Document:

EXHIBIT 10.4

 

CUTTER &
BUCK INC.

1999
NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN

 

1.                                       Purpose
of the Plan.  The purposes of this
1999 Nonemployee Director Stock Incentive 
Plan (the “Plan”) are to promote the long-term success of Cutter &
Buck Inc. (the “Company”) by creating a long-term mutuality of interests
between the nonemployee directors and shareholders of the Company, to provide
an additional inducement for such directors to remain with the Company, and to
provide a means through which the Company may attract able persons to serve as
directors of the Company.

 

2.                                       Administration.

 

a.                                       The
Plan shall be administered by the Compensation Committee (the “Committee”) of
the Board of Directors of the Company (the “Board”).

 

b.                                      The
Committee shall interpret the Plan and prescribe such rules, regulations and
procedures in connection with the operations of the Plan as it shall deem to be
necessary and advisable for the administration of the Plan consistent with the
purposes of the Plan.  All questions of
interpretation and application of the Plan, or as to stock options granted
under the Plan, shall be subject to the determination of the Committee, which
shall be final and binding.

 

c.                                       Notwithstanding
the above, the selection of the directors to whom stock options are to be
granted, the timing of such grants, the number of shares subject to any stock
option, the exercise price of any stock option, the periods during which any
stock option may be exercised and the term of any stock option shall be as
hereinafter provided, and the Committee shall have no discretion as to such
matters.

 

3.                                       Shares
Available Under the Plan.  The
aggregate number of shares which may be issued and as to which grants of stock
options may be made under the Plan is 163,569 shares of the common stock of the
Company (without taking into effect any split of such shares), no par value
(the “Common Stock”), subject to adjustment and substitution as set forth in Section 6.  If any stock option granted under the Plan is
canceled by mutual consent or terminates or expires for any reason without
having been exercised in full, the number of shares subject to such option
shall again be available for purposes of the Plan.  The shares which may be issued under the Plan
may be authorized but unissued shares, treasury shares, or both.

 

4.                                       Grant
of Stock Options.  On the third
business day following the day of each annual meeting of the shareholders of
the Company, each person who is then a member of the Board and who is not then
an employee of the Company or any of its subsidiaries and is not then an
independent consultant (other than in his or her capacity as a member of the
Board) to the Company or any of its subsidiaries (collectively a “Nonemployee
Director”) shall be granted, automatically and without further action by the
Board or the Committee, a “nonstatutory stock option” (i.e., a stock option
which does not qualify under Section 422 or 423 of the Internal Revenue
Code of

 

 

1986 (the “Code”)) to
purchase 7,500 shares of Common Stock, subject to adjustment and substitution
as set forth in Section 6.  If the
number of shares then remaining available for the grant of stock options under
the Plan at any time is not sufficient for each Nonemployee Director then
eligible to be granted an option for 7,500 shares (or the number of adjusted or
substituted shares pursuant to Section 6), then each such Nonemployee
Director shall be granted an option for a number of whole shares equal to the
number of shares then remaining available divided by the number of Nonemployee
Directors then eligible for grant of an option in accordance with this Section 4,
disregarding any fractions of a share.

 

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

 

a.                                       The
purchase price at which each stock option may be exercised (the “Option Price”)
shall be one hundred percent (100%) of the fair market value of the shares of
Common Stock covered by the stock option on the date of grant, determined as
provided in Section 5.g.

 

b.                                      The
Option Price shall be paid in full upon exercise, in cash in United States
dollars (including check, bank draft or money order); provided, however, that
in lieu of such cash the person exercising the stock option may pay the Option
Price in whole or in part by delivering to the Company shares of the Common
Stock having a fair market value on the date of exercise of the stock option,
determined as provided in Section 5.g, equal to the Option Price for the
shares being purchased; except that (i) any portion of the Option Price
representing a fraction of a share shall in any event be paid in cash, and (ii) no
shares of the Common Stock which have been held for less than six months may be
delivered in payment of the Option Price of a stock option.  Delivery of shares may also be accomplished
through the effective transfer to the Company of shares held by a broker or
other agent.  The Company will also
cooperate with any person exercising a stock option who participates in a
cashless exercise program of a broker or other agent under which all or part of
the shares received upon exercise of the stock option are sold through the
broker or other agent or under which the broker or other agent make a loan to
such person.  Notwithstanding the foregoing,
the exercise of the stock option shall not be deemed to occur and no shares of
Common Stock will be issued by the Company upon exercise of the stock option
until the Company has received payment of the Option Price in full.  The date of exercise of a stock option shall
be determined under procedures established by the Committee, and as of the date
of exercise, the person exercising the stock option shall be considered for all
purposes to be the owner of the shares of Common Stock with respect to which
the stock option has been exercised. 
Payment of the Option Price with shares shall not increase the number of
shares of the Common Stock which may be issued under the Plan as provided in Section 3.

 

c.                                       No
stock option shall be exercisable during the first six months of its term
except in case of death as provided in Section 5.e.  Subject to the preceding sentence and subject
to Section 5.e, which provides for earlier termination of a stock option
under certain circumstances, each stock option shall be exercisable for ten
years from the date of grant and not thereafter.  A stock option to the extent exercisable at
any time may be exercised in whole or in part.

 

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d.                                      No
stock option shall be transferable by the grantee otherwise than by will, or if
the grantee dies intestate, by the laws of descent and distribution of the
state of domicile of the grantee at the time of death.

 

e.                                       If
a grantee ceases to be a director of the Company for any reason, any outstanding
stock options held by the grantee shall be exercisable according to the
following provisions:

 

(i)                                     If a grantee
ceases to be a director of the Company for any reason other than resignation,
removal for cause, or death, any outstanding stock option held by such grantee
shall be exercisable by the grantee (but only if exercisable by the grantee
immediately prior to ceasing to be director) at any time prior to the
expiration date of such stock option or within three years after the date the
grantee ceases to be a director, whichever is the shorter period;

 

(ii)                                  If during his term of
office as a director a grantee resigns from the Board or is removed from office
for cause, any outstanding stock option held by the grantee which is not
exercisable by the grantee immediately prior to resignation or removal shall
terminate as of the date of resignation or removal, and any outstanding stock
option held by the grantee which is exercisable by the grantee immediately
prior to resignation or removal shall be exercisable by the grantee at any time
prior to the expiration date of such stock option or within three months after
the date of resignation or removal of the grantee, whichever is the shorter
period;

 

(iii)                               Following the death of a
grantee during service as a director of the Company, any outstanding stock
option held by the grantee at the time of death (whether or not exercisable by
the grantee immediately prior to death) shall be exercisable by the person
entitled to do so under the will of the grantee, or, if the grantee shall fail
to make testamentary disposition of the stock option or shall die intestate, by
the legal representative of the grantee at any time prior to the expiration
date of such stock option or within three years after the date of death of the
grantee, whichever is the shorter period; and

 

(iv)                              Following the death of a
grantee after ceasing to be a director and during a period when a stock option
is exercisable under clause (ii) above, the stock option shall be
exercisable by such person entitled to do so under the will of the grantee or
by such legal representative at any time prior to the expiration date of the
stock option or within one year after the date of death, whichever is the
shorter period.

 

A stock option held by a
grantee who has ceased to be a director of the Company shall terminate upon the
expiration of the applicable exercise period, if any, specified in this Section 5.e.

 

f.                                         All
stock options shall be confirmed by an agreement, or an amendment thereto,
which shall be executed on behalf of the Company by the Chief Executive Officer
(if other than the President), the President or any Vice President and by the
grantee.

 

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g.                                      Fair
market value of the Common Stock shall be the mean between the following
prices, as applicable, for the date as of which fair market value is to be
determined, as quoted in The Wall Street Journal
(or in such other reliable publication as the Committee, in its discretion, may
determine to rely upon):  (i) if the
Common Stock is listed on the New York Stock Exchange, the highest and lowest
sales prices per share of the Common Stock as quoted in the NYSE-Composite
Transactions listing for such date, (ii) if the Common Stock is not listed
on such exchange, the highest and lowest sales prices per share of the Common
Stock for such date on (or on any composite index including) the principal
United States securities exchange registered under the 1934 Act on which the
Common Stock is listed, or (iii) if the Common Stock is not listed on any
such exchange, the highest and lowest sales prices per share of the Common
Stock for such date on the National Association of Securities Dealers Automated
Quotations System or any successor system then in use (“NASDAQ”).  If there are no such sale price quotations
for the date as of which fair market value is to be determined but there are
such sale price quotations within a reasonable period both before and after
such date, then fair market value shall be determined by taking a weighted
average of the means between the highest and lowest sales prices per share of
the Common Stock as so quoted on the nearest date before and the nearest date
after the date as of which fair market value is to be determined.  The average should be weighted inversely by
the respective numbers of trading days between the selling dates and the date
as of which fair market value is to be determined.  If there are no such sale price quotations on
or within a reasonable period both before and after the date as of which fair
market value is to be determined, then fair market value of the Common Stock
shall be the mean between the bona fide bid and asked prices per share of
Common Stock as so quoted for such date on NASDAQ, or if none, the weighted
average of the means between such bona fide bid and asked prices on the nearest
trading date before and the nearest trading date after the date as of which
fair market value is to be determined, if both such dates are within a
reasonable period.  The average is to be determined
in the manner described above in this Section 5.g.  If the fair market value of the Common Stock
cannot be determined on the basis previously set forth in this Section 5.g
for the date as of which fair market value is to be determined, the Committee
shall in good faith determine the fair market value of the Common Stock on such
date.  Fair market value shall be
determined without regard to any restriction other than a restriction which, by
its terms, will never lapse.

 

h.                                      The
obligation of the Company to issue shares of the Common Stock under the Plan
shall be subject to (i) the effectiveness of a registration statement
under the Securities Act of 1933, as amended, with respect to such shares, if
deemed necessary or appropriate by counsel for the Company, (ii) the
condition that the shares shall have been listed (or authorized for listing
upon official notice of issuance) upon each stock exchange, if any, on which
the Common Stock may then be listed and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect.

 

Subject to the foregoing
provision of this Section 5 and the other provisions of the Plan, any
stock option granted under the Plan shall be subject to such restrictions and
other terms and conditions, if any, as shall be determined, in its discretion,
by the Committee and set forth in the agreement referred to in Section 5.f,
or an amendment thereto.

 

4

 

6.                                       Adjustment
and Substitution of Shares.  If a
dividend or other distribution shall be declared upon the Common Stock payable
in shares of the Common Stock, then (i) the number of shares of the Common
Stock set forth in Section 4, (ii) the number of shares of the Common
Stock then subject to any outstanding stock options, and (iii) the number
of shares of the Common Stock which may be issued under the Plan but are not
then subject to outstanding stock options on the date fixed for determining the
shareholders entitled to receive such stock dividend or distribution, shall be
adjusted by adding thereto the number of shares of the Common Stock which would
have been distributable thereon if such shares had been outstanding on such
date.

 

If the outstanding shares
of the Common Stock shall be changed into or exchangeable for a different
number or kind of shares of stock or other securities of the Company or another
Company, whether through reorganization, reclassification, recapitalization,
stock split up, combination of shares, merger or consolidation, then there shall
be substituted for each share of the Common Stock set forth in Section 4,
for each share of the Common Stock subject to any then outstanding stock option
and for each share of the Common Stock which may be issued under the Plan but
which is not then subject to any outstanding stock option, the number and kind
of shares of stock or other securities into which each outstanding share of the
Common Stock shall be so changed or for which each such share shall be
exchangeable.

 

In case of any adjustment
or substitution as provided for in the first two paragraphs of this Section 6,
the aggregate Option Price for all shares subject to each then outstanding
stock option prior to such adjustment or substitution shall be the aggregate
Option Price for all shares of stock or other securities (including any
fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares.  Any
new Option Price per share shall be carried to at least three decimal places
with the last decimal place rounded upwards to the nearest whole number.

 

If the outstanding Common
Stock shall be changed in value by reason of any spinoff, split off or split
up, or dividend in partial liquidation, dividend in property other than cash or
extraordinary distribution to holders of the Common Stock, the Committee shall
make any adjustments to any then outstanding stock option which it determines
are equitably required to prevent dilution or enlargement of the rights of
grantees which would otherwise result from any such transaction.

 

No adjustment or
substitution provided for in this Section 6 shall require the Company to
issue or sell a fraction of a share or other security.  Accordingly, all fractional shares or other
securities which result from any such adjustment or substitution shall be
eliminated and not carried forward to any subsequent adjustment or
substitution.

 

Except as provided in
this Section 6, a grantee shall have no rights by reason of any issue by
the Company of stock of any class or securities convertible into stock of any
class, any subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the number
of shares of stock of any class.

 

5

 

7.                                       Effect
of the Plan on the Rights of Company and Shareholders.  Nothing in the Plan, in any stock option
granted under the Plan, or in any stock option agreement shall confer any right
to any person to continue as a director of the Company or interfere in any way
with the rights of the shareholders of the Company or the Board to elect and
remove directors.

 

8.                                       Amendment
and Termination.  The right to amend
or to terminate the Plan at any time are hereby specifically reserved to the
Board; provided that no such termination shall terminate any outstanding stock
options granted under the Plan; and provided further that no amendment of the
Plan shall be made without shareholder approval if shareholder approval of the
amendment is at the time required for stock options under the Plan to qualify
for any exemption from Section 16(b) of the 1934 Act provided by Rule 16b-3,
or any successor rule, or by the rules of any stock exchange on which the
Common Stock may then be listed.  No
amendment or termination of the Plan shall, without the written consent of the
holder of a stock option theretofore awarded under the Plan, adversely affect
the rights of such holder with respect thereto.

 

9.                                       Effective
Date and Duration of Plan.  The Plan
shall become effective upon approval by the affirmative vote of the holders of
a majority of the Common Stock present in person or by proxy and entitled to
vote at a duly called and convened meeting of such holders, and the first stock
options granted hereunder shall be granted on the third business day
thereafter.

 

6EXHIBIT 10.5

 

CUTTER & BUCK INC.

2000 STOCK INCENTIVE PLAN

 

ARTICLE 1.                             INTRODUCTION.

 

The Plan was adopted by the Board on June 30,
2000, subject to shareholder approval. 
The purpose of the Plan is to promote the long-term success of the
Company and the creation of shareholder value by (a) encouraging Employees
and Consultants to focus on critical long-range objectives, (b) encouraging
the attraction and retention of Employees and Consultants with exceptional
qualifications and (c) linking Employees and Consultants directly to
shareholder interests through increased stock ownership.  The Plan seeks to achieve this purpose by
providing for Awards in the form of Restricted Shares, Options (which may
constitute incentive stock options or nonstatutory stock options) or stock
appreciation rights.

 

The Plan shall be governed by, and construed in
accordance with, the laws of the State of Washington.

 

ARTICLE 2.                             ADMINISTRATION.

 

2.1                                 Committee Composition. 
The Plan shall be administered by the Committee.  The Committee shall consist exclusively of
two or more directors of the Company, who shall be appointed by the Board.  In addition, the composition of the Committee
shall satisfy:

 

(a)                                  Such
requirements as the Securities and Exchange Commission may establish for administrators
acting under plans intended to qualify for exemption under Rule 16b-3 (or
its successor) under the Exchange Act; and

 

(b)                                 Such
requirements as the Internal Revenue Service may establish for outside
directors acting under plans intended to qualify for exemption under section 162(m)(4)(C) of
the Code.

 

2.2                                 Committee Responsibilities. 
The Committee shall (a) select the Employees and Consultants who
are to receive Awards under the Plan, (b) determine the type, number,
vesting requirements and other features and conditions of such Awards, (c) interpret
the Plan and (d) make all other decisions relating to the operation of the
Plan.  The Committee may adopt such rules or
guidelines as it deems appropriate to implement the Plan.  The Committee’s determinations under the Plan
shall be final and binding on all persons.

 

2.3                                 Committee for Non-Officer Grants.  The Board may also appoint a secondary
committee of the Board, which shall be composed of two or more directors of the
Company who need not satisfy the requirements of Section 2.1.  Such secondary committee may administer the
Plan with respect to Employees and Consultants who are not considered officers
or directors of the Company under section 16 of the Exchange Act, may
grant Awards under the Plan to such Employees and Consultants and may determine
all features and conditions of such Awards. 
Within the limitations of this Section 2.3, any reference in the
Plan to the Committee shall include such secondary committee.

 

 

ARTICLE 3.                             SHARES
AVAILABLE FOR GRANTS.

 

3.1                                 Basic Limitation.  Common Shares issued pursuant to the Plan may
be authorized but unissued shares.  The
aggregate number of Options, SARs and Restricted Shares awarded under the Plan
shall not exceed (a) 1,026,031 plus (b) the additional Common Shares
described in Sections 3.2 and 3.3. 
Notwithstanding the foregoing, the aggregate number of Restricted Shares
awarded under the Plan shall not exceed 100,000.  The limitations of this Section 3.1
shall be subject to adjustment pursuant to Article 9.

 

3.2                                 Additional Shares.  If
Restricted Shares or Common Shares issued upon the exercise of Options are
forfeited, then such Common Shares shall again become available for Awards
under the Plan.  If Options or SARs are
forfeited or terminate for any other reason before being exercised, then the
corresponding Common Shares shall again become available for Awards under the
Plan.  If SARs are exercised, then only
the number of Common Shares (if any) actually issued in settlement of such SARs
shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan.  The foregoing notwithstanding, the aggregate
number of Common Shares that may be issued under the Plan upon the exercise of
ISOs shall not be increased when Restricted Shares or other Common Shares are
forfeited.

 

3.3                                 Dividend Equivalents. 
Any dividend equivalents paid or credited under the Plan shall not be
applied against the number of Restricted Shares, Options or SARs available for
Awards.

 

ARTICLE 4.                             ELIGIBILITY.

 

4.1                                 Incentive Stock Options. 
Only Employees who are common-law employees of the Company, a Parent or
a Subsidiary shall be eligible for the grant of ISOs.  In addition, an Employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in section 422(c)(6) of
the Code are satisfied.

 

4.2                                 Other Grants.  Only
Employees and Consultants shall be eligible for the grant of Restricted Shares,
NSOs or SARs.

 

ARTICLE 5.                             OPTIONS.

 

5.1                                 Stock
Option Agreement.  Each grant of an
Option under the Plan shall be evidenced by a Stock Option Agreement between
the Optionee and the Company.  Such
Option shall be subject to all applicable terms of the Plan and may be subject
to any other terms that are not inconsistent with the Plan.  The Stock Option Agreement shall specify
whether the Option is an ISO or an NSO. 
The provisions of the various Stock Option Agreements entered into under
the Plan need not be identical.  Options
may be granted in consideration of a reduction in the Optionee’s other
compensation.

 

2

 

5.2                                 Number of Shares.  Each
Stock Option Agreement shall specify the number of Common Shares subject to the
Option and shall provide for the adjustment of such number in accordance with Article 9.  Options granted to any Optionee in a single
fiscal year of the Company shall not cover more than 50,000 Common Shares,
except that Options granted to a new Employee in the fiscal year of the Company
in which his or her service as an Employee first commences shall not cover more
than 100,000 Common Shares.  The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 9.

 

5.3                                 Exercise Price.  Each
Stock Option Agreement shall specify the Exercise Price; provided that the
Exercise Price under an Option shall in no event be less than 100% of the Fair
Market Value of a Common Share on the date of grant.

 

5.4                                 Exercisability and Term. 
Each Stock Option Agreement shall specify the date or event when all or
any installment of the Option is to become exercisable.  The Stock Option Agreement shall also specify
the term of the Option; provided that the term of an Option shall in no event
exceed 10 years from the date of grant. 
A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee’s death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee’s service. 
Options may be awarded in combination with SARs, and such an Award may
provide that the Options will not be exercisable unless the related SARs are
forfeited.

 

5.5                                 Effect of Change in Control. 
The Committee may determine, at the time of granting an Option or
thereafter, that such Option shall become exercisable as to all or part of the
Common Shares subject to such Option in the event that a Change in Control
occurs with respect to the Company, provided that, in the case of an ISO, the
acceleration of exercisability shall not occur without the Optionee’s written
consent.

 

5.6                                 Modification or Assumption of Options.  Within the limitations of the Plan, the
Committee may modify outstanding options, but may not reprice outstanding
options or accept the cancellation of outstanding options in return for the
grant of new options for the same or a different number of shares or at the
same or a different Exercise Price.  The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.

 

5.7                                 Buyout Provisions. 
The Committee may at any time (a) offer to buy out for a payment in
cash or cash equivalents an Option previously granted or (b) authorize an
Optionee to elect to cash out an Option previously granted, in either case at
such time and based upon such terms and conditions as the Committee shall
establish.

 

ARTICLE 6.                             PAYMENT
FOR OPTION SHARES.

 

6.1                                 General Rule.  The
entire Exercise Price of Common Shares issued upon exercise of Options shall be
payable in cash or cash equivalents at the time when such Common Shares are purchased,
except as follows:

 

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(a)                                  In
the case of an ISO granted under the Plan, payment shall be made only pursuant
to the express provisions of the applicable Stock Option Agreement.  The Stock Option Agreement may specify that
payment may be made in any form(s) described in this Article 6.

 

(b)                                 In
the case of an NSO, the Committee may at any time accept payment in any form(s)
described in this Article 6.

 

6.2                                 Surrender of Stock. 
To the extent that this Section 6.2 is applicable, all or any part
of the Exercise Price may be paid by surrendering, or attesting to the
ownership of, Common Shares that are already owned by the Optionee.  Such Common Shares shall be valued at their
Fair Market Value on the date when the new Common Shares are purchased under
the Plan.  The Optionee shall not
surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.

 

6.3                                 Exercise/Sale.  To the
extent that this Section 6.3 is applicable, all or any part of the
Exercise Price and any withholding taxes may be paid by delivering (on a form
prescribed by the Company) an irrevocable direction to a securities broker
approved by the Company to sell all or part of the Common Shares being
purchased under the Plan and to deliver all or part of the sales proceeds to
the Company.

 

6.4                                 Exercise/Pledge.  To
the extent that this Section 6.4 is applicable, all or any part of the
Exercise Price and any withholding taxes may be paid by delivering (on a form
prescribed by the Company) an irrevocable direction to pledge all or part of
the Common Shares being purchased under the Plan to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company.

 

6.5                                 Promissory Note.  To
the extent that this Section 6.5 is applicable, all or any part of the
Exercise Price and any withholding taxes may be paid by delivering (on a form
prescribed by the Company) a full-recourse promissory note.

 

6.6                                 Other Forms of Payment. 
To the extent that this Section 6.6 is applicable, all or any part
of the Exercise Price and any withholding taxes may be paid in any other form
that is consistent with applicable laws, regulations and rules.

 

ARTICLE 7.                             STOCK
APPRECIATION RIGHTS.

 

7.1                                 SAR Agreement.  Each
grant of an SAR under the Plan shall be evidenced by an SAR Agreement between
the Optionee and the Company.  Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan.  The provisions of the various SAR Agreements
entered into under the Plan need not be identical.  SARs may be granted in consideration of a
reduction in the Optionee’s other compensation.

 

4

 

7.2                                 Number of Shares. 
Each SAR Agreement shall specify the number of Common Shares to which
the SAR pertains and shall provide for the adjustment of such number in
accordance with Article 9.  SARs
granted to any Optionee in a single calendar year shall in no event pertain to
more than 50,000 Common Shares, except that SARs granted to a new Employee in
the fiscal year of the Company in which his or her service as an Employee first
commences shall not pertain to more than 100,000 Common Shares.  The limitations set forth in the preceding
sentence shall be subject to adjustment in accordance with Article 9.

 

7.3                                 Exercise Price.  Each
SAR Agreement shall specify the Exercise Price. 
An SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.

 

7.4                                 Exercisability and Term. 
Each SAR Agreement shall specify the date when all or any installment of
the SAR is to become exercisable.  The
SAR Agreement shall also specify the term of the SAR.  An SAR Agreement may provide for accelerated
exercisability in the event of the Optionee’s death, disability or retirement
or other events and may provide for expiration prior to the end of its term in
the event of the termination of the Optionee’s service.  SARs may be awarded in combination with
Options, and such an Award may provide that the SARs will not be exercisable
unless the related Options are forfeited. 
An SAR may be included in an ISO only at the time of grant but may be
included in an NSO at the time of grant or thereafter.  An SAR granted under the Plan may provide
that it will be exercisable only in the event of a Change in Control.

 

7.5                                 Effect of Change in Control. 
The Committee may determine, at the time of granting an SAR or
thereafter, that such SAR shall become fully exercisable as to all Common
Shares subject to such SAR in the event that a Change in Control occurs with
respect to the Company.

 

7.6                                 Exercise of SARs. 
Upon exercise of an SAR, the Optionee (or any person having the right to
exercise the SAR after his or her death) shall receive from the Company (a) Common
Shares, (b) cash or (c) a combination of Common Shares and cash, as
the Committee shall determine.  The
amount of cash and/or the Fair Market Value of Common Shares received upon
exercise of SARs shall, in the aggregate, be equal to the amount by which the
Fair Market Value (on the date of surrender) of the Common Shares subject to
the SARs exceeds the Exercise Price.  If,
on the date when an SAR expires, the Exercise Price under such SAR is less than
the Fair Market Value on such date but any portion of such SAR has not been
exercised or surrendered, then such SAR shall automatically be deemed to be
exercised as of such date with respect to such portion.

 

7.7                                 Modification or Assumption of SARs.  Within the limitations of the Plan, the
Committee may modify outstanding SARs, but may not reprice outstanding SARs or
accept the cancellation of outstanding SARs in return for the grant of new SARs
for the same or a different number of shares and at the same or a different
exercise price.  The foregoing notwithstanding,
no modification of an SAR shall, without the consent of the Optionee, alter or
impair his or her rights or obligations under such SAR.

 

5

 

ARTICLE 8. 
RESTRICTED SHARES.

 

8.1                                 Restricted Stock Agreement. 
Each grant of Restricted Shares under the Plan shall be evidenced by a
Restricted Stock Agreement between the recipient and the Company.  Such Restricted Shares shall be subject to
all applicable terms of the Plan and may be subject to any other terms that are
not inconsistent with the Plan.  The
provisions of the various Restricted Stock Agreements entered into under the
Plan need not be identical.

 

8.2                                 Payment for Awards. 
Restricted Shares may be sold or awarded under the Plan for such
consideration as the Committee may determine, including (without limitation)
cash, cash equivalents, full-recourse promissory notes, past services and
future services.

 

8.3                                 Vesting Conditions. 
Each Award of Restricted Shares may or may not be subject to
vesting.  Vesting shall occur, in full or
in installments, upon satisfaction of the conditions specified in the
Restricted Stock Agreement.  A Restricted
Stock Agreement may provide for accelerated vesting in the event of the Participant’s
death, disability or retirement or other events.  The Committee may determine, at the time of
granting Restricted Shares or thereafter, that all or part of such Restricted
Shares shall become vested in the event that a Change in Control occurs with
respect to the Company.

 

8.4                                 Voting and Dividend Rights. 
The holders of Restricted Shares awarded under the Plan shall have the
same voting, dividend and other rights as the Company’s other
shareholders.  A Restricted Stock
Agreement, however, may require that the holders of Restricted Shares invest
any cash dividends received in additional Restricted Shares.  Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.

 

ARTICLE 9. 
PROTECTION AGAINST DILUTION.

 

9.1                                 Adjustments.  In the
event of a subdivision of the outstanding Common Shares, a declaration of a
distribution payable in Common Shares, a declaration of a distribution payable
in a form other than Common Shares in an amount that has a material effect on
the price of Common Shares, a combination or consolidation of the outstanding
Common Shares (by reclassification or otherwise) into a lesser number of Common
Shares, a recapitalization, a spin-off or a similar occurrence, the Committee
shall make such adjustments as it, in its sole discretion, deems appropriate in
one or more of:

 

(a)                                  The
number of Options, SARs and Restricted Shares available for future Awards under
Article 3;

 

(b)                                 The
limitations set forth in Sections 5.2 and 7.2;

 

(c)                                  The
number of Common Shares covered by each outstanding Option and SAR; or

 

(d)                                 The
Exercise Price under each outstanding Option and SAR.

 

6

 

Except as provided in this Article 9, a Participant shall have no
rights in connection with any of the events described above or by reason of any
issuance by the Company of stock of any class or securities convertible into
stock of any class in connection with any of the events described above, any
payment of any distribution described above.

 

9.2                                 Dissolution or Liquidation. 
To the extent not previously exercised or settled, Options and SARs
shall terminate immediately prior to the dissolution or liquidation of the
Company.

 

9.3                                 Reorganizations.  If
the Company is a party to a merger or other reorganization, outstanding Awards
shall be subject to the agreement of merger or reorganization.  Such agreement shall provide for:

 

(a)                                  The
continuation of the outstanding Awards by the Company, if the Company is a
surviving corporation;

 

(b)                                 The
assumption of the outstanding Awards by the surviving corporation or its parent
or subsidiary;

 

(c)                                  The
substitution by the surviving corporation or its parent or subsidiary of its
own awards for the outstanding Awards;

 

(d)                                 Full
exercisability and vesting, and accelerated expiration of the outstanding
Awards; or

 

(e)                                  Settlement
of the full value of the outstanding Awards in cash or cash equivalents
followed by cancellation of such Awards.

 

ARTICLE 10. 
LIMITATION ON RIGHTS.

 

10.1                           Retention Rights.  Neither
the Plan nor any Award granted under the Plan shall be deemed to give any
individual a right to remain an Employee or Consultant.  The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee or
Consultant at any time, with or without cause, subject to applicable laws, the
Company’s certificate of incorporation and by-laws and a written employment
agreement (if any).

 

10.2                           Shareholders’ Rights. 
A Participant shall have no dividend rights, voting rights or other
rights as a shareholder with respect to any Common Shares covered by his or her
Award prior to the time when a stock certificate for such Common Shares is
issued or, if applicable, the time when he or she becomes entitled to receive
such Common Shares by filing any required notice of exercise and paying any
required Exercise Price.  No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to such time, except as expressly provided in the Plan.

 

7

 

10.3                           Regulatory Requirements. 
Any other provision of the Plan notwithstanding, the obligation of the
Company to issue Common Shares under the Plan shall be subject to all
applicable laws, rules and regulations and such approval by any regulatory
body as may be required.  The Company
reserves the right to restrict, in whole or in part, the delivery of Common
Shares pursuant to any Award prior to the satisfaction of all legal
requirements relating to the issuance of such Common Shares, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.

 

ARTICLE 11. 
WITHHOLDING TAXES.

 

11.1                           General.  To the
extent required by applicable federal, state, local or foreign law, a
Participant or his or her successor shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise in
connection with the Plan or any Award granted thereunder.  The Company shall not be required to issue
any Common Shares or make any cash payment under the Plan or any Award granted
thereunder until such obligations are satisfied.

 

11.2                           Share Withholding. 
The Committee may permit a Participant to satisfy all or part of his or
her withholding or income tax obligations by having the Company withhold all or
a portion of any Common Shares that otherwise would be issued to him or her or
by surrendering all or a portion of any Common Shares that he or she previously
acquired.  Such Common Shares shall be
valued at their Fair Market Value on the date when taxes otherwise would be
withheld in cash.

 

ARTICLE 12. 
FUTURE OF THE PLAN.

 

12.1                           Term of the Plan.  The
Plan, as set forth herein, shall become effective upon approval by the Company’s
shareholders.  The Plan shall remain in
effect until it is terminated under Section 12.2, except that no ISOs
shall be granted on or after the 10th anniversary of the later of (a) the
date when the Board adopted the Plan or (b) the date when the Board
adopted the most recent increase in the number of Common Shares available under
Article 3 which was approved by the Company’s shareholders.

 

12.2                           Amendment or Termination. 
The Board may, at any time and for any reason, amend or terminate the
Plan.  An amendment of the Plan shall be
subject to the approval of the Company’s shareholders only to the extent
required by applicable laws, regulations or rules.  No Awards shall be granted under the Plan
after the termination thereof.  The
termination of the Plan, or any amendment thereof, shall not affect any Award
previously granted under the Plan.

 

ARTICLE 13. 
DEFINITIONS.

 

13.1                           “Affiliate” means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.

 

13.2                           “Award” means any award of an Option, an SAR or a Restricted
Share under the Plan.

 

8

 

13.3                           “Board” means the Company’s Board of Directors, as
constituted from time to time.

 

13.4                           “Change in Control” shall mean:

 

(a)                                  The
consummation of a merger or consolidation of the Company with or into another
entity or any other corporate reorganization, if more than 50% of the combined
voting power of the continuing or surviving entity’s securities outstanding
immediately after such merger, consolidation or other reorganization is owned
by persons who were not shareholders of the Company immediately prior to such
merger, consolidation or other reorganization;

 

(b)                                 The
sale, transfer or other disposition of all or substantially all of the Company’s
assets;

 

(c)                                  A
change in the composition of the Board, as a result of which fewer than 50% of
the incumbent directors are directors who either (i) had been directors of
the Company on the date 24 months prior to the date of the event that may
constitute a Change in Control (the “original directors”) or (ii) were
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the aggregate of the original directors who were still
in office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or

 

(d)                                 Any
transaction as a result of which any person is the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing at least 30% of the total voting power
represented by the Company’s then outstanding voting securities.  For purposes of this Paragraph (d), the
term “person” shall have the same meaning as when used in sections 13(d) and
14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
of a Parent or Subsidiary and (ii) a corporation owned directly or
indirectly by the shareholders of the Company in substantially the same
proportions as their ownership of the common stock of the Company.

 

A transaction shall not constitute a Change in Control if its sole
purpose is to change the state of the Company’s incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company’s securities immediately before such transaction.

 

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

 

13.6                           “Committee” means a committee of the Board, as described in Article 2.

 

13.7                           “Common Share” means one share of the common stock of the
Company.

 

9

 

13.8                           “Company” means Cutter & Buck Inc., a Washington
corporation.

 

13.9                           “Consultant” means a consultant or adviser who provides bona
fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor.  Service as a
Consultant shall be considered employment for all purposes of the Plan, except
as provided in Section 4.1.

 

13.10                     “Employee”
means a common-law employee of the Company, a Parent, a Subsidiary or an
Affiliate.

 

13.11                     “Exchange Act”
means the Securities Exchange Act of 1934, as amended.

 

13.12                     “Exercise
Price,” in the case of an Option, means the amount for which one
Common Share may be purchased upon exercise of such Option, as specified in the
applicable Stock Option Agreement.  “Exercise
Price,” in the case of an SAR, means an amount, as specified in the applicable
SAR Agreement, which is subtracted from the Fair Market Value of one Common
Share in determining the amount payable upon exercise of such SAR.

 

13.13                     “Fair Market
Value” means the market price of Common Shares, determined by the
Committee in good faith on such basis, as it deems appropriate.  Whenever possible, the determination of Fair
Market Value by the Committee shall be based on the prices reported in the Wall
Street Journal.  Such determination shall
be conclusive and binding on all persons.

 

13.14                     “ISO”
means an incentive stock option described in Section 422(b) of the
Code.

 

13.15                     “NSO”
means a stock option not described in sections 422 or 423 of the Code.

 

13.16                     “Option”
means an ISO or NSO granted under the Plan and entitling the holder to purchase
Common Shares.

 

13.17                     “Optionee”
means an individual or estate who holds an Option or SAR.

 

13.18                     “Parent”
means any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if each of the corporations other than
the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.  A corporation that attains the
status of a Parent on a date after the adoption of the Plan shall be considered
a Parent commencing as of such date.

 

13.19                     “Participant”
means an individual or estate who holds an Award.

 

13.20                     “Plan”
means this 2000 Stock Incentive Plan, as amended from time to time.

 

13.21                     “Restricted
Share” means a Common Share awarded under the Plan.

 

10

 

13.22                     “Restricted
Stock Agreement” means the agreement between the Company and the
recipient of a Restricted Share, which contains the terms, conditions and
restrictions pertaining to such Restricted Share.

 

13.23                     “SAR”
means a stock appreciation right granted under the Plan.

 

13.24                     “SAR
Agreement” means the agreement between the Company and an Optionee,
which contains the terms, conditions and restrictions pertaining to his or her
SAR.

 

13.25                     “Stock Option
Agreement” means the agreement between the Company and an Optionee
that contains the terms, conditions and restrictions pertaining to his or her
Option.

 

13.26                     “Subsidiary”
means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.  A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.

 

11

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