Document:

Exhibit 4F

February 3rd, 2006

Timothy J. Percival

Darryl F. Killian

3645 Black Forest Lane

Sparks, Nevada  89434

Attention: 

Mr. Percival

Dear Tim,

Re:

Stone Cabin Project, Lander Co., Nevada

Further to our recent discussions regarding the Stone Cabin Project (the “Project”), located in Sections 24 & 25, T26N, R44E, we would like to set forth the terms and conditions which would form the basis of an agreement between Luna Gold (the “Optionee”) and Percival/Killian (the “Optionor”).

It is our intention that if we are able to agree on terms as detailed in this Letter Agreement, then a more formal agreement (the “Formal Agreement”) will be prepared incorporating the terms of this Letter Agreement as well as such other terms as we may agree to, including standard terms which normally form part of a more in-depth exploration & mining option agreement.

The terms which we have discussed in regards to the Project are as follows:

 

The Optionor will grant the Optionee the right to acquire a 100% undivided interest in the Project (the “Option”), subject to a retained net smelter royalty (the “NSR”) on gold of 2% reserved to the Optionor (the “Royalty”) on the following terms and conditions:

1.

The Option is exercisable over a six (6) year period and , in order to maintain the Option in good standing, the Optionee will make cash payments and cumulative work expenditures to the Optionor, as follows:

(a)

upon approval by the TSX Venture Exchange (the “TSX”) of the Project acquisition by Luna (the “Approval Date”) a payment of $5,000 and a minimum work expenditure of $25,000 for the first year;

(b)

one year following the Approval Date a payment in the amount of $10,000 and a minimum work expenditure of $50,000 for the second year;

(c)

two years following the Approval Date a payment in the amount of $15,000 and a minimum work expenditure of $100,000 for the third year;

(d)

three years following the Approval Date a payment in the amount of $20,000 and a minimum work commitment of $125,000 for the fourth year;

(e)

four years following the Approval Date a payment in the amount of $40,000 and a minimum work commitment of $200,000 for the fifth year;

(f)

five years following the Approval Date a payment in the amount of $80,000 and a minimum work commitment of $500,000 for the sixth year; and

(g)

six years following the Approval Date a payment in the amount of $830,000 (the “Final Payment”).

By the end of the sixth year, cash payments would total $1,000,000 and work completed would total $1,000,000.

2.

Upon the Optionee making the Final Payment to the Optionor, the Optionee will own 100% of the Project, subject only to the Royalty, and the Optionee will have the right to buy down the Royalty to a 1% NSR by paying the Optionor the sum of $1,000,000 at any time prior to completion of the first year of production.

3.

If the Optionor is instrumental in generating a joint venture on the Project with a third party, a one time “bonus” payment of $10,000 would be paid by Luna, by or on behalf of Luna, to the Optionor, upon the execution of a definitive JV agreement with such third party.

4.

Neither party may assign its rights and obligations hereunder without the prior consent of the other party, provided however, the parties agree that Luna may assign its interest in this Agreement to a wholly owned subsidiary which subsidiary may hold the claims comprising the Stone Cabin property on behalf of Luna.

5.

Upon execution of this Letter Agreement in respect to the Project the Optionor will forthwith deliver to the Optionee copies or originals of all reports, data and information which the Optionor has access to on the Project.

6.

All references to currency and cash payments herein are in US dollars, unless otherwise stated.

7.

This is an option only, and nothing herein obligates the Optionee to maintain the Option in good standing or to make any payments hereunder to the Optionor, and the Optionee may terminate the Option at anytime without further obligation to the Optionor, provided however that if the Optionee terminates the Option after July 1 in any given year, then the Optionee will pay to the Optionor that amount which is equal to the BLM assessment fees owing in respect to the claims comprising the Project for that year in which the Option is terminated.

8.

The Optionor represents and warrants to the Optionee that, to the Optionor’s knowledge, the claims comprising the Project are in good standing and are free and clear of all liens, charges and encumbrances and that the Optionor has full power and authority to grant the Option.

9.

Both parties agree that any new claims staked by either party within one mile of the perimeter of the existing claims shall form part of this Letter Agreement.

10.

During the term of the option, Luna shall maintain all claims in good standing, and follow all federal or state law pertinent to the exploration and or development of the Project.

11.

Luna further agrees that it will carry out all necessary reclamation work or environmental mitigation caused by the activities of Luna on the project, such clause which will survive termination. 

12.

The parties agree that they will execute all documents and do all acts and things as may be necessary or desirable within their respective powers to carry out and give full effect to the true intent and purpose of this Letter Agreement.

13.

This Letter Agreement will be governed and construed in accordance with the laws of Nevada.

14.

Any notice, direction or other instrument given under this Letter Agreement will be in writing and given by delivery of same or by mailing the same by prepaid registered or certified mail or by sending the same by fax or other similar form of communication and in each case addressed to the intended recipient at the following address:

Optionee:

 

Luna Gold Corp

 

Suite 920, 475 West Georgia Street

 

Vancouver, B.C.  V6B 4M9

 

Phone:  (604) 687-9931

 

Fax:  (604) 688-0094

 

Attention:  Tim Searcy, President

Optionor:

Timothy J. Percival

Darryl Killian

3645 Black Forest Lane

Sparks, Nevada  89434

Phone:  (775) 626-8185

Fax:  (775) 626-2230

Attention:  Tim Percival

15.

This Letter Agreement may be executed in one or more counterparts and by fax, each of which will be deemed to be an original and all of which taken together will constitute one and the same instrument.

We confirm that the purpose of this Letter Agreement is to create legally binding obligations between us, and this Letter Agreement will govern the relationship between us until such time as we have prepared and incorporated these terms and conditions in the Formal Agreement as contemplated herein.

If the above terms and conditions are acceptable to you please indicate your agreement by executing this Letter Agreement in the space provided below and returning one duly executed copy to us for our records.

Luna Gold Corp.

“Tim Searcy”

Tim Searcy, President

AGREED and ACCEPTED this _____ day of January, 2006

BY:

 

“Tim Percival”______________________

      

Tim Percival

 

“Darryl Killian”______________________

 

Darryl Killian<PAGE>

                                                                   EXHIBIT 10.45

                                  CALTON, INC.
                           2006 EQUITY INCENTIVE PLAN

1.    PURPOSE.

      The purpose of this Calton, Inc. 2006 Equity Incentive Plan (the "Plan")
      is to advance the interests of Calton, Inc. (the "Company") and its
      subsidiaries by enhancing the ability of the Company to (i) attract and
      retain employees and other persons or entities who are in a position to
      make significant contributions to the success of the Company and its
      subsidiaries; (ii) reward such persons for such contributions; and (iii)
      encourage such persons or entities to take into account the long-term
      interest of the Company through ownership of shares of the Company's
      common stock, $.05 par value per share (the "Common Stock").

      The Plan is intended to accomplish these objectives by enabling the
      Company to grant awards ("Awards") in the form of incentive stock options
      ("ISOs"), nonqualified stock options ("Nonqualified Options") (ISOs and
      Nonqualified Options shall be collectively referred to herein as
      "Options"), stock appreciation rights ("SARs"), restricted stock
      ("Restricted Stock"), deferred stock ("Deferred Stock"), or other stock
      based awards ("Other Stock Based Awards"), all as more fully described
      below.

2.    ADMINISTRATION.

      (a)   The Plan will be administered by the Compensation Committee (the
            "Committee") of the Board of Directors of the Company (the "Board").
            The Committee may be constituted to permit the Plan to comply with
            the "outside director" requirement of Section 162(m)(4)(c)(i) of the
            Internal Revenue Code of 1986, as amended (the "Code"), and the
            regulations promulgated thereunder, or any successor rules. The
            Committee will determine the recipients of Awards, the times at
            which Awards will be made, the size and type or types of Awards to
            be made to each recipient, and will set forth in each such Award the
            terms, conditions and limitations applicable to the Award granted.
            Awards may be made singly, in combination or in tandem. The
            Committee will have full and exclusive power to interpret the Plan,
            to adopt rules, regulations and guidelines relating to the Plan, to
            grant waivers of Plan restrictions and to make all of the
            determinations necessary for its administration. Such determinations
            and actions of the Committee, and all other determinations and
            actions of the Committee made or taken under authority granted by
            any provision of the Plan, will be conclusive and binding on all
            parties. Except to the extent otherwise required under Code Section
            409A, related regulations, or other guidance, the Committee shall
            have the authority, in its sole discretion, to accelerate the date
            that any Award which was not otherwise exercisable, vested or earned
            shall become exercisable, vested or earned in whole or in part
            without any obligation to accelerate such date with respect to any
            other Award granted to any recipient. In addition, the Committee

<PAGE>

            shall have the authority and discretion to establish terms and
            conditions of Awards as the Committee determines to be necessary or
            appropriate to conform to the applicable requirements or practices
            of jurisdictions outside of the United States. In addition to action
            by meeting in accordance with applicable laws, any action of the
            Committee with respect to the Plan may be taken by a written
            instrument signed by all of the members of the Committee, and any
            such action so taken by written consent shall be as fully effective
            as if it had been taken by a majority of the members at a meeting
            duly held and called.

3.    EFFECTIVE DATE AND TERM OF PLAN.

      The Plan will become effective on May 10, 2006, but shall be subject to
      approval by the requisite vote of the Company's shareholders. Any Awards
      granted under the Plan prior to such shareholder approval shall be
      conditioned upon such shareholder approval and shall be null and void if
      such approval is not obtained.

      The Plan will terminate on May 9, 2016, subject to earlier termination of
      the Plan by the Board pursuant to Section 18 herein. No Award may be
      granted under the Plan after the termination date of the Plan, but Awards
      previously granted may extend beyond that date pursuant to the terms of
      such Awards.

4.    SHARES SUBJECT TO THE PLAN.

      Subject to adjustment as provided in Section 18 herein, the aggregate
      number of shares of Common Stock reserved for issuance pursuant to Awards
      granted under the Plan shall be one million (1,000,000) shares. The
      maximum number of shares of Common Stock which may be issued to the Chief
      Executive Officer ("CEO") of the Company pursuant to all Awards granted
      the CEO under the Plan shall not exceed thirty-five percent (35%) of the
      number of shares of the Company's Common Stock reserved for issuance
      hereunder. The maximum number of shares of the Company's Common Stock
      awarded to any other "Participant" (as defined in Section 5 below)
      pursuant to all Awards granted to such Participant under the Plan shall
      not exceed twenty percent (20%) of the number of shares of the Company's
      Common Stock reserved for issuance hereunder.

      The shares of Common Stock delivered under the Plan may be either
      authorized but unissued shares of Common Stock or shares of the Company's
      Common Stock held by the Company as treasury shares, including shares of
      Common Stock acquired by the Company in open market and private
      transactions. No fractional shares of Common Stock will be delivered
      pursuant to Awards granted under the Plan and the Committee shall
      determine the manner in which fractional share value will be treated.

      If any Award requiring exercise by a Participant for delivery of shares of
      Common Stock is cancelled or terminates without having been exercised in
      full, or if any Award payable in shares of Common Stock or cash is
      satisfied in cash rather than Common Stock, the number of shares of Common
      Stock as to which such Award was not exercised or for which cash was
      substituted will be available for future Awards of Common Stock; provided,
      however, that Common Stock subject to an Option cancelled upon the
      exercise of an SAR shall not again be available for Awards under the Plan

                                       2
<PAGE>

      unless, and to the extent that, the SAR is settled in cash. Shares of
      Restricted Stock and Deferred Stock forfeited to the Company in accordance
      with the Plan and the terms of the particular Award shall be available
      again for Awards under the Plan unless the Committee determines otherwise.

5.    ELIGIBILITY AND PARTICIPATION.

      Those eligible to receive Awards under the Plan (each, a "Participant" and
      collectively, the "Participants") will be persons in the employ of the
      Company or any of its subsidiaries designated by the Committee
      ("Employees") and other persons or entities who, in the opinion of the
      Committee, are in a position to make a significant contribution to the
      success of the Company or its subsidiaries, including, without limitation,
      consultants and agents of the Company or any subsidiary. A "subsidiary"
      for purposes of the Plan will be a present or future corporation or other
      entity of which the Company owns or controls, or will own or control, more
      than 50% of the total combined voting power of all classes of stock or
      other equity interests.

6.    OPTIONS.

      (a)   NATURE OF OPTIONS. An Option is an Award entitling the Participant
            to purchase a specified number of shares of Common Stock at a
            specified exercise price. Both ISOs, as defined in Section 422 of
            the Code, and Nonqualified Options may be granted under the Plan;
            provided, however, that ISOs may be awarded only to Employees.

      (b)   EXERCISE PRICE. The exercise price of each Option shall be equal to
            the "Fair Market Value" (as defined below) of the Common Stock on
            the date the Award is granted to the Participant; provided, however,
            that (i) in the Committee's discretion, the exercise price of a
            Nonqualified Option may be less than the Fair Market Value of the
            Common Stock on the date of grant; (ii) with respect to a
            Participant who owns more than ten percent (10%) of the total
            combined voting power of all classes of stock of the Company, the
            option price of an ISO granted to such Participant shall not be less
            than one hundred and ten percent (110%) of the Fair Market Value of
            the Common Stock on the date the Award is granted; and (iii) with
            respect to any Option repriced by the Committee, the exercise price
            shall be equal to the Fair Market Value of the Common Stock on the
            date such Option is repriced unless otherwise determined by the
            Committee. For purposes of this Plan, Fair Market Value shall mean
            the closing price of the Common Stock as reported on the principal
            securities exchange on which the Common Stock is listed, or if not
            so listed, the last sale price (or the average of the high asked and
            low bid prices of the Common Stock if sales price information is not
            reported) of the Common Stock as reported by the Nasdaq Stock Market
            or, if not reported on the Nasdaq Stock Market, by the NASD OTC
            Bulletin Board or similar quotation service. If the Common Stock is
            not publicly traded, Fair Market Value shall be determined in good
            faith by the Board of Directors.

                                       3
<PAGE>

      (c)   DURATION OF OPTIONS. The term of each Option granted to a
            Participant pursuant to an Award shall be determined by the
            Committee; provided, however, that in no case shall an Option be
            exercisable more than ten (10) years (five (5) years in the case of
            an ISO granted to a ten percent (10%) stockholder as defined in (b)
            above) from the date of the Award.

      (d)   EXERCISE OF OPTIONS AND CONDITIONS. Except as otherwise provided in
            Sections 18 and 19 herein, and except as otherwise provided below
            with respect to ISOs, Options granted pursuant to an Award will
            become exercisable at such time or times, and subject to such
            conditions, as the Committee may specify at the time of the Award.
            The Options may be subject to such restrictions, conditions and
            forfeiture provisions as the Committee may determine, including, but
            not limited to, restrictions on transfer, continuous service with
            the Company or any of its subsidiaries, achievement of business
            objectives, and individual, division and Company performance. To the
            extent exercisable, an Option may be exercised either in whole at
            any time or in part from time to time. With respect to an ISO
            granted to a Participant, the Fair Market Value of the shares of
            Common Stock on the date of grant which are exercisable for the
            first time by a Participant during any calendar year shall not
            exceed $100,000.

      (e)   PAYMENT FOR AND DELIVERY OF STOCK. Full payment for shares of Common
            Stock purchased will be made at the time of the exercise of the
            Option, in whole or in part. Payment of the purchase price will be
            made in cash or in such other form as the Committee may permit,
            including, without limitation, delivery of shares of Common Stock.

7.    STOCK APPRECIATION RIGHTS.

      (a)   NATURE OF STOCK APPRECIATION RIGHTS. An SAR is an Award entitling
            the recipient to receive payment, in cash and/or shares of Common
            Stock, determined in whole or in part by reference to appreciation
            in the value of a share of Common Stock. An SAR entitles the
            recipient to receive in cash and/or shares of Common Stock, with
            respect to each SAR exercised, the excess of the Fair Market Value
            of a share of Common Stock on the date of exercise over the Fair
            Market Value of a share of Common Stock on the date the SAR was
            granted.

      (b)   GRANT OF SARS. SARs may be subject to Awards in tandem with, or
            independently of, Options granted under the Plan. An SAR granted in
            tandem with an Option which is not an ISO may be granted either at
            or after the time the Option is granted. AN SAR granted in tandem
            with an ISO may be granted only at the time the ISO is granted and
            may expire no later than the expiration of the underlying ISO.

      (c)   EXERCISE OF SARS. An SAR not granted in tandem with an Option will
            become exercisable at such time or times, and on such conditions, as
            the Committee may specify. An SAR granted in tandem with an Option
            will be exercisable only at such times, and to the extent, that the
            related option is exercisable. An SAR granted in tandem with an ISO

                                       4
<PAGE>

            may be exercised only when the market price of the shares of Common
            Stock subject to the ISO exceeds the exercise price of the ISO, and
            the SAR may be for no more than one hundred percent (100%) of the
            difference between the exercise price of the underlying ISO and the
            Fair Market Value of the Common Stock subject to the underlying ISO
            at the time the SAR is exercised. At the option of the Committee,
            upon exercise, an SAR may be settled in cash, Common Stock or a
            combination of both.

8.    RESTRICTED STOCK.

      A Restricted Stock Award entitles the recipient to acquire shares of
      Common Stock, subject to certain restrictions or conditions, for no cash
      consideration, if permitted by applicable law, or for such other
      consideration as may be determined by the Committee. The Award may be
      subject to such restrictions, conditions and forfeiture provisions as the
      Committee may determine, including, but not limited to, restrictions on
      transfer, continuous service with the Company or any of its subsidiaries,
      achievement of business objectives, and individual, division and Company
      performance. Subject to such restrictions, conditions and forfeiture
      provisions as may be established by the Committee, any Participant
      receiving an Award of Restricted Stock will have all the rights of a
      stockholder of the Company with respect to the shares of Restricted Stock,
      including the right to vote the shares and the right to receive any
      dividends thereon.

9.    DEFERRED STOCK.

      A Deferred Stock Award entitles the recipient to receive shares of Common
      Stock to be delivered in the future. Delivery of the shares of Common
      Stock will take place at such time or times, and on such conditions, as
      the Committee may specify. At the time any Deferred Stock Award is
      granted, the Committee may provide that the Participant will receive an
      instrument evidencing the Participant's right to future delivery of
      Deferred Stock.

10.   DIRECTOR'S FEES.

      Subject to the limitation contained in Section 4 of this Plan on the
      number of shares of Common Stock which may be issued pursuant to this
      Plan, each member of the Board who is entitled to receive annual board
      retainer fees, Board meeting fees or Board committee fees shall receive
      such fees in the form of shares of the Company's Common Stock under this
      Plan. Shares of Common Stock with an aggregate Fair Market Value, on the
      last trading day of each fiscal quarter, equal to the aggregate amount of
      fees owed to a Board member for such fiscal quarter shall be issued to the
      Board member no later than fifteen (15) business days following the end of
      such fiscal quarter. Notwithstanding anything to the contrary set forth
      above, no fees shall be payable in the form of shares of Common Stock
      under this Section 10 to a director who is receiving such fees under the
      Company's 2000 Equity Incentive Plan.

11.   FORMULA AWARDS.

                                       5
<PAGE>

      On each date that (i) an individual who is not an employee of the Company
      or any subsidiary is elected or reelected as a director by the
      shareholders of the Company and (ii) that an annual meeting of
      shareholders of the Company is held during the term of office of such
      director (but excluding any annual meeting at which such director's term
      of office expires and such director is not reelected) such director shall
      receive, on such date, a grant of Nonqualified Options to acquire ten
      thousand (10,000) shares of Common Stock and each such Option shall have a
      per share exercise price equal to the Fair Market Value of the Common
      Stock on such date of grant. Each Nonqualified Option granted to a
      non-employee Director pursuant to this Section 11 shall have a term of
      five (5) years from the date of grant and shall vest and become fully
      exercisable on the first anniversary of such date of grant. In order for a
      non-employee Director to be granted such Nonqualified Options, the
      Director must have attended seventy-five (75%) of all Board meetings and
      seventy-five percent (75%) of all Board committee meetings, of which the
      Director is a member, called and held during the previous twelve (12)
      months while such Director was a member of the Board and committees).
      Notwithstanding anything to the contrary set forth above, no awards of
      Nonqualified Options shall be made pursuant to this Section 11 to a
      Director who is receiving a comparable award under the Company's 2000
      Equity Incentive Plan. The provisions of this Section 11 of the Plan shall
      not be amended more than once every six (6) months, other than to comport
      with changes in the Internal Revenue Code of 1986, as amended, the
      Employee Retirement Income Security Act of 1974, or the rules thereunder.

12.   OTHER STOCK BASED AWARDS.

      The Committee shall have the right to grant Other Stock Based Awards under
      the Plan to Employees which may include, without limitation, the grant of
      shares of Common Stock as bonus compensation and the issuance of shares of
      Common Stock in lieu of an Employee's cash compensation.

13.   AWARD AGREEMENTS.

      The grant of any Award under the Plan may be evidenced by an agreement
      which shall describe the specific Award granted and the terms and
      conditions of the Award. Any Award shall be subject to the terms and
      conditions of any such agreement required by the Committee.

14.   TRANSFERS.

      No Award (other than an outright Award in the form of Common Stock without
      any restrictions) may be assigned, pledged or transferred other than by
      will or by the laws of descent and distribution and, during a
      Participant's lifetime, will be exercisable only by the Participant or, in
      the event of a Participant's incapacity, by the Participant's guardian or
      legal representative.

15.   RIGHTS OF A STOCKHOLDER.

      Except as specifically provided by the Plan, the receipt of an Award will
      not give a Participant rights as a stockholder of the Company. The
      Participant will obtain such rights, subject to any limitations imposed by
      the Plan, or the instrument evidencing the Award, upon actual receipt of
      shares of Common Stock.

                                       6
<PAGE>

16.   CONDITIONS ON DELIVERY OF STOCK.

      The Company will not be obligated to deliver any shares of Common Stock
      pursuant to the Plan or to remove any restrictions or legends from shares
      of Common Stock previously delivered under the Plan until, (a) in the
      opinion of the Company's counsel, all applicable federal and state laws
      and regulations have been complied with, (b) until the shares of Common
      Stock to be delivered have been listed or authorized to be listed on the
      American Stock Exchange (or such other exchange or quotation system on
      which shares of Common Stock may be listed or quoted), and (c) until all
      other legal matters in connection with the issuance and delivery of such
      shares of Common Stock have been approved by the Company's counsel. If the
      sale of shares of Common Stock has not been registered under the
      Securities Act of 1933, as amended (the "Act"), and qualified under the
      appropriate "blue sky" laws, the Company may require, as a condition to
      exercise of the Award, such representations and agreements as counsel for
      the Company may consider appropriate to avoid violation of such Act and
      laws and may require that the certificates evidencing such shares of
      Common Stock bear an appropriate legend restricting transfer.

      If an Award is exercised by a Participant's legal representative, the
      Company will be under no obligation to deliver shares of Common Stock
      pursuant to such exercise until the Company is satisfied as to the
      authority of such representative.

17.   TAX WITHHOLDING.

      The Company will have the right to deduct from any cash payment under the
      Plan taxes that are required to be withheld and to condition the
      obligation to deliver or vest shares of Common Stock under this Plan upon
      the Participant's paying the Company such amount as the Company may
      request to satisfy any liability for applicable withholding taxes. The
      Committee may in its discretion permit Participants to satisfy all or part
      of their withholding liability either by delivery of shares of Common
      Stock held by the Participant or by withholding shares of Common Stock to
      be delivered to a Participant upon the grant or exercise of an Award.

18.   ADJUSTMENT OF AWARD.

      (a)   The Committee may make or provide for such adjustments in the
            numbers of shares of Common Stock covered by outstanding Awards
            granted hereunder, and any applicable exercise price provided in
            outstanding Awards and in the kind of shares covered thereby, as the
            Committee, in its sole discretion, may determine is equitably
            required to prevent dilution or enlargement of the rights of
            Participants that otherwise would result from (i) any stock
            dividend, stock split, combination of shares, recapitalization or
            other change in the capital structure of the Company, or (ii) any
            merger, consolidation, spin-off, split-off, spin-out, split-up,
            reorganization, partial or complete liquidation or other
            distribution of assets, issuance of rights or warrants to purchase

                                       7
<PAGE>

            securities, or (iii) any other corporate transaction or event having
            an effect similar to any of the foregoing. Moreover, in the event of
            any such transaction or event, the Committee, in its discretion, may
            provide in substitution for any or all outstanding awards under this
            Plan such alternative consideration (including cash), if any, as it
            may determine to be equitable in the circumstances and may require
            in connection therewith the surrender of all Awards so replaced. The
            Committee may also make or provide for such adjustments in the
            numbers of shares specified in Section 4 of this Plan as the
            Committee in its sole discretion may determine is appropriate to
            reflect any transaction or event described in this Section 18(a);
            provided, however, that any such adjustment to the number specified
            in Section 4 will be made only if and to the extent that such
            adjustment would not cause any option intended to qualify as an ISO
            to fail to so qualify.

      (b)   In the event of a proposal, which is approved by the Board, of any
            merger or consolidation involving the Company where the Company is
            not the surviving entity or pursuant to which any shares of Common
            Stock would be converted into cash, securities or other property of
            another corporation or business entity (other than a merger or
            consolidation in which the holders of Common Stock immediately prior
            to the merger or consolidation continue to own at least 50% of the
            Common Stock after the merger or consolidation, or if the Company is
            not the surviving corporation, at least 50% of the common stock, (or
            other voting securities), of the surviving corporation or other
            business entity immediately after the merger, consolidation or share
            exchange) or any sale of substantially all of the Company's assets
            or any other transaction or series of related transactions as a
            result of which a single person or several persons acting in concert
            (other than Anthony J. Caldarone and members of the immediate family
            of Anthony J. Caldarone) own a majority of the Company's then
            outstanding Common Stock (such merger, consolidation, sale of assets
            or other transaction being hereinafter referred to as a
            "Transaction"), all outstanding Options and SARs shall become
            exercisable immediately before or contemporaneously with the
            consummation of such Transaction and each outstanding share of
            Restricted Stock and each outstanding Deferred Stock Award shall
            immediately become free of all restrictions and conditions upon
            consummation of such Transaction. Immediately following the
            consummation of the Transaction, all outstanding Options and SARs
            shall terminate and cease to be exercisable.

            In lieu of the foregoing, if the Company will not be the surviving
            corporation or entity, the Committee may arrange to have such
            acquiring or surviving corporation or entity, or an "Affiliate", (as
            defined below) thereof, grant replacement Awards which shall be
            immediately exercisable to Participants holding outstanding Awards.

            The term "Affiliate," with respect to any Person, shall mean any
            other Person who is, or would be deemed to be an "affiliate" or an
            "associate" of such Person within the respective meanings ascribed
            to such terms in Rule 12b-2 of the General Rules and Regulations
            under the Securities Exchange Act of 1934. The term "Person" shall

                                       8
<PAGE>

            mean a corporation, association, partnership, joint venture, trust,
            organization, business, individual or government or any governmental
            agency or political subdivision thereof.

      (c)   In the event of the dissolution or liquidation of the Company
            (except a dissolution or liquidation relating to a sale of assets or
            other reorganization of the Company referred to in the preceding
            sections), the outstanding options and SARs shall terminate as of a
            date fixed by the Committee; provided, however, that not less than
            thirty (30) days written notice of the date so fixed shall be given
            to each Participant who shall have the right during such period to
            exercise the Participant's Options or SARs as to all or any part of
            the shares of Common Stock covered thereby. Further, in the event of
            the dissolution or liquidation of the Company, each outstanding
            share of Restricted Stock and each outstanding Deferred Stock Award
            shall immediately become free of all restrictions and conditions.

19.   TERMINATION OF SERVICE.

      Upon a Participant's termination of service with the Company or a
      subsidiary (if an employee only of a subsidiary), any outstanding Award
      shall be subject to the terms and conditions set forth below, unless
      otherwise determined by the Committee:

      (a)   In the event a Participant leaves the employ or service of the
            Company or a subsidiary of the Company, prior to the Participant's
            65th birthday, whether voluntarily or otherwise but other than by
            reason of the Participant's death or "disability" (as such term is
            defined in Section 22(e)(3) of the Code), each Option and SAR
            granted to the Participant shall terminate upon the earlier to occur
            of (i) the expiration of the period three (3) months after the date
            of such termination and (ii) the date specified in the Option or
            SAR; provided, that, prior to the termination of such Option or SAR,
            the Participant shall be able to exercise any part of the Option or
            SAR which is exercisable as of the date of termination. Further,
            each outstanding share of Restricted Stock and each outstanding
            Deferred Stock Award which remains subject to any restrictions or
            conditions of the Award shall be forfeited to the Company upon such
            date of termination.

      (b)   In the event a Participant's employment with or service to the
            Company or its subsidiaries terminates by reason of the
            Participant's death or "disability" (as such term is defined in
            Section 22(e)(3) of the Code), each Option and SAR granted to the
            Participant shall become immediately exercisable in full and shall
            terminate upon the earlier to occur of (i) the expiration of the
            period six (6) months after the date of such termination and (ii)
            the date specified in the option or SAR. Further, each outstanding
            share of Restricted Stock and each outstanding Deferred Stock Award
            shall immediately become free of all restrictions and conditions
            upon the date of such termination.

      (c)   In the event a Participant voluntarily or involuntarily leaves the
            employ or service of the Company or a subsidiary of the Company,
            after the Participant's 65th birthday, each Option and SAR granted

                                       9
<PAGE>

            to the Participant shall become immediately exercisable in full and
            shall terminate upon the earlier to occur of (i) the expiration of
            three (3) months after the date of such termination and (ii) the
            date specified in the Option or SAR. Further, each outstanding share
            of Restricted Stock and each outstanding Deferred Stock Award shall
            immediately become free of all restrictions and conditions upon the
            date of such termination.

20.   AMENDMENTS AND TERMINATION.

      The Committee will have the authority to make such amendments to any terms
      and conditions applicable to outstanding Awards as are consistent with
      this Plan; provided, that, except for adjustments under Section 18 hereof,
      no such action will modify such Award in a manner adverse to the
      Participant without the Participant's consent except as such modification
      is provided for or contemplated in the terms of the Award.

      The Board may amend, suspend or terminate the Plan, subject to shareholder
      approval if so required by any applicable federal or state securities
      laws, tax laws or corporate statute, except that no action may, without
      the consent of a Participant, adversely affect any Award previously
      granted to the Participant under the Plan.

21.   COMPLIANCE WITH CODE SECTION 409A

      (a)   To the extent applicable, it is intended that this Plan and any
            Awards made hereunder comply with the provisions of Section 409A of
            the Code. This Plan and any Awards made hereunder shall be
            administrated in a manner consistent with this intent, and any
            provision that would cause this Plan or any Award made hereunder to
            fail to satisfy Section 409A of the Code shall have no force and
            effect until amended to comply with Section 409A of the Code (which
            amendment may be retroactive to the extent permitted by Section 409A
            of the Code and may be made by the Company without the consent of
            Participants). Any reference in this Plan to Section 409A of the
            Code will also include any proposed, temporary or final regulations,
            or any other guidance, promulgated with respect to such Section by
            the U.S. Department of the Treasury or the Internal Revenue Service.

      (b)   Notwithstanding any provision of this Plan to the contrary, to the
            extent an Award shall be deemed to be vested or restrictions lapse,
            expire or terminate upon the occurrence of a Transaction and such
            Transaction does not constitute a "change in the ownership or
            effective control" or a "change in the ownership or a substantial
            portion of the assets" of the Company within the meaning of Section
            401A(a)(2)(A)(v) of the Code, then even though such Award may be
            deemed to be vested or restrictions lapse, expire or terminate upon
            the occurrence of the Transaction or any other provision of this
            Plan, payment will be made, to the extent necessary to comply with
            the provisions of Section 409A of the Code, to the Participant the
            earliest of (i) the Participant's "separation from service" with the
            Company (determined in accordance with Section 409A of the Code);
            provided, however, that if the Participant is a "specified employee"
            (within the meaning of Section 409A of the Code), the payment date

                                       10
<PAGE>

            shall be the date that is six months after the date of the
            Participant's separation from service with the Company, (ii) the
            date payment otherwise would have been made in the absence of any
            provisions in this Plan to the contrary (provided such date is
            permissible under Section 409A of the Code), or (iii) the
            Participant's death.

22.   SUCCESSORS AND ASSIGNS.

      The provisions of this Plan shall be binding upon all successors and
      assigns of any such Participant including, without limitation, the estate
      of any such Participant and the executors, administrators, or trustees of
      such estate, and any receiver, trustee in bankruptcy or representative of
      the creditors of any such Participant.

23.   MISCELLANEOUS.

      (a)   This Plan shall be governed by and construed in accordance with the
            laws of the State of New Jersey.

      (b)   Any and all funds received by the Company under the Plan may be used
            for any corporate purpose.

      (c)   Nothing contained in the Plan or any Award granted under the Plan
            shall confer upon a Participant any right to be continued in the
            employment of the Company or any subsidiary, or interfere in any way
            with the right of the Company, or its subsidiaries, to terminate the
            employment relationship at any time.

                                       11

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