Document:

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                                                                    EXHIBIT 10.4

                             COMMTOUCH SOFTWARE LTD.
                  1999 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN

         1.       PURPOSE.

                  The purpose of this Plan is to offer Nonemployee Directors of
CommTouch Software Ltd. an opportunity to acquire a proprietary interest in the
success of the Company, or to increase such interest, by purchasing Ordinary
Shares of the Company. This Plan provides for the grant of Options to purchase
Shares. Options granted hereunder shall be "Nonstatutory Options," and shall not
include "incentive stock options" intended to qualify for treatment under
Sections 421 and 422 of the Internal Revenue Code of 1986, as amended.

         2.       DEFINITIONS.

                  As used herein, the following definitions shall apply:

                  (a) "ADMINISTRATOR" shall mean the entity, either the Board or
the committee of the Board, responsible for administering this Plan, as provided
in Section 3.

                  (b)  "AFFILIATE"  means a parent or subsidiary  corporation as
defined in Sections 424(e) and (f) of the Code.

                  (c) "ANNUAL OPTION" shall have the meaning set forth in
Section 6(b).

                  (d) "BOARD"  shall mean the Board of Directors of the Company,
as constituted from time to time.

                  (e) "CHANGE IN CONTROL" shall mean the occurrence of any one
of the following:

                           (i) any "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the Company, an Affiliate, or a
Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities;

                           (ii) the election of any director of the Company who
was not a candidate proposed by a majority of the Board in office prior to the
time of such election; or

                           (iii) the dissolution or liquidation (partial or
total) of the Company or a sale of assets involving 50% or more of the assets of
the Company, or any merger or reorganization of the Company, whether or not
another entity is the survivor, or other transaction

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pursuant to which the holders, as a group, of all of the shares of the Company
outstanding prior to the transaction hold, as a group, less than 50% of the
shares of the Company outstanding after the transaction.

                  (f) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.

                  (g) "COMPANY" shall mean CommTouch Software Ltd., an Israeli
corporation.

                  (h) "DISABILITY" means permanent and total disability as
determined by the Administrator in accordance with the standards set forth in
Section 22(e)(3) of the Code.

                  (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time, and any successor statute.

                  (j) "EXPIRATION DATE" shall mean the last day of the term of
an Option established under Section 6(e).

                  (k) "FAIR MARKET VALUE" means as of any given date (a) the
closing price of the Ordinary Shares as reported by the Nasdaq National Market;
(b) if the Ordinary Shares are no longer quoted on the Nasdaq National Market
but are listed on an established stock exchange or quoted on any other
established interdealer quotation system, the closing price for the Ordinary
Shares on such exchange or system, as reported in the Wall Street Journal; or
(c) if the Ordinary Shares are not traded on an exchange or quoted on the Nasdaq
National Market or a successor quotation system, the fair market value of an
Ordinary Share as determined by the Board in good faith. Such determination
shall be conclusive and binding on all persons.

                  (l) "INITIAL OPTION" shall have the meaning set forth in
Section 6(a).

                  (m) "NONEMPLOYEE DIRECTOR" shall mean any person who is a
member of the Board but is not an employee of the Company or any Affiliate of
the Company and has not been an employee of the Company or any Affiliate of the
Company at any time during the preceding 12 months. Service as a director does
not in itself constitute employment for purposes of this definition.

                  (n) "OPTION" shall mean a stock option granted pursuant to
this Plan. Each Option shall be a nonstatutory option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.

                  (o) "OPTION AGREEMENT" shall mean the written agreement
described in Section 6 evidencing the grant of an Option to a Nonemployee
Director and containing the terms, conditions and restrictions pertaining to
such Option.

                  (p) "OPTIONEE" shall mean a Nonemployee Director who holds an
Option.

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                  (q) "ORDINARY SHARES" shall mean the Ordinary Shares of the
Company.

                  (r) "PLAN" shall mean this CommTouch Software Ltd. 1999
Nonemployee Directors Stock Option Plan, as it may be amended from time to time.

                  (s) "SECTION" unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.

                  (t) "SHARES" shall mean the Ordinary Shares subject to an
Option granted under this Plan.

                  (u) "TAX DATE" means the date defined in Section 7(c).

                  (v) "TERMINATION" means, for purposes of the Plan, with
respect to an Optionee, that the Optionee has ceased to be, for any reason, a
director of the Company.

         3.       ADMINISTRATION.

                  (a) ADMINISTRATOR. The Plan shall be administered by the Board
or, upon delegation by the Board, by a committee consisting of not fewer than
two non-employee directors (as such term is defined in Rule 16b-3(b)(3)(i) of
the Exchange Act) (in either case, the "Administrator"). The Administrator shall
have no authority, discretion or power to select the Nonemployee Directors who
will receive Options hereunder or to set the number of shares to be covered by
each Option granted hereunder, the exercise price of such Option, the timing of
the grant of such Option or the period within which such Option may be
exercised; provided, however, that the Administrator shall have the discretion
to change the exercise price of an outstanding option granted under the Plan or
to issue new options under the Plan with a lower exercise price in exchange for
outstanding options granted under the Plan in connection with a general
repricing by the Company of outstanding options. In connection with the
administration of the Plan, the Administrator shall have the powers possessed by
the Board. The Administrator may act only by a majority of its members. The
Administrator may delegate administrative duties to such employees of the
Company as it deems proper, so long as such delegation is not otherwise
prohibited by Rule 16b-3 under the Exchange Act. The Board at any time may
terminate the authority delegated to any committee of the Board pursuant to this
Section 3(a) and revest in the Board the administration of the Plan.

                  (b) ADMINISTRATOR DETERMINATIONS BINDING. Subject to the
limitations set forth in Section 3(a), the Administrator may adopt, alter and
repeal administrative rules, guidelines and practices governing the Plan as it
from time to time shall deem advisable, may interpret the terms and provisions
of the Plan, any Option and any Option Agreement and may otherwise supervise the
administration of the Plan. All decisions made by the Administrator under the
Plan shall be binding on all persons, including the Company and Optionees. No
member of the Administrator shall be liable for any action that he or she has in
good faith taken or failed to take with respect to this Plan or any Option.

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         4.       ELIGIBILITY.

                  Only Nonemployee Directors may receive Options under this
Plan.

         5.       SHARES SUBJECT TO PLAN.

                  (a) AGGREGATE NUMBER. Subject to Section 9, the total number
of Ordinary Shares reserved and available for issuance pursuant to Options under
this Plan shall be 250,000 shares. Such shares may consist, in whole or in part,
of authorized and unissued shares or shares reacquired in private transactions
or open market purchases, but all shares issued under the Plan regardless of
source shall be counted against the 250,000 share limitation. If any Option
terminates or expires without being exercised in full, the shares issuable under
such Option shall again be available for issuance in connection with other
Options. If Ordinary Shares issued pursuant to an Option are repurchased by the
Company, such Ordinary Shares shall not again be available for issuance in
connection with Options. To the extent the number of Ordinary Shares issued
pursuant to an Option is reduced to satisfy withholding tax obligations, the
number of shares withheld to satisfy the withholding tax obligations shall not
be available for later grant under the Plan.

                  (b) NO RIGHTS AS A SHAREHOLDER. An Optionee shall have no
rights as a shareholder with respect to any Shares covered by his or her Option
until an electronic transfer (as evidenced by the appropriate entry on the books
of the Company or its duly authorized transfer agent) of such Shares is
effected. Subject to Section 9, no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to the date
the certificate is issued.

         6.       GRANT OF OPTIONS.

                  (a) MANDATORY INITIAL OPTION GRANTS. Subject to the terms and
conditions of this Plan, if any person who is not, and has not been in the
preceding 12 months, an officer or employee of the Company and who has not
previously been a member of the Board is elected or appointed a member of the
Board, then on the effective date of such appointment or election the Company
shall grant to such new Nonemployee Director an Option to purchase 10,000 shares
at an exercise price equal to the Fair Market Value of such Shares on the date
of such option grant. Any Option granted pursuant to this Section 6(a) shall be
referred to as an "Initial Option."

                  (b) MANDATORY ANNUAL OPTION GRANTS. Subject to the terms and
conditions of this Plan, on the date of the first meeting of the Board
immediately following the annual meeting of shareholders of the Company (even if
held on the same day as the meeting of shareholders) commencing in 1999, the
Company shall grant to each Nonemployee Director then in office (other than a
Nonemployee Director who received a grant under Section 6(a) on or after the
record date for such annual meeting) an Option to purchase 10,000 shares at an
exercise price equal to the Fair Market Value of such shares on the date of such
option grant; provided, however, the grant date for grants made in connection
with the annual shareholders meeting in

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1999 shall be deemed to be the first business day on which price quotations for
the Company's Ordinary Shares are available on the Nasdaq National Market and
the Fair Market Value of the Ordinary Shares on such date shall be deemed to be
the price at which Ordinary Shares were offered to the public on that day. Any
Option granted pursuant to this Section 6(b) shall be referred to as an "Annual
Option."

                  (c) VESTING OF INITIAL OPTION AND ANNUAL OPTION. Each Option
granted under Section 6(a) or 6(b) shall become exercisable with respect to one
fourth of the number of Shares covered by such Option three months after the
date of grant and with respect to one third of the remaining shares subject to
the Option every three months thereafter, so that the Option shall be fully
exercisable on the first anniversary of the date such Option was granted.

                  (d) TERM. Subject to the other provisions of this Plan, each
Option granted pursuant to this Plan shall have a term of ten years.

                  (e) LIMITATION ON OTHER GRANTS. The Administrator shall have
no discretion to grant Options under this Plan other than as set forth in
Sections 6(a) and 6(b).

                  (f) OPTION AGREEMENT. As soon as practicable after the grant
of an Option, the Optionee and the Company shall enter into a written Option
Agreement which specifies the date of grant, the number of Shares, the option
price, and the other terms and conditions applicable to the Option.

                  (g) TRANSFERABILITY. No Option shall be transferable except
that (I) an Option may be distributed by will or the laws of descent and
distribution; or (ii) Optionee may transfer or assign an Option to (a) any
family member or trust for the benefit of Optionee or a family member of
Optionee, or (b) any entity which is an investor in the Company and of which
Optionee is a general or limited partner or a member of senior management. The
terms of this Plan shall be binding upon the executors, administrators, heirs,
successors, assigns and transferees of the Optionee.

                  (h) LIMITS ON EXERCISE. Subject to the other provisions of
this Plan, an Option shall be exercisable in such amounts as are specified in
the Option Agreement.

                  (i) EXERCISE PROCEDURES. To the extent the right to purchase
Shares has accrued, Options may be exercised, in whole or in part, from time to
time, by written notice from the Optionee to the Company stating the number of
Shares being purchased, accompanied by payment of the exercise price for the
Shares, and other applicable amounts, as provided in Section 7.

                  (j) TERMINATION. In the event of Termination, Options held at
the date of Termination, to the extent then exercisable, may be exercised in
whole or in part at any time within three months after the date of Termination,
(but in no event after the Expiration Date), but not thereafter. Notwithstanding
the foregoing, if Termination is due to death or Disability, Options held at the
date of Termination, to the extent then exercisable, may be exercised in

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whole or in part at any time within two years from the date of Termination (but
in no event after the Expiration Date) by the Optionee or by the Optionee's
guardian or legal representative in the case of Disability or in the case of
death, by the person to whom the Option is transferred by will or the laws of
descent and distribution.

         7.       PAYMENT AND TAXES UPON EXERCISE OF OPTIONS.

                  (a) PURCHASE PRICE. The purchase price of Shares issued under
this Plan shall be paid in full at the time an Option is exercised.

                  (b) DELIVERY OF PURCHASE PRICE. Optionees may make all or any
portion of any payment due to the Company upon exercise of an Option or with
respect to federal, state, local or foreign tax payable in connection with the
exercise of an Option, by delivery of cash or check. Exercise of an Option may
be made pursuant to a "cashless exercise/sale" procedure pursuant to which funds
to pay for exercise of the Option are delivered to the Company by a broker upon
receipt of stock from the Company, or pursuant to which Optionees obtain margin
loans from brokers to fund the exercise of the Option.

                  (c) TAX WITHHOLDING. The Optionee shall pay to the Company in
cash, promptly upon exercise of an Option or, if later, the date that the amount
of such obligations becomes determinable (in either case, the "Tax Date"), all
applicable federal, state, local and foreign withholding taxes that the
Administrator, in its discretion, determines will result upon exercise of an
Option or from a transfer or other disposition of the Ordinary Shares acquired
upon exercise of an Option or otherwise related to an Option or the Ordinary
Shares acquired in connection with an Option.

                  A person who has exercised an Option may make an election to
have the Ordinary Shares to be obtained upon exercise of the Option withheld by
the Company on behalf of the Optionee, to pay the amount of tax that the
Administrator, in its discretion, determines to be required to be withheld by
the Company.

         Any Ordinary Shares tendered to or withheld by the Company will be
valued at Fair Market Value on such date. The value of the Ordinary Shares
tendered or withheld may not exceed the required federal, state, local and
foreign withholding tax obligations as computed by the Company.

         8.       USE OF PROCEEDS.

                  Proceeds from the exercise of Options pursuant to this Plan
shall be used for general corporate purposes.

         9.       ADJUSTMENT OF SHARES.

                  In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting the Ordinary Shares,

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appropriate adjustments shall be made by the Administrator in the aggregate
number and kind of shares of stock reserved for issuance under the Plan and in
the number, kind and exercise price of shares subject to outstanding Options;
provided, however, that the number of shares subject to any Option shall always
be a whole number.

         10.      EFFECT OF CHANGE IN CONTROL.

                  In the event of a "Change in Control," any Options outstanding
as of the date such Change in Control is determined to have occurred and not
then exercisable and vested shall become fully exercisable and vested.

         11.      NO RIGHT TO DIRECTORSHIP.

                  Neither this Plan nor any Option granted hereunder shall
confer upon any Optionee any right with respect to continuation of the
Optionee's membership on the Board or shall interfere in any way with provisions
in the Company's Memorandum of Association and Articles of Association relating
to the election, appointment, terms of office, and removal of members of the
Board.

         12.      LEGAL REQUIREMENTS.

                  The Company shall not be obligated to offer or sell any Shares
upon exercise of any Option unless the Shares are at that time effectively
registered or exempt from registration under the federal securities laws and the
offer and sale of the Shares are otherwise in compliance with all applicable
securities laws and the regulations of any stock exchange on which the Company's
securities may then be listed. The Company shall have no obligation to register
the securities covered by this Plan under the federal securities laws or take
any other steps as may be necessary to enable the securities covered by this
Plan to be offered and sold under federal or other securities laws. Upon
exercising all or any portion of an Option, an Optionee may be required to
furnish representations or undertakings deemed appropriate by the Company to
enable the offer and sale of the Shares or subsequent transfers of any interest
in the Shares to comply with applicable securities laws. Certificates or records
of electronic transfers evidencing Shares acquired upon exercise of Options
shall bear any legend required by, or useful for purposes of compliance with,
applicable securities laws, this Plan or the Option Agreements.

         13.      DURATION AND AMENDMENTS.

                  (a) DURATION. This Plan shall become effective upon the
closing of the Company's initial public offering, provided that it has been
adopted by the Board and approved by the shareholders of the Company, either by
written consent or by approval of shareholders voting at a validly called
shareholders' meeting. The Plan shall terminate automatically on the tenth
anniversary of its effective date.

                  (b) AMENDMENT AND TERMINATION. The Board may amend, alter or
discontinue the Plan or any Option, but no amendment, alteration or
discontinuance shall be

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made which would impair the rights of an Optionee under an outstanding Option
without the Optionee's consent. No amendment shall require shareholder approval
except (i) an increase in the total number of shares reserved for issuance under
the Plan, (ii) to the extent required by applicable laws, rules or regulations
or (iii) to the extent that the Board otherwise concludes that shareholder
approval is advisable.

                  (c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be
issued or sold under this Plan after the termination hereof, except upon
exercise of an Option granted before termination. Termination or amendment of
this Plan shall not affect any Shares previously issued and sold or any Option
previously granted under this Plan.

         14.      RULE 16b-3.

                  With respect to persons subject to Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with the applicable
conditions of Rule 16b-3 under the Exchange Act. To the extent any provision of
this Plan or action by the Administrator fails to so comply, it shall be
adjusted to comply with Rule 16b-3, to the extent permitted by law and deemed
advisable by the Administrator. It shall be the responsibility of persons
subject to Section 16 of the Exchange Act, not of the Company or the
Administrator, to comply with the requirements of Section 16 of the Exchange
Act; and neither the Company nor the Administrator shall be liable if this Plan
or any transaction under this Plan fails to comply with the applicable
conditions of Rule 16b-3, or if any such person incurs any liability under
Section 16 of the Exchange Act.

Approved by the Board of Directors on April 18, 1999.

Approved by the Shareholders of the Company on June 8, 1999, to be effective on
         the date of the closing of the Company's initial public offering of its
         ordinary shares.

Amended by the Board of Directors on August 9, 1999.

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                                                                     EXHIBIT 4.1

                          HOME FINANCIAL NETWORK, INC.

                                 1995 STOCK PLAN

         1. PURPOSE. This 1995 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Home Financial Network,
Inc. (the "Company"), its parent (if any) and any present or future subsidiaries
of the Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to make direct purchases of stock in the
Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to
hereafter individually as an "Option" and collectively as "Options". Options,
Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.

         2. ADMINISTRATION OF THE PLAN.

            A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered
by the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee"); provided, that, to the extent required
by Rule 16b-3, or any successor provision ("Rule 16b-3"), of the Securities
Exchange Act of 1934, with respect to specific grants of Stock Rights, the Plan
shall be administered by a disinterested administrator or administrators within
the meaning of Rule 16b-3. Hereinafter, all references in this Plan to the
"Committee" shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the Board (if
so required by applicable state law), and subject to the terms of the Plan, the
Committee shall have the authority to (i) determine the employees of the Company
and Related Corporations (from among the class of employees eligible under
paragraph 3 to receive ISOs) to whom ISOs may be granted, and to determine (from
among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) to whom
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted; (ii) determine the time or times at which Options or Awards may be
granted or Purchases made; (iii) determine the option price of shares subject to
each Option, which price shall not be less than the minimum price specified in
paragraph 6, and the purchase price of shares subject to each Purchase; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to Options, Awards and Purchases and the nature of such restrictions, if
any, and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a Non-Qualified
Option, it shall take whatever actions it deems necessary, under Section 422 of
the Code and the regulations promulgated thereunder, to ensure that such Option
is not treated as an ISO. The interpretation and construction by the Committee
of any provisions of the Plan or of any Stock Right granted under it shall be
final unless otherwise determined by the Board. The Committee may from time to
time adopt such rules and regulations for

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carrying out the Plan as it may deem best. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Stock Right granted under it.

            B. COMMITTEE ACTIONS. The Committee may select one of its members as
its chairman, and shall hold meetings at such times and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee (if consistent with
applicable state law), shall be the valid acts of the Committee. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.

            C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be
granted to members of the Board consistent with the provisions of the first
sentence of paragraph 2(A) above, if applicable. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Members of the
Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii)
have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to himself of Stock
Rights, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting to him of Stock Rights.

         3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee
of the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee, officer or director (whether or not also an employee)
or consultant of the Company or any Related Corporation. The committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.

         4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, par value $.001
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 2,350,000, subject to adjustment as provided in
paragraph 13. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, or if the Company shall reacquire any unvested shares issued pursuant to
Awards or Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan.

         5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time after December 15, 1995 and prior to December 14, 2005. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.

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         6. MINIMUM OPTION PRICE; ISO LIMITATIONS.

            A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the minimum legal consideration required
therefor under the laws of Delaware or the laws of any jurisdiction in which the
Company or its successors in interest may be organized.

            B. PRICE FOR ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.

            C. $100,000 ANNUAL LIMITATION ON ISOs. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related Corporation, such
ISOs do not become exercisable for the first time by such employee during any
calendar year in a manner which would entitle the employee to purchase more than
$100,000 in fair market value (determined at the time the ISOs were granted) of
Common Stock in that year. Any options granted to an employee in excess of such
amount will be granted as Non-Qualified Options.

            D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date such
Option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sales price (on that
date) of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange; or (iii) the closing
bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market List. However, if the Common
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Common Stock as
determined by the Committee after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Common Stock in private transactions negotiated at arm's length.

         7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.

         8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:

                                      II-8
<PAGE>   4

            A. VESTING. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.

            B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.

            C. PARTIAL EXERCISE. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.

            D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any Option granted to any employee as an ISO
(and not previously converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting limitation contained
in Section 422(d) of the Code, as described in paragraph 6(C).

            E. REPURCHASE OPTION; SHAREHOLDERS AGREEMENT. All Common Stock
issued pursuant to Stock Rights shall be subject to repurchase options in favor
of the Company pursuant to shareholder agreements prescribed by the Committee
from time to time.

         9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.

         10. DEATH; DISABILITY.

             A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the optionee's death.

                                      II-9
<PAGE>   5

             B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he shall have
the right to exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he could
have exercised it on that date, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
termination of the optionee's employment. for the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in Section
22(e)(3) of the Code or successor statute.

         11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. During the
lifetime of the optionee each Option shall be exercisable only by him.

         12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Options the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.

         13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:

             A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.

             B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) upon written notice to the optionees,
provided that all Options must be exercised, to the extent then exercisable,
within a specified number of days of the date of such notice, at the end of
which period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to such Options (to the extent then exercisable) over the
exercise price thereof.

                                     II-10
<PAGE>   6

             C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization.

             D. MODIFICATION OF ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs B or C with respect to ISOs shall be
made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.

             E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.

             F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.

             G. FRACTIONAL SHARES. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.

             H. ADJUSTMENTS. Upon the happening of any of the events described
in subparagraph A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.

If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee or the Successor
Board.

         14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of

                                     II-11
<PAGE>   7

the date of the exercise to the cash exercise price of the Stock Right, (c) at
the discretion of the Committee, by delivery of the grantee's personal recourse
note bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d)
at the discretion of the Committee and consistent with applicable law, through
the delivery of an assignment to the Company of a sufficient amount of the
proceeds from the sale of the Common Stock acquired upon exercise of the Stock
Right and an authorization to the broker or selling agent to pay that amount to
the Company, which sale shall be at the participant's direction at the time of
exercise, or (e) at the discretion of the Committee, by any combination of (a),
(b), (c) and (d) above. If the Committee exercises its discretion to permit
payment of the exercise price of an ISO by means of the methods set forth in
clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in question. The holder
of a Stock Right shall not have the rights of a shareholder with respect to the
shares covered by his Stock Right until the date of issuance of a stock
certificate to him for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such stock certificate is issued.

         15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board of
Directors and Stockholders of the Company as of December 15, 1995. The Plan
shall expire at the end of the day on December 14, 2005 (except as to Options
outstanding on that date). The Board may terminate or amend the Plan in any
respect at any time, except that, without the approval of the stockholders
obtained within 12 months before or after the Board adopts a resolution
authorizing any of the following actions: (a) the total number of shares that
may be issued under the Plan may not be increased (except by adjustment pursuant
to paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (c) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); and (d) the
expiration date of the Plan may not be extended. Except as otherwise provided in
this paragraph 15, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without his consent, under any Stock Right
previously granted to him.

         16. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At the
time of such conversion, the Committee (with the consent of the optionee) may
impose such conditions on the exercise of the resulting Non-Qualified Options as
the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.

         17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.

                                     II-12
<PAGE>   8

         18. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.

         19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.

         20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.

         21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of Delaware, or the laws of any jurisdiction in which the Company
or its successors in interest may be organized. In construing this Plan, the
singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.

                                     II-13

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