Exhibit 10.32

 

ITERIS, INC.*

1997 STOCK INCENTIVE PLAN
(Amended and Restated as of May 3, 2002, and as further amended December 15,
2004)

 

ARTICLE ONE

GENERAL PROVISIONS

 

I.                                         PURPOSE OF THE PLAN

 

This 1997 Stock Incentive Plan is intended to promote the interests of
Iteris, Inc., a Delaware corporation formerly known as Odetics, Inc. and Iteris
Holdings, Inc., 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 THREE
SEPARATE EQUITY PROGRAMS:

 

•                                          The Discretionary Option Grant
Program under which eligible person may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,

 

•                                          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), and

 

•                                          the Automatic Option Grant Program
under which eligible non-employee Board members shall automatically receive
option grants at periodic intervals to purchase shares of Common Stock.

 

B.                                     THE PROVISIONS OF ARTICLES ONE AND FIVE
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.

 

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* Formerly known as the “Odetics, Inc. 1997 Stock Incentive Plan”

 

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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.                                    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 FOR ANY ACT
OR OMISSION MADE IN GOOD FAITH WITH RESPECT TO THE PLAN OR ANY OPTION GRANTS OR
STOCK ISSUANCES UNDER THE PLAN.

 

E.                                      ADMINISTRATION OF THE AUTOMATIC OPTION
GRANT PROGRAM SHALL BE SELF-EXECUTING IN ACCORDANCE WITH THE TERMS OF THAT
PROGRAM, AND NO PLAN ADMINISTRATOR SHALL EXERCISE ANY DISCRETIONARY FUNCTIONS
WITH RESPECT TO ANY OPTION GRANTS OR STOCK ISSUANCES MADE UNDER SUCH PROGRAM.

 

IV.                                ELIGIBILITY

 

A.                                   THE PERSONS ELIGIBLE TO PARTICIPATE IN THE
DISCRETIONARY OPTION GRANT AND STOCK ISSUANCE PROGRAMS ARE AS FOLLOWS:

 

(I)                                     EMPLOYEES,

 

(II)                                  NON-EMPLOYEE MEMBERS OF THE BOARD OR THE
BOARD OF DIRECTORS OF ANY PARENT OR SUBSIDIARY, AND

 

(III)                               CONSULTANTS AND OTHER INDEPENDENT ADVISORS
WHO PROVIDE SERVICES TO THE CORPORATION (OR ANY PARENT OR SUBSIDIARY).

 

B.                                     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 NONSTATUTORY 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
TO BE PAID FOR SUCH SHARES.

 

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C.                                     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.

 

D.                                    THE INDIVIDUALS WHO SHALL BE ELIGIBLE TO
PARTICIPATE IN THE AUTOMATIC OPTION GRANT PROGRAM SHALL BE LIMITED TO (I) THOSE
INDIVIDUALS SERVING AS NON- EMPLOYEE BOARD MEMBERS ON THE PLAN EFFECTIVE DATE,
(II) THOSE INDIVIDUALS WHO FIRST BECOME NON-EMPLOYEE BOARD MEMBERS ON OR AFTER
THE PLAN EFFECTIVE DATE, WHETHER THROUGH APPOINTMENT BY THE BOARD OR ELECTION BY
THE CORPORATION’S STOCKHOLDERS, AND (II) THOSE INDIVIDUALS WHO CONTINUE TO SERVE
AS NON-EMPLOYEE BOARD MEMBERS AT ONE OR MORE ANNUAL STOCKHOLDERS MEETINGS HELD
AFTER THE PLAN EFFECTIVE DATE.

 

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 RESERVED FOR ISSUANCE OVER THE TERM OF THE PLAN SHALL NOT EXCEED
1,805,000 SHARES.  THIS RESERVE INCLUDES (I) THE 530,000 SHARES ORIGINALLY
RESERVED FOR ISSUANCE UNDER THE PLAN, (II) THE 400,000 SHARE INCREASED APPROVED
BY THE CORPORATION’S STOCKHOLDERS AT THE 1999 ANNUAL MEETING, (III) THE 400,000
SHARE INCREASE APPROVED BY THE CORPORATION’S STOCKHOLDERS AT THE 2000 ANNUAL
MEETING, AND (IV) THE 475,000 SHARE INCREASE APPROVED BY THE CORPORATION’S
STOCKHOLDERS AT THE 2001 ANNUAL MEETING.

 

B.                                     NO ONE PERSON PARTICIPATING IN THE PLAN
MAY RECEIVE OPTIONS, SEPARATELY EXERCISABLE STOCK APPRECIATION RIGHTS AND DIRECT
STOCK ISSUANCES FOR MORE THAN 80,000 SHARES OF COMMON STOCK IN THE AGGREGATE PER
CALENDAR YEAR, BEGINNING WITH THE 1997 CALENDAR YEAR.

 

C.                                     SHARES OF COMMON STOCK SUBJECT TO
OUTSTANDING OPTIONS SHALL BE AVAILABLE FOR SUBSEQUENT ISSUANCE UNDER THE PLAN TO
THE EXTENT (I) THOSE OPTIONS EXPIRE OR TERMINATE FOR ANY REASON PRIOR TO
EXERCISE IN FULL OR (II) THOSE OPTIONS ARE CANCELLED IN ACCORDANCE WITH THE
OPTION CANCELLATION/REGRANT PROVISIONS OF SECTION IV OF ARTICLE TWO.  UNVESTED
SHARES ISSUED UNDER THE PLAN AND SUBSEQUENTLY CANCELLED OR REPURCHASED BY THE
CORPORATION, AT THE ORIGINAL EXERCISE OR DIRECT 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 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,
SHARES SUBJECT TO ANY OPTIONS SURRENDERED IN CONNECTION WITH THE STOCK
APPRECIATION RIGHT PROVISIONS OF THE PLAN SHALL NOT BE AVAILABLE FOR
REISSUANCE.  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.

 

D.                                    IF ANY CHANGE IS MADE TO THE COMMON STOCK
BY REASON OF ANY STOCK SPLIT, REVERSE STOCK SPLIT, STOCK DIVIDEND, DISTRIBUTION,
RECAPITALIZATION, COMBINATION OR RECLASSIFICATION 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 THE PLAN PER CALENDAR YEAR, (III) THE NUMBER AND/OR
CLASS OF SECURITIES FOR WHICH GRANTS ARE

 

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SUBSEQUENTLY TO BE MADE UNDER THE AUTOMATIC OPTION GRANT PROGRAM TO NEW AND
CONTINUING NON-EMPLOYEE BOARD MEMBERS, AND (IV) THE NUMBER AND/OR CLASS OF
SECURITIES AND THE EXERCISE PRICE PER SHARE IN EFFECT UNDER EACH OUTSTANDING
OPTION UNDER THE 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.

 

E.                                      SHOULD THE CORPORATION EFFECT A
DIVESTITURE OF ONE OR MORE SUBSIDIARIES THROUGH A DISTRIBUTION OR SPIN-OFF TO
THE CORPORATION’S STOCKHOLDERS OF THE SECURITIES OF THE SUBSIDIARY HELD BY THE
CORPORATION (“DIVESTITURE”), THEN THE PLAN ADMINISTRATOR MAY, IN ITS SOLE
DISCRETION, MAKE APPROPRIATE ADJUSTMENTS TO THE NUMBER AND/OR CLASS OF
SECURITIES SUBJECT TO EACH OUTSTANDING OPTION AND THE EXERCISE PRICE PAYABLE PER
SHARE IN ORDER TO REFLECT THE EFFECT OF THE DIVESTITURE ON THE CORPORATION’S
CAPITAL STRUCTURE AND THE RELATIVE FAIR MARKET VALUES OF THE COMMON STOCK AND
THE DISTRIBUTED SECURITIES OF THE SUBSIDIARY FOLLOWING THE DIVESTITURE.  SUCH
ADJUSTMENT MAY INCLUDE THE DIVISION OF THE OPTION INTO TWO SEPARATE OPTIONS, ONE
FOR THE SHARES OF COMMON STOCK AT THE TIME SUBJECT TO THE OPTION AND A SECOND
OPTION FOR THE SECURITIES OF THE SUBSIDIARY DISTRIBUTABLE WITH RESPECT TO THOSE
SHARES.  THE PLAN ADMINISTRATOR MAY ALSO, IN ITS SOLE DISCRETION, ACCELERATE THE
VESTING AND EXERCISABILITY OF THE OPTION (OR ANY SEPARATED OPTION) WITH RESPECT
TO ONE OR MORE SHARES OF THE COMMON STOCK OR DISTRIBUTED SECURITIES AT THE TIME
SUBJECT TO SUCH OPTION (OR THE SEPARATED OPTION), IF AND TO THE EXTENT THE
OPTIONEE IS TO REMAIN IN THE CORPORATION’S SERVICE FOLLOWING SUCH DIVESTITURE OR
IS OTHERWISE TO PROVIDE SERVICES TO THE DIVESTED SUBSIDIARY.

 

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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 FIVE 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 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.

 

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:

 

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(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)                               DURING THE APPLICABLE EXERCISE PERIOD
FOLLOWING TERMINATION OF SERVICE, 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.

 

(IV)                              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.

 

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

 

(II)                                  PERMIT THE OPTION TO BE EXERCISED, DURING
THE APPLICABLE SERVICE EXERCISE PERIOD FOLLOWING TERMINATION OF SERVICE, 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.

 

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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 NONSTATUTORY OPTION MAY BE ASSIGNED IN WHOLE OR IN PART DURING THE
OPTIONEE’S LIFETIME TO ONE OR MORE “FAMILY MEMBERS” (AS DEFINED IN RULE 701 OF
THE 1933 ACT) OF THE OPTIONEE IF SUCH ASSIGNMENT IS A GIFT OR PURSUANT TO A
DOMESTIC RELATIONS ORDER.  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 Five shall be applicable to Incentive Options.  Options which are
specifically designated as Nonstatutory 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 EMPLOYEES.

 

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 EMPLOYEE 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 EMPLOYEE HOLDS TWO (2) OR MORE SUCH
OPTIONS WHICH BECOME EXERCISABLE FOR THE FIRST TIME IN THE SAME CALENDAR YEAR,
THE FOREGOING LIMITATION ON THE EXERCISABILITY OF SUCH OPTIONS AS INCENTIVE
OPTIONS SHALL BE APPLIED ON THE BASIS OF THE ORDER IN WHICH SUCH OPTIONS ARE
GRANTED.

 

C.                                     10% STOCKHOLDER.  IF ANY EMPLOYEE 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 BECOME EXERCISABLE ON SUCH AN ACCELERATED BASIS IF AND TO THE
EXTENT:  (I) SUCH OPTION IS, IN CONNECTION WITH THE CORPORATE TRANSACTION, TO BE
ASSUMED BY THE SUCCESSOR CORPORATION (OR PARENT THEREOF) OR (II) SUCH OPTION IS
TO BE REPLACED WITH A CASH INCENTIVE PROGRAM OF THE SUCCESSOR CORPORATION WHICH
PRESERVES THE SPREAD EXISTING AT THE TIME OF THE CORPORATE TRANSACTION ON ANY
SHARES FOR WHICH THE OPTION IS NOT OTHERWISE AT THAT TIME EXERCISABLE AND
PROVIDES FOR SUBSEQUENT PAYOUT IN ACCORDANCE WITH THE SAME EXERCISE/VESTING
SCHEDULE APPLICABLE TO THOSE OPTION SHARES OR (III) THE ACCELERATION OF SUCH
OPTION IS SUBJECT TO OTHER LIMITATIONS IMPOSED BY THE PLAN ADMINISTRATOR AT THE
TIME OF THE OPTION GRANT.

 

B.                                     ALL OUTSTANDING REPURCHASE RIGHTS SHALL
AUTOMATICALLY TERMINATE, 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

 

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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 STOCK OPTIONS, SEPARATELY EXERCISABLE STOCK APPRECIATION RIGHTS AND
DIRECT STOCK ISSUANCES UNDER THE PLAN PER CALENDAR YEAR.

 

E.                                      THE PLAN ADMINISTRATOR SHALL HAVE THE
DISCRETIONARY AUTHORITY TO PROVIDE FOR THE AUTOMATIC ACCELERATION OF ONE OR MORE
OUTSTANDING OPTIONS UNDER THE DISCRETIONARY OPTION GRANT PROGRAM UPON THE
OCCURRENCE OF A CORPORATE TRANSACTION, WHETHER OR NOT THOSE OPTIONS ARE TO BE
ASSUMED IN THE CORPORATE TRANSACTION, SO THAT EACH SUCH OPTION SHALL,
IMMEDIATELY PRIOR TO THE EFFECT DATE OF SUCH CORPORATE TRANSACTION, BECOME FULLY
EXERCISABLE WITH RESPECT TO THE TOTAL NUMBER OF SHARES OF COMMON STOCK AT THE
TIME SUBJECT TO THAT OPTION AND MAY BE EXERCISED FOR ANY OR ALL OF THOSE SHARES
AS FULLY VESTED SHARES OF COMMON STOCK.  IN ADDITION, THE PLAN ADMINISTRATOR
SHALL HAVE THE DISCRETIONARY AUTHORITY TO STRUCTURE ONE OR MORE OF THE
CORPORATION’S REPURCHASE RIGHTS UNDER THE DISCRETIONARY OPTION GRANT PROGRAM SO
THAT THOSE RIGHTS SHALL NOT BE ASSIGNABLE IN CONNECTION WITH SUCH CORPORATE
TRANSACTION AND SHALL ACCORDINGLY TERMINATE UPON THE CONSUMMATION OF SUCH
CORPORATE TRANSACTION, AND THE SHARES SUBJECT TO THOSE TERMINATED RIGHTS SHALL
THEREUPON VEST IN FULL.

 

F.                                      THE PLAN ADMINISTRATOR SHALL HAVE FULL
POWER AND AUTHORITY, EXERCISABLE EITHER AT THE TIME THE OPTION IS GRANTED OR AT
ANY TIME WHILE THE OPTION REMAINS OUTSTANDING, TO PROVIDE FOR THE AUTOMATIC
ACCELERATION OF ONE OR MORE OUTSTANDING OPTIONS UNDER THE DISCRETIONARY OPTION
GRANT PROGRAM IN THE EVENT THE OPTIONEE’S SERVICE IS SUBSEQUENTLY TERMINATED 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 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.

 

G.                                     THE PLAN ADMINISTRATOR SHALL HAVE THE
DISCRETIONARY AUTHORITY TO PROVIDE FOR THE AUTOMATIC ACCELERATION OF ONE OR MORE
OUTSTANDING OPTIONS UNDER THE DISCRETIONARY OPTION GRANT PROGRAM UPON THE
OCCURRENCE OF A CHANGE IN CONTROL SO THAT EACH SUCH OPTION SHALL, IMMEDIATELY
PRIOR TO THE EFFECT DATE OF SUCH CHANGE IN CONTROL, BECOME FULLY EXERCISABLE
WITH RESPECT TO THE TOTAL NUMBER OF SHARES OF COMMON STOCK AT THE TIME SUBJECT
TO THAT OPTION AND MAY BE EXERCISED FOR ANY OR ALL OF THOSE SHARES AS FULLY
VESTED SHARES OF COMMON STOCK.  EACH SUCH ACCELERATED OPTION SHALL REMAIN
EXERCISABLE UNTIL THE

 

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EXPIRATION OR SOONER TERMINATION OF THE OPTION TERM.  IN ADDITION, THE PLAN
ADMINISTRATOR SHALL HAVE THE DISCRETIONARY AUTHORITY TO STRUCTURE ONE OR MORE OF
THE CORPORATION’S REPURCHASE RIGHTS UNDER THE DISCRETIONARY OPTION GRANT PROGRAM
SO THAT THOSE RIGHTS SHALL TERMINATE AUTOMATICALLY UPON THE CONSUMMATION OF SUCH
CHANGE IN CONTROL, AND THE SHARES SUBJECT TO THOSE TERMINATED RIGHTS SHALL
THEREUPON VEST IN FULL.  ALTERNATIVELY, THE PLAN ADMINISTRATOR MAY CONDITION THE
AUTOMATIC ACCELERATION OF ONE OR MORE OUTSTANDING OPTIONS UNDER THE
DISCRETIONARY OPTION GRANT PROGRAM AND THE TERMINATION OF ONE OR MORE OF THE
CORPORATION’S OUTSTANDING REPURCHASE RIGHTS UNDER SUCH PROGRAM UPON THE
SUBSEQUENT TERMINATION OF THE OPTIONEE’S SERVICE BY REASON OF AN INVOLUNTARY
TERMINATION WITHIN A DESIGNATED PERIOD (NOT TO EXCEED EIGHTEEN (18) MONTHS)
FOLLOWING THE EFFECTIVE DATE OF SUCH 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 SUCH INVOLUNTARY
TERMINATION.

 

H.                                    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 ($100,000) LIMITATION IS NOT EXCEEDED. 
TO THE EXTENT SUCH DOLLAR LIMITATION IS EXCEEDED, THE ACCELERATED PORTION OF
SUCH OPTION SHALL BE EXERCISABLE AS A NONSTATUTORY OPTION UNDER THE FEDERAL TAX
LAWS.

 

I.                                         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.                                CANCELLATION AND REGRANT OF OPTIONS

 

The Plan Administrator shall have the authority to effect, at any time and from
time to time, with the consent of the affected option holders, the cancellation
of any or all outstanding options under the Discretionary Option Grant Program
and to grant in substitution new options covering the same or different number
of shares of Common Stock but with an exercise price per share equal to the Fair
Market Value per share of Common Stock on the new grant date.

 

V.                                    STOCK APPRECIATION RIGHTS

 

A.                                   THE PLAN ADMINISTRATOR SHALL HAVE THE
AUTHORITY TO GRANT TO SELECTED OPTIONEES TANDEM STOCK APPRECIATION RIGHTS AND/OR
LIMITED STOCK APPRECIATION RIGHTS.

 

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 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) OVER (B) THE
AGGREGATE EXERCISE PRICE PAYABLE FOR THOSE SHARES.

 

(II)                                  NO SUCH OPTION SURRENDER SHALL BE
EFFECTIVE UNLESS IT IS APPROVED BY THE PLAN ADMINISTRATOR, EITHER AT THE TIME OF
THE ACTUAL OPTION SURRENDER OR AT ANY EARLIER TIME.  IF THE SURRENDER IS SO
APPROVED, THEN THE DISTRIBUTION TO WHICH THE OPTIONEE SHALL BE ENTITLED MAY

 

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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 NOT
APPROVED BY THE PLAN ADMINISTRATOR, THEN THE OPTIONEE SHALL RETAIN WHATEVER
RIGHTS THE OPTIONEE HAD UNDER THE SURRENDERED OPTION (OR SURRENDERED PORTION) 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.

 

2.                                       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 TAKEOVER,
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 TAKEOVER) 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 TAKEOVER PRICE OF THE SHARES OF COMMON STOCK
WHICH ARE AT THE TIME VESTED UNDER EACH SURRENDERED OPTION (OR SURRENDERED
PORTION) OVER (B) THE AGGREGATE EXERCISE PRICE PAYABLE FOR THOSE SHARES.  SUCH
CASH DISTRIBUTION SHALL BE PAID WITHIN FIVE (5) DAYS FOLLOWING THE OPTION
SURRENDER DATE.

 

(III)                               THE PLAN ADMINISTRATOR SHALL PRE-APPROVE, AT
THE TIME THE LIMITED RIGHT IS GRANTED, THE SUBSEQUENT EXERCISE OF THAT RIGHT IN
ACCORDANCE WITH THE TERMS OF THE GRANT AND THE PROVISIONS OF THIS SECTION V.  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
REMAIN OUTSTANDING AND EXERCISABLE IN ACCORDANCE WITH THE DOCUMENTS EVIDENCING
SUCH OPTION.

 

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ARTICLE THREE

 

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 FIVE, SHARES OF COMMON STOCK MAY BE ISSUED UNDER THE STOCK ISSUANCE
PROGRAM FOR ANY COMBINATION 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 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

 

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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 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 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.

 

C.                                     NONTRANSFERABILITY OF RIGHTS TO
PURCHASE.  DURING THE LIFETIME OF THE PARTICIPANT, THE RIGHT TO PURCHASE SHARES
OF COMMON STOCK PURSUANT TO THE STOCK ISSUANCE PROGRAM SHALL BE EXERCISABLE ONLY
BY THE PARTICIPANT AND SHALL NOT BE ASSIGNABLE OR TRANSFERABLE OTHER THAN BY
WILL OR BY THE LAWS OF DESCENT AND DISTRIBUTION FOLLOWING THE PARTICIPANT’S
DEATH.

 

II.                                     CORPORATE TRANSACTION/CHANGE IN CONTROL

 

A.                                   ALL OF THE CORPORATION’S OUTSTANDING
REPURCHASE 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 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 IN THE STOCK ISSUANCE AGREEMENT.

 

B.                                     THE PLAN ADMINISTRATOR SHALL HAVE THE
DISCRETIONARY AUTHORITY, EXERCISABLE EITHER AT THE TIME THE UNVESTED SHARES ARE
ISSUED UNDER THE STOCK ISSUANCE PROGRAM OR ANY TIME WHILE THE CORPORATION’S
REPURCHASE RIGHTS WITH RESPECT TO THOSE SHARES REMAIN OUTSTANDING, TO STRUCTURE
ONE OR MORE OF THOSE REPURCHASE RIGHTS SO THAT SUCH RIGHTS SHALL NOT BE
ASSIGNABLE IN CONNECTION WITH A CORPORATE TRANSACTION AND SHALL ACCORDINGLY
TERMINATE UPON THE CONSUMMATION OF SUCH CORPORATE TRANSACTION, AND THE SHARES
SUBJECT TO THOSE TERMINATED REPURCHASE RIGHTS SHALL THEREUPON VEST IN FULL.

 

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 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 RIGHTS ARE ASSIGNED TO THE SUCCESSOR CORPORATION (OR PARENT THEREOF).

 

D.                                    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 RIGHTS WITH RESPECT TO
THOSE SHARES REMAIN OUTSTANDING UNDER THE STOCK ISSUANCE PROGRAM, TO STRUCTURE
ONE OR MORE OF THOSE REPURCHASE RIGHTS SO THAT SUCH RIGHTS SHALL AUTOMATICALLY
TERMINATE IN WHOLE OR IN PART, AND THE SHARES OF COMMON STOCK SUBJECT TO THOSE
TERMINATED RIGHTS SHALL IMMEDIATELY VEST, UPON (I) A CHANGE IN CONTROL

 

12

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OR (II) THE SUBSEQUENT TERMINATION OF THE PARTICIPANT’S SERVICE BY REASON OF AN
INVOLUNTARY TERMINATION WITHIN A DESIGNATED PERIOD (NOT TO EXCEED EIGHTEEN (18)
MONTHS) FOLLOWING THE EFFECTIVE DATE OF SUCH CHANGE IN CONTROL OR INVOLUNTARY
TERMINATION.

 

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.

 

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ARTICLE FOUR

 

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-EMPLOYEE BOARD MEMBER ON THE PLAN EFFECTIVE DATE SHALL AUTOMATICALLY BE
GRANTED AT THAT TIME A NONSTATUTORY OPTION TO PURCHASE 5,000 SHARES OF COMMON
STOCK, PROVIDED THAT INDIVIDUAL HAS NOT PREVIOUSLY BEEN IN THE EMPLOY OF THE
CORPORATION OR ANY PARENT OR SUBSIDIARY.

 

2.                                       EACH INDIVIDUAL WHO IS FIRST ELECTED OR
APPOINTED AS A NON-EMPLOYEE BOARD MEMBER ON OR AFTER THE PLAN EFFECTIVE DATE
SHALL AUTOMATICALLY BE GRANTED, ON THE DATE OF SUCH INITIAL ELECTION OR
APPOINTMENT, A NONSTATUTORY OPTION TO PURCHASE 20,000 SHARES OF COMMON STOCK,
PROVIDED THAT INDIVIDUAL HAS NOT PREVIOUSLY BEEN IN THE EMPLOY OF THE
CORPORATION OR ANY PARENT OR SUBSIDIARY.

 

3.                                       IN THE DATE OF EACH ANNUAL STOCKHOLDERS
MEETING, BEGINNING WITH THE 1998 ANNUAL STOCKHOLDERS MEETING, EACH INDIVIDUAL
WHO IS TO CONTINUE TO SERVE AS A NON-EMPLOYEE BOARD MEMBER, WHETHER OR NOT THAT
INDIVIDUAL IS STANDING FOR REELECTION TO THE BOARD AT THAT PARTICULAR ANNUAL
MEETING, SHALL AUTOMATICALLY BE GRANTED A NONSTATUTORY OPTION TO PURCHASE 5,000
SHARES OF COMMON STOCK, PROVIDED SUCH INDIVIDUAL HAS SERVED AS A NON-EMPLOYEE
BOARD MEMBER FOR AT LEAST SIX (6) MONTHS.  THERE SHALL BE NO LIMIT ON THE NUMBER
OF SUCH 5,000 SHARE OPTION GRANTS ANY ONE NON-EMPLOYEE BOARD MEMBER MAY RECEIVE
OVER HIS OR HER PERIOD OF BOARD SERVICE, AND NON-EMPLOYEE BOARD MEMBERS WHO HAVE
PREVIOUSLY BEEN IN THE EMPLOY OF THE CORPORATION (OR ANY PARENT OR SUBSIDIARY)
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 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
INITIAL 20,000 SHARE OPTION GRANT SHALL BE IMMEDIATELY EXERCISABLE FOR ANY OR
ALL OF THE OPTION SHARES AS FULLY VESTED SHARES OF COMMON STOCK AND SHALL REMAIN
SO EXERCISABLE UNTIL THE EXPIRATION OR SOONER TERMINATION OF THE OPTION TERM. 
EACH ANNUAL 5,000 SHARE GRANT SHALL ALSO BE IMMEDIATELY EXERCISABLE FOR ANY OR
ALL OF THE OPTION SHARES.  HOWEVER, THE SHARES OF COMMON STOCK PURCHASED UNDER
EACH ANNUAL 5,000 SHARE GRANT 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 ANNUAL 5,000 SHARE GRANT SHALL
VEST, AND THE CORPORATION’S REPURCHASE RIGHT SHALL LAPSE, IN A SERIES OF FOUR
(4) SUCCESSIVE EQUAL ANNUAL INSTALLMENTS UPON THE OPTIONEE’S

 

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COMPLETION OF EACH YEAR OF BOARD SERVICE OVER THE FOUR (4) YEAR PERIOD MEASURED
FROM THE AUTOMATIC 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 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 TAKEOVER

 

A.                                   THE SHARES OF COMMON STOCK SUBJECT TO EACH
OPTION OUTSTANDING UNDER THIS ARTICLE FOUR AT THE TIME OF A CORPORATE
TRANSACTION 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.                                     THE SHARES OF COMMON STOCK SUBJECT TO
EACH OPTION OUTSTANDING UNDER THIS ARTICLE FOUR AT THE TIME OF A CHANGE IN
CONTROL 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 TAKEOVER.

 

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C.                                     ALL OUTSTANDING REPURCHASE RIGHTS UNDER
THE AUTOMATIC OPTION GRANT PROGRAM SHALL AUTOMATICALLY TERMINATE, AND THE
UNVESTED SHARES OF COMMON STOCK SUBJECT TO THOSE TERMINATED RIGHTS SHALL
IMMEDIATELY VEST IN FULL, IN THE EVENT OF ANY CORPORATE TRANSACTION OR CHANGE IN
CONTROL.

 

D.                                    UPON THE OCCURRENCE OF A HOSTILE TAKEOVER,
THE OPTIONEE SHALL HAVE A THIRTY (30) DAY PERIOD IN WHICH TO SURRENDER TO THE
CORPORATION EACH OF HIS OR HER OUTSTANDING AUTOMATIC OPTION GRANTS.  THE
OPTIONEE SHALL IN RETURN BE ENTITLED TO A CASH DISTRIBUTION FROM THE CORPORATION
IN AN AMOUNT EQUAL TO THE EXCESS OF (I) THE TAKEOVER 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.  STOCKHOLDER APPROVAL OF THE PLAN ON THE PLAN EFFECTIVE DATE SHALL
CONSTITUTE PRE-APPROVAL OF THE GRANT OF EACH SUCH OPTION SURRENDER RIGHT UNDER
THIS AUTOMATIC OPTION GRANT PROGRAM AND THE SUBSEQUENT EXERCISE OF THAT RIGHT IN
ACCORDANCE WITH THE TERMS AND PROVISIONS OF THIS SECTION II.

 

E.                                      NO ADDITIONAL APPROVAL OR CONSENT OF THE
PLAN ADMINISTRATOR OR THE BOARD SHALL BE REQUIRED AT THE TIME OF THE ACTUAL
OPTION SURRENDER AND CASH DISTRIBUTION.

 

F.                                      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.

 

G.                                     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.

 

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ARTICLE FIVE

 

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 (less the par value of those
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 NONSTATUTORY OPTIONS OR UNVESTED
SHARES OF COMMON STOCK UNDER THE PLAN (OTHER THAN THE OPTIONS GRANTED OR THE
SHARES ISSUED UNDER THE AUTOMATIC 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:

 

1.                                       STOCK WITHHOLDING:  THE ELECTION TO
HAVE THE CORPORATION WITHHOLD, FROM THE SHARES OF COMMON STOCK OTHERWISE
ISSUABLE UPON THE EXERCISE OF SUCH NONSTATUTORY 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.

 

2.                                       STOCK DELIVERY:  THE ELECTION TO
DELIVER TO THE CORPORATION, AT THE TIME THE NONSTATUTORY 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.

 

III.                                 EFFECTIVE DATE AND TERM OF THE PLAN

 

A.                                   THE PLAN WAS ADOPTED BY THE BOARD ON
JULY 25, 1997 AND SHALL BECOME EFFECTIVE UPON APPROVAL BY THE CORPORATION’S
STOCKHOLDERS AT THE 1997 ANNUAL MEETING HELD ON THE PLAN EFFECTIVE DATE.

 

B.                                     THE PLAN SHALL TERMINATE UPON THE
EARLIEST TO OCCUR OF (I) JULY 25, 2007, (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 TRANSACTION.  UPON SUCH

 

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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 THOSE 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.                                     THE BOARD AMENDED THE PLAN IN 1999 TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE
PLAN FROM 530,000 TO 930,000.  THE PLAN WAS AMENDED IN 2000 TO (1) INCREASE THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE PLAN BY AN
ADDITIONAL 400,000 SHARES, (2) INCREASE THE NUMBER OF SHARES OF COMMON STOCK
SUBJECT TO THE INITIAL AUTOMATIC OPTION GRANT PURSUANT TO THE AUTOMATIC OPTION
GRANT PROGRAM FROM 5,000 SHARES TO 20,000 SHARES AND (3) INCREASE THE NUMBER OF
SHARES OF COMMON STOCK SUBJECT TO THE ANNUAL AUTOMATIC OPTION GRANT PURSUANT TO
THE AUTOMATIC OPTION GRANT PROGRAM FROM 4,000 SHARES TO 5,000 SHARES.  IN 2001,
THE PLAN WAS AMENDED TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED
FOR ISSUANCE UNDER THE PLAN BY 475,000 SHARES.  IN 2002, THE PLAN WAS AMENDED TO
COMPLY WITH THE REQUIREMENTS OF THE CALIFORNIA DEPARTMENT OF CORPORATIONS.  IN
2004, THE PLAN WAS AMENDED TO REFLECT THE NEW CORPORATE NAME OF THE CORPORATION
AND THE NEW NAME FOR ITS COMMON STOCK.

 

C.                                     OPTIONS TO PURCHASE SHARES OF COMMON
STOCK MAY BE GRANTED UNDER THE DISCRETIONARY OPTION GRANT PROGRAM 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.

 

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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 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.

 

VIII.                        CALIFORNIA BLUE SKY PROVISIONS

 

If the Common Stock is not exempt from California securities laws, the following
provisions shall apply to any sale of Common Stock or any option grant to an
individual who is eligible to receive such grants pursuant to the Plan who
resides in the State of California.

 

A.           OPTION GRANT PROGRAM.

 

1.                                       IF THE PERSON TO WHOM THE OPTION IS
GRANTED IS A 10% STOCKHOLDER, THEN THE EXERCISE PRICE PER SHARE SHALL NOT BE
LESS THAN 110% OF THE FAIR MARKET VALUE PER SHARE OF COMMON STOCK ON THE DATE
THE OPTION IS GRANTED.

 

2.                                       THE PLAN ADMINISTRATOR MAY NOT IMPOSE A
VESTING SCHEDULE UPON ANY OPTION GRANT OR THE SHARES OF COMMON STOCK SUBJECT TO
THAT OPTION WHICH IS MORE RESTRICTIVE THAN 20% PER YEAR VESTING, WITH THE
INITIAL VESTING TO OCCUR NOT LATER THAN ONE YEAR AFTER THE OPTION GRANT DATE. 
HOWEVER, SUCH LIMITATION SHALL NOT BE APPLICABLE TO ANY OPTION GRANTS MADE TO
INDIVIDUALS WHO ARE OFFICERS OF THE CORPORATION, NON-EMPLOYEE BOARD MEMBERS OR
CONSULTANTS.

 

3.                                       UNLESS THE OPTIONEE’S SERVICE IS
TERMINATED FOR MISCONDUCT (IN WHICH CASE THE OPTION SHALL TERMINATE
IMMEDIATELY), THE OPTION (TO THE EXTENT IT WAS VESTED AND EXERCISABLE AT THAT
THE TIME OPTIONEE’S SERVICE CEASED) MUST REMAIN EXERCISABLE, FOLLOWING
OPTIONEE’S TERMINATION OF SERVICE, FOR AT LEAST (A) SIX MONTHS IF OPTIONEE’S
SERVICE TERMINATES DUE TO DEATH OR PERMANENT DISABILITY OR (B) THIRTY DAYS IN
ALL OTHER CASES.

 

B.             STOCK ISSUANCE PROGRAM.  THE PLAN ADMINISTRATOR MAY NOT IMPOSE A
VESTING SCHEDULE UPON ANY STOCK ISSUANCE EFFECTED UNDER THE STOCK ISSUANCE
PROGRAM WHICH IS MORE RESTRICTIVE THAN 20% PER YEAR VESTING, WITH INITIAL
VESTING TO OCCUR NOT LATER THAN ONE YEAR AFTER THE ISSUANCE DATE.  SUCH
LIMITATION SHALL NOT APPLY TO ANY COMMON STOCK ISSUANCES MADE TO THE OFFICERS OF
THE CORPORATION, NON-EMPLOYEE BOARD MEMBERS OR CONSULTANTS.

 

C.             REPURCHASE RIGHTS.  TO THE EXTENT SPECIFIED IN A STOCK PURCHASE
AGREEMENT OR STOCK ISSUANCE AGREEMENT, THE CORPORATION AND/OR ITS STOCKHOLDERS
SHALL HAVE THE RIGHT TO REPURCHASE ANY OR ALL OF THE UNVESTED SHARES OF COMMON
STOCK HELD BY AN OPTIONEE OR PARTICIPANT WHEN SUCH PERSON’S SERVICE CEASES. 
HOWEVER, EXCEPT WITH RESPECT TO GRANTS TO OFFICERS, NON-EMPLOYEE BOARD MEMBERS,
AND CONSULTANTS OF THE CORPORATION, THE REPURCHASE RIGHT MUST SATISFY THE
FOLLOWING CONDITIONS:

 

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1.                                       THE CORPORATION’S RIGHT TO REPURCHASE
THE UNVESTED SHARES OF COMMON STOCK MUST LAPSE AT THE RATE OF AT LEAST 20% PER
YEAR OVER FIVE YEARS FROM THE DATE THE OPTION WAS GRANTED OR THE SHARES WERE
ISSUED UNDER THE PLAN.

 

2.                                       THE CORPORATION’S REPURCHASE RIGHT MUST
BE EXERCISED WITHIN NINETY DAYS OF THE DATE THAT SERVICE CEASED (OR THE DATE THE
SHARES WERE PURCHASED, IF LATER).

 

3.                                       THE PURCHASE PRICE MUST BE PAID IN THE
FORM OF CASH OR CANCELLATION OF THE PURCHASE MONEY INDEBTEDNESS FOR THE SHARES
OF COMMON STOCK.

 

D.            INFORMATION REQUIREMENTS.  ANNUALLY, THE CORPORATION SHALL DELIVER
OR CAUSE TO BE DELIVERED TO EACH OPTIONEE OR PARTICIPANT, NO LATER THAN SUCH
INFORMATION IS DELIVERED TO THE CORPORATION’S SECURITY HOLDERS, ONE OF THE
FOLLOWING:

 

1.                                       THE CORPORATION’S ANNUAL REPORT TO
SECURITY HOLDERS CONTAINING THE INFORMATION REQUIRED BY RULE 14A-3(B) UNDER THE
1934 ACT FOR ITS LATEST FISCAL YEAR;

 

2.                                       THE CORPORATION’S ANNUAL REPORT ON
FORM 10-K FOR ITS LATEST FISCAL YEAR;

 

3.                                       THE CORPORATION’S LATEST PROSPECTUS
FILED PURSUANT TO 424(B) UNDER THE 1933 ACT THAT CONTAINS AUDITED FINANCIAL
STATEMENTS FOR THE LATEST FISCAL YEAR, PROVIDED THAT THE FINANCIAL STATEMENTS
ARE NOT INCORPORATED BY REFERENCE FROM ANOTHER FILING, AND PROVIDED FURTHER THAT
SUCH PROSPECTUS CONTAINS SUBSTANTIALLY THE INFORMATION REQUIRED BY
RULE 14A-3(B); OR

 

4.                                       THE CORPORATION’S EFFECTIVE 1934 ACT
REGISTRATION STATEMENT CONTAINING AUDITED FINANCIAL STATEMENTS FOR THE LATEST
FISCAL YEAR.

 

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APPENDIX

 

The following definitions shall be in effect under the Plan:

 

A.                                   AUTOMATIC OPTION GRANT PROGRAM SHALL MEAN
THE AUTOMATIC OPTION GRANT PROGRAM IN EFFECT UNDER THE PLAN.

 

B.                                     BOARD SHALL MEAN THE CORPORATION’S BOARD
OF DIRECTORS.

 

C.                                     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, 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.

 

D.                                    COMMON STOCK SHALL MEAN THE CORPORATION’S
COMMON STOCK, WHICH SHALL BE REGISTERED UNDER SECTION 12(G) OF THE 1934 ACT AND
SHALL BE ENTITLED TO ONE-TENTH OF ONE VOTE PER SHARE ON ALL MATTERS SUBJECT TO
STOCKHOLDER APPROVAL.

 

E.                                      CODE SHALL MEAN THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED.

 

F.                                      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.

 

G.                                     CORPORATION SHALL MEAN ITERIS, INC., A
DELAWARE CORPORATION (FORMERLY KNOWN AS ODETICS, INC. AND ITERIS HOLDINGS, INC.)
AND ITS SUCCESSORS.

 

H.                                    DISCRETIONARY OPTION GRANT PROGRAM SHALL
MEAN THE DISCRETIONARY OPTION GRANT PROGRAM IN EFFECT UNDER THE PLAN.

 

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I.                                         ELIGIBLE DIRECTOR SHALL MEAN A
NON-EMPLOYEE BOARD MEMBER ELIGIBLE TO PARTICIPATE IN THE AUTOMATIC OPTION GRANT
PROGRAM IN ACCORDANCE WITH THE ELIGIBILITY PROVISIONS OF ARTICLE ONE.

 

J.                                        EMPLOYEE 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.

 

K.                                    EXERCISE DATE SHALL MEAN THE DATE ON WHICH
THE CORPORATION SHALL HAVE RECEIVED WRITTEN NOTICE OF THE OPTION EXERCISE.

 

L.                                      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 DEEMED
EQUAL TO THE CLOSING SELLING PRICE PER SHARE OF COMMON STOCK ON THE DATE IN
QUESTION, AS SUCH PRICE IS REPORTED ON THE NASDAQ NATIONAL MARKET OR ANY
SUCCESSOR SYSTEM.  IF THERE IS NO CLOSING SELLING PRICE FOR THE COMMON STOCK ON
THE DATE IN QUESTION, THEN THE FAIR MARKET VALUE SHALL BE THE CLOSING SELLING
PRICE 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 DEEMED EQUAL TO THE
CLOSING SELLING PRICE PER SHARE 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 CLOSING SELLING PRICE FOR THE
COMMON STOCK ON THE DATE IN QUESTION, THEN THE FAIR MARKET VALUE SHALL BE THE
CLOSING SELLING PRICE ON THE LAST PRECEDING DATE FOR WHICH SUCH QUOTATION
EXISTS.

 

M.                                 HOSTILE TAKEOVER SHALL MEAN 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.

 

N.                                    INCENTIVE OPTION SHALL MEAN AN OPTION
WHICH SATISFIES THE REQUIREMENTS OF CODE SECTION 422.

 

O.                                    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 DUTIES AND RESPONSIBILITIES OR THE LEVEL OF
MANAGEMENT TO WHICH HE OR SHE REPORTS, (B) A REDUCTION IN HIS OR HER LEVEL OF
COMPENSATION (INCLUDING BASE SALARY, FRINGE BENEFITS AND TARGET BONUS UNDER ANY
CORPORATE PERFORMANCE BASED BONUS OR INCENTIVE PROGRAMS) BY MORE THAN FIFTEEN
PERCENT (15%) OR

 

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(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.

 

P.                                      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 OPTIONEE, PARTICIPANT OR OTHER
PERSON IN THE SERVICE OF THE CORPORATION (OR ANY PARENT OR SUBSIDIARY).

 

Q.                                    1934 ACT SHALL MEAN THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.

 

R.                                     1933 ACT SHALL MEAN THE SECURITIES ACT OF
1933, AS AMENDED.

 

S.                                      NONSTATUTORY 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 OR AUTOMATIC OPTION GRANT
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 PROGRAM, PERMANENT DISABILITY OR PERMANENTLY DISABLED SHALL MEAN
THE INABILITY OF THE NON-EMPLOYEE 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 1997
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.

 

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Z.                                     PLAN EFFECTIVE DATE SHALL MEAN
SEPTEMBER 5, 1997, THE DATE OF THE 1997 ANNUAL STOCKHOLDERS MEETING AT WHICH THE
PLAN IS APPROVED BY THE CORPORATION’S STOCKHOLDERS.

 

AA.                         PRIMARY COMMITTEE SHALL MEAN THE COMMITTEE OF TWO
(2) OR MORE NON- EMPLOYEE BOARD MEMBERS APPOINTED BY THE BOARD TO ADMINISTER THE
DISCRETIONARY OPTION GRANT AND STOCK ISSUANCE PROGRAMS WITH RESPECT TO
SECTION 16 INSIDERS.

 

BB.                             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.

 

CC.                             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.

 

DD.                           SERVICE SHALL MEAN THE PERFORMANCE OF SERVICES FOR
THE CORPORATION (OR ANY PARENT OR SUBSIDIARY) BY A PERSON IN THE CAPACITY OF AN
EMPLOYEE, A NON- EMPLOYEE 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.

 

EE.                               STOCK EXCHANGE SHALL MEAN EITHER THE AMERICAN
STOCK EXCHANGE OR THE NEW YORK STOCK EXCHANGE.

 

FF.                               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.

 

GG.                             STOCK ISSUANCE PROGRAM SHALL MEAN THE STOCK
ISSUANCE PROGRAM IN EFFECT UNDER THE PLAN.

 

HH.                           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.

 

II.                                     TAKEOVER 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 TAKEOVER OR (II) THE
HIGHEST REPORTED PRICE PER SHARE OF COMMON STOCK PAID BY THE TENDER OFFEROR IN
EFFECTING SUCH HOSTILE TAKEOVER.  HOWEVER, IF THE SURRENDERED OPTION IS AN
INCENTIVE OPTION, THE TAKEOVER PRICE SHALL NOT EXCEED THE CLAUSE (I) PRICE PER
SHARE.

 

JJ.                                   TAXES SHALL MEAN THE FEDERAL, STATE AND
LOCAL INCOME AND EMPLOYMENT TAX LIABILITIES INCURRED BY THE HOLDER OF
NONSTATUTORY OPTIONS OR UNVESTED SHARES OF COMMON STOCK IN CONNECTION WITH THE
EXERCISE OF THOSE OPTIONS OR THE VESTING OF THOSE SHARES.

 

KK.                           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).

 

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