Document:

Exhibit 10.6

 

OPTION AGREEMENT

 

This OPTION AGREEMENT (the “Agreement”), dated September 17, 2004
for reference purposes only, is by and between DYNAMIC MATERIALS CORPORATION,
a Delaware corporation (“DMC”), and AEROJET-GENERAL CORPORATION, an Ohio
corporation (“Aerojet”).  The “Effective
Date” of this Agreement shall be the first date upon which both Seller and
Buyer have executed this Agreement.

 

RECITALS

 

A.                                   DMC
is in the business of metal machining in the manufacture of certain rocket
motor case and pressure tanks (the “Business”) and conducts the Business on
real property located in Los Angeles County, California, with a street address
of 1700 East Grand Avenue, El Segundo, California 90245, utilizing the
buildings, structures, improvements and fixtures on same real property
(collectively, the “Property”), subject to an Operating Lease dated
March 18, 1998, as amended by that certain Agreement and Amendment to
Operating Lease dated February 1, 2000 (as amended, the “Master Lease”),
with Spin Forge LLC, a California limited liability company (“Spin Forge”), as
lessor.

 

B.                                     Spin
Forge has granted to DMC an exclusive option to purchase the Property pursuant
to that certain Option Agreement dated March 18, 1998, as amended by that
certain Amendment Number 1 to Option Agreement dated June 28, 2001, as
further amended by that certain Amendment Number 2 to Option Agreement, dated
May 20, 2002, as further amended by that certain Amendment Number 3 to Option
Agreement dated March 14, 2003, as further amended by that certain
Amendment Number 4 to Option Agreement dated April 22, 2004, as further
amended by that certain Amendment Number 5 to Option Agreement dated
September 17, 2004 (as amended, the “Option Agreement”).  A copy of the Option Agreement is attached
hereto as Exhibit A, and incorporated herein by this reference.

 

C.                                     Pursuant
to that certain Agreement dated September 17, 2004 (the “Master
Agreement”), DMC has agreed to, among other things, sell and transfer to
Aerojet certain of its rights and assets to enable Aerojet to operate the
Business on the Property.

 

D.                                    In
accordance with the Master Agreement, DMC and Aerojet have entered into a
sublease of the Master Lease, dated September 17, 2004, pursuant to which
Aerojet shall sublease the Property from DMC (the “Sublease”).

 

E.                                      Also
in accordance with the Master Agreement, Aerojet desires to acquire from DMC,
and DMC desires to grant to Aerojet, an option to purchase from DMC all of
DMC’s right, title and interest in and to the Option Agreement (collectively, the
“Property Option Rights”).

 

1

 

AGREEMENTS

 

NOW, THEREFORE, in consideration of the foregoing recitals which are
specifically incorporated into the body of this Agreement, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, DMC and Aerojet agree as follows:

 

1.                                       Option
Terms.

 

(a)                                  Grant of Option. 
Subject to the terms and conditions of this Agreement and for good and
valuable consideration, as more particularly described in the Master Agreement,
DMC hereby grants to Aerojet an exclusive option to purchase the Property
Option Rights on the terms and conditions set forth in this Agreement (the
“Option”).

 

(b)                                 Term.  The Option
shall commence on the Effective Date and terminate on August 1, 2005 (the
“Option Term”).

 

(c)                                  Exercise.  In the event
Aerojet elects to exercise the Option, it shall do so by notifying DMC in
writing within the Option Term in accordance with the notice provisions in
Section 8 below.

 

(d)                                 Memorandum
of Option.  Concurrently with the
execution and delivery of this Agreement by DMC, DMC shall deliver to Escrow
Holder a Memorandum of Option substantially in the form attached hereto as Exhibit
B, and incorporated herein by this reference, duly executed and
acknowledged by each of DMC and Spin Forge 
together with instructions to Escrow Holder to record the Memorandum of
Option in the Official Records of Los Angeles County, California.  In the event Aerojet does not exercise the
Option within the Option Term or in the event this Agreement is terminated
under paragraph 3 below or for any other reason, Aerojet shall deliver to DMC
and Spin Forge upon demand a quitclaim deed in a form suitable for recordation covering
the Property so as to eliminate any cloud on Spin Forge’s title to the
Property.

 

2.                                       Purchase Terms

 

(a)                                  Purchase Consideration. 
In the event Aerojet exercises the Option, DMC shall sell to Aerojet,
and Aerojet shall purchase from DMC, the Property Option Rights for
consideration (the “Purchase Consideration”) equal to the value of the Property
Option Rights as reasonably agreed to by the parties.  Each of DMC and Aerojet covenant and agree to negotiate in good
faith to reach agreement upon the type and amount of the Purchase Consideration
as soon as practicable following the Effective Date, but in no event later than
December 15, 2004.

 

(b)                                 Closing.  The closing
of Aerojet’s purchase of the Property Option Rights in accordance with this
Agreement (the “Closing”) shall occur within five (5) business days of Aerojet
providing notice to DMC of its election to exercise the Option pursuant to
Section 1(c) above.  The Closing
shall occur through the Escrow with the Escrow Holder (as such terms are
defined in the Option Agreement).  At
the Closing, the following shall occur: (i) the parties shall execute and
deliver: (A) a written assignment and assumption agreement regarding the Option
Agreement, substantially in the form attached hereto as Exhibit C and incorporated
herein by this

 

2

 

reference, and (B) such escrow instructions as are reasonable and
necessary to carry out the provisions of this Agreement; (ii) Aerojet shall
deliver to DMC the Purchase Consideration; and (iii) a Memorandum of Assignment
of Option, substantially in the form attached hereto as Exhibit D and
incorporated herein by this reference, duly executed and acknowledged by DMC,
Spin Forge, and Aerojet, shall be recorded in the Official Records of Los
Angeles County, California.

 

3.                                       Termination of Agreement. 
If Aerojet does not exercise the Option on or before August 1, 2005
in accordance with Section 1(c) above, or in the event the parties are
unable to agree upon the type and amount of the Purchase Consideration by
November 30, 2004, as provided in Section 2(a) above, this Agreement
shall automatically terminate, and except otherwise provided herein, the
parties shall have no further rights or obligations under this Agreement.

 

4.                                       Acknowledgement Regarding Sublease and Other Ancillary
Agreements.  The parties acknowledge and agree that
nothing herein shall affect the parties’ respective rights and obligations
under the Sublease, or under the Equipment Lease or the License Agreement (as
such terms are defined in the Master Agreement).

 

5.                                       Allocation of Costs.  Each of DMC
and Aerojet shall pay one-half of all escrow and any other closing fees
incurred in connection with the Closing. 
DMC and Aerojet shall each pay all attorneys’ fees and costs incurred by
such party in connection with the negotiation, execution, delivery and
performance of this Agreement by such party.

 

6.                                       Representations and Warranties.

 

(a)                                  By DMC.  DMC
represents and warrants to Aerojet as follows, except with respect to environmental
matters, which are governed exclusively by the Master Agreement:

 

(i)                                     DMC has the
power and authority to enter into this Agreement, and to grant the Option as
provided herein.

 

(ii)                                  This Agreement has been duly executed and
delivered by an authorized representative of DMC and constitutes the legal,
valid and binding obligations of DMC in accordance with its terms.

 

(iii)                               To the best of DMC’s knowledge, there is no suit,
action, arbitration, legal, administrative or other proceeding or inquiry, pending
or threatened against or relating to DMC which would affect DMC’s ability to
perform its obligations under this Agreement.

 

(iv)                              All of the representations and warranties
of DMC set forth in the Master Agreement, are true and correct in all material respects
as of the date hereof as though such representations and warranties were made
on and as of the date hereof, except as contemplated or permitted by the Master
Agreement and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty
shall have been true and correct as of such date.

 

3

 

(v)                                 The copy of the Option Agreement attached
hereto as Exhibit A, is a true, correct and complete copy of the Option
Agreement; such Option Agreement is in full force and effect and has not been
otherwise amended, modified, or supplemented, and constitutes the entire
agreement between the optionor and optionee under the Option Agreement.

 

(vi)                              There exists no breach, uncured default,
or event or condition that, with the giving of notice or the passage of time or
both, would constitute a breach or default under the Option Agreement; and
there are no existing claims, defenses or payments to become due under the
Option Agreement except for those contained in the Option Agreement.

 

(vii)                           DMC has not previously assigned, pledged,
hypothecated, conveyed or otherwise transferred any of its right, title or
interest in and to the Option Agreement to any other party.

 

(b)                                 By Aerojet.  Aerojet
represents and warrants to DMC as follows:

 

(i)                                     Aerojet has full power and authority to
enter into this Agreement, and to grant the Option as provided herein.

 

(ii)                                  This Agreement has been duly executed and
delivered by an authorized representative of Aerojet and constitutes the legal,
valid and binding obligations of Aerojet in accordance with its terms.

 

(iii)                               To the best of Aerojet’s knowledge, there is no suit,
action, arbitration, legal, administrative or other proceeding or inquiry,
pending or threatened against or relating to Aerojet which would affect
Aerojet’s ability to perform its obligations under this Agreement.

 

(iv)                              All of the representations and warranties
of Aerojet set forth in the Master Agreement, are true and correct in all
material respects as of the date hereof as though such representations and
warranties were made on and as of the date hereof, except as contemplated or
permitted by the Master Agreement and except to the extent that any such representation
or warranty is made as of a specified date, in which case such representation
or warranty shall have been true and correct as of such date.

 

(c)                                  Survival.  Each of the
parties acknowledge and agree that all of the representations and warranties
made by such party in this Section 6 shall survive the exercise by Aerojet
of the Option and the Closing, except to the extent any such representations
and warranties are limited under the Master Agreement.

 

7.                                       DMC’s Pre-Closing Covenants. 
DMC covenants and agrees that, between the Effective Date and the
Closing or earlier termination of this Agreement:

 

(a)                                  DMC shall timely perform all of its
obligations under the Option Agreement in accordance with the terms and
conditions of the Option Agreement and shall not take any action which would be
materially inconsistent with the provisions of the Option Agreement.

 

4

 

(b)                                 No provision of the Option Agreement,
shall be amended or modified without the prior written consent of Aerojet, such
consent not to be unreasonably withheld, delayed or conditioned.

 

DMC shall not, without the prior written consent of Aerojet (which
consent shall not be unreasonably withheld, delayed or conditioned): (i) agree
to any cure or other settlement of inaccurate representations and warranties
made by Spin Forge under the Option Agreement; (ii) grant any consent or agree to any change in Spin Forge’s covenants under
Sections 4 and 5 of the Option Agreement, or waive any obligation of Spin
Forge under the Option Agreement; (iii) waive any conditions precedent to the
obligations of Spin Forge under the Option Agreement; or (iv) consent to any
assignment by Spin Forge of its rights and/or obligations under the Option  Agreement.

 

(c)                                  Promptly upon receipt by DMC of any notice or other communication from Spin
Forge under the Option Agreement, DMC shall provide a true, correct and
complete copy of such notice or other communication to Aerojet.

 

(d)                                 Concurrent with the closing of the
purchase of the Property pursuant to the Option Agreement, Aerojet and DMC
shall terminate the Master Lease and the Sublease.

 

8.                                       Notices.  Any notice,
demand, approval, consent, or other communication required or desired to be
given under this Agreement in writing shall be given in the manner set forth
below, addressed to the party to be served at the addresses set forth beneath
such party’s signature on this Agreement, or at such other address for which
that party may have given notice under the provisions of this Section.  Any notice, demand, approval, consent, or
other communication given by (a) mail shall be deemed to have been given when
deposited in the United States mail, first class and postage prepaid; (b)
overnight common carrier courier service shall be deemed to be given on the
business day immediately following the date it was deposited with such common
carrier; (c) delivery in person or by messenger shall be deemed to have been
given upon delivery in person or by messenger; or (d) electronic facsimile shall
be deemed to have been given on the earlier of (i) the date and at the time as
the sending party (or such party’s agent) shall have received from the
receiving party (or such party’s agent) oral confirmation of the receipt of
such transmission or (ii) one hour after the completion of transmission of the
entire communication.

 

9.                                       Legal Costs.  If any party
to this Agreement shall take any action to enforce this Agreement or bring any
action or commence any arbitration for any relief against any other party,
declaratory or otherwise, arising out of this Agreement, the losing party shall
pay to the prevailing party a reasonable sum for attorneys’ and experts’ fees
and costs incurred in taking such action, bringing such suit and/or enforcing
any judgment granted therein, all of which shall be deemed to have accrued upon
the commencement of such action and shall be paid whether or not such action is
prosecuted to judgment.  Any judgment or
order entered in such action shall contain a specific provision providing for
the recovery of attorneys’ and experts’ fees and costs due hereunder and shall
be determined by a court of competent jurisdiction and not by a jury.  For the purposes of this Section, attorneys’
and experts’ fees and costs shall include, without limitation, fees incurred in
the following:  (a) postjudgment
motions; (b) contempt proceedings; (c) garnishment, levy, and debtor and third
party examinations; (d) discovery; (e) bankruptcy litigation; and (f) appeals.

 

5

 

10.                                 Brokers.  Aerojet and
DMC each warrant and represent to the other that it has not retained, nor is it
obligated to, any person for brokerage, finder’s or similar services in
connection with the transactions contemplated by this Agreement, and that no
commission, finder’s fee or other brokerage or agent’s compensation can be
properly claimed by any person or entity based upon the acts of such party with
regard to the transactions which are the subject matter of this Agreement.  Each party shall indemnify, defend and hold
harmless the other party against from and against all claims, demands,
liabilities, losses, damages, costs and expenses (including, without
limitation, reasonable attorneys’ fees, costs of expert witnesses, court costs
and other litigation expenses) arising from or related to such party’s breach
of the foregoing representation and warranty.

 

11.                                 Time of the Essence.  Time is of
the essence of this Agreement.  In the
event that any date specified in this Agreement falls on Saturday, Sunday or a
public holiday on which public agencies and major banks are not open for
business (each a “Non-Business Day”), such date shall be deemed to be the
succeeding business day.  For purposes
of this Agreement, the term “business day” shall mean any day other than a
Non-Business Day.

 

12.                                 Binding on Successors. 
This Agreement shall be binding not only upon the parties but also,
subject to the limitations set forth in Section 13, upon their heirs,
personal representatives, assigns, and other successors in interest.

 

13.                                 Assignment.  Aerojet may
not assign its interests under this Agreement to any other party without the
prior written consent of DMC. 
Notwithstanding the foregoing, DMC agrees that Aerojet may assign its
rights to, and delegate its duties and obligations under, this Agreement to an
affiliate of Aerojet, at or prior to the Closing without the prior written
consent of DMC.  For purposes of this
Agreement, the term “affiliate” shall mean any partnership, corporation, trust
or other entity or association, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with
Aerojet.  The term “control,” as used in
the immediately preceding sentence, means, with respect to a corporation or limited
liability company the right to exercise, directly or indirectly, more than
fifty percent (50%) of the voting rights attributable to the controlled
corporation or limited liability company, and, with respect to any individual,
partnership, trust, other entity or association, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled entity.

 

14.                                 Entire Agreement; Modification; Waiver. 
This Agreement constitutes the entire agreement between Aerojet and DMC
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understandings.  No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all the
parties.  No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.  No waiver shall be
binding unless executed in writing by the party making the waiver.

 

15.                                 Further Assurances.  DMC and
Aerojet agree to take such additional actions and to execute such additional
documents, including escrow instructions, as may be reasonable and necessary to
carry out the provisions of this Agreement.

 

6

 

16.                                 Severability.  Each
provision of this Agreement is severable from any and all other provisions of
this Agreement.  Should any provision(s)
of this Agreement be for any reason unenforceable, the balance shall
nonetheless be of full force and effect.

 

17.                                 Governing Law.  This
Agreement shall be governed and construed in accordance with the laws of the
State of California.

 

18.                                 Drafting.  The parties
to this Agreement agree that this Agreement is the product of joint
draftsmanship and negotiation and that should any of the terms be determined by
a court, or in any type of quasi-judicial or other proceeding, to be vague,
ambiguous and/or unintelligible, that the same sentences, phrases, clauses or
other wordage or language of any kind shall not be construed against the
drafting party in accordance with California Civil Code Section 1654, and
that each such party to this Agreement waives the effect of such statute.

 

19.                                 Counterparts.  This
Agreement may be executed in two (2) or more counterparts, each of which shall
be deemed an original (including copies sent to a party by facsimile
transmission) as against the party signing such counterpart, but which together
shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
set forth below.

 

	
  DMC:

  	
   

  	
  AEROJET:

  
	
   

  	
   

  	
   

  
	
  DYNAMIC MATERIALS CORPORATION,

  	
   

  	
  AEROJET-GENERAL CORPORATION, an

  
	
  a Delaware corporation

  	
   

  	
  Ohio corporation

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:  September 17,
  2004

  	
   

  	
  Dated:  September 17,
  2004

  
	
  Address:

  	
   

  	
  Address:

  
	
  Dynamic Materials Corporation

  	
   

  	
  Aerojet-General Corporation

  
	
  5405 Spine Road

  	
   

  	
  P.O. Box 1036

  
	
  Boulder, CO 80301

  	
   

  	
  Camden, AR 71711-1036

  
	
  Attn: President

  	
   

  	
  Attn:  Robert Shenton,

  
	
  Tel:  (303) 604-3999

  	
   

  	
  Vice President, Operations

  
	
  Fax:  (303) 604-1897

  	
   

  	
  Tel:  (870) 574-3198

  
	
   

  	
   

  	
  Fax:  (870) 574-3528

  
	
  With a copy to:

  	
   

  	
  For delivery by courier use:

  
	
  Dynamic Materials Corporation

  	
   

  	
  Highland Industrial Park

  
	
  5405 Spine Road

  	
   

  	
  Camden, AR 71701

  
	
  Boulder, CO 80301

  	
   

  	
   

  
	
  Attn:  Chief Financial Officer

  	
   

  	
  With a copy to:

  
									

 

7

 

	
  Tel: (303) 604-3999

  	
   

  	
  Aerojet-General Corporation

  
	
  Fax: (303) 604-1897

  	
   

  	
  P.O. Box 13222, Dept. 0106

  
	
   

  	
   

  	
  Sacramento, California 95813-6000

  
	
   

  	
   

  	
  Attn:  Brian E. Sweeney, Esq.

  
	
   

  	
   

  	
  Vice President, Legal and Contracts

  
	
   

  	
   

  	
  Tel:  (916) 351-8588

  
	
   

  	
   

  	
  Fax:  (916) 351-8610

  
	
   

  	
   

  	
  For delivery by courier use:

  
	
   

  	
   

  	
  Highway 50 and Aerojet Road

  
	
   

  	
   

  	
  Rancho Cordova, CA 95742

  

 

	
  Exhibits:

  
	
  A

  	
  -

  	
  Copy of Option Agreement

  
	
  B

  	
  -

  	
  Form of Memorandum of Option

  
	
  C

  	
  -

  	
  Form of Assignment and Assumption of Option Agreement

  
	
  D

  	
  -

  	
  Form of Memorandum of Assignment of Option

  

 

8

 

ACKNOWLEDGMENT AND CONSENT OF OWNER

 

The undersigned hereby approves and consents to: (a) the foregoing
grant by DMC to Aerojet of the Option as set forth in the foregoing Agreement;
(b) the form of the assignment and assumption agreement attached to the
Agreement as Exhibit C; and (c) the recordation in the Official Records
of Los Angeles County, California, of the Memorandum of Option and the
Memorandum of Assignment of Option on the terms and conditions set forth in the
Agreement, and in the forms attached to the Agreement as Exhibits B and D,
respectively.

 

	
   

  	
  SPIN FORGE, LLC, a California limited

  liability company

  
	
   

  	
   

  
	
  Dated: September 17, 2004

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
							

 

9Exhibit
10.7

 

WESTAFF, INC.

1996 STOCK OPTION/STOCK ISSUANCE PLAN

(amended and
restated as of March 26, 1998)

(amended and
restated as of May 17, 2000)

(amended and
restated as of May 23, 2001)

(amended and
restated as of September 20, 2004)

 

ARTICLE ONE

 

GENERAL

 

I.                                         PURPOSE
OF THE PLAN

 

A.                                   This
1996 Stock Option/Stock Issuance Plan (the “Plan”) is intended to promote the
interests of Westaff, Inc., a Delaware corporation (the “Corporation”), by
providing eligible individuals 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 (or its
Parent or Subsidiary corporations).

 

B.                                     The
Plan became effective immediately upon the execution and final pricing of the
Underwriting Agreement for the initial public offering of the Corporation’s
Common Stock on April 30, 1996 (referred to herein as the Plan Effective
Date).

 

II.                                     DEFINITIONS

 

A.                                   For
purposes of the Plan, the following definitions shall be in effect:

 

BOARD: the Corporation’s
Board of Directors.

 

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

 

(i)                                     any
transaction or series of related transactions , except for any transaction that
qualifies as a “Corporate Transaction,” as a result of which any person or
related group of persons (other than the Corporation) initially becomes the
beneficial owner (within the meaning of Rule 13d-3 of the 1934 Act), directly
or indirectly, of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation’s then outstanding voting
securities.  For purposes of this
Subsection (i), the term “person” shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the Corporation
or of a subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as their
ownership of the common stock of the Corporation;

 

1

 

(ii)                                  or
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 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 such election or nomination was approved by the Board.

 

A transaction shall not
constitute a Change in Control if its sole purpose is to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation’s securities immediately before such transaction.

 

CODE: the Internal
Revenue Code of 1986, as amended.

 

COMMON STOCK: shares of
the Corporation’s Common Stock, par value of $0.01 per share.

 

CORPORATE TRANSACTION:
either of the following stockholder-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.

 

COVERED EMPLOYEE: an
Employee who is a “covered employee” under Section 162(m)(3) of the Code.

 

EMPLOYEE: an individual
who performs services while in the employ of the Corporation or one or more
Parent or Subsidiary corporations, subject to the control and direction of the
employer entity not only as to the work to be performed but also as to the
manner and method of performance.

 

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

 

FAIR MARKET VALUE: the
Fair Market Value per share of Common Stock determined in accordance with the
following provisions: If the Common Stock is not at the time listed or admitted
to trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing selling price per share on
the date in question, as such price is reported by the National Association of
Securities Dealers, Inc. through the Nasdaq National Market. If there is
no reported closing selling price for the Common Stock on the date in question,
then the closing selling price on the last preceding date for which such
quotation exists shall be determinative of Fair Market Value. If the Common
Stock is at the time listed or admitted to trading on any national securities
exchange, then the Fair Market Value shall be the closing selling price per
share on the date in question on the 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 reported sale of Common Stock on such exchange on the date in
question, then the Fair Market Value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists. For
purposes of any option grants which are made at the time the Underwriting
Agreement for the initial public offering of the Common Stock is executed and
priced but prior to the time the Common Stock is first traded on either a
national

 

2

 

securities exchange or
the Nasdaq National Market, the Fair Market Value per share of Common Stock
shall be deemed to be equal to the price per share at which the Common Stock is
to be sold in the initial public offering pursuant to the Underwriting
Agreement.

 

HOSTILE TAKE-OVER: a
change in ownership of the Corporation effected through the following
transaction:

 

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

 

(ii)                                  the
acceptance of more than fifty percent (50%) of the securities so acquired in
such tender or exchange offer from holders other than the officers and
directors of the Corporation subject to the short-swing profit restrictions of
Section 16 of the 1934 Act.

 

INCENTIVE OPTION: a stock
option which satisfies the requirements of Code Section 422.

 

INVOLUNTARY TERMINATION:
the termination of the Service of any individual which occurs by reason of:

 

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

 

(ii)                                  such
individual’s voluntary resignation following (A) a change in his or her
position with the Corporation which materially reduces his or her level of
responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in 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.

 

MISCONDUCT: the
commission of any act of fraud, embezzlement or dishonesty by the Optionee,
Participant or other person in the Service of the Corporation (or any Parent or
Subsidiary), 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 be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Parent or
Subsidiary) may consider as grounds for the dismissal or discharge of any
Optionee, Participant or other person in the Service of the Corporation (or any
Parent or Subsidiary).

 

1934 ACT: the Securities
and Exchange Act of 1934, as amended from time to time.

 

NON-STATUTORY OPTION: a
stock option not intended to meet the requirements of Code Section 422.

 

OPTIONEE: a person to
whom an option is granted under the Discretionary Option Grant Program or
Automatic Option Grant Program.

 

3

 

PARTICIPANT: a person who
is issued Common Stock under the Stock Issuance Program.

 

PERFORMANCE-BASED
COMPENSATION: compensation qualifying as “performance-based compensation” under
Section 162(m) of the Code.

 

PERMANENT DISABILITY OR
PERMANENTLY DISABLED: 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 the
purposes of the 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.

 

PLAN ADMINISTRATOR: 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.

 

PRIMARY COMMITTEE: the
committee of two (2) or more non-employee Board members appointed by the
Board to administer the Discretionary Option Grant, the Automatic Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders.

 

SECONDARY COMMITTEE: 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.

 

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

 

SECTION 12(g)
REGISTRATION DATE: the date on which the initial registration of the Common
Stock under Section 12(g) of the 1934 Act becomes effective.

 

SERVICE: the performance
of services on a periodic basis for the Corporation (or any parent or subsidiary
corporation) in the capacity of an Employee, a non-employee member of the board
of directors or an independent consultant or advisor, except to the extent
otherwise specifically provided in the applicable stock option or stock
issuance agreement.

 

TAKE-OVER PRICE: the
greater of (i) the Fair Market Value per share of Common Stock on the date
the particular option to purchase such stock is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price
per share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.

 

B.                                     The
following provisions shall be applicable in determining the parent and
subsidiary corporations of the Corporation:

 

Any corporation
(other than the Corporation) in an unbroken chain of corporations ending with
the Corporation shall be considered to be a Parent of the Corporation, provided
each such 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.

 

4

 

Each corporation
(other than the Corporation) in an unbroken chain of corporations beginning
with the Corporation shall be considered to be a Subsidiary of the Corporation,
provided each such 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.

 

III.                                 STRUCTURE
OF THE PLAN

 

A.                                   STOCK
PROGRAMS.  The Plan shall be divided
into three separate components: the Discretionary Option Grant Program
specified in Article Two, the Automatic Option Grant Program specified in
Article Three and the Stock Issuance Program specified in
Article Four. Under the Discretionary Option Grant Program, eligible
individuals may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock in accordance with the provisions of
Article Two. Under the Automatic Option Grant Program, each individual
serving as a non-employee Board member on the Plan Effective Date and each
individual who first joins the Board as a non-employee director at any time
after such Plan Effective Date shall at periodic intervals receive option
grants to purchase shares of Common Stock in accordance with the provisions of
Article Three, with the first such grants to be made on the Plan Effective
Date. Under the Stock Issuance Program, eligible individuals may be issued shares
of Common Stock directly, either through the immediate purchase of such shares
at a price per share not less than eighty-five percent (85%) of the fair market
value per share of Common Stock at the time of issuance or as a bonus for past
services rendered the Corporation or the Corporation’s attainment of financial
objectives.

 

B.                                     GENERAL
PROVISIONS.  Unless the context clearly
indicates otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.

 

IV.                                ADMINISTRATION
OF THE PLAN

 

A.                                   The
Primary Committee shall have sole and exclusive authority to administer the
Discretionary Option Grant, the Automatic Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders. The Primary Committee shall
be constituted in such a manner as to satisfy all applicable laws and to permit
such grants and related transactions under the Plan to be exempt from
Section 16(b) of the Exchange Act in accordance with Rule 16b-3.

 

B.                                     Administration
of the Discretionary Option Grant, the Automatic Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs, if any, 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.

 

C.                                     Notwithstanding
the foregoing, grants of stock options, separately exercisable stock
appreciation rights or direct stock issuances to any Covered Employee intended
to qualify as Performance-Based Compensation shall be made only by a committee
(or subcommittee of a committee) which is comprised solely of two or more Board
members eligible to serve on a committee making grants qualifying as
Performance-Based Compensation. In the case of such grants to Covered
Employees, references to the “Plan Administrator”, the “Primary Committee”, or
to a “Secondary Committee” shall be deemed to be references to such committee
or subcommittee.

 

D.                                    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 the Primary Committee
and any Secondary Committee and reassume all powers and authority previously
delegated to such committee.

 

5

 

E.                                      Each
Plan Administrator shall, within the scope of its administrative functions
under the Plan, have full power and authority to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant, the Automatic 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 Program, the Automatic Option Grant Program or Stock
Issuance Program under its jurisdiction or any stock option or stock issuance
thereunder.

 

F.                                      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.

 

V.                                    ELIGIBILITY

 

A.                                   The
persons eligible to participate in the Discretionary Option Grant Program under
Article Two and the Stock Issuance Program under Article Four shall
be limited to the following:

 

(i)                                     officers
and other employees of the Corporation (or its parent or subsidiary
corporations) who render services which contribute to the management, growth
and financial success of the Corporation (or its parent or subsidiary
corporations);

 

(ii)                                  non-employee
members of the Board; and

 

(iii)                               those
consultants or other independent advisors who provide valuable services to the
Corporation (or its parent or subsidiary corporations).

 

B.                                     Each
Plan Administrator shall, within the scope of its administrative jurisdiction under
the Plan, have full authority (subject to the provisions of the Plan) 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 Non-Statutory Option, the time or times at which 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.

 

VI.                                STOCK
SUBJECT TO THE PLAN

 

A.                                   Shares
of Common Stock shall be available for issuance under the Plan and shall be
drawn from either the Corporation’s authorized but unissued shares of Common
Stock or from reacquired shares of Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 2,550,718
shares, subject to adjustment from time to time in accordance with the
provisions of this Section VI.

 

B.                                     No
one person participating in the Plan may receive stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
1,000,000 shares of Common Stock in the aggregate

 

6

 

per calendar year. To the
extent required by Section 162(m) of the Code or the regulations
thereunder, in applying the foregoing limitation with respect to a person
participating in the Plan, if any stock option, separately exercisable stock
appreciation right or direct stock issuance is canceled, the canceled stock
option, stock appreciation right or direct stock issuance shall continue to
count against the maximum number of shares with respect to which stock options,
stock appreciation rights and direct stock issuances may be granted to such
person. For this purpose, the repricing of an option (or in the case of a stock
appreciation right, the base amount on which the stock appreciation is
calculated is reduced to reflect a reduction in the Fair Market Value of the
Common Stock) shall be treated as the cancellation of the existing option or
stock appreciation right and the grant of a new option or stock appreciation
right.

 

C.                                     Except
to the extent required by Section 162(m) of the Code or the regulations
thereunder, as discussed immediately above, should one or more outstanding
options under this Plan expire or terminate for any reason prior to exercise in
full (including any option cancelled in accordance with the
cancellation-regrant provisions of Section IV of Article Two of the
Plan), then the shares subject to the portion of each option not so exercised
shall be available for subsequent issuance under the Plan. Shares subject to
any stock appreciation rights exercised under the Plan and all share issuances
under the Plan, whether or not the shares are subsequently repurchased by the
Corporation pursuant to its repurchase rights under the Plan, shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent issuance under the Plan. In addition, should the exercise price of
an outstanding 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 outstanding option under the Plan or the vesting of a
direct share issuance made 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
share issuance, and not by the net number of shares of Common Stock actually
issued to the holder of such option or share issuance.

 

D.                                    Should
any change be made to the Common Stock issuable under the Plan 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, then appropriate adjustments
shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one individual participating in the Plan may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances in the aggregate per calendar year, (iii) the
number and/or class of securities for which automatic-option grants are to be
subsequently made per eligible non-employee Board member under the Automatic
Option Grant Program, (iv) the number and/or class of securities and price
per share in effect under each option outstanding under either the
Discretionary Option Grant Program or Automatic Option Grant Program, and
(v) such other provisions of the Plan as the Plan Administrator determines
is appropriate. 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.

 

7

 

ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

 

I.                                         TERMS
AND CONDITIONS OF OPTIONS

 

Options granted pursuant
to the Discretionary Option Grant Program shall be authorized by action of the
Plan Administrator and may, at the Plan Administrator’s discretion, be either
Incentive Options or Non-Statutory Options. Individuals who are not Employees
of the Corporation or its Parent or Subsidiary corporations may only be granted
non-statutory options. Each granted option shall be evidenced by one or more
instruments in the form approved by the Plan Administrator; PROVIDED, however,
that each such instrument shall comply with the terms and conditions specified
below. Each instrument evidencing an Incentive Option shall, in addition, be
subject to the applicable provisions of Section II of this
Article Two.

 

A.                                   OPTION
PRICE.

 

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

 

(i)                                     The
option price per share of Common Stock subject to an Incentive Option shall in
no event be less than one hundred percent (100%) of the Fair Market Value of
such Common Stock on the grant date.

 

(ii)                                  The
option price per share of Common Stock subject to a Non-Statutory Option shall
in no event be less than eighty-five percent (85%) of the Fair Market Value of
such Common Stock on the grant date.

 

(iii)                               In
the case of an option intended to qualify as Performance-Based Compensation,
the option price per share of Common Stock shall in no event be less than one
hundred percent (100%) of the Fair Market Value of such Common Stock on the
grant date.

 

2.                                       The
option price shall become immediately due upon exercise of the option and,
subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:

 

(i)                                     full
payment in cash or check drawn to the Corporation’s order;

 

(ii)                                  full
payment 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 (as such term is defined
below);

 

(iii)                               full
payment in a combination of 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 and
cash or check drawn to the Corporation’s order; or

 

(iv)                              full
payment through a broker-dealer sale and remittance procedure pursuant to which
the Optionee shall provide irrevocable written instructions to (A) a
Corporation-designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate option price payable
for the purchased shares plus all applicable

 

8

 

Federal, state and local
income and employment taxes required to be withheld by the Corporation in
connection with such purchase and (B) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order to
complete the sale transaction.

 

Except to the extent the
sale and remittance procedure is used in connection with the exercise of the
option, payment of the option price for the purchased shares must accompany
such notice.

 

B.                                     TERM
AND EXERCISE OF OPTIONS.

 

Each option granted under
this Discretionary Option Grant Program shall be exercisable at such time or
times and during such period as is determined by the Plan Administrator and set
forth in the instrument evidencing the grant. No such option, however, shall
have a maximum term in excess of ten (10) years from the grant date.

 

C.                                     TERMINATION
OF SERVICE.

 

1.                                       The
following provisions shall govern the exercise period applicable to any
outstanding option held by the Optionee at the time of cessation of Service or
death.

 

(i)                                     Should
an Optionee cease Service for any reason (including death or Permanent
Disability) while holding one or more outstanding options under this
Article Two, then none of those options shall (except to the extent
otherwise provided pursuant to subparagraph 2 below) remain exercisable for
more than a twelve (12)-month period (or such shorter period determined by the
Plan Administrator and set forth in the instrument evidencing the grant)
measured from the date of such cessation of Service.

 

(ii)                                  Any
option held by the Optionee under this Article Two and exercisable in
whole or in part on the date of his or her death may be subsequently exercised
by the personal representative of the Optionee’s estate or by the person or
persons to whom the option is transferred pursuant to the Optionee’s will or in
accordance with the laws of descent and distribution. However, the right to
exercise such option shall lapse upon the earlier of (A) the first
anniversary of the date of the Optionee’s death (or such shorter period
determined by the Plan Administrator and set forth in the instrument evidencing
the grant) or (B) the specified expiration date of the option term.
Accordingly, upon the occurrence of the earlier event, the option shall terminate
and cease to remain outstanding.

 

(iii)                               Under
no circumstances shall any such option be exercisable after the specified
expiration date of the option term.

 

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

 

(v)                                 Should
the Optionee’s Service be terminated for Misconduct, then all outstanding
options held by the Optionee under this Article Two shall terminate
immediately and cease to

 

9

 

remain
outstanding.

 

2.                                       The
Plan Administrator shall have the 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 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 under the option had the Optionee continued in
Service.

 

D.                                    STOCKHOLDER
RIGHTS.

 

An Optionee shall have no
stockholder rights with respect to any shares covered by the option until such
individual shall have exercised the option, paid the option price for the
purchased shares and become the holder of record of those shares.

 

E.                                      TRANSFERABILITY

 

During the lifetime of
the Optionee, any Incentive Option shall be exercisable only by the Optionee
and shall not be assignable or transferable other than by will or by the laws
of descent and distribution following the Optionee’s death. However, a
Non-Statutory Option may be assigned in whole or in part during the Optionee’s
lifetime in accordance with the terms of the instrument evidencing the grant.
The terms applicable to the assigned portion of any Non-Statutory Option 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.

 

F.                                      REPURCHASE
RIGHTS

 

The shares of Common
Stock acquired upon the exercise of any Article Two option grant may be
subject to repurchase by the Corporation in accordance with the following
provisions:

 

(i)                                     The
Plan Administrator shall have the discretion to authorize the issuance of
unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase any or all of those unvested shares at the
option price paid per share. The terms and conditions 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 instrument
evidencing such repurchase right.

 

(ii)                                  All
of the Corporation’s outstanding repurchase rights under this Article Two
shall automatically terminate, and all shares subject to such terminated rights
shall immediately vest in full, upon the occurrence of a Corporate Transaction,
except to the extent: (A) any such repurchase right is expressly assigned
to the successor corporation (or parent thereof) in connection with the
Corporate Transaction or (B) such termination is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase right
is issued.

 

10

 

(iii)                               The
Plan Administrator shall have the discretionary authority, exercisable either
before or after the Optionee’s cessation of Service, to cancel the
Corporation’s outstanding repurchase rights with respect to one or more shares
purchased or purchasable by the Optionee under this Article Two and
thereby accelerate the vesting of such shares in whole or in part at any time.

 

II.                                     INCENTIVE
OPTIONS

 

The terms and conditions
specified below shall be applicable to all Incentive Options granted under this
Article Two. Incentive Options may only be granted to individuals who are
Employees. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to such terms and conditions.

 

A.                                   DOLLAR
LIMITATION.  The aggregate Fair Market
Value (determined as of the respective date or dates of grant) of the Common
Stock for which one or more options granted to any Employee under this Plan (or
any other option plan of the Corporation or its parent or subsidiary
corporations) 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. Should the number of shares of Common Stock for which any Incentive
Option first becomes exercisable in any calendar year exceed the applicable One
Hundred Thousand Dollar ($100,000) limitation, then that option may
nevertheless be exercised in that calendar year for the excess number of shares
as a Non-Statutory Option.

 

B.                                     10%
STOCKHOLDER.  If any individual to whom
an Incentive Option is granted is the owner of stock (as determined under
Section 424(d) of the Code) possessing ten percent (10%) or more of the
total combined voting power of all classes of stock of the Corporation or any
one of its Parent or Subsidiary corporations, then the option 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 grant date, and the option term shall not
exceed five (5) years, measured from the grant date.

 

Except as modified by the
preceding provisions of this Section II, the provisions of Articles One,
Two and Five of the Plan shall apply to all Incentive Options granted
hereunder.

 

III.                                 CORPORATE
TRANSACTIONS/CHANGES IN CONTROL

 

A.                                   In
the event of any Corporate Transaction, each option which is at the time
outstanding under this Article Two shall automatically accelerate so that
each such option shall, immediately prior to the specified effective date for
the Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. However, an outstanding option
under this Article Two shall NOT so accelerate if and to the extent:
(i) such option is, in connection with the Corporate Transaction, either
to be assumed by the successor corporation or parent thereof or to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof, (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the option spread existing at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting
schedule applicable to such option, or (iii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its
determination shall be final, binding and conclusive.

 

11

 

B.                                     Immediately
following the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.

 

C.                                     Each
outstanding option under this Article Two which is assumed in connection
with the Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been issued
to the option holder, in consummation of such Corporate Transaction, had such
person exercised the option immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the option price payable per
share, provided the aggregate option price payable for such securities shall
remain the same. In addition, the class and number of securities available for
issuance under the Plan on both an aggregate and per participant basis
following the consummation of the Corporate Transaction shall be appropriately
adjusted.

 

D.                                    The
Plan Administrator shall have full power and authority to grant options under
the Discretionary Option Grant Program which provide for the accelerated
vesting of one or more outstanding options under the Discretionary Option Grant
Program upon the occurrence of a Corporate Transaction, Change in Control or Hostile
Take-Over whether or not those options are to be assumed or otherwise continued
in full force and effect pursuant to the terms of the Corporate Transaction,
Change in Control or Hostile Take-Over. In addition, the Plan Administrator may
structure one or more of the Corporation’s repurchase rights under the
Discretionary Option Grant Program so that those rights shall immediately
terminate, in whole or in part, at the time of a Corporate Transaction, Change
in Control or Hostile Take-Over and shall not be assignable to the successor
corporation (or parent thereof), and the shares subject to those terminated
repurchase rights shall accordingly vest in full at the time of such Corporate
Transaction, Change in Control or Hostile Take-Over.

 

E.                                      The
Plan Administrator shall have full power and authority to grant options under
the Discretionary Option Grant Program which will automatically accelerate in
whole or in part in the event the Optionee’s Service subsequently terminates by
reason of an Involuntary Termination within a designated period (not to exceed
twelve (12) months) following the effective date of any Corporate
Transaction in which those options are assumed or replaced 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 twelve (12) month 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 in whole or in part,
and the shares subject to those terminated rights shall accordingly vest.

 

F.                                      The
Plan Administrator shall have full power and authority to grant options under
the Discretionary Option Grant Program which will automatically accelerate in
whole or in part in the event the Optionee’s Service subsequently terminates by
reason of an Involuntary Termination within a designated period (not to exceed
twelve (12) months) following the effective date of any 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 twelve (12)-month 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 in whole or in part,
and the shares subject to those terminated rights shall accordingly vest.

 

G.                                     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 Non-Qualified
Option.

 

12

 

H.                                    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 optionees, the cancellation of any or all outstanding
options under this Article Two and to grant in substitution new options
under the Plan covering the same or different numbers of shares of Common Stock
but with an option price per share not less than (i) one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the new grant date
in the case of a grant of an Incentive Option, (ii) one hundred ten
percent (110%) of such Fair Market Value in the case of a grant of an Incentive
Option to a 10% Stockholder or (iii) eighty-five percent (85%) of such
Fair Market Value in the case of all other grants.

 

V.                                    STOCK
APPRECIATION RIGHTS

 

A.                                   Provided
and only if the Plan Administrator determines in its discretion to implement
the stock appreciation right provisions of this Section V, one or more
Optionees may be granted the right, exercisable upon such terms and conditions
as the Plan Administrator may establish, to surrender all or part of an
unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) 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 thereof) over (ii) the aggregate exercise price payable for such
vested shares.

 

B.                                     No
surrender of an option shall be effective hereunder unless it is approved by
the Plan Administrator. If the surrender is so approved, then the distribution
to which the Optionee shall accordingly become entitled under this
Section V 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.

 

C.                                     If
the surrender of an option is rejected by the Plan Administrator, then the
Optionee shall retain whatever rights the Optionee had under the surrendered
option (or surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the later of (i) five
(5) business days after the receipt of the rejection notice or
(ii) the last day on which the option is otherwise exercisable in
accordance with the terms of the instrument evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the date
of the option grant.

 

D.                                    One
or more officers of the Corporation subject to the short-swing profit
restrictions of the 1934 Act may, in the Plan Administrator’s sole discretion,
be granted limited stock appreciation rights in tandem with their outstanding
options under this Article Two. Upon the occurrence of a Hostile
Take-Over, the officer shall have a thirty (30)-day period in which he or she
may surrender any outstanding options with such a limited stock appreciation
right in effect for at least six (6) months to the Corporation, to the
extent such option is at the time exercisable for fully vested shares of Common
Stock. The officer shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of
the vested shares of Common Stock at the time subject to each surrendered
option (or surrendered portion of such option) over (ii) the aggregate
exercise price payable for such shares. The cash distribution shall be made
within five (5) days following the date the option is surrendered to the
Corporation, and neither the approval of the Plan Administrator nor the consent
of the Board shall be required in connection with the option surrender and cash
distribution. Any unsurrendered portion of the option shall continue to remain
outstanding and become exercisable in accordance with the terms of the
instrument evidencing such grant.

 

13

 

E.                                      The
shares of Common Stock subject to any option surrendered for an appreciation
distribution pursuant to this Section V shall not be available for
subsequent issuance under the Plan.

 

ARTICLE THREE

AUTOMATIC OPTION GRANT PROGRAM

 

I.                                         ELIGIBILITY

 

The individuals eligible
to receive automatic option grants pursuant to the provisions of this
Article Three program shall be limited to those individuals who are
serving as non-employee Board members on the Plan Effective Date or who are
first elected or appointed as non-employee Board members on or after the Plan
Effective Date, whether through appointment by the Board or election by the
Corporation’s stockholders. Each non-employee Board member eligible to
participate in the Automatic Option Grant Program pursuant to the foregoing
criteria shall be designated an Eligible Director for purposes of the Plan.

 

II.                                     TERMS
AND CONDITIONS OF AUTOMATIC OPTION GRANTS

 

A.                                   GRANT
DATES. Option grants shall be made under this Article Three on the dates
specified below:

 

1. INITIAL GRANT. Each
Eligible Director who is a non-employee Board member on the Plan Effective Date
and each Eligible Director who is first elected or appointed as a non-employee
Board member after such date shall automatically be granted, on the Plan
Effective Date or on the date of such initial election or appointment (as the
case may be), a Non-Statutory Option to purchase 3,000 shares of Common Stock
upon the terms and conditions of this Article Three. In no event, however,
shall a non-employee Board member be eligible to receive such an initial option
grant if such individual has at any time been in the prior employ of the
Corporation (or any Parent or Subsidiary corporation).

 

2. ANNUAL GRANT. On the
date of each Annual Stockholders Meeting, beginning with the 1997 Annual
Meeting, each individual who will continue to serve as an Eligible Director
shall automatically be granted, whether or not such individual is standing for
re-election as a Board member at that Annual Meeting, a Non-Statutory Option to
purchase an additional 3,000 shares of Common Stock upon the terms and
conditions of this Article Three, provided he or she has served as a
non-employee Board member for at least six (6) months. There shall be no
limit on the number of such annual option grants any one Eligible Director 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 corporation) shall be eligible to receive such annual option grants
over their period of continued Board service.

 

B.                                     EXERCISE
PRICE. The exercise price per share of Common Stock subject to each automatic
option grant made under this Article Three shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
automatic grant date.

 

C.                                     PAYMENT.  The exercise price shall be payable in one
of the alternative forms specified below:

 

(i)                                     full
payment in cash or check drawn to the Corporation’s order;

 

(ii)                                  full
payment 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 (as such term is defined
below);

 

14

 

(iii)                               full
payment in a combination of 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 and
cash or check drawn to the Corporation’s order; or

 

(iv)                              full
payment through a sale and remittance procedure pursuant to which the Optionee
shall provide irrevocable written instructions to (A) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds available
on the settlement date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares and (B) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale transaction.

 

Except to the extent the
sale and remittance procedure specified above is used for the exercise of the
option for vested shares, payment of the exercise price for the purchased
shares must accompany the exercise notice.

 

D.                                    OPTION
TERM.  Each automatic grant under this
Article Three shall have a maximum term of ten (10) years measured
from the automatic grant date.

 

E.                                      EXERCISABILITY.
Each automatic grant shall become fully exercisable for the option shares upon
the Optionee’s completion of one year of Board service measured from the
automatic grant date. The exercisability of each automatic grant outstanding
under this Article Three shall be accelerated as provided in
Section II.G and Section III of this Article Three.

 

F.                                      TRANSFERABILITY.
Any automatic option grant may be assigned in whole or in part during the
Optionee’s lifetime in accordance with the terms of the instrument evidencing
the grant. The terms applicable to the assigned portion of the automatic option
grant 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.

 

G.                                     EFFECT
OF TERMINATION OF BOARD MEMBERSHIP.

 

1.                                       Should
the Optionee cease to serve as a Board member for any reason (other than death
or Permanent Disability) while holding one or more automatic option grants
under this Article Three, then such individual shall have a twelve
(12)-month period following the date of such cessation of Board membership in
which to exercise each such option for any or all of the shares of Common Stock
for which that option is exercisable at the time of such cessation of Board
service. Each such option shall immediately terminate and cease to be
outstanding, at the time of such cessation of Board service, with respect to
any shares for which the option is not otherwise at that time exercisable,

 

2.                                       Should
the Optionee die within twelve (12) months after cessation of Board
service, then any automatic option grant held by the Optionee at the time of
death may subsequently be exercised, for any or all of the shares of Common
Stock for which such option is exercisable at the time of the Optionee’s
cessation of Board membership (less any option shares subsequently purchased by
the Optionee prior to death), by the personal representative of the Optionee’s
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee’s will or in accordance with the laws of descent and
distribution. Any such exercise must occur within twelve (12) months after
the date of the Optionee’s cessation of Board service.

 

3.                                       Should
the Optionee die or become Permanently Disabled while serving as a Board
member, then any automatic option grant held by such Optionee under this
Article Three shall accelerate in

 

15

 

full, and the Optionee
(or the representative of the Optionee’s estate or the person or persons to
whom the option is transferred upon the Optionee’s death) shall have a twelve
(12)-month period following the date of the Optionee’s cessation of Board
membership in which to exercise such option for any or all of the shares of
Common Stock subject to the option at the time of such cessation of Board
membership.

 

4.                                       In
no event shall any automatic grant under this Article Three remain
exercisable after the expiration date of the ten (10)-year option term. Upon
the expiration of the applicable post-service exercise period under
subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares for which the option was otherwise
exercisable at the time of the Optionee’s cessation of Board membership.

 

H. STOCKHOLDER RIGHTS.
The holder of an automatic option grant under this Article Three shall
have none of the rights of a stockholder with respect to any shares subject to
such option until such individual shall have exercised the option, paid the
exercise price for the purchased shares and become the holder of record of
those shares.

 

III.                                 CORPORATE
TRANSACTION/CHANGES IN CONTROL

 

A.                                   In
the event of any Corporate Transaction, each automatic option grant at the time
outstanding under this Article Three shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. Immediately after the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding, except to
the extent assumed by the successor entity or its parent company.

 

B.                                     In
connection with any Change in Control, each automatic option grant at the time
outstanding under this Article Three shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Change in Control, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. Any option accelerated in
connection with the Change in Control shall remain fully exercisable until the
expiration or sooner termination of the option term.

 

C.                                     Upon
the occurrence of a Hostile Take-Over, the Optionee shall have a thirty
(30)-day period in which to surrender to the Corporation each option held by
him or her under this Article Three for a period of at least six
(6) months. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the option is otherwise at the time
exercisable for 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. Neither
the approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option surrender and cash distribution. The shares
of Common Stock subject to each option surrendered in connection with the
Hostile Take-Over shall not be available for subsequent issuance under the
Plan.

 

D.                                    The
automatic option grants outstanding under this Article Three 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.                                REMAINING
TERMS

 

The remaining terms of
each option granted under the Automatic Option Grant Program shall be the same

 

16

 

as the terms in effect
for option grants made under the Discretionary Option Grant Program or as the
Plan Administrator otherwise determines.

 

ARTICLE FOUR

STOCK ISSUANCE PROGRAM

 

I.                                         TERMS
AND CONDITIONS OF STOCK ISSUANCES

 

Shares of Common Stock
may be issued under the Stock Issuance Program through direct and immediate
purchases without any intervening stock option grants. The issued shares shall
be evidenced by a Stock Issuance Agreement (“Issuance Agreement”) that complies
with the terms and conditions of this Article Four.

 

A.                                   CONSIDERATION.

 

1.                                       Shares
of Common Stock drawn from the Corporation’s authorized but unissued shares of
Common Stock (“Newly Issued Shares”) shall be issued under the Stock Issuance
Program for one or more of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:

 

a.                                       full
payment in cash or check made payable to the Corporation’s order;

 

b.                                      a
promissory note payable to the Corporation’s order in one or more installments,
which may be subject to cancellation in whole or in part upon terms and
conditions established by the Plan Administrator; or

 

c.                                       past
services rendered to the Corporation or any parent or subsidiary corporation.

 

2.                                       Newly
Issued Shares may, in the absolute discretion of the Plan Administrator, be
issued for consideration with a value less than one hundred percent (100%) of
the Fair Market Value of such shares at the time of issuance, but in no event
less than eighty-five percent (85%) of such Fair Market Value.

 

3.                                       Shares
of Common Stock reacquired by the Corporation and held as treasury shares
(“Treasury Shares”) may be issued under the Stock Issuance Program for such
consideration (including one or more of the items of consideration specified in
subparagraph 1. above) as the Plan Administrator may deem appropriate, whether
such consideration is in an amount less than, equal to or greater than the Fair
Market Value of the Treasury Shares at the time of issuance. Treasury Shares
may, in lieu of any cash consideration, be issued subject to such vesting
requirements tied to the Participant’s period of future Service or the
Corporation’s attainment of specified performance objectives as the Plan
Administrator may establish at the time of issuance.

 

4.                                       In
the case of shares of Common Stock issued under the Stock Issuance Program that
are intended to qualify as Performance-Based Compensation, the price per share
of such shares shall in no event be less than one hundred percent (100%) of the
Fair Market Value of such shares on the grant date.

 

B.                                     VESTING
PROVISIONS.

 

1.                                       Shares
of Common Stock issued under the Stock Issuance Program may, in the absolute
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. The elements of the vesting schedule applicable

 

17

 

to any unvested shares of
Common Stock issued under the Stock Issuance Program, namely:

 

a.                                       the
Service period to be completed by the Participant or the performance objectives
to be achieved by the Corporation,

 

b.                                      the
number of installments in which the shares are to vest,

 

c.                                       the
interval or intervals (if any) which are to lapse between installments, and

 

d.                                      the
effect which death, Permanent Disability or other event designated by the Plan
Administrator is to have upon the vesting schedule, shall be determined by the
Plan Administrator and incorporated into the Issuance Agreement executed by the
Corporation and the Participant at the time such unvested shares are issued.

 

2.                                       The
Participant shall have full stockholder rights with respect to any shares of
Common Stock issued to him or her under the Plan, whether or not his or her
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. Any new, additional or different shares of stock 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 his or her unvested
shares 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 or by reason of any Corporate Transaction shall be issued,
subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.

 

3.                                       Should
the Participant cease to remain in Service while holding one or more unvested
shares of Common Stock under the Stock Issuance Program, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those shares.
To the extent the surrendered shares were previously issued to the Participant
for consideration paid in cash or cash equivalent (including the Participant’s
purchase-money promissory note), 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 such surrendered shares. The surrendered shares
may, at the Plan Administrator’s discretion, be retained by the Corporation as
Treasury Shares or may be retired to authorized but unissued share status.

 

4.                                       The
Plan Administrator may in its discretion elect to waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of
the vesting schedule applicable to such 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.

 

II.                                     CORPORATE
TRANSACTION/CHANGE IN CONTROL

 

A.                                   Upon
the occurrence of any Corporate Transaction, all unvested shares of Common
Stock at the time outstanding under this Stock Issuance Program shall
immediately vest in full and the Corporation’s repurchase/cancellation rights
shall terminate, except to the extent: (i) any such right is expressly
assigned to the successor corporation (or parent thereof) in connection with
the Corporate Transaction or (ii) such termination is precluded by other
limitations imposed in the Issuance Agreement.

 

B.                                     The
Plan Administrator shall have the discretionary authority, exercisable either
at the time the

 

18

 

unvested shares are
issued or any time while the Corporation’s repurchase/cancellation 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 twelve (12) months following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).

 

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/cancellation 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 twelve
(12) months following the effective date of any Change in Control.

 

III.                                 TRANSFER
RESTRICTIONS/SHARE ESCROW

 

A.                                   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 such unvested shares. To the extent an escrow arrangement is
utilized, the unvested shares and any securities or other assets distributed
with respect to such shares (other than regular cash dividends) shall be
delivered in escrow to the Corporation to be held until the Participant’s
interest in such shares (or the distributed securities or assets) vests. If the
unvested shares are issued directly to the Participant, the restrictive legend
on the certificates for such shares shall read substantially as follows:

 

“THE SHARES REPRESENTED
BY THIS CERTIFICATE ARE UNVESTED AND ARE ACCORDINGLY SUBJECT TO
(I) CERTAIN TRANSFER RESTRICTIONS AND (II) CANCELLATION OR REPURCHASE
IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES
TO REMAIN IN THE CORPORATION’S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE
TERMS AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A
STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) DATED                         ,             , A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE CORPORATION.”

 

B.                                     The
Participant shall have no right to transfer any unvested shares of Common Stock
issued to him or her under the Stock Issuance Program. For purposes of this
restriction, the term “transfer” shall include (without limitation) any sale,
pledge, assignment, encumbrance, gift or other disposition of such shares,
whether voluntary or involuntary. Upon any such attempted transfer, the
unvested shares shall immediately be cancelled in accordance with substantially
the same procedure in effect under Section I.B.3 of this Article Four,
and neither the Participant nor the proposed transferee shall have any rights
with respect to such cancelled shares. However, the Participant shall have the
right to make a gift of unvested shares acquired under the Stock Issuance
Program to his or her spouse or issue, including adopted children, or to a
trust established for the benefit of such spouse or issue, provided the donee
of such shares delivers to the Corporation a written agreement to be bound by
all the provisions of the Stock Issuance Program and the Issuance Agreement
applicable to the gifted shares.

 

19

 

ARTICLE FIVE

MISCELLANEOUS

 

I.                                         LOANS
OR INSTALLMENT PAYMENTS

 

A.                                   The
Plan Administrator may, in its discretion, assist any Optionee or Participant
(including an Optionee or Participant who is an officer of the Corporation) in
the exercise of one or more options granted to such Optionee under the
Discretionary Option Grant Program or the purchase of one or more shares issued
to such Participant under the Stock Issuance Program, including the
satisfaction of any Federal and state income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the
Corporation to such Optionee or Participant or (ii) permitting the
Optionee or Participant to pay the option price or purchase price for the
purchased Common Stock in installments over a period of years. The terms of any
loan or installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate at the
time such option price or purchase price becomes due and payable. Loans or
installment payments may be authorized with or without security or collateral.
In all events, the maximum credit available to the Optionee or Participant may
not exceed the option or purchase price of the acquired shares (less the par
value of such shares) plus any Federal, state and local income and employment
tax liability incurred by the Optionee or Participant in connection with the
acquisition of such shares.

 

B.                                     The
Plan Administrator may, in its absolute discretion, determine that one or more
loans extended under this financial assistance program shall be subject to
forgiveness by the Corporation in whole or in part upon such terms and
conditions as the Plan Administrator may deem appropriate.

 

II.                                     AMENDMENT
OF THE PLAN AND AWARDS

 

The Board has complete
and exclusive power and authority to amend or modify the Plan (or any component
thereof) in any or all respects whatsoever, However, no such amendment or
modification shall adversely affect rights and obligations with respect to
options at the time outstanding under the Plan, nor adversely affect the rights
of any Participant with respect to Common Stock issued under the Stock Issuance
Program prior to such action, unless the Optionee or Participant consents to
such amendment. In addition, the Board may not, without the approval of the
Corporation’s stockholders, amend the Plan to (i) increase the maximum
number of shares issuable under the Plan or (ii) the maximum number of
shares for which any one individual participating in the Plan may be granted
stock options, separately exercisable stock appreciation rights and direct
stock issuances in the aggregate per calendar year, except for permissible
adjustments under Section VI subsection C of Article One.  Within the limitations of the Plan, the
Committee may modify, extend or assume outstanding options.

 

III.                                 TAX
WITHHOLDING

 

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

 

B.                                     The
Plan Administrator may, in its discretion and in accordance with the provisions
of this Section III of Article Five and such supplemental rules as
the Plan Administrator may from time to time adopt, provide any or all holders
of Non-Statutory Options or unvested shares under the Plan with the right to
use shares of Common Stock in satisfaction of no more than the minimum amount
of the Federal, foreign state and local income and employment tax liabilities
that the Corporation is required to withhold from such holders in connection
with the exercise of their options or the vesting of their shares (the
“Taxes”). Such right may be provided to any such holder in either or both of
the following formats:

 

1.                                       STOCK
WITHHOLDING: The holder of the Non-Statutory Option or unvested shares may be
provided with the election to have the Corporation withhold, from the shares of
Common Stock otherwise issuable upon the exercise of such non-statutory option
or the vesting of such shares, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the applicable Taxes (not to exceed one
hundred percent (100%)) designated by the holder.

 

20

 

2.                                       STOCK
DELIVERY: The Plan Administrator may, in its discretion, provide the holder of
the Non-Statutory Option or the unvested shares with the election to deliver to
the Corporation, at the time the Non-Statutory Option is exercised or the
shares vest, one or more shares of Common Stock previously acquired by such
individual (other than in connection with the option exercise or share vesting
triggering the Taxes) with an aggregate Fair Market Value equal to the percentage
of the Taxes incurred in connection with such option exercise or share vesting
(not to exceed one hundred percent (100%)) designated by the holder.

 

IV.                                EFFECTIVE
DATE AND TERM OF PLAN

 

A.                                   This
Plan became effective on April 30, 1996 and was approved by stockholders
on April 26, 1996. In February 1998, the Board adopted and approved
amendments to the Plan to provide for an increase in the number of shares
subject to grants under the Automatic Option Grant Program from 1,000 to 2,000
shares and to reflect the amendments promulgated by the Securities and Exchange
Commission to Rule 16b-3 which allow for greater transferability of
Non-Statutory Options (collectively, the “February 1998 Amendments”). The
February 1998 Amendments became effective when approved by the
Corporation’s stockholders on March 26, 1998. In March 2000, the
Board adopted and approved amendments to the Plan pertaining to: (i) the
name of the Corporation; (ii) the administration of the Plan; and
(iii) the limit imposed by Section 162(m) of the Code, on certain
highly-compensated employees (collectively, the “March 2000 Amendments”).
The March 2000 Amendments became effective when approved by the
Corporation’s stockholders on June 20, 2000. In April 2001, the Board
adopted and approved amendments to the Plan to: (i) increase the number of
shares reserved for issuance under the Plan by 1,000,000 shares;
(ii) increase the maximum number of shares with respect to which stock
options, stock appreciation rights and direct stock issuances may be granted to
any grantee in any calendar year from 500,000 to 1,000,000 shares; and
(iii) permit the Plan Administrator to grant options under the
Discretionary Option Grant Program which provide for accelerated vesting upon
the occurrence of a Corporate Transaction, Change in Control or Hostile
Take-Over whether or not those options are to be assumed or otherwise continued
in full force and effect pursuant to the terms of the Corporate Transaction,
Change in Control or Hostile Take-Over (collectively, the “April 2001
Amendments”). The April 2001 Amendments shall be effective upon Board
approval but any option grants made in reliance on the April 2001
Amendments will be rescinded if the stockholders vote against the
April 2001 Amendments.

 

B.                                     The
Plan shall terminate upon the earlier of (i) ten (10) years following
the Plan Effective Date or (ii) the date on which all shares available for
issuance under the Plan shall have been issued pursuant to the exercise of the
options granted under the Plan or the issuance of shares (whether vested or
unvested) under the Stock Issuance Program. If the date of termination is
determined under clause (i) above, then all option grants and unvested
share issuances outstanding on such date shall thereafter continue to have
force and effect in accordance with the provisions of the instruments
evidencing such grants or issuance.

 

V.                                    USE
OF PROCEEDS

 

Any cash proceeds
received by the Corporation from the sale of shares pursuant to option grants
or share issuances under the Plan shall be used for general corporate purposes.

 

VI.                                REGULATORY
APPROVALS

 

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

 

21

 

B.                                     No
shares of Common Stock or other assets shall be issued or delivered under this
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 securities exchange on which stock of the same class is then listed.

 

VII.                            NO
EMPLOYMENT/SERVICE RIGHTS

 

Neither the action of the
Corporation in establishing the Plan, nor any action taken by the Plan
Administrator hereunder, nor any provision of the Plan shall be construed so as
to grant any individual the right to remain in the employ or service of the
Corporation (or any Parent or Subsidiary corporation) for any period of
specific duration, and the Corporation (or any Parent or Subsidiary corporation
retaining the services of such individual) may terminate such individual’s
employment or service at any time and for any reason, with or without cause.

 

VIII.                        MISCELLANEOUS
PROVISIONS

 

A.                                   Except
as provided in the Plan, the right to acquire Common Stock or other assets
under the Plan may not be assigned, encumbered or otherwise transferred by any
Optionee or Participant.

 

B.                                     The
provisions of the Plan relating to the exercise of options and the vesting of
shares shall be governed by the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State.

 

C.                                     The
provisions of the Plan shall inure to the benefit of, and be binding upon, the
Corporation and its successors or assigns, whether by Corporate Transaction or
otherwise, and the Participants and Optionees, the legal representatives of
their respective estates, their respective heirs or legatees and their
permitted assignees.

 

22

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}]]