Document:

<PAGE>   1

                                                                     EXHIBIT 4.1

                                 AMENDMENT NO. 2
                                       TO
                      AMENDED AND RESTATED CREDIT AGREEMENT

     This Amendment No. 2 to Amended and Restated Credit Agreement (this
"Amendment") is dated as of October 5, 2000, by and among McGRATH RENTCORP, a
California corporation (the "Borrower"), the banks listed on the signature pages
hereof (individually a "Bank" and collectively "Banks"), and UNION BANK OF
CALIFORNIA, N.A., in its capacities as a Bank ("UBOC") and as agent (the
"Agent") for Banks.

                                    Recitals

     A.   Agent, UBOC, Fleet National Bank, formerly known as Fleet Bank, N.A.
("Fleet"), Bank of America, N.A., formerly known as Bank of America, National
Trust and Savings Association ("BofA") and Borrower are parties to that certain
Amended and Restated Credit Agreement dated as of June 30, 1999, as amended by
that certain Amendment No. 1 to Amended and Restated Credit Agreement dated as
of December 15, 1999 (the "Credit Agreement").

     B.   Borrower wishes to increase the Commitment from $100 million to $120
million through the addition of Comerica Bank-California ("Comerica") as a Bank
party to the Credit Agreement. Comerica desires to join in the Credit Agreement
as a Bank and to provide $20 million as its Pro Rata Share of the Commitment.
UBOC, Fleet, BofA, and Agent desire that Comerica join in the Credit Agreement
in such manner, and the parties are willing to amend the Credit Agreement
subject to the terms and conditions set forth in this Amendment.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

                                    ARTICLE I
                         AMENDMENTS TO CREDIT AGREEMENT

     This Amendment shall be deemed to be an amendment to the Credit Agreement
and shall not be construed in any way as a replacement or substitution therefor.
All of the terms and conditions of, and terms defined in, this Amendment are
hereby incorporated by reference into the Credit Agreement as if such terms and
provisions were set forth in full therein. Any capitalized term used but not
otherwise defined in this Amendment shall have the meaning ascribed to it in the
Credit Agreement.

     1.1  Comerica is hereby added to the Credit Agreement as a Bank. Comerica
hereby extends to Borrower as its Pro Rata Share of the Commitment the sum of
Twenty Million Dollars ($20,000,000.00).

     1.2  Section 1.1 of the Credit Agreement, entitled "Definitions," is hereby
amended as follows:

                                       1

<PAGE>   2

          (a)  The definition of "Bank" is amended and restated in its entirety
as follows:

          "Bank" means, individually, Union Bank of California, N.A., Fleet
          National Bank, Bank of America, N.A., and Comerica Bank-California,
          and their respective successors, and such other banks as may become
          party to this Agreement, collectively referred to herein as "Banks."

          (b)  The definition of "Commitment" is amended and restated in its
entirety as follows:

          "Commitment" means, subject to the terms and conditions of this
          Agreement, and adjusted from time to time in accordance therewith, the
          obligation of Banks to make Loans to Borrower in the aggregate
          principal amount outstanding at any time not to exceed the lesser of
          (a) One Hundred Twenty Million Dollars ($120,000,000), and (b) the
          Adjusted Borrowing Base.

          (c)  The definition of "Pro Rata Share" is amended and restated in its
entirety as follows:

          "Pro Rata Share" means, with respect to each Bank, the percentage set
          forth next to that Bank's name as follows:

<TABLE>
<CAPTION>
               Bank                                         Pro Rata Share
               ----                                         --------------
<S>                                                            <C>
               Union Bank of California, N.A.                  28.3333%
               Bank of America, N.A.                           27.5000%
               Fleet National Bank                             27.5000%
               Comerica Bank-California                        16.6667%
</TABLE>

          (d)  The definition of "Revolving Loan Commitment Period" is amended
and restated in its entirety as follows:

          "Revolving Loan Commitment Period" means, for each Bank, the period
          from and including such Bank's Commitment Effective Date to, but not
          including, the Revolving Loan Termination Date.

          (e)  A new defined term, "Commitment Effective Date," is added as
follows:

          "Commitment Effective Date" means:

               (i)  with respect to UBOC, Fleet and BofA, June 30, 1999; and

               (ii) with respect to Comerica, October 5, 2000.

          (f)  A new defined term, "Prior Banks," is added as follows:

                                       2

<PAGE>   3

          "Prior Banks" means UBOC, Fleet and BofA.

     1.3  Each Bank's Pro Rata Share of the Commitment shall be the dollar
amount set forth opposite such Bank's name on the signature pages to this
Amendment.

     1.4  As of the Commitment Effective Date applicable to Comerica, Comerica
shall purchase from each of the Prior Banks Comerica's Pro Rata Share of each
Prior Bank's outstanding Loans by payment of same day funds in the amount of
such Pro Rata Share. To facilitate such purchase, as of such Commitment
Effective Date, Borrower shall prepay all outstanding Eurodollar Loans that do
not otherwise mature on such Commitment Effective Date, and shall request a new
Revolving Loan pursuant to the Procedure for Loans in Section 2.4 of the Credit
Agreement for an amount equal to such prepaid amount and with a Funding Date
that is the same as such Commitment Effective Date.

     1.5  From and after the Commitment Effective Date applicable to Comerica,
Comerica's Pro Rata Share of outstanding Loans shall be deemed outstanding under
and evidenced by its Revolving Note, and no longer outstanding under or
evidenced by the Revolving Notes of the Prior Banks.

     1.6  Section 2.4.4 of the Credit Agreement is amended and restated in its
entirety as follows:

          2.4.4 Minimum Amount of Revolving Loans. Loan Requests for Revolving
          Loans shall be in one or the other of the following minimum amounts,
          as the case may be, with integral multiples of Twenty-Five Thousand
          Dollars ($25,000) in excess of such minimum amounts:

               (a)  for a Reference Rate Loan, a minimum amount of Four Hundred
                    Thousand Dollars ($400,000); and

               (b)  for a Eurodollar Loan, a minimum amount of One Million
                    Dollars ($1,000,000.00).

     1.7  Section 3.5 of the Credit Agreement is amended by replacing the phrase
"All payments hereunder shall be in Dollars" in the first sentence of the
Section with the following:

          "All payments hereunder shall be made, irrespective of and without
          condition or deduction for any counterclaim, defense, recoupment, or
          setoff, in Dollars"

     1.8  All Commitment Fees under Section 3.6 of the Credit Agreement and all
interest on outstanding Loans accruing prior to Comerica's Commitment Effective
Date shall be for the ratable accounts of the Prior Banks; and all Commitment
Fees and interest accruing on outstanding Loans on and after Comerica's
Commitment Effective Date shall be for the ratable accounts of all of the Banks.

     1.9  Section 7.3 of the Credit Agreement is amended by replacing the
introductory phrase, "Borrower will furnish to Agent:" with the following
phrase:

                                       3

<PAGE>   4

          "Borrower will furnish to Agent and each Bank:"

     1.10 Section 11.1 of the Credit Agreement is amended by adding the
following subsection (e):

          (e)  Modify the definition of either "Borrowing Base" or "Adjusted
               Borrowing Base" in Section 1.1 or modify or delete the reference
               to the "Adjusted Borrowing Base" in the definition of
               "Commitment" in Section 1.1.

     1.11 Section 11.19 of the Credit Agreement is amended by adding the
following phrase to the end of the last sentence of the section:

          ", which consent shall not be unreasonably withheld."

     1.12 For purposes of Section 11.20 of the Credit Agreement, the addresses
of the parties set forth on the signature pages to this Amendment shall
supercede, and be used for notices and other communications after the date
hereof instead of the addresses set forth on the signature pages to the Credit
Agreement.

                                   ARTICLE II
                           CONDITIONS TO EFFECTIVENESS
                                  OF AMENDMENT

     2.1  The effectiveness of this Amendment is subject to the fulfillment to
the satisfaction of Agent, in its sole discretion, of the following conditions
precedent:

          (a)  Each Bank shall have executed and delivered to Agent a
counterpart of this Amendment;

          (b)  Borrower shall have executed and delivered to Agent a counterpart
of this Amendment, and a Revolving Note, payable to Comerica, in the form
attached hereto as Exhibit "A";

          (c)  Agent shall have received appropriate authorization documents,
including borrowing resolutions and certificates of incumbency, confirming to
Agent's satisfaction that all necessary corporate and organizational actions
have been taken to authorize Borrower to enter into this Amendment; and

          (d)  Agent shall have received such other documents, instruments or
agreements as Agent may require to effectuate the intents and purposes of this
Amendment.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

     Borrower hereby represents and warrants to Agent and each Bank that:

                                       4

<PAGE>   5

     3.1  After giving effect to the amendment of the Credit Agreement pursuant
to this Amendment and the consummation of the transactions contemplated hereby
(i) each of the representations and warranties set forth in Article 6 of the
Credit Agreement is true and correct in all respects as if made on the date
hereof (with references to the Credit Agreement being deemed to include this
Amendment), and (ii) there exists no Default or Event of Default under the
Credit Agreement after giving effect to this Amendment.

     3.2  Borrower has full corporate power and authority to execute and deliver
this Amendment, to make and deliver the Revolving Note to Comerica, and to
perform the obligations of its part to be performed thereunder and under the
Credit Agreement as amended hereby. Borrower has taken all necessary action,
corporate or otherwise, to authorize the execution and delivery of this
Amendment and each of the documents described herein. No consent or approval of
any person, no consent or approval of any landlord or mortgagee, no waiver of
any lien or similar right and no consent, license, approval or authorization of
any governmental authority or agency is or will be required in connection with
the execution or delivery by Borrower of this Amendment or the performance by
Borrower of the Credit Agreement as amended hereby.

     3.3  This Amendment, the Revolving Note payable to Comerica, and the Credit
Agreement as amended hereby are, or upon delivery thereof to Agent or Comerica,
as applicable, will be, the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally.

                                   ARTICLE IV
                                  MISCELLANEOUS

     4.1  The Credit Agreement, the other Loan Documents and all agreements,
instruments and documents executed and delivered in connection with any of the
foregoing shall each be deemed to be amended hereby to the extent necessary, if
any, to give effect to the provisions of this Amendment. Except as so amended
hereby, the Credit Agreement and the other Loan Documents shall remain in full
force and effect in accordance with their respective terms.

     4.2  Borrower shall pay Agent on demand reasonable fees and costs of
attorneys incurred by Agent in connection with the preparation, negotiation and
execution of this Amendment and any document required to be furnished hereunder.

     4.3  Borrower affirms its obligation pursuant to Section 4.1.4 of the
Credit Agreement to pay applicable breakage fees (if any) incurred by any Prior
Bank in connection with Comerica's purchase of its Pro Rata Share of such Prior
Bank's outstanding Loans.

                                       5

<PAGE>   6

     IN WITNESS WHEREOF, Borrower, Banks and Agent have executed this Amendment
as of the date set forth in the preamble hereto.

MCGRATH RENTCORP

-------------------------------------------------
By: Thomas J. Sauer
Title: Vice President and Chief Financial Officer

Notice Address:
--------------
     5700 Las Positas Road
     Livermore, California 94550
     Attention: Mr. Thomas Sauer, Chief Financial Officer
     Fax: (925) 453-3200

UNION BANK OF CALIFORNIA, N.A.,
individually and as Agent

-------------------------------------------------
By: Robert John Vernagallo
Title: Vice President

                                                  Pro Rata Share of
Notice Address:                                     Commitment: $34,000,000
--------------                                    Pro Rata Share: 28.3333%
     350 California Street, 6th Floor
     San Francisco, CA  94104
     Attention: Mr. Robert John Vernagallo
     Fax No.: (415) 705-7566

                                       6

<PAGE>   7

FLEET NATIONAL BANK

-------------------------------------------------
By: Clifford A. Gaysunas, Jr.
Title:Vice President

                                                  Pro Rata Share of
Notice Address:                                     Commitment: $33,000,000
--------------                                    Pro Rata Share: 27.5000%
     100 Federal Street
     Mail Stop: MA DE 10008B
     Boston, MA  02110
     Attention: Mr. Chip Gaysunas
     Fax No.: (617) 434-0816

BANK OF AMERICA, N.A.,

-------------------------------------------------
By: Lisa M. Thomas
Title:Senior Vice President

                                                  Pro Rata Share of
Notice Address:                                     Commitment: $33,000,000
--------------                                    Pro Rata Share: 27.5000%
     345 Montgomery Street
     Concourse Level
     San Francisco, CA 94104
     Attention: Ms. Lisa M. Thomas
     Fax No.: (415) 622-1878

COMERICA BANK-CALIFORNIA

-------------------------------------------------
By: R. Michael Law
Title:Vice President

                                                  Pro Rata Share of
Notice Address:                                     Commitment: $20,000,000
--------------                                    Pro Rata Share: 16.6667%
     155 Grand Avenue, Suite 402
     Oakland, CA 94612
     Attention: Mr. R. Michael Law
     Fax No.: (510) 645-2220

                                       7<PAGE>   1

                                                                     EXHIBIT 4.1

                            MICRO LINEAR CORPORATION
                            1994 DIRECTOR OPTION PLAN

                       (as amended through April 18, 2000)

        1. Purposes of the Plan. The purposes of this 1994 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.

            All options granted hereunder shall be nonstatutory stock options.

        2. Definitions. As used herein, the following definitions shall apply:

            (a) "Board" means the Board of Directors of the Company.

            (b) "Code" means the Internal Revenue Code of 1986, as amended.

            (c) "Common Stock" means the Common Stock of the Company.

            (d) "Company" means Micro Linear Corporation, a California
corporation.

            (e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.

            (f) "Director" means a member of the Board.

            (g) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.

            (h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            (i) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

                (i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market

                                      -1-
<PAGE>   2

Value of a Share of Common Stock shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in Common Stock)
on the date of grant, as reported in The Wall Street Journal or such other
source as the Board deems reliable;

                (ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share of
Common Stock shall be the mean between the high bid and low asked prices for the
Common Stock on the day of determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable, or;

                (iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.

            (j) "Option" means a stock option granted pursuant to the Plan.

            (k) "Optioned Stock" means the Common Stock subject to an Option.

            (l) "Optionee" means an Outside Director who receives an Option.

            (m) "Outside Director" means a Director who is not an Employee.

            (n) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.

            (o) "Plan" means this 1994 Director Option Plan.

            (p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.

            (q) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.

        3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 680,000 Shares (the "Pool") of Common Stock. The Shares may be
authorized but unissued, or reacquired Common Stock.

            If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.

                                      -2-
<PAGE>   3

        4. Administration and Grants of Options under the Plan.

            (a) Procedure for Grants. The provisions set forth in this Section
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:

                (i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.

                (ii) Each Outside Director shall be automatically granted an
Option to purchase 50,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the effective date of this Plan, as
determined in accordance with Section 6 hereof, or (B) the date on which such
person first becomes a Director, whether through election by the shareholders of
the Company or appointment by the Board to fill a vacancy.

                (iii) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") on the date such
Outside Director is reelected to the Board by the shareholders at the Company's
annual meeting of shareholders or otherwise, if on such date, he shall have
served on the Board for at least six (6) months.

                (iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option made before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.

                (v) The terms of a First Option granted hereunder shall be as
follows:

                    (A) the term of the First Option shall be ten (10) years.

                    (B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.

                    (C) the exercise price per Share shall be equal to the fair
market value per Share on the date of grant of the First Option.

                    (D) the First Option shall become exercisable in
installments cumulatively as to 25% of the Shares subject to the First Option on
the first and second anniversaries

                                      -3-
<PAGE>   4

of its date of grant and as to an additional 1/48th of the Shares subject to the
First Option at the end of each month thereafter.

                (vi) The terms of a Subsequent Option granted hereunder shall be
as follows:

                    (A) the term of the Subsequent Option shall be ten (10)
years.

                    (B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.

                    (C) the exercise price per Share shall be equal to the fair
market value per Share on the date of grant of the Subsequent Option.

                    (D) the Subsequent Option shall become exercisable as to
1/12th of the Shares subject to the Subsequent Option at the end of each month
following its date of grant.

                (vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the shareholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.

        5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof. An Outside Director who has been granted an Option may, if he
is otherwise eligible, be granted an additional Option or Options in accordance
with such provisions.

            The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his or her directorship at any time.

        6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.

        7. Form of Consideration. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) delivery of a properly executed exercise
notice together with such other documentation as the

                                      -4-
<PAGE>   5

Company and the broker, if applicable, shall require to effect an exercise of
the Option and delivery to the Company of the sale or loan proceeds required to
pay the exercise price, or (iv) any combination of the foregoing methods of
payment.

        8. Exercise of Option.

            (a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.

            An Option may not be exercised for a fraction of a Share.

            An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.

            Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

            (b) Rule 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify Plan transactions, and
other transactions by Outside Directors that otherwise could be matched with
Plan transactions, for the maximum exemption from Section 16 of the Exchange
Act.

            (c) Termination of Continuous Status as a Director. In the event an
Optionee's Continuous Status as a Director terminates (other than upon the
Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within three (3) months from the date of such termination, and only to the
extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to

                                      -5-
<PAGE>   6

exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.

            (d) Disability of Optionee. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.

            (e) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.

        9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

        10. Adjustments Upon Changes in Capitalization, Dissolution, Merger,
Asset Sale or Change of Control.

            (a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into

                                      -6-
<PAGE>   7

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 an
Option.

            (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action.

            (c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
shall be substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, each
outstanding Option shall become fully vested and exercisable, including as to
Shares as to which it would not otherwise be exercisable. If an Option becomes
fully vested and exercisable in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option shall
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase, for each
Share of Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares).

        11. Amendment and Termination of the Plan.

            (a) Amendment and Termination. Except as set forth in Section 4, the
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.

            (b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.

        12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.

                                      -7-
<PAGE>   8

        13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

            As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.

            Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

        14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

        15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.

        16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.

                                      -8-

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