Document:

EXHIBIT 10.5

 

MF ACQUISITION CORPORATION

2004 STOCK OPTION PLAN

 

SECTION 1.   Purpose; Definitions

 

The purpose of the Plan, as amended and restated effective July 28,
2004, is to give the Corporation a competitive advantage in attracting,
retaining and motivating selected employees and consultants and to provide the
Corporation and its subsidiaries with a stock option plan providing incentives
more directly linked to the profitability of the Corporation’s businesses and
increases in stockholder value.  The Plan
originally became effective May 11, 2004, and was subsequently amended and
restated as set forth herein effective July 28, 2004, subject to stockholder
approval.

 

For purposes of the Plan, the following terms are defined as set forth
below:

 

(a)                                  “Affiliate” means a corporation or other entity controlled
by the Corporation and designated by the Committee from time to time as such.

 

(b)                                 “Board” means the Board of Directors of the Corporation.

 

(c)                                  “Cause” shall have the meaning ascribed thereto in the employment
agreement, if any, between the
Participant and the Corporation or its subsidiary or Affiliate.  In the absence of such an employment
agreement, “Cause” shall mean (unless otherwise defined in the Stock Option
Agreement)  (i) the Participant’s
conviction for or entry of a plea of guilty or nolo contendere with respect to
a felony or any crime that constitutes a misdemeanor involving moral turpitude
under federal law or the law of any state, (ii) the
Participant’s willful misappropriation of funds or property of the Corporation
or other acts of fraud, dishonesty, self-dealing, any significant violation of
any statutory or common law duty of loyalty to the Corporation, (iii) the
Participant’s perpetration of an illegal act which causes material economic
injury to the Corporation, or (iv) a material breach of any material
provision of the Corporation’s policies by the Participant or the Participant’s
failure to perform his employment duties in any material respect, provided that
as to (iv), the Participant shall be given notice and an opportunity, not to
exceed ten (10) days, to effectuate a cure, provided that such breach or
failure is susceptible to cure, as determined by the Board, in its sole
discretion. The Committee shall have the sole discretion to determine whether “Cause”
exists, and its determination shall be final.

 

(d)                                 “Change in Control” shall have the meaning set forth in Section 8(b).

 

(e)                                  “Code” means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.

 

(f)                                    “Commission” means the Securities and Exchange Commission or
any successor agency.

 

(g)                                 “Committee” means the Committee referred to in Section 2.

 

 

(h)                                 “Common Stock” means the common stock, par value $.0l per
share, of the Corporation.

 

(i)                                     “Consultant” means any natural person who is an advisor or
consultant to the Company or its Affiliates that provides bona fide services to
the Corporation and the services are not in connection with the offer or sale
of securities in a capital raising transaction and do not, directly or
indirectly, promote or maintain a market for the Corporation’s securities.

 

(j)                                     “Corporation” means MF Acquisition Corporation, a Delaware corporation.

 

(k)                                  “Disability” means permanent and total disability as
determined under procedures established by the Committee for purposes of the
Plan.

 

(l)                                     “Early Retirement” means retirement from active employment
with the Corporation, a subsidiary of the Corporation or an Affiliate pursuant
to the early retirement provisions of the applicable pension plan of such
employer.

 

(m)                               “Effective Date” means May 11, 2004.

 

(n)                                 “Exchange Act” means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.

 

(o)                                 “Fair Market Value” means as of any given date, the closing
price for Common Stock on the date of determination (or the last preceding
trading date if Common Stock was not traded on such date) if the Common Stock
is readily tradeable on a national securities exchange or other market system
or if not traded on a national securities exchange or other market system, as
quoted on an automated quotation system sponsored by the National Association
of Securities Dealers, Inc., and if the Common Stock is not readily
tradeable or quoted, Fair Market Value per Share shall be determined by the
Committee in good faith.

 

(p)                                 “Family Member” means solely to the extent provided for in Rule 701
under the Securities Act, or following the filing of a Securities Act Form S-8
with respect to the Plan, any “family member” as defined in Section A.1.(5) of
the general instructions of Form S-8.

 

(q)                                 “Incentive Stock Option” means any Stock Option designated
as, and qualified as, an “incentive stock option” within the meaning of Section 422
of the Code.

 

(r)                                    “NASDAQ” means the NASDAQ Stock Market, Inc.

 

(s)                                  “NonQualified Stock Option” means any
Stock Option that is not an Incentive Stock Option.

 

(t)                                    “Normal Retirement” means retirement from active employment
with the Corporation, a subsidiary of the Corporation or an Affiliate pursuant
to the provisions of the applicable pension plan of such employer, or if
Participant does not participate in any such pension plan, Termination of
Employment at or after age 65.

 

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(u)                                 “Option Shares” means shares of Common Stock acquired upon
the exercise of a Stock Option.

 

(v)                                 “Participant” means an individual to whom the Committee has
offered the right to acquire shares under the Plan pursuant to a Stock Option.

 

(w)                               “Plan” means the MF Acquisition Corporation 2004 Stock
Option Plan, as set forth herein and as hereinafter amended from time to time.

 

(x)                                   “Registration Date” means the first date:  (i) on which the Corporation sells its
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement under the Securities Act; or (ii) any class of
common equity securities of the Corporation are registered under Section 12
of the Exchange Act.

 

(y)                                 “Retirement” means Normal Retirement or Early Retirement.

 

(z)                                   “Securities Act” means the Securities Act of 1933, as
amended.

 

(aa)                            “Stock Option” means an option granted under Section 6
of the Plan.

 

(bb)                          “Stock Option Agreement” means the agreement with a
Participant pursuant to which a Stock Option is granted, as provided in Section 6
of the Plan.

 

(cc)                            “Termination of Employment” means the termination of the
Participant’s employment or consultancy with the Corporation or an Affiliate or
with any subsidiary of the Corporation or Affiliate.  A Participant employed by, or providing services
to, a subsidiary of the Corporation or an Affiliate shall also be deemed to
incur a Termination of Employment if the subsidiary of the Corporation or
Affiliate ceases to be such a subsidiary or an Affiliate, as the case may be,
and the Participant does not immediately thereafter become an employee or
Consultant of the Corporation or another subsidiary of the Corporation or an
Affiliate.  Temporary absences because of
illness, vacation or leave of absence and transfers among the Corporation and
its subsidiaries and Affiliates shall not be considered a Termination of
Employment.  Unless otherwise provided in
a Stock Option Agreement, if an employee becomes a Consultant or a Consultant
becomes an employee, no Termination of Employment shall occur until such time
as the Participant is no longer a Consultant or employee.

 

In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.

 

SECTION 2.   Administration

 

The Plan shall be administered by a committee consisting solely of
non-employee directors (the “Committee”), provided that after the
Registration Date the Committee shall consist of solely two or more
non-employee directors, each of whom is intended to be, to the extent required
by Rule 16b-3 of the Exchange Act, a “non-employee director” as defined in
Rule 16b-3 and “independent” as defined under applicable stock exchange
rules.  The Committee shall act by a
majority of its members then in office. 
The Committee may (i) delegate to an officer of the

 

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Corporation such of its powers and authority under the Plan as it deems
appropriate (including, without limitation, the authority to grant a Stock
Option or to execute a Stock Option Agreement or other documents on behalf of
the Committee, provided that no Participant may execute any Stock Option
Agreement granting a Stock Option to himself or herself), and (ii) authorize
any one or more of its members or any officer of the Corporation to execute and
deliver documents on its behalf.

 

The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan, and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. 
Expenses incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Corporation.

 

The Committee shall have full authority and discretion to take any
actions it deems necessary or advisable for the administration and operation of
the Plan, including a review of any decision, interpretation or other action by
a delegate.  All decisions, interpretations
and other actions of the Committee shall be final and binding on all
Participants, individuals persons deriving their rights from a Participant, and
all other persons.  Without limiting the generality of the foregoing,
the Committee may, in its sole discretion,

 

(a)                                  Select
the employees or Consultants who will become Participants in the Plan;

 

(b)                                 Determine
whether and to what extent Incentive Stock Options and NonQualified Stock
Options or any combination thereof may be granted hereunder;

 

(c)                                  Determine
the number of shares of Common Stock to be covered by each Stock Option granted
hereunder;

 

(d)                                 Determine
the terms and conditions of any Stock Option granted hereunder (including, but
not limited to, the exercise price (subject to Section 6(a) of the
Plan), any condition, restriction or limitation on vesting or exercisability
(which may be related to the performance of the Participant, the Corporation or
any subsidiary of the Corporation or an Affiliate) and any acceleration,
forfeiture or waiver of vesting or exercisability regarding any Stock Option
and the shares of Common Stock relating thereto, based on such factors as the
Committee shall determine;

 

(e)                                  Modify,
amend or adjust the terms and conditions of any Stock Option, at any time or
from time to time, including, without limitation, the ability to (i) accelerate vesting or exercisability of any Stock
Option, (ii) extend the term or period of exercisability of any Stock
Options, (iii) modify the exercise price under any Stock Option, or (iv) waive
any terms or conditions applicable to any Stock Option; provided, however, that
no action taken by the Committee shall adversely affect in any respect the
rights granted to any Participant under any outstanding Stock Option without
the Participant’s written consent;

 

(f)                                    Determine
to what extent and under what circumstances Common Stock and other amounts
payable with respect to a Stock Option shall be deferred;

 

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(g)                                 Determine
under what circumstances a Stock Option may be settled in cash or Common Stock
under Section 6(j) of the Plan; and

 

(h)                                 Clarify, construe or resolve any ambiguity in any
provision of the Plan or any Stock Option Agreement.

 

To the maximum extent permitted by law, no officer, member or former
officer or member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Option
granted under it.  To the maximum extent
permitted by applicable law or the Certificate of Incorporation or By-Laws of
the Corporation and to the extent not covered by insurance, each officer,
member or former officer or member of the Committee shall be indemnified and
held harmless by the Corporation against any cost or expense (including
reasonable fees of counsel reasonable acceptable to the Corporation) or
liability (including any sum paid in settlement of a claim with the approval of
the Corporation), and advanced amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted, arising our of any act or
omission to act in connection with the Plan, except to the extent arising out
of such officer’s, member’s or former officer’s or member’s own fraud or bad
faith.  Such indemnification shall be in
addition to any rights of indemnification the officers, members or former
officers or members may have as directors under applicable law or under the
Certificate of Incorporation or By-Laws of the Corporation or otherwise.

 

SECTION 3.   Common Stock Subject to Plan

 

The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 2,500,000. 
Shares subject to a Stock Option under the Plan may be authorized and
unissued shares or may be treasury shares.

 

If any Stock Option terminates without being exercised, shares subject
to such Stock Option shall again be available for distribution in connection
with Stock Options granted under the Plan. 
In addition, to the extent permitted under Section 422 of the Code
and the Treasury Regulations thereunder, if shares of Common Stock have been
exchanged by a Participant as full or partial payment to the Corporation of the
exercise price, or for payment of withholding taxes, or if the number of shares
of Common Stock otherwise deliverable has been reduced for full or partial
payment to the Corporation of the exercise price or for payment of withholding
taxes, the number of shares of Common Stock exchanged or reduced shall again be
available under the Plan.

 

In connection with the acquisition of any business by the Corporation
or any Affiliates, any outstanding grants, awards or sales of options or other
similar rights pertaining to such business may be assumed or replaced by Stock
Options under the Plan upon such terms and conditions as the Committee
determines.  The date of any such grant
or award shall relate back to the date of the initial grant or award being
assumed or replaced, and service with the acquired business shall constitute
service with the Corporation and its affiliates for purposes of such grant or
award.  Any shares underlying any grant
or award or sale pursuant to any such acquisition shall be disregarded for
purposes of applying and shall not reduce the number of shares available under
this Section 3.

 

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SECTION 4.   Adjustments; Merger/Consolidation

 

(a)                                  In
the event of any change in the shares subject to the Plan or to any Stock
Option granted under the Plan, through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split, split up,
spin-off, combination of shares, exchange of shares, dividend in kind or other
like change in capital structure of the Corporation, or distribution (other
than normal cash dividends) to stockholders of the Corporation, an adjustment
shall be made to each outstanding Stock Option such that each such Stock Option
shall thereafter be exercisable for such securities, cash and/or other property
as would have been received in respect of shares subject to such Stock Option
had such Stock Option been exercised in full immediately prior to such change or
distribution, and such an adjustment shall be made successively each time any
such change shall occur.  The term “shares”
after any such change shall refer to the securities, cash and/or property then
receivable upon exercise of a Stock Option.

 

In addition, in the event of any such change or distribution, in order
to prevent dilution or enlargement of Participants’ rights under the Plan, the
Committee will have authority to adjust, in an equitable manner, the maximum
number of shares which may be acquired under the Plan pursuant to the exercise
of a Stock Options and the number of shares and price per Share subject to outstanding
Stock Options, and the determination of the Committee as to these matters shall
be conclusive and binding on the Participant.

 

(b)                                 In
the event that the Corporation is a party to a merger or consolidation, or any
transaction that results in the acquisition of all or substantially all of the
Corporation’s Common Stock by a single person or entity or by a group of
persons or entities in concert, or the sale or transfer of all or substantially
all of the Corporation’s assets, or a Change in Control shall occur,
outstanding Stock Options (and Option Shares) shall be subject to the agreement
of merger or consolidation or other applicable transaction agreement.  Such agreement, without the Participants’
consent, may provide for:

 

(i)                                     continuation
or assumption of such outstanding Stock Option under the Plan by the
Corporation (if it is the surviving corporation) or by the surviving corporation
or its parent;

 

(ii)                                  substitution
by the surviving corporation or its parent of stock options with substantially
the same terms for such outstanding Stock Options (and, if the Corporation is
not a publicly traded entity, substitution of Option Shares with equity of the
surviving corporation or its parent with substantially the same terms as the outstanding
Option Shares);

 

(iii)                               acceleration
of the vesting of or right to exercise such outstanding Stock Options (or
Option Shares) immediately prior to or as of the date of the merger or
consolidation or Change in Control, and the expiration of such outstanding
Stock Options to the extent not timely exercised by the date of the merger, consolidation,
Change in Control or other date thereafter designated by the Board;

 

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(iv)                              cancellation
of all or any portion of such outstanding Stock Options by a cash payment of
the excess, if any, of the Fair Market Value of the shares subject to such
outstanding Stock Options or portion thereof being canceled over the aggregate
purchase price with respect to such Stock Options or portion thereof being canceled;
or

 

(v)                                 redemption
of all or any portion of the Option Shares by a cash payment of the excess, if
any, of the Fair Market Value of the Option Shares over the aggregate purchase
price paid with respect to such Option Shares.

 

(c)                                  Except
as provided in this Section 4, neither a Participant nor a Participant’s
representative shall have any rights by reason of (i) any subdivision or
consolidation of shares of stock of the Corporation of any class, (ii) the
payment of any dividend or (iii) any other increase or decrease in the
number of shares of stock of any class. 
Any issuance by the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
exercise price of shares subject to a Stock Option.  The grant of a Stock Option pursuant to the
Plan shall not affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.

 

SECTION 5.   Eligibility

 

Only employees or Consultants of the Corporation, its subsidiaries and
Affiliates are eligible to become Participants in the Plan, as determined by
the Committee in its sole discretion.  Incentive
Stock Options may only be granted to employees of the Corporation or its parent
or subsidiary as defined in Code Sections 424(e) and (f),
respectively.  No grant shall be made under
this Plan to a director who is not an employee of the Corporation, its
subsidiaries or Affiliates.

 

SECTION 6.   Stock Options

 

Stock Options may be of two types: 
Incentive Stock Options and NonQualified Stock Options.  Any Stock Option granted under the Plan shall
be in such form as the Committee may from time to time approve.  To the extent that any Stock Option is not designated
as an Incentive Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it shall constitute a NonQualified Stock Option.

 

Stock Options shall be evidenced by a Stock Option Agreement, the terms
and provisions of which may differ for each Participant and with respect to
each separate grant (even if given to the same Participant).  A Stock Option Agreement (and any related
notice of stock option grant) shall indicate whether the Stock Option is
intended to be an Incentive Stock Option or a NonQualified Stock Option.  The grant of a Stock Option shall occur on
the date the Committee by resolution selects an individual to be a Participant,
determines the number of shares of Common Stock to be subject to the Stock
Option to be granted to such individual and specifies the terms and provisions
of the Stock Option, or such later “date of grant” as the Committee shall by
resolution specify.  The Corporation
shall notify a Participant of any Stock Option grant by sending

 

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the Participant a Stock Option Agreement (or a written notice of stock
option grant which notice references a form Stock Option Agreement).  The Stock Option Agreement covering the Stock
Option shall be effective when the notice of grant (or in the absence of such
notice of grant, the Stock Option Agreement) shall be duly executed by the
Corporation and the Participant.

 

Except as otherwise provided in this Section 4 hereof, no term of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under such Section 422.

 

Unless the Stock Option Agreement (or the Committee, in its discretion
determines otherwise), Stock Options granted under the Plan shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions as the Committee shall deem desirable:

 

(a)                                  Exercise Price.  The
exercise price per share of Common Stock purchasable under a NonQualified Stock
Option shall be determined by the Committee on the date of grant, provided that
on and after the Registration Date the exercise price shall be no less than one
hundred percent (100%) of the Fair Market Value on the date of grant.  The exercise price per share of Common Stock
purchasable under an Incentive Stock Option shall be one hundred (100%) of the
Fair Market Value on the date of grant except that if an Incentive Stock Option
is granted to a ten percent shareholder (as described in Section 6(m) of
the Plan), the price per share shall be one hundred ten percent (110%) of the
Fair Market Value on the date of grant for the grant.

 

(b)                                 Option Term.  The term
of each Stock Option shall be the term fixed by the Committee, but no Stock
Option shall be exercisable more than ten (10) years after the date the
Stock Option is granted (and no more than five (5) years after the date of
an Incentive Stock Option granted to a ten percent shareholder (as described in
Section 6(m) of the Plan)).

 

(c)                                  Vesting and Exercisability.  Except
as otherwise provided in a Stock Option Agreement, Stock Options shall vest as
to one-quarter (25 %) of the number of shares covered by such Stock Option
on each of the first four (4) anniversaries of the date of grant of the
Stock Option and shall be exercisable at such time or times and subject to such
terms and conditions as shall be determined by the Committee.  If the Committee provides that any Stock
Option is exercisable only in installments, the Committee may at any time waive
such installment exercise provision, in whole or in part, based on such factors
as the Committee may determine.  In
addition, the Committee may at any time accelerate the exercisability or
vesting of any Stock Option.  Any Stock
Option that is not exercised within its applicable exercise period shall expire
automatically.

 

(d)                                 Method of Exercise.  Subject
to the provisions of this Section 6, Stock Options may be exercised, in
whole or in part, at any time during the option term by giving written notice
of exercise to the Corporation specifying the number of shares of Common Stock
subject to the Stock Option to be purchased.

 

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Such notice shall be accompanied by payment in full of the aggregate
exercise price by certified or bank check or such other instrument as the
Corporation may accept.  If approved by
the Committee, in its discretion, payment, in full or in part, may also be made
in the form of Common Stock already owned by the Participant of the same class
as the Common Stock subject to the Stock Option (based on the Fair Market Value
of the Common Stock on the date the Stock Option is exercised); provided, however, that the already owned Common Stock to be
surrendered as payment does not constitute “restricted securities” within the
meaning of Rule 144(a)(3) under the Securities Act, and has been held
by the Participant for such period as required by the Committee; and provided, further, that, in the case of an Incentive Stock
Option, the right to make a payment in the form of already owned Common Stock
was authorized by the Committee at the time the Stock Option is granted.

 

If approved by the Committee, in its discretion, payment for any shares
subject to a Stock Option may also be made by delivering a properly executed
exercise notice to the Corporation, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Corporation the amount of
sale or loan proceeds necessary to pay the purchase price, and, if requested,
the amount of any federal, state, local or foreign withholding taxes.  To the extent permitted by applicable law, to
facilitate the foregoing, the Corporation may enter into agreements for
coordinated procedures with one or more brokerage firms.

 

In addition, if approved by the Committee, in its discretion, payment
for any shares subject to a Stock Option may also be made by instructing the
Committee to withhold a number of such shares having a Fair Market Value equal
to the aggregate exercise price of such Stock Option.

 

No shares of Common Stock shall be issued until full payment therefor
has been made.  Except as otherwise
provided in Section 6(k) of the Plan, a Participant shall have all of the
rights of a stockholder of the Corporation holding the class or series of Common
Stock that is subject to such Stock Option (including, if applicable, the right
to vote the shares and the right to receive dividends), when the Participant
has given written notice of exercise, has paid in full for such shares and, if
requested, has given the representation described in Section 12(a) of
the Plan, and made such other representations as the Committee shall require
pursuant to Section 9 of the Plan.

 

(e)                                  Nontransferability of Stock Options. 
No Stock Option shall be transferable by the Participant
other than (i) by will or by the laws of descent and distribution; (ii) in
the case of a NonQualified Stock Option, pursuant to (A) a qualified
domestic relations order (as defined in the Code or Title 1 of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder)
or (B) a gift to such Participant’s children or spouse, whether directly
or indirectly or by means of a trust or partnership or otherwise; or (iii) if
expressly permitted under the applicable Stock Option Agreement to a Family
Member, pursuant to the terms set forth therein, provided that the Participant
notifies the Committee in writing of such transfer.  Any Stock Option that is transferred pursuant
to the preceding sentence may not be subsequently transferred otherwise than by
will or the laws of descent and distribution and remains subject to the terms
of the Plan and the Stock Option Agreement.  All Stock Options shall be exercisable,
subject to the terms of this Plan, during the Participant’s lifetime, only by
the Participant, the guardian or legal representative of the Participant named
in the Stock Option Agreement, or any person to whom a Stock Option is
transferred in accordance with the preceding sentence.

 

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(f)                                    Termination by Death.  If
a Participant incurs a Termination of Employment by reason of death, any Stock
Option held by such Participant may thereafter be exercised, to the extent then
exercisable, or on such accelerated basis as the Committee may determine, for a
period of one (1) year (or such other period as the Committee may specify
in the Stock Option Agreement) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.

 

(g)                                 Termination by Reason of Disability. 
If a Participant incurs a Termination of Employment by reason
of Disability, any Stock Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Committee may determine, for a
period of two (2) years (or such other period as the Committee may specify
in the Stock Option Agreement) from the date of such Termination of Employment
or until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that
if the Participant dies within such period, any unexercised Stock Option held
by such Participant shall, notwithstanding the expiration of such period,
continue to be exercisable to the extent to which it was exercisable at the
time of death for a period of twelve (12) months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter.  In the event of Termination
of Employment by reason of Disability, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for purposes
of Section 422 of the Code, such Stock Option will thereafter be treated
as a NonQualified Stock Option.

 

(h)                                 Termination by Reason of Retirement. 
If a Participant incurs a Termination of Employment by reason
of Retirement, any Stock Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable at the time of
such Retirement, or on such accelerated basis as the Committee may determine,
for a period of two (2) years (or such other period as the Committee may
specify in the Stock Option Agreement) from the date of such Termination of
Employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that
if the Participant dies within such period any unexercised Stock Option held by
such Participant shall, notwithstanding the expiration of such period, continue
to be exercisable to the extent to which it was exercisable at the time of
death for a period of twelve (12) months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is the
shorter.  In the event of Termination of
Employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section 422
of the Code, such Stock Option will thereafter be treated as a NonQualified
Stock Option.

 

(i)                                     Other Termination.  (i) If
a Participant incurs a Termination of Employment for Cause, all Stock Options (whether
vested or unvested) held by the Participant shall thereupon terminate; and (ii) if
a Participant incurs a Termination of Employment for any reason other than
death, Disability or Retirement or for Cause, any Stock Option held by such
Participant, to the extent then exercisable, or on such accelerated basis as
the Committee may determine, may be exercised for the lesser of six (6) months
from the date of such Termination of Employment or the balance of such Stock
Option’s term; provided, however, that
if the Participant dies within such six (6) month period, any unexercised
Stock Option held by such Participant shall, notwithstanding the expiration of
such six (6) month period, continue to be exercisable to the

 

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extent to which it was exercisable at the time of death for a period of
twelve (12) months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.  In the event of Termination of Employment, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock
Option will thereafter be treated as a NonQualified Stock Option.

 

(j)                                     Cashing Out of Stock Option. 
Prior to the Registration Date, on receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Common Stock for which a Stock Option is being exercised by paying
the Participant an amount, in cash or Common Stock, equal to the excess of the
Fair Market Value of the Common Stock over the exercise price times the number
of shares of Common Stock for which the Stock Option is being exercised on the
effective date of such cash-out.

 

(k)                                  Deferral of Option Shares.  Solely
to the extent permitted by law, the Committee may from time to time establish
procedures pursuant to which a Participant may elect to defer, until a time or
times later than the exercise of a Stock Option, receipt of all or a portion of
the shares of Common Stock subject to such Stock Option and/or to receive cash
at such later time or times in lieu of such deferred shares, all on such terms
and conditions as the Committee shall determine.  If any such deferrals are permitted, then
notwithstanding Section 6(d) above, a Participant who elects such
deferral shall not have any rights as a stockholder with respect to such
deferred shares unless and until shares of Common Stock are actually delivered
to the Participant with respect thereto, except to the extent otherwise
determined by the Committee.

 

(l)                                     Incentive Stock Option Dollar Limit.  The aggregate Fair Market Value of the shares
(determined as of the respective date or dates of grant) for which one or more
Stock Options granted to any Participant under the Plan (or any other option
plan of the Corporation or any “subsidiary corporation” (as defined in Section 424(f) of
the Code) or “parent corporation” (as defined in Section 424(e) of
the Code)) may for the first time become exercisable as Incentive Stock Options
during any one (1) calendar year shall not exceed the sum of one hundred
thousand dollars ($100,000).  To the
extent a Participant holds two (2) or more such Stock Options which become
exercisable for the first time in the same calendar year, such Stock Options
shall qualify as Incentive Stock Options on the basis of the order in which such
Stock Options are granted.

 

(m)                               Ten Percent Shareholder.  An
individual who owns more than ten percent (10%) of the total combined voting
power of all classes of outstanding stock of the Corporation (or any “parent
corporation” or “subsidiary corporation” as defined in Section 6(l) of the
Plan above) shall not be eligible for a grant of an Incentive Stock Option
unless the exercise price of such Stock Option is at least one hundred ten
percent (110%) of the Fair Market Value of a share of Common Stock on the date
of grant and the Incentive Stock Option is not exercisable after the expiration
of five (5) years from the date of grant. 
In determining stock ownership for purposes hereof, the attribution rules of
Section 424(d) of the Code shall apply.

 

(n)                                 Other Agreement. 
Notwithstanding anything herein to the contrary, as a condition to the
receipt of Common Stock pursuant to a Stock Option granted under this Plan
prior to the Registration Date, to the extent required by the Committee, the
Participant shall execute and deliver a stockholder’s agreement or such other
documentation which shall set forth certain

 

11

 

restrictions on transferability of the Common Stock acquired upon
exercise or purchase, a right of first refusal of the Corporation with respect
to Common Stock, and such other terms or restrictions as the Committee shall
from time to time establish.  Such
stockholder’s agreement or other documentation shall apply to the Common Stock
acquired under the Plan and covered by such stockholder’s agreement or other
documentation.  The Corporation may
require, as a condition of exercise, the option holder to become a party to any
other existing stockholder agreement or other agreement.

 

SECTION 7.   Withholding Taxes; Tax Offset Bonus

 

As a condition to the purchase of shares pursuant to the exercise of a
Stock Option, a Participant shall make such arrangements as the Committee may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with such receipt or
purchase.  The Participant shall also
make such arrangements as the Committee may require for the satisfaction of any
federal, state, local or foreign withholding obligations that may arise in
connection with the disposition of Option Shares.

 

No later than the date as of which an amount first becomes includible
in the gross income of the Participant for federal income tax purposes with
respect to any Stock Option under the Plan, the Participant shall pay to the
Corporation, or make arrangements satisfactory to the Corporation 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 Corporation, withholding obligations
may be settled with Common Stock, including Common Stock that is part of the
Stock Option that gives rise to the withholding requirement.  The obligations of the Corporation under the
Plan shall be conditional on such payment or arrangements, and the Corporation
and its Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.  The Committee may establish such procedures
as it deems appropriate, including making irrevocable elections, for the
settlement of withholding obligations with Common Stock.

 

At the time a Stock Option is granted hereunder or at any time
thereafter, the Committee may grant to the Participant receiving such Stock
Option the right to receive a cash payment in an amount specified by the
Committee, to be paid at such time or times (if ever) as the Stock Option
results in compensation income to the Participant, for the purpose of assisting
the Participant to pay the resulting taxes, all as determined by the Committee
and on such other terms and conditions as the Committee shall determine.

 

The Corporation shall have the right to deduct from any payment to be
made to a Participant, or otherwise require, prior to the issuance or delivery
of Shares or the payment of cash hereunder, payment of any taxes required to be
withheld by law.

 

SECTION 8.   Change in Control Provisions

 

(a)                                  Impact of Change in Control.  Notwithstanding
any other provision of the Plan to the contrary, unless otherwise provided in a
Stock Option Agreement, in the event of a Change in Control, any Stock Options
outstanding as of the date such Change in Control is determined to have
occurred, and which are not then exercisable and vested, shall become fully
exercisable and

 

12

 

vested to the full extent of the original grant and any Option Shares
not fully vested or otherwise deferred in accordance with Section 6(k) of
the Plan shall become fully vested.

 

(b)                                 Definition of Change in Control. 
For purposes of the Plan, “Change in Control” shall
mean consummation of (i) a sale of all or substantially all of the
consolidated assets of the Corporation and its subsidiaries to a person who is
not either a member of, or an affiliate of a member of, the Initial Investor
Group (as defined below); or (ii) a sale by the Corporation, one or more
members of the Initial Investor Group or any of their respective affiliates
resulting in more than 50% of the capital stock of the Corporation that
ordinarily votes for directors (“Voting Stock”) being held by a person or group
(as such terms are used in the Securities Exchange Act of 1934, as amended)
that does not include any member of the Initial Investor Group or any of their
respective affiliates; or (iii) a merger or consolidation of the Corporation
into another person as a result of which a person or group acquires more than
50% of the Voting Stock of the Corporation that does not include any member of,
or an affiliate of a member of, the Initial Investor Group; provided, however,
that a Change in Control shall occur if and only if
after any such event listed in (i)-(iii) above the Initial Investor Group
is unable to elect a majority of the board of directors of the entity that
purchased the assets in the case of an event described in (i) above, the
Corporation in the case of an event described in (ii) above, or the
resulting entity in the case of an event described in (iii) above, as the
case may be.  The “Initial Investor Group”
shall mean Ares Corporate Opportunity Fund, L.P. and any other fund under the
management of Ares Management, L.P. or its affiliates and OCM Opportunities
Fund II, L.P. and any other fund under the management of Oaktree Capital
Management or its affiliates.

 

SECTION 9.   Securities Law Requirements

 

Option Shares shall not be issued under the Plan unless the issuance
and delivery of such Option Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Corporation’s securities may then be
traded.  The Corporation shall not be
obligated to file any registration statement under any applicable securities
laws to permit the purchase or issuance of any Option Shares under the Plan,
and accordingly any certificates for such shares may have an appropriate legend
or statement of applicable restrictions endorsed thereon.  Each Participant and any person deriving its
rights from any Participant shall, as a condition to the purchase or issuance
of any Option Shares under the Plan, deliver to the Corporation an agreement or
certificate containing such representations, warranties and covenants as the
Corporation may deem necessary or appropriate to ensure that the issuance of
Option Shares is not required to be registered under any applicable securities
laws.

 

SECTION 10.   Term, Amendment and Termination

 

The Plan will terminate ten (10) years after the Effective Date of
the Plan.  Under the Plan, Stock Options
outstanding as of such date shall not be affected or impaired by the termination
of the Plan.

 

The Board or the Committee may amend, alter, or discontinue the Plan,
but no amendment, alteration or discontinuation shall be made which would impair
the rights of a Participant

 

13

 

under a Stock Option theretofore granted without the Participant’s
consent.  In addition, no such amendment
shall be made without the approval of the Corporation’s stockholders to the
extent such approval is required by law or agreement.

 

The Board or the Committee may amend the terms of any Stock Option
theretofore granted, prospectively or retroactively, but no such amendment
shall impair the rights of any holder without the holder’s consent.

 

SECTION 11.   Unfunded Status of Plan

 

It is presently intended that the Plan constitute an “unfunded” plan
for incentive and deferred compensation. 
The Board may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver Common Stock or make
payments; provided, however, that unless the Board otherwise determines, the existence
of such trusts or other arrangements is consistent with the “unfunded” status
of the Plan.

 

SECTION 12.   General Provisions

 

(a)                                  The
Committee may require each person purchasing or receiving shares pursuant to a
Stock Option to represent to and agree with the Corporation in writing that
such person is acquiring the shares without a view to the public resale or
distribution thereof in violation of applicable securities laws.  The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any restrictions on
transfer.

 

Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of each of the following conditions:

 

(i)                                     any
registration or other qualification of such shares of the Corporation under any
state or federal law or regulation, or the maintaining in effect of any such
registration or other qualification which the Committee shall, in its absolute
discretion upon the advice of counsel, deem necessary or advisable; and

 

(ii)                                  obtaining
any other consent, approval, or permit from any state or federal governmental
agency which the Committee shall, in its absolute discretion after receiving
the advice of counsel, determine to be necessary or advisable.

 

(b)                                 Nothing
contained in the Plan shall prevent the Corporation or any subsidiary of the
Corporation or Affiliate from adopting other or additional compensation
arrangements for its employees or Consultants.

 

(c)                                  Adoption
of the Plan shall not confer upon any employee any right to continued
employment or consultancy, nor shall it interfere in any way with the right of
the Corporation or any subsidiary of the Corporation or Affiliate to terminate
the employment or consultancy of any Participant at any time.

 

14

 

(d)                                 The
Committee shall establish such procedures as it deems appropriate for a
Participant to designate a beneficiary to whom any amounts payable in the event
of the Participant’s death are to be paid or by whom any rights of the
Participant, after the Participant’s death, may be exercised.

 

(e)                                  In
the case of a grant of a Stock Option to any employee or Consultant of a
subsidiary of the Corporation, the Corporation may, if the Committee so
directs, issue or transfer the shares of Common Stock, if any, covered by the
Stock Option to the subsidiary, for such lawful consideration as the Committee
may specify, upon the condition or understanding that the subsidiary thereafter
will transfer the shares of Common Stock to the employee or Consultant in
accordance with the terms of the Stock Option specified by the Committee
pursuant to the provisions of the Plan.

 

(f)                                    The
Plan and all Stock Options granted and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware
without reference to principles of conflict of laws.

 

15EXHIBIT 10.6

 

MF ACQUISITION CORPORATION

2004 ROLLOVER STOCK OPTION PLAN

 

SECTION 1.   Purpose; Definitions

 

The purpose of the Plan is to give the Corporation a competitive
advantage in attracting, retaining and motivating selected employees and to
provide the Corporation and its subsidiaries with a stock option plan providing
incentives more directly linked to the profitability of the Corporation’s
businesses and increases in stockholder value. 
The purpose of the Plan is also to provide, pursuant to the Agreement
and Plan of Merger dated as of March 16, 2004 among Maidenform, Inc.,
the Corporation, MF Merger Corporation and Ares Corporate Opportunities Fund, L.P.,
for the grant of stock options of the Corporation in substitution for
outstanding stock options granted by Maidenform, Inc.

 

For purposes of the Plan, the following terms are defined as set forth
below:

 

(a)                                  “Affiliate” means a corporation or other entity controlled by
the Corporation and designated by the Committee from time to time as such.

 

(b)                                 “Board” means the
Board of Directors of the Corporation.

 

(c)                                  “Code” means the
Internal Revenue Code of 1986, as amended from time to time, and any successor
thereto.

 

(d)                                 “Commission” means the
Securities and Exchange Commission or any successor agency.

 

(e)                                  “Committee” means the
Committee referred to in Section 2, except that, prior to the time the
Committee is constituted, it shall mean the Board.

 

(f)                                    “Common Stock” means the
common stock, par value $0.0l per share, of the Corporation.

 

(g)                                 “Corporation” means MF
Acquisition Corporation, a Delaware corporation.

 

(h)                                 “Disability” means permanent and total disability as
determined under procedures established by the Committee for purposes of the
Plan.

 

(i)                                     “Effective Date” means May 11,
2004.

 

(j)                                     “Exchange Act” means the
Securities Exchange Act of 1934, as amended from time to time, and any
successor thereto.

 

(k)                                  “Fair Market Value” means, as of
any given date, the mean between the highest and lowest reported sale prices of
the Shares on the New York Stock Exchange, Inc. Composite Tape or, if not
listed on such exchange, on any other national securities exchange on which the
Shares are then listed or admitted to unlisted trading privileges or on NASDAQ
or, if not so

 

 

listed, as quoted on an automated quotation system sponsored by the
National Association of Securities Dealers, Inc.  If there is no regular public trading market
for such Shares, the Fair Market Value of the Shares shall be determined by the
Committee in good faith.

 

(l)                                     “Family Member” means solely to the extent provided for in Rule 701
under the Securities Act, or following the filing of a Securities Act Form S-8
with respect to the Plan, any “family member” as defined in Section A.1.(5) of
the general instructions of Form S-8.

 

(m)                               “NASDAQ” means the NASDAQ
Stock Market, Inc.

 

(n)                                 “NonQualified Stock Option” means any Stock Option that is not an Incentive Stock Option, as
defined in Section 422 of the Code.

 

(o)                                 “Option Adjustment Amount” means an amount of money per share
representing the antidilution adjustment made prior to the Effective Date with
respect to the outstanding stock options for which options under this Plan are
granted in substitution, subject to adjustment as provided under this Plan or
the applicable Stock Option Agreement.

 

(p)                                 “Option Shares” means Shares acquired upon the exercise of a
Stock Option.

 

(q)                                 “Participant” means an individual to whom the Committee has
offered the right to acquire shares under the Plan pursuant to a Stock Option.

 

(r)                                    “Plan” means the MF
Acquisition Corporation 2004 Rollover Stock Option Plan, as set forth herein
and as hereinafter amended from time to time.

 

(s)                                  “Preferred Stock” means the cumulative perpetual preferred
stock, par value $0.01 per share and liquidation preference $100.00 per share, of the Corporation.

 

(t)                                    “Registration Date” means the first date:  (i) on which the Corporation sells its
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement under the Securities Act; or (ii) any class of
common equity securities of the Corporation are registered under Section 12
of the Exchange Act.

 

(u)                                 “Securities Act” means the Securities Act of 1933, as
amended.

 

(v)                                 “Shares” means Common Stock or Preferred Stock.

 

(w)                               “Stock Option” means an
option granted under the Plan, which is not intended to qualify as an “incentive
stock option” under Section 422 of the Code.

 

(x)                                   “Stock Option Agreement” means the
agreement with a Participant pursuant to which a Stock Option is granted, as
provided in Section 6 of the Plan.

 

(y)                                 “Termination of Employment” means
the termination of the Participant’s employment with the Corporation or an
Affiliate or with any subsidiary of the Corporation or Affiliate.  A Participant employed by a subsidiary of the
Corporation or an Affiliate shall also be deemed to incur a Termination if the
subsidiary of the Corporation or Affiliate ceases to be such

 

2

 

a subsidiary or an Affiliate, as the case may be, and the Participant
does not immediately thereafter become an employee of the Corporation or
another subsidiary of the Corporation or an Affiliate.  Temporary absences because of illness,
vacation or leave of absence and transfers among the Corporation and its
subsidiaries and Affiliates shall not be considered a Termination of Employment.

 

In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.

 

SECTION 2.   Administration

 

The Plan shall be administered by a committee consisting solely of
non-employee directors (the “Committee”), provided that after the
Registration Date the Committee shall consist of solely two or more
non-employee directors, each of whom is intended to be, to the extent required
by Rule 16b-3 of the Exchange Act, a “non-employee director” as defined in
Rule 16b-3 and “independent” as defined under applicable stock exchange
rules.  The Committee shall act by a
majority of its members then in office. 
The Committee may (i) delegate to an officer of the Corporation
such of its powers and authority under the Plan as it deems appropriate
(including, without limitation, the authority to grant a Stock Option or to
execute a Stock Option Agreement or other documents on behalf of the Committee,
provided that no Participant may execute any Stock Option Agreement granting a
Stock Option to himself or herself), and (ii) authorize any one or more of
its members or any officer of the Corporation to execute and deliver documents
on its behalf.

 

The Committee may employ such legal counsel, consultants and agents as
it may deem desirable for the administration of the Plan, and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. 
Expenses incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Corporation.

 

The Committee shall have full authority and discretion to take any
actions it deems necessary or advisable for the administration and operation of
the Plan, including a review of any decision, interpretation or other action by
a delegate.  All decisions, interpretations
and other actions of the Committee shall be final and binding on all
Participants, individuals persons deriving their rights from a Participant, and
all other persons.  Without limiting the generality of the foregoing,
the Committee may, in its sole discretion:

 

(a)                                  Determine
whether options to purchase Common Stock and options to purchase Preferred Stock
must be exercised in tandem;

 

(b)                                 Modify,
amend or adjust the terms and conditions of any Stock Option, at any time or
from time to time, including, without limitation, the ability to (i) extend the term or period of exercisability of
any Stock Options, (ii) modify the exercise price under any Stock Option,
or (iii) waive any terms or conditions applicable to any Stock Option;
provided, however, that
no action taken by the Committee shall adversely affect in any material respect
the rights granted to any Participant under any outstanding Stock Option
without the Participant’s written consent;

 

3

 

(c)                                  Determine
to what extent and under what circumstances Shares and other amounts payable
with respect to a Stock Option shall be deferred; and

 

(d)                                 Clarify, construe or resolve any ambiguity in any
provision of the Plan or any Stock Option Agreement.

 

To the maximum extent permitted by law, no officer,
member or former officer or member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Stock Option granted under it.  To the
maximum extent permitted by applicable law or the Certificate of Incorporation
or By-Laws of the Corporation and to the extent not covered by insurance, each
officer, member or former officer or member of the Committee shall be
indemnified and held harmless by the Corporation against any cost or expense
(including reasonable fees of counsel reasonable acceptable to the Corporation)
or liability (including any sum paid in settlement of a claim with the approval
of the Corporation), and advanced amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted, arising our of any act or
omission to act in connection with the Plan, except to the extent arising out
of such officer’s, member’s or former officer’s or member’s own fraud or bad
faith.  Such indemnification shall be in
addition to any rights of indemnification the officers, members or former
officers or members may have as directors under applicable law or under the
Certificate of Incorporation or By-Laws of the Corporation or otherwise.

 

SECTION 3.   Shares Subject to Plan

 

The total number of Shares initially reserved and available for grant under
the Plan shall be 775,000 shares of Common Stock and 14,100 shares of Preferred
Stock.  Shares subject to a Stock Option
under the Plan may be authorized and unissued shares or may be treasury shares.

 

If any Stock Option terminates without being exercised, Shares subject
to such Stock Option shall again be available for distribution in connection
with Stock Options granted under the Plan. 
In addition, if Shares have been exchanged by a Participant as full or
partial payment to the Corporation of the exercise price, or for payment of
withholding taxes, or if the number of Shares otherwise deliverable has been
reduced for full or partial payment to the Corporation of the exercise price or
for payment of withholding taxes, the number of Shares exchanged or reduced
shall again be available under the Plan.

 

In connection with the acquisition of any business by the Corporation
or any Affiliates, any outstanding grants, awards or sales of options or other
similar rights pertaining to such business may be assumed or replaced by Stock
Options under the Plan upon such terms and conditions as the Committee
determines.  The date of any such grant
or award shall relate back to the date of the initial grant or award being
assumed or replaced, and service with the acquired business shall constitute
service with the Corporation and its affiliates for purposes of such grant or
award.

 

SECTION 4.   Adjustments; Merger/Consolidation

 

(a)                                  In
the event of any change in the Shares subject to the Plan or to any Stock
Option granted under the Plan, through merger, consolidation, reorganization,
recapitalization, stock

 

4

 

dividend, stock split, reverse stock split, split up, spin-off,
combination of shares, exchange of shares, dividend in kind or other like change
in capital structure of the Corporation, distribution (other than normal cash
dividends on Common Stock) or extraordinary distribution on Common Stock to
stockholders of the Corporation, an adjustment shall be made to each
outstanding Stock Option such that each such Stock Option shall thereafter be
exercisable for such securities, cash and/or other property as would have been
received in respect of shares subject to such Stock Option had such Stock
Option been exercised in full immediately prior to such change or distribution,
and such an adjustment shall be made successively each time any such change
shall occur.  The term “shares”
after any such change shall refer to the securities, cash and/or property then
receivable upon exercise of a Stock Option.  In the case of options to purchase Preferred
Stock, the applicable Stock Option Agreement shall specify the adjustments to
be made in respect of dividends on the Preferred Stock, and the Stock Option
Agreement shall include provisions relating to redemption of the Preferred
Stock.

 

In addition, in the event of any such change or distribution, in order
to prevent dilution or enlargement of Participants’ rights under the Plan, the
Committee will have authority to adjust, in an equitable manner, the maximum number
of shares which may be acquired under the Plan pursuant to the exercise of
Stock Options and the number of shares, price per share and Option Adjustment
Amount per share subject to outstanding Stock Options, and the determination of
the Committee as to these matters shall be conclusive and binding on the
Participant.

 

(b)                                 In
the event that the Corporation is a party to a merger or consolidation, or any
transaction that results in the acquisition of all or substantially all of the
Corporation’s Shares by a single person or entity or by a group of persons or
entities in concert, or the sale or transfer of all or substantially all of the
Corporation’s assets, outstanding Stock Options (and Option Shares) shall be
subject to the agreement of merger or consolidation or other applicable
transaction agreement.  Such agreement,
without the Participants’ consent, may provide for:

 

(i)                                     continuation
or assumption of such outstanding Stock Option under the Plan by the
Corporation (if it is the surviving corporation) or by the surviving
corporation or its parent;

 

(ii)                                  substitution
by the surviving corporation or its parent of stock options with substantially
the same terms for such outstanding Stock Options (and, if the Corporation is
not a publicly traded entity, substitution of Option Shares with equity of the
surviving corporation or its parent with substantially the same terms as the outstanding
Option Shares);

 

(iii)                               the
expiration of such outstanding Stock Options to the extent not timely exercised
by the date of the merger, consolidation, applicable transaction or other date
thereafter designated by the Board;

 

(iv)                              cancellation
of all or any portion of such outstanding Stock Options by a cash payment of
the excess, if any, of the Fair Market Value of the Shares subject to such
outstanding Stock Options or portion thereof being canceled over the aggregate
purchase price with respect to such Stock Options or portion thereof being canceled;
or

 

5

 

(v)                                 redemption
of all or any portion of the Option Shares by a cash payment of the excess, if
any, of the Fair Market Value of the Option Shares over the aggregate purchase
price paid with respect to such Option Shares.

 

(c)                                  Except
as provided in this Section 4, neither a Participant nor a Participant’s
representative shall have any rights by reason of (i) any subdivision or
consolidation of shares of stock of the Corporation of any class, (ii) the
payment of any dividend or (iii) any other increase or decrease in the
number of shares of stock of any class. 
Any issuance by the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
exercise price of shares subject to a Stock Option.  The grant of a Stock Option pursuant to the
Plan shall not affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.

 

SECTION 5.   Eligibility

 

Only employees of the Corporation, its subsidiaries and Affiliates are
eligible to become Participants in the Plan, as determined by the Committee in
its sole discretion.

 

SECTION 6.   Stock Options

 

Stock Options will be NonQualified Stock Options and are not intended
to qualify as an “incentive stock option” under Section 422 of the Code.  Any Stock Option granted under the Plan shall
be in such form as the Committee may from time to time approve.

 

Stock Options shall be evidenced by a Stock Option Agreement, the terms
and provisions of which may differ for each Participant and with respect to
each separate grant (even if given to the same Participant).  The grant of a Stock Option shall occur on
the date specified by resolution by the Committee.  The Corporation shall notify a Participant of
any Stock Option grant by sending the Participant a Stock Option Agreement (or
a written notice of stock option grant which notice references a form Stock
Option Agreement).  The Stock Option
Agreement covering the Stock Option shall be effective when the notice of grant
(or in the absence of such notice of grant, the Stock Option Agreement) shall
be duly executed by the Corporation and the Participant.

 

Unless the Stock Option Agreement (or the Committee, in its discretion
determines otherwise), Stock Options granted under the Plan shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions as the Committee shall deem desirable:

 

(a)                                  Option Term.  The term
of each Stock Option shall be the term fixed by the Committee.

 

(b)                                 Vesting and Exercisability.  Stock
Options shall be vested in full on the date of grant and shall be exercisable
at such time or times and subject to such terms and conditions as

 

6

 

shall be determined by the Committee.  Any Stock Option that is not exercised within
its applicable exercise period shall expire automatically.

 

(c)                                  Method of Exercise.  Subject
to the provisions of this Section 6, Stock Options may be exercised, in
whole or in part, at any time during the option term by giving written notice
of exercise to the Corporation specifying the number of Shares subject to the
Stock Option to be purchased.

 

Such notice shall be accompanied by payment in full of the aggregate
exercise price by certified or bank check or such other instrument as the Corporation
may accept.  If approved by the
Committee, in its discretion, payment, in full or in part, may also be made in
the form of Common Stock or Preferred Stock already owned by the Participant
(based on the Fair Market Value of the Common Stock or Preferred Stock, as the
case may be, on the date the Stock Option is exercised).

 

If approved by the Committee, in its sole discretion, payment for any Shares
subject to a Stock Option may also be made by delivering a properly executed
exercise notice to the Corporation, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Corporation the amount of
sale or loan proceeds necessary to pay the purchase price, and, if requested,
the amount of any federal, state, local or foreign withholding taxes.  To the extent permitted by applicable law, to
facilitate the foregoing, the Corporation may, in its sole discretion, enter
into agreements for coordinated procedures with one or more brokerage firms.

 

In addition, if approved by the Committee, in its sole discretion,
payment for any Shares subject to a Stock Option may also be made by
instructing the Committee to withhold a number of such Shares having a Fair
Market Value equal to the aggregate exercise price of such Stock Option.

 

No Shares will be issued until full payment therefor has been
made.  Except as otherwise provided in Section 6(f) of
the Plan, a Participant shall have all of the rights of a stockholder of the
Corporation holding the class or series of Shares that are subject to such
Stock Option (including, if applicable, the right to vote the Shares and the
right to receive dividends), when the Participant has given written notice of
exercise, has paid in full for such Shares and, if requested, has given the
representation described in Section 11(a) of the Plan, and made such
other representations as the Committee shall require pursuant to Section 8
of the Plan.

 

(d)                                 Nontransferability of Stock Options. 
No Stock Option shall be transferable by the Participant
other than (i) by will or by the laws of descent and distribution; (ii) pursuant
to (A) a qualified domestic relations order (as defined in the Code or
Title 1 of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder) or (B) a gift to such Participant’s children,
whether directly or indirectly or by means of a trust or partnership or
otherwise; or (iii) if expressly permitted under the applicable Stock
Option Agreement to a Family Member or any other Person or entity, pursuant to
the terms set forth therein, provided that the Participant notifies the
Committee in writing of such transfer.  Any
Stock Option that is transferred pursuant to the preceding sentence may not be
subsequently transferred otherwise than by will or the laws of descent and
distribution and remains subject to the terms of the Plan and the Stock Option
Agreement.  All Stock Options shall be
exercisable, subject to the terms of

 

7

 

this Plan, only by the Participant, the guardian or legal
representative of the Participant named in the Stock Option Agreement, or any
person to whom a Stock Option is transferred in accordance with the preceding
sentence.

 

(e)                                  Employment Termination.  If
a Participant incurs a Termination of Employment for any reason, any Stock
Option held by such Participant may thereafter be exercised until the
expiration of the stated term of such Stock Option as provided in Section 6(a).

 

(f)                                    Deferral of Option Shares.  Solely
to the extent permitted by law, the Committee may, in its sole discretion, from
time to time establish procedures pursuant to which a Participant may elect to
defer, until a time or times later than the exercise of a Stock Option, receipt
of all or a portion of the Shares subject to such Stock Option and/or to
receive cash at such later time or times in lieu of such deferred Shares, all
on such terms and conditions as the Committee shall determine.  If any such deferrals are permitted, then
notwithstanding Section 5(d) above, a Participant who elects such
deferral shall not have any rights as a stockholder with respect to such
deferred Shares unless and until Shares are actually delivered to the
Participant with respect thereto, except to the extent otherwise determined by
the Committee.

 

(g)                                 Other Agreement.  Notwithstanding
anything herein to the contrary, as a condition to the receipt of Shares
pursuant to a Stock Option granted under this Plan prior to the Registration
Date, to the extent required by the Committee, the Participant shall execute
and deliver a stockholder’s agreement or such other documentation which shall
set forth certain restrictions on transferability of the Shares acquired upon
exercise or purchase, a right of first refusal of the Corporation with respect
to Shares, and such other terms or restrictions as the Committee shall from
time to time establish.  Such stockholder’s
agreement or other documentation shall apply to the Shares acquired under the
Plan and covered by such stockholder’s agreement or other documentation.  The Corporation may require, as a condition
of exercise, the option holder to become a party to any other existing
stockholder agreement or other agreement.

 

SECTION 7.   Withholding Taxes; Tax Offset Bonus

 

As a condition to the purchase of Shares pursuant to the exercise of a
Stock Option, a Participant shall make such arrangements as the Committee may
require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such receipt or
purchase.  The Participant shall also
make such arrangements as the Committee may require for the satisfaction of any
federal, state, local or foreign withholding obligations that may arise in
connection with the disposition of Option Shares.

 

No later than the date as of which an amount first becomes includible
in the gross income of the Participant for federal income tax purposes with
respect to any Stock Option under the Plan, the Participant shall pay to the
Corporation, or make arrangements satisfactory to the Corporation 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 Corporation, withholding obligations
may be settled with Shares, including Shares that are part of the Stock Option
that gives rise to the withholding requirement. 
The obligations of the Corporation under the Plan shall be conditional
on such payment or arrangements, and the Corporation and its

 

8

 

Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.  The Committee may establish such procedures
as it deems appropriate, including making irrevocable elections, for the settlement
of withholding obligations with Shares.

 

At the time a Stock Option is granted hereunder or at any time
thereafter, the Committee may grant to the Participant receiving such Stock
Option the right to receive a cash payment in an amount specified by the
Committee, to be paid at such time or times (if ever) as the Stock Option
results in compensation income to the Participant, for the purpose of assisting
the Participant to pay the resulting taxes, all as determined by the Committee
and on such other terms and conditions as the Committee shall determine.

 

The Corporation shall have the right to deduct from any payment to be
made to a Participant, or otherwise require, prior to the issuance or delivery
of Shares or the payment of cash hereunder, payment of any taxes required to be
withheld by law.

 

SECTION 8.   Securities Law Requirements

 

Option Shares shall not be issued under the Plan unless the issuance
and delivery of such Option Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Corporation’s securities may then be
traded.  The Corporation shall not be
obligated to file any registration statement under any applicable securities
laws to permit the purchase or issuance of any Option Shares under the Plan,
and accordingly any certificates for such shares may have an appropriate legend
or statement of applicable restrictions endorsed thereon.  Each Participant and any person deriving its
rights from any Participant shall, as a condition to the purchase or issuance
of any Option Shares under the Plan, deliver to the Corporation an agreement or
certificate containing such representations, warranties and covenants as the
Corporation may deem necessary or appropriate to ensure that the issuance of
Option Shares is not required to be registered under any applicable securities
laws.

 

SECTION 9.   Term, Amendment and Termination

 

The Plan will terminate ten (10) years after the Effective Date of
the Plan.  Under the Plan, Stock Options
outstanding as of such date shall not be affected or impaired by the
termination of the Plan.

 

The Board or the Committee may amend, alter, or discontinue the Plan,
but no amendment, alteration or discontinuation shall be made which would materially
impair the rights of a Participant under a Stock Option theretofore granted
without the Participant’s consent.  In
addition, no such amendment shall be made without the approval of the
Corporation’s stockholders to the extent such approval is required by law or
agreement.

 

The Board or the Committee may amend the terms of any Stock Option
theretofore granted, prospectively or retroactively, but no such amendment
shall materially impair the rights of any holder without the holder’s consent.

 

9

 

SECTION 10.   Unfunded Status of Plan

 

It is presently intended that the Plan constitute an “unfunded” plan
for incentive and deferred compensation. 
The Board may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver Shares or make payments;
provided, however, that unless the Board otherwise determines, the existence
of such trusts or other arrangements is consistent with the “unfunded” status
of the Plan.

 

SECTION 11.   General Provisions

 

(a)                                  The
Committee may require each person purchasing or receiving shares pursuant to a
Stock Option to represent to and agree with the Corporation in writing that
such person is acquiring the Shares without a view to the public resale or
distribution thereof in violation of applicable securities laws.  The certificates for such Shares may include
any legend which the Committee deems appropriate to reflect any restrictions on
transfer.

 

Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for Shares under the Plan prior to fulfillment of
each of the following conditions:

 

(i)                                     any
registration or other qualification of such shares of the Corporation under any
state or federal law or regulation, or the maintaining in effect of any such
registration or other qualification which the Committee shall, in its absolute
discretion upon the advice of counsel, deem necessary or advisable; and

 

(ii)                                  obtaining
any other consent, approval, or permit from any state or federal governmental
agency which the Committee shall, in its absolute discretion after receiving
the advice of counsel, determine to be necessary or advisable.

 

(b)                                 Nothing
contained in the Plan shall prevent the Corporation or any subsidiary of the
Corporation or Affiliate from adopting other or additional compensation
arrangements for its employees.

 

(c)                                  Adoption
of the Plan shall not confer upon any employee any right to continued
employment or consultancy, nor shall it interfere in any way with the right of
the Corporation or any subsidiary of the Corporation or Affiliate to terminate
the employment of any employee at any time.

 

(d)                                 The
Committee shall establish such procedures as it deems appropriate for a
Participant to designate a beneficiary to whom any amounts payable in the event
of the Participant’s death are to be paid or by whom any rights of the
Participant, after the Participant’s death, may be exercised.

 

(e)                                  In
the case of a grant of a Stock Option to any employee of a subsidiary of the
Corporation, the Corporation may, if the Committee so directs, issue or
transfer the Shares, if any, covered by the Stock Option to the subsidiary, for
such lawful consideration as the Committee may specify, upon the condition or
understanding that the subsidiary thereafter will

 

10

 

transfer the Shares to the employee in accordance with the terms of the
Stock Option specified by the Committee pursuant to the provisions of the Plan.

 

(f)                                    The
Plan and all Stock Options granted and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of New York
without reference to principles of conflict of laws.

 

11

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