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Exhibit 10.37    
  

 
 

EMPLOYMENT, NONDISCLOSURE AND
  NON-COMPETITION AGREEMENT    
  

        THIS EMPLOYMENT, NONDISCLOSURE AND NON-COMPETITION AGREEMENT (this "Agreement") is made as of the 6th day of September, 2001, by and between Acupac
Packaging, Inc. (the "Company"), and Craig Berry, whose address is 2 Taylor Lane, Westport, Connecticut 06880 ("Employee"). 

RECITALS  

        WHEREAS, the Company is engaged in the business of providing contract manufacturing and packaging services for certain cosmetic, skin care, and pharmaceutical
products, and has need for an executive with experience in said business; 

        WHEREAS,
in connection with the transactions contemplated by that certain Asset Purchase Agreement, dated of even date herewith, by and among the Company, Dermal Sciences, Inc., a
Delaware corporation ("Dermal"), Employee, and Employee's spouse (the "Asset Purchase Agreement"), the Company has acquired substantially all of the assets of Dermal (the "Acquisition"); 

        WHEREAS,
following the Acquisition, the Company will operate the business and assets it acquires from Dermal as a separate division of the Company (the "Division"); 

        WHEREAS,
Employee is experienced in the business of providing manufacturing and packaging services for with respect to certain cosmetic and pharmaceutical patches, and other related
services, and has experience in the management of such business, and prior to the Acquisition served as President of Dermal; 

        WHEREAS,
the Company desires to employ Employee an executive capacity upon the terms and conditions set forth in this Agreement; and 

        WHEREAS,
Employee is willing to enter into this Agreement with respect to his employment with the Company upon the terms and conditions set forth herein; 

        NOW
THEREFORE, in consideration of the foregoing recitals and the promises contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound, the parties agree as follows: 

        Section 1.    TERM    

        1.1    Employment.    Subject to the provisions of Section 4.1 hereof, the Company hereby employs Employee, and
Employee hereby accepts employment with the Company for a period of five (5) years beginning on September 7, 2001 and terminating at the close of business on September 7, 2006
(the "Employment Term"). The Employment Term may be extended by a mutual agreement in writing for additional years on the same or mutually agreeable terms, but if no such mutual agreement is executed
prior to September 7, 2006 the Employment Term under this Agreement shall expire even though Employee may remain an employee. If the employment of Employee is terminated pursuant to
Article 4 of this Agreement or by reason of the death or Disability of Employee, the time during which Employee is actually employed during the Employment Term shall be referred to as the
"Employee's Employment." 

        Section 2.    DUTIES    

        2.1    General Duties.    Employee shall serve as the Executive Vice President and General Manager of the Division.
Employee shall, during Employee's Employment, report solely to Ken Beck, Vice President of the Company (or his successor, if applicable). During his employment with the Company, Employee shall be
solely responsible for operating and managing the Division, subject to (i) applicable federal, state and local laws, rules and regulations, (ii) the policies of the 

 

Company, and (iii) the direction of Ken Beck. In the course of performing his duties hereunder, Employee shall perform those acts and do those things customarily done by a divisional Executive
Vice President and General Manager for companies comparable to the Company, including certain duties of
an executive and/or managerial nature performed by Employee in his capacity as President of Dermal. In the course of performing his duties Employee shall have express authority to execute
manufacturing and/or supply contracts on behalf of the Division, but may not bind the Company in any other respect. The Company shall indemnify Employee for his service to the maximum extent permitted
by applicable law. 

        2.2    Devotion of Time to the Company's Business.    Employee agrees during Employee's Employment, to devote his best
efforts to his employment, and perform such duties consistent with his capacity as Executive Vice President and General Manager of the Division. Employee further agrees to (i) devote
substantially all his business time to fulfill the duties of his office to the business and affairs of the Company and the Division and (ii) faithfully observe his duties to preserve as
confidential all trade and other secrets of the Company and its Affiliates. Employee shall not, during Employee's Employment, unless otherwise agreed to in advance and in writing by the Company, seek
or accept other employment, become self-employed in any other capacity, or engage in any activities which are detrimental to the business of the Company and its subsidiaries.
Notwithstanding the foregoing, (i) Employee may engage in personal investment activities that do not interfere with Employee's duties under this Agreement, and (ii) no sooner than six
(6) months prior to the end of the Employment Term, subject to the covenants in Section 5.3, Employee may seek new employment to be effective after the expiration of the Employment Term. 

        2.3    Office Location.    During Employee's Employment, Employee shall perform his duties from the Company's main
offices as required, but shall not otherwise be required to relocate his base of operations to a location that is more than twenty (20) miles from his then-current residence. The
Company shall maintain an office for Employee at a location and on terms that are mutually agreeable to the parties. 

        Section 3.    COMPENSATION    

        3.1    Base Salary.    As compensation for his services hereunder, during the Employment Term, Employee shall receive
an annual base salary of One Hundred Fifty Thousand Dollars ($150,000)(together with any future adjustments, the "Base Salary"). Such Base Salary shall be payable in cash at the times and in the
installments consistent with the Company's payroll practices as in effect from time to time. The Company shall review Employee's Base Salary on at least an annual basis with a view to consider
increases considering, among other factors, Employee's performance and cost-of-living increases. 

        3.2    Bonus.    

        (a)  In
addition to the Base Salary described in Section 3.1, Employee shall be entitled to receive an annual bonus calculated as (i) Seven and
One-Half Percent (71/2%) of the first Five Hundred Thousand Dollars ($500,000), plus (ii) Five Percent (5%) of any amounts over $500,000, of the annual incremental
change the Division's Fill Fee for each year of the Employee's Employment, beginning with a projected year 2001 Fill Fee of $2,087,000. Any such bonus shall also be conditioned upon the Division
maintaining a ratio of Gross Profit to Fill Fee of not less than 40% throughout Employee's Employment. For the purposes of this Agreement, "annual incremental change" shall mean, with respect to each
year, the amount in excess of the prior year's Fill Fee. 

        (b)  For
the purposes of this Section 3.2, "Fill Fee" shall mean the Division's gross sales, less direct cost of raw materials and components (including packaging and
similar materials) applicable to such sales. "Gross Profit" shall mean the Fill Fee less the cost of direct labor 

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(including taxes and fringe benefits) and all manufacturing overhead applicable to such Fill Fee. Fill Fee and Gross Profit shall be determined using generally accepted accounting principles applied
in a manner consistent with the Company's audited financial statements. 

        (c)  The
amount of the bonus, if any, to which Employee is entitled shall be calculated and paid by the Company within ninety (90) days of the end of each year in the
Employment Term. If the Company determines that Employee is not entitled to a bonus for any year during the Employment Term, the Company shall send Employee written notice to that effect and shall
state the basis for concluding that no bonus is due. If Employee disagrees with the Company's determination, Employee shall have the right to review the bonus calculation and all supporting
documentation associated therewith, and to submit to the Company an alternate bonus calculation including supporting documentation, within fifteen days of receiving the Company's notice. If following
such alternative submission the parties are still unable to agree on whether a bonus is due, or on the amount of such bonus, the matter shall be presented to an independent accounting firm, jointly
selected by the respective accounting firms of Employee and the Company, and the decision of such independent firm shall be final and binding. The expenses of the independent firm shall be split
equally between the parties. 

        (d)  The
bonus payable in accordance with this Section 3.2 shall be in lieu of, and not in addition to, any other bonus plans of the Company in which Employee would
otherwise be entitled to participate, except for bonus and incentive plans of the Company which condition participation upon an investment in the Company's parent, Outsourcing Services
Group, Inc. Notwithstanding the foregoing, if the nature of Employee's employment with the Company should change in the future, Employee and Company may mutually agree to modify or replace the
bonus structure described in this Section 3.2. 

        3.3    Benefits.    During the Employment Term, Employee shall be entitled to insurance benefits substantially similar
to those now provided to executives similarly situated to Employee, under Company's employee health benefit plan as now in effect, and may continue such benefits after any termination of Employee's
Employment by paying the applicable premium to the extent allowed by applicable law. However, the Company may cease providing such benefits if any law or regulation prohibits making benefits available
except on an equal basis for all employees and if the benefits now provided to Employee are not so available. To be more specific: 

        (a)  Except
as provided otherwise in this Agreement, Company shall provide Employee medical, dental, life insurance, profit-sharing and other benefits, substantially similar
to those now provided to executives similarly situated to Employee, in accordance with the Company's benefit plans. 

        (b)  Employee
shall receive three (3) weeks of paid vacation per year or such greater amount of vacation as is provided under any Company policy then applicable to
Employee. 

        (c)  Company
shall continue in effect the terms of its current certificate of incorporation and bylaws with respect to indemnification of officers and directors. 

        (d)  Employee
shall receive an automobile allowance of $600 per month. Company shall also reimburse Employee for the costs of maintenance and fuel for one automobile as a
business expense. Employee shall pay the insurance premiums on such automobile and shall, on Company's request, furnish proof that liability insurance of at least $500,000 is in effect. 

        3.4    Severance.    

        (a)  If
Employee's employment terminates for any reason, the Company shall pay to Employee all amounts due for accrued but unused vacation, salary earned through the date of
termination, and the amount of any bonus earned in the year prior to such termination which 

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remains unpaid at the date of termination, in addition to any other amounts to which Employee is entitled pursuant to this Section 3.4. 

        (b)  If
Employee's employment is terminated by the Company without Cause, or by Employee for Good Reason, or terminates due to Employee's death or Disability, the Company
will continue to pay to Employee (or his representative or his estate, as applicable) Employee's then-current Base Salary for the remainder of the Term. For purposes of this Agreement, the
termination of Employee's employment shall be deemed to be by reason of a "Disability" if, as a result of Employee's incapacity due to reasonably documented physical or mental illness, Employee shall
have been unable for more than 120 days within any 6 month period to perform his duties with the Company on a full time basis. 

        (c)  If
Employee's employment is terminated (i) by the Company for Cause as described in Section 4.1, or (ii) by Employee for any reason other than Good
Reason, Employee shall receive no additional monies or benefits from the Company following such termination, except as set forth in subsection (a) above, and all obligations of the Company to
Employee shall cease at the time of such termination. 

        Section 4.    TERMINATION    

        4.1    Termination by the Company.    Any of the following acts or omissions shall constitute grounds for the Company
to terminate this Agreement on the basis of Cause: 

        (a)  Employee's
failure to perform his duties in a manner reasonably consistent with the criteria established by Ken Beck; provided that prior to any termination under this
Section 4.1(a), Employee shall be given written notice of the deficiencies and a reasonable opportunity to correct his conduct if the matters in question can be corrected; 

        (b)  Conduct
on the part of Employee which constitutes the breach of any statutory or common law duty of loyalty to the Company which has, in the view of the Company's Chief
Executive Officer or Board of Directors, a material adverse effect on the Company; 

        (c)  Any
illegal act by Employee (as evidenced by a conviction) which, in the view of the Company's Chief Executive Officer or Board of Directors, materially and adversely
affects the business of the Company; or 

        (d)  Intentional
wrongful engagement in any competitive activity prohibited by Section 5.1, 5.2 or 5.3 hereof or employment in another business in a manner not
permitted by Section 2.2. 

It
shall be presumed that Employee's participation in a business enterprise other than the Company and its Affiliates (except for service on boards of directors approved by the Company) constitutes
cause for termination under clause (d) of this section. Termination by the Company shall be accomplished by written notice to Employee and, if pursuant to paragraph (a) above, shall be
preceded by a written notice. 

        4.2    Resignation for Good Reason.    Employee may resign for "Good Reason" and thereby terminate Employee's
Employment (but not his other obligations hereunder) as a result of the following: 

        (a)  Without
Employee's prior written consent, a reduction in his then current salary; 

        (b)  The
taking of any action by the Company that would substantially diminish the aggregate value of the benefits provided to Employee under Employee's medical, health,
accident, disability, life insurance, thrift and retirement plans in which he was participating other than any such reduction which is
(i) required by law, (ii) implemented in connection with a general concessionary arrangement affecting all employees or affecting the group of 

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employees (senior management) of which Employee is a member or (iii) generally applicable to all beneficiaries of such plans; 

        (c)  An
involuntary relocation of Employee's place of employment to a place [more than twenty (20) miles from Employee's then-current
residence]; 

        (d)  Resignation
as a result of unlawful discrimination or other unlawful acts committed against employee, as evidenced by a settlement, arbitration award or final court
order; or 

        (e)  A
reduction in duties and responsibilities which results in Employee no longer having the customary duties of a general manager. 

        4.3    Damages for Breach of Contract.    In the event of a breach of this Agreement by either the Company or Employee
resulting in damages to the other party, that party may recover from the party breaching this Agreement any and all damages that may be sustained, excluding incidental, consequential and punitive
damages. 

        4.4    Arbitration.    With the exception of suits for specific enforcement of the provisions of Sections 5.1, 5.2 and
5.3, any controversy, dispute or claim arising out of, relating to, or concerning this Agreement, the breach of this Agreement, the employment of Employee, or the termination of Employee's employment
will be resolved pursuant to this Section 4.4. This includes all claims, whether arising in tort or contract, and whether arising under statute or common law. Any such controversy, dispute or
claim will be submitted to the Judicial Arbitration and Mediation Services Inc. ("JAMS") office in New York for final and binding arbitration by a single arbitrator in accordance with its
Employment Arbitration Rules then existing; provided that, if the rules of JAMS differ from those in this section, the provisions of this section will control. Any demand
for resolution of such a matter must be sent to JAMS and served on the other party within one year from the action giving rise to this dispute. No arbitrator will have any authority to extend, modify,
or suspend any of the terms of this Agreement. The arbitrator must make an award in writing and must accompany it with an opinion discussing the evidence and setting forth the reasons for the award.
The decision of the arbitrator within the scope of the submission will be final and binding on both parties, and any right to judicial action on any matter subject to resolution by arbitration
hereunder hereby is waived unless otherwise required by applicable law, except suit to enforce an award by the arbitrator or in the event resolution by an arbitrator is not available for any reason.
This Section 4.4 will be specifically enforceable. Judgment upon any award rendered by JAMS and/or any other arbitrator may be entered in any court having jurisdiction. 

        4.5    Attorneys' Fees and Costs.    If any action in law or in equity is necessary to enforce or interpret the terms
of this Agreement, the prevailing party (as specifically determined by the court or arbitrator hearing the matter) or parties shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be entitled, to the extent awarded or allocated by the court or arbitrator. 

        Section 5.    RESTRICTIVE COVENANTS    

        The
following restrictive covenants shall apply to this Agreement: 

        5.1    Confidentiality.    Employee acknowledges and agrees that the Company's and its Affiliates' formulae, sources
of supply, cost and financial data, customer arrangements, marketing plans and other non-public data have a unique nature and value, derived in part from their status as
non-public and proprietary information. Employee agrees, during the Employment Term and thereafter, to preserve and protect the confidential nature of said information, and not to disclose
to any third parties, or use for anyone's benefit except the benefit of the Company and its Affiliates, any non-public information about the Company, its Affiliates or their business. 

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        5.2    New Ideas, Works and Concepts.    

        (a)  Company
Property. Employee agree that all ideas, works and concepts created or developed alone by Employee or with others during the
Employment Term, or thereafter if Employee remains an employee of the Company or any of its Affiliates, and which relate in any way to the Company's business or products or the use thereof, shall be
the property of the Company. Such ideas, works and concepts shall include, without limitation, inventions, designs, prototypes, discoveries, procedures, writings, artwork and software. Employee shall
promptly disclose to the Company all such new ideas, works or concepts and hereby grant, assign and convey to the Company all right, title and interest in and to all rights of patent, copyright and
trademark in them. 

        (b)  Work-For-Hire
and Assignment. To the extent any inventions, technologies, reports, memoranda, studies, writings,
articles, plans, designs, specifications, exhibits, software code, or other materials prepared by Employee during the Employment Term, or thereafter if Employee remains an employee of the Company or
any of its Affiliates, relates in any way to the Company's business or products or the use thereof and includes material subject to copyright protection, such materials have been specially
commissioned by the Company and shall be deemed "work made for hire" as such term is defined under U.S. copyright law. To the extent any such materials do not qualify as "work made for hire" under
applicable law, and to the extent they include material subject to copyright, patent, trade secret, or other proprietary rights protection, Employee hereby irrevocably and exclusively assigns to the
Company, its successors, and assigns, all right, title, and interest in and to all such materials. To the extent any of Employee's rights in the same are not subject to assignment hereunder, Employee
hereby irrevocably and unconditionally waives all enforcement of such rights. Employee shall execute and deliver such instruments and take such other actions as may be required to carry out and
confirm the assignments contemplated by this paragraph and the remainder of this Agreement. All documents, magnetically or optically encoded media, and other tangible materials created as part of the
Employment Term, or thereafter if Employee remains an employee of the Company or any of its Affiliates, shall be owned by the Company, and the originals and any copies of such materials shall be
turned over to the Company upon the expiration or earlier termination of this Agreement. 

        5.3    Non-Competition.    

        (a)  For
a period of five (5) years after the date Employee is no longer employed by the Company or any of its Affiliates, the Employee will not, directly or
indirectly, own or control any business or enterprise competing with the Company or any Affiliate. "A business or enterprise competing with the Company or any Affiliate" means any business or
enterprise which does research with respect to, designs, develops, fills, packages, produces or manufactures any products or provides any services relating to coated health and beauty products,
including but not limited to treatment patches and treated non-woven products. For purposes of this Agreement, "Affiliate" means any corporation, company, partnership, joint venture and/or
firm which controls, is controlled by or is under common control with the Company. "Control" means (a) in the case of corporate entities, direct or indirect ownership of at least fifty percent
(50%) of the stock or participating shares entitled to vote for the election of directors; and (b) in the case of non-corporate entities (such as joint venture partnerships or
limited partnerships), either (x) direct or indirect ownership of at least fifty percent (50%) of the equity interest, or (y) the power to direct the management and policies of the
noncorporate entity. The restrictions in this Section 5.3(a) shall not apply to Employee's ownership of three percent (3%) or less of the outstanding voting securities of any corporation or
other entity which has its securities listed on a national securities exchange or on the Nasdaq Stock Market. 

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        (b)  For
a period of one (1) year after the date Employee is no longer employed by the Company or any of its Affiliates, Employee will not accept employment with, and
shall not participate in any managerial, supervisory or consultative capacity as an executive officer, senior manager or consultant of, any business or enterprise competing with the Company or any
Affiliate. 

        (c)  Employee
acknowledges that the Company is and has been conducting business on a global basis and that Employee's duties as Dermal's President and his status prior to the
Acquisition, have involved him in all aspects of the Division's business. Employee agrees and acknowledges the Company has a valid and legitimate business interest in protecting its business from any
activity prohibited by this Section 5.3. Employee further agrees and acknowledges that if the provisions of this Section 5.3 are triggered, he has received sufficient consideration from
the transactions contemplated by the Asset Purchase Agreement as well as the payments described in subsection (d), below, to enable him to earn a satisfactory living during the time the
non-competition clause is in effect. 

        (d)  As
additional consideration for the covenants contained in this Section 5.3, Employee, or his estate, if applicable, shall receive monthly
non-competition payments of Twenty Thousand Eight Hundred Eighty-Three and 33/100 Dollars ($20,833.33), beginning on the first of the month following the Closing (as defined in the Asset
Purchase Agreement), up to a total aggregate payment of Seven Hundred and Fifty Thousand Dollars ($750,000). Termination of Employee's employment for any reason will not affect the Company's
obligations to make such payments to Employee. 

        5.4    No Adverse Acts.    During the Employment Term and continuing for one (1) year after the date of the
expiration of Employee's Employment, Employee will not directly or indirectly, solicit, take away, or attempt to solicit or take away any customer or employee of the Company or any of its Affiliates
either on Employee's behalf or on behalf of any other person or entity which competes with the Company, or accept employment with one of the Company's direct competitors. If the Company terminates
this Agreement on a basis not stated in Section 4.1 or Section 4.3, or on a basis described in Section 4.1(a), Employee shall not be required to honor this Section 5.4
unless Company or one of its Affiliates continues to pay Employee's salary and benefits for the balance of the Term even if such payments would not otherwise be required. 

        Section 6.    MISCELLANEOUS    

        6.1    Notices.    Any notices to be given hereunder by either party to the other shall be in writing and may be
effected by personal delivery, by courier, or by mail (registered or certified), postage prepaid with return receipt requested, or by facsimile confirmed by mail. Mailed notices shall be addressed to
the parties at the addresses appearing in the introductory paragraph or such other address as is specified in a notice conforming to this Section 6.1. Mailed notices shall be deemed
communicated as of four (4) calendar days after mailing. Notices delivered personally or by courier shall be deemed delivered when actually received. 

        6.2    Entire Agreement.    This Agreement supersedes and replaces any and all other agreements, either oral or in
writing, between the parties hereto with respect to the employment of Employee by the Company and contains all of the covenants and agreements between the parties with respect to such employment in
any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party, which are not embodied
herein, and that no other prior agreement, statement or promise not contained in this Agreement shall be valid and binding. Any modification of this Agreement, statement or promise not contained in
this Agreement shall not be valid or binding unless it is in writing and signed by the parties hereto. 

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        6.3    Partial Invalidity.    If any provision in this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way. 

        6.4    Law Governing Agreement.    This Agreement shall be governed by and construed in accordance with the law of the
State of New York. 

        6.5    Currency.    All amounts described in this Agreement are in United States Dollars. 

        6.6    Successors and Assigns.    The rights and obligations of the Company and Employee under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of the Company. 

        6.7    No Conflict.    The Company hereby represents and warrants to Employee that this Agreement and the Company's
obligations hereunder do not violate or conflict with the terms, conditions or covenants of any material contract of the Company. 

        6.8    Waiver.    Either party's failure to enforce any provision or provisions of this Agreement shall not in any way
be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by the waiving party. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert
all other legal remedies available to it under the circumstances. 

        6.9    Counterparts.    This Agreement may be executed in counterparts, all of which, when taken together, shall
constitute one document. The parties agree that for this purpose facsimile signatures will be accepted as originals. 

[SIGNATURE
PAGE FOLLOWS] 

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        IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the day and year first above written. 

	 	 	"Employee"
	

 	
 	

/s/ Craig Berry
 Craig Berry
	

 	
 	

"Company"
	

 	
 	

ACUPAC PACKAGING, INC.
	

 	
 	

By:	

/s/  PERRY MORGAN      
 Name: Perry Morgan

Title: Chief Financial Officer

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QuickLinks

Exhibit 10.37

EMPLOYMENT, NONDISCLOSURE AND NON-COMPETITION AGREEMENT<PAGE>

                                                                    EXHIBIT 10.5

                              CAMBRIDGE HEART, INC.

                            2001 STOCK INCENTIVE PLAN

1.       PURPOSE

         The purpose of this 2001 Stock Incentive Plan (the "Plan") of Cambridge
Heart, Inc., a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders. Except where
the context otherwise requires, the term "Company" shall include any of the
Company's present or future parent or subsidiary corporations as defined in
Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code") and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a significant interest, as determined by the Board of
Directors of the Company (the "Board").

2.       ELIGIBILITY

         All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options or restricted stock awards (each, an "Award")
under the Plan. Each person who has been granted an Award under the Plan shall
be deemed a "Participant".

3.       ADMINISTRATION AND DELEGATION

         (a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.

         (b) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board"

<PAGE>

shall mean the Board or a Committee of the Board to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee.

4.       STOCK AVAILABLE FOR AWARDS

         (a) NUMBER OF SHARES. Subject to adjustment under Section 7, Awards may
be made under the Plan for up to 1,700,000 shares of common stock, $.001 par
value per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part (including as the result of shares of Common Stock
subject to such Award being repurchased by the Company at the original issuance
price pursuant to a contractual repurchase right) or results in any Common Stock
not being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject, however, in the case
of Incentive Stock Options (as hereinafter defined), to any limitations under
the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.

         (b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 7, the
maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be 900,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code ("Section 162(m)").

5.       STOCK OPTIONS

         (a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".

         (b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.

         (c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement,
provided, however, that the exercise price shall be not less than 100% of the
Fair Market Value (as hereinafter defined) of the Common Stock at the time the
Option is granted.

                                      -2-

<PAGE>

         (d) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement, provided, however, that no Option will be granted
for a term in excess of 10 years.

         (e) EXERCISE OF OPTION. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.

         (f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:

             (1) in cash or by check, payable to the order of the Company;

             (2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price and any required tax
withholding or (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price and
any required tax withholding;

             (3) to the extent permitted by the Board, in its sole discretion,
when the Common Stock is registered under the Securities Exchange Act of 1934
(the "Exchange Act"), by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by (or in a manner
approved by) the Board in good faith ("Fair Market Value"), provided (i) such
method of payment is then permitted under applicable law and (ii) such Common
Stock, if acquired directly from the Company was owned by the Participant at
least six months prior to such delivery;

             (4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or

             (5) by any combination of the above permitted forms of payment.

         (g) SUBSTITUTE OPTIONS. In connection with a merger or consolidation of
an entity with the Company or the acquisition by the Company of property or
stock of an entity, the Board may grant Options in substitution for any options
or other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in Section 2.

                                      -3-

<PAGE>

6.       RESTRICTED STOCK.

         (a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").

         (b) SHARE LIMIT. Subject to adjustment under Section 7, the maximum
aggregate number of shares of Common Stock with respect to which Restricted
Stock Awards may be granted under the Plan shall be 170,000.

         (c) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any.

         (d) STOCK CERTIFICATES. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.

7.       ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS

         (a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, and (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award shall be appropriately adjusted by the Company (or
substituted Awards may be made, if applicable) to the extent the Board shall
determine, in good faith, that such an adjustment (or substitution) is necessary
and appropriate. If this Section 7(a) applies and Section 7(c) also applies to
any event, Section 7(c) shall be applicable to such event, and this Section 7(a)
shall not be applicable.

         (b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon

                                      -4-

<PAGE>

such liquidation or dissolution, except to the extent exercised before such
effective date. The Board may specify the effect of a liquidation or dissolution
on any Restricted Stock Award or other Award granted under the Plan at the time
of the grant of such Award.

         (c) REORGANIZATION EVENTS

             (1) DEFINITION. A "Reorganization Event" shall mean: (a) any merger
or consolidation of the Company with or into another entity as a result of which
all of the Common Stock of the Company is converted into or exchanged for the
right to receive cash, securities or other property or (b) any exchange of all
of the Common Stock of the Company for cash, securities or other property
pursuant to a share exchange transaction.

             (2) CONSEQUENCES OF A REORGANIZATION EVENT ON OPTIONS. Upon the
occurrence of a Reorganization Event, or the execution by the Company of any
agreement with respect to a Reorganization Event, the Board shall provide that
all outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Reorganization Event, the Option confers the right
to purchase, for each share of Common Stock subject to the Option immediately
prior to the consummation of the Reorganization Event, the consideration
(whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock
held immediately prior to the consummation of the Reorganization Event (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if the consideration received as a result of the
Reorganization Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of outstanding
shares of Common Stock as a result of the Reorganization Event.

         Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Reorganization Event and will
terminate immediately prior to the consummation of such Reorganization Event,
except to the extent exercised by the Participants before the consummation of
such Reorganization Event; provided, however, that in the event of a
Reorganization Event under the terms of which holders of Common Stock will
receive upon consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Reorganization Event (the "Acquisition Price"),
then the Board may instead provide that all outstanding Options shall terminate
upon consummation of such Reorganization Event and that each Participant shall
receive, in exchange therefor, a cash payment equal to the amount (if any) by
which (A) the Acquisition Price

                                      -5-

<PAGE>

multiplied by the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the aggregate exercise
price of such Options.

             (3) CONSEQUENCES OF A REORGANIZATION EVENT ON RESTRICTED STOCK
AWARDS. Upon the occurrence of a Reorganization Event, the repurchase and other
rights of the Company under each outstanding Restricted Stock Award shall inure
to the benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Stock was converted into or
exchanged for pursuant to such Reorganization Event in the same manner and to
the same extent as they applied to the Common Stock subject to such Restricted
Stock Award.

8.       GENERAL PROVISIONS APPLICABLE TO AWARDS

         (a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

         (b) DOCUMENTATION. Each Award shall be evidenced in such form (written,
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.

         (c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.

         (d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.

         (e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value; provided, however, that the
total tax withholding where stock is being used to satisfy such tax obligations
cannot exceed the Company's minimum statutory withholding obligations (based on
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such supplemental taxable
income). The Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to a Participant.

                                      -6-

<PAGE>

         (f) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

         (g) ACCELERATION. The Board may at any time provide that any Award
shall become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.

9.       MISCELLANEOUS

         (a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.

         (b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.

         (c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders to the extent
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.

                                      -7-

<PAGE>

         (d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).

         (e) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.

Approved by Board of Directors February 9, 2001
Approved by Shareholders May 31, 2001

                                      -8-

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