                                  In
no event may any such loan exceed the fair market value, at the date of
exercise, of the shares covered by the option or portion thereof exercised by
the holder.

 

(iii)  No loan shall have an initial term
exceeding five years, but, any such loan may be renewable at the discretion of
the Committee.

 

(iv)                              When
a loan shall have been made, shares of Common Stock having a fair market value
at least equal to the principal amount of the loan, or such other collateral as
may be deemed appropriate by the Committee, shall be pledged by the holder to
the Company as security for payment of the unpaid balance of the loan.

 

(v)                                 Every
loan shall comply with all applicable laws, regulations and rules of the
Federal Reserve Board and any other governmental agency having jurisdiction.

 

(e)                                  Exercise in the Event of
Death or Termination of Employment.

 

(i)                                     If
an optionee shall die while an employee of the Company or a Subsidiary, his or
her option may be exercised, to the extent that the optionee shall have been
entitled to do so on the date of his or her death, by the person or persons to
whom the optionee’s right under the option passes by will or applicable law, or
if no such person has such right, by his or her executors or administrators, at
any time or from time to time, but not later than the expiration date specified
in

 

 

paragraph
(a) of this Section 5 or two years after the optionee’s death,
whichever date is earlier.

 

(ii)                                  If
an optionee’s employment by the Company or a Subsidiary shall terminate because
of his or her total disability, he or she may exercise his or her option to the
extent that he or she shall have been entitled to do so at the date of the
termination of his or her employment, at any time or from time to time, but not
later than the expiration date specified in paragraph (a) of this Section 5
or one year after termination of employment, whichever date is earlier.

 

(iii)  If an optionee’s employment shall
terminate by reason of his or her retirement in accordance with the terms of
the Company’s retirement plans or with the consent of the Committee or
involuntarily other than for cause, all rights to exercise his or her option
shall terminate at the expiration date specified in paragraph (a) of this Section 5
or three months after termination of employment, whichever date is earlier.

 

(iv)                              If
an optionee’s employment shall terminate for cause or voluntarily or
involuntarily for any reason other than death, total disability or retirement,
all rights to exercise his or her option shall terminate at the date of such
termination of employment, unless such termination is waived by the Committee
in its sole discretion.

 

“Termination
for cause” shall include termination for malfeasance or misfeasance in the
performance of duties of the optionee as an employee of the Company or
conviction of illegal activity in connection therewith or any conduct
detrimental to the interests of the Company or any Subsidiary, violation of the
terms of the optionee’s employment agreement, if any, and in any event, the
determination of the Committee with respect to the matter of whether an
optionee’s employment has been terminated for cause shall be final and
conclusive.  “Total disability”
shall mean a physical or mental condition of an employee resulting from bodily
injury, disease, or mental disorder which renders the employee incapable of
continuing his or her usual and customary employment with the Company.

 

(f)                                    Nontransferability.  No option granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution.  During the lifetime of the
optionee, an option shall be exercisable only by the optionee or by the
optionee’s guardian or legal representative (unless such exercise would
disqualify an option as an incentive stock option).

 

(g)                                 Investment Representation.  Each option agreement may provide that, upon
demand by the Committee for such a representation, the optionee (or any person
acting under paragraph 5(e)) shall deliver to the Committee at the time of any
exercise of an option or portion thereof a written representation that the
shares to be acquired upon such exercise are to be acquired for investment and
not for resale or with a view to the distribution thereof.  Upon such demand, delivery of such
representation prior to the delivery of any shares issued upon exercise of an
option and prior to the expiration of the option period shall be a condition
precedent to the right of the optionee or such other person to purchase any
shares.

 

(h)                                 Adjustments in Event of
Change in Common Stock.    In the
event of any change in the Common Stock of the Company by reason of any stock
dividend, recapitalization,

 

 

reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights offering
to purchase Common Stock at a price substantially below fair market value, or
of any similar change affecting the Common Stock, the number and kind of shares
which thereafter may be optioned and sold under the Plan and the number and
kind of shares subject to option in outstanding option agreements and the
purchase price per share thereof shall be appropriately adjusted consistent
with such change in such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available for,
participants in the Plan.

 

(i)                                     Incentive Stock Options.  Each option agreement which provides for the
grant of an incentive stock option to a participant shall contain such terms
and provisions as the Committee may determine to be necessary or desirable in
order to qualify such option as an incentive stock option within the meaning of
Section 422 of the Code, or any amendment thereof or substitute therefor.

 

(j)                                     No Rights as Shareholder.  No optionee shall have any rights as a
shareholder with respect to any shares subject to his or her option prior to
the date of issuance to him or her of a certificate or certificates for such
shares.

 

(k)                                  No Rights to Continued
Employment.  The Plan and any
option granted under the Plan shall not confer upon any optionee any right with
respect to continuance of employment by the Company or any Subsidiary, nor
shall the Plan and any option granted under the Plan interfere in any way with
the right of the Company or any Subsidiary by which an optionee is employed to
terminate his or her employment at any time.

 

6.                                       Compliance with Other Laws
and Regulations.  The Plan, the
grant and exercise of options hereunder, and the obligation of the Company to
sell and deliver shares of Stock under such options, shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required.  The Company shall not be required to issue or
deliver any certificates for shares of Stock prior to (a) the listing of
such shares on any stock exchange on which the Stock may then be listed and (b) the
completion of any registration or qualification of such shares under any
federal or state law, or any ruling or regulation of any government body which
the Company shall, in its sole discretion, determine to be necessary or
advisable.

 

7.                                       Disposition of Shares.  Without the consent of the Committee, no
share of Stock acquired by an exercise of an incentive stock option granted
under the Plan shall be transferable other than by will or by the laws of
descent and distribution within two years of the date such option was granted
or within one year after the transfer of such share pursuant to such exercise; provided,
however, that an optionee may sell, transfer, hypothecate, or otherwise
dispose of the shares acquired upon exercise of an incentive stock option at
any time following exercise so long as adequate provision is made for the
payment to the Company of funds sufficient for payment of any withholding and
other taxes required by any governmental authority in respect of the sale of
such shares prior to one year following the date of exercise.

 

8.                                       Amendment and Discontinuance.  The Board of Directors of the Company may
from time to time amend, suspend or discontinue the Plan; provided, however,
that, subject to the provisions of paragraph (h) of Section 5, no
action of the Board of Directors or of the Committee may (i) increase the
number of shares reserved for options pursuant to Section 2, (ii) permit
the granting of any option having an exercise price less than that determined
in accordance with

 

 

paragraph (b) of
Section 5, (iii) shorten the period provided for in paragraph (c) of
Section 5 which must elapse between the date of granting an option and the
date on which any part of an option may be exercised, (iv) permit the
granting of options which expire beyond the period provided for in paragraph (a) of
Section 5, or (v) make any change that would require shareholder
approval pursuant to Rule 16b-3 under the Exchange Act, unless such
approval is obtained.  Without the
written consent of an optionee, no amendment or suspension of the Plan shall
alter or impair any option previously granted to him or her under the Plan.  Notwithstanding the foregoing, the Board of
Directors may also amend or modify the Plan to give effect to changes hereafter
adopted in any law, rule or regulation affecting incentive stock
options.  The Plan may be amended,
modified or terminated in any other manner as may be approved by the
shareholders of the Company.

 

9.                                       Effective Date of the Plan.  The Effective Date of the Plan shall be May 19,
1994, the date of its adoption by the Board of Directors of the Company,
subject to approval by shareholders of the Company holding not less than a
majority of the shares present and voting at its next annual or special
shareholders’ meeting.

 

10.                                 Name.  The Plan shall be known as the “Mesaba
Holdings, Inc. 1994 Stock Option Plan.”

 

11.                                 Effect on Other Stock Plans.  The adoption of the Plan shall have no effect
on options granted or to be granted pursuant to any other stock option plans
covering the employees of the Company, any Subsidiary, or any predecessors or
successors thereto.Exhibit 10.2

 

MESABA
HOLDINGS, INC.

 

1996
DIRECTOR STOCK OPTION PLAN

 

(As
Amended by Action of the Board of Directors on August 20, 1997.)

 

1.                                       Purpose
of the Plan.  The purpose of this
1996 Director Stock Option Plan, adopted by the Board on May 22, 1996, subject
to the approval of the Company’s shareholders at the next annual meeting, is to
attract the best available individuals to serve as Outside Directors of the
Company and to encourage their continued service on the Board.

 

The
Company intends that the options granted hereunder shall not constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986.  The Plan is
intended to comply with the requirements of Rule 16b-3 under the Exchange Act.

 

2.                                       Definitions.  As used herein, the following definitions
shall apply:

 

(a)                                  “Board” shall
mean the Board of Directors of the Company.

 

(b)                                 “Common Stock”
shall mean the Common Stock, $.01 par value per share, of the Company.

 

(c)                                  “Company”
shall mean Mesaba Holdings, Inc., a Minnesota corporation.

 

(d)                                 “Committee”
shall mean a committee of the Board appointed by the Board to administer the
Plan.

 

(e)                                  “Director”
shall mean a member of the Board.

 

(f)                                    “Employee”
shall mean any person, including officers and Directors, employed by the
Company or any Parent or Subsidiary of the Company.  The payment of fees to a Director shall not
be sufficient in and of itself to constitute “employment” by the Company.

 

(g)                                 “Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.

 

(h)                                 “Option” shall
mean a stock option granted pursuant to the Plan.

 

(i)                                     “Optioned Stock”
shall mean the Common Stock subject to an Option.

 

(j)                                     “Optionee”
shall mean an Outside Director who receives an option.

 

(k)                                  “Outside Director”
shall mean a Director who is not an Employee.

 

(l)                                     “Parent”
shall mean a “parent corporation,” whether now or hereafter existing, as
defined in Section 424(e) of the Internal Revenue Code of 1986, as
amended.

 

 

(m)                               “Plan” shall mean
this 1996 Director Stock Option Plan.

 

(n)                                 “Share” shall
mean a share of Common Stock, as adjusted in accordance with Section 12 of
the Plan.

 

(o)                                 “Subsidiary”
shall mean a “subsidiary corporation,” whether now or hereafter existing, as
defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended.

 

(p)                                 “Total Disability”
shall mean the permanent inability of a person, as a result of accident or
sickness, to perform his or her duties as a Director.

 

3.                                       Stock
Subject to the Plan.  Subject to the
provisions of Section 12 of the Plan, the maximum aggregate number of
shares which may be optioned and sold under the Plan is 200,000 shares of
Common Stock.  The shares may be
authorized, but unissued, or reacquired Common Stock.

 

If an
Option expires or becomes unexercisable for any reason without having been
exercised in full, the unexercised Shares which were subject thereto shall,
unless the Plan has been terminated, become available for future grant under
the Plan. If Shares which were acquired upon exercise of an Option are
subsequently repurchased by the Company, such Shares shall not become available
for future grant under the Plan.

 

4.                                       Automatic
Grant of Options.  All grants of
Options hereunder shall be automatic and non-discretionary and shall be made
strictly in accordance with the following provisions:

 

(a)                                  No person shall have
any discretion to select which Outside Directors shall be granted Options or to
determine the number of Shares to be covered by Options granted to Outside
Directors.

 

(b)                                 Each Outside Director,
including persons who are Outside Directors on the date of adoption of the
Plan, shall be automatically granted an option to purchase 6,000 Shares (the “First
Option”) upon the later of (i) November 6, 1996 or (ii) the date on which
such person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy.

 

(c)                                  After the First
Option has been granted to an Outside Director, such Outside Director shall
thereafter be automatically granted an Option to purchase 6,000 shares on November 6
of the calendar year after the year in which the First Option was granted and
on each successive November 6 thereafter to and including November 6,
2001 or until the earlier termination of the Plan.  If November 6 falls on a weekend or
holiday, the grant date shall be the next business day.

 

(d)                                 The Chairman of the
Board, if such person is an Outside Director, shall be automatically granted an
option to purchase 6,000 Shares (the “Chairman’s First Option”) upon the later
of (i) November 6, 1997 or (ii) the date on which such person first
becomes Chairman of the Board.  Such
Option is in addition to the Options granted to the Chairman of the Board as an
Outside Director under Sections 4(b) and (c).

 

 

(e)                                  After the Chairman’s
First Option has been granted to the Chairman of the Board, the Chairman of the
Board shall thereafter be automatically granted an Option to purchase 6,000
shares on November 6 of the calendar year after the year in which the
Chairman’s First Option was granted and on each successive November 6
thereafter to and including November 6, 2001 or until the earlier
termination of the Plan.  If November 6
falls on a weekend or holiday, the grant date shall be the next business
day.  Such Options are in addition to the
Options granted to the Chairman of the Board as an Outside Director under
Sections 4(b) and (c).

 

(f)                                    Notwithstanding the
provisions of Sections 4(b), (c), (d) and (e) hereof, in the event that a grant
would cause the number of Shares subject to outstanding Options under the Plan
plus Shares previously purchased upon exercise of Options issued under the Plan
to exceed 200,000 Shares, then each such automatic grant shall be for that
number of Shares equal to the product of (i) 6,000 and (ii) the total number of
Shares remaining available for grant divided by the total number of Shares
which were to be subject to Options granted on the automatic grant date.  Any further grants shall then be deferred until
such time, if any, as additional Shares become available for grant under the
Plan through action of the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.

 

5.                                       Option
Terms and Conditions.  The terms and
conditions of an Option granted hereunder shall be as follows:

 

(a)                                  the term of each
Option shall be six (6) years, subject to Sections 12 and 13 hereof.

 

(b)                                 the Option shall
become exercisable in full beginning on the first anniversary of the grant of
the Option.

 

(c)                                  the Option shall be
exercisable only while the Outside Director serves as a Director of the Company
or, in the event of death or Total Disability, pursuant to Section 10(c)
hereof.

 

(d)                                 the exercise price per
Share shall be 100% of the fair market value per Share on the date of grant of
the Option, as determined in accordance with Section 9(a) hereof.

 

(e)                                  the effectiveness of
any options granted hereunder is conditioned upon shareholder approval of the
Plan in accordance with Rule 16b-3 under the Exchange Act.

 

6.                                       Administration
of and Grants of Options under the Plan.

 

(a)                                  Administration.  Except as otherwise required herein, the Plan
shall be administered by the Board or a Committee.

 

 

(b)                                 Powers of the Board
or Committee.  Subject to the
provisions and restrictions of the Plan, the Board or Committee shall have the
authority, in its discretion: (i) to determine, upon review of relevant
information and in accordance with Section 9(a) hereof, the fair market
value of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe,
amend and rescind rules and regulations relating to the Plan; (iv) to authorize
any person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option hereunder; and (v) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.

 

(c)                                  Effect of Board’s
Decision.  All decisions,
determinations and interpretations of the Board or Committee shall be final and
binding on all Optionees and any other holders of any Options granted under the
Plan.

 

(d)                                 Suspension or
Termination of Option.  If the Board
or Committee reasonably believes that an Optionee has committed an act of
misconduct, it may suspend the Optionee’s right to exercise any Option pending
a determination by the Board or Committee (excluding the Outside Director
accused of such misconduct).  If the
Board or Committee (excluding the Outside Director accused of such misconduct)
determines that an Optionee has committed an act of embezzlement, fraud,
dishonesty, nonpayment of an obligation owed to the Company, breach of
fiduciary duty or deliberate disregard of the Company’s rules resulting in
loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure
of any Company trade secret or confidential information, engages in any conduct
constituting unfair competition with respect to the Company, or induces any
party to breach a contract with the Company, neither the Optionee nor the
Optionee’s estate shall be entitled to exercise any Option whatsoever.  In making such determination, the Board or
Committee (excluding the Outside Director accused of such misconduct) shall act
fairly and shall give the Optionee an opportunity to appear and present evidence
on the Optionee’s behalf at a hearing before the Board or Committee.

 

(e)                                  Date of Grant of
Options.  The date of grant of an
Option shall, for all purposes, be the date determined in accordance with Section 4
hereof, notwithstanding the fact that an Optionee may not have entered into an
option agreement with the Company on such date. 
Notice of the grant of an Option shall be given to the Optionee within a
reasonable time after the date of such grant.

 

7.                                       Eligibility.  Options may be granted only to Outside
Directors.  All options shall be
automatically granted in accordance with the terms set forth in Section 4
hereof.  The Plan shall not confer upon
any Optionee any right with respect to continuation of service as a Director or
nomination to serve as a Director, nor shall it interfere in any way with any
rights which a Director or the Company may have to terminate such Director’s
directorship at any time.

 

8.                                       Term
of Plan.  The effective date of this
Plan is May 22, 1996, the date upon which it was adopted by the
Board.  The Plan shall continue in effect
to and including November 6, 2001 unless terminated sooner under Section 13
hereof.

 

9.                                       Fair
Market Value and Form of Consideration.

 

 

(a)                                  Fair Market Value.  The fair market value per share shall be determined
as follows:

 

(i)  if the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such
exchange, the fair market value on any given day shall be the closing sale
price for the Common Stock on such day, as reported in the Wall Street Journal
or other newspaper of general circulation;

 

(ii)  if the Common Stock is not listed on a
national securities exchange, the fair market value on any given day shall be
the closing sale price for the Common Stock on the Nasdaq National Market on
such day, as reported in the Wall Street Journal or other newspaper of general
circulation;

 

(iii)  if the Common Stock is not listed on a
national securities exchange, is not admitted to unlisted trading privileges on
any  such exchange, and is not included
in the Nasdaq National Market, the fair market value on any given day shall be
the average of the closing representative bid and asked prices on such day, as
reported on the Nasdaq System, and if not reported on such system, then as
reported by the National Quotation Bureau, Inc. or such other publicly
available compilation of the bid and asked prices of the Common Stock in any
over-the-counter market on which the Common Stock is traded; or

 

(iv)  if there exists no public trading market for
the Common Stock, the fair market value on any given day shall be an amount
determined by the Board or Committee in such manner as it may reasonably
determine in its discretion, provided that such amount shall not be less than
the book value per share as reasonably determined by the Board or Committee as
of the date of determination nor less than the par value of the Stock.

 

(b)                                 Form of
Consideration.  The consideration to
be paid for the Shares to be issued upon exercise of an Option shall consist
entirely of cash or such other form of consideration as the Board or Committee
may determine, in its sole discretion, to be appropriate for payment, including
but not limited to other shares of Common Stock having a fair market value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which the Option is exercised, or any combination of such methods of payment.

 

10.                                 Exercise of Option.

 

(a)                                  Procedure for
Exercise; Rights as a Shareholder. 
Any Option granted hereunder shall be exercisable at such times as are
set forth in Section 5 hereof.  An
Option may not be exercised for a fraction of a Share.

 

An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company.  Full payment
may consist of any consideration and method of payment allowable under Section 9(b)
hereof.  Until the

 

 

issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option.  A share
certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 12
hereof.

 

Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option was exercised.

 

(b)                                 Termination of
Status as a Director.  If an Optionee
ceases to serve as a Director for any reason other than death or Total
Disability, all rights to exercise his or her Option shall terminate at the
date of such termination of service as a Director, unless such termination is
waived by the Board or Committee in its sole discretion.

 

(c)                                  Death or Total
Disability of Optionee.

 

(i)                                     If an Optionee
dies while serving as a Director or within three months after termination of
his or her service as a Director because of his or her Total Disability, his or
her Option may be exercised, to the extent that the Optionee shall have been
entitled to do so on the date of his or her death or such termination, by the
person or persons to whom the Optionee’s right under the Option pass by will or
applicable law, or if no such person has such right, by his or her executors or
administrators, at any time or from time to time, but not later than the
expiration of the Option or two years after the Optionee’s death, whichever
date is earlier.

 

(ii)                                  If an Optionee’s
service as a Director terminates because of his or her Total Disability and the
Optionee has not died within three months following the date of such
termination, the Optionee may exercise his or her Option to the extent that he
or she shall have been entitled to do so at the date of such termination, at
any time or from time to time, but not later than the expiration of the Option
or one year after termination of service as a Director whichever date is
earlier.

 

11.                                 Non-Transferability
of Options.  The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.

 

12.                                 Adjustments
Upon Changes in Capitalization or Merger. 
The number of shares of Common Stock covered by each outstanding Option,
the number of shares to be granted pursuant to automatic grants, and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but as to which Options have not yet been granted or which have been

 

 

returned to the
Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been “effected without receipt of consideration.”
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. 
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, or options or rights to purchase shares of stock of any class shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option.

 

In the
event of the proposed dissolution or liquidation of the Company, each Option
will terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board. 
The Board may, in the exercise of its sole discretion in such instances,
declare that any Option shall terminate as of a date fixed by the Board and
give each Optionee the right to exercise his or her Option as to all or any
part of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable.  In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor corporation
or a parent or subsidiary of such successor corporation, unless the Board
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an Option fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of ten (10) days from the date of such notice,
and the Option will terminate upon the expiration of such period.

 

13.                                 Amendment,
Termination and Approval of the Plan. 
The Board may at any time amend or terminate the Plan, except that the
Board shall not amend the Plan more than once every six (6) months with respect
to the provisions of the Plan relating to the amount, price, and timing of
Option grants, other than to comply with changes in the Internal Revenue Code
of 1986, the Employee Retirement Income Security Act of 1974, as amended, or
the regulations thereunder.  No Option
may be granted after the Plan is terminated. 
The foregoing provisions of this Section notwithstanding, no
amendment or termination shall, without the consent of the holder of an Option,
alter or impair any rights or obligations under any Option theretofore granted
under the Plan except as is permitted pursuant to Section 12 of the Plan.

 

If any
amendment to the Plan requires approval by the shareholders of the Company for
continued applicability of Rule 16b-3 under the Exchange Act, or for initial or
continued listing of the Common Stock or other securities of the Company upon
Nasdaq or any stock exchange, then such amendment shall be approved by the
holders of a majority of the Company’s outstanding capital stock entitled to
vote.

 

 

14.                                 Conditions
Upon Issuance of Shares.  Shares
shall not be issued pursuant to the exercise of an Option unless the exercise
of such Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, state securities laws, and the
requirements of the NASD or any stock exchange upon which the Shares may then
be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.

 

As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares, if, in the opinion of
counsel for the Company, such a representation is required by any relevant
provisions of law.  Such Shares may also
be issued with appropriate legends on stock certificates representing such
Shares, and the Company may place stop transfer orders with respect to such
Shares.

 

Inability
of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

 

15.                                 Reservation
of Shares.  The Company, during the
term of this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.

 

16.                                 Option
Agreement.  Options shall be
evidenced by written option agreements in substantially the form attached
hereto or in such other form as the Board or Committee shall approve.

 

17.                                 Information
to Optionees.  The Company shall
provide to each Optionee, during the period for which such Optionee has one or
more Options outstanding, copies of all annual reports and other information
which are provided to all shareholders of the Company.

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