Document:

Exhibit 10.4

 

MATINEE MEDIA CORPORATION

 

2006 LONG-TERM INCENTIVE PLAN

 

 

The Matinee Media Corporation 2006 Long-Term Incentive Plan (the “Plan”) was adopted by
the Board of Directors of Matinee Media Corporation, a Texas corporation (the “Company”), effective
as of April 14, 2006, subject to approval by the Company’s shareholders.

 

 

ARTICLE 1

PURPOSE

 

The purpose of the Plan is to attract and retain the services of key
employees, key consultants and Outside Directors of the Company and its
Subsidiaries and to provide such persons with a proprietary interest in the
Company through the granting of incentive stock options, nonqualified stock
options, stock and restricted stock, that will

 

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

 

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

 

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

 

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

 

 

ARTICLE 2

DEFINITIONS

 

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

 

2.1                                 “Award” means the grant of any Incentive Stock
Option, Nonqualified Stock Option, or Restricted Stock (each individually
referred to herein as an “Incentive”).

 

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

 

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

 

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

 

2.5                                 “Change in Control” means any of the
following, except as otherwise provided herein: 
(i) any consolidation, merger or share exchange of the Company in
which the Company is not the continuing or

 

 

surviving
corporation or pursuant to which shares of the Company’s Common Stock would be
converted into cash, securities or other property, other than a consolidation,
merger or share exchange of the Company in which the holders of the Company’s
Common Stock immediately prior to such transaction have no less than fifty
percent (50%) of the total combined voting power of the outstanding voting
stock of the surviving corporation immediately after such transaction; (ii) any
sale, lease, exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction
or a series of related transactions, of all or substantially all of the assets
of the Company; (iii) the shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company; (iv) the
cessation of control (by virtue of their not constituting a majority of
directors) of the Board by the individuals (the “Continuing Directors”) who (x) at
the date of this Plan were directors or (y) become directors after the
date of this Plan and whose election or nomination for election by the Company’s
shareholders was approved by a vote of at least two-thirds of the directors
then in office who were directors at the date of this Plan or whose election or
nomination for election was previously so approved; (v) the acquisition of
beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act)
of an aggregate of 50% or more of the voting power of the Company’s outstanding
voting securities by any person or group (as such term is used in Rule 13d-5
under the 1934 Act) who beneficially owned less than 50% of the voting power of
the Company’s outstanding voting securities on the date of this Plan; provided,
however, that notwithstanding the foregoing, an acquisition shall not
constitute a Change in Control hereunder if the acquirer is (x) a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company and acting in such capacity, (y) a Subsidiary of the Company or a
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of voting securities
of the Company or (z) any other person whose acquisition of shares of
voting securities is approved in advance by a majority of the Continuing
Directors; or (vi) in a Title 11 bankruptcy proceeding, the appointment of
a trustee or the conversion of a case involving the Company to a case under
Chapter 7.

 

Notwithstanding the foregoing provisions of this Section 2.5,
in the event an Award issued under the Plan is subject to Section 409A of
the Code, then, in lieu of the foregoing definition and to the extent necessary
to comply with the requirements of Section 409A of the Code, the
definition of “Change in Control” for purposes of such Award shall be the definition
provided for under Section 409A of the Code and the regulations or other
guidance issued thereunder.

 

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

 

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

 

2.8                                 “Common Stock” means the common stock, no par
value per share, which the Company is currently authorized to issue or may in
the future be authorized to issue, or any securities into which or for which
the common stock of the Company may be converted or exchanged, as the case may
be, pursuant to the terms of this Plan.

 

2.9                                 “Company” means Matinee Media Corporation, a
Texas corporation, and any successor entity.

 

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

 

2.11                           “Corporation” means any entity that (i) is
defined as a corporation under Section 7701 of the Code and (ii) is
the Company or is in an unbroken chain of corporations (other than the Company)
beginning 

 

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

 

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

 

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

 

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

 

2.15                           “Fair Market Value” means, as of a
particular date,

 

(a)                                  if the shares
of Common Stock are not Publicly Traded, such amount as may be determined by
the Committee (acting on the advice of an Independent Third Party, should the
Committee elect in its sole discretion to utilize an Independent Third Party
for this purpose), in good faith, to be the fair market value per share of
Common Stock, or

 

(b)                                 if the shares
of Common Stock are Publicly Traded and (i) if the shares of Common Stock
are listed on any established national securities exchange, the closing sales
price per share of Common Stock on the consolidated transaction reporting
system for the principal securities exchange for the Common Stock on that date,
or, if there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (ii) if the shares of
Common Stock are not so listed but are quoted on the Nasdaq National Market
System, the closing sales price per share of Common Stock on the Nasdaq
National Market System on that date, or, if there shall have been no such sale
so reported on that date, on the last preceding date on which such a sale was
so reported, or  (iii) if the Common
Stock is not so listed or quoted, the mean between the closing bid and asked
price on that date, or, if there are no quotations available for such date, on
the last preceding date on which such quotations shall be available, as
reported by Nasdaq, or, if not reported by Nasdaq, by the National Quotation
Bureau, Inc.

 

For purposes of this Plan, the Common Stock
is “Publicly Traded” if the Common Stock subjects the Company to the periodic
reporting requirements of Sections 12(g) or 15(d) of the 1934
Act.

 

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

 

2.17                           “Incentive” is defined in Section 2.1
hereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

2.24                           “Plan” means this Matinee Media Corporation
2006 Long-Term Incentive Plan, as amended from time to time.

 

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

 

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

 

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

 

2.28                           “Stock Option” means a Nonqualified Stock
Option or an Incentive Stock
Option.

 

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

 

2.30                           “Termination of Service” occurs when a
Participant who is (i) an Employee of the Company or any Subsidiary ceases
to serve as an Employee of the Company and its Subsidiaries, for any reason; (ii) an
Outside Director of the Company or a Subsidiary ceases to serve as a director
of the Company and its Subsidiaries for any reason; or (iii) a Consultant
of the Company or a Subsidiary ceases to serve as a Consultant of the Company
and its Subsidiaries for any reason. 
Except as may be necessary or desirable to comply with applicable
federal or state law, a “Termination of Service” shall not be deemed to have
occurred when a Participant who is an Employee becomes an Outside Director or
Consultant or vice versa.  If, however, a
Participant who is an Employee and who has an Incentive Stock Option ceases to
be an Employee but does not suffer a Termination of Service, and if that
Participant does not exercise the Incentive Stock Option within the time required
under Section 422 of the Code upon ceasing to be an Employee, the
Incentive Stock Option shall thereafter become a Nonqualified Stock
Option.  Notwithstanding the foregoing
provisions of this Section 2.30, 

 

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in the event an
Award issued under the Plan is subject to Section 409A of the Code, then,
in lieu of the foregoing definition and to the extent necessary to comply with
the requirements of Section 409A of the Code, the definition of “Termination
of Service” for purposes of such Award shall be the definition of “separation
from service” provided for under Section 409A of the Code and the
regulations or other guidance issued thereunder.

 

2.31                           “Total and Permanent Disability” means a
Participant is qualified for long-term disability benefits under the Company’s
or Subsidiary’s disability plan or insurance policy; or, if no such plan or
policy is then in existence or if the Participant is not eligible to
participate in such plan or policy, that the Participant, because of a physical
or mental condition resulting from bodily injury, disease, or mental disorder
is unable to perform his or her duties of employment for a period of six (6) continuous
months, as determined in good faith by the Committee, based upon medical
reports or other evidence satisfactory to the Committee; provided  that,
with respect to any Incentive Stock Option, Total and Permanent Disability
shall have the meaning given it under the rules governing Incentive Stock
Options under the Code. Notwithstanding the foregoing provisions of this Section 2.31,
in the event an Award issued under the Plan is subject to Section 409A of
the Code, then, in lieu of the foregoing definition and to the extent necessary
to comply with the requirements of Section 409A of the Code, the
definition of “Total and Permanent Disability” for purposes of such Award shall
be the definition of “disability” provided for under Section 409A of the
Code and the regulations or other guidance issued thereunder.

 

 

ARTICLE 3

ADMINISTRATION

 

3.1                               General Administration;
Establishment of Committee.  Subject to
the terms of this Article 3, the Plan shall be administered by the
Board or such committee of the Board as is designated by the Board to
administer the Plan (the “Committee”).  The Committee shall consist of not fewer than
two persons.  Any member of the Committee
may be removed at any time, with or without cause, by resolution of the Board.
Any vacancy occurring in the membership of the Committee may be filled by
appointment by the Board.  At any time
there is no Committee to administer the Plan, any references in this Plan to
the Committee shall be deemed to refer to the Board.

 

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

 

3.2                               Designation of
Participants and Awards.

 

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

 

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Committee shall be made solely and exclusively by the other members of
the Committee, or if such member is the only member of the Committee, by the
Board.

 

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

 

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

 

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

 

                With respect to restrictions in
the Plan that are based on the requirements of Rule 16b-3 promulgated
under the 1934 Act, Section 422 of the Code, Section 162(m) of
the Code, the rules of any exchange or inter-dealer quotation system upon
which the Company’s securities are listed or quoted, or any other applicable
law, rule or restriction (collectively, “applicable law”), to the extent that any
such restrictions are no longer required by applicable law, the Committee shall
have the sole discretion and authority to grant Awards that are not subject to
such mandated restrictions and/or to waive any such mandated restrictions with
respect to outstanding Awards.

 

 

ARTICLE 4

ELIGIBILITY

 

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

 

6

 

provisions of such
Awards and the agreements evidencing same) need not be uniform and may be made
by it selectively among Participants who receive, or are eligible to receive,
Awards under the Plan.

 

 

ARTICLE 5

SHARES SUBJECT TO PLAN

 

5.1                               Number Available for Awards. 
Subject to adjustment as provided in Articles 11 and 12, the
maximum number of shares of Common Stock that may be delivered pursuant to
Awards granted under the Plan is 2,500,000 shares, 100% of which may be delivered
pursuant to Incentive Stock Options. 
Shares to be issued may be made available from authorized but unissued
Common Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the Company on the open market or otherwise.  During the term of this Plan, the Company
will at all times reserve and keep available the number of shares of Common
Stock that shall be sufficient to satisfy the requirements of this Plan.

 

5.2                               Reuse of Shares. 
To the extent that any Award under this Plan may be forfeited, expires
or canceled, in whole or in part, then the number of shares of Common Stock
covered by the Award or Stock Option so forfeited, expired or canceled may
again be awarded pursuant to the provisions of this Plan.  In the event that previously acquired shares
of Common Stock are delivered to the Company in full or partial payment of the
exercise price for the exercise of a Stock Option granted under this Plan, the
number of shares of Common Stock available for future Awards under this Plan
shall be reduced only by the net number of shares of Common Stock issued upon
the exercise of the Stock Option.  Awards
that may be satisfied either by the issuance of shares of Common Stock or by
cash or other consideration shall be counted against the maximum number of
shares of Common Stock that may be issued under this Plan only during the
period that the Award is outstanding or to the extent the Award is ultimately
satisfied by the issuance of shares of Common Stock.  Notwithstanding any provisions of the Plan to
the contrary, only shares forfeited back to the Company, shares canceled on
account of termination, expiration or lapse of an Award, shares surrendered in
payment of the exercise price of an option or shares withheld for payment of
applicable employment taxes and/or withholding obligations resulting from the
exercise of an option shall again be available for grant of Incentive Stock
Options under the Plan, but shall not increase the maximum  number of shares described in Section 5.1
above as the maximum number of shares of Common Stock that may be delivered
pursuant to Incentive Stock Options.

 

 

ARTICLE 6

GRANT OF AWARDS

 

6.1                               In General.

 

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

 

7

 

approval.  Any such Award granted prior to such
shareholder  approval will be made
subject to such shareholder  approval.  The grant of an Award to a Participant shall
not be deemed either to entitle the Participant to, or to disqualify the
Participant from, receipt of any other Award under the Plan.

 

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

 

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

 

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

 

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

 

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

 

(a)                                  Legend on Shares. 
Each Participant who is awarded or receives Restricted Stock will be
issued a stock certificate or certificates in respect of such shares of Common
Stock.  Such certificate(s) shall be
registered in the name of the Participant, and shall bear an appropriate legend

 

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referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, substantially as provided in Section 15.9 of the
Plan.

 

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

 

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

 

(ii)                                  Except as provided in sub-paragraph (i) above
or in the applicable Award Agreement, the Participant will have, with respect
to his or her Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any dividends thereon.  Certificates for shares of Common Stock free
of restriction under this Plan shall be delivered to the Participant promptly
after, and only after, the Restriction Period shall expire without forfeiture
in respect of such shares of Common Stock or after any other restrictions
imposed in such shares of Common Stock by the applicable Award Agreement or
other agreement have expired. 
Certificates for the shares of Common Stock forfeited under the provisions
of the Plan and the applicable Award Agreement shall be promptly returned to
the Company by the forfeiting Participant. 
Each Award Agreement shall require that each Participant, in connection with the issuance of a certificate for
Restricted Stock, shall endorse such certificate in blank or execute a stock
power in form satisfactory to the Company in blank and deliver such certificate
and executed stock power to the Company.

 

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

 

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

 

6.5                               Performance Goals.  Awards of Restricted Stock under the Plan may be made
subject to the attainment of Performance Goals relating to one or more business
criteria that, when applicable, shall be within 

 

9

 

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

 

 

ARTICLE 7

AWARD PERIOD; VESTING

 

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

 

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

 

10

 

ARTICLE 8

EXERCISE OR CONVERSION OF
INCENTIVE

 

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

 

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

 

8.3          Exercise
of Stock Option.

 

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

 

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

 

(c)           Issuance
of Certificate.  Except as otherwise provided in Section 6.4
hereof (with respect to shares of Restricted Stock) or in the applicable Award
Agreement, upon payment of all amounts due from the Participant, the Company
shall cause certificates for the Common Stock then being purchased to be
delivered as directed by the Participant (or the person exercising the
Participant’s Stock Option in the event of his death) at its principal business
office promptly after the Exercise Date; provided that if the Participant has
exercised an Incentive Stock Option, the Company may at its option retain
physical possession of the certificate evidencing the shares acquired upon 

 

11

 

exercise until the expiration of the holding periods described in Section 422(a)(1) of
the Code.  The obligation of the Company
to deliver shares of Common Stock shall, however, be subject to the condition
that, if at any time the Committee determines in its sole discretion that the
listing, registration, or qualification of the Stock Option or the Common Stock
upon any securities exchange or inter-dealer quotation system or under any
state or federal law, or the consent or approval of any governmental regulatory
body, is necessary as a condition of, or in connection with, the Stock Option
or the issuance or purchase of shares of Common Stock thereunder, the Stock
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not reasonably acceptable to the Committee.

 

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

 

8.4          Disqualifying
Disposition of Incentive Stock Option.  If shares of
Common Stock acquired upon exercise of an Incentive Stock Option are disposed
of by a Participant prior to the expiration of either two (2) years from
the Date of Grant of such Stock Option or one (1) year from the transfer
of shares of Common Stock to the Participant pursuant to the exercise of such
Stock Option, or in any other disqualifying disposition within the meaning of Section 422
of the Code, such Participant must notify the Company in writing of the date
and terms of such disposition.  A
disqualifying disposition by a Participant shall not affect the status of any
other Stock Option granted under the Plan as an Incentive Stock Option within
the meaning of Section 422 of the Code.

 

 

ARTICLE 9

AMENDMENT OR DISCONTINUANCE

 

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

 

12

 

ARTICLE 10

TERM

 

The Plan shall be effective from the date that
this Plan is approved by the Board. 
Unless sooner terminated by action of the Board, the Plan will terminate
on April 18, 2016, but Incentives granted before that date will continue
to be effective in accordance with their terms and conditions.

 

ARTICLE 11

CAPITAL ADJUSTMENTS

 

In the event that any dividend or other distribution (whether in the
form of cash, Common Stock, other securities, or other property),
recapitalization, stock split, reverse stock split, rights offering,
reorganization, merger, consolidation, split-up, spin-off, split-off,
combination, subdivision, repurchase, or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event affects the Common Stock such that an adjustment is
determined by the Committee to be appropriate to prevent the dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of the (i) the number of shares and type of
Common Stock (or the securities or property) that thereafter may be made the
subject of Awards, (ii) the number of shares and type of Common Stock (or
other securities or property) subject to outstanding Awards, (iii) the
Option Price of each outstanding Award, and (iv) the amount, if any, the
Company pays for forfeited shares of Common Stock in accordance with Section 6.4;
provided however, that the number of shares of Common Stock (or other
securities or property) subject to any Award shall always be a whole
number.  In lieu of the foregoing, if
deemed appropriate, the Committee may make provision for a cash payment to the
holder of an outstanding Award.  Notwithstanding
the foregoing, no such adjustment or cash payment may be made or authorized to
the extent that such adjustment or cash payment would cause the Plan or any
Stock Option to violate Section 422 of the Code.  Such adjustments shall be made in accordance
with the rules of any securities exchange, stock market, or stock
quotation system to which the Company is subject.

 

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

 

 

ARTICLE 12

RECAPITALIZATION, MERGER AND
CONSOLIDATION

 

12.1        No
Effect on Company’s Authority.  The existence
of this Plan and Incentives granted hereunder shall not affect in any way the
right or power of the Company or its shareholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company’s capital structure and its
business, or any Change in Control, or any merger or consolidation of the
Company, or any issuance of bonds, debentures, preferred or preference stocks
ranking prior to or otherwise affecting the Common Stock or the rights thereof
(or any rights, options, or warrants to purchase same), or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.

 

12.2        Conversion
of Incentives When Company Survives.  Subject to any
required action by the shareholders and
except as otherwise provided by Section 12.4 hereof or as may be
required to comply with Section 409A of the Code and the regulations or
other guidance issued thereunder, if the Company shall be the 

 

13

 

surviving or resulting corporation in any merger, consolidation or
share exchange, any Incentive granted hereunder shall pertain to and apply to
the securities or rights (including cash, property, or assets) to which a
holder of the number of shares of Common Stock subject to the Incentive would
have been entitled.

 

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

 

12.4        Cancellation
of Incentives.  Notwithstanding the provisions of Sections
12.2 and 12.3 hereof,  and except as
may be required to comply with Section 409A of the Code and the
regulations or other guidance issued thereunder, all Incentives granted
hereunder may be canceled by the Company, in its sole discretion, as of the
effective date of any Change in Control, merger, consolidation or share
exchange, or any issuance of bonds, debentures, preferred or preference stocks
ranking prior to or otherwise affecting the Common Stock or the rights thereof
(or any rights, options, or warrants to purchase same), or of any proposed sale
of all or substantially all of the assets of the Company, or of any dissolution
or liquidation of the Company, by either:

 

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

 

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

 

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

 

14

 

ARTICLE 13

LIQUIDATION OR
DISSOLUTION

 

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

 

ARTICLE 14

INCENTIVES IN SUBSTITUTION FOR

INCENTIVES GRANTED BY OTHER
ENTITIES

 

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

 

ARTICLE 15

MISCELLANEOUS PROVISIONS

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

On the face of the certificate:

 

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

 

On the reverse:

 

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

 

17

 

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

 

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

 

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

 

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

 

 

18

 

IN WITNESS WHEREOF, the Company has caused this instrument to be
executed as of April 14, 2006, by its Chief Executive Officer and
Secretary pursuant to prior action taken by the Board.

 

	
   

  	
  MATINEE
  MEDIA CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert W. Walker

  	
   

  
	
   

  	
  Name:   Robert W. Walker

  	
   

  
	
   

  	
  Title:   President

  	
   

  
				

 

	
  Attest:

  	
   

  
	
   

  	
   

  
	
  /s/ Robert W. Walker

  	
   

  
	
  Secretary

  	
   

  

 

 

19Exhibit 10.5

 

EMPLOYMENT
AGREEMENT

 

This Employment Agreement
(this “Agreement”) is made as of September 20, 2006, by and between
Matinee Media Corporation, a Texas corporation (the “Company”), and Robert W.
Walker, an individual residing in Austin, Texas (“Employee”).

 

WHEREAS, Employee is a
founder of the Company and currently serves as a director and the President and
Chief Executive Officer of the Company, and the Company desires to continue to
have access to the services of Employee, and Employee desires to continue to
provide services to the Company, in accordance with the terms and conditions of
this Agreement;

 

NOW, THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Employee agree as follows:

 

1.             Employment. 
Effective on the Effective Date (as defined in Section 2)
and subject to the terms and conditions of this Agreement, the Company agrees
to employ Employee as the Company’s President and Chief Executive Officer, and
Employee agrees to perform the duties associated with that position diligently
and to the reasonable satisfaction of the Company.  From the Effective Date until termination of
this Agreement, Employee will devote Employee’s full business time, attention
and energies to the business of the Company. 
Nothing in this Agreement, however, will prohibit Employee from engaging
in the management of personal investments, trade association or charitable
activities, including serving as a board member or committee member to trade
associations or charities; provided, that, none of such
activities interfere with the performance of Employee’s duties and
responsibilities to the Company under this Agreement.  Employee’s principal place of employment will
be Austin, Texas; provided, however, that Employee will travel to
the extent reasonably requested by the Company’s Board of Directors for
Employee to perform his duties as President and Chief Executive Officer of the
Company.

 

2.             Term and Termination.  Employee will be employed under this
Agreement for an initial term of two years (the “Initial Term”), beginning on
the date of this Agreement (the “Effective Date”).  This Agreement will renew for successive one
year periods after the completion of the Initial Term, unless either party
gives prior written notice to the contrary to the other party no less than 30
days prior to the end of the Initial Term or renewal period, as the case may
be.  This Agreement may be sooner
terminated by either party in accordance with Section 3 of this Agreement.

 

3.             Termination Benefits.  If prior to the end of the Initial Term or
any renewal period, as the case may be, (i) the Company terminates
Employee other than for Cause (as defined below), or (ii) Employee
terminates his employment for Good Reason (as defined below), then the Company
will be obligated to pay Employee in a lump sum, within thirty (30) days after
such event, any accrued and unpaid vacation and an amount equal to Employee’s
base salary and maximum discretionary incentive bonus in effect on the date of
such termination for greater of (y) the remainder of the Initial Term or
any renewal period, as the case may be, or (z) 12 months.  As used in this Agreement (i) termination
for “Cause” means any termination of Employee for (a) the commission of an
act of fraud or embezzlement against the Company, (b)

1

 the conviction of,
or a plea of “guilty” or “no contest” to, a felony under the laws of the United
States or any state, (c) consistent willful misconduct or gross negligence
in performing Employee’s duties hereunder, or (d) a material breach of any
of the terms of this Agreement or any other agreement between the Company and
Employee relating to Employee’s employment, if such breach causes material harm
to the Company, after written notice of such breach and reasonable opportunity
to cure; (ii) “Good Reason” means any of the following that occurs without
Employee’s express prior written consent: 
(a) an adverse change by the Company in Employee’s title, function,
duties or responsibilities (including reporting responsibilities), (b) Employee’s
base salary is reduced by the Company, or there is a material reduction in the
benefits that are in effect for Employee, (c) relocation of Employee’s
principal place of employment to a place located more than 50 miles outside of
Austin, Texas, (d) a Change in Control (as defined below), or (e) other
material breach of this Agreement by the Company after written notice of such
breach and reasonable opportunity to cure; and (iii) a “Change in Control”
means any of the following that occurs in a single transaction or series of
related transactions:  (a) the
direct or indirect sale or exchange by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company (other than the
sale or exchange of such voting stock to (A) a trustee or other fiduciary
holding stock under one or more employee benefit plans maintained by the
Company, or (B) any entity that, immediately prior to such sale or
exchange, is owned directly or indirectly by the stockholders of the Company in
approximately the same proportion as their ownership of voting stock in the
Company immediately prior to such sale or exchange); (b) a merger or
consolidation in which the shareholders of the Company immediately before the
transaction do not retain, immediately after the transaction, direct or
indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the outstanding voting stock of the Company; (c) the
sale, exchange, lease or transfer of all or substantially all of the assets of
the Company (unless, following such transaction, such assets are owned by a
company or other entity and the shareholders of the Company immediately before
the transaction have direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of such company or entity) or (d) the
complete liquidation or dissolution of the Company.

 

Notwithstanding the
foregoing provisions of this Section 3, in the event Termination Benefits
under this Agreement are subject to Section 409A of the Internal Revenue
Code of 1968, as amended (the “Code”), then, in lieu of the foregoing
definition and to the extent necessary to comply with the requirements of Section 409A
of the Code, the definition of “Change in Control” for purposes of such
Termination Benefits shall be the definition provided for under Section 409A
of the Code and the regulations or other guidance issued thereunder.

 

4.             Compensation. 
Beginning on the Effective Date and thereafter during the term of
Employee’s employment, the Company will pay Employee a base salary of not less
than $260,000 per year, payable biweekly or semi-monthly in accordance with the
payroll practices of the Company in effect from time to time.  Such base salary may not be reduced and will
be subject to review and potential upward adjustment periodically, but at least
on an annual basis, in accordance with the compensation policies of the Company
in effect from time to time.  During the
term of this Agreement, Employee will also be eligible for discretionary
incentive bonus payments and other incentives, including stock incentives, as
may be determined by the Company’s Board of Directors, to be awarded in
accordance with the compensation policies established by the Company from time
to time.  All of Employee’s compensation
under this Agreement will be subject to deduction and withholding authorized or
required by applicable law.

 

2

5.             Employee Benefits.  Beginning on the Effective Date and
thereafter during the term of this Agreement, the Company will provide to
Employee such fringe benefits, perquisites, vacation and other benefits that
the Company generally provides to its executive employees.  At a minimum, however, and regardless of
whether other executive employees do not receive the following benefits, the
Company shall provide to Employee (a) health insurance coverage for
Employee, Employee’s spouse and Employee’s dependents at the Company’s sole
expense; (b) four weeks paid vacation; (c) reimbursement for cell
phone and wireless Internet services (e.g., Blackberry service); and (d) an
automobile allowance of $1,000 per month. The Company will reimburse Employee
for reasonable out-of-pocket business expenses, including expenses related to
frequent flyer programs and airline club memberships, incurred by Employee and
documented in accordance with the policies of the Company in effect from time
to time.  The Company agrees that if
Employee is made a party, is threatened to be made a party to, or is a
non-party witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a “Proceeding”), by reason of the fact that
Employee is or was a trustee, director, officer, fiduciary or employee of the
Company or any affiliate of the Company or is or was serving at the request of
the Company or any affiliate as a trustee, director, officer, member, employee
or agent of another corporation or a partnership, joint venture, trust or other
enterprise, including, without limitation, service with respect to employee
benefit plans, whether or not the basis of such Proceeding is alleged action in
an official capacity as a trustee, director, officer, member, employee or agent
while serving as a trustee, director, officer, member, employee or agent,
Employee shall be indemnified to the fullest extent authorized by Texas law, as
the same exists or may hereafter be amended, against all expenses incurred or
suffered by Employee in connection therewith. 
If the Company maintains a directors’ and officers’ insurance policy,
Employee shall be covered to the same extent as other employees.

 

6.             Section 409A of the Code.  In the event any compensation or benefits
under this Agreement are subject to Section 409A of the Code, then the
Company agrees to pay Employee a sum equivalent on an after-tax basis to the
total sum of money incurred by Employee in the form of taxes, penalties,
attorney’s and/or accountant’s fees or other expenses related to such
application of Section 409A.

 

7.             No Obligation to Third Party.  Employee represents and warrants that
Employee is not under any obligation to any person or other third party and
does not have any other interest that is inconsistent or in conflict with this
Agreement, or which would prevent, limit, or impair Employee’s performance of
any of the covenants hereunder or Employee’s duties as an employee of the
Company.

 

8.            Confidentiality.  In consideration of the benefits provided for
in this Agreement, Employee agrees not to, at any time, either during his
employment or thereafter, divulge, use, publish or in any other manner reveal,
directly or indirectly, to any person, firm, corporation or any other form of
business organization or arrangement and keep in the strictest confidence any
Confidential Information, except, (i) as may be necessary to the
performance of Employee’s duties hereunder, (ii) with the Company’s
express written consent, (iii) to the extent that any such information is
in or becomes in the public domain other than as a result of Employee’s 

 

3

breach
of any obligations hereunder, or (iv) where required to be disclosed by
court order, subpoena or other government process and in such event, Employee
shall cooperate with the Company in attempting to keep such information
confidential.  Upon the request of the
Company, Employee agrees to promptly deliver to the Company the originals and
all copies, in whatever medium, of all such Confidential Information.  “Confidential Information,” as used in this
Agreement, shall mean any and all secret, proprietary and confidential
information concerning the business of the Company and its affiliates,
including, without limitation, business and marketing plans, strategies,
models, codes, client information (including client identity and contacts,
client lists, client financial or personal information), business relationships
(including persons, corporations or other entities performing services on
behalf of or otherwise engaged in business transactions with the Company and
its affiliates or their clients), accounts, financial data, know-how, computer
software and related documentation, trade secrets, processes, policies and/or
personnel, and any other information, data or the like that is labeled
confidential or is treated as confidential by the Company.

 

9.              Non-Solicitation.  Employee acknowledges that by virtue of
Employee’s position as President and Chief Executive Officer of the Company,
and Employee’s employment hereunder, he will have advantageous familiarity
with, and knowledge about, the Company and will be instrumental in establishing
and maintaining the goodwill of the Company, which goodwill is the property of the
Company.  Therefore, Employee agrees that
during his employment and for a twelve (12) month period thereafter, Employee
will not on behalf of himself or any other person or entity, solicit, take
away, hire, employ or endeavor to employ any of the employees of the Company.

 

10.            Non-Disparagement. Employee
acknowledges and agrees that he will not defame or publicly criticize the
services, business, integrity, veracity or personal or professional reputation
of the Company and its officers, directors, partners, executives or agents
thereof in either a professional or personal manner at any time during or
following his employment with the Company. 
The Company agrees that its present and future officers, directors, partners,
executives and agents will not defame or publicly criticize the services,
business, integrity, veracity or personal or professional reputation of
Employee in either a professional or personal manner at any time during or
following his employment with the Company.

 

11.            Enforcement.  If Employee commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 8-10 of this
Agreement, the Company shall have the right and remedy to have the provisions
specifically enforced by any court having jurisdiction, it being acknowledged
and agreed by Employee that the services being rendered hereunder to the
Company are of a special, unique and extraordinary character and that any such
breach or threatened breach will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company.  Such right and remedy shall be in addition
to, and not in lieu of, any other rights and remedies available to the Company
at law or in equity.  Accordingly,
Employee consents to the issuance of an injunction, whether preliminary or
permanent, consistent with the terms of this Agreement.  In addition, the Company shall have the right
to cease making any payments or provide any benefits to Employee under this
Agreement in the event he breaches or threatens to breach any of the provisions
hereof.

4

12.            Blue
Pencil.  If, at any time, the
provisions of Sections 8-10 shall be determined to be invalid or
unenforceable under any applicable law, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Agreement shall be
considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable
and enforceable by the court or other body having jurisdiction over the matter
and Employee and the Company agree that this Agreement as so amended shall be
valid and binding as though any invalid or unenforceable provision had not been
included herein.

 

EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ
SECTIONS 8-10 OF THIS AGREEMENT AND HAS HAD THE OPPORTUNITY TO REVIEW ITS
PROVISIONS WITH ANY ADVISORS AS HE CONSIDERED NECESSARY AND THAT EMPLOYEE
UNDERSTANDS THIS AGREEMENT’S CONTENTS AND SIGNIFIES SUCH UNDERSTANDING AND AGREEMENT
BY SIGNING BELOW.

 

13.           Entire Agreement.  This Agreement constitutes the complete
agreement of the parties with respect to the subject matter hereof and
supersedes any prior written, or prior or contemporaneous oral, understandings
or agreements between the parties that relates in any way to the subject matter
hereof.  This Agreement may be amended
only in writing executed by the Company and Employee.

 

14.           Binding Effect.  This Agreement shall be binding upon and
inure to the benefit of the respective heirs, executors, administrators, legal
representatives and successors of the Company and Employee.

 

15.           Notice.  Any notice required or permitted under this
Agreement must be in writing and will be deemed to have been given when
delivered personally, by telecopy or by overnight courier service or three days
after being sent by mail, postage prepaid, to (a) if to the Company, to
the Company’s principal place of business, or (b) if to Employee, to
Employee’s residence or to Employee’s latest address then contained in the
Company’s records (or to such changed address as such person may subsequently
give notice of in accordance herewith).

 

16.           GOVERNING
LAW.  THIS AGREEMENT WILL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW, RULE OR
PRINCIPLE THAT MIGHT REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION.

 

[Signature Page Follows]

 

5

IN WITNESS WHEREOF, the Company and Employee have executed and
delivered this Agreement as of the date first above written.

 

	
   

  	
  MATINEE
  MEDIA CORPORATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin W. Mischnick

  	
   

  
	
   

  	
  Name:

  	
  Kevin W. Mischnick

  	
   

  
	
   

  	
  Title:

  	
  VP and CFO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Robert W. Walker

  	
   

  
	
   

  	
   

  	
  Robert W. Walker

  	
   

  

 

6

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