SCIENTIFIC LEARNING CORPORATION

MILESTONE EQUITY INCENTIVE PLAN

ADOPTED FEBRUARY 25, 2003
APPROVED BY STOCKHOLDERS __________, 2003
TERMINATION DATE: ___________ __, 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.

        (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.

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        (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;

                        (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.

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        (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.

        (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.

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        (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;

                        (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.

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        (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 Four Million Six Hundred Forty
Two Thousand Six Hundred Sixty Six (4,642,666) 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.

        (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.

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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:

                        (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.

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                        (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:

                        (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.

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                        (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.

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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.

        (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.

12.

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        (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.

        (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.

13.

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        (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.

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