Document:

Q1'03 10-Q - Appleton Employment Agreement

 Exhibit 10.32

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is entered into as of March 17, 2003 (the "Commencement Date") by MarketWatch.com, Inc. (the "Company") and Doug Appleton (the "Executive").

	Term of Employment.  The term of employment of Executive by the Company hereunder shall commence on the Commencement Date and shall continue thereafter under the terms of this Agreement and any amendments agreed to from time to time between Company and Executive for a period of three years (the "Term") unless earlier terminated pursuant to Section 6 (such term being hereinafter referred to as the "Employment Period").

	Title; Duties.  The Executive shall serve as General Counsel reporting to the Chief Executive Officer.  Executive shall perform those duties and responsibilities inherent in the position of General Counsel, including such duties and responsibilities as the Chief Executive Officer shall assign.  Executive shall serve the Company faithfully and to the best of his ability in such capacities, devoting his full business time, attention, knowledge, energy and skills to such employment; provided, however, the Company acknowledges that Executive may serve on the board of directors of other companies with the prior approval of the Chief Executive Officer.  Executive shall travel as reasonably required in connection with the performance of his duties hereunder.

	Compensation. The Company shall pay, and Executive shall accept, as full consideration for his services hereunder compensation consisting of the following:

3.1Base Salary. $175,000 per year base salary during the first year of the Term and subject to increase by the Board during successive years of the Term ("Base Salary").  Base Salary is payable in installments in accordance with the Company's normal payroll practices, less such deductions or withholdings as are required by law.

3.2
Bonus. Annual target bonus (the "Target Bonus") at the rate and in accordance with the specifications on Exhibit A attached hereto.

3.3Equity Option. An option to purchase 100,000 shares of the Company's common stock shall be granted on the Commencement Date, with an exercise price per share equal to the fair market value of the Company's common stock as of the date of the grant (the "Option"). The Option shall vest and become exercisable as to one-third of the total shares subject to the Option on each of the first three anniversaries of the date of grant. Executive shall be eligible to receive grants of additional options on an annual basis at the sole discretion of the Board.

3.4Vacation.  You will be entitled to three (3) weeks, which is equal to fifteen (15) working days, of vacation during the calendar year.  The amount of vacation time available to you during your first year is determined by the proration based on the number of full months of employment completed by you during the year.

	Benefits.  Subject to all applicable eligibility requirements and legal limitations, Executive will be able to participate in any and all 401(k), vacation, medical, dental, life and long-term disability insurance and/or other benefit plans which from time to time may be established for other employees of the Company.

	Reimbursement of Expenses.  The Company will reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, subject to review by the Board or its compensation committee, if applicable.

	Benefit Upon Termination of Employment Period.

6.1Disability. In the event of the permanent disability (as hereinafter defined) of Executive during the Employment Period, the Company shall have the right, upon written notice to Executive, to terminate Executive's employment hereunder, effective upon the 30th calendar day following the giving of such notice (or such later day as shall be specified in such notice). Upon the effectiveness of such termination, (i) the Company shall have no further obligations hereunder, except to pay and provide, subject to applicable withholding, (A) all amounts of Base Salary accrued, but unpaid, at the effective date of termination, (B) Executive's Target Bonus for the year in which such disability occurs, (C) all reasonable unreimbursed business-related expenses, and (D) all accrued but unused vacation pay, (ii) Executive's Option shall vest to the extent of one additional year of vesting and shall remain exercisable for the periods specified in the Option and (iii) Executive shall have no further obligations hereunder other than those provided for in Sections 8 and 9 hereof. All amounts payable to Executive pursuant to this Section 6.1 shall be payable within 10 days following the effectiveness of the termination of Executive's employment. For purposes of this Agreement, "permanent disability" shall be defined as any physical or mental disability or incapacity which renders Executive incapable in any material respect of performing the services required of him, with or without reasonable accommodation, in accordance with his obligations under Section 2 for a period of 180 consecutive days, or for 180 days in any 360 day period.

6.2Death. In the event of the death of Executive during the Employment Period, this Agreement shall automatically terminate and the Company shall have no further obligations hereunder, except to pay and provide to Executive's beneficiary or other legal representative, subject to applicable withholding, (i) all amounts of Base Salary and bonus accrued but unpaid at the date of death, (ii) all accrued but unused vacation pay and (iii) all reasonable unreimbursed business-related expenses. All amounts payable to Executive pursuant to this Section 6.2 shall be payable within 30 days following the date of death.

6.3Termination Without Cause. In the event of the termination of Executive's employment by the Company without Cause (as defined below in Section 6.4) or upon the Executive's voluntary termination of his employment for Good Reason (as defined below in Section 6.5), (i) all amounts of Base Salary and vacation pay accrued but unpaid on the date of termination shall be paid by the Company on the date of termination and all reasonable unreimbursed business-related business expenses, (ii) Executive's then-applicable Base Salary for a period of 12 months shall be paid to Executive in 12 equal monthly installments, and (iii) the unvested portion of any outstanding options held by Executive on the date of such termination without Cause or for Good Reason shall immediately vest and become exercisable in full and shall remain exercisable for the periods specified in each such option.

6.4Circumstances Under Which Termination Benefits Would Not Be Paid. The Company shall be obligated to pay the amounts of Base Salary and Target Bonus accrued and unpaid on the date of termination, and shall not be obligated to pay Executive the termination benefits or continue the Option vesting described in Sections 6.1 through 6.3 above, if the Employment Period is terminated for Cause or if Executive voluntarily terminates his employment other than for Good Reason (as defined below in Section 6.5). For purposes of this Agreement, "Cause" shall be limited to:

(A)Willful failure by Executive to substantially perform his duties hereunder, other than a failure resulting from his complete or partial incapacity due to physical or mental illness or impairment;

(B)A material and willful violation of a federal or state law or regulation applicable to the business of the Company or that adversely affects the image of the Company;

(C)Commission of a willful act by Executive which constitutes gross misconduct and is injurious to the Company; or

(D)A willful breach of a material provision of this Agreement.

6.5Constructive Termination. Notwithstanding anything in this Section 6 to the contrary, for purposes of this Agreement the Employment Period will be deemed to have been terminated and Executive will be deemed to have Good Reason for voluntary termination of the Employment Period ("Good Reason"), if there should occur:

(A)A relocation of Executive's principal place of employment outside the San Francisco Bay Area without Executive's consent.

	Alternative Dispute Resolution. In the event of any controversy arising from or concerning the interpretation or application of this Agreement or its subject matter, the parties agree that such controversy shall be resolved exclusively through binding arbitration before a single neutral arbitrator selected jointly by the parties. The Company shall be responsible for 100% of the fees and expenses of the arbitrator. Each party shall be responsible for 100% of its own attorneys' fees and any other costs occasioned by the arbitration, without regard to which party to the controversy prevails; provided, that the arbitrator may award attorneys' fees and costs to a party when so empowered by law. The parties to the arbitration shall have all rights, remedies, and defenses available to them in a civil action for the issues in controversy. If, for any legal reason, a controversy arising from or concerning the interpretation or application of this Agreement or its subject matter cannot be arbitrated as provided in this Section 7, the parties agree that any civil action shall be brought in the United States District Court for the Northern District of California or, only if there is no basis for federal jurisdiction, in the Superior Court of the State of California in and for the City and County of San Francisco. The parties further agree that any such civil action shall be tried to the court, sitting without a jury.

	Cooperation with the Company After Termination of the Employment Period. Following termination of the Employment Period by Executive, Executive shall fully cooperate with the Company in all matters relating to the winding up of his pending work on behalf of the Company and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company.

	Confidentiality; Return of Property; Non-Solicitation of Employees.

(a)The Executive acknowledges that during the Employment Period he will receive confidential information from the Company and subsidiaries of the Company and the respective customers thereof (each a "Relevant Entity"). Accordingly, the Executive agrees that during the Employment Period (as it may be extended from time to time) and thereafter for a period of two years, the Executive and his affiliates shall not, except in the performance of his obligations to the Company hereunder or as may otherwise be approved in advance by the Company, directly or indirectly, disclose or use (except for the direct benefit of the Company) any confidential information that he may learn or has learned by reason of his association with any Relevant Entity. Upon termination of this Agreement, the Executive shall promptly return to the Company any and all properties, records or papers of any Relevant Entity, that may have been in his possession at the time of termination, whether prepared by the Executive or others, including, but not limited to, confidential information and keys. For purposes of this Agreement, "confidential information" includes all data, analyses, reports, interpretations, forecasts, documents and information concerning a Relevant Entity and its affairs, including, without limitation with respect to clients, products, policies, procedures, methodologies, trade secrets and other intellectual property, systems, personnel, confidential reports, technical information, financial information, business transactions, business plans, prospects or opportunities, (i) that the Company reasonably believes are confidential or (ii) the disclosure of which could be injurious to a Relevant Entity or beneficial to competitors of a Relevant Entity, but shall exclude any information that (x) the Executive is required to disclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law, (y) is or becomes publicly available prior to the Executive's disclosure or use of the information in a manner violative of the second sentence of this Section 9 (a), or (z) is rightfully received by Executive without restriction or disclosure from a third party legally entitled to possess and to disclose such information without restriction (other than information that he may learn or has learned by reason of his association with any Relevant Entity). For purposes of this Agreement, "affiliate" means any entity that, directly or indirectly, is controlled by, or under common control with, the Executive. For purposes of this definition, the terms "controlled" and "under common control with" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting stock, by contract or otherwise.

(b)For a period of one year following the termination of Executive's employment with the Company for any reason, he will not, without the Company' express written consent, either on his own behalf or on behalf of another, solicit employees of the Company or any subsidiary of the Company for the purpose of hiring them. General employment advertising shall not be deemed to be a solicitation.

	General.

10.1Indemnification. In the event Executive is made, or threatened to be made, a target, subject, witness or party to any civil, criminal or administrative action, proceeding or investigation by reason of the fact that Executive is or was a director, officer or employee of the Company, or serves or served any other corporation fifty percent (50%) or more owned by the Company in any capacity at the Company's request, or serves or served as a director of any other corporation at the Company's request, or serves or served as a fiduciary of any ERISA plan at the Company's request, Executive shall be indemnified by the Company for all amounts paid as a fine or settlement or judgment, and the Company shall pay without any undertaking the Executive's defense costs when and as incurred, all to the fullest extent permitted by law.

10.2Waiver.  Subject to the requirements of state and federal law, including without limitation applicable statutes of limitation, neither party shall, by mere lapse of time, without giving notice or taking other action hereunder, be deemed to have waived any breach by the other party of any of the provisions of this Agreement. Further, the waiver by either party of a particular breach of this Agreement by the other shall neither be construed as nor constitute a continuing waiver of such breach or of other breaches by the same or any other provision of this Agreement.

10.3Severability. If for any reason a court of competent jurisdiction or arbitrator finds any provision of this Agreement be unenforceable, the provision shall be deemed amended as necessary to conform to applicable laws or regulations, or if it cannot be so amended without materially altering the intention of the parties, the remainder of the Agreement shall continue in full force and effect as if the offending provision were not contained herein.

10.4Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be considered effective upon personal service or upon transmission of a facsimile or the deposit with Federal Express or in Express Mail and addressed to the Board of Directors of the Company at its principal corporate address, and to Executive at his most recent address shown on the Company's corporate records, or at any other address which he may specify in any appropriate notice to the Company.

10.5Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together constitutes one and the same instrument and in making proof hereof it shall not be necessary to produce or account for more than one such counterpart.

10.6Entire Agreement. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this Agreement, including Exhibit A attached hereto, shall constitute the complete and exclusive statement of the agreement between the parties and supersedes all proposals (oral or written), understandings, representations, conditions, covenants, and all other communications between the parties relating to the subject matter hereof. 

10.7Governing Law. This Agreement shall be governed by the law of the State of California.

10.8Assignment and Successors. The Company shall have the right to assign its rights and obligations under this Agreement to an entity which acquires substantially all of the assets of the Company, whether by merger or otherwise. The rights and obligations of the Company under this Agreement shall inure to the benefit and shall be binding upon the successors and assigns of the Company.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

	 	
MARKETWATCH.COM, INC.

	 	
/s/ LARRY KRAMER

Larry Kramer

Chief Executive Officer

 

	 	
EXECUTIVE

	 	
/s/ DOUG APPLETON

Doug Appleton

Exhibit A

TARGET BONUS AND SPECIFICATIONS

 

Annual Target Bonus Rate: Thirty percent (30%) of the then-applicable base salary actually paid in a given year. 

 Specifications: two components.
Discretionary Component: Board may decide when, and if to grant this component. This component shall be 15% of the then-applicable base salary actually paid in a given year.

Achievement of Financial Objectives Component: Target Bonus, in the amount payable shown below, is payable upon the Company's achievement of the financial objectives set forth below:

	
Year of Agreement
	
% of Base Salary Actually Paid for Such Year Payable Upon Achievement of Financial Objectives
	
Financial Objectives

	
1st Year
	
15%
	
To be determined annually by the Board

	
2nd Year
	
15%
	
To be determined annually by the Board

	
3rd Year
	
15%
	
To be determined annually by the BoardEXHIBIT 10.1
                                                                    ------------

                              DATAWATCH CORPORATION

                                 1996 STOCK PLAN
                                 ---------------

         1.    PURPOSE. The purpose of the Datawatch Corporation 1996 Stock Plan
(the "Plan") is to encourage key employees of Datawatch Corporation (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.

         2.    ADMINISTRATION OF THE PLAN.

                         A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall
               (be administered by the Board of Directors of the Company (the
               "Board") or, subject to paragraph 2(D) (relating to compliance
               with Section 162(m) of the Code), by a committee appointed by the
               Board (the "Committee"). Hereinafter, all references in this Plan
               to the "Committee" shall mean the Board if no Committee has been
               appointed. Subject to ratification of the grant or authorization
               of each Stock Right by the Board (if so required by applicable
               state law), and subject to the terms of the Plan, the Committee
               shall have the authority to (i) determine to whom (from among the
               class of employees eligible under paragraph 3 to receive ISOs)
               ISOs shall be granted, and to whom (from among the class of
               individuals and entities eligible under paragraph 3 to receive
               Non-Qualified Options and Awards and to make Purchases)
               Non-Qualified Options, Awards and authorizations to make
               Purchases may be granted; (ii) determine the time or times at
               which Options or Awards shall be granted or Purchases made; (iii)
               determine the purchase price of shares subject to each Option or
               Purchase, which prices shall not be less than the minimum price
               specified in paragraph 6; (iv) determine whether each Option
               granted shall be an ISO or a Non-Qualified Option; (v) determine
               (subject to paragraph 7) the time or times when each Option shall
               become exercisable and the duration of the exercise period; (vi)
               extend the period during which outstanding Options may be
               exercised; (vii) determine whether restrictions such as
               repurchase options are to be imposed on shares subject to
               Options, Awards and Purchases
<PAGE>

                                      -2-

               and the nature of such restrictions, if any, and (viii) interpret
               the Plan and prescribe and rescind rules and regulations relating
               to it. If the Committee determines to issue a Non-Qualified
               Option, it shall take whatever actions it deems necessary, under
               Section 422 of the Code and the regulations promulgated
               thereunder, to ensure that such Option is not treated as an ISO.
               The interpretation and construction by the Committee of any
               provisions of the Plan or of any Stock Right granted under it
               shall be final unless otherwise determined by the Board. The
               Committee may from time to time adopt such rules and regulations
               for carrying out the Plan as it may deem advisable. No member of
               the Board or the Committee shall be liable for any action or
               determination made in good faith with respect to the Plan or any
               Stock Right granted under it.

                         B. COMMITTEE ACTIONS. The Committee may select one of
               its members as its chairman, and shall hold meetings at such time
               and places as it may determine. A majority of the Committee shall
               constitute a quorum and acts of a majority of the members of the
               Committee at a meeting at which a quorum is present, or acts
               reduced to or approved in writing by all the members of the
               Committee (if consistent with applicable state law), shall be the
               valid acts of the Committee. From time to time the Board may
               increase the size of the Committee and appoint additional members
               thereof, remove members (with or without cause) and appoint new
               members in substitution therefor, fill vacancies however caused,
               or remove all members of the Committee and thereafter directly
               administer the Plan.

                         C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights
               may be granted to members of the Board. All grants of Stock
               Rights to members of the Board shall in all respects be made in
               accordance with the provisions of this Plan applicable to other
               eligible persons. Members of the Board who either (i) are
               eligible to receive grants of Stock Rights pursuant to the Plan
               or (ii) have been granted Stock Rights may vote on any matters
               affecting the administration of the Plan or the grant of any
               Stock Rights pursuant to the Plan, except that no such member
               shall act upon the granting to himself or herself of Stock
               Rights, but any such member may be counted in determining the
               existence of a quorum at any meeting of the Board during which
               action is taken with respect to the granting to such member of
               Stock Rights.

                         D. PERFORMANCE-BASED COMPENSATION. The Board, in its
               discretion, may take such action as may be necessary to ensure
               that Stock Rights granted under the Plan qualify as "qualified
               performance-based compensation" within the meaning of Section
               162(m) of the Code and applicable regulations promulgated
               thereunder ("Performance-Based Compensation"). Such action may
               include, in the Board's discretion, some or all of the following
               (i) if the Board determines that Stock Rights granted under the
               Plan generally shall constitute Performance-Based Compensation,
               the Plan shall be administered, to the extent required for such
               Stock Rights to constitute Performance-Based Compensation, by a
<PAGE>

                                      -3-

               Committee consisting solely of two or more "outside directors"
               (as defined in applicable regulations promulgated under Section
               162(m) of the Code), (ii) if any Non-Qualified Options with an
               exercise price less than the fair market value per share of
               Common Stock are granted under the Plan and the Board determines
               that such Options should constitute Performance-Based
               Compensation, such options shall be made exercisable only upon
               the attainment of a pre-established, objective performance goal
               established by the Committee, and such grant shall be submitted
               for, and shall be contingent upon shareholder approval and (iii)
               Stock Rights granted under the Plan may be subject to such other
               terms and conditions as are necessary for compensation recognized
               in connection with the exercise or disposition of such Stock
               Right or the disposition of Common Stock acquired pursuant to
               such Stock Right, to constitute Performance-Based Compensation.

         3.    ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to
employees of the Company or any Related Corporation. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee,
officer or director (whether or not also an employee) or consultant of the
Company or any Related Corporation. The Committee may take into consideration a
recipient's individual circumstances in determining whether to grant a Stock
Right. The granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify such individual or entity
from, participation in any other grant of Stock Rights.

         4.    STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 624,0001, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.

         No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 155,556 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.

         5.    GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the
Plan at any time on or after December 10, 1996 and prior to December 10, 2006.
The date of grant of a Stock Right under the Plan will be the date specified by
the Committee at the time it grants the

--------
1 An amendment increasing the number of shares available for issuance under the
Plan from 494,400 to 624,000 was approved by the Board of Directors in December
2002 and was approved by the stockholders at the Annual Meeting of Stockholders
held on March 7, 2003.
<PAGE>

                                      -4-

Stock Right; provided, however, that such date shall not be prior to the date on
which the Committee acts to approve the grant.

         6.    MINIMUM OPTION PRICE; ISO LIMITATIONS.

                         A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND
               PURCHASES. Subject to paragraph 2(D) (relating to compliance with
               Section 162(m) of the Code), the exercise price per share
               specified in the agreement relating to each Non-Qualified Option
               granted, and the purchase price per share of stock granted in any
               Award or authorized as a Purchase, under the Plan may be less
               than the fair market value of the Common Stock of the Company on
               the date of grant; provided that, in no event shall such exercise
               price or such purchase price be less than the minimum legal
               consideration required therefor under the laws of any
               jurisdiction in which the Company or its successors in interest
               may be organized.

                         B. PRICE FOR ISOS. The exercise price per share
               specified in the agreement relating to each ISO granted under the
               Plan shall not be less than the fair market value per share of
               Common Stock on the date of such grant. In the case of an ISO to
               be granted to an employee owning stock possessing more than ten
               percent (10%) of the total combined voting power of all classes
               of stock of the Company or any Related Corporation, the price per
               share specified in the agreement relating to such ISO shall not
               be less than one hundred ten percent (110%) of the fair market
               value per share of Common Stock on the date of grant. For
               purposes of determining stock ownership under this paragraph, the
               rules of Section 424(d) of the Code shall apply.

                         C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each
               eligible employee may be granted Options treated as ISOs only to
               the extent that, in the aggregate under this Plan and all
               incentive stock option plans of the Company and any Related
               Corporation, ISOs do not become exercisable for the first time by
               such employee during any calendar year with respect to stock
               having a fair market value (determined at the time the ISOs were
               granted) in excess of $100,000. The Company intends to designate
               any Options granted in excess of such limitation as Non-Qualified
               Options, and the Company shall issue separate certificates to the
               optionee with respect to Options that are Non-Qualified Options
               and Options that are ISOs.

                         D. DETERMINATION OF FAIR MARKET VALUE. If, at the time
               an Option is granted under the Plan, the Company's Common Stock
               is publicly traded, "fair market value" shall be determined as of
               the date of grant or, if the prices or quotes discussed in this
               sentence are unavailable for such date, the last business day for
               which such prices or quotes are available prior to the date of
               grant and shall mean (i) the average (on that date) of the high
               and low prices of the Common Stock on the principal national
               securities exchange on which the Common Stock is traded, if the
               Common Stock is then traded on a national securities exchange; or
               (ii) the
<PAGE>

                                      -5-

               last reported sale price (on that date) of the Common Stock on
               the Nasdaq National Market, if the Common Stock is not then
               traded on a national securities exchange; or (iii) the closing
               bid price (or average of bid prices) last quoted (on that date)
               by an established quotation service for over-the-counter
               securities, if the Common Stock is not reported on the Nasdaq
               National Market. If the Common Stock is not publicly traded at
               the time an Option is granted under the Plan, "fair market value"
               shall mean the fair value of the Common Stock as determined by
               the Committee after taking into consideration all factors which
               it deems appropriate, including, without limitation, recent sale
               and offer prices of the Common Stock in private transactions
               negotiated at arm's length.

         7.    OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.

         8.    EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:

                         A. VESTING. The Option shall either be fully
               exercisable on the date of grant or shall become exercisable
               thereafter in such installments as the Committee may specify.

                         B. FULL VESTING OF INSTALLMENTS. Once an installment
               becomes exercisable, it shall remain exercisable until expiration
               or termination of the Option, unless otherwise specified by the
               Committee.

                         C. PARTIAL EXERCISE. Each Option or installment may be
               exercised at any time or from time to time, in whole or in part,
               for up to the total number of shares with respect to which it is
               then exercisable.

                         D. ACCELERATION OF VESTING. The Committee shall have
               the right to accelerate the date that any installment of any
               Option becomes exercisable; provided that the Committee shall
               not, without the consent of an optionee, accelerate the permitted
               exercise date of any installment of any Option granted to any
               employee as an ISO (and not previously converted into a
               Non-Qualified Option pursuant to paragraph 16) if such
               acceleration would violate the annual vesting limitation
               contained in Section 422(d) of the Code, as described in
               paragraph 6(C).
<PAGE>

                                      -6-

         9.    TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
three months after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.

         10.   DEATH; DISABILITY.

                         A. DEATH. If an ISO optionee ceases to be employed by
               the Company and all Related Corporations by reason of his or her
               death, any ISO owned by such optionee may be exercised, to the
               extent otherwise exercisable on the date of death, by the estate,
               personal representative or beneficiary who has acquired the ISO
               by will or by the laws of descent and distribution, until the
               earlier of (i) the specified expiration date of the ISO or (ii)
               180 days from the date of the optionee's death.

                         B. DISABILITY. If an ISO optionee ceases to be employed
               by the Company and all Related Corporations by reason of his or
               her disability, such optionee shall have the right to exercise
               any ISO held by him or her on the date of termination of
               employment, for the number of shares for which he or she could
               have exercised it on that date, until the earlier of (i) the
               specified expiration date of the ISO or (ii) 180 days from the
               date of the termination of the optionee's employment. For the
               purposes of the Plan, the term "disability" shall mean "permanent
               and total disability" as defined in Section 22(e)(3) of the Code
               or any successor statute.

         11.   ASSIGNABILITY. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be
<PAGE>

                                      -7-

exercisable only by such optionee. Stock Rights other than ISOs shall be
transferable to the extent set forth in the agreement relating to such Stock
Right.

         12.   TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.

         13.   ADJUSTMENTS. Upon the occurrence of any of the following events,
an optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:

                         A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
               Common Stock shall be subdivided or combined into a greater or
               smaller number of shares or if the Company shall issue any shares
               of Common Stock as a stock dividend on its outstanding Common
               Stock, the number of shares of Common Stock deliverable upon the
               exercise of Options shall be appropriately increased or decreased
               proportionately, and appropriate adjustments shall be made in the
               purchase price per share to reflect such subdivision, combination
               or stock dividend.

                         B. CONSOLIDATIONS OR MERGERS. If the Company is to be
               consolidated with or acquired by another entity in a merger or
               other reorganization in which the holders of the outstanding
               voting stock of the Company immediately preceding the
               consummation of such event, shall, immediately following such
               event, hold, as a group, less than a majority of the voting
               securities of the surviving or successor entity, or in the event
               of a sale of all or substantially all of the Company's assets or
               otherwise (each, an "Acquisition"), the Committee or the board of
               directors of any entity assuming the obligations of the Company
               hereunder (the "Successor Board"), shall, as to outstanding
               Options, either (i) make appropriate provision for the
               continuation of such Options by substituting on an equitable
               basis for the shares then subject to such Options either (a) the
               consideration payable with respect to the outstanding shares of
               Common Stock in connection with the Acquisition, (b) shares of
               stock of the surviving or successor corporation or (c) such other
               securities as the Successor Board deems appropriate, the fair
               market value of which shall not materially exceed the fair
<PAGE>

                                      -8-

               market value of the shares of Common Stock subject to such
               Options immediately preceding the Acquisition; or (ii) upon
               written notice to the optionees, provide that all Options must be
               exercised, to the extent then exercisable or to be exercisable as
               a result of the Acquisition, within a specified number of days of
               the date of such notice, at the end of which period the Options
               shall terminate; or (iii) terminate all Options in exchange for a
               cash payment equal to the excess of the fair market value of the
               shares subject to such Options (to the extent then exercisable or
               to be exercisable as a result of the Acquisition) over the
               exercise price thereof.

                         C. RECAPITALIZATION OR REORGANIZATION. In the event of
               a recapitalization or reorganization of the Company (other than a
               transaction described in subparagraph B above) pursuant to which
               securities of the Company or of another corporation are issued
               with respect to the outstanding shares of Common Stock, an
               optionee upon exercising an Option shall be entitled to receive
               for the purchase price paid upon such exercise the securities he
               or she would have received if he or she had exercised such Option
               prior to such recapitalization or reorganization.

                         D. MODIFICATION OF ISOS. Notwithstanding the foregoing,
               any adjustments made pursuant to subparagraphs A, B or C with
               respect to ISOs shall be made only after the Committee, after
               consulting with counsel for the Company, determines whether such
               adjustments would constitute a "modification" of such ISOs (as
               that term is defined in Section 424 of the Code) or would cause
               any adverse tax consequences for the holders of such ISOs. If the
               Committee determines that such adjustments made with respect to
               ISOs would constitute a modification of such ISOs or would cause
               adverse tax consequences to the holders, it may refrain from
               making such adjustments.

                         E. DISSOLUTION OR LIQUIDATION. In the event of the
               proposed dissolution or liquidation of the Company, each Option
               will terminate immediately prior to the consummation of such
               proposed action or at such other time and subject to such other
               conditions as shall be determined by the Committee.

                         F. ISSUANCES OF SECURITIES. Except as expressly
               provided herein, no issuance by the Company of shares of stock of
               any class, or securities convertible into shares of stock of any
               class, shall affect, and no adjustment by reason thereof shall be
               made with respect to, the number or price of shares subject to
               Options. No adjustments shall be made for dividends paid in cash
               or in property other than securities of the Company.

                         G. FRACTIONAL SHARES. No fractional shares shall be
               issued under the Plan and the optionee shall receive from the
               Company cash in lieu of such fractional shares.
<PAGE>

                                      -9-

                         H. ADJUSTMENTS. Upon the happening of any of the events
               described in subparagraphs A, B or C above, the class and
               aggregate number of shares set forth in paragraph 4 hereof that
               are subject to Stock Rights which previously have been or
               subsequently may be granted under the Plan shall also be
               appropriately adjusted to reflect the events described in such
               subparagraphs. The Committee or the Successor Board shall
               determine the specific adjustments to be made under this
               paragraph 13 and, subject to paragraph 2, its determination shall
               be conclusive.

         14.   MEANS OF EXERCISING OPTIONS. An Option (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.

         15.   TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
December 10, 1996, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to December 10, 1997, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on December 9, 2006 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Options may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan
<PAGE>

                                      -10-

may not be increased (except by adjustment pursuant to paragraph 13); (b) the
provisions of paragraph 3 regarding eligibility for grants of ISOs may not be
modified; (c) the provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without such grantee's consent, under any Stock Right previously
granted to such grantee.

         16.   MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO (including
the means of exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the Code). The
Committee, at the written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but shall not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs.

         17.   APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of shares pursuant to Options granted and Purchases authorized under
the Plan shall be used for general corporate purposes.

         18.   NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an
ISO granted under the Plan, each optionee agrees to notify the Company in
writing immediately after such optionee makes a Disqualifying Disposition (as
described in Sections 421, 422 and 424 of the Code and regulations thereunder)
of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.

         19.   WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option
<PAGE>

                                      -11-

hereunder, or the making of a distribution or other payment with respect to such
stock or securities, the Company may withhold taxes in respect of amounts that
constitute compensation includible in gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the transfer of a
Non-Qualified Stock Option, (iii) the grant of an Award, (iv) the making of a
Purchase of Common Stock for less than its fair market value, or (v) the vesting
or transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.

         20.   GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.

         Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.

         21.   GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of the State
of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.

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