Document:

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                                                                     EXHIBIT 4.5

                                                                  EXECUTION COPY

                                  K&F AGREEMENT

                  K&F AGREEMENT, dated as of December 20, 2002 (the "K&F
Agreement"), by K&F Industries, Inc. ("K&F"), in favor of Lehman Commercial
Paper Inc., as administrative agent (in such capacity, the "Administrative
Agent") for the lenders (the "Lenders") that are parties to the Credit Agreement
described below.

                              W I T N E S S E T H :
                              - - - - - - - - - - -

                  WHEREAS, Aircraft Braking Systems Corporation ("ABS") and
Engineered Fabrics Corporation ("EF"; together with ABS, the "Borrowers"), each
Delaware corporations, are parties to the Amended and Restated Credit Agreement,
dated as of December 20, 2002, with the Administrative Agent, the Lenders,
Lehman Brothers Inc., as Arranger, and National City Bank and Bank One, NA, as
Co-Agents (as the same may from time to time be amended, supplemented or
otherwise modified, the "Credit Agreement");

                  WHEREAS, pursuant to the terms of the Credit Agreement and the
other Loan Documents, the Lenders have agreed to make and maintain certain
extensions of credit to or for the benefit of the Borrowers;

                  WHEREAS, K&F owns directly or indirectly all of the issued and
outstanding stock of each of the Borrowers;

                  WHEREAS, K&F will derive substantial direct and indirect
benefit from the making and maintaining of the extensions of credit; and

                  WHEREAS, the obligation of the Lenders to make and maintain
the extensions of credit is conditioned upon, among other things, the execution
and delivery by K&F of this K&F Agreement;

                  NOW, THEREFORE, in consideration of the premises and to induce
the Lenders to enter into the Credit Agreement and to make and maintain the
extensions of credit, K&F hereby agrees with and for the benefit of the
Administrative Agent and the Lenders as follows:

                  1. Defined Terms. As used in this K&F Agreement, terms defined
in the Credit Agreement are used herein as therein defined.

                  2. Covenants. K&F hereby covenants and agrees with the
Administrative Agent and each Lender, from and after the date of this K&F
Agreement and until the Obligations are paid in full, the Commitments are
terminated, and the expiration, termination or return to the Issuing Lender of
the Letters of Credit, that:
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                                                                               2

                  (a) K&F will furnish the Borrowers with all financial
         statements and other information and documents concerning K&F and its
         consolidated Subsidiaries required to enable the Borrowers timely to
         comply with subsections 6.1 and 6.2 of the Credit Agreement;

                  (b) K&F will not create, incur, assume or suffer to exist any
         Indebtedness, except (i) Indebtedness owed by K&F to either Borrower,
         (ii) Indebtedness in respect of the Senior Subordinated Notes and (iii)
         Indebtedness in respect of the New Senior Subordinated Notes;

                  (c) K&F will not (i) make any payment or expenditure of any
         kind or nature, including, without limitation, any payments to any
         stockholder of K&F, except for (A) payments of interest in respect of
         Indebtedness permitted by clause (b) above, (B) an amount in respect of
         operating expenses during each fiscal year of K&F consistent with the
         past practices of K&F, (C) payments in respect of United States federal
         and New York state taxes, (D) to the extent permitted by or otherwise
         contemplated by Sections 7.6(e), 7.8(d) and (j) and 7.10 of the Credit
         Agreement in each case in accordance with the terms thereof and any
         other applicable provisions of the Credit Agreement, including, without
         limitation, Section 6.9 of the Credit Agreement and (E) payments in
         respect of any Specified Hedge Agreement in respect of the Senior
         Subordinated Notes or the New Senior Subordinated Notes, (ii) except to
         the extent permitted by Section 7.9(e) and Section 10.15 of the Credit
         Agreement, make any optional payment or optional prepayment on or
         optional redemption of any Indebtedness (including, without limitation,
         the Senior Subordinated Notes and the New Senior Subordinated Notes) or
         other obligation or (iii) amend, modify or change, or consent or agree
         to any amendment, modification or change to, any of the terms relating
         to the payment or prepayment of principal of or interest on any
         Indebtedness (other than any such amendment, modification or change
         which would extend the maturity or reduce the amount of any payment of
         principal thereof or which would reduce the rate or extend the date for
         payment of interest thereon), including but not limited to the
         subordination provisions of the Senior Subordinated Notes and the New
         Senior Subordinated Notes;

                  (d) K&F will not change its fiscal year from the year ended
         December 31;

                  (e) Unless required by changes in GAAP, K&F will not (except
         with the consent of the Required Lenders) change any of its accounting
         or financial practices or policies in a manner that affects the way in
         which it currently accounts for (and expenses currently) its product
         development costs and its discounts on sales;

                  (f) K&F will not fail to comply with Section 7.1 of the Credit
         Agreement, which Section is hereby incorporated by reference herein as
         if such provisions were set forth in full herein; and

                  (g) K&F will not have more cash or cash equivalents on hand at
         any time than is consistent with its past practices; provided that,
         notwithstanding the foregoing, K&F shall at any time be permitted to
         have cash on hand in an amount reasonably necessary (i) to make
         repayments, repurchases or redemptions with respect to the Senior
         Subordinated
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                                                                               3

         Notes within six months of such time as permitted by Section 7.9(e) or
         10.15 of the Credit Agreement and (ii) to make the payments referred to
         Section 2(c)(i)(E) above.

                  3. Severability. Any provision of this K&F Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

                  4. No Waiver; Cumulative Remedies. Neither the Administrative
Agent nor any Lender shall by any act (except by a written instrument pursuant
to paragraph 5 hereof), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising any right, power or
privilege hereunder, on the part of the Administrative Agent or any Lender,
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or such Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised singly
or concurrently and are not exclusive of any rights or remedies provided by law.

                  5. Integration; Waivers and Amendments; Successors and
Assigns; Governing Law. This K&F Agreement represents the agreement of K&F with
respect to the subject matter hereof and there are no promises or
representations by the Administrative Agent or any Lender relative to the
subject matter hereof not reflected herein. None of the terms or provisions of
this K&F Agreement may be waived, amended or supplemented or otherwise modified
except by a written instrument executed by K&F and the Administrative Agent,
provided that any provision of this K&F Agreement may be waived by the
Administrative Agent and the Lenders in a letter or agreement executed by the
Administrative Agent or by telex or facsimile transmission from the
Administrative Agent. This K&F Agreement shall be binding upon the successors
and assigns of K&F and shall inure to the benefit of the Administrative Agent
and the Lenders and their respective successors and assigns. THIS K&F AGREEMENT
SHALL BE GOVERNED BY AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW
OF THE STATE OF NEW YORK.

                  6. Notices. All notices, requests and demands to or upon K&F
or the Administrative Agent or any Lender to be effective shall be in writing or
by telegraph or telex and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or, in the case
of mail, three days after deposit in the postal system, first class postage
prepaid, or, in the case of telegraphic notice, when sent, answerback received,
addressed to the Administrative Agent at the address set forth in subsection
10.2 of the Credit Agreement and to K&F as follows:

                           K&F Industries, Inc.
                           600 Third Avenue
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                                                                               4

                           New York, New York  10016
                           Attention: Kenneth M. Schwartz
                                      President and Chief Operating Officer
                           Telecopy: (212) 867-1182

                  7. Paragraph Headings. The paragraph headings used in this K&F
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.

                  IN WITNESS WHEREOF, the undersigned has caused this K&F
Agreement to be duly executed and delivered by its duly authorized officer as of
the day and year first above written.

                                                  K&F INDUSTRIES, INC.

                                                  By: /s/ Kenneth M. Schwartz
                                                     -------------------------
                                                     Name:  Kenneth M. Schwartz
                                                     Title: President and Chief
                                                            Operating Officer<PAGE>
                                                                   EXHIBIT 10.13

                              K&F INDUSTRIES, INC.

                             1989 STOCK OPTION PLAN

1. PURPOSES

         The purposes of this plan are: (a) to further the growth and success of
K&F Industries, Inc. (the "Company") and its subsidiary corporations by enabling
selected employees and directors of, or consultants to, the Company or its
subsidiary corporations to acquire shares of its Common Stock, $.01 par value
(the "Common Stock"), under the terms and conditions and in the manner
contemplated by this Plan, thereby increasing their personal involvement and
interest in the Company and its subsidiary corporations, encouraging their
continued service with the Company and its subsidiary corporations and promoting
the interest of the Company and all of its stockholders; (b) to enable the
Company or its subsidiary corporations to obtain and retain the services of
employees, directors or consultants necessary to the continued growth and
success of the Company and its subsidiary corporations; and (c) to provide a
means of rewarding outstanding performance to the Company and its subsidiary
corporations. Options granted under this Plan will be either options which are
intended to qualify as "incentive stock options" ("ISOs") under Section 422A of
the Internal Revenue Code of 1986, as amended (the "Code") or as non-qualified
stock options ("NSOs") which are not intended to qualify as "incentive stock
options" under Section 422A of the Code. For purposes of the Plan, the terms
"subsidiary" and "subsidiary corporation" shall mean "subsidiary corporation,"
as such term is defined in Section 425(e) and (f) of the Code. Unless the
context otherwise requires, any ISO or NSO shall hereinafter be referred to as
an "Option".

2. ADMINISTRATION OF PLAN

         2.1 Administration by the Board or Committee. The Plan shall be
administered by the Company's Board of Directors (the "Board") or by a duly
appointed committee of the Board (the "Committee") having such powers and
subject to such terms and conditions as the Board may prescribe; provided,
however, that so long as it shall be required to comply with Rule 16b-3 ("Rule
16b-3") promulgated by the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in order to
permit officers and directors of the Company to be exempt from the provisions
of Section 16(b) of the 1934 Act with respect to transactions pursuant to the
Plan, the Plan shall be administered by the Committee and each of the members,
at the effective date of his or her appointment to the Committee, shall be
required to satisfy the requirements of a "disinterested person" within the
meaning of Rule 16b-3. The

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Committee shall exercise all of the powers of the Board with respect to the
administration of the Plan. Once appointed, the Committee shall continue to
serve until otherwise directed by the Board. From time to time, the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused and removed all members of the Committee
and thereafter directly administer the Plan. Any references to the Board herein
shall include the Committee if it has been appointed.

     2.2. Committee Procedures. If a Committee has been appointed, it shall
select from its members a Chairman and shall adopt such rules and regulations as
it shall deem appropriate concerning the holding of meetings and the
administration of the Plan. A majority of the entire Committee shall constitute
a quorum and the actions of a majority of the members of the Committee present
at a meeting at which a quorum is present, or actions approved in writing by all
of the members of the Committee, shall be actions of the Committee.

     2.3 Authority and Interpretation. Subject to the provisions of the Plan,
the Board shall have authority: (a) to determine the fair market value of the
shares of Common Stock covered by each Option, (b) to select the employees or
directors of, or consultants to, the Company or its subsidiary corporations to
receive Options under the plan, (c) to fix the number of shares which each
optionee may purchase, (d) to set the terms and conditions of each Option,
including whether an Option should be an ISO or NSO and the extent to which
Options shall vest in installments and, with the consent of the holder thereof,
to modify or amend any provisions of an Option (other than provisions
incorporated directly or by reference from this Plan), (e) to interpret this
Plan, (f) to prescribe, amend and rescind rules and regulations relating to this
Plan, (g) to accelerate an exercise date of any Option, (h) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an Option already granted and (i) to determine all other matters
relating to the Plan. The Board shall have complete authority to construe,
interpret and administrate, this Plan. All decisions of the Board shall be
conclusive and binding on all participants in the Plan.

3. ELIGIBLE EMPLOYEES, DIRECTORS AND INDEPENDENT CONTRACTORS; LIMITATION ON
   GRANTS

         3.1. Generally. From time to time, the Board may grant Options under
this Plan to any person (the "Optionee") who at the time of such grant is (a)
any employee of the Company or its subsidiary corporations, (b) any director of
the Company or one of its subsidiary corporations, including any employee of
the Company or its subsidiary corporations who is also a director of

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the Company or (c) any consultant to the Company or one of its subsidiary
corporations, provided that the right to grant Options to consultants or other
non-employees does not disqualify the Plan from any qualification or right which
would be available if the Plan were limited to employees and directors. Options
granted under the Plan shall be in such amounts, at such prices and upon such
other terms and conditions not inconsistent with this Plan as the Board, in its
discretion, may determine; provided, however, that the exercise price for each
Option shall not be less than the fair market value, as determined in accordance
with Section 6.3.2 hereof (the "FMV"), of the Common Stock on the effective date
of the grant for each ISO shall not be less than 10% of the FMV of the Common
Stock on the effective date of the grant for each NSO. Options granted to
employees of the Company or its subsidiary corporations will be either NSOs or
ISOs, and Options granted to directors of the Company or one of its subsidiary
corporations, or consultants to the Company or its subsidiary corporations will
be NSOs. An employee or director of, or consultant to, the Company or its
subsidiary corporations who has been granted an Option may, if otherwise
eligible, be granted additional Options.

         3.2. Certain Limitations. Anything contained in this Section 3 to the
contrary notwithstanding:

                  (a) no employee who owns, directly or indirectly (within the
meaning of Sections 422A(b)(6) and 425(d) of the Code), stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of a subsidiary corporation shall be eligible to receive
an ISO under the Plan, unless (i) the exercise price (as determined in
accordance with Sections 6.3.1 and 6.3.2 hereof) of the shares of Common Stock
subject to such ISO is fixed at not less than 110% of the FMV on the date of
grant of such shares and (ii) such ISO by its terms is not exercisable after the
expiration of five years from the date it is granted; and

                  (b) no Option may be granted to a person (i) who has been
appointed pursuant to Section 2.1 to serve on the Committee effective as of a
future date at any time during the period from the date such appointment is
made to the date such appointment is to become effective or (ii) who is serving
as a member of the Committee.

4.     SHARES SUBJECT TO THE PLAN

         4.1. Number of Shares. The aggregate number of shares of Common Stock
which may be issued upon the exercise of all Options granted under this Plan,
excluding any such shares repurchased by the Company, shall be 50,000 shares of
Common Stock, subject to adjustment as provided in Sections 6.1.7, 6.1.8 and
6.1.9 hereof. Shares of Common Stock subject to unexercised

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portions of any terminated or expired Option (including Options surrendered in
accordance with Section 7 hereof) and shares of Common Stock issued pursuant to
the exercise of Options and repurchased by the Company shall again be available
for the granting of Options under the Plan.

         4.2 Character of Shares. The shares of Common Stock issuable upon
exercise of an Option granted under the Plan shall be (a) authorized but
unissued shares of Common Stock, (b) shares of Common Stock held in the
Company's treasury or (c) a combination of the foregoing.

5. GRANTING OF OPTIONS

         No options shall be granted under this Plan after ten (10) years from
the date this Plan becomes effective (as provided in Section 15 hereof).

         Options granted pursuant to the Plan shall be evidenced by written
stock option agreements specifying the number of shares covered thereby, in such
form as the Board shall from time to time establish, which agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the terms and conditions set forth in Section 6 hereof.
Each agreement shall specify whether the Option it evidences is an ISO or NSO.

         The Board may approve the grant of Options under this Plan, subject to
Section 3 hereof, to persons who are expected to become employees or directors
of, or consultants to, the Company or its subsidiary corporations but are not
employees, directors, or consultants at the date of approval. In such cases, the
Option shall be deemed granted on the date the grantee becomes an employee or
director or consultant and must satisfy all requirements of this Plan for
Options granted on that date.

6. TERMS, CONDITIONS AND FORM OF OPTIONS

         Each Option granted under this Plan shall be designated as an ISO or a
NSO and shall be subject to the terms and conditions set forth in Section 6.1.
NSOs and ISOs shall also be subject to the terms and conditions set forth in
Section 6.2 and Section 6.3 hereof, respectively.

         6.1. Terms and Conditions to Which All Options are Subject. All Options
granted under this Plan shall be subject to the following terms and conditions.

         6.1.1. Exercise Period. Each stock option agreement shall state the
period or periods of time within which the Option may be exercised by the
Optionee, in whole or in part, which

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shall be such period or periods of time as may be determined by the Board;
provided, however, that if the Company files a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), for the initial
public offering of its securities, no Option granted under the Plan shall be
exercisable during the 180-day period immediately following the effective date
of such registration statement; and provided further, that no Option granted
under this Plan shall be exercisable more than ten (10) years after the date of
its grant and no ISO granted to a person described in Section 3.2 hereof shall
be exercisable more than five years after the date of its grant. If an Option is
not at the time of grant immediately exercisable, the Board may (a) in the stock
option agreement evidencing such Option, provide for acceleration of the
exercise date or dates of the subject Option upon the occurrence of specified
events and/or (b) at any time prior to the complete termination of an Option,
accelerate the exercise date or dates of such Option.

         6.1.2. Exercise of Options. An Option granted under his Plan shall be
exercised by delivery to the Secretary of the Company of:

              (a) a notice in writing from the Optionee of his intention to
      purchase shares, (i) specifying the number of shares as to which the
      Optionee desires to exercise his Option, (ii) specifying whether the
      shares are issued pursuant to an ISO or NSO, (iii) specifying the date
      (the "Purchase Date") upon which the Optionee desires to complete his
      purchase (which must be within the exercise periods specified in the stock
      option agreement) and (iv) containing any representations of the Optionee
      required under Section 11 hereof and the stock option agreement of such
      Optionee;

              (b) a copy of any election filed by the Optionee pursuant to
      Section 83(b) of the Code;

              (c) in the event that such Option shall be exercised by any person
      other than the Optionee pursuant to Section 6.1.4 hereof, appropriate
      proof of the right of such person to exercise such Option;

              (d) such payments as are required by Section 6.1.5 hereof
      (including cash or Common Stock and, as applicable, any promissory notes
      to be delivered to the Company in payment of all or a portion of the
      exercise price); and

              (e) such further undertakings or agreements consistent with the
      Plan as the Board may require.

         Promptly after the later of the receipt of written notice of exercise
of an Option or the Purchase Date, the Company

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shall deliver, without stock issue taxes or transfer taxes to the Optionee or
other person entitled to exercise the Option, to the Optionee or other person a
certificate of certificates for the requisite number of shares of Common Stock.

         6.1.3. Option Grant Date. The date of grant of an Option under this
Plan shall be the date as of which the Board approves the grant, except as
otherwise provided in Section 5 hereof.

         6.1.4. Nonassignability of Option Rights. No Option granted under this
Plan shall be assignable or otherwise transferable by the Optionee except by
will or by the laws of descent and distribution (for purposes of this Plan, all
references to the Optionee shall be deemed to include any successor to the
Optionee by will or the laws of descent and distribution unless the context
otherwise requires). During the life of the Optionee an Option shall be
exercisable only by the Optionee.

         6.1.5. Payment. At the time a NSO or an ISO is granted, the Board, in
the exercise of its absolute discretion, may specify one or more of the
following forms of payment which may be used by an Optionee upon exercise of
his Option (absent such specification any combination of the following methods
shall be permitted):

                  (a) cash or personal or certified check payable to the Company
         in an amount equal to the aggregate Option Price of the shares with
         respect to which the Option is being exercised; and/or

                  (b) stock certificates (in negotiable form) representing
         shares of Common Stock having a FMV on the date of exercise (as
         determined in accordance with Section 6.3.2 as if the date of exercise
         were the date of grant) equal to the aggregate Option Price of the
         shares with respect to which the Option is being exercised; provided,
         however, that the par value of the shares with respect to which the
         Option is being exercised shall in any event be paid in cash or by
         personal or certified check.

         6.1.6. Termination of Unexercised Options Following Termination of
Association; Repurchase of Shares. No Option shall be affected by any change of
duties or position of the Optionee (including transfer to or from a subsidiary),
so long as he continues to be an employee or director of, or consultant to, the
Company or one of its subsidiaries. If an Optionee ceases to be an employee or
director of, or consultant to, the Company and its subsidiary corporations other
than because of his death or disability (within the meaning of Section 22(e)(3)
of the Code), any portion of the Optionee's Option which is otherwise
exercisable by its terms and has not been previously exercised shall

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<PAGE>

expire three months following the date of such termination and shall thereafter
be of no further force and effect; provided, however, that if the Optionee shall
die during such three-month period, his Option shall expire one year following
the date of such termination. If an Optionee ceases to be an employee or
director of, or consultant to, the Company and its subsidiary corporations
because of his death or disability (within the meaning of Section 22(e)(3) of
the Code), his Option shall expire one year following the date of such
termination and shall thereafter be of no further force and effect.

         6.1.7. Changes in Capital Structure. Subject to Sections 6.1.8 and
6.1.9, if the common Stock of the Company is changed by reason of a stock split,
reverse stock split, stock dividend, or recapitalization, or converted into or
exchanged for other securities as a result of a merger, consolidation or
reorganization, the Board shall make appropriate adjustments, all as calculated
in its sole discretion, in (a) the number and class of shares of stock subject
to this Plan and each Option outstanding under this Plan and (b) the exercise
price of each outstanding Option. Notwithstanding the foregoing, such
adjustments shall be "appropriate" with respect to ISOs only where such
adjustments merely reflect a change in capitalization, do not constitute a
modification, extension or renewal of the Option within the meaning of Sections
422A and 425 of the Code and the Treasury Regulations thereunder, and do not
constitute the adoption of a new plan requiring stockholder approval under
Section 422A of the Code. Any adjustments determined by the Board shall be
final, conclusive and binding. The Company shall provide written notice to each
Optionee of the nature and effect of such adjustment as promptly as is
practicable.

         6.1.8. Corporate Transactions. The following rules shall apply in
connection with the dissolution or liquidation of the Company, a reorganization,
merger or consolidation in which the Company is not the surviving corporation,
or a sale of all or substantially all of the assets of the Company to another
person or entity (a "Corporate Transaction"):

                  (a) Upon the occurrence of a Corporate Transaction, all
         Options granted under the Plan shall automatically terminate; provided,
         however, that each holder of an Option outstanding at such time shall
         be given (i) written notice of such Corporate Transaction at least
         twenty (20) days prior to its proposed effective date (as specified in
         such notice) and (ii) an opportunity, during the period commencing with
         delivery of such notice and ending ten (10) days prior to such proposed
         effective date, to exercise the Option to the full extent to which such
         Option would have been exercised by the Optionee at the expiration of
         such ten-day period; and

                                      -7-
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             (b) Anything contained herein to the contrary notwithstanding,
      Section 6.1.8(a) shall not be applicable if provision shall be made in
      connection with such Corporate Transaction for the assumption of
      outstanding Options by, or the substitution for such Options of new
      Options covering the stock of, the surviving, successor or purchasing
      corporation, or a parent or subsidiary thereof, with appropriate
      adjustments as to the number, kind and Option Prices of shares subject to
      such Options; provided, however, that no such assumption or substitution
      shall be permitted with respect to ISOs if the effect thereof would be a
      modification, extension or renewal of the ISOs within the meaning of
      Section 425(b) of the Code and the Treasury Regulations promulgated
      thereunder.

         6.1.9. Special Adjustment Rules. The following rules shall apply in
connection with Sections 6.1.7 and 6.1.8 hereof:

             (a) No fractional shares shall be issued as a result
      of any such adjustment, and any fractional shares resulting from the
      computations pursuant to Sections 6.1.7 and 6.1.8 hereof shall be
      eliminated, without consideration, from the respective Options;

             (b) no adjustment shall be made for cash dividends or the issuance
      to stockholders of rights to subscribe for additional shares of Common
      Stock or other securities; and

             (c) any adjustments referred to in Sections 6.1.7 and 6.1.8 hereof
      shall be made by the Board in its sole discretion and shall be conclusive
      and binding on all persons holding Options granted under the Plan.

         6.1.10. Other Provisions. Each Option granted under this Plan may
contain such other terms, provisions, and conditions, and may obligate the
Optionee to become a party to such other agreements, in each case not
inconsistent with this Plan as may be determined by the Board, including
provisions or agreements concerning transfer restrictions, rights of first
refusal and repurchase rights. Each ISO granted under this Plan shall include
such other provisions and conditions as are necessary to qualify the Option as
an "incentive stock option" within the meaning of Section 422A of the Code and
shall not include any terms or conditions which are inconsistent therewith.

         6.2. Terms and Conditions to Which Only NSOs are Subject. Options
granted under this Plan which are designated as NSOs shall be subject to the
following terms and conditions:

               6.2.1 Exercise Price. The exercise price of a NSO shall be such
price as shall be determined by the Board but

                                      -8-
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in any event shall be at least equal to the lesser of (i) S20 below the FMV of
the Common Stock on the effective date of the grant or (ii) 25% of the FMV of
the Common Stock on the effective date of the grant.

                6.2.2. Withholding and Employment Taxes. At the time of
exercise of an NSO, the Optionee shall remit to the Company in cash all
applicable Federal and state withholding and employment taxes.

         6.3. Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:

                6.3.1. Exercise Price. The exercise price of an ISO shall be the
FMV of the Common Stock subject to the Option on the date of grant.

                6.3.2. Determination of Fair Market Value. Subject to the
requirements of Section 422A of the Code, for purposes of the Plan, the "fair
market value" or "FMV" of shares of Common Stock shall be equal to:

                (a) if the Common Stock is publicly traded, (i) in the
      over-the-counter market, the closing price (or the mean between the last
      bid and asked prices if no sales took place) on the business day
      immediately preceding the date of grant or, if lower, the average of the
      daily closing prices (or the means between the last bid and asked prices
      for days on which on sales took place) of the 30 business days immediately
      preceding the date of grant, in all cases as reported by NASDAQ or (ii) on
      a national securities exchange, the average of the high and low prices on
      the business day immediately preceding the date of grant or, if lower, the
      average of the daily closing prices (or the means between the last bid and
      asked prices for days on which no sales took place) of the 30 business
      days immediately preceding the date of grant, in all cases on the
      principal national securities exchange on which it is so traded; or

                (b) if there is no public trading market for such shares, the
      fair market value of such shares as determined by the Board after taking
      into consideration all factors which it deems appropriate, including,
      without limitation, recent sale and offer prices of the Common Stock in
      private transactions negotiated at arms' length.

         Anything contained herein to the contrary notwithstanding, all
determinations pursuant to this Section 6.3.2 shall be

                                       -9-
<PAGE>
made without regard to any restriction other than a restriction which, by its
terms, will never lapse.

                  6.3.3. Limitations on Exercise. Anything to the
contrary contained herein notwithstanding, an ISO granted under this Plan to an
Optionee shall be considered a NSO to the extent that the aggregate FMV on the
date of the grant of such ISO (as determined pursuant to Section 6.3.2) of the
stock with respect to which ISOs are exercisable for the first time by such
Optionee during any calendar year (under all plans of the Company and any parent
or subsidiary corporations) exceeds $100,000.

                  6.3.4. Disqualifying Dispositions. If stock acquired by
exercise of an ISO granted pursuant to this Plan is disposed of within two years
from the date of grant of the ISO or within one year after the transfer of the
stock to the Optionee, the holder of the stock immediately prior to the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonable require.

                  6.3.5. Withholding Taxes. Whenever under this Plan shares of
Common Stock are to be delivered by an Optionee upon exercise of an NSO, the
Company shall be entitled to require as a condition of delivery that the
Optionee remit or, in appropriate cases, agree to remit when due, an amount
sufficient to satisfy all current or estimated future Federal, state and local
withholding tax and employment tax requirements relating thereto. At the time of
a disqualifying disposition, the Optionee shall remit to the Company in cash any
applicable Federal and state withholding and employment taxes.

7.   SURRENDER OF OPTIONS

         The Board may, under such terms and conditions as its deems
appropriate, accept the surrender and termination by an Optionee of a right to
exercise an Option to purchase shares of Common Stock granted under an Option
and authorize a payment in consideration therefor of an amount equal to the
difference obtained by subtracting the exercise price of such Option from the
fair market value of the shares of Common Stock for which such Option is
exercisable on the date of such surrender as determined in the discretion of the
Board, such payment to be in cash, provided that the Board determines that such
settlement is consistent with the purposes set forth in section 1 hereof. The
Company shall be entitled to withhold from any payment to the Optionee pursuant
to this Section 7, within 60 days following the date of such settlement, any
applicable Federal and state income and employment taxes due in respect of such
settlement.

                                      -10-
<PAGE>
8.   DURATION OF PLAN

         Except with respect to Options then outstanding, the Plan shall expire
on the first to occur of (a) the tenth anniversary of the date on which the Plan
is adopted by the Board, (b) the tenth anniversary of the date on which the Plan
is approved by stockholders of the Company or (c) the date as of which the
Board, in its sole discretion, determines that the Plan shall terminate (the
"Expiration Date"). Any options outstanding as of the Expiration Date shall
remain in effect until they have been exercised or terminated or have expired by
their respective terms.

9.   STOCKHOLDER RIGHTS

         An Optionee shall not have any privileges of a stockholder with
respect to any shares of stock subject to his Option until the date of the
issuance to the Optionee of a stock certificate evidencing such shares pursuant
to his exercise of the Option.

10.  AMENDMENT OR DISCONTINUANCE

         The Board at any time may terminate or amend this Plan; provided,
however, that the approval of the holders of a majority of the votes may be cast
by all of the holders of shares of Common Stock and preferred stock of the
Company, if any, entitled to vote (voting as a single class) shall be obtained
prior to any such amendment becoming effective if such approval is required by
law or is necessary to comply with regulations promulgated by the SEC under
Section 16(b) of the 1934 Act or with Section 422A of the Code or the Treasury
Regulations thereunder.

11.   COMPLIANCE WITH SECURITIES LAWS

         No options shall be granted under this Plan, and no shares shall be
purchased upon the exercise of any Option and no Option may be surrendered in
accordance with Section 7, unless and until any then applicable securities laws
or requirements of any regulatory agencies having jurisdiction and of any
exchanges upon which stock subject to said Options of the Company may be listed
shall have been fully complied with.

         At the time of the exercise or surrender of any Option hereunder, the
Board, in its discretion, may require assurances or representations satisfactory
to it from the person exercising or surrendering the Option appropriate to
satisfy the requirements of applicable Federal and state securities laws.

                                      -11-
<PAGE>
12. EMPLOYMENT OR DIRECTORSHIP RIGHTS

                  Nothing contained in this Plan shall be deemed to give any
Optionee a right to the continuation of his employment by, or retention as a
consultant to, or directorship with, the Company or any of its subsidiaries to
which he is not otherwise entitled, or to any increase or decrease the
compensation of the Optionee from the rate in existence at the time of the grant
of the Option, nor shall the Company or it subsidiaries be under any obligation
by virtue of this Plan to retain any Optionee as an employee, consultant or
director for any period.

13. NUMBER AND GENDER

                  With respect to words used in this Plan, the singular form
shall include the plural form, the masculine gender shall include the feminine
gender, and vice versa, as the context requires.

14. INDEMNIFICATION

                  In addition to any other rights to indemnification which they
may have as members of the Board, the members of the Board administering the
Plan shall be indemnified by the Company against reasonable expenses, including
reasonable attorneys' fees incurred, in connection with any action, suit or
proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Board member is liable for gross negligence or willful
misconduct in the performance of his duties; provided, that within 60 days after
institution of any such action, suit or proceeding a Board member shall by
written notice offer the Company the opportunity, at its own expense, to handle
and defend such action, suit or proceeding.

15. EFFECTIVE DATE OF PLAN

                  This Plan shall become effective upon adoption by the Board,
provided, however, that no Option shall be exercisable unless and until the
written consent of a majority of (or such greater number as may be required by
law or applicable government regulations or orders) of the holders of the
securities of the Company entitled to vote, or approval by stockholders of the
Company voting at a validly called stockholders meeting and

                                      -12-
<PAGE>
holding a majority (or such greater number as may be required by law or
applicable governmental regulations or orders) of the shares voting at such
meeting, is obtained within 12 months before or after adoption by the Board.

16. SEVERABILITY

                  If any provision of the Plan or any Option Agreement shall be
determined to be illegal and unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable
and enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.

17. GOVERNING LAW

                  The validity and construction of this Plan and the instruments
evidencing the Options shall be governed by the laws of the State of Delaware.

18. ARBITRATION

                  All disputes arising our of, or in connection with, the
validity, interpretation, construction, meaning, or execution of the Plan shall
be finally settled by arbitration to be held in New York City and conducted in
accordance with the Rules of the American Arbitration Association. Judgment upon
any award rendered may be entered in any court having jurisdiction or
application may be made to such court for judicial acceptance of the award and
an order of enforcement, as the case may be.

                                      -13-

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