Unassociated Document







INSITE VISION INCORPORATED



1994 STOCK OPTION PLAN










(Amended and Restated as of June 3, 2002)










ARTICLE ONE










GENERAL PROVISIONS









I.          PURPOSES OF THE PLAN



A.          The 1994 Stock Option Plan (the "Plan") was adopted as the 1993 Stock Plan as of July 28, 1993 to be effective October 25, 1993 (the "Effective Date") to promote the interests of InSite Vision Incorporated, a Delaware corporation (the "Corporation"), by providing eligible individuals 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 (or its parent or subsidiary corporations). This amendment and restatement of the Plan is effective as of June 3, 2002.




  B.          This
    Plan serves as the successor to the Corporation's 1989 Stock Plan (the 1989
    Plan"), and no further option grants shall be made under the 1989 Plan from
    and after the Effective Date. All options outstanding under the 1989 Plan
    on such Effective Date have been incorporated into this Plan and are treated
    as outstanding options under this Plan. However, each outstanding option so
    incorporated continues to be governed solely by the express terms and conditions
    of the instrument evidencing such grant, and no provision of this Plan shall
    be deemed to affect or otherwise modify the rights or obligations of the holders
    of such incorporated options with respect to their acquisition of shares of
    the Corporation's common stock thereunder or their exercise of any outstanding
    stock appreciation rights thereunder.

  



C.          For purposes of the Plan, the following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation:




Any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a parent corporation of the Corporation, provided each such 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.





    

  

  
  


Each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation shall be considered to be a subsidiary of the Corporation, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.



II.          STRUCTURE OF THE PLAN




A.          The Plan shall be divided into two separate components: the Discretionary Option Grant Program specified in Article Two and the Automatic Option Grant Program specified in Article Three. Under the Discretionary Option Grant Program, eligible individuals may be granted options to purchase shares of the Corporation's common stock. Under the Automatic Option Grant Program, each eligible member of the Corporation's Board of Directors (the "Board") will automatically receive an option grant to purchase shares of the Corporation's common stock.




  B.          The
    provisions of Articles One and Four of the Plan shall apply to the Discretionary
    Option Grant Program and the Automatic Option Grant Program and shall accordingly
    govern the interests of all individuals in the Plan.

  


  III.          ADMINISTRATION
    OF THE PLAN

  



A.          Article Two of the Plan shall be administered by a committee ("Committee") of two (2) or more non-employee Board members appointed by the Board. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time.




  B.          The
    Committee which shall act as Plan Administrator (the "Plan Administrator")
    shall have full power and authority (subject to the express provisions of
    the Plan) to establish such rules and regulations as it may deem appropriate
    for the proper administration of the Discretionary Option Grant Program and
    to make such determinations and interpretations concerning such program and
    any outstanding option under Article Two as it may deem necessary or advisable.
    Decisions of the Plan Administrator shall be final and binding on all parties
    with an interest in any outstanding option under the Plan.

  



  C.          Administration
    of the Automatic Option Grant Program shall be self-executing in accordance
    with the express terms and conditions of Article Three.

  


  IV.          ELIGIBILITY
    FOR OPTION GRANTS

  



A.          The persons eligible to participate under Article Two of the Plan shall be limited to the following:



2









(i)   officers and other employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management, growth and financial success of the Corporation (or any parent or subsidiary corporation);




(ii)   non-employee members of the Board or the non-employee members of the board of directors of any parent or subsidiary corporation;




(iii)   those consultants or independent contractors who provide valuable services to the Corporation (or any parent or subsidiary corporation).




  B.          Non-employee
    members of the Board shall also be eligible to receive automatic option grants
    pursuant to the provisions of Article Three, and such individuals shall, for
    purposes of Articles Three and Four, be referred to as "Eligible Directors".

  



  C.          The
    Plan Administrator shall have full authority to determine which eligible individuals
    are to receive discretionary option grants under Article Two, the number of
    shares to be covered by each such grant, whether the granted option is to
    be an incentive stock option ("Incentive Option") which satisfies the requirements
    of Section 422 of the Internal Revenue Code or a non-statutory option not
    intended to meet such requirements, the time or times at which each such option
    is to become exercisable, and the maximum term for which the option is to
    remain outstanding.

  



  V.          STOCK
    SUBJECT TO THE PLAN

  



A.          Shares of the Corporation's common stock, par value $0.01 per share ("Common Stock") shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The aggregate number of shares available for issuance under the Plan from and after the Effective Date shall not exceed 4,492,828 shares of Common Stock, subject to adjustment from time to time in accordance with the provisions of this Section V. Such share reserve includes (i) the initial number of shares reserved for issuance under the Plan on the Effective Date, including the shares reserved for issuance under outstanding options granted under the 1989 Plan and incorporated into this Plan, (ii) the 500,000-share increase authorized by the Board on March 29, 1994 and approved by the stockholders on May 31, 1994, (iii) an additional 500,000-share increase authorized by the Board on March 17, 1997 and approved by the stockholders on June 2, 1997, (iv) the 265,521 share increase effected on January 2, 1998 pursuant to the automatic annual share increase provisions of the Plan, (v) the 336,979 share increase effected on January 2, 1999 pursuant to the automatic annual share increase provisions of the Plan, and (vi) the 405,916 share increase effected on January 3, 2000 pursuant to the automatic annual share increase provisions of the Plan, (vii) the 497,014 share increase effected on January 2, 2001, pursuant to the automatic annual share increase provisions of the Plan, and (viii) the 498,545 share increase effected on January 2, 2002, pursuant to the automatic annual share increase provisions of the Plan. To the extent one or more outstanding options under the 1989 Plan which have been incorporated into this Plan are subsequently exercised, the number of shares issued with respect to each such option shall reduce, on a share-for-share basis, the number of shares available for issuance under this Plan.



  3









  B.          The
    number of shares of Common Stock available for issuance under the Plan shall
    automatically increase on the first day of January each calendar year, beginning
    with the 1998 calendar year, by an amount equal to two percent (2%) of the
    total number of shares of the Corporation's Common Stock outstanding on December
    31st of the immediately preceding calendar year. All options granted on the
    basis of each such annual share increase shall be non-statutory options under
    the federal tax laws.

  



  C.          The
    maximum number of shares of Common Stock for which any one participant in
    the Plan may be granted stock options and separately exercisable stock appreciation
    rights over the term of the Plan shall be limited to 1,250,000 shares, subject
    to adjustment from time to time in accordance with the provisions of this
    Section V. For purposes of the foregoing limitation, stock options and stock
    appreciation rights granted prior to January 1, 1994 shall not be taken into
    account.

  



  D.          Should
    one or more outstanding options under this Plan (including any outstanding
    options under the 1989 Plan incorporated into this Plan) expire or terminate
    for any reason prior to exercise in full (including any option cancelled in
    accordance with the cancellation-regrant provisions of Section IV of Article
    Two of the Plan), the shares subject to the portion of the option not so exercised
    shall be available for subsequent option grant under the Plan. Shares subject
    to any option or portion thereof surrendered or cancelled in accordance with
    Section V of Article Two and Section III of Article Three of the Plan shall
    not be available for subsequent
    option grant under the Plan. Should the exercise price of an outstanding option
    under the Plan (including any option incorporated from the 1989 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 outstanding option under
    the Plan, then the number of shares available for issuance under the Plan
    shall be reduced by the gross number of shares for which the option is exercised,
    and not by the net number of shares of Common Stock issued to the option holder.

  



  E.          In
    the event any change is made to the Common Stock issuable under the Plan 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 receipt of consideration, then appropriate adjustments
    shall be made to (i) the maximum number and/or class of securities issuable
    under the Plan, (ii) the maximum number and/or class of securities issuable
    for which any one individual may be granted stock options and separately exercisable
    stock appreciation rights under the Plan after December 31, 1993, (iii) the
    number and/or class of securities for which stock options are to be granted
    to newly-elected or continuing non-employee Board members under the Automatic
    Option Grant Program and (iv) the number and/or class of securities and price
    per share in effect under each outstanding option under the
    Plan (including each outstanding option incorporated into this Plan from
    the 1989 Plan). The purpose of such adjustments to the outstanding options
    shall be to preclude the enlargement or dilution of rights and benefits under
    those options. The adjustments determined by the Plan Administrator shall
    be final, binding and conclusive.

  





  4









  ARTICLE
    TWO








DISCRETIONARY OPTION GRANT PROGRAM







  I.          TERMS
    AND CONDITIONS OF OPTIONS

  



  Options
    granted pursuant to this Article Two shall be authorized by action of the
    Plan Administrator and may, at the Plan Administrator's discretion, be either
    Incentive Options or non-statutory options. Individuals who are not Employees
    may only be granted non-statutory options. Each option granted shall be evidenced
    by one or more instruments in the form approved by the Plan Administrator.
    Each such instrument shall, however, comply with the terms and conditions
    specified below, and each instrument evidencing an Incentive Option shall,
    in addition, be subject to the applicable provisions of Section II of this
    Article Two.

  



A.          Option Price.




  1.          The
    option price per share shall be fixed by the Plan Administrator, but in no
    event shall the option price per share be less than the fair market value
    per share of Common Stock on the date of the option grant.

  



  2.          The
    option price shall become immediately due upon exercise of the option and,
    subject to the provisions of Section VI of this Article Two and the instrument
    evidencing the grant, shall be payable in one of the following alternative
    forms:

  



         —      cash or check made payable to the Corporation's order;




         —      shares of Common Stock held by the optionee 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 (as such term is defined below); or




         —      through a broker-dealer sale and remittance procedure pursuant to which the optionee shall provide irrevocable instructions (I) to a 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 option price payable for the purchased shares plus all applicable federal and state income and employment taxes required to be withheld by the Corporation in connection with such purchase and (II) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction.



  5









For purposes of this Section I.A.2, the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation. Except to the extent the sale and remittance procedure is used in connection with the exercise of the option, payment of the option price for the purchased shares must accompany such notice.




  3.          The
    fair market value per share of Common Stock on any relevant date under the
    Plan shall be determined in accordance with the following provisions:

  



         —      If the Common Stock is at the time listed or admitted to trading on any national stock exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists.




         —      If the Common Stock is not at the time listed or admitted to trading on any national stock exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists on the Nasdaq National Market shall be determinative of Fair Market Value.



  B.          Term
    and Exercise of Options. Each option
    granted under this Article Two 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 instrument evidencing the option
    grant. No such option, however, shall have a maximum term in excess of ten
    (10) years from the grant date.

  


  C.          Limited
    Transferability of Options. During
    the lifetime of the optionee, Incentive Options shall be exercisable only
    by the optionee and shall not be assignable or transferable other than by
    will or by the laws of descent and distribution following the optionee's death.
    However, non-statutory options may, in connection with the optionee's estate
    plan, be assigned in whole or in part during the optionee's lifetime to one
    or more members of the optionee's immediate family or to a trust established
    exclusively for one or more such family members. The assigned portion may
    only be exercised by the person or persons who acquire a proprietary interest
    in the option pursuant to the assignment. The terms applicable to the assigned
    portion shall be the same as those in effect for the option immediately prior
    to such assignment and shall be set forth in such documents issued to the
    assignee as the Plan Administrator may deem appropriate. 

  



  6 



  
  



  

  



  D.          Termination
    of Service.

  



  1.          Except to the extent otherwise provided pursuant to Section VII of this Article Two, the following provisions shall govern the exercise period applicable to any options held by the optionee at the time of cessation of Service or death.




         —      Should the optionee cease to remain in Service for any reason other than death or permanent disability, then the period for which each outstanding option held by such optionee is to remain exercisable shall be limited to the three (3)-month period following the date of such cessation of Service.




         —      In the event such Service terminates by reason of permanent disability (as defined in Section 22(e)(3) of the Internal Revenue Code), then the period for which each outstanding option held by the optionee is to remain exercisable shall be limited to the twelve (12)-month period following the date of such cessation of Service.




         —      Should the optionee die while in Service or during the three (3)-month period following his or her cessation of Service, then the period for which each of his or her outstanding options is to remain exercisable shall be limited to the twelve (12)-month period following the date of the optionee's cessation of Service. During such limited period, the option may be 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.



         —      Under no circumstances, however, shall any option be exercisable after the specified expiration date of the option term.




         —      Each such option shall, during such limited exercise period, be exercisable for any or all of the shares for which the option is exercisable on the date of the optionee's cessation of Service. Upon the expiration of such limited exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be exercisable.




7









  2.          The
    Plan Administrator shall have complete discretion, exercisable either at the
    time the option is granted or at any time while the option remains outstanding,
    to permit one or more options held by the optionee under this Article Two
    to be exercised, during the limited period of exercisability provided under
    Section I.D. 1 above, not only with respect to the number of shares for which
    each such option is exercisable at the time of the optionee's cessation of
    Service but also with respect to one or more subsequent installments of purchasable
    shares for which the option would otherwise have become exercisable had such
    cessation of Service not occurred. The Plan Administrator shall also have
    full power and authority to extend the period of time for which any option
    granted under this Article Two is
    to remain exercisable following the optionee's cessation of Service or
    death from the limited period in effect under Section I.D. 1 of this Article
    Two to such greater period of time as the Plan Administrator shall deem appropriate;
    provided, however, that in no event shall such option be exercisable
    after the specified expiration date of the option term.

  



  3.          For
    purposes of the foregoing provisions of this Section I.D (and for all other
    purposes under the Plan):

  



         —      The optionee shall be deemed to remain in the Service of the Corporation for so long as such individual renders services on a periodic basis to the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a non-employee member of the Board or an independent consultant or advisor.




         —      The optionee shall be considered to be an Employee for so long as such individual remains in the employ of the Corporation or one or more of its parent or subsidiary corporations, subject to the control and direction of the employer entity as to the work to be performed and the manner and method of performance.




  E.          Stockholder
    Rights. An optionee shall have
    no stockholder rights with respect to any shares covered by the option until
    such individual shall have exercised the option and paid the option price
    for the purchased shares.

  


II.          INCENTIVE OPTIONS




The terms and conditions specified below shall be applicable to all Incentive Options granted under this Article Two. Incentive Options may only be granted to individuals who are Employees. Options which are specifically designated as "non-statutory" options when issued under the Plan shall not be subject to such terms and conditions.




A.          Dollar Limitation. The aggregate fair market value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable as incentive stock options under the federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two 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 stock options under the federal tax laws shall be applied on the basis of the order in which such options are granted.



8









  B.          10%
    Stockholder. If any individual
    to whom an Incentive Option is granted is the owner of stock (as determined
    under Section 424(d) of the Internal Revenue Code) possessing 10% or more
    of the total combined voting power of all classes of stock of the Corporation
    or any one of its parent or subsidiary corporations ("10% Stockholder"), then
    the option price per share shall not be less than one hundred and ten percent
    (110%) of the fair market value per share of Common Stock on the grant date,
    and the option term shall not exceed five (5) years measured from the grant
    date.

  



Except as modified by the preceding provisions of this Section II, the provisions of the Plan shall apply to all Incentive Options granted hereunder.



  III.          CORPORATE
    TRANSACTION/CHANGES IN CONTROL

  



A.          In the event of any Corporate Transaction or Change in Control (as defined below), each option which is at the time outstanding under this Article Two shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction or Change in Control, respectively, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Article Two shall not so accelerate upon a Corporate Transaction if and to the extent such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof. The determination of comparability shall be made by the Plan Administrator, and its determination shall be final and binding.




  B.          A
    "Corporate Transaction" shall mean any of the following stockholder-approved
    transactions:

  



(a)   a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or




(b)   the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation.




C.          For all purposes under the Plan, a "Change in Control" shall mean a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement, other than a Corporate Transaction; provided that, without limitation, a Change in Control shall be deemed to have occurred if:



9









(i)   any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Corporation representing forty percent (40%) or more of the combined voting power of the Corporation's then outstanding securities entitled to vote in the election of directors of the Corporation, 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 occurs over any period of two (2) consecutive years or less such that a majority of the Board ceases for any reason to be comprised of individuals who either (A) have been Board members continuously since the beginning of that period or (B) have been elected or nominated for election as Board members during such period by a vote of at least three-fourths (3/4) of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.




  D.          Upon
    the consummation of the Corporate Transaction, all outstanding options under
    this Article Two shall terminate and cease to be outstanding, except to the
    extent assumed by the successor corporation or its parent company. Any options
    accelerated in connection with the Change in Control shall remain fully exercisable
    until the expiration or sooner termination of the option term.

  



  E.          Each
    outstanding option under this Article Two which is assumed in connection with
    the Corporate Transaction or is otherwise to continue in effect shall be appropriately
    adjusted, immediately after such Corporate Transaction, to apply and pertain
    to the number and class of securities which would have been issued to the
    option holder, in consummation of such Corporate Transaction, had such person
    exercised the option immediately prior to such Corporate Transaction. Appropriate
    adjustments shall also be made to the option price payable per share, provided
    the aggregate option price payable for such securities shall remain the same.
    In addition, the class and number of securities available for issuance under
    the Plan following the consummation of the Corporate Transaction shall be
    appropriately adjusted.

  



  F.          The
    grant of options under this Article Two 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.

  


10









G.          The exercisability as incentive stock options under the federal tax laws of any options accelerated under this Section III in connection with a Corporate Transaction or Change in Control shall remain subject to the dollar limitation of Section II of this Article Two. To the extent such dollar limitation is exceeded, the accelerated option shall be exercisable as a non-statutory option under the federal tax laws.



  IV.          CANCELLATION
    AND REGRANT OF OPTIONS

  



The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected optionees, the cancellation of any or all outstanding options under this Article Two and to grant in substitution new options under the Plan covering the same or different numbers of shares of Common Stock but having an option price per share not less than the fair market value of the Common Stock on the new grant date (or one hundred ten percent (110%) of such fair market value in the case of an Incentive Option granted to a 10% Stockholder).



  V.          STOCK
    APPRECIATION RIGHTS

  



A.          Each officer of the Corporation subject to the short-swing profit restrictions of the federal securities laws shall be granted limited stock appreciation rights in tandem with his or her outstanding options under this Article Two. Upon the occurrence of a Hostile Take-Over, each outstanding option with such a limited stock appreciation right shall automatically be cancelled, and the optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the cancelled option (whether or not the option is otherwise at the time exercisable for those shares) over (ii) the aggregate exercise price payable for such shares. The cash distribution payable upon such cancellation shall be made within five (5) days following the consummation of the Hostile Take-Over. The Plan Administrator shall pre-approve, at the time the limited stock appreciation right is granted, the subsequent exercise of that right in accordance with the terms of the grant and the provisions of this Section V.A. No additional approval of the Plan Administrator or the Board shall be required at the time of the actual option cancellation and cash distribution.




  B.          For
    purposes of Section V.A, the following definitions shall be in effect: 

  



A Hostile Take-Over shall be deemed to occur in the event 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) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Exchange 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 which the Board does not recommend the Corporation's stockholders to accept.




11









The Take-Over Price per share shall be deemed to be equal to the greater of (a) the fair market value per share on the date of cancellation, as determined pursuant to the valuation provisions of Section I.A.3 of this Article Two, or (b) the highest reported price per share paid in effecting such Hostile Take-Over. However, if the cancelled option is an Incentive Option, the Take-Over Price shall not exceed the clause (a) price per share.




C.          The shares of Common Stock subject to any option surrendered or cancelled for an appreciation distribution pursuant to this Section V shall not be available for subsequent option grants under the Plan.



  VI.          LOANS
    OR INSTALLMENT PAYMENTS

  



The Plan Administrator may assist any optionee (including any officer) in the exercise of one or more outstanding options under this Article Two, including the satisfaction of any federal and state income and employment tax obligations arising therefrom, by (a) authorizing the extension of a loan to such optionee from the Corporation or (b) permitting the optionee to pay the option price for the purchased Common Stock in installments over a period of years. The terms of any loan or installment method of payment (including the interest rate and terms of repayment) will be established by the Plan Administrator in its sole discretion. Loans and installment payments may be granted with or without security or collateral (other than to optionees who are consultants or independent contractors, in which event the loan must be adequately secured by collateral other than the purchased shares), but the maximum credit available to the optionee shall not exceed the sum of (i) the aggregate option price (less par value) of the purchased shares plus (ii) any federal and state income and employment tax liability incurred by the optionee in connection with the exercise of the option.



  12















  ARTICLE
    THREE













AUTOMATIC OPTION GRANT PROGRAM




  I.          ELIGIBILITY

  



The individuals eligible to receive automatic option grants pursuant to the provisions of this Article Three shall be limited to (i) those individuals who are first elected or appointed as non-employee Board members on or after the Effective Date, whether through appointment by the Board or election by the Corporation's stockholders, provided they have not otherwise been in the prior employ of the Corporation (or any parent or subsidiary corporation) and (ii) those individuals who continue to serve as non-employee Board members on one or more automatic annual option grant dates below while this Automatic Grant Program remains in effect.



II.          TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS




A.          Grant Dates. Option grants will be made under this Article Three on the dates specified below. The revised automatic grant program was approved by the stockholders at the 1998 Annual Meeting.




(i)   Each individual who first becomes a non-employee Board member at any time after October 25, 1993, whether through election at an Annual Stockholders Meeting or through appointment by the Board, and who has not previously been in the employ of the Corporation (or any parent or subsidiary corporation) shall automatically be granted upon the terms and conditions of this Article Three, at the time of such initial election or appointment, a non-statutory stock option to purchase 10,000 shares of Common Stock. A non-employee Board member who replaces a Board member shall not receive an initial 10,000-share grant if both the new and former Board member are affiliated with the same investment fund or similar entity.




(ii)   On December 15, 1997, each individual serving as a non-employee Board member shall automatically be granted a non-statutory stock option to purchase 10,000 shares of Common Stock.




(iii)   On the date of the first Board meeting in December each year, beginning December 1998, each individual continuing to serve as a non-employee Board member shall automatically be granted a non-statutory stock option to purchase 10,000 shares of Common Stock, provided such individual did not receive his or her initial option grant under this Article III within the preceding six (6) months. In the event there is no Board meeting in December of any year, then the automatic option grant for that year shall be made on December 15th: If December 15th in any year is not a day on which the New York Stock Exchange is open for business (a "Trading Day"), then the grant for that year shall be made on the immediately succeeding Trading Day.



  13







The 10,000-share limitation applicable to each initial automatic option grant and each annual automatic option grant per eligible non-employee Board member shall be subject to periodic adjustment pursuant to the applicable provisions of paragraph V.E of Article One.




Stockholder approval of the December 15, 1997 restatement of the Plan constitutes pre-approval of each option granted on or after that date pursuant to the provisions of this Article Three and the subsequent exercise of that option in accordance with the terms and conditions of this Article Three.




  B.          Exercise
    Price. The exercise price per share
    shall be equal to one hundred percent (100%) of 
     the Fair Market Value per share
    of Common Stock on the automatic grant date.

  



  C.          Payment.
    The option price shall become immediately due upon exercise of the option
    and shall be payable in one of the alternative forms specified in Section
    I.A.2 of Article Two.

  



  D.          Option
    Term. Each automatic grant under
    this Article Three shall have a maximum term of ten (10) years measured from
    the automatic grant date.

  



  E.          Exercisability.
    Each automatic option grant under this Article Three shall become exercisable
    for the option shares one (1) year after the date of grant, provided the optionee
    remains a member of the Board through such date. Each such option shall remain
    exercisable until the expiration or sooner termination of the option term.

  



  F.          Limited
    Transferability. Each automatic
    grant under this Article Three may, in connection with the optionee's estate
    plan, be assigned in whole or in part during the optionee's lifetime to one
    or more members of the optionee's immediate family or to a trust established
    exclusively for one or more such family members. The assigned portion may
    only be exercised by the person or persons who acquire a proprietary interest
    in the option pursuant to the assignment. The terms applicable to the assigned
    portion shall be the same as those in effect for the option immediately prior
    to such assignment.

  



  G.          Effect
    of Termination of Board Membership.

  



  1.          Should the optionee cease to be a Board member for any reason (other than death or Permanent Disability (as defined in Code Section 22(e)(3)) while holding an automatic option grant under this Article Three, then he or she shall have a three (3)-month period following the date of such cessation of Board membership in which to exercise such option for any or all of the shares of Common Stock for which the option is exercisable at the time the optionee ceases service as a Board member.



  14








  2.          Should
    the optionee cease to be a Board member by reason of Permanent Disability
    while holding an automatic option grant under this Article Three, then he
    or she shall have a six (6)-month period following the date of such cessation
    of Board membership in which to exercise such option for any or all of the
    shares of Common Stock for which the option is exercisable at the time the
    optionee ceases service as a Board member.

  



  3.          Should
    the optionee die while serving as a Board member or during the three (3)-month
    period following his or her cessation of Board service, then the option may
    subsequently be exercised, for any or all of the shares of Common Stock for
    which the option is exercisable at the time of the optionee's cessation of
    Board membership, by the personal representative of his or her 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. Any such
    exercise must, however, occur within six (6) months after the date of the
    optionee’s death.

  



  4.          In
    no event shall any automatic grant under this Article Three remain exercisable
    after the specified expiration date of the ten (10)-year option term. Upon
    the expiration of the applicable exercise period in accordance with subparagraphs
    1, 2 and 3 above or (if earlier) upon the expiration of the ten (10)-year
    option term, the automatic grant shall terminate and cease to be exercisable.

  



  H.          Stockholder
    Rights. The holder of an automatic
    option grant under this Article Three shall have no stockholder rights with
    respect to any shares covered by such option until such individual shall have
    exercised the option and paid the exercise price for the purchased shares.

  



  I.          Remaining
    Terms. The remaining terms and
    conditions of each automatic option grant shall be as set forth in the prototype
    Director Automatic Grant Agreement attached as Exhibit A to the Plan.

  


  III.          CORPORATE
    TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKEOVER

  



A.          Each automatic option grant outstanding at the time of a Corporate Transaction or a Change in Control shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for such Corporate Transaction or Change in Control, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares at any time prior to the expiration or sooner termination of the option term. Upon the consummation of the Corporate Transaction, all automatic option grants under this Article Three shall terminate and cease to be outstanding.




  B.          Upon
    the occurrence of a Hostile Take-Over, each outstanding automatic option grant
    made pursuant to the provisions of this Article Three shall automatically
    be cancelled and the optionee shall in return be entitled to a cash distribution
    from the Corporation calculated in accordance with Section V.B of Article
    Two and payable at the time and in the manner set forth in Section V.B of
    Article Two. Stockholder approval of the December 15, 1997 restatement of
    the Plan constitutes pre-approval of each option subsequently granted under
    this Article Three with such a cancellation provision and the subsequent cancellation
    of that option in accordance with the terms of this Section III.B. No additional
    approval of the Board or any Plan Administrator shall be required at the time
    of the actual option cancellation and cash distribution.

  


  15








  C.          The
    automatic option grants outstanding under this Article Three 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.

  



  D.          The
    shares of Common Stock subject to each option cancelled in connection with
    the Hostile Take-Over shall not
    be available for subsequent issuance under this Plan.

  










  16









  ARTICLE
    FOUR









MISCELLANEOUS










  I.          AMENDMENT
    OF THE PLAN

  



The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects whatsoever. However, no such amendment or modification shall, without the consent of the holders, adversely affect rights and obligations with respect to options at the time outstanding under the Plan. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations.



  II.          TAX
    WITHHOLDING

  



  A.          The
    Corporation's obligation to deliver shares or cash upon the exercise of stock
    options or stock appreciation rights granted 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 and upon such terms and conditions
    as it may deem appropriate (including the applicable safe-harbor provisions
    of Rule 16b-3 of the Exchange Act) provide any or all holders of outstanding
    option grants under Article Two with the election to have the Corporation
    withhold, from the shares of Common Stock otherwise issuable upon the exercise
    of such options, one or more of such shares with an aggregate fair market
    value equal to the designated percentage (any multiple of 5% specified by
    the optionee) of the federal and state income and employment withholding taxes
    ("Withholding Taxes") to which such holders may become subject in connection
    with the acquisition of such shares. In lieu of such direct withholding, one
    or more optionees may also be granted the right to deliver shares of Common
    Stock to the Corporation in satisfaction of such Withholding Taxes. The withheld
    or delivered shares shall be valued at the Fair Market Value on the applicable
    determination date for such Withholding Taxes.

  


  III.          EFFECTIVE
    DATE AND TERM OF PLAN

  



  A.          This
    Plan, as successor to the Corporation's 1989 Plan, became effective as of
    the October 25, 1993 Effective Date. The Plan was subsequently amended and
    restated by the Board on December 15, 1993 with the purpose of, among other
    provisions, deleting direct stock issuances and renaming the Plan to the 1994
    Stock Option Plan. On March 29, 1994 the Board amended and restated the Plan
    (the "1994 Restatement") to increase the number of shares of Common Stock
    issuable thereunder by 500,000 shares and to impose a limitation on the maximum
    number of shares of Common Stock for which any one participant in the Plan
    may be granted stock options and separately exercisable stock appreciation
    rights after December 31, 1993. The 1994 Restatement was approved by the Corporation's
    stockholders in May 1994. On March 17, 1997, the Board adopted amendments
    to the Plan (the "1997 Restatement") to effect the following changes: (i)
    increase the maximum number of shares of Common Stock available for issuance
    over the term of the Plan by an additional 500,000 shares; (ii) implement
    an automatic share increase feature pursuant to which the number of shares
    of Common Stock available for issuance under the Plan will automatically increase
    on the first day of January each year, beginning January 1, 1998, by two percent
    (2%) of the total number of shares of Common Stock outstanding on the last
    day of December in the immediately preceding year; (iii) increase the maximum
    number of shares available for issuance under the Automatic Option Grant Program
    in effect under the Plan by an additional 33,334 shares to 150,000 shares;
    (iv) impose a specific limitation of 850,000 shares on the maximum number
    of shares for which any one participant may be granted stock options and separately
    exercisable stock appreciation rights in the aggregate under the 1994 Plan;
    (v) render the non-employee Board members eligible to receive option grants
    under the Discretionary Option Grant Program; (vi) remove certain restrictions
    on the eligibility of non-employee Board members to serve as Plan Administrator;
    and (vii) effect a series of additional changes to the provisions of the Plan
    (including the stockholder approval requirements, the transferability of non-statutory
    stock options and the elimination of the six (6) month holding period requirement
    as a condition to the exercise of stock appreciation rights) in order to take
    advantage of the recent amendments to Rule 16b-3 of the Securities and Exchange
    Commission which exempts certain officer and director transactions under the
    1993 Plan from the short-swing liability provisions of the federal securities
    laws. The 1997 Restatement was approved by the Corporation's stockholders
    on June 2, 1997.

  


  17











  B.          On
    December 15, 1997, the Board adopted a series of amendments (the "1997 Amendment")
    to the Plan which effect the following changes to the Automatic Option Grant
    Program for non-employee Board members under Article Three of the Plan: (i)
    increase the number of shares of Common Stock for which options are to be
    granted annually (the "Annual Automatic Grant") to each non-employee Board
    member from five thousand (5,000) shares to ten thousand (10,000) shares;
    (ii) change the date on which such Annual Automatic Grants are to be made
    to the non-employee Board members from the date of the Annual Stockholders
    Meeting to the date of the first Board meeting in December each year (commencing
    December 1997); provided, however, that if there is no Board meeting in December
    of any year, the Annual Automatic Grants for that year shall be made on December
    15 or, if December 15th is not a Trading Day, the immediately succeeding Trading
    Day; (iii) authorize and effect an Annual Automatic Grant for each individual
    serving as a non-employee Board member on December 15, 1997, whether or not
    that individual received his or her initial automatic grant within the preceding
    six (6) months; (iv) provide that after December 15, 1997, each non-employee
    Board member shall be eligible to receive an Automatic Option Grant in December
    of any year only if that individual did not receive his or her initial automatic
    grant within the preceding six (6) months; and (v) eliminate the provisions
    of the Plan which impose a 150,000-share limitation on the maximum number
    of shares issuable under the Automatic Option Grant Program. The 1997 Amendment
    was approved by the stockholders at the 1998 Annual Meeting. All option grants
    made prior to the 1997 Amendment shall remain outstanding in accordance with
    the terms and conditions of the respective instruments evidencing those options,
    and nothing in the 1997 Amendment shall be deemed to modify or in any way
    affect those outstanding options.

  


  18











  C.          On
    April 16, 2002, the Board adopted an amendment to the Plan (the “2002
    Amendment”) which (i) extends the term of the Plan by five (5) years,
    thus extending the Plan termination date from July 27, 2003 to July 27,
    2008 and (ii) increases the per participant limit, as described in Article
    One, Section V, Paragraph C, from 850,000 shares to 1,250,000 shares. The
    2002 Amendment was approved by the stockholders at the 2002 Annual Meeting.

  



  D.          Each
    option issued and outstanding under the 1989 Plan immediately prior to the
    Effective Date shall be incorporated into this Plan and treated as an outstanding
    option under this Plan, but each such option shall continue to be governed
    solely by the terms and conditions of the instrument evidencing such grant,
    and nothing in this Plan shall be deemed to affect or otherwise modify the
    rights or obligations of the holders of such options with respect to their
    acquisition of shares of Common Stock thereunder or their exercise of outstanding
    stock appreciation rights thereunder.

  



  E.          The
    Plan shall terminate upon the earlier
    of (i) July 27, 2008 or (ii) the date on which all shares available for issuance
    under the Plan have been issued pursuant to the exercise of options granted
    under Article Two. If the date of termination is determined under clause (i)
    above, then no options outstanding on such date shall be affected by the termination
    of the Plan, and such securities shall thereafter continue to have force and
    effect in accordance with the provisions of the instruments evidencing such
    options.

  



  F.          Options
    may be granted under this Plan to purchase shares of Common Stock in excess
    of the number of shares then available for issuance under the Plan, provided
    each option granted is not to become exercisable, in whole or in part, at
    any time prior to stockholder approval of an amendment authorizing a sufficient
    increase in the number of shares issuable under the Plan.

  


  IV.          REGULATORY
    APPROVALS

  



  A.          The implementation of the Plan, the granting of any option hereunder, and the issuance of stock upon the exercise or surrender of any such option shall be subject to the procurement by the Corporation of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the 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 a Form S-8 registration statement for the shares of Common
    Stock issuable under the Plan, and all applicable listing requirements of
    any securities exchange on which stock of the same class is then listed.

  


  V.          USE
    OF PROCEEDS

  



            Any cash proceeds received by the Corporation from the sale of shares pursuant to options granted under the Plan shall be used for general corporate purposes.

  


  19










  VI.          NO
    EMPLOYMENT/SERVICE RIGHTS

  



            Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the employ or Service of the Corporation (or any parent or subsidiary corporation) for any period of specific duration, and the Corporation (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's employment or Service at any time and for any reason, with or without cause.



  VII.          MISCELLANEOUS
    PROVISIONS

  



  A.          The
    right to acquire Common Stock or other assets under the Plan may not be assigned,
    encumbered or otherwise transferred by any optionee.

  



  B.          The
    provisions of the Plan shall be governed by the laws of the state of California,
    as such laws are applied to contracts entered into and performed in such state.

  



  C.          The
    provisions of the Plan shall inure to the benefit of, and be binding upon,
    the Corporation and its successors or assigns, whether by Corporate Transaction
    or otherwise, and the optionees, the legal representatives of their respective
    estates, their respective heirs or legatees and their permitted assignees.

  






  20









Exhibit A
















Director Automatic Grant Agreement






















  21