Document:

EX 10.3 DeMarco 2015 Management Contract

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT executed as of this 28 day of January, 2015 (“Agreement”) among ARROW FINANCIAL CORPORATION, a New York corporation with its principal place of business at 250 Glen Street, Glens Falls, New York 12801 (“Arrow”), its wholly-owned subsidiary, SARATOGA NATIONAL BANK AND TRUST COMPANY, a national banking association with its principal place of business at 171 South Broadway, Saratoga Springs, New York 12866 (the “Bank” and collectively with Arrow, the “Company”), and DAVID. S. DEMARCO, residing at 2 Ingersoll Road, Saratoga Springs, New York 12866 (the “Executive”).  The effective date of this Agreement shall be February 1, 2015 (the “Effective Date”).  Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in Paragraph 11 of this Agreement.
Recitals
WHEREAS, Arrow and the Bank consider the maintenance of a competent and experienced executive management team to be essential to the long-term success of Arrow and the Bank; and
WHEREAS, the Executive wishes to continue to serve Arrow and the Bank as part of such executive management team; and
WHEREAS, in this regard, Arrow and the Bank, on the one hand, and the Executive, on the other, have determined that it is in the best interests of all of the parties that the Executive serve as Senior Vice President of Arrow and President and Chief Executive Officer of the Bank, pursuant to a written employment agreement and in order to secure Executive’s services and skills, which are considered extraordinary, special and unique for its business and the long-term success thereof; and
WHEREAS, the parties have agreed that this Agreement will supersede and replace any and all agreements, written or oral, previously in place regarding the employment of the Executive by either Arrow or the Bank, except for compensatory or employee benefit plans applicable to employees of Arrow and/or the Bank generally or to certain groups or sub-groups of employees of which the Executive is a member, and awards or award agreements issued to the Executive under such plans; and
NOW, THEREFORE, in furtherance of the interests described above and in consideration of the respective covenants and agreements herein contained, the parties hereto agree as follows:
		
	1.
	Employment.  Arrow and the Bank will employ the Executive, and the Executive agrees to be employed by Arrow and the Bank, for the Term of this Agreement, as defined in Section 2 (such employment, the “Employment”).  Arrow and the Bank agree to employ the Executive and the Executive agrees to serve as Senior Vice President of Arrow and President and Chief Executive Officer of the Bank, with such duties as are described in Section 3 and subject to the other terms and conditions of this Agreement.

		
	2.
	Term.

(a)Term. The term of Employment of the Executive under this Agreement (“Term”) shall commence on the Effective Date and, unless the Executive becomes a Retired Early Employee under 

Paragraph 6 of this Agreement or such Employment is earlier terminated as provided in Paragraph 7 of this Agreement, shall expire on the last day of the second full year following the Effective Date.
(b)Annual Review.  On or before each anniversary of the Effective Date of this Agreement, each of the Arrow Board and the Bank Board will consider and vote upon a proposal to extend to the Executive an offer to replace this Agreement with a new employment agreement (the “Replacement Agreement”) commencing on the date of such anniversary.  The Replacement Agreement  (i) will be for a new term of two (2) years, (ii) will provide for a base annual salary for the Executive at commencement of the Replacement Agreement at least equal to the base annual salary of the Executive as of the last day immediately preceding such commencement, (iii) subject to Paragraph 5(b) hereof, will provide for other benefits having an aggregate value to the Executive at least equal to the aggregate value of the other benefits provided to the Executive as of the last day immediately preceding such commencement, and (iv) will contain other terms and conditions relating to the Executive’s position and duties, place of performance, rights upon a Change of Control of Arrow and rights in connection with any early Termination of  Employment of the Executive that are, in each such instance, at least as favorable to the Executive as the terms and conditions relating to such matters under this Agreement, and generally shall be as favorable to the Executive as is this Agreement, as of the last day immediately preceding such commencement.  If the Arrow Board and the Bank Board shall determine to offer such a Replacement Agreement to the Executive and the Executive shall accept, this Agreement shall terminate at 11:59 p.m. on the day prior to the commencement date of the Replacement Agreement and the Replacement Agreement shall take effect at 12:00 midnight on such commencement date.
If prior to any anniversary of the Effective Date of this Agreement,  either the Arrow Board or the Bank Board shall not have offered a Replacement Agreement to the Executive under the preceding subparagraph of this Paragraph 2(b) (a “Non-Offer”), or the Executive, having been offered such a Replacement Agreement, shall not have accepted such Replacement Agreement (a “Non-Acceptance” and with either such Non-Offer or Non-Acceptance  constituting a “Non-Renewal”), this Agreement and the Employment of the Executive hereunder shall nevertheless continue in full force and effect until the expiration of the Term of this Agreement in accordance with the terms hereof, and the rights and obligations of each of the parties hereunder, including the rights and obligations of the parties under this Paragraph 2(b), shall continue unchanged during the remaining Term of this Agreement, despite such Non-Renewal except as may be specifically provided otherwise in this Agreement.

3.   Position and Duties.  The Executive shall continue to serve as the Senior Vice President of Arrow and the President and Chief Executive Officer of the Bank and shall have such duties, responsibilities, and authority as normally attend such positions or as may reasonably be assigned to the Executive from time to time by the Arrow Board, the Bank Board or the Chief Executive Officer of Arrow. The Executive shall devote substantially all his working time and efforts to the business and affairs of Arrow and the Bank, provided however, that the Executive may, with the approval of the Arrow Board and the Bank Board, serve as a director or officer of any non-competing business or engage in any other activity, including but not limited to, charitable or community activity, to the extent that such does not inhibit the performance of his duties hereunder or otherwise violate this Agreement.

		
	4.
	Place of Performance.  In connection with the Executive’s Employment hereunder, the Executive 

shall be based at the principal executive offices of Arrow or the Bank, except for required travel on business.  Arrow or the Bank shall furnish the Executive with office space, administrative assistance, and such other facilities and services as shall be suitable to the Executive’s position and adequate for the performance of his duties hereunder.

5.Compensation.

(a)Salary.  The base annual salary of the Executive shall be $242,000, payable by Arrow and/or the Bank in equal bi-weekly installments (i.e., every two weeks) or at such other intervals as shall constitute the regular payroll practice of Arrow and/or the Bank.   Such base annual salary shall be effective as of January 1, 2015.  The Executive’s base annual salary may be increased from time to time in accordance with the normal business practices of Arrow and the Bank, as determined by the Arrow Board and the Bank Board, and, if so increased, such base annual salary shall not thereafter during the Term be decreased and the obligation of the Bank or Arrow hereunder to pay the Executive’s base annual salary shall thereafter relate to such increased base annual salary.  Compensation of the Executive by base annual salary payments shall not prevent the Executive from participating in any other compensation or benefit plan of Arrow or the Bank in which he is entitled to participate and participation in any such other compensation or benefit plan shall not in any way limit or reduce the obligation of each of Arrow and the Bank to pay the Executive’s base annual salary hereunder.
(b)Other Benefits.  In addition to the compensation provided for in subparagraph (a) above, the Executive shall be entitled during the Term (i) to participate in any and all employee benefit programs or stock purchase programs of Arrow or the Bank now or hereafter in effect and open to participation by qualifying employees of Arrow or the Bank generally including, but not limited to, employee incentive plans (cash or equity),  the retirement plan, supplemental retirement plan, employee stock purchase plan and employee stock ownership plan of Arrow or the Bank, and (ii) to enjoy certain personal benefits provided by Arrow or the Bank including, but not limited to: 
(i)life insurance on the life of the Executive, at no cost to the Executive, under a group plan maintained by Arrow;
(ii)disability insurance for the Executive, at no cost to the Executive, under a group plan maintained by Arrow;
(iii)comprehensive medical and dental insurance under a group plan provided by Arrow, with the Executive to pay only those amounts required to be paid thereunder by covered employees generally under the cost-sharing arrangements in effect from time to time under such plan;
(iv)reimbursement in full of all business, travel and entertainment expenses incurred by the Executive in performing his duties hereunder; and
(v)fully paid vacation during each calendar year in accordance with the vacation policies of Arrow in effect from time to time.
Neither Arrow nor the Bank shall make any material changes in any of the personal benefits specified in this Agreement adversely affecting the Executive unless such change occurs pursuant to a program applicable to all executive officers of Arrow or the Bank, as the case may be, and the adverse effect on the Executive is not proportionately greater than the adverse effect of the change on any other executive officer of Arrow or the Bank previously enjoying such benefit.
Premiums for the above-described insurance programs will be payable in accordance with the Bank’s regular monthly premium payments applicable to such insurance programs.  Reimbursement of expenses shall be paid not later than the last day of the calendar year following the calendar year in which the expenses were incurred.

		
	6.
	Termination of Employment following Change of Control. 

(a)Retired Early Employee.  If (i) a Change of Control occurs during the Term of Employment hereunder, and (ii) within twelve (12) months after such Change of Control, either (x) Arrow and the Bank deliver to the Executive an advance written notice of Termination of Employment of Executive without Cause,  which such notice shall comply with the requirements of Paragraph 11(ff) hereof, or (y) the Executive delivers to Arrow and the Bank an advance written notice of a Termination of Employment of Executive for Good Reason, which such notice shall comply with the requirements of Paragraph 11(ee) hereof, then, upon subsequent effectiveness of such Termination of Employment (either such termination, 

if effected under this Paragraph 6(a), a “Termination of Employment of Executive as a Retired Early Employee”), the Executive (sometimes referred to herein as a “Retired Early Employee”) will, following such a Termination of Employment, be entitled to receive, upon the effective date of such Termination of Employment, such payments (in addition to any other payments then receivable by him) as are provided hereafter in this Paragraph 6.

(b)Cash Payments and Benefits.  

(i)Subject to Paragraph 8, in the event of a Termination of Employment of Executive as a Retired Early Employee, Arrow or the Bank shall, commencing on the effective date of such Termination of Employment and continuing throughout the Pay-out Period, make equal monthly payments to the Executive (which shall not be deemed base annual salary payments) in an amount such that the present value of all such payments, determined as of the date of such Termination of Employment, equals two hundred percent (200%) of the Base Amount.  Subject to Paragraph 8, if at any time during the Pay-out Period the Arrow Board in its sole discretion shall determine, upon application of the Retired Early Employee supported by substantial evidence, that the Retired Early Employee has experienced an unforeseeable emergency, as defined in Code Section 409A and the regulations thereunder, Arrow or the Bank shall make available to the Retired Early Employee, in one (1) lump sum payment, an amount up to the amount needed to relieve such unforeseeable emergency (including taxes reasonably anticipated as a result of such lump sum payment) but not greater than the present value of all monthly payments remaining to be paid to him in the Pay-out Period, calculated as of the date of such determination by the Arrow Board, for the purpose of relieving such unforeseeable emergency to the extent the same has not been or may not be relieved by (A) reimbursement or compensation by insurance or otherwise, (B) liquidation of the Retired Early Employee’s assets (to the extent such liquidation would not itself cause severe financial hardship), or (C) distributions from other benefit plans.  If (A) the lump sum amount thus made available is less than (B) the present value of all such remaining monthly payments, Arrow or the Bank shall continue to pay to the Retired Early Employee monthly payments for the duration of the Pay-out Period, but from such date forward such monthly payments will be in a reduced amount such that the present value of all such reduced payments, calculated as of the date of such determination, will equal the difference between (B) and (A), above.  The Retired Early Employee may elect to waive any or all payments due him under this subparagraph.

(ii)In the event of  a Termination of Employment of Executive as a Retired Early Employee, Arrow or the Bank shall provide the Executive during the Pay-out Period with  medical, dental and life insurance coverage maintained by Arrow that is generally equivalent to the coverage held by the Executive (including dependent coverage, as applicable) immediately prior to such Termination of Employment, subject to general changes in such group plan offerings by Arrow or the Bank from time to time during the Pay-out Period and further subject to payment by the Executive of any amounts which would be required to be paid by the Executive if the Executive was then employed by Arrow or the Bank under the cost‐sharing arrangements then in effect from time to time, which cost-sharing amounts may be deducted from the cash payments required to be made by Arrow or the Bank under Paragraph 6(b)(i) above.  The cost of any such medical and dental coverage which is self-funded by Arrow or Bank will be included in the taxable income of Executive to the extent it is paid directly or indirectly by Arrow or Bank.  Notwithstanding the foregoing, Arrow’s and the Bank’s obligations under this Paragraph 6(b)(ii) shall terminate to the extent that the Executive becomes eligible for medical,  dental and life insurance coverage from a new employer; provided, however, that the Executive shall be under no obligation to seek other employment or gainful pursuit during the Pay-out Period as a result of this Agreement.

(c)Death of Retired Early Employee.  If the Retired Early Employee dies before receiving all monthly cash payments payable to him as a Retired Early Employee under Paragraph 6(b)(i) above, the Bank shall pay to the Executive’s spouse, or if the Executive leaves no spouse, to the estate of the Executive, one (1) lump sum payment in an amount equal to the present value of all such remaining unpaid monthly payments, determined as of the date of death of the Executive.  Such amount shall be paid within thirty (30) days of the Executive’s death, provided that the spouse may not designate the calendar year of payment.

(d)Indemnification of Executive.  To the fullest extent permitted under applicable law, in the event a Change of Control and a Termination of Employment of Executive as a Retired Early Employee occurs,  Arrow and the Bank shall indemnify the Executive for all legal fees and expenses subsequently incurred by the Executive in seeking to obtain or enforce any right or benefit provided under this Agreement related to such events, provided, however, that such right to indemnification will not apply if and to the extent that a court of competent jurisdiction shall determine that any such fees and expenses have been incurred as a result of the Executive’s bad faith.  Indemnification payments payable hereunder by Arrow and the Bank shall be made not later than thirty (30) days after a request for payment has been received from the Executive with such evidence of indemnifiable fees and expenses as Arrow or the Bank may reasonably request, provided, however, that such indemnification and reimbursement payments shall not be made later than the last day of the calendar year following the calendar year in which the expenses were incurred.

(e)No Offset.  Except as is contemplated by Paragraph 6(b)(ii) above, amounts payable to the Executive as a Retired Early Employee under this Paragraph 6 shall not be subject to any offset or reduction for (i) any amounts owed or claimed to be owed by the Executive to Arrow or the Bank or their Affiliates or (ii) any amounts of compensation or income received or generated by the Executive as a result of any other employment or self-employment of the Executive during the Pay-out Period.  The Executive shall be under no obligation to seek other employment or gainful pursuit during the Pay-out Period as a result of this Agreement, and shall be prohibited from accepting certain other forms of employment and from engaging in certain other types of business during the Pay-out Period (as well as during certain other post-Termination of Employment periods) as and to the extent specified in Paragraph 9 of this Agreement.

(f)Allocation.  If the Executive should elect to become a Retired Early Employee under this Paragraph 6 and as a result of such election should become entitled to receive certain cash payments during the Pay-out Period as set forth above, Arrow shall determine, as soon as practicable following its receipt from the Executive of written notice of such election, the amount, if any, of such future cash payments that may properly be allocated to the Executive’s future performance of his obligations not to compete with, solicit customers or employees from, or disparage Arrow or its Affiliates under Paragraph 9 of this Agreement, with such allocation to be expressed as a single dollar amount equal to the present value determined as of the date of Termination of Employment, of the amounts of the required future payments thus allocated.  When thus determined, the dollar amount of this allocation shall be communicated by Arrow to the Executive.

(g)Excess Parachute Payment.
(i)Anything in this Agreement to the contrary notwithstanding, to the extent that any Company provided payment, distribution or benefit in favor of the Executive  (within the meaning of Section 280G of the Code and the regulations there under), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the “Change of Control Termination Total Payments”), is or will be subject to the excise tax imposed under Section 4999 of the Code (the 

“Excise Tax”), then the Change of Control Termination Total Payments shall be reduced (but not below zero) to the extent that, and only to the extent that, such reduction in the Change of Control Termination Total Payments would result in the Executive not being subject to the Excise Tax.  Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the foregoing, the Company shall reduce or eliminate the Change of Control Termination Total Payments, by first reducing or eliminating the portion of the Change of Control Termination Total Payments which are payable in cash and then by reducing or eliminating non-cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the date of the Change of Control. Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.

(ii)The determination of whether the Change of Control Termination Total Payments shall be reduced as provided in Paragraph 6(g)(i) above and the amount of such reduction (the “Section 4999 Determination”) shall be made at the Company’s expense by an accounting firm selected by the Executive from among the six largest accounting firms in the United States or at the Executive’s expense by an attorney selected by the Executive.  Such accounting firm or attorney shall provide its Section 4999 Determination, together with detailed supporting calculations and documentation to the Company and the Executive not later than thirty (30) days after the effective date of the Termination of Employment of Executive as a Retired Early Employee.  If such firm or attorney determines that no Excise Tax is payable by the Executive with respect to the Change of Control Termination Total Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such payments and, absent manifest error, such determination shall be binding, final and conclusive upon the Company and the Executive.  If such firm or attorney determines that an Excise Tax would be payable, the Company shall have the absolute right to accept such determination as to the extent of the reduction, if any, pursuant to Paragraph 7(g)(i) above, or if the Company so chooses, at its sole discretion, to have such determination reviewed by another accounting firm selected by the Company, at the Company’s expense.  If the Company’s accounting firm is different from an accounting firm that makes such determination, and does not agree with such latter accounting firm, a third accounting firm shall be jointly chosen by the two firms, in which case the determination of such third accounting firm shall be binding, final and conclusive upon the Company and the Executive.

		
	7.
	Early Termination of Employment.  In addition to any Termination of Employment of Executive as a Retired Early Employee under Paragraph 6 of this Agreement, a Termination of Employment of Executive may occur prior to the normal expiration of the Term under the circumstances and with the consequences set forth below.

(a)Termination of Employment for Cause.  At any time during the Term of Employment under this Agreement, and subject to the provisions of this Paragraph 7(a), either Arrow or the Bank may effect a Termination of Employment of Executive for Cause if and only if the applicable standards set forth herein are met. Notwithstanding the foregoing, any such Termination of Employment of Executive for Cause shall not become effective unless and until: 

(i)reasonable advance notice is given to the Executive in writing setting forth the “for Cause” reasons Arrow or the Bank intends to effect such Termination of Employment of Executive for Cause;
(ii)not sooner than thirty (30) days after delivery to the Executive of such notice, an opportunity is provided for the Executive to be heard before the Arrow Board or the Bank Board with counsel; and

(iii)after such hearing or opportunity to be heard, written notice of final Termination of Employment of Executive for Cause is delivered to the Executive, setting forth the specific reasons therefore, which Termination of Employment shall be effective as of the date of the delivery of such notice.
Any Termination of Employment of Executive for Cause by Arrow or the Bank (including delivery of the notice specified in subsection (i), above)  shall require the affirmative vote of at least two-thirds (2/3) of the entire Arrow Board or the Bank Board. The Executive will not be entitled to any further compensation for any period subsequent to the effective date of such Termination of Employment, except for payments, if any, payable in accordance with the then current plans and policies of Arrow or the Bank.  Any attempted Termination of Employment of Executive for Cause initiated by Arrow or the Bank under this Paragraph 7(a), by delivery to the Executive of the advance written notice specified in subsection (i) above, that follows the initiation of any other attempted Termination of Employment of Executive under any other provision of this Agreement, by delivery of advance written notice of such earlier attempted Termination of Employment (any such, an “Earlier Termination”) by the party effecting such Termination of Employment to the other party or parties, shall be disregarded such that the Earlier Termination shall govern the procedures applicable to the Termination of Employment of Executive, the effective time of such Termination of Employment, and the consequences of such Termination of Employment, including the compensation and other benefits payable to the Executive as a result thereof, except in each case as may otherwise be required by law, by the affirmative language of applicable statute, regulation or judicial or administrative order, and not by implication alone.
(b)Termination of Employment Without Cause.  At any time during the Term of Employment under this Agreement, either Arrow or the Bank may effect, pursuant to this Paragraph 7(b) and in accordance with the requirements set forth in Paragraph 11(ff) below, a Termination of Employment of Executive without Cause, provided, however, that any attempt to do so under circumstances that would also qualify such Termination of Employment as a Termination of Employment of Executive without Cause under Paragraph 6(a) of this Agreement, that is, as a Termination of Employment of Executive without Cause following a Change in Control that meets the conditions set forth in Paragraph 6(a), will be deemed a Termination of Employment of Executive without Cause under Paragraph 6(a), and not a Termination of Employment of Executive without Cause under this Paragraph 7(b).  In the event of a Termination of Employment of Executive without Cause under this Paragraph 7(b), on the effective date of such Termination of Employment, Arrow or the Bank shall pay to the Executive, and the Executive shall be entitled to receive, one (1) lump sum payment in a dollar amount equal to the greater of (i) the total amount of base annual salary payments which would have been payable to the Executive during the period extending from such effective date until the normal expiration date of Employment under this Agreement as in effect at such time, had there been no early Termination of Employment of Executive without Cause (and assuming the Executive otherwise would have remained employed throughout such period and that his base annual salary would have remained unchanged throughout such period), or (ii) an amount equal to one hundred percent (100%) of the current base annual salary of the Executive on the effective date of such Termination of Employment.

(c)Termination of Employment for Good Reason.  At any time during the Term of Employment under this Agreement, the Executive may effect at his own discretion, pursuant to this Paragraph 7(c), a Termination of Employment of Executive for Good Reason, provided, however, that any attempt to do so under circumstances that would also qualify such Termination of Employment as a Termination of Employment of Executive for Good Reason under Paragraph 6(a) of this Agreement, that is, as a Termination of Employment of Executive for Good Reason following a Change in Control that meets the conditions set forth in Paragraph 6(a), will be deemed a Termination of Employment of Executive for Good Reason under Paragraph 6(a), and not a Termination of Employment of Executive for 

Good Reason under this Paragraph 7(c).  In the event of a Termination of Employment of Executive for Good Reason under this Paragraph 7(c), on the effective date of such Termination of Employment, Arrow or the Bank shall pay to the Executive, and the Executive shall be entitled to receive, one (1) lump sum payment in a dollar amount equal to the dollar amount of the lump sum payment the Executive would have been entitled to receive had a Termination of Employment of Executive without Cause under Paragraph 7(b) above occurred on such date, and under identical circumstances except for the identity of the party effecting such Termination of Employment and the existence of Good Reason. 

(d)Termination of Employment for Disability.  If, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall not have performed his duties hereunder on a full time basis for six (6) consecutive months, Arrow or the Bank may effect a Termination of Employment of Executive for Disability upon thirty (30) days’ written notice. Such Termination of Employment of Executive for Disability shall require the affirmative vote of a majority of the entire Arrow Board or Bank Board.  The compensation of the Executive during any period of disability prior to the effective date of such Termination of Employment of Executive for Disability shall be the amounts normally payable to him in accordance with this Agreement, reduced by the sum of the amounts, if any, paid to the Executive for such period under disability benefit plans maintained by Arrow or the Bank.   The Executive shall not be entitled to any further compensation from Arrow or the Bank for any period subsequent to the effective date of such Termination of Employment of Executive for Disability, except for payments, if any, payable in accordance with the then current plans and policies of Arrow or the Bank.  

(e)Termination of Employment upon Death.   Upon the death of Executive during the Term of Employment hereunder (and simultaneous Termination of Employment of Executive upon Death), the Executive’s estate or beneficiaries, as applicable, shall not be entitled to any further compensation for any period subsequent to the date of death, except for payments, if any, payable in accordance with the then current plans and policies of Arrow or the Bank, including death benefits. 

(f)Other Early Terminations of Employment.  The Employment of Executive may be terminated before the normal expiration of the Term hereof under certain other circumstances, not otherwise addressed in Paragraphs 6 or 7 hereof, as follows:

(i)Retirement.  Executive may terminate his Employment hereunder upon retirement at or after attaining retirement or early retirement age under any retirement plan of Arrow and its Affiliates then in effect with respect to which Executive is a covered person (“Retirement”).  Upon any such Termination of Employment of Executive due to Retirement, Executive shall not be entitled to any further compensation for any period subsequent to the effective date of such Termination of Employment for Retirement, except for payments, if any, payable in accordance with the then current plans and policies of Arrow or the Bank including applicable post-retirement benefits and payments provided to or for the Executive under retirement, severance and similar plans of Arrow, the Bank or their Affiliates then in effect as to which the Executive participates.

(ii)Termination by Executive without Good Reason.  If the Executive determines, at his own discretion, to terminate his Employment prior to the expiration of the Term of Employment hereunder, without Good Reason and in the absence of the Retirement or Disability of the Executive (any such, a “Termination of Employment of Executive without Good Reason”), including any such Termination of Employment of Executive without Good Reason effected by the Executive following his Non-Acceptance of a Replacement Agreement, Executive shall not be entitled to any further compensation for any period subsequent to the effective date of such Termination of Employment of Executive without Good Reason, except for payments, if any, payable in accordance with the then current plans and policies of Arrow or the 

Bank including applicable qualified or non-qualified employee benefit plans or policies covering Executive or under any other applicable agreements with Executive.  Under no circumstances will Executive effect a Termination of Employment of Executive without Good Reason, except after delivery of advance written notice thereof to Arrow or the Bank, and the effective date of any such Termination of Employment of Executive without Good Reason shall be the thirtieth (30th) day following delivery of such written notice, or such other day as may be mutually agreed upon by Arrow and the Executive.

(iii)Termination as a Result of Liquidation, Dissolution, Order, Etc.  If the Employment of Executive by Arrow or the Bank is terminated prior to the expiration date of this Agreement as a result of the liquidation, dissolution or winding up of the affairs of Arrow or the Bank or the involuntary closing of the Bank by bank regulators prior to such date, or by virtue of any order or decree of any court or administrative or regulatory agency or body with jurisdiction over Arrow or the Bank ordering or requiring the Termination of Employment of Executive by either or both such entities prior to such expiration date, Executive shall have no right to receive from Arrow or the Bank, and neither Arrow nor the Bank shall have any obligation to pay or provide to Executive, any compensation or benefits, other than such base annual salary payments and normal benefits as may be required to be paid or provided to the Executive through the effective date of the Termination of Employment of Executive; provided, however, that nothing herein shall reduce or affect any obligations that Arrow or the Bank may have to Executive under any other agreement with Executive or under any qualified or non-qualified employee benefit plan or policy covering Executive or under any plan of liquidation or dissolution adopted by Arrow or the Bank in connection with any such liquidation, dissolution or winding up.

8.Delayed Payment of Benefits.  Notwithstanding anything in the foregoing to the contrary, if the Executive is a “specified employee,” as defined in Code Section 409A and the regulations thereunder, on the date of his Termination of Employment, amounts that constitute nonqualified deferred compensation subject to Code Section 409A that would otherwise have been paid during the six-month period immediately following the date of such Termination of Employment shall be paid on the first regular payroll date immediately following the six-month anniversary of such Termination of Employment, with interest to be paid on each such amount, the payment of which is then delayed, at the rate of yield on U.S. Treasury Bills with the earliest maturity date that occurs at least six months after such date of such Termination of Employment (as reported in the Wall Street Journal) from such date of Termination of Employment to the date of actual payment.  Reimbursements or payments directly to the service provider for health care expenses incurred during such six month period, plus reimbursements and in-kind benefits in an amount up to the applicable dollar limit on elective deferrals to a 401(k) plan under Section 402(g)(1)(B) of the Code, and other amounts that do not constitute nonqualified deferred compensation subject to Section 409A shall not be subject to such six month delay requirement.  

9.    Non-Competition; Non-Solicitation; Non-Disparagement.  Arrow and its Affiliates are engaged in the businesses of banking, lending, trust operations and providing financial, property, casualty and health insurance and investment adviser services and products (collectively, the “Business”).  As a senior executive, Executive provides services that are unique, special and/or extraordinary to the Business in which Arrow and its Affiliates engage, and have access to and will learn of trade secrets of Arrow and its Affiliates and confidential information pertaining to their customers.  The provisions of Paragraphs 9 and 10 are agreed by the parties to be reasonable and necessary to protect the goodwill of Arrow’s and its Affiliates’ Business, the good will of special/long-term customer relationships, Arrow’s and its Affiliates’ confidential information and trade secrets (including but not limited to information concerning their customers, marketing studies, marketing strategies, acquisition plans, costs, personnel and financial performance) and confidential customer information and to protect against unfair competition by an 

employee whose services are special, unique and/or extraordinary to the Business of Arrow and its Affiliates and their long-term success.  Accordingly, the Executive agrees as follows: 
(a)Non-Compete.  For a period of two (2) years following the effective date of Termination of Employment of the Executive by any party for any reason (excluding death), including any Termination of Employment following a Change in Control under Paragraph 6 of this Agreement,  the Executive will not, directly or indirectly: (1) engage in the business of banking, lending, trust operations or providing financial, property, casualty, or health insurance or investment adviser services or products anywhere in the Designated Area or (2) manage, operate, or control, or accept or hold a position as a director, officer, employee, agent or partner of or adviser or consultant to, or otherwise perform substantial services for or provide advice to, any bank or insured financial institution or other corporation or entity engaged in the business of banking, lending, trust operations or providing financial, property, casualty, or health insurance or investment adviser services and products (directly or through a subsidiary), excluding Arrow and its Affiliates (any such other bank, institution, corporation or entity, a “Financial Institution”), if, as of the effective date of such Termination of Employment, such Financial Institution has any office or branch located within the Designated Area or has immediate plans to establish any office or branch within the Designated Area.  For purposes of the preceding sentence, the “Designated Area” as of any particular time will consist of all counties in the State of New York in which Arrow or any of its Affiliates maintains an office or branch through which it engages in Business or has acted to establish an office or a branch through which it will engage in Business.  The provisions of this paragraph shall not prohibit Executive during such two-year period from working for a company whose principal business is providing property, casualty or health insurance, private equity investments, or serving as a securities broker if Executive is engaged solely in that business and not in the business of providing banking, lending or trust services.  The term financial services means financial products associated with the business of banking, including in particular but not limited to credit cards, debit cards, checking and savings accounts, and money market funds.
(b)Non-Solicitation.  For a period of two (2) years following the effective date of Termination of Employment of the Executive by any party for any reason (excluding death), the Executive will not, directly or indirectly,

(i)acting on behalf of any Financial Institution, regardless of where such Financial Institution is located or doing business, solicit any banking, lending or trust business or the business of providing financial, insurance or investment adviser services or products business for such Financial Institution from, or otherwise seek to obtain as a customer or client of such Financial Institution, any person or entity that, to the knowledge of the Executive, was a customer or client of Arrow or any of its Affiliates, and whom Executive, or anyone supervised directly or indirectly by Executive, worked with, at any point during the one-year period immediately preceding the effective date of such Termination of Employment; or

(ii)acting on behalf of any other corporation or entity, including any Financial Institution, regardless of where such other corporation or entity is located or doing business, employ, recruit or solicit as an employee of such corporation or entity or retain or seek to retain as an agent or consultant of such corporation or entity, any individual employed by or retained as an agent or consultant of Arrow or any of its Affiliates in furtherance of their Business at any point during the one-year period immediately preceding the effective date of such Termination of Employment if such individual possesses knowledge of any trade secrets or confidential customer information of Arrow or any of its Affiliates, or provided services that were unique and/or extraordinary to Arrow or its Affiliates in their Business and Executive worked with or directly or indirectly managed such individual at any time during the last year of Executive’s Employment.

(c)Non-Disparagement. For a period of ten (10) years following the effective date of Termination of Employment of the Executive by any party for any reason (excluding death), the Executive will not, directly or indirectly, make any statements, declarations, announcements, assertions, remarks, comments or suggestions, orally or in writing, that individually or collectively are, or may be construed as being, defamatory, derogatory, negative, or disparaging to Arrow or its Affiliates (including any successor to Arrow or its Affiliates by merger or acquisition or any of such successor’s affiliates), or to any director, officer, controlling shareholder, member, employee or agent of any of the foregoing.
It is the intention of the parties to restrict the activities of the Executive under this Paragraph 9 only to the extent necessary for the protection of the legitimate business interests of Arrow and/or its Affiliates, and the parties specifically covenant and agree that should any of the clauses or provisions of the restrictions set forth herein, under any set of circumstances, be held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws effective, then and in that event, the court so holding may reduce the extent or duration of such restrictions or effect any other change to such restrictions to the extent necessary to render such restrictions enforceable by said court to the maximum extent permissible under applicable law.  The enforceability of the provisions of this Paragraph 9 shall not be affected by the existence or non-existence of any agreement with similar terms between Arrow and another employee, or by the failure of Arrow or its Affiliates to enforce, or their agreement to waive or change, the terms of any such agreement with another employee containing similar terms.  This Paragraph 9 shall survive termination of this Agreement in accordance with its terms.
10.    Confidential Information.  The Executive specifically acknowledges that all information pertaining to Arrow or its Affiliates received by him during the course of his employment which has been designated confidential, constitutes a trade secret or otherwise has not been made publicly available, including, without limitation, plans, strategies, projections, analyses, and information pertaining to customers or potential customers, is the exclusive property of Arrow and its Affiliates, and the Executive covenants and agrees not to disclose any of such information, without the express prior written consent of the Arrow Board or the Chief Executive Officer of Arrow, during his employment hereunder or after Termination of Employment, to anyone not employed or engaged by Arrow or an Affiliate thereof to render services to it.  The Executive further covenants and agrees that he will not at any time use any such information, without such express prior written consent, for his own benefit or the benefit of any party other than Arrow or its Affiliates.  This Paragraph 10 shall survive termination of this Agreement.
11.    Definitions.  The following capitalized terms when used in this Agreement shall have the following meanings. 
(d)“Affiliate” means any corporation or other business entity that from time to time is, along with Arrow, a member of a controlled group of businesses, as defined in Sections 414(b) and 414(c) of the Code, provided that the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in such test.  A corporation or other business entity is an Affiliate only while a member of such group.
(e)“Agreement” shall have the meaning set forth in the introductory paragraph hereof. 
(f)“Annual Compensation” shall mean, for any given taxable year of the Executive, all compensation payable by Arrow or the Bank to the Executive that is includible in the gross income of the Executive for such year for federal income tax purposes, plus any amount of salary otherwise payable by Arrow or the Bank to the Executive for such year (A)  that is deferred under Section 401(k) of the Code under any plan maintained by Arrow or the Bank permitting such deferrals, or (B)  that is deferred by the Executive under any nonqualified retirement or income deferral plan maintained by Arrow or the Bank, to the extent deferred amounts under such plan are excludable for federal income tax purposes from the gross income of the deferring employee in the year of deferral.

(g)“Arrow” shall mean Arrow Financial Corporation. 
(h)“Arrow Board” shall mean the Board of Directors of Arrow. 
(i)“Bank” shall mean Saratoga National Bank and Trust Company.
(j)“Bank Board” shall mean the Board of Directors of the Bank. 
(k)“Base Amount” shall mean an amount equal to the average Annual Compensation of the Executive for the most recent five (5) taxable years ending before the date on which a Change of Control occurred.
(l)“Change of Control” means:
(i)The acquisition by one person, or more than one person acting as a group, of ownership of stock of Arrow that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Arrow;
(ii)The acquisition by one person, or more than one person acting as a group, of ownership of stock of Arrow that, together with stock of Arrow acquired during the twelve-month period ending on the date of the most recent acquisition by such person or group, constitutes 30% or more of the total voting power of the stock of Arrow;
(iii)A majority of the members of the Arrow Board are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Arrow Board before the date of the appointment or election; or 

(iv)One person, or more than one person acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or group) assets from Arrow that have a total gross fair market value (determined without regard to any liabilities associated with such assets) equal to or more than 40% of the total gross fair market value of all of the assets of Arrow immediately before such acquisition or acquisitions.
Persons will not be considered to be acting as a group solely because they     purchase or own stock of the same corporation at the same time, or as a result of the same public offering.  However, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with Arrow. 

This definition of Change of Control shall be interpreted in accordance with, and in a manner that will bring the definition into compliance with, the regulations     under Section 409A of the Code.
(m)“Change of Control Termination Total Payments” shall have the meaning set forth in Paragraph 6(g) hereof.
(n)“Code” shall mean the Internal Revenue Code of 1986, as amended. 
(o)Intentionally omitted. 
(p)“Designated Area” shall have the meaning set forth in Paragraph 9(a) hereof.
(q)“Effective Date” shall have the meaning set forth in the introductory paragraph hereof.
(r)“Employment” shall have the meaning set forth in Paragraph 1 hereof.
(s)“Excise Tax” shall have the meaning set forth in Paragraph 6(g)(i) hereof.
(t)“Executive” shall mean David S. DeMarco.
(u)“Financial Institution” shall have the meaning set forth in Paragraph 9(a) hereof.
(v)“Non-Acceptance” shall have the meaning set forth in Paragraph 2(b) hereof. 
(w)“Non-Offer” shall have the meaning set forth in Paragraph 2(b) hereof.
(x)“Non-Renewal” shall have the meaning set forth in Paragraph 2(b) hereof. 
(y) “Pay-out Period” shall mean the period commencing on the date of Termination of Employment and ending two years thereafter. 
(z) “Replacement Agreement” shall have the meaning set forth in Paragraph 2(b) hereof.
(aa)  “Retired Early Employee” shall have the meaning set forth in Paragraph 6 hereof.

(ab)“Retirement” shall have the meaning set forth in Paragraph 7(f)(i) hereof. 
(ac)“Section 4999 Determination” shall have the meaning set forth in Paragraph 6(g)(ii) hereof.
(ad)“Term” shall have the meaning set forth in Paragraph 2(a) hereof. 
(ae)“Termination of Employment” or “Termination of Employment of Executive” means the separation from service of the Executive, as defined in the regulations under Section 409A of the Code, with and from Arrow and its Affiliates. Generally, for purposes of Section 409A, a separation from service means a decrease in the performance of services to no more than 20% of the average for the preceding 36-month period, disregarding leaves of absence of up to six months where there is a reasonable expectation the Executive will return.
(af)“Termination of Employment of Executive as a Retired Early Employee” means a Termination of Employment of Executive pursuant to Paragraph 6(a) hereof, that is, either a Termination of Employment of Executive without Cause or a Termination of Employment of Executive for Good Reason, in either case, following a Change in Control and otherwise meeting the requirements of Paragraph 6(a) hereof.
(ag)“Termination of Employment of Executive for Cause” shall mean a termination of the Employment of Executive by Arrow or the Bank pursuant to Paragraph 7(a) for any one or more of the following “Causes:”
(i)    any willful misconduct by the Executive which is materially injurious to Arrow or the Bank or their Affiliates, monetarily or otherwise; 
 (ii)    any willful failure by the Executive to follow the reasonable directions of the Arrow Board or the Bank Board; 
(iii)    any failure by the Executive substantially to perform any reasonable directions of the Arrow Board or the Bank Board (other than failure resulting from disability or death), within thirty (30) days after delivery to the Executive by the respective Board of a written demand for substantial performance, which written demand shall specifically identify the manner in which the respective Board believes that the Executive has not substantially performed; 
(iv)    any inability of the Executive to serve as an officer or director of any subsidiary company, or perform any substantial portion of Executive’s duties hereunder, by reason of any order of the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency, or any other regulatory authority or agency having jurisdiction over Bank or any of its Affiliates; or
(v)    intentionally providing false or misleading information to, or otherwise misleading, the Arrow Board, the Bank Board or any committee thereof.
(ah)“Termination of Employment of Executive for Good Reason” means any Termination of Employment of Executive, effected by the Executive, in his sole discretion, following Executive’s discovery of a Good Reason for such Termination of Employment (as defined below), and meeting all of the requirements for such Termination of Employment set forth below.  Any such Termination of Employment of Executive for Good Reason shall be deemed to have been effected under Paragraph 7(c) of this Agreement unless it meets all of the conditions for a Termination of Employment of Executive for Good Reason under Paragraph 6(a) hereunder, in which event it shall be deemed to have been effected under Paragraph 6(a).  Any Termination of Employment of Executive for Good Reason under this Agreement will be commenced upon, and only upon, delivery of advance written notice thereof by the Executive to Arrow or the Bank, which written notice must be delivered, if such Termination of Employment is to become effective, not later than ninety (90) days after the discovery by the Executive of the Good Reason underlying 

such Termination of Employment (and, if the Termination of Employment of Executive for Good Reason is being effected under Paragraph 6(a) of this Agreement, not later than one (1) year after the date of the Change in Control the occurrence of which is a pre-condition to the right of Executive to effect such a Termination of Employment under Paragraph 6(a)).  The written notice of termination delivered by the Executive to Arrow or the Bank shall (i) state that the Termination of Employment of Executive for Good Reason is being effected under Paragraph 6(a) or Paragraph 7(c), as appropriate, (ii) identify with reasonable particularity the Good Reason or Good Reasons underlying the Termination of Employment, and (iii) specify the effective date of such Termination of Employment, which shall be a date not less than thirty (30) days nor more than one hundred eighty (180) days after the delivery of such notice to Arrow or the Bank, as determined by the Executive.  If, prior to the effective date of the Termination of Employment of Executive specified in the written notice, Arrow or the Bank is able to remedy in full, and remedies in full, the circumstances underlying or constituting the Good Reason or Good Reasons identified by the Executive in the written notice, then such Good Reason or Good Reasons shall be deemed cured and the Termination of Employment of Executive for Good Reason shall be deemed null and void, effective upon execution of written affidavit of cure signed by Arrow and the Bank and consented to by the Executive, such consent not to be unreasonably withheld.  For purposes of any Termination of Employment of Executive for Good Reason, “Good Reason” shall mean (i) the occurrence of a Non-Offer of a Replacement Agreement pursuant to Paragraph 2(b) hereof; (ii) a material diminution in the Executive’s title, authority, duties, or responsibilities; (iii) Executive is required to relocate more than 100 miles from the base location at which Executive currently performs his employment duties; or (iv) the occurrence of a material breach by the Company of any provision of this Agreement.

(ai)“Termination of Employment of Executive without Cause” means any Termination of Employment of Executive by Arrow or the Bank prior to normal expiration of the Term of Employment hereunder, for any reason or no reason, that does not qualify as a Termination of Employment of Executive for Cause or otherwise meet the definition of any other Termination of Employment of Executive hereunder.  Any such Termination of Employment of Executive without Cause shall be deemed to have been effected under Paragraph 7(b) of this Agreement unless it meets all the conditions for a Termination of Employment of Executive without Cause under Paragraph 6(a) hereunder, in which event it shall be deemed to have been effected under Paragraph 6(a).  Any Termination of Employment of Executive without Cause under this Agreement will be commenced upon, and only upon, delivery of advance written notice thereof by Arrow or the Bank to Executive, stating that such Termination of Employment is a Termination of Employment of Executive without Cause under Paragraph 6(a) or Paragraph 7(b) of this Agreement, as appropriate, and specifying the effective date of such Termination of Employment, which shall be a date not less than thirty (30) days nor more than ninety (90) days after the date of delivery of such notice to Executive, as determined by Arrow or the Bank.  Any such Termination of Employment of Executive without Cause (including the delivery of the required written notice of termination) shall require the affirmative vote of not less than two-thirds (2/3) of the entire Arrow Board or Bank Board.

12.    Successors and Assigns; Assumption by Successors.  This Agreement is a personal services contract which may not be assigned by Arrow or the Bank to, or assumed from Arrow or the Bank by, any other party without the prior consent of the Executive.  All rights hereunder shall inure to the benefit of the parties hereto, their personal or legal representatives, heirs, successors and assigns.  Arrow will require any successor (whether direct or indirect, by purchase, assignment, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Arrow in any consensual transaction expressly to assume this Agreement and to agree to perform hereunder in the same manner and to the same extent that 

Arrow would be required to perform if no such succession had taken place. References herein to “Arrow” or the “Bank” will be understood to refer to the successor or successors of Arrow or the Bank, respectively.
13.    Notices.  Any notice required or desired to be given hereunder shall be in writing and shall be deemed given when delivered personally or sent by certified or registered mail, postage prepaid, to the addresses of the other parties set forth in the first Paragraph of this Agreement, provided that all notices to Arrow or the Bank shall be directed in each case to the Chief Executive Officer thereof.
14.    Waiver of Breach.  Waiver by any party of a breach of any provision shall not operate as or be construed a waiver by such party of any subsequent breach hereof.
15.    Invalidity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions, which shall remain in full force and effect.
16.    Entire Agreement; Written Modification; Termination.  This Agreement contains the entire agreement among the parties concerning the employment of the Executive by Arrow and the Bank.  No modification, amendment or waiver of any provision hereof shall be effective unless in writing specifically referring hereto and signed by the party against whom such provision as modified or amended or such waiver is sought to be enforced.  This Agreement shall terminate as of the time Arrow or the Bank makes the final payment which it may be obligated to pay hereunder or provides the final benefit which it may be obligated to provide hereunder, or, if later, as of the time the last remaining restriction set forth in Paragraph 9 expires.  Paragraph 10 shall survive termination of this Agreement.
17.    Performance by Arrow or Bank.  Performance under this Agreement by Arrow and the Bank, including the payment of any amounts provided for hereunder, are subject to applicable law and regulation including payments prohibited under 12 CFR 359 and any other payment restrictions on executive compensation under applicable banking law and regulation.  Any obligation of Arrow or the Bank to make a payment under any provision of this Agreement shall be deemed an obligation of both parties to make such payment, and the making of such payment by either such party shall be deemed performance of the obligation to pay by both such parties.
18.    Company Policies or Guidelines.  In consideration of the Executive’s employment with Arrow and the Bank, Executive agrees that his compensation and benefits provided for hereunder or otherwise by Arrow or the Bank are subject to (i) applicable laws and regulations as are in effect from time to time, and (ii) current or subsequently adopted policies or guidelines issued by the Arrow Board or the Bank Board , in each case, impacting such compensation or benefits pursuant to the terms of such applicable laws, regulations, policies or guidelines (e.g., clawback or incentive compensation recoupment policies and/or stock ownership guidelines).
19.    Counterparts.  This Agreement may be made and executed in counterparts, in which case all counterparts shall be deemed to constitute one original document for all purposes.
20.    Governing Law.  This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of New York without reference to conflicts of law principles.
21.    Section 409A Compliance.  The parties intend that all provisions of this Agreement comply with the requirements of Internal Revenue Code Section 409A to the extent applicable.  No provision of this Agreement shall be operative to the extent that it will result in the imposition of the additional tax described in Code Section 409A(a)(1)(B)(i)(II).  If any provision hereof is reasonably deemed to 

contradict Section 409A,  the parties agree to revise, to the extent practicable, the Agreement as necessary to comply with Section 409A and fulfill the purpose of the voided provision.  Nothing in this Agreement shall be interpreted to permit accelerated payment of nonqualified deferred compensation, as defined in Section 409A, or any other payment in violation of the requirements of Section 409A.  With respect to reimbursements that constitute taxable income to Executive, no such reimbursements or expenses eligible for reimbursement in any calendar year shall in any way affect the expenses eligible for reimbursement in any other calendar year and Executive’s right to reimbursement shall not be subject to liquidation in exchange for any other benefit.
22.    Authorization.  Arrow and the Bank represent and warrant that the execution of this Agreement has been duly authorized by resolution of their respective boards.

[SIGNATURE PAGE FOLLOWS]
    

IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of January 28, 2015.
ARROW FINANCIAL CORPORATION

By:    /S/ Thomas J. Murphy                
Thomas J. Murphy, President and Chief Executive Officer

SARATOGA NATIONAL BANK AND TRUST COMPANY

By:    /S/ Terry R. Goodemote                
Terry R. Goodemote, Chief Financial Officer
“EXECUTIVE”

/S/ David S. DeMarco
David S. DeMarcoExhibit 10.2

MTS SYSTEMS CORPORATION

2011 STOCK INCENTIVE PLAN

Plan Term: January 31, 2011 through January
31, 2018

Adopted by the Board of Directors on November
23, 2010
Amended by First Amendment adopted by the
Board on January 24, 2011
Amended by Second Amendment adopted by the
Board on January 31, 2013
Amended by Third Amendment adopted by the
Board on October 1, 2013

Approved by the Shareholders of the Company
on February 5, 2013

TABLE OF CONTENTS

	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 SECTION

 	
  

 	
  

 	
  

 	
 PAGE

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 1.

 	
 PURPOSE

 	
  

 	
 1

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 2.

 	
 DEFINITIONS

 	
  

 	
 1

 
	
  

 	
 2.1

 	
 BOARD

 	
  

 	
 1

 
	
  

 	
 2.2

 	
 CAUSE

 	
  

 	
 1

 
	
  

 	
 2.3

 	
 CODE

 	
  

 	
 1

 
	
  

 	
 2.4

 	
 COMMITTEE

 	
  

 	
 1

 
	
  

 	
 2.5

 	
 COMPANY

 	
  

 	
 1

 
	
  

 	
 2.6

 	
 DEFERRED
 COMPENSATION

 	
  

 	
 1

 
	
  

 	
 2.7

 	
 DISABILITY

 	
  

 	
 1

 
	
  

 	
 2.8

 	
 EXCHANGE ACT

 	
  

 	
 1

 
	
  

 	
 2.9

 	
 EXERCISE PRICE

 	
  

 	
 2

 
	
  

 	
 2.10

 	
 FAIR MARKET VALUE

 	
  

 	
 2

 
	
  

 	
 2.11

 	
 INSIDER

 	
  

 	
 2

 
	
  

 	
 2.12

 	
 ISO

 	
  

 	
 2

 
	
  

 	
 2.13

 	
 KEY EMPLOYEE

 	
  

 	
 2

 
	
  

 	
 2.14

 	
 KEY PERSON

 	
  

 	
 2

 
	
  

 	
 2.15

 	
 NQSO

 	
  

 	
 2

 
	
  

 	
 2.16

 	
 OPTION

 	
  

 	
 2

 
	
  

 	
 2.17

 	
 OUTSIDE DIRECTOR

 	
  

 	
 2

 
	
  

 	
 2.18

 	
 PARTICIPANT

 	
  

 	
 3

 
	
  

 	
 2.19

 	
 PERFORMANCE-BASED
 EXCEPTION

 	
  

 	
 3

 
	
  

 	
 2.20

 	
 PERFORMANCE GOAL

 	
  

 	
 3

 
	
  

 	
 2.21

 	
 PERFORMANCE PERIOD

 	
  

 	
 3

 
	
  

 	
 2.22

 	
 PERFORMANCE STOCK

 	
  

 	
 3

 
	
  

 	
 2.23

 	
 PERFORMANCE UNITS

 	
  

 	
 3

 
	
  

 	
 2.24

 	
 PLAN

 	
  

 	
 3

 
	
  

 	
 2.25

 	
 QUALIFYING EVENT

 	
  

 	
 3

 
	
  

 	
 2.26

 	
 RESTRICTED STOCK
 AWARD

 	
  

 	
 3

 
	
  

 	
 2.27

 	
 RESTRICTED STOCK
 UNIT

 	
  

 	
 4

 
	
  

 	
 2.28

 	
 RETIREMENT

 	
  

 	
 4

 
	
  

 	
 2.29

 	
 SERVICE

 	
  

 	
 4

 
	
  

 	
 2.30

 	
 SHARE

 	
  

 	
 4

 
	
  

 	
 2.31

 	
 SPECIFIED EMPLOYEE

 	
  

 	
 4

 
	
  

 	
 2.32

 	
 STOCK APPRECIATION
 RIGHT

 	
  

 	
 4

 
	
  

 	
 2.33

 	
 STOCK INCENTIVE

 	
  

 	
 4

 
	
  

 	
 2.34

 	
 STOCK INCENTIVE
 AGREEMENT

 	
  

 	
 4

 
	
  

 	
 2.35

 	
 SUBSIDIARY

 	
  

 	
 4

 
	
  

 	
 2.36

 	
 TEN PERCENT
 SHAREHOLDER

 	
  

 	
 4

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 3.

 	
 SHARES SUBJECT TO
 STOCK INCENTIVES

 	
  

 	
 5

 
	
  

 	
 3.1

 	
 AGGREGATE SHARES
 AUTHORIZED AND LIMITATIONS

 	
  

 	
 5

 
	
  

 	
 3.2

 	
 SHARE COUNTING

 	
  

 	
 5

 
	
  

 	
 3.3

 	
 LIMITATIONS ON
 STOCK INCENTIVES

 	
  

 	
 6

 
	
  

 	
 3.4

 	
 SHARE ADJUSTMENT

 	
  

 	
 6

 

	
  

 	
  

 	
  

 	
  

 	
  

 
	
 4.

 	
 EFFECTIVE DATE AND
 TERM OF PLAN

 	
  

 	
 6

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 5.

 	
 ADMINISTRATION

 	
  

 	
 7

 
	
  

 	
 5.1

 	
 GENERAL
 ADMINISTRATION

 	
  

 	
 7

 
	
  

 	
 5.2

 	
 AUTHORITY OF THE
 COMMITTEE

 	
  

 	
 7

 
	
  

 	
 5.3

 	
 DELEGATION OF
 AUTHORITY

 	
  

 	
 7

 
	
  

 	
 5.4

 	
 DECISIONS BINDING

 	
  

 	
 7

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 6.

 	
 ELIGIBILITY

 	
  

 	
 8

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 7.

 	
 TERMS AND
 CONDITIONS OF STOCK INCENTIVES

 	
  

 	
 8

 
	
  

 	
 7.1

 	
 ALL STOCK
 INCENTIVES

 	
  

 	
 8

 
	
  

 	
 7.2

 	
 OPTIONS

 	
  

 	
 10

 
	
  

 	
 7.3

 	
 RESTRICTED STOCK

 	
  

 	
 12

 
	
  

 	
 7.4

 	
 RESTRICTED STOCK
 UNITS

 	
  

 	
 12

 
	
  

 	
 7.5

 	
 STOCK APPRECIATION
 RIGHTS

 	
  

 	
 13

 
	
  

 	
 7.6

 	
 PERFORMANCE STOCK
 AND PERFORMANCE UNITS

 	
  

 	
 14

 
	
  

 	
 7.7

 	
 OTHER AWARDS

 	
  

 	
 15

 
	
  

 	
 7.8

 	
 NON-EMPLOYEE
 DIRECTOR RESTRICTED STOCK AND RESTRICTED STOCK UNITS

 	
  

 	
 15

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 8.

 	
 SECURITIES
 REGULATION

 	
  

 	
 16

 
	
  

 	
 8.1

 	
 LEGALITY OF
 ISSUANCE

 	
  

 	
 16

 
	
  

 	
 8.2

 	
 RESTRICTIONS ON
 TRANSFER;REPRESENTATIONS;LEGENDS

 	
  

 	
 16

 
	
  

 	
 8.3

 	
 REGISTRATION OF
 SHARES

 	
  

 	
 16

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 9.

 	
 COMPLIANCE WITH
 THE CODE

 	
  

 	
 16

 
	
  

 	
 9.1

 	
 DISCRETION IN
 FORMULATION OF PERFORMANCE CRITERIA

 	
  

 	
 16

 
	
  

 	
 9.2

 	
 PERFORMANCE
 PERIODS

 	
  

 	
 17

 
	
  

 	
 9.3

 	
 MODIFICATIONS TO
 PERFORMANCE GOAL CRITERIA

 	
  

 	
 17

 
	
  

 	
 9.4

 	
 LIMITATION ON
 PAYMENT OR EXERCISE

 	
  

 	
 17

 
	
  

 	
 9.5

 	
 DELAY IN PAYMENT
 OR EXERCISE FOR SPECIFIED EMPLOYEES

 	
  

 	
 17

 
	
  

 	
 9.6

 	
 WITHHOLDING

 	
  

 	
 17

 
	
  

 	
 9.7

 	
 NOTIFICATION OF
 DISQUALIFYING DISPOSITIONS OF AN ISO

 	
  

 	
 18

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 10.

 	
 NON-US PROVISIONS

 	
  

 	
 18

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 11.

 	
 CHANGE OF CONTROL
 OF THE COMPANY

 	
  

 	
 18

 
	
  

 	
 11.1

 	
 CHANGE IN CONTROL

 	
  

 	
 18

 
	
  

 	
 11.2

 	
 VESTING UPON A CHANGE
 IN CONTROL

 	
  

 	
 19

 
	
  

 	
 11.3

 	
 DISPOSITION OF
 STOCK INCENTIVES

 	
  

 	
 20

 
	
  

 	
 11.4

 	
 GENERAL RULE FOR
 OTHER STOCK INCENTIVES

 	
  

 	
 21

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 12.

 	
 AMENDMENTS OR
 TERMINATION

 	
  

 	
 21

 
	
  

 	
 12.1

 	
 AMENDMENT OF PLAN

 	
  

 	
 21

 
	
  

 	
 12.2

 	
 TERMINATION OF
 PLAN

 	
  

 	
 21

 
	
  

 	
 12.3

 	
 AMENDMENT OF STOCK
 INCENTIVES

 	
  

 	
 21

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 13.

 	
 MISCELLANEOUS

 	
  

 	
 22

 
	
  

 	
 13.1

 	
 SHAREHOLDER RIGHTS

 	
  

 	
 22

 
	
  

 	
 13.2

 	
 NO GUARANTEE OF
 CONTINUED RELATIONSHIP

 	
  

 	
 22

 

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 13.3

 	
 TRANSFERS &
 RESTRUCTURINGS

 	
  

 	
 22

 
	
  

 	
 13.4

 	
 LEAVES OF ABSENCE

 	
  

 	
 22

 
	
  

 	
 13.5

 	
 GOVERNING
 LAW/CONSENT TO JURISDICTION

 	
  

 	
 23

 
	
  

 	
 13.6

 	
 ESCROW OF SHARES

 	
  

 	
 23

 
	
  

 	
 13.7

 	
 NO FRACTIONAL
 SHARES

 	
  

 	
 23

 
	
  

 	
 13.8

 	
 FORFEITURE AND
 RECOUPMENT

 	
  

 	
 23

 
	
  

 	
 13.9

 	
 SEVERABILITY

 	
  

 	
 24

 
	
  

 	
 13.10

 	
 NO TRUST OR FUND
 CREATED

 	
  

 	
 24

 

MTS SYSTEMS CORPORATION

2011 STOCK INCENTIVE PLAN

SECTION 1
PURPOSE

The purpose of the Plan is to enable MTS Systems Corporation (the
“Company”) and its Subsidiaries to attract and retain employees, directors and
service providers of the Company by aligning financial interests of these
individuals with the other stockholders of the Company.

The Plan provides for the grant of Incentive Stock Options,
Non-Qualified Stock Options, Restricted Stock, Restricted Stock Units, Stock
Appreciation Rights, Performance Stock, Performance Units, and other awards to
aid the Company in obtaining these goals, subject to the approval by the
shareholders. 

SECTION 2

DEFINITIONS

	
  

 	
  

 	
  

 
	
 2.1

 	
  

 	
 BOARD means the
 Board of Directors of the Company.

 
	
  

 	
  

 	
  

 
	
 2.2

 	
  

 	
 CAUSE means,
 unless otherwise defined in the Stock Incentive Agreement or in a separate
 agreement with the Participant that governs Stock Incentives granted under
 this Plan, a felony conviction of a Participant or a material violation of
 any Company policy, including, without limitation, any policy contained in
 the Company’s Code of Conduct Manual, or due to embezzlement from or theft of
 property belonging to the Company, regardless of when facts resulting in a
 finding of Cause are discovered by the Company.

 
	
  

 	
  

 	
  

 
	
 2.3

 	
  

 	
 CODE means the Internal
 Revenue Code of 1986, as amended and any successor, and regulations
 promulgated thereunder.

 
	
  

 	
  

 	
  

 
	
 2.4

 	
  

 	
 COMMITTEE means
 the Compensation Committee of the Board or any other committee appointed by
 the Board to administer the Plan.

 
	
  

 	
  

 	
  

 
	
 2.5

 	
  

 	
 COMPANY means MTS
 Systems Corporation, a corporation organized under the laws of the State of
 Minnesota (or any successor corporation).

 
	
  

 	
  

 	
  

 
	
 2.6

 	
  

 	
 DEFERRED
 COMPENSATION means any Stock Incentive under this Plan that provides for the
 “deferral of compensation” as defined in Treas. Reg. §1.409A-1(b) and that
 would be subject to the taxes specified in Section 409A(a)(1) of the Code if
 and to the extent the Stock Incentive Agreement does not meet or is not
 administered and interpreted in compliance with the requirements of Section
 409A(a)(2), (3) and (4) of the Code. Deferred Compensation shall not include
 any amount that is otherwise exempt from the requirements of Section 409A of
 the Code.

 
	
  

 	
  

 	
  

 
	
 2.7

 	
  

 	
 DISABILITY means a
 physical or mental condition resulting from a bodily injury or disease or
 mental disorder rendering such person incapable of continuing to perform the
 essential employment duties of such person at the Company as such duties
 existed immediately prior to the bodily injury, disease or mental disorder.

 
	
  

 	
  

 	
  

 
	
 2.8

 	
  

 	
 EXCHANGE ACT means
 the Securities Exchange Act of 1934, as amended and any successor, and
 regulations and rules promulgated thereunder.

 
	
  

 	
  

 	
  

 

- 1 -

	
  

 	
  

 	
  

 
	
 2.9

 	
  

 	
 EXERCISE PRICE
 means the price that shall be paid to purchase one (1) Share upon the
 exercise of an Option granted under this Plan.

 
	
  

 	
  

 	
  

 
	
 2.10

 	
  

 	
 FAIR MARKET VALUE
 of one Share on any given date shall be determined by the Committee as
 follows: (a) if the Shares are listed for or admitted for trading on one of
 more national securities exchanges, the last reported sales price on the
 principal exchange on the date in question, or if such Shares shall not have
 been traded on such principal exchange on such date, the last reported sales
 price on such principal exchange on the first day prior thereto on which such
 Shares were so traded; or (b) if the Shares are not listed for or admitted
 for trading on a national securities exchange, but is traded in the
 over-the-counter market, the closing bid price for such Shares on the date in
 question, or if there is no such bid price for such Shares on such date, the
 closing bid price on the first day prior thereto on which such price existed;
 or (c) if neither (a) or (b) is applicable, with respect to any Option
 intended to qualify as an ISO, by any fair and reasonable determination made
 in good faith by the Committee, and, with respect to any other Stock
 Incentive that is intended to be exempt from the requirements of Section 409A
 of the Code, a value determined by the reasonable application of a reasonable
 valuation method as defined in regulations promulgated under Section 409A of
 the Code, which determination shall be final and binding on all parties.

 
	
  

 	
  

 	
  

 
	
 2.11

 	
  

 	
 INSIDER means an
 individual who is, on the relevant date, an officer, member of the Board or
 ten percent (10%) beneficial owner of any class of the Company’s equity
 securities that is registered pursuant to Section 12 of the Exchange Act, all
 as defined under Section 16 of the Exchange Act.

 
	
  

 	
  

 	
  

 
	
 2.12

 	
  

 	
 ISO (“Incentive
 Stock Option”) means an Option granted under this Plan to purchase Shares
 that is intended by the Company to satisfy the requirements of Section 422 of
 the Code.

 
	
  

 	
  

 	
  

 
	
 2.13

 	
  

 	
 KEY EMPLOYEE means
 any employee of the Company or any Subsidiary holding a key management or
 technical position as determined by the Committee.

 
	
  

 	
  

 	
  

 
	
 2.14

 	
  

 	
 KEY PERSON means a
 person, other than a Key Employee, who is (a) a member of the Board; or (b) a
 service provider providing bona fide services to the Company or any
 Subsidiary who is eligible to receive Shares that are registered by a Registration
 Statement on Form S-8 under the the Securities Act of 1933, as amended, as in
 effect on the date hereof or any registration form(s) under the Securities
 Act of 1933, as amended, subsequently adopted by the Securities and Exchange
 Commission.

 
	
  

 	
  

 	
  

 
	
 2.15

 	
  

 	
 NQSO
 (“Non-Qualified Stock Option”) means an option granted under this Plan to
 purchase Shares that is not intended by the Company to satisfy the
 requirements of Section 422 of the Code, and includes any ISO that, by
 subsequent action of the Company or the Participant permitted by the Plan,
 ceases to be an ISO.

 
	
  

 	
  

 	
  

 
	
 2.16

 	
  

 	
 OPTION means an
 ISO or a NQSO.

 
	
  

 	
  

 	
  

 
	
 2.17

 	
  

 	
 OUTSIDE DIRECTOR
 means a member of the Board who is not an employee and who: (a) is a
 “non-employee director” under Rule 16b-3 under the Exchange Act, as amended
 from time to time; (b) is an “outside director” under Section 162(m) of the
 Code; (c) satisfies the requirements of the principal stock exchange for the
 Shares relating to the independence of directors or the independence of
 directors serving on the Compensation Committee of the Board; and (d)
 satisfies the independence or similar

 

- 2 -

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 requirement of the
 Securities and Exchange Commission applicable to directors or to directors
 serving on the Compensation Committee of the Board.

 
	
  

 	
  

 	
  

 
	
 2.18

 	
  

 	
 PARTICIPANT means
 a Key Person, Key Employee, or any other employee who is designated to
 receive an award under the Plan by the Committee.

 
	
  

 	
  

 	
  

 
	
 2.19

 	
  

 	
 PERFORMANCE-BASED
 EXCEPTION means the performance-based exception from the tax deductibility
 limitations of Section 162(m) of the Code.

 
	
  

 	
  

 	
  

 
	
 2.20

 	
  

 	
 PERFORMANCE GOAL
 means, unless and until the Board proposes for shareholder vote and
 shareholders approve a change in the general performance measures set forth
 in this Section, the performance measure(s) to be used by the Committee for
 purposes of making Bonus Awards shall be chosen from among the following: (a)
 earnings per share; (b) net income (before or after taxes); (c) return
 measures (including, but not limited to, return on assets, equity or sales); (d)
 cash flow return on investments (net cash flows divided by owners equity);
 (e) earnings before or after taxes, depreciation and/or amortization; (f)
 revenues and or sales (gross or net); (g) operating income (before or after
 taxes); (h) total shareholder return; (i) corporate performance indicators
 (indices based on the level of certain services provided to customers); (j)
 cash generation, working capital, profit and/or revenue targets; (k) growth
 measures, such as revenue or sales growth; (l) ratios, such as expenses or
 market share; and/or (m) share price (including, but not limited to, growth
 measures and total shareholder return). In setting performance goals using
 these performance measures, the Committee may establish goals on an absolute
 basis, rate basis, or relative to a peer group performance or other
 benchmark, and may exclude the effect of changes in accounting standards and
 non-recurring unusual events specified by the Committee, such as write-offs,
 capital gains and losses and acquisitions and dispositions of businesses.

 
	
  

 	
  

 	
  

 
	
 2.21

 	
  

 	
 PERFORMANCE PERIOD
 means the period during which a performance goal must be attained with
 respect to a Stock Incentive that is performance based, as determined by the
 Committee.

 
	
  

 	
  

 	
  

 
	
 2.22

 	
  

 	
 PERFORMANCE STOCK
 means an award of Shares granted to a Participant that is subject to the
 achievement of performance criteria, either as to the delivery of such Shares
 or the calculation of the amount deliverable as a result of achieving a level
 of performance over a specified Performance Period, or any combination
 thereof.

 
	
  

 	
  

 	
  

 
	
 2.23

 	
  

 	
 PERFORMANCE UNITS
 means a contractual right granted to a Participant to receive a Share (or
 cash equivalent) upon achievement of performance criteria or a level of
 performance over a specified Performance Period that are deliverable either
 at the end of the Performance Period or at a later time.

 
	
  

 	
  

 	
  

 
	
 2.24

 	
  

 	
 PLAN means the MTS
 Systems Corporation 2011 Stock Incentive Plan, as it may be further amended
 from time to time.

 
	
  

 	
  

 	
  

 
	
 2.25

 	
  

 	
 QUALIFYING EVENT
 means, with respect to a Participant, such Participant’s death, Disability or
 Retirement.

 
	
  

 	
  

 	
  

 
	
 2.26

 	
  

 	
 RESTRICTED STOCK
 AWARD means an award of Shares granted to a Participant under this Plan that
 is subject to restrictions in accordance with the terms and provisions of
 this Plan and the applicable Stock Incentive Agreement.

 

- 3 -

	
  

 	
  

 	
  

 
	
 2.27

 	
  

 	
 RESTRICTED STOCK
 UNIT means a contractual right granted to a Participant under this Plan to
 receive a Share (or cash equivalent) that is subject to restrictions of this
 Plan and the applicable Stock Incentive Agreement.

 
	
  

 	
  

 	
  

 
	
 2.28

 	
  

 	
 RETIREMENT means
 retirement from active employment with the Company and any subsidiary or
 parent corporation of the Company on or after age 65, or upon an earlier date
 with the consent of the Committee, and upon such terms and conditions as
 determined by the Committee.

 
	
  

 	
  

 	
  

 
	
 2.29

 	
  

 	
 SERVICE means
 services provided to the Company or any Subsidiary as either a Key Employee
 or a Key Person.

 
	
  

 	
  

 	
  

 
	
 2.30

 	
  

 	
 SHARE means one
 share of the common stock of the Company.

 
	
  

 	
  

 	
  

 
	
 2.31

 	
  

 	
 SPECIFIED EMPLOYEE
 means a Participant who is a “key employee” as described in Section
 416(i)(1)(A) of the Code, disregarding paragraph (5) thereof. For purposes of
 determining key employees under Section 416(i)(1)(A) of the Code, the
 definition of compensation shall be the same as defined in the Company’s
 Retirement Savings Plan, but excluding any compensation of a Participant
 whose location is not effectively connected with the conduct of a trade or
 business within the United States. If a Participant is a key employee at any
 time during the 12 months ending on each September 30, the Participant is a
 Specified Employee for the 12 month period commencing on the next January 1.
 Any such identification of a Specified Employee under this Plan shall apply to
 all nonqualified deferred compensation plans in which the Specified Employee
 participates. In the case of certain corporate transactions (a merger,
 acquisition or spin-off), or in the case of nonresident alien employees, the
 Company will determine Specified Employees in accordance with Treas. Reg.
 §1.409A-1(i).

 
	
  

 	
  

 	
  

 
	
 2.32

 	
  

 	
 STOCK APPRECIATION
 RIGHT means a right granted to a Participant pursuant to the terms and
 provisions of this Plan whereby the individual, without payment to the
 Company (except for any applicable withholding or other taxes), receives
 Shares, or such other consideration as the Committee may determine, in an
 amount equal to the excess of the Fair Market Value per Share on the date on
 which the Stock Appreciation Right is exercised over the exercise price per
 Share noted in the Stock Appreciation Right, for each Share subject to the
 Stock Appreciation Right.

 
	
  

 	
  

 	
  

 
	
 2.33

 	
  

 	
 STOCK INCENTIVE
 means an ISO, NQSO, Restricted Stock, Restricted Stock Unit, Stock
 Appreciation Right, Performance Stock, Performance Unit, or cash.

 
	
  

 	
  

 	
  

 
	
 2.34

 	
  

 	
 STOCK INCENTIVE
 AGREEMENT means a document, agreement, certificate, resolution or other
 evidence in writing or electronic form approved by the Committee that sets
 forth the terms and conditions of a Stock Incentive granted by the Company or
 a Subsidiary to a Participant.

 
	
  

 	
  

 	
  

 
	
 2.35

 	
  

 	
 SUBSIDIARY means
 any corporation (other than the Company) in an unbroken chain of corporations
 beginning with the Company if each of the corporations (other than the last
 corporation in the unbroken chain) owns stock possessing 50% or more of the
 total combined voting power of all classes of stock in one of the other
 corporations in the chain.

 
	
  

 	
  

 	
  

 
	
 2.36

 	
  

 	
 TEN PERCENT
 SHAREHOLDER means a person who owns (after taking into account the
 attribution rules of Section 424(d)) of the Code more than ten percent (10%)
 of the

 

- 4 -

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 total combined
 voting power of all classes of shares of stock of either the Company or a
 Subsidiary.

 

SECTION 3

SHARES SUBJECT TO STOCK INCENTIVES

	
  

 	
  

 	
  

 	
  

 
	
 3.1

 	
  

 	
 AGGREGATE SHARES
 AUTHORIZED AND LIMITATIONS. The aggregate number of Shares that may be issued
 under the Plan is Two Million Three Hundred Thousand (2,300,000) Shares. In
 addition, Shares subject to awards currently outstanding under the Company’s
 2006 Stock Incentive Plan that are terminated, cancelled, surrendered or
 forfeited without the delivery of Shares may be reissued at the discretion of
 the Committee under the Plan. The aggregate number of Shares described above
 are subject to adjustment as provided in Section 3.4. Within the aggregate
 limit specified above and subject to adjustment as provided in Section 3.4:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (a)

 	
 No more than Two
 Million Three Hundred Thousand (2,3000,000) Shares may be used for Incentive
 Stock Options; and

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (b)

 	
 No more than Sixty
 Thousand (60,000) Shares may be used for Stock Incentives for non-employee
 Directors in any calendar year (subject to the principle in Section 3.2(f)).

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Such Shares shall
 be reserved, to the extent that the Company deems appropriate, from
 authorized but unissued Shares, and from Shares which have been reacquired by
 the Company.

 
	
  

 	
  

 	
  

 	
  

 
	
 3.2

 	
  

 	
 SHARE COUNTING.
 For purposes of determining the limits described in this Plan, in particular
 this Section 3, Shares covered by a Stock Incentive shall not be counted as
 used unless and until actually delivered to a Participant. If any Shares
 covered by a Stock Incentive are not purchased or are forfeited or reacquired
 by the Company prior to vesting, or if a Stock Incentive terminates, or is
 cancelled without the delivery of any Shares, such Shares shall be added back
 to the limits described in this Plan and are again available for grants from
 the Plan. In addition, the following principles shall apply in determining
 the number of Shares under any applicable limit:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (a)

 	
 Shares tendered or
 attested to in payment of the Exercise Price of an Option shall not be added
 back to the applicable limit;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (b)

 	
 Shares withheld by
 the Company to satisfy the tax withholding obligation shall not be added back
 to the applicable limit;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (c)

 	
 Shares that are
 reacquired by the Company with the amount received upon exercise of an Option
 shall not be added back to the applicable limit;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (d)

 	
 The aggregate
 Shares exercised pursuant to a Stock Appreciation Right that is settled in
 Shares shall reduce the applicable limit, rather than the number of Shares
 actually issued;

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (e)

 	
 Any Stock
 Incentive that is settled in cash shall not reduce the applicable limit; and

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (f)

 	
 Restricted Stock,
 Restricted Stock Units, Performance Stock, Performance Units and other Stock
 Incentive settled in Shares shall reduce the applicable limit by 2.5 Shares
 for each Share covered by the Incentive.

 

- 5 -

	 

 	 

 
	3.3

 	LIMITATIONS ON STOCK INCENTIVES. Subject to adjustment
                pursuant to Section 3.4, no Participant may be granted any Stock Incentive covering an aggregate number of Shares
                in excess of Two Hundred Thousand (200,000) in any calendar year. Notwithstanding the foregoing, in connection
                with his or her initial service, a Participant may be granted Stock Incentives covering not more than an additional
                One Hundred Thousand (100,000) Shares, which shall not count against the limit set forth in the preceding sentence.
                The foregoing limits shall be determined by applying the principles of Section 3.2 (in particular Section 3.2(f)).
                With respect to any Performance Unit or Other Award that is not denominated in Shares, the maximum amount that
                a Participant may receive in any calendar year is Two Million dollars ($2,000.000). 

 
	 

 	 

 
	3.4

 	SHARE ADJUSTMENT. Notwithstanding anything in Section
                12 to the contrary: (a) the number of Shares reserved under Section 3.1, (b) the limit on the number of Shares
                that may be granted subject to Stock Incentives during a calendar year to any individual under Section 3.1 and
                3.3, (c) the number of Shares subject to certain Stock Incentives granted subject to Section 3.1, and (d) the
                Exercise Price of any Options and the specified price of any Stock Appreciation Rights, shall be adjusted by the
                Committee in an equitable manner to reflect any change in the capitalization of the Company, including, but not
                limited to, such changes as stock dividends or stock splits. Furthermore, the Committee shall have the right to
                adjust (in a manner that satisfies the requirements of Code Section 424(a)): (i) the number of Shares reserved
                under Section 3.1; (ii) the number of Shares subject to certain Stock Incentives subject to Section 3.1; and (iii)
                the Exercise Price of any Options and the specified exercise price of any Stock Appreciation Rights in the event
                of any corporate transaction described in Section 424(a) of the Code that provides for the substitution or assumption
                of such Stock Incentives. If any adjustment under this Section creates a fractional Share or a right to acquire
                a fractional Share, such fractional Share shall be disregarded, and the number of Shares reserved under this Plan
                and the number subject to any Stock Incentives granted under this Plan shall be the next lower number of Shares,
                rounding all fractions downward. An adjustment made under this Section by the Committee shall be conclusive and
                binding on all affected persons and, further, shall not constitute an increase in the number of Shares reserved
                under Section 3.1 or an increase in any limitation imposed by the Plan. 

 

SECTION 4
EFFECTIVE DATE AND TERM OF PLAN

The effective date of this Plan shall be January 31, 2011, provided,
however, that if the Plan is not approved by the shareholders of the Company within 12 months of the approval by the Board, the
Plan will be terminated and all Stock Incentives granted under the Plan will be terminated and deemed null and void and further
provided that no Stock Incentive shall vest and no Shares may be issued under the Plan prior to approval of the Plan by the shareholders
of the Company. No Stock Incentive shall be granted under this Plan on or after the earlier of: 

	 

 	 

 	 

 
	 

 	(a)

 	the seventh (7th) anniversary of the effective date of
                this Plan, and 

 
	 

 	 

 	 

 
	 

 	(b)

 	the date on which all of the Shares reserved under Section
                3 of this Plan have been issued or are no longer available for use under this Plan. 

 

This Plan shall continue in effect until all outstanding Stock Incentives
have been exercised in full or are no longer exercisable and all Restricted Stock Awards or Restricted Stock Units have vested
or been forfeited. 

- 6 -

SECTION 5

ADMINISTRATION

	 

 	 

 
	5.1

 	GENERAL ADMINISTRATION. The Committee shall administer
                this Plan. The Committee, acting in its absolute discretion, shall exercise such powers and take such action as
                expressly called for under this Plan. The Committee shall have full power to construe and interpret the Plan and
                any agreement or instrument entered into under the Plan; to establish, amend or waive rules and regulations for
                the Plan’s administration, and to make all other determinations and take all other actions that may be necessary
                or advisable for the administration of the Plan. Notwithstanding anything herein to the contrary, the Board may,
                without further action of the Committee, exercise the powers and duties of the Committee or any delegate under
                the Plan, unless such exercise would cause any Stock Incentive not to comply with the requirements of Section
                162(m) of the Code. 

 
	 

 	 

 
	5.2

 	AUTHORITY OF THE COMMITTEE. Except as limited by law
                or by the Articles of Incorporation or By-laws of the Company, and subject to the provisions herein, the Committee
                shall have full power to: (a) select Participants in the Plan; (b) determine the types of Stock Incentives for
                each Participant in a manner consistent with the Plan; (c) determine the number of Shares or the method of determining
                the number of Shares or other payment under such Stock Incentive; (d) determine the terms and conditions of Stock
                Incentives in a manner consistent with the Plan, including the time and manner of exercise, the restrictions on
                the rights granted under the Stock Incentive and the lapse thereof, the manner of payment, if any, the restrictions
                or holding period applicable to the payment or Stock received upon exercise or in satisfaction of the Stock Incentive;
                and (e) amend the terms and conditions of any outstanding Stock Incentives as provided in accordance with Section
                12.3. The Committee shall have the independent authority and discretion over the appointment, compensation and
                oversight of the services of advisors to the Committee, including compensation consultants and legal counsel,
                provided such advisors meet the standards for independence as established by the Securities Exchange Commission.
                The Company shall pay the compensation and expenses of such advisors. The Committee may seek the assistance of
                such other persons as it may see fit in carrying out its routine administrative functions concerning the Plan.
                

 
	 

 	 

 
	5.3

 	DELEGATION OF AUTHORITY. The members of the Committee
                shall be appointed from time to time by, and shall serve at the discretion of, the Board. The Committee may appoint
                one or more separate committees (any such committee, a “Subcommittee”) composed of two or more Outside
                Directors of the Company (who may but need not be members of the Committee) and may delegate to any such Subcommittee
                or to one or more executive officers of the Company the authority to grant Stock Incentives, and/or to administer
                the Plan or any aspect of it; provided, however, that only the Committee may grant Stock Incentives that meet
                the Performance-Based Exception, and only the Committee may grant Stock Incentives to Insiders. 

 
	 

 	 

 
	5.4

 	DECISIONS BINDING. All determinations and decisions made
                by the Committee pursuant to the provisions of this Plan and all related orders and resolutions of the Committee
                shall be final, conclusive and binding on all persons, including the Company, its shareholders, members of the
                Board, Participants, and their estates and beneficiaries. 

 

- 7 -

SECTION 6

ELIGIBILITY

Participants selected by the Committee shall be eligible for the grant
of Stock Incentives under this Plan, but no Participant shall have the right to be granted a Stock Incentive under this Plan merely
as a result of his or her status as a Key Person or Key Employee. Notwithstanding the foregoing, an ISO may only be granted to
a Key Employee. 

SECTION 7 

TERMS AND CONDITIONS OF STOCK INCENTIVES

	 

 	 

 	 

 
	7.1

 	ALL STOCK INCENTIVES. 

 
	 

 	 

 	 

 
	 

 	(a)

 	Grants of Stock Incentives. The Committee, in
                its absolute discretion, shall grant Stock Incentives under this Plan from time to time and shall have the right
                to grant new Stock Incentives in exchange for outstanding Stock Incentives; provided, however, the Committee shall
                not have the right to: (i) lower the Exercise Price of an existing Option; (ii) take any action which would be
                treated as a “repricing” under generally accepted accounting principles; or (iii) cancel an existing
                Option at a time when its Exercise Price exceeds the fair market value of the underlying stock subject to such
                Option in exchange for another Stock Incentive, including cash or other equity in the Company (except as provided
                in Sections 3.4, 10 and 11). 

 
	 

 	 

 	 

 
	 

 	(b)

 	Shares Subject to Stock Incentives. The number
                of Shares as to which a Stock Incentive shall be granted shall be determined by the Committee in its sole discretion,
                subject to the provisions of Section 3.1 as to the total number of Shares available for grants under the Plan,
                and to any other restrictions contained in this Plan. 

 
	 

 	 

 	 

 
	 

 	(c)

 	Stock Incentive Agreements. Each Stock Incentive
                shall be evidenced by a Stock Incentive Agreement. The Stock Incentive Agreement may be in an electronic medium,
                may be limited to notation on the books and records of the Company and, with the approval of the Committee, need
                not be signed by a representative of the Company or a Participant. The Committee shall have sole discretion to
                modify the terms and provisions of any Stock Incentive in accordance with Section 12.3. 

 
	 

 	 

 	 

 
	 

 	(d)

 	Date of Grant. The date a Stock Incentive is granted
                shall be no earlier than the date on which the Committee: (i) has approved the terms and conditions of the Stock
                Incentive Agreement; (ii) has determined the recipient of the Stock Incentive and the number of Shares covered
                by the Stock Incentive; and (iii) has taken all such other action necessary to direct the grant of the Stock Incentive.
                

 
	 

 	 

 	 

 
	 

 	(e)

 	Vesting of Stock Incentives. Stock Incentives
                under the Plan may have restrictions on the vesting or delivery of and, in the case of Options, the right to exercise,
                that lapse based upon the service of a Participant, or based upon other criteria that the Committee may determine
                appropriate, such as the attainment of performance criteria as determined by the Committee, including but not
                limited to one or more Pperformance Goals. If the Award is intended to meet the Performance-Based Exception, the
                attainment of such performance goals must satisfy the requirements of Sections 9.1, 9.2 and 9.3. Except as otherwise
                provided in Section 7.1(f), until the end of the period(s) of time specified in the 

 

- 8 -

	 

 	 

 	 

 
	 

 	 

 	vesting schedule and/or the satisfaction of any performance
                criteria, the Shares subject to such Stock Incentive Award shall remain subject to forfeiture.

 
	 

 	 

 	 

 
	 

 	(f)

 	Acceleration of Vesting of Stock Incentives. In
                the event of the death or Disability of the Participant while in the employ of the Company (or in the case of
                a Director, while serving as a Director), any Stock Incentive Award shall immediately be exercisable in full,
                or any restrictions thereon shall immediately lapse, as the case may be. Notwithstanding anything to the contrary
                in this Plan, the Committee shall have the power to permit, in its sole discretion, an acceleration of the expiration
                of the applicable restrictions or the applicable period of such restrictions with respect to any part or all of
                the Shares awarded to a Participant; provided, however, the Committee may grant Stock Incentive Awards precluding
                such accelerated vesting in order to qualify the Stock Incentive Awards for the Performance-Based Exception. 

 
	 

 	 

 	 

 
	 

 	(g)

 	Dividend Equivalents. The Committee may grant
                dividend equivalents with respect to any Stock Incentive. The Committee shall establish the terms and conditions
                to which the dividend equivalents are subject. Under a dividend equivalent, a Participant shall be entitled to
                receive payments equivalent to the amount of dividends paid by the Company to holders of Shares with respect to
                the number of dividend equivalents held by the Participant, which may be paid concurrently with the payment of
                dividends or deferred and paid at a later date. The dividend equivalent may provide for payment in Shares or in
                cash, or a fixed combination of Shares or cash, or the Committee may reserve the right to determine the manner
                of payment at the time the dividend equivalent is payable. Any such dividend equivalent that is intended to exempt
                from Section 409A of the Code with respect to a Stock Incentive that constitutes Deferred Compensation shall be
                stated in a separate arrangement. 

 
	 

 	 

 	 

 
	 

 	(h)

 	Transferability of Stock Incentives. Except as
                otherwise provided in a Participant’s Stock Incentive Agreement, no Stock Incentive granted under the Plan
                may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except upon the death of the
                holder Participant by will or by the laws of descent and distribution. Except as otherwise provided in a Participant’s
                Stock Incentive Agreement, during the Participant’s lifetime, only the Participant may exercise any Option
                or Stock Appreciation Right unless the Participant is incapacitated, in which case the Option or Stock Appreciation
                Right may be exercised by and any other Stock Incentive may be payable to the Participant’s legal guardian,
                legal representative, or other representative whom the Committee deems appropriate based on applicable facts and
                circumstances. The determination of incapacity of a Participant and the identity of appropriate representative
                of the Participant to exercise the Option or receive any other payment under a Stock Incentive if the Participant
                is incapacitated shall be determined by the Committee.

 
	 

 	 

 	 

 
	 

 	(i)

 	Deferral Elections. The Committee may require
                or may permit Participants to elect to defer the issuance of Shares or the settlement of Stock Incentives in cash
                under this Plan pursuant to such rules, procedures, or programs as it may establish from time to time. However,
                notwithstanding the preceding sentence, the Committee shall not, in establishing the terms and provisions of any
                Stock Incentive, or in exercising its powers under this Plan: (i) create any arrangement which would constitute
                an employee pension benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act, as
                amended, unless the 

 

- 9 -

	 

 	 

 	 

 
	 

 	 

 	arrangement provides benefits solely to one or more individuals
                who constitute members of a select group of management or highly compensated employees; or (ii) create any arrangement
                that would constitute Deferred Compensation unless the arrangement complies with Section 9.4 and 9.5 or unless
                the Committee, at the time of grant, specifically provides that the Stock Incentive is not intended to comply
                with Section 409A of the Code.

 
	 

 	 

 	 

 
	7.2

 	OPTIONS.

 
	 

 	 

 	 

 
	 

 	(a)

 	Grants of Options. Each grant of an Option shall
                be evidenced by a Stock Incentive Agreement that shall specify whether the Option is an ISO or NQSO, and incorporate
                such other terms as the Committee deems consistent with the terms of this Plan and, in the case of an ISO, necessary
                or desirable to permit such Option to qualify as an ISO. The Committee and/or the Company may modify the terms
                and provisions of an Option in accordance with Section 12 even though such modification may change the Option
                from an ISO to a NQSO. 

 
	 

 	 

 	 

 
	 

 	(b)

 	Termination of Service other than upon a Qualifying
                Event. Except as provided in the Option Agreement or a separate agreement with the Participant that covers
                Options, or as otherwise provided by the Committee: (i) if the Participant’s Service with the Company and/or
                a Subsidiary ends before the Options vest, the Participant shall forfeit all unvested Options; and (ii) any Options
                held by such Participant may thereafter be exercised to the extent it was exercisable at the time of such termination,
                but may not be exercised after 180 days after such termination, or the expiration of the stated term of the Options,
                whichever period is the shorter. In the event a Participant’s Service with the Company or any Subsidiary
                is terminated for Cause, all unexercised Options granted to such Participant shall immediately terminate. 

 
	 

 	 

 	 

 
	 

 	(c)

 	Termination of Service upon a Qualifying Event.
                Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant that covers Options,
                and except as otherwise provided by the Committee: (i) if a Qualifying Event occurs before the date or dates on
                which Options vest, the Participant shall forfeit all unvested Options; and (ii) any Options held by such Participant
                may thereafter be exercised to the extent it was exercisable at the time of such Qualifying Event, but may not
                be exercised after 180 days after such Qualifying Event, or the expiration of the stated term of the Options,
                whichever period is the shorter. 

 
	 

 	 

 	 

 
	 

 	(d)

 	Exercise Price. Subject to adjustment in accordance
                with Section 3.4 and the other provisions of this Section, the Exercise Price shall be specified in the applicable
                Stock Incentive Agreement and shall not be less than the Fair Market Value of a Share on the date the Option is
                granted. With respect to each ISO to a Participant who is not a Ten Percent Shareholder, the Exercise Price shall
                not be less than the Fair Market Value of a Share on the date the ISO is granted. With respect to each ISO to
                a Participant who is a Ten Percent Shareholder, the Exercise Price shall not be less than one hundred ten percent
                (110%) of the Fair Market Value of a Share on the date the ISO is granted. 

 
	 

 	 

 	 

 
	 

 	(e)

 	Option Term. Each Option granted under this Plan
                shall be exercisable in whole or in part at such time or times as set forth in the related Stock Incentive Agreement,
                but no Stock Incentive Agreement shall: (i) make an Option exercisable prior to the date such Option is granted
                or after it has been exercised 

 

- 10 -

	 

 	 

 	 

 
	 

 	 

 	in full; or (ii) make an Option exercisable after the
                date that is: (A) the tenth (10th) anniversary (seventh (7th) anniversary for options granted prior to January
                31, 2013) of the date such Option is granted, if such Option is a NQSO or an ISO granted to a Participant who
                is not a Ten Percent Shareholder; or (B) the fifth (5th) anniversary of the date such Option is granted, if such
                Option is an ISO granted to a Ten Percent Shareholder. Options issued under the Plan may become exercisable based
                on the service of a Participant, or based upon the attainment (as determined by the Committee) of performance
                criteria, including but not limited to Performance Goals. Any Option that is intended to qualify for the Performance-Based
                Exception must satisfy the requirements of Sections 9.1, 9.2 and 9.3.

 
	 

 	 

 	 

 
	 

 	(f)

 	Payment. The Exercise Price of Shares acquired
                pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations by delivering
                to the Company or its designated agent, either: (i) in cash or by check at the time the Option is exercised; or
                (ii) at the discretion of the Committee at the time of the grant of the Option (or subsequently in the case of
                an NQSO): (A) by delivery (or by attestation) of other Shares, including Shares acquired as part of the exercise
                (i.e., a pyramid exercise); (B) if permitted by applicable law, the withholding of Shares delivered by that number
                of Shares equal to the Fair Market Value of the Exercise Price (i.e., a cashless or net exercise); (C) according
                to a deferred payment or other similar arrangement with the Participant, including use of a promissory note (except
                for executive officers and Directors of the Company to the extent such loans and similar arrangements are prohibited
                under Section 402 of the Sarbanes-Oxley Act of 2002); (D) pursuant to a “same day sale” program exercised
                through a brokerage transaction as permitted under the provisions of Regulation T applicable to cashless exercises
                promulgated by the Federal Reserve Board so long as the Company’s equity securities are registered under
                Section 12 of the Exchange Act, unless prohibited by Section 402 of the Sarbanes-Oxley Act of 2002; or (E) by
                some combination of the foregoing. Notwithstanding the foregoing, with respect to any Participant who is an Insider,
                a tender of Shares or, a cashless or net exercise shall be a subsequent transaction approved as part of the original
                grant of an Option for purposes of the exemption under Rule 16b-3 of the Exchange Act. Except as provided above,
                payment shall be made at the time that the Option or any part thereof is exercised, and no Shares shall be issued
                or delivered upon exercise of an Option until full payment has been made by the Participant. The holder of an
                Option, as such, shall have none of the rights of a shareholder. 

 
	 

 	 

 	 

 
	 

 	(g)

 	ISO Tax Treatment Requirements. With respect to
                any Option that is intended to be an ISO, to the extent that the aggregate Fair Market Value (determined as of
                the date of grant of such Option) of Shares with respect to which such Option is exercisable for the first time
                by any individual during any calendar year exceeds one hundred thousand dollars ($100,000), to the extent of such
                excess, such Option shall not be treated as an ISO in accordance with Section 422(d) of the Code and in Treas.
                Reg. §1.422-4. With respect to any Option that is intended to be an ISO, such Option shall cease to be treated
                as an ISO if the Participant disposes of Shares acquired upon exercise of the Option within two (2) years from
                the date of the granting of the Option or within one (1) year of the exercise of the Option, or if the Participant
                has not met the requirements of Section 422(a)(2) of the Code. 

 

- 11 -

	 

 	 

 	 

 
	7.3

 	RESTRICTED STOCK. 

 
	 

 	 

 	 

 
	 

 	(a)

 	Grants of Restricted Stock Awards. Shares awarded
                pursuant to Restricted Stock Awards shall be subject to such restrictions as determined by the Committee for periods
                determined by the Committee. The Committee may require a cash payment from the Participant in exchange for the
                grant of a Restricted Stock Award or may grant a Restricted Stock Award without the requirement of a cash payment.
                

 
	 

 	 

 	 

 
	 

 	(b)

 	Termination of Service other than a Qualifying Event.
                Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering the
                Restricted Stock, if the Participant’s Service with the Company and/or a Subsidiary ends for any reason other
                than a Qualifying Event before any restrictions lapse, the Participant shall forfeit all unvested Restricted Stock,
                unless the Committee determines that some or all of the Participant’s unvested Restricted Stock shall vest
                as of the date of such event. 

 
	 

 	 

 	 

 
	 

 	(c)

 	Termination of Service upon a Qualifying Event.
                Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering the
                Restricted Stock: (i) if a Qualifying Event occurs before the date or dates on which restrictions lapse, the Participant
                shall forfeit all unvested Restricted Stock, unless the Committee determines that some or all of the Participant’s
                unvested Restricted Stock shall vest as of the date of such event; and (ii) in the case of Restricted Stock based
                on performance criteria then, as of the date on which such Qualifying Event occurs, the Participant shall be entitled
                to receive a number of Shares that is determined by measuring the selected performance criteria from the Company’s
                most recent publicly available quarterly results that are available as of the date the Qualifying Event occurs
                or such later date as the Committee determines, but no later than the end of the Performance Period; provided,
                however, the Committee may grant Restricted Stock Awards precluding such partial awards when a Qualifying Event
                occurs in order to qualify the Restricted Stock for the Performance-Based Exception. 

 
	 

 	 

 	 

 
	 

 	(d)

 	Voting, Dividend & Other Rights. Unless the applicable
                Stock Incentive Agreement provides otherwise, a Participant awarded Restricted Stock shall be entitled to vote
                and to receive dividends during the periods of restriction of the Shares to the same extent as the Participant
                would have been entitled if the Shares were not restricted.

 
	 

 	 

 	 

 
	7.4

 	RESTRICTED STOCK UNITS. 

 
	 

 	 

 	 

 
	 

 	(a)

 	Grants of Restricted Stock Units. A Restricted
                Stock Unit shall entitle the Participant to receive one Share at such future time and upon such terms as specified
                by the Committee in the Stock Incentive Agreement. The Committee may require a cash payment from the Participant
                in exchange for the grant of Restricted Stock Units or may grant Restricted Stock Units without such requirement.
                

 
	 

 	 

 	 

 
	 

 	(b)

 	Termination of Service other than upon a Qualifying
                Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering
                the Restricted Stock Unit, if the Participant’s Service with the Company and/or a Subsidiary ends before
                the Restricted Stock Units vest, the Participant shall forfeit all unvested Restricted Stock Units, unless the
                Committee 

 

- 12 -

	 

 	 

 	 

 
	 

 	 

 	determines that the Participant’s unvested Restricted
                Stock Units shall vest as of the date of such event.

 
	 

 	 

 	 

 
	 

 	(c)

 	Termination of Service upon a Qualifying Event.
                Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant covering the
                Restricted Stock Unit: (i) if a Qualifying Event occurs before the date or dates on which restrictions lapse,
                the Participant shall forfeit all unvested Restricted Stock Units, unless the Committee determines that the Participant’s
                unvested Restricted Stock Units shall vest as of the date of such event; and (ii) in the case of Restricted Stock
                Units that are based on performance criteria, then as of the date on which such Qualifying Event occurs, the Participant
                shall be entitled to receive a number of Shares that is determined by measuring the selected performance criteria
                from the Company’s most recent publicly available quarterly results that are available as of the date the
                Qualifying Event occurs or such later date, but not later than the end of the Performance Period; provided, however,
                the Committee may grant Restricted Stock Units precluding entitlement to a partial award when a Qualifying Event
                occurs in order to qualify the Restricted Stock Units for the Performance-Based Exception. 

 
	 

 	 

 	 

 
	 

 	(d)

 	Voting, Dividend & Other Rights. A Participant
                awarded Restricted Stock Units shall not be entitled to vote or to receive dividends until the date the Shares
                are issued to the Participant pursuant to the Restricted Stock Units, and, unless the Stock Incentive Agreement
                provides otherwise, the Participant shall not be entitled to any dividend equivalents (as described in Section
                7.1(g)). 

 
	 

 	 

 	 

 
	7.5

 	STOCK APPRECIATION RIGHTS. 

 
	 

 	 

 	 

 
	 

 	(a)

 	Grants of Stock Appreciation Rights. A Stock Appreciation
                Right shall entitle the Participant to receive upon exercise the excess of the Fair Market Value of number of
                Shares exercised, over the specified price for such Shares. The specified price for a Stock Appreciation Right
                granted in connection with a previously or contemporaneously granted Option, shall not be less than the Exercise
                Price for Shares that are subject to the Option. In the case of any other Stock Appreciation Right, the specified
                price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share at the time the Stock
                Appreciation Right is granted. If related to an Option, the exercise of a Stock Appreciation Right shall result
                in a pro rata expiration and cancellation of the same number of Shares of the related Option for which the Stock
                Appreciation Right has been exercised. 

 
	 

 	 

 	 

 
	 

 	(b)

 	Stock Appreciation Right Term. Each Stock Appreciation
                Right granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the
                related Stock Incentive Agreement, but no Stock Incentive Agreement shall: (i) make a Stock Appreciation Right
                exercisable prior to the date such Stock Appreciation Right is granted or after it has been exercised in full;
                or (ii) make a Stock Appreciation Right exercisable after the date that is: (A) the seventh (7th) anniversary
                of the date such Stock Appreciation Right is granted; or (B) the fifth (5th) anniversary of the date such Stock
                Appreciation Right is granted, if such Stock Appreciation Right is granted in connection with the grant of an
                ISO to a Ten Percent Shareholder. Stock Appreciation Rights issued under the Plan may become exercisable based
                on the service of a Participant, or based upon the attainment (as determined by the Committee) of performance
                criteria, including but not limited to Performance Goals. Any Stock Appreciation Right that is 

 

- 13 -

	 

 	 

 	 

 
	 

 	 

 	intended to qualify for the Performance-Based Exception
                must satisfy the requirements of Sections 9.1, 9.2 and 9.3.

 
	 

 	 

 	 

 
	 

 	(c)

 	Payment. Upon exercise of a Stock Appreciation
                Right, the Company shall pay to the Participant the appreciation with Shares (computed using the aggregate Fair
                Market Value of Shares on the date of exercise) or in cash, or in any combination thereof as specified in the
                Stock Incentive Agreement or, if not specified, as the Committee determines. To the extent that a Stock Appreciation
                Right is exercised, the specified price shall be treated as paid in Shares for purposes of Section 3. 

 
	 

 	 

 	 

 
	 

 	(d)

 	Termination of Service other than upon a Qualifying
                Event. Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant that
                governs the Stock Appreciation Rights granted, or as otherwise provided by the Committee: (i) if the Participant’s
                Service with the Company and/or a Subsidiary ends before the Stock Appreciation Rights vest, the Participant shall
                forfeit all unvested Stock Appreciation Rights; and (ii) any Stock Appreciation Rights held by such Participant
                may thereafter be exercised to the extent it was exercisable at the time of such termination, but may not be exercised
                after 180 days after such termination, or the expiration of the stated term of the Stock Appreciation Rights,
                whichever period is the shorter. In the event a Participant’s employment with the Company or any Subsidiary
                is terminated for Cause, all unexercised Stock Appreciation Rights granted to such Participant shall immediately
                terminate. 

 
	 

 	 

 	 

 
	 

 	(e)

 	Termination of Service upon a Qualifying Event.
                Except as provided in the Stock Incentive Agreement or a separate agreement with the Participant that governs
                the Stock Appreciation Rights granted, and except as otherwise provided by the Committee: (i) if a Qualifying
                Event occurs before the date or dates on which Stock Appreciation Rights vest, the Participant shall forfeit all
                unvested Stock Appreciation Rights; and (ii) any Stock Appreciation Rights held by such Participant may thereafter
                be exercised to the extent it was exercisable at the time of such Qualifying Event, but may not be exercised after
                180 days after such Qualifying Event, or the expiration of the stated term of the Stock Appreciation Rights, whichever
                period is the shorter. 

 
	 

 	 

 	 

 
	 

 	(f)

 	Special Provisions for Tandem Stock Appreciation Rights.
                A Stock Appreciation Right granted in connection with an Option may only be exercised to the extent that the related
                Option has not been exercised. A Stock Appreciation Right granted in connection with an ISO: (i) will expire no
                later than the expiration of the underlying ISO; (ii) may be for no more than the difference between the exercise
                price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time
                the Stock Appreciation Right is exercised; (iii) may be transferable only when, and under the same conditions
                as, the underlying ISO is transferable; and (iv) may be exercised only: (A) when the underlying ISO could be exercised;
                and (B) when the Fair Market Value of the Shares subject to the ISO exceeds the exercise price of the ISO. 

 
	 

 	 

 	 

 
	7.6

 	PERFORMANCE STOCK AND PERFORMANCE UNITS. 

 
	 

 	 

 	 

 
	 

 	(a)

 	Awards of Performance Stock and Performance Units.
                Performance Stock and Performance Units shall become payable to a Participant upon achievement of performance
                criteria as determined by the Committee. Each award will specify 

 

- 14 -

	 

 	 

 	 

 
	 

 	 

 	the number of Performance Stock or Performance Units
                to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors;
                provided, however, that no such adjustment will be made in the case of a grant that is intended to qualify for
                the Performance-Based Exception, other than as provided in Sections 9.1, 9.2 and 9.3. Subject to the limitation
                set forth in Section 3.4, any grant of Performance Stock or Performance Units may specify that the amount payable
                with respect thereto may not exceed a maximum specified by the Committee at the date of grant.

 
	 

 	 

 	 

 
	 

 	(b)

 	Payment. Each grant will specify the time and
                manner of payment of Performance Stock or Performance Units that have been earned. Any Performance Stock award
                shall be payable in Shares. Any Performance Unit award may specify that the amount payable with respect thereto
                may be paid by the Company in cash, in Shares or in any combination thereof and may either grant to the Participant
                or retain in the Committee the right to elect among cash or Shares. 

 
	 

 	 

 	 

 
	7.7

 	OTHER AWARDS. 

 
	 

 	 

 	 

 
	 

 	(a)

 	Other awards may, subject to limitations under applicable
                law, be granted to any Participant denominated or payable in, valued in whole or in part by reference to, or otherwise
                based on, or related to, Shares or factors that may influence the value of such Shares, including, without limitation,
                convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase rights
                for Shares, awards with value and payment contingent upon performance of the Company or specified Subsidiaries,
                affiliates or other business units thereof, or any other factors designated by the Committee. The Committee shall
                determine the terms and conditions of such awards. 

 
	 

 	 

 	 

 
	 

 	(b)

 	Cash awards, as an element of or supplement to any other
                Stock Incentives granted under this Plan, may also be granted to Participants on such terms and conditions as
                the Committee may determine, subject to the limitation set forth in Section 3.4. 

 
	 

 	 

 	 

 
	 

 	(c)

 	Shares may be granted to a Participant as a bonus, or
                in lieu of obligations of the Company or a Subsidiary to pay cash or deliver other property under this Plan or
                under other plans or compensatory arrangements, subject to such terms as the Committee shall determine, subject
                to the limitation set forth in Section 3.4. 

 
	 

 	 

 	 

 
	 

 	(d)

 	Participants designated by the Committee may be permitted
                to reduce compensation otherwise payable in cash in exchange for Shares or other Stock Incentives under the Plan.
                

 
	 

 	 

 	 

 
	7.8

 	NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AND
                          RESTRICTED STOCK UNITS. Notwithstanding any other provisions of this Plan, a grant of Restricted Stock
                          or Restricted Stock Units shall be made to each Director who is not an employee of the Company or any
                          Subsidiary within the meaning of Rule 16b-3 of the Exchange Act and who at the regular annual shareholders
                          meeting is elected (or re-elected) to the Board. Except as provided in (a) and (b) below, the number
                          of Shares and the other terms of this Restricted Stock or Restricted Stock Unit shall be determined
                          by the Board in its sole discretion prior to such annual meeting of shareholders. The date of grant
                          of the Restricted Stock is the date on which such non-employee Director is elected or reelected to serve
                          on the Board. Each grant of Restricted Stock or Restricted Stock Unit to 

 

- 15 -

	 

 	 

 
	 

 	a non-employee Director shall vest on the date of the
                next regular annual shareholder meetings following the date of grant if the non-employee Director continues to
                serve as a member of the Board through such annual meeting; provided, however, that if the non-employee Director
                ceases to serve as a member of the Board prior to the next regular annual shareholder meeting, the grant shall
                partially vest based on the length of time from the time of grant to the date such services cease, and the date
                the grant would have otherwise vested. 

 
	 

 	 

 
	 

 	The Board, in its discretion, may, in addition to the
                Restricted Stock and Restricted Stock Unit grants provided above, grant any additional Stock Incentive to all
                non-employee Directors or to any individual non-employee Director, provided that such grant shall be solely for
                substantial services performed or to be performed by the non-employee Directors or non-employee Director as determined
                in good faith by the Board. 

 

SECTION 8

SECURITIES REGULATION

	 

 	 

 
	8.1

 	LEGALITY OF ISSUANCE. No Share shall be issued under
                this Plan unless and until the Committee has determined that all required actions have been taken to register
                such Share under the Securities Act of 1933 or the Company has determined that an exemption therefrom is available,
                any applicable listing requirement of any stock exchange on which the Share is listed has been satisfied, and
                any other applicable provision of state, federal or foreign law, including foreign securities laws where applicable,
                has been satisfied. 

 
	 

 	 

 
	8.2

 	RESTRICTIONS ON TRANSFER; REPRESENTATIONS; LEGENDS. Regardless
                of whether the offering and sale of Shares under the Plan have been registered under the Securities Act of 1933
                or have been registered or qualified under the securities laws of any state, the Company may impose restrictions
                upon the sale, pledge, or other transfer of such Shares (including the placement of appropriate legends on stock
                certificates) if, in the judgment of the Company and its counsel, such restrictions are necessary or desirable
                to achieve compliance with the provisions of the Securities Act of 1933, the securities laws of any state, the
                United States or any other applicable foreign law. If the offering and/or sale of Shares under the Plan is not
                registered under the Securities Act of 1933 and the Company determines that the registration requirements of the
                Securities Act of 1933 apply but an exemption is available which requires an investment representation or other
                representation, the Participant shall be required, as a condition to acquiring such Shares, to represent that
                such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except
                in compliance with the Securities Act of 1933, and to make such other representations as are deemed necessary
                or appropriate by the Company and its counsel. All Stock Incentive Agreements shall contain a provision stating
                that any restrictions under any applicable securities laws will apply. 

 
	 

 	 

 
	8.3

 	REGISTRATION OF SHARES. The Company may, and intends
                to, but is not obligated to, register or qualify the offering or sale of Shares pursuant to this Plan under the
                Securities Act of 1933 or any other applicable state, federal or foreign law. 

 

SECTION 9

COMPLIANCE WITH THE CODE 

	 

 	 

 
	9.1

 	DISCRETION IN FORMULATION OF PERFORMANCE CRITERIA. The
                Committee shall have the discretion to adjust the determinations of the degree of attainment of the 

 

- 16 -

	 

 	 

 
	 

 	pre-established performance criteria; provided, however,
                that any Stock Incentives that are intended to qualify for the Performance-Based Exception may not be adjusted
                upward (although the Committee shall retain the discretion to adjust such Stock Incentives downward).

 
	 

 	 

 
	9.2

 	PERFORMANCE PERIODS. The Committee shall have the discretion
                to determine the period during which any performance criteria, including any Performance Goal must be attained
                with respect to a Stock Incentive. Such period may be of any length, and must be established prior to the start
                of such period or within the first ninety (90) days of such period (provided that the performance criteria are
                not in any event set after 25% or more of such period has elapsed). 

 
	 

 	 

 
	9.3

 	MODIFICATIONS TO PERFORMANCE GOAL CRITERIA. In the event
                that the applicable tax and/or securities laws and regulatory rules and regulations change to permit Committee
                discretion to alter the governing performance measures noted above without obtaining shareholder approval of such
                changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval.
                In addition, in the event that the Committee determines that it is advisable to grant Stock Incentives that shall
                not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements
                under Section 162(m) of the Code to qualify for the Performance-Based Exception. 

 
	 

 	 

 
	9.4

 	LIMITATION ON PAYMENT OR EXERCISE. With respect to any
                Stock Incentive that constitutes Deferred Compensation, such Stock Incentive shall provide for payment or exercise
                only upon: (a) a fixed date or schedule that complies with the requirements of Treas. Reg. §1.409A-3; (b)
                on a date based upon the Participant’s “separation from service,” or “disability,” or
                “unforeseeable emergency” as those terms are defined under Section 409A of the Code; (c) the Participant’s
                death; or (d) a Change in Control as defined in Section 11.1. Any election permitted under any Stock Incentive
                that constitutes Deferred Compensation shall comply with the requirements of Treas. Reg. §1.409A-2 and shall
                be irrevocable as of the date of grant of the Stock Incentive. In addition, with respect to any Stock Incentive
                that constitutes Deferred Compensation, except to the extent acceleration or deferral is permitted by or complies
                with the requirements of Section 409A of the Code, neither the Committee nor a Participant may accelerate or defer
                the time or schedule of any payment or exercise of, or the amount scheduled to be reported as income as a result.
                

 
	 

 	 

 
	9.5

 	DELAY IN PAYMENT OR EXERCISE FOR SPECIFIED EMPLOYEES.
                Notwithstanding anything in the Plan, unless the Stock Incentive Agreement specifically provides otherwise, no
                Stock Incentive that constitutes Deferred Compensation shall be paid to or exercised by a Specified Employee earlier
                than 181 days following the Participant’s “separation from service” as defined for purposes of
                Section 409A of the Code (or if earlier, upon the Specified Employee’s death), except as permitted under
                Section 409A of the Code and the regulations and other guidance promulgated thereunder. The Committee may specify
                in the Stock Incentive Agreement that the amount of the Deferred Compensation delayed pursuant to this Section
                16.4 shall accumulate interest or earnings during the period of such delay. 

 
	 

 	 

 
	9.6

 	WITHHOLDING. All taxes imposed on any Stock Incentive
                shall be the sole responsibility of the Participant. The Company shall have the right to deduct or withhold, or
                require a Participant to remit to the Company as a condition precedent for the grant, exercise, satisfaction of
                conditions or the lapse of restrictions under any Stock Incentive or the issuance of Shares, an amount sufficient
                to satisfy the federal, state and local 

 

- 17 -

	 

 	 

 	 

 
	 

 	taxes, domestic or foreign, required by law
                          or regulation to be withheld with respect to any taxable event arising as a result. Unless the Stock
                          Incentive Agreement provides otherwise, the Participant may satisfy such tax obligation by: 

 
	 

 	 

 	 

 
	 

 	(a)

 	electing to have the Company withhold a portion of the
                Shares otherwise to be delivered upon such exercise, satisfaction of conditions or lapse of restriction with a
                Fair Market Value equal to the amount of such taxes, provided that the maximum amount shall not exceed the amount
                of the minimum required withholding; and 

 
	 

 	 

 	 

 
	 

 	(b)

 	delivering to the Company Shares other than Shares issuable
                upon such exercise, satisfaction of conditions or lapse of restrictions with a Fair Market Value equal to the
                amount of such taxes. 

 
	 

 	 

 	 

 
	 

 	Notwithstanding the foregoing, with respect
                          to any Participant who is an Insider, a withholding or tender of Shares shall be a subsequent transaction
                          approved as part of the Stock Incentive for purposes of the exemption under Rule 16b-3 of the Exchange
                          Act.

 
	 

 	 

 	 

 
	9.7

 	NOTIFICATION OF DISQUALIFYING DISPOSITIONS
                          OF AN ISO. If a Participant sells or otherwise disposes of any of the Shares acquired pursuant to an
                          ISO on or before the later of: (a) the date two (2) years after the date of grant of such ISO; or (b)
                          the date one (1) year after the exercise of such ISO, then the Participant shall immediately notify
                          the Company in writing of such sale or disposition and shall cooperate with the Company in providing
                          sufficient information to the Company for the Company to properly report such sale or disposition to
                          the Internal Revenue Service. The Participant acknowledges and agrees that he or she may be subject
                          to federal, state and/or local tax withholding by the Company on the compensation income recognized
                          by Participant from any such early disposition, and agrees that he or she shall include the compensation
                          from such early disposition in his gross income for federal tax purposes. The Company may condition
                          the exercise of any ISO on the Participant’s express written agreement with these provisions of
                          this Plan.

 

SECTION 10

STOCK INCENTIVES TO PARTICIPANTS OUTSIDE THE US 

The Committee shall have the authority to require that any Stock Incentive
Agreement relating to a Stock Incentive in a jurisdiction outside of the United States contain such terms as are required by local
law in order to constitute a valid grant under the laws of such jurisdiction. Such authority shall be notwithstanding the fact
that the requirements of the local jurisdiction may be different from or more or less restrictive than the terms set forth in
this Plan. No purchase or delivery of Shares pursuant to a Stock Incentive to a Participant outside the United States shall occur
until applicable restrictions imposed pursuant to this Plan (as modified as provided in this Section 10) or the applicable Stock
Incentive have terminated. 

SECTION 11 

CHANGE IN CONTROL OF THE COMPANY

	 

 	 

 
	11.1

 	CHANGE IN CONTROL. “Change in Control” of the
                Company means an event that would be required to be reported in response to Item 6(e) on Schedule 14A of Regulation
                14A promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement,
                including, without limitation, if: 

 

- 18 -

	 

 	 

 	 

 	 

 
	 

 	(a)

 	Any “person” (as such term is used
                          in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities
                          under an employee benefit plan of the Company or other than a Subsidiary of the Company, becomes a “beneficial
                          owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
                          of the Company representing 30% or more of the combined voting power of the Company’s then outstanding
                          securities; or 

 
	 

 	 

 	 

 	 

 
	 

 	(b)

 	During any period of two consecutive years
                          (not including any period ending prior to the effective date of this Plan), the Incumbent Directors
                          cease for any reason to constitute at least a majority of the Board. The term “Incumbent Directors”
                          shall mean those individuals who are members of the Board of Directors on the effective date of this
                          Plan and any individual who subsequently becomes a member of the Board (other than a director designated
                          by a person who has entered into agreement with the Company to effect a transaction contemplated by
                          Section 11.1(c)) whose election or nomination for election by the Company’s shareholders was approved
                          by a vote of at least a majority of the then Incumbent Directors; or 

 
	 

 	 

 	 

 	 

 
	 

 	(c)

 	In the event: 

 
	 

 	 

 	 

 	 

 
	 

 	 

 	(i)

 	the Company consummates a merger, consolidation, share
                exchange, division or other reorganization of the Company with any corporation or entity, other than an entity
                owned at least 80% by the Company, unless immediately after such transaction, the shareholders of the Company
                immediately prior to such transaction beneficially own, directly or indirectly 51% or more of the combined voting
                power of resulting entity’s outstanding voting securities as well as 51% or more of the Total Market Value
                of the resulting entity, or in the case of a division, 51% or more of the combined voting power of the outstanding
                voting securities of each entity resulting from the division as well as 51% or more of the Total Market Value
                of each such entity, in each case in substantially the same proportion as such shareholders owned shares of the
                Company prior to such transaction; 

 
	 

 	 

 	 

 	 

 
	 

 	 

 	(ii)

 	the Company consummates an agreement for the sale or
                disposition (in one transaction or a series of transactions) of assets of the Company, the total consideration
                of which is greater than 51% of the Total Market Value of the Company; or 

 
	 

 	 

 	 

 	 

 
	 

 	 

 	(iii)

 	the Company adopts a plan of complete liquidation or
                winding up of the Company. 

 
	 

 	 

 	 

 	 

 
	 

 	(d)

 	“Total Market Value” shall mean the
                          aggregate market value of the Company’s or the resulting entity’s outstanding common stock
                          (on a fully diluted basis) plus the aggregate market value of the Company’s or the resulting entity’s
                          other outstanding equity securities as measured by the exchange rate of the transaction or by such other
                          method as the Committee determines where there is not a readily ascertainable exchange rate. 

 
	 

 	 

 	 

 	 

 
	11.2

 	VESTING UPON A CHANGE IN CONTROL. Except as
                          otherwise provided in a Stock Incentive Agreement or as provided in the next sentence, if a Change in
                          Control occurs, and if the agreements effectuating the Change in Control do not provide for the assumption
                          or substitution of all Stock Incentives granted under this Plan, with respect to

 

- 19 -

	 

 	 

 	 

 	 

 	 

 
	 

 	any Stock Incentive granted under this Plan
                          that is not so assumed or substituted (a “Non-Assumed Stock Incentive”), such Stock Incentive
                          shall immediately vest and be exercisable and any restrictions thereon shall lapse. Notwithstanding
                          the foregoing, unless the Committee determines at or prior to the Change in Control, no Stock Incentive
                          that is subject to any performance criteria for which the performance period has not expired, shall
                          accelerate at the time of a Change in Control.

 
	 

 	 

 	 

 	 

 	 

 
	11.3

 	DISPOSITION OF STOCK INCENTIVES. Except as
                          otherwise provided in a Stock Incentive Agreement, the Committee, in its sole and absolute discretion,
                          may, with respect to any or all of such Non-Assumed Stock Incentives, take any or all of the following
                          actions to be effective as of the date of the Change in Control (or as of any other date fixed by the
                          Committee occurring within the thirty (30) day period immediately preceding the date of the Change in
                          Control, but only if such action remains contingent upon the effectuation of the Change in Control)
                          (such date referred to as the “Action Effective Date”):

 
	 

 	 

 	 

 	 

 	 

 
	 

 	(a)

 	Unilaterally cancel such Non-Assumed Stock
                          Incentive in exchange for:

 
	 

 	 

 	 

 	 

 	 

 
	 

 	 

 	(i)

 	whole and/or fractional Shares (or whole Shares
                          and cash in lieu of any fractional Share) or whole and/or fractional shares of a successor (or for whole
                          shares of a successor and cash in lieu of any fractional share) that, in the aggregate, are equal in
                          value to the excess of:

 
	 

 	 

 	 

 	 

 	 

 
	 

 	 

 	 

 	(A)

 	in the case of Options, the Shares that could be purchased
                subject to such Non-Assumed Stock Incentive less the aggregate Exercise Price for the Options with respect to
                such Shares; and 

 
	 

 	 

 	 

 	 

 	 

 
	 

 	 

 	 

 	(B)

 	in the case of Restricted Stock, Restricted Stock Units,
                Stock Appreciation Rights, Performance Stock, Performance Units and Other Awards, Shares subject to such Stock
                Incentive determined as of the Action Effective Date (taking into account vesting), less the value of any consideration
                payable on exercise. 

 
	 

 	 

 	 

 	 

 	 

 
	 

 	 

 	(ii)

 	cash or other property equal in value to the
                          excess of:

 
	 

 	 

 	 

 	 

 	 

 
	 

 	 

 	 

 	(A)

 	in the case of Options, the Shares that could be purchased
                subject to such Non-Assumed Stock Incentive less the aggregate Exercise Price for the Options with respect to
                such Shares; and 

 
	 

 	 

 	 

 	 

 	 

 
	 

 	 

 	 

 	(B)

 	in the case of Restricted Stock, Restricted Stock Units,
                Stock Appreciation Rights, Performance Stock, Performance Units and Other Awards, Shares subject to such Stock
                Incentive determined as of the Action Effective Date (taking into account vesting) less the value of any consideration
                payable on exercise. 

 
	 

 	 

 	 

 	 

 	 

 
	 

 	 

 	In the event the Exercise Price or consideration
                          payable on exercise is equal to or greater than the Shares, cash or other property payable as provided
                          in paragraphs (i) and (ii) above, then such Options and other Stock Incentives shall be automatically
                          cancelled without payment of any consideration therefor.

 
	 

 	 

 	 

 	 

 	 

 
	 

 	(b)

 	In the case of Options, unilaterally cancel
                          such Non-Assumed Option after providing the holder of such Option with: (i) an opportunity to exercise
                          such Non-Assumed Option to the extent vested within a specified period prior to the date of the Change
                          in Control; and (ii) notice of such opportunity to exercise prior to the

 

- 20 -

	 

 	 

 	 

 
	 

 	 

 	commencement of such specified period. However, notwithstanding
                the foregoing, to the extent that the recipient of a Non-Assumed Stock Incentive is an Insider, payment of cash
                in lieu of whole or fractional Shares or shares of a successor may only be made to the extent that such payment:
                (A) has met the requirements of an exemption under Rule 16b-3 promulgated under the Exchange Act; or (B) is a
                subsequent transaction the terms of which were provided for in a transaction initially meeting the requirements
                of an exemption under Rule 16b-3 promulgated under the Exchange Act. Unless a Stock Incentive Agreement provides
                otherwise, the payment of cash in lieu of whole or fractional Shares or in lieu of whole or fractional shares
                of a successor shall be considered a subsequent transaction approved by the original grant of the Option. 

 
	 

 	 

 	 

 
	11.4

 	GENERAL RULE FOR OTHER STOCK INCENTIVES. If
                          a Change in Control occurs, then, except to the extent otherwise provided in the Stock Incentive Agreement
                          pertaining to a particular Stock Incentive or as otherwise provided in this Plan, each Stock Incentive
                          shall be governed by applicable law and the documents effectuating the Change in Control. 

 

SECTION 12

AMENDMENT OR TERMINATION 

	 

 	 

 	 

 
	12.1

 	AMENDMENT OF PLAN. This Plan may be amended
                          by the Committee from time to time to the extent that the Committee deems necessary or appropriate;
                          provided, however, no such amendment shall be made without the approval of the shareholders of the Company
                          if such amendment: 

 
	 

 	 

 	 

 
	 

 	(a)

 	increases the number of Shares reserved under Section
                3, except as set forth in Section 3.4; 

 
	 

 	 

 	 

 
	 

 	(b)

 	extends the maximum life of the Plan under Section 4
                or the maximum exercise period under Section 7; 

 
	 

 	 

 	 

 
	 

 	(c)

 	decreases the minimum Exercise Price under Section 7;
                

 
	 

 	 

 	 

 
	 

 	(d)

 	changes the designation of Participant eligible for Stock
                Incentives under Section 6; or 

 
	 

 	 

 	 

 
	 

 	(e)

 	would cause the Plan to no longer comply with Rule 16b-3
                of the Exchange Act, Section 422 of the Code. 

 
	 

 	 

 	 

 
	 

 	Shareholder approval of other material amendments
                          (such as an expansion of the types of awards available under the Plan, an extension of the term of the
                          Plan, or a change to the method of determining the Exercise Price of Options issued under the Plan)
                          may also be required pursuant to rules promulgated by an established stock exchange or a national market
                          system. 

 
	 

 	 

 	 

 
	12.2

 	TERMINATION OF PLAN. The Board also may suspend
                          the granting of Stock Incentives under this Plan at any time and may terminate this Plan at any time.
                          

 
	 

 	 

 	 

 
	12.3

 	AMENDMENT OF STOCK INCENTIVES. The Committee
                          shall have the right to modify, amend or cancel any Stock Incentive after it has been granted if: 

 

- 21 -

	 

 	 

 
	(a)

 	the modification, amendment or cancellation does not
                diminish the rights or benefits of the Participant under the Stock Incentive (provided, however, that a modification,
                amendment or cancellation that results solely in a change in the tax consequences with respect to a Stock Incentive
                shall not be deemed as a diminishment of rights or benefits of such Stock Incentive); 

 
	 

 	 

 
	(b)

 	the Participant consents in writing to such modification,
                amendment or cancellation; 

 
	 

 	 

 
	(c)

 	there is a dissolution or liquidation of the Company;
                

 
	 

 	 

 
	(d)

 	this Plan and/or the Stock Incentive Agreement expressly
                provides for such modification, amendment or cancellation; or 

 
	 

 	 

 
	(e)

 	the Company would otherwise have the right to make such
                modification, amendment or cancellation by applicable law. 

 
	 

 	 

 
	Notwithstanding the forgoing, the Committee
                          may reform any provision in a Stock Incentive extended to be exempt from Section 409A of the Code to
                          maintain to maximum extent practicable the original intent of the applicable provision without violating
                          the provisions of Section 409A of the Code; provided, however, that if no reasonably practicable reformation
                          would avoid the imposition of any penalty tax or interest under Section 409A of the Code, no payment
                          or benefit will be provided under the Stock Incentive and the Stock Incentive will be deemed null, void
                          and of no force and effect, and the Company shall have no further obligation in connection with such
                          Stock Incentive. 

 

SECTION 13

MISCELLANEOUS

	 

 	 

 
	13.1

 	SHAREHOLDER RIGHTS. Except as provided in Section 7.
                3 with respect to Restricted Stock, or in a Stock Incentive Agreement, no Participant shall have any rights as
                a shareholder of the Company as a result of the grant of a Stock Incentive pending the actual delivery of Shares
                subject to such Stock Incentive to such Participant. 

 
	 

 	 

 
	13.2

 	NO GUARANTEE OF CONTINUED RELATIONSHIP. The grant of
                a Stock Incentive to a Participant under this Plan shall not constitute a contract of employment or other relationship
                with the Company and shall not confer on a Participant any rights upon his or her termination of employment or
                relationship with the Company in addition to those rights, if any, expressly set forth in the Stock Incentive
                Agreement that evidences his or her Stock Incentive. 

 
	 

 	 

 
	13.3

 	TRANSFERS & RESTRUCTURINGS. The transfer of a Participant’s
                employment between or among the Company or a Subsidiary (including the merger of a Subsidiary into the Company)
                shall not be treated as a termination of his or her Service under this Plan. Likewise, the continuation of Service
                by a Participant with a corporation that is a Subsidiary shall be deemed to be a termination of Service when such
                corporation ceases to be a Subsidiary. 

 
	 

 	 

 
	13.4

 	LEAVES OF ABSENCE. Unless the Committee provides otherwise,
                vesting of Stock Incentives granted hereunder will be suspended during any unpaid leave of absence. A Participant
                will not cease to be in the Service of the Company in the case of any leave of absence approved by the Company.
                With respect to any ISOs, no such leave may exceed 90 days unless reemployment upon expiration of such leave is
                guaranteed by 

 

- 22 -

	 

 	 

 	 

 
	 

 	statute or contract and if reemployment upon
                          expiration of a leave of absence is not so guaranteed, then three (3) months following the 91st day
                          of such leave any ISO held by the Participant will cease to be treated as an ISO and if exercised thereafter
                          will be treated for tax purposes as a NQSO.

 
	 

 	 

 	 

 
	13.5

 	GOVERNING LAW/CONSENT TO JURISDICTION. This
                          Plan shall be construed under the laws of the State of Minnesota without regard to principles of conflicts
                          of law. Each Participant consents to the exclusive jurisdiction in the United States District Court
                          for the District of Minnesota for the determination of all disputes arising from this Plan and waives
                          any rights to remove or transfer the case to another court. 

 
	 

 	 

 	 

 
	13.6

 	ESCROW OF SHARES. To facilitate the Company’s
                          rights and obligations under this Plan, the Company reserves the right to appoint an escrow agent, who
                          shall hold the Shares owned by a Participant pursuant to this Plan. 

 
	 

 	 

 	 

 
	13.7

 	NO FRACTIONAL SHARES. No fractional Shares
                          shall be issued or delivered pursuant to the Plan or any Stock Incentive, and the Committee shall determine
                          whether cash shall be paid in lieu of any fractional Share or whether such Shares shall be cancelled
                          or otherwise eliminated. 

 
	 

 	 

 	 

 
	13.8

 	FORFEITURE AND RECOUPMENT. Without limiting
                          in any way the generality of the Committee’s power to specify any terms and conditions of an Award
                          consistent with law, and for greater clarity, the Committee may specify in an Stock Incentive Agreement
                          that the Participant’s rights, payments, and benefits with respect to a Stock Incentive, including
                          any payment or Shares received upon exercise or in satisfaction of the Stock Incentive under this Plan
                          shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain
                          specified events, in addition to any otherwise applicable vesting or performance conditions, without
                          limit as to time. Such events shall include, but shall not be limited to, failure to accept the terms
                          of the Stock Incentive Agreement, termination of Service under certain or all circumstances, violation
                          of material Company policies, misstatement of financial or other material information about the Company,
                          fraud, misconduct, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate
                          property protection, or other agreement that may apply to the Participant, or other conduct by the Participant
                          that the Committee determines is detrimental to the business or reputation of the Company and its Subsidiaries,
                          including facts and circumstances discovered after termination of Service. 

 
	 

 	 

 	 

 
	 

 	(a)

 	The Company shall require the chief executive officer
                and chief financial officer of the Company to disgorge bonuses, other incentive- or equity-based compensation,
                and profits on the sale of Shares received within the 12-month period following the public release of financial
                information if there is a restatement of such financial information because of material noncompliance, due to
                misconduct, with financial reporting requirements under the federal securities laws. In no event shall the amount
                to be recovered by the Company be less than the amount required to be repaid or recovered as a matter of law.
                The operation of this subsection (a) shall be in accordance with the provisions of Section 302 of Sarbanes-Oxley
                Act and any applicable guidance. 

 
	 

 	 

 	 

 
	 

 	(b)

 	The Company shall require each current and former executive
                officer to disgorge bonuses, other incentive- or equity-based compensation received within 36-month period prior
                to the public release of the restatement of financial information due to material noncompliance with the financial
                reporting requirements under the federal securities laws. The amount to be recovered shall be the percentage 

 

- 23 -

	 

 	 

 	 

 
	 

 	 

 	of incentive compensation, including equity awards, in
                excess of what would have been paid without the restated results. The operation of this subsection (b) shall be
                in accordance with the provisions of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection
                Act and any applicable guidance.

 
	 

 	 

 	 

 
	 

 	(c)

 	The Committee shall determine, as late as the time of
                the recoupment, regardless of whether such method is stated in the Stock Incentive Agreement, whether the Company
                shall effect any such recoupment: (i) by seeking repayment from the Participant; (ii) by reducing (subject to
                applicable law and the terms and conditions of the applicable plan, program or arrangement) the amount that would
                otherwise be payable to the Participant under any compensatory plan, program or arrangement maintained by the
                Company or any of its affiliates; (iii) by withholding payment of future increases in compensation (including
                the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been
                made in accordance with the Company’s otherwise applicable compensation practices; (iv) by a holdback or
                escrow (before or after taxation) of part or all of the Shares, payment or property received upon exercise or
                satisfaction of the Stock Incentive; or (v) by any combination of the foregoing. 

 
	 

 	 

 	 

 
	13.9

 	SEVERABILITY. If any provision of the Plan
                          or any Stock Incentive is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
                          or would disqualify the Plan or any Stock Incentive under any law deemed applicable by the Committee,
                          such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be
                          so construed or deemed amended without, in the determination of the Committee, materially altering the
                          purpose or intent of the Plan or the Stock Incentive, such provision shall be stricken as to such jurisdiction
                          or as to such Stock Incentive, and the remainder of the Plan or any such Stock Incentive shall remain
                          in full force and effect. 

 
	 

 	 

 	 

 
	13.10

 	NO TRUST OR FUND CREATED. Neither the Plan
                          nor any Stock Incentive shall create or be construed to create a trust or separate fund of any kind
                          or a fiduciary relationship between the Company or any Subsidiary and a Participant. To the extent that
                          any Paticipant acquires a right to receive payments from the Company or any Subsidiary pursuant to a
                          Stock Incentive, such right shall be no greater than the right of any unsecured general creditor of
                          the Company or any Subsidiary.

 

- 24 -

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