Document:

exv10w1

 

Exhibit 10.1

CRAFTMADE INTERNATIONAL, INC.

2006 LONG-TERM INCENTIVE PLAN

     The Craftmade International, Inc. 2006 Long-Term Incentive Plan (the “Plan”) was adopted by
the Board of Directors of Craftmade International, Inc., a Delaware corporation (the “Company”),
effective as of November 28, 2006, subject to approval by the Company’s stockholders.

ARTICLE 1

PURPOSE

     The purpose of the Plan is to attract and retain the services of key employees, key
consultants and outside directors of the Company and its Subsidiaries and to provide such persons
with a proprietary interest in the Company through the granting of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units,
performance awards, dividend equivalent rights, and other awards, whether granted singly, or in
combination, or in tandem, that will

     (a) increase the interest of such persons in the Company’s welfare;

     (b) furnish an incentive to such persons to continue their services for the Company;
and

     (c) provide a means through which the Company may attract able persons as employees,
Consultants and Outside Directors.

     With respect to Reporting Participants, the Plan and all transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (the “1934 Act”). To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted
by law and deemed advisable by the Committee.

ARTICLE 2

DEFINITIONS

     For the purpose of the Plan, unless the context requires otherwise, the following terms shall
have the meanings indicated:

     2.1 “Award” means the grant of any Incentive Stock Option, Nonqualified Stock Option, Reload
Option, Restricted Stock, SAR, Restricted Stock Units, Performance Award, Dividend Equivalent Right
or Other Award, whether granted singly or in combination or in tandem (each individually referred
to herein as an “Incentive”).

     2.2 “Award Agreement” means a written agreement between a Participant and the Company which
sets out the terms of the grant of an Award.

     2.3 “Award Period” means the period set forth in the Award Agreement during which one or more
Incentives granted under an Award may be exercised.

 

 

     2.4 “Board” means the board of directors of the Company.

     2.5 “Change in Control” shall occur if (a) there shall be consummated any consolidation or
merger of the Company into or with another corporation or other legal person, and as a result of
such consolidation or merger less than a majority of the combined voting power of the
then-outstanding securities of such corporation or person immediately after such transactions are
held in the aggregate by holders of Voting Stock (as defined in subparagraph 2.5(d) below) of the
Company immediately prior to such transactions; (b) there shall be consummated any sale, lease,
exchange or other transfer, whether in one transaction or any series of related transactions, of
all or significant portions of the assets of the Company to any other corporation or other legal
person, if less than a majority of the combined voting power of the then-outstanding securities of
such corporation or person immediately after such sale, lease, exchange, or transfer is held in the
aggregate by the holders of Voting Stock of the Company immediately prior to such sale, lease,
exchange, or transfer; (c) the stockholders of the Company approve any plan for the liquidation or
dissolution of the Company; (d) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the 1934), becomes, either directly or indirectly, the beneficial owner (within the meaning of Rule
13d-3 under the 1934 Act) of securities representing more than 50% of the combined voting power of
the then-outstanding securities entitled to vote generally in the election of directors of the
Company (“Voting Stock”); or (e) at any time during a fiscal year a majority of the Board shall be
replaced by persons who were not recommended for those positions by at least two-thirds of the
directors of the Company who were directors of the Company at the beginning of such fiscal year.

     Notwithstanding the foregoing provisions of this Section 2.5, (x) a “Change in
Control” shall not be deemed to have occurred with respect to any of the foregoing transactions
conducted by an employee benefit plan (or related trust) sponsored or maintained by the Company,
any corporation controlled the Company, James Ridings, or any affiliate of James Ridings, and (y)
in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu
of the foregoing definition and to the extent necessary to comply with the requirements of Section
409A of the Code, the definition of “Change in Control” for purposes of such Award shall be the
definition provided for under Section 409A of the Code and the regulations or other guidance issued
thereunder.

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

     2.7 “Committee” means the committee appointed or designated by the Board to administer the
Plan in accordance with Article 3 of this Plan.

     2.8 “Common Stock” means the common stock, par value $0.01 per share, which the Company is
currently authorized to issue or may in the future be authorized to issue, or any securities into
which or for which the common stock of the Company may be converted or exchanged, as the case may
be, pursuant to the terms of this Plan.

     2.9 “Company” means Craftmade International, Inc., a Delaware corporation, and any successor
entity.

     2.10 “Consultant” means any person, who is not an Employee, performing advisory or consulting
services for the Company or a Subsidiary, with or without compensation, provided that bona fide
services must be rendered by such person and such services shall not be rendered in connection with
the offer or sale of securities in a capital raising transaction.

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     2.11 “Corporation” means any entity that (i) is defined as a corporation under Section 7701 of
the Code and (ii) is the Company or is in an unbroken chain of corporations (other than the
Company) beginning
with the Company, if each of the corporations other than the last corporation in the unbroken
chain owns stock possessing a majority of the total combined voting power of all classes of stock
in one of the other corporations in the chain. For purposes of clause (ii) hereof, an entity shall
be treated as a “corporation” if it satisfies the definition of a corporation under Section 7701 of
the Code.

     2.12 “Date of Grant” means the effective date on which an Award is made to a Participant as
set forth in the applicable Award Agreement; provided, however, that solely for purposes of Section
16 of the 1934 Act and the rules and regulations promulgated thereunder, the Date of Grant of an
Award shall be the date of stockholder approval of the Plan if such date is later than the
effective date of such Award as set forth in the Award Agreement.

     2.13 “Dividend Equivalent Right” means the right of the holder thereof to receive credits
based on the cash dividends that would have been paid on the shares of Common Stock specified in
the Award if such shares were held by the Participant to whom the Award is made.

     2.14 “Employee” means common law employee (as defined in accordance with the Regulations and
Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary
of the Company.

     2.15 “Executive Officer” means an officer of the Company or a Subsidiary subject to Section 16
of the 1934 Act or a “covered employee” as defined in Section 162(m)(3) of the Code.

     2.16 “Fair Market Value” means, as of a particular date, (a) if the shares of Common Stock are
listed on any established national securities exchange, the closing sales price per share of Common
Stock on the consolidated transaction reporting system for the principal securities exchange for
the Common Stock on that date, or, if there shall have been no such sale so reported on that date,
on the last preceding date on which such a sale was so reported, (b) if the shares of Common Stock
are not so listed but are quoted on the Nasdaq National Market System, the closing sales price per
share of Common Stock on the Nasdaq National Market System on that date, or, if there shall have
been no such sale so reported on that date, on the last preceding date on which such a sale was so
reported, (c) if the Common Stock is not so listed or quoted, the mean between the closing bid and
asked price on that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported by Nasdaq, or, if not
reported by Nasdaq, by the National Quotation Bureau, Inc., or (d) if none of the above is
applicable, such amount as may be determined by the Committee (acting on the advice of an
Independent Third Party, should the Committee elect in its sole discretion to utilize an
Independent Third Party for this purpose), in good faith, to be the fair market value per share of
Common Stock.

     2.17 “Independent Third Party” means an individual or entity independent of the Company having
experience in providing investment banking or similar appraisal or valuation services and with
expertise generally in the valuation of securities or other property for purposes of this Plan.
The Committee may utilize one or more Independent Third Parties.

     2.18 “Incentive” is defined in Section 2.1 hereof.

     2.19 “Incentive Stock Option” means an incentive stock option within the meaning of Section
422 of the Code, granted pursuant to this Plan.

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     2.20 “Nonqualified Stock Option” means a nonqualified stock option, granted pursuant to this
Plan, which is not an Incentive Stock Option.

     2.21 “Option Price” means the price which must be paid by a Participant upon exercise of a
Stock Option to purchase a share of Common Stock.

     2.22 “Other Award” means an Award issued pursuant to Section 6.9 hereof.

     2.23 “Outside Director” means a director of the Company who is not an Employee or a
Consultant.

     2.24 “Participant” means an Employee, Consultant or Outside Director of the Company or a
Subsidiary to whom an Award is granted under this Plan.

     2.25 “Plan” means this Craftmade International, Inc. 2006 Long-Term Incentive Plan, as amended
from time to time.

     2.26 “Performance Award” means an Award hereunder of cash, shares of Common Stock, units or
rights based upon, payable in, or otherwise related to, Common Stock pursuant to Section
6.7 hereof.

     2.27 “Performance Goal” means any of the goals set forth in Section 6.10 hereof.

     2.28 “Reload Stock Option” means a Nonqualified Stock Option or an Incentive Stock Option
granted pursuant to Section 8.3(c) hereof.

     2.29 “Reporting Participant” means a Participant who is subject to the reporting requirements
of Section 16 of the 1934 Act.

     2.30 “Restricted Stock” means shares of Common Stock issued or transferred to a Participant
pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set
forth in this Plan and in the related Award Agreement.

     2.31 “Restricted Stock Units” means units awarded to Participants pursuant to Section
6.6 hereof, which are convertible into Common Stock at such time as such units are no longer
subject to restrictions as established by the Committee.

     2.32 “Retirement” means any Termination of Service solely due to retirement upon or after
attainment of age sixty-five (65), or permitted early retirement as determined by the Committee.

     2.33 “SAR” or “stock appreciation right” means the right to receive an amount, in cash and/or
Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of
Common Stock as of the date the SAR is exercised (or, as provided in the Award Agreement,
converted) over the SAR Price for such shares.

     2.34 “SAR Price” means the exercise price or conversion price of each share of Common Stock
covered by a SAR, determined on the Date of Grant of the SAR.

     2.35 “Stock Option” means a Nonqualified Stock Option, a Reload Stock Option or an Incentive
Stock Option.

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     2.36 “Subsidiary” means (i) any corporation in an unbroken chain of corporations beginning
with the Company, if each of the corporations other than the last corporation in the unbroken chain
owns stock possessing a majority of the total combined voting power of all classes of stock in one
of the other corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a
majority of the general partnership interest and a majority of the limited partnership
interests entitled to vote on the removal and replacement of the general partner, and (iii) any
partnership or limited liability company, if the partners or members thereof are composed only of
the Company, any corporation listed in item (i) above or any limited partnership listed in item
(ii) above. “Subsidiaries” means more than one of any such corporations, limited partnerships,
partnerships or limited liability companies.

     2.37 “Termination of Service” occurs when a Participant who is (i) an Employee of the Company
or any Subsidiary ceases to serve as an Employee of the Company and its Subsidiaries, for any
reason; (ii) an Outside Director of the Company or a Subsidiary ceases to serve as a director of
the Company and its Subsidiaries for any reason; or (iii) a Consultant of the Company or a
Subsidiary ceases to serve as a Consultant of the Company and its Subsidiaries for any reason.
Except as may be necessary or desirable to comply with applicable federal or state law, a
“Termination of Service” shall not be deemed to have occurred when a Participant who is an Employee
becomes an Outside Director or Consultant or vice versa. If, however, a Participant who is an
Employee and who has an Incentive Stock Option ceases to be an Employee but does not suffer a
Termination of Service, and if that Participant does not exercise the Incentive Stock Option within
the time required under Section 422 of the Code upon ceasing to be an Employee, the Incentive Stock
Option shall thereafter become a Nonqualified Stock Option. Notwithstanding the foregoing
provisions of this Section 2.37, in the event an Award issued under the Plan is subject to
Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to
comply with the requirements of Section 409A of the Code, the definition of “Termination of
Service” for purposes of such Award shall be the definition of “separation from service” provided
for under Section 409A of the Code and the regulations or other guidance issued thereunder.

     2.38 “Total and Permanent Disability” means a Participant is qualified for long-term
disability benefits under the Company’s or Subsidiary’s disability plan or insurance policy; or, if
no such plan or policy is then in existence or if the Participant is not eligible to participate in
such plan or policy, that the Participant, because of a physical or mental condition resulting from
bodily injury, disease, or mental disorder, is unable to perform his or her duties of employment
for a period of six (6) continuous months, as determined in good faith by the Committee, based upon
medical reports or other evidence satisfactory to the Committee; provided that,
with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning
given it under the rules governing Incentive Stock Options under the Code. Notwithstanding the
foregoing provisions of this Section 2.38, in the event an Award issued under the Plan is
subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent
necessary to comply with the requirements of Section 409A of the Code, the definition of “Total and
Permanent Disability” for purposes of such Award shall be the definition of “disability” provided
for under Section 409A of the Code and the regulations or other guidance issued thereunder.

ARTICLE 3

ADMINISTRATION

     3.1 General Administration; Establishment of Committee. Subject to the terms of this
Article 3, the Plan shall be administered by the Board or such committee of the Board as is
designated by the Board to administer the Plan (the “Committee”). The Committee shall consist of
not fewer than two persons. Any member of the Committee may be removed at any time, with or
without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee
may be filled by appointment by the

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Board. At any time there is no Committee to administer the
Plan, any references in this Plan to the Committee shall be deemed to refer to the Board.

     Membership on the Committee shall be limited to those members of the Board who are “outside
directors” under Section 162(m) of the Code and “non-employee directors” as defined in Rule 16b-3
promulgated under the 1934 Act. The Committee shall select one of its members to act as its
Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the
members of the Committee present at a meeting at which a quorum is present shall be the act of the
Committee.

     3.2 Designation of Participants and Awards.

     (a) The Committee or the Board shall determine and designate from time to time the
eligible persons to whom Awards will be granted and shall set forth in each related Award
Agreement, where applicable, the Award Period, the Date of Grant, and such other terms,
provisions, limitations, and performance requirements, as are approved by the Committee, but
not inconsistent with the Plan. The Committee shall determine whether an Award shall
include one type of Incentive or two or more Incentives granted in combination or two or
more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive
results in cancellation of all or a portion of the other Incentive). Although the members of
the Committee shall be eligible to receive Awards, all decisions with respect to any Award,
and the terms and conditions thereof, to be granted under the Plan to any member of the
Committee shall be made solely and exclusively by the other members of the Committee, or if
such member is the only member of the Committee, by the Board.

     (b) Notwithstanding Section 3.2(a), the Board may, in its discretion and by a
resolution adopted by the Board, authorize one or more officers of the Company (an
“Authorized Officer”) to (i) designate one or more Employees as eligible persons to whom
Awards will be granted under the Plan and (ii) determine the number of shares of Common
Stock that will be subject to such Awards; provided, however, that the resolution of the
Board granting such authority shall (x) specify the total number of shares of Common Stock
that may be made subject to the Awards, (y) set forth the price or prices (or a formula by
which such price or prices may be determined) to be paid for the purchase of the Common
Stock subject to such Awards, and (z) not authorize an officer to designate himself as a
recipient of any Award.

     3.3 Authority of the Committee. The Committee, in its discretion, shall (i) interpret the
Plan, (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, (iii) establish performance goals for an Award and certify the extent
of their achievement, and (iv) make such other determinations or certifications and take such other
action as it deems necessary or advisable in the administration of the Plan. Any interpretation,
determination, or other action made or taken by the Committee shall be final, binding, and
conclusive on all interested parties. The Committee’s discretion set forth herein shall not be
limited by any provision of the Plan, including any provision which by its terms is applicable
notwithstanding any other provision of the Plan to the contrary.

     The Committee may delegate to officers of the Company, pursuant to a written delegation, the
authority to perform specified functions under the Plan. Any actions taken by any officers of the
Company pursuant to such written delegation of authority shall be deemed to have been taken by the
Committee.

     With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3
promulgated under the 1934 Act, Section 422 of the Code, Section 162(m) of the Code, the rules of
any exchange or inter-dealer quotation system upon which the Company’s securities are listed or
quoted, or any other applicable law, rule or restriction (collectively, “applicable law”), to the
extent that any such restrictions are no longer

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required by applicable law, the Committee shall
have the sole discretion and authority to grant Awards that are not subject to such mandated
restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.

ARTICLE 4

ELIGIBILITY

     Any Employee (including an Employee who is also a director or an officer), Consultant or
Outside Director of the Company whose judgment, initiative, and efforts contributed or may be
expected to contribute to the successful performance of the Company is eligible to participate in
the Plan; provided that only Employees of a corporation shall be eligible to receive Incentive
Stock Options. The Committee, upon its own action, may grant, but shall not be required to grant,
an Award to any Employee, Consultant or Outside Director of the Company or any Subsidiary. Awards
may be granted by the Committee at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include or exclude previous
Participants, as the Committee shall determine. Except as required by this Plan, Awards granted at
different times need not contain similar provisions. The Committee’s determinations under the Plan
(including without limitation determinations of which Employees, Consultants or Outside Directors,
if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions
of such Awards and the agreements evidencing same) need not be uniform and may be made by it
selectively among Participants who receive, or are eligible to receive, Awards under the Plan.

ARTICLE 5

SHARES SUBJECT TO PLAN

     5.1 Number Available for Awards. Subject to adjustment as provided in Articles 11 and
12, the maximum number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is 400,000 shares, 100% of which may be delivered pursuant to Incentive
Stock Options. Subject to adjustment pursuant to Articles 11 and 12, no Executive Officer
may receive in any calendar year (i) Stock Options or SARs relating to more than 10,000 shares of
Common Stock, or (ii) Restricted Stock, Restricted Stock Units, Performance Awards or Other Awards
that are subject to the attainment of Performance Goals relating to more than 10,000 shares of
Common Stock; provided, however, that all such Awards to any Executive Officer during any calendar
year shall not exceed an aggregate of more than 10,000 shares of Common Stock. Shares to be issued
may be made available from authorized but unissued Common Stock, Common Stock held by the Company
in its treasury, or Common Stock purchased by the Company on the open market or otherwise. During
the term of this Plan, the Company will at all times reserve and keep available the number of
shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan.

     5.2 Reuse of Shares. To the extent that any Award under this Plan shall be forfeited, shall
expire or be canceled, in whole or in part, then the number of shares of Common Stock covered by
the Award or stock option so forfeited, expired or canceled may again be awarded pursuant to the
provisions of this Plan. In the event that previously acquired shares of Common Stock are
delivered to the Company in full or partial payment of the exercise price for the exercise of a
Stock Option granted under this Plan, the number of shares of Common Stock available for future
Awards under this Plan shall be reduced by the number of shares of Common Stock issued upon the
exercise of the Stock Option (without adjustment for the shares of Common Stock delivered as
payment of the exercise price). Awards that may be satisfied either by the issuance of shares of
Common Stock or by cash or other consideration shall be counted against the maximum number of
shares of Common Stock that may be issued under this Plan regardless of whether the Award is
ultimately

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satisfied by the issuance of shares of Common Stock or the payment of cash or other
consideration. Awards will reduce the number of shares of Common Stock that may be issued pursuant
to this Plan even if the settlement of the Award will not require the issuance of shares of Common
Stock, as, for example, a SAR that can be satisfied only by the payment of cash. Notwithstanding
any provisions of the Plan to the contrary, only
shares forfeited back to the Company, shares canceled on account of termination, expiration or
lapse of an Award shall again be available for grant of Incentive Stock Options under the Plan, but
shall not increase the maximum number of shares described in Section 5.1 above as the
maximum number of shares of Common Stock that may be delivered pursuant to Stock Options.

ARTICLE 6

GRANT OF AWARDS

6.1 In General.

     (a) The grant of an Award shall be authorized by the Committee and shall be evidenced
by an Award Agreement setting forth the Incentive or Incentives being granted, the total
number of shares of Common Stock subject to the Incentive(s), the Option Price (if
applicable), the Award Period, the Date of Grant, and such other terms, provisions,
limitations, and performance objectives, as are approved by the Committee, but (i) not
inconsistent with the Plan and (ii) to the extent an Award issued under the Plan is subject
to Section 409A of the Code, in compliance with the applicable requirements of Section 409A
of the Code and the regulations or other guidance issued thereunder. The Company shall
execute an Award Agreement with a Participant after the Committee approves the issuance of
an Award. Any Award granted pursuant to this Plan must be granted within ten (10) years of
the date of adoption of this Plan. The Plan shall be submitted to the Company’s stockholders
for approval; however, the Committee may grant Awards under the Plan prior to the time of
stockholder approval. Any such Award granted prior to such stockholder approval shall be
made subject to such stockholder approval. The grant of an Award to a Participant shall not
be deemed either to entitle the Participant to, or to disqualify the Participant from,
receipt of any other Award under the Plan.

     (b) If the Committee establishes a purchase price for an Award, the Participant must
accept such Award within a period of thirty (30) days (or such shorter period as the
Committee may specify) after the Date of Grant by executing the applicable Award Agreement
and paying such purchase price.

     (c) Any Award under this Plan that is settled in whole or in part in cash on a deferred
basis may provide for interest equivalents to be credited with respect to such cash payment.
Interest equivalents may be compounded and shall be paid upon such terms and conditions as
may be specified by the grant.

     6.2 Option Price. The Option Price for any share of Common Stock which may be purchased under
a Nonqualified Stock Option for any share of Common Stock may be equal to or greater than the Fair
Market Value of the share on the Date of Grant. The Option Price for any share of Common Stock
which may be purchased under an Incentive Stock Option must be at least equal to the Fair Market
Value of the share on the Date of Grant; if an Incentive Stock Option is granted to an Employee who
owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more
than ten percent (10%) of the combined voting power of all classes of stock of the Company (or any
parent or Subsidiary), the Option Price shall be at least 110% of the Fair Market Value of the
Common Stock on the Date of Grant.

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     6.3 Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to
any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant)
of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of
the Company and its Subsidiaries) are exercisable for the first time by such Employee during any
calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan which is
designated as an Incentive
Stock Option exceeds this limit or otherwise fails to qualify as an Incentive Stock Option,
such Stock Option (or any such portion thereof) shall be a Nonqualified Stock Option. In such
case, the Committee shall designate which stock will be treated as Incentive Stock Option stock by
causing the issuance of a separate stock certificate and identifying such stock as Incentive Stock
Option stock on the Company’s stock transfer records.

     6.4 Restricted Stock. If Restricted Stock is granted to or received by a Participant under an
Award (including a Stock Option), the Committee shall set forth in the related Award Agreement: (i)
the number of shares of Common Stock awarded, (ii) the price, if any, to be paid by the Participant
for such Restricted Stock and the method of payment of the price, (iii) the time or times within
which such Award may be subject to forfeiture, (iv) specified Performance Goals of the Company, a
Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, which
the Committee determines must be met in order to remove any restrictions (including vesting) on
such Award, and (v) all other terms, limitations, restrictions, and conditions of the Restricted
Stock, which shall be consistent with this Plan and, to the extent Restricted Stock granted under
the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of
Section 409A of the Code and the regulations or other guidance issued thereunder. The provisions
of Restricted Stock need not be the same with respect to each Participant.

     (a) Legend on Shares. Each Participant who is awarded or receives Restricted Stock
shall be issued a stock certificate or certificates in respect of such shares of Common
Stock. Such certificate(s) shall be registered in the name of the Participant, and shall
bear an appropriate legend referring to the terms, conditions, and restrictions applicable
to such Restricted Stock, substantially as provided in Section 15.9 of the Plan.

     (b) Restrictions and Conditions. Shares of Restricted Stock shall be subject to the
following restrictions and conditions:

     (i) Subject to the other provisions of this Plan and the terms of the
particular Award Agreements, during such period as may be determined by the
Committee commencing on the Date of Grant or the date of exercise of an Award (the
“Restriction Period”), the Participant shall not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock. Except for these limitations, the
Committee may in its sole discretion, remove any or all of the restrictions on such
Restricted Stock whenever it may determine that, by reason of changes in applicable
laws or other changes in circumstances arising after the date of the Award, such
action is appropriate.

     (ii) Except as provided in sub-paragraph (i) above or in the applicable Award
Agreement, the Participant shall have, with respect to his or her Restricted Stock,
all of the rights of a stockholder of the Company, including the right to vote the
            shares, and the right to receive any dividends thereon. Certificates for shares of
Common Stock free of restriction under this Plan shall be delivered to the
Participant promptly after, and only after, the Restriction Period shall expire
without forfeiture in respect of such shares of Common Stock or after any other
restrictions imposed on such shares of Common Stock by the applicable Award
Agreement or other agreement have expired. Certificates for the shares of Common
Stock forfeited under the provisions of the Plan and the applicable Award Agreement
shall

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be promptly returned to the Company by the forfeiting Participant. Each Award
Agreement shall require that each Participant, in connection with the issuance of a
certificate for Restricted Stock, shall endorse such certificate in blank or execute
a stock power in form satisfactory to the Company in blank and deliver such
certificate and executed stock power to the Company.

     (iii) The Restriction Period of Restricted Stock shall commence on the Date of
Grant or the date of exercise of an Award, as specified in the Award Agreement, and,
subject to Article 12 of the Plan, unless otherwise established by the
Committee in the Award Agreement setting forth the terms of the Restricted Stock,
shall expire upon satisfaction of the conditions set forth in the Award Agreement;
such conditions may provide for vesting based on such Performance Goals, as may be
determined by the Committee in its sole discretion.

     (iv) Except as otherwise provided in the particular Award Agreement, upon
Termination of Service for any reason during the Restriction Period, the nonvested
shares of Restricted Stock shall be forfeited by the Participant. In the event a
Participant has paid any consideration to the Company for such forfeited Restricted
Stock, the Committee shall specify in the Award Agreement that either (i) the
Company shall be obligated to, or (ii) the Company may, in its sole discretion,
elect to, pay to the Participant, as soon as practicable after the event causing
forfeiture, in cash, an amount equal to the lesser of the total consideration paid
by the Participant for such forfeited shares or the Fair Market Value of such
forfeited shares as of the date of Termination of Service, as the Committee, in its
sole discretion shall select. Upon any forfeiture, all rights of a Participant with
respect to the forfeited shares of the Restricted Stock shall cease and terminate,
without any further obligation on the part of the Company.

     6.5 SARs. The Committee may grant SARs to any Participant, either as a separate Award or in
connection with a Stock Option. SARs shall be subject to such terms and conditions as the
Committee shall impose, provided that such terms and conditions are (i) not inconsistent with the
Plan and (ii) to the extent a SAR issued under the Plan is subject to Section 409A of the Code, in
compliance with the applicable requirements of Section 409A of the Code and the regulations or
other guidance issued thereunder. The grant of the SAR may provide that the holder may be paid for
the value of the SAR either in cash or in shares of Common Stock, or a combination thereof. In the
event of the exercise of a SAR payable in shares of Common Stock, the holder of the SAR shall
receive that number of whole shares of Common Stock having an aggregate Fair Market Value on the
date of exercise equal to the value obtained by multiplying (i) the difference between the Fair
Market Value of a share of Common Stock on the date of exercise over the SAR Price as set forth in
such SAR (or other value specified in the agreement granting the SAR), by (ii) the number of shares
of Common Stock as to which the SAR is exercised, with a cash settlement to be made for any
fractional shares of Common Stock. The SAR Price for any share of Common Stock subject to a SAR
may be equal to or greater than the Fair Market Value of the share on the Date of Grant. The
Committee, in its sole discretion, may place a ceiling on the amount payable upon exercise of a
SAR, but any such limitation shall be specified at the time that the SAR is granted.

     6.6 Restricted Stock Units. Restricted Stock Units may be awarded or sold to any Participant
under such terms and conditions as shall be established by the Committee, provided, however, that
such terms and conditions are (i) not inconsistent with the Plan and (ii) to the extent a
Restricted Stock Unit issued under the Plan is subject to Section 409A of the Code, in compliance
with the applicable requirements of Section 409A of the Code and the regulations or other guidance
issued thereunder). Restricted Stock Units shall be subject to such restrictions as the Committee
determines, including, without limitation, (a) a prohibition

10

 

against sale, assignment, transfer,
pledge, hypothecation or other encumbrance for a specified period; or (b) a requirement that the
holder forfeit (or in the case of shares of Common Stock or units sold to the Participant, resell
to the Company at cost) such shares or units in the event of Termination of Service during the
period of restriction.

6.7 Performance Awards.

     (a) The Committee may grant Performance Awards to any Participant upon such terms and
conditions as shall be specified at the time of the grant and may include provisions
establishing the performance period, the Performance Goals to be achieved during a
performance period, and the maximum or minimum settlement values, provided that such terms
and conditions are (i) not inconsistent with the Plan and (ii) to the extent a Performance
Award issued under the Plan is subject to Section 409A of the Code, in compliance with the
applicable requirements of Section 409A of the Code and the regulations or other guidance
issued thereunder. Each Performance Award shall have its own terms and conditions. At the
time of the grant of a Performance Award intended to satisfy the requirements of Section
162(m) of the Code (other than a Stock Option) and to the extent permitted under Section
162(m) of the Code and the regulations issued thereunder, the Committee:

     (i) shall provide for the manner in which the Performance Goals shall be
reduced to take into account the negative effect on the attained levels of the
Performance Goals which result from specified corporate transactions, extraordinary
events, accounting changes and other similar occurrences, so long as those
transactions, events, changes and occurrences were not certain at the time the
Performance Goal was initially established and the amount of the Performance Award
for any Participant is not increased, unless the reduction in the Performance Goals
would reduce or eliminate the amount of the Performance Award, and the Committee
determines not to make such reduction; and

     (ii) may provide for the manner in which the Performance Goals will be measured
in light of specified corporate transactions, extraordinary events, accounting
changes and other similar occurrences, to the extent those transactions, events,
changes and occurrences have a positive effect on the attained levels of the
Performance Goals, so long as the Committee’s actions do not increase the amount of
the Performance Award for any Participant.

The determination of the amount of any reduction in the Performance Goals shall be made by
the Committee in consultation with the Company’s independent auditor or compensation
consultant. With respect to a Performance Award that is not intended to satisfy the
requirements of Section 162(m) of the Code, if the Committee determines, in its sole
discretion, that the established performance measures or objectives are no longer suitable
because of a change in the Company’s business, operations, corporate structure, or for other
reasons that the Committee deemed satisfactory, the Committee may modify the performance
measures or objectives and/or the performance period.

     (b) Performance Awards may be valued by reference to the Fair Market Value of a share
of Common Stock or according to any formula or method deemed appropriate by the Committee,
in its sole discretion, including, but not limited to, achievement of Performance Goals or
other specific financial, production, sales or cost performance objectives that the
Committee believes to be relevant to the Company’s business and/or remaining in the employ
of the Company for a specified period of time. Performance Awards may be paid in cash,
shares of Common Stock, or other consideration, or any combination thereof. If payable in
shares of Common Stock, the consideration for the issuance of such shares may be the
achievement of the performance objective established at the time of the

11

 

grant of the
Performance Award. Performance Awards may be payable in a single payment or in installments
and may be payable at a specified date or dates or upon attaining the performance objective.
The extent to which any applicable performance objective has been achieved shall be
conclusively determined by the Committee.

     6.8 Dividend Equivalent Rights. The Committee may grant a Dividend Equivalent Right to any
Participant, either as a component of another Award or as a separate Award. The terms and
conditions of the Dividend Equivalent Right shall be specified by the grant. Dividend equivalents
credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional shares of Common Stock (which may thereafter accrue additional dividend
equivalents). Any such reinvestment shall be at the Fair Market Value at the time thereof.
Dividend Equivalent Rights may be settled in cash or shares of Common Stock, or a combination
thereof, in a single payment or in installments. A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement, or payment of, or lapse of restrictions on, such other Award, and that such
Dividend Equivalent Right granted as a component of another Award may also contain terms and
conditions different from such other Award.

     6.9 Other Awards. The Committee may grant to any Participant other forms of Awards, based
upon, payable in, or otherwise related to, in whole or in part, shares of Common Stock, if the
Committee determines that such other form of Award is consistent with the purpose and restrictions
of this Plan. The terms and conditions of such other form of Award shall be specified by the
grant. Such Other Awards may be granted for no cash consideration, for such minimum consideration
as may be required by applicable law, or for such other consideration as may be specified by the
grant.

     6.10 Performance Goals. Awards of Restricted Stock, Restricted Stock Units, Performance Award
and Other Awards (whether relating to cash or shares of Common Stock) under the Plan may be made
subject to the attainment of Performance Goals relating to one or more business criteria which,
where applicable, shall be within the meaning of Section 162(m) of the Code and consist of one or
more or any combination of the following criteria: cash flow; cost; revenues; sales; ratio of debt
to debt plus equity; net borrowing, credit quality or debt ratings; profit before tax; economic
profit; earnings before interest and taxes; earnings before interest, taxes, depreciation and
amortization; gross margin; earnings per share (whether on a pre-tax, after-tax, operational or
other basis); operating earnings; capital expenditures; expenses or expense levels; economic value
added; ratio of operating earnings to capital spending or any other operating ratios; free cash
flow; net profit; net sales; net asset value per share; the accomplishment of mergers,
acquisitions, dispositions, public offerings or similar extraordinary business transactions; sales
growth; price of the Company’s Common Stock; return on assets, equity or stockholders’ equity;
market share; inventory levels, inventory turn or shrinkage; or total return to stockholders
(“Performance Criteria”). Any Performance Criteria may be used to measure the performance of the
Company as a whole or any business unit of the Company and may be measured relative to a peer group
or index. Any Performance Criteria may include or exclude (i) extraordinary, unusual and/or
non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii)
changes in tax or accounting regulations or laws, or (iv) the effect of a merger or acquisition, as
identified in the Company’s quarterly and annual earnings releases. In all other respects,
Performance Criteria shall be calculated in accordance with the Company’s financial statements,
under generally accepted accounting principles, or under a methodology established by the Committee
prior to the issuance of an Award which is consistently applied and identified in the audited
financial statements, including footnotes, or the Management Discussion and Analysis section of the
Company’s annual report. However, to the extent Section 162(m) of the Code is applicable, the
Committee may not in any event increase the amount of compensation payable to an individual upon
the attainment of a Performance Goal.

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     6.11 Tandem Awards. The Committee may grant two or more Incentives in one Award in the form
of a “tandem Award,” so that the right of the Participant to exercise one Incentive shall be
canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option
and a SAR are issued in a tandem Award, and the Participant exercises the SAR with respect to 100
shares of Common Stock, the right of the Participant to exercise the related Stock Option shall be
canceled to the extent of 100 shares of Common Stock.

ARTICLE 7

AWARD PERIOD; VESTING

     7.1 Award Period. Subject to the other provisions of this Plan, the Committee may, in its
discretion, provide that an Incentive may not be exercised in whole or in part for any period or
periods of time or beyond any date specified in the Award Agreement. Except as provided in the
Award Agreement, an Incentive may be exercised in whole or in part at any time during its term.
The Award Period for an Incentive shall be reduced or terminated upon Termination of Service. No
Incentive granted under the Plan may be exercised at any time after the end of its Award Period.
No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date
of Grant. However, if an Employee owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes
of stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option is granted to
such Employee, the term of such Incentive Stock Option (to the extent required by the Code at the
time of grant) shall be no more than five (5) years from the Date of Grant.

     7.2 Vesting. The Committee, in its sole discretion, may determine that an Incentive will be
immediately vested in whole or in part, or that all or any portion may not be vested until a date,
or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events,
subject in any case to the terms of the Plan. If the Committee imposes conditions upon vesting,
then, subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the
date on which all or any portion of the Incentive may be vested.

ARTICLE 8

EXERCISE OR CONVERSION OF INCENTIVE

     8.1 In General. A vested Incentive may be exercised or converted, during its Award Period,
subject to limitations and restrictions set forth in the Award Agreement

     8.2 Securities Law and Exchange Restrictions. In no event may an Incentive be exercised or
shares of Common Stock be issued pursuant to an Award if a necessary listing or quotation of the
shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration
under state or federal securities laws required under the circumstances has not been accomplished.

     8.3 Exercise of Stock Option.

     (a) In General. If a Stock Option is exercisable prior to the time it is vested, the
Common Stock obtained on the exercise of the Stock Option shall be Restricted Stock which is
subject to the applicable provisions of the Plan and the Award Agreement. If the Committee
imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may,
in its sole discretion, accelerate the date on which all or any portion of the Stock Option
may be exercised. No

13

 

Stock Option may be exercised for a fractional share of Common Stock.
The granting of a Stock Option shall impose no obligation upon the Participant to exercise
that Stock Option.

     (b) Notice and Payment. Subject to such administrative regulations as the Committee
may from time to time adopt, a Stock Option may be exercised by the delivery of written
notice to the Committee setting forth the number of shares of Common Stock with respect to
which the Stock Option is to be exercised and the date of exercise thereof (the “Exercise
Date”) which shall be at least
three (3) days after giving such notice unless an earlier time shall have been mutually
agreed upon. On the Exercise Date, the Participant shall deliver to the Company
consideration with a value equal to the total Option Price of the shares to be purchased,
payable as provided in the Award Agreement, which may provide for payment in any one or more
of the following ways: (a) cash or check, bank draft, or money order payable to the order
of the Company, (b) Common Stock (including Restricted Stock) owned by the Participant on
the Exercise Date, valued at its Fair Market Value on the Exercise Date, and which the
Participant has not acquired from the Company within six (6) months prior to the Exercise
Date, (c) by delivery (including by FAX) to the Company or its designated agent of an
executed irrevocable option exercise form together with irrevocable instructions from the
Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of
the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such
shares as collateral for a loan and promptly deliver to the Company the amount of sale or
loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid
consideration that is acceptable to the Committee in its sole discretion. In the event that
shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option,
a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the
number of shares of Restricted Stock used as consideration therefor shall be subject to the
same restrictions and provisions as the Restricted Stock so tendered.

     (c) Reload Stock Options. In the event that shares of Common Stock are delivered by a
Participant in payment of all or a portion of the exercise price of a Stock Option as set
forth in Section 8.3(b) above and/or shares of Common Stock are delivered to or
withheld by the Company in satisfaction of the Company’s tax withholding obligations upon
exercise in accordance with Section 15.6 hereof, then, subject to Article 10
hereof, the Committee may authorize the automatic grant to a Participant so exercising a
Nonqualified Stock Option, a replacement Nonqualified Stock Option, and to a Participant so
exercising an Incentive Stock Option, a replacement Incentive Stock Option (in either case,
a “Reload Stock Option”), to purchase that number of shares so delivered to or withheld by
the Company, as the case may be, at an option exercise price equal to the Fair Market Value
per share of the Common Stock on the date of exercise of the original Stock Option (subject
to the provisions of the Plan regarding Incentive Stock Options and, in any event not less
than the par value per share of the Common Stock). The option period for a Reload Stock
Option will commence on its Date of Grant and expire on the expiration date of the original
Stock Option it replaces (subject to the provisions of the Plan regarding Incentive Stock
Options), after which period the Reload Stock Option cannot be exercised. The Date of Grant
of a Reload Stock Option shall be the date that the Stock Option it replaces is exercised.
A Reload Stock Option shall automatically vest and be exercisable in full after the
expiration of six (6) months from its Date of Grant. It shall be a condition to the grant
of a Reload Stock Option that promptly after its Date of Grant, a stock option agreement
shall be delivered to the Participant and executed by the Participant and the Company which
sets forth the total number of shares subject to the Reload Stock Option, the option
exercise price, the option period of the Reload Stock Option and such other terms and
provisions as are consistent with the Plan.

     (d) Issuance of Certificate. Except as otherwise provided in Section 6.4
hereof (with respect to shares of Restricted Stock) or in the applicable Award Agreement,
upon payment of all

14

 

amounts due from the Participant, the Company shall cause certificates
for the Common Stock then being purchased to be delivered as directed by the Participant (or
the person exercising the Participant’s Stock Option in the event of his death) at its
principal business office promptly after the Exercise Date; provided that if the Participant
has exercised an Incentive Stock Option, the Company may at its option retain physical
possession of the certificate evidencing the shares acquired upon exercise until the
expiration of the holding periods described in Section 422(a)(1) of the Code. The obligation
of the Company to deliver shares of Common Stock shall, however, be subject to the condition
that, if at any time the Committee shall determine in its discretion that the listing,
registration, or qualification of the Stock Option or the Common Stock upon any
securities exchange or inter-dealer quotation system or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary as a condition of,
or in connection with, the Stock Option or the issuance or purchase of shares of Common
Stock thereunder, the Stock Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not reasonably acceptable to the Committee.

     (e) Failure to Pay. Except as may otherwise be provided in an Award Agreement, if the
Participant fails to pay for any of the Common Stock specified in such notice or fails to
accept delivery thereof, that portion of the Participant’s Stock Option and right to
purchase such Common Stock may be forfeited by the Company.

     8.4 SARs. Subject to the conditions of this Section 8.4 and such administrative regulations
as the Committee may from time to time adopt, a SAR may be exercised by the delivery (including by
FAX) of written notice to the Committee setting forth the number of shares of Common Stock with
respect to which the SAR is to be exercised and the date of exercise thereof (the “Exercise Date”)
which shall be at least three (3) days after giving such notice unless an earlier time shall have
been mutually agreed upon. Subject to the terms of the Award Agreement and only if permissible
under Section 409A of the Code and the regulations or other guidance issued thereunder (or, if not
so permissible, at such time as permitted by Section 409A of the Code and the regulations or other
guidance issued thereunder), the Participant shall receive from the Company in exchange therefor in
the discretion of the Committee, and subject to the terms of the Award Agreement:

     (i) cash in an amount equal to the excess (if any) of the Fair Market Value (as of the
date of the exercise, or if provided in the Award Agreement, conversion, of the SAR) per
share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the
total number of shares of Common Stock of the SAR being surrendered;

     (ii) that number of shares of Common Stock having an aggregate Fair Market Value (as of
the date of the exercise, or if provided in the Award Agreement, conversion, of the SAR)
equal to the amount of cash otherwise payable to the Participant, with a cash settlement to
be made for any fractional share interests; or

     (iii) the Company may settle such obligation in part with shares of Common Stock and in
part with cash.

     The distribution of any cash or Common Stock pursuant to the foregoing sentence shall be made
at such time as set forth in the Award Agreement.

     8.5 Disqualifying Disposition of Incentive Stock Option. If shares of Common Stock acquired
upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration
of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the
transfer of shares of

15

 

Common Stock to the Participant pursuant to the exercise of such Stock
Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code,
such Participant shall notify the Company in writing of the date and terms of such disposition. A
disqualifying disposition by a Participant shall not affect the status of any other Stock Option
granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code.

ARTICLE 9

AMENDMENT OR DISCONTINUANCE

     Subject to the limitations set forth in this Article 9, the Board may at any time and
from time to time, without the consent of the Participants, alter, amend, revise, suspend, or
discontinue the Plan in whole or in part; provided, however, that no amendment for which
stockholder approval is required either (i) by any securities exchange or inter-dealer quotation
system on which the Common Stock is listed or traded or (ii) in order for the Plan and Incentives
awarded under the Plan to continue to comply with Sections 162(m), 421, and 422 of the Code,
including any successors to such Sections; shall be effective unless such amendment shall be
approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Any
such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable
to any outstanding Incentives theretofore granted under the Plan, notwithstanding any contrary
provisions contained in any Award Agreement. In the event of any such amendment to the Plan, the
holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a
condition to the exercisability thereof, execute a conforming amendment in the form prescribed by
the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this
Plan to the contrary, unless required by law, no action contemplated or permitted by this
Article 9 shall adversely affect any rights of Participants or obligations of the Company
to Participants with respect to any Incentive theretofore granted under the Plan without the
consent of the affected Participant.

ARTICLE 10

TERM

     The Plan shall be effective from the date that this Plan is approved by the stockholders.
Unless sooner terminated by action of the Board, the Plan will terminate on November 28, 2016, but
Incentives granted before that date will continue to be effective in accordance with their terms
and conditions.

ARTICLE 11

CAPITAL ADJUSTMENTS

     In the event that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, stock split, reverse stock split,
rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off, combination,
subdivision, repurchase, or exchange of Common Stock or other securities of the Company, issuance
of warrants or other rights to purchase Common Stock or other securities of the Company, or other
similar corporate transaction or event affects the fair value of an Award, then the Committee shall
adjust any or all of the following so that the fair value of the Award immediately after the
transaction or event is equal to the fair value of the Award immediately prior to the transaction
or event (i) the number of shares and type of Common Stock (or the securities or property) which
thereafter may be made the subject of Awards, (ii) the number of shares and type of Common Stock
(or other securities or property) subject to outstanding Awards, (iii) the number of shares and
type of Common Stock (or other securities or property) specified as the annual per-participant
limitation

16

 

under Section 5.1 of the Plan, (iv) the Option Price of each outstanding Award,
(v) the amount, if any, the Company pays for forfeited shares of Common Stock in accordance with
Section 6.4, and (vi) the number of or SAR Price of shares of Common Stock then subject to
outstanding SARs previously granted and unexercised under the Plan to the end that the same
proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall
remain subject to exercise at the same aggregate SAR Price; provided however, that the number of
shares of Common Stock (or other securities or property) subject to any Award shall always be a
whole number. Notwithstanding the foregoing, no such adjustment shall be made or authorized to the
extent that such
adjustment would cause the Plan or any Stock Option to violate Section 422 of the Code. Such
adjustments shall be made in accordance with the rules of any securities exchange, stock market, or
stock quotation system to which the Company is subject.

     Upon the occurrence of any such adjustment, the Company shall provide notice to each affected
Participant of its computation of such adjustment which shall be conclusive and shall be binding
upon each such Participant.

ARTICLE 12

RECAPITALIZATION, MERGER AND CONSOLIDATION

     12.1 No Effect on Company’s Authority. The existence of this Plan and Incentives granted
hereunder 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, or other changes in the
Company’s capital structure and its business, or any Change in Control, or any merger or
consolidation of the Company, or any issuance of bonds, debentures, preferred or preference stocks
ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights,
options, or warrants to purchase same), 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.

     12.2 Conversion of Incentives Where Company Survives. Subject to any required action by the
stockholders and except as otherwise provided by Section 12.4 hereof or as may be required
to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, if
the Company shall be the surviving or resulting corporation in any merger, consolidation or share
exchange, any Incentive granted hereunder shall pertain to and apply to the securities or rights
(including cash, property, or assets) to which a holder of the number of shares of Common Stock
subject to the Incentive would have been entitled.

     12.3 Exchange or Cancellation of Incentives Where Company Does Not Survive. Except as
otherwise provided by Section 12.4 hereof or as may be required to comply with Section 409A
of the Code and the regulations or other guidance issued thereunder, in the event of any merger,
consolidation or share exchange pursuant to which the Company is not the surviving or resulting
corporation, there shall be substituted for each share of Common Stock subject to the unexercised
portions of outstanding Incentives, that number of shares of each class of stock or other
securities or that amount of cash, property, or assets of the surviving, resulting or consolidated
company which were distributed or distributable to the stockholders of the Company in respect to
each share of Common Stock held by them, such outstanding Incentives to be thereafter exercisable
for such stock, securities, cash, or property in accordance with their terms.

     12.4 Cancellation of Incentives. Notwithstanding the provisions of Sections 12.2 and
12.3 hereof, and except as may be required to comply with Section 409A of the Code and the
regulations or other guidance issued thereunder, all Incentives granted hereunder may be canceled
by the Company, in its sole discretion, as of the effective date of any Change in Control, merger,
consolidation or share exchange, or any issuance of bonds, debentures, preferred or preference
stocks ranking prior to or otherwise affecting the

17

 

Common Stock or the rights thereof (or any
rights, options, or warrants to purchase same), or of any proposed sale of all or substantially all
of the assets of the Company, or of any dissolution or liquidation of the Company, by either:

     (a) giving notice to each holder thereof or his personal representative of its
intention to cancel those Incentives for which the issuance of shares of Common Stock
involved payment by the Participant for such shares, and permitting the purchase during the
thirty (30) day period next preceding such effective date of any or all of the shares of
Common Stock subject to such outstanding
Incentives, including in the Board’s discretion some or all of the shares as to which
such Incentives would not otherwise be vested and exercisable; or

     (b) in the case of Incentives that are either (i) settled only in shares of Common
Stock, or (ii) at the election of the Participant, settled in shares of Common Stock, paying
the holder thereof an amount equal to a reasonable estimate of the difference between the
net amount per share payable in such transaction or as a result of such transaction, and the
price per share of such Incentive to be paid by the Participant (hereinafter the “Spread”),
multiplied by the number of shares subject to the Incentive. In cases where the shares
constitute, or would after exercise, constitute Restricted Stock, the Company, in its
discretion, may include some or all of those shares in the calculation of the amount payable
hereunder. In estimating the Spread, appropriate adjustments to give effect to the
existence of the Incentives shall be made, such as deeming the Incentives to have been
exercised, with the Company receiving the exercise price payable thereunder, and treating
the shares receivable upon exercise of the Incentives as being outstanding in determining
the net amount per share. In cases where the proposed transaction consists of the
acquisition of assets of the Company, the net amount per share shall be calculated on the
basis of the net amount receivable with respect to shares of Common Stock upon a
distribution and liquidation by the Company after giving effect to expenses and charges,
including but not limited to taxes, payable by the Company before such liquidation could be
completed.

     (c) An Award that by its terms would be fully vested or exercisable upon a Change in
Control will be considered vested or exercisable for purposes of Section 12.4(a)
hereof.

ARTICLE 13

LIQUIDATION OR DISSOLUTION

     Subject to Section 12.4 hereof, in case the Company shall, at any time while any
Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all
of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall
be entitled to receive, in lieu of each share of Common Stock of the Company which such Participant
would have been entitled to receive under the Incentive, the same kind and amount of any securities
or assets as may be issuable, distributable, or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of Common Stock of the Company. If the
Company shall, at any time prior to the expiration of any Incentive, make any partial distribution
of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but
excluding the distribution of a cash dividend payable out of earned surplus and designated as such)
and an adjustment is determined by the Committee to be appropriate to prevent the dilution of the
benefits or potential benefits intended to be made available under the Plan, then the Committee
shall, in such manner as it may deem equitable, make such adjustment in accordance with the
provisions of Article 11 hereof.

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ARTICLE 14

INCENTIVES IN SUBSTITUTION FOR

INCENTIVES GRANTED BY OTHER ENTITIES

     Incentives may be granted under the Plan from time to time in substitution for similar
instruments held by employees, consultants or directors of a corporation, partnership, or limited
liability company who become or are about to become Employees, Consultants or Outside Directors of
the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation
with the Company, the acquisition by the Company of equity of the employing entity, or any other
similar transaction pursuant to which the Company
becomes the successor employer. The terms and conditions of the substitute Incentives so
granted may vary from the terms and conditions set forth in this Plan to such extent as the
Committee at the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the Incentives in substitution for which they are granted.

ARTICLE 15

MISCELLANEOUS PROVISIONS

     15.1 Investment Intent. The Company may require that there be presented to and filed with it
by any Participant under the Plan, such evidence as it may deem necessary to establish that the
Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired
for investment and not with a view to their distribution.

     15.2 No Right to Continued Employment. Neither the Plan nor any Incentive granted under the
Plan shall confer upon any Participant any right with respect to continuance of employment by the
Company or any Subsidiary.

     15.3 Indemnification of Board and Committee. No member of the Board or the Committee, nor any
officer or Employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all members of the Board and the Committee, each officer of the Company,
and each Employee of the Company acting on behalf of the Board or the Committee shall, to the
extent permitted by law, be fully indemnified and protected by the Company in respect of any such
action, determination, or interpretation.

     15.4 Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any person any right to be granted an Award or any other rights
except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the
Committee and executed on behalf of the Company, and then only to the extent and upon the terms and
conditions expressly set forth therein.

     15.5 Compliance With Other Laws and Regulations. Notwithstanding anything contained herein to
the contrary, the Company shall not be required to sell or issue shares of Common Stock under any
Incentive if the issuance thereof would constitute a violation by the Participant or the Company of
any provisions of any law or regulation of any governmental authority or any national securities
exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted
or traded (including without limitation Section 16 of the 1934 Act and Section 162(m) of the Code);
and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the
Committee may require such agreements or undertakings, if any, as the Committee may deem necessary
or advisable to assure compliance with any such law or regulation. The Plan, the grant and
exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of
Common Stock, shall be subject to all applicable federal and

19

 

state laws, rules and regulations and
to such approvals by any government or regulatory agency as may be required.

     15.6 Tax Requirements. The Company or, if applicable, any Subsidiary (for purposes of this
Section 15.6, the term “Company” shall be deemed to include any applicable Subsidiary),
shall have the right to deduct from all amounts paid in cash or other form in connection with the
Plan, any Federal, state, local, or other taxes required by law to be withheld in connection with
an Award granted under this Plan. The Company may, in its sole discretion, also require the
Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of
any taxes that the Company is required to withhold in connection with the Participant’s income
arising with respect to the Award. Such payments shall be required
to be made when requested by Company and may be required to be made prior to the delivery of
any certificate representing shares of Common Stock. Such payment may be made (i) by the delivery
of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional
shares under (iii) below) the required tax withholding obligations of the Company; (ii) if the
Company, in its sole discretion, so consents in writing, the actual delivery by the exercising
Participant to the Company of shares of Common Stock that the Participant has not acquired from the
Company within six (6) months prior to the date of exercise, which shares so delivered have an
aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares
under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole
discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered
upon the exercise of the Stock Option, which shares so withheld have an aggregate fair market value
that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of
(i), (ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any
other cash remuneration otherwise paid by the Company to the Participant. The Committee may in the
Award Agreement impose any additional tax requirements or provisions that the Committee deems
necessary or desirable.

     15.7 Assignability. Incentive Stock Options may not be transferred, assigned, pledged,
hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and
distribution and may be exercised during the lifetime of the Participant only by the Participant or
the Participant’s legally authorized representative, and each Award Agreement in respect of an
Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not
constitute a transfer of the Stock Option. The Committee may waive or modify any limitation
contained in the preceding sentences of this Section 15.7 that is not required for
compliance with Section 422 of the Code.

     Except as otherwise provided herein, Nonqualified Stock Options and SARs may not be
transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will
or the laws of descent and distribution. The Committee may, in its discretion, authorize all or a
portion of a Nonqualified Stock Option or SAR to be granted to a Participant on terms which permit
transfer by such Participant to (i) the spouse (or former spouse), children or grandchildren of the
Participant (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, (iii) a partnership in which the only partners are (1) such Immediate
Family Members and/or (2) entities which are controlled by Immediate Family Members, (iv) an entity
exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor
provision, or (v) a split interest trust or pooled income fund described in Section 2522(c)(2) of
the Code or any successor provision, provided that (x) there shall be no consideration for
any such transfer, (y) the Award Agreement pursuant to which such Nonqualified Stock Option or SAR
is granted must be approved by the Committee and must expressly provide for transferability in a
manner consistent with this Section, and (z) subsequent transfers of transferred Nonqualified Stock
Options or SARs shall be prohibited except those by will or the laws of descent and distribution.

     Following any transfer, any such Nonqualified Stock Option and SAR shall continue to be
subject to the same terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of

20

 

Articles 8, 9, 11, 13 and 15 hereof the term “Participant” shall be
deemed to include the transferee. The events of Termination of Service shall continue to be
applied with respect to the original Participant, following which the Nonqualified Stock Options
and SARs shall be exercisable or convertible by the transferee only to the extent and for the
periods specified in the Award Agreement. The Committee and the Company shall have no obligation
to inform any transferee of a Nonqualified Stock Option or SAR of any expiration, termination,
lapse or acceleration of such Stock Option or SAR. The Company shall have no obligation to
register with any federal or state securities commission or agency any Common Stock issuable or
issued under a Nonqualified Stock Option or SAR that has been transferred by a Participant under
this Section 15.7.

     15.8 Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Incentives
granted under this Plan shall constitute general funds of the Company.

     15.9 Legend. Each certificate representing shares of Restricted Stock issued to a Participant
shall bear the following legend, or a similar legend deemed by the Company to constitute an
appropriate notice of the provisions hereof (any such certificate not having such legend shall be
surrendered upon demand by the Company and so endorsed):

     On the face of the certificate:

“Transfer of this stock is restricted in accordance with
conditions printed on the reverse of this certificate.”

     On the reverse:

“The shares of stock evidenced by this certificate are
subject to and transferable only in accordance with that
certain Craftmade International, Inc. 2006 Long-Term
Incentive Plan, a copy of which is on file at the principal
office of the Company in Coppell, Texas. No transfer or
pledge of the shares evidenced hereby may be made except in
accordance with and subject to the provisions of said Plan.
By acceptance of this certificate, any holder, transferee or
pledgee hereof agrees to be bound by all of the provisions
of said Plan.”

     The following legend shall be inserted on a certificate evidencing Common Stock issued under
the Plan if the shares were not issued in a transaction registered under the applicable federal and
state securities laws:

“Shares of stock represented by this certificate have been
acquired by the holder for investment and not for resale,
transfer or distribution, have been issued pursuant to
exemptions from the registration requirements of applicable
state and federal securities laws, and may not be offered
for sale, sold or transferred other than pursuant to
effective registration under such laws, or in transactions
otherwise in compliance with such laws, and upon evidence
satisfactory to the Company of compliance with such laws, as
to which the Company may rely upon an opinion of counsel
satisfactory to the Company.”

21

 

     A copy of this Plan shall be kept on file in the principal office of the Company in Coppell,
Texas.

***************

22

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of
                                        , 2006, by its Chief Executive Officer and Secretary pursuant to prior
action taken by the Board.

	 	 	 	 	 	 	 
	 	 	CRAFTMADE INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

Attest:

                                                            

 

23exv10w2

 

Exhibit 10.2

INCENTIVE STOCK OPTION AGREEMENT

CRAFTMADE INTERNATIONAL, INC.

2006 LONG-TERM INCENTIVE PLAN

     1. Grant of Option. Pursuant to the 2006 Long-Term Incentive Plan (the “Plan”) of
Craftmade International, Inc., a Delaware corporation (the “Company”), the Company grants to

 

(the “Participant”),

an option to purchase shares of Common Stock (“Common Stock”) of the Company as follows:

On the date hereof, the Company grants to the Participant an option (the “Option” or
“Stock Option”)
to purchase                   
                       (                    ) full shares (the
“Optioned Shares”) of Common Stock at an
Option Price equal to $                  per share
(being the Fair Market Value of the Common Stock on this Date of Grant or 110% of
such Fair Market Value, in the case of a ten percent (10%) or more stockholder as
provided in Section 422 of the Code). (“Option Price”). The Date of Grant of this
Stock Option is                     .

The “Option Period” shall commence on the Date of Grant and shall expire on the date immediately
preceding the tenth (10th) anniversary of the Date of Grant (or the date immediately
preceding the fifth (5th) anniversary of the Date of Grant, in the case of a ten percent
(10%) or more stockholder as provided in Section 422 of the Code), unless terminated earlier in
accordance with Section 4 below. The Stock Option is intended to be an Incentive Stock
Option.

     2. Subject to Plan. The Stock Option and its exercise are subject to the terms and
conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise
inconsistent with the provisions of this Agreement. To the extent the terms of the Plan are
inconsistent with the provisions of this Agreement, this Agreement shall control. The capitalized
terms used herein that are defined in the Plan shall have the same meanings assigned to them in the
Plan. The Stock Option is subject to any rules promulgated pursuant to the Plan by the Board or
the Committee and communicated to the Participant in writing.

     3. Vesting; Time of Exercise. Except as specifically provided in this Agreement and
subject to certain restrictions and conditions set forth in the Plan, the Optioned Shares shall be
vested and the Stock Option shall be exercisable as follows:

     a.                      percent (___%) of the total Optioned Shares shall vest and that portion
of the Stock Option shall be exercisable on the first anniversary of the Date of Grant,
provided the Participant is employed by the Company or a Subsidiary on that date.

     b. An additional                      percent (___%) of the total Optioned Shares shall vest and
that portion of the Stock Option shall become exercisable on the second anniversary of the
Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that
date.

     c. An additional                      percent (___%) of the total Optioned Shares shall vest and
that portion of the Stock Option shall become exercisable on the third anniversary of the
Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that
date.

 

 

     d. The remaining                      percent (___%) of the total Optioned Shares shall vest and
that portion of the Stock Option shall become exercisable on the fourth anniversary of the
Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that
date.

Notwithstanding the foregoing, one hundred percent (100%) of any unvested Optioned Shares shall
vest and that portion of the Stock Option shall become exercisable immediately prior to the
effective date of a Change in Control.

     4. Term; Forfeiture.

     a. Except as otherwise provided in this Agreement, to the extent the unexercised
portion of the Stock Option relates to Optioned Shares which are not vested on the date of
the Participant’s Termination of Service, the Stock Option will be terminated on that date.
The unexercised portion of the Stock Option that relates to Optioned Shares which are vested
will terminate at the first of the following to occur:

     i. 5 p.m. on the date the Option Period terminates;

     ii. 5 p.m. on the date which is twelve (12) months following the date of the
Participant’s Termination of Service due to death or Total and Permanent Disability;

     iii. 5 p.m. on the date of the Participant’s Termination of Service by the
Company for cause (as defined herein);

     iv. 5 p.m. on the date which is ninety (90) days following the date of the
Participant’s Termination of Service for any reason not otherwise specified in this
Section 4.a.;

     v. 5 p.m. on the date the Company causes any portion of the Option to be
forfeited pursuant to Section 7 hereof.

     b. For purposes hereof, “cause” shall mean the Participant’s Termination of Service
upon the occurrence of any of the following events: (i) any act of fraud, misappropriation
or embezzlement by the Participant with respect to any aspect of the Company’s business;
(ii) the material breach by the Participant of any provisions in his or her employment
agreement, which, if curable, the Participant fails to cure in all material respects within
thirty (30) days after written notice thereof from the Board or its designee; (iii) the
conviction of the Participant by a court of competent jurisdiction of a felony or a crime
involving moral turpitude; (iv) the intentional failure by the Participant to perform in all
material respects his or her duties and responsibilities (other than as a result of death or
Total and Permanent Disability) and the failure of the Participant to cure the same in all
material respects within thirty (30) days after written notice thereof from the Board or its
designee; or (v) the illegal use of drugs by the Participant during the term of his or her
employment that, in the determination of the Board, substantially interferes with the
Participant’s performance of his or her duties.

     5. Who May Exercise. Subject to the terms and conditions set forth in Sections 3
and 4 above, during the lifetime of the Participant, the Stock Option may be exercised only by
the Participant, or by the Participant’s guardian or personal or legal representative. If the
Participant’s Termination of Service is due to his or her death prior to the termination dates
specified in Section 4 hereof, and the Participant has not exercised the Stock Option as to
the maximum number of vested Optioned Shares as set forth in Section 3

2

 

hereof as of the
date of death, the following persons may exercise the exercisable portion of the Stock Option on
behalf of the Participant at any time prior to the earliest of the dates specified in Section 4
hereof: the personal representative of his or her estate, or the person who acquired the right to
exercise the Stock Option by bequest or inheritance or by reason of the death of the Participant;
provided that the Stock Option shall remain subject to the other terms of this Agreement, the Plan,
and applicable laws, rules, and regulations.

     6. No Fractional Shares. The Stock Option may be exercised only with respect to full
shares, and no fractional share of stock shall be issued.

     7. Manner of Exercise. Subject to such administrative regulations as the Committee
may from time to time adopt, the Stock Option may be exercised by the delivery of written notice to
the Committee setting forth the number of shares of Common Stock with respect to which the Stock
Option is to be exercised, the date of exercise thereof (the “Exercise Date”), which shall be at
least three (3) days after giving such notice unless an earlier time shall have been mutually
agreed upon. On the Exercise Date, the Participant shall deliver to the Company consideration with
a value equal to the total Option Price of the shares to be purchased, payable as follows: (a)
cash or check, bank draft, or money order payable to the order of the Company; (b) Common Stock
(including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair
Market Value on the Exercise Date, and which the Participant has not acquired from the Company
within six (6) months prior to the Exercise Date; (c) by delivery (including by FAX) to the Company
or its designated agent of an executed irrevocable option exercise form together with irrevocable
instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to
sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge
such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan
proceeds necessary to pay such purchase price; and/or (d) in any other form of valid consideration
that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted
Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of
Common Stock issued upon the exercise of the Stock Option equal to the number of shares of
Restricted Stock used as consideration therefor shall be subject to the same restrictions and
provisions as the Restricted Stock so tendered.

     Upon payment of all amounts due from the Participant, the Company shall cause certificates for
the Optioned Shares then being purchased to be delivered to the Participant (or the person
exercising the Participant’s Stock Option in the event of his or her death) at its principal
business office promptly after the Exercise Date; provided that the Company may at its option
retain physical possession of the certificate evidencing the Optioned Shares until the expiration
of the holding periods described in Section 422(a)(1) of the Code. The obligation of the Company to
deliver shares of Common Stock shall, however, be subject to the condition that if at any time the
Company shall determine in its discretion that the listing, registration, or qualification of the
Stock Option or the Optioned Shares upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is necessary as a condition of, or
in connection with, the Stock Option or the issuance or purchase of shares of Common Stock
thereunder, then the Stock Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or obtained free of any
conditions not reasonably acceptable to the Committee.

     If the Participant fails to pay for any of the Optioned Shares specified in such notice or
fails to accept delivery thereof, then the Company may, in its sole discretion, cause the
Participant to forfeit the Stock Option, and right to purchase such Optioned Shares.

     8. Disqualifying Disposition. In the event that Common Stock acquired upon exercise
of this Stock Option is disposed of by the Participant in a “Disqualifying Disposition,” such
Participant shall notify the Company in writing immediately upon disposition of the date and terms
of such disposition. For purposes

3

 

of this Agreement, “Disqualifying Disposition” shall mean a
disposition of Common Stock acquired upon the exercise of this Stock Option prior to the expiration
of either two years from the Date of Grant of such Stock Option or
one year from the transfer of shares to the Participant pursuant to the exercise of such Stock
Option. The Participant acknowledges that he or she may be subject to income tax withholding by
the Company on compensation income recognized upon a Disqualifying Disposition.

     9. Nonassignability. The Stock Option is not assignable or transferable by the
Participant except by will or by the laws of descent and distribution.

     10. Rights as Stockholder. The Participant will have no rights as a stockholder with
respect to any shares covered by the Stock Option until the issuance of a certificate or
certificates to the Participant for the Optioned Shares. The Optioned Shares shall be subject to
the terms and conditions of this Agreement regarding such Optioned Shares. Except as otherwise
provided in Section 11 hereof, no adjustment shall be made for dividends or other rights
for which the record date is prior to the issuance of such certificate or certificates.

     11. Adjustment of Number of Optioned Shares and Related Matters. The number of shares
of Common Stock covered by the Stock Option, and the Option Prices thereof, shall be subject to
adjustment in accordance with Articles 11 — 13 of the Plan.

     12. Compliance with Section 422 of the Code. This Stock Option Agreement and the
Stock Option evidenced hereby are intended to comply with the provisions of Section 422 of the
Code, and the regulations thereunder with respect to incentive stock options, and the provisions of
this Stock Option Agreement shall be construed to effectuate such intention.

     13. Voting. The Participant, as record holder of some or all of the Optioned Shares
following exercise of this Stock Option, has the exclusive right to vote, or consent with respect
to, such Optioned Shares until such time as the Optioned Shares are transferred in accordance with
this Agreement; provided, however, that this Section 13 shall not create
any voting right where the holders of such Optioned Shares otherwise have no such right.

     14. Simultaneous Death. If the Participant and his or her spouse both suffer a common
accident or casualty which results in their respective deaths within 60 days of each other, it
shall be conclusively presumed, for the purpose of this Agreement, that the Participant died first
and the spouse died thereafter.

     15. Specific Performance. The parties acknowledge that remedies at law will be
inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall
be enforceable by specific performance. The remedy of specific performance shall be cumulative of
all of the rights and remedies at law or in equity of the parties under this Agreement.

     16. Participant’s Representations. Notwithstanding any of the provisions hereof, the
Participant hereby agrees that he or she will not exercise the Stock Option granted hereby, and
that the Company will not be obligated to issue any shares to the Participant hereunder, if the
exercise thereof or the issuance of such shares shall constitute a violation by the Participant or
the Company of any provision of any law or regulation of any governmental authority. Any
determination in this connection by the Company shall be final, binding, and conclusive. The
obligations of the Company and the rights of the Participant are subject to all applicable laws,
rules, and regulations.

     17. Investment Representation. Unless the Common Stock is issued to him or her in a
transaction registered under applicable federal and state securities laws, by his or her execution
hereof, the

4

 

Participant represents and warrants to the Company that all Common Stock which may be
purchased hereunder will be acquired by the Participant for investment purposes for his or her own
account and not with any intent for resale or distribution in violation of federal or state
securities laws. Unless the Common Stock is issued to him or her in
a transaction registered under the applicable federal and state securities laws, all
certificates issued with respect to the Common Stock shall bear an appropriate restrictive
investment legend and shall be held indefinitely, unless they are subsequently registered under the
applicable federal and state securities laws or the Participant obtains an opinion of counsel, in
form and substance satisfactory to the Company and its counsel, that such registration is not
required.

     18. Participant’s Acknowledgments. The Participant acknowledges that a copy of the
Plan has been made available for his or her review by the Company, and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts this Option subject to all the
terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and
final all decisions or interpretations of the Committee or the Board, as appropriate, upon any
questions arising under the Plan or this Agreement.

     19. Law Governing. This Agreement shall be governed by, construed, and enforced in
accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle
of Delaware law that might refer the governance, construction, or interpretation of this agreement
to the laws of another state).

     20. No Right to Continue Service or Employment. Nothing herein shall be construed to
confer upon the Participant the right to continue in the employ or to provide services to the
Company or any Subsidiary, whether as an Employee or as a Consultant or as an Outside Director, or
interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the
Participant as an Employee, Consultant or Outside Director at any time.

     21. Legal Construction. In the event that any one or more of the terms, provisions,
or agreements that are contained in this Agreement shall be held by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid,
illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision,
or agreement that is contained in this Agreement and this Agreement shall be construed in all
respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been
contained herein.

     22. Covenants and Agreements as Independent Agreements. Each of the covenants and
agreements that are set forth in this Agreement shall be construed as a covenant and agreement
independent of any other provision of this Agreement. The existence of any claim or cause of
action of the Participant against the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Company of the covenants and agreements
that are set forth in this Agreement.

     23. Entire Agreement. This Agreement together with the Plan supersede any and all
other prior understandings and agreements, either oral or in writing, between the parties with
respect to the subject matter hereof and constitute the sole and only agreements between the
parties with respect to the said subject matter. All prior negotiations and agreements between the
parties with respect to the subject matter hereof are merged into this Agreement. Each party to
this Agreement acknowledges that no representations, inducements, promises, or agreements, orally
or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement or the Plan and that any agreement, statement or promise that is not
contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

5

 

     24. Parties Bound. The terms, provisions, and agreements that are contained in this
Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their
respective heirs, executors, administrators, legal representatives, and permitted successors and
assigns, subject to the limitation on assignment expressly set forth herein.

     25. Modification. No change or modification of this Agreement shall be valid or
binding upon the parties unless the change or modification is in writing and signed by the parties;
provided, however, that the Company may change or modify this Agreement without the Participant’s
consent or signature if the Company determines, in its sole discretion, that such change or
modification is necessary for purposes of compliance with or exemption from the requirements of
Section 409A of the Code or any regulations or other guidance issued thereunder. Notwithstanding
the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.

     26. Headings. The headings that are used in this Agreement are used for reference and
convenience purposes only and do not constitute substantive matters to be considered in construing
the terms and provisions of this Agreement.

     27. Gender and Number. Words of any gender used in this Agreement shall be held and
construed to include any other gender, and words in the singular number shall be held to include
the plural, and vice versa, unless the context requires otherwise.

     28. Notice. Any notice required or permitted to be delivered hereunder shall be
deemed to be delivered only when actually received by the Company or by the Participant, as the
case may be, at the addresses set forth below, or at such other addresses as they have theretofore
specified by written notice delivered in accordance herewith:

	 	 	 	 	 	 	 	 	 
	 	 	a.	 	Notice to the Company shall be addressed and delivered as follows:
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Craftmade International, Inc.	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Attn:                                                                 	 	 
	 	 	 	 	Facsimile: (____)                                                            	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	b.	 	Notice to the Participant shall be addressed and delivered as set forth on the signature page.

     29. Tax Requirements. The Participant is hereby advised to consult immediately with
his or her own tax advisor regarding the tax consequences of this Agreement. The Company or, if
applicable, any Subsidiary (for purposes of this Section 29, the term “Company” shall be
deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid
hereunder in cash or other form, any Federal, state, local, or other taxes required by law to be
withheld in connection with this Award. The Company may, in its sole discretion, also require the
Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of
any taxes that the Company is required to withhold in connection with the Participant’s income
arising with respect to the Award. Such payments shall be required to be made when requested by
Company and may be required to be made prior to the delivery of any certificate representing shares
of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount
that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required
tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so
consents in writing, the actual delivery by the exercising Participant to the Company of shares of
Common Stock that the Participant

6

 

has not acquired from the Company within six (6) months prior to
the date of exercise, which shares so delivered have an aggregate Fair Market Value that equals or
exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding
payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s
withholding of a number of shares to be delivered upon the exercise of this Stock Option, which
shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required
tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, in its
sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the
Company to the Participant.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly
authorized officer, and the Participant, to evidence his or her consent and approval of all the
terms hereof, has duly executed this Agreement, as of the date specified in Section 1
hereof.

	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	CRAFTMADE INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	PARTICIPANT:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

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Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]