Exhibit 10.1


MONTEREY GOURMET FOODS, INC.

2002 STOCK OPTION PLAN

(AS LAST AMENDED EFFECTIVE JUNE 27, 2008)



	
 

	
 


	
ARTICLE 1. ESTABLISHMENT

	
 


	
 

	
 


	
1.1 Establishment.

	
3


	
1.2 Purpose

	
3


	
1.3 Term

	
3


	
 

	
 


	
ARTICLE 2. DEFINITIONS 

	
 


	
 

	
 


	
2.1 Definitions

	
3


	
 

	
 


	
ARTICLE 3. ADMINISTRATION 

	
 


	
 

	
 


	
3.1 Administration by Board or Committee

	
4


	
3.2 Limitation of Authority With Respect to Outside Director Options

	
5


	
3.3 Authority of Officers

	
5


	
3.4 Compliance with Section 162(m).

	
5


	
 

	
 


	
ARTICLE 4. STOCK SUBJECT TO PLAN 

	
 


	
 

	
 


	
4.1 Shares Subject to Option

	
6


	
4.2 Effect of Change in Stock Subject to Plan

	
6


	
 

	
 


	
ARTICLE 5. EMPLOYEE OPTIONS 

	
 


	
 

	
 


	
5.1 Employee Options Authorized

	
6


	
5.2 Eligibility for Employee Options

	
6


	
5.3 Section 162(m) Limitation

	
7


	
5.4 Terms and Conditions of Employee Options

	
7


	
5.5 Standard Forms of Agreement for Employee Options

	
9


	
 

	
 


	
ARTICLE 6. OUTSIDE DIRECTOR OPTIONS 

	
 


	
 

	
 


	
6.1 Outside Director Options Authorized

	
9


	
6.2 Eligibility for Outside Director Options

	
9


	
6.3 Terms and Conditions Outside Director Options

	
9


	
6.4 Shareholder Approval

	
11


	
 

	
 


	
ARTICLE 7. GENERAL PROVISIONS 

	
 


	
 

	
 


	
7.1 Transfer of Control

	
11


	
7.2 Authority to Vary Terms

	
12





1








	
 

	
 


	
7.3 Fair Market Value Limitation on Incentive Stock Options

	
12


	
7.4 Provision of Information

	
12


	
7.5 Options Non-Transferable.

	
12


	
7.6 Termination or Amendment of Plan or Options

	
12





2






ARTICLE
1. ESTABLISHMENT


          1.1 ESTABLISHMENT.
On August 31, 1993, the Monterey Pasta Company 1993 Employee Incentive Stock
Option Plan (the “Initial Plan”) was adopted. The Initial Plan was amended and
restated in its entirety and renamed the Monterey Pasta Company First Amended
and Restated 1993 Stock Option Plan effective October 19, 1994 (the “Effective
Date”). That plan was further amended and restated in its entirety as of August
1, 1996, and renamed the Monterey Pasta Company Second Amended and Restated
1993 Stock Option Plan, pursuant to resolutions adopted by the Board of
Directors on May 7, 1996 and approved by the Company’s shareholders on August
1, 1996. The Plan was further amended by action of the Board on April 30, 2002,
to re-adopt the plan as the 2002 Stock option Plan, to extend it for ten years
to April 30, 2012, and to increase the number of shares for which options may
be granted. These actions were approved July 30, 2002, by the shareholders of
the Company (the “Plan”). The Plan was further amended by the Board on July 28,
2005, to make numerous technical revisions and corrections and to remove, under
certain conditions, existing limitations on the post-retirement exercisability
of options granted to directors, by the Board effective January 1, 2008, to
revise the terms of outside director options, and by the stockholders at the
2008 annual meeting to increase the number of shares subject to option under
the Plan.


          1.2 PURPOSE.
The Purpose of the Plan is to attract, retain and reward persons providing
services to a Participating Company, and to motivate such persons to contribute
to the growth and profits of the Participating Company Group in the future. The
Plan consists of an Employee Stock Option component plan, providing for the
grant of stock options to eligible employees and consultants, and an Outside
Director Stock Option component plan, providing for the automatic grant of
stock options to nonemployee directors of the Company.


          1.3 TERM. All
options shall be granted, if at all, on or before April 30, 2012.


ARTICLE
2. DEFINITIONS


          2.1 DEFINITIONS.
Whenever
used herein, the following terms shall have their respective meanings set forth
below:


          (a)
“BOARD” means the Board of Directors of the Company.


          (b)
“CODE” means the Internal Revenue Code of 1986, as amended.


          (c)
“COMPANY” means Monterey Gourmet Foods, Inc. and any successor corporation
thereto.


          (d)
“EMPLOYEE OPTION” means an option to purchase Stock granted pursuant to the
terms and conditions of Article 5 below.


          (e)
“EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended.


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          (f)
“INCENTIVE STOCK OPTION” means an incentive stock option as described in
Section 422 of the Code.


          (g)
“NONSTATUTORY STOCK OPTION” means a stock option which shall not be treated as
an incentive stock option as described in Section 422 of the Code.


          (h)
“OPTION” means an Employee Option or an Outside Director Option.


          (i)
“OPTIONEE” means a person who has received one or more Options.


          (j)
“OUTSIDE DIRECTOR” means a person who is (i) a member of the Board and (ii) not
an employee of a Participating Company.


          (k)
“OUTSIDE DIRECTOR OPTION” means an option to purchase Stock automatically
granted pursuant to the terms and conditions of Article 6 below.


          (l)
“PARENT CORPORATION” and “SUBSIDIARY CORPORATION” shall have the meaning given
to such terms in sections 424(e) and 424(f) of the Code, respectively.


          (m)
“PARTICIPATING COMPANY” means the Company or any present or future parent or
subsidiary corporation of the Company, all of whom are collectively referred to
as the “PARTICIPATING COMPANY GROUP”.


          (n)
“RULE 16b-3” means Rule 16b-3 as promulgated under the Exchange Act and amended
from time to time or any successor rule or regulation.


          (o)
“SECTION 162(m)” means Section 162(m) of the Code, as amended by the Revenue
Reconciliation Act of 1993 (P.L. 103-66), and the regulations promulgated
thereunder.


          (p)
“STOCK” means the authorized but unissued common stock of the Company.


          (q)
“TEN PERCENT OWNER OPTIONEE” means an Optionee who at the time the Option is
granted owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of a Participating Company within the
meaning of Section 422(b)(6) of the Code.


ARTICLE
3. ADMINISTRATION


          3.1 ADMINISTRATION BY
BOARD OR COMMITTEE. The Plan shall be administered by the Board or a
duly appointed committee of the Board which meets the requirements of Section
162(m)(4)(C)(i) of the Code (the “Committee”) and regulations thereunder,
comprised solely of two (2) or more Outside Directors, having such powers as
shall be specified by the Board. Any subsequent references herein to the Board
shall also mean the Committee if such Committee has been appointed and, unless
the powers of the Committee have been specifically limited, the Committee shall
have all of the powers of the Board granted herein, including, without
limitation, the power to terminate or amend the Plan at any time, subject to
the terms of the Plan and any applicable limitations imposed by law. All
questions of interpretation of the Plan or of any Options granted under the
Plan shall be determined by the Committee or the Board, and such determinations
shall be final and binding upon all persons having an interest in the Plan
and/or any Option. The Committee or the Board determines the criteria upon
which Employee Options are granted.


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          3.2 LIMITATION OF
AUTHORITY WITH RESPECT TO OUTSIDE DIRECTOR OPTIONS.


          Notwithstanding
any provision herein to the contrary, the Committee shall have no authority,
discretion, or power to select the Outside Directors of the Company who will
receive Outside Director Options under the Plan, to set the exercise price of
Outside Director Options granted under the Plan, to determine the number of
shares of Stock to be granted under an Outside Director Option or the time at
which such options are to be granted, to establish the duration of Outside
Director Options, or alter any other terms or conditions specified in the Plan
with respect to Outside Director Options, except in the sense of administering
the Plan subject to the provisions of the Plan.


          3.3 AUTHORITY OF
OFFICERS. Any officer of a Participating Company shall have the
authority to act on the behalf of the Company with respect to any matter,
right, obligation, or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.


          3.4 COMPLIANCE WITH
SECTION 162(m). In the event a Participating Company becomes a
“publicly held corporation” as defined in paragraph (2) of Section 162(m), the
Company may establish a committee of outside directors meeting the requirements
of Section 162(m) to approve the grant of Employee Options which might
reasonably be anticipated to result in the payment of employee remuneration
that would otherwise exceed the limit on employee remuneration deductible for
income tax purposes pursuant to Section 162(m).


          In
order to satisfy the requirements of Section 162(m) with respect to the grant
of an Option, the following requirements must be satisfied:


          (a)
The performance goals must be determined by a compensation committee of the
Board of the Company which is comprised solely of two or more Outside
Directors;


          (b)
The material terms under which the remuneration is to be paid, including the
performance goals, must be disclosed to shareholders and approved by a majority
of the vote in a separate shareholder vote before the payment of such
remuneration; and


          (c)
Before any payment of such remuneration, the compensation committee referred to
in clause (a) above shall certify that the performance goals and any other
material terms were in fact satisfied.


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ARTICLE
4. STOCK SUBJECT TO PLAN


          4.1 SHARES SUBJECT TO
OPTION. Options shall be for the purchase of Stock, subject to
adjustment as provided in Section 4.2. The maximum number of shares of Stock
which may be issued under the Plan shall be four million two hundred forty
thousand (4,240,000) shares. In the event that any outstanding Option for any
reason expires or is terminated or canceled or shares of Stock subject to repurchase
are repurchased by the Company, the shares allocable to the unexercised portion
of such Option, or such repurchased shares, may again be subject to an Option
grant. Notwithstanding the foregoing, any such shares shall be made subject to
a new Option only if the grant of such new Option and the issuance of such
shares pursuant to such new Option would not cause the Plan or any Option
granted under the Plan to contravene Rule 16b-3.


          4.2 EFFECT OF CHANGE
IN
STOCK SUBJECT TO PLAN. Appropriate adjustments shall be made in the
number and class of shares of Stock subject to the Plan, to the Section 162(m)
limitation set forth in Section 5.3 below, to the automatic grant of Outside
Director Options as provided in Section 6.3(a) below, and to any outstanding
Options and in the exercise price of any outstanding Options in the event of a
stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or like change in the capital structure of the
Company. In the event a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to a Transfer of Control (as
defined in Section 7.1 below)) shares of another corporation (the “New
Shares”), the Company may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares and the exercise price of the outstanding
Options shall be adjusted in a fair and equitable manner.


ARTICLE
5. EMPLOYEE OPTIONS


          5.1 EMPLOYEE OPTIONS
AUTHORIZED. Employee Options may be either Incentive Stock Options
or Nonstatutory Stock Options.


          5.2 ELIGIBILITY FOR
EMPLOYEE OPTIONS. Employee Options may be granted only to employees
(including officers and directors who are also employees) of the Participating
Company Group or to individuals (excluding Outside Directors) who are rendering
services as consultants, advisors, or other independent contractors to the
Participating Company Group. For purposes of the foregoing sentence,
“employees” shall include prospective employees to whom Employee Options are
granted in connection with written offers of employment with the Participating
Company Group and “consultants” or “advisors” shall include prospective
consultants or advisors to whom Employee Options are granted in connection with
written consulting or advising offers with the Participating Company Group. The
Board shall, in its sole discretion, determine which eligible persons shall be
granted Employee Options. Notwithstanding anything to the contrary herein, an
individual who is rendering services as a consultant, advisor, or other
independent contractor or who is a prospective employee, consultant, or advisor
may only be granted a Nonstatutory Stock Option. Eligible persons may be
granted more than one Employee Option.


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          5.3 SECTION 162(m)
LIMITATION. Subject to adjustment as provided in Section 4.2, no
persons shall be granted within any fiscal year of the Company Employee Options
which in the aggregate cover more than shares; provided, however, that the
foregoing limit shall be shares with respect to Options granted to any person
during the first fiscal year of such person’s employment with the Company.


          5.4 TERMS AND
CONDITIONS
OF EMPLOYEE OPTIONS. Subject to the provisions of the Plan, the
Committee or the Board shall determine for each Employee Option (which need not
be identical) the number of shares of Stock for which the Employee Option shall
be granted, the exercise price of the Employee Option, the timing and terms of
exercisability and vesting of the Employee Option, the time of expiration of
the Employee Option, the effect of the Optionee’s termination of employment or
service, whether the Employee Option is to be treated as an Incentive Stock
Option or as a Nonstatutory Stock Option, and all other terms and conditions of
the Employee Option not inconsistent with the Plan. Employee Options granted pursuant
to the Plan shall be evidenced by written agreements specifying the number of
shares of Stock covered thereby, in such form as the Committee or the Board
shall from time to time establish, which agreements may incorporate all or any
of the terms of the Plan by reference and shall comply with and be subject to
the following terms and conditions:


          (a)
EMPLOYEE OPTION EXERCISE PRICE. The exercise price for each Employee Option
shall be established in the sole discretion of the Committee or the Board;
provided, however, that (i) the exercise price per share for an Employee Option
shall be not less than the fair market value, as determined by Committee or the
Board, of a share of Stock on the date of the granting of the Employee Option
and (ii) no Incentive Stock Option granted to a Ten Percent Owner Optionee
shall have an exercise price per share less than one hundred ten percent (110%)
of the fair market value, as determined by the Committee or the Board, of a
share of Stock on the date of the granting of the Incentive Stock Option.
Notwithstanding the foregoing, an Employee Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Employee Option
is granted pursuant to an assumption or substitution for another option in a
manner qualifying with the provisions of section 424(a) of the Code.


          (b)
EMPLOYEE OPTION EXERCISE PERIOD. The Committee or the Board shall have the power
to set, including by amendment of an Employee Option, the time or times within
which each Employee Option shall be exercisable or the event or events upon the
occurrence of which all or a portion of each Employee Option shall be
exercisable and the term of each Employee Option; provided, however, that (i)
no Incentive Stock Option shall be exercisable after the expiration of ten (10)
years after the date such Incentive Stock Option is granted, and (ii) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the date such
Incentive Stock Option is granted.


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          (c)
PAYMENT OF EMPLOYEE OPTION EXERCISE PRICE.


          (i)
FORMS OF PAYMENT AUTHORIZED. Payment of the exercise price for the number of
shares of Stock being purchased pursuant to any Employee Option shall be made
(1) in cash, by check, or cash equivalent, (2) by tender to the Company of
shares of the Company’s common stock owned by the Optionee having a value, as determined
by the Committee or the Board (but without regard to any restrictions or
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the exercise price, (3) by the Optionee’s recourse promissory note in a
form approved by the Company, (4) by the assignment of the proceeds of a sale
of some or all of the shares being acquired upon the exercise of the Employee
Option (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System), or (5) by any combination thereof.
The Committee or the Board may at any time or from time to time, by adoption of
or by amendment to either of the standard forms of stock option agreement
described in Section 5.6, or by other means, grant Employee Options which do
not permit all of the foregoing forms of consideration to be used in payment of
the exercise price and/or which otherwise restrict one (1) or more forms of
consideration.


          (ii)
TENDER OF COMPANY STOCK. Notwithstanding the foregoing, an Employee Option may
not be exercised by tender to the Company of shares of the Company’s common
stock to the extent such tender of stock would constitute a violation of the
provisions of any law, regulation and/or agreement restricting the redemption
of the Company’s stock. Unless otherwise provided by the Committee or the
Board, an Employee Option may not be exercised by tender to the Company of
shares of the Company’s common stock unless such shares of the Company’s stock
either have been owned by the Optionee for more than (6) months or were not
acquired, directly or indirectly, from the Company.


          (iii)
PROMISSORY NOTES. No promissory note shall be permitted if an exercise using a
promissory note would be a violation of any law. Any permitted promissory note
shall be due and payable not more than four (4) years after the Employee Option
is exercised, and interest shall be payable at least annually and be at least
equal to the minimum interest rate necessary to avoid imputed interest pursuant
to all applicable sections of the Code. The Committee or the Board shall have
the authority to permit or require the Optionee to secure any promissory note
used to exercise an Employee Option with the shares of Stock acquired on
exercise of the Employee Option and/or with other collateral acceptable to the
Company. Unless otherwise provided by the Committee or the Board, in the event
the Company at any time is subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company’s securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.


          (iv)
ASSIGNMENT OF PROCEEDS OF SALE. The Company reserves, at any and all times, the
right, in the Company’s sole and absolute discretion, to establish, decline to
approve and/or terminate any program for the exercise of Employee Options by
means of assignment of the proceeds of a sale of some or all of the shares of
Stock to be acquired upon such exercise.


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          5.5 STANDARD FORMS OF
AGREEMENT FOR EMPLOYEE OPTIONS.


          (a)
INCENTIVE STOCK OPTIONS. Unless otherwise provided for by the Committee or the
Board at the time an Employee Option is granted, an Employee Option designated
as an “Incentive Stock Option” shall comply with and be subject to the terms
and conditions set forth in the form of incentive stock option agreement
attached hereto as EXHIBIT A and incorporated herein by reference.


          (b)
NONSTATUTORY STOCK OPTIONS. Unless otherwise provided for by the Committee or
the Board at the time an Employee Option is granted, an Employee Option
designated as a “Nonstatutory Stock Option” shall comply with and be subject to
the terms and conditions set forth in the form of nonstatutory stock option
agreement attached hereto as EXHIBIT B and incorporated herein by reference.


          (c)
STANDARD TERM FOR EMPLOYEE OPTIONS. Except as provided in Section 5.4(b) or
otherwise provided for by the Board in the grant of an Employee Option, any
Employee Option granted hereunder shall have a term of ten (10) years.


ARTICLE
6. OUTSIDE DIRECTOR OPTIONS


          6.1 OUTSIDE DIRECTOR
OPTIONS AUTHORIZED. Outside Director Options shall be Nonstatutory
Stock Options.


          6.2 ELIGIBILITY FOR
OUTSIDE DIRECTOR OPTIONS. Outside Director Options may be granted
only to Outside Directors.


          6.3 TERMS AND
CONDITIONS
OF OUTSIDE DIRECTOR OPTIONS. Outside Director Options granted
pursuant to the Plan shall be evidenced by written agreements specifying the
number of shares of Stock covered thereby, in substantially the form attached
hereto as EXHIBIT C (the “Outside Director Option Agreement”), which written
agreement may incorporate all or any of the terms of the Plan by reference and
shall comply with and be subject to the following terms and conditions:


          (a)
AUTOMATIC GRANT OF OPTIONS. Subject to execution by each Outside Director of
the appropriate Option Agreement, Outside Director Options shall be granted
automatically and without further action of the Board except as follows


                    (i)
Each Outside Director (other than the Chairman, who shall be granted an option
to purchase 7,500 shares) shall be granted an Outside Director Option to
purchase five thousand (5,000) shares of Stock on the date of each Annual
Meeting of Shareholders occurring on or subsequent to the date such Outside
Director was first newly appointed or elected to the Board, provided that
the Board, on recommendation of the Compensation Committee, (1) may grant to
any person, first becoming an Outside Director otherwise than on the date of an
Annual Meeting of Shareholders, an option to purchase such lesser number of
shares as the Compensation Committee shall recommend, and (2) shall grant to
any Outside Director scheduled to retire from the Board otherwise than on the
date of an Annual Meeting of Shareholders, in place of the option described
above, an option to purchase such lesser number of shares as the Compensation
Committee shall recommend, and provided further, it being understood
that Outside Director Options are granted prospectively under the Plan with
respect to service, that the Compensation Committee, in recommending option
grants pursuant to clauses (1) and (2) above, shall prorate the recommended
number of shares, rounded upward to the next hundred shares.


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                    (ii)
Notwithstanding the foregoing, any Outside Director may elect not to receive an
Outside Director Option granted pursuant to this Section 6.3(a) by delivering
written notice of such election to the Board (1) in the case of an initial
Outside Director Option grant, no later than the date upon which such Outside
Director commences service on the Board, or (2) in the case of any subsequent
Outside Director Option grant, no later than six (6) months prior to the
applicable Annual Meeting date.


                    (iii)
Notwithstanding any other provision of the Plan, no Outside Director Option
shall be granted to any individual when he or she is no longer serving as an
Outside Director of the Company on the date of grant.


          (b)
OUTSIDE DIRECTOR OPTION EXERCISE PRICE. The exercise price per share of Stock
subject to an Outside Director Option shall be the fair market value of a share
of Stock on the date of the granting of the Outside Director Option. For
purposes of this Section 6.3(b), where there is a public market for the Stock,
the fair market value per share of Stock shall be the mean of the bid and asked
prices of the Stock on the date of the granting of the Outside Director Option,
as reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
(“NASDAQ”) system) or, in the event the Stock is listed on the NASDAQ National
Market System or a national or regional securities exchange, the fair market
value per share of Stock shall be the closing price on such National Market
System or exchange on the date of the granting of the Outside Director Option,
as reported in the Wall Street Journal. If the date of the granting of an
Outside Director Option does not fall on a day on which the Stock is trading on
NASDAQ, the NASDAQ National Market System or other national or regional
securities exchange, the date on which the Outside Director Option exercise
price per share shall be established shall be the last day on which the Stock
was so traded prior to the date of the granting of the Outside Director Option.


          (c)
VESTING AND EXERCISABILITY OF OUTSIDE DIRECTOR OPTIONS. An Outside Director
Option granted pursuant to the Plan shall have a term of seven (7) years.
Outside Director Options granted pursuant to the Plan shall vest immediately
upon grant and shall be exercisable after termination of service as a director
as provided in EXHIBIT C.


          (d)
PAYMENT OF OPTION EXERCISE PRICE. Payment of the exercise price for the number
of shares of Stock being purchased pursuant to any Option shall be made (i) in
cash, by check, or in cash equivalent, (ii) by the assignment of the proceeds
of a sale of some or all of the shares being acquired upon the exercise of an
Option (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System), or (iii) by any combination thereof.
The Company reserves, at any and all times, the right, in the Company’s sole
and absolute discretion, to establish, decline to approve and/or terminate any
program and/or procedure for the exercise of Options by means of an assignment
of the proceeds of a sale of some or all of the shares of Stock to be acquired
upon such exercise.


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          6.4 SHAREHOLDER
APPROVAL.
Shareholder approval of the Plan, and of all amendments of the Plan for which
shareholder approval was or is required by law or regulation, was obtained
August 31, 1993, January 6, 1995, August 1, 1996 and July 30, 2002. No Option
shall be granted or exercisable under the Plan prior to any shareholder
approval required to be obtained prior to such grant or exercise by law or
regulation, including but not limited to Rule 16b-3 and NASD Marketplace Rule
4350.


ARTICLE
7. GENERAL PROVISIONS


          7.1 TRANSFER OF
CONTROL. A
“Transfer of Control” shall be deemed to have occurred in the event any of the
following occurs with respect to the Company:


          (a)
The direct or indirect sale or exchange by the shareholders of the Company of
all or substantially all of the stock of the Company where the shareholders of
the Company before such sale or exchange do not retain, directly or indirectly,
at least a majority of the beneficial interest in the voting stock of the
Company after such a sale or exchange;


          (b)
A merger or consolidation in which the Company is not the surviving
corporation;


          (c)
A merger or consolidation in which the Company is the surviving corporation
where the shareholders of the Company before such merger or consolidation do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such a merger or
consolidation;


          (d)
The sale, exchange, or transfer of all or substantially all of the assets of
the Company (other than a sale, exchange, or transfer to one (1) or more
subsidiary corporations (as defined in Section 2.1 above) of the Company); or


          (e)
A liquidation of the Company.


          In
the event of a Transfer of Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
“Acquiring Corporation”), shall either assume the Company’s rights and
obligations under outstanding Options or substitute options for the Acquiring
Corporation’s stock for such outstanding Options. In the event the Acquiring
Corporation elects not to assume or substitute for such outstanding Options in
connection with the Transfer of Control, any unexercisable and/or unvested
portion of the outstanding Options shall be immediately exercisable and vested
as of the date thirty (30) days prior to the date of the Transfer of Control.
The exercise and/or vesting of any Option that was permissible solely by reason
of this Section 7.1 shall be conditioned upon the consummation of the Transfer
of Control. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in the connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control shall terminate and cease
to be outstanding effective as of the date of the Transfer of Control. 


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          7.2 AUTHORITY TO VARY
TERMS. The Board shall have the authority from time to time to vary
the terms of the standard forms of stock option agreement described in Section
5.5 and Section 6.3 either in connection with the grant or amendment of an
individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of such revised
or amended standard form or forms of stock option agreement shall be in
accordance with the terms of the Plan as amended from time to time


          7.3 FAIR MARKET VALUE
LIMITATION ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate fair market value (determined at the time the Incentive Stock Option
is granted) of the stock for which Incentive Stock Options are exercisable for
the first time by an Optionee during any calendar year (under the Plan and any
other stock option plan of the Participating Company Group) exceeds One Hundred
Thousand Dollars ($100,000), such options shall be treated as Nonstatutory
Stock Options. This paragraph shall be applied by taking Incentive Stock
Options into account in the order in which they were granted.


          7.4 PROVISIONS OF
INFORMATION. Each Optionee shall be given access to information
concerning the Company equivalent to that information generally made available
to holders of the Company’s common stock.


          7.5 OPTIONS
NON-TRANSFERABLE. During the lifetime of the Optionee, the Option
shall be exercisable only by the Optionee. No Option shall be assignable or
transferable by the Optionee, except by will or by the laws of descent and
distribution.


          7.6 TERMINATION OR
AMENDMENT OF PLAN OR OPTIONS. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan of any Option at any
time; provided, however, that without the approval of the Company’s
shareholders, there shall be (a) no increase in the total number of shares of
Stock covered by the Plan (except by operation of the provisions of Section
4.2), (b) no change in the class of persons eligible to receive Incentive Stock
Options and (c) no expansion in the class of persons eligible to receive
Nonstatutory Stock Options. Furthermore, the provisions of the Plan addressing
eligibility for Outside Director Options and the amount, price and timing of
grants of Outside Director Options shall not be amended more than once every
six (6) months, other than to comport to changes in the Code, or the rules thereunder.
In addition to the foregoing, the approval of the Company’s shareholders shall
be sought for any amendment to the Plan or an Option for which the Board deems
shareholder approval necessary in order to comply with Rule 16b-3. In any
event, no amendment may adversely affect any then outstanding Option or any
unexercised portion thereof, without the consent of the Optionee, unless such
amendment is required to enable an Option designated as a Nonstatutory Stock
Option to qualify as an Incentive Stock Option.


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