Document:

October __, 2004

EXHIBIT 10.1

 

October 24, 2004

ATA Holdings Corp.

ATA Airlines, Inc.

1337 West Washington Street

Indianapolis, Indiana  46231

Attn.:  Mr. Gilbert F. Viets

           Executive Vice President and Chief Restructuring Officer

             In Re:  Commitment Letter

Dear Sirs:

     This letter will constitute the commitment by AirTran Airways, Inc. ("AirTran" or "we"), subject to the terms and conditions herein contained and the receipt of a signed copy of this commitment letter, to acquire in an asset acquisition (the "Acquisition") (a) the leasehold interest of Sellers under the Chicago Midway Airport Amended and Restated Airport Use Agreement and Facility Lease with an effective date of January 1, 1997, as amended to date (the "Midway Facilities Lease") including without limitation all Sellers' right, title and interest in and to 14 gates, ramp space and associated service facilities at Chicago's Midway Airport, including the space to build 12 additional regional jet gates and the furnishings, fixtures and personal property (exclusive of ground equipment) used or employed in connection with such gates and service facilities (collectively, the "Midway Gates"), (b) 8 permanent and 11 AIR 21 arrival and departure slots of Sellers at LaGuardia and 4 AIR 21 arrival and departure slots of Sellers at Reagan (collectively, the "Slots") and (c) Sellers' interest in certain airport facility leases or arrangements at outlying stations served from Midway (the "Station Leases") (the Midway Facilities Lease, the Slots and the Station Leases, collectively, the "Midway Assets"). The Purchase Price for the Midway Assets will be Eighty Seven Million Five Hundred Thousand Dollars ($87,500,000) payable in cash at closing (the "Acquisition Price").  The terms "Sellers" and "you" mean and refer jointly and severally to ATA Holdings Corp. and ATA Airlines, Inc. irrespective of whether this commitment letter is fully or partially executed before or after the date of filing of the Chapter 11 Case (hereinafter defined).  

     The transactions contemplated hereby are to be accomplished in a Chapter 11 case to be filed by Sellers under the Bankruptcy Code (11 U.S.C. section 101 et seq.) (the "Chapter 11 Case") in the United States Bankruptcy Court for the Southern District of Indiana (the "Bankruptcy Court").  

     Consummation of the Acquisition is subject to, among other things, (1) execution of a definitive asset acquisition agreement (the "Asset Acquisition Agreement") in form and substance satisfactory to AirTran incorporating the terms and conditions of this commitment 

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October 24, 2004

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letter and such other terms and conditions with respect to the Acquisition as may be required by AirTran, (2) completion of AirTran's due diligence investigation in all respects satisfactory to AirTran, which AirTran shall endeavor to complete no later than November 1, 2004, and which will not be a condition precedent in the Asset Acquisition Agreement, and (3) availability to AirTran of financing necessary to fund the Acquisition Price, which financing contingency will not be a condition precedent in the Asset Acquisition Agreement.  AirTran hereby advises you that, based upon conversations with its investment bankers, AirTran is highly confident that such financing should be available to it and that it will be in a position to execute an otherwise acceptable Asset Acquisition Agreement which does not include as a condition precedent to a closing the obtaining of financing by AirTran. 

     We are prepared to commence preparation of the Asset Acquisition Agreement  immediately and to complete our due diligence investigation.  Such agreements will contain customary terms and conditions for an acquisition of this nature, including:

(i) the filing by Sellers of the Chapter 11 Case;

(ii)AirTran to have the option of wet leasing during a transition period such number of Sellers' B-737-800 aircraft as AirTran may determine.  AirTran to provide to Sellers as promptly as practicable after filing of the Chapter 11 Case an initial indication of the number, if any, of B-737 aircraft it tentatively would elect to take on wet lease for a term of no more than 1 year and within 45-days of filing of the Chapter 11 Case and notify Sellers of AirTran's final determination of the number, if any, of B-737 aircraft it elects to take on wet lease for a term of no more than 1 year;

(iii)B-737-800 wet leases to be on market rates (not to exceed Sellers' out-of-pocket costs) which, among other things, reflect current market aircraft rental rates which are less than rental rates that Sellers are currently incurring on the B-737-800 aircraft (AirTran and Sellers to jointly work with B-737-800 lessors on new lease rate/return schedule for transition period);

(iv)Sellers to operate a Midway schedule during transition period of up to 120 days, such schedule to be coordinated with AirTran wet lease operations, if any, and with, at AirTran's option, a representative of AirTran to be stationed at Sellers' headquarters to coordinate operations between AirTran and Sellers;

(v)Effective with transfer of the Midway Assets to AirTran, AirTran to enter into airport and ground services arrangement with Sellers for Midway operation, such agreement to be terminable by AirTran (a) on 70-day prior notice in the case of termination of such services arrangement with respect to all or substantially all the Midway Gates and (b) on such shorter notice 

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period as AirTran deems reasonable under the circumstances for termination of such services arrangement with respect to individual Midway Gates or less than substantially all the Midway Gates;

(vi)Sellers to use their best efforts to effect the transfer to AirTran of all Sellers' interest in such of the airport facility leases or arrangements at outlying stations currently served by Sellers from Midway as AirTran may request.  In the event, despite Sellers best reasonable efforts, Sellers are unable to assign or transfer any such facility leases or arrangements, such failure shall not be a basis for terminating AirTran's commitment but, in such event, Sellers shall cooperate fully with AirTran, by such alternative arrangements as may be reasonably available, to provide AirTran with the benefit of such leases or arrangements.  To the extent consistent with the level of AirTran's use of such support facilities, AirTran will endeavor to enter into arrangements with Sellers, as may reasonably be requested by Sellers at closing of the Acquisition, to permit Sellers continued access to such facilities on commercially reasonable terms;

(vii)Without undertaking any obligation to hire any employee or group, to the extent practical and consistent with its hiring needs and standards, AirTran to undertake good faith efforts to employ individual qualified existing employees of Sellers as new AirTran employees; 

(viii)Asset Acquisition Agreement to provide for code share for transition and such other elements as most efficiently support passenger accommodation and/or as otherwise required in AirTran's judgment;

(ix)Sellers and AirTran to enter into an agreement with Sellers with respect to ticket sales by Sellers involving transportation to, from or through Chicago's Midway Airport pursuant to which AirTran will be entitled to the ticket revenue but will reimburse Sellers from such revenue for Sellers' out-of-pocket selling costs with respect to such tickets booked by Sellers (and to reimburse, from credit card holdback proceeds received by AirTran, Sellers for transportation taxes and governmental fees and charges which Sellers paid (prior to providing the travel service) on sale of tickets) for passengers who use such tickets to fly on AirTran flights. Parties to explore other marketing opportunities; 

(x)AirTran, at its election, to have the right to enter into a marketing agreement with the Sellers' commuter carrier at Midway on market terms.  As promptly as practicable after filing of the Chapter 11 Case, AirTran to provide to Sellers an initial indication of whether it intends to elect to enter into such a marketing agreement with such commuter carrier and within 45-days after such filing, AirTran to notify Sellers of AirTran's 

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final determination of whether it will enter into such a marketing agreement with such commuter carrier;

(xi)AirTran and Sellers to bargain in good faith concerning a mutually agreeable code share alliance and/or joint marketing arrangement post closing respecting, among others, AirTran's Midway operations and Sellers' Hawaiian operations.  Any such arrangement must be on economic terms acceptable to AirTran;

(xii)at closing of the Acquisition which shall occur no later than 120 days after filing of the Chapter 11 Case, good and valid title to the Midway Assets to be transferred to AirTran debt free and clear of any liens or encumbrances;

(xiii)such approval as AirTran may deem necessary of any aspects of the Acquisition by AirTran's unions and review and final approval of the Acquisition  by AirTran's Board; 

(xiv)MAC clause relating to (a) fuel escalation above $2.00 per gallon (including taxes and fees), (b) cessation of operations by Sellers, (c) conversion of the Chapter 11 Case to a Chapter 7, (d) work stoppage or slow down with respect to Sellers' flight operation of B-737-800 aircraft pursuant to wet leases with AirTran or the operation of regular scheduled flights of Chicago Express Airlines, Inc., or (e) occurrence of any 9/11 type terrorist event or other customary "market out" event;

(xv)the option on the part of AirTran to purchase or acquire all or any portion of the ground support equipment owned, leased or operated by Sellers at Chicago's Midway Airport at the appraised liquidation value;

(xvi)representations and warranties from Sellers with respect to the ownership of the Midway Assets and Sellers' ability to consummate the Acquisition, Sellers' business, condition (financial or otherwise), results of operations, assets, liabilities, properties and prospects of Sellers and specific environmental matters, including to the extent relevant to the Midway Assets; 

(xvii) covenants with respect to the Midway Assets between the time of the execution of the Asset Acquisition Agreement and the closing of the Acquisition; 

(xviii)concurrent with the transfer by Sellers of the Midway Facilities Lease to AirTran, AirTran may deduct from the Acquisition Price and pay over to the City of Chicago all amounts owing to the City of Chicago in respect of the $7,500,000 principal amount unsecured loan made to fund the jetway 

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ATA Airlines, Inc.

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extension at Chicago's Midway Airport and any other amounts as may be owing to the City of Chicago which are cross-defaulted to the Midway Facilities Lease; provided, however, in no event shall AirTran be permitted to deduct in excess of $8,000,000 from such Acquisition Price for such payment to the City of Chicago; 

(xix) other customary conditions to AirTran's obligations to close the Acquisition, including, without limitation, Bankruptcy Court approval, continued accuracy of representations and warranties and compliance with covenants and receipt by all parties of all corporate, regulatory and other third party approvals and authorizations necessary to consummate the Acquisition; 

(xx)covenant with respect to a holdback amount with respect to the Slots (the "Holdback Amount") to be withheld from the Acquisition Price until such Slots are actually transferred to AirTran.  The Holdback Amount will be $24,000,000 and will be released $8,000,000 upon conveyance to AirTran of the eight permanent LaGuardia non AIR 21 arrival and departure slots and $941,177 per Slot  upon vesting in AirTran (either by direct transfer or by re-issuance by the FAA/DOT) of each AIR 21 arrival and departure slot at LaGuardia and Reagan (exclusive of the four AIR 21 slots at LaGuardia to be retained by Sellers).  Until vesting each Slot, the Slots (exclusive of the four AIR 21 slots at LaGuardia to be retained by Sellers) may be operated by AirTran pursuant to a code share arrangement with Sellers.  Should any such Slot not be awarded to AirTran (and the Holdback Amount therefore not be paid to Sellers) and such Slot nevertheless be operated by AirTran pursuant to a code share arrangement with Sellers so that AirTran achieves the operational benefits thereof, the parties will bargain in good faith concerning compensation to Sellers therefore; and

(xxi)covenant with respect to payment by Sellers of a breakup fee on customary terms in the event the Acquisition is not consummated, such fee to be in the amount of 3% of the Acquisition Price plus all out-of-pocket expenses (not to exceed in the aggregate $1,000,000) incurred by AirTran in connection with due diligence, analysis and negotiation of the Acquisition.  In the event the Bankruptcy Court does not approve the Acquisition or requires that competing offers be considered, and thereafter another offer for the Midway Assets is proposed to be accepted by Sellers, AirTran will have a right to increase its commitment to purchase to terms which are more favorable to Sellers than such other offer.  Should the Acquisition of the Midway Facilities Lease not be consummated on or prior to 120 days after the filing of the Chapter 11 Case or the commitment of the Sellers to sell the Midway Assets be terminated prior 

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to such date, any wet leases theretofore entered into may be thereafter terminated on such date as is reasonably specified by AirTran in a notice to Sellers.

Our legal counsel is prepared to commence the preparation of the Asset Acquisition Agreement  as soon as you return a signed copy of this commitment letter to us.

     Promptly following your execution and delivery of this commitment letter in the manner provided below and until the Termination Date (as defined below), Sellers will provide AirTran and any person or organization who is considering providing financing to AirTran to fund all or any portion of the Acquisition Price and their respective officers, directors, employees, agents, counsel, accountants, financial advisors, consultants and other representatives (together "Representatives") with full access, upon reasonable prior notice, to all officers, employees and accountants of Sellers and their subsidiaries and to their Midway Assets and other properties, contracts, books, records and all such other information and data concerning the Midway Assets and the business and operations and financial condition of Sellers and their subsidiaries as AirTran or any of such Representatives reasonably may request in connection with such investigation.  AirTran acknowledges that it has entered into a confidentiality agreement dated August 4, 2004 with you and agrees that its due diligence will be conducted in accordance with and governed by the terms thereof.

     In consideration of the substantial expenditure of time, effort and expense to be undertaken by AirTran and its Representatives immediately upon your execution and delivery of this commitment letter, you hereby undertake and agree that, for the period from the date hereof until the execution of the Asset Acquisition Agreement, but not later than November 1,  2004 (the "Termination Date"), subject to the duties imposed by applicable law, Sellers will not, nor will Sellers permit any of their subsidiaries or affiliates (or authorize or permit any of their respective Representatives) to, take, directly or indirectly, any action to initiate, assist, solicit, receive, negotiate, encourage or accept any offer or inquiry from any person (a) to transfer, assign or pledge the Midway Assets or to engage in any Business Combination (as defined below), (b) to reach any agreement or understanding (whether or not such agreement or understanding is absolute, revocable, contingent or conditional) for, or otherwise attempt to consummate, any Business Combination or (c) to furnish or cause to be furnished any information with respect to the Midway Assets or the Sellers or any of their subsidiaries to any person (other than as contemplated by this commitment letter) who Sellers or any such subsidiary, affiliate or Representative knows or has reason to believe is in the process of considering any acquisition of the Midway Assets or any Business Combination.  If Sellers or any such subsidiary, affiliate or Representative receives, or has received, from any person any offer, inquiry or informational request referred to above, Sellers will promptly advise such person, by written notice, of the terms of this paragraph and will promptly, orally and in writing, advise AirTran of such offer, inquiry or request and deliver a copy of the foregoing notice to AirTran.  For purposes hereof, "Business Combination" means any merger, consolidation or combination to which Sellers or any of their subsidiaries is a party, any sale, dividend, split or other disposition of capital stock or other equity interest of Sellers or any of their subsidiaries or 

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October 24, 2004

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any sale, dividend or other disposition of the Midway Assets or all or substantially all of the properties and assets of Sellers or any of their subsidiaries.

     AirTran and Sellers agree that money damages would not be a sufficient remedy for any breach of any provision of the two preceding paragraphs by Sellers, and that in addition to all other remedies which any party hereto may have, each party will be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach.  No failure or delay by any party hereto in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder.

     Notwithstanding the foregoing, AirTran acknowledges that Sellers will be obligated as debtors in possession in the Chapter 11 Cases to file a motion with the Bankruptcy Court seeking approval of the assumption and assignment of the Midway Facilities Lease and other executory contracts included in the Midway Assets and to sell or otherwise dispose of the Midway Assets pursuant to Sections 363 and 365 of the Bankruptcy Code (the "Sale Motion"), that the Sale Motion will be a public document, that other potential acquirers of the Midway Assets will have to be afforded an opportunity to obtain information from Sellers re the Midway Assets to make an offer to acquire the Midway Assets before the final hearing on the Sale Motion, all as provided in one or more orders of the Bankruptcy Court ("Sale Procedure Orders").  The filing of the Sale Motion and compliance by Sellers with the Sale Procedures Orders shall not constitute any violation of their obligations under this letter or the Asset Acquisition Agreement.

     To become effective and create a commitment by AirTran to proceed with the Acquisition , the terms and conditions contained herein must be accepted and agreed by you and a signed copy transmitted to us by facsimile by 5:00 p.m. (Atlanta time), on October 25, 2004, with a signed original of such letter returned to us by Noon (Atlanta time) on October 26, 2004.

     This commitment letter shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflicts of laws principles thereof.

     By acceptance of this commitment letter, Sellers agree that, except for that certain letter agreement regarding confidentiality dated August 4, 2004 between AirTran and Sellers, this commitment letter supersedes any and all discussions, negotiations, understandings or agreements, written or oral, express or implied.  This commitment letter may not be contradicted by evidence of any actual or alleged prior contemporaneous or subsequent understandings or agreements of the parties, written or oral, express or implied, other than a writing which expressly amends or supersedes this letter.  There are no unwritten understandings or agreements between the parties.

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     BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAW.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION (WITHOUT SUBMITTING TO ARBITRATION), THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS LETTER OR ANY OF THE LOAN DOCUMENTS.

     If you are in agreement with the foregoing, please so indicate by signing two copies of this commitment letter in the spaces set forth below and returning one of such signed copies to the undersigned, whereupon this commitment letter shall constitute our binding agreement to the extent and in accordance with the terms and provisions set forth above.

Very truly yours,

AIRTRAN AIRWAYS, INC.

 

By: /s/ Richard P. Magurno

   Name:  Richard P. Magurno

   Title: Senior Vice President General Counsel

Accepted and agreed to as of the

24th day of October, 2004:

ATA HOLDINGS CORP.

By: /s/ J. Georgia Mikelsons

   Name: J. George Mikelsons

   Title: Chairman and Chief Executive Officer

ATA AIRLINES, INC.

By: /s/ J. Georgia Mikelsons

   Name: J. George Mikelsons

   Title: Chairman and Chief Executive Officer<PAGE>
<TABLE>
<CAPTION>

                                                 ACS - TECH 80 LTD.

                                                   2001 STOCK PLAN

                                      AMENDED AND RESTATED ON NOVEMBER 23, 2003

<S>                                                                                                             <C>
SECTION 1.  ESTABLISHMENT AND PURPOSE.............................................................................3

SECTION 2.  ADMINISTRATION........................................................................................7
         (i)     Committees of the Board of Directors.............................................................7
         (ii)    Authority of the Board of Directors..............................................................7
         (iii)   Indemnification of Members of Board of Directors or a Committee..................................6

SECTION 3.  ELIGIBILITY...........................................................................................6
         (i)     General Rule.....................................................................................6
         (ii)    Ten-Percent Stockholders.........................................................................6
         (iii)   Annual Limit on Incentive Stock Options..........................................................6

SECTION 4.  STOCK SUBJECT TO PLAN.................................................................................8
         (i)     Basic Limitation.................................................................................8
         (ii)    Additional Shares................................................................................7

SECTION 5.  TERMS AND CONDITIONS OF AWARDS OR SALES OF SHARES.....................................................9
         (i)     Stock Purchase Agreement.........................................................................9
         (ii)    Duration of Offers and Nontransferability of Rights..............................................9
         (iii)   Purchase Price...................................................................................7
         (iv)    Withholding Taxes................................................................................9
         (v)     Restrictions on Transfer of Shares...............................................................9
         (vi)    Purchase for Investment..........................................................................7

SECTION 6.  TERMS AND CONDITIONS OF OPTIONS......................................................................10
         (i)     Types of Stock Options...........................................................................8
         (ii)    Interpretation, amendment and Alteration.........................................................8
         (iii)   Stock Option Agreement...........................................................................8
         (iv)    Number of Shares.................................................................................8
         (v)     Exercise Price...................................................................................8
         (vi)    Withholding Taxes................................................................................8
         (vii)   Exercisability..................................................................................11
         (viii)  Accelerated Exercisability......................................................................11
         (ix)    Basic Term......................................................................................11
         (x)     Nontransferability..............................................................................11
         (xi)    No Rights as a Stockholder......................................................................12
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                                             <C>
         (xii)   Modification, Extension and Assumption of Options...............................................12
         (xiii)  Restrictions on Transfer of Shares..............................................................12
         (xiv)   Accelerated Vesting.............................................................................12

SECTION 7.  PAYMENT FOR SHARES...................................................................................12
         (i)     General Rule....................................................................................12
         (ii)    Services Rendered...............................................................................12
         (iii)   Promissory Note.................................................................................13
         (iv)    Exercise/Sale...................................................................................13
         (v)     Exercise/Pledge.................................................................................13

SECTION 8.  ADJUSTMENT OF SHARES.................................................................................13
         (i)     General.........................................................................................13
         (ii)    Mergers and Consolidations......................................................................13
         (iii)   Liquidation.....................................................................................13
         (iv)    Reservation of Rights...........................................................................12

SECTION 9.  SECTION 102 OPTIONS..................................................................................15

SECTION 10. SECURITIES LAW REQUIREMENTS AND GOVERNING LAW.

         (i)     Securities Law Requirements.....................................................................13
         (ii)    Governing Law...................................................................................13

SECTION 11.  NO RETENTION RIGHTS.................................................................................13

SECTION 12.  DURATION AND AMENDMENTS.............................................................................13
         (i)     Term of the Plan................................................................................14
         (ii)    Right to Amend or Terminate the Plan............................................................14
         (iii)   Effect of Amendment or Termination..............................................................14

SECTION 13.  MISCELLANEOUS.......................................................................................15
         (i)     Tax Consequences................................................................................15
         (ii)    Compliance with Laws............................................................................15
         (iii)   Certificates and Legends........................................................................15
         (iv)    No Rights to Employment; No Rights as a Shareholder.............................................15
         (v)     Repurchase Right................................................................................15
         (vi)    Forfeiture for Competition......................................................................15
         (vii)   Restrictions on Transfer........................................................................16
</TABLE>

                                                         2
<PAGE>

                    ACS - TECH 80 LTD. 2001 STOCK OPTION PLAN

SECTION 1. ESTABLISHMENT AND PURPOSE.

        The name of this plan is the ACS-TECH 80 Ltd. 2001 Stock Option Plan
(the "PLAN"). The purpose of the Plan is to enable ACS-Tech 80 Ltd. (the
"COMPANY") and its Subsidiaries to retain and attract executives, other
employees, members of the Board of Directors, and Consultants who contribute to
the Company's success by their ability, ingenuity and industry, and to enable
such individuals to participate in the long-term success and growth of the
Company by giving them a proprietary interest in the Company.

        The purpose of the Plan is to offer selected individuals or entities an
opportunity to acquire a proprietary interest in the success of the Company, or
to increase such interest, by purchasing Shares of the Company's Stock. The Plan
provides both for the direct award or sale of Shares and for the grant of
Options to purchase Shares. Options granted under the Plan may or may not
contain such terms as will qualify such Options for the special tax treatment
under Section 102. Options granted under the Plan to U.S. residents may include
Non-statutory Options as well as Incentive Stock Options ("ISOS") intended to
qualify under Section 422 of the Code.

        Capitalized terms shall have the meanings set opposite them below:

(i)     "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as constituted from time to time.

(ii)    "CHANGE IN CONTROL" shall mean:

                        (1)     The consummation of the acquisition of the
                Company or a Subsidiary by another entity by means of any
                transaction or series of related transactions (including,
                without limitation, any reorganization, merger or consolidation)
                that results in the transfer of 50% or more of the outstanding
                voting power of the Company or such Subsidiary; or

                        (2)     The sale, transfer or other disposition of all
                or substantially all of the Company's or a Subsidiary's assets.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's or a Subsidiary's incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Company's or a Subsidiary's securities immediately before
such transaction.

(iii)   "CODE" shall mean the U.S. Internal Revenue Code of 1986, as amended.

(iv)    "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).

(v)     "COMPANY" shall mean ACS - Tech 80 Ltd., an Israeli company.

                                       3
<PAGE>

"CONSULTANT" shall mean a person or entity who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Directors.

(vi)    "EMPLOYEE" shall mean any individual who is a common-law employee of the
Company, a Parent or a Subsidiary, and with regard to Section 102 Options only
(as defined below) also directors and office holders ("Nosei Misra"-as such term
is defined in the Israeli Companies Law 5759-1999 as may be amended from time to
time) of the Company or a Parent or a Subsidiary, provided that such individual
is not a "controlling party", as defined in section 32 (9) of the Ordinance,
prior to and after the issuance of the Option An individual shall not cease to
be an "Employee" upon the transfer of such individual's employment among the
Company and its Subsidiaries.

(vii)   "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.

(viii)  Ommited.

(ix)    "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons. Notwithstanding the above, if the
Ordinary Shares are listed or admitted for trading on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") or, if not so listed or admitted, selling prices are
quoted by the National Quotation Bureau, Inc., the Fair Market Value of a share
shall be the closing sale price on:

        A.      The date of grant on:

                        (1)     the national securities exchange, if listed or
                admitted on such exchange; or

                        (2)     if not so listed or admitted, on Nasdaq, if
                listed or admitted on Nasdaq; or

        B.      If no sales have been effected on such date, the average of the
closing sale prices on the most recent three trading days preceding the date of
grant on the national securities exchange on which it is listed or admitted or
on Nasdaq if not listed or admitted on an exchange or, if no such sales were
effected on any of such markets during such three trading days, the Fair Market
Value shall be the mean between the high bid and low asked prices on the
exchange or Nasdaq on the date of grant, as the case may be.

        C.      If the shares are traded in the over-the-counter market and not
listed or admitted on Nasdaq, the Fair Market Value of a share shall be the mean
between the high bid and low asked prices as quoted for the date of grant by the
National Quotation Bureau in its "pink sheets"

                                       4
<PAGE>

or equivalent record or publication or, if no bid prices are quoted on such
date, the next preceding date to the date of grant for which a bid price is
quoted.

(x)     "INVOLUNTARY TERMINATION" means the termination of the Service of any
Employee which occurs by reason of:

                        (1)     such Employee's involuntary dismissal or
                discharge by the Company or a Subsidiary for reasons other than
                Misconduct, or

                        (2)     such Employee's voluntary resignation following
                (A) a change in his or her position with the Company or a
                Subsidiary which materially reduces his or her level of
                responsibility, (B) a reduction in his or her level of total
                compensation (including base salary, fringe benefits and
                participation in bonus or incentive programs) or (C) a
                relocation of such Employee's place of employment by more than
                seventy-five (75) miles, provided and only if such change,
                reduction or relocation is effected by the Company or a
                Subsidiary without the Employee's consent.

(xi)    "ISO" shall mean an employee incentive stock option described in Section
422(b) of the Code.

(xii)   "MISCONDUCT" means the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Purchaser, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Company (or any
Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Company (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 Company (or any Parent or
Subsidiary) may consider as grounds for the dismissal or discharge of any
Optionee or Purchaser or other person in the Service of the Company (or any
Parent or Subsidiary).

(xiii)  "NON TRUSTEE 102 STOCK OPTION" shall mean an option which is not issued
to a trustee pursuant and subject to the provisions of Section 102.

(xiv)   "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.

(xv)    "OPTION" shall mean an ISO or Nonstatutory Option or a Section 102
Option or a Section 3(i) Option granted under the Plan and entitling the holder
to purchase Shares.

(xvi)   "OPTIONEE" shall mean a person who holds an Option.

(xvii)  "ORDINANCE" shall mean the Israeli Income Tax Ordinance (New Version),
1961 and regulations, rules and orders of procedure promulgated thereunder.

(xviii) "OUTSIDE DIRECTOR" shall mean a Director who: (a) is not a current
employee of the Company or any member of an affiliated group which includes the
Company; (b) is not a former employee of the Company who receives compensation
for prior services (other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the Company; (d) does
not receive remuneration from the Company, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Section
162(m) of the

                                       5
<PAGE>

Code and regulations thereunder. For this purpose, remuneration includes any
payment in exchange for good or services. This definition shall be further
governed by the provisions of Section 162(m) of the Code and regulations
promulgated thereunder.

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

(xx)      "PLAN" shall mean this ACS - Tech 80 2001 Stock Plan.

(xxi)     "PURCHASE PRICE" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.

(xxii)    "PURCHASER" shall mean a person to whom the Board of Directors has
offered the right to acquire Shares under the Plan (other than upon exercise of
an Option).

(xxiii)   "SECTION 102" shall mean Section 102 of the Ordinance, as amended and
any regulations, rules, orders or procedures promulgated there under, including
Tax Rules (Preferential Tax Treatment regarding Issuance of Shares to
Employees), 2003.

(xxiv)    "102 CAPITAL GAIN OPTION" shall mean options allocated to a Trustee
(as defined below) under the capital gain track pursuant and subject to the
provisions of Section 102. .

(xxv)     "SECTION 102 OPTIONS" shall mean 102 Capital Gain Stock Options and
Non Trustee 102 Stock Options.

(xxvi)    "CAPITAL GAIN LOCK - UP PERIOD" shall mean a period of 24 months from
the end of the tax year in which the date of grant of each Option occurred or a
shorter period as approved by the tax authorities.

(xxvii)   "SECTION 3(I) OPTION" shall mean a stock option that was granted to an
Optionee who is an Israeli resident or is deemed to be an Israeli resident for
purposes of taxation and does not contain such terms as will qualify it for the
special tax treatment under Section 102.

(xxviii)  "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.

(xxix)    "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).

(xxx)     "STOCK" shall mean the Common Stock of the Company, with a par value
of $0.01 per Share.

(xxxi)    "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to the Optionee's Option.

(xxxii)   "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan that contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.

                                       6
<PAGE>

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

(xxxiv)   "TRUSTEE" means a person or entity appointed by the Board of Directors
or the Committee and approved by the tax officer to hold Section 102 Capital
Gain Options on behalf of the Optionee according to the conditions set forth in
Section 102.

SECTION 2. ADMINISTRATION.

(I)     COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by
one or more Committees. Each Committee shall consist of two or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it, subject to applicable law. If a Committee
has not been appointed, the Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.

(II)    AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee. Without limiting the generality of
the aforesaid, the Board of Directors shall have full power and authority: (a)
to designate participants in the Plan, (b) to determine the terms and provisions
of respective Share Purchase Agreements or Stock Option Agreements (which need
not be identical), including but not limited to provisions concerning the time
or times when, and the extent to which, Options may be exercised and the nature
and duration of restrictions as to transferability or restrictions constituting
substantial risk of forfeiture, (c) to accelerate the right of an Optionee to
exercise in whole or in part any previously granted Option, and (d) to interpret
the provisions and supervise the administration of the Plan. Without derogating
from the foregoing, this Plan and its administration, including without
limitation the grant and exercise of Options hereunder, shall be subject to
rules, instructions limitations and restrictions as may from time to time be
adopted by the Company's Board of Directors.

                Except to the extent prohibited by applicable law or the
applicable rules of a stock exchange, the Committee may delegate to executive
officers of the Company the authority to exercise the powers specified in
subclauses (a), (b), (c) and (d) above.

(III)   INDEMNIFICATION OF MEMBERS OF BOARD OF DIRECTORS OR A COMMITTEE. Each
member of the Board of Directors and/or a Committee shall be indemnified and
held harmless by the Company against any cost or expense (including counsel
fees) reasonably incurred by him or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out of any act
or omission to act in connection with the Plan unless arising out of such

                                       7
<PAGE>

member's own fraud or bad faith, to the extent permitted by applicable law. Such
indemnification shall be in addition to any rights of indemnification the member
may have as director or otherwise under the Articles of Association of the
Company, any agreement, vote of shareholders or disinterested directors, or
otherwise.

SECTION 3. ELIGIBILITY.

(I)     GENERAL RULE. Employees, Directors, CEO and other Officers, including
those who are beneficial owners, and Consultants of the Company or any of its
subsidiaries shall be eligible for the grant of Options or the direct award or
sale of Shares. Only Employees shall be eligible for the grant of ISOs or
Section 102 Options.

(II)    TEN-PERCENT STOCKHOLDERS. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for the grant of an
ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a
Share on the date of grant and (ii) such ISO by its terms is not exercisable
after the expiration of five years from the date of grant. For purposes of this
Subsection (b), in determining stock ownership, the attribution rules of Section
424(d) of the Code shall be applied. .

(III)   ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value
(determined as of the time a Stock Option is granted) of the Stock with respect
to which an Incentive Stock Option under this Plan or any other plan of the
Company and any Subsidiary or Parent Corporation is exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000, unless
otherwise permitted by applicable law.

SECTION 4. STOCK SUBJECT TO PLAN.

(I)     BASIC LIMITATION. Shares offered under the Plan may be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 300,000 Shares, subject to adjustment pursuant to
Section 8. The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.

(II)    ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan.

                Upon a stock-for-stock exercise of a Stock Option or upon the
withholding of stock for the payment of the option price or taxes, only the net
number of shares issued to the

                                       8
<PAGE>

optionee shall be used to calculate the number of shares remaining available for
distribution under the Plan.

SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES OF SHARES.

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

(II)    DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser before the earlier of (i) 30 days after the
grant of such right was communicated to the Purchaser by the Company or (ii) a
Change in Control. Such right shall not be transferable and shall be exercisable
only by the Purchaser to whom such right was granted.

(III)   PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan, if newly issued, shall not be less than the par value of such Shares.
Subject to the preceding sentence, the Board of Directors shall determine the
Purchase Price at its sole discretion. The Purchase Price shall be payable in a
form described in Section 7.

(IV)    WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.

(V)     RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold under the
Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.

(VI)    PURCHASE FOR INVESTMENT. Unless the Ordinary Shares covered by the Plan
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the Company has determined that such registration is
unnecessary, each person exercising an Option under the Plan may be required by
the Company to give a representation in writing that such person is acquiring
such shares for his or her own account, for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof. The
Company reserves the right to appropriately legend certificates evidencing the
shares issuable upon exercise that the shares may not be sold or transferred
until they are registered under the Securities Act or transferred in a
transaction exempt from registration thereunder and to place stop transfer
orders on their records as to such shares.

                                       9
<PAGE>

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

(I)     TYPES OF STOCK OPTIONS. The Committee shall have the authority to grant
any eligible Optionees Incentive Stock Options (if the Optionee is an Employee),
Non-Qualified Stock Options, or both types of options, and for Employee's who
are Israeli residents or are deemed to be Israeli residents for purposes of
taxation, Non Trustee 102 Stock Options, 102 Capital Gain Stock Options, or both
types of Options . To the extent that any Option or portion of an Option does
not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.

(II)    INTERPRETATION, AMENDMENT AND ALTERATION. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to disqualify either the
Plan or any Incentive Stock Option under Section 422 of the Code. The preceding
sentence shall not preclude any modification or amendment to an outstanding
Incentive Stock Option, whether or not such modification or amendment results in
disqualification of such Stock Option as an Incentive Stock Option, provided the
optionee consents in writing to the modification or amendment.

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

(IV)    NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option or a Section 102
Option or a Section 3(i) Option.

(V)     EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100% of the Fair
Market Value of a Share on the date of grant, and in certain circumstances a
higher percentage may be required by applicable law. The Exercise Price of a any
other type of Option to purchase newly issued Shares shall not be less than 85%
of the Fair Market Value of a Share on the date of grant. Subject to the
preceding two sentences, the Exercise Price under an Option shall be determined
by the Board of Directors at its sole discretion. The Exercise Price shall be
payable in a form described in Section 7.

(VI)    WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors and the Trustee
(where relevant) may require for the satisfaction of any applicable withholding
tax obligations that may arise in connection with such exercise. The Optionee
shall also make such arrangements as the Board of Directors and the Trustee
(where relevant) may require for the satisfaction of any applicable withholding
tax obligations that may arise in connection with the disposition of Shares
acquired by exercising an Option. With respect to 102 Capital Gain Options, the
Trustee shall hold such 102 Capital Gain Options throughout their existence, and
shall hold the Options or Shares issued following

                                       10
<PAGE>

the exercise of such Options, until the payment of all applicable taxes by the
Optionee subject to that the Trustee is satisfied that the payment is sufficient
and necessary for the satisfaction of such Optionee's tax obligations with
respect to such Options and Shares.

(VII)   EXERCISABILITY. Each Stock Option Agreement shall specify the date when
all or any installment of the Option is to become exercisable. The Board of
Directors shall determine the exercisability provisions of a Stock Option
Agreement at its sole discretion. Upon the termination of the term of employment
of the employee or, if the optionee is a director, non-employee consultant or
advisor, upon the termination of the term of engagement as a director,
consultant or advisor, options hereunder are treated as follows, subject to all
other applicable provisions hereof: (i) in the case of termination of employment
by any reason other than death or disability (as defined below), notwithstanding
the relation between date of termination and the vesting dates of the Options,
any vested Option still in force and unexpired may be exercised within a period
of 90 days from the date of such termination, but only with respect to the
number of shares purchasable at the time of such termination, or (ii) in the
case of termination as a result of death or disability (as defined below), any
Option still in force and unexpired may be exercised for a period of one year
after such termination, to the extent that such options were exercisable on such
date. An Option held by an optionee which is still in force and unexpired on the
date of such person's death may be exercised by such person's legal
representative in whole or in part without regard to the installment exercise
provisions of the Option. "Disability" shall be defined, under this section, as
a disability that qualifies the optionee for a disability benefit under the
National Insurance Law, 1995, as amended, and which prevents the optionee from
maintaining continuos employment with the Company. It is clarified, that
termination of employment in close proximity to the vesting date of all or any
portion of an employee's Options, shall not in itself give the employee rise to
any claim against the Company.

(VIII)  ACCELERATED EXERCISABILITY. Unless the applicable Stock Option Agreement
provides otherwise, all of an Optionee's Options shall become exercisable in
full if (i) the Company is subject to a Change in Control before the Optionee's
Service terminates, and (ii) such Options do not remain outstanding, and (iii)
such Options are not assumed by the surviving corporation or its parent, and
(iv) the surviving corporation or its parent, does not substitute options with
substantially the same terms for such Options. In addition, in the event that an
Optionee's Options do not become exercisable in full upon a Change in Control,
then if an Optionee experiences an Involuntary Termination within twelve months
following such Change in Control, then the Options shall, immediately prior to
the effective date of the Involuntary Termination, become exercisable in full. A
Stock Option Agreement may also provide for accelerated exercisability in the
event of the Optionee's death, disability or retirement or other events.

(IX)    BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and in the
case of an ISO a shorter term may be required by Section 3(b). Subject to the
preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire. A Stock Option Agreement may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee's Service or death.

(X)     NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. During the lifetime of the

                                       11
<PAGE>

Optionee, only the Optionee or the Optionee's guardian or legal representative
may exercise an Option. No Option or interest therein may be transferred,
assigned, pledged or hypothecated by the Optionee during the Optionee's
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.

(XI)    NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an Optionee,
shall have no rights as a stockholder with respect to any Shares covered by the
Optionee's Option until such person becomes entitled to receive such Shares by
filing a notice of exercise and paying the Exercise Price pursuant to the terms
of such Option.

(XII)   MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.

(XIII)  RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise of
an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Option Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally. The above shall not
limit the applicability of any restrictions on sale of securities imposed by any
applicable law.

(XIV)   ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse and all of
such Shares shall become vested if (i) the Company is subject to a Change in
Control before the Optionee's Service terminates and (ii) the repurchase right
is not assigned to the entity that employs the Optionee immediately after the
Change in Control or to its parent or subsidiary. In addition, unless the
applicable Stock Option Agreement provides otherwise, in the event that the
repurchase right is assigned to the entity that employs the Optionee as an
employee immediately after the Change in Control and such Optionee experiences
an Involuntary Termination within twelve months following a Change in Control,
then the repurchase right shall, immediately prior to the effective date of the
Involuntary Termination, lapse and all of the remaining Shares subject to the
repurchase right shall become vested. A Stock Option Agreement may also provide
for accelerated vesting in the event of the Optionee's death or disability or
other events.

SECTION 7. PAYMENT FOR SHARES.

(I)     GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.

(II)    SERVICES RENDERED. At the discretion of the Board of Directors, Shares
may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award.

                                       12
<PAGE>

(III)   PROMISSORY NOTE. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. However, the par value of the Shares, if
newly issued, shall be paid in cash or cash equivalents. The Shares shall be
pledged as security for payment of the principal amount of the promissory note
and interest thereon. The interest rate payable under the terms of the
promissory note shall not be less than the minimum rate (if any) required to
avoid the imputation of additional interest under the Code or the Ordinance.
Subject to the foregoing, the Board of Directors (at its sole discretion) shall
specify the term, interest rate, amortization requirements (if any) and other
provisions of such note.

(IV)    EXERCISE/SALE. To the extent that a Stock Option Agreement so provides,
and if Stock is publicly traded, payment may be made all or in part by the
delivery (on a form prescribed by the Company) of an irrevocable direction to a
securities broker approved by the Company to sell Shares and to deliver all or
part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.

(V)     EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.

SECTION 8. ADJUSTMENT OF SHARES.

(I)     GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.

(II)    MERGERS AND CONSOLIDATIONS. In the event that the Company is a party to
a merger or consolidation, outstanding Options shall be subject to the agreement
of merger or consolidation.

(III)   LIQUIDATION. If the Company is liquidated or dissolved while unexercised
Options remain outstanding under the Plan, then all such outstanding Options may
be exercised in full by the Optionees as of the effective date of any such
liquidation or dissolution of the Company without regard to the installment
exercise provisions of the Option, by the Optionees' giving notice in writing to
the Company of their intention to so exercise.

(IV)    RESERVATION OF RIGHTS. Except as provided in this Section 8, an Optionee
or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an

                                       13
<PAGE>

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

SECTION 9. SECTION 102 OPTIONS

(i)     Section 102 Options may only be Granted Employees as defined in this
Plan.

(ii)    A 102 Capital Gain Option may be granted after the passage of thirty
days (or a shorter period as and if approved by the tax authorities) following
the delivery by the Company to the appropriate Israeli Income Tax Authorities of
a request for approval of the Plan and the Trustee according to Section 102.

(iii)   Anything herein to the contrary notwithstanding, all 102 Capital Gain
Options granted under this Plan shall be granted by the Company to a Trustee
designated by the Committee and the Trustee shall hold each such Options and any
Shares issued upon exercise thereof ("OPTIONED SHARES") in trust for the benefit
of the Optionees in respect of whom such Options were granted. All certificates
representing Optioned Shares issued to the Trustee under the Plan shall be
deposited with the Trustee, and shall be held by the Trustee until such time
that such Optioned Shares are released from the trust.

(iv)    All 102 Capital Gain Stock Options, and any shares issued upon their
exercise and all rights related to them, including bonus shares, will be held by
the Trustee during the 102 Capital Gain Lock - Up Period

(v)     In accordance with Section 102, the Optionee is prohibited from selling
the Option or the Optioned Shares, until the end of the 102 Capital Gain Lock-Up
Period. The meaning of this Section for purposes of income tax is that if an
Optionee voluntarily sells a 102 Capital Gain Option or the Optioned Shares
before the end of the 102 Capital Gain Lock-Up Period, the provisions of Section
102, relating to non-compliance with the 102 Capital Gain Lock - Up Period, will
apply.

(vi)    Anything to the contrary notwithstanding, the Trustee shall not release
any Option which was not already exercised into Shares by the Optionee nor
release any Shares issued upon exercise of a 102 Capital Gain Option, prior to
the full payment of the Exercise Price and Optionee's tax liability arising from
the 102 Capital Gain Stock Option which was granted to him and/or Shares issued
upon exercise of such Option. While holding the Optioned Shares, the Trustee
will be responsible for transferring to the Optionee any notice provided by the
Company to its shareholders. Subject to fulfillment of all their obligations,
Optionees will be entitled to instruct the Trustee to act on their behalf in
utilizing the rights of their Optioned Shares and the Trustee shall be obligated
thereto. Prior to receipt of the Option, the Optionee will sign an undertaking
to release the Trustee from any liability in respect of any action or decision
duly taken and bona fide executed in relation with the Plan, or any Option
granted or Optioned Share issued to him thereunder.

(vii)   With regard to Non Trustee 102 Options, if an Optionee's employment with
the Company is terminated for any reason, the Optionee will be obligated to
provide the Company,

                                       14
<PAGE>

to its satisfaction and subject to its sole discretion, with a security or
guarantee to cover any future tax obligation resulting from the disposition of
Shares received pursuant to the exercise of such Non Trustee 102 Option.

SECTION 10. SECURITIES LAW REQUIREMENTS AND GOVERNING LAW.

(I)     SECURITIES LAW REQUIREMENTS. Shares shall not be issued under the Plan
unless the issuance and delivery of such Shares comply with (or are exempt from)
all applicable requirements of law, including (without limitation) the U.S.
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, state securities laws and regulations, Israeli securities laws and
regulations and the regulations of any stock exchange or other securities market
on which the Company's securities may then be traded.

(II)    GOVERNING LAW. This Plan shall be deemed made in the State of Israel and
shall be governed by and construed and enforced in accordance with the laws of
Israel applicable to contracts made and to be performed in Israel, without
giving effect to the principles of conflict of laws.

SECTION 11. NO RETENTION RIGHTS.

                Nothing in the Plan or in any right or Option granted under the
Plan shall confer upon the Purchaser or Optionee any right to continue in
Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Company (or any Parent or Subsidiary
employing or retaining the Purchaser or Optionee) or of the Purchaser or
Optionee, which rights are hereby expressly reserved by each, to terminate his
or her Service at any time and for any reason, with or without cause.

SECTION 12. DURATION AND AMENDMENTS.

(I)     TERM OF THE PLAN. The Plan, as set forth herein, shall become effective
on the date of its adoption by the Board of Directors, subject to the approval
of the Company's stockholders. In the event that the stockholders fail to
approve the Plan within 12 months after its adoption by the Board of Directors,
any grants of Options or sales or awards of Shares that have already occurred
shall be rescinded, and no additional grants, sales or awards shall be made
thereafter under the Plan. The Plan shall terminate automatically 10 years after
its adoption by the Board of Directors and may be terminated on any earlier date
pursuant to Subsection (b) Below.

(II)    RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may amend,
suspend or terminate the Plan at any time and for any reason; provided, however,
that any amendment of the Plan which increases the number of Shares available
for issuance under the Plan (except as provided in Section 8), or which
materially changes the class of persons who are eligible for the grant of ISOs,
shall be subject to the approval of the Company's stockholders. Unless otherwise
required by applicable law, stockholder approval shall not be required for any
other amendment of the Plan.

                                       15
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(III)   EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of a purchase
right under Section 5(b) or upon exercise of an Option, each granted prior to
such termination. The termination of the Plan, or any amendment thereof, shall
not affect any Share previously issued or any Option previously granted under
the Plan, including without limitation the term of such Options.

SECTION 13. MISCELLANEOUS.

(I)     TAX CONSEQUENCES. In any event, the Optionee shall be liable for all Tax
consequences and no tax liability or consequence shall be attributed to the
Company an/or the Trustee.

(II)    COMPLIANCE WITH LAWS. No shares of Stock will be issued pursuant to the
Plan unless in compliance with applicable legal requirements, including without
limitation, those relating to securities laws and stock exchange listing
requirements. The Committee may require each person purchasing shares pursuant
to a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof.

(III)   CERTIFICATES AND LEGENDS. All certificates for shares of Stock delivered
under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed, and any applicable federal or
state securities laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions. The
Company reserves the right to place a legend on any stock certificate issued
upon the exercise of a Stock Option pursuant to the Plan to assure compliance
with any of the terms of the Plan. The issuance of shares of Stock may be
affected on a non-certificated basis to the extent not prohibited by applicable
law or the applicable rules of any stock exchange upon which the Stock is then
listed.

(IV)    NO RIGHTS TO EMPLOYMENT; NO RIGHTS AS A SHAREHOLDER. Nothing contained
in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, subject to stockholder approval if such approval is
required; and such arrangements may be either generally applicable or applicable
only in specific cases. The adoption of the Plan shall not confer upon any
employee optionee or consultant of the Company, any Parent Corporation, or any
Subsidiary any right to continued employment with the Company, any Parent
Corporation, or any Subsidiary, as the case may be, nor shall it interfere in
any way with the right of the Company, any Parent Corporation, or any Subsidiary
to terminate the employment of any of its employees or consultants at any time.

(V)     REPURCHASE RIGHT. The Committee may, at the time of the grant of an
award under the Plan, provide the Company with the right to repurchase shares of
Stock acquired pursuant to the Plan, pursuant to which the Optionee shall be
required to offer to the Company upon termination of employment for any reason
any shares that the optionee acquired under the Plan, with the price being the
then Fair Market Value of the Stock or, in the case of a termination for Cause,
an amount equal to the cash consideration paid for the Stock, subject to such
other terms and conditions as the Committee may specify at the time of grant.

                                       16
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(VI)    FORFEITURE FOR COMPETITION. The Committee may, at the time of the grant
of an award under the Plan, provide the Company with the right to repurchase, or
require the forfeiture of, shares of Stock acquired pursuant to the Plan by any
optionee who, at any time within two years after termination of employment with
the Company or any Subsidiary or Parent Corporation, directly or indirectly
competes with, or is employed by a competitor of, the Company or any Subsidiary
or Parent Corporation.

(VII)   RESTRICTIONS ON TRANSFER. As a further condition to the grant of any
stock option or the issuance of Stock to optionee, the optionee agrees to the
following:

                        (a)     In the event the Company advises the optionee
                that it plans an underwritten public offering of its Common
                Stock in compliance with the Securities Act of 1933, as amended,
                and the underwriter(s) seek to impose restrictions under which
                certain shareholders may not sell or contract to sell or grant
                any option to buy or otherwise dispose of part or all of their
                stock purchase rights of the underlying Common Stock, the
                optionee will not, for a period not to exceed 180 days from the
                prospectus, sell or contract to sell or grant an option to buy
                or otherwise dispose of any Stock Option granted to optionee
                pursuant to the Plan or any of the underlying shares of Common
                Stock without the prior written consent of the underwriter(s) or
                its representative(s).

                        (b)     In the event the Company makes any public
                offering of its securities and determines in its sole discretion
                that it is necessary to reduce the number of issued but
                unexercised stock purchase rights so as to comply with any
                state's securities or Blue Sky law limitations with respect
                thereto, the Board of Directors of the Company shall have the
                right (i) to accelerate the exercisability of any Stock Option
                and the date on which such Stock Option must be exercised,
                provided that the Company gives the optionee prior written
                notice of such acceleration, and (ii) to cancel any Stock
                Options or portions thereof which the optionee does not exercise
                prior to or contemporaneously with such public offering.

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