Document:

Exhibit 10.7

 

Confidential Pricing Information Omitted: Certain pricing information
has been omitted from this agreement pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Such omissions in
this agreement are marked with the symbol $***. The confidential information
has been filed separately with the Securities and Exchange Commission.

 

	
  AMENDMENT OF
  SOLICITATION/MODIFICATION OF CONTRACT

  	
  1.         Contract ID Code

  Firm-Fixed-Price

  	
  Page  1 of 57

  
	
  2. Amendment/Modification No.

  

  P00057

  	
  3. Effective Date

  

  2005 Mar 29

  	
  4. Requisition/Purchase Req.
  No.

  SEE
  SCHEDULE

  	
  5. Project NO. (If Applicable)

  
	
  6.         Issued By

  TACOM WARREN

  AMSTA-AQ-ATBB  
AMES VICTOR (586) 574-7924

  WARREN, MICHIGAN 48397-5000

  	
  Code

  	
  W56H2V

  	
   

  	
  7.         Administered By (If other than
  Item 6)

  DCMA STEWART &
  STEVENSON

  SEALY

  P.O. BOX 457

  SEALY, TX 77474-0457  

  	
   

  	
  Code

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HTTP://CONTRACTIN.TACOM.ARMY.MIL

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EMAIL: VICTORJ@TACOM.ARMY.MIL

  	
   

  	
  SCD

  	
  A

  	
  PAS

  	
  NONE

  	
  ADP PT

  	
   

  	
  NQ339

  	
   

  	
   

  
	
  8.         Name and Address of Contractor
  (No., Street, City, County, State

  and Zip Code)

  

  STEWART & STEVENON
  TACTICAL VEHICLE SYSTEMS, LP

  5000 I-10 WEST

  SEALY, TX 77474-9506

  

  	
  o

  	
  9A. Amendment of Solicitation No.

  
	
   

  
	
   

  	
  9B. Dated (See Item 11)

  
	
  ý

  	
  10A. Modification of Contract/Order No.

  

  DAAE07-03-C-S023

  
	
   

  
	
   

  
	
  TYPE OF BUSINESS: Large Business Performing in U.S.

  	
   

  	
  10B. Dated (See Item 13)

  	
   

  	
   

  
	
  Code:OFW39

  	
  Facility Code

  	
   

  	
  2003APR17

  	
   

  	
   

  	
   

  	
   

  
	
  11. THIS ITEM ONLY APPLIES TO
  AMENDMENTS OF SOLICITATIONS

  
	
  o The above numbered
  solicitation is amended as set forth in item 14. The hour and date specified
  for receipt of Offers

  o Is extended, ois not extended.

  Offers must acknowledge receipt
  of this amendment prior to the hour and date specified in the solicitation or
  as amended by one of the following methods: (a) By completing items 8
  and 15, and returning ____________ copies of the amendments; (b) By
  acknowledging receipt of this amendment on each copy of the offer submitted;
  or (c) By separate letter or telegram which includes a reference to the
  solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE
  RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR
  AND DATE SPECIFIED MAY RESULT IN REGECTION OF YOUR OFFER. If by virtue
  of this amendment you desire to change an offer already submitted, such
  change may be made by telegram or letter, provided each telegram or letter
  makes reference to the solicitation and this amendment, and is received prior
  to the opening hour and date specified.

  
	
  12. Accounting And Appropriation Data (If required)

  
	
   

  
	
  13. THIS ITEM ONLY APPLIES TO
  MODIFICATIONS OF CONTRACTS/ORDERS

  It Modifies the Contract/Order No. As Described in Item 14

  
	
  o

  	
   

  	
  A.

  	
  This Change Order is Issued Pursuant To:  The Changes Set Forth In Item 14 Are Made
  In  The
  Contract/Order No. In Item 10A.

  
	
  ý

  	
   

  	
  B.

  	
  The Above Numbered Contract/Order Is Modified to Reflect The
  Administrative Changes (such as changes in paying office, appropriation data,
  etc.) Set forth In Item 14, Pursuant To The Authority of FAR43.103(b).

  
	
  o

  	
   

  	
  C.

  	
  This Supplemental Agreement Is Entered Into Pursuant To Authority Of:

  
	
  o

  	
   

  	
  D.

  	
  Other (Specify type of
  modification and authority)

  
	
   

  	
   

  	
   

  
	
  E. IMPORTANT:  Contractoro is not, o is required to sign this
  document and return __________ copies to the Issuing Office.

  
	
   

  
	
  14. Description of Amendment/Modification (Organized by UCF
  section headings, including solicitation/contract subject matter where
  feasible.)

  SEE SECOND PAGE FOR DESCRIPTION

   

  Contract Expiration Date:  2008NOV15 

   

  Except as provided herein, all terms and conditions of the document
  referenced in item 9A or 10A, as heretofore changed, remains unchanged and in
  full force and effect.

  
	
  15A. Name And Title of Signer
  (Type or print)

  Sam Besase

  Supervisor of Commercial Contracts

  	
   

  	
  16A. Name and Title of
  Contracting Officer (Type or print)

  DENISE MIKA

  MIKAD@TACOM.ARMY.MIL  (586) 574-6506

  
	
  15B. Contractor/Offeror

  	
   

  	
  15C. Date Signed

  	
   

  	
  16B. United State of America

  	
   

  	
  16C. Date Signed

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SS//

  	
   

  	
   

  	
  29 MAR 2005

  	
   

  	
  SS//

  	
   

  	
  2005 MAR 29

  
	
  (Signature of person authorized
  to sign)

  	
   

  	
   

  	
   

  	
   

  	
  (Signature of Contracting
  Officer)

  	
   

  	
   

  
	
  NSN 7540-01-152-8070

  	
   

  	
  30-105-02

  	
   

  	
  STANDARD FORM 30 (REV.10-83)

  
	
  PREVIOUS EDITIONS UNUSABLE

  	
   

  	
   

  	
   

  	
  Prescribed by GSA FAR (48 CFR) 53.243

  
																															

 

 

	
  CONTINUATION
  SHEET

  	
   

  	
  Reference No. of
  Document Being Continued

  

  PIN/SIN  DAAE07-03-C-S023                                   MOD/AMD  P00057

  	
   

  	
  Page  2 of 57

  
	
  Name of Offeror or Contractor: 
  STEWART & STEVENSON TACTICAL VEHICLE SYSTEMS, LP

  

 

SECTION A
– SUPPLEMENTAL INFORMATION

 

	
  CONTRACT
  AMOUNT:

  	
  $***

  	
   

  
	
   

  	
   

  	
   

  
	
  THIS
  MOD:

  	
  $***

  	
   

  
	
   

  	
   

  	
   

  
	
  CURRENT
  AMOUNT:

  	
  $***

  	
   

  

 

1.               The purpose of modification P00057 is to make
the following changes (all text changes are followed by a single asterisk
unless in a SLIN narrative):

 

a.               Section B, in order to correct a series
of administrative errors, SLINs 3101AA, 3102AA, 3104AA, and 3104AB are hereby
deleted and replaced by SLINs 3101AC, 3102AC; 3104AC, and 3104AD.

 

b.              Section B:  Change the delivery data in the following PY3
SLINs:  3101AB, 3102AB, 3103AA, 3103AB,
3106AA, 3106AB, 3107AA, 3107AB, 3108AA, 3108AB, 3109AA, 3109AB, 3111AA, 3111AB,
3113AA, 3113AB, 3116AA, and 3116AB.

 

c.               Section B,
SLINs 3101AB, 3102AB, 3103AA, 3103AB, 3105AA, 3105AB, 3106AA, 3106AB, 3107AA,
3107AB, 3108AA, 3108AB, 3109AA, 3109AB, 3111AA, 3111AB, 3113AA, 3113AB, 3114AA,
3114AB, 3116AA, 3116AB, and the following text:

 

“The
Contractor is permitted, at no additional cost to the Government, to expedite
delivery under any PY3 SLIN for all deliveries due prior to 01 Mar 2006 without
separate written PCO approval.  Any
additional Care & Storage costs resulting from an accelerated delivery
shall be the Contractor’s responsibility. 
The Government will be responsible for Care and Storage costs after 180
days have lapsed from the delivery dates contained in Attachment 23 dated 07
Mar 05 for SLIN 31      .”

 

d.              Section J, Attachment 23, delivery schedule:

 

(1)          Adjust
the Program Year 3 base quantities, delivery dates, for the SLINs identified in
paragraph 1.a. above.

 

(2)          Change
the date of Attachment 23 from “07 Mar 05” to “28 Mar 05”.

 

2.               The Contractor hereby remises,
releases and discharges the Government from all civil liabilities, obligations,
claims, appeals, and demands which are based on the incorporation of the above
referenced changes into the contract, whether administrative or judicial, legal
or equitable, or direct or indirect.

 

3.               As a result of Modification P00057, the total
contract funding is unchanged at $***.

 

4.               All other terms and conditions of the
contract remain unchanged.

 

 

*** END OF NARRATIVE A 057 ***EXHIBIT 4.1

                           2005 EQUITY INCENTIVE PLAN
                                       OF
                                    POINT.360

1.       PURPOSES OF THE PLAN

         The  purposes  of the  2005  Equity  Incentive  Plan  (the  "Plan")  of
Point.360, a California corporation (the "Company"), are to:

         1.1 Encourage selected employees,  directors,  consultants and advisers
to improve operations and increase the profitability of the Company;

         1.2 Encourage selected employees,  directors,  consultants and advisers
to  accept  or  continue  employment  or  association  with the  Company  or its
Affiliates; and

         1.3 Increase the interest of selected employees, directors, consultants
and advisers in the Company's  welfare  through  participation  in the growth in
value of the common stock of the Company (the "Common  Stock").  All  references
herein to stock or shares, unless otherwise specified, shall mean Common Stock.

2.       TYPES OF AWARDS; ELIGIBLE PERSONS

         2.1 The  Administrator  (as defined below) may, from time to time, take
the following  action,  separately or in combination,  under the Plan: (i) grant
"incentive  stock  options"  ("ISOs")  intended to satisfy the  requirements  of
Section  422 of  the  Internal  Revenue  Code  of  1986,  as  amended,  and  the
regulations thereunder (the "Code"); (ii) grant "non-qualified options" ("NQOs,"
and together with ISOs, "Options");  (iii) grant or sell Common Stock subject to
restrictions  ("restricted stock") and (iv) grant stock appreciation rights (any
such right  would  permit the  holder to receive  the excess of the fair  market
value of Common  Stock on the  exercise  date over its fair  market  value (or a
greater base value) on the grant date  ("SARs")),  either in tandem with Options
or as separate and independent grants. Any such awards may be made to employees,
including employees who are officers or directors,  and to individuals described
in Section 1 of the Plan who the Administrator believes have made or will make a
contribution  to the  Company or any  Affiliate  (as defined  below);  provided,
however,  that only a person who is an employee of the Company or any  Affiliate
at the date of the grant of an Option is  eligible  to  receive  ISOs  under the
Plan.  The term  "Affiliate"  as used in the Plan  means a parent or  subsidiary
corporation as defined in the applicable  provisions  (currently Sections 424(e)
and (f),  respectively) of the Code. The term "employee"  includes an officer or
director  who is an  employee of the  Company.  The term  "consultant"  includes
persons  employed  by, or otherwise  affiliated  with,  a  consultant.  The term
"adviser"  includes  persons  employed  by, or  otherwise  affiliated  with,  an
adviser.

         2.2 Except as otherwise  expressly  set forth in the Plan,  no right or
benefit  under  the  Plan  shall  be  subject  in any  manner  to  anticipation,
alienation,  hypothecation,  or charge,  and any such attempted  action shall be
void.  No right or  benefit  under the Plan shall in any manner be liable for or
subject to debts, contracts,  liabilities,  or torts of any option holder or any
other person except as otherwise may be expressly required by applicable law.

3.       STOCK SUBJECT TO THE PLAN; MAXIMUM NUMBER OF GRANTS

         Subject to the  provisions of Sections  6.1.1 and 8.2 of the Plan,  the
total  number  of  shares of Common  Stock  which may be  offered,  or issued as
restricted  stock or on the exercise of Options or SARs under the Plan shall not
exceed two million  (2,000,000) shares of Common Stock. The shares subject to an
Option or SAR granted  under the Plan which  expire,  terminate or are cancelled
unexercised shall become available again for grants under the Plan. If shares of
restricted  stock  awarded  under  the  Plan are  forfeited  to the  Company  or
repurchased by the Company,  the number of shares forfeited or repurchased shall
again be available under the Plan. Where the exercise price of an Option is paid
by means of the optionee's  surrender of previously owned shares of Common Stock
or the Company's  withholding of shares otherwise  issuable upon exercise of the
Option as may be  permitted  herein,  only the net  number of shares  issued and
which  remain  outstanding  in  connection  with such  exercise  shall be deemed
"issued" and no longer available for issuance under the Plan. No eligible person
shall be granted Options or other awards during any twelve-month period covering
more than five hundred thousand (500,000) shares.

                                       1
<PAGE>

4.       ADMINISTRATION

         4.1 The Plan shall be  administered  by the Board of  Directors  of the
Company  (the   "Board")  or  by  a  committee   (the   "Committee")   to  which
administration of the Plan, or of part of thereof, is delegated by the Board (in
either case, the "Administrator"). The Board shall appoint and remove members of
the  Committee in its  discretion  in accordance  with  applicable  laws. At the
Board's  discretion,  the  Committee  may be comprised  solely of  "non-employee
directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or "outside directors" within the meaning
of Section 162(m) of the Code. The Administrator may delegate  non-discretionary
administrative  duties to such  employees  of the  Company as the  Administrator
deems proper and the Board, in its absolute discretion, may at any time and from
time to time exercise any and all rights and duties of the  Administrator  under
the Plan.

         4.2  Subject to the other  provisions  of the Plan,  the  Administrator
shall have the authority,  in its discretion:  (i) to grant Options and SARs and
grant or sell restricted  stock;  (ii) to determine the fair market value of the
Common Stock subject to Options or other awards; (iii) to determine the exercise
price of Options  granted,  which shall be no less than the fair market value of
the Common Stock on the date of grant, the economic terms of SARs granted, which
shall  provide for a benefit of the  appreciation  on Common Stock over not less
than the value of the Common Stock on the date of grant,  or the offering  price
of  restricted  stock;  (iv) to determine  the persons to whom,  and the time or
times at which,  Options or SARs shall be granted or restricted stock granted or
sold,  and the number of shares  subject to each  Option or SAR or the number of
shares of restricted  stock  granted or sold;  (v) to construe and interpret the
terms and  provisions of the Plan, of any  applicable  agreement and all Options
and SARs granted  under the Plan,  and of any  restricted  stock award under the
Plan; (vi) to prescribe,  amend,  and rescind rules and regulations  relating to
the Plan;  (vii) to determine  the terms and  provisions  of each Option and SAR
granted and award of restricted  stock (which need not be identical),  including
but not  limited  to,  the  time or times at  which  Options  and SARs  shall be
exercisable  or the time at which the  restrictions  on  restricted  stock shall
lapse;  (viii) with the consent of the grantee, to rescind any award or exercise
of an Option or SAR and to  modify  or amend  the  terms of any  Option,  SAR or
restricted  stock; (ix) to reduce the purchase price of restricted stock; (x) to
accelerate  or defer (with the consent of the grantee) the exercise  date of any
Option or SAR or the date on which the  restrictions on restricted  stock lapse;
(xi) to issue shares of restricted  stock to an optionee in connection  with the
accelerated  exercise  of an Option by such  optionee;  (xii) to  authorize  any
person to execute on behalf of the Company any  instrument  evidencing the grant
of an Option. SAR or award of restricted stock; (xiii) to determine the duration
and purposes of leaves of absence which may be granted to  participants  without
constituting a termination of their employment for the purposes of the Plan; and
(xiv) to make all other  determinations  deemed  necessary or advisable  for the
administration of the Plan, any applicable  agreement,  Option,  SAR or award of
restricted stock.

         4.3 All questions of interpretation, implementation, and application of
the Plan or any agreement or Option,  SAR or award of restricted  stock shall be
determined by the Administrator,  which determination shall be final and binding
on all persons.

5.       GRANTING OF OPTIONS AND SARS; AGREEMENTS

         5.1 No Options  or SARs shall be granted  under the Plan after ten (10)
years from the date of adoption of the Plan by the Board.

         5.2 Each Option and SAR shall be evidenced by a written  agreement,  in
form satisfactory to the  Administrator,  executed by the Company and the person
to whom such  grant is made.  In the event of a  conflict  between  the terms or
conditions of an agreement and the terms and  conditions of the Plan,  the terms
and conditions of the Plan shall govern.

         5.3 Each agreement  shall specify whether the Option it evidences is an
NQO or an  ISO,  provided,  however,  all  Options  granted  under  the  Plan to
non-employee directors,  consultants and advisers of the Company are intended to
be NQOs.

         5.4 Subject to Section  6.3.3 with respect to ISOs,  the  Administrator
may  approve  the grant of Options  or SARs  under the Plan to  persons  who are
expected to become employees, directors, consultants or advisers of the Company,
but are  not  employees,  directors,  consultants  or  advisers  at the  date of
approval.

                                       2
<PAGE>

6.       TERMS AND CONDITIONS OF OPTIONS AND SARS

         Each  Option  and SAR  granted  under the Plan  shall be subject to the
terms and  conditions  set forth in  Section  6.1.  NQOs and SARs  shall also be
subject to the terms and  conditions set forth in Section 6.2, but not those set
forth in Section 6.3. ISOs shall also be subject to the terms and conditions set
forth in  Section  6.3,  but not those set forth in Section  6.2.  SARs shall be
subject to the terms and conditions of Section 6.4.

         6.1 Terms and Conditions to Which All Options and SARs Are Subject. All
Options and SARs granted under the Plan shall be subject to the following  terms
and conditions:

         6.1.1 Changes in Capital  Structure.  Subject to Section 6.1.2,  if the
Common Stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization,  combination or reclassification, or if
the  Company  effects  a  spin-off  of  the  Company's  subsidiary,  appropriate
adjustments shall be made by the Administrator,  in its sole discretion,  in (a)
the number and class of shares of stock  subject to the Plan and each Option and
SAR outstanding  under the Plan, and (b) the exercise price of each  outstanding
Option;  provided,  that the Company  shall not be required to issue  fractional
shares as a result  of any such  adjustments.  Any  adjustment,  however,  in an
outstanding Option shall be made without change in the total price applicable to
the unexercised portion of the Option but with a corresponding adjustment in the
price  for  each  share  covered  by the  unexercised  portion  of  the  Option.
Adjustments under this Section 6.1.1 shall be made by the  Administrator,  whose
determination  as to the nature of the  adjustments  that shall be made, and the
extent thereof, shall be final, binding, and conclusive.  If an adjustment under
this Section 6.1.1 would result in a fractional  share  interest under an option
or any installment, the Administrator's decision as to inclusion or exclusion of
that fractional share interest shall be final, but no fractional shares of stock
shall be issued under the Plan on account of any such adjustment.

         6.1.2  Corporate  Transactions.  Except as  otherwise  provided  in the
applicable  agreement,  in the  event of a  Corporate  Transaction  (as  defined
below), the Administrator  shall notify each holder of an Option or SAR at least
thirty (30) days prior thereto or as soon as may be  practicable.  To the extent
not then exercised all Options and SARs shall terminate immediately prior to the
consummation of such Corporate  Transaction unless the Administrator  determines
otherwise in its sole discretion;  provided, however, that the Administrator, in
its sole  discretion,  may (i) permit  exercise  of any Options or SARs prior to
their  termination,  even if such Options or SARs would not otherwise  have been
exercisable,  and/or (ii) provide that all or certain of the outstanding Options
and SARs shall be  assumed  or an  equivalent  Option or SAR  substituted  by an
applicable  successor  corporation  or entity or any  Affiliate of the successor
corporation  or entity.  A "Corporate  Transaction"  means (i) a liquidation  or
dissolution of the Company;  (ii) a merger or  consolidation of the Company with
or into another  corporation  or entity (other than a merger with a wholly-owned
subsidiary); iii) a tender offer shall be made and consummated for the ownership
of 35% or more of the outstanding voting securities of the Company;  (iv) a sale
of all or substantially  all of the assets of the Company;  or (v) a purchase or
other  acquisition of more than 50% of the  outstanding  stock of the Company by
one person or by more than one person acting in concert.

         6.1.3 Time of Option or SAR Exercise.  Subject to Section 5 and Section
6.3.4,  an  Option  or SAR  granted  under  the Plan  shall be  exercisable  (a)
immediately as of the effective  date of the of the applicable  agreement or (b)
in  accordance  with a schedule  or  performance  criteria  as may be set by the
Administrator and specified in the applicable agreement. However, in no case may
an Option or SAR be exercisable  until a written agreement in form and substance
satisfactory to the Company is executed by the Company and the grantee.

         6.1.4 Grant Date.  The date of grant of an Option or SAR under the Plan
shall be the date  approved or specified by the  Administrator  and reflected as
the effective date of the applicable agreement.

         6.1.5  Non-Transferability  of Rights.  Except with the express written
approval of the Administrator, which approval the Administrator is authorized to
give only with respect to NQOs and SARs, no Option or SAR granted under the Plan
shall be assignable or otherwise  transferable  by the grantee except by will or
by the laws of descent  and  distribution.  During the life of the  grantee,  an
Option or SAR shall be exercisable only by the grantee or permitted transferee.

                                       3
<PAGE>

         6.1.6  Payment.  Except as provided  below,  payment in full,  in cash,
shall be made for all  Common  Stock  purchased  at the time  written  notice of
exercise of an Option is given to the  Company  and the  proceeds of any payment
shall be considered  general  funds of the Company.  The  Administrator,  in the
exercise of its absolute  discretion after  considering any tax,  accounting and
financial  consequences,  may  authorize  any  one  or  more  of  the  following
additional methods of payment:

               (a) Subject to the Sarbanes-Oxley Act of 2002,  acceptance of the
optionee's  full recourse  promissory  note for all or part of the Option price,
payable  on such terms and  bearing  such  interest  rate as  determined  by the
Administrator  (but in no event less than the minimum  interest  rate  specified
under the Code at which no additional  interest or original issue discount would
be imputed),  which  promissory  note may be either secured or unsecured in such
manner as the Administrator shall approve (including,  without limitation,  by a
security interest in the shares of the Company);

               (b) Subject to the discretion of the  Administrator and the terms
of the stock option agreement  granting the Option,  delivery by the optionee of
shares of Common  Stock  already  owned by the  optionee  for all or part of the
Option price, provided the fair market value (determined as set forth in Section
6.1.9) of such  shares of Common  Stock is equal on the date of  exercise to the
Option  price,  or such portion  thereof as the optionee is authorized to pay by
delivery of such stock;

               (c) Subject to the discretion of the  Administrator,  through the
surrender of shares of Common Stock then  issuable  upon exercise of the Option,
provided the fair market  value  (determined  as set forth in Section  6.1.9) of
such  shares  of Common  Stock is equal on the date of  exercise  to the  Option
price, or such portion thereof as the optionee is authorized to pay by surrender
of such stock; and

               (d) By means of so-called  cashless  exercises as permitted under
applicable  rules and regulations of the Securities and Exchange  Commission and
the Federal Reserve Board.

         6.1.7  Withholding and Employment Taxes. At the time of exercise and as
a  condition  thereto,  or at such other  time as the amount of such  obligation
becomes determinable, the grantee of an Option or SAR shall remit to the Company
in cash all applicable  federal and state withholding and employment taxes. Such
obligation to remit may be satisfied,  if authorized by the Administrator in its
sole   discretion,   after   considering  any  tax,   accounting  and  financial
consequences,  by the holder's (i) delivery of a promissory note in the required
amount on such terms as the Administrator  deems appropriate,  (ii) tendering to
the Company  previously  owned shares of Common Stock or other securities of the
Company with a fair market value equal to the required amount, or (iii) agreeing
to have shares of Common  Stock (with a fair market  value equal to the required
amount),  which are acquired upon exercise of the Option or SAR, withheld by the
Company.

         6.1.8 Other Provisions.  Each Option and SAR granted under the Plan may
contain such other terms,  provisions,  and conditions not inconsistent with the
Plan as may be determined by the  Administrator,  and each ISO granted under the
Plan shall include such  provisions  and  conditions as are necessary to qualify
the Option as an "incentive  stock option"  within the meaning of Section 422 of
the Code.

         6.1.9 Determination of Value. For purposes of the Plan, the fair market
value of Common Stock or other  securities of the Company shall be determined as
follows:

               (a) If the  stock  of  the  Company  is  listed  on a  securities
exchange or is regularly quoted by a recognized  securities  dealer, and selling
prices are  reported,  its fair market value shall be the closing  price of such
stock on the date the value is to be  determined,  but if selling prices are not
reported,  its fair market  value shall be the mean between the high bid and low
asked  prices  for such stock on the date the value is to be  determined  (or if
there are no quoted  prices for the date of grant,  then for the last  preceding
business day on which there were quoted prices).

                                       4
<PAGE>

               (b) In the absence of an  established  market for the stock,  the
fair  market  value   thereof   shall  be   determined  in  good  faith  by  the
Administrator,  with reference to the Company's net worth,  prospective  earning
power,  dividend-paying  capacity,  and other  relevant  factors,  including the
goodwill of the Company,  the economic  outlook in the Company's  industry,  the
Company's position in the industry, the Company's management,  and the values of
stock of other corporations in the same or a similar line of business.

         6.1.10 Option and SAR Term. No Option or SAR shall be exercisable  more
than 10 years after the date of grant,  or such lesser  period of time as is set
forth in the applicable agreement (the end of the maximum exercise period stated
in the agreement is referred to in the Plan as the "Expiration Date").

         6.2  Terms and  Conditions  to Which  Only  NQOs and SARs Are  Subject.
Options  granted  under the Plan which are  designated as NQOs and SARs shall be
subject to the following terms and conditions:

         6.2.1 Exercise  Price.  The exercise price of an NQO and the base value
of an SAR shall be the amount  determined by the  Administrator  as specified in
the option or SAR agreement, but shall not be less than the fair market value of
the Common Stock on the date of grant (determined under Section 6.1.9).

         6.2.2  Termination of Employment.  Except as otherwise  provided in the
applicable  agreement,  if for any reason a grantee ceases to be employed by the
Company  or any of its  Affiliates,  Options  that are NQOs and SARs held at the
date of termination (to the extent then  exercisable)  may be exercised in whole
or in part at any time within  ninety (90) days of the date of such  termination
(but in no event after the Expiration Date). For purposes of this Section 6.2.2,
"employment" includes service as a director, consultant or adviser. For purposes
of this Section 6.2.2, a grantee's  employment  shall not be deemed to terminate
by reason of the grantee's  transfer  from the Company to an Affiliate,  or vice
versa, or sick leave,  military leave or other leave of absence  approved by the
Administrator,  if the period of any such leave does not exceed ninety (90) days
or, if longer,  if the  grantee's  right to  reemployment  by the Company or any
Affiliate is guaranteed either contractually or by statute.

         6.3 Terms  and  Conditions  to Which  Only  ISOs Are  Subject.  Options
granted  under the Plan  which are  designated  as ISOs  shall be subject to the
following terms and conditions:

         6.3.1  Exercise  Price.  The exercise price of an ISO shall not be less
than the fair market value  (determined in accordance with Section 6.1.9) of the
stock  covered  by the Option at the time the Option is  granted.  The  exercise
price of an ISO granted to any person who owns, directly or by attribution under
the Code  (currently  Section  424(d)),  stock  possessing more than ten percent
(10%) of the total combined  voting power of all classes of stock of the Company
or of any Affiliate (a "Ten Percent Stockholder") shall in no event be less than
one  hundred  ten  percent  (110%)  of the  fair  market  value  (determined  in
accordance  with Section  6.1.9) of the stock  covered by the Option at the time
the Option is granted.

         6.3.2 Disqualifying  Dispositions.  If stock acquired by exercise of an
ISO granted pursuant to the Plan is disposed of in a "disqualifying disposition"
within  the  meaning of Section  422 of the Code (a  disposition  within two (2)
years from the date of grant of the Option or within one year after the issuance
of such stock on exercise of the  Option),  the holder of the stock  immediately
before the disposition  shall promptly notify the Company in writing of the date
and terms of the disposition and shall provide such other information  regarding
the Option as the Company may reasonably require.

         6.3.3 Grant Date. If an ISO is granted in anticipation of employment as
provided in Section  5.4, the Option shall be deemed  granted,  without  further
approval,  on the date the grantee assumes the employment  relationship  forming
the basis for such grant,  and, in addition,  satisfies all  requirements of the
Plan for Options granted on that date.

         6.3.4 Term.  Notwithstanding  Section 6.1.10, no ISO granted to any Ten
Percent Stockholder shall be exercisable more than five (5) years after the date
of grant.

                                       5
<PAGE>

         6.3.5  Termination of Employment.  Except as otherwise  provided in the
stock option  agreement,  if for any reason an optionee ceases to be employed by
the Company or any of its Affiliates,  Options that are ISOs held at the date of
termination  (to the extent then  exercisable)  may be  exercised in whole or in
part at any  time  within  90 days of the date of  termination  (but in no event
after the Expiration  Date).  For purposes of this Section 6.3.5,  an optionee's
employment shall not be deemed to terminate by reason of the optionee's transfer
from the Company to an Affiliate,  or vice versa, or sick leave,  military leave
or other leave of absence  approved by the  Administrator,  if the period of any
such leave does not exceed  ninety  (90) days or, if longer,  if the  optionee's
right to  reemployment  by the Company or any  Affiliate  is  guaranteed  either
contractually or by statute.

         6.4 Terms and Conditions  Applicable Solely to SARs. In addition to the
other  terms and  conditions  applicable  to SARs in this  Section 6, the holder
shall be entitled  to receive on exercise of an SAR only Common  Stock at a fair
market value equal to the benefit to be received by the exercise.

7.       MANNER OF EXERCISE

         7.1 An optionee wishing to exercise an Option or SAR shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the  Administrator,  accompanied by payment
of the exercise price and/or withholding taxes as provided in Sections 6.1.6 and
6.1.7.  The date the Company  receives  written notice of an exercise  hereunder
accompanied by the applicable payment will be considered as the date such Option
or SAR was exercised.

         7.2  Promptly  after  receipt of  written  notice of  exercise  and the
applicable payments called for by Section 7.1, the Company shall,  without stock
issue or transfer  taxes to the holder or other person  entitled to exercise the
Option or SAR,  deliver  to the  holder or such other  person a  certificate  or
certificates  for the requisite  number of shares of Common  Stock.  A holder or
permitted  transferee  of an Option or SAR  shall not have any  privileges  as a
stockholder  with  respect to any shares of Common  Stock to be issued until the
date of issuance  (as  evidenced  by the  appropriate  entry on the books of the
Company or a duly authorized transfer agent) of such shares.

8.       RESTRICTED STOCK

         8.1 Grant or Sale of Restricted Stock.

         8.1.1 No awards of  restricted  stock  shall be granted  under the Plan
after ten (10) years from the date of adoption of the Plan by the Board.

         8.1.2 The  Administrator  may issue  Common  Stock  under the Plan as a
grant  or for  such  consideration  (including  services,  and,  subject  to the
Sarbanes-Oxley   Act  of  2002,   promissory   notes)  as   determined   by  the
Administrator. Common Stock issued under the Plan shall be subject to the terms,
conditions and restrictions  determined by the  Administrator.  The restrictions
may include restrictions concerning  transferability,  repurchase by the Company
and forfeiture of the shares issued,  together with such other  restrictions  as
may be determined by the  Administrator.  If shares are subject to forfeiture or
repurchase  by the Company,  all  dividends or other  distributions  paid by the
Company  with  respect to the shares may be retained  by the  Company  until the
shares are no longer  subject to  forfeiture  or  repurchase,  at which time all
accumulated  amounts  shall be paid to the  recipient.  All Common  Stock issued
pursuant to this  Section 8 shall be subject to a purchase  or grant  agreement,
which shall be executed by the  Company  and the  prospective  recipient  of the
Common Stock prior to the delivery of  certificates  representing  such stock to
the  recipient.   The  purchase  or  grant  agreement  may  contain  any  terms,
conditions,  restrictions,   representations  and  warranties  required  by  the
Administrator.  The certificates  representing the shares shall bear any legends
required by the  Administrator.  The  Administrator may require any purchaser of
restricted stock to pay to the Company in cash upon demand amounts  necessary to
satisfy any applicable federal, state or local tax withholding requirements.  If
the purchaser fails to pay the amount demanded,  the  Administrator may withhold
that  amount  from  other  amounts  payable  by the  Company  to the  purchaser,
including   salary,   subject  to  applicable  law.  With  the  consent  of  the
Administrator  in its sole  discretion,  a purchaser may deliver Common Stock to
the  Company  to satisfy  this  withholding  obligation.  Upon the  issuance  of
restricted  stock,  the number of shares  reserved for  issuance  under the Plan
shall be reduced by the number of shares issued.

                                       6
<PAGE>

         8.2  Changes  in  Capital  Structure.  In the  event of a change in the
Company's  capital  structure,  as  described  in  Section  6.1.1,   appropriate
adjustments shall be made by the Administrator,  in its sole discretion,  in the
number and class of  restricted  stock  subject  to the Plan and the  restricted
stock outstanding under the Plan; provided,  however, that the Company shall not
be required to issue fractional shares as a result of any such adjustments.

         8.3 Corporate Transactions. In the event of a Corporate Transaction, as
defined in Section 6.1.2 hereof,  to the extent not  previously  forfeited,  all
restricted  stock shall be forfeited  immediately  prior to the  consummation of
such Corporate Transaction unless the Administrator  determines otherwise in its
sole  discretion;  provided,  however,  that  the  Administrator,  in  its  sole
discretion,  may  remove  any  restrictions  as to  any  restricted  stock.  The
Administrator  may,  in  its  sole  discretion,  provide  that  all  outstanding
restricted  stock  participate in the Corporate  Transaction  with an equivalent
stock  substituted  by  an  applicable  successor  corporation  subject  to  the
restriction.

9.       EMPLOYMENT OR CONSULTING RELATIONSHIP

         Nothing  in the  Plan  or any  Option  granted  under  the  Plan  shall
interfere  with or limit in any way the  right of the  Company  or of any of its
Affiliates to terminate the  employment,  consulting or advising of any optionee
or  restricted  stock  holder at any  time,  nor  confer  upon any  optionee  or
restricted stock holder any right to continue in the employ of, or consult with,
or advise, the Company or any of its Affiliates.

10.      CONDITIONS UPON ISSUANCE OF SHARES

         10.1  Securities  Act.  Shares  of  Common  Stock  shall  not be issued
pursuant to the exercise of an Option or the receipt of restricted  stock unless
the exercise of such Option or such receipt of restricted stock and the issuance
and  delivery of such shares  pursuant  thereto  shall  comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended (the "Securities Act").

         10.2 Non-Compete  Agreement.  As a further  condition to the receipt of
Common Stock  pursuant to the exercise of an Option or the receipt of restricted
stock,  the  optionee or recipient  of  restricted  stock may be required not to
render  services for any  organization,  or engage directly or indirectly in any
business, competitive with the Company at any time during which (i) an Option is
outstanding  to such  Optionee  and for six (6) months  after any exercise of an
Option or the receipt of Common Stock  pursuant to the exercise of an Option and
(ii)  restricted  stock is owned by such  recipient and for six (6) months after
the  restrictions  on such restricted  stock lapse.  Failure to comply with this
condition  shall  cause  such  Option and the  exercise  or  issuance  of shares
thereunder  and/or the award of restricted stock to be rescinded and the benefit
of such exercise, issuance or award to be repaid to the Company.

11.      NON-EXCLUSIVITY OF THE PLAN

         The  adoption  of the Plan  shall  not be  construed  as  creating  any
limitations  on  the  power  of  the  Company  to  adopt  such  other  incentive
arrangements  as it may  deem  desirable,  including,  without  limitation,  the
granting of stock options other than under the Plan.

12.      MARKET STAND-OFF

         Each optionee, holder of an SAR or recipient of restricted stock, if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
Securities Act, shall not sell or otherwise  transfer any shares of Common Stock
acquired  upon exercise of Options,  SARs or receipt of restricted  stock during
the 180-day period  following the effective date of a registration  statement of
the  Company  filed  under the  Securities  Act;  provided,  however,  that such
restriction  shall apply only to a  registration  statement of the Company which
includes  securities  to be sold on behalf of the  Company  to the  public in an
underwritten public offering under the Securities Act and the restriction period
shall not exceed 90 days after the registration statement becomes effective.

                                       7
<PAGE>

13.      AMENDMENTS TO PLAN

         The Board may at any time  amend,  alter,  suspend or  discontinue  the
Plan.  Without  the  consent  of an  optionee,  holder  of an SAR or  holder  of
restricted stock, no amendment,  alteration,  suspension or  discontinuance  may
adversely  affect  such  person's  outstanding  Option(s),  SAR(s)  or the terms
applicable to restricted stock except to conform the Plan and ISOs granted under
the Plan to the  requirements  of federal or other tax laws relating to ISOs. No
amendment,  alteration,  suspension or discontinuance  shall require stockholder
approval unless (a) stockholder approval is required to preserve incentive stock
option  treatment  for federal  income tax  purposes or (b) the Board  otherwise
concludes that stockholder approval is advisable.

14.      EFFECTIVE DATE OF PLAN; TERMINATION

         The Plan shall become  effective upon adoption by the Board;  provided,
however,  that no Option or SAR shall be  exercisable  unless and until  written
consent of the  stockholders of the Company,  or approval of stockholders of the
Company voting at a validly called  stockholders'  meeting,  is obtained  within
twelve (12) months  after  adoption by the Board.  If any Options or SARs are so
granted and stockholder approval shall not have been obtained within twelve (12)
months of the date of adoption of the Plan by the Board,  such  Options and SARs
shall terminate  retroactively  as of the date they were granted.  Awards may be
made  under the Plan and  exercise  of Options  and SARs shall  occur only after
there has been compliance with all applicable federal and state securities laws.
The Plan (but not  Options  and SARs  previously  granted  under the Plan) shall
terminate ten (10) years from the date of its adoption by the Board. Termination
shall not affect any  outstanding  Options  or SARs or the terms  applicable  to
previously awarded restricted stock.

                                       8

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