Document:

Intralase Corp. Third Amended and Restated Founders' Agreement

 EXHIBIT 10.32 
  
 INTRALASE CORP. 
 THIRD AMENDED AND RESTATED 
 FOUNDERS’ AGREEMENT 
  
 This Third Amended and Restated Founders’ Agreement (this
“Agreement”) is entered into November         , 2002, by and among IntraLase Corp., a Delaware corporation, with offices located at 3 Morgan Irvine, CA 92618, Irvine, California 92618
(the “Corporation”); Ronald M. Kurtz and Jennifer Simpson, and Tibor Juhasz (each individually a “Founder” and collectively the “Founders”). 
  
 RECITALS 
  
 WHEREAS, The Corporation is engaged in the highly competitive business of researching, developing, manufacturing, marketing,
and selling ophthalmic laser systems and performing ophthalmic surgical procedures. The Founders and the Corporation recognize and affirm that success or failure in this highly technical and highly competitive business is dependent on the ability of
the Corporation to (i) develop and protect proprietary technology which will give the Corporation a competitive advantage in the marketplace; (ii) incorporate this technology into products which themselves will or may become proprietary; and (iii)
develop and utilize processes which may be proprietary to accomplish (i) and (ii) above. 
  
 WHEREAS, in order to achieve the above objectives, the Corporation has expended, and will continue to expend, substantial time, effort, and financial resources. These activities include research, the attraction and
training of key employees, and establishing relationships with necessary resources outside of the Corporation. If information regarding the Corporation’s research, processes, or products were to fall into the hands of a competitor of the
Corporation, it could be used in a manner which would cause serious and irreparable financial and business damage to the Corporation. For this reason, all information related to the Corporation’s technology, research, products, and business
strategies is considered to be confidential information which is proprietary to the Corporation. 
  
 WHEREAS, the Corporation and the Founders wish to amend and restate that certain Second Amended and Restated Founders’ Agreement dated September 28,
2000. 
  
 WHEREAS, the Corporation and the Founders are so
willing. 
  
 AGREEMENT 
  
 NOW, THEREFORE, in consideration of the above representations and
understandings, and the promises and mutual agreements set forth below, the parties agree, effective on the date of this Agreement, to the following terms and conditions: 
  
 1. Services. Each Founder agrees to serve the Corporation as reasonably directed by its Board of Directors or its
designee, consistent with the scope of expertise and other employment obligations of such Founder. Such services may include participation in the Corporation as a Director, Officer, Scientific Advisor, consultant, contractor and/or, with the
agreement of the Founder, an employee. In all such cases, the terms and conditions of this Agreement will continue to be binding. 

 2. Founder’s Stock. Each Founder purchased from the Corporation two hundred fifty thousand
(250,000) shares of Common Stock (the “Founder’s Shares”) at a per-share purchase price of one cent ($0.01) per share (the “Original Purchase Price”). As a result of a one (1) for one and four-tenths (1.4)
stock split each Founder now holds three hundred fifty thousand (350,000) shares of Common Stock, which are all considered “Founders’ Shares” for the purposes of this Agreement. The Founder’s Shares shall be subject to a number
of restrictions as set forth in this Agreement. Certain of the restrictions with respect to the Founder’s Shares may be lifted under various conditions pursuant hereto in consideration for the Founder’s service to the Corporation pursuant
to Sections 1 and 3 hereof and such Founder’s other obligations hereunder. 
  
 3. Founders’ Commitment to Business Time to the Corporation. Each Founder agrees to commit eighty-five percent (85%) of his available consulting time to the Corporation except for other current obligations
agreed to by the Corporation to be both non-competitive and not demanding in time as disclosed in Exhibit A hereto. However, the Corporation may not require services of any Founder for more than the time allowed by the Founders’
employer, the University of Michigan for Tibor Juhasz and the University of California for Ronald M. Kurtz. Each Founder agrees that he will not engage in any other employment or business endeavor (other than those disclosed in Exhibit A
hereto) which is reasonably considered in conflict or competition with the Corporation and that he will have breached this Agreement should he engage in such activities despite the Corporation’s objection as set forth below. Any Founder may
(subject to the preceding sentence and Section 5 hereof) enter into other employment or consulting arrangements in addition to, or in place of, his employment with the respective universities during the term of this Agreement, provided that such
Founder shall disclose any such arrangements to the Corporation. Within thirty (30) days of receiving such disclosure, the Corporation shall advise such Founder of any reasonable objections to such arrangement. If such Founder pursues such
arrangement notwithstanding the Corporation’s reasonable objection within such thirty (30) day period, such Founder shall be treated for all purposes hereunder as though such Founder has breached this Agreement. 
  
 4. Disclosure and Assignment of Technology to Corporation. Each
Founder has executed a Non-Disclosure and Developments Agreement substantially in the form set forth as Exhibit C hereto (the “Non-Disclosure and Developments Agreement”). 
  
 5. Agreement Not to Compete. During the time that any Founder is
serving the Corporation, and for twenty-four (24) months thereafter, such Founder agrees that he will not affiliate in any material role, including affiliation as an employee, consultant, agent, or contractor, with any business enterprise which
competes with the Corporation, nor will he found, promote, or become a shareholder, partner, or owner in any other enterprise which competes with the Corporation. It is understood that (i) the preceding sentence shall not prohibit any Founder from
participating in research projects in connection with his employment at the respective universities, and (ii) a Founder may work for a business entity which competes with the Corporation, provided that such Founder is not personally engaged,
directly or indirectly, in any scientific or business activity within such entity which competes with the Corporation. 
  
 6. Termination. Each Founder’s arrangement to provide services to the Corporation may be terminated by the Corporation for any reason, with or
without cause, upon the unanimous agreement of the Corporation’s Board of Directors. 
  

 2 

 Founders may voluntarily terminate services with the Corporation at any time and for any reason (a
“Voluntary Termination”). However, the Founders agree to provide thirty (30) days advance notice prior to the effective date of termination. 
  
 7. Noninterference With Employees. Each Founder agrees that for a period of twenty-four (24) months following the termination of such
Founder’s participation in this Agreement, such Founder will not interfere with or attempt to impair the relationship between the Corporation and any of its employees, consultants, and advisors, nor will such Founder attempt, directly or
indirectly, to solicit, to entice, to hire, or otherwise to induce any employee, consultant, or advisor of the Corporation to terminate association with the Corporation. 
  
 8. Remedies in the Event of Breach. The Corporation and the Founders understand and agree that any breach or
threatened breach by the Corporation or the Founders of any of the above provisions cannot be remedied solely by the recovery of damages, and in the event of any such breach or threatened breach, the Corporation or the Founders, as the case may be,
shall be entitled to injunctive relief, restraining the Founders or the Corporation, as the case may be, and any business, firm, corporation, individual, or other entity participating in such breach or attempted breach from engaging in any activity
which would constitute a breach. The Corporation and the Founders further agree that any dispute arising under the terms of this Agreement, other than a dispute that would be remedied by injunctive relief, shall be decided in accordance with the
then current rules of the American Arbitration Association, and any arbitration award may be entered in a court of competent jurisdiction and enforced as a judgment thereof. Nothing herein, however, shall be construed as prohibiting the Corporation
or the Founders from pursuing, in conjunction with an injunction or otherwise, any other remedies available in equity for any such breach or threatened breach, including the recovery of damages. 
  
 9. Waiver. Any waiver of a breach of any of the terms of this
Founders’ Agreement shall not operate as a waiver of any other breach of such terms or conditions or any other terms or conditions, nor shall any failure to enforce any provision of this Founders’ Agreement operate as a waiver of the
provision or any other provision. 
  
 10. Successors and
Assigns. The rights, benefits and obligations of the Corporation under this Agreement and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by or against its successors and assigns. This Agreement shall be
binding upon Founder’s successors and assigns. Neither this Agreement nor any rights or obligations hereunder shall be assigned by Founder. The rights of the Purchasers hereunder shall inure to the benefit of the Purchaser’s assigns.

  
 11. Entire Agreement. This Agreement constitutes the
entire agreement among the parties. This Agreement may not be amended or modified, except in a writing signed by all parties hereto. 
  
 12. Severability. If any provision of this Founders’ Agreement or the application thereof is held invalid or unenforceable, the invalidity or
unenforceability thereof shall not affect any other provisions or applications of this Agreement which can be given affect without the invalid or unenforceable provision or application. To that end, the provisions of this Agreement are to be
severable. 
  

 3 

 13. No Employment Contract Created. Nothing in this Agreement shall be construed as granting to
either Founder status as an employee of the Corporation or any right with respect to continuance of employment by the Corporation or any of its subsidiaries. The right of the Corporation or any of its subsidiaries to terminate at will either
Founder’s consulting or employment relationship with the Corporation at any time (whether by dismissal, discharge or otherwise), with or without cause, is specifically reserved. 
  
 14. Amendment of Other Agreements. Each Founder agrees that, subsequent to the date of this Agreement, in the event
an amendment is proposed for any of the Corporation’s Fourth Amended and Restated Registration Rights Agreement, Fourth Amended and Restated Voting Agreement or Amended and Restated Co-Sale Agreement, each dated as of May 17, 2002, such Founder
shall agree in writing to such amendment if such amendment is approved in writing by the vote of not less than 66 2/3% of the preferred stock of the Corporation, voting together as a single class on an as if converted to Common Stock basis and such amendment is reasonable and neither reduces or eliminates any rights of the Founder nor
materially adversely affects the rights or obligations of the Founder and is either (i) made in connection with a private equity financing of the Corporation which financing is deemed by the Board of Directors of the Corporation to be in the best
interests of the Corporation and its stockholders or (ii) is made in connection with a merger or consolidation in which the Company is the surviving entity, or a transaction in which the holders of the outstanding voting securities of the Company
immediately prior to such merger or consolidation hold, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the surviving entity immediately after such
merger or consolidation. 
  

 4 

 IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed and each Founder has executed
this Agreement as of the date shown below. 
  

					
	INTRALASE CORP.	 	 	 	 FOUNDERS

			
	 /s/ Randy Alexander

	 	 	 	 RONALD M. KURTZ AND JENNIFER SIMPSON

	 Randy Alexander,
	 	 	 	 
	 President
	 	 	 	 
			
	 	 	 	 	 /s/ Ronald M. Kurtz

	 	 	 	 	 Ronald M. Kurtz

			
	 	 	 	 	 and

			
	 	 	 	 	 /s/ Jennifer Simpson

	 	 	 	 	 Jennifer Simpson

			
	 	 	 	 	 TIBOR JUHASZ

			
	 	 	 	 	 /s/ Tibor Juhasz

	 	 	 	 	 Tibor Juhasz

  

 5 

 EXHIBIT A 
  
 FOUNDER CONSULTING OBLIGATIONS TO OTHER CORPORATIONS 
  

					
	 FOUNDER

	 	 CORPORATE ENTITY

	 	 RELATIONSHIP

	Tibor Juhasz	 	None.	 	 

  

 A-1Exhibit 10.1.2

                           CITIZENS UTILITIES COMPANY
                NON-EMPLOYEE DIRECTORS' DEFERRED FEE EQUITY PLAN

                                    ARTICLE 1
                              PURPOSES OF THE PLAN

1.1  Purposes.

     The purpose of this Citizens Utilities Company Deferred Fee Equity Plan For
Non-Employee  Directors  (the  "Plan")  is to  provide  each  Director  with  an
opportunity to defer some or all of the Director's Fees and receive compensation
for  services in the form of options to purchase  Citizens'  Common  Stock or in
Plan  Units  which are  equivalent  to  Citizens'  Common  Stock.  The Plan will
implement corporate policy that all employees,  officers and directors are to be
encouraged to share in the Company's long-term prospects by taking part of their
compensation in Common Stock and options.

1.2  Introduction.

     The Plan,  as amended,  is comprised  of three  separate  plans.  Because a
number of  administrative  and  procedural  provisions  of each of the plans are
similar  or  identical,  the  plans  have  been  combined  in a single  plan for
convenience.

     The Plan  consists of an option plan through  which a director may elect to
receive his or her Fees for a period of up to five years (or a shorter period in
the case of 1994) in an equivalent  amount of options to purchase  Common Stock.
This plan is referred to as the Option Plan.  The provisions of Articles 3 and 4
apply  exclusively  to the Option Plan.  The Plan also includes a separate stock
plan through which a director may elect (a "Stock Plan Election") to receive his
or her Fees for the next calendar year (or a shorter  period in the case of 1994
or a newly  elected  director)  in an  equivalent  amount  of Plan  Units.  Upon
termination of directorship,  a Stock Plan Participant will receive the value of
his Plan Units in either  stock or cash or  installments  of cash as selected by
the  Participant at the time of the related Stock Plan Election.  The provisions
of Articles 5, 6 and 7 apply exclusively to the Stock Plan.

     The Plan also  includes  a formula  stock  option  plan  under  which  each
Director is  automatically  granted an option to purchase shares of Common Stock
on January 1 of each year,  starting  with 1997.  The  provisions  of Article 12
apply exclusively to the Formula Plan.

     The term "Plan" includes the Stock Plan,  Option Plan and Formula Plan, all
as amended by Amendment  No. 1. Plan and Option Plan  include the Formula  Plan;
Option includes a Formula Plan Option;  Option Under the Option Plan includes an
Option under the Formula Plan;  Participant includes an Option Plan Participant,
a Stock Plan Participant and a Formula Plan  Participant;  Election  includes an
Option Plan  Election  and a Stock Plan  Election;  and  Committee  includes the
Option  Plan  Committee  and Stock Plan  Committee;  unless,  in each case,  the
context requires otherwise.

                                       1
<PAGE>

                                    ARTICLE 2
                                   DEFINITIONS

     As used herein,  the following  words shall have following  meanings unless
otherwise specifically provided:

     2.1 "Accounting  Date" means,  for purposes of the Stock Plan, each January
1, April 1 , July 1 and October 1, except that the first Accounting Date in 1995
shall be February 1.

     2.2  "Administrator"  means the person or persons appointed by the Board of
Directors to represent the Company in the  administration  of each Plan pursuant
to the provisions of Article 10.1.

     2.3 "Act" means the Securities Act of 1933.

     2.4 "Applicable  Rate of Interest"  means, as of any date, 120% of the then
applicable  Federal rate of interest  pursuant to the Internal Revenue Code. The
Federal short-term rate of interest shall be the interest  component  applicable
to deferred Fees from the date of deferral  until the date of investment in Plan
Units under the Stock Plan. The Federal medium term rate of interest shall apply
to distributions in annual installments  deferred after Termination  pursuant to
the Stock Plan.

     2.5 "Beneficiary"  means the person or persons designated in writing by the
Participant as entitled to receive a Stock Plan  Participant's  Account upon his
death,  or to exercise an Option Plan  Participant's  Option upon his death,  or
failing  such  designation,  the  person  or  persons  who,  upon the death of a
Participant,   shall  have  acquired  by  will,  or  the  laws  of  descent  and
distribution,  the right to  receive  the  benefits  specified  under this Plan.
Beneficiary  designations  shall  be  made  in  writing  and  delivered  to  the
Administrator  and  shall  comply  with any  applicable  state law  relating  to
testamentary dispositions and other requirements.  A Participant may designate a
new Beneficiary or Beneficiaries at any time by notifying the Administrator. The
last  such  designation  received  by the  Administrator  shall be  controlling;
provided,  however, that no designation,  or change or revocation thereof, shall
be effective  unless received by the  Administrator  prior to the  Participant's
death, and in no event shall it be effective as of a date prior to such receipt.
"Beneficiary"  shall include the person or persons who,  upon the  disability or
incompetence of a Participant, shall have acquired on behalf of the Participant,
by legal proceeding or otherwise, the right to receive the benefits specified in
this Plan on behalf of the Participant.

     2.6 "Board of Directors" means the Board of Directors of the Company.

     2.7 "Code" means the Internal Revenue Code of 1986.

     2.8 "Company"  means  Citizens  Utilities  Company and its  successors  and
assigns.

     2.9 "Common  Stock"  means Common Stock Series B, par value $.25 per share,
of the Company or any successor Common Stock.

                                       2
<PAGE>

     2.10  "Director"  means any  director of the Company who is not a full-time
employee of the Company. For the purposes of the Plan, an individual who is both
a full-time  employee of the Company and a director of the Company and therefore
ineligible to participate in the Plan and who ceases to be a full-time  employee
but remains in office as a director shall become  eligible to participate in the
Plan as a Director  as of the  termination  of his or her service as a full-time
employee.

     2.11  "Effective  Date" means,  for Option Plan  Elections  before July 20,
1994, August 1, 1994; and for other Option Plan Elections, the next January 1.

     2.12 "Exchange Act" means the Securities Exchange Act of 1934. "Rule 16b-3"
shall mean such rule promulgated by the Securities and Exchange Commission under
the Exchange Act and, unless the circumstances require otherwise,  shall include
any  other  rule or  regulation  adopted  under  Sections  16(a) or 16(b) of the
Exchange Act relating to compliance  with, or an exemption from,  Section 16(b).
Reference to any section of the Exchange Act or any rule promulgated  thereunder
shall include any successor section or rule.

     2.13 "Fair  Market  Value"  means,  unless  another  reasonable  method for
determining fair market value is specified by the Committee,  the average of the
high and low sales  prices of a share of the Common Stock as reported by the New
York Stock  Exchange  (or if such  shares are listed on another  national  stock
exchange or national quotation system, as reported or quoted by such exchange or
system) on the date in  question  or, if no such sales  were  reported  for such
date, for the most recent date on which sales prices were quoted.

     2.13A "Family Entity," "Family Member  Transfer,"  "Family  Transferee" and
"Family Trust" mean such terms as defined in Section 4.8.

     2.14 "Option Plan Committee" means the Committee  described in Section 10.1
hereof to administer the Option Plan.

     2.15 "Option Plan Election" is an election to receive Options equivalent in
value to Option Plan Fees to be earned during the period August 1 - December 31,
1994 or during one or more subsequent Plan Years.

     2.16 "Option Plan Fees" are those  Directors' Fees which may be the subject
of an Option Plan  Election.  These are limited to future  retainer  fees at the
rate in effect in the year in which the Option  Plan  Election is made and board
and committee  meeting  fees,  up to a maximum of $30,000 per year.  Option Plan
Fees for 1994 shall be limited to $12,500.

     2.17 "Option Plan Participant"  means a Director who has elected to receive
Directors' Fees in the form of Options.

     2.18 "Option  Value" - For each Option Plan Election,  the options  granted
hereunder  shall be in an amount  equivalent to the value of the Directors' Fees
subject to such Option Plan Election.  In order to implement this standard,  the
Board of Directors  has  determined at the time of adoption of the Plan that the
"Option  Value"  of an  Option  with the  terms  and  conditions  of the  Option
described  herein to purchase one share of Common Stock of the Company is 20% of
the Fair  Market  Value of such  share on the  Effective  Date of the  Option in
question,

                                       3
<PAGE>

     2.19 "Plan" means this Citizens  Utilities Company Deferred Fee Equity Plan
For Non-Employee Directors.

     2.20 "Plan Unit" shall mean a credit  established in a Participant's  Stock
Plan  Account  reflecting  the number of shares of Common  Stock  which could be
purchased at Fair Market Value as of each Accounting Date as provided in Section
6.1. A Plan Unit shall be deemed to be the equivalent of a share of Common Stock
and shall be subject  to  adjustment  in the event of change in Common  Stock as
provided in Section 11.5.

     2.21  "Plan  Year"  means the fiscal  year of the  Company,  currently  the
twelve-month period ended December 31.

     2.22 "Stock Plan Account" shall mean the account established for each Stock
Plan  Participant  to reflect  the amount of Fees  which  such  Participant  has
elected to defer under the Stock Plan, any interest component and all Plan Units
which have been acquired with such Fees and interest component.

     2.23 "Stock Plan Committee"  means the Committee  described in Section 10.1
hereof to administer the Stock Plan.

     2.24 "Stock Plan Election" means a Stock Plan  Participant's  delivery of a
written notice of election to the Administrator (a) electing to defer payment of
his or her Fees, and (b) further electing to receive payment of his or her Stock
Plan Account  either (i) at Time of  Distribution  in either (A) Common Stock or
(B) cash, or (ii) in installments in cash annually over a five-year period.  All
such elections  shall be irrevocable  except as otherwise  provided in the Stock
Plan.

     2.25 "Stock Plan Fees" and "Fees" each mean the retainer  fees and Board of
Directors and committee  meeting  attendance  fees unless the context  otherwise
requires.

     2.26 "Stock  Plan  Participant"  means a Director  who has elected to defer
payment  of all or a portion of his or her Stock  Plan Fees and to  establish  a
Stock Plan Account.

     2.27  "Termination"  means  retirement  from  the  Board  of  Directors  or
termination of service as a Director for death, disability or any other reason.

     2.28  "Time of  Distribution"  means a date ten (10)  calendar  days  after
Termination,  except as may be otherwise  specified in Article 7; provided that,
if  payment  is to be made in cash and the Time of  Distribution  is within  six
months  after the date of  acquisition  or  crediting  of Plan Units  within the
contemplation  of Rule 16b-3(c)(1) or any successor rule under the Exchange Act,
the Time of  Distribution  shall be delayed,  solely for such Plan Units,  until
more  than six  months  shall  have  elapsed  from the  date of  acquisition  or
crediting of such Plan Units.

                                       4
<PAGE>

     2.29 "Trust  Agreement" means any Trust Agreement  entered into between the
Company and any Trustee in connection with the Plan.

     2.30 "Trustee" means any entity named as Trustee in the Trust Agreement, or
any successor corporate Trustee thereunder.

     The term "Plan" shall mean the original Plan as amended by Amendment No. 1.
The term "Plan" and "Option Plan" shall include the Formula Plan; "Option" shall
include a Formula Plan Option;  "Option  under the Option Plan" shall include an
Option under the Formula Plan;  and  "Participant"  shall include a Formula Plan
Participant.

                                    ARTICLE 3
                      ELECTIONS BY OPTION PLAN PARTICIPANTS

3.1 Directors may elect to receive Fees in the form of Options.

     Option Plan Fees to be earned by Directors  for the Plan Years 1995 through
1999 may,  at the  election  of a  Director,  be  received  as Options as herein
provided.  Option Plan Fees to be earned by Directors  for the period  August 1,
1994  through  December  31, 1994 may also,  at the  election of a Director,  be
received as Options.

3.2 Annual Option Plan Elections.

     On or before December 15 of each year (except for 1994 when the Option Plan
Election  must be made on or before July 20, 1994) a Director may deliver to the
Administrator  his or her Option Plan Election to receive a stated percentage of
his or her Option Plan Fees for one or more of the Plan Years 1995  through 1999
or the period August 1 - December 31, 1994, in Options to purchase the number of
shares of Common Stock specified in Section 4.1.

     For  example:  the annual  Option Plan  Election may cover the Plan Year or
Years set forth  below (to the extent not  theretofore  the subject of an Option
Plan Election).

                                                   Plan Years or Periods for
                                                  Which Option Plan Fees May
                                                          Be Elected
            Date of Option Plan Election

         On or Before July 20, 1994               August 1 -December 31, 1994
         On or Before July 20, 1994               1995-1999
         On or Before December 15, 1995           1996-1999
         On or Before December 15, 1996           1997-1999
         On or Before December 15, 1997           1998-1999
         On or Before December 15, 1998           1999

Elections must include the earliest Plan Year for which unelected Fees exist and
(if additional years are included in the Election) consecutive successive years.
An Option Plan Election covering Option Plan Fees for this period shall preclude
a Stock Plan Election purporting to cover the same Fees.

                                       5
<PAGE>

3.3 Effective Date.

     Option  Plan  Elections  made on or  before  July  20,  1994  shall  become
effective on August 1, 1994.  Later years'  Option Plan  Elections  shall become
effective as of the next Option Plan Effective Date.

3.4 Adjustment for Actual Fees Earned.

     If by the end of any Plan Year a Director  shall not have earned the amount
of Option Plan Fees elected by him or her to be received in Options,  the number
of shares of Common Stock covered by Options granted for such Plan Year shall be
diminished  pro rata.  Any Fees  earned  which  have not been the  subject of an
Option Plan Election shall be paid in cash in accordance with the normal payment
practices of the Company for Directors'  Fees. If a  Participant's  directorship
shall terminate  during a Plan Year which has been the subject of an Option Plan
Election,  the portion of the Option which related to Option Plan Fees earned by
the Participant prior to termination of directorship  shall remain in effect and
the portion of the Option  which  relates to Option Plan Fees which are unearned
shall terminate.

3.5 Cancellation of Election.

     At any time an Option Plan  Participant  may cancel one or more  Options or
installments of Options held by him or her which relate to future Plan Years and
consequently  have  not  been  earned  as of  the  date  of  such  cancellation.
Cancellation shall be effected by delivering a written notice of cancellation to
the  Administrator.  Such cancellation  shall not affect any options held by the
Participant  relating to the year in which  cancellation  occurs or to any prior
year. Option Plan Fees to be earned by a Director covered by a canceled Election
shall  thenceforth be paid in cash in accordance  with the Company's  practices,
and may not thereafter become the subject of an Option Plan Election.

                                    ARTICLE 4
                                TERMS OF OPTIONS

4.1 Number of Shares covered by an Option.

     The number of shares of Common Stock covered by an Option resulting from an
Option  Plan  Election  shall be equal to the  Option  Plan Fees  covered by the
Election divided by the Option Value.

4.2 Maximum Duration.

     The maximum  exercise  period for each Option granted under the Option Plan
shall be ten years from the Effective Date of the Option.

                                       6
<PAGE>

4.3 Initial Exercisability in Installments.

     Options  representing  Option Plan Fees to be earned in one Plan Year shall
become exercisable on January 1 of the following Plan Year.

     Options  which relate to Fees to be earned in more than one Plan Year shall
become  exercisable in  installments  on the January 1 of the year following the
year in which Fees  represented by the installment are earned.  For example:  An
Election covering the years 1996, 1997 and 1998 would become exercisable:  as to
shares  representing  1996 Fees, on January 1, 1997;  as to shares  representing
1997 Fees, on January 1, 1998; as to the remainder of the shares,  on January 1,
1999.  An  Election  covering  Fees to be  earned  in  1999  will  first  become
exercisable on January 1, 2000.

     Options  relating  to the period  August 1, 1994 - December 31 , 1994 shall
first become exercisable on February 1, 1995.

4.4 Exercise Price.

     The Exercise Price for all shares of Common Stock purchasable upon exercise
of an Option  shall be 90% of the Fair  Market  Value as of the  Effective  Date
applicable to the Option exercised.

4.5 Notice of Exercise.

     An Option  Plan  Participant  wishing  to  exercise  an Option may do so by
giving written notice of exercise in the form adopted for the Option Plan.

4.6 Payment of Purchase Price.

     At the choice of the holder of the Option,  the Purchase  Price may be paid
either in cash,  or in shares of Common Stock valued at Fair Market Value on the
trading day immediately  preceding the date of exercise  specified in the notice
of exercise.

4.7 Exercisability Continuing after Termination.

     If the  directorship  of a Participant who has not either reached age 60 or
rendered three years of service  terminates  for any reason,  the portion of the
Option  which  relates  to Option  Plan Fees  earned by a  Participant  prior to
termination of directorship  shall continue to be exercisable by the Participant
or his or her Family Trustee or Beneficiary  for a period of twelve months after
termination of directorship. If the directorship of a Participant who has either
reached age 60 or rendered  three  years or more of service  terminates  for any
reason,  the portion of the Option which relates to Option Plan Fees earned by a
Participant   prior  to  termination  of  directorship   shall  continue  to  be
exercisable by the  Participant or his or her Family Trustee or Beneficiary  for
the  remainder of the stated term of the Option.  In no event shall the exercise
date be later than the date specified in Section 4.2.

                                       7
<PAGE>

4.8 Options not transferable; Exceptions.

     No Option granted under the Option Plan shall be transferable other than by
will or the laws of  descent  or  distribution  except  pursuant  to a  domestic
relations  order  as  defined  by the  Internal  Revenue  Code or Title I of the
Employee  Retirement  Income Security Act ("ERISA") or the rules  thereunder and
except that, with the consent of the Committee acting in its sole discretion, an
Option  Plan  or  Formula  Plan  Participant  may  transfer  (a  "Family  Member
Transfer")  an  Option  to (i) a member of the  Participant's  immediate  family
(which for the  purposes  of the Plan shall have the same  meaning as defined in
Rule 16a-1  promulgated  under the  Exchange  Act);  (ii) a trust  (the  "Family
Trust")  the  beneficiaries  of which  consist  exclusively  of  members  of the
Participant's immediate family; and (iii) a partnership,  limited partnership or
other limited  liability  entity ("Family  Entity") the members of which consist
exclusively of members of the Participant's  immediate family, Family Trusts and
Family  Entities;  provided that no  consideration  is paid for the transfer and
that each Family Member Transferee execute an instrument agreeing to be bound by
the provisions of the Plan and the restrictions as to its transferability of the
option.  During the lifetime of a  Participant,  an Option shall be  exercisable
only by the  Participant  or his or her  Family  Transferee  or  beneficiary.  A
("Family  Transferee") is transferee that is a member of the immediate family of
a Participant or a Family Trust or Family Entity."

                                    ARTICLE 5
                      ELECTIONS BY STOCK PLAN PARTICIPANTS

5.1 Directors may elect to receive Fees in the form of Plan Units.

     Directors  may  elect  to  receive  Directors'  Fees  (to the  extent  such
Directors'  Fees are not the subject of an Option Plan  Election) in the form of
Plan Units.

5.2 Stock Plan Election to Defer.

     A Director of the Company may become a Stock Plan  Participant by electing,
on an annual basis and prior to December 31 of a Plan Year,  to defer receipt of
all or a portion of the Stock Plan Fees  payable to such  Director  for the next
ensuing Plan Year;  provided,  that no Fees may be  allocated to any  Director's
Stock Plan Account after May 22, 2007. An Election  shall be effective  upon the
delivery by a Stock Plan  Participant  to the  Administrator  of a written Stock
Plan  Election to evidence his or her decision.  Such Stock Plan Election  shall
indicate  the portion of  Directors'  Fees to be deferred and credited to his or
her Stock Plan Account.

     The following  special  provisions  shall apply to Directors' Fees for 1994
and 1995:  On or before  July 20,  1994,  a  Director  may  deliver a Stock Plan
Election to the  Administrator in which he or she elects to defer receipt of all
or a portion of the Directors' Fees payable to such Director for services during
the  period  August 1, 1994  through  December  31,  1994.  In such a case,  all
deferred  Fees  will be held by the  Company  in the  Participant's  Stock  Plan
Account  and will not be  invested  in Plan Units  until  February  1, 1995.  An
election to defer Fees to be accrued  during the period  January 1, 1995 through
December  31, 1995 shall be made on or before  July 20, 1994 as provided  herein
except that the first Accounting Date for investment of such Fees shall be April
1, 1995.

                                       8
<PAGE>

     If a person  becomes a Director after the beginning of any Plan Year, he or
she may elect to defer  receipt of Fees for future  services  in such Plan Year.
Such  Stock  Plan  Election  must  be  made  in  writing  and  delivered  to the
Administrator  within  twenty days after the  individual  becomes a Director and
will take  effect as of the first  calendar  quarter to start  after the date of
such Election.  In such a case, deferred Fees will be held by the Company in the
Participant's  Stock Plan  Account and will not be  invested in Common  Stock or
Plan  Units  until the first  Accounting  Date  which is at least six (6) months
after  the  date  that  such  Stock  Plan  Election  is first  delivered  to the
Administrator.

5.3 Effectiveness of Elections.

     Elections  for each Plan Year shall be effective and  irrevocable  upon the
delivery of a Stock Plan Election to the  Administrator,  except as specifically
provided in this Plan. Fees deferred  pursuant to such Stock Plan Election shall
be credited to the Participant's Stock Plan Account and distributed at the times
and in the manner set forth in such Election.

     In the absence of an  effective  Stock Plan  Election to take effect on the
Time of Distribution as to the time and/or manner of distribution, the payout of
a Stock  Plan  Account  shall be in one lump  sum  cash  payment  at the Time of
Distribution or as soon thereafter as possible, as provided by Section 2.28.

                                    ARTICLE 6
                       STOCK PLAN ACCOUNTS AND PLAN UNITS

6.1 Crediting Stock Plan Accounts.

     The Stock Plan Account of each Stock Plan Participant  shall be credited as
of each  Accounting  Date with Plan Units  equal to the total cash value of fees
earned in a quarter  divided by 85% of the average of the high and low prices of
the  stock  on the  first  trading  day of the year the  election  is in  effect
("Initial Market Value").  Plan Units will be credited to the director's account
as of the first business day of the fiscal quarter  following the fiscal quarter
in which such Stock Plan Fees were earned.  An adjustment equal to the excess of
the number of Plan Units calculated at the Fair Market Value on the last trading
day of the  month of  November  of a Plan Year  over the  number  of Plan  Units
calculated  at the Initial  Market Value for such Plan Year shall be credited to
each  participant's  Stock Plan Account in December of the applicable Plan Year.
The   quarterly   crediting  of  the  Plan  Units  has  been   established   for
administrative convenience. As of the date of any payment of a stock dividend or
stock split by the Company, a participant's  Stock Plan Account will be credited
with Plan  Units  equal to the  number of  shares  of  Common  Stock  (including
fractional share  entitlements) which are payable by the Company with respect to
the number of shares  (including  fractional  share  entitlements)  equal to the
number of Plan Units  credited to the  Participant's  Stock Plan  Account on the
record  date for such  stock  dividend  or  stock  split.  As of the date of any
dividend in cash or property or other distribution  payable to holders of Common
Stock,  the  Participant's  Stock Plan Account shall be credited with additional
Plan units equal to the number of shares of Common Stock  (including  fractional
share  entitlements)  that could have been purchased at the Fair Market Value as
of such  payment  date with the  amount  which  would  have been  received  as a
dividend or distribution  on the number of shares  (including  fractional  share
entitlements)  equal to the Plan Units credited to the Participant's  Stock Plan
Account as of the record date.

                                       9
<PAGE>

     On a quarterly  basis,  or as otherwise  appropriate to match  increases in
Plan Units held in the Plan,  the Company  may,  but shall not be  required  to,
purchase  Common Stock on the open market and hold the same in the "Deferred Fee
Stock Plan for Non-Employee Directors Account." Also, the Company may enter into
a Trust Agreement with a Trustee and may, but shall not be required to, transfer
to the  Trustee  either (a) the number of shares of Common  Stock  approximately
equal  in Fair  Market  Value as of the last  Accounting  Date to the  aggregate
dollar amount of credits in the Participants' Stock Plan Accounts for Stock Plan
Fees  deferred by the Directors  and any interest  component on such  Accounting
Date, or (b) cash with  instructions  to purchase  shares of Common Stock either
from the Company or in the open market, as determined by the Company.  Purchases
in the open market by the Trustee shall not be subject to any direct or indirect
control or influence over the times when, or the prices at which,  or the broker
or dealer through which, the Trustee shall buy such shares.

6.2 Establishment of Stock Plan Accounts.

     The Company,  Administrator or the Trustee, as appropriate, shall establish
a separate "Stock Plan Account" for each Stock Plan Participant who defers Stock
Plan Fees pursuant to the Plan, and credit each Participant's Stock Plan Account
with his or her  entitlement  to deferred  Fees,  an interest  component  at the
Applicable Rate of Interest and Plan Units.

6.3 Adjustment of Stock Plan Accounts.

     As of each Accounting Date of each Plan Year and on such other dates as the
Administrator  directs, the value of each Stock Plan Account shall be determined
by the Company, the Administrator, or the Trustee, as appropriate.

                                    ARTICLE 7
                         PAYMENT OF STOCK PLAN ACCOUNTS

7.1 Time and Method of Distribution.

     Distribution of a  Participant's  Stock Plan Account shall commence at Time
of  Distribution.  Distribution  shall be made in a lump sum or in equal  annual
cash installments over a period of five years.

     If a  distribution  is to be made in a lump  sum it may be made  either  in
shares of Common Stock or in cash. If a  distribution  is to be made in cash, it
shall  be in an  amount  equal  to the  Fair  Market  Value  as of the  Time  of
Distribution  (or such later date as may be required  to  continue an  exemption
under  Rule  16b-3) of all Plan Units  credited  to a  Participant's  Stock Plan
Account  plus any  uninvested  deferred  Stock  Plan Fees and  related  interest
component.  The distribution  shall be paid to the Stock Plan Participant or his
or her Beneficiary.

                                       10
<PAGE>

     If a distribution is to be made in shares of Common Stock, the distribution
shall be such  number of shares of Common  Stock as shall  equal the Plan  Units
credited to such  Participant's  Stock Plan  Account plus shares of Common Stock
equivalent  in Fair  Market  Value to the amount of any  accumulated  uninvested
deferred Fees and interest component in such Participant's Stock Plan Account as
of the Time of Distribution.  Any remaining fractional interest shall be paid in
cash.

     If a distribution is made in annual  installments,  each annual installment
shall be in cash and equal to one-fifth of the amount of the lump sum payable as
of the Time of  Distribution  or later date as aforesaid,  with interest on each
unpaid  installment at the Applicable  Rate of Interest in effect on the date of
Termination by a Director of his directorship.

7.2 Election of Method of Distribution.

     At the time that a Director first makes a Stock Plan Election to defer Fees
for a Plan Year,  such Director may elect whether the payments to be made at the
Time of Distribution for that Plan Year shall be distributed in a lump sum or in
five equal annual cash installments.

     At the same time, any Stock Plan Participant  electing lump sum payment may
also  elect for the  payment  of such  lump sum to be in shares of Common  Stock
credited to the Stock Plan Account or in cash. A Stock Plan  Participant may, in
connection  with his or her retirement,  death or disability,  change his or her
Stock Plan Election as to the method of payment (shares or cash) of any lump sum
distribution from time to time.

     Subject to the provisions of Articles 9 and 10, either the Committee or the
Administrator,  in their sole  discretion,  may direct the  distribution  of the
Director's  entitlement  in a  lump  sum  or in  annual  installments,  and  the
Committee  or  Administrator  may take  into  account,  but  need not take  into
account,  any  request  by a  Director  concerning  the  period  over  which his
entitlement will be distributed.

7.3 Merger, consolidation, sale of assets or tender for shares.

     In the event of a proposed  merger or  consolidation  in which the  Company
will not be the surviving corporation,  or a sale of a majority of the assets of
the Company, or in the case of a tender offer or the Company's Common Stock or a
similar corporate  transaction which is expected in the view of the Committee to
result in another  company,  firm, or group  acquiring 20% or more of the voting
power of the  Company's  outstanding  securities,  the Plan  shall take steps to
convert Plan Units held by  participants  into shares of Common Stock.  The Plan
shall  obtain  such  shares  with  a view  to  making  the  same  available  for
participation  by Stock Plan  Participants  in the  transaction  (subject to the
fourth from last sentence of this  Section).  Such shares may be obtained by the
Plan from the "Deferred Fee Stock Plan for Non-Employee  Directors Account," any
trust account for the benefit of Plan  Participants,  the Company,  or any other
source,  including authorized and unissued, or issued and reacquired,  shares of
Common Stock. In the event that shares of Common Stock are  convertible  into or
otherwise  exchangeable for securities of another corporation,  or cash or other
property without the need for action or tender by an individual shareholder, the
Company shall take all necessary  steps to carry out such conversion or exchange
and shall deliver to each Stock Plan  Participant the securities,  cash or other
property into which his or her shares have been  exchanged or converted.  In the
event of a tender offer or similar event in which an individual  shareholder  of
the  Company  may elect to tender  shares or  otherwise  take  steps to  receive
securities, cash or other property, the Company shall so advise the Participants
and take such  action,  including  tender,  or shall  refrain  from  action,  as
directed in writing by each Stock Plan  Participant.  Prior to the completion of
such tender offer or similar event, no Participant shall have any entitlement to
any  shares,  and if such  event  is not  completed  each  participant  shall be
entitled to Plan Units and not shares of Common  Stock.  Upon the  completion of
such tender offer or similar event,  the Company shall  distribute to each Stock
Plan Participant any shares of Common Stock, securities,  cash or other property
held by the Plan for his or her Stock Plan Account.  The Administrator may delay
such  distribution  to any Stock Plan  Participant  in order to comply with,  or
continue the  availability of an exemption  under, the Act or Exchange Act. Upon
the completion of such distribution the Stock Plan shall terminate.

                                       11
<PAGE>

7.4 Change in Tax Law.

     The  Stock  Plan  is  intended  to  be  treated  as  an  unfunded  deferred
compensation  plan under the Code.  It is the  intention of the Company that the
amounts deferred pursuant to this Plan shall not be included in the gross income
of the  Participants  or their  Beneficiaries  until  such time as the  deferred
amounts are  distributed  from the Plan.  If, at any time,  it is  determined or
claimed by the Internal  Revenue Service  ("Service")  that amounts  deferred in
earlier plan Years have become  currently  taxable to the  Participants or their
Beneficiaries,  the  Committee  may, in its  discretion,  terminate the Plan and
distribute   amounts   credited  to  the  Stock  Plan   Participants   or  their
Beneficiaries.  Such  determination  shall  be based  on a  ruling  or  publicly
available  Pronouncement  from  the  Service,  or on the  position  taken by the
Service in audit, or a written opinion from tax counsel.

                                    ARTICLE 8
                            CREDITORS AND INSOLVENCY

8.1 Unfunded Status.

     Any and all payments made to a Stock Plan Participant  pursuant to the Plan
shall be made from the general assets of the Company or assets  available to its
general  creditors.  Any payments made in good faith under the terms of the Plan
to a Stock Plan  Participant or his Beneficiary  shall fully discharge the Plan,
the Company,  the Trustee,  if any, the Administrator and the Committee from all
further obligations with respect to such payments.  The Company intends that the
Plan shall be considered  unfunded for all purposes,  including tax purposes and
purposes of Title I of ERISA.

                                       12
<PAGE>

8.2 Claims of the Company's Creditors.

     All assets held pursuant to the provisions of this Plan shall be subject to
the claims of general creditors of the Company, including judgment creditors and
bankruptcy  creditors.  The rights of a Stock Plan Participant or Beneficiary to
any  assets  of the Plan or Trust  shall be no  greater  than the  rights  of an
unsecured creditor of the Company.

     No Stock Plan Participant shall have any claim or entitlement to any shares
of Common Stock which have been purchased, acquired or held by the Plan, Company
or any Trustee. Any and all such shares shall be the property of the Company and
shall only  represent  funds or assets  available to the Company  which it shall
have designated to match its obligations and accruals with respect to the Plan.

8.3 Notification of Trustee, if any.

     If the  Company  has  appointed  a  Trustee  for the  Plan,  the  following
provisions shall obtain: In the event the Company becomes  insolvent,  the Board
of Directors and the Chief  Executive  Officer of the Company shall  immediately
notify the Trustee of that fact.  The Trustee  shall not make any payments  from
the Trust to any Stock Plan Participant or any Beneficiary  under the Plan after
such  notification is received or at any time after the Trustee has knowledge of
such insolvency. Under any such circumstances,  the Trustee shall make available
any property  held in the Trust to satisfy the claims of the  Company's  general
creditors or, upon satisfaction of such claims, to the Participants,  as a court
of competent  jurisdiction  may direct.  For purposes of this Plan,  the Company
shall be deemed to be insolvent if the Company is subject to a pending voluntary
or involuntary  proceeding as a debtor under the United States  Bankruptcy Code,
or is unable to pay its debts as they mature.  All trust assets shall be subject
to the  claims  of  general  creditors  of the  Company  to the  fullest  extent
contemplated by Revenue Procedure 92-64.

                                    ARTICLE 9
                                PAYMENT OF SHARES

9.1 Delivery of Certificates for Stock.

     At the Time of Distribution  or as soon thereafter as practicable,  subject
to the fourth  paragraph of this  Section,  the Company shall deliver to a Stock
Plan  Participant  who has elected to receive  shares of Common  Stock or to his
Beneficiary a  certificate  for the shares of Common Stock to which he or she is
entitled. At the time of exercise of an Option,  subject to the fourth paragraph
of this Section, the Company shall deliver to the Option Plan Participant or his
or her  Beneficiary a certificate  for shares of Common Stock to which he or she
is  entitled.  Such  certificates  shall  be  registered  in  the  name  of  the
Participant or Beneficiary.

     The Company shall not be required to issue or deliver any certificates for,
or make book-entry  reflecting,  shares of Common Stock prior to (a) the listing
of such  shares on any stock  exchange or  quotation  system on which the Common
Stock may then be listed or quoted and (b) the  completion of any  registration,
qualification,  approval or  authorization  of such shares  under any federal or
state law,  or any ruling or  regulation  or approval  or  authorization  of any
governmental body which the Company shall, in its sole discretion,  determine to
be necessary or advisable.

                                       13
<PAGE>

     All  certificates  for shares of Common Stock delivered under the Plan, and
book entries  reflecting such shares,  shall be subject to such  restrictions as
the  Administrator  may deem advisable under the rules,  regulations,  and other
requirements of the Securities and Exchange Commission,  any stock exchange upon
which the  Common  Stock is then  listed  and any  applicable  federal  or state
securities laws.

     If the  registration of ownership of Common Stock is then being  maintained
by the Company or its transfer  agent in book-entry  form,  then the delivery of
shares of Common Stock to the Participant or his Beneficiary may be evidenced by
book entry, unless the Participant or Beneficiary requests otherwise in writing.

9.2 Taxes.

     The Company or the Trustee, as appropriate,  shall deduct the amount of any
taxes,  if so required by law,  from any payments  made pursuant to the Plan and
shall transmit the withheld  amounts to the appropriate  taxing  authority,  and
provide the Stock Plan Participant or any Beneficiary of appropriate evidence of
withholding.  In the case of  exercise  of an Option  under the  Option  Plan or
payment in shares of Common  Stock under the Stock  Plan,  the  Participant  may
request the Company to accept  payment of any related  withholding  taxes in the
form of shares of Common  Stock  valued at Fair Market  Value on the trading day
immediately  prior to the related exercise of the Option or payment in shares of
Common Stock, as the case may be.

9.3 Payment to Beneficiary, Exercise of Option by Beneficiary.

     Upon the death of a Stock Plan  Participant,  the Stock Plan Account of the
deceased Stock Plan Participant  shall be paid to the Beneficiary  either (i) in
the same manner as it would have been paid to the Stock Plan Participant or (ii)
in a lump sum settlement, as determined by the Committee or the Administrator in
their sole discretion, consistent with the guidelines referred to in Article 10.
Upon the death of an Option Plan  Participant,  the Beneficiary may exercise any
Option to the extent exercisable on the date of death.

9.4 Redesignation of Beneficiary.

     Amendments which serve only to change the Beneficiary  designation shall be
permitted at any time and as often as necessary.

                                   ARTICLE 10
                                 ADMINISTRATION

10.1 Appointment of Committee and Administrator

     The Board of Directors  shall appoint a Stock Plan  Committee and an Option
Plan Committee  (which may be the same  Committee),  each consisting of not less
than two persons,  to administer and interpret the Plan.  Members of a Committee
shall hold office at the pleasure of the Board of Directors and may be dismissed
at any time with or without cause.

                                       14
<PAGE>

     The  Board of  Directors  shall  also  designate  one or more  officers  or
employees  of  the  Company  to  be  the   Administrator  to  have  the  primary
administrative  responsibility  with respect to each Plan, in coordination  with
and under the direction of the Committee.

10.2 Powers of the Administrator and the Committee.

     The Stock Plan and  Option  Plan  Committees  and the  Administrator  shall
together administer the Plan. The Committees shall not, under any circumstances,
have authority to select those  Directors who will be eligible to participate in
the Plan or to make decisions  concerning  the timing,  pricing or amount of any
benefit,  Plan Unit,  share of Common Stock or Option  under the Plan.  All such
matters are  determined  solely by the  provisions of the Plan.  The  Committees
shall  interpret or supplement  the  provisions  of the Plan where  desirable or
necessary and may resolve  ambiguities or omissions or adopt  procedures for the
administration  of the Plan  consistent  with the purpose and  provisions of the
Plan and any rules adopted by the Committee. Whenever directions,  designations,
applications,  requests or other notices are to be given by a Participant  under
the Plan, they shall be filed with the Administrator.

     Except as provided in the next paragraph, all decisions,  determinations or
actions of a Committee made or taken  pursuant to grants of authority  under the
Plan shall be made or taken in the sole  discretion  of a Committee and shall be
final, conclusive and binding on all persons for all purposes.

     If the  taking  of any  action  or the  making  of any  determination  by a
Committee or Administrator shall jeopardize the effectiveness of the deferral of
Fees or of credits in  Participants'  Stock Plan Accounts or Options for federal
income tax  purposes or any  exemption  of any plan of the Company  from Section
16(a) and (b) of the Exchange Act, the Committee or  Administrator,  as the case
may be, shall be deemed to be without the power to take such action or make such
determination.

10.3 Rendering of Quarterly Plan Accounts.

     After the close of each  quarter,  the  Administrator  will deliver to each
Participant  a statement  showing the Plan Units which have been credited to his
or her account as of the end of such quarter and any accumulated  deferred fees.
The  accounting  shall  also  indicate  the  price  per unit for all Plan  Units
credited since the end of the previous account. The statement will also show the
Options held and/or elected by a Participant and the terms of such Options.

10.4 Both Elections may apply to a Plan Year.

     Subject to the limitations  contained in each Plan, a Director may elect to
include  all or any  portion of his Fees to be earned in any future Plan Year in
one or both of the Plans, but without  duplication.  If a Director has delivered
an Option  Plan  Election  and a Stock Plan  Election  for the same Plan Year or
period,  the Fees covered by such  Elections  shall be allocated as specified in
such  Elections or in other  instructions  from the Director.  In the event of a
conflict in instructions  from a Director,  the  Administrator  shall advise the
Director.

                                       15
<PAGE>

10.5 Advance Notification by Administrator.

     On or before May 31 of each  year,  the  Administrator  shall  notify  each
Director  that he or she must  deliver  a written  Stock  Plan  Election  to the
Administrator  prior to June 30 (or any  later  cut-off  date  permitted  by the
Administrator)  in order to defer Fees  during  the next  calendar  year.  On or
before  November 30 of each year, the  Administrator  shall notify each Director
that he or she must deliver a written Option Plan Election to the  Administrator
prior to December 15 (or any later cut-off date permitted by the  Administrator)
in order to elect to  receive  Options  in  payment  for  future  services  as a
Director in upcoming Plan Years.

                                   ARTICLE 11
                                  MISCELLANEOUS

11.1 Term of Plan.

     The Plan shall  become  effective as provided in Section 11.9 and the Stock
Plan shall continue through May 22, 2007 unless earlier  terminated  pursuant to
Sections 7.3 or 7.4

11.2 Shares Subject to the Plan.

     As of any date the maximum  number of shares of Common Stock which the Plan
may be obligated to deliver pursuant to the Stock Plan and the maximum number of
shares of Common Stock which shall have been purchased by Participants  pursuant
to Options and which may be issued  pursuant to  outstanding  Options  under the
Option  Plan shall not be more than one (1%)  percent  of the total  outstanding
shares of Common Stock of the Company as of June 30, 2003, subject to adjustment
in the event of changes in the  corporate  structure  of the  Company  affecting
capital  stock.  Any Common  Stock  transferred  by the  Company to a Stock Plan
Account or to the Trustee or delivered by the Company upon exercise of an Option
hereunder may consist, in whole or in part, of authorized and unissued shares or
treasury shares as the Company shall determine.  Cash transferred to the Trustee
may be used to purchase Common Stock in the open market or from the Company.

     In the event that the total number of shares of Common Stock subject to, or
issued  pursuant  to, the Plan at any one time is in excess of the  above-stated
limit,  the  number  need not be  reduced if such  excess  has  resulted  from a
reduction  in the  amount  of issued  and  outstanding  shares  of Common  Stock
subsequent  to the time that such  Options  were  granted  or such  shares  were
issued. If any shares of Common Stock subject to purchase by a Participant under
an Option under the Plan are not purchased, such shares of Stock shall be deemed
not to have been  purchased  pursuant to the Plan for purposes of this  Section.
Shares of Common  Stock  received  or  retained by the Company in payment of the
exercise price of Options or in payment,  or in lieu of payment,  of withholding
taxes  shall not  reduce  the  number of  shares  deemed to have been  purchased
pursuant to the Plan.

                                       16
<PAGE>

11.3 Non-alienation of Benefits.

     The  rights  of a  Stock  Plan  Participant  to  the  payment  of  deferred
compensation,  to funds or shares as provided  in this Plan and with  respect to
amounts  credited  to his or her Stock Plan  Account and the rights of an Option
Plan Participant with respect to an Option or to purchase shares of Common Stock
upon exercise of an Option are not  transferable by a Participant  other than by
will or the  laws  of  descent  and  distribution  and  shall  not be  assigned,
transferred,  pledged or encumbered or be subject in any manner to alienation or
anticipation,   except  that  an  Option  Plan   Participant  and  Formula  Plan
Participant ay make a Family Member Transfer.  No Participant may borrow against
his or her Stock Plan Account or Options. No Stock Plan Account nor Option shall
be  subject  in  any  manner  to  anticipation,   alienation,   sale,  transfer,
assignment, pledge, encumbrance,  charge, garnishment,  execution or levy of any
kind,  whether  voluntary  or  involuntary,  including,  but not limited to, any
liability  which is for alimony or other payments for the support of a spouse or
former spouse, or for any other relative of a Participant, except that an Option
Plan Participant and Formula Plan Participant may make a Family Member Transfer.
Neither  a  Participant's   Stock  Plan  Account  or  Option   hereunder  nor  a
Participant's rights to benefits hereunder may be assigned to any other party by
means  of a  judgment,  decree  or  order  (including  approval  of  a  property
settlement  agreement)  relating  to the  provision  of child  support,  alimony
payments,  or marital property rights of a spouse, former Spouse, child or other
dependent of the Participant.  As contemplated by Revenue  Procedure 92-65 under
the Code, a Stock Plan  Participant's  rights to benefit payments under the Plan
shall not be subject in any manner to anticipation,  alienation, sale, transfer,
assignment, pledge, encumbrance,  attachment, or garnishment by creditors of the
Participant or the Participant's Beneficiary.

     This Plan  shall not in any  manner be liable  for or subject to the debts,
contracts, liabilities, engagements or torts of any persons entitled to benefits
hereunder.

     In  the  event  that,  notwithstanding  the  foregoing,  any  Participant's
benefits are garnisheed or attached by order of any court, the Administrator may
elect to bring an action  for a  declaratory  judgment  in a court of  competent
jurisdiction to determine the proper recipient of the benefits to be paid by the
Plan.  During the pendency of said action,  any benefits that become payable may
be paid into the court as they become  payable,  to be distributed by a court to
the recipient as it deems proper at the close of said action.

     In addition,  a Participant or Beneficiary  shall have no rights against or
security interest in the assets of the Plan, Company or Trust, if any, and shall
have only the Company's  unsecured  promise to pay  benefits.  All assets of the
Trust,  if any,  shall  remain  subject to the claims of the  Company's  general
creditors.

11.4 Participants' Rights.

     Nothing contained in this Plan shall be construed as giving any Participant
the right to be retained as a Director of the Company. Nothing contained in this
Plan shall be  construed  as  limiting,  in any way, any right that any party or
parties  may have to remove a  Participant  as a Director  of the  Company or to
appoint or to elect another individual to replace a Participant as a Director of
the  Company.  Nothing  contained  in this Plan shall be construed as giving any
Participant  the right to receive any benefit not  specifically  provided by the
Plan. Any other provision of the Plan notwithstanding,  a Stock Plan Participant
shall not have any  interest in the amounts  credited to his Stock Plan  Account
until such Stock Plan Account is distributed  in accordance  with the provisions
of Article 7, and all deferred  Fees,  and all  earnings,  gains and losses with
respect  thereto  shall remain  subject to the claims of the  Company's  general
creditors in accordance  with the provisions of the Stock Plan.  With respect to
amounts credited to a Participant's Stock Plan Account,  the rights of the Stock
Plan  Participant,  the  Beneficiary  of the  Participant  or any  other  person
claiming through the Participant  under this Stock Plan shall be solely those of
unsecured general  creditors of the Company,  and the obligations of the Company
hereunder  shall be purely  contractual.  Such  benefits  shall be paid from the
general assets of the Company.  As contemplated by Revenue Procedure 92-65 under
the Code,  Participants shall have the status of general unsecured  creditors of
the Company and each Plan, and all rights  thereunder,  shall  constitute a mere
promise of the Company to make benefit payments in the future.

                                       17
<PAGE>

11.5 Adjustments in Event of Change in Common Stock.

     Subject to the  provisions  of  Sections  6.1 and 7.3,  in the event of any
stock dividend, stock split, recapitalization,  or reclassification of shares of
Common Stock,  merger or  consolidation of the Company or sale by the Company of
all or a portion of its assets,  or tender  offer for its  securities,  or other
event which could distort the  implementation  of the Plan or the realization of
its objectives, the Administrator shall make such appropriate adjustments in the
number and kind of securities  which a Plan Unit will  represent or which may be
paid out under the Plan,  and in the  number of shares of Common  Stock or other
securities or number and kind of securities,  and the purchase  price  therefor,
for which an Option may be exercisable or in terms,  conditions or  restrictions
on securities as the Administrator deems equitable.

     In the  event of a stock  split or stock  dividend,  the  number  of shares
purchasable  upon  exercise of an Option shall be increased to the new number of
shares which result from the shares covered by the Option immediately before the
split or dividend. The purchase price per share shall be reduced proportionately
and the total purchase price will remain the same. In the case of a distribution
in property  other than cash the number of shares  covered shall be increased to
reflect,  in shares  valued at the then  current  market,  the fair value of the
distribution.

     All  events  occurring  between  the  Effective  Date of the Option and its
exercise shall result in an adjustment to the Option terms.

11.6 Amendments; Other.

     The Board or the  Committee  may amend the Plan to the extent  necessary or
appropriate to effect compliance with Rule 16b-3 in order to continue or provide
an exemption  from Section  16(a) and (b) of the Exchange Act for either Plan or
any other  equity  plan of the  Company,  and the  Administrator  may change the
cut-off dates for Elections or the dates of  effectiveness  of  transactions  or
other events under the Plan to the same end; provided that no such amendments or
change shall materially  increase the benefits to or adversely affect the rights
of the Participants.

     In addition,  the Board may amend the Plan in any other  manner,  provided,
however, that no amendment shall adversely and materially affect the rights of a
Participant,  taken as a whole,  to amounts  previously  credited  to his or her
Stock Plan Account or to Options which have been granted  unless such  amendment
is  required by Rule 16b-3 in order to  continue  or provide an  exemption  from
Section  16(b) of the  Exchange  Act for either Plan or any other equity plan of
the Company,  or for the deferral of Directors' Fees until the year of payout or
exercise of Options under either Plan for Federal income tax purposes.

                                       18
<PAGE>

     Amendments may not be made more frequently than permitted by Rule 16b-3. No
amendment shall require  shareholder  approval unless required under Rule 16b-3.
If shareholders'  approval is necessary or desirable for the continued  validity
of the Plan or if the failure to obtain such approval would adversely affect the
compliance of the Plan with Rule 16b-3, no such amendment shall become effective
unless approved by affirmative vote of the Company's shareholders.

     Transactions  under  each  Plan are  intended  to  comply  with  applicable
conditions  of Rule 16b-3,  except that a purchase  under the Option Plan may be
deemed to occur on an Effective  Date.  To the extent any provision of each Plan
intended to comply, or action by the Administrator, fails to so comply, it shall
be deemed null and void, to the extent  permitted by law and declared  advisable
by the Administrator.

11.7 Notices.

     All elections,  designations,  requests,  notices,  instructions  and other
communications from a Director, Participant,  Beneficiary or other person to the
Administrator, required or permitted under the Plan, shall be in such form as is
prescribed from time to time by the  Administrator  and shall be mailed by first
class mail,  delivered by facsimile or otherwise  delivered to such  location as
shall be specified by the Administrator.

11.8 Binding Effect.

     The terms of the Plan shall be binding upon the Company and its  successors
and assigns.

11.9 Effective Date of Original Plan.

     The Plan shall be effective as of June 28, 1994, subject to approval by the
shareholders  of the Company.  All deferrals or credits to a Stock Plan Account,
and all Options,  made prior to such shareholder approval shall be contingent on
such approval.  The existing Citizens  Utilities  Company Deferred  Compensation
Plan for Directors shall continue to be available for compensation deferrals and
shall not be affected by the adoption of this Plan.

                                   ARTICLE 12
                                  FORMULA PLAN

12.1 Eligibility.

     All Directors of the Company shall automatically participate in the Formula
Plan.

                                       19
<PAGE>

12.2 Grant.

     Effective with the calendar year 2005,  options to purchase common stock of
the Company  shall no longer be granted  pursuant to the  Formula  Plan.  On the
first business day of each Plan Year,  starting with the calendar year 2005, and
continuing  through 2007, 3,500 stock units shall be awarded to each Director in
office on such date, without the need for further corporate action.

12.3 Subsequently Elected Directors.

     Individuals  who are not  Directors on the first day of a Plan Year but who
become  Directors  of the  Company  shall be awarded,  without  need for further
corporate  action,  3,500 stock units. The Grant Date for such stock units shall
be the date upon which such individual first becomes a Director.

12.4 Other.

     To the  extent  not  inconsistent  with the  provisions  set  forth in this
Article 12,  stock units  awarded  pursuant to the Formula  Plan,  Participant's
rights and the  Company's  obligations  shall be subject  to the  provisions  of
Sections 6.2 and Articles 2, 7, 9, 10 and 11 of the Plan.

12.5 Duration of the Formula Plan; Effective Date.

     Amendment  No. 1 to the Plan shall  become  effective  on August 20,  1996,
provided  that the  effectiveness  of the Formula Plan and the  amendment to the
Plan modifying  Section 4.7 shall be subject to approval of the  stockholders of
the Company at the first annual meeting of the  stockholders  held after the end
of the 1996 to the extent, in each case, that such approval is called for by the
rules  or  policies  of the New  York  Stock  Exchange  or is  otherwise  deemed
advisable by the  Company.  The period  during  which Option  awards may be made
under the Formula Plan shall terminate on May 22, 2007. Such  termination  shall
not affect the terms of any then outstanding Options."

                                       20

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