Exhibit 10.29

SCIENTIFIC LEARNING CORPORATION

MILESTONE EQUITY INCENTIVE PLAN

Adopted February 25, 2003
Approved By Stockholders May 21, 2003
Amended January 28, 2004
Approved By Stockholders _________, 2004
Termination Date: February 24, 2013

 

1.              PURPOSES.

                (a)            The purpose of the Plan is to provide a means by
which selected Employees, Directors and Consultants may be given an opportunity
to benefit from increases in value of the common stock of the Company (the
“Common Stock”) through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock and (v) Stock Appreciation Rights.

                (b)            The Company, by means of the Plan, seeks to
retain the services of persons who are now Employees, Directors or Consultants,
to secure and retain the services of new Employees, Directors and Consultants
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.

                (c)            The Company intends that the Stock Awards issued
under the Plan shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be (i) Options granted pursuant to Section 6 hereof, including
Incentive Stock Options and Nonstatutory Stock Options, (ii) rights to purchase
restricted stock or to receive stock bonuses pursuant to Section 7 hereof or
(iii) Stock Appreciation Rights granted pursuant to Section 8 hereof. All
Options shall be separately designated Incentive Stock Options or Nonstatutory
Stock Options at the time of grant, and in such form as issued pursuant to
Section 6, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option.

 

2.              DEFINITIONS.

                (a)            “Affiliate” means any parent corporation or
subsidiary corporation, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f) respectively, of the Code.

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

                (c)            “Code” means the Internal Revenue Code of 1986,
as amended.

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                (d)            “Committee” means a Committee appointed by the
Board in accordance with subsection 3(c) of the Plan.

                (e)            “Company” means Scientific Learning Corporation,
a Delaware corporation.

                (f)             “Consultant” means any person, including an
advisor, engaged by the Company or an Affiliate to render consulting services
and who is compensated for such services, provided that the term “Consultant”
shall not include Directors who are paid only a director’s fee by the Company or
who are not compensated by the Company for their services as Directors.

                (g)            “Continuous Service” means that the Optionee’s
employment or service with the Company or an Affiliate of the Company, whether
in the capacity of an Employee, a Director or a Consultant, is not interrupted
or terminated. The Optionee’s Continuous Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders employment or service to the Company or an Affiliate or the Company or a
change in the entity for which the Optionee renders such employment or service,
provided that there is no interruption or termination of the Optionee’s
Continuous Service. The Board or the Chief Executive Officer of the Company, in
that party’s sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by the Board
or the Chief Executive Officer of the Company, including sick leave, military
leave, or any other personal leave.

                (h)            “Covered Employee” means the Chief Executive
Officer and the four (4) other highest compensated officers of the Company for
whom total compensation is required to be reported to stockholders under the
Exchange Act, as determined for purposes of Section 162(m) of the Code.

                (i)             “Director” means a member of the Board.

                (j)             “Disability” means the inability of a person, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of that person’s position with the Company or an Affiliate of the
Company because of the sickness or injury of the person.

                (k)            “Employee” means any person, including Officers
and Directors, employed by the Company or any Affiliate of the Company. Neither
service as a Director nor payment of a director’s fee by the Company shall be
sufficient to constitute “employment” by the Company.

                (l)             “Exchange Act” means the Securities Exchange Act
of 1934, as amended.

                (m)          “Fair Market Value” means, as of any date, the
value of the Common Stock of the Company determined as follows:  

                                   (1)            if the Common Stock is listed
on any established stock exchange,  traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, or quoted on the OTC Bulletin Board, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange,
market or board (or the exchange or market with the greatest volume of trading
in Common Stock) on the trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable;

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                                (2)            in the absence of such markets
for the Common Stock, the Fair Market Value shall be determined in good faith by
the Board and to the extent that the Company is subject to Section 260.140.50 of
Title 10 of the California Code of Regulations at the time a Stock Award is
granted, in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.  

                 (n)            “Incentive Stock Option” means an Option
intended to qualify as an incentive stock option within the meaning of Section
422 of the Code and the regulations promulgated thereunder.

                (o)            “Non-Employee Director”  means a Director who
either (i) is not a current Employee or Officer of the Company or its parent or
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or subsidiary for services rendered as a consultant or in
any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a “non-employee director” for purposes of Rule 16b-3.

                (p)            “Nonstatutory Stock Option” means an Option not
intended to qualify as an Incentive Stock Option.

                (q)            “Officer” means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

                (r)            “Option” means a stock option granted pursuant to
the Plan.

                (s)            “Option Agreement” means a written agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.

                (t)             “Optionee” means a person to whom an Option is
granted pursuant to the Plan, or if applicable, such other person who holds an
outstanding Option.

                (u)            “Outside Director” means a Director who either
(i) is not a current employee of the Company or an “affiliated corporation”
(within the meaning of Treasury regulations promulgated under Section 162(m) of
the Code), is not a former employee of the Company or an “affiliated
corporation” receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or an
“affiliated corporation” at any time, and is not currently receiving direct or
indirect remuneration from the Company or an “affiliated corporation” for
services in any capacity other than as a Director, or (ii) is otherwise
considered an “outside director” for purposes of Section 162(m) of the Code.

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                (v)            “Participant” means a person to whom a Stock
Award is granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Stock Award.

                (w)           “Plan” means this Scientific Learning Corporation
Milestone Equity Incentive Plan.

                (x)            “Rule 16b-3”  means Rule 16b-3 of the Exchange
Act or any successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.

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

                (z)            “Stock Appreciation Right” means any of the
various types of rights which may be granted under Section 8 of the Plan.

                (aa)         “Stock Award” means any right granted under the
Plan, including an Option, a stock bonus, a right to purchase restricted stock
and a Stock Appreciation Right.

                (bb)         “Stock Award Agreement” means a written agreement
between the Company and a holder of a Stock Award evidencing the terms and
conditions of an individual Stock Award grant. Each Stock Award Agreement shall
be subject to the terms and conditions of the Plan.

                (cc)          “Ten Percent Stockholder” means a person who owns
(or is deemed to own pursuant to Section 424(d) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any of its Affiliates.

  3.              ADMINISTRATION.  

                (a)            The Board shall administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).

                (b)            The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

 

                                 (1)            to determine from time to time
which of the persons eligible under the Plan shall be granted Stock Awards; when
and how each Stock Award shall be granted; whether a Stock Award will be an
Incentive Stock Option or a Nonstatutory Stock Option, a right to purchase
restricted stock, a Stock Appreciation Right or a combination of the foregoing;
the provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive stock
pursuant to a Stock Award; whether a person shall be permitted to receive stock
upon exercise of an Independent Stock Appreciation Right; and the number of
shares with respect to which a Stock Award shall be granted to each such person;

                                (2)            to construe and interpret the
Plan and Stock Awards granted under it, and to establish, amend and revoke rules
and regulations for its administration. The Board, in the exercise of this
power, may correct any defect, omission or inconsistency in the Plan or in any
Stock Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective;

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                                (3)            to amend the Plan or a Stock
Award as provided in Section 13; and

                                (4)            generally, to exercise such
powers and to perform such acts as the Board deems necessary or expedient to
promote the best interests of the Company which are not in conflict with the
provisions of the Plan.

                  (c)            The Board may delegate administration of the
Plan to a Committee or Committees of one or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two or more Outside
Directors, in accordance with Code Section 162(m), or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board
or the Committee may delegate to a committee of one or more members of the Board
the authority to grant Options to eligible persons who (1) are not then subject
to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Option, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.  
4.              SHARES SUBJECT TO THE PLAN.  

                 (a)            Subject to the provisions of subsection 12(a)
relating to adjustments upon changes in stock, the stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate Five Million Four
Hundred Ninety-Two Thousand Six Hundred Sixty Six (5,492,666) shares of Common
Stock, less any shares which are subject to Stock Awards granted under the
Company’s 1999 Equity Incentive Plan, as then in effect. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan. Shares
subject to Stock Appreciation Rights exercised in accordance with Section 8 of
the Plan shall not be available for subsequent issuance under the Plan.

                (b)            The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.

  5.              ELIGIBILITY.  

                (a)            Incentive Stock Options and Stock Appreciation
Rights appurtenant thereto may be granted only to Employees. Stock Awards other
than Incentive Stock Options and Stock Appreciation Rights appurtenant thereto
may be granted to Employees, Directors and Consultants.

                (b)            Ten Percent Stockholders.   A Ten Percent
Stockholder shall not be granted an Incentive Stock Option unless the exercise
price of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock on the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.

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                 (c)            Subject to the provisions of Section 12(a)
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options and Stock Appreciation Rights covering more than One Million
(1,000,000) shares of the Common Stock in any calendar year.

6.              OPTION PROVISIONS.

                  Each Option shall be in such form and shall contain such terms
and conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:  

                 (a)            Term.   No Incentive Stock Option shall be
exercisable after the expiration of ten (10) years from the date it was granted.

                (b)             Price.   Subject to the provisions of Section
5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive
Stock Option shall be not less than one hundred percent (100%) of the Fair
Market Value of the stock subject to the Option on the date the Option is
granted. The exercise price of each Nonstatutory Stock Option shall be any price
determined by the Board in its sole discretion.

                (c)            Consideration.   The purchase price of stock
acquired pursuant to an Option shall be paid, to the extent permitted by
applicable statutes and regulations, either (i) in cash or (ii) at the
discretion of the Board (A) by delivery to the Company of other Common Stock of
the Company, (B) according to a deferred payment as permitted by law (however,
payment of the common stock’s “par value,” as defined in the Delaware General
Corporation Law, shall not be made by deferred payment), or other arrangement
(which may include, without limiting the generality of the foregoing, the use of
other Common Stock of the Company) with the person to whom the Option is granted
or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration that may be acceptable to the Board.

                In the case of any deferred payment arrangement, interest shall
be compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

                (d)            Transferability.   Neither an Incentive Stock
Option nor a Nonstatutory Stock Option shall be transferable except by will or
by the laws of descent and distribution, and either shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person.
Notwithstanding the foregoing, the Optionee may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.

                (e)            Vesting.   The total number of shares of stock
subject to an Option may, but need not, be allotted in periodic installments
(which may, but need not, be equal). The Option Agreement may provide that from
time to time during each of such installment periods, the Option may become
exercisable (“vest”) with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the Option became vested but
was not fully exercised. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The vesting
provisions of individual Options may vary. The provisions of this subsection
6(e) are subject to any Option provisions governing the minimum number of shares
as to which an Option may be exercised.

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                (f)             Termination of the Optionee’s Continuous
Service.   In the event an Optionee’s Continuous Service terminates (other than
upon the Optionee’s death or Disability), the Optionee may exercise his or her
Option (to the extent that the Optionee was entitled to exercise it at the date
of termination) but only within such period of time ending on the earlier of (i)
the date three (3) months after the termination of the Optionee’s Continuous
Service (or such longer or shorter period specified in the Option Agreement, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

                An Optionee’s Option Agreement may also provide that, if the
exercise of the Option following the termination of the Optionee’s Continuous
Service (other than upon the Optionee’s death or Disability) would be prohibited
at any time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option as described in
subsection 6(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionee’s Continuous Service during which the exercise of
the Option would not be in violation of such registration requirements (if such
provisions would result in an extension of the time during which the Option may
be exercised beyond the period described in the first paragraph of this
subsection 6(f)).

                (g)            Disability of Optionee.   In the event an
Optionee’s Continuous Service terminates as a result of the Optionee’s
Disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

                (h)            Death of Optionee.   In the event of the death of
an Optionee during, or within a period specified in the Option after the
termination of, the Optionee’s Continuous Service, the Option may be exercised
(to the extent the Optionee was entitled to exercise the Option at the date of
death) by the Optionee’s estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionee’s death pursuant to subsection 6(d), but only within
the period ending on the earlier of (i) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth in
the Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.

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                (i)             Early Exercise.   The Option may, but need not,
include a provision whereby the Optionee may elect at any time before the
Optionee’s Continuous Service terminates to exercise the Option as to any part
or all of the shares subject to the Option prior to the full vesting of the
Option. Any unvested shares so purchased may be subject to a repurchase right in
favor of the Company or to any other restriction the Board determines to be
appropriate.

7.              PROVISIONS OF STOCK BONUS AND RESTRICTED STOCK AWARDS.

                  (a)            Stock Bonus Awards.   Each stock bonus
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of stock bonus
agreements may change from time to time, and the terms and conditions of
separate stock bonus agreements need not be identical, but each stock bonus
agreement shall include (through incorporation of provisions hereof by reference
in the agreement or otherwise) the substance of each of the following
provisions:    

                                 (i)             Consideration.   A stock bonus
may be awarded in consideration for past services actually rendered to the
Company or an Affiliate for its benefit.

                                (ii)            Vesting.   Shares of Common
Stock awarded under the stock bonus agreement may, but need not, be subject to a
share repurchase option in favor of the Company in accordance with a vesting
schedule to be determined by the Board.

                                (iii)          Termination of Participant’s
Continuous Service.  In the event that a Participant’s Continuous Service
terminates, the Company may reacquire any or all of the shares of Common Stock
held by the Participant that have not vested as of the date of termination under
the terms of the stock bonus agreement. The Company will not exercise its
repurchase option until at least six (6) months (or such longer or shorter
period of time required to avoid a change to earnings for financial accounting
purposes) have elapsed following receipt of the stock bonus unless otherwise
specifically provided in the stock bonus agreement.

                                (iv)          Transferability.   Rights to
acquire shares of Common Stock under the stock bonus agreement shall be
transferable by the Participant only upon such terms and conditions as are set
forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.

                   (b)            Restricted Stock Awards.   Each restricted
stock purchase agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The terms and conditions of the
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

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                                (i)             Purchase Price.   The purchase
price of restricted stock awards shall not be less than eighty-five percent
(85%) of the Common Stock’s Fair Market Value on the date such award is made or
at the time the purchase is consummated.

                                (ii)            Consideration.   The purchase
price of Common Stock acquired pursuant to the restricted stock purchase
agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the
discretion of the Board, according to a deferred payment or other similar
arrangement with the Participant; or (iii) in any other form of legal
consideration that may be acceptable to the Board in its discretion; provided,
however, that at any time that the Company is incorporated in Delaware, then
payment of the Common Stock’s “par value,” as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.

                                (iii)          Vesting.  Shares of Common Stock
acquired under the restricted stock purchase agreement may, but need not, be
subject to a share repurchase option in favor of the Company in accordance with
a vesting schedule to be determined by the Board.

                                (iv)          Termination of Participant’s
Continuous Service.  In the event that a Participant’s Continuous Service
terminates, the Company may repurchase or otherwise reacquire any or all of the
shares of Common Stock held by the Participant that have not vested as of the
date of termination under the terms of the restricted stock purchase agreement.
The Company will not exercise its repurchase option until at least six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes) have elapsed following the purchase
of the restricted stock unless otherwise provided in the restricted stock
purchase agreement.

                                (v)            Transferability.  Rights to
acquire shares of Common Stock under the restricted stock purchase agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the restricted stock purchase agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the
restricted stock purchase agreement remains subject to the terms of the
restricted stock purchase agreement.

  8.              STOCK APPRECIATION RIGHTS.  

                (a)            To exercise any outstanding Stock Appreciation
Right, the holder must provide written notice of exercise to the Company in
compliance with the provisions of the Stock Award Agreement evidencing such
right. Except as provided in subsection 5(c), no limitation shall exist on the
aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation Right.

                (b)            Three types of Stock Appreciation Rights shall be
authorized for issuance under the Plan:

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                                (1)            Tandem Stock Appreciation Rights.
  Tandem Stock Appreciation Rights will be granted appurtenant to an Option, and
shall, except as specifically set forth in this Section 8, be subject to the
same terms and conditions applicable to the particular Option grant to which it
pertains. Tandem Stock Appreciation Rights will require the holder to elect
between the exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercised Tandem Right shall be in
cash (or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the Option surrender) in an amount up to the
excess of (A) the Fair Market Value (on the date of the Option surrender) of the
number of shares of stock covered by that portion of the surrendered Option in
which the Optionee is vested over (B) the aggregate exercise price payable for
such vested shares.

                                (2)            Concurrent Stock Appreciation
Rights.   Concurrent Rights will be granted appurtenant to an Option and may
apply to all or any portion of the shares of stock subject to the underlying
Option and shall, except as specifically set forth in this Section 8, be subject
to the same terms and conditions applicable to the particular Option grant to
which it pertains. A Concurrent Right shall be exercised automatically at the
same time the underlying Option is exercised with respect to the particular
shares of stock to which the Concurrent Right pertains. The appreciation
distribution payable on an exercised Concurrent Right shall be in cash (or, if
so provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Concurrent Right) in an amount equal to
such portion as shall be determined by the Board or the Committee at the time of
the grant of the excess of (A) the aggregate Fair Market Value (on the date of
the exercise of the Concurrent Right) of the vested shares of stock purchased
under the underlying Option which have Concurrent Rights appurtenant to them
over (B) the aggregate exercise price paid for such shares.

                                (3)            Independent Stock Appreciation
Rights.   Independent Rights will be granted independently of any Option and
shall, except as specifically set forth in this Section 8, be subject to the
same terms and conditions applicable to Nonstatutory Stock Options as set forth
in Section 6. They shall be denominated in share equivalents. The appreciation
distribution payable on the exercised Independent Right shall be not greater
than an amount equal to the excess of (A) the aggregate Fair Market Value (on
the date of the exercise of the Independent Right) of a number of shares of
Company stock equal to the number of share equivalents in which the holder is
vested under such Independent Right, and with respect to which the holder is
exercising the Independent Right on such date, over (B) the aggregate Fair
Market Value (on the date of the grant of the Independent Right) of such number
of shares of Company stock. The appreciation distribution payable on the
exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Independent Right.

  9.              COVENANTS OF THE COMPANY.  

                (a)            During the terms of the Stock Awards, the Company
shall keep available at all times the number of shares of stock required to
satisfy such Stock Awards.

                (b)            The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to issue and sell shares under Stock Awards; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act the Plan, any Stock Award or any stock issued or issuable
pursuant to any such Stock Award. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Stock Awards unless and
until such authority is obtained.

10.

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10.           USE OF PROCEEDS FROM STOCK.                   Proceeds from the
sale of stock pursuant to Stock Awards shall constitute general funds of the
Company.   11.           MISCELLANEOUS.  

                (a)            The Board shall have the power to accelerate the
time at which a Stock Award may first be exercised or the time during which a
Stock Award or any part thereof will vest, notwithstanding the provisions in the
Stock Award stating the time at which it may first be exercised or the time
during which it will vest.

                (b)            Neither the recipient of a Stock Award nor any
person to whom a Stock Award is transferred in accordance with the Plan shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

                (c)            Nothing in the Plan or any instrument executed or
Stock Award granted pursuant thereto shall confer upon any recipient or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate or to continue serving as a Consultant or a Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant’s agreement with the Company or Affiliate or service as a Director
pursuant to the Company’s Bylaws and the provisions of the corporate law of the
state in which the Company is incorporated.

                (d)            To the extent that the aggregate Fair Market
Value (determined at the time of grant) of stock with respect to which Incentive
Stock Options are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.

                (e)            The Company may require any person to whom a
Stock Award is granted, or any person to whom a Stock Award is transferred in
accordance with the Plan, as a condition of exercising or acquiring stock under
any Stock Award, (1) to give written assurances satisfactory to the Company as
to such person’s knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters,
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person’s own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.

11.

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                (f)             To the extent provided by the terms of a Stock
Award Agreement, the person to whom a Stock Award is granted may satisfy any
federal, state or local tax withholding obligation relating to the exercise or
acquisition of stock under a Stock Award by any of the following means (in
addition to the Company’s right to withhold from any compensation paid to such
person by the Company) or by a combination of such means:  (1) tendering a cash
payment; (2) authorizing the Company to withhold shares from the shares of the
Common Stock otherwise issuable to the participant as a result of the exercise
or acquisition of stock under the Stock Award; provided, however, that no shares
of Common Stock are withheld with a value exceeding the minimum amount of tax
required to be withheld by law (or such lesser amount as may be necessary to
avoid variable award accounting); or (3) delivering to the Company owned and
unencumbered shares of the Common Stock of the Company.

                (g)            Repurchase Limitation.   The terms of any
repurchase option shall be specified in the Stock Award Agreement, and the
repurchase price may be either the Fair Market Value of the shares of Common
Stock or the lower of (i) the Fair Market Value of the shares of Common Stock on
the date of repurchase or (ii) their original purchase price.

  12.           ADJUSTMENTS UPON CHANGES IN STOCK.  

                (a)            If any change is made in the stock subject to the
Plan, or subject to any Stock Award, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the maximum number of shares subject to award to any person
during any calendar year pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to such outstanding Stock Awards. Such
adjustments shall be made by the Board, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a “transaction not involving the receipt of
consideration by the Company”.)

                (b)            In the event of a proposed dissolution or
liquidation of the Company, the Board shall notify the Stock Award holder at
least fifteen (15) days prior to such proposed action. To the extent it has not
been previously exercised, the Stock Award shall terminate immediately prior to
the consummation of such proposed action.

12.

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                (c)            In the event of:  (1) a dissolution, liquidation
or sale of all or substantially all of the assets of the Company; (2) a merger
or consolidation in which the Company is not the surviving corporation; or (3) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then (i) any surviving corporation or acquiring corporation
shall assume any Stock Awards outstanding under the Plan or shall substitute
similar stock awards (including an award to acquire the same consideration paid
to the stockholders in the transaction described in this subsection 12(b)) for
those outstanding under the Plan, or (ii) in the event any surviving corporation
or acquiring corporation refuses to assume such Stock Awards or to substitute
similar stock awards for those outstanding under the Plan, (A) with respect to
Stock Awards held by persons whose Continuous Service has not terminated, the
vesting of such Stock Awards (and, if applicable, the time during which such
Stock Awards may be exercised) shall be accelerated prior to such event and the
Stock Awards terminated if not exercised (if applicable) after such acceleration
and at or prior to such event, and (B) with respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall be terminated if not
exercised (if applicable) prior to such event.

                (d)            In the event of the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Exchange
Act, or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or any Affiliate
of the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then, with respect to Stock
Awards held by persons whose Continuous Service has not terminated, the vesting
of such Stock Awards (and, if applicable, the time during which such Stock
Awards may be exercised) shall be accelerated immediately upon the happening of
such event.

  13.           AMENDMENT OF THE PLAN AND STOCK AWARDS.  

                (a)            The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary for the Plan to satisfy the requirements of Section 422 of the
Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

                (b)            The Board may in its sole discretion submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.

                (c)            It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or advisable to provide
eligible Optionees with the maximum benefits provided or to be provided under
the provisions of the Code and the regulations promulgated thereunder relating
to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock
Options granted under it into compliance therewith.

13.

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                (d)            Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.

                (e)            The Board at any time, and from time to time, may
amend the terms of any one or more Stock Awards; provided, however, that the
rights under any Stock Award shall not be impaired by any such amendment unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.

  14.           TERMINATION OR SUSPENSION OF THE PLAN.  

                (a)            The Board may suspend or terminate the Plan at
any time. Unless sooner terminated, the Plan shall terminate ten (10) years from
the date the Plan is adopted by the Board or approved by the stockholders of the
Company, whichever is earlier. No Stock Awards may be granted under the Plan
while the Plan is suspended or after it is terminated. Notwithstanding the
foregoing, all Incentive Stock Options shall be granted, if at all, no later
than the last day preceding the tenth (10th) anniversary of the earlier of (i)
the date on which the latest increase in the maximum number of shares issuable
under the Plan was approved by the stockholders of the Company or (ii) the date
such amendment was adopted by the Board.

                (b)            Rights and obligations under any Stock Award
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the consent of the person to whom the Stock
Award was granted.

  15.           EFFECTIVE DATE OF PLAN.  

                The Plan shall become effective as of the date the Board adopts
the Plan, but no Options or rights to purchase restricted stock granted under
the Plan shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan was adopted by the Board.

14.

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