Document:

deepdown_ex0406.htm

    EXHIBIT
4.6

    

    

    
      	
              SUPPLEMENT
      1 TO CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

            
	 	 
	 	 
	
              Name:
      _______________________________

            	
              Copy
      No.: ___________________________

            
	 
      
	
               

              

               

              $40,000,000

              or
      57,142,857 Shares

               

              of

               

              Common
      Stock

               

              Par
      Value $0.001 Per Share

               

               

              THIS SUPPLEMENT 1 TO
      CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM MAY NOT BE SHOWN OR GIVEN TO ANY
      PERSON OTHER THAN THE PERSON WHOSE NAME APPEARS ABOVE AND MAY NOT BE
      PRINTED OR REPRODUCED IN ANY MANNER WHATSOEVER.  FAILURE TO
      COMPLY WITH THIS DIRECTIVE CAN RESULT IN A VIOLATION OF THE SECURITIES ACT
      OF 1933, AS AMENDED, AND/OR THE SECURITIES EXCHANGE ACT OF 1934, AS
      AMENDED, INCLUDING REGULATION FD.  ANY FURTHER DISTRIBUTION OR
      REPRODUCTION OF THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM, IN WHOLE
      OR IN PART, OR THE DISCLOSURE OF ANY OF ITS CONTENTS BY AN OFFEREE IS
      UNAUTHORIZED.

               

               

              Dahlman
      Rose & Company, LLC

               

               

              AS
      PLACEMENT AGENT

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SUPPLEMENT
1 TO CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

     

    June
2, 2008

     

    By
accepting the information contained within this supplement 1 to confidential
private placement memorandum, the recipient acknowledges its express oral
agreement with Deep Down, Inc. and the placement agent to maintain in confidence
such information.  Deep Down, Inc. and the placement agent have caused
these materials to be delivered to you in reliance upon your agreement to
maintain the confidentiality of this information and upon Regulation FD
promulgated by the Securities and Exchange Commission (the
"Commission").

     

     

    DEEP
DOWN, INC.

    _________________

     

    UP
TO $40,000,000

     

    OR
57,142,857 SHARES OF COMMON STOCK

    _________________

     

    PRIVATE
PLACEMENT

     

    TO
SELECTED

     

    ACCREDITED
INVESTORS

    __________________

     

    This
supplement 1 to confidential private placement memorandum supplements and amends
the confidential private placement memorandum, dated May 16, 2008 ("Memorandum")
relating to the sale by Deep Down of shares of its common stock.  It
should be read in connection with the Memorandum.

     

    The
Memorandum is hereby amended and supplemented as follows:

     

    
      	
              1.
      Cover page and page following cover page

            	 
      	
              All
      references to the number of shares of common stock being offered and sold
      in this offering are changed to 57,142,857 shares of common
      stock.

            
	 	 	 
	
              2.
      Exhibit A

            	 
      	
              Exhibit
      A to the Memorandum, the Purchase Agreement, including all Appendices,
      Exhibits and Schedules, is hereby replaced in its entirety by Exhibit A
      hereto.

            
	 	 	 
	
              3.
      Business

            	 
      	
              P.
      9:  Flotation Technologies’ drilling riser product is marketed
      under the name CoreTecTM.  Flotation Technologies has just
      completed a $4.1 million contract for syntactic foam drilling risers that
      will be used to dress the drilling risers for an offshore drilling
      rig.

            
	 	 	 
	
              4.
      Risk Factors:  The loss of a significant
      customer could have an adverse impact on our financial
      results.

            	 
      	
              During
      the 12 months ended March 31, 2008, our top 5 customers represented
      approximately 31% of total revenues, with our largest customer accounting
      for more than 6.9% of our total revenues.

            
	 	 	 
	
              5.
      Summary of Offering

            	 
      	
              The
      Summary of Offering is amended to be and read as
  follows:

            

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SUMMARY
OF OFFERING

     

    

    
      	
              Issuer                                                                    

            	
              Deep
      Down, Inc.

            
	 	 
	
              OTC
      BB Stock Market
      Symbol                                                                    

            	
              DPDW

            
	 	 
	
              Securities
      Offered                                                                    

            	
              Common
      Stock, par value $0.001 per share.

            
	 	 
	
              Offering                                                                    

            	
              Private
      placement of up to 57,142,857 shares of common stock offered by us to
      accredited investors within the meaning of Regulation D under the
      Securities Act of 1933.

            
	 	 
	
              Offering
      Amount                                                                    

            	
              Up
      to $40,000,000

            
	 	 
	
              Offering
      Price                                                                    

            	
              $0.70
      per share

            
	 	 
	
              Registration
      Rights                                                                    

            	
              Resales
      by investors of shares purchased in this offering are to be covered by a
      resale registration statement on the appropriate form, which we will agree
      to file with the SEC within 45 days following the closing of this
      offering.  The Company shall use its best efforts to respond to
      all SEC comments and to cause such registration statement to become
      effective within 90 days of the closing of this
  Offering.

            
	 	 
	
              Placement
      Agent                                                                    

            	
              Dahlman
      Rose & Company, LLC

            
	 	 
	
              Shares
      Outstanding as of March 28, 2008(1)

            	
              115,846,019
      shares

            
	 	 
	
              Shares
      Outstanding as of

              May
      14, 2008, as adjusted (1)(2)

            	
              172,988,876
      shares (giving effect to maximum of 57,142,857 shares sold pursuant to
      this offering).

            
	 	 
	
              Placement
      Procedure                                                                    

            	
              Interested
      investors will be asked to execute purchase agreements with
      us.  The closing for the sale of shares under those purchase
      agreements will occur concurrently with or shortly after their
      execution.

            
	 	 
	
              Additional
      Information                                                                    

            	
              Our
      Purchase Agreement is included as an attachment to this Supplement 1 to
      Memorandum.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
 

    ____________________________

    (1)           Excludes
(i) an aggregate of 8,125,000 shares of common stock issuable upon exercise of
options outstanding at May 16, 2008 and (ii) an aggregate of 5,399,397 shares of
common stock issuable upon exercise of warrants outstanding at May 16, 2008,
both under our 2003 Directors, Officers and Consultants Stock Option, Stock
Warrant and Stock Award Plan.  Of the total number of shares issuable
upon exercise of outstanding options and warrants under our plan, 175,000 shares
are issuable upon exercise of options having an exercise price ranging from
$0.30-$0.49 per share, 4,175,000 shares are issuable upon exercise of options
having an exercise price ranging from $0.50-$0.69 per share, 425,000 shares are
issuable upon exercise of options having an exercise price ranging from
$0.70-$0.99 per share, 350,000 shares are issuable upon exercise of options
having an exercise price ranging from $1.00-$1.29 per share, and 3,000,000
shares are issuable upon exercise of options having an exercise price ranging
from $1.30-$1.50.  Of the total number of shares issuable upon
exercise of outstanding options and warrants under our plan, 4,960,585 shares
are issuable upon exercise of warrants having an exercise price of $0.51 per
share, 320,000 shares are issuable upon exercise of warrants having an exercise
price of $0.75 per share, and 118,812 shares are issuable upon exercise of
warrants having an exercise price of $1.01 per share.

    (2)           Assumes
57,142,857 shares of Common Stock offered hereby are sold.  Excludes
(i) an aggregate of 600,000 shares of common stock issuable upon exercise of
options, exercisable at a price equal to the price per share on the date of
closing, required to be granted upon closing of acquisition of the Flotation
Technologies, Inc. (simultaneous with closing of this offering) and (ii) an
aggregate of 200,000 shares of common stock issuable upon exercise of warrants,
exercisable at a price of $0.70 per share, required to be granted upon closing
of acquisition of the Flotation Technologies, Inc.deepdown_ex0401.htm

    
Exhibit 4.10

      

       

      DEEP
DOWN, INC.

      2003
DIRECTORS, OFFICERS AND CONSULTANTS

      STOCK
OPTION, STOCK WARRANT AND STOCK AWARD PLAN

       

      SECTION
1. PURPOSE OF THE PLAN. The purpose of the 2003 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan ("Plan") is to
maintain the ability of DeepDown, Inc., a Nevada corporation (the "Company") and
its subsidiaries to attract and retain highly qualified and experienced
directors, employees and consultants and to give such directors, employees and
consultants a continued proprietary interest in the success of the Company and
its subsidiaries. In addition the Plan is intended to encourage ownership of
common stock, $.01 par value ("Common Stock"), of the Company by the directors,
employees and consultants of the Company and its Affiliates (as defined below)
and to provide increased incentive for such persons to render services and to
exert maximum effort for the success of the Company's business. The Plan
provides eligible employees and consultants the opportunity to participate in
the enhancement of shareholder value by the grants of warrants, options,
restricted common or convertible preferred stock, unrestricted common or
convertible preferred stock and other awards under this Plan and to have their
bonuses and/or consulting fees payable in warrants, restricted common or
convertible preferred stock, unrestricted common or convertible preferred stock
and other awards, or any combination thereof. In addition, the Company expects
that the Plan will further strengthen the identification of the directors,
employees and consultants with the stockholders. Certain options and warrants to
be granted under this Plan are intended to qualify as Incentive Stock Options
("ISOs") pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended ("Code"), while other options and warrants and preferred stock granted
under this Plan will be nonqualified options or warrants which are not intended
to qualify as ISOs ("Nonqualified Options"), either or both as provided in the
agreements evidencing the options or warrants described in Section 5 hereof and
shares of preferred stock. As provided in the designation described in
Section

       

      7.
Employees, consultants and directors who participate or become eligible to
participate in this Plan from time to time are referred to collectively herein
as "Participants". As used in this Plan, the term "Affiliates" means any "parent
corporation" of the Company and any "subsidiary corporation" of the Company
within the meaning of Code Sections 424(e) and (f), respectively.

       

      SECTION
2. ADMINISTRATION OF THE PLAN.

       

      (a)
Composition of Committee. The Plan shall be administered by the Board of
Directors of the Company (the "Board"). When acting in such capacity the Board
is herein referred to as the "Committee," which shall also designate the
Chairman of the Committee. If the Company is governed by Rule 16b-3 promulgated
by the Securities and Exchange Commission ("Commission") pursuant to the
Securities Exchange Act of 1934, as amended ("Exchange Act"), no director shall
serve as a member of the Committee unless he or she is a "disinterested person"
within the meaning of such Rule 16b-3.

       

      (b)
Committee Action. The Committee shall hold its meetings at such times and places
as it may determine. A majority of its members shall constitute a quorum, and
all determinations of the Committee shall be made by not less than a majority of
its members. Any decision or determination reduced to writing and signed by a
majority of the members shall be fully as effective as if it had been made by a
majority vote of its members at a meeting duly called and held. The Committee
may designate the Secretary of the Company or other Company employees to assist
the Committee in the administration of the Plan, and may grant authority to such
persons to execute award agreements or other documents on behalf of the
Committee and the Company. Any duly constituted committee of the Board
satisfying the qualifications of this Section 2 may be appointed as the
Committee.

       

      (c)
Committee Expenses. All expenses and liabilities incurred by the Committee in
the administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants or other persons.

       

      SECTION
3. STOCK RESERVED FOR THE PLAN. Subject to adjustment as provided
in

       

      Section
5(d)(xiii) hereof, the aggregate number of shares that may be optioned, subject
to conversion or issued under the Plan is 12,000,000 shares of Common Stock,
warrants, options, preferred stock or any combination thereof. The shares
subject to the Plan shall consist of authorized but unissued shares of Common
Stock and such number of shares shall be and is hereby reserved for sale for
such purpose. Any of such shares which may remain unsold and which are not
subject to issuance upon exercise of outstanding options or warrants or
conversion of outstanding shares of preferred stock at the termination of the
Plan shall cease to be reserved for the purpose of the Plan, but until
termination of the Plan or the termination of the last of the options or
warrants granted under the Plan, whichever last occurs, the Company shall at all
times reserve a sufficient number of shares to meet the requirements of the
Plan. Should any option or warrant expire or be cancelled prior to its exercise
in full, the shares theretofore subject to such option or warrant may again be
made subject to an option, warrant or shares of convertible preferred stock
under the Plan.

       

      Immediately
upon the grant of any option, warrant, shares of preferred stock or award, the
number of shares of Common Stock that may be issued or optioned under the Plan
will be increased. The number of shares of such increase shall be an amount such
that immediately after such increase the total number of shares issuable under
the Plan and reserved for issuance upon exercise of outstanding options,
warrants or conversion of shares of preferred stock will equal 15% of the total
number of issued and outstanding shares of Common Stock of the Company. Such
increase in the number of shares subject to the Plan shall occur without the
necessity of any further corporate action of any kind or
character.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      SECTION
4. ELIGIBILITY. The Participants shall include directors, employees, including
officers, of the Company and its divisions and subsidiaries, and consultants and
attorneys who provide bona fide services to the Company. Participants are
eligible to be granted warrants, options, restricted common or convertible
preferred stock, unrestricted common or convertible preferred stock and other
awards under this Plan and to have their bonuses and/or consulting fees payable
in warrants, restricted common or convertible preferred stock, unrestricted
common or convertible preferred stock and other awards. A Participant who has
been granted an option, warrant or preferred stock hereunder may be granted an
additional option, warrant options, warrants or preferred stock, if the
Committee shall so determine.

       

      SECTION
5. GRANT OF OPTIONS OR WARRANTS.

       

      (a)
Committee Discretion. The Committee shall have sole and absolute discretionary
authority (i) to determine, authorize, and designate those persons pursuant to
this Plan who are to receive warrants, options, restricted common or convertible
preferred stock, or unrestricted common or convertible preferred stock under the
Plan, (ii) to determine the number of shares of Common Stock to be covered by
such grant or such options or warrants and the terms thereof,

       

      (iii) to
determine the type of Common Stock granted: restricted common or convertible
preferred stock, unrestricted common or convertible preferred stock or a
combination of restricted and unrestricted common or convertible preferred
stock, and (iv) to determine the type of option or warrant granted: ISO,
Nonqualified Option or a combination of ISO and Nonqualified Options. The
Committee shall thereupon grant options or warrants in accordance with such
determinations as evidenced by a written option or warrant agreement. Subject to
the express provisions of the Plan, the Committee shall have discretionary
authority to prescribe, amend and rescind rules and regulations relating to the
Plan, to interpret the Plan, to prescribe and amend the terms of the option or
warrant agreements (which need not be identical) and to make all other
determinations deemed necessary or advisable for the administration of the
Plan.

       

      (b)
Stockholder Approval. All ISOs granted under this Plan are subject to, and may
not be exercised before, the approval of this Plan by the stockholders prior to
the first anniversary date of the Board meeting held to approve the Plan, by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company present, or represented by proxy, and entitled to vote thereat, or by
written consent in accordance with the laws of the State of Texas, provided that
if such approval by the stockholders of the Company is not forthcoming, all
options or warrants and stock awards previously granted under this Plan other
than ISOs shall be valid in all respects.

       

      (c)
Limitation on Incentive Stock Options and Warrants. The aggregate fair market
value (determined in accordance with Section 5(d)(ii) of this Plan at the time
the option or warrant is granted) of the Common Stock with respect to which ISOs
may be exercisable for the first time by any Participant during any calendar
year under all such plans of the Company and its Affiliates shall not exceed
$3,000,000.

       

      (d) Terms
and Conditions. Each option or warrant granted under the Plan shall be evidenced
by an agreement, in a form approved by the Committee, which shall be subject to
the following express terms and conditions and to such other terms and
conditions as the Committee may deem appropriate:

       

      (i)
Option or Warrant Period. The Committee shall promptly notify the Participant of
the option or warrant grant and a written agreement shall promptly be executed
and delivered by and on behalf of the Company and the Participant, provided that
the option or warrant grant shall expire if a written agreement is not signed by
said Participant (or his agent or attorney) and returned to the Company within
60 days from date of receipt by the Participant of such agreement. The date of
grant shall be the date the option or warrant is actually granted by the
Committee, even though the written agreement may be executed and delivered by
the Company and the Participant after that date. Each option or warrant
agreement shall specify the period for which the option or warrant thereunder is
granted (which in no event shall exceed ten years from the date of grant) and
shall provide that the option or warrant shall expire at the end of such period.
If the original term of an option or warrant is less than ten years from the
date of grant, the option or warrant may be amended prior to its expiration,
with the approval of the Committee and the Participant, to extend the term so
that the term as amended is not more than ten years from the date of grant.
However, in the case of an ISO granted to an individual who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or its Affiliate ("Ten Percent
Stockholder"), such period shall not exceed five years from the date of
grant.

       

      (ii)
Option or Warrant Price. The purchase price of each share of Common Stock
subject to each option or warrant granted pursuant to the Plan shall be
determined by the Committee at the time the option or warrant is granted and, in
the case of ISOs, shall not be less than 100% of the fair market value of a
share of Common Stock on the date the option or warrant is granted, as
determined by the Committee. In the case of an ISO granted to a Ten Percent
Stockholder, the option or warrant price shall not be less than 110% of the fair
market value of a share of Common Stock on the date the option or warrant is
granted. The purchase price of each share of Common Stock subject to a
Nonqualified Option or Warrant under this Plan shall be determined by the
Committee prior to granting the option or warrant. The Committee shall set the
purchase price for each share subject to a Nonqualified Option or Warrant at
either the fair market value of each share on the date the option or warrant is
granted, or at such other price as the Committee in its sole discretion shall
determine.

       

      At the
time a determination of the fair market value of a share of Common Stock is
required to be made hereunder, the determination of its fair market value shall
be made by the Committee in such manner as it deems appropriate.

       

      (iii)
Exercise Period. The Committee may provide in the option or warrant agreement
that an option or warrant may be exercised in whole, immediately, or is to be
exercisable in increments. In addition, the Committee may provide that the
exercise of all or part of an option or warrant is subject to specified
performance by the Participant.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (iv)
Procedure for Exercise. Options or warrants shall be exercised in the manner
specified in the option or warrant agreement. The notice of exercise shall
specify the address to which the certificates for such shares are to be mailed.
A Participant shall be deemed to be a stockholder with respect to shares covered
by an option or warrant on the date specified in the option or warrant agreement
.. As promptly as practicable, the Company shall deliver to the Participant or
other holder of the warrant, certificates for the number of shares with respect
to which such option or warrant has been so exercised, issued in the holder's
name or such other name as holder directs; provided, however, that such delivery
shall be deemed effected for all purposes when a stock transfer agent of the
Company shall have deposited such certificates with a carrier for overnight
delivery, addressed to the holder at the address specified pursuant to
this

       

      Section
6(d).

       

      (v)
Termination of Employment. If an executive officer to whom an option or warrant
is granted ceases to be employed by the Company for any reason other than death
or disability, any option or warrant which is exercisable on the date of such
termination of employment may be exercised during a period beginning on such
date and ending at the time set forth in the option or warrant agreement;
provided, however, that if a Participant's employment is terminated because of
the Participant's theft or embezzlement from the Company, disclosure of trade
secrets of the Company or the commission of a willful, felonious act while in
the employment of the Company (such reasons shall hereinafter be collectively
referred to as "for cause"), then any option or warrant or unexercised portion
thereof granted to said Participant shall expire upon such termination of
employment. Notwithstanding the foregoing, no ISO may be exercised later than
three months after an employee's termination of employment for any reason other
than death or disability.

       

      (vi)
Disability or Death of Participant. In the event of the determination of
disability or death of a Participant under the Plan while he or she is employed
by the Company, the options or warrants previously granted to him may be
exercised (to the extent he or she would have been entitled to do so at the date
of the determination of disability or death) at any time and from time to time,
within a period beginning on the date of such determination of disability or
death and ending at the time set forth in the option or warrant agreement, by
the former employee, the guardian of his estate, the executor or administrator
of his estate or by the person or persons to whom his rights under the option or
warrant shall pass by will or the laws of descent and distribution, but in no
event may the option or warrant be exercised after its expiration under the
terms of the option or warrant agreement. Notwithstanding the foregoing, no ISO
may be exercised later than one year after the determination of disability or
death. A Participant shall be deemed to be disabled if, in the opinion of a
physician selected by the Committee, he or she is incapable of performing
services for the Company of the kind he or she was performing at the time the
disability occurred by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long, continued
and indefinite duration. The date of determination of disability for purposes
hereof shall be the date of such determination by such physician.

       

      (vii)
Assignability. An option or warrant shall be assignable or otherwise
transferable, in whole or in part, by a Participant as provided in the option,
warrant or designation of the series of preferred stock.

       

      (viii)
Incentive Stock Options. Each option or warrant agreement may contain such terms
and provisions as the Committee may determine to be necessary or desirable in
order to qualify an option or warrant designated as an incentive stock
option.

       

      (ix)
Restricted Stock Awards. Awards of restricted stock under this Plan shall be
subject to all the applicable provisions of this Plan, including the following
terms and conditions, and to such other terms and conditions not inconsistent
therewith, as the Committee shall determine:

       

      (A)
Awards of restricted stock may be in addition to or in lieu of option or warrant
grants. Awards may be conditioned on the attainment of particular performance
goals based on criteria established by the Committee at the time of each award
of restricted stock. During a period set forth in the agreement (the
"Restriction Period"), the recipient shall not be permitted to sell, transfer,
pledge, or otherwise encumber the shares of restricted stock; except that such
shares may be used, if the agreement permits, to pay the option or warrant price
pursuant to any option or warrant granted under this Plan, provided an equal
number of shares delivered to the Participant shall carry the same restrictions
as the shares so used. Shares of restricted stock shall become free of all
restrictions if during the Restriction Period, (i) the recipient dies, (ii) the
recipient's directorship, employment, or consultancy terminates by reason of
permanent disability, as determined by the Committee, (iii) the recipient
retires after attaining both 59 1/2 years of age and five years of continuous
service with the Company and/or a division or subsidiary, or (iv) if provided in
the agreement, there is a "change in control" of the Company (as defined in such
agreement). The Committee may require medical evidence of permanent disability,
including medical examinations by physicians selected by it. Unless and to the
extent otherwise provided in the agreement, shares of restricted stock shall be
forfeited and revert to the Company upon the recipient's termination of
directorship, employment or consultancy during the Restriction Period for any
reason other than death, permanent disability, as determined by the Committee,
retirement after attaining both 59 1/2 years of age and five years of continuous
service with the Company and/or a subsidiary or division, or, to the extent
provided in the agreement, a "change in control" of the Company (as defined in
such agreement), except to the extent the Committee, in its sole discretion,
finds that such forfeiture might not be in the best interests of the Company
and, therefore, waives all or part of the application of this provision to the
restricted stock held by such recipient. Certificates for restricted stock shall
be registered in the name of the recipient but shall be imprinted with the
appropriate legend and returned to the Company by the recipient, together with a
stock power endorsed in blank by the recipient. The recipient shall be entitled
to vote shares of restricted stock and shall be entitled to all dividends paid
thereon, except that dividends paid in Common Stock or other property shall also
be subject to the same restrictions.

       

      (B)
Restricted Stock shall become free of the foregoing restrictions upon expiration
of the applicable Restriction Period and the Company shall then deliver to the
recipient Common Stock certificates evidencing such stock. Restricted stock and
any Common Stock received upon the expiration of the restriction period shall be
subject to such other transfer restrictions and/or legend requirements as are
specified in the applicable agreement.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (x)
Bonuses and Past Salaries and Fees Payable in Unrestricted Stock.

       

      (A) In
lieu of cash bonuses otherwise payable under the Company's or applicable
division's or subsidiary's compensation practices to employees and consultants
eligible to participate in this Plan, the Committee, in its sole discretion, may
determine that such bonuses shall be payable in unrestricted Common Stock or
partly in unrestricted Common Stock and partly in cash. Such bonuses shall be in
consideration of services previously performed and as an incentive toward future
services and shall consist of shares of unrestricted Common Stock subject to
such terms as the Committee may determine in its sole discretion. The number of
shares of unrestricted Common Stock payable in lieu of a bonus otherwise payable
shall be determined by dividing such bonus amount by the fair market value of
one share of Common Stock on the date the bonus is payable, with fair market
value determined as of such date in accordance with Section
5(d)(ii).

       

      (B) In
lieu of salaries and fees otherwise payable by the Company to employees,
attorneys and consultants eligible to participate in this Plan that were
incurred for services rendered during, prior or after the year of 2003, the
Committee, in its sole discretion, may determine that such unpaid salaries and
fees shall be payable in unrestricted Common Stock or partly in unrestricted
Common Stock and partly in cash. Such awards shall be in consideration of
services previously performed and as an incentive toward future services and
shall consist of shares of unrestricted Common Stock subject to such terms as
the Committee may determine in its sole discretion. The number of shares of
unrestricted Common Stock payable in lieu of a salaries and fees otherwise
payable shall be determined by dividing each calendar month's of unpaid salary
or fee amount by the average trading value of the Common Stock for the calendar
month during which the subject services were provided.

       

      (xi) No
Rights as Stockholder. No Participant shall have any rights as a stockholder
with respect to shares covered by an option or warrant until the option or
warrant is exercised as provided in clause

       

      (d)
above.

       

      (xii)
Extraordinary Corporate Transactions. The existence of outstanding options or
warrants shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, exchanges, or other changes in the Company's capital structure
or its business, or any merger or consolidation of the Company, or any issuance
of Common Stock or other securities or subscription rights thereto, or any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise. If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets
or dissolves (each of the foregoing a "Fundamental Change"), then thereafter
upon any exercise of an option or warrant theretofore granted the Participant
shall be entitled to purchase under such option or warrant, in lieu of the
number of shares of Common Stock as to which option or warrant shall then be
exercisable, the number and class of shares of stock and securities to which the
Participant would have been entitled pursuant to the terms of the Fundamental
Change if, immediately prior to such Fundamental Change, the Participant had
been the holder of record of the number of shares of Common Stock as to which
such option or warrant is then exercisable. If (i) the Company shall not be the
surviving entity in any merger or consolidation (or survives only as a
subsidiary of another entity), (ii) the Company sells all or substantially all
of its assets to any other person or entity (other than a wholly-owned
subsidiary), (iii) any person or entity (including a "group" as contemplated by
Section 13(d)(3) of the Exchange Act) acquires or gains ownership or control of
(including, without limitation, power to vote) more than 50% of the outstanding
shares of Common Stock, (iv) the Company is to be dissolved and liquidated, or
(v) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election shall cease to
constitute a majority of the Board (each such event in clauses (i) through (v)
above is referred to herein as a "Corporate Change"), the Committee, in its sole
discretion, may accelerate the time at which all or a portion of a Participant's
option or warrants may be exercised for a limited period of time before or after
a specified date.

       

      (xiii)
Changes in Company's Capital Structure. If the outstanding shares of Common
Stock or other securities of the Company, or both, for which the option or
warrant is then exercisable at any time be changed or exchanged by declaration
of a stock dividend, stock split, combination of shares, recapitalization, or
reorganization, the number and kind of shares of Common Stock or other
securities which are subject to the Plan or subject to any options or warrants
theretofore granted, and the option or warrant prices, shall be adjusted only as
provided in the option or warrant.

       

      (xiv)
Acceleration of Options and Warrants. Except as hereinbefore expressly provided,
(i) the issuance by the Company of shares of stock or any class of securities
convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, (ii) the payment of a dividend in property
other than Common Stock or (iii) the occurrence of any similar transaction, and
in any case whether or not for fair value, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number of shares of Common
Stock subject to options or warrants theretofore granted or the purchase price
per share, unless the Committee shall determine, in its sole discretion, that an
adjustment is necessary to provide equitable treatment to Participant.
Notwithstanding anything to the contrary contained in this Plan, the Committee
may, in its sole discretion, accelerate the time at which any option or warrant
may be exercised, including, but not limited to, upon the occurrence of the
events specified in this Section 5, and is authorized at any time (with the
consent of the Participant) to purchase options or warrants pursuant to Section
6.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      SECTION
6. RELINQUISHMENT OF OPTIONS OR WARRANTS.

       

      (a) The
Committee, in granting options or warrants hereunder, shall have discretion to
determine whether or not options or warrants shall include a right of
relinquishment as hereinafter provided by this Section 6. The Committee shall
also have discretion to determine whether an option or warrant agreement
evidencing an option or warrant initially granted by the Committee without a
right of relinquishment shall be amended or supplemented to include such a right
of relinquishment. Neither the Committee nor the Company shall be under any
obligation or incur any liability to any person by reason of the Committee's
refusal to grant or include a right of relinquishment in any option or warrant
granted hereunder or in any option or warrant agreement evidencing the same.
Subject to the Committee's determination in any case that the grant by it of a
right of relinquishment is consistent with Section 1 hereof, any option or
warrant granted under this Plan, and the option or warrant agreement evidencing
such option or warrant, may provide:

       

      (i) That
the Participant, or his or her heirs or other legal representatives to the
extent entitled to exercise the option or warrant under the terms thereof, in
lieu of purchasing the entire number of shares subject to purchase thereunder,
shall have the right to relinquish all or any part of the then unexercised
portion of the option or warrant (to the extent then exercisable) for a number
of shares of Common Stock to be determined in accordance with the following
provisions of this clause (i):

       

      (A) The
written notice of exercise of such right of relinquishment shall state the
percentage of the total number of shares of Common Stock issuable pursuant to
such relinquishment (as defined below) that the Participant elects to
receive;

       

      (B) The
number of shares of Common Stock, if any, issuable pursuant to such
relinquishment shall be the number of such shares, rounded to the next greater
number of full shares, as shall be equal to the quotient obtained by
dividing

       

      (i) the
Appreciated Value by (ii) the purchase price for each of such shares specified
in such option or warrant;

       

      (C) For
the purpose of this clause (C), "Appreciated Value" means the excess, if any, of
(x) the total current market value of the shares of Common Stock covered by the
option or warrant or the portion thereof to be relinquished over (y) the total
purchase price for such shares specified in such option or warrant;

       

      (ii) That
such right of relinquishment may be exercised only upon receipt by the Company
of a written notice of such relinquishment which shall be dated the date of
election to make such relinquishment; and that, for the purposes of this Plan,
such date of election shall be deemed to be the date when such notice is sent by
registered or certified mail, or when receipt is acknowledged by the Company, if
mailed by other than registered or certified mail or if delivered by hand or by
any telegraphic communications equipment of the sender or otherwise delivered;
provided, that, in the event the method just described for determining such date
of election shall not be or remain consistent with the provisions of Section
16(b) of the Exchange Act or the rules and regulations adopted by the Commission
thereunder, as presently existing or as may be hereafter amended, which
regulations exempt from the operation of Section 16(b) of the Exchange Act in
whole or in part any such relinquishment transaction, then such date of election
shall be determined by such other method consistent with

       

      Section
16(b) of the Exchange Act or the rules and regulations thereunder as the
Committee shall in its discretion select and apply;

       

      (iii)
That the "current market value" of a share of Common Stock on a particular date
shall be deemed to be its fair market value on that date as determined in
accordance with Paragraph 5(d)(ii); and

       

      (iv) That
the option or warrant, or any portion thereof, may be relinquished only to the
extent that (A) it is exercisable on the date written notice of relinquishment
is received by the Company, and (B) the holder of such option or warrant pays,
or makes provision satisfactory to the Company for the payment of, any taxes
which the Company is obligated to collect with respect to such
relinquishment.

       

      (b) The
Committee shall have sole discretion to consent to or disapprove, and neither
the Committee nor the Company shall be under any liability by reason of the
Committee's disapproval of, any election by a holder of preferred stock to
relinquish such preferred stock in whole or in part as provided in Paragraph
7(a), except that no such consent to or approval of a relinquishment shall be
required under the following circumstances. Each Participant who is subject to
the short-swing profits recapture provisions of

       

      Section
16(b) of the Exchange Act ("Covered Participant") shall not be entitled to
receive shares of Common Stock when options or warrants are relinquished during
any window period commencing on the third business day following the Company's
release of a quarterly or annual summary statement of sales and earnings and
ending on the twelfth business day following such release ("Window Period"). A
Covered Participant shall be entitled to receive shares of Common Stock upon the
relinquishment of options or warrants outside a Window Period.

       

      (c) The
Committee, in granting options or warrants hereunder, shall have discretion to
determine the terms upon which such options or warrants shall be relinquishable,
subject to the applicable provisions of this Plan, and including such provisions
as are deemed advisable to permit the exemption from the operation from Section
16(b) of the Exchange Act of any such relinquishment transaction, and options or
warrants outstanding, and option agreements evidencing such options, may be
amended, if necessary, to permit such exemption. If options or warrants are
relinquished, such option or warrant shall be deemed to have been exercised to
the extent of the number of shares of Common Stock covered by the option or
warrant or part thereof which is relinquished, and no further options or
warrants may be granted covering such shares of Common Stock.

       

      (d) Any
options or warrants or any right to relinquish the same to the Company as
contemplated by this Paragraph 6 shall be assignable by the Participant,
provided the transaction complies with any applicable securities
laws.

       

      (e)
Except as provided in Section 6(f) below, no right of relinquishment may be
exercised within the first six months after the initial award of any option or
warrant containing, or the amendment or supplementation of any existing option
or warrant agreement adding, the right of relinquishment.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (f) No
right of relinquishment may be exercised after the initial award of any option
or warrant containing, or the amendment or supplementation of any existing
option or warrant agreement adding the right of relinquishment, unless such
right of relinquishment is effective upon the Participant's death, disability or
termination of his relationship with the Company for a reason other than "for
cause."

       

      SECTION
7. GRANT OF CONVERTIBLE PREFERRED STOCK.

       

      (a)
Committee Discretion. The Committee shall have sole and absolute discretionary
authority (i) to determine, authorize, and designate those persons pursuant to
this Plan who are to receive restricted preferred stock, or unrestricted
preferred stock under the Plan, and (ii) to determine the number of shares of
Common Stock to be issued upon conversion of such shares of preferred stock and
the terms thereof. The Committee shall thereupon grant shares of preferred stock
in accordance with such determinations as evidenced by a written preferred stock
designation. Subject to the express provisions of the Plan, the Committee shall
have discretionary authority to prescribe, amend and rescind rules and
regulations relating to the Plan, to interpret the Plan, to prescribe and amend
the terms of the preferred stock designation (which need not be identical) and
to make all other determinations deemed necessary or advisable for the
administration of the Plan.

       

      (b) Terms
and Conditions. Each series of preferred stock granted under the Plan shall be
evidenced by a designation in the form for filing with the Secretary of State of
the state of incorporation of the Company, containing such terms as approved by
the Committee, which shall be subject to the following express terms and
conditions and to such other terms and conditions as the Committee may deem
appropriate:

       

      (i)
Conversion Ratio. The number of shares of Common Stock issuable upon conversion
of each share of preferred stock granted pursuant to the Plan shall be
determined by the Committee at the time the preferred stock is granted. The
conversion ration may be determined by reference to the fair market value of
each share of Common Stock on the date the preferred stock is granted, or at
such other price as the Committee in its sole discretion shall
determine.

       

      At the
time a determination of the fair market value of a share of Common Stock is
required to be made hereunder, the determination of its fair market value shall
be made in accordance with Paragraph 5(d)(ii).

       

      (ii)
Conversion Period. The Committee may provide in the preferred stock agreement
that an preferred stock may be converted in whole, immediately, or is to be
convertible in increments. In addition, the Committee may provide that the
conversion of all or part of an preferred stock is subject to specified
performance by the Participant.

       

      (iii)
Procedure for Conversion. Shares of preferred stock shall be converted in the
manner specified in the preferred stock designation. The notice of conversion
shall specify the address to which the certificates for such shares are to be
mailed. A Participant shall be deemed to be a stockholder with respect to shares
covered by preferred stock on the date specified in the preferred stock
agreement

       

      . As
promptly as practicable, the Company shall deliver to the Participant or other
holder of the warrant, certificates for the number of shares with respect to
which such preferred stock has been so converted, issued in the holder's name or
such other name as holder directs; provided, however, that such delivery shall
be deemed effected for all purposes when a stock transfer agent of the Company
shall have deposited such certificates with a carrier for overnight delivery,
addressed to the holder at the address specified pursuant to this

       

      Section
6(d).

       

      (iv)
Termination of Employment. If an executive officer to whom preferred stock is
granted ceases to be employed by the Company for any reason other than death or
disability, any preferred stock which is convertible on the date of such
termination of employment may be converted during a period beginning on such
date and ending at the time set forth in the preferred stock agreement;
provided, however, that if a Participant's employment is terminated because of
the Participant's theft or embezzlement from the Company, disclosure of trade
secrets of the Company or the commission of a willful, felonious act while in
the employment of the Company (such reasons shall hereinafter be collectively
referred to as "for cause"), then any preferred stock or unconverted portion
thereof granted to said Participant shall expire upon such termination of
employment. Notwithstanding the foregoing, no ISO may be converted later than
three months after an employee's termination of employment for any reason other
than death or disability.

       

      (v)
Disability or Death of Participant. In the event of the determination of
disability or death of a Participant under the Plan while he or she is employed
by the Company, the preferred stock previously granted to him may be converted
(to the extent he or she would have been entitled to do so at the date of the
determination of disability or death) at any time and from time to time, within
a period beginning on the date of such determination of disability or death and
ending at the time set forth in the preferred stock agreement, by the former
employee, the guardian of his estate, the executor or administrator of his
estate or by the person or persons to whom his rights under the preferred stock
shall pass by will or the laws of descent and distribution, but in no event may
the preferred stock be converted after its expiration under the terms of the
preferred stock agreement. Notwithstanding the foregoing, no ISO may be
converted later than one year after the determination of disability or death. A
Participant shall be deemed to be disabled if, in the opinion of a physician
selected by the Committee, he or she is incapable of performing services for the
Company of the kind he or she was performing at the time the disability occurred
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or to be of long, continued and indefinite
duration. The date of determination of disability for purposes hereof shall be
the date of such determination by such physician.

       

      (vi)
Assignability. Preferred stock shall be assignable or otherwise transferable, in
whole or in part, by a Participant.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (vii)
Restricted Stock Awards. Awards of restricted preferred stock under this Plan
shall be subject to all the applicable provisions of this Plan, including the
following terms and conditions, and to such other terms and conditions not
inconsistent therewith, as the Committee shall determine:

       

      (A)
Awards of restricted preferred stock may be in addition to or in lieu of
preferred stock grants. Awards may be conditioned on the attainment of
particular performance goals based on criteria established by the Committee at
the time of each award of restricted preferred stock. During a period set forth
in the agreement (the "Restriction Period"), the recipient shall not be
permitted to sell, transfer, pledge, or otherwise encumber the shares of
restricted preferred stock. Shares of restricted preferred stock shall become
free of all restrictions if during the Restriction Period, (i) the recipient
dies, (ii) the recipient's directorship, employment, or consultancy terminates
by reason of permanent disability, as determined by the Committee, (iii) the
recipient retires after attaining both 59 1/2 years of age and five years of
continuous service with the Company and/or a division or subsidiary, or (iv) if
provided in the agreement, there is a "change in control" of the Company (as
defined in such agreement). The Committee may require medical evidence of
permanent disability, including medical examinations by physicians selected by
it. Unless and to the extent otherwise provided in the agreement, shares of
restricted preferred stock shall be forfeited and revert to the Company upon the
recipient's termination of directorship, employment or consultancy during the
Restriction Period for any reason other than death, permanent disability, as
determined by the Committee, retirement after attaining both 59 1/2 years of age
and five years of continuous service with the Company and/or a subsidiary or
division, or, to the extent provided in the agreement, a "change in control" of
the Company (as defined in such agreement), except to the extent the Committee,
in its sole discretion, finds that such forfeiture might not be in the best
interests of the Company and, therefore, waives all or part of the application
of this provision to the restricted preferred stock held by such recipient.
Certificates for restricted preferred stock shall be registered in the name of
the recipient but shall be imprinted with the appropriate legend and returned to
the Company by the recipient, together with a preferred stock power endorsed in
blank by the recipient. The recipient shall be entitled to vote shares of
restricted preferred stock and shall be entitled to all dividends paid thereon,
except that dividends paid in Common Stock or other property shall also be
subject to the same restrictions.

       

      (B)
Restricted preferred stock shall become free of the foregoing restrictions upon
expiration of the applicable Restriction Period and the Company shall then
deliver to the recipient Common Stock certificates evidencing such stock.
Restricted preferred stock and any Common Stock received upon the expiration of
the restriction period shall be subject to such other transfer restrictions
and/or legend requirements as are specified in the applicable
agreement.

       

      (x)
Bonuses and Past Salaries and Fees Payable in Unrestricted Preferred
stock.

       

      (A) In
lieu of cash bonuses otherwise payable under the Company's or applicable
division's or subsidiary's compensation practices to employees and consultants
eligible to participate in this Plan, the Committee, in its sole discretion, may
determine that such bonuses shall be payable in unrestricted Common Stock or
partly in unrestricted Common Stock and partly in cash. Such bonuses shall be in
consideration of services previously performed and as an incentive toward future
services and shall consist of shares of unrestricted Common Stock subject to
such terms as the Committee may determine in its sole discretion. The number of
shares of unrestricted Common Stock payable in lieu of a bonus otherwise payable
shall be determined by dividing such bonus amount by the fair market value of
one share of Common Stock on the date the bonus is payable, with fair market
value determined as of such date in accordance with Section
5(d)(ii).

       

      (B) In
lieu of salaries and fees otherwise payable by the Company to employees,
attorneys and consultants eligible to participate in this Plan that were
incurred for services rendered during, prior or after the year of 2003, the
Committee, in its sole discretion, may determine that such unpaid salaries and
fees shall be payable in unrestricted Common Stock or partly in unrestricted
Common Stock and partly in cash. Such awards shall be in consideration of
services previously performed and as an incentive toward future services and
shall consist of shares of unrestricted Common Stock subject to such terms as
the Committee may determine in its sole discretion. The number of shares of
unrestricted Common Stock payable in lieu of a salaries and fees otherwise
payable shall be determined by dividing each calendar month's of unpaid salary
or fee amount by the average trading value of the Common Stock for the calendar
month during which the subject services were provided.

       

      (xi) No
Rights as Stockholder. No Participant shall have any rights as a stockholder
with respect to shares covered by an preferred stock until the preferred stock
is converted as provided in clause

       

      (b)(iii)
above.

       

      (xii)
Extraordinary Corporate Transactions. The existence of outstanding preferred
stock shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, exchanges, or other changes in the Company's capital structure
or its business, or any merger or consolidation of the Company, or any issuance
of Common Stock or other securities or subscription rights thereto, or any
issuance of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise. If the Company recapitalizes or otherwise
changes its capital structure, or merges, consolidates, sells all of its assets
or dissolves (each of the foregoing a "Fundamental Change"), then thereafter
upon any conversion of preferred stock theretofore granted the Participant shall
be entitled to the number of shares of Common Stock upon conversion of such
preferred stock, in lieu of the number of shares of Common Stock as to which
preferred stock shall then be convertible, the number and class of shares of
stock and securities to which the Participant would have been entitled pursuant
to the terms of the Fundamental Change if, immediately prior to such Fundamental
Change, the Participant had been the holder of record of the number of shares of
Common Stock as to which such preferred stock is then convertible. If (i) the
Company shall not be the surviving entity in any merger or consolidation (or
survives only as a subsidiary of another entity), (ii) the Company sells all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary), (iii) any person or entity (including a "group" as
contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains
ownership or control of (including, without limitation, power to vote) more than
50% of the outstanding shares of Common Stock, (iv) the Company is to be
dissolved and liquidated, or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event in clauses (i) through (v) above is referred to herein as a
"Corporate Change"), the Committee, in its sole discretion, may accelerate the
time at which all or a portion of a Participant's shares of preferred stock may
be converted for a limited period of time before or after a specified
date.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (xiii)
Changes in Company's Capital Structure. If the outstanding shares of Common
Stock or other securities of the Company, or both, for which the preferred stock
is then convertible at any time be changed or exchanged by declaration of a
stock dividend, stock split, combination of shares, recapitalization, or
reorganization, the number and kind of shares of Common Stock or other
securities which are subject to the Plan or subject to any preferred stock
theretofore granted, and the conversion ratio, shall be adjusted only as
provided in the designation of the preferred stock.

       

      (xiv)
Acceleration of Conversion of Preferred Stock. Except as hereinbefore expressly
provided, (i) the issuance by the Company of shares of stock or any class of
securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the conversion of rights or warrants
to subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, (ii) the payment of a
dividend in property other than Common Stock or (iii) the occurrence of any
similar transaction, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to preferred stock theretofore granted,
unless the Committee shall determine, in its sole discretion, that an adjustment
is necessary to provide equitable treatment to Participant. Notwithstanding
anything to the contrary contained in this Plan, the Committee may, in its sole
discretion, accelerate the time at which any preferred stock may be converted,
including, but not limited to, upon the occurrence of the events specified in
this Section 7(xiv).

       

      SECTION
8. AMENDMENTS OR TERMINATION. The Board may amend, alter or discontinue the
Plan, but no amendment or alteration shall be made which would impair the rights
of any Participant, without his consent, under any option, warrant or preferred
stock theretofore granted.

       

      SECTION
9. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise
of options or warrants and grant and conversion of preferred stock thereunder,
and the obligation of the Company to sell and deliver shares under such options,
warrants or preferred stock, shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any governmental or
regulatory agency as may be required. The Company shall not be required to issue
or deliver any certificates for shares of Common Stock prior to the completion
of any registration or qualification of such shares under any federal or state
law or issuance of any ruling or regulation of any government body which the
Company shall, in its sole discretion, determine to be necessary or advisable.
Any adjustments provided for in subparagraphs 5(d)(xii), (xiii) and (xiv) shall
be subject to any shareholder action required by the corporate law of the state
of incorporation of the Company.

       

      SECTION
10. PURCHASE FOR INVESTMENT. Unless the options, warrants, shares of convertible
preferred stock and shares of Common Stock covered by this Plan have been
registered under the Securities Act of 1933, as amended, or the Company has
determined that such registration is unnecessary, each person acquiring or
exercising an option or warrant under this Plan or converting shares of
preferred stock may be required by the Company to give a representation in
writing that he or she is acquiring such option or warrant or such shares for
his own account for investment and not with a view to, or for sale in connection
with, the distribution of any part thereof.

       

      SECTION
11. TAXES.

       

      (a) The
Company may make such provisions as it may deem appropriate for the withholding
of any taxes which it determines is required in connection with any options,
warrants or preferred stock granted under this Plan.

       

      (b)
Notwithstanding the terms of Paragraph 11 (a), any Participant may pay all or
any portion of the taxes required to be withheld by the Company or paid by him
or her in connection with the exercise of a nonqualified option or warrant or
conversion of preferred stock by electing to have the Company withhold shares of
Common Stock, or by delivering previously owned shares of Common Stock, having a
fair market value, determined in accordance with Paragraph 5(d)(ii), equal to
the amount required to be withheld or paid. A Participant must make the
foregoing election on or before the date that the amount of tax to be withheld
is determined ("Tax Date"). All such elections are irrevocable and subject to
disapproval by the Committee. Elections by Covered Participants are subject to
the following additional restrictions: (i) such election may not be made within
six months of the grant of an option or warrant, provided that this limitation
shall not apply in the event of death or disability, and (ii) such election must
be made either six months or more prior to the Tax Date or in a Window Period.
Where the Tax Date in respect of an option or warrant is deferred until six
months after exercise and the Covered Participant elects share withholding, the
full amount of shares of Common Stock will be issued or transferred to him upon
exercise of the option or warrant, but he or she shall be unconditionally
obligated to tender back to the Company the number of shares necessary to
discharge the Company's withholding obligation or his estimated tax obligation
on the Tax Date.

       

      SECTION
12. REPLACEMENT OF OPTIONS, WARRANTS AND PREFERRED STOCK. The Committee from
time to time may permit a Participant under the Plan to surrender for
cancellation any unexercised outstanding option or warrant or unconverted
Preferred stock and receive from the Company in exchange an option, warrant or
preferred stock for such number of shares of Common Stock as may be designated
by the Committee. The Committee may, with the consent of the holder of any
outstanding option, warrant or preferred stock, amend such option, warrant or
preferred stock, including reducing the exercise price of any option or warrant
to not less than the fair market value of the Common Stock at the time of the
amendment, increasing the conversion ratio of any preferred stock and extending
the exercise or conversion term of and warrant, option or preferred
stock.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      SECTION
13. NO RIGHT TO COMPANY EMPLOYMENT. Nothing in this Plan or as a result of any
option or warrant granted pursuant to this Plan shall confer on any individual
any right to continue in the employ of the Company or interfere in any way with
the right of the Company to terminate an individual's employment at any time.
The option, warrant or preferred stock agreements may contain such provisions as
the Committee may approve with reference to the effect of approved leaves of
absence.

       

      SECTION
14. LIABILITY OF COMPANY. The Company and any Affiliate which is in existence or
hereafter comes into existence shall not be liable to a Participant or other
persons as to:

       

      (a) The
Non-Issuance of Shares. The non-issuance or sale of shares as to which the
Company has been unable to obtain from any regulatory body having jurisdiction
the authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares hereunder; and

       

      (b) Tax
Consequences. Any tax consequence expected, but not realized, by any Participant
or other person due to the exercise of any option or warrant or the conversion
of any preferred stock granted hereunder.

       

      SECTION
15. EFFECTIVENESS AND EXPIRATION OF PLAN. The Plan shall be effective on the
date the Board adopts the Plan. The Plan shall expire ten years after the date
the Board approves the Plan and thereafter no option, warrant or preferred stock
shall be granted pursuant to the Plan.

       

      SECTION
16. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption by the Board nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including without
limitation, the granting of restricted stock or stock options, warrants or
preferred stock otherwise than under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.

       

      SECTION
17. GOVERNING LAW. This Plan and any agreements hereunder shall be interpreted
and construed in accordance with the laws of the state of incorporation of the
Company and applicable federal law.

       

      SECTION
18. CASHLESS EXERCISE. The Committee also may allow cashless exercises as
permitted under Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions. or by any other means which the Committee
determines to be consistent with the Plan's purpose and applicable law. The
proceeds from such a payment shall be added to the general funds of the Company
and shall be used for general corporate
purposes.

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