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                                                                   EXHIBIT 10.3

                     THE 1999 EMPLOYEE EQUITY PARTICIPATION

                              AND INCENTIVE PLAN OF

                          ALLIANCE ENTERTAINMENT CORP.

      Alliance Entertainment Corp., a Delaware corporation (the "Company"), has
adopted The 1999 Employee Equity Participation and Incentive Plan of Alliance
Entertainment Corp. (the "Plan"), effective December 8, 1999, for the benefit of
its eligible employees, consultants and directors.

      The purposes of the Plan are as follows:

      (1) To provide an additional incentive for key Employees (as such term is
defined below), consultants and directors to further the growth, development and
financial success of the Company by personally benefitting through the ownership
of Company stock and/or rights which recognize such growth, development and
financial success.

      (2) To enable the Company to obtain and retain the services of key
Employees, consultants and directors considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.

                                   ARTICLE I.

                                  DEFINITIONS

      I.1. General. Wherever the following terms are used in the Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.

      I.2. Award. "Award" shall mean an Option, a Stock award, a Common Stock
award, a Restricted Stock award, a Performance Award, a Dividend Equivalents
award, a Deferred Stock award, a Stock Payment award or a Stock Appreciation
Right which may be awarded or granted under the Plan (collectively, "Awards").

      I.3. Award Agreement. "Award Agreement" shall mean a written agreement
executed by an authorized officer of the Company and the Holder which shall
contain such terms and conditions with respect to an Award as the Committee
shall determine, consistent with the Plan.

      I.4. Award Limit. "Award Limit" shall mean Five Hundred Thousand (500,000)
shares of Common Stock, as adjusted pursuant to Section 11.3 of the Plan.

      I.5. Board. "Board" shall mean the Board of Directors of the Company.

      I.6. Change in Control. "Change in Control" shall mean:

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            (a) the sale, lease or other transfer of all or substantially all of
the assets of the Company to any person or group (as such term is used in
Section 13(d)(3) of the Exchange Act);

            (b) the adoption by the stockholders of the Company of a plan
relating to the liquidation or dissolution of the Company;

            (c) the merger or consolidation of the Company with or into another
entity or the merger of another entity into the Company or any Subsidiary
thereof with the effect that immediately after such transaction the stockholders
of the Company immediately prior to such transaction (or their affiliates) hold
less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation;

            (d) the acquisition by any person, entity or group, within the
meaning of Section 13(d) or 14(d) of the Exchange Act, of more than fifty
percent (50%) of the voting power of all securities (other than the Company or a
person, entity or group that directly or indirectly controls, is controlled by,
or is under common control with the Company, directly or indirectly), of the
Company generally entitled to vote in the election of Directors of the Company
pursuant to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend that such stockholders accept;
or

            (e) there is 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 (rounded up to the nearest whole number) ceases, by reason of one
or more proxy contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period or (ii) 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 (i) who were still in office at the time such election or
nomination was approved by the Board.

      I.7. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.

      I.8. Committee. "Committee" shall mean the entire Board, unless a
compensation committee of the Board, or another committee or subcommittee of the
Board is appointed as provided in Section 10.1, in which case Committee shall
mean such compensation committee or other committee or subcommittee.

      I.9. Common Stock. "Common Stock" shall mean the common stock of the
Company, par value $.0001 per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.

      I.10. Company. "Company" shall mean Alliance Entertainment Corp., a
Delaware corporation.

      I.11. Deferred Stock. "Deferred Stock" shall mean Common Stock awarded
under Article VIII of the Plan.

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      I.12. Director. "Director" shall mean a member of the Board.

      I.13. Dividend Equivalent. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VIII of the Plan.

      I.14. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.

      I.15. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.

      I.16. Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be (i) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred; or (ii) if Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by NASDAQ or such successor quotation system;
or (iii) if Common Stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the fair market value of a share of
Common Stock as established by the Committee acting in good faith.

      I.17. Holder. "Holder" shall mean an Employee, consultant, or Director who
has been granted or awarded an Award.

      I.18. Incentive Stock Option. "Incentive Stock Option" shall mean an
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an incentive stock option by the Committee.

      I.19. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the Committee.

      I.20. Option. "Option" shall mean a stock option granted under Article IV
of the Plan. An Option granted under the Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option.

      I.21. Optionee. "Optionee" shall mean an Employee, consultant or Director
granted an Option under the Plan.

      I.22. Performance Award. "Performance Award" shall mean a cash bonus,
stock bonus or other performance or incentive award that is paid in cash, Common
Stock or a combination of both, awarded under Article VIII of the Plan.

      I.23. Performance Criteria. "Performance Criteria" shall mean the
following business criteria with respect to the Company or any Subsidiary: (i)
net income, (ii) pre-tax income, (iii)

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operating income, (iv) cash flow, (v) earnings per share, (vi) return on equity,
(vii) return on invested capital or assets, (viii) cost reductions or savings,
(ix) funds from operations, (x) appreciation in the Fair Market Value of Common
Stock and (xi) earnings before any one or more of the following items: interest,
taxes, depreciation or amortization.

      I.24. Plan. "Plan" shall mean The 1999 Equity Participation Plan of
Alliance Entertainment Corp.

      I.25. QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.

      I.26. Restricted Stock. "Restricted Stock" shall mean Common Stock awarded
under Article VII of the Plan.

      I.27. Restricted Stockholder. "Restricted Stockholder" shall mean an
Employee, consultant or Director granted an award of Restricted Stock under
Article VII of the Plan.

      I.28. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under
the Exchange Act, as such Rule may be amended from time to time.

      I.29. Section 162(m) Participant. "Section 162(m) Participant" shall mean
any key Employee designated by the Committee as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.

      I.30. Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.

      I.31. Stock Appreciation Right. "Stock Appreciation Right" shall mean a
stock appreciation right granted under Article IX of the Plan.

      I.32. Stock Payment. "Stock Payment" shall mean (i) a payment in the form
of shares of Common Stock, or (ii) an option or other right to purchase shares
of Common Stock, as part of a deferred compensation arrangement, made in lieu of
all or any portion of the compensation, including without limitation, salary,
bonuses and commissions, that would otherwise become payable to a key Employee,
consultant or Director in cash, awarded under Article VIII of the Plan.

      I.33. Subsidiary. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns 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.

      I.34. Termination of Consultancy. "Termination of Consultancy" shall mean
the time when the engagement of a consultant to the Company or a Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, by resignation, discharge, death or retirement; but excluding
terminations where there is a simultaneous commencement of

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employment with the Company or any Subsidiary, or, in the discretion of the
Committee, where there is a simultaneous commencement of service as a Director
of the Company. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.

      I.35. Termination of Service as a Director. "Termination of Service as a
Director" shall be as defined by the Committee in an Award Agreement.

      I.36. Termination of Employment. "Termination of Employment" shall mean
the time when the employee-employer relationship between an Employee and the
Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of a Holder by the
Company or any Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former Employee, and (iv) at the discretion of the
Committee, terminations which are immediately followed by the Holder's service
as a Director. The Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Employment;
provided, however, that, with respect to Incentive Stock Options, unless
otherwise determined by the Committee in its discretion, a leave of absence,
change in status from an employee to an independent contractor or other change
in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.

                                   ARTICLE II.

                             SHARES SUBJECT TO PLAN

      II.1. Shares Subject to Plan.

            (a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's Common Stock, par value $.000 per share. The
aggregate number of such shares which may be issued upon exercise of such
Options or rights or upon any such

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Awards under the Plan shall not exceed Two Million Seven Hundred Twenty Two
Thousand Five Hundred Thirty Five (2,722,535) shares; provided, however, to the
extent that an Award is made in reliance upon Section 25102(o) of the California
Corporate Securities Law of 1968, as amended, the number of shares subject to
Awards or other rights outstanding at any time under the Plan or otherwise,
shall not exceed the limitation imposed by Section 260.140.45 of the Code of
Regulations of the California Commissioner of Corporations. The shares of Common
Stock issuable upon exercise of such Options or rights or upon any such Awards
may be either previously authorized but unissued shares or treasury shares.

            (b) The maximum number of shares which may be subject to Awards
granted under the Plan to any individual in any calendar year shall not exceed
the Award Limit. To the extent required by Section 162(m) of the Code, shares
subject to Options which are canceled continue to be counted against the Award
Limit and if, after grant of an Option, the price of shares subject to such
Option is reduced, the transaction is treated as a cancellation of the Option
and a grant of a new Option and both the Option deemed to be canceled and the
Option deemed to be granted are counted against the Award Limit. Furthermore, to
the extent required by Section 162(m) of the Code, if, after grant of a Stock
Appreciation Right, the base amount on which stock appreciation is calculated is
reduced to reflect a reduction in the Fair Market Value of the Common Stock, the
transaction is treated as a cancellation of the Stock Appreciation Right and a
grant of a new Stock Appreciation Right, and both the Stock Appreciation Right
deemed to be canceled and the Stock Appreciation Right deemed to be granted are
counted against the Award Limit.

      II.2. Add-Back of Options and Other Rights. If any Option, or other right
to acquire shares of Common Stock under any other Award under the Plan, expires
or is canceled without having been fully exercised, or is exercised in whole or
in part and the Optionee receives cash as permitted by the Plan, the number of
shares subject to such Option or other right but as to which such Option or
other right was not exercised prior to its expiration, cancellation or exercise
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Furthermore, any shares subject to Awards which are adjusted
pursuant to Section 11.3 and become exercisable with respect to shares of stock
of another corporation shall be considered canceled and may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1. Shares
of Common Stock which are delivered by the Holder or withheld by the Company
upon the exercise of any Award under the Plan in payment of the exercise price
thereof or tax withholding thereon, may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1. If any share of Restricted
Stock is forfeited by the Holder or repurchased by the Company pursuant to
Section 7.5 hereof, such share may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1. Notwithstanding the
provisions of this Section 2.2, no shares of Common Stock may again be optioned,
granted or awarded if such action would cause an Incentive Stock Option to fail
to qualify as an incentive stock option under Section 422 of the Code.

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                                  ARTICLE III.

                               GRANTING OF AWARDS

      III.1. Award Agreement. Each Award shall be evidenced by an Award
Agreement. Award Agreements evidencing Awards intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Award Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 422 of the Code.

      III.2. Provisions Applicable to Section 162(m) Participants.

            (a) The Committee, in its discretion, may determine whether an Award
is to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code.

            (b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock, the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria and any performance or incentive award described in Article
VIII that vests or becomes exercisable or payable upon the attainment of
performance goals which are related to one or more of the Performance Criteria.

            (c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
any Award granted under Articles VII and VIII which may be granted to one or
more Section 162(m) Participants, no later than ninety (90) days following the
commencement of any fiscal year in question or any other designated fiscal
period or period of service (or such other time as may be required or permitted
by Section 162(m) of the Code), the Committee shall, in writing, (i) designate
one or more Section 162(m) Participants, (ii) select the Performance Criteria
applicable to the fiscal year or other designated fiscal period or period of
service, (iii) establish the various performance targets, in terms of an
objective formula or standard, and amounts of Restricted Stock or bonus amounts,
as applicable, which may be earned for such fiscal year or other designated
fiscal period or period of service and (iv) specify the relationship between
Performance Criteria and the performance targets and the amounts of Restricted
Stock or bonus amounts, as applicable, to be earned by each Section 162(m)
Participant for such fiscal year or other designated fiscal period or period of
service. Following the completion of each fiscal year or other designated fiscal
period or period of service, the Committee shall certify in writing whether the
applicable performance targets have been achieved for such fiscal year or other
designated fiscal period or period of service. In determining the amount earned
by a Section 162(m) Participant, the Committee shall have the right to reduce
(but not to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period or period of service.

      III.3. Consideration. In consideration of the granting of an Award under
the Plan, the Company may require, in the Award Agreement, that the Holder
remain in the employ of the

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Company or any Subsidiary for a period of at least one year (or such shorter
period, if any, as may be fixed in the Award Agreement or by action of the
Committee following grant of the Award) after the Award is granted.

      III.4. Awards Agreements Under Which Common Stock is Issuable. Unless the
Committee determines otherwise, Award Agreements under which Common Stock is
issuable shall require the Holder at the time such Common Stock is issued to
enter into a Management Stockholders Agreement, a Proxy, and/or other agreements
under which the sale or transfer of the Common Stock issuable under the Award is
restricted. Such Management Stockholders Agreement, Proxy and all other
agreements shall be in such form as determined by the Committee.

      III.5. At-Will Employment. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a consultant for, the Company or any Subsidiary, or as a Director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written agreement between the
Holder and the Company and any Subsidiary.

                                   ARTICLE IV.

                             GRANTING OF OPTIONS TO
                      EMPLOYEES, CONSULTANTS AND DIRECTORS

      IV.1. Eligibility. Any Employee, consultant or Director selected by the
Committee pursuant to Section 4.4(a)(i) shall be eligible to be granted an
Option.

      IV.2. Incentive Stock Option Provisions. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.

      IV.3. Qualification for Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.

      IV.4. Granting of Options to Employees, Consultants and Directors.

            (a) The Committee shall, from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:

                  (i) Determine which Employees are key Employees and select
from among the key Employees, consultants and Directors (including Employees,
consultants and Directors who have previously received Awards under the Plan)
such of them as in its opinion should be granted Options;

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                  (ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key Employees,
consultants or Directors;

                  (iii) Subject to Section 4.3, determine whether such Options
are to be Incentive Stock Options or Non-Qualified Stock Options and whether
such Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and

                  (iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and conditions of
Options intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code.

            (b) Upon the selection of a key Employee, consultant or Director to
be granted an Option, the Committee shall instruct the Secretary of the Company
to issue the Option and may impose such conditions on the grant of the Option as
it deems appropriate. Unless the Committee determines otherwise, each Award
Agreement shall provide that the Optionee shall enter into a Management
Stockholders Agreement and Proxy as a condition to the exercise of such Option
in such form as approved by the Committee at the time the Option is exercised.
The Committee may also require the Optionee to enter into other agreements under
which the sale or transfer of the Common Stock issuable under the Award is
restricted. Such Management Stockholders Agreement, Proxy and all other
agreements shall be in such form as determined by the Committee.

            (c) Without limiting the generality of the preceding Section 4.4(b),
the Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition of the grant of an Option to an Employee, consultant or
Director that the Employee, consultant or Director surrender for cancellation
some or all of the unexercised Options or any other Award or other rights which
have been previously granted to him under the Plan or otherwise. An Option, the
grant of which is conditioned upon such surrender, may have an Option price
lower (or higher) than the exercise price of such surrendered Option or other
Award, may cover the same (or a lesser or greater) number of shares as such
surrendered Option or other Award, may contain such other terms as the Committee
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, price, exercise period or any other term
or condition of such surrendered Option or other Award.

            (d) Any Incentive Stock Option granted under the Plan may be
modified by the Committee, with the consent of the Optionee, to disqualify such
Option from treatment as an "incentive stock option" under Section 422 of the
Code.

      IV.5. Options in Lieu of Cash Compensation.

      Options may be granted under the Plan to Employees and consultants in lieu
of cash bonuses which would otherwise be payable to such Employees and
consultants, pursuant to such policies which may be adopted by the Committee
from time to time.

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                                   ARTICLE V.

                                TERMS OF OPTIONS

      V.1. Option Price. The price per share of the shares subject to each
Option granted to Employees, consultants and Directors shall be set by the
Committee; provided, however, that such price shall be no less than eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code) and (i) in the case of Options
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code, such price shall not be less than 100% of the Fair
Market Value of a share of Common Stock on the date the Option is granted; (ii)
in the case of Incentive Stock Options such price shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date the Option is
granted (or the date the Option is modified, extended or renewed for purposes of
Section 424(h) of the Code); and (iii) in the case of Incentive Stock Options
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code), such price shall not be less than 110% of
the Fair Market Value of a share of Common Stock on the date the Option is
granted (or the date the Option is modified, extended or renewed for purposes of
Section 424(h) of the Code).

      V.2. Option Term. The term of an Option granted to an Employee, consultant
or Director shall be set by the Committee in its discretion; provided, however,
that, in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from such date if the Incentive Stock Option is granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code). Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment or Termination of Consultancy of the Optionee, or
amend any other term or condition of such Option relating to such a termination.

      V.3. Option Vesting

            (a) The period during which the right to exercise, in whole or in
part, an Option granted to an Employee, consultant or Director vests in the
Optionee shall be set by the Committee, subject to specified conditions fixed by
the Committee from time to time, and the Committee may determine that an Option
may not be exercised in whole or in part for a specified period after it is
granted; provided, however, that to the extent that an Award is made in reliance
upon Section 25102(o) of the California Corporate Securities Law of 1968, as
amended, an Option shall become exercisable no less rapidly than the rate of 20%
per year for each of the first five (5) years from the date of grant, subject to
specified conditions fixed by the Committee from time to time. The Committee may
also, in its sole and absolute discretion and subject to whatever terms and
conditions it selects, provide for an acceleration of vesting subsequent to
Termination of Employment, Termination of Consultancy or Termination of Service
as a

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Director without cause, or following a Change in Control of the Company, or
because of the Grantee's retirement, death or disability, or otherwise. In
addition, at any time after grant of an Option, the Committee may, in its sole
and absolute discretion and subject to whatever terms and conditions it elects,
accelerate the period during which an Option granted to an Employee, consultant,
or Director vests.

            (b) No portion of an Option granted to an Employee, consultant or
Director which is unexercisable at Termination of Employment, Termination of
Consultancy or Termination of Service as a Director, as applicable, shall
thereafter become exercisable, except as may be otherwise provided by the
Committee either in the Award Agreement or by action of the Committee following
the grant of the Option.

            (c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any parent or subsidiary
corporation (within the meaning of Section 422 of the Code) of the Company
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 5.3(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.

                                   ARTICLE VI.

                               EXERCISE OF OPTIONS

      VI.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Committee may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.

      VI.2. Manner of Exercise. All or a portion of an exercisable Option shall
be deemed exercised upon delivery of all of the following to the Secretary of
the Company or the Secretary's office:

            (a) A written notice complying with the applicable rules established
by the Committee stating that the Option, or a portion thereof, is exercised.
The notice shall be signed by the Optionee or other person then entitled to
exercise the Option or such portion of the Option;

            (b) If required by the Committee, a signed Management Stockholders
Agreement and Proxy in form as required by the Committee shall have been
executed or is executed simultaneously with the exercise of the Option or any
portion thereof.

            (c) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of

                                      -11-
<PAGE>

the Securities Act and any other federal or state securities laws or
regulations. The Committee may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;

            (d) In the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option;

            (e) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised. However, the
Committee, may in its discretion, or the Award Agreement may, (i) allow a delay
in payment up to thirty (30) days from the date the Option, or portion thereof,
is exercised; (ii) allow payment, in whole or in part, through the delivery of
shares of Common Stock which have been owned by the Optionee for at least six
months, duly endorsed for transfer to the Company with a Fair Market Value on
the date of delivery equal to the aggregate exercise price of the Option or
exercised portion thereof; (iii) allow payment, in whole or in part, through the
surrender of shares of Common Stock then issuable upon exercise of the Option
having a Fair Market Value on the date of Option exercise equal to the aggregate
exercise price of the Option or exercised portion thereof, (iv) allow payment,
in whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (v) allow payment, in whole or in
part, through the delivery of a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Committee or the Board; (vi) allow payment, in whole or in part, through the
delivery of a notice that the Optionee has placed a market sell order with a
broker with respect to shares of Common Stock then issuable upon exercise of the
Option, and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale to the Company in satisfaction of the Option exercise
price; or (vii) allow payment through any combination of the consideration
provided in the foregoing subparagraphs, (ii), (iii), (iv), (v) and (vi). In the
case of a promissory note, the Committee may also prescribe the form of such
note and the security to be given for such note. The Option may not be
exercised, however, by delivery of a promissory note or by a loan from the
Company when or where such loan or other extension of credit is prohibited by
law; and

            (f) Any other documentation required by the Committee or the Award
Agreement is executed as required by the Committee.

      VI.3. Conditions to Issuance of Stock Certificates. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:

            (a) The admission of such shares to listing on all stock exchanges
on which such class of stock is then listed;

            (b) Compliance with all applicable requirements of law in connection
with the exercise of Options, including without limitation, the registration or
other qualification of such shares under any state or federal law, or under the
rulings or regulations of the Securities and Exchange Commission ("SEC"), or the
securing of an exemption from such registration or

                                      -12-
<PAGE>

qualification, provided that the Company shall not be obligated to effect any
registration of shares with the SEC unless the Company previously has completed
an initial public offering of its Common Stock and Form S-8 is available for
such registration;

            (c) The lapse of such reasonable period of time, not to exceed 10
days, following the exercise of the Option as the Committee may establish from
time to time for reasons of administrative convenience; and

            (d) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the discretion of
the Committee or the Board may be in the form of consideration used by the
Optionee to pay for such shares under Section 6.2(d).

      VI.4. Rights as Stockholders/Dividend Equivalents. Optionees shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until the Optionee has delivered notice of exercise and the
conditions of Section 6.3 have been met. Notwithstanding the foregoing, any
Optionee who is an Employee, consultant or Director selected by the Committee
may be granted Dividend Equivalents based on the dividends declared on Common
Stock, to be credited as of dividend payment dates, during the period between
the date an Option is granted, and the date such Option is exercised, vests or
expires, as determined by the Committee. Such Dividend Equivalents shall be
converted to cash or additional shares of Common Stock by such formula and at
such time and subject to such limitations as may be determined by the Committee.
With respect to Dividend Equivalents granted with respect to Options intended to
be qualified performance-based compensation for purposes of Section 162(m) of
the Code, such Dividend Equivalents shall be payable regardless of whether such
Option is exercised.

      VI.5. Ownership and Transfer Restrictions. The Committee, in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Award Agreement and
may be referred to on the certificates evidencing such shares. Whenever an
Optionee exercises the Option or any portion thereof, unless the Committee
determines otherwise, the Optionee shall execute a Management Stockholders
Agreement, Proxy, and any other agreements determined by the Committee prior to
such exercise.

      The Committee may require the Employee to give the Company prompt notice
of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of granting (including
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code) such Option to such Employee or (ii) one year after the
transfer of such shares to such Employee. The Committee may direct that the
certificates evidencing shares acquired by exercise of any such Option refer to
such requirement to give prompt notice of disposition.

                                      -13-
<PAGE>

                                  ARTICLE VII.

                   AWARDS OF COMMON STOCK AND RESTRICTED STOCK

      VII.1. Eligibility. Subject to the Award Limit, Common Stock or Restricted
Stock may be awarded to any Employee who the Committee determines is a key
Employee or any consultant or Director who the Committee determines should
receive such an Award.

      VII.2. Award of Common Stock or Restricted Stock

            (a) The Committee may from time to time, in its absolute discretion:

                  (i) Determine which Employees are key Employees and select
from among the key Employees, consultants and Directors (including Employees,
consultants and Directors who have previously received other awards under the
Plan) such of them as in its opinion should be awarded Common Stock or
Restricted Stock; and

                  (ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Common Stock or Restricted Stock, consistent with
the Plan.

                  (iii) Determine the form of a Management Stockholders
Agreement, Proxy, as well as such other agreements under which the sale or
transfer of the Common Stock or Restricted Stock may be restricted.

            (b) The Committee shall establish the purchase price, if any, and
form of payment for Common Stock or Restricted Stock; provided, however, that
such purchase price shall be no less than the par value of the Common Stock to
be purchased, unless otherwise permitted by applicable state law. In all cases,
legal consideration, which may include the performance of services, shall be
required for each issuance of Common Stock and Restricted Stock. Such legal
consideration may include a promissory note bearing interest (at no less than
such rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Committee or the Board. In
the case of a promissory note, the Committee may also prescribe the form of such
note and the security, if any, to be given for such note. If the Common Stock is
pledged as security for the loan and, unless the Committee determines otherwise,
such loan terms may require the Optionee either to (i) repay the loan to the
extent necessary to comply with applicable margin loan requirements under the
Securities Act of 1933, as amended, and the Rules and Regulations promulgated
thereunder or (ii) substitute other collateral for the Common Stock which is
reasonably acceptable to the Company to replace the Common Stock as security.
Notwithstanding the above, in no case may such legal consideration include a
promissory note or a loan by the Company when or where such loan or other
extension of credit is prohibited by law or contravenes any of the Company's
contractual arrangements.

            (c) Upon the selection of a key Employee, consultant or Director to
be awarded Common Stock or Restricted Stock, the Committee shall instruct the
Secretary of the Company to issue such Common Stock or Restricted Stock and may
impose such conditions on the issuance of such Common Stock or Restricted Stock
as it deems appropriate.

      VII.3. Rights as Stockholders. Subject to Section 7.4, upon delivery of
the shares of Restricted Stock to the escrow holder pursuant to Section 7.7, the
Restricted Stockholder shall have, unless otherwise provided by the Committee,
all the rights of a stockholder with respect to

                                      -14-
<PAGE>

said shares, subject to the restrictions in his Award Agreement and the Proxy
Agreement, including the right to receive all dividends and other distributions
paid or made with respect to the shares; provided, however that in the
discretion of the Committee, any extraordinary distributions with respect to the
Common Stock shall be subject to the restrictions set forth in Section 7.4.

      VII.4. Restriction. All shares of Common Stock and Restricted Stock issued
under the Plan (including any shares received by holders thereof with respect to
shares of Common Stock or Restricted Stock as a result of stock dividends, stock
splits or any other form of recapitalization) shall, in the terms of each
individual Award Agreement, be subject to such restrictions as the Committee
shall provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Company, Company performance and individual performance;
provided, however, that, except with respect to shares of Common Stock or
Restricted Stock granted to Section 162(m) Participants, by action taken after
the Common Stock or Restricted Stock is issued, the Committee may, on such terms
and conditions as it may determine to be appropriate, remove any or all of the
restrictions imposed by the terms of the Award Agreement. Such Common Stock or
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire. If no consideration was paid by the Common or Restricted
Stockholder upon issuance, a Common or Restricted Stockholder's rights in
unvested Common or Restricted Stock shall lapse upon Termination of Employment
or, if applicable, upon Termination of Consultancy or Termination of Service as
a Director with the Company; provided, however, that the Committee in its sole
and absolute discretion may provide that such rights shall not lapse in the
event of a Termination of Employment following a "change of ownership or
control" (within the meaning of Treasury Regulation Section 1.162-27(e)(2)(v) or
any successor regulation thereto) of the Company or because of the Common or
Restricted Stockholder's death or disability; provided, further, except with
respect to shares of Common or Restricted Stock granted to Section 162(m)
Participants, the Committee in its sole and absolute discretion may provide that
no such right of repurchase shall exist in the event of a Termination of
Employment, or a Termination of Consultancy without cause or following any
Change in Control of the Company or because of the Common or Restricted
Stockholder's retirement, or otherwise.

      VII.5. Repurchase of Restricted Stock. The Committee may provide in the
terms of each individual Award Agreement that the Company or its designee shall
have the right to repurchase from the Common or Restricted Stockholder the
Common or Restricted Stock then subject to restrictions under the Award
Agreement immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy or a Termination of Service as a Director between the
Common or Restricted Stockholder and the Company, at a price per share or by
such formula as set forth in the Award Agreement or to be determined in good
faith by the Committee at the time of the repurchase; provided, however, that
the Committee in its sole and absolute discretion may provide that no such right
of repurchase shall exist in the event of a Termination of Employment following
a "change of ownership or control" (within the meaning of Treasury Regulation
Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or
because of the Common or Restricted Stockholder's death or disability; provided,
further, that, except with respect to shares of Common or Restricted Stock
granted to Section 162(m) Participants, the Committee in its sole and absolute
discretion may provide that no such right of repurchase shall exist in the event
of a Termination of Employment, Termination of

                                      -15-
<PAGE>

Consultancy or Termination of Service as a Director without cause or following
any Change in Control of the Company or because of the Common or Restricted
Stockholder's retirement, or otherwise.

      VII.6. Required Agreements. Unless the Committee determines otherwise, as
a condition to the receipt of Common Stock or Restricted Stock, the Holder shall
enter into a Management Stockholders Agreement, a Proxy, and/or other agreements
under which the sale or transfer of the Common Stock issuable under the Award is
restricted. Such Management Stockholders Agreement, Proxy and all other
agreements shall be in such form as determined by the Committee.

      VII.7. Escrow. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.

      VII.8. Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to be
placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.

      VII.9. Section 83(b) Election. If a Restricted Stockholder makes an
election under Section 83(b) of the Code, or any successor section thereto, to
be taxed with respect to the Restricted Stock as of the date of transfer of the
Restricted Stock rather than as of the date or dates upon which the Restricted
Stockholder would otherwise be taxable under Section 83(a) of the Code, the
Restricted Stockholder shall deliver a copy of such election to the Company
immediately after filing such election with the Internal Revenue Service.

                                  ARTICLE VIII.

                    PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
                         DEFERRED STOCK, STOCK PAYMENTS

      VIII.1. Eligibility. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock Payments
may be granted to any Employee whom the Committee determines is a key Employee
or any consultant or Director whom the Committee determines should receive such
an Award.

      VIII.2. Performance Awards. Any key Employee, consultant or Director
selected by the Committee may be granted one or more Performance Awards. The
value of such Performance Awards may be linked to any one or more of the
Performance Criteria or other specific performance criteria determined
appropriate by the Committee, in each case on a specified date or dates or over
any period or periods determined by the Committee. In making such
determinations, the Committee shall consider (among such other factors as it
deems relevant in light of the specific type of award) the contributions,
responsibilities and other compensation of the particular key Employee,
consultant or Director.

                                      -16-
<PAGE>
      VIII.3. Dividend Equivalents. Any key Employee, consultant or Director
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment dates,
during the period between the date a Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Stock Appreciation Right,
Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.

      VIII.4. Stock Payments. Any key Employee, consultant or Director selected
by the Committee may receive Stock Payments in the manner determined from time
to time by the Committee. The number of shares shall be determined by the
Committee and may be based upon the Performance Criteria or other specific
performance criteria determined appropriate by the Committee, determined on the
date such Stock Payment is made or on any date thereafter.

      VIII.5. Deferred Stock. Any key Employee, consultant or Director selected
by the Committee may be granted an award of Deferred Stock in the manner
determined from time to time by the Committee. The number of shares of Deferred
Stock shall be determined by the Committee and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Holder of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the Award has vested and the Common Stock underlying the Award has been
issued.

      VIII.6. Term. The term of a Performance Award, Dividend Equivalent, award
of Deferred Stock and/or Stock Payment shall be set by the Committee in its
discretion.

      VIII.7. Exercise or Purchase Price. The Committee may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock, or
shares received as a Stock Payment; provided, however, that such price shall not
be less than (i) eighty-five percent (85%) of the Fair Market Value for a share
of Common Stock or (ii) 100% of the Fair Market Value of a share of Common Stock
in the case of an individual then owning (within the meaning of Section 424(d)
of the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or Parent Corporation thereof (within the
meaning of Section 422 of the Code).

      VIII.8. Exercise Upon Termination of Employment, Termination of
Consultancy or Termination of Service as a Director. A Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable
or payable only while the Holder is an Employee, consultant or Director;
provided, however, that the Committee in its sole and absolute discretion may
provide that the Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment may be exercised or paid subsequent to a Termination of
Employment following a "change of ownership or control" (within the meaning of
Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company;
provided, further, that

                                      -17-
<PAGE>

except with respect to Performance Awards granted to Section 162(m)
Participants, the Committee in its sole and absolute discretion may provide that
the Performance Awards, Dividend Equivalents, awards of Deferred Stock and/or
Stock Payments may be exercised or paid following a Termination of Employment, a
Termination of Consultancy, or a Termination of Service as a Director without
cause, or following a Change in Control of the Company, or because of the
Holder's retirement, death or disability, or otherwise.

      VIII.9. Payment on Exercise. Payment of the amount determined under
Section 8.1 or 8.2 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee. To the extent any payment under this
Article VIII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 6.3.

      VIII.10. Required Agreements. Unless the Committee determines otherwise,
as a condition to the receipt of Performance Awards, Dividend Equivalents,
awards of Deferred Stock, and/or Stock Payments, and to the extent such Awards
are issuable in Common Stock, the Holder shall enter into a Management
Stockholders Agreement, a Proxy, and/or other agreements under which the sale or
transfer of the Common Stock issuable under the Award is restricted. Such
Management Stockholders Agreement, Proxy and all other agreements shall be in
such form as determined by the Committee.

                                   ARTICLE IX.

                            STOCK APPRECIATION RIGHTS

      IX.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may
be granted to any key Employee, consultant or Director selected by the
Committee. A Stock Appreciation Right may be granted (i) in connection and
simultaneously with the grant of an Option, (ii) with respect to a previously
granted Option, or (iii) independent of an Option. A Stock Appreciation Right
shall be subject to such terms and conditions not inconsistent with the Plan as
the Committee shall impose and shall be evidenced by an Award Agreement. Without
limiting the generality of the foregoing, the Committee may, in its discretion
and on such terms as it deems appropriate, require as a condition of the grant
of a Stock Appreciation Right to an Employee, consultant or Director that the
Employee, consultant or Director surrender for cancellation some or all of the
unexercised Options, Awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, or
other rights which have been previously granted to him under the Plan or
otherwise. A Stock Appreciation Right, the grant of which is conditioned upon
such surrender, may have an exercise price lower (or higher) than the exercise
price of the surrendered Option or other Award, may cover the same (or a lesser
or greater) number of shares as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option or other Award.

      IX.2. Coupled Stock Appreciation Rights.

                                      -18-
<PAGE>

            (a) A Coupled Stock Appreciation Right ("CSAR") shall be related to
a particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.

            (b) A CSAR may be granted to the Holder for no more than the number
of shares subject to the simultaneously or previously granted Option to which it
is coupled.

            (c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.

      IX.3. Independent Stock Appreciation Rights.

            (a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee may
determine. The exercise price per share of Common Stock subject to each ISAR
shall be set by the Committee. An ISAR is exercisable only while the Holder is
an Employee, consultant or Director; provided that the Committee may determine
that the ISAR may be exercised subsequent to Termination of Employment,
Termination of Consultancy or Termination of Service as a Director without
cause, or following a Change in Control of the Company, or because of the
Grantee's retirement, death or disability, or otherwise.

            (b) An ISAR shall entitle the Holder (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified portion
of the ISAR (to the extent then exercisable pursuant to its terms) and to
receive from the Company an amount determined by multiplying the difference
obtained by subtracting the exercise price per share of the ISAR from the Fair
Market Value of a share of Common Stock on the date of exercise of the ISAR by
the number of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.

      IX.4. Payment and Limitations on Exercise.

            (a) Payment of the amount determined under Section 9.2(c) and 9.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as of
the date the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Committee. To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section 6.3
above pertaining to Options.

            (b) Holders of Stock Appreciation Rights may be required to comply
with any timing or other restrictions with respect to the settlement or exercise
of a Stock Appreciation Right, including a window-period limitation, as may be
imposed in the discretion of the Committee.

                                      -19-
<PAGE>

            (c) Unless the Committee determines otherwise, as a condition to the
receipt of Stock Appreciation Rights, to the extent such Stock Appreciation
Rights are issuable in Common Stock, the Holder shall enter into a Management
Stockholders Agreement, a Proxy, and/or other agreements under which the sale or
transfer of the Common Stock issuable under the Award is restricted. Such
Management Stockholders Agreement, Proxy and all other agreements shall be in
such form as determined by the Committee.

                                   ARTICLE X.

                                 ADMINISTRATION

      X.1. Committee. The Committee shall consist of the entire Board; provided,
however, that upon appointment by the Board of a compensation committee of the
Board or other committee or subcommittee of the Board, the Committee shall
consist of such compensation committee or other committee or subcommittee of the
Board.

      X.2. Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
agreements pursuant to which Awards are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
grant or award under the Plan need not be the same with respect to each Holder.
Any such interpretations and rules with respect to Incentive Stock Options shall
be consistent with the provisions of Section 422 of the Code.

      X.3. Majority Rule; Unanimous Written Consent. The Committee shall act by
a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.

      X.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of the Plan shall be
borne by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee or the Board in good faith shall be final and binding upon all
Holders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.

                                      -20-
<PAGE>

                                   ARTICLE XI.

                            MISCELLANEOUS PROVISIONS

      XI.1. Not Transferable. No Award under the Plan may be sold, pledged,
assigned or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such Award has been
exercised, or the shares underlying such Award have been issued, and all
restrictions applicable to such shares have lapsed. No Option, Restricted Stock
award, Deferred Stock award, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment or interest or right therein shall be
liable for the debts, contracts or engagements of the Holder or his successors
in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect, except to the extent that such disposition is permitted
by the preceding sentence.

      During the lifetime of the Holder, only he may exercise an Option or other
Award (or any portion thereof) granted to him under the Plan, unless it has been
disposed of pursuant to a QDRO. After the death of the Holder, any exercisable
portion of an Option or other Award may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Award Agreement, be
exercised by his personal representative or by any person empowered to do so
under the deceased Holder's will or under the then applicable laws of descent
and distribution.

      XI.2. Amendment, Suspension or Termination of the Plan. Except as
otherwise provided in this Section 11.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 1.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of the Holder,
alter or impair any rights or obligations under any Award theretofore granted or
awarded, unless the Award itself otherwise expressly so provides. No Awards may
be granted or awarded during any period of suspension or after termination of
the Plan, and in no event may any Incentive Stock Option be granted under the
Plan after the first to occur of the following events:

            (a) The expiration of ten years from the date the Plan is adopted by
the Board; or

            (b) The expiration of ten years from the date the Plan is approved
by the Company's stockholders.

In addition, if the Board determines that Awards other than Options or Stock
Appreciation Rights which may be granted to Section 162(m) Participants should
continue to be eligible to qualify as performance-based compensation under
Section 162(m)(4)(C) of the Code, the

                                      -21-
<PAGE>

Performance Criteria must be disclosed to and approved by the Company's
stockholders no later than the first stockholder meeting that occurs in the
fifth year following the year in which the Company's stockholders previously
approved the Performance Criteria.

      XI.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company, Change in Control and Other Corporate Events.

            (a) Subject to Section 11.3(d), in the event that the Board
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company (including, but not limited to, a
Change in Control), or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Board's reasonable and good faith discretion, affects the Common Stock such
that an adjustment is determined by the Board to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to an Award, then the Board
shall, in such manner as it may deem equitable, adjust any or all of:

                  (i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or awarded
(including, but not limited to, adjustments of the limitations in Section 2.1 on
the maximum number and kind of shares which may be issued and adjustments of the
Award Limit),

                  (ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the
number and kind of shares of outstanding Restricted Stock or Deferred Stock, and

                  (iii) the grant or exercise price with respect to any Award.

            (b) Subject to Section 11.3(d), in the event of any Change in
Control or other transaction or event described in Section 11.3(a), the Board,
in its reasonable and good faith discretion, and on such terms and conditions as
it deems appropriate, either by the terms of the Award or by action taken prior
to the occurrence of such transaction or event and either automatically or upon
the Holder's request, is hereby authorized to take any one or more of the
following actions whenever the Board determines that such action is appropriate
in order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan or with respect to any
Award under the Plan or to facilitate such transactions or events:

                  (i) To provide for either the purchase of any such Award for
an amount of cash equal to the amount that could have been attained upon the
exercise of such Award or realization of the Holder's rights had such Award been
currently exercisable or payable or fully vested or the replacement of such
Award with other rights or property selected by the Board in its reasonable and
good faith discretion;

                                      -22-
<PAGE>

                  (ii) To provide that such Award shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in (i) Section
5.3 or (ii) the provisions of such Award; and in the case of a merger,
consolidation, bankruptcy reorganization, liquidation or dissolution, to further
provide that the Award cannot vest, be exercised or become payable after such
event;

                  (iii) To provide that such Award be assumed by the successor
or survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of the
successor or survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices;

                  (iv) To make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to outstanding Awards,
and in the number and kind of outstanding Restricted Stock or Deferred Stock
and/or in the terms and conditions of (including the grant or exercise price),
and the criteria included in, outstanding Options, rights and Awards and
Options, rights and awards which may be granted in the future; and

                  (v) To provide that, for a specified period of time prior to
such event, the restrictions imposed under an Award Agreement upon some or all
shares of Restricted Stock or Deferred Stock may be terminated, and, in the case
of Restricted Stock, some or all shares of such Restricted Stock may cease to be
subject to repurchase under Section 7.5 or forfeiture under Section 7.4 after
such event.

            (c) Subject to Section 11.3(d) and 11.6, the Committee may, in its
discretion, include such further provisions and limitations in any Award,
agreement or certificate, as it may deem equitable and in the best interests of
the Company.

            (d) With respect to Awards described in Article VII or VIII which
are granted to Section 162(m) Participants and are intended to qualify as
performance-based compensation under Section 162(m)(4)(C), no adjustment or
action described in this Section 11.3 or in any other provision of the Plan
shall be authorized to the extent that such adjustment or action would cause
such Award to fail to so qualify under Section 162(m)(4)(C), or any successor
provisions thereto. No adjustment or action described in this Section 11.3 or in
any other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee determines that the Award is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any Award shall
always be rounded to the next whole number.

      XI.4. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such Holder to
elect to have the Company withhold shares of Common Stock

                                      -23-
<PAGE>

otherwise issuable under such Award (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.

      XI.5. Loans. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Common Stock, Restricted
Stock or Deferred Stock awarded under the Plan. The terms and conditions of any
such loan shall be set by the Committee.

      XI.6. Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Committee shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide in the terms of Awards made under
the Plan, or to require a Holder to agree by separate written instrument at the
time the Award is granted, that (i) any proceeds, gains or other economic
benefit actually or constructively received by the Holder upon any receipt or
exercise of the Award, or upon the receipt or resale of any Common Stock
underlying the Award, must be paid to the Company, and (ii) the Award shall
terminate and any unexercised portion of the Award (whether or not vested) shall
be forfeited, if (a) a Termination of Employment, Termination of Consultancy or
Termination of Service as a Director occurs prior to a specified date, or within
a specified time period following receipt or exercise of the Award, or (b) the
Holder at any time, or during a specified time period, engages in any activity
in competition with the Company, or which is inimical, contrary or harmful to
the interests of the Company, as further defined by the Committee (or the Board,
as applicable) or the Holder incurs a Termination of Employment, Termination of
Consultancy or Termination of Service as a Director for cause.

      XI.7. Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of the Plan, the Plan, and any
Award granted or awarded to any individual who is then subject to Section 16 of
the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of the Plan, any Award described in Article
VII or VIII which is granted to a Section 162(m) Participant and is intended to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code) or
any regulations or rulings issued thereunder that are requirements for
qualification as performance based compensation as described in Section
162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent
necessary to conform to such requirements.

      XI.8. Effect of Plan Upon Options and Compensation Plans. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives or
compensation for Employees or consultants of the Company or any Subsidiary or
(ii) to grant or assume options or other rights or awards otherwise than under
the Plan in connection with any proper corporate purpose including but not by
way of

                                      -24-
<PAGE>

limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.

      XI.9. Compliance with Laws. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.

      XI.10. Financial Reports. To the extent required by applicable law, and no
less often than annually, the Company shall furnish to individuals who have
received Awards under the Plan its financial statements (including a balance
sheet regarding the Company's financial condition and a statement of its results
of operations), unless such Optionees or shareholders have duties with the
Company that assure them access to equivalent information. Such financial
statements need not be audited.

      XI.11. Designees. The Company may designate another party to repurchase,
redeem or purchase any Award hereunder.

      XI.12. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.

      XI.13. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.

      I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Alliance Entertainment Corp. on _____, 1999.

      Executed on this _____ th day of _____ 1999.

                                        _________________
                                        Secretary

                                      -25-<PAGE>

                                                                   EXHIBIT 10.4

                              AMENDED AND RESTATED
                             DIGITAL ON-DEMAND, INC.
                       1998 EXECUTIVE STOCK INCENTIVE PLAN

                     (AS ADOPTED AND EFFECTIVE JULY 1, 1998,
            AND AS AMENDED AND RESTATED EFFECTIVE OCTOBER ___, 1998)

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                     <C>
SECTION 1.  PURPOSE..................................................................................     1

SECTION 2.  DEFINITIONS..............................................................................     1
      (a)   "Award"..................................................................................     1
      (b)   "Board of Directors".....................................................................     1
      (c)   "Change in Control"......................................................................     1
      (d)   "Code"...................................................................................     1
      (e)   "Committee"..............................................................................     1
      (f)   "Common-Law Employee"....................................................................     1
      (g)   "Company"................................................................................     1
      (h)   "Employee"...............................................................................     2
      (i)   "Exchange Act"...........................................................................     2
      (j)   "Exercise Price".........................................................................     2
      (k)   "Fair Market Value"......................................................................     2
      (l)   "Incentive Stock Option" or "ISO"........................................................     2
      (m)   "Nonstatutory Option" or "NSO"...........................................................     2
      (n)   "Offeree"................................................................................     2
      (o)   "Option".................................................................................     3
      (p)   "Optionee"...............................................................................     3
      (q)   "Outside Director".......................................................................     3
      (r)   "Participant"............................................................................     3
      (s)   "Plan"...................................................................................     3
      (t)   "Purchase Price".........................................................................     3
      (u)   "Restricted Share".......................................................................     3
      (v)   "Service"................................................................................     3
      (w)   "Share"..................................................................................     3
      (x)   "Stock"..................................................................................     3
      (y)   "Stock Award Agreement"..................................................................     3
      (z)   "Stock Option Agreement".................................................................     3
      (aa)  "Stock Purchase Agreement"...............................................................     3
      (bb)  "Subsidiary".............................................................................     3
      (cc)  "Total and Permanent Disability".........................................................     3
      (dd)  "W-2 Payroll"............................................................................     4

SECTION 3.  ADMINISTRATION...........................................................................     4
      (a)   Committee Membership.....................................................................     4
      (b)   Committee Procedures.....................................................................     4
      (c)   Committee Responsibilities...............................................................     4
      (d)   Committee Liability......................................................................     4
      (e)   Financial Reports........................................................................     4

SECTION 4.  ELIGIBILITY..............................................................................     5
      (a)   General Rule.............................................................................     5
</TABLE>

                                        i
<PAGE>

<TABLE>
<CAPTION>
                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                     <C>
      (b)   Ten-Percent Shareholders.................................................................     5
      (c)   Attribution Rules........................................................................     5
      (d)   Outstanding Stock........................................................................     5

SECTION 5.  STOCK SUBJECT TO PLAN....................................................................     5
      (a)   Basic Limitation.........................................................................     5
      (b)   Additional Shares........................................................................     5

SECTION 6.  TERMS AND CONDITIONS OF AWARDS OR SALES..................................................     6
      (a)   Stock Purchase Agreement.................................................................     6
      (b)   Duration of Offers.......................................................................     6
      (c)   Purchase Price...........................................................................     6
      (d)   Payment for Shares.......................................................................     6
            (i)   Surrender of Stock.................................................................     6
            (ii)  Promissory Notes...................................................................     6
            (iii) Cashless Exercise..................................................................     6
            (iv)  Other Forms of Payment.............................................................     7
      (e)   Exercise of Awards on Termination of Service.............................................     7

SECTION 7.  ADDITIONAL TERMS AND CONDITIONS OF RESTRICTED SHARES.....................................     7
      (a)   Form and Amount of Award.................................................................     7
      (b)   Exercisability...........................................................................     7
      (c)   Effect of Change in Control..............................................................     7
      (d)   Voting Rights............................................................................     7

SECTION 8.  TERMS AND CONDITIONS OF OPTIONS..........................................................     7
      (a)   Stock Option Agreement...................................................................     7
      (b)   Number of Shares.........................................................................     7
      (c)   Exercise Price...........................................................................     8
      (d)   Exercisability...........................................................................     8
      (e)   Effect of Change in Control..............................................................     8
      (f)   Term.....................................................................................     8
      (g)   Exercise of Options on Termination of Service............................................     8
      (h)   Payment of Option Shares.................................................................     8
            (i)   Surrender of Stock.................................................................     8
            (ii)  Promissory Notes...................................................................     8
            (iii) Cashless Exercise..................................................................     9
            (iv)  Other Forms of Payment.............................................................     9
      (i)   No Rights as a Shareholder...............................................................     9
      (j)   Modification, Extension and Assumption of Options........................................     9

SECTION 9.  ADJUSTMENT OF SHARES.....................................................................     9
      (a)   General..................................................................................     9
      (b)   Reorganizations..........................................................................     9
      (c)   Reservation of Rights....................................................................     9
</TABLE>

                                      -ii-
<PAGE>

<TABLE>
<CAPTION>
                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                     <C>
SECTION 10. WITHHOLDING TAXES........................................................................    10
         (a)   General...............................................................................    10
         (b)   Share Withholding.....................................................................    10
         (c)   Cashless Exercise/Pledge..............................................................    10
         (d)   Other Forms of Payment................................................................    10

SECTION 11. ASSIGNMENT OR TRANSFER OF AWARDS.........................................................    10
         (a)   General...............................................................................    10
         (b)   Trusts................................................................................    10

SECTION 12. LEGAL REQUIREMENTS.......................................................................    10

SECTION 13. NO EMPLOYMENT RIGHTS.....................................................................    11

SECTION 14. DURATION AND AMENDMENTS..................................................................    11
         (a)   Term of the Plan......................................................................    11
         (b)   Right to Amend or Terminate the Plan..................................................    11
         (c)   Effect of Amendment or Termination....................................................    11

SECTION 15. EXECUTION................................................................................    11
</TABLE>

                                     -iii-
<PAGE>

                              AMENDED AND RESTATED
                             DIGITAL ON-DEMAND, INC.
                       1998 EXECUTIVE STOCK INCENTIVE PLAN

                     (AS ADOPTED AND EFFECTIVE JULY 1, 1998
            AND AS AMENDED AND RESTATED EFFECTIVE OCTOBER ___, 1998)

SECTION 1. PURPOSE.

      The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, to encourage such selected persons to
remain in the employ of the Company and to attract new employees with
outstanding qualifications. The Plan seeks to achieve this purpose by providing
for Awards in the form of Restricted Shares and Options (which may constitute
Incentive Stock Options or Nonstatutory Stock Options) as well as the direct
award or sale of Shares of the Company's Common Stock. This Plan amends and
restates in its entirety the Digital On-Demand, Inc. 1998 Executive Stock
Incentive Plan (as Adopted and Effective July 1, 1998).

SECTION 2. DEFINITIONS.

      (a) "Award" shall mean any award of an Option, Restricted Share or other
right under the Plan.

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

      (c) "Change in Control" shall be defined by, the Committee and provided
for in the Stock Purchase Agreements, Stock Option Agreements and Stock Award
Agreements. The term "Change in Control" shall not include a transaction the
sole purpose of which is to change the state of the Company's incorporation.

      (d) "Code" shall mean the Internal Revenue Code of 1986, as amended.

      (e) "Committee" shall mean a committee of the Board of Directors which is
authorized to administer the Plan under Section 3.

      (f) "Common-Law Employee" means an individual paid from W-2 Payroll of the
Company or a Subsidiary. If, during any period, the Company (or Subsidiary, as
applicable) has not treated an individual as a Common-Law Employee and, for that
reason, has not paid such individual in a manner which results in the issuance
of a Form W-2 and withheld taxes with respect to him or her, then such
individual shall not be an eligible Employee for that period, even if any
person, court of law or government agency determines, retroactively, that such
individual is or was a Common-Law Employee during all or any portion of that
period.

      (g) "Company" shall mean Digital On-Demand, Inc., a California
corporation.

                                       -1-
<PAGE>

      (h) "Employee" shall mean (i) any individual who is a Common-Law Employee
of the Company or of a Subsidiary, (ii) a member of the Board of Directors,
including (without limitation) an Outside Director, (iii) a member of the board
of directors of a Subsidiary or (iv) an independent contractor who performs
services for the Company or a Subsidiary. Service as a member of the Board of
Directors, a member of the board of directors of a Subsidiary or an independent
contractor shall be considered employment for all purposes of the Plan except
the second sentence of Section 4(a).

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

      (j) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.

      (k) "Fair Market Value" means the market price of Shares, determined by
the Committee as follows:

                  (i) If the Shares were traded over-the-counter on the date in
      question but were not traded on the Nasdaq Stock Market or the Nasdaq
      National Market System, then the Fair Market Value shall be equal to the
      mean between the last reported representative bid and asked prices quoted
      for such date by the principal automated inter-dealer quotation system on
      which the Shares are quoted or, if the Shares are not quoted on any such
      system, by the "Pink Sheets" published by the National Quotation Bureau,
      Inc.;

                  (ii) If the Shares were traded over-the-counter on the date in
      question and were traded on the Nasdaq Stock Market or the Nasdaq National
      Market System, then the Fair Market Value shall be equal to the
      last-transaction price quoted for such date by the Nasdaq Stock Market or
      the Nasdaq National Market;

                  (iii) If the Shares were traded on a stock exchange on the
      date in question, then the Fair Market Value shall be equal to the closing
      price reported by the applicable composite transactions report for such
      date; and

                  (iv) If none of the foregoing provisions is applicable, then
      the Fair Market Value shall be determined by the Committee in good faith
      on such basis as it deems appropriate.

      In all cases, the determination of Fair Market Value by the Committee
shall be conclusive and binding on all persons.

      (l) "Incentive Stock Option" or "ISO" shall mean an employee incentive
stock option described in Code section 422(b).

      (m) "Nonstatutory Option" or "NSO" shall mean an employee stock option
that is not an ISO.

      (n) "Offeree" shall mean an individual to whom the Committee has offered
the right

                                      -2-
<PAGE>

to acquire Shares under the Plan (other than upon exercise of an Option).

      (o) "Option" shall mean an Incentive Stock Option or Nonstatutory Option
granted under the Plan and entitling the holder to purchase Shares.

      (p) "Optionee" shall mean an individual or estate who holds an Option.

      (q) "Outside Director" shall mean a member of the Board who is "a
Non-Employee Director" as defined in Rule 16b-3 under the Exchange Act.

      (r) "Participant" shall mean an individual or estate who holds an Award.

      (s) "Plan" shall mean this Amended and Restated Digital On-Demand, Inc.
1998 Executive Stock Incentive Plan.

      (t) "Purchase Price" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Committee.

      (u) "Restricted Share" shall mean a Share sold or granted to an eligible
Employee which is nontransferable and subject to substantial risk of forfeiture
until restrictions lapse.

      (v) "Service" shall mean service as an Employee.

      (w) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 9 (if applicable).

      (x) "Stock" shall mean the common stock of the Company.

      (y) "Stock Award Agreement" shall mean the agreement between the Company
and the recipient of a Restricted Share which contains the terms, conditions and
restrictions pertaining to such Restricted Share.

      (z) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.

      (aa) "Stock Purchase Agreement" shall mean the agreement between the
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.

      (bb) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

      (cc) "Total and Permanent Disability" means that the Optionee is unable to
engage in

                                      -3-
<PAGE>

any substantial gainful activity by reason of any medically determinable
physical or mental impairment.

      (dd) "W-2 Payroll" means whatever mechanism or procedure that the Company
or a Subsidiary utilizes to pay any individual which results in the issuance of
Form W-2 to the individual. "W-2 Payroll" does not include any mechanism or
procedure which results in the issuance of any form other than a Form W-2 to an
individual, including, but not limited to, any Form 1099 which may be issued to
an independent contractor, an agency employee or a consultant. Whether a
mechanism or procedure qualifies as a "W-2 Payroll" shall be determined in the
absolute discretion of the Company (or Subsidiary, as applicable), and the
Company or Subsidiary determination shall be conclusive and binding on all
persons.

SECTION 3. ADMINISTRATION.

      (a) Committee Membership. The Plan shall be administered by the Committee
appointed by the Board of Directors. In the event the Company's Shares become
publicly traded, the Committee shall be comprised solely of two or more Outside
Directors (although Committee functions may be delegated to officers to the
extent the awards relate to persons who are not subject to the reporting
requirements of Section 16 of the Exchange Act). If no Committee has been
appointed, the entire Board shall constitute the Committee.

      (b) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.

      (c) Committee Responsibilities. The Committee has and may exercise such
power and authority as may be necessary or appropriate for the Committee to
carry out its functions as described in the Plan. The Committee has authority in
its discretion to determine eligible Employees to whom, and the time or times at
which, Awards may be granted and the number of Shares subject to each Award.
Subject to the express provisions of the respective Award agreements (which need
not be identical), the Committee has authority to prescribe the terms and
conditions of each Award and to make all other determinations necessary or
advisable for Plan administration. The Committee has authority to prescribe,
amend and rescind rules and regulations relating to the Plan. All
interpretations, determinations, and actions by the Committee will be final,
conclusive and binding upon all persons.

      (d) Committee Liability. No member of the Board or the Committee will be
liable for any action or determination made in good faith by the Committee with
respect to the Plan or any Award made under the Plan.

      (e) Financial Reports. To the extent required by applicable law, and not
less often than annually, the Company shall furnish to Offerees, Optionees and
shareholders who have received Stock under the Plan its financial statements
(including a balance sheet regarding the Company's financial condition and a
statement of its results of operations), unless such Offerees, Optionees or
shareholders have duties with the Company that assure them access to equivalent

                                      -4-
<PAGE>

information. Such financial statements need not be audited.

SECTION 4. ELIGIBILITY.

      (a) General Rule. Only Employees shall be eligible for designation as
Participants by the Committee. In addition, only individuals who are employed as
Common-Law Employees by the Company or a Subsidiary shall be eligible for the
grant of ISOs.

      (b) Ten-Percent Shareholders. An Employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company or any of its Subsidiaries shall not be eligible for designation as
an Offeree or Optionee unless (i) the Exercise Price for an ISO (and a NSO to
the extent required by applicable law) is at least one hundred ten percent
(110%) of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price of Shares is at least one hundred percent (100%) of the Fair
Market Value of a Share on the date of grant and (iii) in the case of an ISO,
such ISO by its terms is not exercisable after the expiration of five years from
the date of grant.

      (c) Attribution Rules. For purposes of Subsection (b) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which such Employee holds an Option shall not be counted.

      (d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding Stock" shall not include shares authorized for issuance
under outstanding Options held by the Employee or by any other person.

SECTION 5. STOCK SUBJECT TO PLAN.

      (a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares. Subject to Sections 5(b) and 9 of the Plan, the aggregate
number of Shares which may be issued or transferred pursuant to an Award under
the Plan shall not exceed 3,260,000 Shares.

      The number of shares that may be issued or transferred during any 12-month
period to any eligible Employee pursuant to an Award shall not exceed 1,200,000
Shares.

      In any event, the number of Shares which are subject to Awards or other
rights outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.

      (b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall not be
available for the purposes of the Plan. If a Restricted Share is forfeited for
any reason or is canceled or otherwise terminated, then such

                                      -5-
<PAGE>

Restricted Share shall not become available for award under the Plan.

SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.

      (a) Stock Purchase Agreement. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Offeree and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.

      (b) Duration of Offers. Any right to acquire Shares under the Plan (other
than an Option) shall automatically expire if not exercised by the Offeree
within 30 days after the grant of such right was communicated to the Offeree by
the Committee.

      (c) Purchase Price. The Purchase Price of Shares to be offered under the
Plan shall not be less than eighty-five percent (85%) of the Fair Market Value
of a Share on the date of grant, except as otherwise provided in Section 4(b)
(i.e., 100% for 10% shareholders). Subject to the preceding sentence, the
Purchase Price shall be determined by the Committee in its sole discretion. The
Purchase Price shall be payable in a form described in Subsection (d) below.

      (d) Payment for Shares. The entire Purchase Price of Shares issued under
the Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided below. Notwithstanding
any other provision of the Plan, Shares may, in the discretion of the Committee,
be awarded under the Plan in consideration of Services rendered to the Company
or a Subsidiary prior to the Award. Permissible forms of payment, in addition to
cash, are:

                  (i) Surrender of Stock. To the extent that a Purchase Option
      Agreement so provides, payment may be made all or in part with Shares
      which have already been owned by the Offeree or the Offeree's
      representative for any time period specified by the Committee and which
      are surrendered to the Company in good form for transfer. Such Shares
      shall be valued at their Fair Market Value on the date when the new Shares
      are purchased under the Plan.

                  (ii) Promissory Notes. To the extent that a Stock Purchase
      Agreement so provides, payment may be made all or in part with a full
      recourse promissory note executed by the Offeree. The interest rate and
      other terms and conditions of such note shall be determined by the
      Committee. The Committee may require that the Offeree pledge his or her
      Shares to the Company for the purpose of securing the payment of such
      note. In no event shall the stock certificate(s) representing such Shares
      be released to the Offeree until such note is paid in full.

                  (iii) Cashless Exercise. To the extent that a Stock Purchase
      Agreement so provides and a public market for the Shares exists, payment
      may be made all or in part by delivery (on a form prescribed by the
      Committee) of an irrevocable direction to a

                                      -6-
<PAGE>

      securities broker to sell Shares and to deliver all or part of the sale
      proceeds to the Company in payment of the aggregate Exercise Price.

                  (iv) Other Forms of Payment. To the extent provided in the
      Stock Purchase Agreement, payment may be made in any other form that is
      consistent with applicable laws, regulations and rules, including payment
      for past services.

      (e) Exercise of Awards on Termination of Service. Each Stock Award
Agreement shall set forth the extent to which the recipient shall have the right
to exercise the Award following termination of the recipient's Service with the
Company and its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among all the Awards issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of employment.

SECTION 7. ADDITIONAL TERMS AND CONDITIONS OF RESTRICTED SHARES.

      (a) Form and Amount of Award. Each Stock Award Agreement shall specify the
number of Shares that are subject to the Award. Restricted Shares may be awarded
in combination with NSOs and such an Award may provide that the Restricted
Shares will be forfeited in the event that the related NSOs are exercised.

      (b) Exercisability. Each Stock Award Agreement shall specify the
conditions upon which Restricted Shares shall become vested, in full or in
installments.

      (c) Effect of Change in Control. The Committee may determine at the time
of making an Award or thereafter, that such Award shall become fully vested in
the event that a Change in Control occurs with respect to the Company.

      (d) Voting Rights. Holders of Restricted Shares awarded under the Plan
shall have the same voting, dividend and other rights a the Company's other
stockholders. A Stock Award Agreement, however, may require that the holders
invest any cash dividends received in additional Restricted Shares. Such
additional Restricted Shares shall be subject to the same conditions and
restrictions as the Award with respect to which the dividends were paid. Such
additional Restricted Shares shall not reduce the number of Shares available
under Section 5.

SECTION 8. TERMS AND CONDITIONS OF OPTIONS.

      (a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Options shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.

      (b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in

                                      -7-
<PAGE>

accordance with Section 9. The Stock Option Agreement shall also specify whether
the Option is an ISO or a Nonstatutory Option.

      (c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than one hundred percent
(100%) of the Fair Market Value of a Share on the date of grant, except as
otherwise provided in Section 4(b). To the extent required by applicable law and
except as otherwise provided in Section 4(b), the Exercise Price of a
Nonstatutory Option shall not be less than eighty-five percent (85%) of the Fair
Market Value of a Share on the date of grant. Subject to the preceding two
sentences, the Exercise Price under any Option shall be determined by the
Committee in its sole discretion. The Exercise Price shall be payable in a form
described in Subsection (h) below.

      (d) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. To the
extent required by applicable law, an Option shall become exercisable no less
rapidly than the rate of 20% per year for each of the first five years from the
date of grant. Subject to the preceding sentence, the exercisability of any
Option shall be determined by the Committee in its sole discretion.

      (e) Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully vested
in the event that a Change in Control occurs with respect to the Company.

      (f) Term. The Stock Option Agreement shall specify the term of the Option.
The term shall not exceed ten years from the date of grant (or five (5) years,
in the instance of an ISO, for ten percent (10%) shareholders as provided in
Section 4(b)). Subject to the preceding sentence, the Committee at its sole
discretion shall determine when an Option is to expire.

      (g) Exercise of Options on Termination of Service. Each Option shall set
forth the extent to which the Optionee shall have the right to exercise the
Option following termination of the Optionee's Service with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of employment.

      (h) Payment of Option Shares. The entire Exercise Price of Shares issued
under the Plan shall be payable in lawful money of the United States of America
at the time when such Shares are purchased, except as provided below:

                  (i) Surrender of Stock. To the extent that a Stock Option
      Agreement so provides, payment may be made all or in part with Shares
      which have already been owned by the Optionee or the Optionee's
      representative for any time period specified by the Committee and which
      are surrendered to the Company in good form for transfer. Such Shares
      shall be valued at their Fair Market Value on the date when the new Shares
      are purchased under the Plan.

                  (ii) Promissory Notes. To the extent that a Stock Option
      Agreement or Stock Purchase Agreement so provides, payment may be made all
      or in part with a full

                                      -8-
<PAGE>

      recourse promissory note executed by the Optionee or Offeree. The interest
      rate and other terms and conditions of such note shall be determined by
      the Committee. The Committee may require that the Optionee or Offeree
      pledge his or her Shares to the Company for the purpose of securing the
      payment of such note. In no event shall the stock certificate(s)
      representing such Shares be released to the Optionee or Offeree until such
      note is paid in full.

                  (iii) Cashless Exercise. To the extent that a Stock Option
      Agreement so provides and a public market for the Shares exists, payment
      may be made all or in part by delivery (on a form prescribed by the
      Committee) of an irrevocable direction to a securities broker to sell
      Shares and to deliver all or part of the sale proceeds to the Company in
      payment of the aggregate Exercise Price.

                  (iv) Other Forms of Payment. To the extent provided in the
      Stock Option Agreement, payment may be made in any other form that is
      consistent with applicable laws, regulations and rules.

      (i) No Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.

      (j) Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price or for other consideration.

SECTION 9. ADJUSTMENT OF SHARES.

      (a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
reclassification or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
Awards under Section 5, (ii) the number of Shares covered by each outstanding
Option or Purchase Agreement or (iii) the Exercise Price or Purchase Price under
each outstanding Option or Stock Purchase Agreement.

      (b) Reorganizations. In the event that the Company is a party to a merger
or reorganization, outstanding Options shall be subject to the agreement of
merger or reorganization.

      (c) Reservation of Rights. Except as provided in this Section 9, an
Optionee or an Offeree shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number, Exercise
Price or

                                      -9-
<PAGE>

Purchase Agreement of Shares subject to an Option or Stock Purchase Agreement.
The grant of an Award pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.

SECTION 10. WITHHOLDING TAXES.

      (a) General. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Committee for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.

      (b) Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he or she
previously acquired. Such Shares shall be valued at their Fair Market Value on
the date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Shares to the Company may be subject to restrictions, including any
restrictions required by rules of any federal or state regulatory body or other
authority.

      (c) Cashless Exercise/Pledge. The Committee may provide that if Company
Shares are publicly traded at the time of exercise, arrangements may be made to
meet the Optionee's withholding obligation by cashless exercise or pledge.

      (d) Other Forms of Payment. The Committee may permit such other means of
tax withholding as it deems appropriate.

SECTION 11. ASSIGNMENT OR TRANSFER OF AWARDS.

      (a) General. An Award granted under the Plan shall not be anticipated,
assigned, attached, garnished, optioned, transferred or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation of law,
except as approved by the Committee. Notwithstanding the foregoing, ISOs may not
be transferable.

      (b) Trusts. Neither this Section 11 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted Shares to
(i) the trustee of a trust that is revocable by such Participant alone, both at
the time of the transfer or assignment and at all times thereafter prior to such
Participant's death, or (ii) the trustee of any other trust to the extent
approved by the Committee in writing. A transfer or assignment of Restricted
Shares from such trustee to any other person than such Participant shall be
permitted only to the extent approved in advance by the Committee in writing,
and Restricted Shares held by such trustee shall be subject to all the
conditions and restrictions set forth in the Plan and in the applicable Stock
Award Agreement, as if such trustee were a party to such Agreement.

SECTION 12. LEGAL REQUIREMENTS.

                                      -10-
<PAGE>

      Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.

SECTION 13. NO EMPLOYMENT RIGHTS.

      No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason.

SECTION 14. DURATION AND AMENDMENTS.

      (a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's shareholders. In the event that the shareholders fail
to approve the Plan within twelve (12) months after its adoption by the Board of
Directors, any grants already made shall be null and void, and no additional
grants shall be made after such date. The Plan shall terminate automatically ten
(10) years after its adoption by the Board of Directors and may be terminated on
any earlier date pursuant to Subsection (b) below.

      (b) Right to Amend or Terminate the Plan. The Board of Directors may amend
the Plan at any time and from time to time. Rights and obligations under any
right or Option granted before amendment of the Plan shall not be materially
altered, or impaired adversely, by such amendment, except with consent of the
person to whom the right or Option was granted. An amendment of the Plan shall
be subject to the approval of the Company's shareholders only to the extent
required by applicable laws, regulations or rules including the rules of any
applicable exchange.

      (c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Shares previously issued or any Option previously
granted under the Plan.

SECTION 15. EXECUTION.

      To record the adoption of the Plan by the Company, the Board of Directors
has caused its authorized officer to execute the same, to be effective as of
October_, 1998.

                                                  DIGITAL ON-DEMAND, INC.

                                                  By: __________________________

                                      -11-
<PAGE>

                                                  Name:
                                                  Its:

                                      -12-

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