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                                                                    Exhibit 10.3

                             VITRIA TECHNOLOGY, INC.

                          1998 EXECUTIVE INCENTIVE PLAN

                            ADOPTED OCTOBER 16, 1998
              AMENDED BY THE BOARD OF DIRECTORS ON DECEMBER 2, 1998
                APPROVED BY THE STOCKHOLDERS ON DECEMBER 23, 1998
               AMENDED BY THE BOARD OF DIRECTORS ON JUNE 21, 1999
                  APPROVED BY THE STOCKHOLDERS ON JULY 28, 1999
       ADJUSTED FOR AUTOMATIC SHARE RESERVE INCREASE ON DECEMBER 31, 1999
                ADJUSTED FOR 2-FOR-1 STOCK SPLIT IN JANUARY 2000
                 ADJUSTED FOR 2-FOR-1 STOCK SPLIT IN APRIL 2000
       ADJUSTED FOR AUTOMATIC SHARE RESERVE INCREASE ON DECEMBER 31, 2000
       ADJUSTED FOR AUTOMATIC SHARE RESERVE INCREASE ON DECEMBER 31, 2001
             AMENDED BY THE BOARD OF DIRECTORS ON NOVEMBER 14, 2002

                       TERMINATION DATE: OCTOBER 15, 2008

1. PURPOSES.

   (a) Eligible Option Recipients. The persons eligible to receive Options are
the Employees, Directors and Officers of the Company and its Affiliates.

   (b) Available Options. The purpose of the Plan is to provide a means by which
eligible recipients of Options may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of the following
Options: (i) Incentive Stock Options and (ii) Nonstatutory Stock Options.

   (c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Options, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2. DEFINITIONS.

   (a) "Affiliate" means any parent corporation or subsidiary corporation of the
Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

   (b) "Board" means the Board of Directors of the Company.

   (c) "Code" means the Internal Revenue Code of 1986, as amended.

   (d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c).

   (e) "Common Stock" means the common stock of the Company.


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   (f) "Company" means Vitria Technology, Inc., a Delaware corporation.

   (g) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.

   (h) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee
or Consultant or a change in the entity for which the Optionholder renders such
service, provided that there is no interruption or termination of the
Optionholder's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate of the Company will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

   (i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

   (j) "Director" means a member of the Board of Directors of the Company.

   (k) "Disability" means the permanent and total disability of a person within
the meaning of Section 22(e)(3) of the Code.

   (l) "Employee" means any person employed by the Company or an Affiliate. Mere
service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

   (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

   (n) "Fair Market Value" means, as of any date, the value of the Common Stock
determined as follows:

       (i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day



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of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or

       (ii) In the absence of such markets for the Common Stock, the Fair Market
Value shall be determined in good faith by the Board.

   (o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

   (p) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.

   (q) "Non-Employee Director" means a Director of the Company who either (i) is
not a current Employee or Officer of the Company or its parent or a subsidiary,
does not receive compensation (directly or indirectly) from the Company or its
parent or a subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would not
be required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

   (r) "Nonstatutory Stock Option" means an Option not intended to qualify as an
Incentive Stock Option.

   (s) "Officer" means (i) before the Listing Date, any person designated by the
Company as an officer and (ii) on and after the Listing Date, a person who is an
officer of the Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.

   (t) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.

   (u) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.

   (v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.

   (w) "Outside Director" means a Director of the Company who either (i) is not
a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than



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benefits under a tax qualified pension plan), was not an officer of the Company
or an "affiliated corporation" at any time and is not currently receiving direct
or indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.

   (x) "Plan" means this Vitria Technology, Inc. 1998 Executive Incentive Plan.

   (y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.

   (z) "Securities Act" means the Securities Act of 1933, as amended.

   (aa) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.

3. ADMINISTRATION.

   (a) Administration by Board. The Board shall administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).

   (b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:

       (i) To determine from time to time which of the persons eligible under
the Plan shall be granted Options; when and how each Option shall be granted;
what type of Option shall be granted; the provisions of each Option granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to an Option; and the number of shares
with respect to which an Option shall be granted to each such person.

       (ii) To construe and interpret the Plan and Options granted under it, and
to establish, amend and revoke rules and regulations for its administration. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.

       (iii) To amend the Plan or an Option as provided in Section 11.

       (iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.

   (c) Delegation to Committee.

       (i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the


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administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.

       (ii) Committee Composition when Common Stock is Publicly Traded. At such
time as the Common Stock is publicly traded, in the discretion of the Board, a
Committee may consist solely of two or more Outside Directors, in accordance
with Section 162(m) of the Code, and/or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3. Within the scope of such authority,
the Board or the Committee may (1) delegate to a committee of one or more
members of the Board who are not Outside Directors the authority to grant
Options to eligible persons who are either (a) not then Covered Employees and
are not expected to be Covered Employees at the time of recognition of income
resulting from such Option or (b) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code and/or (2) delegate to a
committee of one or more members of the Board who are not Non-Employee Directors
the authority to grant Options to eligible persons who are not then subject to
Section 16 of the Exchange Act.

4. SHARES SUBJECT TO THE PLAN.

   (a) Share Reserve. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate Sixty-five Million Nine Hundred
Twenty-two Thousand One Hundred Twenty-eight (65,922,128)1 shares of Common
Stock less shares issued or issuable pursuant to the exercise or award of Stock
Awards granted under the Company's 1999 Equity Incentive Plan on the date hereof
or as such Stock Awards are issued or become issuable from time to time under
such 1999 Equity Incentive Plan ("Reserved Amount").

       (i) For a period of ten (10) years, commencing on December 31, 1999 and
ending on December 31, 2008, the aggregate number of shares of stock specified
in subsection 4(a) hereof automatically shall be increased each December 31 (the
"Calculation Date") by six and one-half percent (6.5%) of the Diluted Shares
Outstanding on the Calculation Date.

       (ii) For purposes of subsection 4(a)(iii), "Diluted Shares Outstanding"
means the number of outstanding shares of Common Stock on the Calculation Date,
plus the number of shares of Common Stock issuable upon the Calculation Date
assuming the conversion of all

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1  The initial share reserve of 10,000,000 shares was automatically increased on
December 31, 1999 by 2,006,907 shares to 12,006,907 shares. This number was
adjusted to 24,013,814 shares in January 2000 pursuant to a 2-for-1 stock split.
This number was again adjusted to 48,027,628 shares in April 2000 pursuant to a
2-for-1 stock split. The 2,006,907 shares added to the share reserve on December
31, 1999 (as adjusted to 4,013,814 shares in January 2000 and adjusted again to
8,027,628 shares in April 2000) have been registered on a Form S-8 registration
statement filed on May 24, 2000. 8,990,020 shares were automatically added to
the reserve on December 31, 2000 (registered on Form S-8 on Oct. 9, 2001).
8,904,480 shares were automatically added to the reserve on December 31, 2001
(registered on Form S-8 on June 10, 2002).


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outstanding Preferred Stock and convertible notes, plus the additional number of
dilutive Common Stock equivalent shares outstanding as the result of any options
or warrants outstanding during the prior 12-month period, calculated using the
treasury stock method.

       (iii) In no event shall Incentive Stock Options issued under the Plan
exceed Thirty-two Million (32,000,000)2 shares, less shares issued or issuable
pursuant to the exercise or award of Incentive Stock Options under the Company's
1999 Equity Incentive Plan on the date hereof or as such Incentive Stock Options
are issued or become issuable from time to time under such 1999 Equity Incentive
Plan.

       (iv) Reversion of Shares to the Share Reserve. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert to
and again become available for issuance under the Plan. However, if any Common
Stock acquired pursuant to the exercise of an Option shall for any reason be
reacquired by the Company, the reacquired stock (having already been issued)
shall not revert to and again become available for reissuance under the Plan.

   (b) Source of Shares. The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

   (a) Eligibility for Specific Options. Incentive Stock Options may be granted
only to Employees. Nonstatutory Stock Options may be granted to Employees,
Directors and Consultants.

   (b) Ten Percent Stockholders. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.

   (c) Investment Criteria Prerequisite for Eligibility. Persons who satisfy the
following criteria are eligible to receive an Option pursuant to this Plan:
Optionholder has either (i) preexisting personal or business relationships, with
the Company or any of its Officers, Directors or controlling persons, or (ii)
the capacity to protect his or her own interests in connection with the purchase
of the Common Stock by virtue of the business or financial expertise of himself
or herself or of professional advisors to Optionholder who are unaffiliated with
and who are not compensated by the Company or any of its Affiliates, directly or
indirectly, and Optionholder is purchasing for the Optionholder's own account
and not with a view to or for sale in connection with any distribution of Common
Stock of the Company.

   (d) Section 162(m) Limitation. Subject to the provisions of Section 10
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering

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2  The initial 8 million share number was adjusted to 16 million shares in
January 2000 pursuant to a 2-for-1 stock split. This number was adjusted to 32
million shares in April 2000 pursuant to a 2-for-1 stock split.


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more than Four Million Eight Hundred Thousand (4,800,000)3 shares of the Common
Stock during any calendar year. This subsection 5(c) shall not apply prior to
the Listing Date and, following the Listing Date, this subsection 5(c) shall not
apply until (i) the earliest of: (1) the first material modification of the Plan
(including any increase in the number of shares reserved for issuance under the
Plan in accordance with Section 4); (2) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (3) the expiration of the
Plan; or (4) the first meeting of stockholders at which Directors of the Company
are to be elected that occurs after the close of the third calendar year
following the calendar year in which occurred the first registration of an
equity security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.

6. OPTION PROVISIONS.

   Each Option shall be in such form and shall contain such terms and conditions
as the Board shall deem appropriate. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and
a separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option. The provisions of separate Options need not be
identical, but each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

   (a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.

   (b) Exercise Price of an Incentive Stock Option. Subject to the provisions of
subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.

   (c) Consideration. The purchase price of stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (i) in cash at the time the Option is exercised or (ii) at the discretion
of the Board at the time of the grant of the Option (or subsequently in the case
of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common
Stock, (2) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
Common Stock) with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.

--------------------
3  The initial 1.2 million share number was adjusted to 2.4 million shares in
January 2000 pursuant to a 2-for-1 stock split. This number was adjusted to 4.8
million shares in April 2000 pursuant to a 2-for-1 stock split.


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   In the case of any deferred payment arrangement, interest shall be compounded
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.

   (d) Transferability of an Incentive Stock Option. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.

   (e) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

   (f) Vesting Generally. The total number of shares of Common Stock subject to
an Option may, but need not, vest and therefore become exercisable in periodic
installments which may, but need not, be equal. The Option may be subject to
such other terms and conditions on the time or times when it may be exercised
(which may be based on performance or other criteria) as the Board may deem
appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.

   (g) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.

   (h) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3)



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months after the termination of the Optionholder's Continuous Service during
which the exercise of the Option would not be in violation of such registration
requirements.

   (i) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.

   (j) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement) or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.

   (k) Early Exercise. The Option may, but need not, include a provision whereby
the Optionholder may elect at any time before the Optionholder's Continuous
Service terminates to exercise the Option as to any part or all of the shares
subject to the Option prior to the full vesting of the Option. Any unvested
shares so purchased may be subject to an unvested share repurchase option in
favor of the Company or to any other restriction the Board determines to be
appropriate.

   (l) Right of Repurchase. The Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to repurchase all or
any part of the vested shares acquired by the Optionholder pursuant to the
exercise of the Option.

   (m) Right of First Refusal. The Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to exercise a right of
first refusal following receipt of notice from the Optionholder of the intent to
transfer all or any part of the shares received upon the exercise of the Option.
Except as expressly provided in this subsection 6(n), such right of first
refusal shall otherwise comply with any applicable provisions of the Bylaws of
the Company.

   (n) Re-Load Options. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option



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evidenced by the Option Agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and conditions
of the Option Agreement. Any such Re-Load Option shall (i) provide for a number
of shares equal to the number of shares surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.

   Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on the exercisability of Incentive Stock Options
described in subsection 9(d) and in Section 422(d) of the Code. There shall be
no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject
to the availability of sufficient shares under subsection 4(a) and the "Section
162(m) Limitation" on the grants of Options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board may determine which are
not inconsistent with the express provisions of the Plan regarding the terms of
Options.

7. COVENANTS OF THE COMPANY.

   (a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.

   (b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.

8. USE OF PROCEEDS FROM STOCK.

   Proceeds from the sale of stock pursuant to Options shall constitute general
funds of the Company.

9.       MISCELLANEOUS.

   (a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option



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or any part thereof will vest in accordance with the Plan, notwithstanding the
provisions in the Option stating the time at which it may first be exercised or
the time during which it will vest.

   (b) Stockholder Rights. No Optionholder shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares subject to
such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.

   (c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Option granted pursuant thereto shall confer upon any
Optionholder any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Option was granted or shall affect the right
of the Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

   (d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

   (e) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

   (f) Withholding Obligations. To the extent provided by the terms of an Option
Agreement, the Optionholder may satisfy any federal, state or local tax
withholding obligation



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<PAGE>

relating to the exercise or acquisition of stock under an Option by any of the
following means (in addition to the Company's right to withhold from any
compensation paid to the Optionholder by the Company) or by a combination of
such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to the
Optionholder as a result of the exercise or acquisition of stock under the
Option; or (iii) delivering to the Company owned and unencumbered shares of the
Common Stock.

   (g) Cancellation and Re-Grant of Options.

       (i) Authority to Reprice. The Board or the Committee shall have the
authority to effect, at any time and from time to time with the consent of any
adversely affected Optionholder, (i) the reduction of the exercise price of any
outstanding Option under the Plan to the then Fair Market Value and/or (ii) the
cancellation of any outstanding Options under the Plan in exchange for (A) the
grant of a stock bonus; (B) the grant of restricted stock; (C) cash; (D) the
grant in substitution therefor of new Options under the Plan having an exercise
price per share not less than as provided for new option grants made under the
Plan; or (E) any other valuable consideration (as determined by the Board in its
sole discretion). The Board shall determine the exchange ratio (which may be for
more or less shares of stock than those then subject to the outstanding Option)
in its sole discretion as well as all other terms of the exchange not
specifically provided for in this paragraph.

       (ii) Effect of Repricing under Section 162(m) of the Code. Shares subject
to an Option which is amended or canceled in order to set a lower exercise price
per share shall continue to be counted against the maximum award of Options
permitted to be granted pursuant to subsection 5(c). The repricing of an Option
under this subsection 9(g) resulting in a reduction of the exercise price shall
be deemed to be a cancellation of the original Option and the grant of a
substitute Option; in the event of such repricing, both the original and the
substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c). The provisions of this
subsection 9(g)(ii) shall be applicable only to the extent required by Section
162(m) of the Code.

10. ADJUSTMENTS UPON CHANGES IN STOCK.

   (a) Capitalization Adjustments. If any change is made in the stock subject to
the Plan, or subject to any Option, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person pursuant to subsection 5(c), and the outstanding Options will be
appropriately adjusted in the class(es) and number of securities and price per
share of stock subject to such outstanding Options. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction "without receipt of consideration" by the Company.)


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<PAGE>

   (b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.

   (c) Change in Control--Asset Sale, Merger, Consolidation or Reverse Merger.
In the event of: (i) a sale of all or substantially all of the assets of the
Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise then to the
extent permitted by applicable law: (i) any surviving corporation shall assume
any Options outstanding under the Plan or shall substitute similar Options for
those outstanding under the Plan, or (ii) such Options shall continue in full
force and effect. In the event any surviving corporation refuses to assume or
continue such Options, or to substitute similar Options for those outstanding
under the Plan, then vesting under any such awards shall be accelerated and such
Options shall be terminated if not exercised prior to such event. In the event
of a dissolution or liquidation of the Company, any Options outstanding under
the Plan shall terminate if not exercised prior to such event.

   (d) Change in Control--Securities Acquisition. After the Listing Date, in the
event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
Directors, then with respect to Options held by Optionholders whose Continuous
Service has not terminated, the vesting of such Options shall be accelerated in
full.

   (e) Change in Control--Change in Incumbent Board. After the Listing Date, in
the event that the individuals who, as of the date of the adoption of this Plan,
are members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least fifty percent (50%) of the Board, then with respect to
Options held by persons whose Continuous Service has not terminated, the vesting
of such Options shall be accelerated in full. If the election, or nomination for
election, by the Company's stockholders of any new Director was approved by a
vote of at least fifty percent (50%) of the Incumbent Board, such new Director
shall be considered as a member of the Incumbent Board.

11. AMENDMENT OF THE PLAN AND OPTIONS.

   (a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.



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<PAGE>

   (b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.

   (c) Contemplated Amendments. It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or advisable to provide
eligible Employees with the maximum benefits provided or to be provided under
the provisions of the Code and the regulations promulgated thereunder relating
to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock
Options granted under it into compliance therewith.

   (d) No Impairment of Rights. Rights under any Option granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.

   (e) Amendment of Options. The Board at any time, and from time to time, may
amend the terms of any one or more Options; provided, however, that the rights
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.

12. TERMINATION OR SUSPENSION OF THE PLAN.

   (a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.

   (b) No Impairment of Rights. Suspension or termination of the Plan shall not
impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.

13. EFFECTIVE DATE OF PLAN.

   The Plan shall become effective as determined by the Board, but no Option
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.

14. CHOICE OF LAW

   All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.


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