Document:

Exhibit 10.82

 

 

Compensation Arrangements with Outside
Directors

 

Beginning in
July 2005, non-management (outside) directors will be paid:

 

•                  a quarterly retainer of $16,250;

•                  $2,000 for each
in-person Board meeting attended;

•                  $1,000 for each
telephonic Board meeting attended;

•                  $1,750 for each
in-person committee meeting attended, other than for the Audit Committee;

•                  $875 for each
telephonic committee meeting attended, other than for the Audit Committee;

•                  $2,000 for each
in-person Audit Committee meeting attended; and

•                  $1,000 for each
telephonic Audit Committee meeting attended.

 

Committee
chairpersons of the Compensation, Nominating & Governance and Information
Technology Oversight Committees will be paid an additional annual fee of
$10,000.  The Audit Committee chairperson
will be paid an additional annual fee of $17,500.  Each outside director who is elected at FedEx’s
2005 annual meeting will receive a stock option for 5,400 shares of FedEx
common stock on the date of the 2005 annual meeting.  Any outside director appointed to the Board
after the 2005 annual meeting will receive a stock option for 5,400 shares of
FedEx common stock upon his or her appointment.

 

Outside
directors are reimbursed for travel, lodging and other customary out-of-pocket
expenses incurred in attending Board, committee and stockholder meetings.  In addition, outside directors have FedEx
Express and FedEx Ground discount shipping privileges and discount service
privileges at FedEx Kinko’s on the same basis as provided generally to
employees.

 

Charles T.
Manatt was elected to the Board of Directors at the 2004 annual meeting of
stockholders.  Mr. Manatt previously
served as a director of FedEx (and its predecessor, FedEx Express) from 1989
until his resignation in December 1999 to become the United States ambassador
to the Dominican Republic.  In accordance
with the terms of the FedEx Corporation Amended and Restated Retirement Plan
for Outside Directors, Mr. Manatt is paid a retirement benefit of $36,000 per
year, payable in quarterly installments. 
The payments to Mr. Manatt under this plan will end in December 2009
unless Mr. Manatt elects, in accordance with the terms of the plan, to be paid a lump sum amount for the remaining
installments.Exhibit 10.24

 

ITERIS, INC.

1998 STOCK INCENTIVE PLAN

(as amended February 7,
2000)

 

ARTICLE ONE

 

GENERAL PROVISIONS

 

I.                                         PURPOSE OF THE PLAN

 

This 1998 Stock Incentive
Plan is intended to promote the interests of Iteris, Inc. (formerly known
as Odetics ITS, Inc.), a California corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for
them to remain in the service of the Corporation.

 

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

 

II.                                     STRUCTURE OF THE PLAN

 

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

 

•                                          the
Discretionary Option Grant Program under which eligible persons may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock,

 

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

 

•                                          the
Automatic Option Grant Program under which eligible non-employee Board members
shall automatically receive option grants at periodic intervals to purchase
shares of Common Stock.

 

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

 

 

III.                                 ADMINISTRATION OF THE PLAN

 

A.                                   Prior
to the Section 12 Registration Date, the Discretionary Option Grant and
Stock Issuance Programs shall be administered by the Board.  Beginning with the Section 12
Registration Date, the Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board’s discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power
to administer those programs with respect to all such persons.

 

B.                                     Members
of the Primary Committee or any Secondary Committee shall serve for such period
of time as the Board may determine and may be removed by the Board at any
time.  The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.

 

C.                                     Each
Plan Administrator shall, within the scope of its administrative functions
under the Plan, have full power and authority (subject to the provisions of the
Plan) to establish such rules and regulations as it may deem appropriate
for proper administration of the Discretionary Option Grant and Stock Issuance
Programs and to make such determinations under, and issue such interpretations
of, the provisions of such programs and any outstanding options or stock
issuances thereunder as it may deem necessary or advisable.  Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Discretionary Option Grant
and Stock Issuance Programs under its jurisdiction or any option or stock
issuance thereunder.

 

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

 

E.                                      Administration
of the Automatic Option Grant Program shall be self executing in accordance
with the terms of that program, and no Plan Administrator shall exercise any
discretionary functions with respect to any option grants or stock issuances
made under such program.

 

2

 

IV.                                ELIGIBILITY

 

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

 

(i)                                     Employees,

 

(ii)                                  non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and

 

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

 

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

 

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

 

D.                                    The
individuals who shall be eligible to participate in the Automatic Option Grant
Program shall be limited to (i) those individuals who first become
non-employee Board members on or after the Underwriting Date, whether through
appointment by the Board or election by the Corporation’s shareholders, and (ii) those
individuals who continue to serve as non-employee Board members at one or more
Annual Shareholders Meetings held after the Underwriting Date, whether or not
they commenced such Board service prior to the Underwriting Date.

 

V.                                    STOCK SUBJECT TO THE PLAN

 

A.                                   The
stock issuable under the Plan shall be shares of authorized but unissued or
reacquired Common Stock, including shares repurchased by the Corporation on the
open market.  The maximum number of
shares of Common Stock reserved for issuance over the term of the Plan shall
not exceed 3,000,000(1) shares, subject to
certain changes in the Corporation’s capital structure.

 

(1) 
Such share reserve is comprised of (i) 1,500,000 shares originally
authorized under the Plan (or 2,812,374 shares after giving effect to the
1.874916-for-1 stock split effected in February 2000), and (ii)  an
additional 187,626 shares approved by the Corporation’s shareholders in February 2000.

 

3

 

B.                                     No
one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
250,000 shares of Common Stock in the aggregate per calendar year, beginning
with the 1998 calendar year.

 

C.                                     Shares
of Common Stock subject to outstanding options shall be available for
subsequent issuance under the Plan to the extent (i) those options expire
or terminate for any reason prior to exercise in full or (ii) those
options are cancelled in accordance with the option cancellation/regrant provisions
of Section IV of Article Two. 
Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original exercise or direct issue price
paid per share, pursuant to the Corporation’s repurchase rights under the Plan
shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under
the Plan.  However, shares subject to any
options surrendered in connection with the stock appreciation right provisions
of the Plan shall not be available for reissuance.  Should the exercise price of an option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised or
which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.

 

D.                                    If
any change is made to the Common Stock by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the Corporation’s
receipt of consideration, appropriate adjustments shall be made to (i) the
maximum number and/or class of securities issuable under the Plan, (ii) the
number and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year, (iii) the number and/or class
of securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, and (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan. 
Such adjustments to the outstanding options are to be effected in a
manner which shall preclude the enlargement or dilution of rights and benefits
under such options. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.

 

4

 

ARTICLE TWO

 

DISCRETIONARY OPTION
GRANT PROGRAM

 

I.                                         OPTION TERMS

 

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

 

A.                                   Exercise Price.

 

1.                                       The
exercise price per share shall be fixed by the Plan Administrator in accordance
with the following provisions:

 

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

 

(ii)                                  If
the person to whom the option is granted is a 10%  Stockholder, then the exercise price
shall not be less than one hundred ten percent (110%) of the Fair Market Value
per share of Common Stock on the option grant date.

 

2.                                       The
exercise price shall become immediately due upon exercise of the option and
shall, subject to the provisions of Section I of Article Five and the
documents evidencing the option, be payable in cash or check made payable to
the Corporation.  Should the Common Stock
be registered under Section 12 of the 1934 Act at the time the option is
exercised, then the exercise price may also be paid as follows:

 

(i)                                     in
shares of Common Stock held for the requisite period necessary to avoid a
charge to the Corporation’s earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date, or

 

(ii)                                  to
the extent the option is exercised for vested shares, through a special sale
and remittance procedure pursuant to which the Optionee shall concurrently
provide irrevocable instructions (A) to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of such
exercise and (B) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete the sale.

 

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

 

5

 

B.                                     Exercise and Term of Options.  Each option shall be exercisable at such time
or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option.  However, no option shall
have a term in excess of ten (10) years measured from the option grant
date.

 

C.                                     Effect of Termination of Service.

 

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

 

(i)                                     Should
the Optionee cease to remain in Service for any reason other than death, Disability
or Misconduct, then the Optionee shall have a period of three (3) months
following the date of such cessation of Service during which to exercise each
outstanding option held by such Optionee.

 

(ii)                                  Should
Optionee’s Service terminate by reason of Disability, then the Optionee shall
have a period of twelve (12) months following the date of such cessation of
Service during which to exercise each outstanding option held by such Optionee.

 

(iii)                               If
the Optionee dies while holding an outstanding option, then the personal
representative of his or her estate or the person or persons to whom the option
is transferred pursuant to the Optionee’s will or the laws of inheritance or
the Optionee’s designated beneficiary or beneficiaries of that option shall have
a twelve (12)-month period following the date of the Optionee’s death to
exercise such option.

 

(iv)                              Under
no circumstances, however, shall any such option be exercisable after the
specified expiration of the option term.

 

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

 

(vi)                              Should
Optionee’s Service be terminated for Misconduct or should Optionee otherwise
engage in Misconduct while holding one or more outstanding options under the
Plan, then all those options shall terminate immediately and cease to remain
outstanding.

 

6

 

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

 

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

 

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

 

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

 

E.                                      Repurchase Rights.  The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock.  Should the Optionee cease Service
while holding such unvested shares, the Corporation shall have the right to
repurchase, at the exercise price paid per share, any or all of those unvested
shares.  The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document
evidencing such repurchase right. 
However, with respect to any option grant made prior to the Section 12
Registration Date, the Plan Administrator may not impose a vesting schedule upon
that grant or any shares of Common Stock subject to that option which is more
restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant
date.  Such limitation shall not be
applicable to any option grants made to individuals who are officers of the
Corporation, non-employee Board members or independent consultants and shall
not be in effect for any options granted after the Section 12 Registration
Date.

 

F.                                      First Refusal Rights.  Until such time as the Common Stock is first
registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan.  Such right of first refusal
shall be exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.

 

G.                                     Limited Transferability of Options.  During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of inheritance
following the Optionee’s death.  However,
a Nonstatutory Option may, in connection with the Optionee’s estate plan, be
assigned in whole or in part during the Optionee’s lifetime to one or more
members of the Optionee’s immediate family or to a trust established
exclusively for one or more such family members.

 

7

 

The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.  
Notwithstanding the foregoing, the Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options under the Plan, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee’s death while holding those
options.  Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee’s death.

 

II.                                     INCENTIVE OPTIONS

 

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

 

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

 

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

 

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

 

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

 

8

 

III.                                 CORPORATE TRANSACTION/CHANGE IN CONTROL

 

A.                                   In
the event of any Corporate Transaction, each outstanding option shall
automatically vest on an accelerated basis so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock.  However, an
outstanding option shall not vest on such an accelerated basis if and to the
extent:  (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with
a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on any shares for
which the option is not otherwise at that time vested and exercisable and
provides for subsequent payout in accordance with the same exercise/vesting schedule applicable
to those option shares or (iii) the acceleration of such option is subject
to other limitations imposed by the Plan Administrator at the time of the
option grant.

 

B.                                     All
outstanding repurchase rights under the Discretionary Option Grant Program
shall automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.

 

C.                                     Immediately
following the consummation of the Corporate Transaction, all outstanding
options shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent
thereof).

 

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

 

9

 

E.                                      The
Plan Administrator shall have the discretionary authority to provide for the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed in the Corporate
Transaction, so that each such option shall, immediately prior to the effect
date of such Corporate Transaction, become fully exercisable for all of the
shares of Common Stock at the time subject to that option and may be exercised
for any or all of those shares as fully vested shares of Common Stock. In
addition, the Plan Administrator shall have the discretionary authority to structure
one or more of the Corporation’s repurchase rights under the Discretionary
Option Grant Program so that those rights shall not be assignable in connection
with such Corporate Transaction and shall accordingly terminate upon the
consummation of such Corporate Transaction, and the shares subject to those
terminated rights shall thereupon vest in full.

 

F.                                      The
Plan Administrator shall have full power and authority, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to provide for the full and immediate acceleration of one or more
outstanding options under the Discretionary Option Grant Program in the event
the Optionee’s Service is subsequently terminated by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate.  Any options so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year
period measured from the effective date of the Involuntary Termination.  In addition, the Plan Administrator may
provide that one or more of the Corporation’s outstanding repurchase rights
with respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.

 

G.                                     The
Plan Administrator shall have the discretionary authority to provide for the
full and immediate acceleration of one or more outstanding options under the
Discretionary Option Grant Program upon the occurrence of a Change in Control
so that each such option shall, immediately prior to the effect date of such
Change in Control, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for any or all of
those shares as fully vested shares of Common Stock.  Each such accelerated option shall remain
exercisable until the expiration or sooner termination of the option term. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation’s repurchase rights under the
Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Change in Control, and the shares
subject to those terminated rights shall thereupon vest in full.  Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program and the termination of one or more of
the Corporation’s outstanding repurchase rights under such program upon the subsequent
termination of the Optionee’s Service by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of such Change in Control. 
Each option so accelerated shall remain exercisable for fully vested
shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1) year period measured from the
effective date of such Involuntary Termination.

 

10

 

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

 

I.                                         The
outstanding options shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

 

IV.                                CANCELLATION AND REGRANT OF OPTIONS

 

The Plan Administrator
shall have the authority to effect, at any time and from time to time, with the
consent of the affected option holders, the cancellation of any or all
outstanding options under the Discretionary Option Grant Program and to grant
in substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share equal to the Fair Market
Value per share of Common Stock on the new grant date.

 

V.                                    STOCK APPRECIATION RIGHTS

 

A.                                   The
Plan Administrator shall have the authority to grant to selected Optionees
tandem stock appreciation rights and/or limited stock appreciation rights.

 

B.                                     The
following terms shall govern the grant and exercise of tandem stock
appreciation rights:

 

(i)                                     One
or more Optionees may be granted the right, exercisable upon such terms as the
Plan Administrator may establish, to elect between the exercise of the
underlying option for shares Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Fair Market Value (on the option surrender date) of the
number of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion) over (b) the aggregate
exercise price payable for those shares.

 

(ii)                                  No
such option surrender shall be effective unless it is approved by the Plan
Administrator, either at the time of the actual option surrender or at any
earlier time.  If the surrender is so
approved, then the distribution to which the Optionee shall be entitled may be
made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.

 

11

 

(iii)                               If
the surrender of an option is not approved by the Plan Administrator, then the
Optionee shall retain whatever rights the Optionee had under the surrendered
option (or surrendered portion) on the option surrender date and may exercise
such rights at any time prior to the later of (a) five (5) business
days after the receipt of the rejection notice or (b) the last day on
which the option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.

 

C.                                     The
following terms shall govern the grant and exercise of limited stock
appreciation rights:

 

(i)                                     One
or more Section 16 Insiders may, at any time following the Section 12
Registration Date, be granted limited stock appreciation rights with respect to
their outstanding options.

 

(ii)                                  Upon
the occurrence of a Hostile Takeover, each individual holding one or more
options with such a limited stock appreciation right shall have the
unconditional right (exercisable for a thirty (30) day period following such
Hostile Takeover) to surrender each such option to the Corporation. In return
for the surrendered option, the Optionee shall receive a cash distribution from
the Corporation in an amount equal to the excess of (A) the Takeover Price
of the shares of Common Stock which are at the time subject to each surrendered
option (whether or not the option is otherwise vested or exercisable as to those
shares) over (B) the aggregate exercise price payable for those
shares.  Such cash distribution shall be
paid within five (5) days following the option surrender date.

 

(iii)                               The
Plan Administrator shall pre-approve, at the time the limited right is granted,
the subsequent exercise of that right in accordance with the terms of the grant
and the provisions of this Section V. 
No additional approval of the Plan Administrator or the Board shall be
required at the time of the actual option surrender and cash distribution.

 

(iv)                              The
balance of the option (if any) shall remain outstanding and exercisable in
accordance with the documents evidencing such option.

 

12

 

ARTICLE THREE

 

STOCK ISSUANCE PROGRAM

 

I.                                         STOCK ISSUANCE TERMS

 

Shares of Common Stock
may be issued under the Stock Issuance Program through direct and immediate
issuances without any intervening option grants.  Each such stock issuance shall be evidenced
by a Stock Issuance Agreement which complies with the terms specified below.

 

A.                                   Purchase Price.

 

1.                                       The
purchase price per share shall be fixed by the Plan Administrator, but shall
not be less than eighty-five percent (85%) of the Fair Market Value per share
of Common Stock on the issuance date. 
However, the purchase price per share of Common Stock issued to a 10%  Stockholder shall
not be less than one hundred and ten percent (110%) of such Fair Market Value.

 

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

 

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

 

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

 

B.                                     Vesting Provisions.

 

1.                                       Shares
of Common Stock issued under the Stock Issuance Program may, in the discretion
of the Plan Administrator, be fully and immediately vested upon issuance or may
vest in one or more installments over the Participant’s period of Service or
upon attainment of specified performance objectives.  However, with respect to any stock issuance
effected under the Stock Issuance Program prior to the Section 12
Registration Date, the Plan Administrator may not impose a vesting schedule which
is more restrictive than twenty percent (20%) per year vesting, with initial
vesting to occur not later than one (1) year after the issuance date.  Such limitation shall not apply to any Common
Stock issuances made to the officers of the Corporation, non-employee Board
members or independent consultants and shall not be in effect for any stock
issuances effected after the Section 12
Registration Date.

 

13

 

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

 

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

 

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

 

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

 

C.                                     First Refusal Rights.  Until such time as the Common Stock is first
registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program.  Such
right of first refusal shall be exercisable in accordance with the terms
established by the Plan Administrator and set forth in the document evidencing
such right.

 

14

 

II.                                     CORPORATE TRANSACTION/CHANGE IN
CONTROL

 

A.                                   All
of the Corporation’s outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated
vesting is

 

B.                                     The
Plan Administrator shall have the discretionary authority, exercisable either
at the time the unvested shares are issued under the Stock Issuance Program or
any time while the Corporation’s repurchase rights with respect to those shares
remain outstanding, to structure one or more of those repurchase rights so that
such rights shall not be assignable in connection with a Corporate Transaction
and shall accordingly terminate upon the consummation of such Corporate
Transaction, and the shares subject to those terminated repurchase rights shall
thereupon vest in full.

 

C.                                     The
Plan Administrator shall have the discretionary authority, exercisable either
at the time the unvested shares are issued or any time while the Corporation’s
repurchase rights remain outstanding under the Stock Issuance Program, to
provide that those rights shall automatically terminate in whole or in part,
and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant’s Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).

 

D.                                    The
Plan Administrator shall have the discretionary authority, exercisable either
at the time the unvested shares are issued or any time while the Corporation’s
repurchase rights with respect to those shares remain outstanding under the
Stock Issuance Program, to structure one or more of those repurchase rights so
that such rights shall automatically terminate in whole or in part, and the
shares of Common Stock subject to those terminated rights shall immediately
vest, upon (i) a Change in Control or (ii) the subsequent termination
of the Participant’s Service by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of such Change in Control or Involuntary Termination.

 

III.                                 SHARE ESCROW/LEGENDS

 

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

 

15

 

ARTICLE FOUR

 

AUTOMATIC OPTION GRANT
PROGRAM

 

I.                                         OPTION TERMS

 

A.                                   Grant Dates.  Option grants shall be made on the dates
specified below:

 

1.                                       Each
individual who is first elected or appointed as a non-employee Board member at
any time on or after the Underwriting Date shall automatically be granted, on
the date of such initial election or appointment, a Nonstatutory Option to
purchase 20,000(2) shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.

 

2.                                       On
the date of each Annual Shareholders Meeting, beginning with the first Annual Shareholders
Meeting held after the Underwriting Date, each individual who is to continue to
serve as a non-employee Board member, whether or not that individual is
standing for reelection to the Board at that particular Annual Meeting, shall
automatically be granted a Nonstatutory Option to purchase 10,000(3) shares
of Common Stock, provided such individual has served as a non-employee Board
member for at least six (6) months. 
There shall be no limit on the number of such 10,000(3) share option
grants any one non-employee Board member may receive over his or her period of
Board service, and non-employee Board members who have previously been in the
employ of the Corporation (or any Parent or Subsidiary) or who have previously
received stock options in connection with their Board service prior to the Plan
Effective Date shall be eligible to receive one or more such annual option
grants over their period of continued Board service.

 

B.                                     Exercise Price.

 

1.                                       The
exercise price per share shall be equal to one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.

 

2.                                       The
exercise price shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program.  Except to the extent the sale and remittance
procedure specified thereunder is utilized, payment of the exercise price for
the purchased shares must be made on the Exercise Date.

 

(2) 
Such shares include (i) 10,000 shares originally authorized under the Plan
(or 18,749 shares after giving effect to the 1.874916-for-1 stock split
effected in February 2000), and (ii) an additional 1,251 shares
increase approved by the shareholders in February 2000.

 

(3) 
Such shares include (i) 5,000 shares originally authorized under the Plan
(or 9,374 shares after giving effect to the 1.874916-for-1 stock split effected
in February 2000), and (ii) an additional 626 shares approved by the
shareholders in February 2000.

 

16

 

C.                                     Option Term.  Each option shall have a term of ten (10) years
measured from the option grant date.

 

D.                                    Exercise and Vesting of Options.  Each initial 20,000 share option grant shall
be immediately exercisable for any or all of the option shares. However, the
shares of Common Stock purchased under each initial 20,000 share grant shall be
subject to repurchase by the Corporation, at the exercise price paid per share,
upon the Optionee’s cessation of Board service prior to vesting in those
shares.  Each initial 20,000 share grant
shall vest, and the Corporation’s repurchase right shall lapse, in a series of
three (3) successive equal annual installments upon the optionee’s
completion of each year of Board service over the three (3) year period
measured from the option grant date. 
Each annual 10,000 share grant shall be immediately exercisable for any
or all of the option shares as fully vested shares of Common Stock and shall
remain so exercisable until the expiration or sooner termination of the option
term.

 

E.                                      Termination of Board Service.  The following provisions shall govern the
exercise of any options held by the Optionee at the time the Optionee ceases to
serve as a Board member:

 

(i)                                     The
Optionee (or, in the event of Optionee’s death, the personal representative of
the Optionee’s estate or the person or persons to whom the option is
transferred pursuant to the Optionee’s will or in accordance with the laws of
inheritance) shall have a twelve (12) month period following the date of such
cessation of Board service in which to exercise each such option.

 

(ii)                                  During
the twelve (12) month exercise period, the option may not be exercised in the
aggregate for more than the number of vested shares of Common Stock for which
the option is exercisable at the time of the Optionee’s cessation of Board
service.

 

(iii)                               Should
the Optionee cease to serve as a Board member by reason of death or Permanent
Disability, then all shares at the time subject to the option shall immediately
vest so that such option may, during the twelve (12) month exercise period
following such cessation of Board service, be exercised for all or any portion
of those shares as fully vested shares of Common Stock.

 

(iv)                              In
no event shall the option remain exercisable after the expiration of the option
term.  Upon the expiration of the twelve
(12) month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised.  However, the option shall, immediately upon
the Optionee’s cessation of Board service for any reason other than death or
Permanent Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.

 

17

 

II.                                     CORPORATE TRANSACTION/CHANGE IN
CONTROL/HOSTILE TAKEOVER

 

A.                                   The
shares of Common Stock subject to each option outstanding under this Article Four
at the time of a Corporate Transaction but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully vested shares of
Common Stock.  Immediately following the
consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof).

 

B.                                     The
shares of Common Stock subject to each option outstanding under this Article Four
at the time of a Change in Control but not otherwise vested shall automatically
vest in full so that each such option shall, immediately prior to the effective
date of the Change in Control, become fully exercisable for all of the shares
of Common Stock at the time subject to such option and may be exercised for all
or any portion of those shares as fully vested shares of Common Stock. Each
such option shall remain exercisable for such fully vested option shares until
the expiration or sooner termination of the option term or the surrender of the
option in connection with a Hostile Takeover.

 

C.                                     All
outstanding repurchase rights under the Automatic Option Grant Program shall
automatically terminate, and the unvested shares of Common Stock subject to
those terminated rights shall thereupon vest in full, immediately prior to any
Corporate Transaction or Change in Control.

 

D.                                    Upon
the occurrence of a Hostile Takeover at any time after the Section 12
Registration Date, the Optionee shall have a thirty (30) day period in which to
surrender to the Corporation each of his or her outstanding automatic option
grants.  The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Takeover Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price
payable for such shares.  Such cash
distribution shall be paid within five (5) days following the surrender of
the option to the Corporation.  No
approval or consent of the Plan Administrator or the Board shall be required at
the time of the actual option surrender and cash distribution.

 

E.                                      Each
option which is assumed in connection with a Corporate Transaction shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
to the number and class of securities which would have been issuable to the
Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction.  Appropriate adjustments shall also be made to
the exercise price payable per share under each outstanding option, provided
the aggregate exercise price payable for such securities shall remain the same.

 

18

 

F.                                      The
grant of options under the Automatic Option Grant Program shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

 

III.                                 REMAINING TERMS

 

The remaining terms of
each option granted under the Automatic Option Grant Program shall be the same
as the terms in effect for option grants made under the Discretionary Option
Grant Program.

 

19

 

ARTICLE FIVE

 

MISCELLANEOUS

 

I.                                         FINANCING

 

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

 

II.                                     TAX WITHHOLDING

 

A.                                   The
Corporation’s obligation to deliver shares of Common Stock upon the exercise of
options or the issuance or vesting of such shares under the Plan shall be subject
to the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.

 

B.                                     At
any time after the Section 12 Registration Date, the Plan Administrator
may, in its discretion, provide one or more all holders of Nonstatutory Options
or unvested shares of Common Stock under the Plan (other than the options
granted or the shares issued under the Automatic Option Grant Program) with the
right to use shares of Common Stock in satisfaction of all or part of the Withholding
Taxes to which such holders may become subject in connection with the exercise
of their options or the vesting of their shares.  Such right may be provided to any such holder
in either or both of the following formats:

 

Stock Withholding:  The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Nonstatutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

 

Stock Delivery:  The election to deliver to the Corporation,
at the time the Nonstatutory Option is exercised or the shares vest, one or
more shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

 

20

 

III.                                 EFFECTIVE DATE AND TERM OF THE PLAN

 

A.                                   The
Plan was adopted by the Board and the shareholders of the Corporation on April 14,
1998l and the Plan became effective on such Plan Effective Date.  However, the Automatic Option Grant Program
in effect under the Plan shall not become effective until the Underwriting
Date, and no option grants shall be made under that program prior to such
date.  The Plan was amended by the Board
and the shareholders in February 2000 (i) to increase the maximum
number of shares of Common Stock authorized for issuance under the Plan by an
additional 187,626 shares to a total of 3,000,000 shares and (ii) to amend
the number of the shares issuable to non-employee members of the Board under
the Automatic Option Grant Program.

 

B.                                     The
Plan shall terminate upon the earliest to occur of (i) April 13,
2008, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction.  Upon such plan termination,
all outstanding option grants and unvested stock issuances shall thereafter
continue to have force and effect in accordance with the provisions of the
documents evidencing those grants or issuances.

 

IV.                                AMENDMENT OF THE PLAN

 

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

 

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

 

V.                                    USE OF PROCEEDS

 

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

 

21

 

VI.                                REGULATORY APPROVALS

 

A.                                   The
implementation of the Plan, the granting of any stock option under the Plan and
the issuance of any shares of Common Stock (i) upon the exercise of any
granted option or (ii) under the Stock Issuance Program shall be subject
to the Corporation’s procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

 

B.                                     No
shares of Common Stock or other assets shall be issued or delivered under the
Plan unless and until there shall have been compliance with all applicable
requirements of Federal and state securities laws, including the filing and
effectiveness of the Form S-8 registration statement for the shares of
Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

 

VII.                            NO EMPLOYMENT/SERVICE RIGHTS

 

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

 

VIII.                        FINANCIAL REPORTS

 

Prior to the Section 12
Registration Date, the Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information. The requirement to deliver
financial statements under this Section VIII shall terminate on the Section 12
Registration Date.

 

22

 

APPENDIX

 

The following definitions
shall be in effect under the Plan:

 

A.                                   Automatic Option Grant Program
shall mean the automatic option grant program in effect under the Plan.

 

B.                                     Board shall mean the Corporation’s
Board of Directors.

 

C.                                     Change in Control  shall mean a
change in ownership or control of the Corporation effected
through either of the following transactions:

 

(i)                                     the
acquisition, directly or indirectly by any person or related group of persons
(other than the Corporation or a person that directly or indirectly controls,
is controlled by, or is under common control with, the Corporation), of
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation’s outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation’s shareholders, or

 

(ii)                                  a
change in the composition of the Board over a period of thirty-six (36)
consecutive months or less such that a majority of the Board members ceases, by
reason of one or more contested elections for Board membership, to be comprised
of individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the
Board members described in clause (A) who were still in office at the time
the Board approved such election or nomination.

 

D.                                    Common Stock shall mean the
Corporation’s common stock.

 

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

 

F.                                      Corporate Transaction  shall mean
either of the following shareholder approved transactions to which the
Corporation is a party:

 

(i)                                     a
merger or consolidation in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation’s outstanding
securities are transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction, or

 

(ii)                                  the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets in complete liquidation or
dissolution of the Corporation.

 

G.                                     Corporation  shall mean Iteris, Inc.
(formerly known as Odetics ITS, Inc.), a California corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of Iteris, Inc. which shall by appropriate action adopt the Plan.

 

A-1

 

H.                                    Discretionary Option Grant Program  shall
mean the discretionary option grant program in effect under the Plan.

 

I.                                         Employee  shall mean an individual
who is in the employ of the Corporation (or any Parent or Subsidiary), subject
to the control and direction of the employer entity as to both the work to be
performed and the manner and method of performance.

 

J.                                        Exercise Date  shall mean the date
on which the Corporation shall have received written notice of the option
exercise.

 

K.                                    Fair Market Value  per share of
Common Stock on any relevant date shall be determined in accordance with the
following provisions:

 

(i)                                     If
the Common Stock is at the time traded on the Nasdaq National Market, then the
Fair Market Value shall be deemed equal to the closing selling price per share
of Common Stock on the date in question, as such price is reported on the
Nasdaq National Market.  If there is no
closing selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.

 

(ii)                                  If
the Common Stock is at the time listed on any Stock Exchange, then the Fair
Market Value shall be deemed equal to the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such
exchange.  If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which such
quotation exists.

 

(iii)                               If
the Common Stock is at the time neither listed on any Stock Exchange nor traded
on the Nasdaq National Market, then the Fair Market Value shall be determined
by the Plan Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.

 

L.                                      Hostile Takeover shall mean the
acquisition, directly or indirectly, by any person or related group of persons
(other than the Corporation or a person that directly or indirectly controls,
is controlled by, or is under common control with, the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total combined
voting power of the Corporation’s outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation’s shareholders which the
Board does not recommend such shareholders to accept.

 

M.                                 Incentive Option shall mean an
option which satisfies the requirements of Code Section 422.

 

N.                                    Involuntary Termination  shall mean
the termination of the Service of any individual which occurs by reason of:

 

A-2

 

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

 

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

 

O.                                    Misconduct  shall mean the
commission of any act of fraud, embezzlement or dishonesty by the Optionee or
Participant, any unauthorized use or disclosure by such person of confidential
information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by such person adversely affecting the
business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner.  The foregoing
definition shall not in any way preclude or restrict the right of the
Corporation (or any Parent or Subsidiary) to discharge or dismiss any Optionee
or Participant or other person in the Service of the Corporation (or any Parent
or Subsidiary) for any other acts or omissions, but such other acts or
omissions shall not be deemed, for purposes of the Plan, to constitute grounds
for termination for Misconduct.

 

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

 

Q.                                    Nonstatutory Option  shall mean an
option not intended to satisfy the requirements of Code Section 422.

 

R.                                     Optionee  shall mean any person to
whom an option is granted under the Discretionary Option Grant or Automatic
Option Grant Program.

 

S.                                      Parent  shall mean any corporation
(other than the Corporation) in an unbroken chain of corporations ending with
the Corporation, provided each corporation in the unbroken chain (other than
the Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

 

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

 

U.                                    Permanent Disability or Permanently Disabled
shall mean the inability of the Optionee or the Participant to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more.  However, solely for purposes of the

 

A-3

 

Automatic Option Grant Program, Permanent Disability
or Permanently Disabled shall mean the inability of the non-employee Board
member to perform his or her usual duties as a Board member by reason of any
medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.

 

V.                                     Plan  shall mean the Corporation’s
1998 Stock Incentive Plan, as set forth in this document.

 

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

 

X.                                    Plan Effective Date shall mean April 14,
1998, the date the Plan was adopted by the Board.

 

Y.                                     Primary Committee  shall mean the
committee of two (2) or more non-employee Board members appointed by the
Board to administer the Discretionary Option Grant and Stock Issuance Programs
with respect to Section 16 Insiders.

 

Z.                                     Secondary Committee  shall mean a
committee of two (2) or more Board members appointed by the Board to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to eligible persons other than Section 16 Insiders.

 

AA.                         Section 12 Registration Date
shall mean the date on which the Common Stock is first registered under Section 12
of the 1934 Act.

 

BB.                             Section 16 Insider  shall mean
an officer or director of the Corporation subject to the short swing profit
liabilities of Section 16 of the 1934 Act.

 

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

 

DD.                           Stock Exchange  shall mean either
the American Stock Exchange or the New York Stock Exchange.

 

EE.                               Stock Issuance Agreement  shall mean
the agreement entered into by the Corporation and the Participant at the time
of issuance of shares of Common Stock under the Stock Issuance Program.

 

FF.                               Stock Issuance Program  shall mean
the stock issuance program in effect under the Plan.

 

A-4

 

GG.                             Subsidiary shall mean any
corporation (other than the Corporation) in an unbroken chain of corporations
beginning with the Corporation, provided each corporation (other than the last
corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.

 

HH.                           Takeover Price shall mean the greater
of (i) the Fair Market Value per share of Common Stock on the date the option
is surrendered to the Corporation in connection with a Hostile Takeover or (ii) the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Takeover. 
However, if the surrendered option is an Incentive Option, the Takeover
Price shall not exceed the clause (i) price per share.

 

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

 

JJ.                                   Underwriting Agreement shall mean
the agreement between the Corporation and the underwriter or underwriters
managing the initial public offering of the Common Stock.

 

KK.                           Underwriting Date shall mean the
date on which the Underwriting Agreement is executed and priced in connection
with an initial public offering of the Common Stock.

 

LL.                               Withholding Taxes shall mean the
Federal, state and local income and employment withholding taxes to which the
holder of Nonstatutory Options or unvested shares of Common Stock may become
subject in connection with the exercise of those options or the vesting of
those shares.

 

A-5

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