Document:

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                                                                    Exhibit 10.2

                               Adolor Corporation
                             620 Pennsylvania Drive
                            Exton, Pennsylvania 19341

June 17, 2002

Ms. Martha E. Manning

Dear Martha:

         Adolor Corporation, a Delaware corporation (the "Company"), is pleased
to offer you a position as Senior Vice President, General Counsel and Secretary
of the Company, reporting directly to Bruce A. Peacock, the President and Chief
Executive Officer of the Company (the "Chief Executive Officer"), with your full
time employment commencing on or prior to July 22, 2002 (your "Start Date").
This offer and your employment with the Company are subject to the terms and
conditions of this offer letter (the "Offer Letter").

Positions and Responsibilities

         In respect of the position set forth above, commencing on your Start
Date, you will have the duties, responsibilities and authority normally
associated with the office and position of a senior vice president, general
counsel and secretary of a corporation, including, without limitation,
operational and management authority with respect to, and responsibility for,
the legal affairs of the Company.

Duties

         During your employment as an employee of the Company, you will devote
substantially all of your business time to the business and affairs of the
Company and you will use your reasonable best efforts to perform faithfully and
efficiently the duties and responsibilities contemplated by the Offer Letter,
provided, however, that you will be allowed, to the extent such activities do
not substantially interfere with the performance of your duties and
responsibilities hereunder, to (a) manage your personal, financial, and legal
affairs, and (b) serve on civic or charitable boards or committees and other
boards or committees with the prior approval of the Chief Executive Officer.

Base Salary and Benefits

         If you decide to join the Company, commencing on your Start Date, you
will receive an annual base salary of $230,000 (the "Base Salary"), less
applicable and required withholding, which will be paid biweekly in accordance
with the Company's normal payroll procedures. The Board of Directors of the
Company (the "Board") will review your Base Salary annually each January
thereafter for increase (but not decrease). To the extent your Base Salary is
increased under this paragraph, such increased Base Salary will be your Base
Salary amount for all purposes hereunder. In addition, you will be entitled to
participate in all benefit programs maintained by the Company (including annual
vacation of at least four weeks and medical,

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dental, life insurance and long-term disability plans) that may be provided to
the Company's senior executives from time to time.

Bonus

         For calendar year 2002 and for all succeeding calendar years thereafter
during which you are employed by the Company, you will be entitled to a target
annual cash bonus equal to 30% of your then current Base Salary for each such
calendar year, based upon the achievement of pre-determined and objective
performance goals determined by the Board. Such annual bonus will be payable as
soon as practicable after the end of each such calendar year, but in no event
later than March 15 of the calendar year immediately succeeding such calendar
year.

Options

         If you decide to join the Company, the Board will grant to you on your
Start Date options to purchase 100,000 shares of the Company's Common Stock
under the Company's Amended and Restated 1994 Equity Compensation Plan (the
"Plan") at an exercise price per share equal to the closing sale price per share
on the Nasdaq National Market on your Start Date. Such options will vest in
equal monthly amounts over a four year period, beginning on your Start Date;
provided, however, that no vesting will occur until you have completed three
months of continuous service as an employee of the Company unless there shall
have occurred during such three month period a Change of Control (as defined
below). To the extent permitted, the options granted hereunder will be incentive
stock options. The shares of the Company's Common Stock issuable upon exercise
of the options granted to you under this paragraph will be registered by the
Company under the Securities Act of 1933, as amended, for resale by you. In the
event of a Change of Control, all unvested options shall accelerate in
accordance with the Plan.

         You may also be offered options to purchase additional shares of the
Company's Common Stock on an annual basis after your annual merit review has
been completed by the Chief Executive Officer and the Board. The terms of any
additional options may be different than the options referred to in the
immediately prior paragraph.

Termination of Employment

         You will have the right to terminate your employment hereunder with or
without Good Reason (as defined below), as provided below, and the Company will
have the right to terminate your employment hereunder with or without Cause (as
defined below), as provided below.

         Except as provided for in the immediately following paragraph, if your
employment hereunder is terminated at any time (i) by you for Good Reason
following 15 days prior written notice to the Company, or (ii) by the Company
without Cause, you will be entitled to receive from the Company (a) in twelve
monthly installments a payment in gross amount equal to the sum of (i) your Base
Salary and (ii) the bonus amount paid to you for your performance during the
immediately preceding calendar year (provided that if such termination occurs
prior to the determination of a bonus, if any, for calendar year 2002, then the
bonus amount shall be deemed to be 30% of your Base Salary), (b) continuation of
similar benefits in effect as of the date of termination for a period of one
year following the date of termination at the Company's sole

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expense, (c) immediate payment of any unpaid expense reimbursements, deferred
compensation and unused accrued vacation days through the date of termination,
(d) the ability to exercise all equity interests in the Company that have vested
up through the date of termination during the period of one year following the
date of termination, and (e) any other payments and/or benefits which you are
entitled to receive under the terms and provisions of any of the employee
pension, incentive, or welfare benefit plans of the Company.

         If during the three years following your Start Date a Change in Control
occurs and your employment hereunder is terminated at any time during the 90
days before or the first twelve months following such Change in Control (i) by
you for Good Reason following 15 days prior written notice to the Company, or
(ii) by the Company without Cause, you will be entitled to receive from the
Company (a) in 24 monthly installments a payment in gross amount equal to two
times the sum of (i) your Base Salary and (ii) the bonus amount paid to you for
your performance during the immediately preceding calendar year (provided that
if such termination occurs prior to the determination of a bonus, if any, for
calendar year 2002, then the bonus amount paid shall be deemed to be 30% of your
Base Salary), (b) continuation of similar benefits in effect as of the date of
termination for a period of two years following the date of termination at the
Company's sole expense, (c) immediate payment of any unpaid expense
reimbursements, deferred compensation and unused accrued vacation days through
the date of termination, (d) any other payments and/or benefits which you are
entitled to receive under the terms and provisions of any of the employee
pension, incentive, or welfare benefit plans of the Company, and (e) the ability
to exercise all equity interests in the Company that have vested up through the
date of termination during the period of one year following the date of
termination.

         If a Change in Control occurs more than three years after your Start
Date and your employment hereunder is terminated at any time during the 90 days
before or the first twelve months following such Change in Control (i) by you
for Good Reason following 15 days prior written notice to the Company, or (ii)
by the Company without Cause, you will be entitled to receive from the Company
(a) in 12 monthly installments a payment in gross amount equal to the sum of (i)
your Base Salary and (ii) the bonus amount paid to you for your performance
during the immediately preceding calendar year, (b) continuation of similar
benefits in effect as of the date of termination for a period of one year
following the date of termination at the Company's sole expense, (c) immediate
payment of any unpaid expense reimbursements, deferred compensation and unused
accrued vacation days through the date of termination, (d) any other payments
and/or benefits which you are entitled to receive under the terms and provisions
of any of the employee pension, incentive, or welfare benefit plans of the
Company, and (e) the ability to exercise all equity interests in the Company
that have vested up through the date of termination during the period of one
year following the date of termination.

         In the event your employment is terminated (i) by you voluntarily
without Good Reason, or (ii) by the Company for Cause, you will only be entitled
to receive from the Company (a) your Base Salary through the date of such
termination, (b) immediate payment of any unpaid expense reimbursements,
deferred compensation and unused accrued vacation days through the date of
termination, and (c) any other payments and/or benefits which you are entitled
to receive under the terms and provisions of any employee pension, incentive or
welfare benefit plans of the Company.

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         If your employment is terminated due to your death, your estate will be
entitled to receive from the Company (a) Base Salary continuation through the
end of the month in which your death occurs, (b) a pro-rated bonus payment for
the year of death equal to the bonus amount paid to you for your performance
during the immediately preceding calendar year multiplied by a fraction, the
numerator of which is the number of days from and including January 1 of such
year through the date of your death and the denominator of which is 365, (c)
immediate payment of any unpaid expense reimbursements, deferred compensation
and unused accrued vacation days through the date of death or such termination,
and (d) any other payments and/or benefits which you are entitled to receive
under the terms and provisions of any employee pension, incentive or welfare
benefit plans of the Company.

         In the event of any termination of your employment, you will be under
no obligation to seek other employment and there will be no offset against any
amounts due to you hereunder on account of any remuneration attributable to any
subsequent employment that you may obtain. Any amounts due under "Termination of
Employment" are in the nature of severance payments, or liquidated damages, or
both, and are not in the nature of a penalty. Notwithstanding the foregoing, the
Company's obligation to provide continuation of benefits under the welfare
benefit plans described above shall cease if you become eligible for other
health insurance benefits at the expense of a new employer. You agree to notify
a duly authorized officer of the Company, in writing, immediately upon
acceptance of any employment following the date of termination of your
employment which provides you with eligibility for health insurance benefit.

         For purposes of this Offer Letter, "Cause" means (a) your conviction
(including a plea of guilty or nolo contendere) of a felony under federal law or
the law of the state in which such action occurred, (b) the commitment by you of
an intentional act of fraud, embezzlement, or theft in connection with your
duties in the course of your employment with the Company, or your engagement in
gross negligence in the course of your employment with the Company or (c) your
willful and deliberate failure to perform your employment duties in any material
respect. For purposes of the Offer Letter, an act or omission on your part shall
be deemed "intentional" or gross negligence only if it was done by you in bad
faith, not merely an error in judgment, and without reasonable belief that the
act or omission was in the best interest of the Company. For purposes of the
Offer Letter, "Good Reason" means and will be deemed to exist if, without your
prior express written consent, (i) you are assigned any duties or
responsibilities inconsistent in any respect with the scope of the duties or
responsibilities associated with your title or position, as set forth and
described above; (ii) you suffer a material change in the duties,
responsibilities, reporting rights or obligations, or effective authority
associated with your title and position and/or as set forth above; (iii) your
Base Salary is decreased by the Company, or your benefits under any of the
Company's employee pension or welfare plans or programs are in aggregate
materially decreased; or (iv) the Company fails to pay your compensation,
employee benefits or reimbursements when due; provided that in the event of a
Change in Control, "Good Reason" shall also include the relocation of your
principal office location to a site that is more than 50 miles from your then
current principal office.

         For purposes of the Offer Letter, "Change in Control" means (A) the
consummation of a merger or consolidation of the Company in which the
stockholders of the Company immediately prior to such merger or consolidation,
would not, immediately after the merger or consolidation, beneficially own (as
such term is defined in Rule 13d-3 under the Securities Exchange Act of

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1934, as amended), directly or indirectly, shares representing the aggregate 50%
or more of the combined voting power of the securities of the corporation
issuing cash or securities in the merger or consolidation (or of its ultimate
parent corporation, if any); or (B) the stockholders of the Company approve a
plan of complete liquidation or dissolution of the Company, or there is
consummated an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or disposition by
the Company of all or substantially all of the Company's assets to an entity, at
least 50% of the combined voting power of the voting securities of which are
owned by persons in substantially the same proportion as their ownership of the
Company immediately prior to such sale.

Release

         Prior to your receipt of any benefits under the Offer Letter on account
of the termination of your employment, you will execute a release in form
acceptable to the Company.

No Solicitation/Confidentiality

         As a condition of employment, you will be expected to abide by Company
rules and regulations and sign and comply with the Company's Employee
Nondisclosure and Development Agreement, which prohibits unauthorized use or
disclosure of Company proprietary information and certain competitive
activities. In addition, you acknowledge your obligations to comply with the
applicable rules of professional responsibility for a member of the Bar of the
Commonwealth of Pennsylvania.

Miscellaneous

         The Offer Letter is personal to you and without the prior express
written consent of the Company, will not be assignable by you. The Offer Letter
will inure to the benefit of and be enforceable by your heirs, beneficiaries,
and/or legal representatives. The Offer Letter will inure to the benefit of and
be binding upon the Company and its respective successors and assigns. The
Company will require any successor to all or substantially all of its business
and/or assets, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock or otherwise, by an agreement in form and
substance satisfactory to you, expressly to assume and agree to perform the
Offer Letter in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.

         To indicate your acceptance of the Company's offer, please sign and
date both copies of the Offer Letter in the space provided below and return one
fully-executed and dated copy to the Company. Please keep one fully-executed and
dated copy for your records. This Offer Letter, along with any agreements and
plans referenced herein or relating to proprietary rights between you and the
Company, contains the entire agreement between you and the Company concerning
the subject matter hereof and supersedes any prior representations or
agreements, whether written or oral. The Offer Letter will be governed and
construed in accordance with the laws of the State of Delaware, applied without
reference to principles of conflict of laws thereof. All notices and other
communications hereunder will be in writing and will be given by hand-delivery
to the other parties or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:

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         If to you:                         Ms. Martha E. Manning

         If to the Company:                 Adolor Corporation
                                            620 Pennsylvania Drive
                                            Exton, Pennsylvania  19341
                                            Attention: Chief Executive Officer

         With a copy to:                    James A. Lebovitz
                                            Dechert
                                            1717 Arch Street
                                            Philadelphia, Pennsylvania 19103

or to such other address as any party has furnished to the others in writing in
accordance herewith. Notices and communications will be effective when actually
received by the addressee. The captions of the Offer Letter are not part of the
provisions hereof and will have no force or effect. You will be entitled to
select (and change) a beneficiary or beneficiaries to receive any compensation
or benefit payable hereunder following your death, and you may change such
election, in either case by giving the Company written notice thereof. In the
event of your death or a judicial determination of your incompetence, reference
in the Offer Letter to you will be deemed, where appropriate, to refer to your
beneficiary(ies), estate or other legal representative(s). The respective rights
and obligations of the parties hereunder will survive the termination of the
Offer Letter for any reason to the extent necessary to the intended provision of
such rights and the intended performance of such obligations. The Offer Letter
may not be modified or amended except in writing, signed both by the Company and
you.

         We look forward to working with you at Adolor.

                                    Sincerely,

                                    ADOLOR CORPORATION

                                    By:    /s/ Bruce A. Peacock
                                           ----------------------------------
                                           Bruce A. Peacock
                                           President and Chief Executive Officer

AGREED TO AND ACCEPTED:

/s/ Martha E. Manning               Dated: June 20, 2002
------------------------                   ------------------
                                           Martha E. ManningEXHIBIT 10.1

                       AMERICAN NATURAL ENERGY CORPORATION

                            2001 STOCK INCENTIVE PLAN
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                                   ARTICLE ONE

                               GENERAL PROVISIONS
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                             I. PURPOSE OF THE PLAN

This 2001 Stock Incentive Plan is intended to promote the interests of American
Natural Energy Corporation, an Oklahoma corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation. Capitalized terms shall have the
meanings assigned to such terms in the attached Appendix.

                            II. STRUCTURE OF THE PLAN

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

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

         (ii) the Salary Investment Option Grant Program under which eligible
         employees may elect to have a portion of their base salary invested
         each year in special options,

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

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

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

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

                         III. ADMINISTRATION OF THE PLAN

A.       The following provisions shall govern the administration of the Plan:

         (i) The Board shall have the authority to administer the Discretionary
         Option Grant and Stock Issuance Programs with respect to Section 16
         Insiders but may delegate such authority in whole or in part to the
         Primary Committee.

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

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

         (iv) Administration of the Automatic Option Grant and Director Fee
         Option Grant Programs shall be self-executing in accordance with the
         terms of those programs.

B.       Each Plan Administrator shall, within the scope of its administrative
         jurisdiction under the Plan, have full power and authority subject to
         the provisions of the Plan:

         (i) to establish such rules as it may deem appropriate for proper
         administration of the Plan, to make all factual determinations, to
         construe and interpret the provisions of the Plan and the awards
         thereunder and to resolve any and all ambiguities thereunder;

         (ii) to determine, with respect to awards made under the Discretionary
         Option Grant and Stock Issuance Programs, which eligible persons are to
         receive such awards, the time or times when such awards are to be made,
         the number of shares to be covered by each such award, the vesting
         schedule (if any) applicable to the

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         award, the status of a granted option as either an Incentive Option or
         a Non-Statutory Option and the maximum term for which the option is to
         remain outstanding;

         (iii) to amend, modify or cancel any outstanding award with the consent
         of the holder or accelerate the vesting of such award; and (iv) to take
         such other discretionary actions as permitted pursuant to the terms of
         the applicable program.

         Decisions of each Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties.

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

D.       Service on the Primary Committee or the Secondary Committee shall
         constitute service as a Board member, and members of each such
         committee shall accordingly be entitled to full indemnification and
         reimbursement as Board members for their service on such committee. No
         member of the Primary Committee or the Secondary Committee shall be
         liable for any act or omission made in good faith with respect to the
         Plan or any options or stock issuances under the Plan.

                                 IV. ELIGIBILITY

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

         (i) Employees,

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

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

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

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

                          V. STOCK SUBJECT TO THE PLAN

A.       The stock issuable under the Plan shall be shares of authorized but
         unissued or reacquired Common Stock, including shares repurchased by
         the Corporation on the open market. The maximum number of shares of
         Common Stock initially reserved for issuance over the term of the Plan
         shall not exceed 5,000,000 shares.

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

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

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         dilution of rights and benefits under such options. The adjustments
         determined by the Plan Administrator shall be final, binding and
         conclusive.

                                   ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM
--------------------------------------------------------------------------------

I.       OPTION TERMS

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

A.       Exercise Price.

         1. The exercise price per share shall be fixed by the Plan
         Administrator at the time of the option grant.

         2. The exercise price shall become immediately due upon exercise of the
         option and shall, subject to the provisions of Section II of Article
         Seven and the documents evidencing the option, be payable in cash or
         check made payable to the Corporation. The exercise price may also be
         paid as follows:

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

            (ii) to the extent the option is exercised for vested shares,
            through a special sale and remittance procedure pursuant to which
            the Optionee shall concurrently provide irrevocable instructions to
            (a) a Corporation approved brokerage firm to effect the immediate
            sale of the purchased shares and remit to the Corporation, out of
            the sale proceeds available on the settlement date, sufficient funds
            to cover the aggregate exercise price payable for the purchased
            shares plus all applicable Federal, state and local income and
            employment taxes required to be withheld by the Corporation by
            reason of such exercise and (b) the Corporation to deliver the
            certificates for the purchased shares directly to such brokerage
            firm in order to complete the sale.

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

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B.       Exercise and Term of Options. Each option shall be exercisable at such
         time or times, during such period and for such number of shares as
         shall be determined by the Plan Administrator and set forth in the
         documents evidencing the option. However, no option shall have a term
         in excess of ten (10) years measured from the option grant date.

C.       Cessation of Service.

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

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

            (ii) Any option exercisable in whole or in part by the Optionee at
            the time of death may be subsequently exercised by his or her
            Beneficiary.

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

            (iv) Should the Optionee's Service be terminated for Misconduct or
            should the Optionee engage in Misconduct while his or her options
            are outstanding, then all such options shall terminate immediately
            and cease to be outstanding.

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

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

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<PAGE>

            (ii) to permit the option to be exercised, during the applicable
            post-Service exercise period, for one or more additional
            installments in which the Optionee would have vested had the
            Optionee continued in Service.

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

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

F.       Limited Transferability of Options. During the lifetime of the
         Optionee, Incentive Options shall be exercisable only by the Optionee
         and shall not be assignable or transferable other than by will or by
         the laws of descent and distribution following the Optionee's death.
         Non-Statutory Options shall be subject to the same restrictions, except
         that a Non-statutory Option may, to the extent permitted by the Plan
         Administrator, be assigned in whole or in part during the Optionee's
         lifetime to one or more members of the Optionee's immediate family or
         to a trust established exclusively for one or more such family members.
         The terms applicable to the assigned portion shall be the same as those
         in effect for the option immediately prior to such assignment and shall
         be set forth in such documents issued to the assignee as the Plan
         Administrator may deem appropriate.

                              II. INCENTIVE OPTIONS

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

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

B.       Exercise Price. The exercise price per share shall not be less than one
         hundred percent (100%) of the Fair Market Value per share of Common
         Stock on the option grant date.

                                       7
<PAGE>

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

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

                    III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

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

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

                                       8
<PAGE>

C.       Immediately following the consummation of the Change in Control, all
         outstanding options shall terminate and cease to be outstanding, except
         to the extent assumed by the successor corporation (or parent thereof)
         or otherwise expressly continued in full force and effect pursuant to
         the terms of the Change in Control.

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

E.       The Plan Administrator may at any time provide that one or more options
         will automatically accelerate in connection with a Change in Control,
         whether or not those options are assumed or otherwise continued in full
         force and effect pursuant to the terms of the Change in Control. Any
         such option shall accordingly become exercisable, immediately prior to
         the effective date of such Change in Control, for all of the shares of
         Common Stock at the time subject to that option and may be exercised
         for any or all of those shares as fully-vested shares of Common Stock.
         In addition, the Plan Administrator may at any time provide that one or
         more of the Corporation's repurchase rights shall not be assignable in
         connection with such Change in Control and shall terminate upon the
         consummation of such Change in Control.

F.       The Plan Administrator may at any time provide that one or more options
         will automatically accelerate upon an Involuntary Termination of the
         Optionee's Service within a designated period (not to exceed eighteen
         (18) months) following the effective date of any Change in Control in
         which those options do not otherwise accelerate. Any options so
         accelerated shall remain exercisable for fully-vested shares until the
         earlier of (i) the expiration the option term or (ii) the expiration of
         the one (1) year period measured from the effective date of the
         Involuntary Termination. In addition, the Plan Administrator may at any
         time provide that one or more of the Corporation's repurchase rights
         shall immediately terminate upon such Involuntary Termination.

G.       The Plan Administrator may at any time provide that one or more options
         will automatically accelerate in connection with a Hostile Take-Over.
         Any such option shall become exercisable, immediately prior to the
         effective date of such Hostile Take-Over, for all of the shares of
         Common Stock at the time subject to that option and may be exercised
         for any or all of those shares as fully-vested shares of Common Stock.
         In addition, the Plan Administrator may at any time provide

                                       9
<PAGE>

         that one or more of the Corporation's repurchase rights shall terminate
         automatically upon the consummation of such Hostile Take-Over.
         Alternatively, the Plan Administrator may condition such automatic
         acceleration and termination upon an Involuntary Termination of the
         Optionee's Service within a designated period (not to exceed eighteen
         (18) months) following the effective date of such Hostile Take-Over.
         Each option so accelerated shall remain exercisable for fully-vested
         shares until the expiration or sooner termination of the option term.

H.       The portion of any Incentive Option accelerated in connection with a
         Change in Control or Hostile Take Over shall remain exercisable as an
         Incentive Option only to the extent the applicable One Hundred Thousand
         Dollar ($100,000) limitation is not exceeded. To the extent such dollar
         limitation is exceeded, the accelerated portion of such option shall be
         exercisable as a Non-Statutory Option under the Federal tax laws.

                          IV. STOCK APPRECIATION RIGHTS

         The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionee's stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.

                                       10
<PAGE>
                                  ARTICLE THREE

                     SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------------------------------------------------

I.       OPTION GRANTS

         The Primary Committee may implement the Salary Investment Option Grant
Program for one or more calendar years beginning after the Plan Effective Date
and select the Section 16 Insiders and other highly compensated Employees
eligible to participate in the Salary Investment Option Grant Program for each
such calendar year. Each selected individual who elects to participate in the
Salary Investment Option Grant Program must, prior to the start of each calendar
year of participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by an amount not less than Twelve Thousand Dollars
($12,000.00) nor more than Sixty Thousand Dollars ($60,000.00). The Primary
Committee shall have complete discretion to determine whether to approve the
filed authorization in whole or in part. To the extent the Primary Committee
approves the authorization, the individual who filed that authorization shall be
granted an option under the Salary Investment Grant Program on the first trading
day in January for the calendar year for which the salary reduction is to be in
effect.

II.      OPTION TERMS

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

A.       Exercise Price.

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

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

                                       11
<PAGE>

B.       Number of Option Shares. The number of shares of Common subject to the
         option shall be determined pursuant to the following formula (rounded
         down to the nearest whole number):

                     X = A / (B x 66-2/3%), where
                             X is the number of option shares,

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

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

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

D.       Cessation of Service. Each option outstanding at the time of the
         Optionee's cessation of Service shall remain exercisable, for any or
         all of the shares for which the option is exercisable at the time of
         such cessation of Service, until the earlier of (i) the expiration of
         the option term or (ii) the expiration of the three (3)-year period
         following the Optionee's cessation of Service. To the extent the option
         is held by the Optionee at the time of his or her death, the option may
         be exercised by his or her Beneficiary. However, the option shall,
         immediately upon the Optionee's cessation of Service, terminate and
         cease to remain outstanding with respect to any and all shares of
         Common Stock for which the option is not otherwise at that time
         exercisable.

                    III. CHANGE IN CONTROL/HOSTILE TAKE-OVER

A.       In the event of any Change in Control or Hostile Take-Over while the
         Optionee remains in Service, each outstanding option shall
         automatically accelerate so that each such option shall, immediately
         prior to the effective date of the Change in Control or Hostile
         Take-Over, become fully exercisable with respect to the total number of
         shares of Common Stock at the time subject to such option and may be
         exercised for any or all of those shares as fully-vested shares of
         Common Stock. Each such option accelerated in connection with a Change
         in Control shall terminate upon the Change in Control, except to the
         extent assumed by the successor corporation (or parent thereof) or
         otherwise continued in full force and effect pursuant to the terms of
         the Change in Control. Each such option accelerated in connection with
         a Hostile Take-Over shall remain exercisable until the expiration or
         sooner termination of the option term.

                                       12
<PAGE>

B.       Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
         thirty (30)-day period in which to surrender to the Corporation each of
         his or her outstanding options. The Optionee shall in return be
         entitled to a cash distribution from the Corporation in an amount equal
         to the excess of (i) the Option Surrender Value of the shares of Common
         Stock at the time subject to each surrendered option (whether or not
         the Optionee is otherwise at the time vested in those shares) over (ii)
         the aggregate exercise price payable for such shares. Such cash
         distribution shall be paid within five (5) days following the surrender
         of the option to the Corporation.

                               IV. REMAINING TERMS

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

                                  ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM
--------------------------------------------------------------------------------

I.       STOCK ISSUANCE TERMS

         Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening options. Shares
of Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or Service requirements. Each such
award shall be evidenced by one or more documents which comply with the terms
specified below.

A.       Purchase Price.

         1. The purchase price per share of Common Stock subject to direct
         issuance shall be fixed by the Plan Administrator.

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

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

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

                                       13
<PAGE>

B.       Vesting/Issuance Provisions.

         1. The Plan Administrator may issue shares of Common Stock which are
         fully and immediately vested upon issuance or which are to vest in one
         or more installments over the Participant's period of Service or upon
         attainment of specified performance objectives. Alternatively, the Plan
         Administrator may issue share right awards which shall entitle the
         recipient to receive a specified number of vested shares of Common
         Stock upon the attainment of one or more performance goals or Service
         requirements established by the Plan Administrator.

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

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

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

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

                                       14
<PAGE>

         6. Outstanding share right awards shall automatically terminate, and no
         shares of Common Stock shall actually be issued in satisfaction of
         those awards, if the performance goals or Service requirements
         established for such awards are not attained. The Plan Administrator,
         however, shall have the authority to issue shares of Common Stock in
         satisfaction of one or more outstanding share right awards as to which
         the designated performance goals or Service requirements are not
         attained.

                     II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

A.       All of the Corporation's outstanding repurchase rights shall terminate
         automatically, and all the shares of Common Stock subject to those
         terminated rights shall immediately vest in full, in the event of any
         Change in Control, except unless otherwise provided under the terms of
         the award, to the extent (i) those repurchase rights are assigned to
         the successor corporation (or parent thereof) or otherwise continue in
         full force and effect pursuant to the terms of the Change in Control or
         (ii) such accelerated vesting is precluded by other limitations imposed
         by the Plan Administrator at the time the repurchase right is issued.

B.       The Plan Administrator may at any time provide for the automatic
         termination of one or more of those outstanding repurchase rights and
         the immediate vesting of the shares of Common Stock subject to those
         terminated rights upon (i) a Change in Control or Hostile Take-Over or
         (ii) an Involuntary Termination of the Participant's Service within a
         designated period (not to exceed eighteen (18) months) following the
         effective date of any Change in Control or Hostile Take-Over in which
         those repurchase rights are assigned to the successor corporation (or
         parent thereof) or otherwise continue in full force and effect.

                            III. SHARE ESCROW/LEGENDS

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

                                       15
<PAGE>

                                  ARTICLE FIVE

                         AUTOMATIC OPTION GRANT PROGRAM
--------------------------------------------------------------------------------

I.       OPTION TERMS

A.       Grant Dates.  Options shall be made on the dates specified below:

         1. Each individual who is first elected or appointed as a non- employee
         Board member at any time after February 1, 2002 shall automatically be
         granted, on the date of such initial election or appointment, a
         Non-Statutory Option to purchase 50,000 shares of Common Stock,
         provided that individual has not previously been in the employ of the
         Corporation or any Parent or Subsidiary.

         2. On the date of each Annual Stockholders Meeting held after January
         1, 2002, each individual who is to continue to serve as a non-employee
         Board member, whether or not that individual is standing for
         re-election to the Board, shall automatically be granted a
         Non-Statutory Option to purchase 5,000 shares of Common Stock,
         provided, commencing January 1, 2003, such individual has served as a
         non-employee Board member for at least six (6) months.

B.       Exercise Price.

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

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

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

D.        Exercise and Vesting of Options. Each option shall be immediately
          exercisable for any or all of the option shares. However, any shares
          purchased under the option shall be subject to repurchase by the
          Corporation, at the exercise price paid per share, upon the Optionee's
          cessation of Board service prior to vesting in those shares. Each
          initial 50,000 share option shall vest, and the Corporation's
          repurchase right shall lapse, in a series of three (3) successive
          equal annual installments upon the Optionee's completion of each year
          of Board service over the three (3)-year period measured from the
          grant date. Each annual 5,000 share option shall vest, and the
          Corporation's repurchase right shall lapse, upon the

                                       16
<PAGE>

         Optionee's completion of one (1) year of Board service measured from
         the grant date.

E.       Cessation of Board Service. The following provisions shall govern the
         exercise of any options outstanding at the time of the Optionee's
         cessation of Board service:

            (i) Any option outstanding at the time of the Optionee's cessation
            of Board service for any reason shall remain exercisable for a
            twelve (12)-month period following the date of such cessation of
            Board service, but in no event shall such option be exercisable
            after the expiration of the option term.

            (ii) Any option exercisable in whole or in part by the Optionee at
            the time of death may be subsequently exercised by his or her
            Beneficiary.

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

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

                     II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

A.       In the event of any Change in Control or Hostile Take-Over, the shares
         of Common Stock at the time subject to each outstanding option but not
         otherwise vested shall automatically vest in full so that each such
         option may, immediately prior to the effective date of such Change in
         Control the Hostile Take-Over, be exercised for all or any portion of
         those shares as fully-vested shares of Common Stock. Each such option
         accelerated in connection with a Change in Control shall terminate upon
         the Change in Control, except to the extent assumed by the successor
         corporation (or parent thereof) or otherwise continued in full force
         and effect pursuant to the terms of the Change in Control. Each such
         option

                                       17
<PAGE>

         accelerated in connection with a Hostile Take-Over shall remain
         exercisable until the expiration or sooner termination of the option
         term.

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

C.       Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
         thirty (30)-day period in which to surrender to the Corporation each of
         his or her outstanding options. The Optionee shall in return be
         entitled to a cash distribution from the Corporation in an amount equal
         to the excess of (i) the Option Surrender Value of the shares of Common
         Stock at the time subject to each surrendered option (whether or not
         the Optionee is otherwise at the time vested in those shares) over (ii)
         the aggregate exercise price payable for such shares. Such cash
         distribution shall be paid within five (5) days following the surrender
         of the option to the Corporation.

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

                              III. REMAINING TERMS

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

                                   ARTICLE SIX

                        DIRECTOR FEE OPTION GRANT PROGRAM
--------------------------------------------------------------------------------

I.       OPTION GRANTS

         The Board shall have the sole and exclusive authority to implement the
Director Fee Option Grant Program as of the first day of any calendar year
beginning after the Plan Effective Date. Upon such implementation of the
Program, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to the first day of the calendar year for which

                                       18
<PAGE>

the election is to be in effect. Each non-employee Board member who files such a
timely election shall automatically be granted an option under this Director Fee
Option Grant Program on the first trading day in January in the calendar year
for which the annual retainer fee which is the subject of that election would
otherwise be payable.

II.      OPTION TERMS

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

A.       Exercise Price.

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

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

B.       Number of Option Shares. The number of shares of Common Stock subject
         to the option shall be determined pursuant to the following formula
         (rounded down to the nearest whole number):

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

                          X is the number of option shares,

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

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

C.       Exercise and Term of Options. The option shall become exercisable in a
         series of twelve (12) successive equal monthly installments upon the
         Optionee's completion of each month of Board service during the
         calendar year in which the option is granted. Each option shall have a
         maximum term of ten (10) years measured from the option grant date.

D.       Termination of Board Service. Should the Optionee cease service for any
         reason (other than death or Permanent Disability) while one or more of
         his or her options are outstanding, then each such option shall remain
         exercisable, for any or all of

                                       19
<PAGE>

         the shares for which the option is exercisable at the time of such
         cessation of Board service, until the earlier of (i) expiration of the
         option term or (ii) the expiration of the three (3)-year period
         measured from the date of such cessation of Board service. However,
         each such option outstanding at the time of such cessation of Board
         service shall immediately terminate and cease to remain outstanding
         with respect to any and all shares of Common Stock for which the option
         is not otherwise at that time exercisable.

E.       Death or Permanent Disability. Should the Optionee's service as a Board
         member cease by reason of death or Permanent Disability, then each of
         the Optionee's outstanding options shall immediately become exercisable
         for all the shares of Common Stock at the time subject to that option,
         and the option may be exercised for any or all of those shares as
         fully-vested shares until the earlier of (i) the expiration of the ten
         (10)-year option term or (ii) the expiration of the three (3)-year
         period measured from the date of such cessation of Board service. To
         the extent the option is held by the Optionee at the time of his or her
         death, the option may be exercised by his or her Beneficiary.

III.     CHANGE IN CONTROL/HOSTILE TAKE-OVER

A.       In the event of any Change in Control or Hostile Take-Over while the
         Optionee remains in Board service, each outstanding option shall
         automatically accelerate so that each such option shall, immediately
         prior to the effective date of the Change in Control or Hostile
         Take-Over, become fully exercisable with respect to the total number of
         shares of Common Stock at the time subject to such option and may be
         exercised for any or all of those shares as fully-vested shares of
         Common Stock. Each such option accelerated in connection with a Change
         in Control shall terminate upon the Change in Control, except to the
         extent assumed by the successor corporation (or parent thereof) or
         otherwise expressly continued in full force and effect pursuant to the
         terms of the Change in Control. Each such option accelerated in
         connection with a Hostile Take-Over shall remain exercisable until the
         expiration or sooner termination of the option term.

                                       20
<PAGE>

B.       Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
         thirty (30)-day period in which to surrender to the Corporation each of
         his or her outstanding options. The Optionee shall in return be
         entitled to a cash distribution from the Corporation in an amount equal
         to the excess of (i) the Option Surrender Value of the shares of Common
         Stock at the time subject to each surrendered option (whether or not
         the Optionee is otherwise at the time vested in those shares) over (ii)
         the aggregate exercise price payable for such shares. Such cash
         distribution shall be paid within five (5) days following the surrender
         of the option to the Corporation.

IV.      REMAINING TERMS

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

                                       21
<PAGE>
                                  ARTICLE SEVEN

                                  MISCELLANEOUS
--------------------------------------------------------------------------------

I.       NO IMPAIRMENT OF AUTHORITY

         Outstanding awards shall in no way affect the right of the Corporation
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

II.      FINANCING

         The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.

III.     TAX WITHHOLDING

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

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

                  Stock Withholding: The election to have the Corporation
                  withhold, from the shares of Common Stock otherwise issuable
                  upon the exercise of such Non-Statutory Option or the vesting
                  of such shares, a portion of those shares with an aggregate
                  Fair Market Value equal to the percentage of the Taxes (not to
                  exceed one hundred percent (100%)) designated by the holder.

                                       22
<PAGE>

                  Stock Delivery: The election to deliver to the Corporation, at
                  the time the Non-Statutory Option is exercised or the shares
                  vest, one or more shares of Common Stock previously acquired
                  by such holder (other than in connection with the option
                  exercise or share vesting triggering the Taxes) with an
                  aggregate Fair Market Value equal to the percentage of the
                  Taxes (not to exceed one hundred percent (100%)) designated by
                  the holder.

IV.      EFFECTIVE DATE AND TERM OF THE PLAN

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

B.       The Plan shall terminate upon the earliest of (i) December 14, 2011
         (ii) the date on which all shares available for issuance under the Plan
         shall have been issued as fully-vested shares or (iii) the termination
         of all outstanding options in connection with a Change in Control. Upon
         such plan termination, all outstanding options and unvested stock
         issuances shall thereafter continue to have force and effect in
         accordance with the provisions of the documents evidencing such grants
         or issuances.

V.       AMENDMENT OF THE PLAN

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

B.       Options to purchase shares of Common Stock may be granted under the
         Discretionary Option Grant and Salary Investment Option Grant Programs
         and

                                       23
<PAGE>

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

VI.      USE OF PROCEEDS

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

VII.     REGULATORY APPROVALS

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

B.       No shares of Common Stock or other assets shall be issued or delivered
         under the Plan unless and until there shall have been compliance with
         all applicable requirements of Federal and state and any other
         applicable securities and other laws, including the filing and
         effectiveness of the Form S-8 registration statement for the shares of
         Common Stock issuable under the Plan, and all applicable listing
         requirements of any stock exchange (or the Nasdaq SmallCap or other
         Market, if applicable) on which Common Stock is then listed for
         trading. Each optionee must agree that, unless registered under the
         Securities Act of 1933, as amended (the "Act"), the shares issuable on
         exercise of an option will bear an appropriate restrictive legend under
         the Act and stop transfer instructions will be placed against the
         transfer of the shares.

                                       24
<PAGE>
VIII.    NO EMPLOYMENT/SERVICE RIGHTS

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

                                    APPENDIX
--------------------------------------------------------------------------------

         The following definitions shall be in effect under the Plan:

A.       Automatic Option Grant Program shall mean the automatic option program
         in effect under the Plan.

B.       Beneficiary shall mean, in the event the Plan Administrator implements
         a beneficiary designation procedure, the person designated by an
         Optionee or Participant, pursuant to such procedure, to succeed to such
         person's rights under any outstanding awards held by him or her at the
         time of death. In the absence of such designation or procedure, the
         Beneficiary shall be the personal representative of the estate of the
         Optionee or Participant or the person or persons to whom the award is
         transferred by will or the laws of descent and distribution.

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

D.       Change in Control shall mean a change in ownership or control of
         Corporation effected through any of the following transactions:

                  (i) a merger, consolidation or reorganization approved by the
         Corporation's stockholders, unless securities representing more than
         fifty percent (50%) of the total combined voting power of the voting
         securities of the successor corporation are immediately thereafter
         beneficially owned, directly or indirectly and in substantially the
         same proportion, by the persons who beneficially owned the
         Corporation's outstanding voting securities immediately prior to such
         transaction.

                  (ii) any stockholder-approved transfer or other disposition of
         all or substantially all of the Corporation's assets, or

                  (iii) the acquisition, directly or indirectly by any person or
         related group of persons (other than the Corporation or a person that
         directly or indirectly controls, is controlled by, or is under common
         control with, the Corporation), of

                                       25
<PAGE>

         beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act)
         of securities possessing more than fifty percent (50%) of the total
         combined voting power of the Corporation's outstanding securities
         pursuant to a tender or exchange offer made directly to the
         Corporation's stockholders which the Board recommends such stockholders
         accept.

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

F.       Common Stock shall mean the Corporation's common stock.

G.       Corporation shall mean American Natural Energy Corporation, an Oklahoma
         corporation, and its successors.

H.       Director Fee Option Grant Program shall mean the special stock grant in
         effect for non-employee Board members under Article Six of the Plan.

I.       Discretionary Option Grant Program shall mean the discretionary option
         grant program in effect under the Plan.

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

K.       Exercise Date shall mean the date on which the Corporation shall have
         received written notice of the option exercise.

L.       Fair Market Value per share of Common Stock on any relevant date shall
         be determined in accordance with the following provisions:

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

            (ii)  If the Common Stock is at the time traded on the Nasdaq
                  SmallCap Market or the NASD OTC Bulletin Board or any other
                  securities exchange, then the Fair Market Value shall be the
                  closing selling price per share of Common Stock on the date in
                  question, as such price is reported on the Nasdaq SmallCap
                  Market, or if not traded on the Nasdaq SmallCap Market, then
                  on the NASD OTC Bulletin Board, and, if not traded on either
                  the Nasdaq SmallCap Market or the NASD OTC Bulletin Board,
                  then on any other securities exchange, or any successor system
                  or any of them. If there is no closing selling price for the
                  Common Stock

                                       26
<PAGE>

                  on the date in question, then the Fair Market Value shall be
                  the closing selling price on the last preceding date for which
                  such quotation exists.

            (iii) If the Common Stock is not then listed or admitted to trading
                  on any securities exchange or electronic quotation system,
                  then the Fair Market Value shall be the average of the bid and
                  asked prices as reported by any other reputable quotation
                  service, or if there shall be no bid and asked prices on such
                  day, the average of the high bid and low asked prices, as so
                  reported, on the most recent day (not more than thirty (30)
                  days prior to the date in question) for which prices have been
                  so reported, and, if there are no bid and asked prices
                  reported during the thirty (30) days prior to the date in
                  question, the Fair Market Value shall be determined by the
                  Plan Administrator as if the Company did not have a class of
                  equity securities registered under the 1934 Act.

M.       Hostile Take-Over shall mean:

                  (i) the acquisition, directly or indirectly, by any person or
         related group of persons (other than the Corporation or a person that
         directly or indirectly controls, is controlled by, or is under common
         control with, the Corporation) of beneficial ownership (within the
         meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
         than fifty percent (50%) of the total combined voting power of the
         Corporation's outstanding securities pursuant to a tender or exchange
         offer made directly to the Corporation's stockholders which the Board
         either does not recommend such stockholders to accept or makes no
         recommendation to such stockholders, or

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

N.       Incentive Option shall mean an option which satisfies the requirements
         of Code Section 422.

O.       Involuntary Termination shall mean the termination of the Service of
         any individual which occurs by reason of:

            (i) such individual's involuntary dismissal or discharge by the
         Corporation for reasons other than Misconduct, or

            (ii) such individual's voluntary resignation following (A) a change
         in his or her position with the Corporation or Parent or Subsidiary
         employing the

                                       27
<PAGE>

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

P.       Misconduct shall mean the commission of any act of fraud, or dishonesty
         by the Optionee or Participant, any unauthorized use or disclosure by
         such person of confidential information or trade secrets of the
         Corporation (or any Parent or Subsidiary), or any intentional
         wrongdoing by such person, whether by omission or commission, which
         adversely affects the business or affairs of the Corporation (or any
         Parent or Subsidiary) in a material manner, or any material breach by
         such person of any agreement between such person and the Corporation
         that is not cured, at the request of the Board, within not less than 15
         days. This shall not limit the grounds for the dismissal or discharge
         of any person in the Service of the Corporation (or any Parent or
         Subsidiary).

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

R.       Non-Statutory Option shall mean an option not intended to satisfy
         requirements of Code Section 422.

S.       Option Surrender Value shall mean the Fair Market Value per share of
         Common Stock on the date the option is surrendered to the Corporation
         or, in the event of a Hostile Take-Over, effected through a tender
         offer, or the highest reported price per share of Common Stock paid by
         the tender offeror in effecting such Hostile Take-Over, if greater.
         However, if the surrendered option is an Incentive Option, the Option
         Surrender Value shall not exceed the Fair Market Value per share.

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

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

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

W.       Permanent Disability or Permanently Disabled shall mean the inability
         of the Optionee or the Participant to engage in any substantial gainful
         activity by reason of any medically determinable physical or mental
         impairment expected to result in death or to be of continuous duration
         of twelve (12) months or more. However, solely for purposes of the
         Automatic Option Grant and Director Fee Option Grant Programs,
         Permanent Disability or Permanently Disabled shall mean the inability
         of the non-employee Board member to perform his or her usual duties as
         a Board

                                       28
<PAGE>

         member by reason of any medically determinable physical or mental
         impairment expected to result in death or to be of continuous duration
         of twelve (12) months or more.

X.       Plan shall mean the Corporation's 2001 Stock Incentive Plan, as set
         forth in this document.

Y.       Plan Administrator shall mean the particular entity, whether the
         Primary Committee, the Board or the Secondary Committee, which is
         authorized to administer the Discretionary Option Grant, Salary
         Investment Option Grant and Stock Issuance Programs with respect to one
         or more classes of eligible persons, to the extent such entity is
         carrying out its administrative functions under those programs with
         respect to the persons under its jurisdiction. However, the Primary
         Committee shall have the plenary authority to make all factual
         determinations and to construe and interpret any and all ambiguities
         under the Plan to the extent such authority is not otherwise expressly
         delegated to any other Plan Administrator.

Z.       Plan Effective Date shall mean December 14, 2001, the date on which
         Plan was adopted by the Board.

AA.      Primary Committee shall mean the committee of two (2) or more
         non-employee Board members appointed by the Board to administer the
         Discretionary Option Grant and Stock Issuance Programs with respect to
         Section 16 Insiders and to administer the Salary Investment Option
         Grant Program with respect to all eligible individuals.

AB.      Salary Investment Option Grant Program shall mean the salary investment
         grant program in effect under the Plan.

AC.      Secondary Committee shall mean a committee of one (1) or more Board
         members appointed by the Board to administer the Discretionary Option
         Grant and Stock Issuance Programs with respect to eligible persons
         other than Section 16 Insiders.

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

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

AF.      Stock Exchange shall mean either the American Stock Exchange or the New
         York Stock Exchange.

AG.      Stock Issuance Program shall mean the stock issuance program in effect
         under the Plan.

AH.      Subsidiary shall mean any corporation (other than the Corporation) in
         an unbroken chain of corporations beginning with the Corporation,
         provided each corporation (other than the last corporation) in the
         unbroken chain owns, at the time of the determination, stock possessing
         fifty percent (50%) or more of the

                                       29
<PAGE>

         total combined voting power of all classes of stock in one of the other
         corporations in such chain.

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

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

Adopted by the Board of Directors of American Natural Energy Corporation by
     consent dated December 14, 2001

Approved by Gothic Resources Inc., as the sole shareholder of American Natural
     Energy Corporation, by consent dated December 14, 2001

                                       30

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