Document:

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                                                                   Exhibit 10.29

                                CHANGE OF CONTROL
                              EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of the August 23, 2001 (this "Agreement"), by and
between Investors Financial Services Corp., a Delaware corporation (the
"Company"), and John N. Spinney, Jr. (the "Executive").

     WHEREAS, the Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined herein). The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the current Company and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
that ensure that the compensation and benefits expectations of the Executive
will be satisfied and that are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.

     NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

     SECTION 1. CERTAIN DEFINITIONS. (a) "Effective Date" means the first date
during the Change of Control Period (as defined herein) on which a Change of
Control occurs. Notwithstanding anything in this Agreement to the contrary, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (1)
was at the request of a third party that has taken steps reasonably calculated
to effect a Change of Control or (2) otherwise arose in connection with or
anticipation of a Change of Control, then "Effective Date" means the date
immediately prior to the date of such termination of employment.

     (b) "Change of Control Period" means the period commencing on the date
hereof and ending on the third anniversary of the date hereof; PROVIDED,
HOWEVER, that, commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof, the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless, at least 60 days prior to the Renewal Date, the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.

     (c) "affiliated company" means any company controlled by, controlling or
under common control with the Company.

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     (d) "Change of Control" means:

     (1) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
PROVIDED, HOWEVER, that, for purposes of this Section 1(d), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any affiliated company or (iv) any acquisition by
any corporation pursuant to a transaction that complies with Sections
1(d)(3)(A), 1(d)(3)(B) and 1(d)(3)(C).

     (2) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; PROVIDED, HOWEVER, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.

     (3) Consummation of a reorganization, merger, consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities that
were the beneficial owners of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that, as a result of
such transaction, owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then-outstanding voting securities of such corporation, except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the

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board of directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business Combination;
or

     (4) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.

     SECTION 2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
the Effective Date (the "Employment Period").

     SECTION 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (1) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the office where the Executive was employed immediately
preceding the Effective Date or at any other location less than 15 miles from
such office.

     (2) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that, to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.

     (b) COMPENSATION. (1) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary (the "Annual Base Salary"), which
Annual Base Salary shall be paid in equal monthly installments at an annual rate
at least equal to 12 times the highest monthly base salary paid or payable,
including any base salary that has been earned but deferred, to the Executive by
the Company and the affiliated companies in respect of the 12-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually,
beginning no more than 12 months after the last salary increase awarded to the
Executive prior to the

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Effective Date. Any increase in the Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement. The Annual
Base Salary shall not be reduced after any such increase and the term "Annual
Base Salary" shall refer to the Annual Base Salary as so increased.

     (2) ANNUAL BONUS. In addition to the Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's annual Executive Compensation Plan, or any
comparable bonus under any predecessor or successor plan, for the last three
full fiscal years prior to the Effective Date (annualized, in the event that the
Executive was not employed by the Company for the whole of such fiscal year)
(the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.

     (3) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies, and programs applicable generally to
other peer executives of the Company and the affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and the affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and the affiliated companies.

     (4) WELFARE BENEFIT PLANS. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and the affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and the affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
that are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and the affiliated
companies.

     (5) EXPENSES. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and

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the affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and the affiliated companies.

     (6) FRINGE BENEFITS. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and the
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and the affiliated companies.

     (7) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other assistance,
at least equal to the most favorable of the foregoing provided to the Executive
by the Company and the affiliated companies at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Company and the affiliated companies.

     (8) VACATION. During the Employment Period, the Executive shall be entitled
to paid vacation in accordance with the most favorable plans, policies, programs
and practices of the Company and the affiliated companies as in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and the
affiliated companies.

     SECTION 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically if the Executive dies
during the Employment Period. If the Company determines in good faith that the
Disability (as defined herein) of the Executive has occurred during the
Employment Period (pursuant to the definition of "Disability"), it may give to
the Executive written notice in accordance with Section 11(b) of its intention
to terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
PROVIDED that, within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of the Executive's duties. "Disability"
means the absence of the Executive from the Executive's duties with the Company
on a full-time basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness that is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.

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     (b) CAUSE. The Company may terminate the Executive's employment during the
Employment Period for Cause. "Cause" means:

     (1) the willful and continued failure of the Executive to perform
   substantially the Executive's duties with the Company or any affiliated
   company (other than any such failure resulting from incapacity due to
   physical or mental illness), after a written demand for substantial
   performance is delivered to the Executive by the Board or the Chief
   Executive Officer of the Company that specifically identifies the manner
   in which the Board or the Chief Executive Officer of the Company believes
   that the Executive has not substantially performed the Executive's duties,
   or

     (2) the willful engaging by the Executive in illegal conduct or gross
   misconduct that is materially and demonstrably injurious to the Company.

For purposes of this Section 4(b), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer of
the Company or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel for
the Executive, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
Section 4(b)(1) or 4(b)(2), and specifying the particulars thereof in detail.

     (c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. "Good Reason" means:

     (1) the assignment to the Executive of any duties inconsistent in any
   respect with the Executive's position (including status, offices, titles
   and reporting requirements), authority, duties or responsibilities as
   contemplated by Section 3(a), or any other action by the Company that
   results in a diminution in such position, authority, duties or
   responsibilities, excluding for this purpose an isolated, insubstantial
   and inadvertent action not taken in bad faith and that is remedied by the
   Company promptly after receipt of notice thereof given by the Executive;

     (2) any failure by the Company to comply with any of the provisions of
   Section 3(b), other than an isolated, insubstantial and inadvertent
   failure not occurring in bad faith and that is remedied by the Company
   promptly after receipt of notice thereof given by the Executive;

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     (3) the Company's requiring the Executive to be based at any office or
   location other than as provided in Section 3(a)(1)(B) or the Company's
   requiring the Executive to travel on Company business to a substantially
   greater extent than required immediately prior to the Effective Date;

     (4) any purported termination by the Company of the Executive's
   employment otherwise than as expressly permitted by this Agreement; or

     (5) any failure by the Company to comply with and satisfy Section 10(c).

     For purposes of this Section 4(c), any good faith determination of Good
Reason made by the Executive shall be conclusive. Anything in this Agreement to
the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.

     (d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 11(b). "Notice of
Termination" means a written notice that (1) indicates the specific termination
provision in this Agreement relied upon, (2) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (3) if the Date of Termination (as defined herein) is other than
the date of receipt of such notice, specifies the Date of Termination (which
Date of Termination shall be not more than 30 days after the giving of such
notice). The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance that contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's respective rights hereunder.

     (e) DATE OF TERMINATION. "Date of Termination" means (1) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified in the Notice of Termination, as the case may be, (2) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination, and (3) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.

     SECTION 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON;
OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the
Company terminates the Executive's employment other than for Cause or Disability
or the Executive terminates employment for Good Reason:

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     (1) the Company shall pay to the Executive, in a lump sum in cash within
   30 days after the Date of Termination, the aggregate of the following
   amounts:

         (A) the sum of (i) the Executive's Annual Base Salary through the Date
     of Termination to the extent not theretofore paid, (ii) the product of (x)
     the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
     payable, including any bonus or portion thereof that has been earned but
     deferred (and annualized for any fiscal year consisting of less than 12
     full months or during which the Executive was employed for less than 12
     full months), for the most recently completed fiscal year during the
     Employment Period, if any (such higher amount, the "Highest Annual Bonus")
     and (y) a fraction, the numerator of which is the number of days in the
     current fiscal year through the Date of Termination and the denominator of
     which is 365, and (iii) any compensation previously deferred by the
     Executive (together with any accrued interest or earnings thereon) and any
     accrued vacation pay, in each case, to the extent not theretofore paid (the
     sum of the amounts described in subclauses (i), (ii) and (iii), the
     "Accrued Obligations"); and

         (B) the amount equal to the product of (i) three and (ii) the sum of
     (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus;
     and

         (C) an amount equal to the excess of (i) the actuarial equivalent of
     the benefit under the Company's qualified defined benefit retirement plan
     (the "Retirement Plan") (utilizing actuarial assumptions no less favorable
     to the Executive than those in effect under the Retirement Plan immediately
     prior to the Effective Date) and any excess or supplemental retirement plan
     in which the Executive participates (collectively, the "SERP") that the
     Executive would receive if the Executive's employment continued for three
     years after the Date of Termination, assuming for this purpose that all
     accrued benefits are fully vested and assuming that the Executive's
     compensation in each of the three years is that required by Sections
     3(b)(1) and 3(b)(2), over (ii) the actuarial equivalent of the Executive's
     actual benefit (paid or payable), if any, under the Retirement Plan and the
     SERP as of the Date of Termination;

     (2) for three years after the Executive's Date of Termination, or such
   longer period as may be provided by the terms of the appropriate plan,
   program, practice or policy, the Company shall continue benefits to the
   Executive and/or the Executive's family at least equal to those that would
   have been provided to them in accordance with the plans, programs,
   practices and policies described in Section 3(b)(4) if the Executive's
   employment had not been terminated or, if more favorable to the Executive,
   as in effect generally at any time thereafter with respect to other peer
   executives of the Company and the affiliated companies and their families,
   PROVIDED, HOWEVER, that, if the Executive becomes reemployed with another
   employer and is eligible to receive medical or other welfare benefits
   under another employer provided plan, the medical and other welfare
   benefits described herein shall be secondary to

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   those provided under such other plan during such applicable period of
   eligibility. For purposes of determining eligibility (but not the time of
   commencement of benefits) of the Executive for retiree benefits pursuant
   to such plans, practices, programs and policies, the Executive shall be
   considered to have remained employed until three years after the Date of
   Termination and to have retired on the last day of such period;

     (3) the Company shall, at its sole expense as incurred, provide the
   Executive with outplacement services the scope and provider of which shall
   be selected by the Executive in the Executive's sole discretion; and

     (4) to the extent not theretofore paid or provided, the Company shall
   timely pay or provide to the Executive any other amounts or benefits
   required to be paid or provided or that the Executive is eligible to
   receive under any plan, program, policy or practice or contract or
   agreement of the Company and the affiliated companies (such other amounts
   and benefits, the "Other Benefits").

     (b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of the Other Benefits. The Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of the Other
Benefits, the term "Other Benefits" as utilized in this Section 5(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and the affiliated companies to the estates and
beneficiaries of peer executives of the Company and the affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and the affiliated
companies and their beneficiaries.

     (c) DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of the Other
Benefits. The Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of the Other Benefits, the term "Other Benefits" as utilized in this Section
5(c) shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and the affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the

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Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and the
affiliated companies and their families.

     (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment is
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (1) the Executive's Annual Base Salary through the Date
of Termination, (2) the amount of any compensation previously deferred by the
Executive, and (3) the Other Benefits, in each case, to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for the Accrued
Obligations and the timely payment or provision of the Other Benefits. In such
case, all the Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.

     SECTION 6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or the affiliated companies
and for which the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or the affiliated companies.
Amounts that are vested benefits or that the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or
agreement with the Company or the affiliated companies at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement, except as explicitly modified by
this Agreement.

     SECTION 7. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense, or other claim, right or action that the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses that the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus, in each case, interest on any delayed payment at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").

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     SECTION 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

     (a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company or the affiliated companies to or for the benefit of
the Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 8) (the "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code, or any interest
or penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, collectively, the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (the "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 8(a), if it shall be determined that the Executive is
entitled to the Gross-Up Payment, but that the Payments do not exceed 110% of
the greatest amount that could be paid to the Executive such that the receipt of
the Payments would not give rise to any Excise Tax (the "Reduced Amount"), then
no Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.

     (b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") that shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments that
will not have been made by the Company should have been made (the
"Underpayment"), consistent with the calculations required to be made hereunder.
In the event the Company exhausts its remedies pursuant to Section 8(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.

                                       11
<PAGE>

     (c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that the Company desires to contest such claim, the
Executive shall:

          (1) give the Company any information reasonably requested by the
     Company relating to such claim,

          (2) take such action in connection with contesting such claim as the
     Company shall reasonably request in writing from time to time, including,
     without limitation, accepting legal representation with respect to such
     claim by an attorney reasonably selected by the Company,

          (3) cooperate with the Company in good faith in order effectively to
     contest such claim, and

          (4) permit the Company to participate in any proceedings relating to
     such claim;

PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest, and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
applicable taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED, HOWEVER, that, if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and PROVIDED, FURTHER, that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the

                                       12
<PAGE>

Company's control of the contest shall be limited to issues with respect to
which the Gross-Up Payment would be payable hereunder, and the Executive shall
be entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.

     (d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

     SECTION 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or the affiliated
companies, and their respective businesses, which information, knowledge or data
shall have been obtained by the Executive during the Executive's employment by
the Company or the affiliated companies and which information, knowledge or data
shall not be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those persons designated
by the Company. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement. In addition, the
Executive shall continue to be bound by the Noncompetition, Nondisclosure and
Inventions Agreement between the Executive and Investors Bank & Trust Company
(the "Noncompetition Agreement"); PROVIDED, HOWEVER, that notwithstanding
anything to the contrary contained in the Noncompetition Agreement or in any
other agreement between the Executive and the Company or any of its affiliated
companies, the provisions of Section 1 of the Noncompeition Agreement shall be
inapplicable and of no further force and effect upon any termination of the
Executive's employment following a Change of Control.

     SECTION 10. SUCCESSORS. (a) This Agreement is personal to the Executive,
and, without the prior written consent of the Company, shall not be assignable
by the Executive other than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.

     (b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.

                                       13
<PAGE>

     (c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. "Company" means
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law or otherwise.

     SECTION 11. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified other than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.

     (b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:

                  if to the Executive:      At the most recent address on
                                            file at the Company.

                  if to the Company:        Investors Financial Services Corp.
                                            200 Clarendon Street
                                            Boston, MA  02116

                                            Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

     (c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.

     (d) The Company may withhold from any amounts payable under this Agreement
such United States federal, state or local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.

     (e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Sections 4(c)(1) through 4(c)(5), shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.

                                       14
<PAGE>

     (f) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
subject to Section 1(a), prior to the Effective Date, the Executive's employment
may be terminated by either the Executive or the Company at any time prior to
the Effective Date, in which case the Executive shall have no further rights
under this Agreement. From and after the Effective Date, this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof, other than Sections 2(D)(ii) through (iii) and Section 19 of the
Employment Agreement between the Executive, the Company and Investors Bank &
Trust Company, dated as of the date hereof.

                                       15
<PAGE>

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from the Board, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.

                                   -------------------------------------------
                                   John N. Spinney, Jr.

                                   INVESTORS FINANCIAL SERVICES CORP.

                                   -------------------------------------------
                                   Name:
                                   Title:

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Exhibit 10.7  

 
 

WESTAFF, INC.
  1996 STOCK OPTION/STOCK ISSUANCE PLAN
  (amended and restated as of March 26, 1998)
  (amended and restated as of May 17, 2000)
  (amended and restated as
of April 30, 2001)    

 
 

ARTICLE ONE    
    
    GENERAL    
  

I.    PURPOSE OF THE PLAN  

        A.    This
1996 Stock Option/Stock Issuance Plan (the "Plan") is intended to promote the interests of Westaff, Inc., a Delaware corporation (the "Corporation"), by
providing eligible individuals with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the
service of the Corporation (or its Parent or Subsidiary corporations). 

        B.    The
Plan became effective immediately upon the execution and final pricing of the Underwriting Agreement for the initial public offering of the Corporation's Common Stock
on April 30, 1996 (referred to herein as the Plan Effective Date). 

II.    DEFINITIONS  

        A.    For
purposes of the Plan, the following definitions shall be in effect: 

                BOARD:    the
Corporation's Board of Directors. 

                CHANGE
IN CONTROL:    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
which the Board does not recommend such stockholders to accept;

	(ii)
	or
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 such election or nomination was approved by the Board. 

                CODE:    the
Internal Revenue Code of 1986, as amended. 

                COMMON
STOCK:    shares of the Corporation's Common Stock, par value of $0.01 per share. 

1

 

                CORPORATE
TRANSACTION:    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. 

                COVERED
EMPLOYEE:    an Employee who is a "covered employee" under Section 162(m)(3) of the Code. 

                EMPLOYEE:    an
individual who performs services while in the employ of the Corporation or one or more Parent or Subsidiary corporations, subject to the control and direction
of the employer entity not only as to the work to be performed but also as to the manner and method of performance. 

                EXERCISE
DATE:    the date on which the Corporation shall have received written notice of the option exercise. 

                FAIR
MARKET VALUE:    the Fair Market Value per share of Common Stock determined in accordance with the following provisions: If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such
price is reported by the National Association of Securities Dealers, Inc. through the Nasdaq National Market. If there is no reported closing selling price for the Common Stock on the date in
question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of Fair Market Value. If the Common Stock is at the time listed or admitted
to trading on any national securities exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on the 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 reported sale of Common Stock on such exchange on
the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. For purposes of any option grants which
are made at the time the Underwriting Agreement for the initial public offering of the Common Stock is executed and priced
but prior to the time the Common Stock is first traded on either a national securities exchange or the Nasdaq National Market, the Fair Market Value per share of Common Stock 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. 

                HOSTILE
TAKE-OVER:    a change in ownership of the Corporation effected through the following transaction: 

	(i)
	the
direct or indirect acquisition 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, and

	(ii)
	the
acceptance of more than fifty percent (50%) of the securities so acquired in such tender or exchange offer from holders other than the officers and
directors of the Corporation subject to the short-swing profit restrictions of Section 16 of the 1934 Act. 

2

 

                INCENTIVE
OPTION:    a stock option which satisfies the requirements of Code Section 422. 

                INVOLUNTARY
TERMINATION:    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
level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and participation in 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. 

                MISCONDUCT:    the
commission of any act of fraud, embezzlement or dishonesty by the Optionee, Participant or other person in the Service of the Corporation (or any Parent or
Subsidiary), 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). 

                1934
ACT:    the Securities and Exchange Act of 1934, as amended from time to time. 

                NON-STATUTORY
OPTION:    a stock option not intended to meet the requirements of Code Section 422. 

                OPTIONEE:    a
person to whom an option is granted under the Discretionary Option Grant Program or Automatic Option Grant Program. 

                PARTICIPANT:    a
person who is issued Common Stock under the Stock Issuance Program. 

                PERFORMANCE-BASED
COMPENSATION:    compensation qualifying as "performance-based compensation" under Section 162(m) of the Code. 

                PERMANENT
DISABILITY OR PERMANENTLY DISABLED:    the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for the purposes of the Automatic Option
Grant Program, 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. 

                PLAN
ADMINISTRATOR:    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. 

                PRIMARY
COMMITTEE:    the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary Option Grant, the
Automatic Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. 

3

 

                SECONDARY
COMMITTEE:    a committee of two (2) 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. 

                SECTION
16 INSIDER:    an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. 

                SECTION
12(g) REGISTRATION DATE:    the date on which the initial registration of the Common Stock under Section 12(g) of the 1934 Act becomes effective. 

                SERVICE:    the
performance of services on a periodic basis for the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant or advisor, except to the extent otherwise specifically provided in the applicable stock option or stock issuance
agreement. 

                TAKE-OVER
PRICE:    the greater of (i) the Fair Market Value per share of Common Stock on the date the particular option to purchase such stock 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. 

        B.    The
following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation: 

        Any
corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a Parent of the Corporation, provided each such
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. 

        Each
corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation shall be considered to be a Subsidiary of the Corporation, provided each
such 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. 

III.  STRUCTURE OF THE PLAN  

        A.    STOCK
PROGRAMS.    The Plan shall be divided into three separate components: the Discretionary Option Grant Program specified in Article Two, the Automatic
Option Grant Program specified in Article Three and the Stock Issuance Program specified in Article Four. Under the Discretionary Option Grant Program, eligible individuals may, at the discretion of
the Plan Administrator, be granted options to purchase shares of Common Stock in accordance with the provisions of Article Two. Under the Automatic Option Grant Program, each individual serving as a
non-employee Board member on the Plan Effective Date and each individual who first joins the Board as a non-employee director at any time after such Plan Effective Date shall
at periodic intervals receive option grants to purchase shares of Common Stock in accordance with the provisions of Article Three, with the first such grants to be made on the Plan Effective Date.
Under the Stock Issuance Program, eligible individuals may be issued shares of Common Stock directly, either through the immediate purchase of such shares at a price per share not less than
eighty-five percent (85%) of the fair market value per share of Common Stock at the time of issuance or as a bonus for past services rendered the Corporation or the Corporation's
attainment of financial objectives. 

        B.    GENERAL
PROVISIONS.    Unless the context clearly indicates otherwise, the provisions of Articles One and Five shall apply to the Discretionary Option Grant
Program, Automatic Option Grant 

4

 

Program and the Stock Issuance Program and shall accordingly govern the interests of all individuals under the Plan. 

IV.  ADMINISTRATION OF THE PLAN  

        A.    The
Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant, the Automatic Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. The Primary Committee shall be constituted in such a manner as to satisfy all applicable laws
and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. 

        B.    Administration
of the Discretionary Option Grant, the Automatic Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in
those programs, if any, 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. 

        C.    Notwithstanding
the foregoing, grants of stock options, separately exercisable stock appreciation rights or direct stock issuances to any Covered Employee intended to
qualify as Performance-Based Compensation shall be made only by a committee (or subcommittee of a committee) which is comprised solely of two or more Board members eligible to serve on a committee
making grants qualifying as Performance-Based Compensation. In the case of such grants to Covered Employees, references to the "Plan Administrator", the "Primary Committee", or to a "Secondary
Committee" shall be deemed to be references to such committee or subcommittee. 

        D.    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 the Primary Committee and any Secondary Committee and reassume all powers and authority previously delegated to such committee. 

        E.    Each
Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority to establish such rules and regulations as
it may deem appropriate for proper administration of the Discretionary Option Grant, the Automatic Option Grant and Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such 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 Program, the Automatic Option Grant Program or
Stock Issuance Program under its jurisdiction or any stock option or stock issuance thereunder. 

        F.    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. 

V.    ELIGIBILITY  

        A.    The
persons eligible to participate in the Discretionary Option Grant Program under Article Two and the Stock Issuance Program under Article Four shall be limited to the
following: 

	(i)
	officers
and other employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management,
growth and financial success of the Corporation (or its parent or subsidiary corporations); 

5

 

	(ii)
	non-employee
members of the Board; and

	(iii)
	those
consultants or other independent advisors who provide valuable services to the Corporation (or its parent or subsidiary corporations). 

        B.    Each
Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority (subject to the provisions of the Plan) to
determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option 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 at which 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 stock issuances, the time or times when such 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 to be paid for such shares. 

VI.  STOCK SUBJECT TO THE PLAN  

        A.    Shares
of Common Stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or
from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan
shall not exceed 2,550,718 shares, subject to adjustment from time to time in accordance with the provisions of this Section VI. 

        B.    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. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation with respect
to a person participating in the Plan, if any stock option, separately exercisable stock appreciation right or direct stock issuance is canceled, the canceled stock option, stock appreciation right or
direct stock issuance shall continue to count against the maximum number of shares with respect to which stock options, stock appreciation rights and direct stock issuances may be granted to such
person. For this purpose, the repricing of an option (or in the case of a stock appreciation right, the base amount on which the stock appreciation is calculated is reduced to reflect a reduction in
the Fair Market Value of the Common Stock) shall be treated as the cancellation of the existing option or stock appreciation right and the grant of a new option or stock appreciation right. 

        C.    Except
to the extent required by Section 162(m) of the Code or the regulations thereunder, as discussed immediately above, should one or more outstanding options
under this Plan expire or terminate for any reason prior to exercise in full (including any option cancelled in accordance with the cancellation-regrant provisions of Section IV of Article Two
of the Plan), then the shares subject to the portion of each option not so exercised shall be available for subsequent issuance under the Plan. Shares subject to any stock appreciation rights
exercised under the Plan and all share issuances under the Plan, whether or not the shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall
reduce on a share-for-share basis the number of shares of Common Stock available for subsequent issuance under the Plan. In addition, should the exercise price of an
outstanding 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 outstanding option under the Plan or the vesting of a direct share issuance made 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 

6

 

the option is exercised or which vest under the share issuance, and not by the net number of shares of Common Stock actually issued to the holder of such option or share issuance. 

        D.    Should
any change be made to the Common Stock issuable under the Plan 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, then appropriate adjustments shall be made 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 individual participating in the Plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances in the aggregate per calendar year, (iii) the number and/or class of securities for which automatic-option grants are
to be subsequently made per eligible non-employee Board member under the Automatic Option Grant Program, (iv) the number and/or class of securities and price per share in effect
under each option outstanding under either the Discretionary Option Grant Program or Automatic Option Grant Program, and (v) such other provisions of the Plan as the Plan Administrator
determines is appropriate. 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. 

7

  

 
 

ARTICLE TWO
  
    DISCRETIONARY OPTION GRANT PROGRAM    
  

I.    TERMS AND CONDITIONS OF OPTIONS  

        Options
granted pursuant to the Discretionary Option Grant Program shall be authorized by action of the Plan Administrator and may, at the Plan Administrator's discretion, be either
Incentive Options or Non-Statutory Options. Individuals who are not Employees of the Corporation or its Parent or Subsidiary corporations may only be granted non-statutory
options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; PROVIDED, however, that each such instrument shall comply with the terms and
conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section II of this Article Two. 

        A.    OPTION
PRICE. 

        1.    The
option price per share shall be fixed by the Plan Administrator in accordance with the following provisions: 

	(i)
	The
option price per share of Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Fair Market
Value of such Common Stock on the grant date.

	(ii)
	The
option price per share of Common Stock subject to a Non-Statutory Option shall in no event be less than eighty-five percent
(85%) of the Fair Market Value of such Common Stock on the grant date.

	(iii)
	In
the case of an option intended to qualify as Performance-Based Compensation, the option price per share of Common Stock shall in no event be less
than one hundred percent (100%) of the Fair Market Value of such Common Stock on the grant date. 

        2.    The
option price shall become immediately due upon exercise of the option and, subject to the provisions of Section I of Article Five and the instrument evidencing
the grant, shall be payable in one of the following alternative forms specified below: 

	(i)
	full
payment in cash or check drawn to the Corporation's order;

	(ii)
	full
payment in 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 (as such term is defined below);

	(iii)
	full
payment in a combination of 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 and cash or check drawn to the Corporation's order; or

	(iv)
	full
payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee shall provide irrevocable written 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 option price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the
Corporation in connection with such purchase and (B) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale
transaction. 

8

 

        Except
to the extent the sale and remittance procedure is used in connection with the exercise of the option, payment of the option price for the purchased shares must accompany such
notice. 

        B.    TERM
AND EXERCISE OF OPTIONS. 

        Each
option granted under this Discretionary Option Grant Program shall be exercisable at such time or times and during such period as is determined by the Plan Administrator and set
forth in the instrument evidencing the grant. No such option, however, shall have a maximum term in excess of ten (10) years from the grant date. 

        C.    TERMINATION
OF SERVICE. 

        1.    The
following provisions shall govern the exercise period applicable to any outstanding option held by the Optionee at the time of cessation of Service or death. 

	(i)
	Should
an Optionee cease Service for any reason (including death or Permanent Disability) while holding one or more outstanding options under this
Article Two, then none of those options shall (except to the extent otherwise provided pursuant to subparagraph 2 below) remain exercisable for more than a twelve (12)-month period (or such shorter
period determined by the Plan Administrator and set forth in the instrument evidencing the grant) measured from the date of such cessation of Service.

	(ii)
	Any
option held by the Optionee under this Article Two and exercisable in whole or in part on the date of his or her death 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 in accordance with the laws of
descent and distribution. However, the right to exercise such option shall lapse upon the earlier of (A) the first anniversary of the date of the Optionee's death (or such shorter period
determined by the Plan Administrator and set forth in the instrument evidencing the grant) or (B) the specified expiration date of the option term. Accordingly, upon the occurrence of the
earlier event, the option shall terminate and cease to remain outstanding.

	(iii)
	Under
no circumstances shall any such option be exercisable after the specified expiration date of the option term.

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

	(v)
	Should
the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee under this Article Two shall terminate
immediately and cease to remain outstanding. 

        2.    The
Plan Administrator shall have the 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 period otherwise in
effect for that option to such 

9

 

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 under the option had the Optionee continued in Service. 

        D.    STOCKHOLDER
RIGHTS. 

        An
Optionee shall have no stockholder rights with respect to any shares covered by the option until such individual shall have exercised the option, paid the option price for the
purchased shares and become the holder of record of those shares. 

        E.    TRANSFERABILITY.

        During
the lifetime of the Optionee, any Incentive Option shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a Non-Statutory Option may be assigned in whole or in part during the Optionee's lifetime in accordance with the terms of
the instrument evidencing the grant. The terms applicable to the assigned portion of any Non-Statutory Option 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. 

        F.    REPURCHASE
RIGHTS. 

        The
shares of Common Stock acquired upon the exercise of any Article Two option grant may be subject to repurchase by the Corporation in accordance with the following provisions: 

	(i)
	The
Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase any or all of those unvested shares at the option price paid per share. The terms and
conditions 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 instrument evidencing such repurchase right.

	(ii)
	All
of the Corporation's outstanding repurchase rights under this Article Two shall automatically terminate, and all shares subject to such terminated
rights shall immediately vest in full, upon the occurrence of a Corporate Transaction, except to the extent: (A) any such repurchase right is expressly assigned to the successor corporation (or
parent thereof) in connection with the Corporate Transaction or (B) such termination is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is
issued.

	(iii)
	The
Plan Administrator shall have the discretionary authority, exercisable either before or after the Optionee's cessation of Service, to cancel the
Corporation's outstanding repurchase rights with respect to one or more shares purchased or purchasable by the Optionee under this Article Two and thereby accelerate the vesting of such shares in
whole or in part at any time. 

10

 

II.    INCENTIVE OPTIONS  

        The terms and conditions specified below shall be applicable to all Incentive Options granted under this Article Two. Incentive Options may only be granted to
individuals who are Employees. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall NOT be subject to such terms and conditions. 

        A.    DOLLAR
LIMITATION.    The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options
granted to any Employee under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable as Incentive Options during any
one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time
in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. Should the
number of shares of Common Stock for which any
Incentive Option first becomes exercisable in any calendar year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then that option may nevertheless be exercised in that calendar
year for the excess number of shares as a Non-Statutory Option. 

        B.    10%
STOCKHOLDER.    If any individual to whom an Incentive Option is granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing ten percent (10%) or more of the total combined voting power of all classes of stock of the Corporation or any one of its Parent or Subsidiary corporations, then the option 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 grant date, and the option term shall not exceed five (5) years, measured from
the grant date. 

        Except
as modified by the preceding provisions of this Section II, the provisions of Articles One, Two and Five of the Plan shall apply to all Incentive Options granted hereunder. 

III.  CORPORATE TRANSACTIONS/CHANGES IN CONTROL  

        A.    In
the event of any Corporate Transaction, each option which is at the time outstanding under this Article Two shall automatically accelerate so that each such option
shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares. However, an outstanding option under this Article Two shall NOT so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof, (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option, or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its
determination shall be final, binding and conclusive. 

        B.    Immediately
following the consummation of the Corporate Transaction, all outstanding options under this Article Two shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation or its parent company. 

        C.    Each
outstanding option under this Article Two which is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately
adjusted, immediately after such
Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the option holder, in consummation of such Corporate Transaction, had 

11

 

such person exercised the option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the option price payable per share, provided the aggregate option price
payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan on both an aggregate and per participant basis following the
consummation of the Corporate Transaction shall be appropriately adjusted. 

        D.    The
Plan Administrator shall have full power and authority to grant options under the Discretionary Option Grant Program which provide for the accelerated vesting of one
or more outstanding options under the Discretionary Option Grant Program upon the occurrence of a Corporate Transaction, Change in Control or Hostile Take-Over whether or not those options
are to be assumed or otherwise continued in full force and effect pursuant to the terms of the Corporate Transaction, Change in Control or Hostile Take-Over. In addition, the Plan
Administrator may structure one or more of the Corporation's repurchase rights under the Discretionary Option Grant Program so that those rights shall immediately terminate, in whole or in part, at
the time of a Corporate Transaction, Change in Control or Hostile Take-Over and shall not be assignable to the successor corporation (or parent thereof), and the shares subject to those
terminated repurchase rights shall accordingly vest in full at the time of such Corporate Transaction, Change in Control or Hostile Take-Over. 

        E.    The
Plan Administrator shall have full power and authority to grant options under the Discretionary Option Grant Program which will automatically accelerate in whole or
in part in the event the Optionee's Service subsequently terminates by reason of an Involuntary Termination within a designated period (not to exceed twelve (12) months) following the effective
date of any Corporate Transaction in which those options are assumed or replaced and do not otherwise accelerate. Any options so accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the twelve (12) month period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may provide that one or more of the Corporation's outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination
shall immediately terminate in whole or in part, and the shares subject to those terminated rights shall accordingly vest. 

        F.    The
Plan Administrator shall have full power and authority to grant options under the Discretionary Option Grant Program which will automatically accelerate in whole or
in part in the event the Optionee's Service subsequently terminates by reason of an Involuntary Termination within a designated period (not to exceed twelve (12) months) following the effective
date of any Change in Control. Each option so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the twelve (12)-month period measured from the effective date of the Involuntary Termination. In addition, the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate in whole or in part, and the shares subject to those
terminated rights shall accordingly vest. 

        G.    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 Non-Qualified Option. 

        H.    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. 

12

 

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 optionees, the cancellation of any
or all outstanding options under this Article Two and to grant in substitution new options under the Plan covering the same or different numbers of shares of Common Stock but with an option price per
share not less than (i) one hundred percent (100%) of the Fair Market Value per share of Common Stock on the new grant date in the case of a grant of an Incentive Option, (ii) one
hundred ten percent (110%) of such Fair Market Value in the case of a grant of an Incentive Option to a 10% Stockholder or (iii) eighty-five percent (85%) of such Fair Market Value
in the case of all other grants. 

V.    STOCK APPRECIATION RIGHTS  

        A.    Provided
and only if the Plan Administrator determines in its discretion to implement the stock appreciation right provisions of this Section V, one or more
Optionees may be granted the right, exercisable upon such terms and conditions as the Plan Administrator may establish, to surrender all or part of an unexercised option under this Article Two in
exchange for a distribution from the Corporation in an amount equal to the excess of (i) 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 (ii) the aggregate exercise price payable for such vested shares. 

        B.    No
surrender of an option shall be effective hereunder unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which
the Optionee shall
accordingly become entitled under this Section V 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. 

        C.    If
the surrender of an option is rejected 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 (i) five (5) business days after the receipt of the rejection
notice or (ii) the last day on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event may such rights be exercised more
than ten (10) years after the date of the option grant. 

        D.    One
or more officers of the Corporation subject to the short-swing profit restrictions of the 1934 Act may, in the Plan Administrator's sole discretion, be granted
limited stock appreciation rights in tandem with their outstanding options under this Article Two. Upon the occurrence of a Hostile Take-Over, the officer shall have a thirty
(30)-day period in which he or she may surrender any outstanding options with such a limited stock appreciation right in effect for at least six (6) months to the Corporation, to
the extent such option is at the time exercisable for fully vested shares of Common Stock. The officer 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 vested shares of Common Stock at the time subject to each surrendered option (or surrendered portion of such option) over (ii) the
aggregate exercise price payable for such shares. The cash distribution shall be made within five (5) days following the date the option is surrendered to the Corporation, and neither the
approval of the Plan Administrator nor the consent of the Board shall be required in connection with the option surrender and cash distribution. Any unsurrendered portion of the option shall continue
to remain outstanding and become exercisable in accordance with the terms of the instrument evidencing such grant. 

        E.    The
shares of Common Stock subject to any option surrendered for an appreciation distribution pursuant to this Section V shall not be available for subsequent
issuance under the Plan. 

13

  

 
 

ARTICLE THREE
  
    AUTOMATIC OPTION GRANT PROGRAM    
  

I.    ELIGIBILITY  

        The individuals eligible to receive automatic option grants pursuant to the provisions of this Article Three program shall be limited to those individuals who are
serving as non-employee Board members on the Plan Effective Date or who are first elected or appointed as non-employee Board members on or after the Plan Effective Date,
whether through appointment by the Board or election by the Corporation's stockholders. Each non-employee Board member eligible to participate in the Automatic Option Grant Program
pursuant to the foregoing criteria shall be designated an Eligible Director for purposes of the Plan. 

II.    TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS  

        A.    GRANT
DATES.    Option grants shall be made under this Article Three on the dates specified below: 

        1.    INITIAL
GRANT.    Each Eligible Director who is a non-employee Board member on the Plan Effective Date and each Eligible Director who is first
elected or appointed as a non-employee Board member after such date shall automatically be granted, on the Plan Effective Date or on the date of such initial election or appointment (as
the case may be), a Non-Statutory Option to purchase 3,000 shares of Common Stock upon the terms and conditions of this Article Three. In no event, however, shall a
non-employee Board member be eligible to receive such an initial option grant if such individual has at any time been in the prior employ of the Corporation (or any Parent or Subsidiary
corporation). 

        2.    ANNUAL
GRANT.    On the date of each Annual Stockholders Meeting, beginning with the 1997 Annual Meeting, each individual who will continue to serve as an
Eligible Director shall automatically be granted, whether or not such individual is standing for re-election as a Board member at that Annual Meeting, a Non-Statutory Option to
purchase an additional 3,000 shares of Common Stock upon the terms and conditions of this Article Three, provided he or she has served as a non-employee Board member for at least six
(6) months. There shall be no limit on the number of such annual option grants any one Eligible Director 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 corporation) shall be eligible to receive such annual option grants over their period of continued Board
service. 

        B.    EXERCISE
PRICE.    The exercise price per share of Common Stock subject to each automatic option grant made under this Article Three shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the automatic grant date. 

        C.    PAYMENT.    The
exercise price shall be payable in one of the alternative forms specified below: 

	(i)
	full
payment in cash or check drawn to the Corporation's order;

	(ii)
	full
payment in 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 (as such term is defined below);

	(iii)
	full
payment in a combination of shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes 

14

 

and
valued at Fair Market Value on the Exercise Date and cash or check drawn to the Corporation's order; or 

	(iv)
	full
payment through a sale and remittance procedure pursuant to which the Optionee shall provide irrevocable written 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 and (B) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to
complete the sale transaction. 

        Except
to the extent the sale and remittance procedure specified above is used for the exercise of the option for vested shares, payment of the exercise price for the purchased shares
must accompany the exercise notice. 

        D.    OPTION
TERM.    Each automatic grant under this Article Three shall have a maximum term of ten (10) years measured from the automatic grant date. 

        E.    EXERCISABILITY.
Each automatic grant shall become fully exercisable for the option shares upon the Optionee's completion of one year of Board service measured from the
automatic grant date. The exercisability of each automatic grant outstanding under this Article Three shall be accelerated as provided in Section II.G and Section III of this Article
Three. 

        F.    TRANSFERABILITY.    Any
automatic option grant may be assigned in whole or in part during the Optionee's lifetime in accordance with the terms of the instrument
evidencing the grant. The terms applicable to the assigned portion of the automatic option grant 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. 

        G.    EFFECT
OF TERMINATION OF BOARD MEMBERSHIP.    

        1.    Should
the Optionee cease to serve as a Board member for any reason (other than death or Permanent Disability) while holding one or more automatic option grants under
this Article Three, then such individual shall have a twelve (12)-month period following the date of such cessation of Board membership in which to exercise each such option for any or all of the
shares of Common Stock for which that option is exercisable at the time of such cessation of Board service. Each such option shall immediately terminate and cease to be outstanding, at the time of
such cessation of Board service, with respect to any shares for which the option is not otherwise at that time exercisable, 

        2.    Should
the Optionee die within twelve (12) months after cessation of Board service, then any automatic option grant held by the Optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Board membership (less any option shares
subsequently purchased by the 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 in accordance with the laws of descent and distribution. Any such exercise must occur within twelve (12) months after the date of the Optionee's cessation of Board service. 

        3.    Should
the Optionee die or become Permanently Disabled while serving as a Board member, then any automatic option grant held by such Optionee under this Article Three
shall accelerate in full, and the Optionee (or the representative of the Optionee's estate or the person or persons to whom the
option is transferred upon the Optionee's death) shall have a twelve (12)-month period following the date of the Optionee's cessation of Board membership in which to 

15

 

exercise such option for any or all of the shares of Common Stock subject to the option at the time of such cessation of Board membership. 

        4.    In
no event shall any automatic grant under this Article Three remain exercisable after the expiration date of the ten (10)-year option term. Upon the
expiration of the applicable post-service exercise period under subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the ten (10)-year option term, the automatic
grant shall terminate and cease to be outstanding for any unexercised shares for which the option was otherwise exercisable at the time of the Optionee's cessation of Board membership. 

        H.    STOCKHOLDER
RIGHTS.    The holder of an automatic option grant under this Article Three shall have none of the rights of a stockholder with respect to any
shares subject to such option until such individual shall have exercised the option, paid the exercise price for the purchased shares and become the holder of record of those shares. 

III.  CORPORATE TRANSACTION/CHANGES IN CONTROL  

        A.    In
the event of any Corporate Transaction, each automatic option grant at the time outstanding under this Article Three shall automatically accelerate so that each such
option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for all or any portion of such shares. Immediately after the consummation of the Corporate Transaction, all automatic option grants under this Article Three shall
terminate and cease to be outstanding, except to the extent assumed by the successor entity or its parent company. 

        B.    In
connection with any Change in Control, each automatic option grant at the time outstanding under this Article Three shall automatically accelerate so that each such
option shall, immediately prior to the specified effective date for the Change in Control, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares. Any option accelerated in connection with the Change in Control shall remain fully exercisable until the expiration or sooner
termination of the option term. 

        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 option
held by him or her under this Article Three for a period
of at least six (6) months. 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. Neither the approval of the Plan Administrator
nor the consent of the Board shall be required in connection with such option surrender and cash distribution. The shares of Common Stock subject to each option surrendered in connection with the
Hostile Take-Over shall not be available for subsequent issuance under the Plan. 

        D.    The
automatic option grants outstanding under this Article Three 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 the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the
Discretionary Option Grant Program or as the Plan Administrator otherwise determines. 

16

 
 
 

ARTICLE FOUR
  
    STOCK ISSUANCE PROGRAM    
  

I.    TERMS AND CONDITIONS OF STOCK ISSUANCES  

        Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate purchases without any intervening stock option grants. The
issued shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement") that complies with the terms and conditions of this Article Four. 

        A.    CONSIDERATION.

        1.    Shares
of Common Stock drawn from the Corporation's authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be issued under the Stock Issuance
Program for one or more of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: 

        a.    full
payment in cash or check made payable to the Corporation's order; 

        b.    a
promissory note payable to the Corporation's order in one or more installments, which may be subject to cancellation in whole or in part upon terms and conditions
established by the Plan Administrator; or 

        c.    past
services rendered to the Corporation or any parent or subsidiary corporation. 

        2.    Newly
Issued Shares may, in the absolute discretion of the Plan Administrator, be issued for consideration with a value less than one hundred percent (100%) of the Fair
Market Value of such shares at the time of issuance, but in no event less than eighty-five percent (85%) of such Fair Market Value. 

        3.    Shares
of Common Stock reacquired by the Corporation and held as treasury shares ("Treasury Shares") may be issued under the Stock Issuance Program for such consideration
(including one or more of the items of consideration specified in subparagraph 1. above) as the Plan Administrator may deem appropriate, whether such consideration is in an amount less than, equal to
or greater than the Fair Market Value of the Treasury Shares at the time of issuance. Treasury Shares may, in lieu of any cash consideration, be issued subject to such vesting requirements tied to the
Participant's period of future Service or the Corporation's attainment of specified performance objectives as the Plan Administrator may establish at the time of issuance. 

        4.    In
the case of shares of Common Stock issued under the Stock Issuance Program that are intended to qualify as Performance-Based Compensation, the price per share of such
shares shall in no event be less than one hundred percent (100%) of the Fair Market Value of such shares on the grant date. 

        B.    VESTING
PROVISIONS. 

        1.    Shares
of Common Stock issued under the Stock Issuance Program may, in the absolute 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. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance
Program, namely: 

        a.    the
Service period to be completed by the Participant or the performance objectives to be achieved by the Corporation, 

        b.    the
number of installments in which the shares are to vest, 

17

 

        c.    the
interval or intervals (if any) which are to lapse between installments, and 

        d.    the
effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan
Administrator and incorporated into the Issuance Agreement executed by the Corporation and the Participant at the time such unvested shares are issued. 

        2.    The
Participant shall have full stockholder rights with respect to any shares of Common Stock issued to him or her under the Plan, whether or not his or her 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. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to his or her unvested shares by reason of any
stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of
consideration or by reason of any Corporate Transaction shall be issued, subject to (i) the same vesting requirements applicable to his or her unvested shares and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate. 

        3.    Should
the Participant cease to remain in Service while holding one or more unvested shares of Common Stock under the Stock Issuance Program, 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 promissory note), 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 such surrendered shares. The
surrendered shares may, at the Plan Administrator's discretion, be retained by the Corporation as Treasury Shares or may be retired to authorized but unissued share status. 

        4.    The
Plan Administrator may in its discretion elect to waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable
thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to such 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. 

II.    CORPORATE TRANSACTION/CHANGE IN CONTROL  

        A.    Upon
the occurrence of any Corporate Transaction, all unvested shares of Common Stock at the time outstanding under this Stock Issuance Program shall immediately vest in
full and the Corporation's repurchase/cancellation rights shall terminate, except to the extent: (i) any such right is expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded by other limitations imposed in the Issuance Agreement. 

        B.    The
Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's
repurchase/cancellation rights remain outstanding under the Stock Issuance Program, to provide 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 twelve (12) months
following the effective date of any Corporate 

18

 

Transaction in which those repurchase/cancellation rights are assigned to the successor corporation (or parent thereof). 

        C.    The
Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's
repurchase/cancellation rights remain outstanding under the Stock Issuance Program, to provide 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 twelve (12) months
following the effective date of any Change in Control. 

III.  TRANSFER RESTRICTIONS/SHARE ESCROW  

        A.    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 such unvested shares. To the extent an escrow arrangement is utilized, the unvested shares and any securities or
other assets distributed with respect to such shares (other than regular cash dividends) shall be delivered in escrow to the Corporation to be held until the Participant's interest in such shares (or
the distributed securities or assets) vests. If the unvested shares are issued directly to the Participant, the restrictive legend on the certificates for such shares shall read substantially as
follows: 

"THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II) CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED
HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A
STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST)
DATED                        ,            , A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL
OFFICE OF THE CORPORATION." 

        B.    The
Participant shall have no right to transfer any unvested shares of Common Stock issued to him or her under the Stock Issuance Program. For purposes of this
restriction, the term "transfer" shall include (without limitation) any sale, pledge, assignment, encumbrance, gift or other disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled in accordance with substantially the same procedure in effect under Section I.B.3 of this Article Four, and neither the
Participant nor the proposed transferee shall have any rights with respect to such cancelled shares. However, the Participant shall have the right to make a gift of unvested shares acquired under the
Stock Issuance Program to his or her spouse or issue, including adopted children, or to a trust established for the benefit of such spouse or issue, provided the donee of such shares delivers to the
Corporation a written agreement to be bound by all the provisions of the Stock Issuance Program and the Issuance Agreement applicable to the gifted shares. 

19

  

 
 

ARTICLE FIVE
  
    MISCELLANEOUS    
  

I.    LOANS OR INSTALLMENT PAYMENTS  

        A.    The
Plan Administrator may, in its discretion, assist any Optionee or Participant (including an Optionee or Participant who is an officer of the Corporation) in the
exercise of one or more options granted to such Optionee under the Discretionary Option Grant Program or the purchase of one or more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal and state income and employment tax obligations arising therefrom, by (i) authorizing the extension of a loan from the Corporation to such Optionee or
Participant or (ii) permitting the Optionee or Participant to pay the option price or purchase price for the purchased Common Stock in installments over a period of years. The terms of any loan
or installment method of payment (including the interest rate and terms of repayment) shall be upon such terms as the Plan Administrator specifies in the applicable option or issuance agreement or
otherwise deems appropriate at the time such option price or purchase price becomes due and payable. Loans or installment payments may be authorized with or without security or collateral. In all
events, the maximum credit available to the Optionee or Participant may not exceed the option or purchase price of the acquired shares (less the par value of such shares) plus any Federal, state and
local income and employment tax liability incurred by the Optionee or Participant in connection with the acquisition of such shares. 

        B.    The
Plan Administrator may, in its absolute discretion, determine that one or more loans extended under this financial assistance program shall be subject to forgiveness
by the Corporation in whole or in part upon such terms and conditions as the Plan Administrator may deem appropriate. 

II.    AMENDMENT OF THE PLAN AND AWARDS  

        The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever, However, no
such amendment or modification shall adversely affect rights and obligations with respect to options at the time outstanding under the Plan, nor adversely affect the rights of any Participant with
respect to Common Stock issued under the Stock Issuance Program prior to such action, unless the Optionee or Participant consents to such amendment. In addition, the Board may not, without the
approval of the Corporation's stockholders, amend the Plan to (i) increase the maximum number of shares issuable under the Plan or (ii) the maximum number of shares for which any one
individual participating in the Plan may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances in the aggregate per calendar year, except for
permissible adjustments under Section VI subsection C of Article One. 

III.  TAX WITHHOLDING  

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

        B.    The
Plan Administrator may, in its discretion and in accordance with the provisions of this Section III of Article Five and such supplemental rules as the Plan
Administrator may from time to time adopt, provide any or all holders of Non-Statutory Options or unvested shares under the Plan with the right to use shares of Common Stock in
satisfaction of no more than the minimum amount of the Federal, foreign state and local income and employment tax liabilities that the Corporation is required to withhold from such holders in
connection with the exercise of their options or the vesting of their 

20

 

shares (the "Taxes"). Such right may be provided to any such holder in either or both of the following formats: 

        1.    STOCK
WITHHOLDING: The holder of the Non-Statutory Option or unvested shares may be provided with 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 applicable Taxes (not to exceed one hundred percent (100%)) designated by the holder. 

        2.    STOCK
DELIVERY: The Plan Administrator may, in its discretion, provide the holder of the Non-Statutory Option or the unvested shares with 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 individual (other than in
connection with the option exercise or share
vesting triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes incurred in connection with such option exercise or share vesting (not to exceed one hundred
percent (100%)) designated by the holder. 

IV.  EFFECTIVE DATE AND TERM OF PLAN  

        A.    This
Plan became effective on April 30, 1996 and was approved by stockholders on April 26, 1996. In February 1998, the Board adopted and approved
amendments to the Plan to provide for an increase in the number of shares subject to grants under the Automatic Option Grant Program from 1,000 to 2,000 shares and to reflect the amendments
promulgated by the Securities and Exchange Commission to Rule 16b-3 which allow for greater transferability of Non-Statutory Options (collectively, the
"February 1998 Amendments"). The February 1998 Amendments became effective when approved by the Corporation's stockholders on March 26, 1998. In March 2000, the Board
adopted and approved amendments to the Plan pertaining to: (i) the name of the Corporation; (ii) the administration of the Plan; and (iii) the limit imposed by
Section 162(m) of the Code, on certain highly-compensated employees (collectively, the "March 2000 Amendments"). The March 2000 Amendments became effective when approved by the
Corporation's stockholders on June 20, 2000. In April 2001, the Board adopted and approved amendments to the Plan to: (i) increase the number of shares reserved for issuance under
the Plan by 1,000,000 shares; (ii) increase the maximum number of shares with respect to which stock options, stock appreciation rights and direct stock issuances may be granted to any grantee
in any calendar year from 500,000 to 1,000,000 shares; and (iii) permit the Plan Administrator to grant options under the Discretionary Option Grant Program which provide for accelerated
vesting upon the occurrence of a Corporate Transaction, Change in Control or Hostile Take-Over whether or not those options are to be assumed or otherwise continued in full force and
effect pursuant to the terms of the Corporate Transaction, Change in Control or Hostile Take-Over (collectively, the "April 2001 Amendments"). The April 2001 Amendments shall
be effective upon Board approval but any option grants made in reliance on the April 2001 Amendments will be rescinded if the stockholders vote against the April 2001 Amendments. 

        B.    The
Plan shall terminate upon the earlier of (i) ten (10) years following the Plan Effective Date or (ii) the date on which all shares available for
issuance under the Plan shall have been issued pursuant to the exercise of the options granted under the Plan or the issuance of shares (whether vested or unvested) under the Stock Issuance Program.
If the date of termination is determined under clause (i) above, then all option grants and unvested share issuances outstanding on such date shall thereafter continue to have force and effect
in accordance with the provisions of the instruments evidencing such grants or issuance. 

21

 

V.    USE OF PROCEEDS  

        Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants or share issuances under the Plan shall be used for general
corporate purposes. 

VI.  REGULATORY APPROVALS  

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

        B.    No
shares of Common Stock or other assets shall be issued or delivered under this 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 securities exchange on which stock of the same class is then listed. 

VII.  NO EMPLOYMENT/SERVICE RIGHTS  

        Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be
construed so as to grant any individual the right to remain in the employ or service of the Corporation (or any Parent or Subsidiary corporation) for any period of specific duration, and the
Corporation (or any Parent or Subsidiary corporation retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without
cause. 

VIII.  MISCELLANEOUS PROVISIONS  

        A.    Except
as provided in the Plan, the right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee
or Participant. 

        B.    The
provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State. 

        C.    The
provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or
otherwise, and the Participants and Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. 

22

QuickLinks

WESTAFF, INC. 1996 STOCK OPTION/STOCK ISSUANCE PLAN (amended and restated as of March 26, 1998) (amended and restated as of May 17, 2000) (amended and restated as of April 30, 2001)

ARTICLE ONE GENERAL

ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM

ARTICLE THREE AUTOMATIC OPTION GRANT PROGRAM

ARTICLE FOUR STOCK ISSUANCE PROGRAM

ARTICLE FIVE MISCELLANEOUS

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