Document:

THIRD AMENDMENT TO AMENDED AND RESTATED
                          CREDIT AND SECURITY AGREEMENT

     This Amendment, dated as of November 10, 1999, is made by and between ROYAL
GRIP,  INC., a Nevada  corporation  and ROYAL GRIP  HEADWEAR  COMPANY,  a Nevada
corporation, formerly known as ROXXI, INC. (collectively, jointly and severally,
the "Borrower"), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation,
formerly known as Norwest Business Credit, Inc. (the "Lender").

                                    Recitals

     The  Borrower  and the Lender have  entered  into an Amended  and  Restated
Credit and Security  Agreement  dated as of October 9, 1998,  as amended by that
certain  Amendment to Amended and Restated  Credit and  Security  Agreement  and
Waiver of  Defaults  dated March 16,  1999,  as amended by that  certain  Second
Amendment to Credit and Security  Agreement  and Waiver of Defaults  dated April
14, 1999 (collectively, the "Credit Agreement"). Capitalized terms used in these
recitals  have  the  meanings  given  to them  in the  Credit  Agreement  unless
otherwise specified.

     The Borrower has  requested  that certain  amendments be made to the Credit
Agreement,  which  the  Lender  is  willing  to make  pursuant  to the terms and
conditions set forth herein.

     NOW,  THEREFORE,  in  consideration  of the  premises  and  of  the  mutual
covenants and agreements herein contained, it is agreed as follows:

     1.  Defined  Terms.  Capitalized  terms  used in this  Amendment  which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein.

     2. Amendments. The Credit Agreement is hereby amended as follows:

          (a) The  definition  of "Base  Rate"  contained  in Section 1.1 of the
Credit  Agreement  is hereby  deleted  in its  entirety  and  replaced  with the
following definition of "Prime Rate":

     "Prime  Rate" means the rate of interest  publicly  announced  from time to
     time by Wells Fargo Bank,  N.A. as its "prime rate" or, if such bank ceases
     to announce a rate so designated,  any similar successor rate designated by
     the Lender.

          (b) Each and every  reference  to "Base Rate"  contained in the Credit
Agreement is hereby deleted and replaced with the term "Prime Rate".

          (c) The  definition of Borrowing  Base contained in Section 1.1 of the
Credit Agreement is hereby deleted in its entirety and replaced as follows:

     "Borrowing Base" means, at any time the lesser of:

          (a)  the Maximum Line; or

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<PAGE>
          (b)  subject  to  change  from  time  to  time  in the  Lender's  sole
               discretion, the sum of:

               (A)  the  lesser  of  (x)  80%  of  Eligible  Accounts,   or  (y)
                    $1,500,000.00, plus

               (B)  the lesser of (x) 60% of Eligible Royal Grip  Inventory,  or
                    (y) $1,000,000.00.

          (d) The  definition  of "Debt  Service  Coverage  Ratio"  contained in
Section 1.1 of the Credit Agreement is hereby deleted and replaced as follows:

     "Debt Service  Coverage  Ratio" means the ratio of (i) the sum of (A) Funds
     from  Operations  plus  (estimated  taxes less cash tax payments)  plus (B)
     Interest  Expense  minus (C)  unfinanced  portion of  Capital  Expenditures
     (exclusive  of not more  than  $750,000.00  of  Capital  Expenditures  (the
     "Wastewater  Capital   Expenditures")   incurred  by  FMM  related  to  the
     construction  of a  wastewater  treatment  facility) to (ii) the sum of (A)
     Current Maturities of Long Term Debt (actually paid during the period) plus
     (B)  Interest  Expense.  The  Borrower  acknowledges  that in the event the
     Wastewater Capital Expenditures are not refinanced in full on or before May
     30, 2000, the  Wastewater  Capital  Expenditures  shall be included in said
     ratio.

          (e) The year "2001"  contained in the  definition  of "Maturity  Date"
contained in Section 1.1 of the Credit  Agreement is hereby deleted and replaced
with the year "2002".

          (f) The definition of "Revolving  Floating Rate"  contained in Section
1.1 of the Credit Agreement is hereby deleted and replaced as follows:

     "Revolving  Floating  Rate"  means an annual  rate  equal to the sum of the
     Prime Rate plus one-quarter of one percent (0.25%), which annual rate shall
     change when and as the Prime Rate changes.

          (g) The  definition of "Roxxi"  contained in Section 1.1 of the Credit
Agreement is hereby deleted without replacement.

          (h) There is hereby added to Section 1.1 of the Credit Agreement a new
definition of "Royal Headwear" which provides as follows:

     "Royal Headwear" means Royal Grip Headwear  Company,  a Nevada  corporation
formerly known as Roxxi, Inc.

          (i) Each and  every  reference  to  "Roxxi"  contained  in the  Credit
Agreement is hereby deleted and replaced with "Royal Headwear".

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<PAGE>
          (j) The definition of "Term Floating Rate" contained in Section 1.1 of
the Credit Agreement is hereby deleted and replaced as follows:

     "Term  Floating  Rate"  means an annual  rate equal to the sum of the Prime
     Rate plus  three-quarters  of one percent (0.75%),  which annual rate shall
     change when and as the Prime Rate changes.

          (k) There is hereby added to Section 1.1 of the Credit Agreement a new
definition for "Wells Fargo Bank, N.A." which provides as follows:

     "Wells Fargo Bank, N.A." means Wells Fargo Bank, National Association.

          (l) The  introductory  sentence of Section 2.8 of the Credit Agreement
is hereby deleted and replaced as follows:

     INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST; PARTICIPATIONS; USURY.
     Interest  accruing  on the Notes shall be due and payable in arrears on the
     first day of each month.

          (m) The dollar figure  "$6,500.00"  contained in Section 2.8(c) of the
Credit  Agreement  is  hereby  deleted  and  replaced  with  the  dollar  figure
"$4,000.00".

          (n) The figure  "$60.00"  contained  in  Section  2.9(d) of the Credit
Agreement is hereby deleted and replaced with the figure "$75.00".

          (o) Sections  2.13(a) and 2.13(b) of the Credit  Agreement  are hereby
deleted and replaced as follows:

     (a)  TERMINATION  AND  LINE  REDUCTION  FEES.  If the  Credit  Facility  is
     terminated for any reason as of a date other than the Maturity Date, or the
     Borrower  reduces the Maximum Line, the Borrower shall pay the Lender a fee
     in an amount equal to a percentage  of the Maximum Line (or the  reduction,
     as the case may be) as follows:  (i) three percent (3%) if the  termination
     or reduction  occurs on or before September 30, 2000; (ii) two percent (2%)
     if the termination or reduction  occurs after September 30, 2000, but on or
     before September 30, 2001; and (iii) one percent (1%) if the termination or
     reduction occurs after September 30, 2001.

     (b) PREPAYMENT  FEES. If the Term Note is prepaid as of any date other than
     the Maturity Date for any reason except in accordance with Section 2.7, the
     Borrower  shall pay to the Lender a fee in an amount  equal to a percentage
     of the amount  prepaid as follows:  (i) three  percent  (3%) if  prepayment
     occurs on or before September 30, 2000; (ii) two percent (2%) if prepayment
     occurs after  September 30, 2000 but on or before  September 30, 2001;  and
     (iii) one percent (1%) if prepayment occurs after September 30, 2001.

                                        3
<PAGE>
          (p)  Section  6.12 of the Credit  Agreement  is hereby  deleted in its
entirety and replaced as follows:

     DEBT SERVICE  COVERAGE  RATIO.  The Borrower  covenants that Royal Grip and
     Royal Headwear and the Covenant  Entities shall, as of the last day of each
     fiscal  quarter,  on and after  November 30, 1999,  maintain a consolidated
     average  minimum  debt  service  coverage  ratio (based upon the period set
     forth below) as follows:

     Quarter Ending                         Debt Service Coverage Ratio
     --------------                         ---------------------------
     November 30, 1999                      .0001 based upon the immediately
                                            preceding six month period

     February 29, 2000                      .50 to 1 based upon the immediately
                                            preceding nine month period

     May 31, 2000 and each May 31           1.05 to 1 based upon the immediately
     thereafter                             preceding twelve month period

     August 31, 2000 and each August 31     1.05 to 1 based upon the immediately
     thereafter                             preceding twelve month period

     November 30, 2000 and each             1.05 to 1 based upon the immediately
     November 30 thereafter                 preceding twelve month period

     February 28, 2001 and each             1.05 to 1 based upon the immediately
     February 28 thereafter                 preceding twelve month period

          (q)  Section  6.15 of the Credit  Agreement  is hereby  deleted in its
entirety and replaced as follows:

     MONTHLY NET  INCOME/NET  LOSS.  The Borrower  covenants that beginning with
     June, 1999, and continuing for each month thereafter,  Royal Grip and Royal
     Headwear and the Covenant Entities shall achieve an aggregate  consolidated
     Net Income of not less than (or in the event a Net Loss is permitted, a Net
     Loss of not more  than)  the  amounts  set forth  below  for each  month as
     measured from the last day of the immediately preceding month.

     Month                                         Net Income/(Net Loss)
     -----                                         ---------------------
     June, 1999                                    $50,000.00

     July, 1999                                    $0.00

     August, 1999                                  ($400,000.00)

     September, 1999                               ($150,000.00)

     October, 1999                                 ($200,000.00)

     November, 1999                                ($200,000.00)

                                       4
<PAGE>
     December, 1999                                ($350,000.00)

     January, 2000                                 ($100,000.00)

     February, 2000                                $0.00

     March, 2000                                   $50,000.00

     April, 2000                                   $75,000.00

     May, 2000                                     $75,000.00

     June of each year thereafter                  $0.00

     July of each year thereafter                  $0.00

     August of each year thereafter                ($300,000.00)

     September of each year thereafter             ($150,000.00)

     October of each year thereafter               ($200,000.00)

     November of each year thereafter              ($100,000.00)

     December of each year thereafter              ($350,000.00)

     January of each year thereafter               ($50,000.00)

     February of each year thereafter              $0.00

     March of each year thereafter                 $0.00

     April of each year thereafter                 $0.00

     May of each year thereafter                   $0.00

          (r) Section  6.16 of the Credit  Agreement is hereby  deleted  without
replacement.

          (s) Section  7.4(a)(iv) of the Credit  Agreement is hereby  deleted in
its entirety and replaced as follows:

     (iv)  loans,  advances  or any  other  credits  at any time  disbursed  and
     outstanding  after the date of this Agreement shown on the balance sheet of
     Borrower   granted  to  the   Covenant   Entities  for  fair  and  adequate
     consideration  which will not increase from the date hereof by more than in
     the  aggregate  (i)   $1,500,000.00   through   September  30,  2000,  (ii)
     $2,250,000.00  after  September 30, 2000 through  September  30, 2001,  and
     (iii)  $3,000,000.00 after September 30, 2001 through the Termination Date.
     This   subsection   (iv)  shall  not  apply  to  the   payment  of  Expense
     Reimbursements, as hereafter defined, to Guarantor.

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<PAGE>
          (t)  Section  7.10 of the  Credit  Agreement  is  hereby  deleted  and
replaced as follows:

     CAPITAL EXPENDITURES.  During each fiscal year, Royal Grip, Royal Headwear,
     and the  Covenant  Entities  will not incur or  contract  to incur  Capital
     Expenditures  in the  aggregate  of more than  $2,000,000.00.  In addition,
     during each fiscal  year,  Royal Grip,  Royal  Headwear,  and the  Covenant
     Entities will not incur or contract to incur Capital Expenditures paid with
     working capital in the aggregate of more than  $1,250,000.00.  The Borrower
     acknowledges that in the event the Wastewater Capital  Expenditures are not
     refinanced  in full on or  before  May 30,  2000,  the  Wastewater  Capital
     Expenditures  shall be considered  Capital  Expenditures  paid with working
     capital by the Covenant Entities.

          (u) Section  7.22 of the Credit  Agreement is hereby  deleted  without
replacement.

          (v)  Section  7.19 of the Credit  Agreement  is hereby  deleted in its
entirety and replaced as follows:

     PAYMENTS  TO  AFFILIATES.  Neither  Royal  Grip nor Royal  Headwear  shall,
     without the express written consent of Lender, which consent may be granted
     or withheld in Lender's sole  discretion,  make any  transfer,  conveyance,
     loan  or  payment  of any  kind  ("Payment")  to  Royal  Grip  (from  Royal
     Headwear),  Royal Headwear (from Royal Grip),  to any Covenant Entity or to
     any other  Affiliate  which is not for fair and adequate  consideration  or
     which is in the aggregate in excess of  $1,500,000.00  for any fiscal year.
     Notwithstanding  the above, Royal Grip and Royal Headwear may make Payments
     to Guarantor on their behalf so long as such  Payments are a  reimbursement
     of expenses  which are related  solely to the costs  associated  with Royal
     Grip's and Royal  Headwear's  normal and  customary  day to day  operations
     ("Expense Reimbursements").

          (w)  Section  7.17 of the Credit  Agreement  is hereby  deleted in its
entirety and replaced as follows:

     SALARIES.  The Borrower  will not pay excessive or  unreasonable  salaries,
     bonuses,  commissions,  consultant fees or other compensation;  or increase
     the salary,  bonus,  commissions,  consultant fees or other compensation of
     any  director  in a  director  capacity,  officer  or any  member  of their
     families,  by more than 20% in any one year, either individually or for all
     such persons in the  aggregate,  or pay any such  increase  from any source
     other  than  profits  earned in the year of  payment.  Notwithstanding  the
     above,  so long as there is not a then existing Event of Default or Default
     Period,  Borrower may make payments to Borrower's  executives in accordance
     with the terms of that certain  Executive  Bonus Plan dated  September  14,
     1999. The Executive  Bonus Plan will not be amended  without the consent of
     the Lender.

                                       6
<PAGE>
     3. SATISFACTION OF CONDITIONS. Upon the terms and subject to the conditions
set forth in this Amendment,  the Lender hereby acknowledges that the conditions
contained in the Lender's October 14, 1999 letter have been satisfied.

     4. NO OTHER CHANGES. Except as explicitly amended by this Amendment, all of
the terms and conditions of the Credit  Agreement shall remain in full force and
effect and shall apply to any advance or letter of credit thereunder.

     5.  CONDITIONS  PRECEDENT.  This  Amendment,  and the  waiver  set forth in
Paragraph 4 hereof,  shall be effective  when the Lender shall have  received an
executed original hereof, together with each of the following, each in substance
and form acceptable to the Lender in its sole discretion:

          (a) The Acknowledgment and Agreement of Guarantor set forth at the end
of this Amendment, duly executed by the Guarantor.

          (b) A Certificate  of the  Secretary of the Borrower  certifying as to
(i) the  resolutions  of the board of directors of the  Borrower  approving  the
execution  and  delivery of this  Amendment,  (ii) the fact that the articles of
incorporation and bylaws of the Borrower,  which were certified and delivered to
the Lender pursuant to the Certificate of Authority of the Borrower's  secretary
or  assistant  secretary  dated as of  October  9, 1998 in  connection  with the
execution and delivery of the Credit Agreement continue in full force and effect
and have not been  amended  or  otherwise  modified  except  as set forth in the
Certificate to be delivered,  and (iii)  certifying that the officers and agents
of the  Borrower  who  have  been  certified  to  the  Lender,  pursuant  to the
Certificate  of Authority  of the  Borrower's  secretary or assistant  secretary
dated as of October 9, 1998, as being authorized to sign and to act on behalf of
the Borrower continue to be so authorized or setting forth the sample signatures
of each of the  officers and agents of the  Borrower  authorized  to execute and
deliver this Amendment and all other  documents,  agreements and certificates on
behalf of the Borrower.

          (c) An opinion of the  Borrower's  counsel as to the matters set forth
in  paragraphs  6(a) and 6(b) hereof and as to such other  matters as the Lender
shall require.

     6.  REPRESENTATIONS  AND  WARRANTIES.  The Borrower  hereby  represents and
warrants to the Lender as follows:

          (a) The Borrower has all  requisite  corporate  power and authority to
execute this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly  executed and delivered by the Borrower and  constitutes
the  legal,  valid  and  binding  obligation  of the  Borrower,  enforceable  in
accordance with its terms.

          (b) The  execution,  delivery and  performance by the Borrower of this
Amendment has been duly  authorized by all necessary  corporate  action and does
not (i) require  any  authorization,  consent or  approval  by any  governmental
department,  commission,  board, bureau, agency or instrumentality,  domestic or
foreign,  (ii) violate any  provision of any law,  rule or  regulation or of any
order, writ,  injunction or decree presently in effect,  having applicability to
the Borrower,  or the articles of incorporation  or by-laws of the Borrower,  or

                                       7
<PAGE>
(iii) result in a breach of or  constitute a default under any indenture or loan
or credit  agreement or any other  agreement,  lease or  instrument to which the
Borrower is a party or by which it or its properties may be bound or affected.

          (c) All of the representations  and warranties  contained in Article V
of the Credit  Agreement are correct on and as of the date hereof as though made
on and as of such  date,  except to the  extent  that such  representations  and
warranties relate solely to an earlier date.

     7. WAIVER OF INTEREST.  That portion of accrued but unpaid  interest (which
accrued commencing on January 1, 1999 through the date hereof at a rate of 1% of
the  Revolving  Advances and 1% of the Term  Advances)  which was,  prior to the
effectiveness of this Amendment, due and payable by Borrower upon the prepayment
in whole of the Obligations is hereby forgiven by Lender.

     8.  REFERENCES.  All references in the Credit Agreement to "this Agreement"
shall be deemed to refer to the Credit Agreement as amended hereby;  and any and
all references in the Security Documents to the Credit Agreement shall be deemed
to refer to the Credit Agreement as amended hereby.

     9. NO WAIVER.  Except as set forth above with  respect to Lender's  October
14, 1999 letter, the execution of this Amendment and acceptance of any documents
related  hereto  shall not be deemed to be a waiver of any  Default  or Event of
Default or Default Period under the Credit Agreement or breach, default or event
of default  under any Security  Document or other  document  held by the Lender,
whether or not known to the Lender and  whether or not  existing  on the date of
this Amendment.

     10. RELEASE. The Borrower,  and Guarantor by signing the Acknowledgment and
Agreement  of   Guarantor   set  forth  below,   each  hereby   absolutely   and
unconditionally  releases  and forever  discharges  the Lender,  and any and all
participants,   parent   corporations,   subsidiary   corporations,   affiliated
corporations,  insurers,  indemnitors,  successors and assigns thereof, together
with all of the present and former directors,  officers, agents and employees of
any of the  foregoing,  from any and all claims,  demands or causes of action of
any  kind,  nature  or  description,  whether  arising  in law or equity or upon
contract  or tort or under  any state or  federal  law or  otherwise,  which the
Borrower or  Guarantor  has had,  now has or has made claim to have  against any
such  person  for or by  reason  of any act,  omission,  matter,  cause or thing
whatsoever  arising from the beginning of time to and including the date of this
Amendment,  whether  such  claims,  demands  and causes of action are matured or
unmatured or known or unknown.

     11. COSTS AND EXPENSES.  The Borrower hereby  reaffirms its agreement under
the Credit  Agreement to pay or reimburse the Lender on demand for all costs and
expenses  incurred by the Lender in connection  with the Credit  Agreement,  the
Security  Documents  and all other  documents  contemplated  thereby,  including
without  limitation  all  reasonable  fees and  disbursements  of legal counsel.
Without  limiting the  generality of the  foregoing,  the Borrower  specifically
agrees  to pay all fees and  disbursements  of  counsel  to the  Lender  for the
services  performed by such counsel in connection  with the  preparation of this
Amendment and the  documents and  instruments  incidental  hereto.  The Borrower
hereby  agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement,  or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.

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<PAGE>
     12.  Miscellaneous.  This Amendment and the Acknowledgment and Agreement of
Guarantor may be executed in any number of  counterparts,  each of which when so
executed  and   delivered   shall  be  deemed  an  original  and  all  of  which
counterparts, taken together, shall constitute one and the same instrument.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
duly executed as of the date first written above.

                                        WELLS FARGO BUSINESS CREDIT, INC.

                                        By /s/ Clifton Moschnik
                                           -------------------------------------
                                           Its Business Banking Officer

                                        ROYAL GRIP, INC., a Nevada corporation

                                        By /s/ Thomas A. Schneider
                                           -------------------------------------
                                           Its President

                                        ROYAL GRIP HEADWEAR COMPANY,
                                        a Nevada corporation

                                        By /s/ Thomas A. Schneider
                                           -------------------------------------
                                           Its President

                                       9
<PAGE>
                    ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR

     The  undersigned,  a guarantor of the  indebtedness of Royal Grip, Inc. and
Royal  Grip  Headwear  Company,  formerly  known as Roxxi,  Inc.,  each a Nevada
corporation  (collectively,  jointly and severally,  the  "Borrowers")  to Wells
Fargo Business Credit,  Inc.,  formerly known as Norwest  Business Credit,  Inc.
(the  "Lender")  pursuant  to a  Guaranty  dated  as of  October  9,  1998  (the
"Guaranty"),  hereby (i) acknowledges receipt of the foregoing  Amendment;  (ii)
consents to the terms  (including  without  limitation  the release set forth in
paragraph 10 of the  Amendment)  and  execution  thereof;  (iii)  reaffirms  its
obligations  to the  Lender  pursuant  to the  terms of its  Guaranty;  and (iv)
acknowledges  that the Lender may amend,  restate,  extend,  renew or  otherwise
modify the Credit  Agreement and any  indebtedness or agreement of the Borrower,
or enter into any agreement or extend additional or other credit accommodations,
without  notifying  or  obtaining  the  consent of the  undersigned  and without
impairing  the  liability of the  undersigned  under the Guaranty for all of the
Borrowers' present and future indebtedness to the Lender.

                                        ROYAL PRECISION, INC.,
                                        a Delaware corporation

                                        By /s/ Thomas A. Schneider
                                           -------------------------------------
                                           Its President

                                       10<PAGE>   1
                                                                    EXHIBIT 10.1

                                  VERSATA, INC.
                            2000 STOCK INCENTIVE PLAN

                                  ARTICLE ONE

                               GENERAL PROVISIONS

        I. PURPOSE OF THE PLAN

        This 2000 Stock Incentive Plan is intended to promote the interests of
Versata, Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service 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 such service.

        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 incentive
programs:

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

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

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

           - the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and

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

<PAGE>   2

        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 Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. 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. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.

         B. 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.

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

         D. 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.

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

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

                                       2.
<PAGE>   3

        IV. ELIGIBILITY

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

                  (i) Employees,

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

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

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

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

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

        E. Only non-employee Board members shall be eligible to participate in
Automatic Option Grant and the 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 number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed [______]
shares. Such reserve shall consist of the number of shares estimated to remain
available for issuance, as of the Plan Effective Date, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to outstanding options under that Predecessor Plan.

        B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of the second fiscal
quarter of each calendar year, beginning with the year 2000, by an amount equal
to three percent (3%) of the

                                       3.
<PAGE>   4

total number of shares of Common Stock outstanding on the last trading day of
the immediately preceding fiscal quarter, but in no event shall any such annual
increase exceed 3,000,000 shares.

        C. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.

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

        E. 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 by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan and under each installment of option shares scheduled to
vest or become exercisable subsequently pursuant to such option, (v) the number
and/or class of securities and exercise price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan and
under each installment of option shares scheduled to vest or become exercisable
subsequently pursuant to such option and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year pursuant to the provisions of Section V.B of this Article One. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

                                       4.
<PAGE>   5

                                  ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM

        I. OPTION TERMS

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

        A. EXERCISE PRICE.

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

           2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Seven
and the documents evidencing the option, be payable in one or more of the forms
specified below:

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

                  (ii) 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

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

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

        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.

                                       5.
<PAGE>   6

        C. EFFECT OF TERMINATION OF SERVICE.

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

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

                  (ii) Any option held by the Optionee at the time of death and
         exercisable in whole or in part at that time may be subsequently
         exercised by the personal representative of the Optionee's estate or by
         the person or persons to whom the option is transferred pursuant to the
         Optionee's will or the laws of inheritance or by the Optionee's
         designated beneficiary or beneficiaries of that option.

                  (iii) Should the Optionee's Service be terminated for
         Misconduct or should the Optionee otherwise engage in Misconduct while
         holding one or more outstanding options under this Article Two, then
         all those options shall terminate immediately and cease to be
         outstanding.

                  (iv) 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.

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

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

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

                                       6.
<PAGE>   7

        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 the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restrictions, provided, however, that a Non-Statutory Option may be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's family or to a trust established exclusively for one
or more such family members or to Optionee's former spouse, to the extent such
assignment is in connection with the Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. Notwithstanding the foregoing, the Optionee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding Incentive or Non-Statutory Options under this Article Two, and those
options shall, in accordance with such designation, automatically be transferred
to such beneficiary or beneficiaries upon the Optionee's death while holding
those options. Such beneficiary or beneficiaries shall take the transferred
options subject to all the terms and conditions of the applicable agreement
evidencing each such transferred option, including (without limitation) the
limited time period during which the option may be exercised following the
Optionee's death.

        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. 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

                                       7.
<PAGE>   8

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.

        C. 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. CORPORATE TRANSACTION/CHANGE IN CONTROL

        A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become exercisable for all
the 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.
However, an outstanding option shall NOT become exercisable on such an
accelerated basis if and to the extent: (i) such option is, in connection with
the Corporate Transaction, to be assumed by the successor corporation (or parent
thereof) or (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/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 automatically terminate, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent:
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.

        C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).

        D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction 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 number and class of securities subject to each installment of
option shares scheduled to vest or become exercisable under each outstanding
option after the consummation of the Corporate Transaction, (iii) the maximum
number and/or class of securities available for issuance over the remaining term
of the Plan, (iv) the maximum number and/or class of securities for which any
one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar year
and (v) the maximum number and/or class of

                                       8.
<PAGE>   9

securities by which the share reserve is to increase automatically each calendar
year. To the extent the actual holders of the Corporation's outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under this Plan, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

        E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.

        F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
and do not otherwise accelerate. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.

        G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.

                                       9.
<PAGE>   10

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

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

        IV. CANCELLATION AND REGRANT OF OPTIONS

        The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.

        V. STOCK APPRECIATION RIGHTS

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

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

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

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

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

                                      10.
<PAGE>   11

         on which the option is otherwise exercisable in accordance with the
         terms of the documents evidencing such option, but in no event may such
         rights be exercised more than ten (10) years after the option grant
         date.

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

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

                  (ii) Upon the occurrence of a Hostile Take-Over, each
         individual holding one or more options with such a limited stock
         appreciation right shall have the unconditional right (exercisable for
         a thirty (30)-day period following such Hostile Take-Over) to surrender
         each such option to the Corporation. In return for the surrendered
         option, the Optionee shall receive a cash distribution from the
         Corporation in an amount equal to the excess of (A) the Take-Over Price
         of the shares of Common Stock at the time subject to such option
         (whether or not the option is otherwise exercisable for vested shares
         of Common Stock) over (B) the aggregate exercise price payable for
         those shares. Such cash distribution shall be paid within five (5) days
         following the option surrender date.

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

                                      11.
<PAGE>   12

                                 ARTICLE THREE

                     SALARY INVESTMENT OPTION GRANT PROGRAM

        I. OPTION GRANTS

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

        II. OPTION TERMS

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

        A. EXERCISE PRICE.

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

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

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

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

           X is the number of option shares,

           A is the dollar amount of the reduction in the Optionee's base salary
     for the calendar year to be in effect pursuant to this program, and

                                      12.
<PAGE>   13

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

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

        D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease Service
for any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under this
Article Three, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Service (less any shares subsequently purchased by Optionee prior
to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or by the designated beneficiary or
beneficiaries of the option. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon the
Optionee's cessation of Service for any reason, terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.

        III. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER

        A. In the event of any Corporate Transaction while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the 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 outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the
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 the Optionee's cessation of Service.

        B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the 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. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service, (iii) the termination

                                      13.
<PAGE>   14

of the option in connection with a Corporate Transaction or (iv) the surrender
of the option in connection with a 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 outstanding
option granted him or her under the Salary Investment Option Grant Program. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
option is otherwise at the time exercisable for those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. The Primary Committee shall, at the time the option with such
limited stock appreciation right is granted under the Salary Investment Option
Grant Program, pre-approve any subsequent exercise of that right in accordance
with the terms of this Paragraph C. Accordingly, no further approval of the
Primary Committee or the Board shall be required at the time of the actual
option surrender and cash distribution.

        D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under this Plan, substitute one or more shares of its own common stock
with a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Corporate Transaction.

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

        IX. REMAINING TERMS

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

                                      14.
<PAGE>   15

                                  ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM

        I. STOCK ISSUANCE TERMS

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

        A. PURCHASE PRICE.

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

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

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

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

        B. VESTING PROVISIONS.

           1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. 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.

           2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or

                                      15.
<PAGE>   16

other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

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

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

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

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

        II. CORPORATE TRANSACTION/CHANGE IN CONTROL

        A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.

        B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that

                                      16.
<PAGE>   17

those rights shall automatically terminate in whole or in part, and the shares
of Common Stock subject to those terminated rights shall immediately vest, in
the event the Participant's Service should subsequently terminate by reason of
an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in which
those repurchase rights are assigned to the successor corporation (or parent
thereof).

        C. The Plan Administrator shall also have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.

        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.

                                      17.
<PAGE>   18

                                  ARTICLE FIVE

                         AUTOMATIC OPTION GRANT PROGRAM

        I. OPTION TERMS

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

           1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 36,000 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, beginning with
the 2001 Annual Stockholders Meeting, 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 at that particular Annual Meeting, shall
automatically be granted a Non-Statutory Option to purchase 12,000 shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six (6) months. There shall be no limit on the number of such
12,000-share option grants any one non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or who have otherwise received one or more stock option grants from the
Corporation prior to the Underwriting Date shall be eligible to receive one or
more such annual option grants over their period of continued Board service.

        B. EXERCISE PRICE.

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

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

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

        D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested 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. The shares subject to each initial
36,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of thirty-six (36) successive equal monthly installments upon
the Optionee's completion of each month of service as a Board member over the
thirty-six (36) month period measured from the option grant date. The shares
subject to each annual 12,000-share option

                                      18.
<PAGE>   19

grant shall vest in a series of twelve (12) equal monthly installments, upon the
Optionee's completion of each month of service as a Board member over the twelve
(12)-month period of Board service measured from the grant date.

        E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Five may be assigned in whole or in part during the Optionee's lifetime to one
or more members of the Optionee's family or to a trust established exclusively
for one or more such family members or to Optionee's former spouse, to the
extent such assignment is in connection with the Optionee's estate plan or
pursuant to domestic relations order. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the option
pursuant to the assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.

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

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

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

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

                  (iv) In no event shall the option remain exercisable after the
         expiration of the option term. Upon the expiration of the twelve
         (12)-month exercise period or (if earlier) upon the expiration of the
         option term, the option shall terminate and cease to be outstanding for
         any vested shares for which the

                                      19.
<PAGE>   20

         option has not been exercised. However, the option shall, immediately
         upon the Optionee's cessation of Board service for any reason other
         than death or Permanent Disability, terminate and cease to be
         outstanding to the extent the option is not otherwise at that time
         exercisable for vested shares.

        II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

        A. In the event of any Corporate Transaction, 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 shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all the
option shares as fully-vested shares of Common Stock and may be exercised for
any or all of those vested shares. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

        B. In connection with any Change in Control, 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 shall, immediately prior to
the effective date of the Change in Control, become exercisable for all the
option shares as fully-vested shares of Common Stock and may be exercised for
any or all of those vested shares. Each such option shall remain exercisable for
such fully-vested option shares until the expiration or sooner termination of
the option term or the surrender of the option in connection with a Hostile
Take-Over.

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

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

        E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with

                                      20.
<PAGE>   21

the assumption of the outstanding options under this Plan, substitute one or
more shares of its own common stock with a fair market value equivalent to the
cash consideration paid per share of Common Stock in such Corporate Transaction.

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

        III. REMAINING TERMS

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

                                      21.
<PAGE>   22

                                  ARTICLE SIX

                        DIRECTOR FEE OPTION GRANT PROGRAM

        I. OPTION GRANTS

        The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year 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 the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.

        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.

                                      22.
<PAGE>   23

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

        D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Six may be assigned in whole or in part during the Optionee's lifetime to one or
more members of the Optionee's family or to a trust established exclusively for
one or more such family members or to Optionee's former spouse, to the extent
such assignment is in connection with Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Six, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.

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

        F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. In the event of the
Optionee's death while holding such option, the option may be exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.

        Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the

                                      23.
<PAGE>   24

Optionee's cessation of Board service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of such option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Board service.

        III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

        A. In the event of any Corporate Transaction while the Optionee remains
a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the 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 outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the
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 the Optionee's cessation of Board service.

        B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the 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. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a 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 outstanding
option granted him or her under the Director Fee Option Grant Program. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to each surrendered option (whether or not the
option is otherwise at the time exercisable for those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.

        D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation

                                      24.
<PAGE>   25

of such Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction. Appropriate adjustments shall also be made to the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same. To
the extent the actual holders of the Corporation's outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under this Plan, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

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

        IV. REMAINING TERMS

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

                                      25.
<PAGE>   26

                                 ARTICLE SEVEN

                                  MISCELLANEOUS

        I. FINANCING

        The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. 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 (less the par value of
such 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.

        II. TAX WITHHOLDING

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

        B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject 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 Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

           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 Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

                                      26.
<PAGE>   27

        III. EFFECTIVE DATE AND TERM OF THE PLAN

        A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. 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 serve as the successor to the Predecessor Plan, and no
further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.

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

        D. The Plan shall terminate upon the earliest to occur of (i) November
15, 2009, (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 Corporate Transaction. Should the
Plan terminate on November 15, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.

        IV. AMENDMENT OF THE PLAN

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

        B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in

                                      27.
<PAGE>   28

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.

        V. USE OF PROCEEDS

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

        VI. REGULATORY APPROVALS

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

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

        VII. NO EMPLOYMENT/SERVICE RIGHTS

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

                                      28.
<PAGE>   29

                                    APPENDIX

        The following definitions shall be in effect under the Plan:

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

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

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

                  (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, 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.

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

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

        F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

                  (i) a merger or consolidation in which securities possessing
         more than fifty percent (50%) of the total combined voting power of the
         Corporation's outstanding securities are transferred to a person or
         persons different from the persons holding those securities immediately
         prior to such transaction, or

                  (ii) the sale, transfer or other disposition of all or
         substantially all of the Corporation's assets in complete liquidation
         or dissolution of the Corporation.

<PAGE>   30

        G. CORPORATION shall mean Versata, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
Versata, Inc. which shall by appropriate action adopt the Plan.

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

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

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

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

                  (iii) For purposes of any option grants made on the
         Underwriting Date, the Fair Market Value shall be deemed to be equal to
         the price per share at which the Common Stock is to be sold in the
         initial public offering pursuant to the Underwriting Agreement.

        M. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.

                                      A-2.
<PAGE>   31

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

        P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

        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 the
requirements of Code Section 422.

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

        T. 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.

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

        V. 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

                                      A-3.
<PAGE>   32

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

        W. PLAN shall mean the Corporation's 2000 Stock Incentive Plan, as set
forth in this document.

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

        Y. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the Underwriting Date.

        Z. PREDECESSOR PLAN shall mean the Corporation's 1997 Stock Option Plan
in effect immediately prior to the Plan Effective Date hereunder.

        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 solely
with respect to the selection of the eligible individuals who may participate in
such program.

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

        CC. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

        DD. 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.

        EE. 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.

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

                                      A-4.
<PAGE>   33

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

        HH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under Article Four of the Plan.

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

        JJ. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.

        KK. 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).

        LL. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

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

        NN. WITHHOLDING TAXES shall mean the Federal, state and local income and
employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.

                                      A-5.

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