|SCIENTIFIC LEARNING
CORPORATION


MILESTONE EQUITY
INCENTIVE PLAN


Adopted February 25,
2003
Approved By
Stockholders __________, 2003
Termination Date:
___________ __, 2013


     1.    
          PURPOSES.


(a)              The
purpose of the Plan is to provide a means by which selected Employees,
          Directors and Consultants may be given an opportunity to benefit from increases
          in value of the common stock of the Company (the Common Stock)
          through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock
          Options, (iii) stock bonuses, (iv) rights to purchase restricted stock and (v)
          Stock Appreciation Rights.


(b)              The
Company, by means of the Plan, seeks to retain the services of persons who           are
now Employees, Directors or Consultants, to secure and retain the services           of
new Employees, Directors and Consultants and to provide incentives for such
          persons to exert maximum efforts for the success of the Company and its
          Affiliates.


(c)              The
Company intends that the Stock Awards issued under the Plan shall, in the
          discretion of the Board or any Committee to which responsibility for
          administration of the Plan has been delegated pursuant to subsection 3(c), be
          (i) Options granted pursuant to Section 6 hereof, including Incentive Stock
          Options and Nonstatutory Stock Options, (ii) rights to purchase restricted
stock           or to receive stock bonuses pursuant to Section 7 hereof or (iii) Stock
          Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be
          separately designated Incentive Stock Options or Nonstatutory Stock Options at
          the time of grant, and in such form as issued pursuant to Section 6, and a
          separate certificate or certificates will be issued for shares purchased on
          exercise of each type of Option.


     2.    
          DEFINITIONS.


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


(b)    Boardmeans
the Board of Directors of the           Company.


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


(d)    Committeemeans
a Committee appointed by the           Board in accordance with subsection 3(c) of the
Plan.


(e)    Companymeans
Scientific Learning Corporation,           a Delaware corporation.


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|(f)    Consultantmeans
any person, including an           advisor, engaged by the Company or an Affiliate to
render consulting services           and who is compensated for such services, provided
that the term           Consultant shall not include Directors who are paid
only a           directors fee by the Company or who are not compensated by the
Company for           their services as Directors.


(g)    Continuous
Servicemeans that the           Optionees employment or
service with the Company or an Affiliate of the           Company, whether in the
capacity of an Employee, a Director or a Consultant, is           not interrupted or
terminated. The Optionees Continuous Service shall not           be deemed to have
terminated merely because of a change in the capacity in which           the Optionee
renders employment or service to the Company or an Affiliate or the           Company or
a change in the entity for which the Optionee renders such employment           or
service, provided that there is no interruption or termination of the           Optionees
Continuous Service. The Board or the Chief Executive Officer of           the Company, in
that partys sole discretion, may determine whether           Continuous Service
shall be considered interrupted in the case of any leave of           absence approved by
the Board or the Chief Executive Officer of the Company,           including sick leave,
military leave, or any other personal leave.


(h)    Covered
Employeemeans the Chief Executive           Officer and the four (4)
other highest compensated officers of the Company for           whom total compensation
is required to be reported to stockholders under the           Exchange Act, as
determined for purposes of Section 162(m) of the Code.


(i)    Directormeans
a member of the Board.


(j)    Disabilitymeans
the inability of a person, in           the opinion of a qualified physician acceptable
to the Company, to perform the           major duties of that persons position with
the Company or an Affiliate of           the Company because of the sickness or injury of
the person.


(k)    Employeemeans
any person, including Officers           and Directors, employed by the Company or any
Affiliate of the Company. Neither           service as a Director nor payment of a
directors fee by the Company shall           be sufficient to constitute employment by
the Company.


(l)    Exchange
Actmeans the Securities Exchange Act           of 1934, as amended.


(m)    Fair
Market Valuemeans, as of any date, the           value of the Common
Stock of the Company determined as follows:


(1)              if
the Common Stock is listed on any established stock exchange, traded on the
          Nasdaq National Market or the Nasdaq SmallCap Market, or quoted on the OTC
          Bulletin Board, the Fair Market Value of a share of Common Stock shall be the
          closing sales price for such stock (or the closing bid, if no sales were
          reported) as quoted on such exchange, market or board (or the exchange or
market           with the greatest volume of trading in Common Stock) on the trading day
prior to           the day of determination, as reported in the Wall Street Journal or
such other           source as the Board deems reliable;


(2)              in
the absence of such markets for the Common Stock, the Fair Market Value shall
          be determined in good faith by the Board and to the extent that the Company is
          subject to Section 260.140.50 of Title 10 of the California Code of Regulations
          at the time a Stock Award is granted, in a manner consistent with Section
          260.140.50 of Title 10 of the California Code of Regulations.


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


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


(p)    Nonstatutory
Stock Optionmeans an Option not           intended to qualify as an
Incentive Stock Option.


(q)    Officermeans
a person who is an officer of the           Company within the meaning of Section 16 of
the Exchange Act and the rules and           regulations promulgated thereunder.


(r)    Optionmeans
a stock option granted pursuant to           the Plan.


(s)    Option
Agreementmeans a written agreement           between the Company and
an Optionee evidencing the terms and conditions of an           individual Option grant.
Each Option Agreement shall be subject to the terms and           conditions of the Plan.


(t)    Optioneemeans
a person to whom an Option is           granted pursuant to the Plan, or if applicable,
such other person who holds an           outstanding Option.


(u)    Outside
Directormeans a Director who either           (i) is not a current
employee of the Company or an affiliated           corporation (within the
meaning of Treasury regulations promulgated under           Section 162(m) of the Code),
is not a former employee of the Company or an           affiliated corporation receiving
compensation for prior services           (other than benefits under a tax qualified
pension plan), was not an officer of           the Company or an affiliated
corporation at any time, and is not           currently receiving direct or
indirect remuneration from the Company or an           affiliated corporation for
services in any capacity other than as a           Director, or (ii) is otherwise
considered an outside director for           purposes of Section 162(m) of
the Code.


(v)    Participantmeans
a person to whom a Stock           Award is granted pursuant to the Plan or, if
applicable, such other person who           holds an outstanding Stock Award.


(w)    Planmeans
this Scientific Learning Corporation           Milestone Equity Incentive Plan.


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|(x)    Rule
16b-3 means Rule 16b-3 of the Exchange Act           or any
successor to Rule 16b-3, as in effect when discretion is being exercised           with
respect to the Plan.


(y)    Securities
Actmeans the Securities Act of           1933, as amended.


(z)    Stock
Appreciation Rightmeans any of the           various types of rights
which may be granted under Section 8 of the Plan.


(aa)    Stock
Awardmeans any right granted under the           Plan, including an
Option, a stock bonus, a right to purchase restricted stock           and a Stock
Appreciation Right.


(bb)    Stock
Award Agreementmeans a written agreement           between the
Company and a holder of a Stock Award evidencing the terms and           conditions of an
individual Stock Award grant. Each Stock Award Agreement shall           be subject to
the terms and conditions of the Plan.


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


     3.    
          ADMINISTRATION.


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


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


(1)              to
determine from time to time which of the persons eligible under the Plan           shall
be granted Stock Awards; when and how each Stock Award shall be granted;
          whether a Stock Award will be an Incentive Stock Option or a Nonstatutory Stock
          Option, a right to purchase restricted stock, a Stock Appreciation Right or a
          combination of the foregoing; the provisions of each Stock Award granted (which
          need not be identical), including the time or times when a person shall be
          permitted to receive stock pursuant to a Stock Award; whether a person shall be
          permitted to receive stock upon exercise of an Independent Stock Appreciation
          Right; and the number of shares with respect to which a Stock Award shall be
          granted to each such person;


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


(3)              to
amend the Plan or a Stock Award as provided in Section 13; and


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


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|(c)              The
Board may delegate administration of the Plan to a Committee or Committees           of
one or more members of the Board. In the discretion of the Board, a Committee
          may consist solely of two or more Outside Directors, in accordance with Code
          Section 162(m), or solely of two or more Non-Employee Directors, in accordance
          with Rule 16b-3. If administration is delegated to a Committee, the Committee
          shall have, in connection with the administration of the Plan, the powers
          theretofore possessed by the Board (and references in this Plan to the Board
          shall thereafter be to the Committee), subject, however, to such resolutions,
          not inconsistent with the provisions of the Plan, as may be adopted from time
to           time by the Board. The Board may abolish the Committee at any time and
revest in           the Board the administration of the Plan. Notwithstanding anything in
this           Section 3 to the contrary, the Board or the Committee may delegate to a
          committee of one or more members of the Board the authority to grant Options to
          eligible persons who (1) are not then subject to Section 16 of the Exchange Act
          and/or (2) are either (i) not then Covered Employees and are not expected to be
          Covered Employees at the time of recognition of income resulting from such
          Option, or (ii) not persons with respect to whom the Company wishes to comply
          with Section 162(m) of the Code.


     4.    
          SHARES SUBJECT TO THE PLAN.


(a)              Subject
to the provisions of subsection 12(a) relating to adjustments upon           changes in
stock, the stock that may be issued pursuant to Stock Awards shall           not exceed
in the aggregate Four Million Six Hundred Forty Two Thousand Six           Hundred Sixty
Six (4,642,666) shares of Common Stock, less any shares which are           subject to
Stock Awards granted under the Companys 1999 Equity Incentive           Plan, as
then in effect. If any Stock Award shall for any reason expire or           otherwise
terminate, in whole or in part, without having been exercised in full,           the
stock not acquired under such Stock Award shall revert to and again become
          available for issuance under the Plan. Shares subject to Stock Appreciation
          Rights exercised in accordance with Section 8 of the Plan shall not be
available           for subsequent issuance under the Plan.


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


     5.    
          ELIGIBILITY.


(a)              Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be           granted
only to Employees. Stock Awards other than Incentive Stock Options and           Stock
Appreciation Rights appurtenant thereto may be granted to Employees,           Directors
and Consultants.


(b)    Ten
Percent Stockholders. A Ten Percent Stockholder shall not be granted           an
Incentive Stock Option unless the exercise price of such Option is at least           one
hundred ten percent (110%) of the Fair Market Value of the Common Stock on           the
date of grant and the Option is not exercisable after the expiration of five
          (5) years from the date of grant.


(c)              Subject
to the provisions of Section 12(a) relating to adjustments upon changes           in
stock, no employee shall be eligible to be granted Options and Stock
          Appreciation Rights covering more than One Million (1,000,000) shares of the
          Common Stock in any calendar year.



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|6.    
          OPTION PROVISIONS.


Each
Option shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:


(a)    Term. No
Incentive Stock Option shall be exercisable after the expiration           of ten (10)
years from the date it was granted.


(b)    Price. Subject
to the provisions of Section 5(b) regarding Ten Percent           Stockholders, the
exercise price of each Incentive Stock Option shall be not           less than one
hundred percent (100%) of the Fair Market Value of the stock           subject to the
Option on the date the Option is granted. The exercise price of           each
Nonstatutory Stock Option shall be any price determined by the Board in its
          sole discretion.


(c)    Consideration. The
purchase price of stock acquired pursuant to an Option           shall be paid, to the
extent permitted by applicable statutes and regulations,           either (i) in cash or
(ii) at the discretion of the Board (A) by delivery to the           Company of other
Common Stock of the Company, (B) according to a deferred           payment as permitted
by law (however, payment of the common stocks           par value, as
defined in the Delaware General Corporation Law, shall           not be made by deferred
payment), or other arrangement (which may include,           without limiting the
generality of the foregoing, the use of other Common Stock           of the Company) with
the person to whom the Option is granted or to whom the           Option is transferred
pursuant to subsection 6(d), or (C) in any other form of           legal consideration
that may be acceptable to the Board.


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


(d)    Transferability. Neither
an Incentive Stock Option nor a Nonstatutory           Stock Option shall be transferable
except by will or by the laws of descent and           distribution, and either shall be
exercisable during the lifetime of the person           to whom the Option is granted
only by such person. Notwithstanding the           foregoing, the Optionee may, by
delivering written notice to the Company, in a           form satisfactory to the
Company, designate a third party who, in the event of           the death of the
Optionee, shall thereafter be entitled to exercise the Option.


(e)    Vesting. The
total number of shares of stock subject to an Option may,           but need not, be
allotted in periodic installments (which may, but need not, be           equal). The
Option Agreement may provide that from time to time during each of           such
installment periods, the Option may become exercisable (vest)           with
respect to some or all of the shares allotted to that period, and may be
          exercised with respect to some or all of the shares allotted to such period
          and/or any prior period as to which the Option became vested but was not fully
          exercised. The Option may be subject to such other terms and conditions on the
          time or times when it may be exercised (which may be based on performance or
          other criteria) as the Board may deem appropriate. The vesting provisions of
          individual Options may vary. The provisions of this subsection 6(e) are subject
          to any Option provisions governing the minimum number of shares as to which an
          Option may be exercised.



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|(f)    Termination
of the Optionees Continuous Service. In the event an           Optionees
Continuous Service terminates (other than upon the           Optionees death or
Disability), the Optionee may exercise his or her           Option (to the extent that
the Optionee was entitled to exercise it at the date           of termination) but only
within such period of time ending on the earlier of (i)           the date three (3)
months after the termination of the Optionees           Continuous Service (or such
longer or shorter period specified in the Option           Agreement, or (ii) the
expiration of the term of the Option as set forth in the           Option Agreement. If,
after termination, the Optionee does not exercise his or           her Option within the
time specified in the Option Agreement, the Option shall           terminate, and the
shares covered by such Option shall revert to and again           become available for
issuance under the Plan.


An
Optionees Option Agreement may also provide that, if the exercise of the Option
following the termination of the Optionees Continuous Service (other than upon the
Optionees death or Disability) would be prohibited at any time solely because the
issuance of shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term of the
Option as described in subsection 6(a) or (ii) the expiration of a period of three (3)
months after the termination of the Optionees Continuous Service during which the
exercise of the Option would not be in violation of such registration requirements (if
such provisions would result in an extension of the time during which the Option may be
exercised beyond the period described in the first paragraph of this
subsection 6(f)).


(g)    Disability
of Optionee. In the event an Optionees Continuous           Service terminates
as a result of the Optionees Disability, the Optionee           may exercise his or
her Option (to the extent that the Optionee was entitled to           exercise it at the
date of termination), but only within such period of time           ending on the earlier
of (i) the date twelve (12) months following such           termination (or such longer
or shorter period specified in the Option Agreement,           or (ii) the expiration of
the term of the Option as set forth in the Option           Agreement. If, at the date of
termination, the Optionee is not entitled to           exercise his or her entire Option,
the shares covered by the unexercisable           portion of the Option shall revert to
and again become available for issuance           under the Plan. If, after termination,
the Optionee does not exercise his or her           Option within the time specified
herein, the Option shall terminate, and the           shares covered by such Option shall
revert to and again become available for           issuance under the Plan.


(h)    Death
of Optionee. In the event of the death of an Optionee during, or           within a
period specified in the Option after the termination of, the           Optionees
Continuous Service, the Option may be exercised (to the extent           the Optionee was
entitled to exercise the Option at the date of death) by the           Optionees
estate, by a person who acquired the right to exercise the           Option by bequest or
inheritance or by a person designated to exercise the           option upon the Optionees
death pursuant to subsection 6(d), but only           within the period ending on the
earlier of (i) the date eighteen (18) months           following the date of death (or
such longer or shorter period specified in the           Option Agreement), or (ii) the
expiration of the term of such Option as set           forth in the Option Agreement. If,
at the time of death, the Optionee was not           entitled to exercise his or her
entire Option, the shares covered by the           unexercisable portion of the Option
shall revert to and again become available           for issuance under the Plan. If,
after death, the Option is not exercised within           the time specified herein, the
Option shall terminate, and the shares covered by           such Option shall revert to
and again become available for issuance under the           Plan.



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


     7.    
          PROVISIONS OF STOCK BONUS AND RESTRICTED STOCK AWARDS.


(a)    Stock
Bonus Awards. Each stock bonus agreement shall be in such form and           shall
contain such terms and conditions as the Board shall deem appropriate. The
          terms and conditions of stock bonus agreements may change from time to time,
and           the terms and conditions of separate stock bonus agreements need not be
          identical, but each stock bonus agreement shall include (through incorporation
          of provisions hereof by reference in the agreement or otherwise) the substance
          of each of the following provisions:


(i)    Consideration. A
stock bonus may be awarded in consideration for past           services actually rendered
to the Company or an Affiliate for its benefit.


(ii)    Vesting. Shares
of Common Stock awarded under the stock bonus agreement           may, but need not, be
subject to a share repurchase option in favor of the           Company in accordance with
a vesting schedule to be determined by the Board.


(iii)    Termination
of Participants Continuous Service. In the event that a           Participants
Continuous Service terminates, the Company may reacquire any           or all of the
shares of Common Stock held by the Participant that have not           vested as of the
date of termination under the terms of the stock bonus           agreement. The Company
will not exercise its repurchase option until at least           six (6) months (or such
longer or shorter period of time required to avoid a           change to earnings for
financial accounting purposes) have elapsed following           receipt of the stock
bonus unless otherwise specifically provided in the stock           bonus agreement.


(iv)    Transferability. Rights
to acquire shares of Common Stock under the stock           bonus agreement shall be
transferable by the Participant only upon such terms           and conditions as are set
forth in the stock bonus agreement, as the Board shall           determine in its
discretion, so long as Common Stock awarded under the stock           bonus agreement
remains subject to the terms of the stock bonus agreement.


(b)    Restricted
Stock Awards. Each restricted stock purchase agreement shall           be in such
form and shall contain such terms and conditions as the Board shall           deem
appropriate. The terms and conditions of the restricted stock purchase
          agreements may change from time to time, and the terms and conditions of
          separate restricted stock purchase agreements need not be identical, but each
          restricted stock purchase agreement shall include (through incorporation of
          provisions hereof by reference in the agreement or otherwise) the substance of
          each of the following provisions:


(i)    Purchase
Price. The purchase price of restricted stock awards shall not           be less than
eighty-five percent (85%) of the Common Stocks Fair Market           Value on the
date such award is made or at the time the purchase is consummated.



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|(ii)    Consideration. The
purchase price of Common Stock acquired pursuant to           the restricted stock
purchase agreement shall be paid either: (i) in cash at the           time of purchase;
(ii) at the discretion of the Board, according to a deferred           payment or other
similar arrangement with the Participant; or (iii) in any other           form of legal
consideration that may be acceptable to the Board in its           discretion; provided,
however, that at any time that the Company is           incorporated in Delaware,
then payment of the Common Stocks par           value, as defined in
the Delaware General Corporation Law, shall not be           made by deferred payment.


(iii)    Vesting. Shares
of Common Stock acquired under the restricted stock           purchase agreement may, but
need not, be subject to a share repurchase option in           favor of the Company in
accordance with a vesting schedule to be determined by           the Board.


(iv)    Termination
of Participants Continuous Service. In the event that a           Participants
Continuous Service terminates, the Company may repurchase or           otherwise
reacquire any or all of the shares of Common Stock held by the           Participant that
have not vested as of the date of termination under the terms           of the restricted
stock purchase agreement. The Company will not exercise its           repurchase option
until at least six (6) months (or such longer or shorter           period of time
required to avoid a charge to earnings for financial accounting           purposes) have
elapsed following the purchase of the restricted stock unless           otherwise
provided in the restricted stock purchase agreement.


(v)    Transferability. Rights
to acquire shares of Common Stock under the           restricted stock purchase agreement
shall be transferable by the Participant           only upon such terms and conditions as
are set forth in the restricted stock           purchase agreement, as the Board shall
determine in its discretion, so long as           Common Stock awarded under the
restricted stock purchase agreement remains           subject to the terms of the
restricted stock purchase agreement.


     8.    
          STOCK APPRECIATION RIGHTS.


(a)              To
exercise any outstanding Stock Appreciation Right, the holder must provide
          written notice of exercise to the Company in compliance with the provisions of
          the Stock Award Agreement evidencing such right. Except as provided in
          subsection 5(c), no limitation shall exist on the aggregate amount of cash
          payments the Company may make under the Plan in connection with the exercise of
          a Stock Appreciation Right.


(b)              Three
types of Stock Appreciation Rights shall be authorized for issuance under           the
Plan:


(1)    Tandem
Stock Appreciation Rights. Tandem Stock Appreciation Rights will           be granted
appurtenant to an Option, and shall, except as specifically set forth           in this
Section 8, be subject to the same terms and conditions applicable to the
          particular Option grant to which it pertains. Tandem Stock Appreciation Rights
          will require the holder to elect between the exercise of the underlying Option
          for shares of stock and the surrender, in whole or in part, of such Option for
          an appreciation distribution. The appreciation distribution payable on the
          exercised Tandem Right shall be in cash (or, if so provided, in an equivalent
          number of shares of stock based on Fair Market Value on the date of the Option
          surrender) in an amount up to the excess of (A) the Fair Market Value (on the
          date of the Option surrender) of the number of shares of stock covered by that
          portion of the surrendered Option in which the Optionee is vested over (B) the
          aggregate exercise price payable for such vested shares.



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|(2)    Concurrent
Stock Appreciation Rights. Concurrent Rights will be granted           appurtenant to
an Option and may apply to all or any portion of the shares of           stock subject to
the underlying Option and shall, except as specifically set           forth in this
Section 8, be subject to the same terms and conditions applicable           to the
particular Option grant to which it pertains. A Concurrent Right shall be
          exercised automatically at the same time the underlying Option is exercised
with           respect to the particular shares of stock to which the Concurrent Right
          pertains. The appreciation distribution payable on an exercised Concurrent
Right           shall be in cash (or, if so provided, in an equivalent number of shares
of stock           based on Fair Market Value on the date of the exercise of the
Concurrent Right)           in an amount equal to such portion as shall be determined by
the Board or the           Committee at the time of the grant of the excess of (A) the
aggregate Fair           Market Value (on the date of the exercise of the Concurrent
Right) of the vested           shares of stock purchased under the underlying Option
which have Concurrent           Rights appurtenant to them over (B) the aggregate
exercise price paid for such           shares.


(3)    Independent
Stock Appreciation Rights. Independent Rights will be granted           independently
of any Option and shall, except as specifically set forth in this           Section 8, be
subject to the same terms and conditions applicable to           Nonstatutory Stock
Options as set forth in Section 6. They shall be denominated           in share
equivalents. The appreciation distribution payable on the exercised           Independent
Right shall be not greater than an amount equal to the excess of (A)           the
aggregate Fair Market Value (on the date of the exercise of the Independent
          Right) of a number of shares of Company stock equal to the number of share
          equivalents in which the holder is vested under such Independent Right, and
with           respect to which the holder is exercising the Independent Right on such
date,           over (B) the aggregate Fair Market Value (on the date of the grant of the
          Independent Right) of such number of shares of Company stock. The appreciation
          distribution payable on the exercised Independent Right shall be in cash or, if
          so provided, in an equivalent number of shares of stock based on Fair Market
          Value on the date of the exercise of the Independent Right.


     9.    
          COVENANTS OF THE COMPANY.


(a)              During
the terms of the Stock Awards, the Company shall keep available at all           times
the number of shares of stock required to satisfy such Stock Awards.


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



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|10.    
          USE OF PROCEEDS FROM STOCK.


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


     11.    
          MISCELLANEOUS.


(a)              The
Board shall have the power to accelerate the time at which a Stock Award may
          first be exercised or the time during which a Stock Award or any part thereof
          will vest, notwithstanding the provisions in the Stock Award stating the time
at           which it may first be exercised or the time during which it will vest.


(b)              Neither
the recipient of a Stock Award nor any person to whom a Stock Award is
          transferred in accordance with the Plan shall be deemed to be the holder of, or
          to have any of the rights of a holder with respect to, any shares subject to
          such Stock Award unless and until such person has satisfied all requirements
for           exercise of the Stock Award pursuant to its terms.


(c)              Nothing
in the Plan or any instrument executed or Stock Award granted pursuant           thereto
shall confer upon any recipient or other holder of Stock Awards any           right to
continue in the employ of the Company or any Affiliate or to continue           serving
as a Consultant or a Director, or shall affect the right of the Company           or any
Affiliate to terminate the employment of any Employee with or without           notice
and with or without cause, or the right to terminate the relationship of           any
Consultant pursuant to the terms of such Consultants agreement with           the
Company or Affiliate or service as a Director pursuant to the Companys
          Bylaws and the provisions of the corporate law of the state in which the
Company           is incorporated.


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


(e)              The
Company may require any person to whom a Stock Award is granted, or any           person
to whom a Stock Award is transferred in accordance with the Plan, as a
          condition of exercising or acquiring stock under any Stock Award, (1) to give
          written assurances satisfactory to the Company as to such persons
          knowledge and experience in financial and business matters and/or to employ a
          purchaser representative reasonably satisfactory to the Company who is
          knowledgeable and experienced in financial and business matters, and that he or
          she is capable of evaluating, alone or together with the purchaser
          representative, the merits and risks of exercising the Stock Award; and (2) to
          give written assurances satisfactory to the Company stating that such person is
          acquiring the stock subject to the Stock Award for such persons own
          account and not with any present intention of selling or otherwise distributing
          the stock. The foregoing requirements, and any assurances given pursuant to
such           requirements, shall be inoperative if (i) the issuance of the shares upon
the           exercise or acquisition of stock under the Stock Award has been registered
under           a then currently effective registration statement under the Securities
Act, or           (ii) as to any particular requirement, a determination is made by
counsel for           the Company that such requirement need not be met in the
circumstances under the           then applicable securities laws. The Company may, upon
advice of counsel to the           Company, place legends on stock certificates issued
under the Plan as such           counsel deems necessary or appropriate in order to
comply with applicable           securities laws, including, but not limited to, legends
restricting the transfer           of the stock.



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|(f)              To
the extent provided by the terms of a Stock Award Agreement, the person to           whom
a Stock Award is granted may satisfy any federal, state or local tax
          withholding obligation relating to the exercise or acquisition of stock under a
          Stock Award by any of the following means (in addition to the Companys
          right to withhold from any compensation paid to such person by the Company) or
          by a combination of such means: (1) tendering a cash payment; (2) authorizing
          the Company to withhold shares from the shares of the Common Stock otherwise
          issuable to the participant as a result of the exercise or acquisition of stock
          under the Stock Award; provided, however, that no shares of Common Stock are
          withheld with a value exceeding the minimum amount of tax required to be
          withheld by law (or such lesser amount as may be necessary to avoid variable
          award accounting); or (3) delivering to the Company owned and unencumbered
          shares of the Common Stock of the Company.


(g)    Repurchase
Limitation. The terms of any repurchase option shall be           specified in the
Stock Award Agreement, and the repurchase price may be either           the Fair Market
Value of the shares of Common Stock or the lower of (i) the Fair           Market Value
of the shares of Common Stock on the date of repurchase or (ii)           their original
purchase price.


     12.    
          ADJUSTMENTS UPON CHANGES IN STOCK.


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


(b)              In
the event of a proposed dissolution or liquidation of the Company, the Board
          shall notify the Stock Award holder at least fifteen (15) days prior to such
          proposed action. To the extent it has not been previously exercised, the Stock
          Award shall terminate immediately prior to the consummation of such proposed
          action.


(c)              In
the event of: (1) a dissolution, liquidation or sale of all or substantially
          all of the assets of the Company; (2) a merger or consolidation in which the
          Company is not the surviving corporation; or (3) a reverse merger in which the
          Company is the surviving corporation but the shares of Common Stock outstanding
          immediately preceding the merger are converted by virtue of the merger into
          other property, whether in the form of securities, cash or otherwise, then (i)
          any surviving corporation or acquiring corporation shall assume any Stock
Awards           outstanding under the Plan or shall substitute similar stock awards
(including           an award to acquire the same consideration paid to the stockholders
in the           transaction described in this subsection 12(b)) for those outstanding
under the           Plan, or (ii) in the event any surviving corporation or acquiring
corporation           refuses to assume such Stock Awards or to substitute similar stock
awards for           those outstanding under the Plan, (A) with respect to Stock Awards
held by           persons whose Continuous Service has not terminated, the vesting of
such Stock           Awards (and, if applicable, the time during which such Stock Awards
may be           exercised) shall be accelerated prior to such event and the Stock Awards
          terminated if not exercised (if applicable) after such acceleration and at or
          prior to such event, and (B) with respect to any other Stock Awards outstanding
          under the Plan, such Stock Awards shall be terminated if not exercised (if
          applicable) prior to such event.



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|(d)              In
the event of the acquisition by any person, entity or group within the           meaning
of Section 13(d) or 14(d) of the Exchange Act, or any comparable           successor
provisions (excluding any employee benefit plan, or related trust,           sponsored or
maintained by the Company or any Affiliate of the Company) of the           beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the           Exchange Act,
or comparable successor rule) of securities of the Company           representing at
least fifty percent (50%) of the combined voting power entitled           to vote in the
election of directors, then, with respect to Stock Awards held by           persons whose
Continuous Service has not terminated, the vesting of such Stock           Awards (and,
if applicable, the time during which such Stock Awards may be           exercised) shall
be accelerated immediately upon the happening of such event.


     13.    
          AMENDMENT OF THE PLAN AND STOCK AWARDS.


(a)              The
Board at any time, and from time to time, may amend the Plan. However,           except
as provided in Section 12 relating to adjustments upon changes in stock,           no
amendment shall be effective unless approved by the stockholders of the           Company
to the extent stockholder approval is necessary for the Plan to satisfy           the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or           securities
exchange listing requirements.


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


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


(d)              Rights
under any Stock Award granted before amendment of the Plan shall not be
          impaired by any amendment of the Plan unless (i) the Company requests the
          consent of the person to whom the Stock Award was granted and (ii) such person
          consents in writing.



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|(e)              The
Board at any time, and from time to time, may amend the terms of any one or
          more Stock Awards; provided, however, that the rights under any Stock
          Award shall not be impaired by any such amendment unless (i) the Company
          requests the consent of the person to whom the Stock Award was granted and (ii)
          such person consents in writing.


     14.    
          TERMINATION OR SUSPENSION OF THE PLAN.


(a)              The
Board may suspend or terminate the Plan at any time. Unless sooner           terminated,
the Plan shall terminate ten (10) years from the date the Plan is           adopted by
the Board or approved by the stockholders of the Company, whichever           is earlier.
No Stock Awards may be granted under the Plan while the Plan is           suspended or
after it is terminated. Notwithstanding the foregoing, all           Incentive Stock
Options shall be granted, if at all, no later than the last day           preceding the
tenth (10th) anniversary of the earlier of (i) the date on which           the latest
increase in the maximum number of shares issuable under the Plan was           approved
by the stockholders of the Company or (ii) the date such amendment was           adopted
by the Board.


(b)              Rights
and obligations under any Stock Award granted while the Plan is in effect           shall
not be impaired by suspension or termination of the Plan, except with the
          consent of the person to whom the Stock Award was granted.


     15.    
          EFFECTIVE DATE OF PLAN.


The
Plan shall become effective as of the date the Board adopts the Plan, but no Options or
rights to purchase restricted stock granted under the Plan shall be exercised unless and
until the Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months before or after the date the Plan was adopted by the Board.



14.
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