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               CALIFORNIA FINANCIAL BANCORP 1999 STOCK OPTION PLAN


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<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
<S>   <C>                                                                <C>
1.    PURPOSE.............................................................1

2.    DEFINITIONS.........................................................1

         (A)      "BOARD OF DIRECTORS"....................................1

         (B)      "CODE"..................................................1

         (C)      "COMMITTEE".............................................1

         (D)      "COMPANY"...............................................1

         (E)      "EFFECTIVE DATE"........................................1

         (F)      "EMPLOYEE"..............................................1

         (G)      "EXCHANGE ACT"..........................................1

         (H)      "EXERCISE PRICE"........................................1

         (I)      "FAIR MARKET VALUE".....................................2

         (J)      "ISO"...................................................2

         (K)      "NONSTATUTORY OPTION"...................................2

         (L)      "OPTION"................................................2

         (M)      "OPTIONEE"..............................................2

         (N)      "PAYROLL EMPLOYEE"......................................2

         (O)      "PLAN"..................................................2

         (P)      "SERVICE"...............................................2

         (Q)      "SHARE".................................................2

         (R)      "STOCK".................................................3

         (S)      "STOCK OPTION AGREEMENT"................................3

         (T)      "SUBSIDIARY"............................................3

         (U)      "SUBSTITUTE OPTION".....................................3

         (V)      "TERMINATING EVENT".....................................3

         (W)      "VESTING EVENT".........................................4

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<PAGE>

         (X)      "TOTAL AND PERMANENT DISABILITY"........................4

3.    ADMINISTRATION......................................................4

         (A)      COMMITTEE MEMBERSHIP....................................4

         (B)      COMMITTEE PROCEDURES....................................5

         (C)      COMMITTEE RESPONSIBILITIES..............................5

4.    ELIGIBILITY.........................................................6

         (A)      GENERAL RULES...........................................6

         (B)      TEN-PERCENT STOCKHOLDERS................................6

         (C)      ATTRIBUTION RULES.......................................6

         (D)      OUTSTANDING STOCK.......................................6

5.    STOCK SUBJECT TO PLAN...............................................6

         (A)      BASIC LIMITATION........................................6

         (B)      ADDITIONAL SHARES.......................................7

6.    TERMS AND CONDITIONS OF OPTIONS.....................................7

         (A)      STOCK OPTION AGREEMENT..................................7

         (B)      NUMBER OF SHARES........................................7

         (C)      EXERCISE PRICE..........................................7

         (D)      WITHHOLDING TAXES.......................................7

         (E)      EXERCISABILITY..........................................7

         (F)      TERM....................................................8

         (G)      TRANSFERABILITY.........................................9

         (H)      NO RIGHTS AS A SHAREHOLDER..............................9

         (I)      MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS..........9

         (J)      SUBSTITUTE OPTIONS......................................9

7.    PAYMENT FOR SHARES..................................................9

         (A)      GENERAL RULE...........................................10

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         (B)      SURRENDER OF STOCK.....................................10

         (C)      EXERCISE/SALE..........................................10

         (D)      EXERCISE/PLEDGE........................................10

         (E)      WITHHOLDING TAXES......................................10

8.    ADJUSTMENT UPON CHANGES IN CAPITALIZATION..........................10

         (A)      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.............11

         (B)      RESERVATION OF RIGHTS..................................11

9.    TERMINATING EVENTS.................................................11

10.   SECURITIES LAWS....................................................12

11.   NO RETENTION RIGHTS................................................12

12.   DURATION AND AMENDMENTS............................................12

         (A)      TERM OF THE PLAN.......................................12

         (B)      RIGHT TO AMEND OR TERMINATE THE PLAN...................12

         (C)      EFFECT OF AMENDMENT OR TERMINATION.....................13
</TABLE>


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               CALIFORNIA FINANCIAL BANCORP 1999 STOCK OPTION PLAN

1.   PURPOSE. The purpose of the Plan is to offer selected employees, directors
and consultants an opportunity to acquire a proprietary interest in the success
of the Company, or to increase such interest, by purchasing Shares of the
Company's Common Stock. The Plan provides both for the grant of Nonstatutory
Options as well as ISOs intended to qualify under Section 422 of the Code.

2.   DEFINITIONS.

     (a) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time.

     (b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

     (c) "Committee" shall mean a committee of the Board of Directors, as
described in Section 3(a), or in the absence of such a committee, the Board of
Directors.

     (d) "Company" shall mean California Financial Bancorp, a California
corporation.

     (e) "Effective Date" shall mean the earlier of the date of adoption of the
Plan by the Board of Directors of the Company or the approval of the Plan by the
shareholders of the Company in the manner required by applicable law or
regulation.

     (f) "Employee" shall mean:

          (i) Any individual who is a full- or part-time salaried or hourly
     employee (i.e., paid in accordance with normal payroll procedures) of the
     Company or of a Subsidiary (a "Payroll Employee");

          (ii) A member of the Board of Directors or a member of the Board of
     Directors of any Subsidiary; and

          (iii) An independent contractor who performs services for the Company
     or a Subsidiary and who is not a member of the Board of Directors.

Service as an independent contractor or member of the Board of Directors shall
be considered employment for all purposes of the Plan, except as provided in
Section 4(a).

     (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

     (h) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.

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     (i) "Fair Market Value" shall mean the market price of Stock, determined by
the Committee as follows:

          (i) If Stock was traded over-the-counter on the date in question but
     was not traded on the NASDAQ system or the NASDAQ National Market System,
     then the Fair Market Value shall be equal to the mean between the last
     reported representative bid and asked prices quoted for such date by the
     principal automated inter-dealer quotation system on which Stock is quoted
     or, if Stock is not quoted on any such system, by the "Pink Sheets"
     published by the National Quotation Bureau, Inc.;

          (ii) If Stock was traded over-the-counter on the date in question and
     was traded on the NASDAQ system or the NASDAQ National Market System, then
     the Fair Market Value shall be equal to the last transaction price quoted
     for such date by the NASDAQ system or the NASDAQ National Market System;

          (iii) If Stock was traded on a stock exchange on the date in question,
     then the Fair Market Value shall be equal to the closing price reported by
     the applicable composite transactions report for such date; and

          (iv) If none of the foregoing provisions is applicable, then the Fair
     Market Value shall be determined by the Committee in good faith on such
     basis as it deems appropriate. In all cases, the determination of Fair
     Market Value by the Committee shall be conclusive and binding on all
     persons.

     (j) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.

     (k) "Nonstatutory Option" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.

     (l) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.

     (m) "Optionee" shall mean an individual who holds an Option.

     (n) "Payroll Employee" shall have the meaning ascribed in paragraph (f)
hereof.

     (o) "Plan" shall mean this California Financial Bancorp 1999 Stock Option
Plan, as it may be amended from time to time.

     (p) "Service" shall mean service as an Employee.

     (q) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).



                                       2
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     (r) "Stock" shall mean the Common Stock of the Company.

     (s) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.

     (t) "Subsidiary" shall mean any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.

     (u) "Substitute Option" shall mean an option described in Section 6(j).

     (v) "Terminating Event" shall mean the occurrence of any of the following
events:

          (i) the consummation of a plan of dissolution or liquidation of the
     Company;

          (ii) the individuals who, as of the 1999 Annual Meeting of
     Shareholders of the Company, are members of the Board of Directors of the
     Company (the "Incumbent Board"), cease for any reason to constitute at
     least a majority of the members of the Board; provided, however, that if
     the appointment of any new director or the election or nomination for
     election by the Company's shareholders of any new director was approved by
     a vote of at least a majority of the Incumbent Board, such new director
     shall, for purposes of this Plan, be considered as a member of the
     Incumbent Board; provided, further, however, that no individual shall be
     considered a member of the Incumbent Board if such individual initially
     assumed office as a result of either an actual or threatened "Election
     Contest" (as described in Rule 14a-11 promulgated under the Exchange Act)
     or other actual or threatened solicitation of proxies or consents by or on
     behalf of a "Person") (as the term person is used for purposes of Section
     13(d) or 14(d) of the Exchange Act) other than the Board of Directors (a
     "Proxy Contest") including by reason of any agreement intended to avoid or
     settle any Election Contest or Proxy Contest;

          (iii) the consummation of a plan of reorganization, merger or
     consolidation involving the Company, except for a reorganization, merger or
     consolidation where (A) the shareholders of the Company immediately prior
     to such reorganization, merger or consolidation own directly or indirectly
     at least 50% of the combined voting power of the outstanding voting
     securities of the corporation resulting from such reorganization, merger or
     consolidation (the "Surviving Corporation") in substantially the same
     proportion as their ownership of voting securities of the Company
     immediately prior to such reorganization, merger or consolidation and the
     individuals who were members of the Incumbent

                                       3
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     Board immediately prior to the execution of the agreement providing for
     such reorganization, merger or consolidation constitute at least 50% of the
     members of the board of directors of the Surviving Corporation, or a
     corporation beneficially directly or indirectly owning a majority of the
     voting securities of the Surviving Corporation, or (C) the Company is
     reorganized, merged or consolidated with a corporation in which any
     shareholder owning at least 50% of the combined voting power of the
     outstanding voting securities of the Company immediately prior to such
     reorganization, merger or consolidation, owns at least 50% of the combined
     voting power of the outstanding voting securities of the corporation
     resulting from such reorganization, merger or consolidation.

          (iv) the sale of all or substantially all of the assets of the Company
     to another Person; or

          (v) the acquisition of beneficial ownership of stock representing more
     than fifty percent (50%) of the voting power of the Company then
     outstanding by another Person.

     (w) "Vesting Event" shall mean the approval by the shareholders of the
Company of any matter, plan or transaction which would constitute a Terminating
Event, or if any Terminating Event occurs without shareholder approval, the
occurrence of such Terminating Event.

     (x) "Total and Permanent Disability" shall mean as defined in Section
22(e)(3) of the Code.

3.   ADMINISTRATION.

     (a) Committee Membership. The Board of Directors shall have the authority
to administer the Plan but may delegate its administrative powers under the
Plan, in whole or in part, to one or more committees of the Board of Directors.
With respect to the participation of Employees who are subject to Section 16 of
the Exchange Act, the Plan may be administered by a committee composed solely of
two or more members of the Board of Directors who qualify as "nonemployee
directors" as defined in Securities and Exchange Commission Rule 16b-3 under the
Exchange Act. With respect to the participation of Employees who may be
considered "covered employees" under Section 162(m) of the Code, the Plan may be
administered by a committee composed solely of two or more members of the Board
of Directors who qualify as "outside directors" as defined by the Internal
Revenue Service for plans intended to qualify for an exemption under Section
162(m)(4)(C) of the Code. If the committee members meet both such
qualifications, then one committee may administer the Plan both with respect to
Employees who are subject to Section 16 of the Exchange Act or who are
considered to be "covered employees" under Section 162(m) of the Code. The Board
of Directors may appoint a separate committee, consisting of one or more members
of the Board of Directors who do not meet such qualifications. Such committee
may administer the Plan

                                       4
<PAGE>

with respect to Employees who are not officers of the Company or members of the
Board of Directors, may grant Options under the Plan to such Employees and may
determine the timing, number of Shares and other terms of such grants.

     (b) Committee Procedures. The Board of Directors shall designate one of the
members of any Committee appointed under paragraph (a) as chairman. Any such
Committee may hold meetings at such times and places as it shall determine. The
acts of a majority of the Committee members present at meetings at which a
quorum exists, or acts reduced to or approved in writing by all Committee
members, shall be valid acts of the Committee.

     (c) Committee Responsibilities. Subject to the provisions of the Plan, any
such Committee shall have full authority and discretion to take the following
actions:

          (i) To interpret the Plan and to apply its provisions;

          (ii) To adopt, amend or rescind rules, procedures and forms relating
     to the Plan;

          (iii) To authorize any person to execute, on behalf of the Company,
     any instrument required to carry out the purposes of the Plan;

          (iv) To determine when Options are to be granted under the Plan;

          (v) To select the Optionees;

          (vi) To determine the number of Shares to be made subject to each
     Option;

          (vii) To prescribe the terms and conditions of each Option, including
     (without limitation) the Exercise Price, to determine whether such Option
     is to be classified as an ISO or as a Nonstatutory Option, and to specify
     the provisions of the Stock Option Agreement relating to such Option;

          (viii) To amend any outstanding Stock Option Agreement, subject to
     applicable legal restrictions and to the consent of the Optionee who
     entered into such agreement;

          (ix) To prescribe the consideration for the grant of each Option under
     the Plan and to determine the sufficiency of such consideration; and

          (x) To take any other actions deemed necessary or advisable for the
     administration of the Plan.


                                       5
<PAGE>

Notwithstanding the foregoing, the Committee shall annually deliver financial
statements of the Company to all Optionees to whom such delivery is required by
Section 260.140.46 of the California Code of Regulations, or successor statute
or regulation.

All decisions, interpretations and other actions of the Committee shall be final
and binding on all Optionees, and all persons deriving their rights from an
Optionee. No member of the Committee shall be liable for any action that he or
she has taken or has failed to take in good faith with respect to the Plan or
any Option.

4.   ELIGIBILITY.

     (a) General Rules. Only Employees shall be eligible for designation as
Optionees by the Committee. In addition, only Payroll Employees of the Company
or a Subsidiary shall be eligible for the grant of ISOs.

     (b) Ten-Percent Stockholders. An Employee who owns more than 10 percent of
the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless:

          (i) The Exercise Price is at least 110 percent of the Fair Market
     Value of a Share on the date of grant; and

          (ii) Such ISO by its terms is not exercisable after the expiration of
     five years from the date of grant.

     (c) Attribution Rules. For purposes of Subsection (b) above, in determining
stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for such Employee's brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Employee holds an option shall not be counted.

     (d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.

5.   STOCK SUBJECT TO PLAN.

     (a) Basic Limitation. Shares reserved for issuance pursuant to the exercise
of Options granted under the Plan shall be authorized but unissued Shares. The
aggregate number of Shares which may be issued pursuant to the exercise of
Options granted under the Plan shall be 751,615, all of which maybe issued
pursuant to the exercise of ISOs or Nonstatutory Options granted under the Plan.
In no event shall options be granted for a number of Shares which exceeds the
number of Shares reserved for issuance under the

                                       6
<PAGE>

Plan. The Company, during the term of the Plan, shall at all times reserve and
keep available sufficient Shares to satisfy the requirements of the Plan.

     (b) Additional Shares. In the event that any outstanding option granted
under this Plan, including Substitute Options, for any reason expires or is
canceled or otherwise terminated, the Shares allocable to the unexercised
portion of such option shall become available for the purposes of this Plan.

6.   TERMS AND CONDITIONS OF OPTIONS.

     (a) Stock Option Agreement. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement executed by the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.

     (b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.

     (c) Exercise Price. Each Stock Option Agreement shall specify the exercise
Price. The Exercise Price of an Option shall not be less than 100 percent of the
Fair Market Value of a Share on the date of grant, except as otherwise provided
in Section 4(b) with respect to ISOs and Section 6(i) with respect to Substitute
Options. The Exercise Price shall be payable in a form described in Section 7.

     (d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with the disposition of Shares acquired by exercising an Option. The Committee
may permit the Optionee to satisfy all or part of his or her tax obligations
related to the Option by having the Company withhold a portion of any Shares
that otherwise would be issued to him or her or by surrendering any Shares that
previously were acquired by him or her. Such Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
The payment of taxes by assigning Shares to the Company, if permitted by the
Committee, shall be subject to such restrictions as the Committee may impose.

     (e) Exercisability. Each Stock Option Agreement shall specify the date when
all or any installment of the Option is to become exercisable. The vesting of
any Option shall be determined by the Committee at its sole discretion; provided
however, that:



                                       7
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          (i) Upon the occurrence of a Vesting Event, the Option shall become
     immediately exercisable as to all Shares covered by such Option, whether or
     not previously vested;

          (ii) In the event that an Optionee's Service terminates, the Option
     shall be exercisable only to the extent the Option was vested as of the
     date of such termination, unless otherwise specified in the Optionee's
     Stock Option Agreement; and

          (iii) Options granted to Payroll Employees other than officers of the
     Company shall vest at the rate of at least 20 percent of the shares subject
     thereto per year over five (5) years from the date of grant of the Option.

     (f) Term. Each Stock Option Agreement shall specify the term of the Option.
No Option shall have a term exceeding 10 years from the date of grant. Subject
to the preceding sentence, the Committee at its sole discretion shall determine
when an Option is to expire. In the event that the Optionee's Service
terminates:

          (i) As a result of such Optionee's death or Total and Permanent
     Disability, the term of the Option shall expire twelve months (or such
     other period specified in the Optionee's Stock Option Agreement) after such
     death or Total and Permanent Disability but not later than the original
     expiration date specified in the Stock Option Agreement.

          (ii) As a result of termination by the Company for cause, the term of
     the Option shall expire immediately upon the Company's dispatch to Employee
     of notice or advice of such termination, and thereafter neither the
     Employee nor the Employee's estate shall be entitled to exercise the Option
     with respect to any Shares whatsoever, whether or not after such
     termination the Employee may receive payment from the Company for vacation
     pay, for services rendered prior to termination, for services for the day
     on which termination occurred, for salary in lieu of notice or for other
     benefits. For purposes of this Paragraph (ii), "cause" shall mean an act of
     embezzlement, fraud, dishonesty or breach of fiduciary duty to the Company
     or its shareholders, disclosure of any of the secrets or confidential
     information of the Company, the inducement of any client or customer of the
     Company to break any contract with the Company, or the inducement of any
     principal for whom the Company acts as agent to terminate such agency
     relationship, the engagement of any conduct which constitutes unfair
     competition with the Company, the removal of Optionee from office by any
     court or bank regulatory agency, or such other similar acts which the
     Committee in its discretion reasonably determines to constitute good cause
     for termination of Optionee's Service. As used in this Paragraph (ii),
     Company includes Subsidiaries of the Company.


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<PAGE>

          (iii) As a result of termination for any reason other than Total and
     Permanent Disability, death or cause, the term of the Option shall expire
     three months (or such other period specified in the Optionee's Stock Option
     Agreement) after such termination, but not later than the original
     expiration date specified in the Stock Option Agreement.

     (g) Transferability. During an Optionee's lifetime, such Optionee's Options
shall be exercisable only by him or her and shall not be transferable. In the
event of an Optionee's death, such Optionee's Option(s) shall not be
transferable other than by will or by the laws of descent and distribution, by
instrument to an inter vivos or testamentary trust in which the options are to
be passed to beneficiaries upon the death of the trustor/settlor, or by gift to
"immediate family," as that term is defined in 17 C.F.R. 240.16a-1(e) or
successor statute or regulation thereto.

     (h) No Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 8.

     (i) Modification, Extension and Renewal of Options. Within the limitations
of the Plan, the Committee may modify, extend or renew outstanding Options or
may accept the cancellation of outstanding Options (to the extent not previously
exercised) in return for the grant of new Options at the same or a different
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, impair such Optionee's rights or increase
his or her obligations under such Option.

     (j) Substitute Options. If the Company at any time should succeed to the
business of another corporation through merger or consolidation, or through the
acquisition of stock or assets of such corporation, Options may be granted under
the Plan in substitution of options previously granted by such corporation to
purchase shares of its stock which options are outstanding at the date of the
succession ("Surrendered Options"). The Committee shall have discretion to
determine the extent to which such Substitute Options shall be granted, the
persons to receive such Substitute Options, the number of Shares to be subject
to such Substitute Options, and the terms and conditions of such Substitute
Options which shall, to the extent permissible within the terms and conditions
of the Plan, be equivalent to the terms and conditions of the Surrendered
Options. The exercise Price may be determined without regard to Section 6(c);
provided however, that the Exercise Price of each Substitute Option shall be an
amount such that, in the sole and absolute judgment of the Committee (and if the
Substitute Options are to be ISO's, in compliance with Section 424(a) of the
Code), the economic benefit provided by such Substitute Option is not greater
than the economic benefit represented by the Surrendered Option as of the date
of the succession.

7.   PAYMENT FOR SHARES.


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<PAGE>



     (a) General Rule. The entire Exercise Price of Shares issued under the Plan
shall be payable in lawful money of the United States of America in cash or by
certified check, official bank check, or the equivalent thereof acceptable to
the Company at the time when such Shares are purchased, except as follows:

          (i) ISOs. In the case of an ISO granted under the Plan, payment shall
     be made only pursuant to the express provisions of the applicable Stock
     Option Agreement. However, the Committee (at its sole discretion) may
     specify in the Stock Option Agreement that payment may be made pursuant to
     Subsections (b), (c) or (d) below.

          (ii) Nonstatutory Options. In the case of a Nonstatutory Option
     granted under the Plan, the Committee (at its sole discretion) may accept
     payment pursuant to Subsections (b), (c), or (d) below.

     (b) Surrender of Stock. To the extent that this Subsection (b) is
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or his or her representative for more than 6 months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.

     (c) Exercise/Sale. To the extent that this Subsection (c) is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.

     (d) Exercise/Pledge. To the extent that this Subsection (d) is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Shares to a securities broker or lender approved
by the Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the exercise Price and any
withholding taxes.

     (e) Withholding Taxes. The Company shall have the right upon the exercise
of an option to deduct any sums required to be withheld under federal, state or
local tax laws or regulations. The Company may condition the issuance of Shares
upon exercise of any Option upon the payment by the Optionee of any sums
required to be withheld under applicable laws or regulations. The Company has no
duty to advise any Optionee of the existence of any tax or any amounts which may
be withheld.

8.   ADJUSTMENT UPON CHANGES IN CAPITALIZATION.


                                       10
<PAGE>


     (a) Adjustments Upon Changes in Capitalization. If the outstanding shares
of Stock are increased, decreased, or changed into or exchanged for a different
number or kind of shares or securities of the Company, through a reorganization,
merger, recapitalization, reclassification, stock split, reverse stock split,
stock dividend, stock consolidation, or otherwise, without consideration to the
Company, an appropriate and proportionate adjustment shall be made in the number
and kind of Shares as to which Stock Options may be granted. A corresponding
adjustment changing the number or kind of Shares subject to Options and the
exercise price per Share allocated to unexercised Options, or portions thereof,
which shall have been granted prior to any such change, shall likewise be made.
Any such adjustment, however, in an outstanding Option shall be made without
change in the total price applicable to the unexercised portion of the Option,
but with a corresponding adjustment in the price for each Share subject to the
Option. Any adjustment under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final and conclusive. No fractional shares of Stock shall be issued or
made available under the Plan on account of any such adjustment, and fractional
share interests shall be disregarded and the fractional share interest shall be
rounded down to the nearest whole number.

     (b) Reservation of Rights. Except as provided in this Section 8, an
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend or any other increase
or decrease in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject to
an Option. The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

9.   TERMINATING EVENTS.

     Not less than thirty (30) days prior to the occurrence of a Terminating
Event, the Committee or the Board shall notify each Optionee of the pendency of
the Terminating Event. Upon the effective date of the Terminating Event, the
Plan shall automatically terminate and all Options theretofore granted shall
terminate, unless provision is made in connection with such transaction for the
continuance of the Plan and/or assumption of Options theretofore granted, or
substitution for such Options with new stock options covering stock of a
successor corporation, or a parent or subsidiary corporation thereof, solely at
the discretion of such successor corporation or parent or subsidiary
corporation, with appropriate adjustments as to number and kind of shares and
prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. If the Plan and unexercised
Options shall terminate pursuant to the preceding sentence, all persons shall
have the right to exercise the Options then outstanding and not exercised at
such time prior to the consummation of the transaction

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causing such termination as the Company shall designate, unless the Board shall
have provided for the cancellation of such Options in exchange for a cash
payment equal to the excess of the Fair Market Value of the Stock as of the date
of the Terminating Event over the exercise price of such Options.

10.  SECURITIES LAWS.

     Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.

     All Options granted under the Plan are subject to the requirement that if
at any time the Board of Directors or the Committee shall determine in its
discretion that the listing or qualification of the Shares subject thereto on
any securities exchange or under any applicable law, or the consent or approval
of any governmental regulatory body, or if, in the opinion of counsel to the
Company, compliance with any state or federal securities laws is necessary or
desirable as a condition of or in connection with the issuance of Shares under
the Option, the Optionee's right to exercise any and all Options shall be
suspended and the Options may not be exercised in whole or in part unless such
listing, qualification, consent, approval, or compliance shall have been
effected or obtained free of any condition not acceptable to the Board of
Directors or the Committee.

11.  NO RETENTION RIGHTS.

     Neither the Plan nor any Option shall be deemed to give any individual
right to remain an employee or consultant of the Company or a Subsidiary. The
Company and its Subsidiaries reserve the right to terminate the Service of any
employee or consultant at any time, with or without cause, subject to applicable
laws and a written employment agreement (if any).

12.  DURATION AND AMENDMENTS.

     (a) Term of the Plan. The Plan, as set forth herein, shall become effective
as of the Effective Date. The Plan, if not extended, shall terminate
automatically ten years after the Effective Date. It may be terminated on any
earlier date pursuant to Subsection(b) below.

     (b) Right to Amend or Terminate the Plan. The Board of Directors may amend,
suspend or terminate the Plan at any time and for any reason. An amendment of
the Plan shall be subject to the approval of the Company's shareholders only to
the extent required by applicable laws or regulations.



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     (c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.


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