Document:

exv10w1

Exhibit 10.1

FEDERAL HOME LOAN BANK OF DALLAS

2011 LONG TERM INCENTIVE PLAN

Effective as of January 1, 2011

And for the Period

January 1, 2011 to December 31, 2013

(Approved by the Board of Directors on December 20, 2010

and Plan Objectives revised August 5, 2011.)

 

 

FEDERAL HOME LOAN BANK OF DALLAS

2011 LONG TERM INCENTIVE PLAN

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	PAGE	 
	Article I INTRODUCTION
	 	 	1	 
	 
	 	 	 	 
	Section 1.1 Purpose
	 	 	1	 
	Section 1.2 Effective Date
	 	 	1	 
	Section 1.3 Administration
	 	 	1	 
	Section 1.4 Addendums
	 	 	1	 
	Section 1.5 Definitions
	 	 	1	 
	 
	 	 	 	 
	Article II ELIGIBILITY AND PARTICIPATION
	 	 	2	 
	 
	 	 	 	 
	Section 2.1 Eligibility
	 	 	2	 
	Section 2.2 Participation
	 	 	2	 
	 
	 	 	 	 
	Article III AWARDS
	 	 	2	 
	 
	 	 	 	 
	Section 3.1 Awards
	 	 	2	 
	Section 3.2 Performance Goals
	 	 	4	 
	Section 3.3 Earning and Vesting of Awards
	 	 	4	 
	Section 3.4 Effect of Termination of Service
	 	 	4	 
	Section 3.5 Effect of Reorganization
	 	 	5	 
	Section 3.6 Payment of Awards
	 	 	6	 
	Section 3.7 Forfeiture and/or Reduction of Awards
	 	 	6	 
	 
	 	 	 	 
	Article IV ADMINISTRATION
	 	 	7	 
	 
	 	 	 	 
	Section 4.1 Appointment of the Committee
	 	 	7	 
	Section 4.2 Powers and Responsibilities of the Committee
	 	 	7	 
	Section 4.3 Income and Employment Tax Withholding
	 	 	8	 
	Section 4.4 Plan Expenses
	 	 	8	 
	 
	 	 	 	 
	Article V BENEFIT CLAIMS
	 	 	8	 
	 
	 	 	 	 
	Article VI AMENDMENT AND TERMINATION OF THE PLAN
	 	 	8	 
	 
	 	 	 	 
	Section 6.1 Amendment of the Plan
	 	 	8	 
	Section 6.2 Termination of the Plan
	 	 	8	 
	 
	 	 	 	 
	Article VII MISCELLANEOUS
	 	 	8	 
	 
	 	 	 	 
	Section 7.1 Governing Law
	 	 	8	 
	Section 7.2 Headings and Gender
	 	 	8	 
	Section 7.3 Spendthrift Clause
	 	 	9	 
	Section 7.4 Counterparts
	 	 	9	 
	Section 7.5 No Enlargement of Employment Rights
	 	 	9	 
	Section 7.6 Limitations on Liability
	 	 	9	 
	Section 7.7 Incapacity of Participant
	 	 	9	 
	Section 7.8 Evidence
	 	 	9	 

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	 	 	PAGE	 
	Section 7.9 Action by Bank
	 	 	9	 
	Section 7.10 Severability
	 	 	9	 
	Section 7.11 Information to be Furnished by a Participant
	 	 	9	 
	Section 7.12 Attorneys’ Fees
	 	 	10	 
	Section 7.13 Binding on Successors
	 	 	10	 
	Section 7.14 Awards Not Compensation for Other Plans
	 	 	10	 
	 
	 	 	 	 
	APPENDIX A            FORM OF AWARD AGREEMENT & PARTICIPANTS
	 	 	A-1	 
	 
	 	 	 	 
	APPENDIX B            FORM NON-SOLICITATION AND NON-DISCLOSURE AGREEMENT
	 	 	B-1	 
	 
	 	 	 	 
	APPENDIX C            2011 PERFORMANCE PERIOD
	 	 	C-1	 

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ARTICLE I

INTRODUCTION

     Section 1.1 Purpose. The purpose of the Federal Home Loan Bank of Dallas 2011 Long Term Incentive
Plan (the “Plan”) is to attract, retain and motivate certain key employees of the Federal Home Loan
Bank of Dallas (the “Bank”) and to align their interests to member/shareholders measured by
retained earnings, MVE of equity, capacity to pay dividends, external audit and FHFA examination
findings, and the overall performance of the Bank in achieving its annual objectives during the
plan cycle. The Plan is a cash-based long-term incentive plan that provides award opportunities
based on achievement of performance goals over a three-year period.

     Section 1.2 Effective Date. The “Effective Date” of the Plan is January 1, 2011.

     Section 1.3 Administration. The Plan will be administered by the Compensation and Human Resources
Committee of the Board. Day-to-day responsibilities of plan administration may be delegated to the
Bank’s management and human resources function. The Committee, from time to time, may adopt any
rules and procedures it deems necessary or desirable for the proper and efficient administration of
the Plan that are consistent with the terms of the Plan. Any notice or document required to be
given or filed with the Committee will be properly given or filed if delivered to or mailed by
registered mail, postage paid, to the Corporate Secretary of the Board of Directors, Federal Home
Loan Bank of Dallas, 8500 Freeport Parkway South, Suite 100, Irving, TX 75063.

     Section 1.4 Addendums. The provisions of the Plan may be modified by addendums to the Plan. The
terms and provisions of each addendum are a part of the Plan and supersede any other provisions of
the Plan to the extent necessary to eliminate any inconsistencies between the addendum and any
other Plan provisions.

     Section 1.5 Definitions. The following terms are defined in the Plan in the following Sections:

	 	 	 
	Term	 	Plan Section
	Award
	 	3.1(b)
	Award Agreement
	 	3.1(b)
	Bank
	 	1.1
	Board
	 	1.3
	Cause
	 	3.4(b)(iii)
	Committee
	 	1.3
	Disability
	 	3.4(b)(i)
	Discretionary Award
	 	3.1(d)
	Effective Date
	 	1.2
	Extraordinary Occurrences
	 	3.1(e)
	Final Award
	 	3.1(e)

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	Term	 	Plan Section
	Level I Participant
	 	3.1(c)
	Level II Participant
	 	3.1(c)
	Level III Participant
	 	3.1(c)
	Maximum
	 	3.2(b)(iii)
	Non-Solicitation Agreement
	 	2.1
	Participant
	 	2.1
	Performance Goals
	 	3.2
	Performance Period
	 	3.1(a)
	Plan
	 	1.1
	Reorganization
	 	3.5
	Retirement
	 	3.4(b)(ii)
	Termination of Service
	 	3.4(a)
	Target
	 	3.2(b)(ii)
	Threshold
	 	3.2(b)(i)

ARTICLE II

ELIGIBILITY AND PARTICIPATION

     Section 2.1 Eligibility. Any employee of the Bank is eligible to become a “Participant” in the
Plan, provided the employee is designated as a Participant by the Board in writing and he or she
executes an agreement containing non-solicitation and non-disclosure provisions in the form
provided as Appendix B to the Plan (“Non-Solicitation Agreement”). The CEO is automatically
eligible to participate in the plan subject to Board approval, others may be nominated by the CEO
and require Board approval. (See Appendix A, Schedule B.)

     Section 2.2 Participation. A designated employee or otherwise eligible employee will become a
Participant as of the later of the Effective Date, the date specified by the Board, or the date, on
or after the Effective Date, that the employee satisfies the automatic eligibility provisions
described in Section 2.1. Any Participant may be removed as an active Participant by the Board
effective as of any date.

ARTICLE III

AWARDS

     Section 3.1 Awards. At the beginning of each Performance Period, the Board will decide on the level of Award
opportunities that can be potentially earned by an eligible Participant. Each Award will be equal
to a percentage of the Participant’s average annual base salary during the 3-year plan cycle.

	 	(a)	 	Performance Period. A “Performance Period” is a rolling three-calendar
year period over which an Award can be earned and also referred to plan cycle.
	 
	 	(b)	 	Award Agreement. An “Award” to a Participant will be evidenced by a
written “Award Agreement” issued by the Bank to a Participant that specifies the

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	 	 	 	Performance Goals, the Performance Period and other necessary terms and conditions
applicable to the Award.

	 	(c)	 	Award Levels. Participants will receive varying Awards based on their
position and salary grade level with the Bank. The actual award opportunities under
the Plan shall be the same as those provided under the applicable short-term incentive
plan (“STIP”) and are established as a percentage of “plan salary”. Plan salary is
defined as the average annual salary for the Participant during the 3-year plan cycle.
	 
	 	(d)	 	Discretionary Award. The Board has delegated to the President the
authority to grant an additional discretionary Award (the “Discretionary Award”) to a
Participant to address external market considerations, including for recruiting
purposes. The aggregate pool of funds available for Discretionary Awards will not
exceed ten percent of the total long-term incentive awards.
	 
	 	(e)	 	Final Award. The “Final Award” is the amount of an Award as adjusted
based upon the level at which the Performance Goals have been achieved, including any
Discretionary Award, that is ultimately paid to a Participant under the Plan for a
Performance Period. In deciding upon approving payouts under the Plan, the Board will
base its decision on the following qualifiers: (i) the consistent ability to pay
quarterly dividends to members throughout the 3-year plan cycle; (ii) the consistent
ability to repurchase excess capital stock throughout the 3-year plan cycle; and (iii)
the maintenance of the Bank’s triple-A credit rating from Moody’s and S&P. Final
Awards may be modified up or down at the Board’s discretion to account for performance
that is not captured in the Performance Goals. The Board in its discretion may also
consider Extraordinary Occurrences when assessing performance results and determining
Final Awards. “Extraordinary Occurrences” mean those events that, in the opinion and
discretion of the Board, are outside the significant influence of the Participant or
the Bank and are likely to have a significant unanticipated effect, whether positive or
negative, on the Bank’s operating and/or financial results.

	 	•	 	For each potential Final Award payment, the results of the STIP
objective goal achievement for the prior year and the Long Term Incentive
Plan (“LTIP”) goal achievement for the 3-year plan cycle that ends with the
prior year and applied to the Participant’s maximum award level will be
weighted to determine the total incentive award payout. The weighting shall
be 50% for the STIP and 50% for the LTIP.
	 
	 	•	 	For LTIP goal achievement above the Threshold level in a given plan
cycle, the Plan will provide for an additional bonus payment as follows:

	 	•	 	LTIP goal achievement of 80% for the 3-year
plan cycle will increase the related Final Award payout level as a
percentage of base salary by 10%; and

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	 	•	 	LTIP goal achievement of 90% for the 3-year
plan cycle will increase the related Final Award payout level as a
percentage of base salary by 15%.

     Section 3.2 Performance Goals. “Performance Goals” are the performance factors established by the
Board and set forth in an Appendix to the Plan and that are taken into consideration under the Plan
in determining the value of an Award. The Board may adjust the Performance Goals for a Performance
Period to ensure that the purpose of the Plan is served.

	 	(a)	 	Establishment of Performance Goals. Performance Goals for the
Performance Period commencing on January 1, 2011, will be established as of the date
the Plan is adopted. Performance Goals for Performance Periods commencing after
January 1, 2011, will be communicated to Participants in writing after they have been
established by the Board.
	 
	 	(b)	 	Achievement Level. Three achievement levels will be defined for each
Performance Goal.

	 	(i)	 	Threshold. The “Threshold” achievement level is the
minimum achievement level accepted for a Performance Goal.
	 
	 	(ii)	 	Target. The “Target” achievement level is the planned
achievement level for a Performance Goal.
	 
	 	(iii)	 	Maximum. The “Maximum” achievement level is
achievement that substantially exceeds the Target achievement level.

	 	(c)	 	Interpolation. Achievement levels between Threshold — Target and
Target — Maximum will be interpolated in a consistent manner as determined by the
Committee.

     Section 3.3 Earning and Vesting of Awards. Generally, an Award will become vested, if:

	 	(a)	 	the applicable Performance Goals for the Performance Period are satisfied; and
	 
	 	(b)	 	the Participant is actively employed on the last day of the Performance Period.

     The value of Awards will be calculated in accordance with the applicable Appendix to the Plan
and the applicable Award Agreement.

     Section 3.4 Effect of Termination of Service.

	 	(a)	 	In General. If a Participant incurs a Termination of Service for any
reason other than a reason set forth in subsection 3.4(b), then any portion of an Award
which has not otherwise become vested as of the date of Termination of Service will be
forfeited, effective as of the date of such termination. For purposes of the Plan,

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	 	 	 	“Termination of Service” means the occurrence of any act or event or any failure to
act, that actually or effectively causes or results in a Participant ceasing, for
whatever reason, to be an employee of the Bank, including, but not limited to, death,
Disability, Retirement, termination by the Bank of the Participant’s employment
(whether for Cause or otherwise), termination by the Participant of his or her
employment with the Bank for Good Reason and voluntary resignation or termination by
the Participant of his or her employment.

	 	(b)	 	Termination Due to Death, Disability, Retirement or Other Events.
Notwithstanding the provisions of Section 3.3 and subsection 3.4(a), if a Participant
incurs a Termination of Service (i) due to death, (ii) due to Disability, (iii) due to
Retirement or (iv) special circumstances as solely determined and approved by the Board
any portion of his or her Award eligible to become earned and vested in the Performance
Periods in which the termination occurs will, to the extent the Performance Goals for
such Performance Periods are satisfied, be treated as earned and vested in a pro rata
manner equivalent to the period of time during the Performance Periods the Participant
participated in the Plan. The Award will become vested effective as of the last day of
such Performance Periods in which the Termination of Service occurs.

	 	(i)	 	For purposes of the Plan, “Disability” means, as a result of
the Participant’s incapacity due to physical or mental illness, the Participant
has been absent from his or her duties with the Bank for an aggregate of 12 out
of 15 consecutive months and, within 30 days after a written notice of
termination is thereafter given by the Bank to the Participant, the Participant
does not return to the full-time performance of the Participant’s duties.
	 
	 	(ii)	 	For purposes of the Plan, “Retirement” means the planned and
voluntary termination of the Participant’s employment on or after the
Participant has attained age 55 with ten “Years of Service.” To be credited
with a Year of Service, a Participant must complete 1,000 “hours of service”
for the Bank during such year.
	 
	 	(iii)	 	For purposes of the Plan, “Special Circumstances” may include,
but are not limited to a significant change in a participant’s job
responsibilities other than for cause.

     Section 3.5 Effect of Reorganization. Notwithstanding the provisions of Section 3.3 and
subsection 3.4(b), if a Reorganization of the Bank occurs, then any portion of an Award which has
not otherwise become vested as of the date of the Reorganization will be treated as earned and
vested, effective as of the date of the Reorganization, in a pro rata manner equivalent to the
period of time during the Performance Periods the Participant participated in the Plan prior to the
Reorganization. “Reorganization” of the Bank will mean the occurrence at any time of any of the
following events:

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	 	(a)	 	The Bank is merged or consolidated with or reorganized into or with another
FHLBank or other entity, or another FHLBank or other entity is merged or consolidated
into the Bank;
	 
	 	(b)	 	The Bank sells or transfers all, or substantially all of its business and/or
assets to another FHLBank or other entity; or
	 
	 	(c)	 	The liquidation or dissolution of the Bank.

     Section 3.6 Payment of Awards. Unless payment of a Final Award has been properly deferred by
a Participant, a Final Award will be paid in a single sum cash payment no later than March 15th of
the year following the year in which the Award becomes earned and vested. However, in the event of
a Reorganization, unless payment has been properly deferred, payment of a Final Award will be made
in a single sum on the date on which the Reorganization occurs.

     Section 3.7 Forfeiture and/or Reduction of Awards.

	 	(a)	 	Notwithstanding any other provision of the Plan, if a Participant violates a
Non-Solicitation Agreement, all of his unpaid vested and unvested Awards will be
forfeited effective as of the date the Board determines such violation has occurred and
notifies the Participant of such determination. Any future payments for a vested Award
will cease and the Bank will have no further obligation to make such payments.
	 
	 	(b)	 	Notwithstanding any other provision of the Plan, if during the most recent
examination of the Bank by the FHFA, the FHFA identified an unsafe or unsound practice
or condition with regard to the Bank within the Participant’s area(s) of responsibility
and such unsafe or unsound practice or condition is not subsequently resolved in favor
of the Bank, then all of a Participant’s unpaid vested and unvested Awards will be
forfeited. Any future payments for a vested
Award will cease and the Bank will have no further obligation to make such payments.
	 
	 	(c)	 	Claw-back Provision. “Final Awards” not yet paid, regardless of
vesting status, are subject to cancellation, if awards are subsequently determined to
be based on fraud or material financial misstatements. The Board in its sole
discretion shall determine the meaning of fraud and/or material financial misstatement.
	 
	 	(d)	 	Reduction in Named Executive Officer (‘NEO”) Awards. The Board of
Directors will utilize its discretion to reduce the amount of one or more NEO awards if
during the 3-year plan cycle it determines that:

	 	(i)	 	operational errors or omissions result in material revisions to
the financial results, information submitted to the Federal Housing Finance
Agency (“FHFA”), or data used to determine incentive award payment amounts;
	 
	 	(ii)	 	the submission of information to the SEC, the Office of
Finance, and/or the FHFA has not been provided in a timely manner; or

6

 

	 	(iii)	 	the Bank fails to make sufficient progress, as
determined by the FHFA and communicated to Bank management and/or the Board of
Directors by the FHFA, in the timely remediation of examination, monitoring,
and other supervisory findings and matters requiring executive management’s
attention.

ARTICLE IV

ADMINISTRATION

     Section 4.1 Appointment of the Committee. The Committee, or a duly authorized officer or officers
of the Bank empowered by the Committee to act on its behalf under sub-section 4.2(d), will be
responsible for administering the Plan, and the Committee will be charged with the full power and
the responsibility for administering the Plan in all its details; provided that the power to
determine eligibility pursuant to Article II is reserved to the Board.

     Section 4.2 Powers and Responsibilities of the Committee. The Committee will have all powers
necessary to administer the Plan, including the power to construe and interpret the Plan document;
to decide all questions relating to an individual’s eligibility to participate in the Plan; to
determine the amount, manner and timing of any distribution of benefits under the Plan; to resolve
any claim for benefits in accordance with Article V, and to appoint or employ advisors, including
legal counsel, to render advice with respect to any of the Committee’s responsibilities under the
Plan. Any construction, interpretation, or application of the Plan by the Committee will be final,
conclusive and binding.

	 	(a)	 	Records and Reports. The Committee will be responsible for maintaining
sufficient records to determine each Participant’s eligibility to participate in the
Plan.

	 	(b)	 	Rules and Decisions. The Committee may adopt such rules as it deems
necessary, desirable, or appropriate in the administration of the Plan. All rules and
decisions of the Committee will be applied uniformly and consistently to all
Participants in similar circumstances. When making a determination or calculation, the
Committee will be entitled to rely upon information furnished by a Participant, the
Bank or the legal counsel of the Bank.

	 	(c)	 	Application for Benefits. The Committee may require a Participant to
complete and file with it an application for a benefit, and to furnish all pertinent
information requested by it. The Committee may rely upon all such information so
furnished to it, including the Participant’s current mailing address.

	 	(d)	 	Delegation. The Committee may authorize one or more officers of the
Bank to perform administrative responsibilities on its behalf under the Plan. Any such
duly authorized officer will have all powers necessary to carry out the administrative
duties delegated to such officer by the Committee.

7

 

     Section 4.3 Income and Employment Tax Withholding. The Bank will withhold from payments to
Participants of their Awards, to the extent required by law, all applicable federal, state, city
and local taxes.

     Section 4.4 Plan Expenses. The expenses incurred for the administration and maintenance of the
Plan will be paid by the Bank.

ARTICLE V

BENEFIT CLAIMS

     While a Participant need not file a claim to receive his or her benefit under the Plan, if he
or she wishes to do so, a claim must be made in writing and filed with the Committee. If a claim
is denied, the Committee will furnish the claimant with written notice of its decision. A claimant
may request a full and fair review of the denial of a claim for benefits by filing a written
request with the Committee.

ARTICLE VI

AMENDMENT AND TERMINATION OF THE PLAN

     Section 6.1 Amendment of the Plan. The Board of Directors may amend the Plan at any time in its sole
discretion.

     Section 6.2 Termination of the Plan. The Board of Directors may terminate the Plan at any time in its
sole discretion. Absent an amendment to the contrary, Plan benefits that had accrued and vested
prior to the termination will be paid at the times and in the manner provided for by the Plan at
the time of the termination.

ARTICLE VII

MISCELLANEOUS

     Section 7.1 Governing Law. Except to the extent superseded by laws of the United States, the laws of
Texas will be controlling in all matters relating to the Plan without regard to the choice of law
principles therein. The Plan and all Award Agreements are intended to comply, and will be
construed by the Bank in a manner which they are exempt from or comply with the applicable
provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). To the
extent
there is any conflict between a provision of the Plan or an Award Agreement and a provision of Code
Section 409A, the applicable provision of Code Section 409A will control.

     Section 7.2 Headings and Gender. The headings and subheadings in the Plan have been inserted for
convenience of reference only and will not affect the construction of the Plan provisions. In any
necessary construction, the masculine will include the feminine and the singular the plural, and
vice versa.

8

 

     Section 7.3 Spendthrift Clause. No benefit or interest available under the Plan will be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of a Participant, either voluntarily or involuntarily.

     Section 7.4 Counterparts. This Plan may be executed in any number of counterparts, each one
constituting but one and the same instrument, and may be sufficiently evidenced by any one
counterpart.

     Section 7.5 No Enlargement of Employment Rights. Nothing contained in the Plan may be construed as a
contract of employment between the Bank and any person, nor may the Plan be deemed to give any
person the right to be retained in the employ of the Bank or limit the right of the Bank to employ
or discharge any person with or without cause.

     Section 7.6 Limitations on Liability. The individual members of the Board will, in accordance with the
Bank’s by-laws, be indemnified and held harmless by the Bank with respect to any alleged breach of
responsibilities performed or to be performed hereunder. In addition, notwithstanding any other
provision of the Plan, neither the Bank nor any individual acting as an employee or agent of the
Bank will be liable to a Participant for any claim, loss, liability or expense incurred in
connection with the Plan, except when the same has been affirmatively determined by a court order
or by the affirmative and binding determination of an arbitrator, to be due to the gross negligence
or willful misconduct of that person.

     Section 7.7 Incapacity of Participant. If any person entitled to receive a distribution under the Plan is physically or mentally
incapable of personally receiving and giving a valid receipt for any payment due (unless a prior
claim for the distribution has been made by a duly qualified guardian or other legal
representative), then, unless and until a claim for the distribution has been made by a duly
appointed guardian or other legal representative of the person, the Committee may provide for the
distribution to be made to any other individual or institution then contributing toward or
providing for the care and maintenance of the person. Any payment made for the benefit of the
person under this Section will be a payment for the account of such person and a complete discharge
of any liability of the Bank and the Plan.

     Section 7.8 Evidence. Evidence required of anyone under the Plan may be by certificate,
affidavit, document or other information which the person relying on the evidence considers
pertinent and reliable, and signed, made or presented by the proper party or parties.

     Section 7.9 Action by Bank. Any action required of or permitted by the Bank under the Plan will be by
resolution of the Board or by a person or persons authorized by resolution of the Board.

     Section 7.10 Severability. In the event any provisions of the Plan are held to be illegal or invalid
for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and
the Plan will be construed and endorsed as if the illegal or invalid provisions had never been
contained in the Plan.

     Section 7.11 Information to be Furnished by a Participant. A Participant, or any other person entitled
to benefits under the Plan, must furnish the Committee with any and all

9

 

documents, evidence, data
or other information the Committee considers necessary or desirable for the purpose of
administering the Plan. Benefit payments under the Plan are conditioned on a Participant (or other
person who is entitled to benefits) furnishing full, true and complete data, evidence or other
information to the Committee, and on the prompt execution of any document reasonably related to the
administration of the Plan requested by the Committee.

     Section 7.12 Attorneys’ Fees. If any action is commenced to enforce the provisions of the Plan,
payment of attorneys’ fees will be governed by the terms set forth in the mandatory “Agreement to
Arbitrate” entered into between the Bank and the Participant.

     Section 7.13 Binding on Successors. The Plan will be binding upon and inure to the benefit of the
Bank and its successors and assigns, and the successors, assigns, designees and estates of a
Participant. The Plan will
also be binding upon and inure to the benefit of any successor organization succeeding to
substantially all of the assets and business of the Bank, but nothing in the Plan will preclude the
Bank from merging or consolidating into or with, or transferring all or substantially all of its
assets to, another organization which assumes the Plan and all obligations of the Bank hereunder.
The Bank agrees that it will make appropriate provision for the preservation of a Participant’s
rights under the Plan in any agreement or plan which it may enter into to effect any merger,
consolidation, reorganization or transfer of assets. Upon such a merger, consolidation,
reorganization, or transfer of assets and assumption of Plan obligations of the Bank, the term
“Bank” will refer to such other organization and the Plan will continue in full force and effect.

     Section 7.14 Awards Considered Compensation for Other Plans. Final Award payments received by a
Participant shall be considered as compensation for purposes of determining benefits under the
Bank’s qualified Defined Benefit Pension Plan.

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APPENDIX A

FORM OF AWARD AGREEMENT

     THIS AWARD AGREEMENT (the “Award Agreement”) is made and entered into this ________ day of
__________, 20____, but effective as of January 1, 2011, between Federal Home Loan Bank of Dallas
(the “Bank”), and __________________ (the “Participant”).

WITNESSETH:

     WHEREAS, the Bank has adopted the Federal Home Loan Bank of Dallas 2011 Long Term Incentive
Plan (the “Plan”) to attract, retain and motivate designated key employees of the Bank and to focus
their efforts on continued improvement in the profitability of the Bank; and

     WHEREAS, the Participant is eligible to receive an Award;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained,
the Bank and the Participant agree as follows:

     1. Awards. The Bank will hereby award to the Participant, upon the completion of the
3-year performance period, the Award specified in Schedule A to this Agreement which is
incorporated herein as if fully set forth, subject to the terms of this Award Agreement and the
provisions of the Plan (the “Award”). All provisions of the Plan, including defined terms, are
incorporated herein and are expressly made a part of this Award Agreement by reference. If any
provision of this Award Agreement conflicts with a provision of the Plan, the provision of the Plan
will control.

     2. Deferral of Awards. If the Participant participates in the Federal Home Loan Bank
of Dallas Deferred Compensation Plan, he or she has the right to make a deferral election
to defer any Final Award earned under the Plan.

     3. Non-Solicitation and Non-Disclosure Provisions. The Participant will execute a
Non-Solicitation Agreement in the form attached to the Plan as Appendix B.

     4. Income and Employment Tax Withholding. The Participant will be responsible for
(and, where required by applicable law, the Bank will withhold from any amounts payable under the
Plan) all required federal, state, city and local taxes.

     5. Nontransferability. During the Participant’s lifetime, Awards will be payable only
to him or her. Neither an Award nor any rights and privileges pertaining thereto, may be
transferred, assigned, pledged or hypothecated by the Participant in any way, whether by operation
of law or otherwise, and are not subject to execution, attachment or similar process.

     6. Condition Precedent. In no event will the Bank be obligated to make payment for a
vested Award until it is satisfied that all conditions precedent to the payment of the Award, as
provided in the Plan and this Award Agreement, have been performed and completed.

     7. Acknowledgments. The Participant acknowledges receiving, reading and fully
understanding all of the provisions of the Plan and this Award Agreement and that the execution

A-1

 

and delivery of this Award Agreement constitutes his or her unequivocal acceptance of all of
the terms and conditions thereof.

     IN WITNESS WHEREOF, the Bank, by its officer thereunder duly authorized, and the Participant,
have executed this Award Agreement on the day and year first above written, but effective as of
January 1, 2011.

	 	 	 	 	 

	FEDERAL HOME LOAN BANK OF DALLAS

	 	 	PARTICIPANT	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 
 

	 	 	  	 

A-2

 

SCHEDULE A

FINAL AWARD AGREEMENT UNDER

FEDERAL HOME LOAN BANK OF DALLAS

2011 LONG TERM INCENTIVE PLAN

Name of Participant: ____________________________

I. STIP Determination

(a) STIP Goal Achievement percentage for _______ Plan Year: _____%

(b) STIP Award based on Group Level as a percentage of base salary: ______%

(c) STIP Plan Salary ($          ) times STIP Award %: $__________

(d) STIP Weighting Factor: 50%

(e) STIP Final Award Amount (c x d): $__________

II. LTIP determination for the Performance Period January 1, 20__and ended December 31, 20_.

(a) LTIP Goal Achievement percentage for _______ Plan Year: ______%

(b) LTIP Award based on Group Level as a percentage of base salary: ______%

(c) LTIP Plan Salary ($          ) times LTIP Award %: $__________

(d) LTIP Weighting Factor: 50%

(e) LTIP Initial Award Amount (c x d): $__________

(f) Additional LTIP bonus percentage for goal achievement above Threshold: ______%

(g) LTIP Plan Salary ($          ) times LTIP bonus percentage _$___________

(h) LTIP Award Amount (e + g): $__________

III. LTIP Discretionary Award: $__________

IV. Total Incentive Compensation Award: $__________

A-3Exhibit 10.24(a)

Exhibit
10.24(a)

SMITH & WESSON HOLDING CORPORATION

2004 INCENTIVE STOCK PLAN

AS AMENDED AND RESTATED SEPTEMBER 18, 2006

     1. Purpose. The purpose of this 2004 Incentive Stock Plan (the “Plan”) is to assist Smith & Wesson
Holding Corporation, a Nevada corporation (the “Company”), and its Related Entities in attracting,
motivating, retaining, and rewarding high-quality executives and other Employees, officers,
Directors, and Consultants by enabling such persons to acquire or increase a proprietary interest
in the Company in order to strengthen the mutuality of interests between such persons and the
Company’s stockholders, and providing such persons with annual and long-term performance incentives
to expend their maximum efforts in the creation of stockholder value. The Plan is intended to
qualify certain compensation awarded under the Plan for tax deductibility under Section 162(m) of
the Code to the extent deemed appropriate by the applicable Committee (or any successor committee)
of the Board of Directors of the Company. The Company adopted the Saf-T-Hammer Corporation Stock
Option Plan on May 31, 2001 (the “Former Plan”). The name of Saf-T-Hammer Corporation was changed
to Smith & Wesson Corporation on February 15, 2002. Upon the adoption of the Plan by the
shareholders of the Company, no further awards shall be made pursuant to the Former Plan.

     2. Administration.

          (a) Authority of the Committee. The Plan shall be administered by the Committee; provided, however, that except as
otherwise expressly provided in this Plan or, during the period that the Company is a publicly held
corporation, in order to comply with Code Section 162(m) or Rule 16b-3 under the Exchange Act, the
Board may exercise any power or authority granted to the Committee under this Plan. The Committee
or the Board shall have full and final authority, in each case subject to and consistent with the
provisions of the Plan, to select Eligible Persons to become Participants, grant Awards, determine
the type, number and other terms and conditions of, and all other matters relating to, Awards,
prescribe Award agreements (which need not be identical for each Participant) and rules and
regulations for the administration of the Plan, construe and interpret the Plan and Award
agreements and correct defects, supply omissions or reconcile inconsistencies therein, and to make
all other decisions and determinations as the Committee or the Board may deem necessary or
advisable for the administration of the Plan. In exercising any discretion granted to the
Committee or the Board under the Plan or pursuant to any Award, the Committee or the Board shall
not be required to follow past practices, act in a manner consistent with past practices, or treat
any Eligible Person in a manner consistent with the treatment of other Eligible Persons.

          (b) Manner of Exercise of Committee Authority. The Committee, and not the Board, shall exercise sole and exclusive discretion on any
matter relating to a Participant then subject to Section 16 of the Exchange Act with respect to the
Company to the extent necessary in order that transactions by such Participant shall be exempt
under Rule 16b-3 under the Exchange Act. Any action of the Committee or the Board shall be final,
conclusive, and binding on all persons, including the Company, its Related Entities, Participants,
Beneficiaries, transferees under Section 9(b) hereof, or other persons claiming rights from or
through a Participant, and stockholders. The express grant of any specific power to the Committee
or the Board, and the taking of any action by the Committee or the Board, shall not be construed as
limiting any power or authority of the Committee or the Board. The Committee or the Board may
delegate to officers or managers of the Company or any Related Entity, or committees thereof, the
authority, subject to such terms as the Committee or the Board shall determine, (i) to perform
administrative functions, (ii) with respect to Participants not subject to Section 16 of the
Exchange Act, to perform such other functions as the Committee or the Board may determine, and
(iii) with respect to Participants subject to Section 16, to perform such other functions of the
Committee or the Board as the Committee or the Board may determine to the extent performance of
such functions will not result in the loss of an exemption under Rule 16b-3 otherwise available for
transactions by such persons, in each case to the extent permitted under applicable law. The Committee or the
Board may appoint agents to assist it in administering the Plan.

          (c) Limitation of Liability. The Committee and the Board, and each member thereof, shall be entitled to, in good faith,
rely or act upon any report or other information furnished to him or her by any Executive Officer,
other officer or Employee, the Company’s independent auditors, Consultants or any other agents
assisting in the administration of the Plan. Members of the Committee and the Board, and any
officer or Employee

1

 

acting at the direction or on behalf of the Committee or the Board, shall not
be personally liable for any action or determination taken or made in good faith with respect to
the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the
Company with respect to any such action or determination.

     3. Stock Subject to Plan

          (a) Limitation on Overall Number of Shares Subject to Awards. Subject to adjustment as provided in Section 9(c) hereof, the total number of shares of
Stock reserved and available for delivery in connection with Awards under the Plan shall be the sum
of (i) the lesser of (y) 15% of the outstanding shares of Stock from time to time or (z) 10,000,000
shares of Stock, plus (ii) the number of shares of Stock with respect to which any Awards
previously granted under the Plan terminated without being exercised, expire, are forfeited or
canceled, do not vest, or are surrendered in payment of any Awards or any tax withholding with
regard thereto. Any shares of Stock delivered under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. Subject to adjustment as provided in Section
9(c) hereof, the number of shares of Stock that may be issued pursuant to Incentive Stock Options
shall not exceed 10,000,000 shares.

          (b) Application of Limitations. The limitation contained in Section 3(a) shall apply not only to Awards that are settleable
by the delivery of shares of Stock but also to Awards relating to shares of Stock but settleable
only in cash (such as cash-only Stock Appreciation Rights). The Committee or the Board may adopt
reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards), and make adjustments if the number of shares
of Stock actually delivered differs from the number of shares previously counted in connection with
an Award.

     4. Eligibility; Per-Person Award Limitations. Awards may be granted under the Plan only to Eligible Persons. Directors, who are not
Employees, and independent contractors shall be eligible to receive awards other than Incentive
Stock Options.

     In each fiscal year during any part of which the Plan is in effect, an Eligible Person may not
be granted stock options or stock appreciation rights under each of Sections 5(b) and 5(c) for more
than 300,000 shares of Stock, subject to adjustment as provided in Section 9(c). In each fiscal
year during any part of which the Plan is in effect, an Eligible Person may not be granted awards
subject to Section 6(e) for more than 300,000 shares of Stock, subject to adjustment as provided in
Section 9(c).

     5. Specific Terms of Awards.

          (a) General. Awards may be granted on the terms and conditions set forth in this Section 5. In
addition, the Committee or the Board may impose on any Award or the exercise thereof, at the date
of grant or thereafter (subject to Section 9(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee or the Board shall determine,
including terms requiring forfeiture of Awards in the event of termination of Continuous Service by
the Participant and terms permitting a Participant to make elections relating to his or her Award.
The Committee or the Board shall retain full power and discretion to accelerate, waive, or modify,
at any time, any term or condition of an Award that is not mandatory under the Plan.

          (b) Options. The Committee and the Board each is authorized to grant Options to Participants on the
following terms and conditions:

     (i) Exercise Price. The exercise price per share of Stock purchasable under an Option shall be
determined by the Committee or the Board, provided that such exercise price shall
not, in the case of Incentive Stock Options, be less than 100% of the Fair Market
Value of the Stock on the date of grant of the Option and shall not, in any event,
be less than the par value of a share of Stock on the date of grant of such Option.
If an employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company or any Parent Corporation or Subsidiary
and an Incentive Stock Option is granted to such employee, the option price of such
Incentive Stock Option (to the extent required by the Code at the time of grant)
shall be no less

2

 

than 110% of the Fair Market Value of the Stock on the date such
Incentive Stock Option is granted.

     (ii) Time and Method of Exercise. The Committee or the Board shall determine the time or times at which or the
circumstances under which an Option may be exercised in whole or in part (including
based on achievement of performance goals and/or future service requirements), the
time or times at which Options shall cease to be or become exercisable following
termination of Continuous Service or upon other conditions, the methods by which
such exercise price may be paid or deemed to be paid (including in the discretion of
the Committee or the Board a cashless exercise procedure), the form of such payment,
including, without limitation, cash, Stock, other Awards, or awards granted under
other plans of the Company or a Related Entity, or other property (including notes
or other contractual obligations of Participants to make payment on a deferred
basis, provided that such deferred payments are not in violation of the
Sarbanes-Oxley Act of 2002, or any rule or regulation adopted thereunder or any
other applicable law), and the methods by or forms in which Stock will be delivered
or deemed to be delivered to Participants.

     (iii) Incentive Stock Options. The terms of any Incentive Stock Option granted under the Plan shall comply in
all respects with the provisions of Section 422 of the Code. Anything in the Plan
to the contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options (including any Stock Appreciation Right in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or authority granted under
the Plan be exercised, so as to disqualify either the Plan or any Incentive Stock
Option under Section 422 of the Code, unless the Participant has first requested the
change that will result in such disqualification. Thus, if and to the extent
required to comply with Section 422 of the Code, Options granted as Incentive Stock Options shall be subject to the
following special terms and conditions:

          (A) the Option shall not be exercisable more than ten years after the date such
Incentive Stock Option is granted; provided, however, that if a Participant owns or
is deemed to own (by reason of the attribution rules of Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the Company or
any Parent Corporation and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be (to the extent required
by the Code at the time of the grant) for no more than five years from the date of
grant; and

          (B) The aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of the shares of Stock with respect to which Incentive
Stock Options granted under the Plan and all other option plans of the Company
during any calendar year exercisable for the first time by the Participant during
any calendar year shall not (to the extent required by the Code at the time of the
grant) exceed $100,000.

     (iv) Repurchase Rights. The Committee and the Board shall have the discretion to grant Options that are
exercisable for unvested shares of Stock. Should the Optionee’s Continuous Service
cease while holding such unvested shares, the Company shall have the right to
repurchase, at the exercise price paid per share, any or all of those unvested
shares. The terms upon which such repurchase right shall be exercisable (including
the period and procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Committee or the Board and set forth
in the document evidencing such repurchase right.

          (c) Stock Appreciation Rights. The Committee and the Board each is authorized to grant Stock Appreciation Right’s to
Participants on the following terms and conditions:

     (i) Right to Payment. A Stock Appreciation Right shall confer on the Participant to whom it is granted
a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value
of one share of stock on the date of exercise (or, in the case of a “Limited Stock

3

 

Appreciation Right” that may be exercised only in the event of a Change in Control,
the Fair Market Value determined by reference to the Change in Control Price, as
defined under Section 7(c) hereof), over (B) the grant price of the Stock
Appreciation Right as determined by the Committee or the Board. The grant price of
a Stock Appreciation Right shall not be less than the Fair Market Value of a share
of Stock on the date of grant except as provided under Section 6(a) hereof.

     (ii) Other Terms. The Committee or the Board shall determine at the date of grant or thereafter,
the time or times at which and the circumstances under which a Stock Appreciation
Right may be exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the time or times at which
Stock Appreciation Rights shall cease to be or become exercisable following
termination of Continuous Service or upon other conditions, the method of exercise,
method of settlement, form of consideration payable in settlement, method by or
forms in which Stock will be delivered or deemed to be delivered to Participants,
whether or not a Stock Appreciation Right shall be in tandem or in combination with
any other Award, and any other terms and conditions of any Stock Appreciation Right.
Limited Stock Appreciation Rights that may only be exercised in connection with a
Change in Control or other event as specified by the Committee or the Board, may be granted on such terms, not inconsistent with this
Section 5(c), as the Committee or the Board may determine. Stock Appreciation
Rights and Limited Stock Appreciation Rights may be either freestanding or in tandem
with other Awards.

          (d) Restricted Stock. The Committee and the Board each is authorized to grant Restricted Stock to Participants on
the following terms and conditions:

     (i) Grant and Restrictions. Restricted Stock shall be subject to such restrictions on transferability, risk
of forfeiture, and other restrictions, if any, as the Committee or the Board may
impose, or as otherwise provided in this Plan. The restrictions may lapse
separately or in combination at such times, under such circumstances (including
based on achievement of performance goals and/or future service requirements), in
such installments, or otherwise, as the Committee or the Board may determine at the
date of grant or thereafter. Except to the extent restricted under the terms of the
Plan and any Award agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder, including the right
to vote the Restricted Stock and the right to receive dividends thereon (subject to
any mandatory reinvestment or other requirement imposed by the Committee or the
Board). During the restricted period applicable to the Restricted Stock, subject to
Section 9(b) below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined, or otherwise encumbered by the Participant.

     (ii) Forfeiture. Except as otherwise determined by the Committee or the Board at the time of the
Award, upon termination of a Participant’s Continuous Service during the applicable
restriction period, the Participant’s Restricted Stock that is at that time subject
to restrictions shall be forfeited and reacquired by the Company; provided that the
Committee or the Board may provide, by rule or regulation or in any Award agreement,
or may determine in any individual case, that restrictions or forfeiture conditions
relating to Restricted Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee or the Board may in
other cases waive in whole or in part the forfeiture of Restricted Stock.

     (iii) Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the
Committee or the Board shall determine. If certificates representing Restricted
Stock are registered in the name of the Participant, the Committee or the Board may
require that such certificates bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock, that the Company
retain physical

4

 

possession of the certificates, and that the Participant deliver a
stock power to the Company, endorsed in blank, relating to the Restricted Stock.

     (iv) Dividends and Splits. As a condition to the grant of an Award of Restricted Stock, the Committee or the
Board may require that any cash dividends paid on a share of Restricted Stock be
automatically reinvested in additional shares of Restricted Stock or applied to the
purchase of additional Awards under the Plan. Unless otherwise determined by the
Committee or the Board, Stock distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the Restricted Stock
with respect to which such Stock or other property has been distributed.

          (e) Bonus Stock and Awards in Lieu of Obligations. The Committee and the Board each is authorized to grant Stock as a bonus, or to grant Stock
or other Awards in lieu of Company obligations to pay cash or deliver other property under the Plan
or under other plans or compensatory arrangements, provided that, in the case of Participants
subject to Section 16 of the Exchange Act, the amount of such grants remains within the discretion
of the Committee to the extent necessary to ensure that acquisitions of Stock or other Awards are
exempt from liability under Section 16(b) of the Exchange Act. Stock or Awards granted hereunder
shall be subject to such other terms as shall be determined by the Committee or the Board.

          (f) Other Stock-Based Awards. The Committee and the Board each is authorized, subject to limitations under applicable
law, to grant to Participants such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee or the Board to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable
into Stock, purchase rights for Stock, Awards with value and payment contingent upon performance of
the Company or any other factors designated by the Committee or the Board, and Awards valued by
reference to the book value of Stock or the value of securities of or the performance of specified
Related Entities or business units. The Committee or the Board shall determine the terms and
conditions of such Awards. Stock delivered pursuant to an Award in the nature of a purchase right
granted under this Section 5(f) shall be purchased for such consideration (including without
limitation loans from the Company or a Related Entity), paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Stock, other Awards, or other property, as
the Committee or the Board shall determine. The Committee and the Board shall have the discretion
to grant such other Awards that are exercisable for unvested shares of Stock. Should the
Optionee’s Continuous Service cease while holding such unvested shares, the Company shall have the
right to repurchase, at the exercise price paid per share, any or all of those unvested shares.
The terms upon which such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares) shall be established by
the Committee or the Board and set forth in the document evidencing such repurchase right. Cash
awards, as an element of or supplement to any other Award under the Plan, may also be granted
pursuant to this Section 5(f).

     6. Certain Provisions Applicable to Awards.

          (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted under the Plan may, in the discretion of the Committee or the Board, be
granted either alone or in addition to, in tandem with, or in substitution or exchange for, any
other Award or any award granted under another plan of the Company, any Related Entity, or any
business entity to be acquired by the Company or a Related Entity, or any other right of a
Participant to receive payment from the Company or any Related Entity. Such additional, tandem,
and substitute or exchange Awards may be granted at any time. If an Award is granted in
substitution or exchange for another Award or award, the Committee or the Board shall require the
surrender of such other Award or award in consideration for the grant of the new Award. In
addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Related Entity, in which the value of Stock subject
to the Award is equivalent in value to the cash compensation (for example, Restricted Stock), or in
which the exercise price, grant price or purchase price of the Award in the nature of a right that
may be exercised is equal to the Fair Market Value of the underlying Stock minus the value of the
cash compensation surrendered (for example, Options granted with an exercise price “discounted” by
the amount of the cash compensation surrendered).

5

 

          (b) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee or
the Board; provided that in no event shall the term of any Option or Stock Appreciation Right
exceed a period of ten years (or such shorter term as may be required in respect of an Incentive
Stock Option under Section 422 of the Code).

          (c) Form and Timing of Payment Under Awards; Deferrals. Subject to the terms of the Plan and any applicable Award agreement, payments to be made to
the Company or a Related Entity upon the exercise of an Option or other Award or settlement of an
Award may be made in such forms as the Committee or the Board shall determine, including, without
limitation, cash, other Awards or other property, and may be made in a single payment or transfer,
in installments, or on a deferred basis. Any installment or deferral provided for in the preceding
sentence shall, however, be subject to the Company’s compliance with the provisions of the
Sarbanes-Oxley Act of 2002, the rules and regulations adopted by the Securities and Exchange
Commission thereunder, and all applicable rules of any national securities exchange on which the
Company’s securities are listed for trading. The settlement of any Award may be accelerated, and
cash paid in lieu of Stock in connection with such settlement, in the discretion of the Committee
or the Board or upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee or the Board (subject
to Section 9(e) of the Plan) or permitted at the election of the Participant on terms and
conditions established by the Committee or the Board. Payments may include, without limitation,
provisions for the payment or crediting of a reasonable interest rate on installment or deferred
payments or the grant or crediting of other amounts in respect of installment or deferred payments
denominated in Stock.

          (d) Exemptions from Section 16(b) Liability. It is the intent of the Company that this Plan comply in all respects with applicable
provisions of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither the
grant of any Awards to nor other transaction by a Participant who is subject to Section 16 of the
Exchange Act is subject to liability under Section 16(b) thereof (except for transactions
acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of
this Plan or any Award agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be construed or deemed
amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 or Rule
16a-1(c)(3) so that such Participant shall avoid liability under Section 16(b). In addition, the
purchase price of any Award conferring a right to purchase Stock shall be not less than any
specified percentage of the Fair Market Value of Stock at the date of grant of the Award then
required in order to comply with Rule 16b-3.

          (e) Tax Qualified Performance Awards.

               (i) Covered Employees. A Committee, composed in compliance with the requirements of Section
162(m) of the Code, in its discretion, may determine at the time an Award is granted to an Eligible
Person who is, or is likely to be, as of the end of the tax year in which the Company would claim a
tax deduction in connection with such Award, a Covered Employee that the provisions of this Section
6(e) shall be applicable to such Award.

               (ii) Performance Criteria. If an Award is subject to this Section 6(e), then the lapsing of
restrictions thereon and the distribution of cash, Stock or other property pursuant thereto, as
applicable, shall be contingent upon achievement of one or more objective performance goals.
Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) of
the Code and regulations thereunder including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of performance goals being
“substantially uncertain.” One or more of the following business criteria for the Company, on a
consolidated basis, and/or for Related Entities, or for business or geographical units of the
Company and/or a Related Entity (except with respect to the total stockholder return and earnings
per share criteria), shall be used by the Committee in establishing performance goals for such
Awards: (1) earnings per share; (2) revenues or gross margins; (3) cash flow; (4) operating margin;
(5) return on net assets, investment, capital, or equity; (6) economic value added; (7) direct
contribution; (8) net income; pretax earnings; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; earnings after interest expense and before
extraordinary or special items; operating income; income before interest income or expense, unusual
items and income taxes, local, state or federal and excluding budgeted and actual bonuses which
might be paid under any ongoing bonus plans of the Company; (9) working capital; (10) management of
fixed costs or variable costs; (11)

6

 

identification or consummation of investment opportunities or
completion of specified projects in accordance with corporate business plans, including strategic
mergers, acquisitions or divestitures; (12) total stockholder return; and
(13) debt reduction. Any of the above goals may be determined on an absolute or relative
basis or as compared to the performance of a published or special index deemed applicable by the
Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of
companies that are comparable to the Company. The Committee shall exclude the impact of an event
or occurrence which the Committee determines should appropriately be excluded, including without
limitation (i) restructurings, discontinued operations, extraordinary items, and other unusual or
non-recurring charges, (ii) an event either not directly related to the operations of the Company
or not within the reasonable control of the Company’s management, or (iii) a change in accounting
standards required by generally accepted accounting principles.

               (iii) Performance Period; Timing For Establishing Performance Goals. Achievement of
performance goals in respect of Awards subject to this Section 6(e) shall be measured over a
performance period, as specified by the Committee. Performance goals shall be established not
later than ninety (90) days after the beginning of any performance period applicable to such
Awards, or at such other date as may be required or permitted for “performance-based compensation”
under Section 162(m) of the Code.

               (iv) Adjustments. The Committee may, in its discretion, reduce the amount of a settlement
otherwise to be made in connection with Awards subject to this Section 6(e), but may not exercise
discretion to increase any such amount payable to a Covered Employee in respect of an Award subject
to this Section 6(e). The Committee shall specify the circumstances in which such Awards shall be
paid or forfeited in the event of termination of Continuous Service by the Participant prior to the
end of a performance period or settlement of Awards.

               (v) Committee Certification. Within a reasonable period of time after the performance
criteria have been satisfied, to the extent necessary to qualify the payments as “performance based
compensation” under Section 162(m) of the Code, the Committee shall certify, by resolution or other
appropriate action in writing, that the performance criteria and any other material terms
previously established by the Committee or set forth in the Plan, have been satisfied.

     7. Change in Control.

          (a) Effect of “Change in Control.” If and to the extent provided in the Award, in the event of a “Change in Control,” as defined
in Section 7(b):

     (i) The Committee may, within its discretion, accelerate the vesting and
exercisability of any Award carrying a right to exercise that was not previously
vested and exercisable as of the time of the Change in Control, subject to
applicable restrictions set forth in Section 8(a) hereof;

     (ii) The Committee may, within its discretion, accelerate the exercisability of
any limited Stock Appreciation Rights (and other Stock Appreciation Rights if so
provided by their terms) and provide for the settlement of such Stock Appreciation
Rights for amounts, in cash, determined by reference to the Change in Control Price;
and

     (iii) The Committee may, within its discretion, lapse the restrictions,
deferral of settlement, and forfeiture conditions applicable to any other Award
granted under the Plan and such Awards may be deemed fully vested as of the time of
the Change in Control, except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 9(a) hereof.

          (b) Definition of “Change in Control. A “Change in Control” shall be deemed to have occurred upon:

7

 

     (i) Approval by the stockholders of the Company of a reorganization, merger,
consolidation, or other form of corporate transaction or series of transactions, in
each case, with respect to which persons who were the stockholders of the Company
immediately prior to such reorganization, merger, consolidation, or other
transaction do not, immediately thereafter, own more than 50% of the combined voting
power entitled to vote generally in the election of directors of the reorganized,
merged, or consolidated company’s then outstanding voting securities, or a
liquidation or dissolution of the Company or the sale of all or substantially all of
the assets of the Company (unless such reorganization, merger, consolidation or
other corporate transaction, liquidation, dissolution or sale (any such event being
referred to as a “Corporate Transaction”) is subsequently abandoned);

     (ii) Individuals who, as of the date on which the Award is granted, constitute
the Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent to
the date on which the Award was granted whose election, or nomination for election
by the Company’s stockholders, was approved by a vote of at least a majority of the
Directors then comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the Directors of the
Company) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board; or

     (iii) the acquisition (other than from the Company) by any person, entity, or
“group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act, of more than 50% of either the then outstanding shares of the
Company’s Stock or the combined voting power of the Company’s then outstanding
voting securities entitled to vote generally in the election of directors
(hereinafter referred to as the ownership of a “Controlling Interest”) excluding,
for this purpose, any acquisitions by (1) the Company or a Related Entity, (2) any
person, entity, or “group” that as of the date on which the Award is granted owns
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act) of a Controlling Interest or (3) any employee benefit plan
of the Company a Related Entity.

          (c) Definition of “Change in Control Price.” The “Change in Control Price” means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share paid (including
extraordinary dividends) in any Corporate Transaction triggering the Change in Control under
Section 7(b)(i) hereof or any liquidation of shares following a sale of substantially all of the
assets of the Company, or (ii) the highest Fair Market Value per share at any time during the
60-day period preceding and the 60-day period following the Change in Control.

     8. Automatic Grant Program

          (a) Amount and Date of Grant. During the term of the Plan, the Company shall make automatic grants of Options (“Automatic
Options”) to each Director who is not employed by the Company:

     (i) Annual Grants. Each year on the Annual Grant Date, an Automatic Option to acquire 10,000 shares
of Stock shall be granted to each Director for as long as shares of Stock are
available under Section 3(a) hereof. The “Annual Grant Date” shall be the date of
the Company’s annual stockholders meeting commencing as of the first annual meeting
occurring after the Effective Date. Any Director that was granted an Automatic
Option under Section 8(a)(ii) within 90 days of an Annual Grant Date shall be
ineligible to receive an Automatic Option pursuant to this Section 8(a)(i) on such
Annual Grant Date.

     (ii) Initial New Director Grants. On the Initial Grant Date, every new member of the Board, who is an Director and
has not previously received an Automatic Option under this Section 8(a)(ii) shall be
granted an Automatic Option to acquire 25,000 shares of Stock for as long

8

 

as shares
of Stock are available under Section 3(a) hereof. The “Initial Grant Date” shall be
the date that a Director is first appointed or elected to the Board.

          (b) Exercise Price. The exercise price per share of Stock subject to each Automatic Option granted under
Section 8(a)(i) or (ii) shall be equal to 100 percent of the Fair Market Value per share of the
Stock on the date such Automatic Option was granted.

          (c) Vesting. Each Automatic Option granted pursuant to Section 8(a)(i) or (ii) shall vest and become
exercisable 1/12th per month after the date of grant. Each Automatic Option or portion
thereof shall vest and become exercisable only if the optionholder has not ceased serving as a
Board member as of such vesting date.

          (d) Term of Automatic Options. Each Automatic Option shall expire on the tenth anniversary (the “Expiration Date”) of the
date on which such Automatic Option was granted. Except as determined by the Plan Administrator,
should a Director’s service as a Board member cease prior to the Expiration Date for any reason
while an Automatic Option remains outstanding and unexercised, the Automatic Option term shall
immediately be modified and the Automatic Option shall terminate and cease to be outstanding in
accordance with the following provisions:

     (i) The Automatic Option shall immediately terminate and cease to be
outstanding with respect to any shares that were not vested at the time of the
optionholder’s cessation of Board service.

     (ii) Should an optionholder cease, for any reason other than death, to serve as
a member of the Board, then the optionholder shall have 90 days measured from the
date of such cessation of Board service in which to exercise his or her Automatic
Options that vested prior to the time of such cessation of Board service. In no
event, however, may any Automatic Option be exercised after the Expiration Date of
such Automatic Option.

     (iii) Should an optionholder die while serving as a Board member or within 90
days after cessation of Board service, then the personal representative of the
optionholder’s estate (or the person or persons to whom the Automatic Option is
transferred pursuant to the optionholder’s will or in accordance with the laws of
the descent and distribution) shall have a 90-day period measured from the date of
the optionholder’s cessation of Board service in which to exercise the Automatic
Options that vested prior to the time of such cessation of Board service. In no
event, however, may any Automatic Option be exercised after the Expiration Date of
such Automatic Option.

          (e) Other Terms. Except as expressly provided otherwise in this Section 8, an Automatic Option shall
be subject to all of the terms and conditions of the Plan. Directors shall be entitled to receive
other awards under the Plan or other plans of the Company in accordance with the terms and
conditions thereof.

     9. General Provisions.

          (a) Compliance With Legal and Other Requirements. The Company may, to the extent deemed necessary or advisable by the Committee or the Board,
postpone the issuance or delivery of Stock or payment of other benefits under any Award until
completion of such registration or qualification of such Stock or other required action under any
federal or state law, rule, or regulation, listing, or other required action with respect to any
stock exchange or automated quotation system upon which the Stock or other Company securities are
listed or quoted, or compliance with any other obligation of the Company, as the Committee or the
Board, may consider appropriate, and may require any Participant to make such representations,
furnish such information and comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or payment of other benefits in
compliance with applicable laws, rules, and regulations, listing requirements, or other
obligations.

9

 

          (b) Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan, including any Award or
right that constitutes a derivative security as generally defined in Rule 16a-1(c) under the
Exchange Act, shall be pledged, hypothecated, or otherwise encumbered or subject to any lien,
obligation, or liability of such Participant to any party (other than the Company or a Subsidiary),
or assigned or transferred by such Participant otherwise than by will or the laws of descent and
distribution or to a Beneficiary upon the death of a Participant, and such Awards or rights that
may be exercisable shall be exercised during the lifetime of the Participant only by the
Participant or his or her guardian or legal representative, except that Awards and other rights
(other than Incentive Stock Options and Stock Appreciation Rights in tandem therewith) may be
transferred to one or more Beneficiaries or other transferees during the lifetime of the
Participant, and may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent such transfers and exercises are permitted by the Committee or the
Board pursuant to the express terms of an Award agreement (subject to any terms and conditions
which the Committee or the Board may impose thereon, and further subject to any prohibitions or
restrictions on such transfers pursuant to Rule 16b-3). A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall be subject to all terms
and conditions of the Plan and any Award agreement applicable to such Participant, except as
otherwise determined by the Committee or the Board, and to any additional terms and conditions
deemed necessary or appropriate by the Committee or the Board.

          (c) Adjustments.

     (i) Adjustments to Awards. In the event that any dividend or other distribution (whether in the form of
cash, Stock, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange, liquidation, dissolution, or other similar corporate transaction or event
affects the Stock and/or such other securities of the Company or any other issuer
such that a substitution, exchange, or adjustment is determined by the Committee or
the Board to be appropriate, then the Committee or the Board shall, in such manner
as it may deem equitable, substitute, exchange, or adjust any or all of (A) the
number and kind of shares of Stock that may be delivered in connection with Awards
granted thereafter, (B) the number and kind of shares of Stock by which annual
per-person Award limitations are measured under Section 4 hereof, (C) the number and
kind of shares of Stock subject to or deliverable in respect of outstanding Awards,
(D) the exercise price, grant price, or purchase price relating to any Award and/or
make provision for payment of cash or other property in respect of any outstanding
Award, and (E) any other aspect of any Award that the Committee or Board determines
to be appropriate.

     (ii) Adjustments in Case of Certain Corporate Transactions. In the event of a proposed sale of all or substantially all of the Company’s
assets or any reorganization, merger, consolidation, or other form of corporate
transaction in which the Company does not survive, or in which the shares of Stock
are exchanged for or converted into securities issued by another entity, then the
successor or acquiring entity or an affiliate thereof may, with the consent of the Committee or the Board, assume each outstanding Option
or substitute an equivalent option or right. If the successor or acquiring entity
or an affiliate thereof, does not cause such an assumption or substitution, then
each Option shall terminate upon the consummation of sale, merger, consolidation, or
other corporate transaction. The Committee or the Board shall give written notice
of any proposed transaction referred to in this Section 9(c)(ii) a reasonable period
of time prior to the closing date for such transaction (which notice may be given
either before or after the approval of such transaction), in order that Optionees
may have a reasonable period of time prior to the closing date of such transaction
within which to exercise any Options that are then exercisable (including any
Options that may become exercisable upon the closing date of such transaction). An
Optionee may condition his exercise of any Option upon the consummation of the
transaction.

     (iii) Other Adjustments. In addition, the Committee (and the Board if and only to the extent such
authority is not required to be exercised by the Committee to comply with Code
Section 162(m)) is authorized to make adjustments in the terms and conditions of,
and the criteria

10

 

included in, Awards in recognition of unusual or nonrecurring
events (including, without limitation, acquisitions and dispositions of businesses
and assets) affecting the Company, any Related Entity, or any business unit, or the
financial statements of the Company or any Related Entity, or in response to changes
in applicable laws, regulations, accounting principles, tax rates and regulations,
or business conditions or in view of the Committee’s assessment of the business
strategy of the Company, any Related Entity or business unit thereof, performance of
comparable organizations, economic and business conditions, personal performance of
a Participant, and any other circumstances deemed relevant; provided that no such
adjustment shall be authorized or made if and to the extent that such authority or
the making of such adjustment would cause Options, or Stock Appreciation Rights
hereof to Participants designated by the Committee as Covered Employees and intended
to qualify as “performance-based compensation” under Code Section 162(m) and the
regulations thereunder to otherwise fail to qualify as “performance-based
compensation” under Code Section 162(m) and regulations thereunder.

          (d) Taxes. The Company and any Related Entity are authorized to withhold from any Award granted, any
payment relating to an Award under the Plan, including from a distribution of Stock, or any payroll
or other payment to a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take such other action as the
Committee or the Board may deem advisable to enable the Company and Participants to satisfy
obligations for the payment of withholding taxes and other tax obligations relating to any Award.
This authority shall include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant’s tax obligations, either on a
mandatory or elective basis in the discretion of the Committee.

          (e) Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue, or terminate the Plan, or the Committee’s
authority to grant Awards under the Plan, without the consent of stockholders or Participants,
except that any amendment or alteration to the Plan shall be subject to the approval of the
Company’s stockholders not later than the annual meeting next following such Board action if such
stockholder approval is required by any federal or state law or regulation (including, without
limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any stock exchange or automated
quotation system on which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to the Plan to stockholders for approval;
provided that, without the consent of an affected Participant, no such Board action may materially
and adversely affect the rights of such Participant under any previously granted and outstanding
Award. The Committee or the Board may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate any Award theretofore granted and any Award agreement relating
thereto, except as otherwise provided in the Plan; provided that, without the consent
of an affected Participant, no such Committee or the Board action may materially and adversely
affect the rights of such Participant under such Award.

          (f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the
employ of the Company or a Related Entity; (ii) interfering in any way with the right of the
Company or a Related Entity to terminate any Eligible Person’s or Participant’s Continuous Service
at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under
the Plan or to be treated uniformly with other Participants and Employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until the Participant is
duly issued or transferred shares of Stock in accordance with the terms of an Award.

          (g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an “unfunded” plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall give any such
Participant any rights that are greater than those of a general creditor of the Company; provided
that the Committee may authorize the creation of trusts and deposit therein cash, Stock, other
Awards, or other property, or make other arrangements to meet the Company’s obligations under the
Plan. Such trusts or other arrangements shall be consistent with the “unfunded” status of the Plan
unless the Committee otherwise determines with the consent of each affected Participant. The
trustee of such trusts may be authorized to dispose of trust assets and

11

 

reinvest the proceeds in
alternative investments, subject to such terms and conditions as the Committee or the Board may
specify and in accordance with applicable law.

          (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the
Company for approval shall be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem desirable including
incentive arrangements and awards which do not qualify under Code Section 162(m).

          (i) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise determined by the Committee or the Board, in the event of a forfeiture of
an Award with respect to which a Participant paid cash or other consideration, the Participant
shall be repaid the amount of such cash or other consideration. No fractional shares of Stock
shall be issued or delivered pursuant to the Plan or any Award. The Committee or the Board shall
determine whether cash, other Awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.

          (j) Governing Law. The validity, construction and effect of the Plan, any rules and regulations under the
Plan, and any Award agreement shall be determined in accordance with the laws of the state of
Nevada without giving effect to principles of conflicts of laws, and applicable federal law.

          (k) Plan Effective Date and Stockholder Approval; Termination of Plan. The Plan shall become effective on the Effective Date, subject to subsequent approval
within 12 months of its adoption by the Board by stockholders of the Company eligible to vote in
the election of directors, by a vote sufficient to meet the requirements of Code Sections 162(m)
(if applicable) and 422, Rule 16b-3 under the Exchange Act (if applicable), applicable Nasdaq
requirements, and other laws, regulations, and obligations of the Company applicable to the Plan.
Awards may be granted subject to stockholder approval, but may not be exercised or otherwise
settled in the event stockholder approval is not obtained except with respect to Awards granted by
the Company prior to the Company’s first shareholder meeting and that are otherwise in compliance
with Treasury Regulations Section 1.162-27(f)(4)(iii). The Plan shall terminate on the earlier of
(i) ten (10) years from the date of the later of (x) the date this Plan was originally approved by
the Board or the shareholders of the Company, whichever is earlier and (y) the date an increase in
the number of shares reserved for issuance under the Plan is approved by the Board (so long as such
increase is also approved by the shareholders) or (ii) at such time as no shares of Stock remain
available for issuance under the Plan and the Company has no further rights or obligations with
respect to outstanding Awards under the Plan.

     10. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below, in
addition to such terms defined in Section 1 hereof.

          (a) “Automatic Options” means as defined in Section 8(a).

          (b) “Award” means any Option, Stock Appreciation Right (including Limited Stock Appreciation Right),
Restricted Stock, Stock granted as a bonus or in lieu of another award, or Other Stock-Based Award,
together with any other right or interest, granted to a Participant under the Plan.

          (c) “Beneficiary” means the person, persons, trust, or trusts that have been designated by a Participant in his
or her most recent written beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant’s death or to which Awards or other rights are
transferred if and to the extent permitted under Section 10(b) hereof. If, upon a Participant’s
death, there is no designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust, or trusts entitled by will or the laws of descent and
distribution to receive such benefits.

          (d) “Beneficial Owner”, “Beneficially Owning” and “Beneficial Ownership” shall have the meanings ascribed to such terms in Rule 13d-3 under the Exchange Act and any
successor to such Rule.

          (e) “Board” means the Company’s Board of Directors.

12

 

          (f) “Change in Control” means a Change in Control as defined with related terms in Section 8 of the Plan.

          (g) “Change in Control Price” means the amount calculated in accordance with Section 7(c) of the Plan.

          (h) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations
thereunder and successor provisions and regulations thereto.

          (i) “Committee” means a committee designated by the Board to administer the Plan. The Board may designate
more than one committee to administer the Plan as to various categories of Eligible Persons. The
Committee shall consist of at least two directors, and each member of which shall be (i) a
“non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, unless
administration of the Plan by “non-employee directors” is not then required in order for exemptions
under Rule 16b-3 to apply to transactions under the Plan, and (ii) an “outside director” within the
meaning of Section 162(m) of the Code, unless administration of the Plan by “outside directors” is
not then required in order to qualify for tax deductibility under Section 162(m) of the Code,
provided, when appropriate, a Committee shall satisfy the then requirements of any stock exchange
or automated quotation system upon which the Stock or other Company securities are listed or
quoted.

          (j) “Consultant” means any person (other than an Employee or a Director, solely with respect to rendering
services in such person’s capacity as a director) who is engaged by the Company or any Related
Entity to render consulting or advisory services to the Company or such Related Entity.

          (k) “Continuous Service” means uninterrupted provision of services to the Company in any capacity of Employee,
Director, or Consultant. Continuous Service shall not be considered to be interrupted in the case
of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entities, or
any successor entities, in any capacity of Employee Director, or Consultant, or (iii) any change in
status as long as the individual remains in the service of the Company or a Related Entity in any
capacity of Employee, Director, or Consultant (except as otherwise provided in the Option
Agreement). An approved leave of absence shall include sick leave, military leave, or any other
authorized personal leave.

          (l) “Corporate Transaction” means a Corporate Transaction as defined in Section 7(b)(i) of the Plan.

          (m) “Covered Employee” shall have the meaning ascribed to such term under Section 162(m) of
the Code.

          (o) “Director” means a member of the Board or the board of directors of any Related Entity.

          (p) “Effective Date” means the effective date of the Plan, which shall be the date the Plan is adopted by the
shareholders of the Company.

          (q) “Eligible Person” means each Executive Officer of the Company (as defined under the Exchange Act) and other
officers, Directors, and Employees of the Company or of any Related Entity, and Consultants with
the Company or any Related Entity. The foregoing notwithstanding, only employees of the Company or
any Subsidiary shall be Eligible Persons for purposes of receiving any Incentive Stock Options. An
Employee on leave of absence may be considered as still in the employ of the Company or a Related
Entity for purposes of eligibility for participation in the Plan.

          (r) “Employee” means any person, including an officer or Director, who is an employee of the Company or any
Related Entity. The Payment of a director’s fee by the Company or a Related Entity shall not be
sufficient to constitute “employment” by the Company.

          (s) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules
thereunder and successor provisions and rules thereto.

13

 

          (t) “Executive Officer” means an executive officer of the Company as defined under the Exchange Act.

          (u) “Fair Market Value” means the fair market value of Stock, Awards, or other property as determined by the Committee
or the Board, or under procedures established by the Committee or the Board. Unless otherwise
determined by the Committee or the Board, the Fair Market Value of Stock as of any given date after
which the Company is a Publicly Held Corporation shall be the closing sale price per share reported
on a consolidated basis for stock listed on the principal stock exchange or market on which Stock
is traded on the date as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.

          (v) “Incentive Stock Option” means any Option intended to be designated as an incentive stock option within the meaning of
Section 422 of the Code or any successor provision thereto.

          (w) “Incumbent Board” means the Incumbent Board as defined in Section 7(b)(ii) of the Plan.

          (x) “Limited Stock Appreciation Right” means a right granted to a Participant under Section 6(c) hereof.

          (y) “Option” means a right granted to a Participant under Section 5(b) hereof, to purchase Stock or other
Awards at a specified price during specified time periods.

          (z) “Optionee” means a person to whom an Option or Incentive Stock Option is granted under this Plan or any
person who succeeds to the rights of such person under this Plan.

          (aa) “Other Stock-Based Awards” means Awards granted to a Participant under Section 5(f) hereof.

          (bb) “Participant” means a person who has been granted an Award under the Plan which remains outstanding,
including a person who is no longer an Eligible Person.

          (cc) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used
in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section 13(d)
thereof.

          (dd) “Related Entity” means any entity that is directly or indirectly controlled by the Company or any entity in
which the Company has a significant equity interest, as determined by the Board or the Committee.

          (ee) “Restricted Stock” means Stock granted to a Participant under Section 5(d) hereof, that is subject to certain
restrictions and to a risk of forfeiture.

          (ff) “Rule 16b-3” and “Rule 16a-1(c)(3)” means Rule 16b-3 and Rule 16a-1(c)(3), as from time to time in effect and applicable to the
Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act.

          (gg) “Stock” means the Company’s Common Stock, and such other securities as may be substituted (or
resubstituted) for Stock pursuant to Section 10(c) hereof.

          (hh) “Stock Appreciation Right” means a right granted to a Participant under Section 6(c) hereof.

          (ii) “Subsidiary” means a “subsidiary corporation” whether now or hereafter existing, as defined in Section
424(f) of the Code.

14

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