Exhibit 10.1

 

CREDENCE SYSTEMS CORPORATION

1993 STOCK OPTION PLAN

(AS AMENDED AND RESTATED THROUGH MARCH 19, 2003)

 

ARTICLE ONE

GENERAL

 

I.    PURPOSE OF THE PLAN

 

A.    This 1993 Stock Option Plan (“Plan”) is intended to promote the interests
of Credence Systems Corporation, a Delaware corporation (the “Corporation”), by
providing (i) key employees (including officers) of the Corporation (or its
parent or subsidiary corporations) who are responsible for the management,
growth and financial success of the Corporation (or its parent or subsidiary
corporations), (ii) the non-employee members of the Corporation’s Board of
Directors and (iii) consultants who provide valuable services to the Corporation
(or its parent or subsidiary corporations) with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the Corporation
(or its parent or subsidiary corporations).

 

B.    The Discretionary Option Grant Program under this Plan became effective on
the first date on which the shares of the Corporation’s Common Stock were
registered under Section 12(g) of the Securities Exchange Act of 1934. Such date
is hereby designated as the Effective Date for that program. The Automatic
Option Grant Program under this Plan became effective immediately upon the
execution and final pricing of the Underwriting Agreement for the initial public
offering of the Corporation’s Common Stock. The execution date of such
Underwriting Agreement is hereby designated as the Effective Date of the
Automatic Option Grant Program. The Stock Issuance Program under this Plan
became effective immediately upon the date that the holders of a majority of the
outstanding shares of Common Stock of the Corporation present and entitled to
vote thereon, approved an amendment to this Plan which included the adoption of
the Stock Issuance Program. Such date is hereby designated as the Effective Date
for the Stock Issuance Program.

 

C.    This Plan shall serve as the successor to (i) the Corporation’s 1984
Incentive Stock Option Plan (the “1984 Plan”) and (ii) the ASIX Systems
Corporation 1989 Stock Option Plan (the “ASIX Plan”) which the Corporation
assumed in connection with its acquisition of ASIX Systems Corporation by merger
effected October 27, 1989. The 1984 Plan and ASIX Plan shall be collectively
referred to in this document as the “Predecessor Plans”, and no further option
grants or stock issuances shall be made under the Predecessor Plans from and
after the Effective Date of this Plan. All options outstanding under the
Predecessor Plans on the Effective Date of the Discretionary Option Grant
Program are hereby incorporated into this Plan and shall accordingly be treated
as outstanding options under this Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the express terms and
conditions of the instrument evidencing such grant, and no provision of this
Plan shall be deemed to affect or otherwise modify the rights or obligations of
the holders of such incorporated options with respect to their acquisition of
shares of the Corporation’s Common Stock thereunder.

 

II.    DEFINITIONS

 

A.    For purposes of the Plan, the following definitions shall be in effect:

 

BOARD:    the Corporation’s Board of Directors.

 

CODE:    the Internal Revenue Code of 1986, as amended.

 

COMMITTEE:    the committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.

 

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COMMON STOCK:    shares of the Corporation’s common stock.

 

CHANGE IN CONTROL:    a change in ownership or control of the Corporation
effected through either of the following transactions:

 

  a.   any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation’s outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation’s stockholders; or

 

  b.   there is a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time such election or nomination was approved by the Board.

 

CORPORATE TRANSACTION:    any of the following stockholder-approved transactions
to which the Corporation is a party:

 

  a.   a merger or consolidation in which the Corporation is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State in which the Corporation is incorporated,

 

  b.   the sale, transfer or other disposition of all or substantially all of
the assets of the Corporation in complete liquidation or dissolution of the
Corporation, or

 

  c.   any reverse merger in which the Corporation is the surviving entity but
in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.

 

EMPLOYEE:    an individual who performs services while in the employ of the
Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.

 

FAIR MARKET VALUE:    the fair market value per share of Common Stock determined
in accordance with the following provisions:

 

  a.   If the Common Stock is not at the time listed or admitted to trading on
any national stock exchange but is traded on the Nasdaq National Market, the
Fair Market Value shall be the closing price per share on the date in question,
as such price is reported by the National Association of Securities Dealers on
the Nasdaq National Market and published in THE WALL STREET JOURNAL. If there is
no reported closing price for the Common Stock on the date in question, then the
closing price on the last preceding date for which such quotation exists shall
be determinative of Fair Market Value.

 

  b.   If the Common Stock is at the time listed or admitted to trading on any
national stock exchange, then the Fair Market Value shall be the closing price
per share on the date in question on the exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange and
published in THE WALL STREET JOURNAL. If there is no reported sale of Common
Stock on such exchange on the date in question, then the Fair Market Value shall
be the closing price on the exchange on the last preceding date for which such
quotation exists.

 

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FIRST TRADING DAY:    the first trading day of each fiscal year of the
Corporation.

 

HOSTILE TAKE-OVER:    a change in ownership of the Corporation effected through
a transaction in which any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation’s outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation’s stockholders which the Board
does not recommend such stockholders to accept.

 

1934 ACT:    the Securities Exchange Act of 1934, as amended from time to time.

 

OPTIONEE:    any person to whom an option is granted under either the
Discretionary Option Grant or Automatic Option Grant Program in effect under the
Plan.

 

PLAN ADMINISTRATOR:    the Committee in its capacity as the administrator of the
Plan.

 

PERMANENT DISABILITY OR PERMANENTLY DISABLED:    the inability of the Optionee
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

 

SERVICE:    the performance of services on a periodic basis to the Corporation
(or any parent or subsidiary corporation) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or advisor, except
to the extent otherwise specifically provided in the applicable stock option
agreement.

 

TAKE-OVER PRICE:    the GREATER of (a) the Fair Market Value per share of Common
Stock on the date the option is surrendered to the Corporation in connection
with a Hostile Take-Over or (b) the highest reported price per share of Common
Stock paid by the tender offeror in effecting such Hostile Take-Over. However,
if the surrendered option is an incentive stock option under the Federal tax
laws, the Take-Over Price shall not exceed the clause (a) price per share.

 

B.    The following provisions shall be applicable in determining the parent and
subsidiary corporations of the Corporation:

 

Any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation shall be considered to be a PARENT of
the Corporation, provided each such corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

 

Each corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation shall be considered to be a
SUBSIDIARY of the Corporation, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.

 

III.    STRUCTURE OF THE PLAN

 

A.    STOCK PROGRAMS.    The Plan shall be divided into three separate
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock in accordance with the
provisions of Article Two. Under the Automatic Option Grant Program,
non-employee members of the Corporation’s Board of Directors (the “Board”) will
receive periodic option grants to purchase shares of Common Stock in accordance
with the provisions of Article Three. Under the Stock

 

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Issuance Program, eligible individuals may, at the discretion of the Plan
Administrator, be granted shares of Common Stock in accordance with the
provisions of Article Four.

 

B.    GENERAL PROVISIONS.    Unless the context clearly indicates otherwise, the
provisions of Articles One and Five shall apply to the Discretionary Option
Grant Program, the Automatic Option Grant Program and the Stock Issuance Program
and shall accordingly govern the interests of all individuals under the Plan.

 

IV.    ADMINISTRATION OF THE PLAN

 

A.    The Discretionary Option Grant Program shall be administered by the
Committee. Members of the Committee shall serve for such period of time as the
Board may determine and shall be subject to removal by the Board at any time.

 

B.    The Committee as Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant
Program and the Stock Issuance Program and to make such determinations under,
and issue such interpretations of, the provisions of each of such programs and
any outstanding option or share grants thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Discretionary Option Grant Program, the
Stock Issuance Program or any outstanding option or share thereunder.

 

C.    Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Committee as Plan Administrator shall exercise no discretionary
functions with respect to option grants made pursuant to that program.

 

V.    SHARE AND OPTION GRANTS

 

A.    The persons eligible to participate in the Discretionary Option Grant
Program under Article Two and the Stock Issuance Program under Article Four are
as follows:

 

  (i)   officers and other key employees of the Corporation (or its parent or
subsidiary corporations) who render services which contribute to the management,
growth and financial success of the Corporation (or its parent or subsidiary
corporations);

 

  (ii)   non-employee Board members; and

 

  (iii)   those consultants who provide valuable services to the Corporation (or
its parent or subsidiary corporations).

 

B.    The Plan Administrator shall have full authority to determine, with
respect to the option grants made under the Plan, which eligible individuals are
to receive option grants, the number of shares to be covered by each such grant,
the status of the granted option as either an incentive stock option (“Incentive
Option”) which satisfies the requirements of Code Section 422 or a non-statutory
option not intended to meet such requirements, the time or times at which each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding.

 

C.    The Plan Administrator shall have full authority to determine, with
respect to the stock grants made under the Plan, which eligible individuals are
to receive stock grants and the number of shares to be granted.

 

VI.    STOCK SUBJECT TO THE PLAN

 

A.    Shares of Common Stock shall be available for issuance under the Plan and
shall be drawn from either the Corporation’s authorized but unissued shares of
Common Stock or from reacquired shares of Common Stock,

 

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including shares repurchased by the Corporation on the open market. The maximum
number of shares of Common Stock that may be issued over the term of the Plan
shall not exceed 13,938,238 shares, subject to adjustment from time to time in
accordance with the provisions of this Section VI.

 

Such authorized share reserve reflects the 2-for-1 split of the Corporations
outstanding Common Stock effected on May 17, 2000, the 3-for-2 split of the
Corporation’s outstanding Common Stock effected June 5, 1995, the 1-for-3
reverse stock split of the Corporation’s outstanding Common Stock effected
October 7, 1993, and is comprised of the following:

 

  (i)   the number of shares which remained available for issuance, as of the
Effective Date of the Discretionary Option Grant Program, under the 1984 Plan as
last approved by the Corporation’s stockholders, including the shares subject to
the outstanding options incorporated into this Plan and any other shares which
would have been available for future option grant under the 1984 Plan as last
approved by the stockholders (estimated to be 3,863,514 shares in the aggregate
on a post-split basis);

 

  (ii)   286,488 shares (on a post-split basis) subject to options outstanding
under the ASIX Plan as of the Effective Date and incorporated into this Plan;

 

  (iii)   an additional 600,000-share increase (on a post-split basis)
authorized by the Board under this Plan and approved by the stockholders prior
to the Effective Date;

 

  (iv)   an additional 1,500,000-share increase (on a post-split basis)
authorized by the Board on January 23, 1995 and approved by the stockholders at
the 1995 Annual Stockholders Meeting;

 

  (v)   an additional 1,000,000-share increase authorized by the Board on
January 26, 1996 and approved by the Corporation’s stockholders at the 1996
Annual Stockholders Meeting;

 

  (vi)   an additional 1,000,000-share increase authorized by the Board on
February 12, 1997 and approved by the stockholders at the 1997 Annual
Stockholders Meeting;

 

  (vii)   an additional 1,000,000-share increase authorized by the Board on
February 13, 1998 and approved by the stockholders at the 1998 Annual
Stockholders Meeting;

 

  (viii)   an additional 815,636-share increase effected October 31, 1998
pursuant to the automatic share increase provisions of Section VI.C. of this
Article One;

 

  (ix)   an additional 2,000,000-share increase authorized by the Board on
January 22, 1999 and approved by the stockholders at the 1999 Annual Meeting;

 

  (x)   an additional 872,600-share increase effected October 31, 1999 pursuant
to the automatic share increase provisions of Section VI.C. of this Article One;
and

 

  (xi)   an additional increase of 1,000,000 shares authorized by the Board on
February 9, 2000, and approved by the stockholder at the 2000 Annual Meeting.

 

B.    To the extent one or more outstanding options under the Predecessor Plans
which have been incorporated into this Plan are subsequently exercised, the
number of shares issued with respect to each such option shall reduce, on a
share-for-share basis, the number of shares available for issuance under this
Plan.

 

C.    The number of shares of Common Stock reserved for issuance under this Plan
will automatically be increased on the First Trading Day of each fiscal year
over the remaining term of the Plan, beginning with the November 1, 2000 First
Trading Day, by an amount equal to three and one-half percent (3.5%) of the
total number of shares of Common Stock outstanding on the last trading day of
the immediately preceding fiscal year, but in no event shall any such annual
increase exceed 3,000,000 shares.

 

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D.    No one person participating in the Plan may receive options and separately
exercisable stock appreciation rights for more than 2,000,000 shares (on a
post-split basis) of Common Stock in the aggregate over the remaining term of
the Plan, subject to adjustment from time to time in accordance with the
provisions of this Section VI. For purposes of such limitation, no stock options
or stock appreciation rights granted prior to January 1, 1995 shall be taken
into account. The 500,000-share increase to such limit adopted by the Board on
January 22, 1999 was approved by the stockholders at the 1999 Annual Meeting. No
one person participating in the Plan may receive shares under the Stock Issuance
Program that are intended to qualify as performance-based under Code Section
162(m) in excess of 2,000,000 shares of Common Stock in the aggregate over the
remaining term of the Plan, subject to adjustment from time to time in
accordance with the provisions of this Section VI.

 

E.    Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two), then the shares subject to the portion of each
option not so exercised shall be available for subsequent option grants under
the Plan. Unvested shares issued under the Plan and subsequently repurchased by
the Corporation, at the original exercise or purchase price paid per share,
pursuant to the Corporation’s repurchase rights or Article Four, Section I(B)(6)
under the Plan shall be added back to the number of shares of Common Stock
reserved for issuance under the Plan and shall accordingly be available for
reissuance through one or more subsequent option grants or stock issuances under
the Plan. However, shares subject to any option or portion thereof surrendered
in accordance with Section III of Article Two or Section III of Article Three
shall reduce on a share-for-share basis the number of shares of Common Stock
available for subsequent option grants under the Plan. Should the option price
of an outstanding option under the Plan (including any option incorporated from
the Predecessor Plans) be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an outstanding stock option under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock actually issued.

 

F.    Should any change be made to the Common Stock issuable under the Plan by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation’s receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities by which the share reserve is to increase automatically on the First
Trading of each fiscal year pursuant to the provisions of Section VI.C of this
Article One, (iii) the maximum number and/or class of securities for which any
one person may be granted options and separately exercisable stock appreciation
rights under the Plan from and after January 1, 1995, (iv) the number and/or
class of securities for which automatic option grants are to be subsequently
made per newly-elected or continuing non-employee Board member under the
Automatic Option Grant Program, (v) the number and/or class of securities and
price per share in effect under each option outstanding under either the
Discretionary Option Grant or Automatic Option Grant Program, (vi) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plans and (vii) the
number and/or class of securities issued under the Stock Issuance Program. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

 

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ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

 

I.    TERMS AND CONDITIONS OF OPTIONS

 

Options granted pursuant to the Discretionary Option Grant Program shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator’s discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.

 

A.    OPTION PRICE.

 

  (1)   The option price per share shall be fixed by the Plan Administrator but
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the option grant date.

 

  (2)   The option price shall become immediately due upon exercise of the
option and, subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:

 

  •   full payment in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation’s earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date (as such
term is defined below);

 

  •   full payment in cash or check drawn to the Corporation’s order;

 

  •   full payment in a combination of shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation’s earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date and cash or check drawn to the Corporation’s order; or

 

  •   full payment through a broker-dealer sale and remittance procedure
pursuant to which the Optionee (I) shall provide irrevocable instructions to a
designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate option price payable
for the purchased shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Corporation in connection with
such purchase and (II) shall provide directives to the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.

 

For purposes of this subparagraph (2), the Exercise Date shall be the date on
which the notice of the option exercise is delivered to the Corporation. Except
to the extent the sale and remittance procedure is utilized in connection with
the exercise of the option, payment of the option price for the purchased shares
must accompany such notice.

 

B.    TERM AND EXERCISE OF OPTIONS.    Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date.

 

C.    LIMITED TRANSFERABILITY OF OPTIONS.    During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee’s death. Non-Statutory Options shall be
subject to the same

 

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restriction, except that a Non-Statutory Option may be assigned in whole or in
part during the Optionee’s lifetime to one or more members of the Optionee’s
family or to a trust established exclusively for one or more such family members
or to Optionee’s former spouse, to the extent such assignment is in connection
with the Optionee’s estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee’s death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee’s death.

 

D.    TERMINATION OF SERVICE.

 

  (1)   The following provisions shall govern the exercise period applicable to
any outstanding options held by the Optionee at the time of cessation of Service
or death.

 

  •   Should an Optionee cease Service for any reason (including death or
Permanent Disability) while holding one or more outstanding options under this
Article Two, then none of those options shall (except to the extent otherwise
provided pursuant to subparagraph C.(3) below) remain exercisable for more than
a thirty-six (36)-month period (or such shorter period determined by the Plan
Administrator and set forth in the instrument evidencing the grant) measured
from the date of such cessation of Service.

 

  •   Any option held by the Optionee under this Article Two and exercisable in
whole or in part on the date of his or her death may be subsequently exercised
by the personal representative of the Optionee’s estate or by the person or
persons to whom the option is transferred pursuant to the Optionee’s will or in
accordance with the laws of descent and distribution. Such exercise, however,
must occur prior to the EARLIER of (i) the third anniversary of the date of the
Optionee’s death (or such shorter period determined by the Plan Administrator
and set forth in the instrument evidencing the grant) or (ii) the specified
expiration date of the option term. Upon the occurrence of the earlier event,
the option shall terminate and cease to be outstanding.

 

  •   During the applicable post-Service period, the option may not be exercised
in the aggregate for more than the number of shares (if any) in which the
Optionee is vested at the time of cessation of Service. Upon the expiration of
the limited post-Service exercise period or (if earlier) upon the specified
expiration date of the option term, each such option shall terminate and cease
to be outstanding with respect to any vested shares for which it has not
otherwise been exercised. However, each outstanding option shall immediately
terminate and cease to be outstanding, at the time of the Optionee’s cessation
of Service, with respect to any shares for which it is not otherwise at that
time exercisable or in which Optionee is not otherwise at that time vested.

 

  •   Under no circumstances, however, shall any such option be exercisable
after the specified expiration date of the option term.

 

  •   Should (i) the Optionee’s Service be terminated for misconduct (including,
but not limited to, any act of dishonesty, willful misconduct, fraud or
embezzlement) or (ii) the Optionee make any unauthorized use or disclosure of
confidential information or trade secrets of the Corporation or its parent or
subsidiary corporations, then in any such event all outstanding options held by
the Optionee under this Article Two shall terminate immediately and cease to be
outstanding.

 

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  (2)   The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited post-Service exercise period
applicable under subparagraph (1) above, not only with respect to the number of
vested shares of Common Stock for which each such option is exercisable at the
time of the Optionee’s cessation of Service but also with respect to one or more
subsequent installments of vested shares for which the option would otherwise
have become exercisable had such cessation of Service not occurred.

 

  (3)   The Plan Administrator shall also have full power and authority to
extend the period of time for which the option is to remain exercisable
following the Optionee’s cessation of Service or death from the limited period
in effect under subparagraph (1) above to such greater period of time as the
Plan Administrator shall deem appropriate. In no event, however, shall such
option be exercisable after the specified expiration date of the option term.

 

E.    STOCKHOLDER RIGHTS.    An Optionee shall have no stockholder rights with
respect to any shares covered by the option until such individual shall have
exercised the option and paid the option price for the purchased shares.

 

F.    REPURCHASE RIGHTS.    The shares of Common Stock acquired upon the
exercise of any Article Two option grant may be subject to repurchase by the
Corporation in accordance with the following provisions:

 

  a.   The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase any or all of those unvested shares at the option
price paid per share. The terms and conditions upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the instrument evidencing such
repurchase right.

 

  b.   All of the Corporation’s outstanding repurchase rights under this Article
Two shall automatically terminate, and all shares subject to such terminated
rights shall immediately vest in full, upon the occurrence of a Corporate
Transaction, except to the extent: (i) any such repurchase right is expressly
assigned to the successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase right
is issued.

 

  c.   The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee’s cessation of Service, to
cancel the Corporation’s outstanding repurchase rights with respect to one or
more shares purchased or purchasable by the Optionee under this Discretionary
Option Grant Program and thereby accelerate the vesting of such shares in whole
or in part at any time.

 

II.    INCENTIVE OPTIONS

 

The terms and conditions specified below shall be applicable to all Incentive
Options granted under this Article Two. Incentive Options may only be granted to
individuals who are Employees of the Corporation. Options which are specifically
designated as “non-statutory” options when issued under the Plan shall NOT be
subject to such terms and conditions.

 

A.    DOLLAR LIMITATION.    The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted under this Plan (or any other option plan of the Corporation or
its parent or subsidiary corporations) may for the first time become exercisable
as incentive stock options under the Federal tax laws during any one calendar
year shall not exceed the sum of

 

9

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One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two
(2) or more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.

 

B.    10% STOCKHOLDER.    If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation or any one of
its parent or subsidiary corporations, then the option price per share shall not
be less than one hundred and ten percent (110%) of the Fair Market Value per
share of Common Stock on the grant date, and the option term shall not exceed
five (5) years, measured from the grant date.

 

Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.

 

III.    CORPORATE TRANSACTIONS/CHANGES IN CONTROL

 

A.    In the event of any Corporate Transaction, each option which is at the
time outstanding under this Article Two shall automatically accelerate so that
each such option shall, immediately prior to the specified effective date for
the Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. However, an outstanding option
under this Article Two shall NOT so accelerate if and to the extent: (i) such
option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or parent thereof or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation or
parent thereof, (ii) such option is to be replaced with a cash incentive program
of the successor corporation which preserves the option spread existing at the
time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option, or (iii)
the acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.

 

B.    Upon the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation or its parent company.

 

C.    Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, PROVIDED the aggregate option price payable for such
securities shall remain the same. In addition, appropriate adjustments shall be
made to (i) the class and number of securities available for issuance under the
Plan following the consummation of the Corporate Transaction, (ii) the maximum
number and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year and (iii) the maximum number and/or
class of securities by which the share reserve is to increase automatically on
the First Trading Day of each fiscal year. To the extent the actual holders of
the Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under the Discretionary Option Grant Program, substitute one or

 

10

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more shares of its own common stock with a fair market value equivalent to the
cash consideration paid per share of Common Stock in such Corporate Transaction.

 

D.    The Plan Administrator shall have the discretion, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to provide (upon such terms as it may deem appropriate) for the
automatic acceleration of one or more outstanding options under this Article Two
which are assumed or replaced in the Corporate Transaction and do not otherwise
accelerate at that time, in the event the Optionee’s Service should subsequently
terminate within a designated period following the effective date of such
Corporate Transaction.

 

E.    The grant of options under this Article Two shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.

 

F.    The Plan Administrator shall have the discretionary authority, exercisable
either at the time the option is granted or at any time while the option is
outstanding, to provide for the automatic acceleration of one or more
outstanding options under this Article Two (and the termination of one or more
of the Corporation’s outstanding repurchase rights under this Article Two) upon
the occurrence of the Change in Control. The Plan Administrator shall also have
full power and authority to condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the subsequent
termination of the Optionee’s Service within a specified period following the
Change in Control.

 

G.    Any options accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.

 

H.    Any Incentive Options accelerated under this Section III in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
incentive stock options under the Federal tax laws only to the extent the
applicable dollar limitation of Section II of this Article Two is not exceeded.
To the extent such dollar limitation is exceeded, the accelerated option shall
be exercisable as a non-statutory option under the Federal tax laws.

 

IV.    STOCK APPRECIATION RIGHTS

 

A.    Provided and only if the Plan Administrator determines in its discretion
to implement the stock appreciation right provisions of this Section IV, one or
more Optionees may be granted the right, exercisable upon such terms and
conditions as the Plan Administrator may establish, to surrender all or part of
an unexercised option under this Article Two in exchange for a distribution from
the Corporation in an amount equal to the excess of (i) the Fair Market Value
(on the option surrender date) of the shares of Common Stock in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate option price payable for such vested
shares.

 

B.    No surrender of an option shall be effective hereunder unless it is
approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section IV may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator deems appropriate.

 

C.    If the surrender of an option is rejected by the Plan Administrator, then
the Optionee shall retain whatever rights the Optionee had under the surrendered
option (or surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the LATER of (i) five (5) business
days after the receipt of the rejection notice or (ii) the last day on which the
option is otherwise exercisable in accordance with the terms of the instrument
evidencing such option, but in no event may such rights be exercised more than
ten (10) years after the date of the option grant.

 

11

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D.    One or more officers of the Corporation subject to the short-swing profit
restrictions of the Federal securities laws may, in the Plan Administrator’s
sole discretion, be granted limited stock appreciation rights in tandem with
their outstanding options under the Plan. Upon the occurrence of a Hostile
Take-Over, the officer will have a thirty (30)-day period in which he or she may
surrender any outstanding options with such a limited stock appreciation right
to the Corporation, to the extent such options are at the time exercisable for
fully-vested shares of Common Stock. The officer shall in return be entitled to
a cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the vested shares of Common Stock at the time subject to
each surrendered option over (ii) the aggregate option price payable for such
vested shares. The cash distribution payable upon such option surrender shall be
made within five (5) days following the consummation of the Hostile Take-Over.
The Plan Administrator shall, at the time the limited stock appreciation right
is granted, pre-approve the subsequent exercise of that right in accordance with
the terms and conditions of this Section V.D. Accordingly, no additional
approval of the Plan Administrator or the Board shall be required at the time of
the actual option surrender and cash distribution. Any unsurrendered portion of
the option shall continue to remain outstanding and become exercisable in
accordance with the terms of the instrument evidencing such grant.

 

E.    The shares of Common Stock subject to any option surrendered for an
appreciation distribution pursuant to this Section IV shall NOT be available for
subsequent option grant under the Plan.

 

ARTICLE THREE

AUTOMATIC OPTION GRANT PROGRAM

 

I.    ELIGIBILITY

 

A.    ELIGIBLE DIRECTORS.    The individuals eligible to receive automatic
option grants pursuant to the provisions of this Article Three program shall be
limited to (i) those individuals who are first elected or appointed as
non-employee Board members on or after the Effective Date of this Automatic
Option Grant Program, whether through appointment by the Board or election by
the Corporation’s stockholders, and (ii) those individuals who continue to serve
as non-employee Board members at one or more Annual Stockholders Meetings held
after such Effective Date, whether or not they commenced their Board service
prior to the Effective Date. Any non-employee Board member eligible to
participate in the Automatic Option Grant Program pursuant to the foregoing
criteria shall be designated an Eligible Director for purposes of this Plan.

 

II.    TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS

 

A.    EFFECTIVE DATE.    The terms and conditions of this Article Three reflect
the amendment to the Automatic Option Grant Program effected by the December 8,
1999 restatement of the Plan and shall become effective upon stockholder
approval of such restatement at the 2000 Annual Meeting. Accordingly, such
stockholder approval shall also constitute approval of each option granted under
the amended Automatic Option Grant Program at or after the date of that Annual
Meeting and the subsequent exercise of that option in accordance with the terms
and conditions of this Article Three.

 

B.    GRANT DATES.    Options shall be granted under the Automatic Option Grant
Program in accordance with the following provisions:

 

  (i)   Each Eligible Director shall automatically be granted, at the time of
his or her initial election or appointment as a non-employee Board member, a
non-statutory stock option to purchase 20,000 shares1 of Common Stock upon the
terms and conditions of this Article Three.

--------------------------------------------------------------------------------

1   Reflects the 2-for-1 split of the Common Stock effected by the Corporation
on May 17, 2000, the 3-for-2 split of the Common Stock effected by the
Corporation on June 5, 1995, the 1-for-3 reverse split of the Common Stock
effected by the Corporation on October 7, 1993.

 

12

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  (ii)   On the date of each Annual Stockholders Meeting, beginning with the
2000 Annual Meeting, each individual who is to continue to the time as an
Eligible Director shall automatically be granted, whether or not such individual
is standing for re-election as a Board member at that particular meeting, a
non-statutory stock option to purchase an additional 20,000 shares of Common
Stock upon the terms and conditions of this Article Three, provided he or she
has served as a non-employee Board member for at least six (6) months. There
shall be no limit on the number of 20,000-share option grants any one Eligible
Director may receive over his or her period of Board service.

 

The number of shares for which the automatic grants are to be made to each
newly-elected or continuing Eligible Director shall be subject to periodic
adjustment pursuant to the applicable provisions of Section VI.F of Article One.

 

C.    OPTION PRICE.    For each option grant made under this Automatic Option
Grant Program, the option price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date.

 

D.    PAYMENT.    The option price shall be payable in one of the alternative
forms specified below:

 

  (i)   full payment in cash or check made payable to the Corporation’s order;
or

 

  (ii)   full payment in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation’s reported earnings and valued at
Fair Market Value on the Exercise Date; or

 

  (iii)   full payment in a combination of shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation’s reported
earnings and valued at Fair Market Value on the Exercise Date and cash or check
payable to the Corporation’s order; or

 

  (iv)   full payment through a sale and remittance procedure pursuant to which
the non-employee Board member (I) shall provide irrevocable instructions to a
designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate option price payable
for the purchased shares and shall (II) concurrently provide directives to the
Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.

 

The Exercise Date shall be the date on which notice of the option exercise is
delivered to the Corporation. Except to the extent the sale and remittance
procedure is utilized for the exercise of the option, payment of the option
price for the purchased shares must accompany the exercise notice.

 

E.    OPTION TERM.    Each automatic grant under this Article Three shall have a
maximum term of ten (10) years measured from the automatic grant date.

 

F.    EXERCISABILITY.    The initial 20,000-share automatic option grant made to
each newly-elected or appointed Board member shall become exercisable for twelve
and one-half percent (12.5%) of the option shares upon the Optionee’s completion
of six (6) months of Board service measured from the automatic grant date and
shall become exercisable for the balance of the option shares in a series of
fourteen (14) equal and successive quarterly installments upon the Optionee’s
completion of each additional three (3)-month period of Board service
thereafter. Each annual 20,000-share automatic option grant made to a continuing
Board member shall become exercisable in a series of four (4) equal and
successive annual installments over the Optionee’s period of service on the
Board, with the first such installment to become exercisable one year after the
automatic grant date. The exercisability of each outstanding automatic grant
shall be subject to acceleration in accordance with the provisions of Section
II.G and Section III of this Article Three.

 

13

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G.    LIMITED TRANSFERABILITY OF OPTIONS.    Each automatic option grant may be
assigned in whole or in part during the Optionee’s lifetime to one or more
members of the Optionee’s family or to a trust established exclusively for one
or more such family members or to Optionee’s former spouse, to the extent such
assignment is in connection with the Optionee’s estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. Notwithstanding the foregoing, the Optionee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Three, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee’s death.

 

H.    TERMINATION OF BOARD SERVICE.

 

  (1)   Should the Optionee cease service as a Board member for any reason
(other than death or Permanent Disability) while holding one or more automatic
option grants under this Article Three, then such individual shall have a six
(6)-month period following the date of such cessation of Board service in which
to exercise each such option for any or all of the shares of Common Stock for
which the option is exercisable at the time of such cessation of Board service.
Such period shall be extended from six (6) months to twelve (12) months
following the Optionee’s cessation of Board service if that Optionee qualifies
for the special benefits provided under Section II.I of this Article Three. Each
such option shall immediately terminate and cease to be outstanding, at the time
of such cessation of Board service, with respect to any shares for which the
option is not otherwise at that time exercisable.

 

  (2)   Should the Optionee die within six (6) months after cessation of Board
service, then each outstanding automatic option grant held by the Optionee at
the time of death may subsequently be exercised, for any or all of the shares of
Common Stock for which such option is exercisable at the time of the Optionee’s
cessation of Board service (less any option shares subsequently purchased by the
Optionee prior to death), by the personal representative of the Optionee’s
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee’s will or in accordance with the laws of descent and distribution.
Any such exercise must occur within twelve (12) months after the date of the
Optionee’s death.

 

  (3)   Should the Optionee die or become permanently disabled while serving as
a Board member, then each automatic option grant held by such Optionee under
this Article Three shall accelerate in full, and the Optionee (or the
representative of the Optionee’s estate or the person or persons to whom the
option is transferred upon the Optionee’s death) shall have a twelve (12)-month
period following the date of the Optionee’s cessation of Board service in which
to exercise each such option for any or all of the shares of Common Stock
subject to that option at the time of such cessation of Board service.

 

  (4)   In no event shall any automatic grant under this Article Three remain
exercisable after the specified expiration date of the ten (10)-year option
term. Upon the expiration of the applicable post-service exercise period under
subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares for which the option was otherwise
exercisable at the time of the Optionee’s cessation of Board service.

 

I.    SPECIAL BENEFITS.    The following special rule shall be applicable to any
option grants made under the Automatic Option Grant Program to an Eligible
Director, whether those grants were made prior to the

 

14

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March 19, 2003 amendment of the Automatic Option Grant Program or at any time
thereafter, if that Eligible Director retires from, or ceases, Board service on
or after such Eligible Director has attained the age of sixty five (65) years of
age and has completed nine (9) or more years of such Board service:

 

  (i)   each such option grant made to that Eligible Director under the
Automatic Option Grant Program and outstanding at the time of his or her
retirement from, or cessation of, Board service shall immediately vest and
become exercisable for all the option shares; and

 

  (ii)   the period for which each such option shall remain exercisable
following his or her retirement from, or cessation of, Board service shall be
extended from six (6) months to twelve (12) months, but in no event will any
such option remain exercisable after the specified expiration of the option
term.

 

J.    STOCKHOLDER RIGHTS.    The holder of an automatic option grant under this
Article Three shall have none of the rights of a stockholder with respect to any
shares subject to such option until such individual shall have exercised the
option and paid the option price for the purchased shares.

 

K.    REMAINING TERMS.    The remaining terms of each option granted under the
Automatic Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.

 

III.    CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

 

A.    In the event of any Corporate Transaction, each automatic option grant at
the time outstanding under this Article Three shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. Upon the consummation of
the Corporate Transaction, all automatic option grants under this Article Three
shall terminate and cease to be outstanding.

 

B.    In connection with any Change in Control of the Corporation, each
automatic option grant at the time outstanding under this Article Three shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Change in Control, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for all or any portion of such shares.

 

C.    Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender each option held by him or her
under this Article Three to the Corporation, to the extent such option has been
outstanding for a period of at least six (6) months. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to the surrendered option (whether or not the option is
otherwise at the time exercisable for such shares) over (ii) the aggregate
option price payable for such shares. Such cash distribution shall be paid
within five (5) days following the consummation of the Hostile Take-Over.
Stockholder approval of this December 8, 1999 restatement of the Plan at the
2000 Annual Meeting shall also constitute pre-approval of each such option
surrender right granted at or after the date of that Annual Meeting and the
subsequent exercise of that right in accordance with the terms and provisions of
this Section III.C. No additional approval of any Plan Administrator or the
Board shall be required at the time of the actual option surrender and cash
distribution.

 

D.    The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
option grant under this Plan.

 

E.    The automatic option grants outstanding under this Article Three shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

 

15

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ARTICLE FOUR

STOCK ISSUANCE PROGRAM

 

I.    STOCK ISSUANCE TERMS

 

Shares of Common Stock may be issued under the Stock Issuance Program through
direct and immediate issuances without any intervening option grants. In no
event, however, may more than ten percent (10%) of the total number of shares of
Common Stock available for issuance under the Plan, measured initially as of the
date of the 2003 Annual Stockholders Meeting and adjusted from time to time
thereafter for the automatic increases to such number of available shares
effected pursuant to Section VI. C of Article One of the Plan, be issued
pursuant to the Stock Issuance Program. Each stock issuance under the program
shall be evidenced by a Stock Issuance Agreement which complies with the terms
specified below. Shares of Common Stock may also be issued under the Stock
Issuance Program pursuant to share right awards which entitle the recipients to
receive those shares upon the attainment of designated performance goals or the
satisfaction of specified Service requirements.

 

A.    Issue Price.

 

1.    The consideration per share at which shares of Common Stock may be issued
under the Stock Issuance Program shall be fixed by the Plan Administrator, but
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the issuance date.

 

2.    Shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:

 

  (i)   cash or check made payable to the Corporation,

 

  (ii)   past services rendered to the Corporation (or any Parent or
Subsidiary), or

 

  (iii)   any other lawful consideration under the General Corporation Law of
the State of Delaware.

 

B.    Vesting Provisions.

 

1.    Shares of Common Stock issued under the Stock Issuance Program may, in the
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant’s period
of Service or upon attainment of specified performance objectives. The elements
of the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program shall be determined by the Plan Administrator
and incorporated into the Stock Issuance Agreement. Shares of Common Stock may
also be issued under the Stock Issuance Program pursuant to share right awards
which entitle the recipients to receive those shares upon the attainment of
designated performance goals or the satisfaction of specified Service
requirements.

 

2.    For any Common Stock issuance which is to vest solely on the basis of
Service, a minimum period of three (3) years of Service shall be required as
condition to such vesting. The required Service period shall be measured from
the issue date of the shares in the event of a direct issuance or from the grant
date of the share right award for any shares to be subsequently issued pursuant
to such award. However, any such Common Stock issuance shall be subject to the
vesting acceleration provisions of this Article Four.

 

3.    The Plan Administrator shall also have the discretionary authority,
consistent with Code Section 162(m), to structure one or more share right awards
so that the shares of Common Stock subject to those awards shall be issuable
upon the achievement of certain pre-established corporate performance goals
based on one or more of the following criteria: (1) return on total stockholder
equity; (2) earnings per share of Common Stock; (3) net income (before or after
taxes); (4) earnings before interest, taxes, depreciation and amortization; (5)
sales or revenues; (6) return on assets, capital or investment; (7) market
share; (8) cost reduction goals; (9) budget comparisons; (10) implementation or
completion of critical projects or processes; (11) customer satisfaction;
(11) any combination of, or a specified increase in, any of the foregoing; and
(13) the formation of joint ventures, research or development collaborations, or
the completion of other corporate transactions. In

 

16

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addition, such performance goals may be based upon the attainment of specified
levels of the Corporation’s performance under one or more of the measures
described above relative to the performance of other entities and may also be
based on the performance of any of the Corporation’s business units or divisions
or any Parent or Subsidiary. Performance goals may include a minimum threshold
level of performance below which no award will be earned, levels of performance
at which specified portions of an award will be earned and a maximum level of
performance at which an award will be fully earned.

 

4.    Any new, substituted or additional securities or other property (including
money paid other than as a regular cash dividend) which the Participant may have
the right to receive with respect to the Participant’s unvested shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of
consideration shall be issued subject to (i) the same vesting requirements
applicable to the Participant’s unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.

 

5.    The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant’s interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.

 

6.    Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant’s purchase-money
indebtedness), the Corporation shall repay to the Participant the lower of (i)
the cash consideration paid for the surrendered shares or (ii) the Fair Market
Value of those shares at the time of cancellation and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares by the applicable clause (i) or (ii)
amount.

 

7.    The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant’s Service or the
non-attainment of the performance objectives applicable to those shares, to the
extent the Plan Administrator deems such waiver to be an appropriate severance
benefit on account of an involuntary termination under the circumstances and,
with respect to share right awards granted under Section 3 above, the to the
extent consistent with Code Section 162(m). Such waiver shall result in the
immediate vesting of the Participant’s interest in the shares of Common Stock as
to which the waiver applies.

 

8.    Outstanding share right awards under the Stock Issuance Program shall
automatically terminate, and no shares of Common Stock shall actually be issued
in satisfaction of those awards, if the performance goals or Service
requirements established for such awards are not attained or satisfied. The Plan
Administrator, however, shall have the discretionary authority to issue shares
of Common Stock under one or more outstanding share right awards as to which the
designated performance goals or Service requirements have not been attained or
satisfied, to the extent the Plan Administrator deems such issuance to be an
appropriate severance benefit under the circumstances, and with respect to share
right awards granted under Section 3 above, to the extent consistent with Code
Section 162(m).

 

II.    CORPORATE TRANSACTION/ CHANGES IN CONTROL/HOSTILE TAKE-OVER

 

A.    All of the unvested shares of Common Stock under the Stock Issuance
Program shall immediately vest in full, in the event of any Corporate
Transaction or Change in Control, except to the extent (i) the vesting
provisions of such unvested shares are to be continued pursuant to the terms of
the Change in Control transaction or Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.

 

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B.    The Plan Administrator shall have the discretionary authority to structure
the vesting provisions of shares granted under the Stock Issuance Program so
that the unvested shares shall vest upon an involuntary termination of the
Participant’s Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control transaction or
Corporate Transaction in which the vesting of shares is otherwise continued in
effect.

 

C.    The Plan Administrator shall also have the discretionary authority to
structure the vesting provisions of shares granted under the Stock Issuance
Program so that the unvested shares shall immediately vest, either upon the
occurrence of a Hostile Take-Over or upon the subsequent termination of the
Participant’s Service by reason of an involuntary termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of that Hostile Take-Over.

 

III.    SHARE ESCROW/LEGENDS

 

Unvested shares may, in the Plan Administrator’s discretion, be held in escrow
by the Corporation until the Participant’s interest in such shares vests or may
be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.

 

ARTICLE FIVE

MISCELLANEOUS

 

I.    LOANS OR INSTALLMENT PAYMENTS

 

A.    The Plan Administrator may, in its discretion, assist any Optionee
(including an Optionee who is an officer of the Corporation) in the exercise of
one or more options granted to such Optionee under the Discretionary Option
Grant Program, including the satisfaction of any Federal and State income and
employment tax obligations arising therefrom, by (i) authorizing the extension
of a loan from the Corporation to such Optionee or (ii) permitting the Optionee
to pay the option price for the purchased Common Stock in installments over a
period of years. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option agreement or otherwise
deems appropriate under the circumstances. Loans or installment payments may be
authorized with or without security or collateral. However, the maximum credit
available to the Optionee may not exceed the option price of the acquired shares
plus any Federal and State income and employment tax liability incurred by the
Optionee in connection with the acquisition of such shares.

 

B.    The Plan Administrator may, in its absolute discretion, determine that one
or more loans extended under this financial assistance program shall be subject
to forgiveness by the Corporation in whole or in part upon such terms and
conditions as the Plan Administrator may deem appropriate.

 

II.    AMENDMENT OF THE PLAN AND AWARDS

 

A.    The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options or shares at the time outstanding under the
Plan, unless the Optionee or holder of shares, as applicable, consents to such
amendment, and provided, further that, except for adjustments as provided in or
pursuant to Section VI.F of Article One and Section III.C of Article Two, no
such amendment or modification to the Plan or any outstanding option shall
reduce or permit the reduction (by amendment, substitution, cancellation and
regrant or other means) of the exercise price of any option without prior
stockholder approval. In addition, certain other amendments may require
stockholder approval pursuant to applicable laws or regulations.

 

B.    Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program which are in excess of the number of shares
then available for issuance under the Plan, provided any

 

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excess shares actually issued under such program are held in escrow until
stockholder approval is obtained for a sufficient increase in the number of
shares available for issuance under the Plan. If such stockholder approval is
not obtained within twelve (12) months after the date the first such excess
option grants are made, then (i) any unexercised excess options shall terminate
and cease to be exercisable and (ii) the Corporation shall promptly refund the
purchase price paid for any excess shares actually issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow.

 

III.    TAX WITHHOLDING

 

The Corporation’s obligation to deliver shares of Common Stock upon the exercise
of stock options for such shares or the vesting of such shares under the Plan,
and all share issuances under the Stock Issuance Program, shall be subject to
the satisfaction of all applicable Federal, State and local income and
employment tax withholding requirements.

 

The Plan Administrator may, in its discretion and in accordance with the
provisions of this Section III of Article Five and such supplemental rules as
the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of
non-statutory options (other than the automatic grants made pursuant to Article
Three of the Plan) or unvested shares under the Plan with the right to use
shares of the Corporation’s Common Stock in satisfaction of all or part of the
Federal, State and local income and employment withholding taxes to which such
holders may become subject in connection with the exercise of their options or
the vesting of their shares (the “Withholding Taxes”). Such right may be
provided to any such holder in either or both of the following formats:

 

  a.   STOCK WITHHOLDING:    The holder of the non-statutory option or unvested
shares may be provided with the election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
non-statutory option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the applicable
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

 

  b.   STOCK DELIVERY:    The Plan Administrator may, in its discretion, provide
the holder of the non-statutory option or unvested shares purchased thereunder
with the election to deliver to the Corporation, at the time the non-statutory
option is exercised or the shares vest, one or more shares of Common Stock
previously acquired by such individual (other than in connection with the option
exercise or share vesting triggering the Withholding Taxes) with an aggregate
Fair Market Value equal to the percentage of the Withholding Taxes incurred in
connection with such option exercise or share vesting (not to exceed one hundred
percent (100%)) designated by the holder.

 

IV.    EFFECTIVE DATE AND TERM OF PLAN

 

A.    The Plan was initially adopted by the Board on August 31, 1993 and
approved by the stockholders in October 1993. As of the applicable Effective
Date for each of the equity incentive programs in effect hereunder, this Plan,
as successor to the Predecessor Plans, became effective for each such program,
and no further option grants or stock issuances shall be made under the
Predecessor Plans from and after such Effective Date. The Plan was subsequently
amended by the Board on January 23, 1995 to (i) increase by 750,0002 the number
of shares of Common Stock issuable under the Plan, (ii) limit the number of
shares of Common Stock for which any one participant may be granted stock
options and separately exercisable stock appreciation rights under the Plan to
750,0003/ shares, exclusive of any stock options or stock appreciation rights
granted prior to January 1, 1995 and (iii) provide that the option price per
share for all non-statutory stock options granted from and after January 1, 1995
shall not be less than one hundred percent (100%) of the Fair Market Value of
the Common Stock on the grant date. The January 23, 1995 amendment was approved
by the stockholders at the 1995 Annual Meeting held on March 27, 1995. On
January 26, 1996, the Board authorized an additional 500,000-share increase in
the number of shares of Common Stock available for issuance under the Plan and
in February 1996, the Board adopted an amendment to the Plan (the “February 1996
Amendment”) which increased the number of shares of Common Stock for which
option grants are to be made annually under the Automatic Option Grant Program
to

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2   Reflects the 3-for-2 split of the Common Stock effected by the Corporation
on June 5, 1995.

 

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continuing non-employee Board members from 2,500 shares to 3,500 shares per
individual. Both the January 26, 1996 and February 1996 Amendments were approved
by the Corporation’s stockholders at the 1996 Annual Meeting. The Plan was
subsequently amended on February 12, 1997 (the “February 1997 Amendment”) to
effect the following changes: (i) increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional 500,000
shares, (ii) allow unvested shares issued under the Plan and subsequently
repurchased by the Corporation at the option exercise price paid per share to be
reissued under the Plan and (iii) effect a series of technical changes to the
provisions of the Plan (including stockholder approval requirements) in order to
take advantage of the recent amendments to Rule 16b-3 of the Securities Exchange
Act of 1934 which exempts certain officer and director transactions under the
Plan from the short-swing liability provisions of the federal securities laws.
The February 1997 Amendment was approved by the stockholders at the 1997 Annual
Meeting. All option grants made prior to the February 1997 Amendment shall
remain outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances, and nothing in the February
1997 Amendment shall be deemed to modify or in any way affect those outstanding
options or issuances. The Plan was subsequently amended on February 13, 1998
(the “February 1998 Amendment”) to effect the following changes: (i) increase
the number of shares of Common Stock authorized for issuance over the term of
the Plan by an additional 500,000 shares, and (ii) implement an automatic share
increase feature, pursuant to which the number of shares available for issuance
over the term of the Plan shall automatically increase on the first trading day
of each fiscal year, beginning with the 1999 fiscal year and continuing through
the fiscal year 2003, by an amount equal to two percent (2%) of the total number
of shares of Common Stock outstanding on the last trading day of the immediately
preceding fiscal year. The February 1998 Amendment was approved by the
stockholders at the 1998 Annual Meeting. The Plan was again amended on January
22, 1999 (the “January 1999 Amendment”), subject to stockholder approval at the
1999 Annual Meeting, to (i) increase the number of shares of Common Stock
authorized for issuance over the term of the Plan by an additional 1,000,000
shares, (ii) increase the limit on the maximum number of shares of Common Stock
for which any one participant may be granted stock options and separately
exercisable stock appreciation rights after December 31, 1994 from 750,000 to
1,000,000 shares in the aggregate and (iii) increase the size of the annual
grants to non employee Board members under the Automatic Option Grant Program
from 3,500 to 5,000 shares. The January 1999 Amendment was approved by the
stockholders at the 1999 Annual Meeting. The Plan was again amended by the Board
on December 8, 1999 (the “December 1999 Amendment”) to (i) revise the automatic
share increase provisions of the Plan so that the number of shares reserved for
issuance under the Plan will automatically increase on the First Trading Day of
each fiscal year over the remaining term of the Plan, beginning with the
November 1, 2000 First Trading Day, by an amount equal to three and one-half
percent (3.50%) of the total number of shares of outstanding Common Stock on the
last day of the immediately preceding fiscal year, but no such annual increase
shall exceed 1,500,000 shares, (ii) increase the size of the annual grants to
non employee Board members under the Automatic Option Grant Program from
5,000 shares to 10,000 shares and (iii) extend the term of the Plan to December
31, 2004. The Plan was further amended by the Board on February 9, 2000 (the
“February 2000 Amendment”) to increase the number of shares of Common Stock
authorized for issuance under the Plan by an additional 500,000 shares. Both the
December 1999 Amendment and the February 2000 Amendment were approved by the
Corporation’s stockholders at the 2000 Annual Meeting. On February 11, 2003, the
Board adopted another amendment to the Plan (the “February 2003 Amendment”),
subject to stockholder approval, to (i) prohibit the Company from repricing
options to purchase Common Stock of the Company granted under the Plan without
the prior approval of the stockholders, (ii) amend the automatic option grant
program in effect for non-employee Board members to provide for acceleration of
vesting and to extend the term of exercisability of options issued to such
persons pursuant to the automatic option grant program in certain events, and
(iii) establish the stock issuance program under the Plan. The terms of the
February 2003 Amendment will not be effective unless and until the February 2003
Amendment is approved by the stockholders at the 2003 Annual Meeting. Subject to
the foregoing limitations, the Plan Administrator may make option grants under
the Plan at any time before the date fixed herein for the termination of the
Plan.

 

B.    Each option issued and outstanding under the Predecessor Plans immediately
prior to the Effective Date of the Discretionary Option Grant Program was
incorporated into this Plan and treated as an outstanding option under this
Plan, but each such option shall continue to be governed solely by the terms and
conditions of the

 

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instrument evidencing such grant, and nothing in this Plan shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
options with respect to their acquisition of shares of Common Stock thereunder.

 

C.    The option/vesting acceleration provisions of Section III of Article Two
and Section II of Article Four, each relating to Corporate Transactions and
Changes in Control may, in the Plan Administrator’s discretion, be extended to
one or more stock options which are outstanding under the Predecessor Plans on
the Effective Date of the Discretionary Option Grant Program but which do not
otherwise provide for such acceleration.

 

D.    The Plan shall terminate upon the EARLIER of (i) December 31, 2004 or (ii)
the date on which all shares available for issuance under the Plan shall have
been issued or cancelled pursuant to the exercise, surrender or cash-out of the
options granted under the Plan. However, if the December 1999 Amendment is not
approved by the stockholders at the 2000 Annual Meeting, the clause (i)
termination date will remain August 30, 2003. Upon the termination of the Plan,
all outstanding option grants shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants.

 

V.    USE OF PROCEEDS

 

Any cash proceeds received by the Corporation from the sale of shares pursuant
to option grants or share issuances under the Plan shall be used for general
corporate purposes.

 

VI.    REGULATORY APPROVALS

 

A.    The implementation of the Plan, the granting of any stock option or stock
appreciation right under the Plan, the issuance of Common Stock upon the
exercise of the stock options or stock appreciation rights granted hereunder and
the issuance of Common Stock under the Stock Issuance Program shall be subject
to the Corporation’s procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options and
stock appreciation rights granted under it, and the Common Stock issued pursuant
to it.

 

B.    No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of Federal and State securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.

 

VII.    NO EMPLOYMENT/SERVICE RIGHTS

 

Neither the action of the Corporation in establishing the Plan, nor any action
taken by the Plan Administrator hereunder, nor any provision of the Plan shall
be construed so as to grant any individual the right to remain in the employ or
service of the Corporation (or any parent or subsidiary corporation) for any
period of specific duration, and the Corporation (or any parent or subsidiary
corporation retaining the services of such individual) may terminate such
individual’s employment or service at any time and for any reason, with or
without cause.

 

VIII.    MISCELLANEOUS PROVISIONS

 

A.    Except to the extent otherwise expressly provided in the Plan, the right
to acquire Common Stock or other assets under the Plan may not be assigned,
encumbered or otherwise transferred by any Optionee.

 

B.    The provisions of the Plan relating to the exercise of options and the
vesting of shares shall be governed by the laws of the State of California
without resort to that State conflict-of-laws rules.

 

C.    The provisions of the Plan shall inure to the benefit of, and be binding
upon, the Corporation and its successors or assigns, whether by Corporate
Transaction or otherwise, and the Optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.

 

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