Document:

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                                                                    EXHIBIT 10.2

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                             BLUE RHINO CORPORATION

                           ADDITIONAL INVESTMENT RIGHT

Additional Investment Right No. [  ]                   Dated:  December 20, 2002

         Blue Rhino Corporation, a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, [Name of Holder] or its registered assigns
(the "HOLDER"), is entitled to purchase from the Company up to a total of [ ]
shares of common stock, $0.001 par value per share (the "COMMON STOCK"), of the
Company (each such share, an "ADDITIONAL INVESTMENT RIGHT SHARE" and all such
shares, the "ADDITIONAL INVESTMENT RIGHT SHARES") at an exercise price equal to
$[ ] per share (as adjusted from time to time as provided in Section 9, the
"EXERCISE PRICE"), at any time and from time to time from and after the earlier
of (i) 90 days after the Closing Date, and (ii) the Effective Date (such earlier
date, the "TRIGGER DATE"), and through and including the 90th Trading Day
following the Effective Date (the "EXPIRATION DATE"), subject to the following
terms and conditions. This Additional Investment Right (this "ADDITIONAL
INVESTMENT RIGHT") is one of a series of similar additional investment rights
issued pursuant to that certain Securities Purchase Agreement, dated as of the
date hereof, by and among the Company and the Purchasers identified therein (the
"PURCHASE AGREEMENT"). All such additional investment rights are referred to
herein, collectively, as the "ADDITIONAL INVESTMENT RIGHTS."

         1. Definitions. In addition to the terms defined elsewhere in this
Additional Investment Right, capitalized terms that are not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement.

         2. Registration of Additional Investment Right. The Company shall
register this Additional Investment Right, upon records to be maintained by the
Company for that purpose (the "ADDITIONAL INVESTMENT RIGHT REGISTER"), in the
name of the Holder (which shall include

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the initial Holder or, as the case may be, any registered assignee to which this
Additional Investment Right is permissibly assigned hereunder from time to
time). The Company may deem and treat the registered Holder as the absolute
owner of this Additional Investment Right for the purpose of any exercise
hereof, any distribution in respect hereof and for all other purposes.

         3. Registration of Transfers. The Company shall register the assignment
and transfer of any portion of this Additional Investment Right in the
Additional Investment Right Register, only upon (i) surrender of this Additional
Investment Right, with the Form of Assignment attached hereto duly completed and
signed, and (ii) if the registration statement is not effective, (x) if the
assignment or transfer is not to an Affiliate of such Holder, delivery of an
opinion of counsel reasonably satisfactory to the Company, to the effect that
the transfer of such portion of this Additional Investment Right may be made
pursuant to an available exemption from the registration requirements of the
Securities Act and all applicable state securities or blue sky laws and (y) if
the assignment or transfer is to an Affiliate of such Holder, delivery by the
transferee of a written statement to the Company certifying that the transferee
is an Affiliate of the Holder and an "accredited investor" as defined in Rule
501(a) under the Securities Act and making the representations and
certifications as set forth in Sections 3.2(b), (c) and (d) of the Purchase
Agreement, in each case, to the Company at its address specified in the Purchase
Agreement. Upon any such registration, a new additional investment right to
purchase Common Stock, in substantially the form of this Additional Investment
Right (any such new additional investment right, a "NEW ADDITIONAL INVESTMENT
RIGHT"), evidencing the portion of this Additional Investment Right so
transferred shall be issued to the transferee and a New Additional Investment
Right evidencing the remaining portion of this Additional Investment Right not
so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Additional Investment Right by the transferee shall be
deemed the acceptance by such transferee of all of the rights and obligations in
respect of the New Additional Investment Right that the Holder has in respect of
this Additional Investment Right.

         4. Exercise and Duration of Additional Investment Right.

         (a) This Additional Investment Right shall be exercisable by the
registered Holder at any time and from time to time on or after the Trigger Date
and through and including the Expiration Date. At 6:30 P.M., New York City time
on the Expiration Date, the portion of this Additional Investment Right not
exercised prior thereto shall be and become void and of no value and this
Additional Investment Right shall be terminated and no longer outstanding.

         (b) The Holder may exercise this Additional Investment Right by
delivering to the Company (i) an exercise notice, in the form attached hereto
(the "EXERCISE NOTICE"), completed and duly signed, and (ii) payment of the
Exercise Price for the number of Additional Investment Right Shares as to which
this Additional Investment Right is being exercised, and the date such items are
delivered to the Company (as determined in accordance with the notice provisions
hereof) is an "EXERCISE DATE." The delivery by (or on behalf of) the Holder of
the Exercise Notice and the applicable Exercise Price as provided above shall
constitute the Holder's certification to the Company that its representations
contained in Section 3.2(b), (c) and (d) of the Purchase Agreement are true and
correct as of the Exercise Date as if remade in their entirety

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(or, in the case of any assignee Holder that is not a party to the Purchase
Agreement, such assignee Holder's certification to the Company that such
representations are true and correct as to such assignee Holder as of the
Exercise Date). The Holder shall not be required to deliver the original
Additional Investment Right in order to effect an exercise hereunder. Execution
and delivery of the Exercise Notice shall have the same effect as cancellation
of the original Additional Investment Right and issuance of a New Additional
Investment Right evidencing the right to purchase the remaining number of
Additional Investment Right Shares.

         5. Delivery of Additional Investment Right Shares.

         (a) Upon exercise of this Additional Investment Right, the Company
shall promptly (but in no event later than three Trading Days after the Exercise
Date) issue or cause to be issued and cause to be delivered to or upon the
written order of the Holder and in such name or names as the Holder may
designate (provided that, if the Registration Statement is not effective and the
Holder directs the Company to deliver a certificate for the Additional
Investment Right Shares in a name other than that of the Holder or an Affiliate
of the Holder, it shall deliver to the Company on the Exercise Date an opinion
of counsel reasonably satisfactory to the Company to the effect that the
issuance of such Additional Investment Right Shares in such other name may be
made pursuant to an available exemption from the registration requirements of
the Securities Act and all applicable state securities or blue sky laws or, if
the transferee is an Affiliate of the Holder, the statement set forth in Section
3(ii)(y) in lieu of such opinion), a certificate for the Additional Investment
Right Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Additional Investment Right
Shares and naming the Holder as a selling stockholder thereunder is not then
effective and the Additional Investment Right Shares are not freely transferable
without volume restrictions pursuant to Rule 144 under the Securities Act. The
Holder, or any Person so designated by the Holder to receive Additional
Investment Right Shares, shall be deemed to have become holder of record of such
Additional Investment Right Shares as of the Exercise Date. The Company shall,
upon the written request of the Holder, use its best efforts to deliver
Additional Investment Right Shares hereunder electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions.

         (b) This Additional Investment Right is exercisable either in its
entirety or, from time to time, for a portion of the number of Additional
Investment Right Shares. Upon surrender of this Additional Investment Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a New Additional Investment Warrant evidencing the right
to purchase the remaining number of Additional Investment Warrant Shares, if
requested in writing by the Holder.

         (c) The provisions of this Section 5(c) are expressly subject to the
last sentence of Section 5(a). In addition to any other rights available to a
Holder, if the Company fails to deliver to the Holder a certificate representing
Additional Investment Right Shares on the date on which delivery of such
certificate is required by this Additional Investment Right, such Holder may
notify the Company via facsimile, mail or any other written means of its failure
to deliver the certificate (a "DELIVERY FAILURE NOTICE"). If the Company fails
to deliver to the Holder a certificate representing Additional Investment Right
Shares by the third Trading Day

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after delivery of the Delivery Failure Notice by the Holder and if, after such
third Trading Day after the delivery of the Delivery Failure Notice the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Additional Investment
Right Shares that the Holder anticipated receiving from the Company (a
"BUY-IN"), then the Company shall, within three Trading Days after the Holder's
request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "BUY-IN
PRICE"), at which point the Company's obligation to deliver such certificate
(and to issue such Additional Investment Right Shares) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Additional Investment Right Shares and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of Additional Investment Right Shares, times (B)
the Closing Price on the third Trading Day after the Exercise Date.

         (d) The Company's obligations to issue and deliver Additional
Investment Right Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, the recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other Person. Nothing herein shall limit the Holder's right to
pursue any other remedies available to it hereunder, at law or in equity,
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing Additional Investment Right Shares upon exercise of
the Additional Investment Right as required pursuant to the terms hereof.

         6. Charges, Taxes and Expenses. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Additional Investment Right
shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the registration of any certificates for Additional Investment Right Shares
or Additional Investment Rights in a name other than that of the Holder. The
Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Additional Investment Right or receiving
Additional Investment Right Shares upon exercise hereof.

         7. Replacement of Additional Investment Right. If this Additional
Investment Right is mutilated, lost, stolen or destroyed, the Company shall
issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Additional
Investment Right, a New Additional Investment Right, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and, if requested, customary and reasonable indemnity. If the Holder
seeks a New Additional Investment Right under such circumstances, it shall also
comply with such other reasonable

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regulations and procedures and pay such other reasonable third party costs as
the Company may prescribe.

         8. Reservation of Additional Investment Right Shares. The Company
covenants that it will at all times reserve and keep available out of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Additional Investment Right Shares upon exercise
of this Additional Investment Right as herein provided, the number of Additional
Investment Right Shares which are then issuable and deliverable upon the
exercise in full of this Additional Investment Right, free from preemptive
rights or any other contingent purchase rights of persons other than the Holder
(taking into account the adjustments and restrictions of Section 9). The Company
covenants that all Additional Investment Right Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized and
issued, fully paid and nonassessable. Each of the Company and the Holder will
take all such action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law
or regulation or of any requirements of any securities exchange or automated
quotation system upon which the Common Stock may be listed.

         9. Certain Adjustments. The Exercise Price and number of Additional
Investment Right Shares issuable upon exercise of this Additional Investment
Right are subject to adjustment from time to time as set forth in this Section
9.

         (a) Stock Dividends and Splits. If the Company, at any time while this
Additional Investment Right is outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clauses (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.

         (b) Pro Rata Distributions. If the Company, at any time while this
Additional Investment Right is outstanding, distributes to holders of Common
Stock (i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph), (iii) rights
or warrants to subscribe for or purchase any security, or (iv) any other asset
(in each case, "DISTRIBUTED PROPERTY"), then, upon any exercise of the
Additional Investment Right that occurs after the record date fixed for
determination of stockholders entitled to receive such distribution, the Holder
shall be entitled to receive, in addition to the Additional Investment Right
Shares otherwise issuable upon such exercise (if applicable), the Distributed
Property distributed in respect of one share of Common Stock to holders of
Common Stock as of such record date times the number of Additional Investment
Right Shares for which the Holder exercises this Additional Investment Right
(appropriately

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adjusted for any stock splits, combination or similar event between such record
date and such exercise).

         (c) Fundamental Transactions. If, at any time while this Additional
Investment Right is outstanding, (i) the Company effects any merger or
consolidation of the Company with or into another Person, (ii) the Company
effects any sale of all or substantially all of its assets in one or a series of
related transactions, (iii) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (iv) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(other than as a result of a subdivision or combination of shares of Common
Stock covered by Section 9(a) above) (in any such case, a "FUNDAMENTAL
TRANSACTION"), then the Holder shall have the right thereafter to receive, upon
exercise of this Additional Investment Right, the same amount and kind of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of the number of Additional Investment
Right Shares then issuable upon exercise in full of this Additional Investment
Right (the "ALTERNATE CONSIDERATION"). The aggregate Exercise Price for this
Additional Investment Right will not be affected by any such Fundamental
Transaction, but the Company shall apportion such aggregate Exercise Price among
the Alternate Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any exercise of this Additional
Investment Right following such Fundamental Transaction. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a New Additional Investment Right
consistent with the foregoing provisions and evidencing the Holder's right to
purchase the Alternate Consideration for the aggregate Exercise Price upon
exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph (c) and that
the Additional Investment Right (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. If any Fundamental Transaction constitutes or results in a Change
of Control, then at the request of the Holder delivered before the 90th day
after such Fundamental Transaction (or, if earlier, before the Expiration Date),
the Company (or any such successor or surviving entity) will purchase the
Additional Investment Warrant from the Holder for a purchase price, payable in
cash within five Trading Days after such request (or, if later, on the effective
date of the Fundamental Transaction), equal to the Black Scholes value of the
remaining unexercised portion of this Additional Investment Warrant on the date
of such request.

         (d) Number of Additional Investment Right Shares. Simultaneously with
any adjustment to the Exercise Price pursuant to paragraph (a) of this Section,
the number of Additional Investment Right Shares that may be purchased upon
exercise of this Additional Investment Right shall be increased or decreased
proportionately, so that after such adjustment

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the aggregate Exercise Price payable hereunder for the increased or decreased
number of Additional Investment Right Shares shall be the same as the aggregate
Exercise Price in effect immediately prior to such adjustment.

         (e) Calculations. All calculations under this Section 9 shall be made
to the nearest cent or the nearest share, as applicable. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company; provided that such shares, upon
disposition to a third party, shall then be considered outstanding.

         (f) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will, at the written
request of the Holder, promptly compute such adjustment in accordance with the
terms of this Additional Investment Right and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Additional Investment Right Shares or other
securities issuable upon exercise of this Additional Investment Right (as
applicable), describing the transactions giving rise to such adjustments and
showing in reasonable detail the facts upon which such adjustment is based, and
deliver a copy of each such certificate to the Holder and to the Company's
Transfer Agent.

         (g) Notice of Corporate Events. If, while this Additional Investment
Right is outstanding, the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common
Stock, including, without limitation, any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary pro
rata to the holders of Common Stock, (ii) authorizes or approves, enters into
any agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction, at least 10 Trading Days prior to the applicable record or
effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction; provided, however, that
the failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such notice.

         10. Payment of Exercise Price. The Holder shall pay the Exercise Price
in immediately available funds.

         11. Limitation on Exercise. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Additional Investment Right (or otherwise
in respect hereof) shall be limited to the extent necessary to ensure that,
following such exercise (or other issuance), the total number of shares of
Common Stock then beneficially owned by such Holder and its Affiliates and any
other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder's for purposes of Section 13(d) of the Exchange Act, does not
exceed 4.999% (the "MAXIMUM PERCENTAGE") of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise).

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For such purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. Each delivery of an Exercise Notice hereunder will constitute a
representation by the Holder that it has evaluated the limitation set forth in
this paragraph and determined that issuance of the full number of Additional
Investment Right Shares requested in such Exercise Notice is permitted under
this paragraph. The Company's obligation to issue shares of Common Stock in
excess of the limitation referred to in this Section shall be suspended (and,
except as provided below, shall not terminate or expire notwithstanding any
contrary provisions hereof) until such time, if any, as such shares of Common
Stock may be issued in compliance with such limitation; provided that, if, as of
6:30 p.m., New York City time on the Expiration Date, the Company has not
received written notice that the shares of Common Stock may be issued in
compliance with such limitation, the Company's obligation to issue such shares
shall terminate. By written notice to the Company, the Holder may waive the
provisions of this Section or increase or decrease the Maximum Percentage to any
other percentage specified in such notice, but (i) any such waiver or increase
will not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver or increase or decrease will apply only to the
Holder and not to any other holder of Additional Investment Rights.

         12. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Additional Investment Right Shares on the exercise
of this Additional Investment Right. If any fraction of a Additional Investment
Right Share would, except for the provisions of this Section, be issuable upon
exercise of this Additional Investment Right, the number of Additional
Investment Right Shares to be issued will be rounded up to the nearest whole
share.

         13. Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of deposit with a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address and facsimile numbers for such notices or
communications shall be as set forth in the Purchase Agreement.

         14. Additional Investment Right Agent. The Company shall serve as
additional investment right agent under this Additional Investment Right. Upon
30 days' notice to the Holder, the Company may appoint a new additional
investment right agent. Any corporation into which the Company or any new
additional investment right agent may be merged or any corporation resulting
from any consolidation to which the Company or any new additional investment
right agent shall be a party or any corporation to which the Company or any new
additional investment right agent transfers substantially all of its corporate
trust or stockholder services business shall be a successor additional
investment right agent under this Additional

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Investment Right without any further act. Any such successor additional
investment right agent shall promptly cause notice of its succession as
additional investment right agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Additional
Investment Right Register.

         15. Restrictions on Transfers. From the date of the initial exercise of
this Additional Investment Right (if any) until the six (6) month anniversary of
such initial exercise, the Holder agrees that it shall maintain Beneficial
Ownership of at least a number of shares of Common Stock equal to the number of
Additional Investment Right Shares purchased under this Additional Investment
Right.

         16. Miscellaneous.

         (a) Subject to the restrictions on transfer set forth on the first page
hereof and in Section 15, this Additional Investment Right may be transferred or
assigned by the Holder; provided that the Company's obligation to register such
transfer or assignment and right to recognize the registered Holder as the
absolute owner hereof shall be as set forth in Section 3 and Section 2,
respectively. This Additional Investment Right may not be assigned by the
Company except to a successor in the event of a Fundamental Transaction. This
Additional Investment Right shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Additional Investment Right shall be
construed to give to any Person other than the Company and the Holder any legal
or equitable right, remedy or cause of action under this Additional Investment
Right. This Additional Investment Right may be amended only in writing signed by
the Company and the Holder, or their respective successors and assigns.

         (b) The Company will not, by amendment of its governing documents or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Additional Investment Right, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
impairment. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any Additional Investment Right Shares above
the amount payable therefor on such exercise, (ii) will take all such action as
may be reasonably necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Additional Investment Right
Shares on the exercise of this Additional Investment Right, and (iii) will not
close its stockholder books or records in any manner which interferes with the
timely exercise of this Additional Investment Right.

         (c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. THE CORPORATE LAWS OF
THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF
THE COMPANY AND ITS STOCKHOLDERS AND ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS ADDITIONAL INVESTMENT RIGHT.
EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS SITTING IN THE STATE OF DELAWARE FOR THE ADJUDICATION OF ANY
DISPUTE

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HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY
OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE
TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT
IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

         (d) The headings herein are for convenience only, do not constitute a
part of this Additional Investment Right and shall not be deemed to limit or
affect any of the provisions hereof.

         (e) In case any one or more of the provisions of this Additional
Investment Right shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Additional
Investment Right shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor and, upon
such agreement, shall incorporate such substitute provision in this Additional
Investment Right.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                             SIGNATURE PAGE FOLLOWS]

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         IN WITNESS WHEREOF, the Company has caused this Additional Investment
Right to be duly executed by its authorized officer as of the date first
indicated above.

                                            BLUE RHINO CORPORATION

                                            By: ____________________
                                            Name: __________________
                                            Title: _________________

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                             FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Additional Investment Right)

To:  Blue Rhino Corporation

The undersigned is the Holder of Additional Investment Right No. _______ (the
"ADDITIONAL INVESTMENT RIGHT") issued by Blue Rhino Corporation, a Delaware
corporation (the "COMPANY"). Capitalized terms used herein and not otherwise
defined have the respective meanings set forth in the Additional Investment
Right.

1.       The Additional Investment Right is currently exercisable to purchase a
         total of ______________ Additional Investment Right Shares.

2.       The undersigned Holder hereby exercises its right to purchase
         _________________ Additional Investment Right Shares pursuant to the
         Additional Investment Right.

3.       The holder shall pay the sum of $____________ to the Company in
         accordance with the terms of the Additional Investment Right.

4.       Pursuant to this exercise, the Company shall deliver to the holder
         _______________ Additional Investment Right Shares in accordance with
         the terms of the Additional Investment Right.

5.       Following this exercise, the Additional Investment Right shall be
         exercisable to purchase a total of ______________ Additional Investment
         Right Shares.

Dated:_______________, _____        Name of Holder:

                                    (Print)________________________________

                                    By: ___________________________________
                                    Name: _________________________________
                                    Title: ________________________________

                                    (Signature must conform in all respects to
                                    name of holder as specified on the face of
                                    the Additional Investment Right)

<PAGE>

                               FORM OF ASSIGNMENT

 [To be completed and signed only upon transfer of Additional Investment Right]

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Additional Investment Right to purchase ____________ shares of Common Stock of
Blue Rhino Corporation to which the within Additional Investment Right relates
and appoints ________________ attorney to transfer said right on the books of
Blue Rhino Corporation with full power of substitution in the premises.

Dated:_______________, _____

                                    __________________________________________
                                    (Signature must conform in all respects to
                                    name of holder as specified on the face of
                                    the Additional Investment Right)

                                    __________________________________________
                                    Address of Transferee

                                    __________________________________________
                                    __________________________________________

In the presence of:

_____________________________<PAGE>
                                                                    Exhibit 10.1

                           RESTORATION HARDWARE, INC.
                           1998 STOCK INCENTIVE PLAN

                    AMENDED AND RESTATED ON OCTOBER 9, 2002
                      AMENDED AND RESTATED ON MAY 16, 2001

                                  ARTICLE ONE

                               GENERAL PROVISIONS

      I.    PURPOSE OF THE PLAN

            This 1998 Stock Incentive Plan is intended to promote the interests
of Restoration Hardware, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.

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

      II.   STRUCTURE OF THE PLAN

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

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

                  -     the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,

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

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

                  -     the Director Fee Option Grant Program under which non-
employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special option grant.

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

                                       1
<PAGE>
      III.  ADMINISTRATION OF THE PLAN

            A.    Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12 Registration Date, the Primary Committee shall
have sole and exclusive authority to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders.

            B.    Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.

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

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

            E.    The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.

            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.

                                       2
<PAGE>
            G.    Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.

      IV.   ELIGIBILITY

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

                  (i)   Employees,

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

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

            B.    Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.

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

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

            E.    Only non-employee Board members shall be eligible to
participate in the Automatic Option Grant and Director Fee Option Grant
Programs.

      V.    STOCK SUBJECT TO THE PLAN

                  A.    The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
5,307,303 shares. In

                                       3
<PAGE>
addition, the number of shares of Common Stock reserved for issuance under the
Plan will automatically be increased on the first trading day of each calendar
year, beginning in calendar year 2000, by an amount equal to the lesser of three
percent 3% of the total number of shares of Common Stock outstanding on the last
trading day of the preceding calendar year, or (ii) six percent (6%) of the
total outstanding shares immediately following the initial public offering of
the Common Stock.

                  B.    No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 1,000,000 shares of Common Stock in the aggregate per
calendar year, beginning with the 1998 calendar year. In connection with a
Participant's commencement of Service, a Participant may be granted options,
separately exercisable stock appreciation rights and direct stock issuances for
up to an additional 500,000 shares of Common Stock which shall not count against
the limit set forth in the previous sentence.

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

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

                                       4
<PAGE>
the number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

                                  ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM

      I.    OPTION TERMS

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

            A.    EXERCISE PRICE.

                  1.    The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.

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

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

                        (ii)  to the extent the option is exercised for vested
      shares, through a special sale and remittance procedure pursuant to which
      the Optionee shall concurrently provide irrevocable instructions 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 plus all applicable
      Federal, state and local income and employment taxes required to be
      withheld by the Corporation by reason of such exercise and (b) the
      Corporation to deliver the certificates for the purchased shares directly
      to such brokerage firm in order to complete the sale.

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

                                       5
<PAGE>
            B.    EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.

            C.    EFFECT OF TERMINATION OF SERVICE.

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

                  (i)   Any option outstanding at the time of the Optionee's
      cessation of Service for any reason shall remain exercisable for such
      period of time thereafter as shall be determined by the Plan Administrator
      and set forth in the documents evidencing the option, but no such option
      shall be exercisable after the expiration of the option term.

                  (ii)  Any option exercisable in whole or in part by the
      Optionee at the time of 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.

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

                  (iv)  Should the Optionee's Service be terminated for
      Misconduct, then all outstanding options held by the Optionee shall
      terminate immediately and cease to be outstanding.

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

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

                                       6
<PAGE>
                  (ii)  permit the option to be exercised, during the applicable
      post-Service exercise period, not only with respect to the number of
      vested shares of Common Stock for which such option is exercisable at the
      time of the Optionee's cessation of Service but also with respect to one
      or more additional installments in which the Optionee would have vested
      had the Optionee continued in Service.

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

            E.    REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.

            F.    LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.

      II.   INCENTIVE OPTIONS

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

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

                                       7
<PAGE>
            B.    EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

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

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

      III.  CHANGE IN CONTROL

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

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

            C.    Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the

                                       8
<PAGE>
extent assumed by the successor corporation (or parent thereof) or otherwise
continued in full force and effect pursuant to the terms of the Change in
Control transaction.

            D.    Each option which is assumed in connection with a Change in
Control (or is otherwise to continue in effect) shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities or other property which would have been issuable to the Optionee in
consummation of such Change in Control had the option been exercised immediately
prior to such Change in Control. Appropriate adjustments to reflect such Change
in Control shall also be made to (i) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options and direct stock issuances under the Plan per calendar
year.

            E.    The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the accelerated vesting of one or
more outstanding options under the Discretionary Option Grant Program upon the
occurrence of a Change in Control, whether or not those options are to be
assumed or otherwise continued in full force and effect pursuant to the terms of
the Change in Control transaction. 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 Change in Control 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 Change in Control.

            F.    The Plan Administrator shall have full power and authority
exercisable, either at the time the option is granted or at any time while the
option remains outstanding, to provide for the accelerated vesting, in whole or
in part, of one or more outstanding options under the Discretionary Option Grant
Program upon the Involuntary Termination of the Optionee's Service within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control in which those options do not otherwise
accelerate. 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 will immediately terminate at the time of such Involuntary
Termination, and the shares subject to those terminated repurchase rights shall
accordingly vest in full at that time.

            G.    The portion of any Incentive Option accelerated in connection
with a 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-Statutory Option under the
Federal tax laws.

                                       9
<PAGE>
            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 option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.

      V.    STOCK APPRECIATION RIGHTS

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

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

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

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

                  (iii) If the surrender of an option is not approved by the
      Plan Administrator, then the Optionee shall retain whatever rights the
      Optionee had under the surrendered option (or surrendered portion thereof)
      on the option surrender date and may exercise such rights at any time
      prior to the later of (a) five (5) business days after the receipt of the
      rejection notice or (b) the last day on which the option is otherwise
      exercisable in accordance with the terms of the

                                       10
<PAGE>
      documents evidencing such option, but in no event may such rights be
      exercised more than ten (10) years after the option grant date.

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

                  (i)   One or more Section 16 Insiders may be granted limited
      stock appreciation rights with respect to their outstanding options.

                  (ii)  Upon the occurrence of a Hostile Take-Over, each
      individual holding one or more options with such a limited stock
      appreciation right shall have the unconditional right (exercisable for a
      thirty (30)-day period following such Hostile Take-Over) to surrender each
      such option to the Corporation, to the extent the option is at the time
      exercisable for vested shares of Common Stock. In return for the
      surrendered option, the Optionee shall receive a cash distribution from
      the Corporation in an amount equal to the excess of (A) the Take-Over
      Price of the shares of Common Stock which are at the time vested under
      each surrendered option (or surrendered portion thereof) over (B) the
      aggregate exercise price payable for such shares. Such cash distribution
      shall be paid within five (5) days following the option surrender date.

                  (iii) The Plan Administrator shall, at the time the option
      with such limited stock appreciation right is granted under the
      Discretionary Option Grant Program, pre-approve any subsequent exercise of
      that right in accordance with the terms of this Paragraph C. Accordingly,
      no further approval of the Plan Administrator or the Board shall be
      required at the time of the actual option surrender and cash distribution.

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

                                 ARTICLE THREE

                     SALARY INVESTMENT OPTION GRANT PROGRAM

      I.    OPTION GRANTS

            The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or

                                       11
<PAGE>
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall automatically be granted an option
under the Salary Investment Grant Program on the first trading day in January of
the calendar year for which the salary reduction is to be in effect.

      II.   OPTION TERMS

            Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.

            A.    EXERCISE PRICE.

                  1.    The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

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

            B.    NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

                  X = A divided by (B x 66-2/3%), where

                  X is the number of option shares,

                  A is the dollar amount of the approved reduction in the
                  Optionee's base salary for the calendar year, and

                  B is the Fair Market Value per share of Common Stock on the
                  option grant date.

            C.    EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.

            D.    EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the

                                       12
<PAGE>
three (3)-year period measured from the date of such cessation of Service.
Should the Optionee die while holding one or more options under this Article
Three, then each such option may be exercised, for any or all of the shares for
which the option is exercisable at the time of the Optionee's cessation of
Service (less any shares subsequently purchased by 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. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Service. However, the
option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.

      III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

            A.    In the event of any Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of 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 any or
all of those shares as fully-vested shares of Common Stock. Immediately
following the consummation of the Change in Control, each automatic option grant
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in full force
and effect pursuant to the terms of the Change in Control transaction.

            B.    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
outstanding option granted him or her under the Salary Investment Option Grant
Program. 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 Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph B. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.

            C.    Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities or other property which
would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall

                                       13
<PAGE>
also be made to the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall
remain the same.

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

      IV.   REMAINING TERMS

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

                                  ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM

      I.    STOCK ISSUANCE TERMS

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

            A.    PURCHASE PRICE.

                  1.    The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.

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

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

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

            B.    VESTING PROVISIONS.

                  1.    The Plan Administrator may issue shares of Common Stock
under the Stock Issuance Program which are fully and immediately vested upon
issuance or which are to vest in one or more installments over the Participant's
period of Service or upon attainment of specified performance objectives.
Alternatively, the Plan Administrator may issue share right awards under the
Stock Issuance Program which

                                       14
<PAGE>
shall entitle the recipient to receive a specified number of shares of Common
Stock upon the attainment of one or more performance goals established by the
Plan Administrator. Upon the attainment of such performance goals, fully-vested
shares of Common Stock shall be issued in satisfaction of those share right
awards.

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

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

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

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

      II.   CHANGE IN CONTROL

            A.    All of the Corporation's outstanding repurchase rights under
the Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any

                                       15
<PAGE>
Change in Control, except to the extent (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Change in Control transaction or are otherwise to continue in full force
and effect pursuant to the terms of the Change in Control transaction or (ii)
such accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.

            B.    The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate upon the
occurrence of a Change in Control and shall not be assignable to the successor
corporation (or parent thereof), and the shares of Common Stock subject to those
terminated rights shall immediately vest at the time of such Change in Control.

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

      III.  SHARE ESCROW/LEGENDS

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

                                  ARTICLE FIVE

                         AUTOMATIC OPTION GRANT PROGRAM

      I.    OPTION TERMS

            A.    GRANT DATES. Option grants shall be made on the dates
specified below:

                  1.    Each individual serving as a non-employee Board member
on the Underwriting Date shall automatically be granted at that time a Non-
Statutory Option to purchase 14,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.

                  2.    Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be

                                       16
<PAGE>
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 15,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.

                  3.    On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 7,500 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 7,500-share 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) or who have otherwise received a stock
option grant from the Corporation prior to the Underwriting Date shall be
eligible to receive one or more such annual option grants over their period of
continued Board service.

            B.    EXERCISE PRICE.

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

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

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

            D.    EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each 14,000-share option granted on
the Underwriting Date and each initial 15,000-share grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of three (3) successive
equal annual installments over the Optionee's period of continued service as a
Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual 7,500-share automatic option shall vest, and the Corporation's
repurchase right shall lapse, in a series of three (3) successive equal annual
installments over the Optionee's period of continued service as a Board member,
with the first such installment to vest upon the Optionee's completion of one
(1) year of Board service measured from the option grant date.

                                       17
<PAGE>
            E.    TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:

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

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

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

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

      II.   CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

            B.    All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control.

            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 of
his or her

                                       18
<PAGE>
outstanding automatic option grants. The Optionee shall in return be entitled to
a cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. No approval or consent of the Board
or any Plan Administrator shall be required in connection with such option
surrender and cash distribution.

            D.    Each option which is assumed in connection with a Change in
Control (or otherwise continued in full and effect) shall be appropriately
adjusted, immediately after such Change in Control, to apply to the number and
class of securities or other property which would have been issuable to the
Optionee in consummation of such Change in Control had the option been exercised
immediately prior to such Change in Control. Appropriate adjustments shall also
be made to the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same.

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

      III.  REMAINING TERMS

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

                                  ARTICLE SIX

                       DIRECTOR FEE OPTION GRANT PROGRAM

      I.    OPTION GRANTS

            The Plan Administrator shall have the sole and exclusive authority
to determine the calendar year or years (if any) the Director Fee Option Grant
Program is to be in effect. When the Director Fee Option Grant Program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. Each
non-employee Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the annual retainer fee
which is the subject of that election would otherwise be payable in cash.

                                       19
<PAGE>
      II.   OPTION TERMS

            Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.

            A.    EXERCISE PRICE.

                  1.    The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

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

            B.    NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

                  X = A divided by (B x 66-2/3%), where

                  X is the number of option shares,

                  A is the portion of the annual retainer fee subject to the
                  non- employee Board member's election, and

                  B is the Fair Market Value per share of Common Stock on the
                  option grant date.

            C.    EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each month of Board service over the twelve (12)-month
period measured from the grant date. Each option shall have a maximum term of
ten (10) years measured from the option grant date.

            D.    TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

                                       20
<PAGE>
            E.    DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.

            Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by 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. Such right of exercise shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Board service.

      III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

            A.    In the event of any Change in Control while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of 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 any or
all of those shares as fully-vested shares of Common Stock. Immediately
following the consummation of the Change in Control, each automatic option grant
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in full force
and effect pursuant to the terms of the Change in Control transaction.

            B.    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
outstanding option granted him or her under the Director Fee Option Grant
Program. 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 each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.

                                       21
<PAGE>
            C.    Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities or other property which
would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same.

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

      IV.   REMAINING TERMS

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

                                 ARTICLE SEVEN

                                 MISCELLANEOUS

      I.    FINANCING

            The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments but only to the extent that the acceptance or terms of the
promissory note would not violate an Applicable Law (and, in the case of an
Incentive Option, the determination regarding whether payment of the option
exercise price may be made with a promissory note shall be made at the time of
grant). The terms of any such promissory note (including the interest rate and
the terms of repayment) shall be established by the Plan Administrator in its
sole discretion, provided, however, that the promissory note shall bear interest
at a market rate based on the rate environment at the date the option is
exercised or the shares are purchased and taking into account the credit
standing of the Optionee or Participant. Further, such market rate shall be
determined so as not to (i) be less than the minimum rate required by the
federal tax laws to avoid the imputation of interest income to the Corporation
and compensation income to the Optionee or Participant and (ii) result in an
accounting compensation charge to the Corporation. In no event may the maximum
credit available to the Optionee or Participant exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

                                       22
<PAGE>
      II.   TAX WITHHOLDING

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

            B.    The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee Option Grant Program) with the right to
use shares of Common Stock in satisfaction of all or part of the Taxes incurred
by such holders in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or both
of the following formats:

            Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the minimum amount of the Taxes
required to be withheld by the Corporation.

            Stock Delivery: 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 holder (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 (not to
exceed one hundred percent (100%)) designated by the holder (but only to the
extent that such delivery of shares of Common Stock would not result in an
accounting compensation charge with respect to the shares of Common Stock used
to pay the exercise price unless otherwise determined by the Plan Administrator;
generally an accounting charge will result if the shares of Common Stock used to
pay the Taxes were acquired less than six months before the option exercise or
share vesting).

      III.  EFFECTIVE DATE AND TERM OF THE PLAN

            A.    The Plan shall become effective immediately at the Plan
Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant Program shall not be implemented until such time as
the Primary Committee may deem appropriate. Options may be granted under the
Discretionary Option Grant at any time on or after the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.

                                       23
<PAGE>
            B.    The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.

            C.    One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Changes in Control, may, in the Plan Administrator's discretion, be extended
to one or more options incorporated from the Predecessor Plan which do not
otherwise contain such provisions.

            D.    The Plan shall terminate upon the earliest to occur of (i)
April 19, 2008, (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Change in Control. Should the
Plan terminate on April 19, 2008, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.

      IV.   AMENDMENT OF THE PLAN

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

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

                                       24
<PAGE>
            C.    The Plan was adopted by the Board and the stockholders during
April of 1998. On May 16, 2001, the Board adopted and approved an amendment and
restatement of the Plan (a) to increase the number of shares of Common Stock
available for issuance under the Plan and (b) to adopt a limit on the maximum
number of shares of Common Stock with respect to which options, separately
exercisable stock appreciation rights and direct stock issuances may be granted
to any Participant in any calendar year to comply with the performance-based
compensation exception to the deduction limit of Section 162(m) of the Code,
which amendments are subject to approval by the stockholders of the Corporation.
On October 9, 2002, the Board adopted and approved an amendment and restatement
of the Plan to amend, among other things, certain terms of Article Two, Article
Three, Article Five, Article Six, Article Seven and the Appendix which
amendments do not require approval by the stockholders of the Corporation and
shall be effective as of October 9, 2002 on a prospective basis.

      V.    USE OF PROCEEDS

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

      VI.   REGULATORY APPROVALS

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

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

      VII.  NO EMPLOYMENT/SERVICE RIGHTS

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

                                    APPENDIX

            The following definitions shall be in effect under the Plan:

                                       25
<PAGE>
            A.    APPLICABLE LAWS shall mean the legal requirements relating to
the administration of stock option plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to the granting of stock options and the
issuance of shares of Common Stock to residents therein.

            B.    AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Two of the Plan.

            C.    BOARD shall mean the Corporation's Board of Directors.

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

                  (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;

                  (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;

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

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

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

            F.    COMMON STOCK shall mean the Corporation's common stock.

            G.    CORPORATION shall mean Restoration Hardware, Inc., a Delaware
corporation, and its successors.

                                       26
<PAGE>
            H.    DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.

            I.    DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under Article Two of the Plan.

            J.    ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance with
the eligibility provisions of Article One.

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

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

            M.    FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

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

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

                  (iii) For purposes of any option grants made on the
      Underwriting Date, the Fair Market Value 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.

            N.    HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the

                                       27
<PAGE>
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.

            O.    INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

            P.    INVOLUNTARY TERMINATION shall mean 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 duties and responsibilities or the level of management
      to which he or she reports, (B) a reduction in his or her level of
      compensation (including base salary, fringe benefits and target bonus
      under any corporate-performance based bonus or incentive programs) by more
      than fifteen percent (15%) or (C) a relocation of such individual's place
      of employment by more than fifty (50) miles, provided and only if such
      change, reduction or relocation is effected by the Corporation without the
      individual's consent.

            Q.    MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not 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).

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

            S.    NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.

            T.    OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.

            U.    PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the

                                       28
<PAGE>
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.

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

            W.    PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, 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.

            X.    PLAN shall mean the Corporation's 1998 Stock Incentive Plan,
as set forth in this document.

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

            Z.    PLAN EFFECTIVE DATE shall mean April 19, 1998, the date on
which the Board adopted the Plan.

            AA.   PREDECESSOR PLAN shall mean the Corporation's 1995 Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.

            BB.   PRIMARY COMMITTEE shall mean the committee of two (2) or more
non- employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.

            CC.   SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under Article Three of the Plan.

            DD.   SECONDARY COMMITTEE shall mean a committee of one 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.

                                       29
<PAGE>
            EE.   SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of the 1934 Act.

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

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

            HH.   STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.

            II.   STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under Article Four of the Stock Issuance Program.

            JJ.   STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.

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

            LL.   TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile 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.

            MM.   TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.

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

                                       30
<PAGE>
            OO.   UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

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

                                       31

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