Document:

Exhibit 10.1

 

Execution Copy

 

MASTER
AGREEMENT

 

THIS
MASTER AGREEMENT (the “Master Agreement”),
dated as of June 7, 2010, is made by and among EMRISE Corporation, a Delaware corporation (“Parent”), EMRISE
Electronics Corporation, a New Jersey corporation and a subsidiary of
Emrise (“EEC”), CXR Larus
Corporation, a Delaware corporation, Pascall Electronics Limited, a United
Kingdom company, XCEL Power Systems, Ltd., a United Kingdom company, CXR
Anderson Jacobson SAS, a company organized under French law (each of CXR Larus
Corporation, Pascall Electronics Limited, XCEL Power Systems, Ltd., and CXR
Anderson Jacobson SAS is a direct or indirect subsidiary of Parent, is referred
to herein as “Subsidiary”, and are collectively
referred to herein as the “Subsidiaries”),
Charles S. Brand, an individual (“Brand”),
Thomas P. M. Couse, an individual (“Couse”),
Joanne Couse, an individual (“J. Couse” and, together with Brand and Couse, the “Noteholders”), and Michael
Gaffney, an individual (“Gaffney”).

 

R
E C I T A L S

 

A.            Parent, EEC, each of the Noteholders
and Gaffney are each a party to that certain Stock Purchase Agreement, dated as
of May 23, 2008, as amended by Amendment No. 1 to Stock Purchase
Agreement dated as of August 20, 2008, and by Amendment No. 2 to
Stock Purchase Agreement dated as of November 20, 2009, by and among EEC,
each of the Noteholders and Gaffney (the “2008 Purchase Agreement”).

 

B.            In connection with the 2008 Purchase
Agreement, EEC issued a Subordinated Contingent Secured Promissory Note (each a
“Note” and collectively the “Notes”) to each of the Noteholders and Gaffney on August 20,
2008 and such Notes were amended by Amendment No. 1 to the Notes as of November 20,
2009.

 

C.            The Notes were secured by the assets
(the “2008 Collateral”) of Advanced Control
Components, Inc. (“ACC”) pursuant
to a Security Agreement dated as of August 20, 2008 (the “2008 Security Agreement”), by and among EEC, ACC, Brand as
the Collateral Agent, each of the Noteholders and Gaffney.

 

D.            In connection with the 2008 Purchase
Agreement and the Notes, Parent provided a Continuing Guaranty, dated August 20,
2008 (the “Parent Guaranty”), to the
Noteholders and Gaffney.

 

E.             Pursuant to Sections 2.2(c) and
2.2(d)(ii) of the 2008 Purchase Agreement, certain amounts are to be paid
to a scheduled list of employees out of the Deferred Purchase Price (the “Retention Payments”) as a bonus and retention mechanism for
such individuals.

 

F.             Shortly after execution of this
Master Agreement, EEC anticipates entering into a Stock Purchase Agreement (the
“2010 Purchase Agreement”) with Aeroflex
Incorporated for the sale of the stock of ACC. 
Subject to all of the conditions and consideration set forth in this
Master Agreement and a Security Agreement, including the substitution of the
2010 Collateral as set forth herein, the Noteholders and Gaffney are willing to
approve the sale of the stock of ACC under the 2010 Purchase Agreement and
release the 2008 Collateral.

 

 

G.            Based on the Parent Guaranty, each
of the Subsidiaries will benefit from the extension of the maturity of the
Notes.  Because Parent will be using a
portion of the proceeds of the sale of ACC to substantially pay down the senior
credit facility, to which each of Parent and the Subsidiaries are borrowers,
and the Noteholders will approve of the sale of ACC as contemplated by the 2010
Purchase Agreement and are willing to release their lien on the assets of ACC
to facilitate such sale because the assets of the Subsidiaries will be pledged
as substitute collateral, each of the Subsidiaries will benefit from the
transactions contemplated by this Master Agreement.

 

H.            EEC and each of the Noteholders
desire to amend the Notes to provide that (i) the Note held by Gaffney may
be paid in full in cash on the date of closing the transaction contemplated by
the 2010 Purchase Agreement (the “Closing Date”),
notwithstanding the Notes of the Noteholders will not be paid in full in cash
at the same time, (ii) the Maturity Date will be extended to June 30,
2013 (or such later date in 2013 that is three years from the Closing Date),
and (iii) certain other changes as set forth in the form of Amendment No. 2
to the Notes substantially in the form attached to this Master Agreement.

 

I.              Parent is willing to issue, and
Brand desires to accept, shares of Common Stock of Parent as partial payment of
the Note held by Brand.

 

A G R E E M E N T

 

NOW,
THEREFORE, in consideration of the facts recited above, and the terms,
conditions and covenants contained in this Master Agreement, EEC, Parent, the
Subsidiaries, Brand, Couse, J. Couse and Gaffney agree as follows:

 

1.             Approval of Sale of ACC.  Each Noteholder and Gaffney hereby approve of
the transaction contemplated by the 2010 Purchase Agreement.

 

2.             Payment of Portion of
Notes and Use of Cash.  On
the Closing Date, the outstanding amount of the Notes held by the Noteholders
will be reduced, in the aggregate, by $3,295,759.15 (the “Closing
Payment Amount”).  The actual
cash payment to the Noteholders will be equal to the Closing Payment Amount
minus (a) $63,515.18, or such higher amount that represents additional
interest in the event that the Closing Date is after June 30, 2010 (the “Gaffney Payoff Amount”) to be paid to Gaffney as payment in
full of the Note held by Gaffney, and (b) $240,000, the aggregate amount
of the Retention Payments to be made by Parent to the individuals  designated in the 2008
Purchase Agreement pursuant to Sections 2.2(c) and 2.2(d)(ii) of the
2008 Purchase Agreement (the “Retention Bonus Recipients”), provided that each
recipient executes and delivers a Release as required by the Confidential
Employee Retention Bonus Agreements signed by each recipient in August 2008.  Parent will pay or will cause to be promptly
paid to the Retention Bonus Recipients the Retention Payments upon receipt of
the properly executed release.

 

3.             Gaffney Paid in Full.  On the Closing Date, Gaffney will be paid the Gaffney
Payoff Amount and Gaffney
will provide to EEC and Parent written confirmation that the Note held by
Gaffney is paid in full and will return the original Note to EEC for
cancellation.

 

 

4.             Amendments to the Notes.  On the Closing Date, EEC and the Noteholders
will amend the Notes by executing and delivering an Amendment No. 2 to
Subordinated Contingent Secured Promissory Note (“Amendment No. 2”)
substantially in the form attached hereto as Exhibit A
as it
may be modified prior to the Closing Date by mutual agreement of the parties
thereto.

 

5.             Substitution of Collateral.  On the Closing Date, the Noteholders and
Gaffney will release 2008 Collateral and the 2008 Security Agreement will
terminate, and will execute and deliver whatever documents or instruments are
reasonably required by EEC and Parent in connection with the release of the
2008 Collateral.  On the Closing Date,
each of the Subsidiaries will grant a subordinated security interest to the
Noteholders in the assets of the Subsidiaries as substitute collateral (the “2010 Collateral”) as set forth in an Amended and Restated
Security Agreement (the “2010 Security Agreement”)
substantially in the form attached hereto as Exhibit B
as it may be modified prior to the Closing Date by mutual agreement of the
parties thereto.

 

6.             Sale of Parent, EEC or
Subsidiaries.  (a) 
In the event that Parent, EEC or any of the Subsidiaries or any of the assets
of the Subsidiaries (other than assets of the Subsidiaries sold in the ordinary
course of business) is proposed to be sold, including by way of stock sale,
merger or otherwise, the Parent shall provide notice to each of the Noteholders
of such proposed sale promptly and to the extent possible at least thirty (30)
days prior to the consummation thereof and in no event less than fourteen (14)
days prior to such consummation.

 

(b)           In
the event that Parent directly or through a Subsidiary raises substantial
capital through a merger with an entity having cash on hand or an equity raise,
then Parent shall use a percentage of the net proceeds of such capital raise to
pay down the Notes, such percentage to be mutually agreed upon by the parties.

 

7.             Acknowledgments Related to
the Notes.  Each of EEC
and each Noteholder acknowledges and agrees that

 

(a)           that the Second
Deferred Purchase Price Payment is in the amount of $1,724,833.95 and that (i) said
amount is and shall be deemed earned by the Noteholders and Gaffney, (ii) the
aggregate principal amount of the Notes shall be increased to include the
amount of the Second Deferred Purchase Price Payment ($1,724,833.95); and (iii) by
the execution and delivery of this Master Agreement by the parties hereto, the
2008 Purchase Agreement shall be deemed amended as provided in this Section 7(a);

 

(b)           upon
payment of the Closing Payment Amount, the interest rate payable on the Notes
will be the prime rate as reported in The Wall Street Journal
plus 1%, and will no longer be doubled, as set forth in Section 1 of the
Note (as amended);

 

(c)           Gaffney
will be paid in full on the Closing Date, as set forth in Section 3 above,
notwithstanding the fact that the Notes held by the Noteholders will not be
paid in the same proportional amount; and

 

(d)           assuming
the Closing Date occurs on June 30, 2010, the Closing Payment Amount will
be applied as follows: $2,393,795.18 shall be paid to Brand, $299,224.40 

 

 

shall be paid to Couse, $299,224.39 shall be paid to J. Couse and
$63,515.18 shall be paid to Gaffney. 
Brand’s Note will also be reduced by $450,000 in connection with receipt
of the Shares (as provided in Section 8). 
Such payments will be applied first to all accrued and unpaid interest
and the balance of such payments will be applied to outstanding principal; and
the remaining outstanding principal balance under the Notes will be
$2,186,607.32 on the Note held by Brand and $329,575.92 on the Note held by
Couse and $329,575.91 on the Note held by J. Couse.

 

8.             Issuance of Stock as Partial Payment of Note held
by Brand.  On the Closing
Date, Parent shall issue to Charles Brand that number of shares of its Common
Stock (the “Shares”) that equal the
quotient of $450,000 divided by 115% of the volume weighted average per share
price for such Common Stock for the three days consisting of the date of public
announcement of the 2010 Purchase Agreement and the two trading days
immediately thereafter, pursuant to the terms and conditions of the Stock
Issuance Agreement substantially in the form attached hereto as Exhibit C as it may be modified
prior to the Closing Date by mutual agreement of the parties thereto.

 

9.             Increase in Long-Term Federal Capital Gains Tax
Rate.  Section 2.7 of
the 2008 Purchase Agreement provides, in summary, that if there is an increase
in the Federal long-term capital gains tax rate from the then current rate of
15% after August 20, 2008, and, as a result of such increase, a Noteholder
is required to pay more Federal long-term capital gains taxes on gains relating
to payments on the Notes, EEC shall pay to such Noteholder an amount equal to
such additional Federal capital gains taxes actually paid by such Noteholder
attributable to the capital gains tax rate increase up to and including a rate
of 25%.  EEC hereby confirms that EEC is
obligated under each and every provision of Section 2.7 of the 2008
Purchase Agreement until all Notes are paid in full, including, without
limitation, with respect to the payment of taxes on the Capital Gains Increase
Payment (as that term is defined in the 2008 Purchase Agreement).

 

10.           Parent Guaranty.  Parent hereby confirms that it has provided
the Parent Guaranty and is and will continue to be obligated under the Parent
Guaranty until all Notes are paid in full.

 

11.           Tax.  EEC shall obtain from Ballard Spahr, LLP on
or before the Closing Date, an opinion that more likely than not the
modifications contemplated by the Amendment No. 2 as same is contemplated
as of June 7, 2010  (i) will
not be treated as dispositions of the Notes by the holders thereof within the
meaning of Section 453B of the Internal Revenue Code of 1986, (ii) will
not treated as payments received by the holders of the Notes of any portion of
the contract price for purposes of determining the recognition of gain from the
sale of their stock to EEC in 2008 under the installment method, and (iii) will
not prohibit the holders from eligibility for reporting gain from the sale of
their stock to EEC in 2008 using the installment method.  The opinion from Ballard Spahr, LLP will not
express an opinion as to any other federal income tax consequence of Amendment No. 2,
including the effect (if any) of the Amendment No. 2 on the computation,
recognition or deduction of any amount deemed paid or accrued as interest with
respect to the Notes.  The opinion of
Ballard Spahr also will not express an opinion as to the federal income tax
consequences of any other transaction or matter contemplated by this Agreement
or any other agreement relating to this transaction.

 

 

12.           Legal Costs.  Each of EEC and the Noteholders will be
responsible for the payment of all of their own legal fees and costs associated
with this Master Agreement, Amendment No. 2, the Security Agreement and
the transactions contemplated by the 2010 Purchase Agreement; provided,
however, that on the Closing Date EEC shall pay the legal costs of the
Noteholders up to a maximum fifteen thousand ($15,000); and provided further
that if the legal fees associated with the issuance by Ballard Spahr of a tax
opinion to EEC exceeds seven thousand, five hundred dollars ($7,500), then
Noteholders will pay the excess amount on the Closing Date.

 

13.           Effectiveness, Consummation and Termination.  The effectiveness of this Master Agreement
(except for Section 1 of this Master Agreement which will be effective as
of the date hereof) shall occur on the Closing Date, and all transactions
contemplated hereby shall be consummated, the delivery of all documents and the
payment of all sums will be completed, on the Closing Date (except for the
Retention Payments which will occur as soon as practicable after the Closing
Date based on normal payroll practices and upon receipt of the required
releases).  In the event that the 2010
Purchase Agreement is terminated without consummation, then this Master
Agreement shall also terminate and be of no further force or effect.

 

14.           Mutual Release.  In consideration of the terms, conditions,
and covenants in this Master Agreement, as well as the indemnity letters
provided by Brand to Parent and EEC, the parties have agreed that, on the
Closing Date, the parties will mutually release each other from certain
liabilities and obligations, as set forth in the Mutual Release substantially in the form attached hereto
as Exhibit D as it may be modified
prior to the Closing Date by mutual agreement of the parties thereto.  There will be no offset or claim made by
Parent or EEC related to the inventory-related tax liability and any such claim
is hereby released.  There will be no
offset or claim against any of Thomas Couse, Joann Couse or Michael Gaffney
related to the Bossard Losses (as defined in that certain indemnity letter of
even date herewith relating thereto) and any such claim against such
individuals is hereby released.  There
will be no offset or claim against Michael Gaffney related to the IC Losses (as
defined in that certain indemnity letter of even date herewith relating
thereto) and any such claim against such individual is hereby released.

 

15.           No Further Changes.  Except as expressly set forth in this Master
Agreement or the Amendment No. 2, no further changes shall be made to the
Notes, which shall remain in full force and effect.

 

16.           Counterparts. 
This Master Agreement may be executed in any number of counterparts,
each of which shall be enforceable, and all of which together shall constitute
one instrument.

 

[signature page follows]

 

 

IN WITNESS
WHEREOF, the undersigned have executed this Master Agreement effective as of
the date first set forth above.

 

 

	
  EEC:

  	
  EMRISE ELECTRONICS
  CORPORATION, a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
   

  	
  Carmine T. Oliva,

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  COUSE:

  	
  /s/ Thomas P.M.
  Couse

  
	
   

  	
  THOMAS P. M. COUSE

  
	
   

  	
   

  
	
   

  	
   

  
	
  J. COUSE:

  	
  /s/ Joanne Couse

  
	
   

  	
  JOANNE COUSE

  
	
   

  	
   

  
	
   

  	
   

  
	
  GAFFNEY:

  	
  /s/ Michael Gaffney

  
	
   

  	
  MICHAEL GAFFNEY

  
	
   

  	
   

  
	
   

  	
   

  
	
  BRAND:

  	
  /s/ Charles S. Brand

  
	
   

  	
  CHARLES S. BRAND

  
	
   

  	
   

  
	
  PARENT:

  	
  EMRISE CORPORATION, a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
   

  	
  Carmine T. Oliva,

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  SUBSIDIARIES

  	
  CXR LARUS CORPORATION,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  Chief Executive Officer

  
					

 

 

	
   

  	
  PASCALL ELECTRONICS
  LIMITED,

  
	
   

  	
  a United Kingdom
  company

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  XCEL POWER SYSTEMS,
  LTD.,

  
	
   

  	
  a United Kingdom
  company

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  CXR ANDERSON JACOBSON
  SAS,

  
	
   

  	
  a company formed under
  the laws of France

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  PresidentEXHIBIT
10.1

 

ALPHA PRO
TECH, LTD.

2004
STOCK OPTION PLAN

(As
Amended on June 7, 2010)

 

SECTION 1

PURPOSE

 

The purpose of the Alpha
Pro Tech, Ltd. 2004 Stock Option Plan (the “Plan”) is to recognize the
contributions made to Alpha Pro Tech, Ltd. (the “Company”) and its Subsidiaries
and Affiliated Companies and all its shareholders by Key Employees of the
Company and its Subsidiaries and Affiliated Companies to provide such persons
with additional incentive to devote themselves to the future success of the Company
and its Subsidiaries and Affiliated Companies and to improve the ability of the
Company and its Subsidiaries and Affiliated Companies to attract, retain and
motivate individuals, by providing such persons with the opportunity to acquire
or increase their proprietary interest in the Company through receipt of grants
of Stock Options to acquire shares of Common Stock of the Company.  In addition, the Plan is intended as an
additional incentive to members of the Board of Directors of the Company who
are not employees of the Company to serve on the Board of Directors of the
Company and to devote themselves to the future success of the Company by
providing them with an opportunity to acquire or increase their proprietary
interest in the Company through receipt of grants of Options to acquire Common
Stock of the Company.

 

SECTION 2

DEFINITIONS

 

As used in the Plan, the
following terms shall have the meanings set forth below:

 

2.1          “Affiliated Company” or “Affiliated Companies”
means corporation(s) or other business organization(s) in which the
Company owns, directly or indirectly, 20% or more of the voting stock or
capital at the relevant time.

 

2.2          “Agreement”
means a Stock Option Agreement, granted under the Plan.

 

2.3          “Board”
means the Board of Directors of the Company.

 

2.4          “Change in Control” has the meaning set forth in Section 9 of the
Plan.

 

2.5          “Code”
means the internal Revenue Code of 1986, as amended from time to time.

 

2.6          “Committee”
means the Compensation Committee of the Board or such other committee as may be
designated by the Board from time to time to administer the Plan.

 

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

 

2.8          “Company”
means Alpha Pro Tech, Ltd., a Delaware corporation.

 

2.9          “Director”
means a director of the Company.

 

2.10        “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to
time.

 

2.11        “Fair Market Value” means the closing sales price of the Common Stock on
the primary national securities exchange on which such stock is listed (as
reported in The Wall Street Journal, Eastern Edition).  

 

1

 

Notwithstanding the
foregoing, Fair Market Value shall be determined in a manner consistent with
avoiding adverse tax consequences under Section 409A of the Code.

 

2.12        “Incentive Stock Option” or “ISO” means a
Stock Option granted under Section 7 of the Plan that meets the
requirements of Section 422(b) of the Code of the Code or any
successor provision.

 

2.13        “Key Employee” means officers, other key employees, and consultants of the Company or
any Subsidiary or Affiliated Company selected to participate in the Plan in
accordance with Sections 3 and 4. A Key Employee may also include a person who
is granted an option  (other than an
Incentive Stock Option) in connection with the hiring of such person prior to
the date the person becomes an employee of the Company or any Subsidiary,
provided that such option shall not vest prior to the commencement of
employment.

 

2.14        “Non-Employee Director” means a Director who is not an employee of the
Company or a Subsidiary or Affiliated Company.

 

2.15        “Non-Qualified Stock Option” or “NSO” means a
Stock Option granted under Section 6 or 7 of the Plan that is not an
Incentive Stock Option.

 

2.16        “Participant” means any Key Employee or Non-Employee Director selected to receive a
grant of a Stock Option.

 

2.17        “Plan”
means the Alpha Pro Tech, Ltd. 2004 Stock Option Plan.

 

2.18        “Stock Option” means an Incentive Stock Option or a Non-Qualified Stock Option
granted under Section 6 or 7 of the Plan.

 

2.19        “Subsidiary”
means an entity of which the Company is the direct or indirect beneficial owner
of not less than 50% of all issued and outstanding equity interest of such
entity.

 

SECTION 3

ADMINISTRATION

 

3.1          THE BOARD

 

The Plan shall be
administered by the Board, except that the Board may delegate administration to
the Committee, to the extent that the Committee is comprised of at least two
members of the Board who satisfy the “non-employee director” definition set
forth in Rule 16b-3 under the Exchange Act and the “outside director”
definition under Section 162(m) of the Code and the regulations
thereunder. For purposes of the Plan, the term “Board” shall refer to the Board
or, to the extent such authority has been delegated to the Committee, the
Committee.

 

3.2          AUTHORITY OF THE BOARD

 

(a)           The Board, in its sole discretion, shall determine the
Key Employees to whom, and the time or times at which Stock Options will be
granted, the form and amount of each Stock Option, the expiration date of each
Stock Option, the time or times within which the Stock Options may be
exercised, the cancellation of the Stock Option and the other limitations,
restrictions, terms and conditions applicable to the grant of the Stock Option.
The terms and conditions of the Stock Option need not be the same with respect
to each Key Employee or with respect to each Stock Option.

 

(b)           The Board may delegate its authority to grant Stock
Options to Key Employees and to determine the terms and conditions thereof to
such officer of the Company as it may determine in its discretion, on such
terms and conditions as it may impose, except with respect to grants to
officers subject to Section 16 of the Exchange Act or officers who are or
may be “covered employees” as defined in Section 162(m) of the Code,
or to the extent prohibited by applicable law, regulation or rule of a
stock exchange on which the Common Stock is listed.

 

 

(c)           The Board may, subject to the provisions of the Plan,
establish such rules and regulations as it deems necessary or advisable
for the proper administration of the Plan, and may make determinations and may
take such other action in connection with or in relation to the Plan as it
deems necessary or advisable. Each determination or other action made or taken
pursuant to the Plan, including interpretation of the Plan and the specific
terms and conditions of the Stock Options granted hereunder, shall be final and
conclusive for all purposes and upon all persons.

 

(d)           No member of the Board or the Committee shall be
liable for any action taken or determination made hereunder in good faith.
Service on the Committee shall constitute service as a Director so that the
members of the Committee shall be entitled to indemnification and reimbursement
as Directors of the Company pursuant to the Company’s Certificate of
Incorporation and By-Laws.

 

SECTION 4

ELIGIBILITY
AND GRANTS

 

4.1          PARTICIPANTS

 

Participants shall
consist of Key Employees and Non-Employee Directors. Non-Employee Directors
shall participate in, and receive grants under the Plan only in accordance with
the provisions of Sections 6 and 7 of the Plan.

 

4.2          GRANTS

 

The following Stock
Options may be granted under the Plan: Incentive Stock Options and
Non-Qualified Stock Options.  Provided,
however, Non-Qualified Stock Options may only be granted to the extent the
Company is considered an “eligible issuer of service recipient stock” as such
term is defined in Treasury Regulations Section 1.409A-1(b)(5)(iii)(E).

 

4.3          AGREEMENTS

 

Each grant shall be
evidenced by a written Agreement specifying the terms and conditions of the
grant. In the sole discretion of the Board, the Agreement may condition the
grant upon the Participant’s entering into one or more of the following agreements
with the Company: (a) an agreement not to compete with the Company and its
Subsidiaries and Affiliated Companies which shall become effective as of the
date of the grant and remain in effect for a specified period of time following
termination of the Participant’s employment with the Company; (b) an
agreement to cancel any employment agreement, fringe benefit or compensation
arrangement in effect between the Company and the Participant; and (c) an
agreement to retain the confidentiality of certain information. Such agreements
may contain such other terms and conditions as the Board shall determine. If
the Participant shall fail to enter into any such agreement at the request of
the Board, then the Stock Option granted or to be granted to such Participant
shall be forfeited and cancelled.

 

SECTION 5

SHARES OF COMMON STOCK SUBJECT TO THE PLAN

 

5.1          TOTAL NUMBER OF SHARES

 

The total number of
shares of Common Stock that may be issued under the Plan shall be  5,000,000 of which 4,300,000 shall be
allocated for grants to Key Employees and 700,000 shall be allocated to
Non-Employee Directors. Such shares may be either authorized but unissued
shares, and shall be adjusted in accordance with the provisions of Section 5.2
of the Plan. The number of shares of Common Stock delivered by a Participant or
withheld by the Company on behalf of any such Participant as full or partial
payment of the exercise price of a Stock Option or of any required withholding
taxes, shall once again be available for issuance pursuant to subsequent grants
of Stock Options, and shall not count towards the aggregate number of shares of
Common Stock that may be issued under the Plan. Any shares of Common Stock
subject to a grant may thereafter be available for issuance pursuant to
subsequent grants, and shall not count towards the aggregate number of shares
of Common Stock that may be issued 

 

 

under the Plan, if there
is a lapse, forfeiture, expiration, termination or cancellation of any such
prior Stock Option grant for any reason (including for reasons described in Section 4.3),
or if shares of Common Stock are issued under such grant and thereafter are
reacquired by the Company pursuant to rights reserved by the Company upon
issuance thereof.

 

5.2          ADJUSTMENT

 

In the
event of any reorganization, recapitalization, stock split, stock distribution,
merger, consolidation, split-up, spin-off, combination, subdivision,
consolidation or exchange of shares, any change in the capital structure of the
Company or any similar corporate transaction, the Board shall make such
adjustments as it deems appropriate, in its sole discretion, to preserve the
benefits or intended benefits of the Plan and Stock Option granted under the
Plan. Such adjustments may include: (a) adjustment in the number and kind
of shares reserved for issuance under the Plan; (b) adjustment in the
exercise price of outstanding Stock Options under the Plan; and (c) any
other changes that the Board determines to be equitable under the
circumstances; provided, however, no adjustments may be made if such
adjustments cause the Plan, any Agreement or any Stock Option granted hereunder
to be subject to Section 409A of the Internal Revenue Code.

 

SECTION 6

GRANTS OF
STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS

 

6.1          GRANTS

 

Grants of Stock Options
to Non-Employee Directors shall be as follows:

 

(a)           Each individual who became a Non-Employee Director on
or before December 31, 2003 and is re-elected or continues as a
Non-Employee Director at the 2004 annual meeting of stockholders of the Company
shall, on the date of such meeting, be granted a NSO to purchase up to 15,000
shares of Common Stock. Thereafter, each such Non-Employee Director shall be
granted an additional NSO to purchase up to 15,000 shares of Common Stock, on
the date of each subsequent annual meeting of stockholders of the Company at
which such Director is re-elected or continues as a Non-Employee Director.

 

(b)           Each individual who became or becomes a Non-Employee
Director on or after January 1, 2004, and prior to the date of the 2004
annual meeting of stockholders of the Company shall be granted, on the date of
such meeting, a NSO to purchase up to 25,000 shares of Common Stock, provided
the individual is a Non-Employee Director on the date of such meeting.
Thereafter, each such Non-Employee Director shall be granted an additional NSO
to purchase up to 15,000 shares of Common Stock, on the date of each subsequent
annual meeting of stockholders of the Company at which such Director is
re-elected or continues as a Non-Employee Director.

 

(c)           Each individual who becomes a Non-Employee Director on
or after the date of the 2004 annual meeting of stockholders of the Company
shall be granted a NSO to purchase up to 25,000 shares of Common Stock, on the
date the individual becomes a Non-Employee Director. Thereafter, each such
Non-Employee Director shall be granted an additional NSO to purchase up to
15,000 shares of Common Stock, on the date of each subsequent annual meeting of
stockholders of the Company at which such Director is re-elected or continues
as a Non-Employee Director. The number of shares of Common Stock covered by
each NSO granted to a Non-Employee Director pursuant to Sections 6.1(a), (b) and
(c) above shall be determined by the Board in its sole discretion.

 

6.2          STOCK OPTION AGREEMENT

 

The grant of each NSO
shall be evidenced by a written Stock Option Agreement specifying the exercise
period, the exercise price, the terms for payment of the exercise price, the
expiration date of the NSO, the number of shares of Common Stock to be subject
to each NSO and such other terms and conditions established by the Board, in
its sole discretion, not inconsistent with the Plan.

 

 

6.3          EXERCISE PRICE AND PERIOD

 

With
respect to each NSO granted to a Non-Employee Director:

 

(a)           The per share exercise price of each such NSO granted
to a Non-Employee Director shall be the Fair Market Value of the Common Stock
subject to the NSO on the date on which the NSO is granted.

 

(b)           Unless otherwise provided in the Stock Option
Agreement, and except as set forth in the next sentence hereof, each NSO shall
become fully exercisable with respect to the total number of shares of Common
Stock subject to the NSO on the first 
succeeding anniversary of the date of the grant of the NSO.  Notwithstanding the foregoing, the Board
shall have the discretion to accelerate the date as of which any NSO shall
become exercisable in the event of the Non-Employee Director’s termination of
service on the Board.

 

(c)           Each NSO shall expire, and all rights to purchase
shares of Common Stock thereunder shall expire, on the date ten years after the
date of grant.

 

SECTION 7

GRANTS OF
STOCK OPTIONS TO KEY EMPLOYEES

 

7.1          GRANT

 

Subject to the terms of
the Plan, the Board may from time to time grant Stock Options, which may be
ISOs or NSOs, to Key Employees. Unless otherwise expressly provided at the time
of the grant, Stock Options granted under the Plan to Key Employees will be
ISOs.

 

7.2          STOCK OPTION AGREEMENT

 

The grant of each Stock
Option shall be evidenced by a written Stock Option Agreement specifying the
type of Stock Option granted, the exercise period, the exercise price, the
terms for payment of the exercise price, the expiration date of the Stock
Option, the number of shares of Common Stock to be subject to each Stock Option
and such other terms and conditions established by the Board, in its sole
discretion, not inconsistent with the Plan.

 

7.3          EXERCISE PERIOD

 

With respect to each
Stock Option granted to a Key Employee:

 

(a)           Except as provided in Section 7.4(b), the per
share exercise price of each Stock Option shall be the Fair Market Value of the
Common Stock subject to the Stock Option on the date on which the Stock Option
is granted.

 

(b)           Unless otherwise provided in the Stock Option
Agreement, and except as set forth in the next sentence hereof, each Stock
Option shall become exercisable with respect to the total number of shares of
Common Stock subject to the Stock Option on the first succeeding anniversary of
the date of the grant of the Stock Option thereunder.  Notwithstanding the foregoing, the Board
shall have the discretion to accelerate the date as of which any Stock Option
shall become exercisable in the event of the Key Employee’s termination of
employment with the Company without cause (as determined by the Board in its
sole discretion).

 

(c)           Except as provided in Section 7.4(b), each Stock
Option shall expire, and all rights to purchase shares of Common Stock
thereunder shall expire, on the date ten years after the date of grant.

 

7.4          REQUIRED TERMS AND CONDITIONS OF ISOS

 

In addition to the
foregoing, each ISO granted to a Key Employee shall be subject to the following
specific rules:

 

 

(a)           The aggregate Fair Market Value (determined with
respect to each ISO at the time such Option is granted) of the shares of Common
Stock with respect to which ISOs are exercisable for the first time by a Key
Employee during any calendar year (under all incentive stock option plans of
the Company and its Subsidiaries) shall not exceed $100,000. If the aggregate
Fair Market Value (determined at the time of grant) of the Common Stock subject
to an ISO which first becomes exercisable in any calendar year exceeds the
limitation of this Section 7.4(a), so much of the ISO that does not exceed
the applicable dollar limit shall be an ISO and the remainder shall be a NSO;
but in all other respects, the original Stock Option Agreement shall remain in
full force and effect.

 

(b)           Notwithstanding anything herein to the contrary, if an
ISO is granted to a Key Employee who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company (or its
parent or subsidiaries within the meaning of Section 422(b)(6) of the
Code): (i) the purchase price of each share of Common Stock subject to the
ISO shall be not less than 110% of the Fair Market Value of the Common Stock on
the date the ISO is granted; and (ii) the ISO shall expire, and all rights
to purchase shares of Common Stock thereunder shall expire, no later than the
fifth anniversary of the date the ISO was granted.

 

(c)           No ISOs shall be granted under the Plan after ten
years from the earlier of the date the Plan is adopted or approved by
stockholders of the Company.

 

SECTION 8

EXERCISE OF STOCK OPTIONS

 

8.1          NOTICE

 

A Participant entitled to
exercise a Stock Option may do so by delivering written notice to that effect
specifying the number of shares of Common Stock with respect to which the Stock
Option is being exercised and any other information the Board may prescribe.
All notices or requests provided for herein shall be delivered to the Secretary
of the Company.

 

8.2          PAYMENT OF EXERCISE PRICE

 

The Board in its sole
discretion may make available one or more of the following alternatives for the
payment of the Stock Option exercise price:

 

(a)           in cash;

 

(b)           in cash received from a broker-dealer to whom the
Participant has submitted an exercise notice together with irrevocable
instructions to deliver promptly to the Company the amount of sales proceeds
from the sale of the shares subject to the Stock Option to pay the exercise
price;

 

(c)           by delivering previously acquired shares of Common
Stock that are acceptable to the Board and that have an aggregate Fair Market
Value on the date of exercise equal to the Stock Option exercise price; or

 

(d)           by certifying to ownership by attestation of such
previously acquired shares of Common Stock.

 

The Board shall have the
sole discretion to establish the terms and conditions applicable to any
alternative made available for payment of the Stock Option exercise price.

 

8.3          STOCK CERTIFICATES

 

The Company shall issue,
in the name of the Participant, stock certificates representing the total
number of shares of Common Stock issuable pursuant to the exercise of any Stock
Option as soon as reasonably practicable after such exercise; provided that any
shares of Common Stock purchased by a Participant through a broker-dealer
pursuant to Section 8.2(b) or Section 11(b) shall be
delivered to such broker-dealer in accordance with 12 C.F.R. §220.3(e)(4) or
other applicable provision of law.

 

 

SECTION 9

CHANGE IN
CONTROL

 

9.1          EFFECT OF CHANGE IN CONTROL

 

(a)           Notwithstanding any of the provisions of the Plan or
any outstanding Stock Option Agreement, upon a Change in Control of the Company
(as defined in Section 9.2): (i) all outstanding Options shall become
fully exercisable; (ii) all restrictions applicable to all grants shall
terminate or lapse.

 

(b)           In addition to the Board’s authority set forth in Section 3,
upon such Change in Control of the Company, the Board is authorized, and has
sole discretion, as to any grant, either at the time of such grant hereunder or
any time thereafter, to take any one or more of the following actions: (i) provide
for the purchase of any outstanding Stock Option, for an amount of cash equal
to the difference between the exercise price and the then Fair Market Value of
the Common Stock covered thereby had such Stock Option been currently
exercisable; (ii) make such adjustment to any such grant then outstanding
as the Board deems appropriate to reflect such Change in Control; and (iii) cause
any such grant then outstanding to be assumed, by the acquiring or surviving
corporation, after such Change in Control; provided, however, the Board may not
take any actions that would cause the Plan, any Agreement or any Stock Option
granted hereunder to be subject to Section 409A of the Internal Revenue
Code.

 

9.2          DEFINITION OF CHANGE IN CONTROL

 

“Change in Control” shall
mean the occurrence, at any time during the specified term of a   grant under the Plan, of any of the following
events:

 

(a)           Any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity (other than the
Company or a trustee or other fiduciary holding securities under an employee
benefit plan of the Company), or any syndicate or group deemed to be a person
under Section 14(d)(2) of the Exchange Act, is or becomes the “beneficial
owner” (as defined in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company’s then
outstanding securities entitled to vote generally in the election of directors;

 

(b)           The Company is party to a merger, consolidation,
reorganization or other similar transaction with another corporation or other
legal person unless, following such transaction, more than 50% of the combined
voting power of the outstanding securities of the surviving, resulting or
acquiring corporation or person or its parent entity entitled to vote generally
in the election of directors (or persons performing similar functions) is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the Company’s outstanding
securities entitled to vote generally in the election of directors immediately
prior to such transaction, in substantially the same proportions as their
ownership, immediately prior to such transaction, of the Company’s outstanding
securities entitled to vote generally in the election of directors;

 

(c)           The Company sells all or substantially all of its
business and/or assets to another corporation or other legal person unless,
following such sale, more than 50% of the combined voting power of the outstanding
securities of the acquiring corporation or person or its parent entity entitled
to vote generally in the election of directors (or persons performing similar
functions) is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners of the Company’s outstanding securities entitled to vote generally in
the election of directors immediately prior to such sale, in substantially the
same proportions as their ownership, immediately prior to such sale, of the
Company’s outstanding securities entitled to vote generally in the election of
directors; or

 

(d)           During any period of two consecutive years or less
(not including any period prior to the approval of the Plan by the Board),
individuals who at the beginning of such period constituted the Board (and any
new Directors, whose appointment or election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least
two-thirds of the Directors then still in office who either were Directors at
the beginning of the period or whose appointment, election or nomination for
election was so approved) cease for any reason to constitute a majority of the
Board.

 

 

SECTION 10

POSTPONEMENT

 

The Board may postpone
any grant or exercise of a Stock Option for such time as the Board in its sole
discretion may deem necessary in order to permit the Company:

 

(a)           to effect, amend or maintain any necessary
registration of the Plan or the shares of Common Stock issuable upon the
exercise of an Option, under the Securities Act of 1933, as amended, or the
securities laws of any applicable jurisdiction;

 

(b)           to permit any action to be taken in order to (i) list
such shares of Common Stock on a stock exchange if shares of Common Stock are
then listed on such exchange or (ii) comply with restrictions or
regulations incident to the maintenance of a public market for its shares of
Common Stock, including any rules or regulations of any stock exchange on
which the shares of Common Stock are listed; or

 

(c)           to determine that such shares of Common Stock and the
Plan are exempt from such registration or that no action of the kind referred
to in (b)(ii) above needs to be taken; and the Company shall not be
obligated by virtue of any terms and conditions of any provision of the Plan to
sell or issue shares of Common Stock in violation of the Securities Act of 1933
or the law of any government having jurisdiction thereof.

 

Any such postponement
shall not extend the term of a grant and neither the Company nor its Directors
or officers shall have any obligation or liability to a Participant, the
Participant’s successor or any other person with respect to any shares of
Common Stock as to which the grant shall lapse because of such postponement,
nor shall such postponement result in the Plan providing for the deferral of
compensation as defined in Section 409A of the Code.

 

SECTION 11

PAYMENT
OF TAXES

 

In connection with any
grant, and as a condition to the issuance or delivery of any shares of Common
Stock to the Participant in connection therewith, the Company may require the
Participant to pay the Company an amount equal to the minimum amount of the tax
the Company or any Subsidiary or Affiliated Company may be required to withhold
to obtain a deduction for federal, state or local income tax purposes as a
result of such grant or to comply with applicable law. The Board in its sole
discretion may make available one or more of the following alternatives for the
payment of such taxes:

 

(a)           in cash;

 

(b)           in cash received from a broker-dealer to whom the
Participant has submitted notice together with irrevocable instructions to
deliver promptly to the Company the amount of sales proceeds from the sale of
the shares subject to the grant to pay the withholding taxes;

 

(c)           by directing the Company to withhold such number of
shares of Common Stock otherwise issuable in connection with the grant having
an aggregate Fair Market Value equal to the minimum amount of tax required to
be withheld;

 

(d)           by delivering previously acquired shares of Common
Stock of the Company that are acceptable to the Board that have an aggregate
Fair Market Value equal to the amount required to be withheld; or

 

(e)           by certifying to ownership by attestation of such previously
acquired shares of Common Stock.

 

The Board shall have the
sole discretion to establish the terms and conditions applicable to any
alternative made available for payment of the required withholding taxes.

 

 

SECTION 12

NONTRANSFERABILITY

 

Stock Options granted
under the Plan, and any rights and privileges pertaining thereto, may not be
transferred, assigned, pledged or hypothecated in any manner, or be subject to
execution, attachment or similar process, by operation of law or otherwise,
other than:

 

In the case of ISO’s:

 

(a)           by will or by the laws of descent and distribution;

 

(b)           pursuant to the terms of a qualified domestic
relations order to which the Participant is a party that meets the requirements
of any relevant provisions of the Code; or

 

In the case of NSO’s:

 

(a)           Any NSO granted pursuant to the Plan shall be
transferable to any member of such Optionee’s “immediate family” (as such term
is defined in Rule 16a-1(c) promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rule or regulation) or to a trust or family partnership
whose beneficiaries are members of such optionee’s “immediate family” or to a
qualified charitable organization to which contributions are deductible for tax
purpose pursuant to Section 170 of the Internal Revenue Code of 1986, as
amended.

 

SECTIONS
13

TERMINATION
OR AMENDMENT OF PLAN

 

(a)           Except as described in (b) below, the Board may
terminate, suspend, or amend the Plan, in whole or in part, from time to time,
without the approval of the stockholders of the Company, unless such approval
is required by applicable law, regulation or rule of any stock exchange on
which the shares of Common Stock are listed. No amendment or termination of the
Plan shall adversely affect the right of any Participant under any outstanding
grant in any material way without the written consent of the Participant,
unless such amendment or termination is required by applicable law, regulation
or rule of any stock exchange on which the shares of Common Stock are
listed. Subject to the foregoing, the Board may correct any defect or supply an
omission or reconcile any inconsistency in the Plan or in any granted hereunder
in the manner and to the extent it shall deem desirable, in its sole
discretion, to effectuate the Plan.

 

(b)           Notwithstanding the foregoing, there shall be no
amendment to the Plan or any outstanding Stock Option Agreement that results in
the repricing of Stock Options.

 

(c)           The Board shall have the authority to amend the Plan
to the extent necessary or appropriate to comply with applicable law,
regulation or accounting rules in order to permit Key Employees who are
located outside of the United States to participate in the Plan.

 

(d)           The Plan is intended to provide compensation that is
exempt from Section 409A of the Code and shall not be amended in a manner
that would cause the Plan or any Agreement or Stock Option granted hereunder to
fail to comply with the requirements of Section 409A of the Code.

 

SECTION 14

AMENDMENT
OF STOCK OPTION AGREEMENTS

 

The Board shall have the
authority to amend any Stock Option Agreement at any time; provided however,
that no such amendment shall adversely affect the right of any Participant
under any outstanding Stock Option Agreement in any material way without the
written consent of the Participant, unless such amendment is required by
applicable law, regulation or rule of any stock exchange on which the
shares of Common Stock are listed.

 

 

SECTION 15

NO CONTRACT OF EMPLOYMENT

 

Neither the adoption of
the Plan nor the grant of any Stock Option under the Plan shall be deemed to
obligate the Company or any Subsidiary or Affiliated Company to continue the
employment of any Participant for any particular period, nor shall the granting
of a Stock Option constitute a request or consent to postpone the retirement
date of any Participant.

 

SECTION 16

APPLICABLE
LAW

 

All questions pertaining
to the validity, construction and administration of the Plan and all Stock
Options granted under the Plan shall be determined in conformity with the laws
of the State of Delaware, without regard to the conflict of law provisions of
any state, and, in the case of Incentive Stock Options, Section 422 of the
Code and regulations issued thereunder.

 

SECTION 17

REGISTRATION
OF OPTION SHARES

 

No shares will be issued
and delivered upon exercise of any option unless a registration statement under
the Securities Act of 1933, as amended, with respect to the shares of Common
Stock to be reserved for issuance upon the exercise of options to be granted
under the 2004 Plan has become effective, and unless all other applicable laws
and regulations have been complied with.

 

SECTION 18

EFFECTIVE
DATE

 

The Plan succeeded the
1993 Incentive Stock Option Plan (the “1993 Plan”) and the 1993 Directors Stock
Option Plan (the “Directors Plan”). Both the 1993 Plan and the Directors Plan
expired by their terms in September 2003 and October 2003,
respectively.  The Plan was adopted by
the Board on April 28, 2004, and became effective on June 8, 2004,
the date the Plan was approved by the stockholders of the Company.  An amendment to the Plan became effective on June 7,
2010, the date the amendment was approved by the stockholders of the Company.

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