Document:

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                                                                    Exhibit 10.1

                            ILX LIGHTWAVE CORPORATION
                          EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I.  INTRODUCTION

         Section 1.01 Purpose. The purpose of the Plan is to provide employees
of the Company and certain related corporations with an opportunity to share in
the ownership of the Company by providing them with a convenient means for
regular and systematic purchases of Common Stock and, thus, to develop a
stronger incentive to work for the continued success of the Company.

         Section 1.02 Rules of Interpretation. It is intended that the Plan be
an "employee stock purchase plan" as defined in Section 423(b) of the Code and
Treasury Regulations promulgated thereunder. Accordingly, the Plan shall be
interpreted and administered in a manner consistent therewith if so approved.
All Participants in the Plan will have the same rights and privileges consistent
with the provisions of the Plan.

         Section 1.03 Definitions. For purposes of the Plan, the following terms
will have the meanings set forth below:

         (a) "Acceleration Date" means the earlier of the date of shareholder
approval or approval by the Company's Board of Directors of (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Company
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company in which shareholders of the Company immediately
prior to the merger have substantially the same proportionate ownership of stock
in the surviving corporation immediately after the merger; (ii) any sale,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company; or (iii)
any plan of liquidation or dissolution of the Company.

         (b) "Affiliate" means any subsidiary corporation of the Company, as
defined in Section 424(f) of the Code, whether now or hereafter acquired or
established.

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

         (d) "Committee" means the committee described in Section 10.01 of the
Plan.

         (e) "Common Stock" means the Company's Common Stock, $.01 par value per
share, as such stock may be adjusted for changes in the stock or the Company as
contemplated by Article XI of the Plan.

         (f) "Company" means ILX Lightwave Corporation, a Minnesota corporation,
and its successors by merger or consolidation as contemplated by Section 11.02
of the Plan.

         (g) "Current Compensation" means all regular wage (including overtime),
salary and commission payments paid by the Company to a Participant in
accordance with the terms of his or

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her employment, but excluding annual bonus payments, quarterly incentive
payments and all other forms of special compensation.

         (h) "Fair Market Value" as of a given date means the fair market value
of the Common Stock determined by such methods or procedures as shall be
established from time to time by the Committee, but shall not be less than, if
the Common Stock is then quoted on the NASDAQ National Market System, the
average of the high and low sales price as reported on the NASDAQ National
Market System on such date or, if the NASDAQ National Market System is not open
for trading on such date, on the most recent preceding date when it is open for
trading. If on a given date the Common Stock is not traded on an established
securities market, the Committee shall make a good faith attempt to satisfy the
requirements of this Section 1.03(h) and in connection therewith shall take such
action as it deems necessary or advisable.

         (i) "Participant" means a Regular Employee who is eligible to
participate in the Plan under Section 2.01 of the Plan and who has elected to
participate in the Plan.

         (j) "Participating Affiliate" means an Affiliate that has been
designated by the Committee in advance of the Purchase Period in question as a
corporation whose eligible Regular Employees may participate in the Plan.

         (k) "Plan" means the ILX Lightwave Corporation Employee Stock Purchase
Plan, as it may be amended, the provisions of which are set forth herein.

         (l) "Purchase Period" means the period beginning on September 1, 2000,
and ending on the last business day in August, 2001 and thereafter each
approximate six-month period beginning on September 1st and March 1st of each
year and ending on the last business day in February and August of each year;
provided, however, that the then current Purchase Period will end upon the
occurrence of an Acceleration Date.

         (m) "Regular Employee" means an employee of the Company or a
Participating Affiliate as of the first day of a Purchase Period, including an
officer or director who is also an employee.

         (n) "Stock Purchase Account" means the account maintained on the books
and records of the Company recording the amount received from each Participant
through payroll deductions made under the Plan.

ARTICLE II.  ELIGIBILITY AND PARTICIPATION

         Section 2.01 Eligible Employees. All Regular Employees shall be
eligible to participate in the Plan beginning on the first day of the first
Purchase Period to commence after such person becomes a Regular Employee.
Subject to the provisions of Article VI of the Plan, each such employee will
continue to be eligible to participate in the Plan so long as he or she remains
a Regular Employee.

         Section 2.02 Election to Participate. An eligible Regular Employee may
elect to participate in the Plan for a given Purchase Period by filing with the
Company, in advance of that Purchase Period and in accordance with such terms
and conditions as the Committee in its sole discretion may

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impose, a form provided by the Company for such purpose (which authorizes
regular payroll deductions from Current Compensation beginning with the first
payday in that Purchase Period and continuing until the employee withdraws from
the Plan or ceases to be eligible to participate in the Plan).

         Section 2.03 Limits on Stock Purchase. No employee shall be granted any
right to purchase Common Stock hereunder if such employee, immediately after
such a right to purchase is granted, would own, directly or indirectly, within
the meaning of Section 423(b)(3) and Section 424(d) of the Code, Common Stock
possessing 5% or more of the total combined voting power or value of all the
classes of the capital stock of the Company or of all Affiliates.

         Section 2.04 Voluntary Participation. Participation in the Plan on the
part of a Participant is voluntary and such participation is not a condition of
employment nor does participation in the Plan entitle a Participant to be
retained as an employee.

ARTICLE III.  PAYROLL DEDUCTIONS AND STOCK PURCHASE ACCOUNT

         Section 3.01 Deduction from Pay. The form described in Section 2.02 of
the Plan will permit a Participant to elect payroll deductions of not less than
1% nor more than 10% of such Participant's Current Compensation for each pay
period during such Purchase Period, but in no event more than $2,500 per
Purchase Period, and subject to such other limitations as the Committee in its
sole discretion may impose. A Participant may cease making payroll deductions at
any time, subject to such limitations as the Committee in its sole discretion
may impose. In the event that during a Purchase Period the entire credit balance
in a Participant's Stock Purchase Account exceeds the product of (a) 85% of the
Fair Market Value of the Common Stock on the first business day of that Purchase
Period and (b) 300, then payroll deductions for such Participant shall
automatically cease, and shall resume on the first pay period of the next
Purchase Period.

         Section 3.02 Credit to Account. Payroll deductions will be credited to
the Participant's Stock Purchase Account on each payday.

         Section 3.03 Interest. No interest will be paid on payroll deductions
or on any other amount credited to, or on deposit in, a Participant's Stock
Purchase Account; provided that if the Plan is discontinued as provided in
Section 9.03 the Company will return all payroll deductions then credited to the
Participant's Stock Purchase Account plus simple interest at the rate of 3.5%
per year.

         Section 3.04 Nature of Account. The Stock Purchase Account is
established solely for accounting purposes, and all amounts credited to the
Stock Purchase Account will remain part of the general assets of the Company or
the Participating Affiliate (as the case may be).

         Section 3.05 No Additional Contributions. A Participant may not make
any payment into the Stock Purchase Account other than the payroll deductions
made pursuant to the Plan.

ARTICLE IV.   RIGHT TO PURCHASE SHARES

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         Section 4.01 Number of Shares. Each Participant will have the right to
purchase on the last business day of the Purchase Period all, but not less than
all, of the number of whole and fractional shares, computed to four decimal
places, of Common Stock that can be purchased at the price specified in Section
4.02 of the Plan with the entire credit balance in the Participant's Stock
Purchase Account, subject to the limitations that (a) no more than 300 shares of
Common Stock may be purchased under the Plan by any one Participant for a given
Purchase Period, and (b) in accordance with Section 423(b)(8) of the Code, no
more than $25,000 in Fair Market Value (determined at the beginning of each
Purchase Period) of Common Stock and other stock may be purchased under the Plan
and all other employee stock purchase plans (if any) of the Company and the
Affiliates by any one Participant for any calendar year. If the purchases for
all Participants for any Purchase Period would otherwise cause the aggregate
number of shares of Common Stock to be sold under the Plan to exceed the number
specified in Section 10.04 of the Plan, each Participant shall be allocated a
pro rata portion of the Common Stock to be sold for such Purchase Period.

         Section 4.02 Purchase Price. The purchase price for any Purchase Period
shall be that price as announced by the Committee prior to the first business
day of that Purchase Period, which price may, in the discretion of the
Committee, be a price which is not fixed or determinable as of the first
business day of that Purchase Period; provided, however, that in no event shall
the purchase price for any Purchase Period be less than the lesser of (a) 85% of
the Fair Market Value of the Common Stock on the first business day of that
Purchase Period or (b) 85% of the Fair Market Value of the Common Stock on the
last business day of that Purchase Period, in each case rounded up to the next
higher full cent.

ARTICLE V.  EXERCISE OF RIGHT

         Section 5.01 Purchase of Stock. On the last business day of a Purchase
Period, the entire credit balance in each Participant's Stock Purchase Account
will be used to purchase the number of whole shares and fractional shares,
computed to four decimal places, of Common Stock purchasable with such amount
(subject to the limitations of Section 4.01 of the Plan), unless the Participant
has filed with the Company, in advance of that date and subject to such terms
and conditions as the Committee in its sole discretion may impose, a form
provided by the Company which requests the distribution of the entire credit
balance in cash.

         Section 5.02 Notice of Acceleration Date. The Company shall use its
best efforts to notify each Participant in writing at least ten days prior to
any Acceleration Date that the then current Purchase Period will end on such
Acceleration Date.

ARTICLE VI. WITHDRAWAL FROM PLAN; SALE OF STOCK

         Section 6.01 Voluntary Withdrawal. A Participant may, in accordance
with such terms and conditions as the Committee in its sole discretion may
impose, withdraw from the Plan and cease making payroll deductions by filing
with the Company a form provided for this purpose. In such event, the entire
credit balance in the Participant's Stock Purchase Account will be paid to the
Participant in cash within 30 days. A Participant who withdraws from the Plan
will not be eligible to reenter the Plan until the beginning of the next
Purchase Period following the date of such withdrawal.

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         Section 6.02 Death. Subject to such terms and conditions as the
Committee in its sole discretion may impose, upon the death of a Participant, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's death occurred and in accordance with Section 5.01 of the Plan,
the entire credit balance in such Participant's Stock Purchase Account will be
used to purchase Common Stock, unless such Participant's estate has filed with
the Company, in advance of that day and subject to such terms and conditions as
the Committee in its sole discretion may impose, a form provided by the Company
which elects to have the entire credit balance in such Participant's Stock
Account distributed in cash within 30 days after the end of that Purchase Period
or at such earlier time as the Committee in its sole discretion may decide. Each
Participant, however, may designate one or more beneficiaries who, upon death,
are to receive the Common Stock or the amount that otherwise would have been
distributed or paid to the Participant's estate and may change or revoke any
such designation from time to time. No such designation, change or revocation
will be effective unless made by the Participant in writing and filed with the
Company during the Participant's lifetime. Unless the Participant has otherwise
specified the beneficiary designation, the beneficiary or beneficiaries so
designated will become fixed as of the date of the death of the Participant so
that, if a beneficiary survives the Participant but dies before the receipt of
the payment due such beneficiary, the payment will be made to such beneficiary's
estate.

         Section 6.03 Termination of Employment. Subject to such terms and
conditions as the Committee in its sole discretion may impose, upon a
Participant's normal or early retirement with the consent of the Company under
any pension or retirement plan of the Company or Participating Affiliate, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's approved retirement occurred and in accordance with Section 5.01
of the Plan, the entire credit balance in such Participant's Stock Purchase
Account will be used to purchase Common Stock, unless such Participant has filed
with the Company, in advance of that day and subject to such terms and
conditions as the Committee in its sole discretion may impose, a form provided
by the Company which elects to receive the entire credit balance in such
Participant's Stock Purchase Account in cash within 30 days after the end of
that Purchase Period, provided that such Participant shall have no right to
purchase Common Stock in the event that the last day of such a Purchase Period
occurs more than three months following the termination of such Participant's
employment with the Company by reason of such an approved retirement. In the
event of any other termination of employment (other than death) with the Company
or a Participating Affiliate, participation in the Plan will cease on the date
the Participant ceases to be a Regular Employee for any reason. In such event,
the entire credit balance in such Participant's Stock Purchase Account will be
paid to the Participant in cash within 30 days. For purposes of this Section
6.03, a transfer of employment to any Affiliate, or a leave of absence that has
been approved by the Committee, will not be deemed a termination of employment
as a Regular Employee.

ARTICLE VII.  NONTRANSFERABILITY

         Section 7.01 Nontransferable Right to Purchase. The right to purchase
Common Stock hereunder may not be assigned, transferred, pledged or hypothecated
(whether by operation of law or otherwise), except as provided in Section 6.02
of the Plan, and will not be subject to execution,

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attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition or levy of attachment or similar process upon
the right to purchase will be null and void and without effect.

         Section 7.02 Nontransferable Account. Except as provided in Section
6.02 of the Plan, the amounts credited to a Stock Purchase Account may not be
assigned, transferred, pledged or hypothecated in any way, and any attempted
assignment, transfer, pledge, hypothecation or other disposition of such amounts
will be null and void and without effect.

         Section 7.03 Nontransferable Shares. Except as the Committee shall
otherwise permit, prior to the second anniversary of the beginning of any
Purchase Period, the Common Stock purchased at the end of such Purchase Period
by a Participant pursuant to Section 5.01 of the Plan together with any
additional Common Stock acquired pursuant to Section 8.04 of the Plan upon the
reinvestment of dividends may not be assigned, transferred, pledged,
hypothecated or otherwise disposed of in any way other than by will or by the
laws of descent and distribution, and any other attempted assignment, transfer,
pledge, hypothecation or other disposition of such share or shares will be null
and void and without effect.

ARTICLE VIII.  COMMON STOCK ISSUANCE AND DIVIDEND REINVESTMENT

         Section 8.01 Issuance of Purchased Shares. Promptly after the last day
of each Purchase Period and subject to such terms and conditions as the
Committee in its sole discretion may impose, the Company will cause the Common
Stock then purchased pursuant to Section 5.01 of the Plan to be issued for the
benefit of the Participant and held in the Plan pursuant to Section 8.03 of the
Plan.

         Section 8.02 Completion of Issuance. A Participant shall have no
interest in the Common Stock purchased pursuant to Section 5.01 of the Plan
until such Common Stock is issued for the benefit of the Participant pursuant to
Section 8.03 of the Plan.

         Section 8.03 Form of Ownership. The Common Stock issued under Section
8.01 of the Plan will be held in the Plan in the name of the Participant or
jointly in the name of the Participant and another person, as the Participant
may direct on a form provided by the Company, until such time as certificates
for such shares of Common Stock are delivered to or for the benefit of the
Participant pursuant to Section 8.05 of the Plan.

         Section 8.04 Automatic Dividend Reinvestment. Prior to the delivery of
certificates to or for the benefit of the Participant under Section 8.05 of the
Plan, any and all cash dividends paid on full and fractional shares of Common
Stock issued under either Section 8.01 of the Plan or this Section 8.04 shall be
reinvested to acquire either new issue Common Stock or shares of Common Stock
purchased on the open market, as determined by the Committee in its sole
discretion. Purchases of Common Stock under this Section 8.04 will be (a) with
respect to shares newly issued by the Company, invested on the dividend payment
date, or, if that date is not a trading day, the immediately preceding trading
day, or (b) with respect to shares purchased on the open market, normally
purchased on the open market within ten business days of the dividend payment
date, depending upon market conditions. The price per share of the Common Stock
issued under this Section 8.04 shall be (x) with respect to shares newly issued
by the Company, the Fair Market Value of the

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Common Stock on the applicable investment date, or (y) with respect to shares
purchased on the open market, the weighted average price per share at which the
Common Stock is actually purchased on the open market for the relevant period on
behalf of all participants in the Plan. All shares of Common Stock acquired
under this Section 8.04 will be held in the Plan in the same name as the Common
Stock upon which the cash dividends were paid.

         Section 8.05 Delivery. At any time following the conclusion of the
nontransferability period set forth in Section 7.03 of the Plan and subject to
such terms and conditions as the Committee in its sole discretion may impose, by
filing with the Company a form provided by the Company for such purpose, the
Participant may elect to have the Company cause to be delivered to or for the
benefit of the Participant a certificate for the number of whole shares and cash
for the number of fractional shares representing the Common Stock purchased
pursuant to Section 5.01 of the Plan together with any additional Common Stock
acquired pursuant to Section 8.04 of the Plan upon the reinvestment of
dividends. The election notice will be processed as soon as practicable after
receipt. A certificate for whole shares normally will be mailed to the
Participant within sixty business days after receipt of the election notice;
provided, however, that if the notice is received between a dividend record date
and a dividend payment date, a certificate will generally not be sent out until
the declared dividends have been reinvested pursuant to Section 8.04 of the
Plan. Any fractional shares normally will be sold on the first trading day of
each month and a check for the fractional shares sent to the Participant
promptly thereafter.

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ARTICLE IX.  EFFECTIVE DATE, AMENDMENT AND TERMINATION OF PLAN

         Section 9.01  Effective Date. The Plan was approved by the Board of
Directors on May 5, 2000, and shall be approved by the shareholders of the
Company within twelve (12) months thereof.

         Section 9.02  Plan Commencement. The initial Purchase Period under the
Plan will commence September 1, 2000. Thereafter, each succeeding Purchase
Period will commence and terminate in accordance with Section 1.03(l) of the
Plan.

         Section 9.03  Powers of Board. The Board of Directors may amend or
discontinue the Plan at any time, including immediately before the end of any
Purchase Period and before any rights to purchase Common Stock for that Purchase
Period accrue. No amendment or discontinuation of the Plan, however, shall be
made without shareholder approval if shareholder approval is required under any
rules or regulations of the NASDAQ National Market System or any securities
exchange that are applicable to the Company.

ARTICLE X.   ADMINISTRATION

         Section 10.01 The Committee. The Plan shall be administered by a
committee (the "Committee") established by the Board of Directors. The members
of the Committee need not be directors of the Company and shall be appointed by
and serve at the pleasure of the Board of Directors.

         Section 10.02 Powers of Committee. Subject to the provisions of the
Plan, the Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan, to establish
deadlines by which the various administrative forms must be received in order to
be effective, and to adopt such other rules and regulations for administering
the Plan as it may deem appropriate. The Committee shall have full and complete
authority to determine whether all or any part of the Common Stock acquired
pursuant to the Plan shall be subject to restrictions on the transferability
thereof or any other restrictions affecting in any manner a Participant's rights
with respect thereto but any such restrictions shall be contained in the form by
which a Participant elects to participate in the Plan pursuant to Section 2.02
of the Plan. Decisions of the Committee will be final and binding on all parties
who have an interest in the Plan.

         Section 10.03 Power and Authority of the Board of Directors. The Board
of Directors may, at any time and from time to time, notwithstanding anything to
the contrary contained herein, and without any further action of the Committee,
exercises the powers and duties of the Committee under the Plan.

         Section 10.04 Stock to be Sold. The Common Stock to be issued and sold
under the Plan may be authorized but unissued shares or shares acquired in the
open market or otherwise. Except as provided in Section 11.01 of the Plan, the
aggregate number of shares of Common Stock to be sold under the Plan will not
exceed 150,000 shares.

         Section 10.05 Notices. Notices to the Committee should be addressed as
follows:

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         ILX Lightwave Corporation
         31950 East Frontage Road
         Bozeman MT 59715
         Attn: ESPP

ARTICLE XI.  ADJUSTMENT FOR CHANGES IN STOCK OR COMPANY

         Section 11.01 Stock Dividend or Reclassification. If the outstanding
shares of Common Stock are increased, decreased, changed into or exchanged for a
different number or kind of securities of the Company, or shares of a different
par value or without par value, through reorganization, recapitalization,
reclassification, stock dividend, stock split, amendment to the Company's
Certificate of Incorporation, reverse stock split or otherwise, an appropriate
adjustment shall be made in the maximum numbers and kind of securities to be
purchased under the Plan with a corresponding adjustment in the purchase price
to be paid therefor.

         Section 11.02 Merger or Consolidation. If the Company is merged into or
consolidated with one or more corporations during the term of the Plan,
appropriate adjustments will be made to give effect thereto on an equitable
basis in terms of issuance of shares of the corporation surviving the merger or
of the consolidated corporation, as the case may be.

ARTICLE XII. APPLICABLE LAW

         Rights to purchase Common Stock granted under the Plan shall be
construed and shall take effect in accordance with the laws of the State of
Montana.

                            ILX LIGHTWAVE CORPORATION
                             31950 E. Frontage Road
                             Bozeman, Montana 59715
                                 (406) 586-1244<PAGE>   1
                                                                    EXHIBIT 10.2

                            ILX LIGHTWAVE CORPORATION

                                      1988

                                STOCK OPTION PLAN

1.       Purpose of Plan

         This Plan shall be known as the "ILX Lightwave Corporation 1988 Stock
Option Plan" and is hereinafter referred to as the "Plan". The purpose of the
Plan is to aid in maintaining and developing personnel capable of assuring the
future success of ILX Lightwave Corporation, a Minnesota corporation (the
"Company"), to offer such personnel additional incentives to put forth maximum
efforts for the success of the business, and to afford them an opportunity to
acquire a proprietary interest in the Company through stock options as provided
herein. Options granted under this Plan may be either incentive stock options
("Incentive Stock Options") within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"), or options which do not qualify
as Incentive Stock Options.

2.       Stock Subject to Plan

         Subject to the provisions of Section 13 herein, the stock to be subject
to options under the Plan shall be the Company's Common Shares, par value $.01
per share (the "Common Stock"). Such shares may be either authorized but
unissued shares, or issued shares which have been reacquired by the Company.
Subject to the adjustment as provided in Section 13 herein, the maximum number
of shares on which options may be exercised under this Plan shall be 150,000
shares of Common Stock. If an option under the Plan expires, or for any reason
is terminated or unexercised with respect to any shares, such shares shall again
be available for options thereafter granted during the term of the Plan.

3.       Administration of Plan

         (a) The Plan shall be administered by the Board of Directors of the
Company or by a committee of three or more directors, appointed by the Board of
Directors, of the Company, such administrative body to be hereinafter referred
to as the "Committee."

         (b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of this Plan, to: (i) determine the purchase
price of the shares of Common Stock covered by each option, (ii) determine the
employees to whom and the time or times at which such options shall be granted
and the number of shares to be subject to each option, (iii) determine the form
of payment to be made upon the exercise of an SAR as provided in Section 9
herein, either cash, Common Stock of the Company or a combination thereof, (iv)
determine the terms of exercise of each option, (v) accelerate the time at which
all or any part of an option may be exercised, (vi) amend or modify the terms of
any options with the consent of the optionee, (vii) interpret the Plan, (viii)
prescribe, amend and rescind rules and regulations relating to the Plan, (ix)
determine the terms and provisions of each option agreement under this Plan
(which agreements need not be identical), including the designation of those
options intended to be Incentive Stock Options, and (x) make all other
determinations necessary or advisable for the

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administration of the Plan, subject to the exclusive authority of the Board of
Directors under Section 14 herein to amend or terminate the Plan. The
Committee's determinations on the foregoing matters, unless otherwise
disapproved by the Board of Directors of the Company, shall be final and
conclusive; provided, however, that the Committee's determinations with respect
to the matters set forth in clauses (ii) and (iii) above shall be final and
conclusive without any right of disapproval by the Board of Directors of the
Company.

         (c) The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held. The granting of an option pursuant to the Plan
shall be effective only if a written agreement shall have been duly executed and
delivered by and on behalf of the Company and the employee to whom such right is
granted. The Committee may appoint a Secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable.

4.       Eligibility

         Incentive Stock Options may only be granted under this Plan to any full
or part-time employee (which term as used herein includes, but is not limited
to, officers and directors who are also employees) of the Company and of its
present and future subsidiary corporations (herein called "subsidiaries").
Members of the Board of Directors of the Company, consultants or independent
contractors providing valuable services to the Company or one of its
subsidiaries who are not also employees thereof shall be eligible to receive
options which do not qualify as Incentive Stock Options. In determining the
persons to whom options shall be granted and the number of shares subject to
each option, the Committee may take into account the nature of services rendered
by the respective employees, their present and potential contributions to the
success of the Company and such other factors as the Committee in its discretion
shall deem relevant. A person who has been granted an option under this Plan may
be granted an additional option or options under the Plan if the Committee shall
so determine; provided, however, that for Incentive Stock Options, to the extent
that the aggregate fair market value (determined at the time the Incentive Stock
Option is granted) of the Common Stock with respect to which all Incentive Stock
Options are exercisable for the first time by an employee during any calendar
year (under all plans described in subsection (b)(7) of Section 422A of the Code
of his employer corporation and its parent and subsidiary corporations) exceeds
$100,000, such options shall be treated as options which are not Incentive Stock
Options.

5.       Price

         The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value of the Common Stock at the date of granting of such option. The
option price for options granted under the Plan which do not qualify as
Incentive Stock Options shall also be determined by the Committee but may not be
less than 50% of the fair market value of the Common Stock at the date of
granting of such option. For purposes of the two preceding sentences and for all
other

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valuation purposes under the Plan, the fair market value of the Common Stock
shall be as reasonably determined by the Committee, but shall not be less than
(i) the closing price of the stock as reported for composite transactions, if
the Common Stock is then traded on a national securities exchange, (ii) the last
sale price if the Common Stock is then quoted on the NASDAQ National Market
System or (iii) the average of the closing representative bid and asked prices
of the Common Stock as reported on NASDAQ on the date as of which fair market
value is being determined. If on the date of grant of any option granted under
the Plan, the Common Stock is not publicly traded, the Committee shall make a
good faith attempt to satisfy the option price requirement of this Section 5 and
in connection therewith shall take such action as it deems necessary or
advisable.

6.       Term

         Each option and all rights and obligations thereunder shall, subject to
the provisions of Section 10 herein, expire on the date determined by the
Committee and specified in the option agreement. The Committee shall be under no
duty to provide terms of like duration for options granted under the Plan, but
the term of an Incentive Stock Option may not extend more than 10 years from the
date of granting of such option.

7.       Exercise of Option

         (a) The Committee shall have full and complete authority to determine,
subject to Section 10 herein, whether the option will be exercisable in full at
any time or from time to time during the term of the option, or to provide for
the exercise thereof in such installments, upon the occurrence of such events
and at such times during the term of the option as the Committee may determine.

         (b) The exercise of any option granted hereunder shall only be
effective at such time that the sale of Common Stock pursuant to such exercise
will not violate any state or federal securities or other laws.

         (c) An optionee electing to exercise an option shall give written
notice to the Company of such election and of the number of shares subject to
such exercise. The full purchase price of such shares shall be tendered with
such notice of exercise. Payment shall be made to the Company either in cash
(including check, bank draft or money order), or, at the discretion of the
Committee, (i) by delivering shares of the Company's Common Stock already owned
by the optionee having a fair market value equal to the cash exercise price of
the shares of Common Stock being purchased, or (ii) by delivering the optionee's
promissory note, which shall provide for interest at a rate not less than the
minimum rate required to avoid the imputation of income, original issue discount
or a below-market-rate loan pursuant to Sections 483, 1274 or 7872 of the Code
or any successor provisions thereto, or (iii) a combination of cash and such
shares; provided, however, that an optionee shall not be entitled to tender
shares of the Company's Common Stock pursuant to successive, substantially
simultaneous exercises of options granted under this or any other stock option
plan of the Company or in any other manner that the Committee determines to be
tantamount to the technique commonly referred to as "pyramiding." The fair
market value of such shares shall be determined as provided in Section 5

                                      -3-
<PAGE>   4

herein. Until such person has been issued a certificate or certificates for the
shares subject to such exercise, he shall possess no rights as a shareholder
with respect to such shares.

         (d) Notwithstanding any other provision in this Plan, the Committee
shall have full and complete authority to assist any employee participating in
the Plan (including officers, whether or not they are directors) in the exercise
of one or more options granted to such employee under the Plan by (i)
authorizing the extension of a loan or loans to such employee from the Company
or (ii) authorizing a guarantee by the Company of a third-party loan or loans to
such employee; provided that any such loan or loans are used exclusively for (A)
the cash exercise of one or more options granted to such employee under the Plan
or (B) payment of any federal, state or local tax liability of such employee
resulting from exercise of one or more options which do not qualify as Incentive
Stock Options granted to such employee under the Plan. The terms of any loan or
guarantee (including the interest rate and terms of repayment) will be
established by the Committee in its sole discretion.

8.       Additional Restrictions

         The Committee shall have full and complete authority to determine
whether all or any part of the Common Stock of the Company acquired upon
exercise of any of the options granted under the Plan shall be subject to
restrictions on the transferability thereof or any other restrictions affecting
in any manner the optionee's rights with respect thereto, but any such
restrictions shall be contained in the agreement relating to such options.

9.       Alternative Stock Appreciation Rights

         (a) Grant. At the time of grant of an option under the Plan (or at any
time thereafter as to options which are not Incentive Stock Options), the
Committee, in its sole discretion, may grant to the holder of such option an
alternative Stock Appreciation Right ("SAR") for all or any part of the number
of shares covered by the holder's option. Any such SAR may be exercised as an
alternative, but not in addition to, an option granted hereunder, and any
exercise of an SAR shall reduce an option by the same number of shares as to
which the SAR is exercised. An SAR granted to an option holder shall provide
that such SAR, if exercised, must be exercised within the time period specified
therein. Such specified time period may be less than (but may not be greater
than) the time period during which the corresponding option may be exercised. An
SAR may be exercised only when the corresponding option is eligible to be
exercised. The failure of the holder of an SAR to exercise such SAR within the
time period specified shall not reduce his option rights. If an SAR is granted
for a number of shares less than the total number of shares covered by the
corresponding option, the Committee may later (as to options which are not
Incentive Stock Options) grant to the option holder an additional SAR covering
additional shares; provided, however, that the aggregate amount of all SARs held
by any option holder shall at no time exceed the total number of shares covered
by his unexercised options.

         (b) Exercise. The holder of any option which by its terms is
exercisable who also holds an SAR may, in lieu of exercising his option, elect
to exercise his SAR, subject, however, to the limitation on time of exercise
hereinafter set forth. Such SAR shall be exercised by the delivery to the
Company of a written notice which shall state that the optionee elects to
exercise his SAR as to the number of shares specified in the notice and which
shall further state what

                                      -4-
<PAGE>   5

portion, if any, of the SAR exercise amount (hereinafter defined) the holder
thereof requests be paid to him in cash and what portion, if any, he requests be
paid to him in Common Stock of the Company. The Committee promptly shall cause
to be paid to such holder the SAR exercise amount either in cash, in Common
Stock of the Company, or any combination of cash and stock as the Committee may
determine. Such determination may be either in accordance with the request made
by the holder of the SAR or in the sole and absolute discretion of the
Committee. The SAR exercise amount is the excess of the fair market value of one
share of the Company's Common Stock on the date of exercise over the per share
option price for the option in respect of which the SAR was granted multiplied
by the number of shares as to which the SAR is exercised. For the purposes
herein, the fair market value of the Company's shares shall be determined as
provided in Section 5 herein. An SAR may be exercised only when the SAR exercise
amount is positive.

         (c) Limitation on Date of Exercise. From and after the date that a
class of equity securities of the Company becomes registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), an SAR granted
hereunder may only be exercised in compliance with paragraph (e) of Rule 16b-3
of the Exchange Act, as presently in effect or as subsequently modified.

         (d) Other Provisions of Plan Applicable. All provisions of this Plan
applicable to options granted hereunder shall apply with equal effect to an SAR.
No SAR shall be transferable otherwise than by will or the laws of descent and
distributions, and an SAR may be exercised during the lifetime of the holder
thereof only by such holder.

10.      Effect of Termination of Employment or Death

         (a) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, for any reason, the option shall be
automatically terminated as of the date of such termination of employment;
provided that the Committee, in its sole discretion, may provide in any option
granted pursuant to this Plan that in the event that an optionee shall cease to
be employed by the Company or its subsidiaries, if any, for any reason other
than such optionee's gross and willful misconduct or such optionee's death or
disability, such optionee shall have the right to exercise the option at any
time within one month after such termination of employment to the extent of the
full number of shares such optionee was entitled to purchase under the option on
the date of termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.

         (b) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, by reason of such optionee's gross and
willful misconduct during the course of employment, including but not limited to
wrongful appropriation of funds of such optionee's employer or the commission of
a gross misdemeanor or felony, the option shall be terminated as of the date of
the misconduct.

         (c) If the optionee shall die while in the employ of the Company or a
subsidiary, if any, or within one month after termination of employment for any
reason other than gross and willful misconduct, or become disabled (within the
meaning of Code Section 22(e)(3) while in the employ of the Company or a
subsidiary, if any, and such optionee shall not have fully

                                      -5-
<PAGE>   6

exercised the option, such option may be exercised at any time within 12 months
after the optionee's death or such disability by the personal representatives,
administrators, or if applicable, guardian, of the optionee or by any person or
persons to whom the option is transferred by will or the applicable laws of
descent and distribution, to the extent of the full number of shares the
optionee was entitled to purchase under the option on the date of death,
disability or termination of employment, if earlier. No option, however, shall
be exercisable after the expiration of the term of the option.

         (d) Nothing in the Plan or in any agreement thereunder shall confer on
any employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of its
subsidiaries, if any, to terminate employment at any time.

11.      10% Shareholder Rule

         Notwithstanding any other provision in the Plan, if at the time an
option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 425(d) of the Code) Common
Stock of the Company possessing more than 10% of the total combined voting power
of all classes of stock of the Company or its parent or subsidiary corporations,
if any (within the meaning of Section 422A(b)(6) of the Code), then any
Incentive Stock Option to be granted to such optionee pursuant to the Plan shall
satisfy the requirements of Section 422A(c)(6) of the Code, and the option price
shall be not less than 110% of the fair market value of the Common Stock of the
Company determined as described herein, and such option by its terms shall not
be exercisable after the expiration of five years from the date such option is
granted.

12.      Non-Transferability

         No option granted under the Plan shall be transferable by an optionee,
otherwise than by will or the laws of descent or distribution as provided in
Section 10(c) herein. During the lifetime of an optionee the option shall be
exercisable only by such optionee.

13.      Dilution or Other Adjustments

         If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, stock dividend (of whatever
amount), stock split or other change in the corporate structure, appropriate
adjustments in the Plan and outstanding options and SARs shall be made by the
Committee. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares and the price per share subject to outstanding options and the
amount payable upon exercise of outstanding SARs, in order to prevent dilution
or enlargement of option or SAR rights.

14.      Amendment or Discontinuance of Plan

         The Board of Directors may amend or discontinue the Plan at any time.
Subject to the provisions of this Section 14 no amendment of the Plan, however,
shall without shareholder approval: (i) increase the maximum number of shares
under the Plan as provided in Section 2

                                      -6-
<PAGE>   7

herein, (ii) decrease the minimum option price provided in Section 5 herein,
(iii) extend the maximum option term under Section 6 herein, or (iv) materially
modify the eligibility requirements for participation in the Plan. The Board of
Directors shall not alter or impair any option theretofore granted under the
Plan without the consent of the holder of the option.

15.      Time of Granting

         Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the shareholders of the Company, and no
action taken by the Committee or the Board of Directors, other than the
execution and delivery of an option agreement, shall constitute the granting of
any option hereunder.

16.      Income Tax Withholding

         In order to comply with all applicable federal, state and local income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state and local payroll
withholding income or other taxes, which are the sole and absolute
responsibility of an optionee under the Plan, are withheld or collected from
such optionee. In order to assist an optionee in paying all federal, state and
local taxes to be withheld or collected upon exercise of an option that is not
an Incentive Stock Option hereunder, the Committee, in its sole discretion and
subject to such additional terms and conditions as it may adopt, shall permit
the optionee to satisfy such tax obligations by (i) electing to have the Company
withhold a portion of the Common Stock otherwise to be delivered upon exercise
of such option with a fair market value, determined in accordance with Section 5
herein, equal to the amount of such taxes, or (ii) delivering to the Company
shares of Common Stock other than the shares issuable upon exercise of such
option with a fair market value, determined in accordance with Section 5 herein,
equal to the amount of such taxes. The election must be made on or before the
date that the amount of tax to be withheld is determined.

17.      Effective Date and Termination of Plan

         (a) The Plan was approved by the Board of Directors on September 21,
1988, and shall be approved by the shareholders of the Company within 12 months
thereof.

         (b) Unless the Plan shall have been discontinued as provided in Section
14 herein, the Plan shall terminate September 21, 1998. No option may be granted
after such termination, but termination of the Plan shall not, without the
consent of the optionee, alter or impair any rights or obligations under any
option theretofore granted.

                                      -7-

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