Document:

CONSULTING AGREEMENT

        This Consulting Agreement ("Agreement") is made effective as of July 1,
2002, by and between SonomaWest Holdings, Inc. of 2064 Highway 116 North,
Sebastopol, CA 95472-2662, and Thomas R. Eakin d.b.a. Eakin Consulting, of 4612
Morris Court E, Santa Rosa, California 95405.

        In this Agreement, the party who is contracting to receive services
shall be referred to as "SWH", and the party who will be providing the services
shall be referred to as "Eakin". Eakin has a background in Financial Management
and is willing to provide consulting services to SWH based on this background.

        SWH desires to have services provided by Eakin.

Now therefore, the parties agree as follows:

1. DESCRIPTION OF SERVICES. Beginning on July 1, 2002, Eakin will provide
consulting services (collectively, the "Services") in the area of financial
management and related management matters, specifically Eakin will perform the
duties generally undertaken by a chief financial officer or treasurer of a
corporation; provided however, that Eakin shall report directly to Roger S.
Mertz, Chairman of the Board of Directors of SWH. The Board of Directors of SWH
shall elect Eakin Chief Financial Officer and Eakin shall have the authority to
act for or on behalf of the corporation, which is usually held by a person
holding the office of Chief Financial Officer. Should Eakin reasonably determine
that any project or projects Eakin is requested to work on fall outside the
scope of the duties generally undertaken by a chief financial officer of a
corporation, Eakin shall notify Mr. Mertz of such determination and Eakin may
reject that project or projects without breaching this Agreement. Mr. Mertz and
Eakin shall use their respective commercially reasonable best efforts to resolve
any disagreement with respect to whether or not the specific project or projects
fall within the scope of the services to be performed by Eakin.

2. PERFORMANCE OF SERVICES. The manner in which the Services are to be performed
and the specific hours to be worked by Eakin shall be determined by Eakin. SWH
will rely on Eakin to work as many hours as may be reasonably necessary to
fulfill Eakin's obligations under this Agreement.

3. PAYMENT. SWH will pay a fee to Eakin for the Services as set forth in
Schedule A, which is attached hereto and incorporated herein by this reference..
SWH will reimburse Eakin for any out of pocket expenses incurred in the
provision of Services hereunder. Eakin will invoice SWH approximately every two
weeks for consulting and expenses performed and/or incurred in the fourteen (14)
day period prior to or through the date of invoice, or for such longer period as
may have passed since the date of the last invoice. Each invoice shall be due
upon receipt; provided however, that payment shall be considered timely if paid
within five (5) days of the date of invoice.

4. SUPPORT SERVICES. SWH will provide sufficient office space at its executive
offices in 2064 Highway 116 North, Sebastopol, CA (or at such future Sonoma
County, California executive offices as SWH may occupy) for use by Eakin in
performing the Services

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hereunder. SWH shall direct its employees to cooperate with and render
assistance to Eakin in furtherance of the completion of the Services.

5. TERM/TERMINATION. This Agreement shall continue in effect until July 31, 2003
unless terminated sooner pursuant to the following provision of this Paragraph
5. This Agreement may be terminated by either party upon thirty (30) days prior
written notice to the other party. A termination of this agreement shall
automatically terminate Eakin as Chief Financial Officer of SWH.

6. RELATIONSHIP OF PARTIES. It is understood by the parties that Eakin is an
independent contractor with respect to SWH, and not an employee of SWH. SWH will
not provide fringe benefits, including health insurance benefits, paid vacation,
or any other employee benefit, for the benefit of Eakin; provided however that
Eakin shall be entitled to receive such grants of options as the Board of
Directors may from time to time determine. Notwithstanding the foregoing, SWH
agrees to provide Eakin with a certified copy of the minutes of the Board of
Directors meeting at which Eakin is elected Chief Financial Officer and of any
subsequent meeting in which he is again so elected. In addition, as material
consideration to Eakin for his performance of the Services hereunder SWH agrees
that at all times during the term of this Agreement, SWH will have and maintain
a policy of Directors & Officers insurance which provides coverage for Eakin in
an amount reasonably satisfactory to Eakin. Upon request SWH shall provide Eakin
with proof of such coverage.

7. LIMITATION OF LIABILITY AND INDEMNIFICATION. Eakin will not be liable to SWH,
or to anyone who may claim any right due to a relationship with SWH, for any
injuries due to any act(s) or omission(s) arising from or related to this
Agreement and/or the performance of the Services hereunder or on the part of the
employees or agents of Eakin unless the act(s) and/or omission(s) are due to
Eakin's gross negligence or willful misconduct. SWH will indemnify and hold
Eakin harmless from any obligations, costs, claims, judgments, attorneys' fees,
and attachments arising from, growing out of, or in any way connected with the
Services rendered to SWH under the terms of this Agreement, unless Eakin is
judged by a court of competent jurisdiction to have committed or be guilty of
gross negligence or willful misconduct.

8. INDEMNIFICATION. Eakin agrees to indemnify, defend and hold SWH free and
harmless from any obligations, costs, claims, judgments, attorneys' fees, and
attachments arising from, growing out of, or in any way connected with the
Services rendered to SWH the terms of this Agreement, in any and all cases in
which Eakin has been judged by a court of competent jurisdiction to have
committed or be guilty of gross negligence or willful misconduct.

9. ASSIGNMENT. Eakin's obligations Lender this Agreement may not be assigned or
transferred to any other person, firm, or corporation without the prior written
consent of SWH. SWH obligations under this Agreement may not be assigned or
transferred to any other person, firm, or corporation without the prior written
consent of Eakin.

10. CONFIDENTIALITY. SWH recognizes that Eakin will have the following
information: future plans, business affairs, financial data and projections and
other proprietary information (collectively, "Information") which are valuable,
special and unique assets of SWH and need to be protected from improper
disclosure. In consideration for the disclosure of the Information, Eakin agrees
that Eakin will not at any time or in any manner, either directly or indirectly,
use any Information for Eakin's own benefit, or divulge, disclose, or
communicate in

                                      -2-
<PAGE>

any manner any Information to any third party without the prior written consent
of SWH. The confidentiality and limited use obligations set forth above shall
not apply to information, which Eakin can demonstrate:

        (a) Was already in Eakin's possession prior to receipt of the same from
the SWH without an obligation to maintain its confidentiality; or

        (b) Is now or becomes public information or otherwise generally known to
the public without violation of this Agreement; or

        (c) Was received by Eakin without restriction from a third party which
was lawfully in possession of such information and was not in breach of any
agreement or any confidential relationship with SWH.

Disclosure of SWH Information is not prohibited if such disclosure is compelled
pursuant to legal proceeding or otherwise required by law and prior written
notice is given to SWH.

Eakin will protect the Information and treat it as strictly confidential. A
violation of this paragraph shall be a material breach of this Agreement.

11. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that Eakin has
disclosed (or has threatened to disclose) Information in violation of this
Agreement, SWH shall be entitled to an injunction to restrain Eakin from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. SWH shall not be prohibited by this provision from pursuing other
remedies, including a claim for losses and damages except as is otherwise
provided in this Agreement.

12. CONFIDENTIALITY AFTER TERMINATION. The confidentiality provisions of this
Agreement shall remain in full force and effect after the termination of this
Agreement for a period of five (5) years from the date of such termination

13. RETURN OF RECORDS. Upon termination of this Agreement, Eakin shall deliver
all records, notes, data, memoranda, models, and equipment of any nature that
are in Eakin's possession or under Eakin's control and that are SWH property or
relate to SWH business.

14. NOTICES. All notices required or permitted under this Agreement shall be in
writing and shall be deemed delivered when delivered in person or deposited in
the United States mail, postage prepaid, addressed as follows:

If for SWH:    Roger S. Mertz
               Chairman of the Board
               SonomaWest Holdings, Inc.
               2064 Highway 116, North
               Sebastopol, CA 95472-2662

                                      -3-
<PAGE>

If for Eakin:  Thomas R. Eakin
               Eakin Consulting
               PO Box 2725
               4612 Morris Court, E
               Santa Rosa, California 95405-0725

Such address may be changed from time to time by either party by providing
written notice to the other in the manner set forth above.

15. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.

16. AMENDMENT. This Agreement may be modified or amended only by an amendment in
writing signed by both parties.

17. SEVERABILITY. If any provision of this Agreement shall be held to be invalid
or unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Agreement is
invalid or unenforceable, but that by limiting such provision it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.

18. WAIVER. The failure of either party to enforce any provision of this
Agreement shall not be construed as a waiver or limitation of that party's right
to subsequently enforce and compel strict compliance with every provision of
this Agreement.

19. APPLICABLE LAW. This Agreement shall be governed by the laws of the State of
California.

20. ATTORNEYS' FEES. If any legal action is brought to enforce or interpret the
provisions of this Agreement, the prevailing party will be entitled to
reasonable attorneys' fees, in addition to any other relief to which that party
may be entitled.

Executed at Santa Rosa, California, on July 31, 2002.

"SWH":

SonomaWest Holdings, Inc.

By: /s/ Roger S. Mertz
    ---------------------------------------------------
    Roger S. Mertz, Chairman of the Board of Directors

"Eakin"

Thomas R. Eakin, d.b.a. Eakin Consulting

By: /s/ Thomas R. Eakin
    -----------------------------------------------------
    Thomas R. Eakin

                                      -4-Exhibit 10.10

                                   SONOMAWEST
                                  HOLDINGS INC

                            2002 STOCK INCENTIVE PLAN

                                   ARTICLE ONE

                               GENERAL PROVISIONS

I.  PURPOSE OF THE PLAN

        This 2002 Stock  Incentive  Plan is intended to promote the interests of
SonomaWest Holdings, Inc. (the "Corporation") by providing eligible persons 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.

        Capitalized  terms shall have the meanings assigned to such terms in the
attached Appendix.

II. STRUCTURE OF THE PLAN

        A. The Plan shall be divided into two separate equity programs:

        -  the  Discretionary  Option Grant Program under which eligible persons
           may, at the discretion of the Plan Administrator,  be granted options
           to purchase shares of Common Stock and stock appreciation rights; and

        -  the Stock Issuance  Program under which eligible  persons may, at the
           discretion  of the Plan  Administrator,  be  issued  shares of Common
           Stock directly,  either through the immediate purchase of such shares
           or as a bonus for services rendered the Corporation (or any Parent or
           Subsidiary).

        B. The  provisions  of  Articles  One and Four shall apply to all equity
programs  under the Plan and shall govern the interests of all persons under the
Plan.

III. ADMINISTRATION OF THE PLAN

        A. The Plan shall be  administered  by the Board or an Option  Committee
appointed by the Board. Should administration of the Plan be vested in an Option
Committee,  any discretionary option grants or stock issuances to members of the
Option Committee must be authorized and approved by a disinterested  majority of
the Board.

        B. Members of the Option  Committee  shall serve for such period of time
as the Board may determine and may be removed by the Board at any time.

        C. Each Plan Administrator shall, within the scope of its administrative
functions  under  the Plan,  have  full  power  and  authority  (subject  to the
provisions of the Plan) to establish  such rules and  regulations as it may deem
appropriate  for proper  administration  of the  Discretionary  Option Grant and
Stock Issuance  Programs and to make such  determinations  under, and issue such
interpretations  of, the

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provisions  of such  programs  and any  outstanding  options or stock  issuances
thereunder  as it may  deem  necessary  or  advisable.  Decisions  of  the  Plan
Administrator  within the scope of its  administrative  functions under the Plan
shall  be  final  and  binding  on all  parties  who  have  an  interest  in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.

        D. Service on the Option Committee shall  constitute  service as a Board
member,  and members of such  committee  shall  accordingly  be entitled to full
indemnification  and  reimbursement  as Board  members for their service on such
committee.  No member of the  Option  Committee  shall be liable  for any act or
omission  made in good  faith with  respect to the Plan or any option  grants or
stock issuances under the Plan.

IV.  ELIGIBILITY

        A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:

                (i) Employees,

                (ii) Officers, members of the Board or the board of directors of
        any Parent or Subsidiary, and

                (iii)  consultants  and other  independent  advisors who provide
        services to the Corporation (or any Parent or Subsidiary).

        B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine:  (i) with respect
to the option grants or stock appreciation rights under the Discretionary Option
Grant Program,  which eligible persons are to receive grants,  the time or times
when such grants are to be made, the number of shares to be covered by each such
grant,  the  status of a granted  option  as  either  an  Incentive  Option or a
Non-Statutory  Option,  the  time  or  times  when  each  option  is  to  become
exercisable,  the vesting  schedule (if any) applicable to the option shares and
the maximum  term for which the option is to remain  outstanding;  and (ii) with
respect to stock  issuances  under the Stock  Issuance  Program,  which eligible
persons are to receive stock  issuances,  the time or times when such  issuances
are to be made,  the  number of shares  to be  issued to each  Participant,  the
vesting schedule (if any) applicable to the issued shares and the  consideration
for such shares.

        C. The Plan Administrator  shall have the absolute  discretion either to
grant options or stock appreciation  rights in accordance with the Discretionary
Option Grant Program or to effect stock issuances or grant share right awards in
accordance with the Stock Issuance Program.

V. STOCK SUBJECT TO THE PLAN

        A. The stock  issuable  under the Plan shall be shares of authorized but
unissued  or  reacquired  Common  Stock,  including  shares  repurchased  by the
Corporation  on the open  market.  The maximum  number of shares of Common Stock
initially  reserved  for  issuance  over the term of the Plan  shall not  exceed
seventy-five  thousand (75,000) shares. No one person  participating in the Plan
may receive  stock  options,  direct stock  issuances and share right awards for
more than fifteen thousand  (15,000) shares of Common Stock in the aggregate per
calendar year.

        B.  Shares of Common  Stock  subject  to  outstanding  options  shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise

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<PAGE>

in  full  or  (ii)  the   options   are   canceled   in   accordance   with  the
cancellation-regrant provisions of Article Two. Unvested shares issued under the
Plan and subsequently canceled or repurchased by the Corporation at the original
exercise or issue price paid per share, pursuant to the Corporation's repurchase
rights  under the Plan,  shall be added  back to the  number of shares of Common
Stock  reserved for issuance  under the Plan and shall  accordingly be available
for  reissuance  through one or more  subsequent  option  grants or direct stock
issuances  under the Plan. In addition,  should the exercise  price of an option
under the 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 option or the vesting of a stock issuance under the Plan,  then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
only by the net  number of shares of Common  Stock  issued to the holder of such
option or stock  issuance,  and not by the gross  number of shares for which the
option is exercised or which vest under the stock issuance.  However,  shares of
Common Stock  underlying one or more stock  appreciation  rights exercised under
Section V of  Article  Two of the Plan  shall not be  available  for  subsequent
issuance under the Plan.

        C. If any  change  is made to the  Common  Stock 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
the  Corporation's  receipt of consideration,  appropriate  adjustments shall be
made to: (i) the maximum  number and/or class of securities  issuable  under the
Plan; (ii) the number and/or class of securities for which any one person may be
granted stock options,  direct stock issuances and share right awards under this
Plan per calendar  year; and (iii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan.
Such adjustments to the outstanding options are to be effected in a manner which
shall  preclude the  enlargement  or dilution of rights and benefits  under such
options.  The adjustments  determined by the Plan Administrator  shall be final,
binding and conclusive.

                                   ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM

I.  OPTION TERMS

        Each option  shall be  evidenced  by one or more  documents  in the form
approved by the Plan Administrator;  provided,  however, that each such document
shall  comply  with the terms  specified  below.  Each  document  evidencing  an
Incentive  Option shall,  in addition,  be subject to the provisions of the Plan
applicable to Incentive Options.

        A.  EXERCISE PRICE.

                1.  The  exercise  price  per  share  shall be fixed by the Plan
        Administrator  but shall not be less than  eighty-five  percent (85%) of
        the Fair  Market  Value per share of Common  Stock on the  option  grant
        date.

                2. The exercise price shall become immediately due upon exercise
        of the option and may, subject to the provisions of Section I of Article
        Four and the documents  evidencing the option, be payable in one or more
        of the forms specified below:

                (i) cash or check made payable to the Corporation, or

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<PAGE>

                      (ii) shares of Common Stock held 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,
        or

                      (iii) to the extent the sale complies with all  applicable
        laws  relating  to the  regulation  and sale of  securities,  through  a
        special  sale and  remittance  procedure  pursuant to which the Optionee
        shall concurrently  provide irrevocable  written  instructions to: (a) a
        Corporation-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  exercise  price  payable  for the  purchased  shares plus all
        applicable Federal, state and local income and employment taxes required
        to be withheld by the  Corporation by reason of such  exercise;  and (b)
        the  Corporation to deliver the  certificates  for the purchased  shares
        directly to such brokerage firm in order to complete the sale.

        Except to the extent such sale and  remittance  procedure  is  utilized,
payment  of the  exercise  price for the  purchased  shares  must be made on the
Exercise Date.

        B.  EXERCISE AND TERM OF OPTIONS.  Each option 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 documents  evidencing
the  option.  However,  no option  shall have a term in excess of ten (10) years
measured from the option grant date.

        C.  EFFECT OF TERMINATION OF SERVICE.

                1. The  following  provisions  shall  govern the exercise of any
        options  held by the  Optionee  at the time of  cessation  of Service or
        death:

                (i) Subject to subparagraph  (iv) below, any option  outstanding
        at the time of the Optionee's  cessation of Service for any reason shall
        remain  exercisable  for  such  period  of time  thereafter  as shall be
        determined  by the Plan  Administrator  and set  forth in the  documents
        evidencing the option.

                (ii) Any option  held by the  Optionee  at the time of death and
        exercisable  in  whole  or in  part  at that  time  may be  subsequently
        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   or  by   the   Optionee's   designated   beneficiary   or
        beneficiaries of that option.

                (iii) Except as otherwise  determined  in the  discretion of the
        Plan  Administrator  either at the time the  option is granted or at any
        time the option remains  outstanding,  should the Optionee's  Service be
        terminated  for  Misconduct or should the Optionee  otherwise  engage in
        Misconduct  while one or more options granted to the Optionee under this
        Article Two are  outstanding,  then all those  options  shall  terminate
        immediately and cease to be outstanding.

                (iv) During the applicable  post-Service  exercise  period,  the
        option may not be exercised in the aggregate for more than the number of
        vested  shares  for which the option is  exercisable  on the date of the
        Optionee's  cessation of Service.  Upon the expiration of the applicable
        exercise  period or (if earlier) upon the expiration of the option term,
        the option shall  terminate and cease to be  outstanding  for any vested
        shares for which the option has not been exercised.  However, the option
        shall,  immediately upon the Optionee's cessation of Service,

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<PAGE>

        terminate  and cease to be  outstanding  to the extent the option is not
        otherwise at that time exercisable for vested shares.

                2. The Plan Administrator shall have complete discretion, either
        at the time an option is granted or at any time while the option remains
        outstanding, to:

                (i)  extend the period of time for which the option is to remain
        exercisable  following  the  Optionee's  cessation  of Service  from the
        limited  exercise  period  otherwise  in effect for that  option to such
        greater period of time as the Plan Administrator shall deem appropriate,
        but in no event beyond the expiration of the option term, and/or

                (ii) permit the option to be  exercised,  during the  applicable
        post-Service  exercise  period,  not only with  respect to the number of
        vested  shares of Common Stock for which such option is  exercisable  at
        the time of the Optionee's cessation of Service but also with respect to
        one or more  additional  installments  in which the Optionee  would have
        vested had the Optionee continued in Service.

        D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares  subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.

        E. REPURCHASE RIGHTS.  The Plan Administrator  shall have the discretion
to grant  options  which are  exercisable  for unvested  shares of Common Stock.
Should the Optionee  cease  Service  while  holding such  unvested  shares,  the
Corporation  shall have the right to repurchase,  at the purchase price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable  (including the period and procedure for exercise and
the appropriate  vesting schedule for the purchased shares) shall be established
by the  Plan  Administrator  and  set  forth  in the  document  evidencing  such
repurchase right.

        F.  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.  Non-Statutory Options shall be
subject  to the same  limitation,  except  that a  Non-Statutory  Option  may be
assigned in whole or in part during  Optionee's  lifetime to one or more members
of the Optionee's  Immediate Family or to a trust  established for the exclusive
benefit of Optionee or one or more members of the Optionee's Immediate Family or
to the Optionee's  former spouse, to the extent such assignment is in connection
with  Optionee's  estate  plan or pursuant to a domestic  relations  order.  The
assigned  portion shall be exercisable only by the person or persons who acquire
a  proprietary  interest in the option  pursuant to such  assignment.  The terms
applicable to the assigned portion shall be the same as those in effect for this
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.
Notwithstanding  the  foregoing,  the  Optionee may also  designate  one or more
persons as the beneficiary or  beneficiaries  of his or her outstanding  options
under this  Article  Two,  and those  options  shall,  in  accordance  with such
designation,  automatically  be transferred to such beneficiary or beneficiaries
upon the  Optionee's  death while holding those  options.  Such  beneficiary  or
beneficiaries  shall take the  transferred  option  subject to all the terms and
conditions of the applicable  agreement evidencing each such transferred option,
including  (without  limitation) the limited time period during which the option
may be exercised following the Optionee's death.

                                       5
<PAGE>

II.  INCENTIVE OPTIONS

        The terms specified below shall be applicable to all Incentive  Options.
Except as modified by the  provisions of this Section II, all the  provisions of
Articles  One, Two and Four shall be applicable  to Incentive  Options.  Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall NOT be subject to the terms of this Section II.

        A. ELIGIBILITY. Incentive Options may only be granted to Employees.

        B. EXERCISE  PRICE.  The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.

        C. DOLLAR  LIMITATION.  The aggregate Fair Market Value of the shares of
Common Stock  (determined as of the respective date or dates of grant) for which
one or more options  granted to any Employee under the Plan (or any other option
plan of the  Corporation  or any  Parent or  Subsidiary)  may for the first time
become  exercisable as Incentive  Options during any one calendar year shall not
exceed the sum of One Hundred  Thousand  Dollars  ($100,000).  To the extent the
Employee  holds two (2) 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  Options  shall be applied on the
basis of the order in which such options are granted.

        D. FAILURE TO QUALIFY AS INCENTIVE OPTION. To the extent that any option
governed by this Plan does not qualify as an  Incentive  Option by reason of the
dollar  limitation  described  in Section  II.C of Article  Two or for any other
reason,  such option shall be  exercisable as a  Non-Statutory  Option under the
Federal tax laws.

        E. 10%  STOCKHOLDER.  If any  Employee  to whom an  Incentive  Option is
granted is a 10%  Stockholder,  then the  exercise  price per share shall not be
less than one hundred ten percent  (110%) of the Fair Market  Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

III.  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  option  holders,  the
cancellation of any or all outstanding  options under the  Discretionary  Option
Grant  Program and to grant in  substitution  new options  covering  the same or
different  number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.

IV.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

        A. No option outstanding at the time of a Change in Control shall become
exercisable on an accelerated basis if and to the extent: (i) that option is, in
connection with the Change in Control,  assumed by the successor corporation (or
parent thereof) or otherwise  continued in full force and effect pursuant to the
terms of the Change in Control transaction,  (ii) such option is replaced with a
cash incentive  program of the successor  corporation which preserves the spread
existing at the time of the Change in Control on the shares of Common  Stock for
which the option is not  otherwise  at that time  exercisable  and  provides for
subsequent  payout  in  accordance  with  the  same  exercise/vesting   schedule
applicable  to those option shares or (iii) the  acceleration  of such option is
subject to other  limitations  imposed by the Plan  Administrator at the time of
the option grant.  However,  if none of the foregoing  conditions are satisfied,
then  each  option  outstanding  at the time of the  Change in  Control  but not
otherwise exercisable for all the

                                       6
<PAGE>

shares of Common Stock at that time  subject to such option shall  automatically
accelerate  so that each such option shall,  immediately  prior to the effective
date of the Change in Control,  become  exercisable for all the shares of Common
Stock at the time subject to such option and may be exercised  for any or all of
those shares as fully vested shares of Common Stock.

        B. All of the  Corporation's  outstanding  repurchase  rights  under the
Discretionary Option Grant Program shall also terminate  automatically,  and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Change in Control,  except to the extent: (i) those
repurchase rights are assigned to the successor  corporation (or parent thereof)
or  otherwise  continued  in full force and effect  pursuant to the terms of the
Change in Control  transaction or (ii) such accelerated  vesting is precluded by
other limitations  imposed by the Plan  Administrator at the time the repurchase
right is issued.

        C. Immediately  following the consummation of the Change in Control, all
outstanding  options shall terminate and cease to be outstanding,  except to the
extent  assumed by the successor  corporation  (or parent  thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control transaction.

        D. Each option which is assumed in  connection  with a Change in Control
or otherwise  continued in effect shall be appropriately  adjusted,  immediately
after such  Change in  Control,  to apply to the number and class of  securities
which would have been issuable to the Optionee in consummation of such Change in
Control  had the  option  been  exercised  immediately  prior to such  Change in
Control. Appropriate adjustments to reflect such Change in Control shall also be
made to: (i) the exercise price payable per share under each outstanding option,
provided the aggregate  exercise price payable for such securities  shall remain
the same;  (ii) the maximum  number  and/or class of  securities  available  for
issuance  over the  remaining  term of the Plan;  and (iii) the  maximum  number
and/or  class of  securities  for which any one person  may be granted  options,
direct stock  issuances and share right awards under the Plan per calendar year.
To the extent the actual holders of the Corporation's  outstanding  Common Stock
receive cash  consideration for their Common Stock in consummation of the Change
in Control  transaction,  the successor  corporation may, in connection with the
assumption  of the  outstanding  options  under the  Discretionary  Option Grant
Program,  substitute  one or more  shares of its own  common  stock  with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Change in Control transaction.

        E. The Plan  Administrator  shall have the  discretionary  authority  to
structure one or more outstanding  options under the Discretionary  Option Grant
Program so that those options shall,  immediately prior to the effective date of
a Change in Control,  become  exercisable  for all the shares of Common Stock at
that time subject to such options on an  accelerated  basis and may be exercised
for any or all of such shares as fully vested shares of Common Stock, whether or
not those  options are to be assumed or  otherwise  continued  in full force and
effect or replaced with a cash incentive  program  pursuant to the express terms
of the Change in Control transaction.  In addition, the Plan Administrator shall
have the  discretionary  authority to structure one or more of the Corporation's
repurchase  rights under the  Discretionary  Option Grant  Program so that those
rights  shall  immediately  terminate  at the time of such Change in Control and
shall not be assignable to the successor  corporation (or parent  thereof),  and
the shares subject to those terminated  rights shall accordingly vest in full at
the time of such Change in Control.

        F. The Plan  Administrator  shall  have  full  power  and  authority  to
structure one or more outstanding  options under the Discretionary  Option Grant
Program so that those  options  shall  vest and become  exercisable  for all the
shares of Common Stock at that time  subject to such  options on an  accelerated
basis in the event the Optionee's  Service is subsequently  terminated by reason
of an

                                       7
<PAGE>

Involuntary  Termination within a designated period (not to exceed eighteen (18)
months)  following  the  effective  date of any Change in Control in which those
options do not otherwise  accelerate.  Any options so  accelerated  shall remain
exercisable  for fully  vested  shares of Common Stock until the  expiration  or
sooner  termination of the option term. In addition,  the Plan Administrator may
structure  one  or  more  of  the  Corporation's  repurchase  rights  under  the
Discretionary  Option  Grant  Program so that  those  rights  shall  immediately
terminate with respect to any shares of Common Stock held by the Optionee at the
time of his or her  Involuntary  Termination,  and the  shares  subject to those
terminated repurchase rights shall accordingly vest in full at that time.

        G. The Plan  Administrator  shall have the  discretionary  authority  to
structure one or more outstanding  options under the Discretionary  Option Grant
Program so that those options shall,  immediately prior to the effective date of
a Hostile  Take-Over,  vest and become  exercisable for all the shares of Common
Stock at that time  subject to such options on an  accelerated  basis and may be
exercised  for any or all of such shares as fully vested shares of Common Stock.
In addition,  the Plan Administrator  shall have the discretionary  authority to
structure  one  or  more  of  the  Corporation's  repurchase  rights  under  the
Discretionary  Option  Grant  Program  so  that  those  rights  shall  terminate
automatically  upon the consummation of such Hostile  Take-Over,  and the shares
subject to those  terminated  rights shall thereupon  immediately  vest in full.
Alternatively,  the Plan Administrator may condition the automatic  acceleration
of one or more outstanding options under the Discretionary  Option Grant Program
and the termination of one or more of the Corporation's  outstanding  repurchase
rights under such program upon the  Involuntary  Termination  of the  Optionee's
Service  within  a  designated  period  (not to  exceed  eighteen  (18)  months)
following  the  effective  date  of  such  Hostile  Take-Over.  Each  option  so
accelerated  shall remain  exercisable  for fully vested  shares of Common Stock
until the expiration or sooner termination of the option term.

        H. The portion of any Incentive Option  accelerated in connection with a
Change in Control or Hostile Take-Over shall remain  exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar  ($100,000)
limitation  is not exceeded.  To the extent such dollar  limitation is exceeded,
the  accelerated  portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.

        I. The grant of options  under the  Discretionary  Option Grant  Program
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.

V.  STOCK APPRECIATION RIGHTS

        The  Plan  Administrator  may,  subject  to  such  conditions  as it may
determine,  grant to selected  Optionees  stock  appreciation  rights which will
allow  the  holders  of  those  rights  to elect  between  the  exercise  of the
underlying option for shares of Common Stock and the surrender of that option in
exchange  for a  distribution  from the  Corporation  in an amount  equal to the
excess of: (A) the Option  Surrender Value of the number of shares for which the
option is  surrendered;  over (B) the aggregate  exercise price payable for such
shares.  The  distribution  may be made in shares of Common Stock valued at Fair
Market  Value on the option  surrender  date,  in cash,  or partly in shares and
partly in cash,  as the Plan  Administrator  shall in its sole  discretion  deem
appropriate.

                                       8
<PAGE>

                                  ARTICLE THREE

                             STOCK ISSUANCE PROGRAM

I.  STOCK ISSUANCES

        Shares of Common  Stock may be issued under the Stock  Issuance  Program
through direct and immediate  issuances  without any intervening  option grants.
Each such stock issuance shall be evidenced by a Stock Issuance  Agreement which
complies  with the terms  specified  below.  Shares of Common  Stock may also be
issued  under the Stock  Issuance  Program  pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.

II.  STOCK ISSUANCE TERMS

        A.  PURCHASE PRICE.

                1.  The  purchase  price  per  share  shall be fixed by the Plan
        Administrator,  but shall not be less than eighty-five  percent (85%) of
        the Fair Market Value per share of Common Stock on the issuance date.

                2.  Subject to the  provisions  of  Section I of  Article  Four,
        shares of Common  Stock may be issued under the Stock  Issuance  Program
        for  any  of  the  following  items  of  consideration  which  the  Plan
        Administrator may deem appropriate in each individual instance:

                (i) cash or check made payable to the Corporation, or

                (ii) past services rendered to the Corporation (or any Parent or
        Subsidiary).

        B.  VESTING PROVISIONS.

                1.  Shares  of Common  Stock  issued  under  the Stock  Issuance
        Program may, in the discretion of the Plan  Administrator,  be fully and
        immediately vested upon issuance or may vest in one or more installments
        over the Participant's period of Service or upon attainment of specified
        performance objectives.  The elements of the vesting schedule applicable
        to any unvested  shares of Common Stock issued under the Stock  Issuance
        Program shall be determined by the Plan  Administrator  and incorporated
        into the Stock  Issuance  Agreement.  Shares of Common Stock may also be
        issued under the Stock Issuance  Program  pursuant to share right awards
        which entitle the recipients to receive those shares upon the attainment
        of designated performance goals. Upon the attainment of such performance
        goals,  fully  vested  shares  of  Common  Stock  shall be  issued  upon
        satisfaction of those share right awards.

                2.  Any  new,  substituted  or  additional  securities  or other
        property  (including  money paid other than as a regular cash  dividend)
        which the  Participant may have the right to receive with respect to the
        Participant's  unvested  shares of  Common  Stock by reason of any stock
        dividend, stock split, recapitalization, combination of shares, exchange
        of shares or other change  affecting the  outstanding  Common Stock as a
        class without the Corporation's receipt of consideration shall be issued
        subject  to:  (i)  the  same  vesting  requirements  applicable  to  the
        Participant's  unvested  shares of Common  Stock;  and (ii) such  escrow
        arrangements as the Plan Administrator shall deem appropriate.

                                       9
<PAGE>

                3. The  Participant  shall  have full  stockholder  rights  with
        respect to any shares of Common  Stock issued to the  Participant  under
        the Stock Issuance Program, whether or not the Participant's interest in
        those  shares is vested.  Accordingly,  the  Participant  shall have the
        right to vote such shares and to receive any regular cash dividends paid
        on such shares.

                4.  Should  the  Participant  cease to remain in  Service  while
        holding one or more  unvested  shares of Common  Stock  issued under the
        Stock  Issuance  Program or should  the  performance  objectives  not be
        attained  with  respect  to one or more such  unvested  shares of Common
        Stock,  then  those  shares  shall  be  immediately  surrendered  to the
        Corporation for cancellation,  and the Participant shall have no further
        stockholder  rights  with  respect  to those  shares.  To the extent the
        surrendered  shares  were  previously  issued  to  the  Participant  for
        consideration   paid  in  cash  or  cash   equivalent   (including   the
        Participant's  purchase-money  indebtedness  but not including  services
        rendered  by  the  Participant),  the  Corporation  shall  repay  to the
        Participant the cash  consideration  paid for the surrendered shares and
        shall   cancel  the  unpaid   principal   balance  of  any   outstanding
        purchase-money  note of the Participant  attributable to the surrendered
        shares.

                5.  The  Plan  Administrator  may in its  discretion  waive  the
        surrender  and  cancellation  of one or more  unvested  shares of Common
        Stock  which  would   otherwise   occur  upon  the   cessation   of  the
        Participant's   Service  or  the   non-attainment   of  the  performance
        objectives  applicable to those shares.  Such waiver shall result in the
        immediate  vesting  of the  Participant's  interest  in the shares as to
        which the  waiver  applies.  Such  waiver may be  effected  at any time,
        whether  before or after the  Participant's  cessation of Service or the
        attainment or non-attainment of the applicable performance objectives.

                6.  Outstanding  share  right  awards  under the Stock  Issuance
        Program  shall  automatically  terminate,  and no shares of Common Stock
        shall  actually  be  issued  in  satisfaction  of those  awards,  if the
        performance  goals or Service  requirements  established for such awards
        are not  attained.  The  Plan  Administrator,  however,  shall  have the
        discretionary  authority  to issue  shares of Common  Stock under one or
        more  outstanding   share  right  awards  as  to  which  the  designated
        performance goals or Service requirements have not been attained.

III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

        A. All of the  Corporation's  outstanding  repurchase  rights  under the
Stock  Issuance  Program shall  terminate  automatically,  and all the shares of
Common Stock subject to those terminated  rights shall immediately vest in full,
in the event of any Change in Control, except to the extent (i) those repurchase
rights  are  assigned  to the  successor  corporation  (or  parent  thereof)  or
otherwise  continued in full force and effect  pursuant to the express  terms of
the Change in Control  transaction or (ii) such accelerated vesting is precluded
by other limitations imposed in the Stock Issuance Agreement.

        B. The Plan  Administrator  shall have the  discretionary  authority  to
structure  one or more of the  Corporation's  repurchase  rights under the Stock
Issuance Program so that those rights shall automatically  terminate in whole or
in part upon the  occurrence  of a Change in Control and shall not be assignable
to the successor corporation (or parent thereof), and the shares of Common Stock
subject to those terminated rights shall immediately vest in full at the time of
such Change in Control.

        C. The Plan Administrator shall also have the discretionary authority to
structure  one or more of the  Corporation's  repurchase  rights under the Stock
Issuance Program so that those rights shall automatically  terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, upon the Involuntary  Termination of the Participant's
Service  within

                                       10
<PAGE>

a designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control in which those repurchase  rights do not otherwise
terminate.

        D. The Plan Administrator shall also have the discretionary authority to
structure  one or more of the  Corporation's  repurchase  rights under the Stock
Issuance Program so that those rights shall automatically  terminate in whole or
in part upon the  occurrence  of a Hostile  Take-Over,  and the shares of Common
Stock subject to those terminated  rights shall  immediately vest in full at the
time of such Hostile Take-Over.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

I.  FINANCING

        The Plan Administrator may permit any Optionee or Participant to pay the
option  exercise  price  under the  Discretionary  Option  Grant  Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse,   interest  bearing  promissory  note  payable  in  one  or  more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment)  shall be established by the Plan  Administrator  in
its sole  discretion.  In no  event  may the  maximum  credit  available  to the
Optionee or  Participant  exceed the sum of (i) the  aggregate  option  exercise
price or purchase price payable for the purchased  shares plus (ii) any Federal,
state and local income and employment tax liability  incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.

II.  SHARE ESCROW/LEGENDS

        Unvested  shares issued under the Plan may, in the Plan  Administrator's
discretion,  be  held in  escrow  by the  Corporation  until  the  Participant's
interest in such shares vests or may be issued directly to the Participant  with
restrictive legends on the certificates evidencing those unvested shares.

III.  TAX WITHHOLDING

        A. The  Corporation's  obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares 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,  provide any or all
holders of  Non-Statutory  Options or unvested  shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Taxes  incurred by such holders in connection  with the exercise of their
options or the vesting of their  shares.  Such right may be provided to any such
holder in either or both of the following formats:

               1.  Stock  Withholding:  The  election  to have  the  Corporation
withhold,  from the shares of Common Stock otherwise  issuable upon the exercise
of such  Non-Statutory  Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the amount of the Taxes (not
to exceed one  hundred  percent  (100%) of such Taxes) to be  satisfied  in such
manner as designated by the holder in writing; or

               2. Stock Delivery: The election to deliver to the Corporation, at
the time the  Non-Statutory  Option is exercised or the shares vest, one or more
shares of  Common  Stock  previously

                                       11
<PAGE>

acquired by such holder  (other than in connection  with the option  exercise or
share vesting triggering the Taxes) with an aggregate Fair Market Value equal to
the amount of the Taxes (not to exceed one hundred percent (100%) of such Taxes)
to be satisfied in such manner as designated by the holder in writing.

IV.  EFFECTIVE DATE AND TERM OF THE PLAN

        A. The Plan shall become  effective  immediately upon the Plan Effective
Date. Options may be granted under the Discretionary Option Grant at any time on
or after the Plan Effective Date. However, no options granted under the Plan may
be  exercised,  and no shares shall be issued under the Plan,  until the Plan is
approved by the Corporation's stockholders.  If such stockholder approval is not
obtained  within  twelve (12) months  after the Plan  Effective  Date,  then all
options  previously  granted  under  this Plan shall  terminate  and cease to be
outstanding,  and no further  options  shall be granted  and no shares  shall be
issued under the Plan.

        B.  The  Plan  shall  terminate  upon  the  EARLIEST  of (i)  the  tenth
anniversary  of the Plan  Effective  Date,  (ii) the  date on which  all  shares
available  for  issuance  under the Plan shall have been issued as  fully-vested
shares or (iii) the termination of all outstanding  options in connection with a
Change in Control. Upon such plan termination, all outstanding option grants and
unvested stock issuances shall  thereafter  continue to have force and effect in
accordance  with the  provisions  of the  documents  evidencing  such  grants or
issuances.

V.  AMENDMENT OF THE PLAN

        A. The Board shall have  complete and  exclusive  power and authority to
amend or modify the Plan in any or all respects.  However,  no such amendment or
modification  shall adversely  affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless  the  Optionee  or  the   Participant   consents  to  such  amendment  or
modification.  In addition,  certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

        B. Options to purchase  shares of Common Stock may be granted  under the
Discretionary  Option  Grant  Program  and shares of Common  Stock may be issued
under the Stock  Issuance  Program  that are in each  instance  in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares  actually issued under those programs shall be held in escrow until there
is obtained any required  approval of an amendment  sufficiently  increasing the
number of shares of Common Stock  available for issuance under the Plan. If such
approval is not obtained within twelve (12) months after the date the first such
excess issuances are made, then (i) any unexercised options granted on the basis
of such excess shares shall  terminate and cease to be outstanding  and (ii) the
Corporation  shall  promptly  refund to the Optionees and the  Participants  the
exercise or purchase  price paid for any excess shares issued under the Plan and
held in escrow,  together  with interest (at the  applicable  Short Term Federal
Rate) for the period  the shares  were held in  escrow,  and such  shares  shall
thereupon be automatically canceled and cease to be outstanding.

VI.  USE OF PROCEEDS

        Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.

                                       12
<PAGE>

VII.  REGULATORY APPROVALS

        A. The  implementation  of the Plan,  the  granting of any stock  option
under the Plan and the  issuance  of any  shares  of  Common  Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the  Corporation's  procurement of all approvals and permits required
by regulatory  authorities having  jurisdiction over the Plan, the stock options
granted under it and the shares of Common 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 the Form S-8 registration  statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of the Nasdaq  SmallCap  Market (or any stock exchange , if applicable) on which
Common Stock is then quoted for trading.

VIII.  NO EMPLOYMENT/SERVICE RIGHTS

        Nothing in the Plan shall  confer upon the  Optionee or the  Participant
any right to  continue  in  Service  for any  period  of  specific  duration  or
interfere  with or otherwise  restrict in any way the rights of the  Corporation
(or any Parent or  Subsidiary  employing  or  retaining  such  person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's  Service at any time for any reason,  with or without
cause.

IX.  SECTION 162(M)

        It is the intent of the  Corporation  that any options granted under the
Plan to a "covered  employee" (as that term is defined in Section  162(m) of the
Code) with an exercise price of not less than the Fair Market Value per share of
Common Stock on the date of grant shall qualify as "qualified  performance-based
compensation"  (within the meaning of Treas. Reg. ss.  1.162-27(e)) and the Plan
shall be  interpreted  consistently  with such  intent.  In  furtherance  of the
foregoing,  if and to the extent  that the  Corporation  intends  that an option
granted  under the Plan to any  covered  employee  shall  qualify  as  qualified
performance-based compensation, all decisions regarding the grant of such option
shall  be made  only  by  members  of the  Committee  who  qualify  as  "outside
directors" within the meaning of Treas. Reg. ss. 1.162-27(e)(3).

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                                       13
<PAGE>

                                    APPENDIX

        The following definitions shall be in effect under the Plan:

        A. BOARD shall mean the Corporation's Board of Directors.

        B. CHANGE IN CONTROL  shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:

               (i) a  stockholder-approved  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

               (ii)  a  sale,   transfer   or  other   disposition   of  all  or
substantially all of the Corporation's assets; or

               (iii) the  acquisition,  directly or  indirectly by 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),  of beneficial  ownership (within the meaning of Rule 13d-3 of the
1934 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 made directly to the Corporation's  stockholders  which
the Board recommends such stockholders accept;

               PROVIDED,   however,   the  Plan  Administrator  shall  have  the
discretionary   authority  to  determine   that  a  transaction   or  series  of
transactions does not constitute a Change in Control.  Such determination by the
Plan Administrator shall govern  notwithstanding the fact that the determination
is contrary to paragraphs (i) through (iii) set forth above.

        C. CODE shall mean the Internal Revenue Code of 1986, as amended.

        D. COMMON STOCK shall mean the Corporation's common stock.

        E.  CORPORATION  shall mean  SonomaWest  Holdings,  Inc.,  a  California
corporation, and its successors.

        F.  DISCRETIONARY  OPTION  GRANT  PROGRAM  shall mean the  discretionary
option grant program in effect under the Plan.

        G. EMPLOYEE shall mean an "employee" of the  Corporation  (or any Parent
or  Subsidiary),  within  the  meaning  of  Section  3401(c) of the Code and the
regulations thereunder.

        H. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.

        I. FAIR  MARKET  VALUE per share of Common  Stock on any  relevant  date
shall be determined in accordance with the following provisions:

               (i) If the  Common  Stock is at the  time  traded  on the  Nasdaq
SmallCap Market, then the Fair Market Value shall be deemed equal to the closing
selling  price per share of Common Stock on the date in question,  as such price
is reported on the Nasdaq SmallCap Market or any successor  system.

                                    APPENDIX
                                       1
<PAGE>

If  there  is no  closing  selling  price  for the  Common  Stock on the date in
question,  then the Fair Market Value shall be the closing  selling price on the
last preceding date for which such quotation exists.

               (ii) If the  Common  Stock is at the  time  listed  on any  Stock
Exchange,  then the Fair  Market  Value  shall be  deemed  equal to 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 closing  selling  price for the
Common  Stock on the date in  question,  then the Fair Market Value shall be the
closing  selling  price on the last  preceding  date for  which  such  quotation
exists.

        J. HOSTILE TAKE-OVER shall mean:

               (i) the  acquisition,  directly or  indirectly,  by 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)  of beneficial  ownership  (within the meaning of Rule 13d-3 of the
1934 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 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  over a period of
thirty-six  (36)  consecutive  months or less such that a majority  of the Board
members  ceases,  by  reason  of one  or  more  contested  elections  for  Board
membership,  to be  comprised  of  individuals  who either:  (a) have been Board
members  continuously  since  the  beginning  of such  period;  or (b) have been
elected or  nominated  for  election as Board  members  during such period by at
least a majority of the Board members  described in clause (a) who were still in
office at the time the Board approved such election or nomination.

        K. IMMEDIATE FAMILY shall mean any child, stepchild, grandchild, parent,
stepparent,   grandparent,   spouse,  sibling,   mother-in-law,   father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.

        L.   INCENTIVE   OPTION  shall  mean  an  option  which   satisfies  the
requirements of Code Section 422.

        M. INVOLUNTARY  TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:

               (i) such individual's  involuntary  dismissal or discharge by the
Corporation for reasons other than Misconduct, or

               (ii) such  individual's  voluntary  resignation  following  (A) a
change in his or her position with the Corporation which materially  reduces his
or her level of  responsibility  or the level of  management  to which  Optionee
reports,  (B) a reduction in his or her level of  compensation  (including  base
salary,  fringe benefits and  participation in any  corporate-performance  based
bonus  or  incentive  programs)  by more  than  fifteen  percent  (15%) or (C) a
relocation  of such  individual's  place of  employment  by more than fifty (50)
miles, provided and only if such change,  reduction or relocation is effected by
the Corporation without the individual's consent.

        N.   MISCONDUCT   shall  mean  the  commission  of  any  act  of  fraud,
embezzlement or dishonesty by the Optionee or Participant,  any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary),  or any other intentional  misconduct
by such person  adversely  affecting the business or affairs of the  Corporation
(or

                                    APPENDIX
                                       2
<PAGE>

any Parent or Subsidiary)  in a material  manner.  The foregoing  definition
shall not be  deemed  to be  inclusive  of all the acts or  omissions  which the
Corporation  (or any Parent or  Subsidiary)  may  consider  as  grounds  for the
dismissal  or  discharge  of any  Optionee,  Participant  or other person in the
Service of the Corporation (or any Parent or Subsidiary).

        O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

        P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

        Q.  OFFICER  shall  mean any  person  serving  as the  president,  chief
executive officer, chief financial officer, chief operating officer,  treasurer,
secretary  or in  any  other  managerial  or  administrative  capacity  for  the
Corporation or a Parent or Subsidiary of the  Corporation,  as determined in the
Administrator's discretion.

        R.  OPTION  COMMITTEE  shall  mean  the  committee  of two  (2) or  more
non-employee   Board  members   appointed  by  the  Board  to   administer   the
Discretionary Option Grant and Stock Issuance Programs.

        S. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant Program.

        T. OPTION  SURRENDER VALUE shall mean the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation or, in the
event of a Hostile  Take-Over,  effected  through a tender  offer,  the  highest
reported  price  per  share  of  Common  Stock  paid by the  tender  offer or in
effecting such Hostile Take-Over, if greater. However, if the surrendered option
is an Incentive  Option,  the Option  Surrender  Value shall not exceed the Fair
Market Value per share.

        U. PARENT shall mean any corporation  (other than the Corporation) in an
unbroken  chain of  corporations  ending  with the  Corporation,  provided  each
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.

        V.  PARTICIPANT  shall mean any  person  who is issued  shares of Common
Stock under the Stock Issuance Program.

        W. PLAN shall mean the  Corporation's  2002 Stock Incentive Plan, as set
forth in this document.

        X. PLAN  ADMINISTRATOR  shall mean the  particular  entity,  whether the
Option   Committee  or  the  Board,   which  is  authorized  to  administer  the
Discretionary  Option Grant and Stock  Issuance  Programs with respect to one or
more classes of eligible persons,  to the extent such entity is carrying out its
administrative  functions under those programs with respect to the persons under
its jurisdiction.

        Y. PLAN EFFECTIVE DATE shall mean the date on which the Plan was adopted
by the Board.

        Z.  SECTION  16  INSIDER  shall  mean  an  officer  or  director  of the
Corporation  subject to the short-swing  profit liabilities of Section 16 of the
1934 Act.

                                    APPENDIX
                                       3
<PAGE>

        AA. SERVICE shall mean the  performance of services for the  Corporation
(or any  Parent or  Subsidiary)  by a person  in the  capacity  of an  Employee,
Officer,  member  of the  board of  directors  or a  consultant  or  independent
advisor,  except to the extent otherwise  specifically provided in the documents
evidencing the option grant or stock issuance.

        BB. SHORT TERM FEDERAL  RATE shall mean the federal  short-term  rate in
effect under Section  1274(d) of the Code for the period the shares were held in
escrow.

        CC. STOCK  EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.

        DD. STOCK ISSUANCE  AGREEMENT  shall mean the agreement  entered into by
the  Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

        EE. STOCK  ISSUANCE  PROGRAM  shall mean the stock  issuance  program in
effect under the Plan.

        FF.  SUBSIDIARY shall mean any corporation  (other than the Corporation)
in an unbroken chain of corporations  beginning with the  Corporation,  provided
each 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.

        GG. TAXES shall mean the Federal,  state and local income and employment
tax  liabilities  incurred by the holder of options or unvested shares of Common
Stock in  connection  with the exercise of those options or the vesting of those
shares.

        HH. 10% STOCKHOLDER  shall mean the owner of stock (as determined  under
Code  Section  424(d))  possessing  more  than ten  percent  (10%) of the  total
combined  voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

                                    APPENDIX
                                       4

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