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Exhibit 10.2

 
SONOMAWEST HOLDINGS INC
 
SECOND AMENDED AND RESTATED 2002 STOCK INCENTIVE PLAN
 
ARTICLE ONE
 
GENERAL PROVISIONS
 
 
I.      PURPOSE OF THE PLAN
 
        This Second Amended And Restated 2002 Stock Incentive Plan is intended
to promote the interests of SonomaWest Holdings, Inc. (the “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 two separate equity programs:

 
o
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 and stock appreciation rights; and

 
o
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).

 
          B.          The provisions of Articles One and Four 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 Plan shall be administered by the Board or an Option
Committee appointed by the Board. Should administration of the Plan be vested in
an Option Committee, any discretionary option grants or stock issuances to
members of the Option Committee must be authorized and approved by a
disinterested majority of the Board.
 
          B.        Members of the Option Committee shall serve for such period
of time as the Board may determine and may be removed by the Board at any time.
 

 
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          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 Option Committee shall constitute service as
a Board member, and members of such committee shall accordingly be entitled to
full indemnification and reimbursement as Board members for their service on
such committee. No member of the Option 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.
 
IV. ELIGIBILITY
 
         A.        The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
 

 
(i)          Employees,

 
(ii)         Officers, 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 or stock appreciation rights under the
Discretionary Option Grant Program, which eligible persons are to receive
grants, the time or times when such grants are to be made, the number of shares
to be covered by each such grant, the status of a granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each option
is to become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding; and
(ii) with respect to stock issuances under the Stock Issuance Program, which
eligible persons are to receive stock issuances, the time or times when such
issuances are to be made, the number of shares to be issued to each Participant,
the vesting schedule (if any) applicable to the issued shares and the
consideration for such shares.
 
         C.        The Plan Administrator shall have the absolute discretion
either to grant options or stock appreciation rights in accordance with the
Discretionary Option Grant Program or to effect stock issuances or grant share
right awards in accordance with the Stock Issuance Program.
 

 
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V.     STOCK SUBJECT TO THE PLAN
 
         A.        The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
one hundred and fifty thousand (150,000) shares. No one person participating in
the Plan may receive stock options, direct stock issuances and share right
awards for more than fifteen thousand (15,000) shares of Common Stock in the
aggregate per calendar year.
 
         B.        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) the
options are canceled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently canceled or
repurchased by the Corporation at the original exercise or 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. In addition,
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 only by the net number of shares of Common Stock
issued to the holder of such option or stock issuance, and not by the gross
number of shares for which the option is exercised or which vest under the stock
issuance. However, shares of Common Stock underlying one or more stock
appreciation rights exercised under Section V of Article Two of the Plan shall
not be available for subsequent issuance under the Plan.
 
         C.        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, direct stock issuances and share right
awards under this Plan per calendar year; and (iii) 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.
 
 
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 Incentive 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.

 

 
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            2.        The exercise price shall become immediately due upon
exercise of the option and may, subject to the provisions of Section I of
Article Four 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, or

 

 
           (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 sale complies with all applicable laws
relating to the regulation and sale of securities, through a special sale and
remittance procedure pursuant to which the Optionee shall concurrently provide
irrevocable written instructions to: (a) a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise; and (b)
the Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale, or

 

 
         (iv)               subject to such additional terms and conditions as
the plan administrator shall determine, to have the number of shares deliverable
to the option holder as a result of the exercise reduced by a number of shares
sufficient to pay the amount the Corporation determines to be necessary to
withhold for federal, state, local and other taxes as a result of the exercise
of the option and, as long as no additional accounting expenses would result to
the Corporation, to pay the exercise price of the option.

         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.
 

 
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         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)       Subject to subparagraph (iv) below, 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.

 

 
          (ii)      Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time 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 or by the Optionee’s
designated beneficiary or beneficiaries of that option.

 

 
          (iii)        Except as otherwise determined in the discretion of the
Plan Administrator either at the time the option is granted or at any time the
option remains outstanding, should the Optionee’s Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct while one or
more options granted to the Optionee under this Article Two are outstanding,
then all those options shall terminate immediately and cease to be outstanding.

 

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

 

 
          2.        The Plan Administrator shall have complete discretion,
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 latest date upon which the option could have expired by its original
terms under any circumstances or, if earlier, the tenth (10th) anniversary of
the option grant date,  and/or

 

 
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          (ii)        permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of the
Optionee’s cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested had the Optionee continued
in Service.

 
         D.        STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
 
         E.        REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the purchase price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
 
         F.        LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee’s death. Non-Statutory Options
shall be subject to the same limitation, except that a Non-Statutory Option may
be assigned in whole or in part during Optionee’s lifetime to one or more
members of the Optionee’s Immediate Family or to a trust established for the
exclusive benefit of Optionee or one or more members of the Optionee’s Immediate
Family or to the Optionee’s former spouse, to the extent such assignment is in
connection with Optionee’s estate plan or pursuant to a domestic relations
order. The assigned portion shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such assignment.
The terms applicable to the assigned portion shall be the same as those in
effect for this option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those
options. Such beneficiary or beneficiaries shall take the transferred option
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 Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
 
         A.        ELIGIBILITY. Incentive Options may only be granted to
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.
 

 
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         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.        FAILURE TO QUALIFY AS INCENTIVE OPTION. To the extent that
any option governed by this Plan does not qualify as an Incentive Option by
reason of the dollar limitation described in Section II.C of Article Two or for
any other reason, such option shall be exercisable as a Non-Statutory Option
under the Federal tax laws.
 
         E.        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.    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
based on the Fair Market Value per share of Common Stock on the new grant date.
 
IV.    CHANGE IN CONTROL/HOSTILE TAKE-OVER
 
         A.        No option outstanding at the time of a Change in Control
shall become exercisable on an accelerated basis if and to the extent: (i) that
option is, in connection with the Change in Control, assumed by the successor
corporation (or parent thereof) or otherwise continued in full force and effect
pursuant to the terms of the Change in Control transaction, (ii) such option is
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Change in Control on the shares
of Common Stock 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. However, if none of the foregoing conditions are
satisfied, then each option outstanding at the time of the Change in Control but
not otherwise exercisable for all the shares of Common Stock at that time
subject to such option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all 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.
 
         B.        All of the Corporation’s outstanding repurchase rights under
the Discretionary Option Grant Program shall also terminate automatically, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Change in Control, except to the extent: (i)
those repurchase rights are assigned to the successor corporation (or parent
thereof) or otherwise continued in full force and effect pursuant to the terms
of the Change in Control transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
 

 
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         C.        Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise expressly continued in full force and effect pursuant to the terms of
the Change in Control transaction.
 
         D.        Each option which is assumed in connection with a Change in
Control or otherwise continued in effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments to reflect such Change in Control
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 options, direct stock issuances and share right awards 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 Change in Control transaction, the successor corporation
may, in connection with the assumption of the outstanding options under the
Discretionary Option Grant Program, 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 Change in Control transaction.
 
         E.        The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effective
date of a Change in Control, become exercisable for all the shares of Common
Stock at that time subject to such options on an accelerated basis and may be
exercised for any or all of such shares as fully vested shares of Common Stock,
whether or not those options are to be assumed or otherwise continued in full
force and effect or replaced with a cash incentive program pursuant to the
express terms of the Change in Control transaction. 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 immediately terminate at the time of such Change in
Control and shall not be assignable to the successor corporation (or parent
thereof), and the shares subject to those terminated rights shall accordingly
vest in full at the time of such Change in Control.
 
         F.        The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall vest and become exercisable for all the
shares of Common Stock at that time subject to such options on an accelerated
basis 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 Change in Control in which
those options do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully vested shares of Common Stock until the expiration
or sooner termination of the option term. In addition, the Plan Administrator
may structure one or more of the Corporation’s repurchase rights under the
Discretionary Option Grant Program so that those rights shall immediately
terminate with respect to any shares of Common Stock held by the Optionee at the
time of his or her Involuntary Termination, and the shares subject to those
terminated repurchase rights shall accordingly vest in full at that time.
 

 
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         G.        The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effective
date of a Hostile Take-Over, vest and become exercisable for all the shares of
Common Stock at that time subject to such options on an accelerated basis and
may be exercised for any or all of such 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 terminate
automatically upon the consummation of such Hostile Take-Over, and the shares
subject to those terminated rights shall thereupon immediately 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 Involuntary Termination of the Optionee’s
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of such Hostile Take-Over. Each option so
accelerated shall remain exercisable for fully vested shares of Common Stock
until the expiration or sooner termination of the option term.
 
         H.        The portion of any Incentive Option accelerated in connection
with a Change in Control or Hostile Take-Over 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
Non-Statutory Option under the Federal tax laws.
 
         I.        The grant of options under the Discretionary 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.
 
V.     STOCK APPRECIATION RIGHTS
 
         The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of: (A) the Option Surrender Value of the number of shares for which the
option is surrendered; over (B) the aggregate exercise price payable for such
shares, which shall not be less than one hundred percent (100%) of the Fair
Market Value per share on the grant date. The distribution 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.
 
 
ARTICLE THREE
 
STOCK ISSUANCE PROGRAM
 
I.     STOCK ISSUANCES
 
          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. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
 

 
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II.     STOCK ISSUANCE TERMS
 
         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.

 

 
         2.        Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

 

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

 

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

 
         B.        VESTING PROVISIONS.
 

 
          1.         Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant’s period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals. Upon the
attainment of such performance goals, fully vested shares of Common Stock shall
be issued upon satisfaction of those share right awards no later than two and
one-half (2 ½) months after the last day of the year in which such shares are no
longer subject to substantial risk of forfeiture within the meaning of Section
409A of the Code.

 

 
           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.

 

 
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          4.        Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant’s purchase-money indebtedness but not including services rendered by
the Participant), 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.

 

 
         6.        Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals or
Service requirements established for such awards are not attained. The Plan
Administrator, however, shall have the discretionary authority to issue shares
of Common Stock under one or more outstanding share right awards as to which the
designated performance goals or Service requirements have not been attained.

 
 
III.     CHANGE IN CONTROL/HOSTILE TAKE-OVER
 
         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 Change in Control, except to the extent (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the express terms of
the Change in Control 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
to structure one or more of the Corporation’s repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part upon the occurrence of a Change in Control and shall not be assignable
to the successor corporation (or parent thereof), and the shares of Common Stock
subject to those terminated rights shall immediately vest in full at the time of
such Change in Control.
 

 
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         C.        The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation’s repurchase rights under
the Stock Issuance Program so 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 full, upon the Involuntary Termination of the
Participant’s Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
repurchase rights do not otherwise terminate.
 
         D.        The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation’s repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part upon the occurrence of a Hostile Take-Over, and the shares of
Common Stock subject to those terminated rights shall immediately vest in full
at the time of such Hostile Take-Over.
 
 
ARTICLE FOUR
 
MISCELLANEOUS
 
I.      FINANCING
 
         To the extent permissible under applicable state and federal laws, the
Plan Administrator may permit any Optionee or Participant to pay the option
exercise price under the Discretionary Option Grant Program or the purchase
price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
 
II.     SHARE ESCROW/LEGENDS
 
         Unvested shares issued under the Plan 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.
 
III.     TAX WITHHOLDING
 
         A.        The Corporation’s obligation to deliver shares of Common
Stock upon the exercise of options or the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
 
         B.        The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan 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 Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the amount
of the Taxes (not to exceed one hundred percent (100%) of such Taxes) to be
satisfied in such manner as designated by the holder in writing; or

 

 
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         2.               Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the amount of the Taxes
(not to exceed one hundred percent (100%) of such Taxes) to be satisfied in such
manner as designated by the holder in writing.

IV.     EFFECTIVE DATE AND TERM OF THE PLAN
 
          A.        The Plan shall become effective immediately upon the Plan
Effective Date. Options may be granted under the Discretionary Option Grant at
any time on or after the Plan Effective Date. However, no options granted under
the Plan may be exercised, and no shares shall be issued under the Plan, until
the Plan is approved by the Corporation’s stockholders. If such stockholder
approval is not obtained within twelve (12) months after the Plan Effective
Date, then all options previously granted under this Plan shall terminate and
cease to be outstanding, and no further options shall be granted and no shares
shall be issued under the Plan.
 
 
          B.        The Plan shall terminate upon the EARLIEST of (i) the tenth
anniversary of the Plan Effective Date, (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
Change in Control. Upon such plan termination, all outstanding option grants and
unvested stock issuances shall thereafter continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
 
V.     AMENDMENT OF THE PLAN
 
          A.        The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
 
          B.        Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant 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 any required approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such 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 canceled and cease to be outstanding.
 

 
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VI.     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.
 
VII.     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 the Nasdaq SmallCap Market (or any stock exchange , if applicable) on which
Common Stock is then quoted for trading.
 
VIII.     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.
 
IX.     SECTION 162(M)
 
          It is the intent of the Corporation that any options granted under the
Plan to a “covered employee” (as that term is defined in Section 162(m) of the
Code) with an exercise price of not less than the Fair Market Value per share of
Common Stock on the date of grant shall qualify as “qualified performance-based
compensation” (within the meaning of Treas. Reg. § 1.162-27(e)) and the Plan
shall be interpreted consistently with such intent. In furtherance of the
foregoing, if and to the extent that the Corporation intends that an option
granted under the Plan to any covered employee shall qualify as qualified
performance-based compensation, all decisions regarding the grant of such option
shall be made only by members of the Committee who qualify as “outside
directors” within the meaning of Treas. Reg. § 1.162-27(e)(3).
 
X.     CONFORMANCE TO SECTION 409A
 
          It is the intent of the Corporation that Options awarded pursuant to
the Plan qualify as Incentive Options or Non-Statutory Options not providing for
the deferral of compensation under Treasury Regulations §§ 1.409A-1(b)(5)(ii)
and 1.409A-1(b)(5)(i)(A), respectively.  It is also intended that stock
appreciation rights awarded pursuant to the Plan qualify as stock appreciation
rights not providing for the deferral of compensation under Treasury Regulations
§ 1.409A-1(b)(5)(ii)(B) and that Common Stock issued pursuant to the Stock
Issuance Program be issued no later than two and one-half (2 ½) months after the
last day of the year in which such Common Stock is no longer subject to
substantial risk of forfeitures, within the meaning of Section 409A of the
Code.  However, if at any time, tax advisors to the Company determine that the
terms of any outstanding Option, stock appreciation right or Stock Issuance
Agreement result in additional tax or interest to the holder under Section 409A
of the Code, the Board shall have the authority to enter into an amendment of
such Option, stock appreciation right or Stock Issuance Agreement, consistent
with this Plan, that is designed to avoid such additional tax or interest.  If
any Option, stock appreciation right or Stock Issuance Agreement nevertheless
constitutes deferred compensation within the meaning of Section 409A of the
Code, any acceleration of the payment of such Option, stock appreciation right
or Stock Issuance Agreement upon a Change in Control as provided under this Plan
shall occur only if the Change in Control constitutes, in the good-faith
determination of the Board, a change in the ownership or effective control of
the Corporation, or in the ownership of a substantial portion of the assets of
the Corporation, under Section 409A of the Code. If any other payment under this
Plan constitutes deferred compensation within the meaning of Section 409A of the
Code and if the Plan fails to satisfy the requirements of Section 409A(a)(2),
(3) or (4) of the Code with respect to such payment, such provision shall be
operated in a manner that, in the good-faith determination of the Board, seeks
to bring the provision into compliance with those requirements while preserving
as closely as possible the original intent of the provision.
 

 
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APPENDIX
 
          The following definitions shall be in effect under the Plan:
 
          A.        BOARD shall mean the Corporation’s Board of Directors.
 
          B.        CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through any of the following transactions:
 

 
            (i)        a stockholder-approved 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)         a sale, transfer or other disposition of all or
substantially all of the Corporation’s assets; or

 

 
            (iii)         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 recommends such stockholders accept;

 
          provided, however, the Plan Administrator shall have the discretionary
authority to determine that a transaction or series of transactions does not
constitute a Change in Control. Such determination by the Plan Administrator
shall govern notwithstanding the fact that the determination is contrary to
paragraphs (i) through (iii) set forth above.
 
          C.        CODE shall mean the Internal Revenue Code of 1986, as
amended.
 
          D.        COMMON STOCK shall mean the Corporation’s common stock.
 
          E.        CORPORATION shall mean SonomaWest Holdings, Inc., a
California corporation, and its successors.
 
          F.        DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
 
          G.        EMPLOYEE shall mean an “employee” of the Corporation (or any
Parent or Subsidiary), within the meaning of Section 3401(c) of the Code and the
regulations thereunder.
 

 
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          H.        EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
 
          I.        FAIR MARKET VALUE per share of Common Stock on any relevant
date shall mean, with respect to Common Stock or other property, as of any date,
the value of such Common Stock in accordance with Section 409A of the Code, or
such other property, as applicable, in either case as determined in good faith
by the Plan Administrator. In determining the fair market value, the Plan
Administrator may consider the following items:
 

 
        (i)        the closing selling price per share of common stock on the
date of grant.

 
        This closing selling price shall be determined as follows:
 

 
a.       If the Common Stock is at the time traded on the Nasdaq SmallCap
Market, then the closing selling price per share of Common Stock on the date in
question shall be used, as such price is reported on the Nasdaq SmallCap Market
or any successor system.

 

 
b.        If the Common Stock is at the time listed on any other Stock Exchange,
then the plan administrator shall use 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.

 

 
      (ii)        the average trading volume of the Common Stock and the trading
volume on the date of the grant;

 

 
       (iii)        the closing selling price per share of Common Stock on
recent dates;

 

 
       (iv)        the spread between the “bid” and “ask” prices on the date of
grant and on recent dates;

 

 
       (v)        the financial statements of the Company; and

 

 
       (vi)        any other information the plan administrator determines is
applicable in determining the fair market value.

 
 

 
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          J.        HOSTILE TAKE-OVER shall mean:
 

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

 

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

          K.        IMMEDIATE FAMILY shall mean any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and shall include adoptive relationships.
 
          L.        INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
 
          M.        INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
 

 
       (i)        such individual’s involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

 

 
       (ii)        such individual’s voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces his
or her level of responsibility or the level of management to which Optionee
reports, (B) a reduction in his or her level of compensation (including base
salary, fringe benefits and participation in any corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual’s place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected by
the Corporation without the individual’s consent.

 

 
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          N.        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).
 
          O.        1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
 
          P.        NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
 
          Q.        OFFICER shall mean any person serving as the president,
chief executive officer, chief financial officer, chief operating officer,
treasurer, secretary or in any other managerial or administrative capacity for
the Corporation or a Parent or Subsidiary of the Corporation, as determined in
the Administrator’s discretion.
 
          R.        OPTION 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.
 
          S.        OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant Program.
 
          T.        OPTION SURRENDER VALUE shall mean the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
or, in the event of a Hostile Take-Over, effected through a tender offer, the
highest reported price per share of Common Stock paid by the tender offer or in
effecting such Hostile Take-Over, if greater. However, if the surrendered option
is an Incentive Option, the Option Surrender Value shall not exceed the Fair
Market Value per share.
 
          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.        PLAN shall mean the Corporation’s Amended and Restated 2002
Stock Incentive Plan, as set forth in this document.
 
          X.        PLAN ADMINISTRATOR shall mean the particular entity, whether
the Option Committee or the Board, which is authorized to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to one or
more classes of eligible persons, to the extent such entity is carrying out its
administrative functions under those programs with respect to the persons under
its jurisdiction.
 
          Z.        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.
 

 
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          AA.        SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, Officer, 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.
 
          BB.        SHORT TERM FEDERAL RATE shall mean the federal short-term
rate in effect under Section 1274(d) of the Code for the period the shares were
held in escrow.
 
          CC.        STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
 
          DD.        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.
 
          EE.        STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under the Plan.
 
          FF.        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.
 
          GG.        TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of options or unvested shares
of Common Stock in connection with the exercise of those options or the vesting
of those shares.
 
          HH.        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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