Exhibit 10.24

 

ITERIS, INC.

1998 STOCK INCENTIVE PLAN

(as amended February 7, 2000)

 

ARTICLE ONE

 

GENERAL PROVISIONS

 

I.                                         PURPOSE OF THE PLAN

 

This 1998 Stock Incentive Plan is intended to promote the interests of
Iteris, Inc. (formerly known as Odetics ITS, Inc.), a California 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 THREE
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 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.

 

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III.                                 ADMINISTRATION OF THE PLAN

 

A.                                   PRIOR TO THE SECTION 12 REGISTRATION DATE,
THE DISCRETIONARY OPTION GRANT AND STOCK ISSUANCE PROGRAMS SHALL BE ADMINISTERED
BY THE BOARD.  BEGINNING WITH THE SECTION 12 REGISTRATION DATE, 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.

 

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.

 

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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.

 

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 WHO FIRST BECOME NON-EMPLOYEE BOARD MEMBERS ON OR AFTER THE
UNDERWRITING DATE, WHETHER THROUGH APPOINTMENT BY THE BOARD OR ELECTION BY THE
CORPORATION’S SHAREHOLDERS, AND (II) THOSE INDIVIDUALS WHO CONTINUE TO SERVE AS
NON-EMPLOYEE BOARD MEMBERS AT ONE OR MORE ANNUAL SHAREHOLDERS MEETINGS HELD
AFTER THE UNDERWRITING DATE, WHETHER OR NOT THEY COMMENCED SUCH BOARD SERVICE
PRIOR TO THE UNDERWRITING 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
3,000,000(1) SHARES, SUBJECT TO CERTAIN CHANGES IN THE CORPORATION’S CAPITAL
STRUCTURE.

 

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(1)  Such share reserve is comprised of (i) 1,500,000 shares originally
authorized under the Plan (or 2,812,374 shares after giving effect to the
1.874916-for-1 stock split effected in February 2000), and (ii)  an additional
187,626 shares approved by the Corporation’s shareholders in February 2000.

 

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B.                                     NO ONE PERSON PARTICIPATING IN THE PLAN
MAY RECEIVE OPTIONS, SEPARATELY EXERCISABLE STOCK APPRECIATION RIGHTS AND DIRECT
STOCK ISSUANCES FOR MORE THAN 250,000 SHARES OF COMMON STOCK IN THE AGGREGATE
PER CALENDAR YEAR, BEGINNING WITH THE 1998 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, 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 THE 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-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.

 

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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 IN ACCORDANCE WITH THE FOLLOWING PROVISIONS:

 

(I)                                     THE EXERCISE PRICE SHALL NOT BE LESS
THAN EIGHTY-FIVE PERCENT (85%) OF THE FAIR MARKET VALUE PER SHARE OF COMMON
STOCK ON THE OPTION GRANT DATE.

 

(II)                                  IF THE PERSON TO WHOM THE OPTION IS
GRANTED IS A 10%  STOCKHOLDER, THEN THE EXERCISE PRICE 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.

 

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 CASH OR CHECK MADE PAYABLE TO THE CORPORATION.  SHOULD THE COMMON STOCK BE
REGISTERED UNDER SECTION 12 OF THE 1934 ACT AT THE TIME THE OPTION IS EXERCISED,
THEN THE EXERCISE PRICE MAY ALSO BE PAID AS FOLLOWS:

 

(I)                                     IN SHARES OF COMMON STOCK HELD FOR THE
REQUISITE PERIOD NECESSARY TO AVOID A CHARGE TO THE CORPORATION’S EARNINGS FOR
FINANCIAL REPORTING PURPOSES AND VALUED AT FAIR MARKET VALUE ON THE EXERCISE
DATE, OR

 

(II)                                  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 (A) TO 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) TO 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)                                     SHOULD THE OPTIONEE CEASE TO REMAIN IN
SERVICE FOR ANY REASON OTHER THAN DEATH, DISABILITY OR MISCONDUCT, THEN THE
OPTIONEE SHALL HAVE A PERIOD OF THREE (3) MONTHS FOLLOWING THE DATE OF SUCH
CESSATION OF SERVICE DURING WHICH TO EXERCISE EACH OUTSTANDING OPTION HELD BY
SUCH OPTIONEE.

 

(II)                                  SHOULD OPTIONEE’S SERVICE TERMINATE BY
REASON OF DISABILITY, THEN THE OPTIONEE SHALL HAVE A PERIOD OF TWELVE (12)
MONTHS FOLLOWING THE DATE OF SUCH CESSATION OF SERVICE DURING WHICH TO EXERCISE
EACH OUTSTANDING OPTION HELD BY SUCH OPTIONEE.

 

(III)                               IF THE OPTIONEE DIES WHILE HOLDING AN
OUTSTANDING OPTION, THEN THE PERSONAL REPRESENTATIVE OF HIS OR HER ESTATE OR THE
PERSON OR PERSONS TO WHOM THE OPTION IS TRANSFERRED PURSUANT TO THE OPTIONEE’S
WILL OR THE LAWS OF INHERITANCE OR THE OPTIONEE’S DESIGNATED BENEFICIARY OR
BENEFICIARIES OF THAT OPTION SHALL HAVE A TWELVE (12)-MONTH PERIOD FOLLOWING THE
DATE OF THE OPTIONEE’S DEATH TO EXERCISE SUCH OPTION.

 

(IV)                              UNDER NO CIRCUMSTANCES, HOWEVER, SHALL ANY
SUCH OPTION BE EXERCISABLE AFTER THE SPECIFIED EXPIRATION OF THE OPTION TERM.

 

(V)                                 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 WITH
RESPECT TO ANY AND ALL OPTION SHARES FOR WHICH THE OPTION IS NOT OTHERWISE AT
THE TIME EXERCISABLE OR IN WHICH THE OPTIONEE IS NOT OTHERWISE AT THAT TIME
VESTED.

 

(VI)                              SHOULD OPTIONEE’S SERVICE BE TERMINATED FOR
MISCONDUCT OR SHOULD OPTIONEE OTHERWISE ENGAGE IN MISCONDUCT WHILE HOLDING ONE
OR MORE OUTSTANDING OPTIONS UNDER THE PLAN, THEN ALL THOSE OPTIONS SHALL
TERMINATE IMMEDIATELY AND CEASE TO REMAIN OUTSTANDING.

 

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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 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.                                    SHAREHOLDER RIGHTS.  THE HOLDER OF AN
OPTION SHALL HAVE NO SHAREHOLDER 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. 
HOWEVER, WITH RESPECT TO ANY OPTION GRANT MADE PRIOR TO THE SECTION 12
REGISTRATION DATE, THE PLAN ADMINISTRATOR MAY NOT IMPOSE A VESTING SCHEDULE UPON
THAT GRANT OR ANY SHARES OF COMMON STOCK SUBJECT TO THAT OPTION WHICH IS MORE
RESTRICTIVE THAN TWENTY PERCENT (20%) PER YEAR VESTING, WITH THE INITIAL VESTING
TO OCCUR NOT LATER THAN ONE (1) YEAR AFTER THE OPTION GRANT DATE.  SUCH
LIMITATION SHALL NOT BE APPLICABLE TO ANY OPTION GRANTS MADE TO INDIVIDUALS WHO
ARE OFFICERS OF THE CORPORATION, NON-EMPLOYEE BOARD MEMBERS OR INDEPENDENT
CONSULTANTS AND SHALL NOT BE IN EFFECT FOR ANY OPTIONS GRANTED AFTER THE
SECTION 12 REGISTRATION DATE.

 

F.                                      FIRST REFUSAL RIGHTS.  UNTIL SUCH TIME
AS THE COMMON STOCK IS FIRST REGISTERED UNDER SECTION 12 OF THE 1934 ACT, THE
CORPORATION SHALL HAVE THE RIGHT OF FIRST REFUSAL WITH RESPECT TO ANY PROPOSED
DISPOSITION BY THE OPTIONEE (OR ANY SUCCESSOR IN INTEREST) OF ANY SHARES OF
COMMON STOCK ISSUED UNDER THE PLAN.  SUCH RIGHT OF FIRST REFUSAL SHALL BE
EXERCISABLE IN ACCORDANCE WITH THE TERMS ESTABLISHED BY THE PLAN ADMINISTRATOR
AND SET FORTH IN THE DOCUMENT EVIDENCING SUCH RIGHT.

 

G.                                     LIMITED TRANSFERABILITY OF OPTIONS. 
DURING THE LIFETIME OF THE OPTIONEE, INCENTIVE OPTIONS SHALL BE EXERCISABLE ONLY
BY THE OPTIONEE AND SHALL NOT BE ASSIGNABLE OR TRANSFERABLE OTHER THAN BY WILL
OR BY THE LAWS OF INHERITANCE FOLLOWING THE OPTIONEE’S DEATH.  HOWEVER, A
NONSTATUTORY 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.

 

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THE ASSIGNED PORTION MAY ONLY BE EXERCISED BY THE PERSON OR PERSONS WHO ACQUIRE
A PROPRIETARY INTEREST IN THE OPTION PURSUANT TO THE ASSIGNMENT. THE TERMS
APPLICABLE TO THE ASSIGNED PORTION SHALL BE THE SAME AS THOSE IN EFFECT FOR THE
OPTION IMMEDIATELY PRIOR TO SUCH ASSIGNMENT AND SHALL BE SET FORTH IN SUCH
DOCUMENTS ISSUED TO THE ASSIGNEE AS THE PLAN ADMINISTRATOR MAY DEEM
APPROPRIATE.   NOTWITHSTANDING THE FOREGOING, THE OPTIONEE MAY ALSO DESIGNATE
ONE OR MORE PERSONS AS THE BENEFICIARY OR BENEFICIARIES OF HIS OR HER
OUTSTANDING OPTIONS UNDER THE PLAN, AND THOSE OPTIONS SHALL, IN ACCORDANCE WITH
SUCH DESIGNATION, AUTOMATICALLY BE TRANSFERRED TO SUCH BENEFICIARY OR
BENEFICIARIES UPON THE OPTIONEE’S DEATH WHILE HOLDING THOSE OPTIONS.  SUCH
BENEFICIARY OR BENEFICIARIES SHALL TAKE THE TRANSFERRED OPTIONS SUBJECT TO ALL
THE TERMS AND CONDITIONS OF THE APPLICABLE AGREEMENT EVIDENCING EACH SUCH
TRANSFERRED OPTION, INCLUDING (WITHOUT LIMITATION) THE LIMITED TIME PERIOD
DURING WHICH THE OPTION MAY BE EXERCISED FOLLOWING THE OPTIONEE’S DEATH.

 

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.                                     EXERCISE PRICE.  THE EXERCISE PRICE PER
SHARE SHALL NOT BE LESS THAN ONE HUNDRED PERCENT (100%) OF THE FAIR MARKET VALUE
PER SHARE OF COMMON STOCK ON THE OPTION GRANT DATE.

 

C.                                     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.

 

D.                                    10% SHAREHOLDER.  IF ANY EMPLOYEE TO WHOM
AN INCENTIVE OPTION IS GRANTED IS A 10% SHAREHOLDER, 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.

 

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III.                                 CORPORATE TRANSACTION/CHANGE IN CONTROL

 

A.                                   IN THE EVENT OF ANY CORPORATE TRANSACTION,
EACH OUTSTANDING OPTION SHALL AUTOMATICALLY VEST ON AN ACCELERATED BASIS SO THAT
EACH SUCH OPTION SHALL, IMMEDIATELY PRIOR TO THE EFFECTIVE DATE OF THE CORPORATE
TRANSACTION, BECOME EXERCISABLE FOR ALL OF THE 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 VEST 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 VESTED AND 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 UNDER
THE DISCRETIONARY OPTION GRANT PROGRAM 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 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.  TO THE EXTENT THE
ACTUAL HOLDERS OF THE CORPORATION’S OUTSTANDING COMMON STOCK RECEIVE CASH
CONSIDERATION FOR THEIR COMMON STOCK IN CONSUMMATION OF THE CORPORATE
TRANSACTION, THE SUCCESSOR CORPORATION MAY, IN CONNECTION WITH THE ASSUMPTION OF
THE OUTSTANDING OPTIONS UNDER THIS PLAN, SUBSTITUTE ONE OR MORE SHARES OF ITS
OWN COMMON STOCK WITH A FAIR MARKET VALUE EQUIVALENT TO THE CASH CONSIDERATION
PAID PER SHARE OF COMMON STOCK IN SUCH CORPORATE TRANSACTION.

 

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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 FOR ALL OF THE 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 FULL AND
IMMEDIATE 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 FULL AND IMMEDIATE 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 FOR ALL OF THE 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 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.

 

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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 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.

 

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(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.

 

C.                                     THE FOLLOWING TERMS SHALL GOVERN THE
GRANT AND EXERCISE OF LIMITED STOCK APPRECIATION RIGHTS:

 

(I)                                     ONE OR MORE SECTION 16 INSIDERS MAY, AT
ANY TIME FOLLOWING THE SECTION 12 REGISTRATION DATE, 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. 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 SUBJECT TO EACH SURRENDERED OPTION (WHETHER OR NOT THE OPTION IS OTHERWISE
VESTED OR EXERCISABLE AS TO THOSE SHARES) 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 EIGHTY-FIVE PERCENT
(85%) OF THE FAIR MARKET VALUE PER SHARE OF COMMON STOCK ON THE ISSUANCE DATE. 
HOWEVER, THE PURCHASE PRICE PER SHARE OF COMMON STOCK ISSUED TO A 10% 
STOCKHOLDER SHALL NOT BE LESS THAN ONE HUNDRED AND TEN PERCENT (110%) OF SUCH
FAIR MARKET VALUE.

 

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.  HOWEVER, WITH RESPECT TO ANY STOCK ISSUANCE
EFFECTED UNDER THE STOCK ISSUANCE PROGRAM PRIOR TO THE SECTION 12 REGISTRATION
DATE, THE PLAN ADMINISTRATOR MAY NOT IMPOSE A VESTING SCHEDULE WHICH IS MORE
RESTRICTIVE THAN TWENTY PERCENT (20%) PER YEAR VESTING, WITH INITIAL VESTING TO
OCCUR NOT LATER THAN ONE (1) 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 INDEPENDENT CONSULTANTS AND SHALL NOT
BE IN EFFECT FOR ANY STOCK ISSUANCES EFFECTED AFTER THE SECTION 12 REGISTRATION
DATE.

 

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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
SHAREHOLDER 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 SHAREHOLDER 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 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.

 

C.                                     FIRST REFUSAL RIGHTS.  UNTIL SUCH TIME AS
THE COMMON STOCK IS FIRST REGISTERED UNDER SECTION 12 OF THE 1934 ACT, THE
CORPORATION SHALL HAVE THE RIGHT OF FIRST REFUSAL WITH RESPECT TO ANY PROPOSED
DISPOSITION BY THE PARTICIPANT (OR ANY SUCCESSOR IN INTEREST) OF ANY SHARES OF
COMMON STOCK ISSUED UNDER THE STOCK ISSUANCE PROGRAM.  SUCH RIGHT OF FIRST
REFUSAL SHALL BE EXERCISABLE IN ACCORDANCE WITH THE TERMS ESTABLISHED BY THE
PLAN ADMINISTRATOR AND SET FORTH IN THE DOCUMENT EVIDENCING SUCH RIGHT.

 

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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

 

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

 

2.                                       ON THE DATE OF EACH ANNUAL SHAREHOLDERS
MEETING, BEGINNING WITH THE FIRST ANNUAL SHAREHOLDERS MEETING HELD AFTER THE
UNDERWRITING DATE, 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 10,000(3) 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 10,000(3) 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) OR WHO HAVE
PREVIOUSLY RECEIVED STOCK OPTIONS IN CONNECTION WITH THEIR BOARD SERVICE PRIOR
TO THE PLAN EFFECTIVE 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 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.

 

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(2)  Such shares include (i) 10,000 shares originally authorized under the Plan
(or 18,749 shares after giving effect to the 1.874916-for-1 stock split effected
in February 2000), and (ii) an additional 1,251 shares increase approved by the
shareholders in February 2000.

 

(3)  Such shares include (i) 5,000 shares originally authorized under the Plan
(or 9,374 shares after giving effect to the 1.874916-for-1 stock split effected
in February 2000), and (ii) an additional 626 shares approved by the
shareholders in February 2000.

 

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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. HOWEVER, THE SHARES OF COMMON STOCK PURCHASED UNDER
EACH INITIAL 20,000 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 INITIAL 20,000 SHARE
GRANT SHALL VEST, AND THE CORPORATION’S REPURCHASE RIGHT SHALL LAPSE, IN A
SERIES OF THREE (3) SUCCESSIVE EQUAL ANNUAL INSTALLMENTS UPON THE OPTIONEE’S
COMPLETION OF EACH YEAR OF BOARD SERVICE OVER THE THREE (3) YEAR PERIOD MEASURED
FROM THE OPTION GRANT DATE.  EACH ANNUAL 10,000 SHARE 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.

 

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 INHERITANCE) 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.

 

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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.

 

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
THEREUPON VEST IN FULL, IMMEDIATELY PRIOR TO ANY CORPORATE TRANSACTION OR CHANGE
IN CONTROL.

 

D.                                    UPON THE OCCURRENCE OF A HOSTILE TAKEOVER
AT ANY TIME AFTER THE SECTION 12 REGISTRATION DATE, 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.  NO APPROVAL OR
CONSENT OF THE PLAN ADMINISTRATOR OR THE BOARD SHALL BE REQUIRED AT THE TIME OF
THE ACTUAL OPTION SURRENDER AND CASH DISTRIBUTION.

 

E.                                      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.

 

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F.                                      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
and secured by the purchased shares.  However, any promissory note delivered by
a consultant must be secured by collateral in addition to the purchased shares
of Common Stock.  All other 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.                                     AT ANY TIME AFTER THE SECTION 12
REGISTRATION DATE, THE PLAN ADMINISTRATOR MAY, IN ITS DISCRETION, PROVIDE ONE OR
MORE 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 WITHHOLDING TAXES TO WHICH SUCH HOLDERS MAY
BECOME SUBJECT 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 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 Withholding 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
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 Withholding Taxes) with an
aggregate Fair Market Value equal to the percentage of the Withholding Taxes
(not to exceed one hundred percent (100%)) designated by the holder.

 

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III.                                 EFFECTIVE DATE AND TERM OF THE PLAN

 

A.                                   THE PLAN WAS ADOPTED BY THE BOARD AND THE
SHAREHOLDERS OF THE CORPORATION ON APRIL 14, 1998L AND THE PLAN BECAME EFFECTIVE
ON SUCH PLAN EFFECTIVE DATE.  HOWEVER, THE AUTOMATIC OPTION GRANT PROGRAM IN
EFFECT UNDER THE PLAN SHALL NOT BECOME EFFECTIVE UNTIL THE UNDERWRITING DATE,
AND NO OPTION GRANTS SHALL BE MADE UNDER THAT PROGRAM PRIOR TO SUCH DATE.  THE
PLAN WAS AMENDED BY THE BOARD AND THE SHAREHOLDERS IN FEBRUARY 2000 (I) TO
INCREASE THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
UNDER THE PLAN BY AN ADDITIONAL 187,626 SHARES TO A TOTAL OF 3,000,000 SHARES
AND (II) TO AMEND THE NUMBER OF THE SHARES ISSUABLE TO NON-EMPLOYEE MEMBERS OF
THE BOARD UNDER THE AUTOMATIC OPTION GRANT PROGRAM.

 

B.                                     THE PLAN SHALL TERMINATE UPON THE
EARLIEST TO OCCUR OF (I) APRIL 13, 2008, (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 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
SHAREHOLDER APPROVAL PURSUANT TO APPLICABLE LAWS OR REGULATIONS.

 

B.                                     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 SHAREHOLDER APPROVAL OF AN AMENDMENT
SUFFICIENTLY INCREASING THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR
ISSUANCE UNDER THE PLAN.  IF SUCH SHAREHOLDER 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.

 

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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 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.                        FINANCIAL REPORTS

 

Prior to the Section 12 Registration Date, the Corporation shall deliver a
balance sheet and an income statement at least annually to each individual
holding an outstanding option under the Plan, unless such individual is a key
Employee whose duties in connection with the Corporation (or any Parent or
Subsidiary) assure such individual access to equivalent information. The
requirement to deliver financial statements under this Section VIII shall
terminate on the Section 12 Registration Date.

 

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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 SHAREHOLDERS, 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.

 

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

 

F.                                      CORPORATE TRANSACTION SHALL MEAN EITHER
OF THE FOLLOWING SHAREHOLDER 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.
(FORMERLY KNOWN AS ODETICS ITS, INC.), A CALIFORNIA CORPORATION, AND ANY
SUCCESSOR CORPORATION TO ALL OR SUBSTANTIALLY ALL OF THE ASSETS OR VOTING STOCK
OF ITERIS, INC. WHICH SHALL BY APPROPRIATE ACTION ADOPT THE PLAN.

 

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

 

I.                                         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.

 

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

 

K.                                    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.  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.

 

(III)                               IF THE COMMON STOCK IS AT THE TIME NEITHER
LISTED ON ANY STOCK EXCHANGE NOR TRADED ON THE NASDAQ NATIONAL MARKET, THEN THE
FAIR MARKET VALUE SHALL BE DETERMINED BY THE PLAN ADMINISTRATOR AFTER TAKING
INTO ACCOUNT SUCH FACTORS AS THE PLAN ADMINISTRATOR SHALL DEEM APPROPRIATE.

 

L.                                      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 SHAREHOLDERS WHICH THE BOARD DOES NOT
RECOMMEND SUCH SHAREHOLDERS TO ACCEPT.

 

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

 

N.                                    INVOLUNTARY TERMINATION SHALL MEAN THE
TERMINATION OF THE SERVICE OF ANY INDIVIDUAL WHICH OCCURS BY REASON OF:

 

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(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 (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.

 

O.                                    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 IN ANY WAY PRECLUDE OR RESTRICT THE RIGHT OF
THE CORPORATION (OR ANY PARENT OR SUBSIDIARY) TO DISCHARGE OR DISMISS ANY
OPTIONEE OR PARTICIPANT OR OTHER PERSON IN THE SERVICE OF THE CORPORATION (OR
ANY PARENT OR SUBSIDIARY) FOR ANY OTHER ACTS OR OMISSIONS, BUT SUCH OTHER ACTS
OR OMISSIONS SHALL NOT BE DEEMED, FOR PURPOSES OF THE PLAN, TO CONSTITUTE
GROUNDS FOR TERMINATION FOR MISCONDUCT.

 

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

 

Q.                                    NONSTATUTORY OPTION SHALL MEAN AN OPTION
NOT INTENDED TO SATISFY THE REQUIREMENTS OF CODE SECTION 422.

 

R.                                     OPTIONEE SHALL MEAN ANY PERSON TO WHOM AN
OPTION IS GRANTED UNDER THE DISCRETIONARY OPTION GRANT OR AUTOMATIC OPTION GRANT
PROGRAM.

 

S.                                      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.

 

T.                                     PARTICIPANT SHALL MEAN ANY PERSON WHO IS
ISSUED SHARES OF COMMON STOCK UNDER THE STOCK ISSUANCE PROGRAM.

 

U.                                    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

 

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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.

 

V.                                     PLAN SHALL MEAN THE CORPORATION’S 1998
STOCK INCENTIVE PLAN, AS SET FORTH IN THIS DOCUMENT.

 

W.                                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.

 

X.                                    PLAN EFFECTIVE DATE SHALL MEAN APRIL 14,
1998, THE DATE THE PLAN WAS ADOPTED BY THE BOARD.

 

Y.                                     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.

 

Z.                                     SECONDARY COMMITTEE SHALL MEAN A
COMMITTEE OF TWO (2) 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.

 

AA.                         SECTION 12 REGISTRATION DATE SHALL MEAN THE DATE ON
WHICH THE COMMON STOCK IS FIRST REGISTERED UNDER SECTION 12 OF THE 1934 ACT.

 

BB.                             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.

 

CC.                             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.

 

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

 

EE.                               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.

 

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

 

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GG.                             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.

 

HH.                           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.

 

II.                                     10% SHAREHOLDER 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).

 

JJ.                                   UNDERWRITING AGREEMENT SHALL MEAN THE
AGREEMENT BETWEEN THE CORPORATION AND THE UNDERWRITER OR UNDERWRITERS MANAGING
THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK.

 

KK.                           UNDERWRITING DATE SHALL MEAN THE DATE ON WHICH THE
UNDERWRITING AGREEMENT IS EXECUTED AND PRICED IN CONNECTION WITH AN INITIAL
PUBLIC OFFERING OF THE COMMON STOCK.

 

LL.                               WITHHOLDING TAXES SHALL MEAN THE FEDERAL,
STATE AND LOCAL INCOME AND EMPLOYMENT WITHHOLDING TAXES TO WHICH THE HOLDER OF
NONSTATUTORY OPTIONS OR UNVESTED SHARES OF COMMON STOCK MAY BECOME SUBJECT IN
CONNECTION WITH THE EXERCISE OF THOSE OPTIONS OR THE VESTING OF THOSE SHARES.

 

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