Document:

C2, INC.

                           1998 EQUITY INCENTIVE PLAN

Section 1. Purpose

     The purpose of the C2, Inc. 1998 Equity Incentive Plan, as amended (the
"Plan"), is to promote the best interests of C2, Inc. (the "Company") and its
shareholders by providing key employees of the Company and its Affiliates (as
defined below) and members of the Company's Board of Directors who are not
employees of the Company with an opportunity to acquire a, or increase their,
proprietary interest in the Company. It is intended that the Plan will promote
continuity of management and increased incentive and personal interest in the
welfare of the Company by those key employees who are primarily responsible for
shaping and carrying out the long-range plans of the Company and securing the
Company's continued growth and financial success. Also, by encouraging stock
ownership by non-employee directors, the Company seeks to attract and retain on
its Board of Directors persons of exceptional competence and to furnish an added
incentive for them to continue their association with the Company. It is
intended that certain of the options issued pursuant to the Plan will constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code ("Incentive Stock Options") and the remainder of the options issued
under the Plan will constitute non-qualified stock options.

Section 2. Definitions

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

     (a) "Affiliate" shall mean any entity that, directly or through one or more
intermediaries, is controlled by, controls, or is under common control with, the
Company, including without limitation, all current or future subsidiaries of the
Company.

     (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock or Performance Share granted under the Plan.

     (c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.

     (d) "Change in Control" will be deemed to have occurred if: (i) any entity
not affiliated with the Company is or becomes the beneficial owner of securities
of the Company representing at least 25% of the combined voting power of the
Company's then outstanding securities; (ii) there is consummated any business
combination of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's capital stock
would be converted into cash, securities or other property, other than a merger
of the Company in which the holders of the Company's capital stock immediately
prior to the merger have the same proportionate ownership of capital stock of
the surviving corporation immediately after the merger, or any sale, lease,
exchange or other

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transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the consolidated assets of the Company; or (iii) the
shareholders of the Company approve any plan for the liquidation or dissolution
of the Company.

     (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

     (f) "Commission" shall mean the Securities and Exchange Commission.

     (g) "Committee" shall mean the Compensation Committee of the Board of
Directors of the Company (or any other committee thereof designated by such
Board to administer the Plan); provided that the Committee shall be composed of
not less than two directors, each of whom is a "non-employee director" within
the meaning of Rule 16b-3 and an "outside director" within the meaning of
Section 162(m) of the Code.

     (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

     (i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee; provided, however, that the Fair
Market Value of a Share on a particular date shall not be less than the average
of the high and low sale prices per share for the Shares on the Nasdaq National
Market (or such other national stock exchange or market upon which Shares are
then listed or traded) on such date.

     (j) "Incentive Stock Option" shall mean an option granted under Section
5(b) of the Plan that is intended to meet the requirements of Section 422 of the
Code (or any successor provision thereto).

     (k) "Initial Director" shall mean each Non-Employee Director serving as a
director on March 4, 1999.

     (l) "Key Employee" shall mean any officer or other key employee of the
Company or of any Affiliate who is responsible for or contributes to the
management, growth or profitability of the business of the Company or any
Affiliate as determined by the Committee in its discretion.

     (m) "Non-Employee Directors" shall mean the then serving, elected or
appointed directors of the Company who are not employees of the Company.

     (n) "Non-Qualified Stock Option" shall mean an option granted under Section
5(b) and Section 6(b) of the Plan that is not intended to be an Incentive Stock
Option.

     (o) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.

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     (p) "Participating Key Employee" shall mean a Key Employee designated to be
granted an Award under the Plan.

     (q) "Performance Period" shall mean, in relation to Performance Shares, any
period for which a performance goal or goals have been established.

     (r) "Performance Share" shall mean any right granted under Section 5(e) of
the Plan that will be paid out as a Share (which, in specified circumstances,
may be a Share of Restricted Stock).

     (s) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization or
government or political subdivision thereof.

     (t) "Released Securities" shall mean Shares of Restricted Stock with
respect to which all applicable restrictions have expired, lapsed or been
waived.

     (u) "Restricted Securities" shall mean Awards of Restricted Stock or other
Awards under which issued and outstanding Shares are held subject to certain
restrictions.

     (v) "Restricted Stock" shall mean any Share granted under Section 5(d) of
the Plan or, in specified circumstances, a Share paid in connection with a
Performance Share under Section 5(e) of the Plan.

     (w) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission
under the Exchange Act, or any successor rule or regulation thereto.

     (x) "Shares" shall mean shares of common stock, $.01 par value, of the
Company and such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(b) of the Plan.

     (y) "Stock Appreciation Right" shall mean any right granted under Section
5(c) of the Plan.

Section 3. Administration

     The Plan shall be administered by the Committee; provided, however, that if
at any time the Committee shall not be in existence, the functions of the
Committee as specified in the Plan shall be exercised by those members of the
Board of Directors of the Company who qualify as "non-employee directors" under
Rule 16b-3 and who are "outside directors" within the meaning of Section 162(m)
of the Code. To the extent permitted by applicable law, the Committee may
delegate to one or more executive officers of the Company any or all of the
authority and responsibility of the Committee with respect to the Plan, other
than with respect to Persons who are subject to Section 16 of the Exchange Act.
Subject to the terms of the Plan and applicable laws and without limitation by
reason of enumeration, the Committee shall have full discretionary power and
authority to: (i) designate Participating Key Employees;

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(ii) determine the type or types of Awards to be granted to each Participating
Key Employee under the Plan; (iii) determine the number of Shares to be covered
by (or with respect to which payments, rights or other matters are to be
calculated in connection with) Awards granted to Participating Key Employees;
(iv) determine the terms and conditions of any Award granted to a Participating
Key Employee; (v) determine whether, to what extent and under what circumstances
Awards granted to Participating Key Employees may be settled or exercised in
cash, Shares, other securities, other Awards or other property, and the method
or methods by which Awards may be settled, exercised, canceled, forfeited or
suspended; (vi) determine whether, to what extent and under what circumstances
cash, Shares, other Awards and other amounts payable with respect to an Award
granted to Participating Key Employees under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan (including, without limitation, any Award
Agreement); (viii) establish, amend, suspend or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. Grants of options to Non-Employee Directors under
the Plan shall be automatic and the amount and the terms of such awards shall be
determined in accordance with Section 6 hereof. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time or from time to
time, and shall be final, conclusive and binding upon all Persons, including the
Company, any Affiliate, any Participating Key Employee, any Non-Employee
Director, any holder or beneficiary of any Award, any shareholder and any
employee of the Company or of any Affiliate.

Section 4. Shares Available for Award

     (a) Shares Available. Subject to adjustment as provided in Section 4(b):

          (i) Number of Shares Available. The number of Shares with respect to
     which Awards may be granted under the Plan shall be 620,000. If, after the
     effective date of the Plan, any Shares covered by an Award granted under
     the Plan, or to which any Award relates, are forfeited or if an Award
     otherwise terminates, expires or is cancelled prior to the delivery of all
     of the Shares or of other consideration issuable or payable pursuant to
     such Award, then the number of Shares counted against the number of Shares
     available under the Plan in connection with the grant of such Award, to the
     extent of any such forfeiture, termination, expiration or cancellation,
     shall again be available for granting of additional Awards under the Plan.

          (ii) Limitation on Awards of Restricted Stock. The aggregate number of
     Shares with respect to which Awards of Restricted Stock may be granted
     under the Plan to all Participating Key Employees and Non-Employee
     Directors as a group shall not exceed 150,000 Shares (provided that such
     number of Shares is subject

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     to adjustment in accordance with the terms of Section 4(b) hereof) of the
     total number of Shares available for Awards under Section 4(a)(i).

          (iii) Accounting for Awards. The number of Shares covered by an Award
     under the Plan, or to which such Award relates, shall be counted on the
     date of grant of such Award against the number of Shares available for
     granting Awards under the Plan.

          (iv) Sources of Shares Deliverable Under Awards. Any Shares delivered
     pursuant to an Award may consist, in whole or in part, of authorized and
     unissued Shares or of treasury Shares.

     (b) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee may, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of Shares subject
to the Plan and which thereafter may be made the subject of Awards under the
Plan; (ii) the number and type of Shares subject to outstanding Awards; and
(iii) the grant, purchase or exercise price with respect to any Award, or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that with respect to Awards
of Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b) of the Code
(or any successor provision thereto); and provided further that the number of
Shares subject to any Award payable or denominated in Shares shall always be a
whole number.

Section 5. Awards to Key Employees

     (a) Eligibility. Any Key Employee, including any executive officer or
employee-director of the Company or of any Affiliate, who is not a member of the
Committee shall be eligible to be designated a Participating Key Employee.

     (b) Option Awards to Key Employees. The Committee is hereby authorized to
grant Options to Key Employees with the terms and conditions as set forth below
and with such additional terms and conditions, in either case not inconsistent
with the provisions of the Plan, as the Committee shall determine in its
discretion.

          (i) Exercise Price. The exercise price per Share of an Option granted
     pursuant to this Section 5 shall be determined by the Committee; provided,
     however, that such exercise price shall not be less than 100% of the Fair
     Market Value of a Share on the date of grant of such Option.

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          (ii) Option Term. The term of each Option shall be fixed by the
     Committee; provided, however, that in no event shall the term of any Option
     exceed a period of ten years from the date of its grant.

          (iii) Exercisability and Method of Exercise. An Option shall become
     exercisable in such manner and within such period or periods and in such
     installments or otherwise as shall be determined by the Committee. The
     Committee also shall determine the method or methods by which, and the form
     or forms, including, without limitation, cash, Shares, other securities,
     other Awards, other property or any combination thereof, having a Fair
     Market Value on the exercise date equal to the relevant exercise price, in
     which payment of the exercise price with respect to any Option may be made
     or deemed to have been made.

          (iv) Incentive Stock Options. The terms of any Incentive Stock Option
     granted under the Plan shall comply in all respects with the provisions of
     Section 422 of the Code (or any successor provision thereto) and any
     regulations promulgated thereunder. Notwithstanding any provision in the
     Plan to the contrary, no Incentive Stock Option may be granted hereunder
     after the tenth anniversary of the adoption of the Plan by the Board of
     Directors of the Company.

     (c) Stock Appreciation Right Awards. The Committee is hereby authorized to
grant Stock Appreciation Rights to Key Employees. Subject to the terms of the
Plan and any applicable Award Agreement, a Stock Appreciation Right granted
under the Plan shall confer on the holder thereof a right to receive, upon
exercise thereof, the excess of (i) the Fair Market Value of one Share on the
date of exercise over (ii) the grant price of the Stock Appreciation Right as
specified by the Committee, which shall not be less than 100% of the Fair Market
Value of one Share on the date of grant of the Stock Appreciation Right. Subject
to the terms of the Plan, the grant price, term, methods of exercise, methods of
settlement (including whether the Participating Key Employee will be paid in
cash, Shares, other securities, other Awards, or other property or any
combination thereof), and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee in its discretion.
The Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate, including, without
limitation, restricting the time of exercise of the Stock Appreciation Right to
specified periods as may be necessary to satisfy the requirements of Rule 16b-3.

     (d) Restricted Stock Awards

          (i) Issuance. Subject to Section 4(a)(ii) hereof, the Committee is
     hereby authorized to grant Awards of Restricted Stock to Key Employees.

          (ii) Restrictions. Shares of Restricted Stock granted to Participating
     Key Employees shall be subject to such restrictions as the Committee may
     impose in its discretion (including, without limitation, any limitation on
     the right to vote a Share of Restricted Stock or the right to receive any
     dividend or other right or property), which

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     restrictions may lapse separately or in combination at such time or times,
     in such installments or otherwise, as the Committee may deem appropriate in
     its discretion.

          (iii) Registration. Any Restricted Stock granted under the Plan to a
     Participating Key Employee may be evidenced in such manner as the Committee
     may deem appropriate in its discretion, including, without limitation,
     book-entry registration or issuance of a stock certificate or certificates.
     In the event any stock certificate is issued in respect of Shares of
     Restricted Stock granted under the Plan to a Participating Key Employee,
     such certificate shall be registered in the name of the Participating Key
     Employee and shall bear an appropriate legend (as determined by the
     Committee) referring to the terms, conditions and restrictions applicable
     to such Restricted Stock.

          (iv) Payment of Restricted Stock. At the end of the applicable
     restriction period relating to Restricted Stock granted to a Participating
     Key Employee, one or more stock certificates for the appropriate number of
     Shares, free of restrictions imposed under the Plan, shall be delivered to
     the Participating Key Employee or, if the Participating Key Employee
     received stock certificates representing the Restricted Stock at the time
     of grant, the legends placed on such certificates shall be removed.

          (v) Forfeiture. Except as otherwise determined by the Committee in its
     discretion, upon termination of employment of a Participating Key Employee
     (as determined under criteria established by the Committee in its
     discretion) for any reason during the applicable restriction period, all
     Shares of Restricted Stock still subject to restriction shall be forfeited
     by the Participating Key Employee; provided, however, that the Committee
     may, when it finds that a waiver would be in the best interests of the
     Company, waive in whole or in part any or all remaining restrictions with
     respect to Shares of Restricted Stock held by a Participating Key Employee.

     (e) Performance Share Awards

          (i) Issuance. The Committee is hereby authorized to grant Awards of
     Performance Shares to Key Employees.

          (ii) Performance Goals and Other Terms. The Committee shall determine
     in its discretion, the Performance Period, the performance goal or goals
     (and the performance level or levels related thereto) to be achieved during
     any performance period, the proportion of payments, if any, to be made for
     performance between the minimum and full performance levels for any
     performance goal and, if applicable, the relative percentage weighting
     given to each of the selected performance goals, the restrictions
     applicable to shares of restricted stock received upon payment of
     performance shares if payment is made in such manner, and any other terms,
     conditions and rights relating to the grant of performance shares. The
     Committee may select from various performance goals, including return on
     equity, return on investment, return on net assets, economic value added,
     earnings from operations, pre-tax profits, net earnings, net earnings per
     share, working capital as a percent of net sales, net cash provided by
     operating activities, market price for the Common Stock and total

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     shareholder return. In conjunction with selecting the applicable
     performance goal or goals, the Committee will also fix the relevant
     performance level or levels (e.g., a 15% return on equity) which must be
     achieved with respect to the goal or goals in order for the performance
     shares to be earned by the key employee.

          (iii) Rights and Benefits During the Performance Period. The Committee
     may provide that, during a Performance Period, a Participating Key Employee
     shall be paid cash amounts, with respect to each Performance Share held by
     such Participating Key Employee, in the same manner, at the same time, and
     in the same amount paid, as a cash dividend on a Share. Participating Key
     Employees shall have no voting rights with respect to Performance Shares
     held by them.

          (iv) Adjustments with Respect to Performance Shares. Any other
     provision of the Plan to the contrary notwithstanding, the Committee may in
     its discretion at any time or from time to time adjust performance goals
     (up or down) and minimum or full performance levels (and any intermediate
     levels and proportion of payments related thereto), adjust the manner in
     which performance goals are measured, or shorten any Performance Period or
     waive in whole or in part any or all remaining restrictions with respect to
     Shares of Restricted Stock issued in payment of Performance Shares, if the
     Committee determines that conditions, including but not limited to, changes
     in the economy, changes in competitive conditions, changes in laws or
     governmental regulations, changes in generally accepted accounting
     principles, changes in the Company's accounting policies, acquisitions or
     dispositions by the Company or its Affiliates, or the occurrence of other
     unusual, unforeseen or extraordinary events, so warrant.

          (v) Payment of Performance Shares. As soon as is reasonably
     practicable following the end of the applicable Performance Period, one or
     more certificates representing the number of Shares equal to the number of
     Performance Shares payable shall be registered in the name of and delivered
     to the Participating Key Employee; provided, however, that any Shares of
     Restricted Stock payable in connection with Performance Shares shall,
     pending the expiration, lapse, or waiver of the applicable restrictions, be
     evidenced in the manner as set forth in Section 5(d)(iii) hereof.

     (f) General

          (i) No Consideration for Awards. Awards shall be granted to
     Participating Key Employees for no cash consideration unless otherwise
     determined by the Committee.

          (ii) Award Agreements. Each Award granted under the Plan shall be
     evidenced by an Award Agreement in such form (consistent with the terms of
     the Plan) as shall have been approved by the Committee.

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          (iii) Awards May Be Granted Separately or Together. Awards to
     Participating Key Employees under the Plan may be granted either alone or
     in addition to, in tandem with, or in substitution for, any other Award or
     any award granted under any other plan of the Company or any Affiliate.
     Awards granted in addition to, or in tandem with, other Awards, or in
     addition to, or in tandem with, awards granted under any other plan of the
     Company or any Affiliate, may be granted either at the same time as or at a
     different time from the grant of such other Awards or awards.

          (iv) Forms of Payment Under Awards. Subject to the terms of the Plan
     and of any applicable Award Agreement, payments or transfers to be made by
     the Company or an Affiliate upon the grant, exercise or payment of an Award
     to a Participating Key Employee may be made in such form or forms as the
     Committee shall determine, and may be made in a single payment or transfer,
     in installments, or on a deferred basis, in each case in accordance with
     rules and procedures established by the Committee in its discretion. Such
     rules and procedures may include, without limitation, provisions for the
     payment or crediting of interest on installment or deferred payments.

          (v) Limits on Transfer of Awards. No Award (other than Released
     Securities), and no right under any such Award, shall be assignable,
     alienable, saleable or transferable by a Participating Key Employee
     otherwise than by will or by the laws of descent and distribution (or, in
     the case of an Award of Restricted Securities, to the Company); provided,
     however, that a Participating Key Employee at the discretion of the
     Committee may be entitled, in the manner established by the Committee, to
     designate a beneficiary or beneficiaries to exercise his or her rights, and
     to receive any property distributable, with respect to any Award upon the
     death of the Participating Key Employee. Each Award, and each right under
     any Award, shall be exercisable, during the lifetime of the Participating
     Key Employee only by such individual or, if permissible under applicable
     law, by such individual's guardian or legal representative. No Award (other
     than Released Securities), and no right under any such Award, may be
     pledged, alienated, attached or otherwise encumbered, and any purported
     pledge, alienation, attachment or encumbrance thereof shall be void and
     unenforceable against the Company or any Affiliate.

          (vi) Term of Awards. Except as otherwise provided in the Plan, the
     term of each Award shall be for such period as may be determined by the
     Committee.

          (vii) Rule 16b-3 Six-Month Limitations. To the extent required in
     order to comply with Rule 16b-3 only, any equity security offered pursuant
     to the Plan may not be sold for at least six months after acquisition,
     except in the case of death or disability, and any derivative security
     issued pursuant to the Plan shall not be exercisable for at least six
     months, except in case of death or disability of the holder thereof. Terms
     used in the preceding sentence shall, for the purposes of such sentence
     only, have the meanings, if any, assigned or attributed to them under Rule
     16b-3.

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          (viii) Share Certificates; Representation. In addition to the
     restrictions imposed pursuant to Section 5(c) and Section 5(d) hereof, all
     certificates for Shares delivered under the Plan pursuant to any Award or
     the exercise thereof shall be subject to such stop transfer orders and
     other restrictions as the Committee may deem advisable under the Plan or
     the rules, regulations and other requirements of the Commission, the Nasdaq
     National Market or any other stock exchange or other market upon which such
     Shares are then listed or traded, and any applicable federal or state
     securities laws, and the Committee may cause a legend or legends to be put
     on any such certificates to make appropriate reference to such
     restrictions. The Committee may require each Participating Key Employee or
     other Person who acquires Shares under the Plan by means of an Award
     originally made to a Participating Key Employee to represent to the Company
     in writing that such Participating Key Employee or other Person is
     acquiring the Shares without a view to the distribution thereof.

Section 6. Automatic Awards to Non-Employee Directors

     (a) Options to Non-Employee Directors. The Company shall automatically
grant Non-Qualified Stock Options to Non-Employee Directors on the terms and
conditions as set forth below:

          (i) Grant of Options. On March 4, 1999, each Initial Director shall be
     granted automatically Non-Qualified Stock Options to purchase 12,000
     Shares.

          (ii) Exercise Price. The exercise price per Share of an Option granted
     pursuant to this Section 6(b) shall be equal to the initial public offering
     price per Share (without deduction for underwriting discounts or
     commissions).

          (iii) Option Term. The term of each Option shall end on the sooner to
     occur of five years from the date of its grant or one year from the date
     the Non-Employee Director ceases to be a Non-Employee Director for any
     reason.

          (iv) Vesting. Each initial grant of Non-Qualified Stock Options to
     Non-Employee Directors hereunder (whether on March 4, 1999 or thereafter
     upon a Non-Employee Director's initial election or appointment to the
     Board) will vest ratably over an approximate five-year period; provided
     that, the Non-Employee Director continues to serve as a member of the Board
     of Directors at the end of each vesting period with respect to the
     increment then vesting. Notwithstanding the aforementioned vesting
     provisions, all outstanding Non-Qualified Stock Options granted to a
     Non-Employee Director under the Plan will vest immediately and in full upon
     a Change in Control or the death or disability of such Non-Employee
     Director, provided, that the Non-Employee Director continues to serve as a
     member of the Board of Directors on the date of such occurrence.

          (v) Exercisability and Method of Exercise. Non-Qualified Stock Options
     granted to Non-Employee Directors shall be exercisable during their term
     subject only to the vesting provisions above and the termination provisions
     below. The

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     Committee may determine the method or methods by which, and the form or
     forms, including, without limitation, cash, Shares, other securities, other
     property or any combination thereof, having a Fair Market Value on the
     exercise date equal to the relevant exercise price, in which payment of the
     exercise price with respect to any Non-Qualified Stock Option granted to a
     Non-Employee Director may be made or deemed to have been made.

          (vi) Termination of Options. Unexercised Non-Qualified Stock Options
     granted to Non-Employee Directors shall terminate on the earlier of: (i)
     five years after the date of grant or (ii) one year after the Non-Employee
     Director ceases to be a Non-Employee Director for any reason.

          (vii) Sunset of Automatic Option Grants. Notwithstanding anything in
     the Plan to the contrary, no Non-Qualified Stock Options shall be granted
     to Non-Employee Directors under this Section 6(a) after December 31, 2002.

     (b) Restricted Stock to Non-Employee Directors. Subject to Section 4(a)(ii)
hereof, the Company shall automatically grant Restricted Stock to Non-Employee
Directors on the terms and conditions as set forth below:

          (i) Annual Grant of Restricted Stock to Non-Employee Directors. Each
     Non-Employee Director (if he or she continues to serve in such capacity)
     shall, on the day of the annual meeting of shareholders in each year during
     the time the Plan is in effect, automatically be granted an Award of
     Restricted Stock in such number of Shares equal to the quotient (rounded to
     the nearest whole number) obtained by dividing (A) $25,000 by (B) the
     average of the closing prices per Share on the Nasdaq National Market (or
     such other national stock exchange or market upon which Shares are then
     listed or traded) during the twenty (20) trading day period immediately
     preceding the date of the annual meeting.

          (ii) Restrictions. Shares of Restricted Stock granted to Non-Employee
     Directors pursuant to Section 6(b)(i) shall be subject to such restrictions
     as the Committee may impose in its discretion (including, without
     limitation, any limitation on the right to vote a Share of Restricted Stock
     or the right to receive any dividend or other right or property), which
     restrictions shall lapse on the earlier to occur of: (a) the fifth
     anniversary of the date on which the Restricted Stock is granted to a
     Non-Employee Director, (b) the death of the Non-Employee Director, (c) the
     disability or other medical hardship of the Non-Employee Director, as
     determined by the Board of Directors, or (d) the occurrence of a Change in
     Control.

          (iii) Registration. Any Restricted Stock granted under the Plan to a
     Non-Employee Director may be evidenced in such manner as the Committee may
     deem appropriate in its discretion, including, without limitation,
     book-entry registration or issuance of a stock certificate or certificates.
     In the event any stock certificate is issued in respect of Shares of
     Restricted Stock granted under the Plan to a Non-Employee Director, such
     certificate shall be registered in the name of the Non-Employee Director

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     and shall bear an appropriate legend (as determined by the Committee)
     referring to the terms, conditions and restrictions applicable to such
     Restricted Stock.

          (iv) Payment of Restricted Stock. At the end of the applicable
     restriction period relating to Restricted Stock granted to a Non-Employee
     Director, one or more stock certificates for the appropriate number of
     Shares, free of restrictions imposed under the Plan, shall be delivered to
     the Non-Employee Director or, if the Non-Employee Director received stock
     certificates representing the Restricted Stock at the time of grant, the
     legends placed on such certificates shall be removed.

          (v) Forfeiture. If a Non-Employee Director fails to continue to serve
     in the capacity of a Non-Employee Director for any reason during the
     applicable restriction period of any Award of Restricted Stock granted
     pursuant to Section 6(b)(i), all Shares of Restricted Stock still subject
     to restriction shall be forfeited by the Non-Employee Director, except in
     the event that a Non-Employee Director's failure to continue to serve in
     such capacity results from (a) the death of the Non-Employee Director, (b)
     the disability or other medical hardship of the Non-Employee Director, as
     determined by the Board of Directors, or (c) the occurrence of a Change in
     Control, in any such case all restrictions on Restricted Stock granted to
     such Non-Employee Directors pursuant to Section 6(b)(i) shall lapse in
     accordance with Section 6(b)(ii).

     (c) General

          (i) No Consideration for Granting Options. Non-Qualified Stock Options
     and Restricted Stock shall be granted to Non-Employee Directors for no cash
     consideration unless otherwise determined by the Committee.

          (ii) Agreements. Awards of Options and Restricted Stock granted
     Non-Employee Directors under Section 6 of the Plan shall be evidenced by
     agreements in such form (consistent with the terms of the Plan) as shall
     have been approved by the Committee.

          (iii) Limits on Transfer of Options. No Non-Qualified Stock Options or
     Restricted Stock granted under Section 6 and no right under any such Option
     or Restricted Stock shall be assignable, alienable, saleable or
     transferable by a Non-Employee Director otherwise than by will or by the
     laws of descent and distribution; provided, however, that a Non-Employee
     Director at the discretion of the Committee may be entitled, in the manner
     established by the Committee, to designate a beneficiary or beneficiaries
     to exercise his or her rights, and to receive any property distributable,
     with respect to any Option or Restricted Stock upon the death of the
     Non-Employee Director. Failing any designation, the Non-Employee Director's
     personal representative may exercise such rights and receive such property.
     Each Non-Qualified Stock Option granted under Section 6(a) hereof, and each
     right under any such Option, shall be exercisable, during the lifetime of
     the Non-Employee Director, only by such individual or, if permissible under
     applicable law, by such individual's guardian or legal representative. No
     Non-Qualified Stock Option or Restricted Stock granted under

                                      -12-
<PAGE>

     Section 6 hereof, and no right under any such Option or Restricted Stock,
     may be pledged, alienated, attached or otherwise encumbered, and any
     purported pledge, alienation, attachment or encumbrance thereof shall be
     void and unenforceable against the Company or any Affiliate.

          (iv) Rule 16b-3 Six-Month Limitations. To the extent required in order
     to comply with Rule 16b-3 only, any Shares issued to a Non-Employee
     Director pursuant to the Plan may not be sold for at least six months after
     acquisition, except in the case of death or disability, and any Option
     issued to a Non-Employee Director pursuant to the Plan shall not be
     exercisable for at least six months, except in case of death or disability
     of the holder thereof. Terms used in the preceding sentence shall, for the
     purposes of such sentence only, have the meanings, if any, assigned or
     attributed to them under Rule 16b-3.

          (v) Share Certificates; Representation. All certificates for Shares
     delivered to a Non-Employee Director under the Plan pursuant to the
     exercise of an Option or an Award of Restricted Stock granted thereto shall
     be subject to such stop transfer orders and other restrictions as the
     Committee may deem advisable under the Plan or the rules, regulations and
     other requirements of the Commission, the Nasdaq National Market or any
     other stock exchange or other market upon which such Shares are then listed
     or traded, and any applicable federal or state securities laws, and the
     Committee may cause a legend or legends to be put on any such certificates
     to make appropriate reference to such restrictions. The Committee may
     require any Non-Employee Director who acquires Shares by exercising an
     Option or an Award of Restricted Stock granted under the Plan to represent
     to the Company in writing that such Non-Employee Director is acquiring the
     Shares without a view to the distribution thereof.

Section 7. Amendment and Termination of the Plan; Correction of Defects and
           Omissions

     (a) Amendments to and Termination of the Plan. The Board of Directors of
the Company may at any time amend, alter, suspend, discontinue or terminate the
Plan; provided, however, that shareholder approval of any amendment of the Plan
shall also be obtained if otherwise required by: (i) the rules and/or
regulations promulgated under Section 16 of the Exchange Act (in order for the
Plan to remain qualified under Rule 16b-3); (ii) the Code or any rules
promulgated thereunder (in order to allow for Incentive Stock Options to be
granted under the Plan); or (iii) the listing requirements of the Nasdaq
National Market or any other principal securities exchange or market on which
the Shares are then traded (in order to maintain the listing of the Shares
thereon). Termination of the Plan shall not affect the rights of Participating
Key Employees or Non-Employee Directors with respect to Awards previously
granted to them, and all unexpired Awards shall continue in force and effect
after termination of the Plan except as they may lapse or be terminated by their
own terms and conditions.

                                      -13-
<PAGE>

     (b) Correction of Defects, Omissions and Inconsistencies. The Committee may
in its discretion correct any defect, supply any omission or reconcile any
inconsistency in any Award or Award Agreement in the manner and to the extent it
shall deem desirable to carry the Plan into effect.

Section 8. General Provisions

     (a) No Rights to Awards. No Key Employee, Participating Key Employee,
Non-Employee Director or other Person shall have any claim to be granted any
Award under the Plan, and there is no obligation for uniformity of treatment of
Key Employees, Participating Key Employees or holders or beneficiaries of Awards
under the Plan. The terms and conditions of Awards need not be the same with
respect to each Participating Key Employee.

     (b) Withholding. No later than the date as of which an amount first becomes
includable in the gross income of a Participating Key Employee for federal
income tax purposes with respect to any Award under the Plan, the Participating
Key Employee shall pay to the Company, or make arrangements satisfactory to the
Company regarding the payment of, any federal, state, local or foreign taxes of
any kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Committee, withholding obligations arising with
respect to Awards to Participating Key Employees under the Plan may be settled
with Shares previously owned by the Participating Key Employee; provided,
however, that the Participating Key Employee may not settle such obligations
with Shares that are part of, or are received upon exercise of, the Award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements, and the Company
and any Affiliate shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participating Key
Employee. The Committee may establish such procedures as it deems appropriate
for the settling of withholding obligations with Shares, including, without
limitation, the establishment of such procedures as may be necessary to satisfy
the requirements of Rule 16b-3.

     (c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.

     (d) Rights and Status of Recipients of Awards. The grant of an Award shall
not be construed as giving a Participating Key Employee the right to be retained
in the employ of the Company or any Affiliate. Further, the Company or any
Affiliate may at any time dismiss a Participating Key Employee from employment,
free from any liability, or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement. Except for rights accorded under
the Plan and under any applicable Award Agreement, Participating Key Employees
shall have no rights as holders of Shares as a result of the granting of Awards
hereunder.

                                      -14-
<PAGE>

     (e) Unfunded Status of the Plan. Unless otherwise determined by the
Committee, the Plan shall be unfunded and shall not create (or be construed to
create) a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company or the Committee and any
Participating Key Employee, Non-Employee Director or other Person. To the extent
any Person holds any right by virtue of a grant under the Plan, such right
(unless otherwise determined by the Committee) shall be no greater than the
right of an unsecured general creditor of the Company.

     (f) Governing Law. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the internal laws of the State of Wisconsin and applicable federal law.

     (g) Severability. If any provision of the Plan or any Award Agreement or
any Award is or becomes or is deemed to be invalid, illegal or unenforceable in
any jurisdiction, or as to any Person or Award, or would disqualify the Plan,
any Award Agreement or any Award 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 intent of the Plan,
any Award Agreement or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award, and the remainder of the Plan, any such Award
Agreement and any such Award shall remain in full force and effect.

     (h) No Fractional Shares. No fractional Shares or other securities shall be
issued or delivered pursuant to the Plan, any Award Agreement or any Award, and
the Committee shall determine (except as otherwise provided in the Plan) whether
cash, other securities or other property shall be paid or transferred in lieu of
any fractional Shares or other securities, or whether such fractional Shares or
other securities or any rights thereto shall be canceled, terminated or
otherwise eliminated.

     (i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

Section 9. Effective Date of the Plan

     The Plan shall be effective on March 4, 1999, and all Awards granted under
the Plan prior to the date of effectiveness shall be subject to such
effectiveness and the effective date of such Award grants shall be deemed to be
the date of such effectiveness of the Plan.

Section 10. Term of the Plan

     No Award shall be granted under the Plan following the tenth anniversary of
its effective date. However, unless otherwise expressly provided in the Plan or
in an applicable Award Agreement, any Award theretofore granted may extend
beyond such date and, to the extent set forth in the Plan, the authority of the
Committee to amend, alter, adjust, suspend,

                                      -15-
<PAGE>

discontinue or terminate any such Award, or to waive any conditions or
restrictions with respect to any such Award, and the authority of the Board of
Directors of the Company to amend the Plan, shall extend beyond such date.

                                      -16-EXHIBIT 10.1

 
EXHIBIT 10.1

 
April 1, 2003 
 
Monte Lee Pickens 
3375 Kitzmiller Road 
New Albany, Ohio 43054 
 
Dear Monte: 
 
On behalf of the Board of Directors (the “Board”) of The Allied Defense Group, Inc. (the
“Company”), I am very pleased to offer you the position of Executive Vice President and Chief Operating Officer of the Company. This letter agreement clarifies and confirms the terms of your employment with the Company. 
 

	1.	 	POSITIONS; START DATE 

 
As Executive Vice President and Chief Operating Officer of the Company, you shall have the duties and responsibilities customarily
associated with such positions and such duties as may be assigned to you by the Chief Executive Officer of the Company. You will report directly to the Chief Executive Officer of the Company. Your office will be at the Company’s headquarters,
located at 8000 Towers Crescent Drive, Suite 260, Vienna, Virginia 22182. You agree not to actively engage in any other employment, occupation or consulting activity that conflicts with the interests of the Company. Unless we mutually agree
otherwise, you will commence employment on May 1, 2003 (the “Start Date”), although you will not assume the offices of Executive Vice President and Chief Operating Officer until June 1, 2003. 
 

	2.	 	SALARY 

 
Your salary will be $14,583.33 per month ($175,000 annualized), payable monthly in accordance with the Company’s standard payroll
practice and subject to applicable withholding taxes. Because your position is exempt from overtime pay, your salary will compensate you for all hours worked. Your salary will be reviewed and effective annually by the Board or its Compensation
Committee and any adjustments will be effective as of the date determined by the Board or its Compensation Committee. 
 

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	3.	 	STOCK AWARD 

 
As a one-time cash “signing bonus” you will be paid $30,000.00 on the Start Date. It is understood and agreed that you will use
at least $10,000 of this amount to purchase shares of the Company’s common stock via the Company’s employee stock purchase plan as soon as practicable but in any event prior to December 31, 2003. 
 

	4.	 	BONUS 

 
In addition to your salary, commencing with respect to calendar year 2003, you will be eligible to earn an annual bonus of up to 35% of
your base salary if you meet or exceed certain performance standards which will be mutually determined by you and the Chief Executive Officer and approved by the Compensation Committee. The performance standards will be mutually determined and
approved prior to the beginning of each calendar year (except the performance standards for the balance of calendar year 2003 will be determined within thirty (30) days of the Start Date). You will be eligible for an annual bonus for any calendar
year only if you remain employed with the Company as of December 31 of such calendar year. The bonus will be payable within ten (10) days of the public release by the Company of its financial results for the relevant calendar year. The bonus will be
payable, at your election, in cash and/or shares of Company common stock. 
 

	5.	 	BENEFITS 

 
You will also be entitled, during the term of your employment, to such employee benefits as the Company may offer from time to time,
subject to applicable eligibility requirements. 
 

	6.	 	RELOCATION REIMBURSEMENT 

 
In consideration for your agreement to relocate from Ohio to Virginia, it is further agreed that we will reimburse you for all reasonable
costs incurred by you in moving your household furnishings, clothes, etc. to Virginia. 
 

	7.	 	STOCK OPTION 

 
As we have discussed, our compensation structure is weighted towards equity ownership because we believe we will create the most value for
the 
 

2 

 
Company and its shareholders
over time by having employees think and act like, and therefore be, owners. To this end, and subject to Board of Directors’ approval, you will be granted a five (5) year option to purchase 40,000 shares of Company common stock, which will vest
as to 8,000 shares on December 30, 2003 and at the rate of 8,000 shares on the first day of January of each of 2004, 2005, 2006 and 2007, provided you remain in the employ of the Company on said dates. The options will provide for accelerated
vesting upon a Change of Control (as defined below). The strike price will be the fair market value per share of such stock on the last trading day immediately preceding the Start Date. The options will be incentive stock options to the extent
permissible under the Internal Revenue Service Code and Regulations and to the extent available under the Company’s 2001 stock plan. Your option will be documented by delivery to you of a stock option agreement. The Board (or the Committee)
will consider and may in its discretion issue future option grants to you based on your performance, the Company’s operating results and other appropriate factors. 
 
For purposes hereof, the term “Change of Control” means: 
 
(i)    the acquisition (other than by the
Company) by any person, entity or “group” within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (excluding, for this purpose, the Company or its subsidiaries or any employee
benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), of 50% or more of either the then
outstanding shares of common stock or the combined voting power of the Company’s then outstanding capital stock entitled to vote generally in the election of directors; or 
 
(ii)    individuals who, as of the date hereof, constitute the Board (as of the date
hereof the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such person were a member of the Incumbent Board; or 
 

3 

(iii)    approval by the shareholders of the Company of (x) a
reorganization, merger, consolidation or share exchange, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger, consolidation or share exchange do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged, consolidated or other surviving company’s then outstanding voting securities, (y) a liquidation or
dissolution of the Company or (iii) the sale of all or substantially all of the assets of the Company. 
 

	8.	 	TERMINATION OF EMPLOYMENT 

 
Your employment may be terminated at any time by you or by the Company with or without Cause, without prior written notice. This at-will
employment relationship cannot be changed except in writing signed by the Chief Executive Officer of the Company or the Chairman of the Compensation Committee. The following matters will provide the Company with justification for termination of your
employment with “Cause”: 
 
(a)    your conviction of any act by you of fraud or embezzlement; 
 
(b)    your conviction of any felony involving an act of dishonesty, moral turpitude, deceit or fraud; 
 
(c)    your conviction of any act of
dishonesty or misconduct (whether in connection with your responsibilities as an employee of the Company or otherwise) that either materially impairs the Company’s business, goodwill or reputation or materially compromises your ability to
represent the Company with the public; or 
 
(d)    your material failure to perform your lawful duties to the Company after receiving written notice from the Company describing such failure in reasonable detail. 
 

	9.	 	PAYMENTS UPON TERMINATION OF EMPLOYMENT 

 
Nothing in this Agreement shall be construed to prevent us from terminating your employment hereunder, with or without Cause. If you
terminate your employment or if the Company terminates your employment with or without 
 

4 

 
Cause, the Company will pay
you any accrued and unpaid base salary (subject to normal withholding and other deductions) to the effective date of termination of your employment. In addition, if your employment with the Company is terminated by the Company without Cause or if
you terminate your employment with the Company following (i) a material adverse alteration or diminution in the nature or status of your authority, duties or responsibilities from those in effect immediately prior to such change, or (ii) a reduction
in your base salary: (a) you will be entitled to receive Severance Pay (as herein defined); (b) you will be entitled to receive Continuing Benefits (as herein defined); and (c) any non-vested stock option which is scheduled to vest as of the next
January 1 will vest as of the date of the termination of your employment in an amount equal to the amount scheduled to vest as of said January 1 multiplied by a fraction, the numerator of which shall be the number of days of the then current
calendar year up to and including the date of termination and the denominator of which will be 365. For purposes hereof: “Severance Pay” means (i) payments equal to your base salary at the time of the termination payable in monthly
installments throughout the period ending twelve (12) months from the date of employment termination; and (ii) an amount equal to the average annual bonus earned by you (whether paid or deferred) for the three most recent annual periods or such
shorter period if the termination occurs before you have served for three annual periods (such amount shall be payable within forty-five (45) days after the end of the applicable calendar year); and “Continuing Benefits” means medical,
dental, vision, long-term care, life and disability insurance coverage and any post-employment entitlement for one (1) year following the termination at levels comparable to that provided immediately prior to your termination (all at the cost of the
Company except for any contributions paid by you prior to the termination). Notwithstanding the foregoing, if such termination occurs within twelve (12) months following a Change of Control, the Severance Pay shall be payable, at your election,
either in a lump sum within thirty (30) days of the date of employment termination or in periodic payments over a period not to exceed three (3) years. 
 

	10.	 	NON-COMPETITION 

 
For a one (1) year period from and after termination of your employment for any reason (except if such termination occurs within twelve
(12) months following a Change of Control), you shall not engage, directly or indirectly, either on your own behalf or on behalf of any other person, firm, corporation or other entity, in any business competitive with any business of the Company (or
any of its subsidiaries), in the geographic area or areas in which Company (or any of its subsidiaries) is conducting business at the time of termination of your employment, 
 

5 

 
or own more than 5% of any
such firm, corporation or other entity. Upon any violation of the foregoing sentence, you will forfeit any remaining amounts payable to you hereunder in addition to any other remedies available to the Company as a result of the violation.

 

	11.	 	CONFIDENTIALITY 

 
With your employment comes the responsibility that you will honor any confidentiality agreements you have signed with other entities. If
you have any confidential information or trade secrets, written, or otherwise known by you, you agree not to bring them to the Company, and you agree not to use them in any way. You attest that you have not signed a “non-competition”
agreement or any other agreement that would prohibit you from working here. 
 

	12.	 	ADDITIONAL PROVISIONS 

 
The terms described in this letter agreement will be the terms of your employment, and this letter supersedes any previous discussions or
offers. Any additions or modifications of these terms would have to be in writing and signed by you and the Chief Executive Officer of the Company or the Chairman of the Compensation Commission. 
 
The validity, interpretation, construction and performance of
this letter agreement shall be governed by the laws of the State of Delaware (except their provisions governing the choice of law). 
 
If you agree that this letter agreement evidences our agreement concerning your employment with the Company, please indicate so by signing
both copies of this letter retaining one for your files. This offer and all terms of employment stated in this letter agreement will expire if you have not returned a signed copy to me on or prior to April 10, 2003. 
 
We are very excited about you joining us. I look forward to a
productive and mutually beneficial working relationship. Please let me know if I can answer any questions for you about any of the matters outlined in this letter agreement. 
 

6 

 

	 Sincerely,

	
	 /s/    John G. Meyer, Jr.
        

	 John G. Meyer, Jr.,
 President and Chief Operating Officer

 
ACCEPTANCE

 
I accept employment with The Allied Defense Group, Inc. under
the terms set forth in this letter agreement: 
 

	
	 /s/    Monte Lee
Pickens        

	 Monte Lee Pickens

 

7

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