Document:

EX-4.1

	

Exhibit 4.1

AMERICAN
INTERNATIONAL PETROLEUM CORPORATION
2002
LONG-TERM PERFORMANCE PLAN

1.  Objectives. 

The American International
Petroleum Corporation 2002 Long-Term Performance Plan (the “Plan”) is
designed to attract, motivate and retain selected employees of, and other
individuals providing services to, American International Petroleum Corporation
(the “Company”). These objectives are accomplished by making long-term
incentive and other awards under the Plan, thereby providing Participants with a
proprietary interest in the growth and performance of the Company. 

2.  Definitions. 

(a) “Awards”
— The grant of any form of stock option, stock appreciation right, stock or
cash award, whether granted singly, in combination or in tandem, to a
Participant pursuant to such terms, conditions, performance requirements,
limitations and restrictions as the Committee may establish in order to fulfill
the objectives of the Plan. 

(b) “Award
Agreement” — An agreement between the Company and a Participant that
sets forth the terms, conditions, performance requirements, limitations and
restrictions applicable to an Award. 

(c) “Board” — The
Board of Directors of American International Petroleum Corporation. 

(d) “Capital
Stock” or “stock” — Authorized and issued or unissued
Capital Stock of the Company, at such par value as may be established from time
to time. 

(e) “Code” —
The Internal Revenue Code of 1986, as amended from time to time. 

(f) “Committee” — The committee
designated by the Board to administer the Plan. 

(g) “Company” — American
International Petroleum Corporation and its subsidiaries. 

(h) “Fair Market
Value” — The average of the high and low prices of Capital Stock on
the Nasdaq SmallCap Market or other principal stock exchange or automated
quotation service (including the OTC Bulletin Board) on which the Capital Stock
is then listed or quoted for the date in question, provided that, if no sales of
Capital Stock were made on said exchange or automated quotation service on that
date, the average of the high and low prices of Capital Stock as reported for
the most recent preceding day on which sales of Capital Stock were made on said
exchange or quotation service. 

	

(i) “Participant”
— An individual to whom an Award has been made under the Plan. Awards may
be made to any employee of, or any other individual or entity providing services
to, the Company. However, incentive stock options may be granted only to
individuals who are employed by the Company or by a subsidiary corporation
(within the meaning of section 424(f) of the Code) of the Company, including a
subsidiary that becomes such after the adoption of the Plan. 

(j) “Performance
Period” — A multi-year period of no more than five consecutive
calendar years over which one or more of the performance criteria listed in
Section 6 shall be measured pursuant to the grant of Long-Term Performance
Incentive Awards (whether such Awards take the form of stock, stock units or
equivalents or cash). Performance Periods may overlap one another, but no two
Performance Periods may consist solely of the same calendar years. 

3.  Capital Stock Available for
Awards. 

The number of shares that
may be issued under the Plan for Awards granted wholly or partly in stock during
the term of the Plan is 5,000,000. Shares of Capital Stock may be made available
from the authorized but unissued shares of the Company or from shares held in
the Company’s treasury and not reserved for some other purpose. For
purposes of determining the number of shares of Capital Stock issued under the
Plan, no shares shall be deemed issued until they are actually delivered to a
Participant, or such other person in accordance with Section 10. Shares covered
by Awards that either wholly or in part are not earned, or that expire or are
forfeited, terminated, canceled, settled in cash, payable solely in cash or
exchanged for other awards, shall be available for future issuance under Awards.
Further, shares tendered to or withheld by the Company in connection with the
exercise of stock options, or the payment of tax withholding on any Award, shall
also be available for future issuance under Awards. 

4.   Administration. 

The Plan shall be
administered by the Committee, which shall have full power to select
Participants, to interpret the Plan, to grant waivers of Award restrictions, to
continue, accelerate or suspend exercisability, vesting or payment of an Award
and to adopt such rules, regulations and guidelines for carrying out the Plan as
it may deem necessary or proper. These powers include, but are not limited to,
the adoption of modifications, amendments, procedures, subplans and the like as
necessary to comply with provisions of the laws and regulations of the countries
in which the Company operates in order to assure the viability of Awards granted
under the Plan and to enable Participants regardless of where employed to
receive advantages and benefits under the Plan and such laws and regulations. 

5.   Delegation of Authority. 

The Committee may delegate
to officers of the Company its duties, power and authority under the Plan
pursuant to such conditions or limitations as the Committee may establish,
except that only the Committee or the Board may select, and grant Awards to,
Participants who are subject to Section 16 of the Securities Exchange Act of
1934. 

6.   Awards. 

The Committee shall
determine the type or types of Award(s) to be made to each Participant and shall
set forth in the related Award Agreement the terms, conditions, performance
requirements, and limitations applicable to each Award. Awards may include but
are not limited to those listed in this Section 6. Awards may be granted singly,
in combination or in tandem. Awards may also be made in combination or in tandem
with, in replacement or payment of, or as alternatives to, grants, rights or
compensation earned under any other plan of the Company, including the plan of
any acquired entity. 

2 

	

(a) Stock Option — A
grant of a right to purchase a specified number of shares of Capital Stock the
exercise price of which shall be not less than 100% of Fair Market Value on the
date of grant of such right, as determined by the Committee, provided that, in
the case of a stock option granted retroactively in tandem with or as
substitution for another award granted under any plan of the Company, the
exercise price may be the same as the purchase or designated price of such other
award. A stock option may be in the form of an incentive stock option
(“ISO”) which, in addition to being subject to applicable terms,
conditions and limitations established by the Committee, complies with section
422 of the Code; provided this Plan is approved by the affirmative vote of the
holders of a majority of the outstanding shares of Capital Stock entitled to
vote thereon within one year before or after adoption of the Plan by the Board
of Directors. All of the shares that may be issued under the Plan are available
for issuance under ISOs granted under the Plan. 

(b) Stock Appreciation
Right — A right to receive a payment, in cash and/or Capital Stock, equal
in value to the excess of the Fair Market Value of a specified number of shares
of Capital Stock on the date the stock appreciation right (SAR) is exercised
over the grant price of the SAR, which shall not be less than 100% of the Fair
Market Value on the date of grant of such SAR, as determined by the Committee,
provided that, in the case of a SAR granted retroactively in tandem with or as
substitution for another award granted under any plan of the Company, the grant
price may be the same as the exercise or designated price of such other award. 

(c) Stock Award — An
Award made in stock and denominated in units of stock. All or part of any stock
award may be subject to conditions established by the Committee, and set forth
in the Award Agreement, which may include, but are not limited to, continuous
service with Company, achievement of specific business objectives, increases in
specified indices, attaining growth rates, and other comparable measurements of
Company performance. An Award made in stock or denominated in units of stock
that is subject to restrictions on transfer and/or forfeiture provisions may be
referred to as an Award of “Restricted Stock,” “Restricted Stock
Units” or “Long-Term Performance Incentive” units. 

(d) Cash Award — An
Award denominated in cash with the eventual payment amount subject to future
service and such other restrictions and conditions as may be established by the
Committee, and as set forth in the Award Agreement, including, but not limited
to, continuous service with the Company, achievement of specific business
objectives, increases in specified indices, attaining growth rates, and other
comparable measurements of Company performance. 

(e) Performance Criteria
under section 162(m) of the Code for Long-Term Performance Incentive Awards
— The performance criteria for Long-Term Performance Incentive Awards
(whether such Awards take the form of stock, stock units or equivalents or cash)
made to any “covered employee” (as defined by section 162(m) of the
Code) shall consist of objective tests based on one or more of the following:
earnings, cash flow, customer satisfaction, revenues, financial return ratios,
market performance, shareholder return and/or value, operating profits
(including EBITDA), net profits, earnings per share, profit returns and margins,
stock price and working capital. Performance criteria may be measured solely on
a corporate, subsidiary or business unit basis, or a combination thereof.
Further, performance criteria may reflect absolute entity performance or a
relative comparison of entity performance to the performance of a peer group of
entities or other external measure of the selected performance criteria. The
formula for any Award may include or exclude items to measure specific
objectives, such as losses from discontinued operations, extraordinary gains or
losses, the cumulative effect of accounting changes, acquisitions or
divestitures, foreign exchange impacts and any unusual, nonrecurring gain or
loss. Nothing herein shall preclude the Committee from making any payments or
granting any Awards whether or not such payments or Awards qualify for tax
deductibility under section 162(m) of the Code. 

3 

	

7.   Payment of Awards. 

Payment of Awards may be
made in the form of cash, stock or combinations thereof and may include such
restrictions, as the Committee shall determine. Further, with Committee
approval, payments may be deferred, either in the form of installments or as a
future lump-sum payment, in accordance with such procedures as may be
established from time to time by the Committee. Any deferred payment, whether
elected by the Participant or specified by the Award Agreement or the Committee,
may require the payment to be forfeited in accordance with the provisions of
Section 13. Dividends or dividend equivalent rights may be extended to and made
part of any Award denominated in stock or units of stock, subject to such terms,
conditions and restrictions as the Committee may establish. The Committee may
also establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payments denominated in
stock or units of stock. At the discretion of the Committee, a Participant may
be offered an election to substitute an Award for another Award or Awards of the
same or different type. 

8.   Stock Option
Exercise. 

The price at which shares
of Capital Stock may be purchased under a stock option shall be paid in full in
cash at the time of the exercise or, if permitted by the Committee, by means of
tendering Capital Stock or surrendering another Award or any combination
thereof. The Committee shall determine acceptable methods of tendering Capital
Stock or other Awards and may impose such conditions on the use of Capital Stock
or other Awards to exercise a stock option as it deems appropriate. 

9.   Tax Withholding. 

Prior to the payment or
settlement of any Award, the Participant must pay, or make arrangements
acceptable to the Company for the payment of, any and all federal, state and
local tax withholding and employment taxes that in the opinion of the Company is
required by law. The Company shall have the right to deduct applicable taxes
from any Award payment and withhold, at the time of delivery or vesting of
shares under the Plan, an appropriate number of shares for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes or for
payment of employment taxes. 

4 

	

10.  Transferability. 

No Award shall be
transferable or assignable, or payable to or exercisable by, anyone other than
the Participant to whom it was granted, except (i) by law, will or the laws of
descent and distribution, (ii) as a result of the disability of a Participant or
(iii) that the Committee (in the form of an Award Agreement or otherwise) may
permit transfers of Awards by gift or otherwise to a member of a
Participant’s immediate family and/or trusts whose beneficiaries are
members of the Participant’s immediate family, or to such other persons or
entities as may be approved by the Committee. Notwithstanding the foregoing, in
no event shall ISOs be transferable or assignable other than by will or by the
laws of descent and distribution. 

11.   Amendment, Modification,
Suspension or Discontinuance of the Plan. 

The Board may amend,
modify, suspend or terminate the Plan for the purpose of meeting or addressing
any changes in legal requirements or for any other purpose permitted by law.
Subject to changes in law or other legal requirements that would permit
otherwise, the Plan may not be amended without the consent of the holders of a
majority of the shares of Capital Stock then outstanding, to (i) increase the
aggregate number of shares of Capital Stock that may be issued under the Plan
(except for adjustments pursuant to Section 14 of the Plan), or (ii) permit the
granting of stock options or SARs with exercise or grant prices lower than those
specified in Section 6. 

12.   Termination of Employment. 

If the employment of a
Participant terminates, other than as a result of the death or disability of a
Participant, all unexercised, deferred and unpaid Awards shall be canceled
immediately, unless the Award Agreement provides otherwise. In the event of the
death of a Participant or in the event a Participant is deemed by the Company to
be disabled and eligible for benefits under the terms of any long-term
disability plan or policy maintained by the Company, the Participant’s
estate, beneficiaries or representative, as the case may be, shall have the
rights and duties of the Participant under the applicable Award Agreement. 

13.   Cancellation and Rescission of
Awards. 

(a) Unless the Award
Agreement specifies otherwise, the Committee may cancel, rescind, suspend,
withhold or otherwise limit or restrict any unexpired, unpaid, or deferred
Awards at any time if the Participant is not in compliance with all applicable
provisions of the Award Agreement and the Plan, or if the Participant engages in
any “Detrimental Activity.” For purposes of this Section 13,
“Detrimental Activity” shall include: (i) the rendering of services
for any organization or engaging directly or indirectly in any business which is
or becomes competitive with the Company, or which organization or business, or
the rendering of services to such organization or business, is or becomes
otherwise prejudicial to or in conflict with the interests of the Company; (ii)
the disclosure to anyone outside the Company, or the use in other than the
Company’s business, without prior written authorization from the Company,
of any confidential information or material relating to the business of the
Company, acquired by the Participant either during or after employment with the
Company; (iii) the failure or refusal to disclose promptly and to assign to the
Company all right, title and interest in any invention or idea, patentable or
not, made or conceived by the Participant during employment by the Company,
relating in any manner to the actual or anticipated business, research or
development work of the Company or the failure or refusal to do anything
reasonably necessary to enable the Company to secure a patent where appropriate
in the United States and in other countries; (iv) activity that results in
termination of the Participant’s employment for cause; (v) a violation of
any rules, policies, procedures or guidelines of the Company; (vi) any attempt
directly or indirectly to induce any employee of the Company to be employed or
perform services elsewhere or any attempt directly or indirectly to solicit the
trade or business of any current or prospective customer, supplier or partner of
the Company; (vii) the Participant being convicted of, or entering a guilty plea
with respect to, a crime, whether or not connected with the Company; or (viii)
any other conduct or act determined to be injurious, detrimental or prejudicial
to any interest of the Company. 

5 

	

(b) Upon exercise, payment
or delivery pursuant to an Award, the Participant shall certify in a manner
acceptable to the Company that he or she is in compliance with the terms and
conditions of the Plan. In the event a Participant fails to comply with the
provisions of paragraphs (a)(i)-(viii) of this Section 13 prior to, or during
the six months after, any exercise, payment or delivery pursuant to an Award,
such exercise, payment or delivery may be rescinded within two years thereafter.
In the event of any such rescission, the Participant shall pay to the Company
the amount of any gain realized or payment received as a result of the rescinded
exercise, payment or delivery, in such manner and on such terms and conditions
as may be required, and the Company shall be entitled to set-off against the
amount of any such gain any amount owed to the Participant by the Company. 

14.   Adjustments. 

In the event of any change
in the outstanding Capital Stock of the Company by reason of a stock split,
stock dividend, combination or reclassification of shares, recapitalization,
merger, or similar event, the Committee may adjust proportionately: (a) the
number of shares of Capital Stock (i) available for issuance under the Plan,
(ii) available for issuance under ISOs, (iii) for which Awards may be granted to
an individual Participant set forth in Section 6, and (iv) covered by
outstanding Awards denominated in stock or units of stock; (b) the exercise and
grant prices related to outstanding Awards; and (c) the appropriate Fair Market
Value and other price determinations for such Awards. In the event of any other
change affecting the Capital Stock or any distribution (other than normal cash
dividends) to holders of Capital Stock, including a spin-off of the capital
stock of a subsidiary, such adjustments in the number and kind of shares and the
exercise, grant and conversion prices of the affected Awards as may be deemed
equitable by the Committee, including adjustments to avoid fractional shares,
shall be made to give proper effect to such event. In the event of a corporate
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Company or its successor shall issue or
assume stock options, whether or not in a transaction to which section 424(a) of
the Code applies, by means of substitution of new stock options for previously
issued stock options or an assumption of previously issued stock options. In
such event, the aggregate number of shares of Capital Stock available for
issuance under Awards under Section 3, including the individual Participant
maximums set forth in Section 6 will be increased to reflect such substitution
or assumption. 

6 

	

15.   Miscellaneous. 

(a) Any notice to the
Company required by any of the provisions of the Plan shall be addressed to the
chief financial officer of the Company in writing, and shall become effective
when it is received. 

(b) The Plan shall be
unfunded and the Company shall not be required to establish any special account
or fund or to otherwise segregate or encumber assets to ensure payment of any
Award. 

(c) Nothing contained in
the Plan shall prevent the Company from adopting other or additional
compensation arrangements or plans, subject to shareholder approval if such
approval is required, and such arrangements or plans may be either generally
applicable or applicable only in specific cases. 

(d) No Participant shall
have any claim or right to be granted an Award under the Plan and nothing
contained in the Plan shall be deemed or be construed to give any Participant
the right to be retained in the employ of the Company or to interfere with the
right of the Company to discharge any Participant at any time without regard to
the effect such discharge may have upon the Participant under the Plan. Except
to the extent otherwise provided in any plan or in an Award Agreement, no Award
under the Plan shall be deemed compensation for purposes of computing benefits
or contributions under any other plan of the Company. 

(e) Except as may otherwise
be required by federal law, the Plan and each Award Agreement shall be governed
by the laws of the State of California, excluding any conflicts or choice of law
rule or principle that might otherwise refer construction or interpretation of
the Plan to the substantive law of another jurisdiction. Unless otherwise
provided in the Award Agreement, recipients of an Award under the Plan are
deemed to submit to the exclusive jurisdiction and venue of the federal or state
courts of Texas, County of Harris, to resolve any and all issues that may arise
out of or relate to the Plan or any related Award Agreement. 

(f) In the event that a
Participant or the Company brings an action to enforce the terms of the Plan or
any Award Agreement and the Company prevails, the Participant shall pay all
costs and expenses incurred by the Company in connection with that action,
including reasonable attorneys’ fees, and all further costs and fees,
including reasonable attorneys’ fees incurred by the Company in connection
with collection. 

(g) The Committee and any
officers to whom it may delegate authority under Section 5 shall have full power
and authority to interpret the Plan and to make any determinations thereunder,
including determinations under Section 13, and the Committee’s or such
officer’s determinations shall be binding and conclusive. Determinations
made by the Committee or any such officer under the Plan need not be uniform and
may be made selectively among individuals, whether or not such individuals are
similarly situated. 

(h) If any provision of the
Plan is or becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
or limited in scope to conform to applicable laws or, in the discretion of the
Committee, it shall be stricken and the remainder of the Plan shall remain in
full force and effect. 

7 

	

(i) The Plan shall become
effective upon adoption by the Board of Directors of the Company. 

(j) The Plan is not a Contract of Employment or
for Services. 

     Nothing
contained in the Plan or in any option agreement executed pursuant hereto shall
be deemed to confer upon any individual to whom an Option is or may be granted
hereunder any right to remain in the employ of the Company or of a subsidiary or
parent of the Company or in any way limit the right of the Company, or of any
parent or subsidiary thereof, to terminate the employment of any employee. 

8Exhibit 4.01

 

Exhibit 4.01

THE FLAGSHIP GROUP, INC.

1999 STOCK OPTION/STOCK ISSUANCE PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

     This 1999 Stock Option/Stock Issuance Plan is intended to promote the
interests of The Flagship Group, Inc. (the “Corporation”), by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.

     Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.

II. STRUCTURE OF THE PLAN

     A. The Plan shall be divided into two (2) separate equity programs:

	     	
	 	     (1) the Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock, and
	 
	 	     (2) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares
of Common Stock directly, either through the immediate purchase of
such shares or as a bonus for services rendered the Corporation
(or any Parent or Subsidiary).

     B. The provisions of Articles One and Four shall apply to both equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

III. ADMINISTRATION OF THE PLAN

     A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.

     B. The Plan Administrator shall have full power and authority (subject to
the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Plan and to make such
determinations under, and issue such

 

 

interpretations of, the Plan and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or stock issuance thereunder.

IV. ELIGIBILITY

     A. The persons eligible to participate in the Plan are as follows:

	       	(1)	  	Employees,
	 
	       	(2)	  	non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, and
	 
	       	(3)	  	consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).

     B. The Plan Administrator shall have full authority to determine, (i) with
respect to the option grants under the Option Grant Program, which eligible
persons are to receive option grants, the time or times when such option grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding and (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible persons are to
receive stock issuances, the time or times when such issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration to be paid by the
Participant for such shares.

     C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.

V. STOCK SUBJECT TO THE PLAN

     A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 1,500,000
shares.

     B. Shares of Common Stock subject to outstanding options (including Prior
Options) shall be available for subsequent issuance under the Plan to the
extent (i) the options expire or terminate for any reason prior to exercise in
full or (ii) the options are cancelled in accordance with the
cancellation-regrant provisions of Article Two. Unvested shares issued under
the Plan and subsequently repurchased by the Corporation, at the option
exercise price paid per share, pursuant to the Corporation’s repurchase rights
under the Plan shall also be available for reissuance through one or more
subsequent option grants under the Plan.

     C. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change

2

 

affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration, appropriate adjustments shall be made to (i) the
maximum number and/or class of securities issuable under the Plan and (ii) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option (including Prior Options) in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event
shall any such adjustments be made in connection with the conversion of one or
more outstanding shares of the Corporation’s preferred stock into shares of
Common Stock.

3

 

ARTICLE TWO

OPTION GRANT PROGRAM

I. OPTION TERMS

     Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator;provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

     A. Exercise Price.

          1. The exercise price per share shall be fixed by the Plan Administrator
and may be equal to, less than or greater than the Fair Market Value per share
of Common Stock on the option grant date.

          2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Four and
the documents evidencing the option, be payable in cash or check made payable
to the Corporation. Should the Common Stock be registered under Section 12(g)
of the 1934 Act at the time the option is exercised, then the exercise price
may also be paid as follows:

	     	
	 	     (a) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation’s earnings for
financial reporting purposes and valued at Fair Market Value on
the Exercise Date, or
	 
	 	     (b) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written
instructions (A) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (B) to
the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the
sale.

          Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

     B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.

4

 

     C. Effect of Termination of Service.

          1. The following provisions shall govern the exercise of any options held
by the Optionee at the time of cessation of Service or death:

	     	
	 	     (a) Any option outstanding at the time of the Optionee’s
cessation of Service for any reason other than Disability or death
shall remain exercisable for such period of time thereafter as
shall be determined by the Plan Administrator and set forth in the
documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
	 
	 	     (b) Should Optionee’s Service terminate by reason of
Disability, then the Optionee shall have a period of six (6)
months following the date of such cessation of Service during
which to exercise each outstanding option held by such Optionee.
However, should such Disability be deemed to constitute Permanent
Disability, then the period during which each outstanding option
held by the Optionee is to remain exercisable shall be extended by
an additional six (6) months so that the exercise period shall be
the twelve (12)-month period following the date of the Optionee’s
cessation of Service by reason of such Permanent Disability.
	 
	 	     (c) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the
Optionee’s estate or the person or persons to whom the option is
transferred pursuant to the Optionee’s will or in accordance with
the laws of descent and distribution shall have a period of twelve
(12) months following the date of the Optionee’s death during
which to exercise each such option.
	 
	 	     (d) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the
date of the Optionee’s cessation of Service. Upon the expiration
of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately
upon the Optionee’s cessation of Service, terminate and cease to
be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.
	 
	 	     (e) In the event of an Involuntary Termination following a
Corporate Transaction, the provisions of Section III of this
Article Two shall govern the period for which the outstanding
options are to remain exercisable following the Optionee’s
cessation of Service and shall supersede any provisions to the
contrary in this section.

          2. The Plan Administrator shall have the discretion, exercisable either at
the time an option is granted or at any time while the option remains
outstanding, to:

5

 

	     	
	 	     (a) extend the period of time for which the option is to
remain exercisable following Optionee’s cessation of Service or
death from the limited period otherwise in effect for that option
to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the
option term, and/or
	 
	 	     (b) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number
of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee’s cessation of Service but
also with respect to one or more additional installments in which
the Optionee would have vested under the option had the Optionee
continued in Service.

     D. Shareholder Rights. The holder of an option shall have no Shareholders
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of
record of the purchased shares.

     E. Unvested Shares. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.

     F. First Refusal Rights. Until such time as the Common Stock is first
registered under Section 12(g) of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the Optionee
(or any successor in interest) of any shares of Common Stock issued under the
Plan. Such right of first refusal shall be exercisable in accordance with the
terms established by the Plan Administrator and set forth in the document
evidencing such right.

     G. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee’s death.

     H. Withholding. The Corporation’s obligation to deliver shares of Common
Stock upon the exercise of any options granted under the Plan shall be subject
to the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.

II. INCENTIVE OPTIONS

     The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
the Plan shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.

6

 

     A. Eligibility. Incentive Options may only be granted to Employees.

     B. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock
on the option grant date.

     C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent
the Employee holds two (2) or more such options which become exercisable for
the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

     D. 10% Shareholders. If any Employee to whom an Incentive Option is
granted is a 10% Shareholders, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date and the option term shall not exceed five
(5) years measured from the option grant date.

III. CORPORATE TRANSACTION

     A. In the event of any Corporate Transaction, each outstanding option
shall be (i) assumed by the successor corporation (or parent thereof) or (ii)
replaced with a comparable option to purchase shares of the capital stock of
the successor corporation (or parent thereof) or with a cash incentive program
of the successor corporation which preserves the spread existing on the
unvested option shares at the time of the Corporate Transaction and provides
for subsequent payout in accordance with the same vesting schedule applicable
to such option. The determination of option comparability under clause (ii)
above shall be made by the Plan Administrator, and its determination shall be
final, binding and conclusive. However, to the extent the successor
corporation (or parent thereof) does not effect such assumption or replacement,
each outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock.

     B. All outstanding repurchase rights shall also be assigned to the
successor corporation (or parent thereof) in the event of any Corporate
Transaction. However, to the extent the successor corporation (or parent
thereof) does not accept such assignment, the outstanding repurchase rights
shall terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, upon the consummation of the
Corporate Transaction, except to the extent such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.

     C. Unless otherwise provided by the Plan Administrator, immediately
following the consummation of the Corporate Transaction, all outstanding
options shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof).

7

 

     D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction, had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan following the consummation of such
Corporate Transaction and (ii) the exercise price payable per share under each
outstanding option,provided the aggregate exercise price payable for such
securities shall remain the same.

     E. The Plan Administrator shall have the discretion, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration, in whole or in part, of
one or more outstanding options (and the automatic termination, in whole or in
part, of one or more outstanding repurchase rights, with the immediate vesting
of the shares of Common Stock subject to those terminated rights) upon the
occurrence of a Corporate Transaction, whether or not those options are to be
assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction.

     F. The Plan Administrator shall also have full power and authority to
grant options under the Plan which will automatically accelerate in whole or in
part should the Optionee’s Service subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed twelve (12)
months) following the effective date of any Corporate Transaction in which
those options are assumed or replaced and do not otherwise accelerate. Any
options so accelerated shall remain exercisable for fully-vested shares until
theearlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more
of the Corporation’s outstanding repurchase rights with respect to shares held
by the Optionee at the time of such Involuntary Termination shall immediately
terminate in whole or in part, and the shares subject to those terminated
rights shall accordingly vest.

     G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.

     H. The grant of options under the Plan shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

8

 

IV. CANCELLATION AND REGRANT OF OPTIONS

     The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.

9

 

ARTICLE THREE

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

     Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.

     A. Purchase Price.

          1. The purchase price per share shall be fixed by the Plan Administrator
and may be less than the Fair Market Value of the Common Stock on the stock
issuance date.

          2. Subject to the provisions of Section I of Article Four, shares of
Common Stock may be issued under the Stock Issuance Program for one or both of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

	     	
	 	     (a) cash or check made payable to the Corporation,
	 
	 	     (b) past services rendered to the Corporation (or any Parent
or Subsidiary), or
	 
	 	     (c) a promissory note that constitutes valid consideration
under applicable state law payable to the Corporation, but only to
the extent authorized by the Plan Administrator in accordance with
Article Four, Section I.

     B. Vesting Provisions.

          1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant’s period
of Service or upon attainment of specified performance objectives. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program, namely:

	     	
	 	     (a) the Service period to be completed by the Participant or
the performance objectives to be attained,
	 
	 	     (b) the number of installments in which the shares are to
vest,
	 
	 	     (c) the interval or intervals (if any) which are to lapse
between installments, and
	 
	 	     (d) the effect which death, Disability or other event
designated by the Plan Administrator is to have upon the vesting
schedule,

10

 

shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.

          2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant’s
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant’s unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

          3. The Participant shall have full Shareholders rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant’s interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.

          4. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
of such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further Shareholders rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant’s purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to such surrendered shares.

          5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of
the vesting schedule applicable to such shares. Such waiver shall result in
the immediate vesting of the Participant’s interest in the shares of Common
Stock as to which the waiver applies. Such waiver may be effected at any time,
whether before or after the Participant’s cessation of Service or the
attainment or non-attainment of the applicable performance objectives.

     C. First Refusal Rights. Until such time as the Common Stock is first
registered under Section 12(g) of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.

11

 

II. CORPORATE TRANSACTION

     A. All of the outstanding repurchase rights under the Stock Issuance
Program shall be assigned to the successor corporation (or parent thereof) in
any Corporate Transaction. However, to the extent such successor corporation
(or parent thereof) does not accept such assignment, the repurchase rights
shall automatically terminate and the shares shall vest in full unless such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.

     B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation’s repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant’s
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed twelve (12) months) following the
effective date of any Corporate Transaction in which those
repurchase/cancellation rights are assigned to the successor corporation (or
parent thereof).

III. SHARE ESCROW/LEGENDS

     Unvested shares may, in the Plan Administrator’s discretion, be held in
escrow by the Corporation until the Participant’s interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.

12

 

ARTICLE FOUR

MISCELLANEOUS

I. FINANCING

     The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price or the purchase price for shares issued to such person
under the Plan by delivering a promissory note that constitutes valid
consideration under applicable state law payable in one or more installments.
The terms of any such promissory note (including the interest rate and the
terms of repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed thesum of (i) the aggregate option exercise price
or purchase price payable for the purchased shares (less the par value of such
shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

II. EFFECTIVE DATE AND TERM OF PLAN

     A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation’s Shareholder.
If such Shareholders approval is not obtained within twelve (12) months after
the date of the Board’s adoption of the Plan, then all options previously
granted under the Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
Subject to such limitation, the Plan Administrator may grant options and issue
shares under the Plan at any time after the effective date of the Plan and
before the date fixed herein for termination of the Plan.

          Notwithstanding the foregoing, the Prior Options are assumed and will be
incorporated under the Plan as of its effective date, provided that the
incorporation of the Prior Options under the Plan shall not reduce or diminish
the rights granted under the Prior Options.

     B. The Plan shall terminate upon the earliest of (i) the expiration of the
ten (10)-year period measured from the date the Plan is adopted by the Board,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all
options and unvested stock issuances outstanding under the Plan shall continue
to have full force and effect in accordance with the provisions of the
documents evidencing such options or issuances.

III. AMENDMENT OF THE PLAN

     A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or unvested stock issuances at

13

 

the time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification.

     B. Options to purchase shares of Common Stock may be granted under the
Plan and shares of Common Stock may be issued under the Plan that are in each
instance in excess of the number of shares then available for issuance under
the Plan, provided any excess shares actually issued under the Plan are held in
escrow until there is obtained Shareholders approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such Shareholders approval is not obtained within
twelve (12) months after the date the first such excess issuances are made,
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees and the Participants the exercise or purchase
price paid for any excess shares issued under the Plan and held in escrow,
together with interest (at the applicable Short-Term Federal Rate) for the
period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.

IV. USE OF PROCEEDS

     Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.

V. WITHHOLDING

     The Corporation’s obligation to deliver shares of Common Stock upon the
exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.

VI. REGULATORY APPROVALS

     The implementation of the Plan, the granting of any options under the Plan
and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation’s procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.

VII. NO EMPLOYMENT OR SERVICE RIGHTS

     Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person’s Service at any time for any reason, with or without
cause.

14

 

APPENDIX

     The following definitions shall be in effect under the Plan:

          A. Board shall mean the Corporation’s Board of Directors.

          B. Code shall mean the Internal Revenue Code of 1986, as amended.

          C. Committee shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.

          D. Common Stock shall mean the Corporation’s common stock.

          E. Corporate Transaction shall mean any of the following transactions:

	     	
	 	     1. a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power
of the Corporation’s outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction,
	 
	 	     2. the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets or capital stock, or
	 
	 	     3. a tender or exchange offer in which, after the
consummation of the offer, the offeror is the beneficial owner (as
determined pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended), directly or indirectly, of at least
fifteen percent (15%) of the outstanding Common Stock.

          F. Corporation shall mean The Flagship Group, Inc.

          G. Disability shall mean the inability of the Optionee or the Participant
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment and shall be determined by the Plan
Administrator on the basis of such medical evidence as the Plan Administrator
deems warranted under the circumstances. Disability shall be deemed to
constitute Permanent Disability in the event that such Disability is expected
to result in death or has lasted or can be expected to last for a continuous
period of 12 months or more.

          H. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

          I. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.

15

 

          J. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

	     	
	 	     1. If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question,
as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
	 
	 	     2. If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
	 
	 	     3. If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan Administrator
after taking into account such factors as the Plan Administrator
shall deem appropriate.

          K. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.

          L. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:

	     	
	 	     1. such individual’s involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
	 
	 	     2. such individual’s voluntary resignation following (A) a
change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (B) a
reduction in his or her level of compensation (including base
salary, fringe benefits and participation in corporate-performance
based bonus or incentive programs) by more than fifteen percent
(15%) or (C) a relocation of such individual’s place of employment
by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected without the individual’s
consent.

          M. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or
disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing

16

 

definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary).

          N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

          O. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

          P. Option Grant Program shall mean the option grant program in effect
under the Plan.

          Q. Optionee shall mean any person to whom an option is granted under the
Plan.

          R. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

          S. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.

          T. Plan shall mean the Corporation’s 1999 Stock Option/Stock Issuance
Plan, as set forth in this document.

          U. Plan Administrator shall mean either the Board or the Committee, to the
extent the Committee is at the time responsible for the administration of the
Plan.

          V. Prior Options shall mean the options to purchase an aggregate of     shares
of Common Stock granted to certain individuals on     and     .

          W. Service shall mean the provision of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.

          X. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.

          Y. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

17

 

          Z. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.

          AA. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

          AB. 10% Shareholders shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

18

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00040-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00040-of-00352.parquet"}]]