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                                                                     EXHIBIT 4.1

                                                             AS AMENDED 11/11/02

                              PIRUS NETWORKS, INC.

                             2000 STOCK OPTION PLAN

        1.     PURPOSE OF THE PLAN.

        This stock option plan (the "Plan") is intended to encourage ownership
of the stock of Pirus Networks, Inc. (the "Company") by employees, consultants
and advisors of the Company and its subsidiaries, to induce qualified personnel
to enter and remain in the employ of the Company or its subsidiaries and
otherwise to provide additional incentive for optionees to promote the success
of its business.

        2.     STOCK SUBJECT TO THE PLAN.

        (a)    The total number of shares of the authorized but unissued or
Treasury shares of the common stock, $.01 par value per share, of the Company
(the "Common Stock") for which options may be granted under the Plan shall not
exceed seventeen million four hundred and fifty thousand (17,450,000) shares,
subject to reduction for the shares granted by the Company pursuant to the 2000
Restricted Stock Purchase Plan and shall be subject to adjustment as provided in
Section 12 hereof.

        (b)    If an option granted hereunder shall expire or terminate for any
reason without having vested fully or having been exercised in full, the
unvested and/or unpurchased shares subject thereto shall again be available for
subsequent option grants under the Plan.

        (c)    Stock issuable upon exercise of an option granted under the Plan
may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.

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        3.     ADMINISTRATION OF THE PLAN.

        (a)    At the discretion of the Company's Board of Directors, the Plan
shall be administered either (i) by the full Board of Directors of the Company
or (ii) by a committee (the "Committee") consisting of two or more members of
the Company's Board of Directors. In the event that the full Board of Directors
is the administrator of the Plan, references herein to the Committee shall be
deemed to include the full Board of Directors. The Board of Directors may from
time to time appoint a member or members of the Committee in substitution for or
in addition to the member or members then in office and may fill vacancies on
the Committee however caused. The Committee shall choose one of its members as
Chairman and shall hold meetings at such times and places as it shall deem
advisable. A majority of the members of the Committee shall constitute a quorum
and any action may be taken by a majority of those present and voting at any
meeting.

        (b)    Any action may also be taken without the necessity of a meeting
by a written instrument signed by a majority of the Committee. The decision of
the Committee as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Committee shall have
the authority to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement granted hereunder in the manner and to the
extent it shall deem expedient to carry the Plan into effect and shall be the
sole and final judge of such expediency. No Committee member shall be liable to
any action or determination made in good faith.

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        4.     TYPE OF OPTIONS.

        Options granted pursuant to the Plan shall be authorized by action of
the Committee and may be designated as either incentive stock options meeting
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options which are not intended to meet the
requirements of such Section 422 of the Code, the designation to be in the sole
discretion of the Committee. The Plan shall be administered by the Committee in
such manner as to permit options to qualify as incentive stock options under the
Code.

        5.     ELIGIBILITY.

        Options designated as incentive stock options shall be granted only to
employees (including officers and directors who are also employees) of the
Company and any of its subsidiaries. Options designated as non-qualified options
may be granted to directors (whether or not employees), officers, employees,
consultants, and advisors of the Company or of any of its subsidiaries.
"Subsidiary" or "subsidiaries" shall be as defined in Section 424 of the Code
and the Treasury Regulations promulgated thereunder (the "Regulations").

        The Committee shall, from time to time, at its sole discretion, select
from such eligible individuals those to whom options shall be granted and shall
determine the number of shares to be subject to each option. In determining the
eligibility of an individual to be granted an option, as well as in determining
the number of shares to be granted to any individual, the Committee in its sole
discretion shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.

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        No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock representing more than 10% of the voting
power or more than 10% of the value of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 424(d) of the Code shall be controlling. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply.

        6.     OPTION AGREEMENT.

        Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee, provided that options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section 422
of the Code. The date of grant of an option shall be as determined by the
Committee. More than one option may be granted to an individual.

        7.     OPTION PRICE.

        The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be determined by the
Committee, but in no event shall the option price of a non-qualified stock
option be less than the fair market value of such Common Stock at the time the
option is granted, as determined by the Committee. The option price or prices of
shares of

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the Company's Common Stock for incentive stock options shall be the fair market
value of such Common Stock at the time the option is granted as determined by
the Committee in accordance with the Regulations promulgated under Section 422
of the Code. If such shares are then listed on any national securities exchange,
the fair market value shall be the mean closing price on the largest such
exchange on the business day immediately preceding the date of the grant of the
option. If the shares are not then listed on any such exchange, the fair market
value of such shares shall be the mean closing price as reported in the National
Association of Securities Dealers Automated Quotation National Market
("NASDAQ/NM") for the business day immediately preceding the date of the grant
of the option. If the shares are not then either listed on any such exchange or
quoted in NASDAQ/NM, the fair market value shall be the mean between the average
of the "Bid" and the average of the "Ask" prices, if any, as reported in the
National Daily Quotation Service for the business day immediately preceding the
date of the grant of the option, or, if none, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on the
nearest date before and the nearest date after the date of grant in accordance
with Treasury Regulations Section 25.2512-2. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Committee.

        8.     MANNER OF PAYMENT; MANNER OF EXERCISE.

        (a)    The payment of the exercise price, unless otherwise determined by
the Committee, shall be paid by delivery of (i) cash or a check payable to the
order of the Company in an amount equal to the exercise price of such options,
(ii) shares of Common Stock of the Company owned by the optionee having a fair
market value equal in amount to the exercise price of the options being
exercised, (iii) any combination of (i) and (ii), provided, however, that
payment of the exercise price by delivery of shares of Common Stock of the
Company owned by such optionee may be made only

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if such payment does not result in a charge to earnings for financial accounting
purposes as determined by the Committee, or (iv) payment may also be made by
delivery of a properly executed exercise notice to the Company, together with a
copy of irrevocable instruments to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the exercise price. The fair market
value of any shares of the Company's Common Stock which may be delivered upon
exercise of an option shall be determined by the Committee in accordance with
Section 7 hereof. To facilitate clause (iv) above, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. The date
of exercise shall be the date of delivery of such exercise notice.

        (b)    To the extent that the right to purchase shares under an option
has accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, after 9:00 a.m. but not more than
thirty (30) days from the date of receipt of the notice by the Company, as shall
be designated in such notice, or at such time, place and manner as may be agreed
upon by the Company and the person or persons exercising the option. Upon
exercise of the option and payment as provided above, the optionee shall become
a stockholder of the Company as to the Shares acquired upon such exercise.

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        9.     EXERCISE OF OPTIONS.

        (a)    Each option granted under the Plan shall, subject to Section
10(b) and Section 12 hereof, be exercisable with reference to the Vesting
Reference Date (the date selected by the Committee) as follows: prior to the
First Anniversary Date of the Vesting Reference Date -- zero percent (0%); on
the First Anniversary Date of the Vesting Reference Date -- twenty-five percent
(25%). Thereafter, additional shares shall vest equally on a monthly basis, in
arrears, such that by the Fourth Anniversary Date of the Vesting Reference Date
all shares shall vest, provided, however, that no option granted under the Plan
shall have a term in excess of ten (10) years from the date of grant.
Notwithstanding any other provisions of this section, in the event of the death
of the Participant, the Participant will automatically receive twelve (12)
months accelerated vesting under his or her Agreement or Stock Repurchase
Agreement, if applicable, as provided in Section 9(b).

        To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
fifty (50) full shares of Common Stock, unless the option is exercisable for
less than fifty (50) shares of Common Stock.

        (b)    Notwithstanding the foregoing, the Agreement may provide that the
option shall be immediately exercisable by the optionee provided that the
optionee enters into a Stock Repurchase Agreement approved by the Committee
which provides for a reverse vesting schedule in substance similar to that set
forth in Section 9(a) hereof, such unvested shares being held either in escrow
or otherwise by the Secretary or Treasurer of the Company until vested.

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        (c)    Notwithstanding the foregoing, the Committee may in its
discretion (i) specifically provide for another time or times of exercise or
(ii) accelerate the exercisability of any option subject to such terms and
conditions as the Committee deems necessary and appropriate.

        10.    TERM OF OPTIONS; EXERCISABILITY.

        (a)    Term.

               (1)    Each option shall expire not more than ten (10) years from
the date of the granting thereof, but shall be subject to earlier termination as
herein provided.

               (2)    Except as otherwise provided in this Section 10, an option
granted to any employee optionee who ceases to be an employee of the Company or
one of its subsidiaries shall terminate thirty (30) days after the date such
optionee ceases to be an employee of the Company or one of its subsidiaries, or
on the date on which the option expires by its terms, whichever occurs first.

               (3)    If such termination of employment is because of dismissal
for cause or because the employee is in breach of any employment agreement, such
option will terminate on the date the optionee ceases to be an employee of the
Company or one of its subsidiaries.

               (4)    If such termination of employment is because the optionee
has become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such option shall terminate on the last day of the sixth month from the
date such optionee ceases to be an employee, or on the date on which the option
expires by its terms, whichever occurs first.

               (5)    In the event of the death of any optionee, any option
granted to such optionee shall terminate on the last day of the sixth month from
the date of death, or on the date on which the option expires by its terms,
whichever occurs first.

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               (6)    Notwithstanding subparagraphs (2), (3), (4) and (5) above,
the Committee shall have the authority to extend the expiration date of any
outstanding option in circumstances in which it deems such action to be
appropriate.

        (b)    Exercisability. An option granted to an employee optionee who
ceases to be an employee of the Company or one of its subsidiaries, whether by
having become permanently disabled, as defined in Section 22(e)(3) of the Code,
by death, or otherwise, shall be exercisable only to the extent that the right
to purchase shares under such option has accrued and is in effect on the date
such optionee ceases to be an employee of the Company or one of its
subsidiaries. Options granted to non-employees shall have such exercisability
standards as the Committee shall determine.

        (c)    Stockholders' Agreement. Upon exercise by the Participant, such
Participant shall enter into a Stockholders' Agreement, such agreement to be on
such further terms and conditions as is determined by the Committee.

        11.    OPTIONS NOT TRANSFERABLE.

        The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution or as otherwise required by statute and
any such option shall be exercisable during the lifetime of such optionee only
by him. Any option granted under the Plan shall be null and void and without
effect upon the bankruptcy of the optionee to whom the option is granted, or
upon any attempted assignment or transfer, except as herein provided, including
without limitation any purported assignment, whether voluntary or by operation
of law, pledge, hypothecation or other disposition, attachment, divorce, trustee
process or similar process, whether legal or equitable, of such option.

        12.    RECAPITALIZATIONS, REORGANIZATIONS AND THE LIKE.

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        (a)    In the event that the outstanding shares of the Common Stock of
the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by reason of
any reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.

        (b)    In addition, unless otherwise determined by the Committee in its
sole discretion, in the case of any Change of Control (as hereinafter defined)
of the Company, the purchaser(s) of the Company's assets or stock may, in his,
her or its discretion, deliver to the optionee the same kind of consideration
that is delivered to the stockholders of the Company as a result of such sale,
conveyance or Change of Control, or the Committee may cancel all outstanding
options in exchange for consideration in cash or in kind, which consideration in
both cases shall be equal in value to those shares of stock or other securities
the optionee would have received had the option been exercised (to the extent
then exercisable) and no disposition of the shares acquired upon such exercise
been made prior to such Change of Control, less the option price therefor. Upon
receipt of consideration by the optionee, his or her option shall immediately
terminate and be of no further force and effect. The value of the stock or other
securities the optionee would have received if the option had been exercised
shall be determined in good faith by the Committee, and in the case of shares of
the Common Stock of the Company, in accordance with the provisions of Section 7
hereof. The Committee shall also have the power and right to accelerate the
exercisability of any options,

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notwithstanding any limitations in this Plan or in the Agreement upon such
Change of Control. A "Change of Control" shall be deemed to have occurred if any
of the following conditions have occurred: (1) the merger or consolidation of
the Company with another entity where the Company is not the surviving entity
and where after the merger or consolidation (i) its stockholders prior to the
merger or consolidation hold less than 50% of the voting stock of the surviving
entity and (ii) its directors prior to the merger or consolidation are less than
a majority of the Board of Directors of the surviving entity; (2) the sale of
all or substantially all of the Company's assets to a third party and subsequent
to the transaction (i) its stockholders hold less than 50% of the voting stock
of said third party and (ii) its directors are less than a majority of the Board
of Directors of said third party; or (3) a transaction or series of related
transactions, including a merger of the Company with another entity where the
Company is the surviving entity, whereby (i) 50% or more of the voting stock of
the Company after the transaction(s) is owned actually or beneficially by
parties who held less than thirty percent (30% ) of the voting stock, actually
or beneficially, prior to the transaction(s) and (ii) the Board of Directors
after the transaction(s) or within sixty (60) days thereof, is comprised of less
than a majority of the directors serving prior to the transaction(s).

        (c)    No fraction of a share shall be purchasable or deliverable upon
the exercise of any option, but in the event any adjustment hereunder of the
number of shares covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.

        13.    NO SPECIAL EMPLOYMENT RIGHTS -- LEAVES OF ABSENCE.

        Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary thereof) or interfere
in any way with the right of the Company (or any subsidiary thereof), subject to
the terms of any separate employment agreement to the contrary, at any time to

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terminate such employment or to increase or decrease the compensation of the
option holder from the rate in existence at the time of the grant of an option.
Whether an authorized leave of absence, or absence in military or government
service, shall constitute termination of employment shall be determined by the
Committee at the time.

        14.    WITHHOLDING.

        The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan shall be subject to the option holder's
satisfaction of all applicable Federal, state and local income, excise,
employment and any other tax withholding requirements.

        15.    RESTRICTIONS ON ISSUE OF SHARES.

        (a)    Notwithstanding the provisions of Section 8, the Company may
delay the issuance of shares covered by the exercise of an option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:

                   (1) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or

                   (2) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
shares are exempt from registration and qualification under applicable Federal
and state securities acts now in force or as hereafter amended.

        (b)    It is intended that all exercises of options shall be effective,
and the Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose

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of covering the issue of shares in respect of which any option may be exercised,
except as otherwise agreed to by the Company in writing.

        16.    PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT
REGISTRATION.

        Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to counsel for the
Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option for his or her own account as an investment and not with
a view to, or for sale in connection with, the distribution of any such shares,
and that he or she will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, or any other applicable law, and that if shares are
issued without such registration, a legend to this effect may be endorsed upon
the securities so issued. In the event that the Company shall, nevertheless,
deem it necessary or desirable to register under the Securities Act of 1933 or
other applicable statutes any shares with respect to which an option shall have
been exercised, or to qualify any such shares for exemption from the Securities
Act of 1933 or other applicable statutes, then the Company may take such action
and may require from each optionee such information in writing for use in any
registration statement, supplementary registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors and controlling persons from such holder against all losses, claims,
damages and liabilities arising from such use of the information so furnished
and caused by

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any untrue statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.

        17.    LOANS.

        The Company may make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable Federal and state
laws and regulations regarding such loans must be met and the stock issued
pursuant to the exercise of such option shall be pledged to the Company pursuant
to a Stock Pledge Agreement as security for the loan until such amounts are
repaid.

        18.    MODIFICATION OF OUTSTANDING OPTIONS.

        The Committee may authorize the amendment of any outstanding option with
the consent of the optionee when and subject to such conditions as are deemed to
be in the best interests of the Company and in accordance with the purposes of
this Plan.

        19.    APPROVAL OF STOCKHOLDERS.

        The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company present, or
represented, and entitled to vote at a duly held stockholders' meeting, or by
written consent of the stockholders as provided for under applicable state law,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Committee may grant options under the Plan
prior to such approval, but any such option shall become effective as of the
date of grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.

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        20.    TERMINATION AND AMENDMENT.

        Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board
of Directors of the Company. The Board of Directors may at any time terminate
the Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 20, the Board of
Directors may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 19, increase the maximum number of
shares for which options may be granted or change the designation of the class
of persons eligible to receive options under the Plan, or make any other change
in the Plan which requires stockholder approval under applicable law or
regulations, including any approval requirement which is a prerequisite for
exemptive relief under Section 16 of the 1934 Act. The Committee may terminate,
amend or modify any outstanding option without the consent of the option holder,
provided, however, that, except as provided in Section 12, without the consent
of the optionee, the Committee shall not change the number of shares subject to
an option, nor the exercise price thereof, nor extend the term of such option.

        21.    RESERVATION OF STOCK.

        The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.

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        22.    LIMITATION OF RIGHTS IN THE OPTION SHARES.

        An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.

        23.    NOTICES.

        Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.

        APPROVED BY THE BOARD:  January 11, 2001
                                ----------------

        APPROVED BY STOCKHOLDERS:  January 11, 2001
                                   ----------------

        AMENDMENT APPROVED BY THE BOARD:  October 25, 2002
                                          ----------------

        AMENDMENT APPROVED BY STOCKHOLDERS:  November 11, 2002
                                             -----------------

                                       16<PAGE>
                                                                     Exhibit 4.1

                               FAFCO, INCORPORATED

                                 2002 STOCK PLAN

      1. Purposes of the Plan. The purposes of this 2002 Stock Plan are:

            -     to attract and retain the best available personnel for
                  positions of substantial responsibility,

            -     to provide additional incentive to Employees, Directors and
                  Consultants, and

            -     to promote the success of the Company's business.

            Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

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

            (a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.

            (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

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

            (d) "Change in Control" means the occurrence of any of the following
events:

                  (i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or

                  (ii) The consummation of the sale or disposition by the
Company of all or substantially all of the Company's assets;

                  (iii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" means directors who
either (A) are Directors as of the effective date of the Plan, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but will not include

<PAGE>
an individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

                     (iv) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation.

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

            (f) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.

            (g) "Common Stock" means the common stock of the Company.

            (h) "Company" means FAFCO, Incorporated, a California corporation.

            (i) "Consultant" means any natural person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.

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

            (k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.

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

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

                  (i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;

                                      -2-
<PAGE>
                  (ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or

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

            (n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated there-under.

            (o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

            (p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.

            (q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

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

            (s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

            (t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.

            (u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.

            (v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.

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

            (x) "Plan" means this 2002 Stock Plan.

            (y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

            (z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased

                                      -3-
<PAGE>
under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject
to the terms and conditions of the Plan and the Notice of Grant.

            (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

            (bb) "Section 16(b) " means Section 16(b) of the Exchange Act.

            (cc) "Service Provider" means an Employee, Director or Consultant.

            (dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.

            (ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

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

      3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 500,000 Shares plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2003, equal to the lesser of
(i) 200,000 shares, (ii) 3% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.

      Notwithstanding the preceding paragraph, or any other provision of this
Plan, in no event may the number of Shares subject to outstanding options
granted under this Plan, when combined with the number of Shares which are
issuable upon exercise of all other outstanding options, warrants or other
rights granted by the Company to purchase shares of capital stock of the
Company, exceed a number of Shares equal to 30% of the aggregate number of
Shares which are issued and outstanding as of the applicable determination date.

            If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.

      4. Administration of the Plan.

            (a) Procedure.

                  (i) Multiple Administrative Bodies. Different Committees with
respect to different groups of Service Providers may administer the Plan.

                                      -4-
<PAGE>
                  (ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

                  (iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

                  (iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

            (b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

                  (i) to determine the Fair Market Value;

                  (ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;

                  (iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

                  (iv) to approve forms of agreement for use under the Plan;

                  (v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

                  (vi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;

                  (vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;

                  (viii) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;

                  (ix) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock

                                      -5-
<PAGE>
Purchase Right that number of Shares having a Fair Market Value equal to the
minimum amount required to be withheld. The Fair Market Value of the Shares to
be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;

                  (x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

                  (xi) to make all other determinations deemed necessary or
advisable for administering the Plan.

            (c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

      5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

      6. Limitations.

            (a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

            (b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.

            (c) The following limitations shall apply to grants of Options:

                  (i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 200,000 Shares.

                  (ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 200,000 Shares,
which shall not count against the limit set forth in subsection (i) above.

                  (iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.

                                      -6-
<PAGE>
                  (iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

      7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.

      8. Term of Option. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant or such shorter term as may be provided in the Option
Agreement.

      9. Option Exercise Price and Consideration.

            (a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

                  (i) In the case of an Incentive Stock Option

                        (A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.

                        (B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

                  (ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant. In the case of a Nonstatutory Stock Option intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.

                  (iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

            (b) Waiting Period and Exercise Dates. Subject to the constraints
herein, at the time an Option is granted, the Administrator shall fix the period
within which the Option may be exercised and shall determine any conditions that
must be satisfied before the Option may be exercised.

                                      -7-
<PAGE>
            (c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

                  (i) cash;

                  (ii) check;

                  (iii) promissory note;

                  (iv) other Shares which, in the case of Shares acquired
directly or indirectly from the Company, (A) have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;

                  (v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

                  (vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

                  (vii) any combination of the foregoing methods of payment; or

                  (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

      10. Exercise of Option.

            (a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be suspended during any unpaid leave
of absence. An Option may not be exercised for a fraction of a Share. Except in
the case of Options granted to officers, Directors and Consultants, Options
shall become exercisable at a rate of no less than 20% per year over five (5)
years from the date the Options are granted.

                  An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to

                                      -8-
<PAGE>
be issued) such Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 13 of the Plan.

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

            (b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within thirty (30)
days of termination, or such longer period of time as is specified in the Option
Agreement, to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). If, on the date of termination, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.

            (c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's disability, the Optionee may exercise his
or her Option within six (6) months of termination, or such longer period of
time as is specified in the Option Agreement, to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

            (d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within six (6) months following the Optionee's
death, or within such longer period of time as is specified in the Option
Agreement, to the extent that the Option is vested on the date of death (but in
no event may the option be exercised later than the expiration of the term of
such Option as set forth in the Option Agreement), by the Optionee's designated
beneficiary, provided such beneficiary has been designated prior to Optionee's
death in a form acceptable to the Administrator. If no such beneficiary has been
designated by the Optionee, then such Option may be exercised by the personal
representative of the Optionee's estate or by the person(s) to whom the Option
is transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. If, at the time of death, Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. If the Option is not so exercised
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

      11. Stock Purchase Rights.

            (a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the

                                      -9-
<PAGE>
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The terms of the offer shall comply in all respects with Section
260.140.42 of Title 10 of the California Code of Regulations. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.

            (b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator; provided that such rate may not exceed the term permitted under
applicable laws and regulations, including Section 260.140.42 of Title 10 of the
California Code of Regulations.

            (c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

            (d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

      12. Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator in its sole discretion makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right may only be transferred (i) by
will, (ii) by the laws of descent and distribution, or (iii) as permitted by
Rule 701 of the Securities Act and by Sections 260.140.41 and 260.140.42 of
Title 10 of the California Code of Regulations.

      13. Adjustments Upon Changes in Capitalization, Merger or Change in
Control.

            (a) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Shares occurs, the Administrator, in
order to prevent diminution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, may (in its sole discretion)
adjust the number and class of Shares that may be delivered under the Plan
and/or the number, class, and price of Shares covered by each outstanding Option
or Stock Purchase Right.

                                      -10-
<PAGE>
            (b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.

            (c) Merger or Change in Control. In the event of a merger of the
Company with or into another corporation, or a Change in Control, each
outstanding Option and Stock Purchase Right shall be assumed or an equivalent
option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period.

                  For the purposes of this subsection (c), the Option or Stock
Purchase Right shall be considered assumed if, following the merger or Change in
Control, the option or right confers the right to purchase or receive, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or Change in Control, the consideration (whether
stock, cash, or other securities or property) received in the merger or Change
in Control by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
Change in Control is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option or
Stock Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or Change in Control.

      14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

                                      -11-
<PAGE>
      15. Amendment and Termination of the Plan.

            (a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.

            (b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

            (c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

      16. Conditions Upon Issuance of Shares.

            (a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

            (b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.

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

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

      19. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

      20. Information to Optionees. The Company shall provide to each Optionee
and to each individual who acquires Shares pursuant to the Plan, not less
frequently than annually during the period such Optionee has one or more Options
or Stock Purchase Rights outstanding, and, in the case of an individual who
acquires Shares pursuant to the Plan, during the period such individual owns
such Shares, copies of annual financial statements. The Company shall not be
required to

                                      -12-
<PAGE>
provide such statements to key employees whose duties in connection with the
Company assure their access to equivalent information.

                                      -13-
<PAGE>
                               FAFCO, INCORPORATED

                                 2002 STOCK PLAN

                             STOCK OPTION AGREEMENT

      Unless otherwise defined herein, the terms defined in the 2002 Stock Plan
shall have the same defined meanings in this Stock Option Agreement.

      I. NOTICE OF STOCK OPTION GRANT

      NAME:

      ADDRESS:

      You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:

      Grant Number
                                       --------------------------
      Date of Grant
                                       --------------------------
      Vesting Commencement Date
                                       --------------------------
      Exercise Price per Share         $
                                       --------------------------
      Total Number of Shares Granted
                                       --------------------------
      Total Exercise Price
                                       --------------------------

      Type of Option:                  ___ Incentive Stock Option

                                       ___ Nonstatutory Stock Option

      Term/Expiration Date:
                                       --------------------------
      Vesting Schedule:

      This Option shall be exercisable, in whole or in part, in accordance with
the following schedule:

      [25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates].

<PAGE>
      Termination Period:

      This Option may be exercised for [three months] after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for [twelve months] after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.

      II. AGREEMENT

      A. Grant of Option.

      The Plan Administrator of the Company hereby grants to the Optionee named
in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an
option (the "Option") to purchase the number of Shares, as set forth in the
Notice of Grant, at the exercise price per share set forth in the Notice of
Grant (the "Exercise Price"), subject to the terms and conditions of the Plan,
which is incorporated herein by reference. Subject to Section 15(c) of the Plan,
in the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Option Agreement, the terms and conditions of the
Plan shall prevail.

      If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").

      B. Exercise of Option.

      (a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

      (b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.

      No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.

       C. Method of Payment.

                                      -2-
<PAGE>
      Payment of the aggregate Exercise Price shall be by any of the following,
or a combination thereof, at the election of the Optionee:

      1. cash; or

      2. check; or

      3. consideration received by the Company under a formal cashless exercise
program implemented by the Company in connection with the Plan; or

      4. surrender of other Shares which (i) in the case of Shares acquired
either directly or indirectly from the Company, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate Exercise Price of
the Exercised Shares.

      D. Non-Transferability of Option.

      This Option may not be transferred in any manner otherwise than by will or
by the laws of descent or distribution and may be exercised during the lifetime
of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.

      E. Term of Option.

      This Option may be exercised only within the term set out in the Notice of
Grant, and may be exercised during such term only in accordance with the Plan
and the terms of this Option Agreement.

      F. Tax Obligations.

      (a) Withholding Taxes. Optionee agrees to make appropriate arrangements
with the Company (or the Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state, local and foreign income and
employment tax withholding requirements applicable to the Option exercise.
Optionee acknowledges and agrees that the Company may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.

      (b) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.

      G. Entire Agreement; Governing Law.

      The Plan is incorporated herein by reference. The Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their

                                      -3-
<PAGE>
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.

      H. NO GUARANTEE OF CONTINUED SERVICE.

      OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER
AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES
AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.

      By Optionee's signature and the signature of the Company's representative
below, Optionee and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement. Optionee further agrees to notify the Company
upon any change in the residence address indicated below.

      OPTIONEE:                                 FAFCO, INCORPORATED

      Signature                                 By
                        ---------------------         --------------------------
      Print Name                                Title
                        ---------------------         --------------------------
      Residence Address

                                      -4-
<PAGE>
                               FAFCO, INCORPORATED
                                 2002 STOCK PLAN
                                 EXERCISE NOTICE

      FAFCO, INCORPORATED
      435 Otterson Drive
      Chico, CA 95928-8207
      Attention:  [Title]

      1. Exercise of Option. Effective as of today, ________________, _____, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of FAFCO, Incorporated (the "Company") under and
pursuant to the 2002 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). Subject to adjustment in accordance with
Section 13 of the Plan, the purchase price for the Shares shall be $_____, as
required by the Option Agreement.

      2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares together with any applicable withholding
taxes.

      3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

      4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.

      5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

      6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.

                                      -5-
<PAGE>
      Submitted by:                         Accepted by:

      PURCHASER:                            FAFCO, INCORPORATED

      Signature                             By
                  ----------------------         -------------------------------
      Print Name                            Its
                  ----------------------         -------------------------------
      Address:                              Address:
                                            435 Otterson Drive
                                            Chico, CA 95928-8207

                                            Date Received
                                                          ----------------------

                                      -6-

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