Document:

EXHIBIT 10.7

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of the 7th day of February, 2005, by and between Heritage Bankshares, Inc., a Virginia corporation (hereinafter referred to as “Bankshares”), Heritage Bank & Trust, a Virginia corporation, and Michael S. Ives (the “Executive”).  

RECITALS

          Bankshares desires to employ Executive on the terms and conditions set forth herein, and Executive desires to be employed under the terms and conditions of this Agreement.

          NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and for other good and valuable consideration, the receipt and adequacy whereof each party hereby acknowledges, Bankshares and Executive hereby agree as follows:

          1.          DEFINITIONS:  Except as otherwise expressly provided in this Agreement, the following terms shall have the following meanings for all purposes of this Agreement: 

                       (a)     Accounting Firm means Bankshares’ independent accounting firm immediately prior to a Change of Control.

                       (b)     Base Salary means the annual compensation specified in Section 4 below. 

                       (c)     Cause means any of the reasons listed in Section 9(d) below for which this Agreement may be terminated or Executive may be discharged prior to the end of the Term hereof.

                       (d)     Change of Control means a change in the ownership or effective control of Bankshares or in the ownership of a substantial portion of the assets of Bankshares and shall be deemed to have occurred upon the occurrence of any of the following events.

                                  (1)     The acquisition by any “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the Exchange Act) (other than Bankshares, any Subsidiary or any Bankshares or Subsidiary’s employee benefit plan), directly or indirectly, as “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of

securities of Bankshares representing thirty-five percent (35%) or more of either the then outstanding shares or the combined voting power of the then outstanding securities of Bankshares, but excluding for this purpose any such acquisition by any corporation with respect to which, following the acquisition, the outstanding common stock of Bankshares immediately prior thereto continues to represent (either by remaining outstanding or being converted into common stock of the surviving entity or a parent or affiliate thereof) more than fifty percent (50%) of the outstanding common stock of Bankshares or such surviving entity or a parent or affiliate thereof outstanding immediately after the acquisition;

                                  (2)     Either a majority of the directors of Bankshares elected at Bankshares’ annual stockholders meeting shall have been nominated for election other than by or at the direction of the “incumbent directors” of Bankshares, or the “incumbent directors” shall cease to constitute a majority of the directors of Bankshares.  The term “incumbent director” shall mean any director who was a director of Bankshares on February 7 2005 and any individual who becomes a director of Bankshares subsequent to February 7, 2005 and who is elected or nominated by or at the direction of at least two-thirds of the then incumbent directors; 

                                  (3)     The shareholders of Bankshares approve (x) a merger, consolidation or other business combination of Bankshares with any other “person” or “group” (as defined in or pursuant to Sections 13(d) and 14(d) of the 1934 Act) or affiliate thereof, other than a merger or consolidation that would result in the outstanding common stock of Bankshares immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) more than fifty percent (50%) of the outstanding common stock of Bankshares or such surviving entity or a parent or affiliate thereof outstanding immediately after such merger, consolidation or
other business combination, or (y) a plan of complete liquidation of Bankshares or an agreement for the sale or disposition by Bankshares of all or substantially all of Bankshares’ assets; 

                                  (4)     A Change of Control as defined in Section 280G of the Code; or

                                  (5)     Any other event or circumstance which is not covered by the foregoing subsections but which the Board of Directors of Bankshares determines to affect control of Bankshares and with respect to which the Board of Directors adopts a resolution that the event or circumstance constitutes a Change of Control for purposes of this Agreement; or

                                            The date of a Change of Control described herein is the date on which an event described above in this Section 1(d) occurs. 

                       (e)     Code means the Internal Revenue Code of 1986, as amended.

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                       (f)     Exchange Act means the Securities Exchange Act of 1934, as amended.

                       (g)     Excise Tax means the excise tax imposed by Section 4999 of the Code, together with any interest or penalties imposed with respect to that tax.

                       (h)     Good reason means the occurrence of any of the conditions listed in Section 9(f) below which is followed by the resignation of Executive within twelve (12) months after such occurrence.

                       (i)     Gross-Up Payment means an amount paid to Executive with respect to the Excise Tax pursuant to Section 10(f).

                       (j)     Health Coverage Continuation means continuation of Executive’s health insurance benefits coverage as described in Section 7 below and to the extent provided in Section 9 below until Executive attains age sixty-five (65).  This Health Coverage Continuation is subject to Executive’s payment of the cost of coverage at the rate that is in effect from time to time for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), or if greater, the rate charged for Executive’s coverage under any applicable insurance policy.  Bankshares shall use its best efforts to continue Executive’s health insurance coverage, including, but not limited to, creating a new class of covered employees, consultants or
retirees which includes the Executive, but in its efforts, Bankshares shall not be required to extend coverage to employees (other than Executive) who have terminated employment with Bankshares or any Subsidiary.

                       (k)     Payment means any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of Executive, whether paid or payable pursuant to this Agreement or otherwise pursuant to any plan, agreement or understanding between Executive and Bankshares.

                       (l)     Resignation for good reason means resignation by Executive in accordance with the provisions of Section 9(f) below.

                       (m)     Restricted Period means a period ending on the later of (1) twelve (12) months after Executive’s resignation or other voluntary termination of employment pursuant to Section 9(c) below or Executive’s termination for cause pursuant to Section 9(d) below; or (2) the end of any period during which Executive’s Base Salary is continued after his termination of employment with Bankshares.

                       (n)     Severance pay means an amount paid to Executive pursuant to Section 10(a) in the event he is terminated without cause following a Change of Control or resigns for good reason following a Change of Control.

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                       (o)     Subsidiary means any corporation at least a majority of the stock of which is owned by Bankshares, either directly or through one or more other Subsidiaries, and any other entity controlled, directly or indirectly, by Bankshares or any other Subsidiary.

                       (p)     Term means the term of this Agreement specified in Section 3 below, and all renewals and extensions thereof.

                       (q)     Termination for cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 9(d) below for any of the reasons listed therein. 

                       (r)     Termination without cause means discharge of Executive prior to the end of the Term in accordance with the provisions of Section 9(e) below.

          2.          EMPLOYMENT: 

                       (a)     During the Term, Executive shall be employed as the President and Chief Executive Officer of Bankshares and Heritage Bank & Trust and shall perform such services for Bankshares and/or one or more Subsidiaries as may be assigned to Executive by Bankshares from time to time upon the terms and conditions hereinafter set forth.  Executive’s services shall be rendered in a chief executive capacity and shall be of the type for which Executive is suited by background and training.  Executive’s duties shall include Executive’s serving as a director of Bankshares and Heritage Bank & Trust for which Executive shall not be compensated except pursuant to Executive’s compensation under this Agreement.  Executive agrees that, during the Term of Executive’s
employment under this Agreement, he will devote his full business time and energy to the business, affairs and interests of Bankshares and serve diligently and to the best of his ability.  Notwithstanding anything in this Agreement to the contrary, the parties to this Agreement recognize that during the period from February 7, 2005 until April 1, 2005, the Executive shall fulfill various personal commitments and the Executive will devote as much of his time and energy to the business of Bankshares as the Executive determines but that such commitment shall not be full time.  Executive may serve as a director, trustee or officer of other corporations and entities, including without limitation charitable organizations, and engage in other activities (including without limitation service with the Virginia Bankers Association and the City of Norfolk, Virginia) to the extent those activities and services do not inhibit the performance of Executive’s duties hereunder or conflict with the
business of Bankshares or any Subsidiary or any other affiliate of Bankshares or a Subsidiary.   

                       (b)     References in this Agreement to services rendered for Bankshares and compensation, benefits, indemnification and liability insurance payable or provided by Bankshares shall include services rendered for and compensation, benefits, indemnification and liability insurance payable or provided by any Subsidiary, and references in this Agreement to “Bankshares” shall mean and refer to each “Subsidiary” for which Executive performs services, as the context may require.

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          3.          TERM:  The initial term of this Agreement shall begin on February 7, 2005 and end on December 31, 2009.  Executive and Bankshares shall commence confidential discussions in 2007 for the purpose of determining whether, and if so on what terms, to renew this Agreement for a three year period following the end of the initial Term, and such determination and renewal, if any, shall be complete by December 31, 2007.  If this Agreement is renewed or renegotiated through December 31, 2012, then the Executive and Bankshares may extend the renewed or renegotiated agreement annually.

          4.          BASE SALARY:  Beginning April 1, 2005, Executive shall receive initial Base Salary at the rate of $200,000 per year, payable in substantially equal installments no less frequently than monthly (less any amounts withheld as required by law or pursuant to any benefits plan).  At least annually, Bankshares shall review and, in its sole discretion, may increase Executive’s Base Salary.  If the Executive’s Base Salary is increased by Bankshares, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement and such Base Salary shall not be reduced during the Term of this Agreement.

          5.          ANNUAL INCENTIVE BONUS:  Executive shall have the opportunity to earn an annual incentive bonus during each calendar year in the Term.  Executive’s bonus shall be based upon Executive’s performance during the applicable year.  Executive’s bonus for 2005 shall be determined by the Board of Directors of Bankshares on the basis of subjective performance factors determined in its discretion and such bonus shall be no greater than 35% of Base Salary paid during 2005.  During 2006 and subsequent calendar years in the Term, Executive’s bonus shall be based on Executive’s and Bankshares’ achievement of certain performance goals and objectives mutually agreed upon in good faith by Executive and the Board during 2005 and in advance of each subsequent calendar year in the Term.  Assuming
Executive meets at least 90% of said goals and objectives, Executive’s bonus shall be 15% of Base Salary paid during the applicable year.  Executive’s bonus shall be 25% of Base Salary paid during the applicable year if Executive meets the established goals and objectives, and shall be  35% of Base Salary paid during the applicable year if Executive exceeds the goals and objectives by 110%.  The Board and Executive shall agree to make pro rata adjustments to the bonus percentages to be paid according to the actual percentage of the goals attained, e.g., if 92% of the goals and objectives are attained, Executive’s bonus shall be 17%.

          6.          STOCK OPTIONS:

                       (a)     Pursuant to Bankshares’ current stock option plan, Bankshares shall grant Executive a fully-vested option to purchase 30,000 shares of Bankshares’ common stock on February 8, 2005 and the exercise price shall be the weighted average of the 

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reported sales price for the thirty (30) calendar days ending on February 7, 2005 to be determined by multiplying each day’s average reported price of such stock by such day’s reported sales volume.  To the extent not exercised, this option shall be cancelled and reissued if the price of a share of Bankshares’ common stock at a public offering is less than the exercise price determined on the date of grant.  All other terms of the reissued option shall be the same as those contained in the cancelled option.  The option shall qualify as an incentive stock option pursuant to Section 422 of the Code to the maximum extent possible.  The portion of the option that does not satisfy the incentive stock option requirements shall be treated as a nonqualified stock option pursuant to Section 83 of the Code and the regulations thereunder.  In no event shall failure to qualify as an incentive stock option preclude the grant of the
option.  The Board of Directors of Bankshares shall issue a grant letter on February 8, 2005 containing the material terms described herein that shall govern this option.  A form of the option agreement shall be attached to the grant letter.   Executive shall purchase at least $750,000 of Bankshares’ common stock at a public offering of shares of Bankshares common stock (after consideration of any friends and family discounts available in marketing the offering), or by private sale if no offering is completed by December 31, 2005, provided, however, that a purchase by private sale shall be subject to the availability of such shares and the Executive’s reasonable determination that the price at which such shares are offered is acceptable to the Executive.   Executive shall use his best efforts to complete the private sale if there is no public offering. 

                       (b)     Upon the effective date of the stock option plan that Bankshares agrees to adopt in 2005, and on the first business day in January, 2006, and in each January thereafter during the Term, Bankshares shall grant Executive an option to purchase 10,000 shares of Bankshares’ common stock (totalling 50,000 shares during the initial Term).  The options shall qualify as incentive stock options pursuant to Section 422 of the Code to the maximum extent possible.  These annual grants and any cancellation and reissuance of Executive’s option for 30,000 shares pursuant to Section 6(a) above shall be subject to the implementation of a revised stock option plan authorizing these grants and the provisions for cancellation and reissuance that is approved by the shareholders of Bankshares
and shall also be subject to the registration of the shares subject to these options with the Securities and Exchange Commission, and Bankshares shall employ its best efforts to effect these contingencies.  If the implementation date of the revised stock option plan is delayed, then upon implementation Bankshares shall issue an option for the cumulative number of shares that would have been issued had the revised stock option plan been implemented in 2005.  

                       (c)     All shares of Bankshares’ common stock subject to the options granted pursuant to this Section 6 shall have a purchase price equal to the fair market value of shares of Bankshares’ common stock on the respective dates of grant.  For this purpose, fair market value shall be determined according to the definition of fair market value under Bankshares’ stock option plan unless Executive and Bankshares shall agree to a different definition.

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                       (d)     The options granted pursuant to this Section 6 shall expire ten (10) years after the date of grant.  The options granted pursuant to Section 6(b) above shall generally vest and become exercisable at the rate of twenty percent (20%) on December 31 of the year granted and on each subsequent December 31 until fully vested.  In the event of Executive’s termination by Bankshares without cause, Executive’s resignation for good reason, Executive’s death or permanent disability under Section 9(a) below, or upon a Change of Control, all options granted shall become fully vested immediately.  All options granted pursuant to this Section 6 that are fully vested upon Executive’s termination of employment shall remain exercisable for two (2) years following such
termination, except that in the event of Executive’s resignation or other voluntary termination of employment pursuant to Section 9(c) below or Executive’s termination by Bankshares for cause pursuant to Section 9(d) below, the vested options shall remain exercisable for six (6) months only following any such termination. 

          7.          OTHER BENEFITS AND REIMBURSEMENTS:  During the Term of employment under this Agreement, Executive shall participate or be entitled to participate in any pension, group insurance, hospitalization, incentive or deferred compensation and other benefit or compensation plans of Bankshares presently in effect or hereafter adopted and generally available to all employees of senior executive status; provided, that Executive’s participation in annual bonus and stock option plans shall be governed by Sections 5 and 6 above.  Executive shall also be entitled to any additional compensation, benefits or perquisites, if any, that may be provided specifically to or for Executive by Bankshares from time to time.  During the Term, to the extent that Executive’s expenditures are substantiated by Executive as required by
corporate policies, Executive shall be reimbursed promptly for all expenditures (including travel, entertainment, parking and business meetings) made in pursuance and furtherance of the business and good will of Bankshares.  Bankshares acknowledges that Executive’s principal duties include his serving as the face of Bankshares and its Subsidiaries to the community, and thus that Executive can be anticipated to incur and shall be reimbursed for substantial expenditures arising from Executive’s marketing efforts.  Bankshares further acknowledges that Executive’s civic involvement is of importance to its business and goodwill.  Executive may employ Bankshares’ property, materials and personnel in community, cultural and similar matters, and in addition, in incidental private personal matters, subject in all cases to any reasonable limitations that the Board of Directors of Bankshares may prescribe.  Without limiting the foregoing, Executive shall be entitled to the
following benefits and perquisites:

                       (a)     Executive shall be entitled to four (4) weeks paid vacation per year beginning April 1, 2005, and Executive may accrue and carry over unused vacation time from year to year during the Term.  Executive may accelerate one (1) week of paid vacation to a year from the next following year.  Executive shall be paid for his accrued and unused vacation time upon termination of employment for any reason.

                       (b)     Executive shall accrue the greater of:  (i) the number of days of sick leave that may be accrued according to Bankshares’ policy for all employees beginning April 1, 2005 through the Term of this Agreement, or (ii) two (2) days of sick leave per month beginning April 1, 2005 through December 31, 2005 and one and one-half (1-1/2) days of sick leave per month thereafter during the Term, and Executive may carry over unused sick leave from year to year during the Term.  Executive shall be paid for his accrued and unused sick leave upon termination of employment for any reason.

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                       (c)     During the Term, Bankshares shall provide Executive with (1) a $500 monthly automobile allowance; (2) payment of Executive’s membership dues at the Town Point Club; and (3) a personal laptop computer for his exclusive use.

                       (d)     Executive’s reasonable expenses for attendance at meetings of the Virginia Bankers’ Association and similar trade groups shall be reimbursed by Bankshares.  Executive’s time and attendance at any such meetings, at functions of the Norfolk Retirement System, and at functions promoted or sponsored by other civic endeavors as are approved by Bankshares’ Board of Directors, shall be considered as performance of the Executive’s duties and shall not be treated as a use of Executive’s vacation time, even if such meetings or functions span multiple days and are held in locations outside of South Hampton Roads.

                       (e)     Executive shall be provided the services of an Executive Assistant.  The duties of the Executive Assistant shall include assisting the Executive with his duties as Chief Executive Officer, President and Director, his charitable and civic obligations, and incidental personal items.

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          8.          INDEMNIFICATION:

                       (a)     Bankshares and each bank Subsidiary for which Executive provides services shall indemnify and hold Executive harmless from and against all liability and expense resulting from (1) all acts or omissions of Executive while acting in the capacity of a director, officer, trustee, or fiduciary and/or employee of Bankshares and its Subsidiaries during Executive’s employment as such director, officer, and/or employee and (2) acts or omissions of Bankshares and its Subsidiaries occurring or alleged to have occurred during or prior to Executive’s employment, on terms and conditions no less favorable to Executive than the terms and conditions providing for indemnification of officers and directors under the Articles or Certificate of Incorporation and the Bylaws of Bankshares and each such
Subsidiary as in effect on the date of this Agreement.  If the Articles or Certificate of Incorporation or the Bylaws of Bankshares and/or each such Subsidiary are hereafter amended to provide officers and directors with broader or greater rights of indemnification, Bankshares and each such Subsidiary acknowledge and agree that Executive shall be indemnified and held harmless under such broader or greater rights of indemnification and, further, that in no event shall Executive be entitled to any lesser rights of indemnification than would be available to Executive under such Articles or Certificate of Incorporation and/or Bylaws on the date of this Agreement.

                       (b)     To the maximum extent permitted by applicable law as in effect on the date of this Agreement and without abridging or limiting the right of indemnification provided under Section 8(a) above, Bankshares and each bank Subsidiary for which Executive provides services shall indemnify and hold Executive harmless from and against all liability and expense resulting from (1) all acts or omissions of Executive while acting in the capacity of a director, officer, trustee, fiduciary and/or employee of Bankshares and its Subsidiaries during Executive’s employment as such officer and director and (2) acts or omissions of Bankshares and its Subsidiaries occurring or alleged to have occurred during or prior to Executive’s employment.  If applicable laws relating to the indemnification of
officers and directors (including, without limitation, the rules and regulations of the appropriate primary federal or state banking agency for Bankshares and each bank Subsidiary for which Executive provides services) are hereafter amended to provide officers and directors with broader or greater rights of indemnification than is provided under Section 8(a) above or this Section 8(b), Bankshares and each such Subsidiary acknowledge and agree that Executive shall be indemnified and held harmless under such broader or greater rights of indemnification and, further, that in no event shall Executive be entitled to any lesser rights of indemnification than are presently available to Executive under Section 8(a) above or this Section 8(b) on the date of this Agreement.  Bankshares and Executive further acknowledge and agree that it is the intention of the parties that Executive shall be entitled to indemnification as set forth under Section 8(a) above and this
Section 8(b) to the greatest extent possible under either the Articles or Certificate of Incorporation and the Bylaws of Bankshares and each bank Subsidiary for which Executive performs services or applicable law as in effect on the date of this Agreement or as hereafter amended from time to time to provide broader or greater rights of indemnification.

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                       (c)     Bankshares shall carry Directors and Officers Liability Insurance in such amounts as the Board of Directors in its discretion deems appropriate, and any payments made under such policy to Executive or on Executive’s behalf shall be offset against the indemnification obligation set forth in Section 8(a) and Section 8(b) above.  Notwithstanding the foregoing, the indemnification provided by Section 8(a) and Section 8(b) above shall not apply, and Executive shall not be indemnified, with respect to any acts or omissions which constitute wanton or willful misconduct or willful gross negligence.

                       (d)     The indemnity obligation set forth in this Section 8 shall be subject to the prohibitions and limitations established by applicable law and as set forth in applicable regulations adopted by any federal or state bank regulatory agency having jurisdiction over Bankshares or any bank Subsidiary.

                       (e)     The provisions of this Section 8 shall survive termination of this Agreement. 

          9.          TERMINATION:  Executive’s employment under this Agreement may be terminated under any of the following conditions. 

                       (a)     Disability:  If Executive is unable to perform the essential functions of Executive’s job (as described in this Agreement) on a full-time basis for a period of six (6) consecutive months (or for such shorter period ending with Executive’s eligibility for and receipt of long-term disability benefits under an insurance policy or employee benefit plan provided or made available to Executive by Bankshares) by reason of illness or other physical or mental disability, Bankshares shall have the right to terminate Executive’s employment under this Agreement by giving Executive thirty (30) days written notice thereof.  If Executive’s employment is so terminated, Executive shall be paid any salary and benefits to which Executive may be entitled until the end of the
payroll period in which the date of termination occurs, and thereafter, Bankshares shall have no further obligation for additional compensation and benefits under this Agreement, except that Executive shall be entitled to Health Coverage Continuation and to payment for accrued and unused vacation and sick leave.  During the six month period of continuous disability and until the Executive’s termination of employment because of disability, Bankshares shall grant any options and vest any options that are scheduled to be granted or vested pursuant to Section 6. A condition of disability shall be determined by the Board of Directors of Bankshares on the basis of competent evidence.  A written opinion of a licensed physician certified in his field of specialization and acceptable to the Board, or Executive’s entitlement to or receipt of long-term disability benefits under any insurance policy or employee benefit plan provided or made available to Executive by Bankshares or under Federal
Social Security law, shall be conclusive evidence of disability. 

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                       (b)     Death:  In the event of Executive’s death during the Term of this Agreement, Executive’s estate, legal representatives or named beneficiaries (as directed by Executive in writing) shall be paid compensation at the rate in effect at the time of Executive’s death for a period of one (1) month after the date of Executive’s death and shall be paid for accrued and unused vacation and sick leave. 

                       (c)     Resignation By Executive:  If Executive resigns or voluntarily leaves the employ of Bankshares, other than under circumstances treated as resignation for good reason, then Executive shall be in breach of this Agreement and, without limiting the generality of the foregoing, the obligations of Bankshares to Executive shall terminate, except for the obligation to pay any accrued and unpaid salary, vacation and sick leave as of the date of such resignation and to provide Health Coverage Continuation.

                       (d)     Termination For Cause:  The Board of Directors of Bankshares may, in its sole discretion and after compliance with the notice and hearing procedures contained in this Section 9(d), terminate Executive’s employment for breach upon the occurrence of any of the following:

                                 (1)     Continued and willful neglect by Executive of Executive’s duties for or on behalf of Bankshares or any of its Subsidiaries;

                                 (2)     Executive’s willful disregard of the directions of Bankshares’ Board of Directors in a matter material to the operations of Bankshares;

                                 (3)     Willful misconduct of Executive in connection with the performance of any of Executive’s duties, including, by way of example, but not limitation, misappropriation of funds or property of Bankshares or its Subsidiaries or a Subsidiary’s depositors or borrowers, securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of Bankshares or its Subsidiaries to the prejudice of Bankshares or its Subsidiaries; 

                                 (4)     Conduct by Executive which results in Executive’s suspension and/or temporary prohibition or removal and/or permanent prohibition from participation in the conduct of the affairs of Bankshares or a Subsidiary pursuant to the rules and regulations of the primary federal or state banking agency for Bankshares or the Subsidiary or any other federal or state banking agency having regulatory jurisdiction over Bankshares or the Subsidiary;

                                 (5)     Conviction of Executive of a felony or any misdemeanor involving moral turpitude; 

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                                 (6)     Willful violation of any code of conduct or standards of ethics applicable to employees of Bankshares that results in material and demonstrable damage to the business or reputation of Bankshares; or 

                                 (7)     The issuance of a permanent injunction or similar remedy against Executive preventing Executive from executing or performing all or part of this Agreement.

                                           Executive shall not be terminated for cause unless and until (x) there shall have been delivered to Executive a notice of termination from Bankshares (after reasonable notice to Executive and an opportunity for Executive, together with Executive’s counsel, to be heard before Bankshares’ Board of Directors) accompanied by a resolution duly adopted by a majority of the directors (other than Executive) of Bankshares then in office, finding that, in the good faith opinion of such directors, cause (as set forth above in this Section 9(d)) exists and specifying the particulars thereof in detail, and (y) Executive shall have failed to cure any such cause within thirty (30) days after Executive’s
receipt of the notice of termination.  Nothing in such notice or such resolution or specifications shall be used by Executive as grounds for any claim (A) against any director who acts in good faith in connection therewith or (B) against Bankshares unless one or more of the directors voting for such resolution has acted in bad faith in connection therewith (but nothing herein shall preclude Executive from contesting any allegation or finding that cause existed or from pursuing any available remedy against Bankshares for breach of this Agreement).

                                           If Executive’s employment is terminated for cause or Bankshares has cause for termination and Executive voluntarily resigns, Executive shall not be entitled to any further compensation or benefits under this Agreement other than payment for accrued and unused vacation and sick leave. Moreover, nothing in this Section 9 is intended to have any effect on any rights that are vested. 

                                           Notwithstanding anything herein to the contrary, except as “willful” may be otherwise defined by the rules and regulations of the primary federal or state banking agency for each such Subsidiary or any other federal or state banking agency having regulatory jurisdiction over each such Subsidiary, (x) no act or failure to act on Executive’s part shall be considered “willful” unless done, or omitted to be done, by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interest of Bankshares and/or each bank Subsidiary for which Executive performs services, and (y) no failure to act on Executive’s part shall be considered
“willful” if such failure is a result of a condition of disability within the meaning of Section 9(a) of this Agreement.

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                       (e)     Termination Without Cause:  The Board of Directors of Bankshares may, in its sole discretion, terminate Executive’s employment under this Agreement without cause at any time in any lawful manner by not less than thirty (30) days written notice to Executive.  In the event of such termination: (i) Executive shall be paid accrued and unused vacation and sick leave as of the date of termination, (ii) Executive shall continue to be paid, during the remainder of the Term that follows such termination, the Base Salary that Executive is entitled to receive as of the date Executive is terminated without cause, and (iii) Executive shall be entitled to Health Coverage Continuation.  Nothing in this Section shall affect Executive’s rights to receive any benefit which has been
earned but not paid with respect to Executive’s performance prior to the date of such termination.  The salary and Health Coverage Continuation described in this Section 9(e) will be due Executive regardless of any subsequent employment attained by Executive which is not in violation of this Agreement.

                                Notwithstanding the foregoing provisions of this Section 9(e), Bankshares shall not terminate Executive’s employment without cause (nor shall any decision previously made to terminate Executive’s employment without cause be effective) nor shall Bankshares, without cause, fail to renew this Agreement pursuant to Section 3 during any period of time when Bankshares has knowledge that any person, entity or concern, whether acting independently, as part of a group or in concert with any other person, entity or concern, has taken steps reasonably calculated to effect a Change of Control of Bankshares until, in the opinion of the Board of Directors of Bankshares, such person, entity or concern has abandoned or terminated such efforts to effect a Change of
Control.  Any good faith determination by the Board of Directors of Bankshares that any such person, concern or entity has abandoned or terminated such efforts to effect a Change of Control shall be conclusive and binding on Executive.  Such determination shall be promptly communicated to Executive in writing by the Secretary of Bankshares. 

                       (f)     Resignation For Good Reason: 

                                 (1)     Executive may resign for good reason upon the occurrence of any of the following conditions: 

                                           (a)     Without Executive’s express written consent, Bankshares requires Executive to render services other than as chief executive officer of the parent company and its principal operating subsidiary; 

                                           (b)     A reduction by Bankshares of Executive’s Base Salary or a reduction by Bankshares of Executive’s annual incentive bonus opportunities under Section 5 above or his stock option rights under Section 6 above; 

                                           (c)     Any material breach of this Agreement by Bankshares; or

                                           (d)     A Change of Control.

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The Executive’s continued employment shall not constitute consent to, or a waiver of rights, with respect to, any act or failure to act constituting good reason.

                                 (2)     Resignation for good reason shall be effected by delivering to Bankshares, within twelve (12) months after the occurrence of one of the conditions described above, a written notice specifying a date for termination of employment which is not less than thirty (30) days after the date of the notice or more than ninety (90) days after the date of the notice.  The notice shall also state that Executive is resigning for good reason as contemplated by this Section 9(f) and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for resignation for good reason hereunder.  If within the notice period, Bankshares cures or corrects any circumstances providing a basis for resignation for good
reason, Executive shall not be entitled to resign for good reason.

                                 (3)     If Executive resigns for good reason at any time after the date of this Agreement (other than a resignation for good reason within twelve (12) months after a Change of Control), then Executive shall continue to be paid, during the remainder of the Term that follows such resignation, the Base Salary  that Executive is entitled to receive as of the date of the notice announcing Executive’s resignation, and Executive shall be entitled to Health Continuation Coverage; provided that nothing in this Section 9(f) shall affect Executive’s rights to receive any benefit which has been earned but not paid with respect to Executive’s performance prior to the date of termination.  The salary and benefits
described in this Section 9(f) shall be due Executive regardless of any subsequent employment attained by Executive which is not in violation of this Agreement. 

          10.        CHANGE OF CONTROL:  Notwithstanding the provisions of Section 9 of this Agreement, if during the Term of this Agreement and within twelve (12) months after a Change of Control of Bankshares, either Executive’s employment is terminated without cause or Executive resigns for good reason, in either case, Bankshares shall provide to Executive the following severance benefits: 

                       (a)     Bankshares shall pay to Executive, in lieu of the compensation specified in Sections 9(e) and 9(f), severance pay (subject to any applicable payroll or other taxes required to be withheld) equal to the greater of (a) Executive’s Base Salary for the remainder of the Term; or (b) 2.99 times Executive’s average annual compensation from Bankshares and its Subsidiaries includable in Executive’s gross income for federal income tax purposes for Executive’s most recent five (5) taxable years ending before the date on which the Change of Control occurs.  For purposes of the preceding sentence, average annual compensation shall be determined in accordance with principles under Section 280G of the Code (including determination in the event that Executive has less than five (5)
complete taxable years in which he receives compensation from Bankshares and its Subsidiaries).  Severance pay shall be paid in cash (except to the extent that Executive and Bankshares agree that it shall be paid in other property) and shall be paid in one lump sum on or before Executive’s last day of employment.

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                       (b)     Bankshares shall pay to Executive in a lump sum on or before Executive’s last day of employment the amount of Executive’s accrued vacation and sick leave determined on the basis of his Base Salary then in effect, or if greater, in effect immediately preceding the Change of Control.

                       (c)     Bankshares shall provide Executive with Health Coverage Continuation.

                       (d)     If any Payment to or in respect of Executive is determined to be subject to the Excise Tax, then Executive shall be entitled to receive an additional Gross-Up Payment in an amount such that, after payment by Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.  The Accounting Firm shall make all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required, the amount of any such Gross-Up Payment and the assumptions to be utilized in arriving
at such determination (except that Executive’s Federal and state income taxes shall be assumed to be at the maximum marginal rates).  In the event that the Accounting Firm is serving as accountant or auditor to the individual, entity or group effecting the Change of Control, unless otherwise agreed in writing by Executive, Bankshares shall appoint another independent accounting firm reasonably acceptable to Executive to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firm shall be borne solely by Bankshares.  The Gross-Up Payment, computed assuming all of the Payment constitute excess parachute payments under Section 280G of the Code, shall be paid to Executive concurrently with the severance pay under Section 10(a) above, unless Bankshares at the same time as the payment of the severance pay provides Executive with the Accounting Firm’s opinion that
Executive will not incur any Excise Tax on any part or all of the Payments.  Any such opinion shall be based upon the regulations under Sections 280G and 4999 of the Code and shall be supported with substantial authority as defined in  Section 6661 of the Code and the regulations thereunder.  If any such opinion applies only to part of the Payments, Bankshares shall pay Executive the Gross-Up Payment with respect to that part of the Payments not covered by the opinion.  Executive agrees (unless requested otherwise by Bankshares) to use reasonable efforts to contest in good faith any subsequent determination by the Internal Revenue Service that Executive owes an amount of Excise Tax greater than the amount determined above; provided, that Executive shall be entitled to reimbursement by Bankshares of all fees and expenses reasonably incurred by Executive in contesting such determination.  In the event the

15

Internal Revenue Service or any court of competent jurisdiction determines that Executive owes an amount of Excise Tax that is either greater or less than the amount previously taken into account in the Gross-Up Payment paid under this Section 10, Bankshares shall promptly pay to Executive, or Executive shall promptly repay to Bankshares, as the case may be, the amount of resulting excess or shortfall in the Gross-Up Payment.  Any payment that Bankshares is required to make to Executive pursuant to the preceding sentence shall include an additional amount such that after payment by Executive of all of Executive’s applicable Federal, state and local taxes on such additional amount, Executive shall retain an amount equal to the total of Executive’s applicable Federal, state and local taxes arising due to the later Payment.

                       (e)     If Executive collects any part or all of the severance pay provided under this Section 10 by or through a lawyer or lawyers, following a Change of Control and a dispute with Bankshares regarding the terms of this Section 10 and any related provision of this Agreement, Bankshares shall pay all costs of any such collection or enforcement, including reasonable legal fees and other out of pocket expenses incurred by the Executive, up to that point when Bankshares offered to settle the dispute for an amount equal to the amount that Executive is entitled to recover.

                       (f)     The payments described in this Section 10 shall be due Executive regardless of any subsequent employment obtained by Executive. 

          11.        NONCOMPETITION: NONDISCLOSURE: 

                       (a)     Except as otherwise provided in Section  11(c) below, during the Term and the Restricted Period, Executive shall not:  (i) either as principal, agent, manager, employee, partner, shareholder, director, officer, consultant or otherwise, become employed by, or manage or perform services for any business operation, in a managerial, marketing or sales capacity or in any advisory capacity relating to the management of the business, if such business operation has a location within South Hampton Roads (that is, the cities of Norfolk, Portsmouth, Chesapeake, Virginia Beach and Suffolk, Virginia) and competes with Bankshares or any Subsidiary; (ii) in any way induce or attempt to induce any employee of Bankshares or any Subsidiary to leave such employee’s position with Bankshares or any
Subsidiary to become associated with a business competing in any way with Bankshares or any Subsidiary; or (iii) induce or attempt to induce any customer of Bankshares or any Subsidiary of either to cease transacting business with Bankshares or any Subsidiary or transfer any part of such customer’s business to any other depository institution.

                       (b)     During the Term and for twelve (12) months after the end of the Restricted Period, Executive shall hold in a fiduciary capacity for the benefit of Bankshares and its Subsidiaries all secret or confidential information, knowledge or data relating to Bankshares and its Subsidiaries and their respective businesses, which shall

16

have been obtained by Executive during Executive’s employment by Bankshares and any Subsidiary and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement).  During the Term and for twelve (12) months after the end of the Restricted Period, Executive shall not, without the prior written consent of Bankshares and such Subsidiary or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Bankshares and any such Subsidiary and those designated by them.  After the end of the Restricted Period, the existence and identity of the customers and employees of Bankshares and any of its Subsidiaries shall not constitute secret or confidential information, knowledge or data.

                       (c)     The provisions contained in Section 11(a) shall not apply and shall have no force and effect at any time following a Change of Control. During any period in which the provisions of Section 11(a) are effective, those provisions shall not preclude Executive from (1) holding any publicly traded stock provided Executive does not acquire any stock interest in any one company in excess of one percent (1%) of the outstanding voting stock of that company or (2) practicing law on behalf of clients who compete with Bankshares or any Subsidiary.

                       (d)     The parties agree that the restrictions contained in this Section 11 are reasonable and fair.  If Executive competes in violation of the terms of this Section 11, the parties agree that Bankshares will be irreparably harmed without an adequate remedy at law.  Accordingly, Executive acknowledges that if he breaches or threatens to breach any provision of this Section 11, Bankshares shall be entitled to an injunction, both preliminary and permanent, restraining Executive from such breach or threatened breach, but such injunctive relief shall not preclude Bankshares from pursuing all other legal or equitable remedies arising out of such a breach. 

                       (e)     The parties have attempted to limit Executive’s right to compete only to the extent necessary to protect Bankshares and its Subsidiaries from unfair competition.  The parties recognize, however, that reasonable people may differ in making such a determination.  Consequently, the parties hereby agree that, if the scope or enforceability of a restrictive covenant set forth in this Section 11 is in any way disputed at any time, a court or other trier of fact may modify and reform such provision to substitute such other terms as are reasonable to protect the legitimate business interests of Bankshares and its Subsidiaries. 

          12.        NOTICES:  For the purposes of this Agreement, notices or other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered to the party to whom directed or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to such party at such party’s address last known by the party giving such notice.  Each party may, from time to time, and shall, upon request of another party, designate an address to which notices should be sent.  Notices of change of address shall be effective only upon receipt. 

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          13.         MODIFICATION - WAIVERS - APPLICABLE LAW:  No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by Executive and on behalf of Bankshares by such officers as may be specifically designated by the Board of Directors of Bankshares.  No waiver of any breach, condition or provision of this Agreement by any party hereto at any time shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not set forth expressly in this Agreement.  The validity, interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Virginia.  The parties hereby irrevocably submit to the venue of the Circuit Court of Norfolk, Virginia for any action arising out of or relating to this Agreement.

          14.         INVALIDITY - ENFORCEABILITY:  The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.  Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 

          15.         SUCCESSOR RIGHTS:  This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and shall be binding upon Bankshares and any successor to Bankshares.  If Executive should die while any amounts would still be payable to Executive hereunder all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if  there is no such designee, to Executive’s estate. 

          16.        ATTORNEY’S FEES:  Subject to Section 10(e), in the event that either party incurs costs and fees, including attorney’s fees, in enforcing its rights under this Agreement, the party substantially prevailing in such suit or action including any appeal shall be entitled to recover from the other all such costs and reasonable attorney’s fees.

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          17.        COMPLIANCE WITH FEDERAL STATUTES AND REGULATIONS:

                       (a)     If Executive is suspended and/or temporarily prohibited from participating in the conduct of the affairs of Bankshares or any Subsidiary by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), Bankshares’ obligations to Executive under this Agreement pertaining to the applicable bank Subsidiary shall be suspended as of the date of service of any such notice unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, Bankshares may in its discretion (i) pay Executive all or part of the compensation withheld while its obligations under this Agreement were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. 

                       (b)     If Executive is removed and/or permanently prohibited from participating in the conduct of a bank Subsidiary’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of Bankshares under this Agreement pertaining to the applicable bank Subsidiary shall terminate as of the effective date of the order, but vested rights of the parties hereto shall not be affected. 

                       (c)     If a bank Subsidiary is in default (as defined in Section 3(x)(1) of the Federal Deposit Insurance Act 12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the parties hereto shall not be affected. 

                       (d)     All obligations under this Agreement pertaining to a bank Subsidiary shall be terminated, except to the extent that it is determined that continuation of the contract is necessary to the continued operation of the applicable Subsidiary (i) by the appropriate federal banking agency, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the applicable Subsidiary under the authority contained in Section 13(c) of the Federal Deposit Insurance Act (18 U.S.C. Section 1823(c)); or (ii) by the appropriate federal banking agency, at the time such agency approves a supervisory merger to resolve problems related to operation of the applicable Subsidiary or when the applicable Subsidiary is determined by such agency to be in an unsafe or
unsound condition; but vested rights of the parties hereto shall not be affected.

          18.        COMPLIANCE WITH VIRGINIA CODE SECTION 6.1-47:  Upon Executive’s election as a director of Bankshares, Bankshares shall sell and Executive shall purchase the number of shares of Bankshares common stock as are necessary to comply with Virginia Code Section 6.1-47.

          19.        HEADINGS:  Descriptive headings contained in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision hereof. 

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          20.        LEGAL CONFLICT:  In the event of any conflict between any of the provisions of this Agreement and the provisions of any applicable statutes or regulations, as such statutes or regulations are in effect as of the date of this Agreement, the provisions of such statutes or regulations in effect as of the date of this Agreement shall control. 

          21.        CONSTRUCTION:  This Agreement shall not be construed more strictly against one party than the other by virtue of the fact that it may have been prepared by counsel for one of the parties, it being recognized that each party has been represented by counsel and has contributed substantially and materially to the preparation of this Agreement.

          IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written.

	
  
 
  	
  
EXECUTIVE
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  

  
	

  
 
  	
  
Michael S.   Ives
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
HERITAGE BANKSHARES,   INC.
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
 
  	
  
Chairman of   the Board
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
HERITAGE BANK   & TRUST
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
 
  
	
  
 
  	
  
 
  	
  

  
	
   
  	
   
  	
  Chairman of   the Board
  

20Total Identity Corpq 2004 equity Plan

 

 

Exhibit 10.1

Total
Identity Corp.

2004
Equity Compensation Plan

 

 

Approved
by Board of Directors on June 15, 2004 and Amended February 3,
2005

TOTAL
IDENTITY CORP.

2004
Equity Compensation Plan

1. Purpose;
Definitions.

1.1  Purpose. The
purpose of the Total Identity Corp. 2004 Equity Compensation Plan is to enable
the Company to offer to its employees, officers, directors and consultants whose
past, present and/or potential contributions to the Company and its Subsidiaries
have been, are or will be important to the success of the Company, an
opportunity to acquire a proprietary interest in the Company. The various types
of long-term incentive awards that may be provided under the Plan will enable
the Company to respond to changes in compensation practices, tax laws,
accounting regulations and the size and diversity of its
businesses.

1.2  Definitions. For
purposes of the Plan, the following terms shall be defined as set forth
below:

	(a)  	
      “Agreement”
      means the agreement between the Company and the Holder setting forth the
      terms and conditions of an award under the
Plan.

	(b)  	
      “Board”
      means the Board of Directors of the
Company.

	(c)  	
      “Code”
      means the Internal Revenue Code of 1986, as amended from time to
      time.

	(d)  	
      “Committee”
      means the Stock Option Committee of the Board or any other committee of
      the Board that the Board may designate to administer the Plan or any
      portion thereof. If no Committee is so designated, then all references in
      this Plan to “Committee” shall mean the
Board.

	(e)  	
      “Common
      Stock” means the Common Stock of the Company, $.01 par value per
      share.

	(f)  	
      “Company”
      means Total Identity Corp., a corporation organized under the laws of the
      State of Florida.

	(g)  	
      “Deferred
      Stock” means Common Stock to be received, under an award made pursuant to
      Section 8, below, at the end of a specified deferral
    period.

	(h)  	
      “Disability”
      means physical or mental impairment as determined under procedures
      established by the Committee for purposes of the
Plan.

	(i)  	
      “Effective
      Date” means the date set forth in Section 12.1,
below.

 

	(j)  	
      “Fair
      Market Value”, unless otherwise required by any applicable provision of
      the Code or any regulations issued thereunder, means, as of any given
      date: (i) if the Common Stock is listed on a national securities exchange
      or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
      last sale price of the Common Stock in the principal trading market for
      the Common Stock on such date, as reported by the exchange or Nasdaq, as
      the case may be; (ii) if the Common Stock is not listed on a national
      securities exchange or quoted on the Nasdaq National Market or Nasdaq
      SmallCap Market, but is traded in the over-the-counter market, the closing
      bid price for the Common Stock on such date, as reported by the OTC
      Bulletin Board or the National Quotation Bureau, Incorporated or similar
      publisher of such quotations; and (iii) if the fair market value of the
      Common Stock cannot be determined pursuant to clause (i) or (ii) above,
      such price as the Committee shall determine, in good
  faith.

	(k)  	
      “Holder”
      means a person who has received an award under the
Plan.

	(l)  	
      “Incentive
      Stock Option” means any Stock Option intended to be and designated as an
      “incentive stock option” within the meaning of Section 422 of the Code.
      

	(m)  	
      “Nonqualified
      Stock Option” means any Stock Option that is not an Incentive Stock
      Option.

	(n)  	
      “Normal
      Retirement” means retirement from active employment with the Company or
      any Subsidiary on or after age 65.

	(o)  	
      “Other
      Stock-Based Award” means an award under Section 9, below, that is valued
      in whole or in part by reference to, or is otherwise based upon, Common
      Stock.

	(p)  	
      “Parent”
      means any present or future “parent corporation” of the Company, as such
      term is defined in Section 424(e) of the
Code.

	(q)  	
      “Plan”
      means the Total Identity Corp. 2004 Equity Compensation Plan, as
      hereinafter amended from time to time.

	(r)  	
      “Repurchase
      Value” shall mean the Fair Market Value in the event the award to be
      repurchased under Section 10.2 is comprised of shares of Common Stock and
      the difference between Fair Market Value and the Exercise Price (if lower
      than Fair Market Value) in the event the award is a Stock Option or Stock
      Appreciation Right; in each case, multiplied by the number of shares
      subject to the award.

	(s)  	
      “Restricted
      Stock” means Common Stock, received under an award made pursuant to
      Section 7, below, that is subject to restrictions under said Section
      7.

	(t)  	
      “SAR
      Value” means the excess of the Fair Market Value (on the exercise date)
      over the exercise price that the participant would have otherwise had to
      pay to exercise the related Stock Option, multiplied by the number of
      shares for which the Stock Appreciation Right is
  exercised.

	(u)  	
      “Stock
      Appreciation Right” means the right to receive from the Company, on
      surrender of all or part of the related Stock Option, without a cash
      payment to the Company, a number of shares of Common Stock equal to the
      SAR Value divided by the Fair Market Value (on the exercise
      date).

	(v)  	
      “Stock
      Option” or “Option” means any option to purchase shares of Common Stock
      which is granted pursuant to the Plan.

 

	(w)  	
      “Stock
      Reload Option” means any option granted under Section 5.3 of the
      Plan.

	(x)  	
      “Subsidiary”
      means any present or future “subsidiary corporation” of the Company as
      such term is defined in Section 424(f) of the
Code.

2.  Administration.

2.1  Committee
Membership. The
Plan shall be administered by the Board or a Committee. Committee members shall
serve for such term as the Board may in each case determine, and shall be
subject to removal at any time by the Board. The Committee members, to the
extent possible and deemed to be appropriate by the Board, shall be
“non-employee directors” as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (“Exchange Act”), and “outside
directors” within the meaning of Section 162(m) of the Code.

2.2  Powers
of Committee. The
Committee shall have full authority to award, pursuant to the terms of the Plan:
(i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based Awards.
For purposes of illustration and not of limitation, the Committee shall have the
authority (subject to the express provisions of this Plan):

	(a)  	
      to
      select the officers, employees, directors and consultants of the Company
      or any Subsidiary to whom Stock Options, Stock Appreciation Rights,
      Restricted Stock, Deferred Stock, Reload Stock Options and/or Other
      Stock-Based Awards may from time to time be awarded
    hereunder.

	(b)  	
      to
      determine the terms and conditions, not inconsistent with the terms of the
      Plan, of any award granted hereunder (including, but not limited to,
      number of shares, share exercise price or types of consideration paid upon
      exercise of such options and the purchase price of Common Stock awarded
      under the Plan (including without limitation by a Holder’s conversion of
      deferred salary or other indebtedness of the Company to the Holder), such
      as other securities of the Company or other property, any restrictions or
      limitations, and any vesting, exchange, surrender, cancellation,
      acceleration, termination, exercise or forfeiture provisions, as the
      Committee shall determine);

	(c)  	
      to
      determine any specified performance goals or such other factors or
      criteria which need to be attained for the vesting of an award granted
      hereunder;

	(d)  	
      to
      determine the terms and conditions under which awards granted hereunder
      are to operate on a tandem basis and/or in conjunction with or apart from
      other equity awarded under this Plan and cash awards made by the Company
      or any Subsidiary outside of this Plan;

	(e)  	
      to
      permit a Holder to elect to defer a payment under the Plan under such
      rules and procedures as the Committee may establish, including the
      crediting of interest on deferred amounts denominated in cash and of
      dividend equivalents on deferred amounts denominated in Common
      Stock;

	(f)  	
      to
      determine the extent and circumstances under which Common Stock and other
      amounts payable with respect to an award hereunder shall be deferred that
      may be either automatic or at the election of the Holder;
    and

	(g)  	
      to
      substitute (i) new Stock Options for previously granted Stock Options,
      which previously granted Stock Options have higher option exercise prices
      and/or contain other less favorable terms, and (ii) new awards of any
      other type for previously granted awards of the same type, which
      previously granted awards are upon less favorable
terms.

2.3  Interpretation
of Plan.

	(a)  	
      Committee
      Authority.
      Subject to Section 11, below, the Committee shall have the authority to
      adopt, alter and repeal such administrative rules, guidelines and
      practices governing the Plan as it shall, from time to time, deem
      advisable, to interpret the terms and provisions of the Plan and any award
      issued under the Plan (and to determine the form and substance of all
      Agreements relating thereto), and to otherwise supervise the
      administration of the Plan. Subject to Section 11, below, all decisions
      made by the Committee pursuant to the provisions of the Plan shall be made
      in the Committee’s sole discretion and shall be final and binding upon all
      persons, including the Company, its Subsidiaries and
    Holders.

	(b)  	
      Incentive
      Stock Options.
      Anything in the Plan to the contrary notwithstanding, no term or provision
      of the Plan relating to Incentive Stock Options (including but limited to
      Stock Reload Options or Stock Appreciation rights granted in conjunction
      with an Incentive Stock Option) or any Agreement providing for Incentive
      Stock Options shall be interpreted, amended or altered, nor shall any
      discretion or authority granted under the Plan be so exercised, so as to
      disqualify the Plan under Section 422 of the Code, or, without the consent
      of the Holder(s) affected, to disqualify any Incentive Stock Option under
      such Section 422.

3.  Stock
Subject to Plan.

3.1  Number
of Shares. The
total number of shares of Common Stock reserved and available for issuance under
the Plan shall be 2,500,000 shares. Shares of Common Stock under the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. If any shares of Common Stock that have been granted pursuant to a Stock
Option cease to be subject to a Stock Option, or if any shares of Common Stock
that are subject to any Stock Appreciation Right, Restricted Stock, Deferred
Stock award, Reload Stock Option or Other Stock-Based Award granted hereunder
are forfeited or any such award otherwise terminates without a payment being
made to the Holder in the form of Common Stock, such shares shall again be
available for distribution in connection with future grants and awards under the
Plan. If a Holder pays the exercise price of a Stock Option by surrendering any
previously owned shares and/or arranges to have the appropriate number of shares
otherwise issuable upon exercise withheld to cover the withholding tax liability
associated with the Stock Option exercise, then the number of shares available
under the Plan shall be increased by the lesser of (i) the number of such
surrendered shares and shares used to pay taxes; and (ii) the number of shares
purchased under such Stock Option.

3.2  Adjustment
Upon Changes in Capitalization, Etc. In the
event of any dividend (other than a cash dividend) payable on shares of Common
Stock, stock split, reverse stock split, combination or exchange of shares, or
other similar event (not addressed in Section 3.3, below) occurring after the
grant of an Award, which results in a change in the shares of Common Stock of
the Company as a whole, the number of shares issuable in connection with any
such Award and the purchase price thereof, if any, shall be proportionately
adjusted to reflect the occurrence of any such event. Any adjustment required by
this Section 3.2 shall be made by the Committee, in good faith, whose
determination will be final, binding and conclusive.

3.3   Certain
Mergers and Similar Transactions. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Awardees), (c) a merger in which the Company is the surviving corporation but
after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns 

 

or
controls another corporation that merges, with the Company in such merger) cease
to own their shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Awardees. In the alternative,
the successor corporation may substitute equivalent Awards or provide
substantially similar consideration to Awardees as was provided to stockholders
(after taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Awardee, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Awardee. In the event such
successor corporation (if any) refuses or otherwise declines to assume or
substitute Awards, as provided above, (i) the vesting of any or all Awards
granted pursuant to this Plan will accelerate immediately prior to the effective
date of a transaction described in this Section 3.3 and (ii) any or all Options
granted pursuant to this Plan will become exercisable in full prior to the
consummation of such event at such time and on such conditions as the Committee
determines. If such Options are not exercised prior to the consummation of the
corporate transaction, they shall terminate at such time as determined by the
Committee. Subject to any greater rights granted to Awardees under the foregoing
provisions of this Section 3.3, in the event of the occurrence of any
transaction described in this Section 3.3, any outstanding Awards will be
treated as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation, or sale of assets.

4.  Eligibility.

Awards
may be made or granted to employees, officers, directors and consultants who are
deemed to have rendered or to be able to render significant services to the
Company or its Subsidiaries and who are deemed to have contributed or to have
the potential to contribute to the success of the Company. No Incentive Stock
Option shall be granted to any person who is not an employee of the Company or a
Subsidiary at the time of grant. Notwithstanding anything to the contrary
contained in the Plan, awards covered or to be covered under a registration
statement on Form S-8 may be made under the Plan only if (a) they are made to
natural persons, (b) who provide bona fide services to the Company or its
Subsidiaries, and (c) the services are not in connection with the offer and sale
of securities in a capital-raising transaction, and do not directly or
indirectly promote or maintain a market for the Company’s
securities.

5.  Stock
Options.

5.1  Grant
and Exercise. Stock
Options granted under the Plan may be of two types: (i) Incentive Stock Options
and (ii) Nonqualified Stock Options. Any Stock Option granted under the Plan
shall contain such terms, not inconsistent with this Plan, or with respect to
Incentive Stock Options, not inconsistent with the Plan and the Code, as the
Committee may from time to time approve. The Committee shall have the authority
to grant Incentive Stock Options or Non-Qualified Stock Options, or both types
of Stock Options which may be granted alone or in addition to other awards
granted under the Plan. To the extent that any Stock Option intended to qualify
as an Incentive Stock Option does not so qualify, it shall constitute a separate
Nonqualified Stock Option.

5.2  Terms
and Conditions. Stock
Options granted under the Plan shall be subject to the following terms and
conditions:

	(a)  	
      Option
      Term.
      The term of each Stock Option shall be fixed by the Committee; provided,
      however, that an Incentive Stock Option may be granted only within the
      ten-year period commencing from the Effective Date and may only be
      exercised within ten years of the date of grant (or five years in the case
      of an Incentive Stock Option granted to an optionee who, at the time of
      grant, owns Common Stock possessing more than 10% of the total combined
      voting power of all classes of stock of the Company (“10%
      Stockholder”).

 

	(b)  	
      Exercise
      Price.
      The exercise price per share of Common Stock purchasable under a Stock
      Option shall be determined by the Committee at the time of grant and may
      not be less than 60% of the Fair Market Value on the day of grant;
      provided, however, that the exercise price of an Incentive Stock Option
      granted to a 10% Stockholder shall not be less than 110% of the Fair
      Market Value on the date of grant.

	(c)  	
      Exercisability.
      Stock Options shall be exercisable at such time or times and subject to
      such terms and conditions as shall be determined by the Committee and as
      set forth in Section 10, below. If the Committee provides, in its
      discretion, that any Stock Option is exercisable only in installments,
      i.e., that it vests over time, the Committee may waive such installment
      exercise provisions at any time at or after the time of grant in whole or
      in part, based upon such factors as the Committee shall
      determine.

	(d)  	
      Method
      of Exercise.
      Subject to whatever installment, exercise and waiting period provisions
      are applicable in a particular case, Stock Options may be exercised in
      whole or in part at any time during the term of the Option, by giving
      written notice of exercise to the Company specifying the number of shares
      of Common Stock to be purchased. Such notice shall be accompanied by
      payment in full of the purchase price, which shall be in cash or, if
      provided in the Agreement, either in shares of Common Stock (including
      Restricted Stock and other contingent awards under this Plan) or partly in
      cash and partly in such Common Stock, or such other means which the
      Committee determines are consistent with the Plan’s purpose and applicable
      law. Cash payments shall be made by wire transfer, certified or bank check
      or personal check, in each case payable to the order of the Company;
      provided, however, that the Company shall not be required to deliver
      certificates for shares of Common Stock with respect to which an Option is
      exercised until the Company has confirmed the receipt of good and
      available funds in payment of the purchase price thereof. Payments in the
      form of Common Stock shall be valued at the Fair Market Value on the date
      prior to the date of exercise. Such payments shall be made by delivery of
      stock certificates in negotiable form that are effective to transfer good
      and valid title thereto to the Company, free of any liens or encumbrances.
      Subject to the terms of the Agreement, the Committee may, in its sole
      discretion, at the request of the Holder, deliver upon the exercise of a
      Nonqualified Stock Option a combination of shares of Deferred Stock and
      Common Stock; provided that, notwithstanding the provisions of Section 8
      of the Plan, such Deferred Stock shall be fully vested and not subject to
      forfeiture. A Holder shall have none of the rights of a Stockholder with
      respect to the shares subject to the Option until such shares shall be
      transferred to the Holder upon the exercise of the Option. Subject to the
      provisions of applicable law, including restrictions on the extension of
      credit to officers and directors of the Company, the Committee shall be
      empowered to determine the types of consideration to be paid upon exercise
      of awards Plan (including without limitation by a Holder’s conversion of
      deferred salary or other indebtedness of the Company to the Holder), such
      as services, property or other securities of the
Company

	(e)  	
      Transferability.
      Except as may be set forth in the Agreement, no Stock Option shall be
      transferable by the Holder other than by will or by the laws of descent
      and distribution, and all Stock Options shall be exercisable, during the
      Holder’s lifetime, only by the Holder (or, to the extent of legal
      incapacity or incompetency, the Holder’s guardian or legal
      representative).

	(f)  	
      Termination
      by Reason of Death.
      If a Holder’s employment by the Company or a Subsidiary terminates by
      reason of death, any Stock Option held by such Holder, unless otherwise
      determined by the Committee at the time of grant and set forth in the
      Agreement, shall thereupon automatically terminate, except that the
      portion of such Stock Option that has vested on the date of death may
      thereafter be exercised by the legal representative of the estate or by
      the legatee of the Holder under the will of the Holder, for a period of
      one year (or such other greater or lesser period as the Committee may
      specify at grant) from the date of such death or until the expiration of
      the stated term of such Stock Option, whichever period is the
      shorter.

 

	(g)  	
      Termination
      by Reason of Disability.
      If a Holder’s employment by the Company or any Subsidiary terminates by
      reason of Disability, any Stock Option held by such Holder, unless
      otherwise determined by the Committee at the time of grant and set forth
      in the Agreement, shall thereupon automatically terminate, except that the
      portion of such Stock Option that has vested on the date of termination
      may thereafter be exercised by the Holder for a period of one year (or
      such other greater or lesser period as the Committee may specify at the
      time of grant) from the date of such termination of employment or until
      the expiration of the stated term of such Stock Option, whichever period
      is the shorter.

	(h)  	
      Other
      Termination.
      Subject to the provisions of Section 13.3, below, and unless otherwise
      determined by the Committee at the time of grant and set forth in the
      Agreement, if a Holder is an employee of the Company or a Subsidiary at
      the time of grant and if such Holder’s employment by the Company or any
      Subsidiary terminates for any reason other than death or Disability, the
      Stock Option shall thereupon automatically terminate, except that if the
      Holder’s employment is terminated by the Company or a Subsidiary without
      cause or due to Normal Retirement, then the portion of such Stock Option
      that has vested on the date of termination of employment may be exercised
      for the lesser of three months after termination of employment or the
      balance of such Stock Option’s term.

	(i)  	
      Additional
      Incentive Stock Option Limitation.
      In the case of an Incentive Stock Option, the aggregate Fair Market Value
      (on the date of grant of the Option) with respect to which Incentive Stock
      Options become exercisable for the first time by a Holder during any
      calendar year (under all such plans of the Company and its Parent and
      Subsidiary) shall not exceed $100,000.

	(j)  	
      Buyout
      and Settlement Provisions.
      The Committee may at any time, in its sole discretion, offer to repurchase
      a Stock Option previously granted, based upon such terms and conditions as
      the Committee shall establish and communicate to the Holder at the time
      that such offer is made.

5.3  Stock
Reload Option. If a
Holder tenders shares of Common Stock to pay the exercise price of a Stock
Option (“Underlying Option”), and/or arranges to have a portion of the shares
otherwise issuable upon exercise withheld to pay the applicable withholding
taxes, the Holder may receive, at the discretion of the Committee, a new Stock
Reload Option to purchase that number of shares of Common Stock equal to the
number of shares tendered to pay the exercise price and the withholding taxes (
but only if such shares were held by the Holder for at least six months). Stock
Reload Options may be any type of option permitted under the Code and will be
granted subject to such terms, conditions, restrictions and limitations as may
be determined by the Committee, from time to time. Such Stock Reload Option
shall have an exercise price equal to the Fair Market Value as of the date of
exercise of the Underlying Option. Unless the Committee determines otherwise, a
Stock Reload Option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the Underlying Option to which the
Reload Option is related.

 

6.  Stock
Appreciation Rights.

6.1  Grant
and Exercise. The
Committee may grant Stock Appreciation Rights to participants who have been, or
are being granted, Stock Options under the Plan as a means of allowing such
participants to exercise their Stock Options without the need to pay the
exercise price in cash. In the case of a Nonqualified Stock Option, a Stock
Appreciation Right may be granted either at or after the time of the grant of
such Nonqualified Stock Option. In the case of an Incentive Stock Option, a
Stock Appreciation Right may be granted only at the time of the grant of such
Incentive Stock Option.

6.2  Terms
and Conditions. Stock
Appreciation Rights shall be subject to the following terms and
conditions:

	(a)  	
      Exercisability.
      Stock Appreciation Rights shall be exercisable as shall be determined by
      the Committee and set forth in the Agreement, subject to the limitations,
      if any, imposed by the Code, with respect to related Incentive Stock
      Options.

	(b)  	
      Termination. A
      Stock Appreciation Right shall terminate and shall no longer be
      exercisable upon the termination or exercise of the related Stock
      Option.

 

	(c)  	
      Method
      of Exercise.
      Stock Appreciation Rights shall be exercisable upon such terms and
      conditions as shall be determined by the Committee and set forth in the
      Agreement and by surrendering the applicable portion of the related Stock
      Option. Upon such exercise and surrender, the Holder shall be entitled to
      receive a number of shares of Common Stock equal to the SAR Value divided
      by the Fair Market Value on the date the Stock Appreciation Right is
      exercised.

	(d)  	
      Shares
      Affected Upon Plan.
      The granting of a Stock Appreciation Right shall not affect the number of
      shares of Common Stock available under for awards under the Plan. The
      number of shares available for awards under the Plan will, however, be
      reduced by the number of shares of Common Stock acquirable upon exercise
      of the Stock Option to which such Stock Appreciation Right
      relates.

7.  Restricted
Stock.

7.1  Grant. Shares
of Restricted Stock may be awarded either alone or in addition to other awards
granted under the Plan. The Committee shall determine the eligible persons to
whom, and the time or times at which, grants of Restricted Stock will be
awarded, the number of shares to be awarded, the price (if any) to be paid by
the Holder, the time or times within which such awards may be subject to
forfeiture (“Restriction Period”), the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the
awards.

7.2  Terms
and Conditions. Each
Restricted Stock award shall be subject to the following terms and
conditions:

	(a)  	
      Certificates.
      Restricted Stock, when issued, will be represented by a stock certificate
      or certificates registered in the name of the Holder to whom such
      Restricted Stock shall have been awarded. During the Restriction Period,
      certificates representing the Restricted Stock and any securities
      constituting Retained Distributions (as defined below) shall bear a legend
      to the effect that ownership of the Restricted Stock (and such Retained
      Distributions), and the enjoyment of all rights appurtenant thereto, are
      subject to the restrictions, terms and conditions provided in the Plan and
      the Agreement. Such certificates shall be deposited by the Holder with the
      Company, together with stock powers or other instruments of assignment,
      each endorsed in blank, which will permit transfer to the Company of all
      or any portion of the Restricted Stock and any securities constituting
      Retained Distributions that shall be forfeited or that shall not become
      vested in accordance with the Plan and the
Agreement.

 

	(b)  	
      Rights
      of Holder.
      Restricted Stock shall constitute issued and outstanding shares of Common
      Stock for all corporate purposes. The Holder will have the right to vote
      such Restricted Stock, to receive and retain all regular cash dividends
      and other cash equivalent distributions as the Board may in its sole
      discretion designate, pay or distribute on such Restricted Stock and to
      exercise all other rights, powers and privileges of a holder of Common
      Stock with respect to such Restricted Stock, with the exceptions that (i)
      the Holder will not be entitled to delivery of the stock certificate or
      certificates representing such Restricted Stock until the Restriction
      Period shall have expired and unless all other vesting requirements with
      respect thereto shall have been fulfilled; (ii) the Company will retain
      custody of the stock certificate or certificates representing the
      Restricted Stock during the Restriction Period; (iii) other than regular
      cash dividends and other cash equivalent distributions as the Board may in
      its sole discretion designate, pay or distribute, the Company will retain
      custody of all distributions (“Retained Distributions”) made or declared
      with respect to the Restricted Stock (and such Retained Distributions will
      be subject to the same restrictions, terms and conditions as are
      applicable to the Restricted Stock) until such time, if ever, as the
      Restricted Stock with respect to which such Retained Distributions shall
      have been made, paid or declared shall have become vested and with respect
      to which the Restriction Period shall have expired; (iv) a breach of any
      of the restrictions, terms or conditions contained in this Plan or the
      Agreement or otherwise established by the Committee with respect to any
      Restricted Stock or Retained Distributions will cause a forfeiture of such
      Restricted Stock and any Retained Distributions with respect
      thereto.

 

	(c)  	
      Vesting;
      Forfeiture.
      Upon the expiration of the Restriction Period with respect to each award
      of Restricted Stock and the satisfaction of any other applicable
      restrictions, terms and conditions (i) all or part of such Restricted
      Stock shall become vested in accordance with the terms of the Agreement,
      subject to Section 10, below, and (ii) any Retained Distributions with
      respect to such Restricted Stock shall become vested to the extent that
      the Restricted Stock related thereto shall have become vested, subject to
      Section 10, below. Any such Restricted Stock and Retained Distributions
      that do not vest shall be forfeited to the Company and the Holder shall
      not thereafter have any rights with respect to such Restricted Stock and
      Retained Distributions that shall have been so
  forfeited.

8.  Deferred
Stock.

8.1  Grant. Shares
of Deferred Stock may be awarded either alone or in addition to other awards
granted under the Plan. The Committee shall determine the eligible persons to
whom and the time or times at which grants of Deferred Stock will be awarded,
the number of shares of Deferred Stock to be awarded to any person, the duration
of the period (“Deferral Period”) during which, and the conditions under which,
receipt of the shares will be deferred, and all the other terms and conditions
of the awards.

8.2  Terms
and Conditions. Each
Deferred Stock award shall be subject to the following terms and
conditions:

	(a)  	
      Certificates.
      At the expiration of the Deferral Period (or the Additional Deferral
      Period referred to in Section 8.2 (d) below, where applicable), share
      certificates shall be issued and delivered to the Holder, or his legal
      representative, representing the number equal to the shares covered by the
      Deferred Stock award.

 

	(b)  	
      Rights
      of Holder. A
      person entitled to receive Deferred Stock shall not have any rights of a
      Stockholder by virtue of such award until the expiration of the applicable
      Deferral Period and the issuance and delivery of the certificates
      representing such Common Stock. The shares of Common Stock issuable upon
      expiration of the Deferral Period shall not be deemed outstanding by the
      Company until the expiration of such Deferral Period and the issuance and
      delivery of such Common Stock to the
Holder.

	(c)  	
      Vesting;
      Forfeiture.
      Upon the expiration of the Deferral Period with respect to each award of
      Deferred Stock and the satisfaction of any other applicable restrictions,
      terms and conditions all or part of such Deferred Stock shall become
      vested in accordance with the terms of the Agreement, subject to Section
      10, below. Any such Deferred Stock that does not vest shall be forfeited
      to the Company and the Holder shall not thereafter have any rights with
      respect to such Deferred Stock.

	(d)  	
      Additional
      Deferral Period. A
      Holder may request to, and the Committee may at any time, defer the
      receipt of an award (or an installment of an award) for an additional
      specified period or until a specified event (“Additional Deferral
      Period”). Subject to any exceptions adopted by the Committee, such request
      must generally be made at least one year prior to expiration of the
      Deferral Period for such Deferred Stock award (or such
      installment).

9.  Other
Stock-Based Awards.

Other
Stock-Based Awards may be awarded, subject to limitations under applicable law,
that are denominated or payable in, valued in whole or in part by reference to,
or otherwise based on, or related to, shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, purchase rights, shares of Common Stock awarded which are not
subject to any restrictions or conditions, convertible or exchangeable
debentures, or other rights convertible into shares of Common Stock and awards
valued by reference to the value of securities of or the performance of
specified Subsidiaries. Other Stock-Based Awards may be awarded either alone or
in addition to or in tandem with any other awards under this Plan or any other
plan of the Company. Each other Stock-Based Award shall be subject to such terms
and conditions as may be determined by the Committee.

10.  Accelerated
Vesting and Exercisability.

10.1  Non-Approved
Transactions. If any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act
of 1934, as amended (“Exchange Act”)), is or becomes the “beneficial owner” (as
referred in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company’s then outstanding securities in one or more transactions, and
the Board does not authorize or otherwise approve such acquisition, then the
vesting periods of any and all Stock Options and other awards granted and
outstanding under the Plan shall be accelerated and all such Stock Options and
awards will immediately and entirely vest, and the respective holders thereof
will have the immediate right to purchase and/or receive any and all Common
Stock subject to such Stock Options and awards on the terms set forth in this
Plan and the respective agreements respecting such Stock Options and awards.

10.2  Approved
Transactions. The
Committee may, in the event of an acquisition of substantially all of the
Company’s assets or at least 50% of the combined voting power of the Company’s
then outstanding securities in one or more transactions (including by way of
merger or reorganization) which has been approved by the Company’s Board of
Directors, (i) accelerate the vesting of any and all Stock Options and other
awards granted and outstanding under the Plan, and (ii) require a Holder of any
award granted under this Plan to relinquish such award to the Company upon the
tender by the Company to Holder of cash in an amount equal to the Repurchase
Value of such award.

 

11.  Amendment
and Termination.

The Board
may at any time, and from time to time, amend alter, suspend or discontinue any
of the provisions of the Plan, but no amendment, alteration, suspension or
discontinuance shall be made that would impair the rights of a Holder under any
Agreement theretofore entered into hereunder, without the Holder’s
consent.

12.  Term
of Plan.

12.1  Effective
Date. The
Plan shall become effective at such time as the Plan is approved and adopted by
the Company’s Board of Directors (the “Effective Date”), subject to the
following provisions:

	(a)  	
      to
      the extent that the Plan authorizes the Award of Incentive Stock Options,
      stockholder approval for the Plan shall be obtained within 12 months of
      the Effective Date; and

	(b)  	
      the
      failure to obtain stockholder for the Plan as contemplated by subparagraph
      (a) of this Section 13.1 shall not invalidate the Plan; provided, however,
      that (i) in the absence of such stock holder approval, Incentive Stock
      Options may not be awarded under the Plan and (ii) any Incentive Stock
      Options theretofore awarded under the Plan shall be converted into
      Non-Qualified Options upon terms and conditions determined by the Board to
      reflect, as nearly as is reasonably practicable in its sole determination,
      the terms and conditions of the Incentive Stock Options being so
      converted.

12.2  Termination
Date. Unless
terminated by the Board, this Plan shall continue to remain effective until such
time as no further awards may be granted and all awards granted under the Plan
are no longer outstanding. Notwithstanding the foregoing, grants of Incentive
Stock Options may be made only during the ten-year period following the
Effective Date. 

 

13.  General
Provisions.

13.1  Written
Agreements. Each
award granted under the Plan shall be confirmed by, and shall be subject to the
terms, of the Agreement executed by the Company and the Holder. The Committee
may terminate any award made under the Plan if the Agreement relating thereto is
not executed and returned to the Company within 10 days after the Agreement has
been delivered to the Holder for his or her execution.

13.2  Unfunded
Status of Plan. The
Plan is intended to constitute an “unfunded” plan for incentive and deferred
compensation. With respect to any payments not yet made to a Holder by the
Company, nothing contained herein shall give any such Holder any rights that are
greater than those of a general creditor of the Company.

 

13.3  Employees.

	(a)  	
      Engaging
      in Competition With the Company; Disclosure of Confidential
      Information.
      If a Holder’s employment with the Company or a Subsidiary is terminated
      for any reason whatsoever, and within three months after the date thereof
      such Holder either (i) accepts employment with any competitor of, or
      otherwise engages in competition with, the Company or (ii) discloses to
      anyone outside the Company or uses any confidential information or
      material of the Company in violation of the Company’s policies or any
      agreement between the Holder and the Company, the Committee, in its sole
      discretion, may require such Holder to return to the Company the economic
      value of any award that was realized or obtained by such Holder at any
      time during the period beginning on that date that is six months prior to
      the date such Holder’s employment with the Company is
      terminated.

 

	(b)  	
      Termination
      for Cause.
      The Committee may, if a Holder’s employment with the Company or a
      Subsidiary is terminated for cause, annul any award granted under this
      Plan to such employee and, in such event, the Committee, in its sole
      discretion, may require such Holder to return to the Company the economic
      value of any award that was realized or obtained by such Holder at any
      time during the period beginning on that date that is six months prior to
      the date such Holder’s employment with the Company is
      terminated.

	(c)  	
      No
      Right of Employment.
      Nothing contained in the Plan or in any award hereunder shall be deemed to
      confer upon any Holder who is an employee of the Company or any Subsidiary
      any right to continued employment with the Company or any Subsidiary, nor
      shall it interfere in any way with the right of the Company or any
      Subsidiary to terminate the employment of any Holder who is an employee at
      any time.

13.4  Investment
Representations; Company Policy. The
Committee may require each person acquiring shares of Common Stock pursuant to a
Stock Option or other award under the Plan to represent to and agree with the
Company in writing that the Holder is acquiring the shares for investment
without a view to distribution thereof. Each person acquiring shares of Common
Stock pursuant to a Stock Option or other award under the Plan shall be required
to abide by all policies of the Company in effect at the time of such
acquisition and thereafter with respect to the ownership and trading of the
Company’s securities.

13.5  Additional
Incentive Arrangements. Nothing
contained in the Plan shall prevent the Board from adopting such other or
additional incentive arrangements as it may deem desirable, including, but not
limited to, the granting of Stock Options and the awarding of Common Stock and
cash otherwise than under the Plan; and such arrangements may be either
generally applicable or applicable only in specific cases.

 

13.6  Withholding
Taxes. Not
later than the date as of which an amount must first be included in the gross
income of the Holder for Federal income tax purposes with respect to any option
or other award under the Plan, the Holder shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount. If permitted by the Committee, tax withholding
or payment obligations may be settled with Common Stock, including Common Stock
that is part of the award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditioned upon such payment
or arrangements and the Company or the Holder’s employer (if not the Company)
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Holder from the Company or any
Subsidiary.

13.7  Governing
Law. The
Plan and all awards made and actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Florida.

13.8  Other
Benefit Plans. Any
award granted under the Plan shall not be deemed compensation for purposes of
computing benefits under any retirement plan of the Company or any Subsidiary
and shall not affect any benefits under any other benefit plan now or
subsequently in effect under which the availability or amount of benefits is
related to the level of compensation (unless required by specific reference in
any such other plan to awards under this Plan).

13.9  Non-Transferability. Except
as otherwise expressly provided in the Plan or the Agreement, no right or
benefit under the Plan may be alienated, sold, assigned, hypothecated, pledged,
exchanged, transferred, encumbranced or charged, and any attempt to alienate,
sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the
same shall be void.

13.10  Applicable
Laws. The
obligations of the Company with respect to all Stock Options and awards under
the Plan shall be subject to (i) all applicable laws, rules and regulations and
such approvals by any governmental agencies as may be required, including,
without limitation, the Securities Act of 1933, as amended, and (ii) the rules
and regulations of any securities exchange on which the Common Stock may be
listed.

13.11  Conflicts. If any
of the terms or provisions of the Plan or an Agreement conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with such requirements.
Additionally, if this Plan or any Agreement does not contain any provision
required to be included herein under Section 422 of the Code, such provision
shall be deemed to be incorporated herein and therein with the same force and
effect as if such provision had been set out at length herein and therein. If
any of the terms or provisions of any Agreement conflict with any terms or
provisions of the Plan, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of the Plan.
Additionally, if any Agreement does not contain any provision required to be
included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.

13.12  Non-Registered
Stock. The
shares of Common Stock to be distributed under this Plan have not been, as of
the Effective Date, registered under the Securities Act of 1933, as amended, or
any applicable state or foreign securities laws and the Company has no
obligation to any Holder to register the Common Stock or to assist the Holder in
obtaining an exemption from the various registration requirements, or to list
the Common Stock on a national securities exchange or any other trading or
quotation system, including the Nasdaq National Market and Nasdaq SmallCap
Market.

Plan
Amendments

	
       

      Date
      Approved

      by
      Board
	
       

       

      Date
      Approved

      by
      Stockholders, if
      necessary

       
	
       

       

       

      Sections
      Amended

       
	
       

       

       

      Description
      of Amendments

       

	 	 	 	 
	
       

      February
      3, 2005
	 	
       

      3.1
	
       

      Increase
      Number of Shares Subject to Plan to 2,500,000

	
       

      February
      3, 2005
	 	
       

      4
	
       

      Clarify
      Awards Subject to Form S-8 Registration Statement

	
       

      February
      3, 2005
	 	
       

      5.2
	
       

      Clarify
      Payment Provisions

	
       

      February
      3, 2004
	 	
       

      Throughout
	
       

      Correct
      Section Numbering

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