EXHIBIT 10.1
 
E*TRADE GROUP, INC.
1996 STOCK INCENTIVE PLAN
 
AS AMENDED AND RESTATED THROUGH APRIL 4, 2002
 
ARTICLE ONE
 
GENERAL PROVISIONS
 
All share numbers in this document reflect the 2-for-1 stock splits effected
on January 29, 1999 and May 21, 1999.
 

 
I.
 
PURPOSE OF THE PLAN

 
This 1996 Stock Incentive Plan is intended to promote the interests of E*TRADE
Group, Inc., a Delaware corporation, by providing eligible persons 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.
 
Capitalized terms shall have the meanings assigned to such terms in the attached
Appendix.
 

 
II.
 
STRUCTURE OF THE PLAN

 
A.        The Plan shall be divided into five separate equity programs:
 
—        the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock,
 
—        the Salary Investment Option Grant Program under which eligible
associates may elect to have a portion of their base salary invested each year
in special option grants,
 
—        the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary),
 
—        the Automatic Option Grant Program under which eligible non-associate
Board members shall automatically receive option grants at periodic intervals to
purchase shares of Common Stock, and

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—        the Director Fee Option Grant Program under which non-associate Board
members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special option grant.
 
B.        The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
 

 
III.
 
ADMINISTRATION OF THE PLAN

 
A.        The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board’s discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Associates eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
 
B.        Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
 
C.        Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
 
D.        The Primary Committee shall have the sole and exclusive authority to
determine which Section 16 Insiders and other highly compensated Associates
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
 
E.        Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable

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for any act or omission made in good faith with respect to the Plan or any
option grants or stock issuances under the Plan.
 
F.        Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those programs.
 

 
IV.
 
ELIGIBILITY

 
A.        The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
 
1.        Associates,
 
2.        non-associate members of the Board or the board of directors of any
Parent or Subsidiary, and
 
3.        consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).
 
B.        Only Employees who are Section 16 Insiders or other highly compensated
individuals shall be eligible to participate in the Salary Investment Option
Grant Program.
 
C.        Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
 
D.        The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
 
E.        The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as
non-associate Board members on the Underwriting Date who have not previously
received a stock option grant from the Corporation, (ii) those individuals who
first become non-associate Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation’s stockholders,
and (iii) those individuals who continue to serve as non-associate Board members

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at one or more Annual Stockholders Meetings held after the Underwriting Date. A
non-associate Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-associate Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-associate Board member.
 
F.        All non-associate Board members shall be eligible to participate in
the Director Fee Option Grant Program.
 

 
V.
 
STOCK SUBJECT TO THE PLAN

 
A.        The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
102,779,616 shares, except as adjusted from time to time as set forth in Section
V(B) below. Such authorized share reserve is comprised of (i) the shares subject
to the outstanding options under the Predecessor Plan which have been
incorporated into the Plan plus (ii) an additional increase of 16,000,000 shares
authorized by the Board and subsequently approved by the stockholders prior to
the Section 12 Registration Date, plus (iii) an additional increase of 7,600,000
shares authorized by the Board on December 22, 1997, and approved by the
stockholders at the 1998 Annual Meeting; plus (iv) an additional increase of
11,000,000 shares authorized by the Board on October 21, 1998, and approved by
the stockholders at the 1999 Annual Meeting; plus (v) an additional increase of
11,900,000 shares authorized by the Board and approved by the stockholders on
December 21, 1999; plus (vi) an additional increase of 14,923,512 shares
authorized by the Board on October 25, 2000 and approved by the stockholders at
the 2000 Annual Meeting, plus (vii) an additional increase of 17,379,624 shares
pursuant to the automatic increase effected on January 2, 2002.
 
B.        The number of shares of Common Stock available for issuance under the
Plan shall automatically increase, on the first trading day of January of each
calendar year in the four (4) calendar-year period beginning with the 2002
calendar year and continuing through the share increase effected for calendar
year 2005, by an amount equal to five percent (5%) of the total number of shares
of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year.
 
C.        No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 6,000,000 shares of Common Stock in the aggregate per calendar
year.            
 
D.        Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation’s repurchase rights under the Plan shall be added back to the number
of shares of

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Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct
stock issuances under the Plan. However, should the exercise price of an option
under the Plan 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 option or the vesting of a stock issuance 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
issued to the holder of such option or stock issuance.
 
E.        If any change is made to the Common Stock 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, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the 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 this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-associate Board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option under the Plan and (v) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plan. 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.
 
OPTION TERMS

 
Each option shall be evidenced by one or more documents in the form approved by
the Plan Administrator; provided, however, that each such document shall comply
with the terms specified below. Each document evidencing an Incentive Option
shall, in addition, be subject to the provisions of the Plan applicable to such
options.
 
A.        Exercise Price.
 
1.        The exercise 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 exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Seven and
the documents evidencing the option, be payable in one or more of the forms
specified below:
 
(i)         cash or check made payable to the Corporation,
 
(ii)        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, or
 
(iii)       to the extent the option is exercised for vested shares, through a
special sale and remittance procedure pursuant to which the Optionee shall
concurrently provide irrevocable written instructions to (a) a
Corporation-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
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale.
 
Except to the extent such sale and remittance procedure is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

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B.        Exercise and Term of Options.    Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
 
C.        Effect of Termination of Service.
 
1.        The following provisions shall govern the exercise of any options held
by the Optionee at the time of cessation of Service or death:
 
(i)        Any option outstanding at the time of the Optionee’s cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option, but no such option shall be exercisable after
the expiration of the option term.
 
(ii)        Any option exercisable in whole or in part by the Optionee at the
time of 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.
 
(iii)       Should the Optionee’s Service be terminated for Misconduct, then all
outstanding options held by the Optionee shall terminate immediately and cease
to be outstanding.
 
(iv)       During the applicable post-Service exercise period, the option may
not be exercised in the aggregate for more than the number of vested shares for
which the option is exercisable on the date of the Optionee’s cessation of
Service. Upon the expiration of the applicable exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and cease to
be outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee’s cessation
of Service, terminate and cease to be outstanding to the extent the option is
not otherwise at that time exercisable for vested shares.
 
2.       The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
 
(i)        extend the period of time for which the option is to remain
exercisable following the Optionee’s cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or

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(ii)        permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of the
Optionee’s cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested had the Optionee continued
in Service.
 
D.        Stockholder Rights.    The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
 
E.        Repurchase Rights.    The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms 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 document evidencing such
repurchase right.
 
F.        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 descent
and distribution following the Optionee’s death. However, a Non-Statutory Option
may, in connection with the Optionee’s estate plan, be assigned in whole or in
part during the Optionee’s lifetime to one or more members of the Optionee’s
immediate family or to a trust established exclusively for one or more such
family members. 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.
 

 
II.
 
INCENTIVE OPTIONS

 
The terms specified below shall be applicable to all Incentive Options. Except
as modified by the provisions of this Section II, all the provisions of Articles
One, Two and Seven shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options when issued under the Plan
shall not be subject to the terms of this Section II.
 
A.        Eligibility.    Incentive Options may only be granted to Associates.
 
B.        Dollar Limitation.    The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Associate under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Associate holds two (2) or more such options which become exercisable for the

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first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
 
C.        10% Stockholder.    If any Associate to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
 

 
III.
 
CORPORATE TRANSACTION/CHANGE IN CONTROL

 
A.        In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of 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 any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option 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 spread existing on the unvested option shares 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.        All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such 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.        Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
 
D.        Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted

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stock options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year.
 
E.        The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee’s Service subsequently terminates by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in which
those options are assumed or replaced and do not otherwise accelerate. Any
options so accelerated shall remain exercisable for fully-vested shares until
the earlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation’s outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
 
F.        The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee’s Service subsequently terminates by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control. Each option
so accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation’s outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights shall
accordingly vest in full.
 
G.        The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
 
H.        The outstanding options 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.
 

 
IV.
 
[Intentionally Deleted]

 
 

 
V.
 
STOCK APPRECIATION RIGHTS

 
A.        The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.

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B.        The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
 
(i)        One or more Optionees may be granted the right, exercisable upon such
terms as the Plan Administrator may establish, to elect between the exercise of
the underlying option for shares of Common Stock and the surrender of that
option in exchange for a distribution from the Corporation in an amount equal to
the excess of (a) the Fair Market Value (on the option surrender date) of the
number of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the aggregate
exercise price payable for such shares.
 
(ii)       No such option surrender shall be effective unless it is approved by
the Plan Administrator. If the surrender is so approved, then the distribution
to which the Optionee shall be entitled 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 shall in its sole
discretion deem appropriate.
 
(iii)      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 (a) five (5)
business days after the receipt of the rejection notice or (b) the last day on
which the option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
 
C.        The following terms shall govern the grant and exercise of limited
stock appreciation rights:
 
(i)        One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
 
(ii)       Upon the occurrence of a Hostile Take-Over, each individual holding
one or more options with such a limited stock appreciation right shall have the
unconditional right (exercisable for a thirty (30)-day period following such
Hostile Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a cash
distribution from the Corporation in an amount equal to the excess of (A) the
Take-Over Price of the shares of Common Stock which are at the time vested under
each surrendered option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the option surrender date.

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(iii)        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.C. 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.
 
(iv)        The balance of the option (if any) shall continue in full force and
effect in accordance with the documents evidencing such option.

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ARTICLE THREE
 
SALARY INVESTMENT OPTION GRANT PROGRAM
 

 
I.
 
OPTION GRANTS

 
The Primary Committee shall have the sole and exclusive authority to determine
the calendar year or years (if any) for which the Salary Investment Option Grant
Program is to be in effect and to select the Section 16 Insiders and other
highly compensated Associates eligible to participate in the Salary Investment
Option Grant Program for those calendar year or years. Each selected individual
who elects to participate in the Salary Investment Option Grant Program must,
prior to the start of each calendar year of participation, file with the Plan
Administrator (or its designate) an irrevocable authorization directing the
Corporation to reduce his or her base salary for that calendar year by an amount
not less than Ten Thousand Dollars ($10,000.00) nor more than Two Hundred
Thousand Dollars ($200,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall automatically be granted an option
under the Salary Investment Grant Program on the first trading day in January of
the calendar year for which the salary reduction is to be in effect.
 

 
II.
 
OPTION TERMS

 
Each option shall be a Non-Statutory Option evidenced by one or more documents
in the form approved by the Plan Administrator; provided, however, that each
such document shall comply with the terms specified below.
 
A.        Exercise Price.
 
1.        The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
 
2.        The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.
 
B.        Number of Option Shares.    The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
 
X = A ÷ (B x 66-2/3%), where
 
X is the number of option shares,

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A is the dollar amount of the approved reduction in the Optionee’s base salary
for the calendar year, and
 
B is the Fair Market Value per share of Common Stock on the option grant date.
 
C.        Exercise and Term of Options.    The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee’s completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
 
D.        Effect of Termination of Service.    Should the Optionee cease Service
for any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under this
Article Three, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee’s
cessation of Service (less any shares subsequently purchased by 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. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee’s cessation of Service. However,
the option shall, immediately upon the Optionee’s cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
 

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

 
A.        In the event of any Corporate Transaction while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of 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 any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee’s cessation of Service.
 
B.        In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to

14

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such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. The option shall remain so exercisable until the earlier
of (i) the expiration of the ten (10)-year option term, (ii) the expiration of
the three (3)-year period measured from the date of the Optionee’s cessation of
Service or (iii) the surrender of the option in connection with a Hostile
Take-Over.
 
C.        Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each outstanding
option granted him or her under the Salary Investment Option Grant Program. 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
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. The Primary Committee shall, at the time the option with such
limited stock appreciation right is granted under the Salary Investment Option
Grant Program, pre-approve any subsequent exercise of that right in accordance
with the terms of this Paragraph C. Accordingly, no further approval of the
Primary Committee or the Board shall be required at the time of the actual
option surrender and cash distribution.
 
D.        The grant of options under the Salary Investment Option Grant Program
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.
 

 
IV.
 
REMAINING TERMS

 
The remaining terms of each option granted under the Salary Investment Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.

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. Each such
stock issuance shall be evidenced by a Stock Issuance Agreement which complies
with the terms specified below.
 
A.        Purchase Price.
 
1.        The purchase 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 issuance date.
 
2.        Subject to the provisions of Section I of Article Seven, 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, or
 
(ii)        past services rendered to the Corporation (or any Parent or
Subsidiary).
 
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, namely:
 
(i)          the Service period to be completed by the Participant or the
performance objectives to be attained,
 
(ii)         the number of installments in which the shares are to vest,
 
(iii)        the interval or intervals (if any) which are to lapse between
installments, and
 
(iv)        the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting

16

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schedule, shall be determined by the Plan Administrator and incorporated into
the Stock Issuance Agreement.
 
2.        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.
 
3.        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.
 
4.        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 cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
 
5.        The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant’s Service or the non-attainment of the performance objectives
applicable to those shares. 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. Such waiver may be effected at any time, whether before or after the
Participant’s cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
 

 
II.
 
CORPORATE TRANSACTION/CHANGE IN CONTROL

 
A.        All of the Corporation’s outstanding repurchase/cancellation rights
under the Stock Issuance Program shall terminate automatically, and all the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Corporate Transaction, except to the extent (i)
those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii)

17

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such accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
 
B.        The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation’s repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant’s Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).
 
C.        The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation’s repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant’s Service
should subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
 

 
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.

18

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ARTICLE FIVE
 
AUTOMATIC OPTION GRANT PROGRAM
 

 
I.
 
OPTION TERMS

 
A.        Grant Dates.    Option grants shall be made on the dates specified
below:
 
1.        Each individual serving as a non-associate Board member on the
Underwriting Date shall automatically be granted at that time a Non-Statutory
Option to purchase 80,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or Subsidiary
and has not previously received a stock option grant from the Corporation.
 
2.        Each individual who is first elected or appointed as a non-associate
Board member at any time after the Underwriting Date until April 19, 2000 shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 80,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
 
3.        Each individual who is first elected or appointed as a non-associate
Board member at any time after April 19, 2000 shall automatically be granted, on
the date of such initial election or appointment, a Non-Statutory Option to
purchase 50,000 shares of Common Stock, provided that individual has not
previously been in the employ of the Corporation or any Parent or Subsidiary.
 
4.        On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 20,000 shares of Common Stock, provided such
individual has served as a non-associate Board member for at least six (6)
months. There shall be no limit on the number of such 20,000 share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-associate Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received a stock
option grant from the Corporation prior to the Underwriting Date shall be
eligible to receive one or more such annual option grants over their period of
continued Board service.
 
B.        Exercise Price.
 
1.        The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
 
2.        The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent

19

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the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
 
C.        Option Term.    Each option shall have a term of ten (10) years
measured from the option grant date.
 
D.        Exercise and Vesting of Options.    Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee’s cessation of Board service
prior to vesting in those shares. Each initial 50,000-share or 80,000-share
grant (as applicable, in accordance with the provisions of Sections I.A.2 and
I.A.3 of this Article Five) shall vest, and the Corporation’s repurchase right
shall lapse, in a series of four (4) successive equal annual installments over
the Optionee’s period of continued service as a Board member, with the first
such installment to vest upon the Optionee’s completion of one (1) year of Board
service measured from the option grant date. Each annual 20,000-share grant
shall vest, and the Corporation’s repurchase right shall lapse, upon the
Optionee’s completion of two (2) years of Board service measured from the option
grant date.
 
E.        Termination of Board Service.    The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:
 
(i)          The Optionee (or, in the event of Optionee’s death, the personal
representative of the Optionee’s estate or 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) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option.
 
(ii)         During the twelve (12)-month exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of Common
Stock for which the option is exercisable at the time of the Optionee’s
cessation of Board service.
 
(iii)        Should the Optionee cease to serve as a Board member by reason of
death or Permanent Disability, then all shares at the time subject to the option
shall immediately vest so that such option may, during the twelve (12)-month
exercise period following such cessation of Board service, be exercised for all
or any portion of those shares as fully-vested shares of Common Stock.
 
(iv)        In no event shall the option remain exercisable after the expiration
of the option term. Upon the expiration of the twelve (12)-month exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the option
has not been exercised. However, the option shall, immediately upon the

20

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

 
Optionee’s cessation of Board service for any reason other than death or
Permanent Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
 

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

 
A.        In the event of any Corporate Transaction, the shares of Common Stock
at the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
 
B.        In connection with any Change in Control, the shares of Common Stock
at the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
 
C.        Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each automatic
option held by him or her. 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 Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. Stockholder approval of the Plan, as
amended and restated on December 24, 1998, shall constitute pre-approval of the
surrender of each automatic option in accordance with the terms and provisions
of this Section II.C. No additional approval of any Plan Administrator or the
consent of the Board shall be required in connection with such option surrender
and cash distribution.
 
D.        Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.

21

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

 
E.        The grant of options under the Automatic Option Grant Program 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.
 

 
III.
 
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.

22

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ARTICLE SIX
 
DIRECTOR FEE OPTION GRANT PROGRAM
 

 
I.
 
OPTION GRANTS

 
Each non-associate Board member may elect to apply all or any portion of the
annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation’s Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. Each
non-associate Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the annual retainer fee
which is the subject of that election would otherwise be payable in cash.
 

 
II.
 
OPTION TERMS

 
Each option shall be a Non-Statutory Option governed by the terms and conditions
specified below.
 
A.        Exercise Price.
 
1.        The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
 
2.        The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.
 
B.        Number of Option Shares.    The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
 
X = A ÷ (B x 66-2/3%), where
 
X is the number of option shares,
 
A is the portion of the annual retainer fee subject to the non-associate Board
member’s election, and
 
B is the Fair Market Value per share of Common Stock on the option grant date.

23

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C.        Exercise and Term of Options.    The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee’s
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
 
D.        Termination of Board Service.    Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
 
E.        Death or Permanent Disability.    Should the Optionee’s service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
 
Should the Optionee die after cessation of Board service but while holding one
or more options under this Director Fee Option Grant Program, then each such
option may be exercised, for any or all of the shares for which the option is
exercisable at the time of the Optionee’s cessation of Board service (less any
shares subsequently purchased by 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. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee’s cessation of Board service.
 

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

 
A.        In the event of any Corporate Transaction while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of 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 any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall be assumed by the successor corporation (or parent thereof) in the
Corporate Transaction and shall remain exercisable for the fully-vested shares
until the earlier of (i) the expiration of the

24

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

 
ten (10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee’s cessation of Board service.
 
B.        In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately 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 any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee’s cessation of Service.
 
C.        Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each outstanding
option granted him or her under the Director Fee Option Grant Program. 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 each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required in connection with such option surrender and cash distribution.
 
D.        The grant of options under the Director Fee Option Grant Program 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.
 

 
IV.
 
REMAINING TERMS

 
The remaining terms of each option granted under this Director Fee Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.

25

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ARTICLE SEVEN
 
MISCELLANEOUS
 

 
I.
 
FINANCING

 
The Plan Administrator may permit any Optionee or Participant to pay the option
exercise price under the Discretionary Option Grant Program or the purchase
price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
 

 
II.
 
TAX WITHHOLDING

 
A.        The Corporation’s obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
 
B.        The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of their
shares. Such right may be provided to any such holder in either or both of the
following formats:
 
Stock Withholding:    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 Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
 
Stock Delivery:    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 holder (other than in connection with
the option exercise or share vesting triggering the Taxes) with an aggregate
Fair Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.

26

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III.
 
EFFECTIVE DATE AND TERM OF THE PLAN

 
A.        The Plan was initially adopted by the Board on May 31, 1996, and was
subsequently approved by the stockholders. The Discretionary Option Grant and
the Stock Issuance Programs became effective immediately upon the Plan Effective
Date.
 
B.        The Automatic Option Grant Program became effective on the
Underwriting Date. The Plan was subsequently amended by the Board on December
22, 1997 to (i) increase the maximum number of shares of Common Stock authorized
for issuance under the Plan by 7,600,000 shares, (ii) allow individuals who
administer the Plan to be included in the group of non-associate Board members
eligible to receive option grants and direct stock issuances under the
Discretionary Option Grant and Stock Issuance Programs, (iii) remove certain
restrictions on the eligibility of non-associate Board members to serve as Plan
Administrator, and (iv) effect a series of technical changes to the provisions
of the Plan (including stockholder approval requirements, certain holding period
restrictions, and the frequency of which the Automatic Option Grant Program may
be amended) in order to take advantage of the November 1996 amendments to Rule
16b-3 of the 1934 Act which exempts certain officer and director transactions
under the Plan from the short-swing liability provisions of the federal
securities laws (“December 1997 Amendment”). The December 1997 Amendment was
approved by the stockholders at the 1998 Annual Meeting.
 
C.        On October 21, 1998, the Board amended and restated the Plan to
increase the maximum number of shares of Common Stock authorized for issuance
under the Plan by 11,000,000 shares, to 58,576,480 shares of Common Stock. On
December 24, 1998 the Board again amended and restated the Plan to incorporate
the Salary Investment Option Grant and Director Fee Option Grant Programs. Both
Amendments were approved by the stockholders at the 1999 Annual Meeting. The
Salary Investment Option Grant Program and Director Fee Option Program shall not
be implemented until such time as the Primary Committee may deem appropriate.
The option grants made prior to the October 1998 Amendment shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances and nothing in the October
1998 Amendment shall be deemed to modify or in any away affect those outstanding
options or issuances.
 
D.        On December 21, 1999, the Board amended and restated the Plan to
increase the maximum number of shares of Common Stock authorized for issuance
under the Plan by 11,900,000 shares, to 70,476,480 shares of Common Stock. The
Amendment was concurrently approved by the stockholders on December 21, 1999.
The option grants made prior to the December 1999 Amendment shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances and nothing in the December
1999 Amendment shall be deemed to modify or in any away affect those outstanding
options or issuances.
 
E.        On April 19, 2000, the Board amended and restated the Plan to reduce
the number of shares granted upon the initial grant to new non-associate Board
members under Article Five of the Plan from 80,000 shares of Common Stock to
50,000 shares of Common Stock.

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F.        On October 25, 2000, the Board amended and restated the Plan to (i)
increase the maximum number of shares of Common Stock authorized for issuance
under the Plan by 14,923,512 shares, subject to stockholder approval at the 2000
Annual Meeting, (ii) to provide that the number of shares of Common Stock
available for issuance under the Plan shall automatically increase, on the first
trading day of January of each calendar year in the four (4) calendar-year
period beginning with the 2002 calendar year and continuing through the share
increase effected for calendar year 2005, by an amount equal to five percent
(5%) of the total number of shares of Common Stock outstanding on the last
trading day in December of the immediately preceding calendar year, subject to
stockholder approval at the 2000 Annual Meeting, and (iii) to increase the
maximum number of shares which any one person participating in the Plan may
receive during any one calendar year in options, separately exercisable stock
appreciation rights and direct stock issuances to 6,000,000 shares, subject to
stockholder approval at the 2000 Annual Meeting. Each Amendment was approved by
the shareholders at the 2000 Annual Meeting on December 21, 2000. The option
grants made prior to the October 2000 Amendment shall remain outstanding in
accordance with the terms and conditions of the respective instruments
evidencing those options or issuances and nothing in the October 2000 Amendment
shall be deemed to modify or in any away affect those outstanding options or
issuances.
 
G.        On April 4, 2002, the Board amended and restated the Plan to eliminate
the authority of the Plan Administrator to cancel and regrant options under then
Article Two, Section IV of the Plan. All cancelled and regranted options made
prior to the April 2002 Amendment shall remain outstanding in accordance with
the terms and conditions of the respective instruments evidencing those options
or issuances and nothing in the April 2002 Amendment shall be deemed to modify
or in any away affect those outstanding options or issuances. 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.
 
H.        The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12(g) Registration Date. All options
outstanding under the Predecessor Plan on the Section 12(g) Registration Date
shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the 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 Common
Stock.
 
I.        One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator’s
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
 
J.        The Plan shall terminate upon the earliest of (i) May 30, 2006, (ii)
the date on which all shares available for issuance under the Plan shall have
been issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with a Corporate

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Transaction. Upon such plan termination, all outstanding option grants and
unvested stock issuances shall thereafter continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
 

 
IV.
 
AMENDMENT OF THE PLAN

 
A.        The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain 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 and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares 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, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
 

 
V.
 
USE OF PROCEEDS

 
Any cash proceeds received by the Corporation from the sale of shares of Common
Stock 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 under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any granted option or (ii) 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
granted under it and the shares of Common Stock issued pursuant to it.
 
B.        No shares of Common Stock or other assets shall be issued or delivered
under the 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

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listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
 

 
VII.
 
NO EMPLOYMENT/SERVICE RIGHTS

 
Nothing in the Plan shall confer upon the Optionee or the Participant any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee or the
Participant, which rights are hereby expressly reserved by each, to terminate
such person’s Service at any time for any reason, with or without cause.

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APPENDIX
 
The following definitions shall be in effect under the Plan:
 
A.        Associate shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
 
B.        Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
 
C.        Board shall mean the Corporation’s Board of Directors.
 
D.        Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
 
(i)        the acquisition, directly or indirectly by 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), of 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, or
 
(ii)        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 contested elections for Board membership, 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 the Board
approved such election or nomination.
 
E.        Code shall mean the Internal Revenue Code of 1986, as amended.
 
F.        Common Stock shall mean the Corporation’s common stock.

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G.        Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
 
(i)        a merger or consolidation 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 the
persons holding those securities immediately prior to such transaction, or
(ii)        the sale, transfer or other disposition of all or substantially all
of the Corporation’s assets in complete liquidation or dissolution of the
Corporation.
 
H.        Corporation shall mean E*TRADE Group, Inc. and any corporate successor
to all or substantially all of the assets or voting stock of E*TRADE Group, Inc.
which shall by appropriate action adopt the Plan.
 
I.        Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.
 
J.        Director Fee Option Grant Program shall mean the special stock option
grant in effect for non-associate Board members under Article Six of the Plan.
 
K.        Eligible Director shall mean a non-associate Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
 
L.        Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
 
M.        Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
 
(i)        If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the high and low
selling prices per share of Common Stock on the date in question, as the price
is reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no average of the high and
low selling prices per share for the Common Stock on the date in question, then
the Fair Market Value shall be the average of the high and low selling prices
per share on the last preceding date for which such quotation exists.
 
(ii)        If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and low selling
prices per of Common Stock on the date in question on the Stock 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. If there is no average of the high and low selling

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prices per share for the Common Stock on the date in question, then the Fair
Market Value shall be the average of the high and low selling prices per share
on the last preceding date for which such quotation exists.
 
(iii)        For purposes of any option grants made on the Underwriting Date,
the Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is to be sold in the initial public offering pursuant to
the Underwriting Agreement.
 
(iv)        For purposes of any option grants made prior to the Underwriting
Date, the Fair Market Value shall be determined by the Plan Administrator, after
taking into account such factors as it deems appropriate.
 
N.        Hostile Take-Over shall mean a change in ownership of the Corporation
effected through the acquisition, directly or indirectly, by 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) of 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.
 
O.        Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
 
P.        Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
 
(i)        such individual’s involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
 
(ii)        such individual’s voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in any
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of such individual’s place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual’s consent.
 
Q.        Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any

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Optionee, Participant or other person in the Service of the Corporation (or any
Parent or Subsidiary).
 
R.        1934 Act shall mean the Securities Exchange Act of 1934, as amended.
 
S.        Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
 
T.        Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Program.
 
U.        Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
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.
 
V.        Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
 
W.        Permanent Disability or Permanently Disabled shall mean the inability
of the Optionee or the Participant 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. However, solely for purposes of the Automatic Option Grant and Director
Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall
mean the inability of the non-associate Board member to perform his or her usual
duties as a Board member 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.
 
X.        Plan shall mean the Corporation’s 1996 Stock Incentive Plan, as set
forth in this document.
 
Y.        Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
 
Z.        Plan Effective Date shall mean May 31, 1996, the date on which the
Plan was adopted by the Board.
 
AA.     Predecessor Plan shall mean the Corporation’s pre-existing 1993 Stock
Option Plan (which is the successor to the 1983 Employee Incentive Stock Option
Plan) in effect immediately prior to the Plan Effective Date hereunder.

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BB.     Primary Committee shall mean the committee of two (2) or more
non-associate Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
 
CC.     Salary Investment Option Grant Program shall mean the salary investment
option grant program in effect under the Plan.
 
DD.     Secondary Committee shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
 
EE.     Section 12 Registration Date shall mean the date on which the Common
Stock was first registered under Section 12(g) of the 1934 Act.
 
FF.     Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
 
GG.     Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Associate, a
non-associate member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
 
HH.     Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.
 
II.        Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
 
JJ.       Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
 
KK.     Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
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.
 
LL.     Take-Over Price shall mean the greater of (i) 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 (ii) 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 Option, the
Take-Over Price shall not exceed the clause (i) price per share.

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MM.     Taxes shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options or unvested shares
of Common Stock in connection with the exercise of those options or the vesting
of those shares.
 
NN.       10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
 
OO.      Underwriting Agreement shall mean the agreement between the Corporation
and the underwriter or underwriters who managed the initial public offering of
the Common Stock.
 
PP.       Underwriting Date shall mean August 15, 1996, which is the date on
which the Underwriting Agreement was executed and priced in connection with an
initial public offering of the Common Stock.

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