Document:

SMALL WORLD KIDS, INC

 

2004 STOCK COMPENSATION PLAN

 

 

Section 1.  Purpose

 

The purpose of this 2004 Stock Compensation Plan (the “Plan”) is to advance the interests of Small World Kids, Inc a Nevada corporation (“SWK”), by enhancing its ability to attract, retain and provide incentives to directors, officers, employees and independent contractors who are crucial to the future growth and success of SWK and its subsidiaries and Affiliates (as hereinafter defined).

 

Section 2.  Definitions

 

“Affiliate” when used in conjunction with SWK, shall include, but not be limited to, an entity or other person that directly or indirectly controls, or is controlled by, or is under common control with SWK.

 

“Award” means any Option, Stock Appreciation Right, Performance Share or Restricted Stock awarded under the Plan.

 

“Board” means the board of directors of SWK .

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Committee” means a committee of not less than two members of the Board appointed by the Board to administer the Plan.

 

“Common Stock” or “Stock” means the Common Stock of SWK .

 

“Company” means SWK and, except where the content requires otherwise, all present and future subsidiaries and Affiliates of SWK .

 

“Designated Beneficiary” means the beneficiary designated by a Participant, in a manner determined by the Board, to receive amounts due or exercise rights of the Participant in the event of the Participant’s death or incapacity. In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant’s estate, in the event of the Participant’s death, and the Participant’s legal guardian, in the event of the Participant’s incapacity.

 

“Fair Market Value” means with respect to Common Stock on any given date (i) if the Common Stock is listed for trading on one or more national securities exchanges, the mean of the high and low sales prices during regular trading hours on the principal exchange on which it is traded on the grant date, or, if the Common Stock shall not have been traded during regular trading hours on such principal exchange over such period, the mean of the high and low sales prices during regular trading hours on such principal exchange on the first day prior thereto on which the Common Stock was so traded; (ii) if Common Stock is not listed for trading on a national securities exchange but is traded on the over-the-counter market, the mean of the highest and lowest bid prices for the Common Stock during regular
trading hours on the grant date, or, if there are no such bid prices for the Common Stock during such period, the mean of the highest and lowest bid prices during regular trading hours on the first day prior thereto on which such prices appear; and (iii) in all other events, such amount as may be determined by the Board in good faith by any fair and reasonable means.

 

	 
	 	 	 
	

	 

“Incentive Stock Option” or “ISO” means an option to purchase shares of Common Stock awarded to a Participant under Section 6 which is intended to meet the requirements of Code Section 422.

 

“Nonstatutory Stock Option” or “NSO” means an option to purchase shares of Common Stock awarded to a Participant under Section 6 which is not intended to be an ISO.

 

“Option” means an Incentive Stock Option or a Nonstatutory Stock Option.

 

“Participant” means a person selected by the Board to receive an Award under the Plan.

 

“Performance Shares” mean shares of Common Stock which may be earned by the achievement of performance goals awarded to a Participant under Section 8.

 

“Reporting Person” means a person subject to Section 16 of the Securities Exchange Act of 1934 or any successor provision.

 

“Restricted Period” means the period of time selected by the Board during which shares subject to a Restricted Stock Award may be repurchased by or forfeited to the Company.

 

“Restricted Stock” means shares of Common Stock awarded to a Participant under Section 9.

 

“Stock Appreciation Right” or “SAR” means a right to receive any excess in Fair Market Value of shares of Common Stock over the exercise price awarded to a Participant under Section 7.

 

Section 3.  Administration

 

The Plan shall be administered by the Board or by a Committee to which some or all of the administration of the Plan is delegated by the Board. In the event the Board appoints a Committee, references in the Plan to the Board shall, as appropriate, be read as references to the Committee. The Board shall appoint and remove members of the Committee in its discretion in accordance with applicable laws. If necessary in order to comply with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, the Committee shall, in the Board’s discretion, be comprised solely of “non-employee directors” within the meaning of said Rule 16b-3 and “outside directors” within the meaning of Section 162(m) of the Code. The foregoing notwithstanding, the Board and/or the Committee may delegate
nondiscretionary administrative duties to such employees of the Company as it deems proper and the Board, in its absolute discretion, may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan. 

 

	 
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The Board shall have plenary authority in its discretion, to the maximum extent permissible by law, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan. Without limiting the foregoing, the Board shall have authority to make Awards, to set administrative rules, guidelines and practices relating to the Plan as it shall deem advisable from time to time, and to interpret the provisions of the Plan. In determining the persons to whom Awards shall be made, the number of shares to be covered by each Award and the terms thereof (including the restriction, if any, which shall apply to the Common Stock subject to an Award), the Board shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company and such
other factors as the Board, in its discretion, shall deem relevant in connection with accomplishing the purposes of the Plan. The Board’s decisions shall be final and binding. Except as otherwise required by law, no member of the Board shall be liable for any action or determination relating to the Plan made in good faith.

 

Section 4.  Eligibility

 

Awards may be made to employees and independent contractors of the Company. For purposes hereof, independent contractors shall include consultants, advisors and directors of the Company.

 

Section 5.  Stock Available for Awards

 

(a)  Subject to adjustment under Section 10 below, Awards may be made under the Plan for up to Seven million, eight hundred thousand (7,800,000) shares of Common Stock. If any Award in respect of shares of Common Stock expires or is terminated unexercised or is forfeited for any reason or settled in a manner that results in fewer shares outstanding than were initially awarded, the shares subject to such Award or so surrendered, as the case may be, to the extent of such expiration, termination, forfeiture or decrease, shall again be available for award under the Plan, subject, however, in the case of Incentive Stock Options, to any limitation required under the Code. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury shares.

 

(b)  The Board may grant Awards under the Plan in substitution for stock and stock based awards held by employees of another corporation who become employees of the Company as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of property or stock of the employing corporation. The substitute Awards shall be granted on such terms and conditions as the Board considers appropriate in the circumstances. The shares which may be delivered under such substitute Awards shall be in addition to the maximum number of shares provided for in Section 5(a).

 

Section 6.  Stock Options

 

(a)  General.

 

	 
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(i)  Subject to the provisions of the Plan, the Board may award Incentive Stock Options and Nonstatutory Stock Options, and determine the number of shares to be covered by each Option, the option price therefor, the conditions and limitations applicable to the exercise of the Option and the restrictions, if any, applicable to the shares of Common Stock issuable thereunder.

 

(ii)  The Board shall establish the exercise price at the time each Option is awarded.

 

(iii)  Subject to Section 10(a), each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable Award. The Board may impose such conditions with respect to the exercise of Options, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable.

 

(iv)  Options granted under the Plan shall provide for the payment of the exercise price by delivery of cash or check in an amount equal to the exercise price of such Options or by delivery of shares of Common Stock of the Company owned by the optionee for at least six months (valued at Fair Market Value) and, to the extent permitted by the Board at or after the award of the Option, may provide for payment by (A) delivery of other property acceptable to the Board (valued at fair market value), (B) delivery of a promissory note of the optionee to the Company on terms determined by the Board, (C) delivery of an irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay
the exercise price or delivery of irrevocable instructions to a broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price, (D) payment of such other lawful consideration as the Board may determine, or (E) any combination of the foregoing.

 

(v)  The Board may provide for the automatic award of an Option upon the delivery of shares to the Company in payment of the exercise price of an Option for up to the number of shares so delivered.

 

(vi)  The Board may at any time accelerate the time at which all or any part of an Option may be exercised.

 

(b)  Incentive Stock Options.

 

Options granted under the Plan which are intended to be ISOs shall be subject to the following additional terms and conditions:

 

(i)  All ISOs granted under the Plan shall, at the time of grant, be specifically designated as such in the option agreement covering such Award. All Options designated as ISOs shall be interpreted in a manner consistent with the requirements of Code Section 422.

 

(ii)  While the Company shall take reasonable measures to assure that an Option intended to be an ISO shall be so treated for federal income tax purposes, it makes no assurances to anyone that any Option intended to be an ISO shall be taxed as an ISO. Without limiting the foregoing, Options intended to be ISOs which are exercised after the period permitted by Code Section 422 shall not be taxed as ISOs.

 

	 
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(iii)  ISOs may only be awarded to employees of SWK or a corporation which, with respect to SWK, is a “parent corporation” or “subsidiary corporation” within the meaning of Code Sections 424(e) and (f). Furthermore, except as otherwise provided in Code Section 422, if a Participant is no longer employed by SWK or a parent corporation or subsidiary corporation of SWK, the Participant’s Option shall cease to be treated as an ISO.

 

(iv)  Subject to clause (v), the Option exercise price per share of Common Stock covered by an ISO shall be no less than the Fair Market Value of a share of Common Stock on the date of grant of the Option.

 

(v)  In the case of an individual who at the time the Option is granted owns stock possessing more than 10% of the total combined voting power of all classes of the stock of SWK or of a parent or subsidiary corporation of SWK (a “10% Holder”), (1) the Option exercise price of the Common Stock covered by any ISO granted to such person shall in no event be less than 110% of the Fair Market Value of the Common Stock on the date the ISO is granted and (2) the term of an ISO granted to such person may not exceed five years from the date of grant.

 

(vi)  The aggregate Fair Market Value (determined at the time an ISO is granted) of the Common Stock covered by ISOs exercisable for the first time by an employee during any calendar year (under all plans of the Company) may not exceed $100,000.

 

(vii)  ISOs may not be sold, pledged, assigned or transferred in any manner other than by will or by the laws of intestate succession, and may be exercised during the lifetime of Optionee only by Optionee. No ISO shall be pledged or hypothecated in any way, nor shall any ISO be subject to execution, attachment or similar process.

 

Section 7.  Stock Appreciation Rights

 

(a)  The Board may grant Stock Appreciation Rights entitling recipients on exercise of the SAR to receive an amount, in cash or Stock or a combination thereof (such form to be determined by the Board), determined in whole or in part by reference to appreciation in the Fair Market Value of the Stock between the date of the Award and the exercise of the Award. A Stock Appreciation Right shall entitle the Participant to receive, with respect to each share of Stock as to which the SAR is exercised, the excess of the share’s Fair Market Value on the date of exercise over its Fair Market Value on the date the SAR was granted.

 

(b)  SARs may be granted in tandem with, or independently of, Options granted under the Plan. An SAR granted in tandem with an Option which is not an Incentive Stock Option may be granted either at or after the time the Option is granted. An SAR granted in tandem with an Incentive Stock Option may be granted only at the time the Option is granted.

 

(c)  When SARs are granted in tandem with Options, the following provisions shall apply:

 

	 
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(i)  The SAR shall be exercisable only at such time or times, and to the extent, that the related Option is exercisable and shall be exercisable in accordance with the procedure required for exercise of the related Option.

 

(ii)  The SAR shall terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a SAR granted with respect to less than the full number of shares covered by an Option shall not be reduced until the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the SAR.

 

(iii)  The Option shall terminate and no longer be exercisable upon the exercise of the related SAR.

 

(iv)  An SAR granted in tandem with an Incentive Stock Option may be exercised only when the market price of the Stock subject to the Option exceeds the exercise price of such Option.

 

(d)  An SAR not granted in tandem with an Option shall become exercisable at such time or times, and on such conditions, as the Board may specify.

 

(e)  The Board may at any time accelerate the time at which all or any part of the SAR may be exercised.

 

(f)  SARs may not be sold, pledged, assigned or transferred in any manner other than by will or by the laws of intestate succession, and may be exercised during the lifetime of grantee only by the Participant. Any transfer by the Participant of any SAR granted under the Plan shall void such SAR and the Company shall have no further obligation with respect to such SAR. No SAR shall be pledged or hypothecated in any way, nor shall any SAR be subject to execution, attachment or similar process.

 

(g)  SARs granted pursuant to this Plan shall represent no more than unfunded unsecured contractual obligations of the Company and the Company shall have no obligation to set aside any assets to fund any SAR obligation. Amounts payable for SARs under the Plan shall be paid from the general funds of the Company, and the Participant and any Designated Beneficiary shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any SAR obligations hereunder.

 

Section 8. Performance Shares

 

(a)  The Board may make Performance Share Awards entitling recipients to acquire shares of Stock upon the attainment of specified performance goals. The Board may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. The Board in its sole discretion shall determine the performance goals applicable under each such Award, the periods during which performance is to be measured, and all other limitations and conditions applicable to the awarded Performance Shares.

 

(b)  A Participant receiving a Performance Share Award shall have the rights of a stockholder only as to shares actually received by the Participant under the Plan and not with respect to shares subject to an Award but not actually received by the Participant. Prior to receipt of shares pursuant to a Performance Share Award, the Performance Share Award shall represent an unfunded unsecured contractual obligation of the Company and the Company shall be under no obligation to set aside any assets to fund such Performance Share Award. A Participant shall be entitled to receive a stock certificate evidencing the acquisition of shares of Stock under a Performance Share Award only upon satisfaction of all
conditions specified in the Agreement evidencing the Performance Share Award.

 

	 
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(c)  The Board may at any time accelerate or waive any or all of the goals, restrictions or conditions imposed under any Performance Share Award.

 

(d)  Performance Share Awards may not be sold, pledged, assigned or transferred in any manner other than by will or by the laws of intestate succession. Any transfer by the Participant of any Performance Share Award granted under the Plan shall void such Award and the Company shall have no further obligation with respect to such Award. No Performance Share Award shall be pledged or hypothecated in any way, nor shall any Performance Share Award be subject to execution, attachment or similar process.

 

Section 9.  Restricted Stock

 

(a)  The Board may grant Restricted Stock Awards entitling recipients to acquire shares of Stock, subject to the right of the Company to repurchase all or part of such shares at their purchase price (or to require forfeiture of such shares if purchased at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable Restricted Period or Restricted Periods established by the Board for such Award. Conditions for repurchase (or forfeiture) may be based on continuing employment or service or achievement of pre-established performance or other goals and objectives.

 

(b)  Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by the Board during the applicable Restricted Period. Shares of Restricted Stock shall be evidenced in such manner as the Board may determine. Any certificates issued in respect of shares of Restricted Stock shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the Restricted Period, the Company (or such designee) shall deliver such certificates to the Participant or if the Participant has died, to the
Participants’ Designated Beneficiary.

 

(c)  The purchase price for each share of Restricted Stock shall be determined by the Board. Such purchase price may be paid in cash or such other lawful consideration as is determined by the Board.

 

(d)  The Board may at any time accelerate the expiration of the Restricted Period applicable to all, or any particular, outstanding shares of Restricted Stock.

 

(e)  Notwithstanding the foregoing, the Board may award to Participants Restricted Stock for services rendered or to be rendered by such Participant pursuant to the terms of any agreement between the Company and such Participant, which award is not requested to contain any repurchase rights or forfeiture provisions.

 

	 
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Section 10.  General Provisions Applicable to Awards

 

(a)  Maximum Term. No Award shall have a term exceeding ten years, measured from the date of the Award grant.

 

(b)  Documentation. Each Award under the Plan shall be evidenced by an instrument delivered to the Participant specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Board considers necessary or advisable. Such instruments may be in the form of agreements to be executed by both the Company and the Participant, or certificates, letters or similar documents, acceptance of which shall evidence agreement to the terms thereof and of this Plan. The certificates representing the Stock issued pursuant to an Award granted under this
Plan shall bear such legends as may be required by applicable law to give notice of restrictions on transfer of such shares.

 

(c)    Change in Control. In the event that the Company or the division, subsidiary or other affiliated entity for which a Participant performs services is sold, merged, consolidated, reorganized or liquidated, all unvested options immediately vest.

 

(d)  Board Discretion. Each type of Award may be made alone, in addition to or in relation to any other type of Award. The terms of each type of Award need not be identical and the Board need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Award, any determination with respect to an Award may be made by the Board at the time of the Award grant or at any time thereafter.

 

(e)  Termination of Status. The Board shall determine and specify in the Award documentation the effect on an Award of the disability, death, retirement, authorized leave of absence or other termination of employment or other status of a Participant and the extent to which, and the period during which, the Participant’s legal representative, guardian or Designated Beneficiary may exercise rights under such Award.

 

(f)  Dilutions and Other Adjustments. In the event of any stock dividend or split, issuance or repurchase of stock or securities convertible into or exchangeable for shares of stock, grants of options, warrants or rights to purchase stock, recapitalization, combination, exchange or similar change affecting 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, the Board in its sole discretion may equitably adjust any or all of (i) the number and kind of shares in respect of which Awards may be made under the Plan,
(ii) the number and kind of shares subject to outstanding Awards, and (iii) the award, exercise or conversion price with respect to any of the foregoing, and may make any other equitable adjustments or take such other equitable action as the Board, in its discretion, shall deem appropriate, including, if considered appropriate by the Board, making provision for a cash payment with respect to an outstanding Award. Such adjustments or actions shall be conclusive and binding for all purposes. In the event of a change in the Common Stock which is limited to a change in the designation thereof to “Capital Stock” or other similar designation, or to a change in the par value thereof, or from no par value to par value (or vice versa), without increase or decrease in the number of issued shares, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of the Plan. For purposes hereof, the conversion of any convertible securities of the Company shall not be
deemed to have been “effected without receipt of consideration.”

 

	 
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In the event that the Company or the division, subsidiary or other affiliated entity for which a Participant performs services is sold, merged, consolidated, reorganized or liquidated, the Board may take any one or more of the following actions as to outstanding Awards: (i) provide that such Awards shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) on such terms as the Board determines to be appropriate, (ii) upon written notice to Participants, provide that all unexercised Options or SARs shall terminate immediately prior to the consummation of such transaction unless exercised by the Participant within a specified period following the date of such notice, (iii) in the event of a sale or similar transaction under the
terms of which holders of the Common Stock of the Company receive a payment for each share surrendered in the transaction (the “Sales Price”), make or provide for a payment to each Option and/or SAR holder equal to the amount by which (A) the Sales Price times the number of shares of Common Stock subject to Participant’s outstanding, vested Options or SARs exceeds (B) the aggregate exercise price of all such outstanding, vested Options or SARs, in exchange for the termination of such Options or SARs, (iv) or make such other adjustments, if any, as the Board determines to be necessary or advisable to provide each Participant with a benefit substantially similar to that to which the Participant would have been entitled had such event not occurred.

 

(g)  Withholding. The Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. In the Board’s discretion, and subject to such conditions as the Board may establish, such tax obligations may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from
any payment of any kind otherwise due to the Participant.

 

(h)  Parachute Payments. Any outstanding Award under the Plan may not be accelerated to the extent any such acceleration of such Award would, when added to the present value of other payments in the nature of compensation which becomes due and payable to the Participant would result in the payment to such Participant of an excess parachute payment under Section 280G of the Code. The existence of any such excess parachute payment shall be determined in the sole and absolute discretion of the Board.

 

(i)  Foreign Nationals. Awards may be made to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in the Plan as the Board considers necessary or advisable to achieve the purposes of the Plan and comply with applicable laws and/or achieve favorable tax results under foreign tax laws.

 

	 
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(j)  Amendment of Award. The Board may amend, modify or terminate any outstanding Award, including substituting therefor another Award of the same or a different type, changing the date of exercise or realization and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

 

(k)  Conditions on Delivery of Stock. The Company shall not be obligated to deliver any shares of Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan (i) until all conditions of the Award have been satisfied or removed, (ii) until, in the opinion of the Company’s counsel, all applicable federal and state laws and regulations have been complied with, and (iii) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of issuance. If the
sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. Except to the extent as may be specified in the documentation with respect to a particular Award grant, the Company shall be under no obligation to register or qualify any shares of Common Stock subject to Awards under any federal or state securities law or on any exchange.

 

Section 11.  Miscellaneous

 

(a)  No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment by or the right to continue to provide services to the Company. The Company expressly reserves the right at any time to dismiss a Participant free from any liability or claim under the Plan, except as may be expressly provided in the applicable Award.

 

(b)  No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed under the Plan until he or she becomes the record holder thereof.

 

(c)  No Restriction on the Right of the Company to Effect Corporate Changes. The Plan and the Options granted hereunder shall not affect in any way the right or power of SWK or its stockholders to make or authorize any or all adjustments, recapitalization, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights of holders thereof or
which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of SWK or the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

	 
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(d)  Exclusion from Benefit Computations. Except as expressly specified in the applicable plan or program, no amount or shares of Common Stock payable upon exercise of an Award granted under the Plan shall be considered salary, wages or compensation for purposes of determining the amount or nature of benefits that a Participant is entitled to receive under any Company benefit plan or program.

 

(e)  Effective Date and Term. This Plan shall become effective upon adoption by the Board provided, however, that no Award shall be exercisable unless and until written consent of the shareholders of the Company, or approval of shareholders of the Company voting at a validly called shareholders’ meeting, is obtained within twelve months after adoption by the Board. If such shareholder approval is not obtained within such time, Awards granted hereunder shall terminate and be of no force and effect from and after expiration of such twelve-month period. Awards may be granted or exercised under this Plan only after
there has been compliance with all applicable federal and state securities laws. No Award may be made under the Plan after the tenth anniversary of the Plan’s effective date, but Awards granted before such date may extend beyond that date.

 

(f)  Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that no amendment shall be made without stockholder approval if such approval is necessary to comply with any applicable tax or regulatory requirement. Prior to any such approval, Awards may be made under the Plan expressly subject to such approval.

 

(g)  Delivery of Financial Statements. To the extent required by applicable laws, rules and regulations, the Company shall deliver to each Participant financial statements of the Company at least annually while such Participant holds an outstanding Award.

 

(h)  Notices. Any notice to be given under the terms of the Plan shall be addressed to the Company in care of its Secretary at its principal office, and any notice to be given to a Participant shall be addressed to such Participant at the address maintained by the Company for such person or at such other address as the Participant may specify in writing to the Company.

 

(i)  Governing Law. The provisions of the Plan shall be governed by and interpreted in accordance with the laws of the state of Nevada.

 

As adopted by the Board as of September 22, 2004.

 

	 	SMALL WORLD KIDS, INC
 

By:___________________________________________

Title:__________________________________________

   

	  
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NON-QUALIFIED STOCK OPTION AGREEMENT

 

THIS NON-QUALIFIED STOCK OPTION AGREEMENT (“Agreement”) is made by and between SWK Team Sports, Inc., a Nevada corporation (the “Company”), and _________________________________ (the “Optionee”).

 

NOW, THEREFORE, in consideration of the mutual benefit to be derived herefrom, the Company and Optionee agree as follows:

 

1.  Grant of Option. The Company hereby grants to Optionee, subject to all the terms and provisions of the 2004 Stock Compensation Plan effective ________, 2004, as such Plan may be hereinafter amended, a copy of which is attached hereto and incorporated herein by this reference (the “Plan”), the right, privilege and option (“Option”) to purchase _______ shares of its common stock (“Stock”) at __________ per share, in the manner and subject to the conditions provided hereinafter and in the Plan and any amendments thereto and any rules and regulations thereunder.

 

2.  Vesting and Exercise of Option. The Optionee shall be vested in _____ % of the total number of shares subject to the Option on the date of execution of this Agreement. Thereafter, the remaining shares subject to the Option (the “Vesting Shares”) shall vest in the Optionee and may be exercised by the Optionee as to the percentage (to a maximum of 100%) of the Vesting Shares determined by multiplying the number of complete years that the Optionee has been in the employ of the Company since the date of execution of this Agreement by _____% for each complete year. Any exercise may be with respect to any
part or all of the shares then vested and exercisable pursuant to such Option, provided that the minimum number of shares exercisable at any time shall not be less _______ shares or the balance of shares for which the Option is then exercisable.

 

3.  Termination of Option. Except as otherwise provided in this Agreement or the Plan, to the extent not previously exercised, the Option shall terminate upon the first to occur of any of the following events:

 

a.  ____________, 20____, not to exceed 10 years from the date of the grant of the Option hereunder;

 

b.  the date the Optionee ceases to be employed by the Company (including any Affiliate thereof as defined by the Plan), is no longer an officer or member of the Board of Directors of the Company or no longer performs services for the Company, for any reason (other than such Optionee's death or disability), any Option granted hereunder to such Optionee shall expire three months after the date of such termination. The Board shall, in its sole and absolute discretion, decide whether an authorized leave of absence or absence for military or governmental service, or absence for any other reason, shall constitute termination of eligibility for purposes of this Section. In the event the Optionee’s
termination results from the fact that the Optionee is “disabled,” as defined in Section 22(e)(3) of the Code, the Option shall expire one year after the date of such termination. Any option that has not vested in the Optionee as of the date of termination of employment or service with the Company, shall immediately expire and shall be null and void.

 

	 
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c.  six months after the date of the Optionee’s death. The Option may be exercised (subject to the condition that no Option shall be exercisable after its expiration and only to the extent that the Optionee's right to exercise such Option was vested at the time of the Optionee's death) at any time within six months after the Optionee's death by the executors or administrators of the Optionee or by any person or persons who shall have acquired the Option directly from the Optionee by bequest or inheritance. Any option that has not vested in the Optionee as of the date of death, shall immediately expire and shall be null and void.

 

d.  the dissolution or liquidation of the Company;

 

e.  a capital transaction, as more fully set forth in Section 10(e) of the Plan; or

 

f.  the breach by Optionee of any provision of the Plan or this Agreement.

 

4.  Method of Exercise. An Option shall be exercised by written notice to the Company by the Optionee (or successor in the event of death). Such written notice shall state the number of shares with respect to which the Option is being exercised and designate a time, during normal business hours of the Company, for the delivery thereof ("Exercise Date"), which time shall be at least 30 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in the written notice, the Company shall deliver to the Optionee at the principal office of the Company, or such
other appropriate place as may be determined by the Board, a certificate or certificates for such shares. Notwithstanding the foregoing, the Company may postpone delivery of any certificate or certificates after notice of exercise for such reasonable period as may be required to comply with any applicable listing requirements of any securities exchange. In the event an Option shall be exercisable by any person other than the Optionee, the required notice under this Section shall be accompanied by appropriate proof of the right of such person to exercise the option. The option exercise price shall be payable in full on or before the option Exercise Date in any one of the following alternative forms:

 

a.  Full payment in cash or certified bank or cashier's check;

 

b.  A full recourse promissory note executed by the Optionee, made payable to the Company bearing interest at such rate as the Board shall determine, but in no case less than the “Applicable Federal Rate” at the time the note is executed applicable under the Code to obligations of the same duration. The note shall contain such terms and conditions as may be determined by the Board; provided, however, that the full principal amount of the note and all unpaid interest accrued thereon shall be due not later than five years from the date of exercise. The Company may obtain from the Optionee a security interest in all shares of Stock issued to the Optionee under the Plan for the purpose of securing
payment under the note and shall retain possession of the stock certificates representing such shares in order to perfect its security interest;

 

c.  Full payment in shares of Stock or other securities of the Company having a fair market value on the Exercise Date in the amount equal to the option exercise price;

 

d.  A combination of the consideration set forth in Sections (a), (b) and (c) hereof equal to the option exercise price; or

 

	 
	 	13	 
	

	 

e.  Any other method of payment including, but not limited to, the delivery by Optionee of an irrevocable direction to a securities broker approved by the Company to sell the Stock and to deliver all or part of the sales proceeds to the Company in payment of all or part of the exercise price and any withholding taxes.

 

5.  Restrictions on Exercise and Delivery. The exercise of each Option shall be subject to the condition that, if at any time the Board shall determine, in its sole and absolute discretion,

 

a.  the satisfaction of any withholding tax or other withholding liabilities, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of Stock pursuant thereto,

 

b.  the listing, registration, or qualification of any shares deliverable upon such exercise is desirable or necessary, under any state or federal law, as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, or

 

c.  the consent or approval of any regulatory body is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto,

 

then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. Optionee shall execute such documents and take such other actions as are required by the Board to enable it to effect or obtain such withholding, listing, registration, qualification, consent or approval. Neither the Company nor any officer or member of the Board or the Committee, shall have any liability with respect to the non-issuance or failure to sell shares as the result of any suspensions of exercisability imposed pursuant to this Section.

 

6.  Nonassignability. Options may not be sold, pledged, assigned or transferred in any manner other than by will or by the laws of intestate succession, and may be exercised during the lifetime of Optionee only by Optionee. Any transfer by Optionee of any Option granted under the Plan or this Agreement shall void such Option and the Company shall have no further obligation with respect to such Option. No Option shall be pledged or hypothecated in any way, nor shall any Option be subject to execution, attachment or similar process.

 

7.  Restrictive Legends. Each certificate evidencing the shares acquired upon exercise of an Option hereunder, including any certificate issued to any transferee thereof, shall be imprinted with legends substantially in the form set forth in the Plan.

 

8.  Rights as Shareholder. Neither Optionee nor his executor, administrator, heirs or legatees, shall be, or have any rights or privileges of a shareholder of the Company in respect of the Stock unless and until certificates representing such Stock shall have been issued in Optionee’s name.

 

9.  No Right of Employment. Neither the grant nor exercise of any Option nor anything in the Plan or this Agreement shall impose upon the Company or any other corporation any obligation to employ or continue to employ any Optionee. The right of the Company and any other corporation to terminate any employee shall not be diminished or affected because an Option has been granted to such employee.

 

	 
	 	14	 
	

	 

10.  Definitions. Capitalized terms shall have the meaning set forth in the Plan unless otherwise defined herein.

 

11.  Notices. Any notice to be given under the terms of this Agreement shall be addressed to the Company in care of its Secretary at its principal office, and any notice to be given to Optionee shall be addressed to such Optionee at the address maintained by the Company for such person or at such other address as the Optionee may specify in writing to the Company.

 

12.  Binding Effect. This Agreement shall be binding upon and inure to the benefit of Optionee, his heirs and successors, and of the Company, its successors and assigns.

 

13.  Governing Law. This Agreement shall be governed by the laws of the State of Nevada.

 

14.  Application of Plan. The Company has delivered and the Optionee hereby acknowledges receipt of a copy of the Plan. The parties agree and acknowledge that the Option granted hereunder is granted pursuant to the Plan and subject to the terms and provisions thereof, and the rights of the Optionee are subject to modifications and termination in certain events as provided in the Plan. 

 

IN WITNESS WHEREOF, this Agreement is effective as of, and the date of grant shall be _____________, 20__.

	 	SMALL WORLD KIDS, INC
 

By:___________________________________________

Title:__________________________________________

OPTIONEE

 

	  
	 	15	 
	

	 

 

NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT

 

THIS NON-QUALIFIED STOCK OPTION AND SAR AGREEMENT (“Agreement”) is made by and between SWK Team Sports, Inc., a Nevada corporation (the “Company”), and _________________________________ (the “Optionee”).

 

NOW, THEREFORE, in consideration of the mutual benefit to be derived herefrom, the Company and Optionee agree as follows:

 

1.  Grant of Option. The Company hereby grants to Optionee, subject to all the terms and provisions of the 2004 Stock Compensation Plan effective ________, 2004, as such Plan may be hereinafter amended, a copy of which is attached hereto and incorporated herein by this reference (the “Plan”), the right, privilege and option (“Option”) to purchase _______ shares of its common stock (“Stock”) at __________ per share (the “Exercise Price”), in the manner and subject to the conditions provided hereinafter and in the Plan and any amendments thereto and any rules and regulations
thereunder.

 

2.  Grant of SAR. The Company hereby grants the Optionee, subject to all terms and provisions of the Plan, the right, privilege and option (“Stock Appreciation Right” or “SAR”) as an alternative to exercise of the Option, to receive an amount, in cash or Stock or a combination thereof, determined in whole or in part by reference to appreciation in the Fair Market Value (as defined by the Plan) of the Stock upon which the Option is granted between the effective date of this Agreement and the exercise of the SAR. The Optionee shall be entitled to receive, with respect to each share of Stock as to
which the SAR is exercised, the excess of the share’s Fair Market Value on the date of exercise over its Fair Market Value on the effective date of this Agreement. The Option and the SAR shall only be exercisable in the alternative. The Option shall terminate and no longer be exercisable upon the exercise of the related SAR and visa versa. The Option and the SAR shall together be referred to as the “Award” for purposes of this Agreement.

 

3.  Vesting and Exercise of Award. The Optionee shall be vested in _____ % of the total number of shares subject to the Award on the date of execution of this Agreement. Thereafter, the remaining shares subject to the Award (the “Vesting Shares”) shall vest in the Optionee and may be exercised by the Optionee as to the percentage (to a maximum of 100%) of the Vesting Shares determined by multiplying the number of complete years that the Optionee has been in the employ of the Company since the date of execution of this Agreement by _____% for each complete year. Any exercise may be with respect to any part
or all of the shares then vested and exercisable pursuant to such Option, provided that the minimum number of shares exercisable at any time shall not be less _______ shares or the balance of shares for which the Award is then exercisable.

 

4.  Termination of Option. Except as otherwise provided in this Agreement or the Plan, to the extent not previously exercised, the Award shall terminate upon the first to occur of any of the following events:

 

a.  ____________, 20____, not to exceed 10 years from the date of the grant of the Award hereunder;

 

	 
	 	16	 
	

	 

b.  the date the Optionee ceases to be employed by the Company (including any Affiliate thereof as defined by the Plan), is no longer an officer or member of the Board of Directors of the Company or no longer performs services for the Company, for any reason (other than such Optionee's death or disability), any Award granted hereunder to such Optionee shall expire three months after the date of such termination. The Board shall, in its sole and absolute discretion, decide, utilizing the provisions set forth in Treasury Regulations § 1.421-7(h), whether an authorized leave of absence or absence for military or governmental service, or absence for any other reason, shall constitute termination of
eligibility for purposes of this Section. In the event the Optionee’s termination results from the fact that the Optionee is "disabled," as defined in Section 22(e)(3) of the Code, the Award shall expire one year after the date of such termination. Any Award that has not vested in the Optionee as of the date of termination of employment or service with the Company, shall immediately expire and shall be null and void.

 

c.  six months after the date of the Optionee’s death. The Award may be exercised (subject to the condition that no Award shall be exercisable after its expiration and only to the extent that the Optionee's right to exercise such Award was vested at the time of the Optionee's death) at any time within six months after the Optionee's death by the executors or administrators of the Optionee or by any person or persons who shall have acquired the Award directly from the Optionee by bequest or inheritance. Any Award that has not vested in the Optionee as of the date of death, shall immediately expire and shall be null and void.

 

d.  the dissolution or liquidation of the Company;

 

e.  a capital transaction, as more fully set forth in Section 10(e) of the Plan; or

 

f.  the breach by Optionee of any provision of the Plan or this Agreement.

 

5.  Method of Exercise.

 

a.  An SAR shall be exercised by written notice to the Company by the Optionee (or successor in the event of death). Such written notice shall state the number of shares with respect to which the SAR is being exercised and designate the manner of preferred payment (e.g. Stock or cash), a time during normal business hours of the Company for the delivery thereof, which time shall be at least 30 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in the written notice, the Company shall deliver to the Optionee at the principal office of the Company, or such other appropriate place as may be determined by the Board, either cash or a
certificate or certificates for shares representing the excess of the option share’s Fair Market Value on the date of exercise over its Fair Market Value on the effective date of this Agreement.

 

b.  An Option shall be exercised by written notice to the Company by the Optionee (or successor in the event of death). Such written notice shall state the number of shares with respect to which the Option is being exercised and designate a time, during normal business hours of the Company, for the delivery thereof, which time shall be at least 30 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in the written notice, the Company shall deliver to the Optionee at the principal office of the Company, or such other appropriate place as may be determined by the Board, a certificate or certificates for such shares.

 

	 
	 	17	 
	

	 

c.  The “Exercise Price” shall be payable in full on or before the exercise date of an Option in any one of the following alternative forms:

 

(i)  Full payment in cash or certified bank or cashier's check;

 

(ii)  A full recourse promissory note executed by the Optionee, made payable to the Company bearing interest at such rate as the Board shall determine, but in no case less than the “Applicable Federal Rate” at the time the note is executed applicable under the Code to obligations of the same duration. The note shall contain such terms and conditions as may be determined by the Board; provided, however, that the full principal amount of the note and all unpaid interest accrued thereon shall be due not later than five years from the date of exercise. The Company may obtain from the Optionee a security interest in all shares of Stock issued to the Optionee under the Plan for the purpose of
securing payment under the note and shall retain possession of the stock certificates representing such shares in order to perfect its security interest;

 

(iii)  Full payment in shares of Stock or other securities of the Company having a fair market value on the Exercise Date in the amount equal to the option exercise price;

 

(iv)  A combination of the consideration set forth in Sections (a), (b) and (c) hereof equal to the option exercise price; or

 

(v)  Any other method of payment including, but not limited to, the delivery by Optionee of an irrevocable direction to a securities broker approved by the Company to sell the Stock and to deliver all or part of the sales proceeds to the Company in payment of all or part of the exercise price and any withholding taxes.

 

d.  Notwithstanding the foregoing, the Company may postpone delivery of any certificate or certificates after notice of exercise for such reasonable period as may be required to comply with any applicable listing requirements of any securities exchange. In the event an Award shall be exercisable by any person other than the Optionee, the required notice under this Section shall be accompanied by appropriate proof of the right of such person to exercise the Award.

 

6.  Restrictions on Exercise and Delivery. The exercise of each Award shall be subject to the condition that, if at any time the Board shall determine, in its sole and absolute discretion,

 

a.  the satisfaction of any withholding tax or other withholding liabilities, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of Stock pursuant thereto,

 

b.  the listing, registration, or qualification of any shares deliverable upon such exercise is desirable or necessary, under any state or federal law, as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, or

 

	 
	 	18	 
	

	 

c.  the consent or approval of any regulatory body is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto,

 

then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. Optionee shall execute such documents and take such other actions as are required by the Board to enable it to effect or obtain such withholding, listing, registration, qualification, consent or approval. Neither the Company nor any officer or member of the Board or the Committee, shall have any liability with respect to the non-issuance or failure to sell shares as the result of any suspensions of exercisability imposed pursuant to this Section.

 

7.  Nonassignability. Awards may not be sold, pledged, assigned or transferred in any manner other than by will or by the laws of intestate succession, and may be exercised during the lifetime of Optionee only by Optionee. Any transfer by Optionee of any Award granted under the Plan or this Agreement shall void such Award and the Company shall have no further obligation with respect to such Option. No Award shall be pledged or hypothecated in any way, nor shall any Award be subject to execution, attachment or similar process.

 

8.  Restrictive Legends. Each certificate evidencing the shares upon exercise of an Award hereunder, including any certificate issued to any transferee thereof, shall be imprinted with legends substantially in the form set forth in the Plan.

 

9.  Rights as Shareholder. Neither Optionee nor his executor, administrator, heirs or legatees, shall be, or have any rights or privileges of a shareholder of the Company in respect of the Stock unless and until certificates representing such Stock shall have been issued in Optionee’s name. The SAR shall represent no more than an unfunded unsecured contractual obligations of the Company and the Company shall have no obligation to set aside any assets to fund such SAR obligation. Amounts payable upon exercise of the SAR shall be paid from the general funds of the Company, and the Optionee and any Designated
Beneficiary shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any SAR obligations hereunder.

 

10.  No Right of Employment. Neither the grant nor exercise of any Award nor anything in the Plan or this Agreement shall impose upon the Company or any other corporation any obligation to employ or continue to employ any Optionee. The right of the Company and any other corporation to terminate any employee shall not be diminished or affected because an Award has been granted to such employee.

 

11.  Definitions. Capitalized terms shall have the meaning set forth in the Plan unless otherwise defined herein.

 

12.  Notices. Any notice to be given under the terms of this Agreement shall be addressed to the Company in care of its Secretary at its principal office, and any notice to be given to Optionee shall be addressed to such Optionee at the address maintained by the Company for such person or at such other address as the Optionee may specify in writing to the Company.

 

	 
	 	19	 
	

	 

13.  Binding Effect. This Agreement shall be binding upon and inure to the benefit of Optionee, his heirs and successors, and of the Company, its successors and assigns.

 

14.  Governing Law. This Agreement shall be governed by the laws of the State of Nevada.

 

15.  Application of Plan. The Company has delivered and the Optionee hereby acknowledges receipt of a copy of the Plan. The parties agree and acknowledge that the Award granted hereunder is granted pursuant to the Plan and subject to the terms and provisions thereof, and the rights of the Optionee are subject to modifications and termination in certain events as provided in the Plan. 

 

 

IN WITNESS WHEREOF, this Agreement is effective as of, and the date of grant shall be _____________, 20__.

 

	 	SMALL WORLD KIDS, INC
 

By:___________________________________________

Title:__________________________________________

OPTIONEE

 

 

	 
	 	20EX-4.2 2002 EQUITY INCENTIVE PLAN

 

Exhibit 4.2

COMMUNICATION OVER THE AIR INC.

2002 EQUITY INCENTIVE PLAN

     1. Purpose. This 2002 Equity Incentive Plan (the “Plan”) is intended to provide incentives:
(a) to the officers and other employees of Communication Over The Air Inc., a Cayman Islands
Exempted Company (the “Company”), and any present or future parent or subsidiaries of the Company
(collectively, “Related Corporations”) by providing them with opportunities to purchase Share in
the Company pursuant to options granted hereunder which qualify as “incentive Share options” (“ISO”
or “ISOs”), (b) to directors, officers, employees, consultants and advisors of the Company and
Related Corporations by providing them with opportunities to purchase Share in the Company pursuant
to options granted hereunder which do not qualify as ISOs (“Non-Qualified Option” or “Non-Qualified
Options”). Both ISOs and Non-Qualified Options are referred to hereafter individually as an
“Option” and collectively as “Options.” Options are referred to hereafter individually as a “Share
Right” and collectively as “Share Rights.” As used herein, the terms “parent” and “subsidiary” mean
“parent corporation” and “subsidiary corporation,” respectively.

     2. Administration of the Plan.

     A. Board or Committee Administration. The Plan shall be administered by the Board of
Directors of the Company (the “Board”). The Board may appoint a Compensation Committee (as the case
may be, the “Committee”) of two (2) or more of its members to administer the Plan and to grant
Share Rights hereunder, provided such Committee is delegated such powers in accordance with
applicable law. (All references in this Plan to the “Committee” shall mean the Board if no such
Compensation Committee has been so appointed). If the Company registers any class of any equity
security pursuant to securities laws of any jurisdiction to the Company is subject to, the Plan
shall be administered in accordance with the applicable provisions set forth in such securities
laws.

     B. Authority of Board or Committee. Subject to the terms of the Plan, the Committee shall
have the authority to: (i) determine the employees of the Company and Related Corporations (from
among the class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities eligible under
paragraph 3 to receive Non-Qualified Options and to make purchases of Restricted Share) to whom
Non-Qualified Options may be granted; (ii) determine the time or times at which Options may be
granted; (iii) determine the exercise price of shares subject to each
Option, which price shall not be less than the minimum price specified in paragraph 6; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified

 

 

Option; (v) determine
(subject to paragraph 7) the time or times when each Option shall become exercisable and the
duration of the exercise period; (vi) determine whether restrictions such as repurchase options are
to be imposed on shares subject to Options and the nature of any such restrictions; (vii) impose
such other terms and conditions with respect to Share Rights not inconsistent with the terms of
this Plan as it deems necessary or desirable; and (viii) interpret the Plan and prescribe and
rescind rules and regulations relating to it.

     If the Committee decides to issue a Non-Qualified Option, the Committee shall take whatever
actions it deems necessary, under the Code and the regulations promulgated thereunder, to ensure
that such Option is not treated as an ISO. The interpretation and construction by the Committee of
any provisions of the Plan or of any Share Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or any Share Right
granted under it.

     C. Committee Actions. The Committee may select one of its members as its chairman and shall
hold meetings at such time and places as it may determine. Acts by a majority of the Committee,
acting at a meeting (whether held in person or by teleconference), or acts reduced to or approved
in writing by all of the members of the Committee, shall be the valid acts of the Committee. From
time to time the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee and thereafter directly
administer the Plan, subject to compliance with paragraph 2A.

     D. Grant of Share Rights to Board Members. Share Rights may be granted
to members of the Board, subject to compliance with the applicable securities laws when required by
paragraph 2A. All grants of Share Rights to members of the Board shall be made in all respects in
accordance with the provisions of this Plan applicable to other eligible persons.

     3. Eligible Employees and Others. ISOs may be granted to any employee of the Company or any
Related Corporation. Those officers and directors of the Company who are not employees may not be
granted ISOs under the Plan. Non-Qualified Options may be granted to any employee, officer or
director (whether or not also an employee) or consultant or advisor of the Company or any Related
Corporation. The Committee may take into consideration a recipient’s individual circumstances in
determining whether to grant a Share Right. Granting a Share Right
to any individual or entity shall neither entitle that individual or entity to, nor disqualify him
from, participation in any other grant of Share Rights.

 

 

     4. Ordinary Shares. The capital shares subject to Share Rights shall be authorized but
unissued shares of Ordinary Shares of the Company (the “Ordinary Shares”), or shares of Ordinary
Shares reacquired by the Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 3,500,000 minus that number of shares which are the subject of option
grants made, or were purchased pursuant to the exercise of options that were granted, to employees,
officers directors, or consultants of the Company or Related Corporations prior to the date of the
adoption of this plan by the Company’s Board of Directors, subject to adjustment as provided in
paragraph 13. Any such shares may be issued pursuant to the exercise of ISOs or Non-Qualified
Options, so long as the aggregate number of shares so issued does not exceed such number, as
adjusted. Until such time as the Company becomes subject to the certain provision of the applicable
securities laws with respect to compensation earned under this Plan, if any Share Right granted
under the Plan shall expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part or if any shares of Ordinary
Shares issued pursuant to a Share Right have been repurchased by the Company in accordance with the
terms of the agreement or instrument pursuant to which the Share Right is granted, then the
unpurchased shares subject to such Share Right and any shares issued pursuant to a Share Right that
have been so repurchased by the Company (or shares in substitution thereof) shall again be
available for grants of Share Right under the Plan.

     5. Granting of Share Rights. Share Rights may be granted under the Plan at any time after
June 6, 2002 and prior to June 6, 2012. The date of grant of a Share Right under the Plan will be
the date specified by the Committee at the time it grants the Share Right; provided, however, that
such date shall not be prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right, with the consent of the optionee, to convert an ISO granted under
the Plan to a Non-Qualified Option pursuant to paragraph 17.

     6. Minimum Option Price; ISO Limitations.

     A. Price for ISOs. The exercise price per share specified in the agreement relating to each
ISO granted under the Plan shall not be less than the fair market value per share of Ordinary
Shares on the date of such grant. In the case of an ISO to be granted to an employee owning Share
possessing more than ten percent (10%) of the total combined voting power of all classes of Share
of the Company or any Related Corporation, the price per share specified in the agreement relating
to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per
share of Ordinary Shares on the date of grant.

     B. $100,000 Annual Limitation on ISOs. Each eligible employee may be granted ISOs only to
the extent that, in the aggregate under this Plan and all other incentive Share option plans of the
Company and any Related Corporation, such ISOs

 

 

do not become exercisable for the first time by such
employee during any calendar year in a manner which would entitle the employee to purchase more
than $100,000 in fair market value (determined at the time the ISOs were granted) of Ordinary
Shares in that year. Any Options granted to an employee in excess of such amount will be granted as
Non-Qualified Options.

     C. Determination of Fair Market Value. If, at the time an Option is granted under the Plan,
the Company’s Ordinary Shares is publicly traded, “fair market value” shall be determined as of the
last business day (the “Valuation Date”) for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the higher of (A) the
average (on the Valuation Date) of the high and low prices of the Ordinary Shares on the principal
national securities exchange on which the Ordinary Shares is traded and (B) the average closing
price for 5 days preceding the Valuation Date, if the Ordinary Shares is then traded on a national
securities exchange, or on the Nasdaq National Market or the Nasdaq Small Cap Market, if the
Ordinary Shares is not then traded on a national securities exchange; or (ii) the average of the
low bid and high ask prices as quoted on the Valuation Date by an established quotation service for
over-the-counter securities, if the Ordinary Share is not then traded on a national securities
exchange or the Nasdaq National Market or the Nasdaq Small Cap Market. If the Ordinary Share is not
publicly traded at the time an Option is granted under the Plan, “fair market value” shall be
deemed to be the fair value on the date such Option is granted of the Ordinary Share as determined
by the Committee after taking into consideration all factors in good faith it deems appropriate,
including, without limitation, recent sale and offer prices of the Ordinary Share in private
transactions negotiated at arm’s length, if any.

     7. Option Duration. Subject to earlier termination as provided in paragraphs 9, 10, and
13B, each Option shall expire on the date specified by the Committee and set forth in the original
Share option agreement granting such Option, provided that ISOs shall in any event expire not more
than ten years from the date of grant and ISOs granted to an employee owning Share possessing more
than ten percent (10%) of the total combined voting power of all classes of Share of the Company or
any Related Corporation, such ISOs shall expire not more than five years from the date of grant.
Non-Qualified Options shall expire on the date specified in the agreement granting such
Non-Qualified Options, subject to extension as determined by the Committee. ISOs, or any part
thereof, that have been converted into Non-Qualified Options may be extended as provided in
paragraph 17.

     8. Exercise of Option. Subject to the provisions of paragraphs 9 through 13, each Option
granted under the Plan shall be exercisable as follows:

     A. Vesting. Unless otherwise specified by the Committee or the Board of Directors and
subject to paragraphs 9 and 10 with respect to ISO’s, Options granted to employees shall vest on a
schedule at least as rapid as the following: (a) as to 25% of

 

 

the shares subject to the Option, on
the first anniversary of the date of grant of the Option; and (b) as to the remaining 75% of the
shares subject to the Option, in 12 equal quarterly installments beginning one calendar quarter
after the date of such anniversary. The Board or the Committee may also specify such other
conditions precedent as it deems appropriate to the exercise of an Option.

     B. Full Vesting of Installments. Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise specified by the Board
or the Committee.

     C. Partial Exercise. Each Option or installment may be exercised at any time or from time
to time, in whole or in part, for up to the total number of shares with respect to which it is then
exercisable, provided that the Committee may specify a certain minimum number or percentage of the
shares issuable upon exercise of any Option that must be purchased upon any exercise.

     D. Acceleration of Vesting. The Board or the Committee shall have the right to accelerate
the date of exercise of any installment of any Option.

     9. Termination of Employment. If an ISO optionee ceases to be employed by the Company and
all Related Corporations other than by reason of death or disability as defined in paragraph 10, no
further installments of his ISOs shall become exercisable following the date of such cessation of
employment, and his ISOs shall terminate after the passage of ninety (90) days from the date of
termination of his employment, but in no event later than on their specified expiration dates,
except to the extent that such ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 17. Nothing in the Plan shall be deemed to give any
grantee of any Share Right the right to be retained in employment or other service by the Company
or any Related Corporation for any period of time. The Board or Committee may establish such
provisions in particular Share Right grant agreements as it may deem appropriate with respect to
the treatment of Share Rights other than ISOs upon the termination of the employment of the holder
of the Share Right.

     10. Death; Disability.

     A. Death. If an ISO optionee ceases to be employed by the Company and all Related
Corporations by reason of his death, any ISO of his may be exercised, to the extent of the number
of shares with respect to which he could have exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the ISO by will or by the laws of descent
and distribution, at any time prior
to the earlier of the specified expiration date of the ISO or one hundred and eighty (180) days
from the date of such optionee’s death.

 

 

     B. Disability. If an ISO optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he or, in the event of his death, his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, shall have the right to exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he could have exercised it
on that date, at any time prior to the earlier of the specified expiration date of the ISO or one
(1) year from the date of the termination of the optionee’s employment. For the purposes of the
Plan, the term “disability” shall mean “permanent and total disability” as defined in Section
22(e)(3) of the Code or successor statute.

     11. Assignability. No ISO, and unless specified in the agreement or instrument pursuant to
which the Option is granted, no Non-Qualified Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during the lifetime of the
grantee each Share Right shall be exercisable only by him or her. No Share Right, and no right to
exercise any portion thereof, shall be subject to execution, attachment, or similar process,
assignment, or any other alienation or hypothecation. Upon any attempt so to transfer, assign,
pledge, hypothecate, or otherwise dispose of any Share Right, or of any right or privilege
conferred thereby, contrary to the provisions thereof or hereof or upon the levy of any attachment
or similar process upon any Share Right, right or privilege, such Share Right and such rights and
privileges shall immediately become null and void.

     12. Terms and Conditions of Share Rights. Share Rights shall be evidenced by instruments
(which need not be identical) in such forms as the Committee may from time to time approve. Such
instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof
to the extent applicable and may contain such other provisions as the Committee deems advisable
which are not inconsistent with the Plan. Without limiting the foregoing, such provisions may
include transfer restrictions, rights of refusal, vesting provisions, repurchase rights and
drag-along rights with respect to shares of Ordinary Share issuable upon exercise of Share Rights,
and such other restrictions applicable to shares of Ordinary Share issuable upon exercise of Share
Rights as the Committee may deem appropriate. In granting any Non-Qualified Option, the Committee
may specify that such Non-Qualified Option shall be subject to the restrictions set forth herein
with respect to ISOs, or to such other termination, cancellation or other provisions as the
Committee may determine. The Committee may from time to time confer authority and responsibility on
one or more of its own members and/or one or more officers of the Company to execute and deliver
such instruments. The proper officers of the Company are authorized and directed to take any and
all action necessary or advisable from time to time to carry out the terms of such instruments.

     13. Adjustments. Upon the occurrence of any of the following events, an optionee’s rights
with respect to Options granted to him hereunder shall be adjusted as

 

 

hereinafter provided, unless
otherwise specifically provided in the written agreement between the optionee and the Company
relating to such Option:

     A. Share Dividends and Share Splits. If the shares of Ordinary Share shall be subdivided or
combined into a greater or smaller number of shares or if the Company shall issue any shares of
Ordinary Share as a Share dividend on its outstanding Ordinary Share, the number of shares of
Ordinary Share deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the purchase price per
share to reflect such subdivision, combination or Share dividend.

     B. Consolidations, Mergers or Sales of Assets or Share. If the Company is to be
consolidated with or acquired by another person or entity in a merger, sale of all or substantially
all of the Company’s assets or Share or otherwise (an “Acquisition”), the Committee or the board of
directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”)
shall, with respect to outstanding Options or shares acquired upon exercise of any Option, take one
or more of the following actions: (i) make appropriate provision for the continuation of such
options by substituting on an equitable basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of Ordinary Share in connection with
the Acquisition; (ii) accelerate the date of exercise of such Options or of any installment of any
such Options; (iii) upon written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable, within a specified number of days of the date of such
notice, at the end of which period the Options, including those which are not then exercisable,
shall terminate; (iv) terminate all Options in exchange for a cash payment equal to the excess of
the fair market value of the shares subject to such Options (to the extent then exercisable) over
the exercise price thereof; or (v) in the event of a Share sale, require that the optionee sell to
the purchaser to whom such Share sale is to be made, all shares previously issued to such optionee
upon exercise of any Option, at a price equal to the portion of the net consideration from such
sale which is attributable to such shares. Nothing contained herein will be deemed to require the
Company to take, or refrain from taking, any one or more of the foregoing actions.

     C. Recapitalization or Reorganization. In the event of a reorganization of the Company
(other than a transaction described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding shares of Ordinary
Share, an optionee upon exercising an Option shall be entitled to receive for the purchase price
paid upon such exercise the securities he would have received if he had exercised his Option prior
to such
recapitalization or reorganization and had been the owner of the Ordinary Share receivable upon
such exercise at such time.

 

 

     D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made pursuant to
the foregoing subparagraphs A, B or C with respect to ISOs shall be made only after the Committee,
after consulting with counsel for the Company, determines whether such adjustments would constitute
a “modification” of such ISOs or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute
a modification of such ISOs, it may refrain from making such adjustments.

     E. Issuances of Securities and Non-Share Dividends. Except as expressly provided herein, no
issuance by the Company of shares of Share of any class, or securities convertible into shares of
Share of any class, shall affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares subject to Options. No adjustments shall be made for dividends
paid in cash or in property other than securities of the Company (and, in the case of securities of
the Company, such adjustments shall be made pursuant to the foregoing subparagraph A).

     F. Fractional Shares. No fractional shares shall be issued under the Plan, and the optionee
shall receive from the Company cash in lieu of such fractional shares.

     G. Adjustments. Upon the happening of any of the foregoing events described in
subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4
hereof that are subject to Share Rights which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board, as applicable, shall determine the specific
adjustments to be made under this paragraph 13 and its determination shall be conclusive. If any
person or entity owning Ordinary Share obtained by exercise of a Share Right made hereunder
receives shares or securities or cash in connection with a corporate transaction described in
subparagraphs A, B or C above as a result of owning such Ordinary Share, except as otherwise
provided in subparagraph B, such shares or securities or cash shall be subject to all of the
conditions and restrictions applicable to the Ordinary Share with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or the Board of
Directors of the Surviving Entity.

     H. Pooling-of-Interests Accounting. If the Company proposes to engage in an Acquisition
intended to be accounted for as a pooling-of-interests, and in the event that the provisions of
this Plan or of any agreement hereunder, or any actions of the Board taken in connection with such
Acquisition, are determined by the
Company’s or the Surviving Entity’s independent public accountants to cause such Acquisition to
fail to be accounted for as a pooling-of-interests, then such provisions or actions may be amended
or rescinded at the election of the Committee, without the consent of any

 

 

grantee, to be consistent
with pooling-of-interests accounting treatment for such Acquisition.

     14. Means of Exercising Share Rights. A Share Right (or any part or installment thereof)
shall be exercised by the holder thereof giving written notice to the Company at its principal
office address. Such notice shall identify the Share Right being exercised and specify the number
of shares as to which such Share Right is being exercised, accompanied by full payment of the
purchase price therefor either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, delivery of an irrevocable and unconditional undertaking, satisfactory
in form and substance to the Company, by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price, or delivery to the Company of a copy of irrevocable and
unconditional instructions, satisfactory in form and substance to the Company, to a creditworthy
broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price, or
(c) at the discretion of the Committee, through delivery of shares of Ordinary Share having a fair
market value equal as of the date of the exercise to the cash exercise price of the Share Right, or
(d) at the discretion of the Committee, by delivery of the grantee’s personal recourse note bearing
interest payable not less than annually at no less than 100% of the applicable Federal rate, as
defined in Section 1274(d) of the Internal Revenue Code, or (e) at the discretion of the Committee,
by any combination of (a), (b) (c) and (d) above. The holder of a Share Right shall not have the
rights of a shareholder with respect to the shares covered by his Share Right until the date of
issuance of a Share certificate to him for the shares subject to the Share Right. Except as
expressly provided above in paragraph 13 with respect to changes in capitalization and Share
dividends, no adjustment shall be made for dividends or similar rights for which the record date is
before the date such Share certificate is issued.

     15. Term and Amendment of Plan. This Plan was originally adopted by the Board on June 6,
2002 and will be presented to the Shareholders of the Company for approval on or prior to June 6,
2002. If the approval of Shareholders is not obtained by such date, ISOs granted under the Plan
prior to that date will be converted automatically to Non-Qualified Options, without any action on
the part of the Board, the Committee, or the holder of the Option. The Plan shall expire on that
date which is ten years from the date of its adoption by the Board (except as to Options
outstanding on the expiration date). Options may be granted under the Plan prior to the date of
Shareholder approval of the Plan.

     The Board may terminate or amend the Plan in any respect at any time, except that, without the
approval of the Shareholders obtained within 6 months before or after the Board adopts a resolution
authorizing any of the following actions: (a) the
total number of shares that may be issued under the Plan may not be increased (except by adjustment
pursuant to paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for grants of
ISOs may not be modified; (c) the provisions of paragraph 6(B)

 

 

regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to
paragraph 13); and (d) the expiration date of the Plan may not be extended.

     16. Intentionally left blank.

     17. Amendment of Share Rights. The Board or Committee may amend, modify or terminate any
outstanding Share Rights including, but not limited to, substituting therefor another Share Right
of the same or a different type, changing the date of exercise or realization, and converting an
ISO to a Non-Qualified Option; provided that, except as otherwise provided in paragraphs 9, 10, and
15, the grantee’s consent to such action shall be required unless the Board or Committee determines
that the action, taking into account any related action, would not materially and adversely affect
the grantee.

     18. Application Of Funds. The proceeds received by the Company from the exercise of Options
granted and Restricted Share Purchases authorized under the Plan shall be used for general
corporate purposes.

     19. Governmental Regulation. The Company’s obligation to sell and deliver shares of the
Ordinary Share under this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.

     20. Withholding of Additional Income Taxes. Upon the exercise of a Non-Qualified Option or
the making of a Disqualifying Disposition (as defined in paragraph 21), the Company, in accordance
with tax law or regulations to which the grantee is subject, may require the holder of the Share
Right to pay additional withholding taxes in respect of the amount that is considered compensation
includible in such person’s gross income. The Committee in its discretion may condition the
exercise of an Option on the grantee’s payment of such additional withholding taxes.

     21. Notice to Company of Disqualifying Disposition. Each employee who receives an ISO must
agree to notify the Company in writing immediately after the employee makes a Disqualifying
Disposition of any Ordinary Share acquired pursuant to the exercise of an ISO.

     22. Governing Law; Construction. The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the laws of New York. In construing this Plan,
the singular shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.

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