Document:

Exhibit 10.2

                           QUADRAMED CORPORATION
                          GRANTOR TRUST AGREEMENT

                                 AMENDMENT

         PURSUANT to Section 14(a) of the QuadraMed Corporation Grantor
Trust Agreement (the "Agreement") made the first day of January 2000 by and
between QuadraMed Corporation, as the "Company", and Wachovia Bank, N.A. as
the "Trustee", the Company and the Trustee hereby amend said Grantor Trust
Agreement as follows, effective as of the subsequent of the dates this
Amendment is executed below by the Company and the Trustee:

         1. Section 2(b) is hereby amended to read in its entirety as
follows:

         "(b)     Notwithstanding Section 2(a) above, subsequent to a
                  Change of Control a Participant or his or her
                  Beneficiaries may make application to the Trustee for
                  payment of their benefit in the event he believes a
                  Failure to Pay, as defined in Section 16, has occurred.
                  In the event after a Change of Control has occurred the
                  Trustee determines that a Failure to Pay has occurred, it
                  shall make its own independent determination of the
                  benefit which is payable to the Participant or
                  Beneficiary. Upon reaching its determination, the Trustee
                  shall pay the benefit, if any, which it has determined is
                  due the Participant or Beneficiary."

         2. The third paragraph of Section 2(d) is hereby deleted.

         3. Section 2(e) is hereby amended to read in its entirety as
follows:

         "(e)     The Company agrees that all income, deductions and
                  credits of the Trust Fund (of if applicable, the
                  Accounts) belong to it as owner for income tax purposes
                  and will be included on the Company's income tax
                  returns."

         4. The final sentence of Section 2(g) is hereby amended to read in
its entirety as follows: "The Employer waives any right to contest any
amount paid over by the Trustee pursuant to a good faith determination made
by the Trustee under this Section 2 absent a manifest abuse of discretion
by the Trustee in making such determination."

         5. Section 2(g) is hereby further amended by adding at the end
thereof an additional sentence, to read in its entirety as follows:

                  "For the avoidance of doubt, no independent
                  determinations are required of or permitted to be made by
                  the Trustee under this Section 2 prior to a Change of
                  Control."

         6. Section 2(h) is hereby amended to read in its entirety:

         "(h)     The Trustee agrees that it will not itself institute any
                  action at law or at equity, whether in the nature of an
                  accounting, interpleader action, request for a
                  declaratory judgment or otherwise, requesting a court or
                  administrative or quasi-judicial body to make the
                  determination required to be made by the Trustee under
                  this Section 2 in the place and stead of the Trustee. The
                  Trustee may, in its discretion, institute an action to
                  collect a contribution due the Trust following a Change
                  of Control or in the event that following a Change of
                  Control the Trust should ever experience a short-fall in
                  the amount of assets necessary to make payments pursuant
                  to the terms of the Arrangements."

         7. Section 2(i) is hereby amended by deleting the second sentence
thereof (beginning "The Employer shall promptly reimburse the Trust . .
 ..").:

         8. Section 5 is hereby amended by adding at the end thereof the
following additional sentence:

                  "In the event that the Company, prior to a Change in
                  Control, or the Trustee, after a Change in Control,
                  determines that the assets of the Trust exceed
                  one-hundred and twenty percent (120%) of the then value
                  of the current and future benefit payments and
                  administrative expenses that are to be paid under the
                  Arrangements, the Trustee, at the direction of the
                  Company prior to a Change in Control, or in its sole and
                  absolute discretion after a Change in Control, shall
                  distribute to the Company such excess portion of the
                  Trust."

         9. Section 14(c) is hereby amended by adding at the end thereof a
new sentence, to read in its entirety as follows:

                  "Prior to the return of such assets, the Trustee may
                  deduct its fees and expenses."

         10. Section 14(e) is hereby deleted in its entirety.

         11. Exhibit A to the Agreement is hereby amended so as to identify
as the sole Arrangement for purposes of the Agreement the "QuadraMed
Corporation Supplemental Executive Retirement Plan."

         12. Exhibit B to the Agreement is hereby amended so as to identify
as the sole Participant for purposes of the Agreement "James D. Durham, the
sole participant under the QuadraMed Corporation Supplemental Executive
Retirement Plan."

         IN WITNESS WHEREOF, the Company and the Trustee, each by its
officer hereunto duly authorized, has caused this amendment to be executed
in its name and on its behalf by its officer hereunto as of the respective
dates specified below.

<TABLE>
<CAPTION>
<S>                                                            <C>
QUADRAMED CORPORATION                                         WACHOVIA BANK, N.A.

By:               /s/ Michael H. Lanza                        By:
   --------------------------------------------------            -------------------------------------------
       Michael H. Lanza
       Executive Vice President
                                                              Title:
                                                                    ----------------------------------------

Date:                                                         Date:
     ------------------------------------------------              -----------------------------------------
</TABLE>Exhibit 10.3

                           QUADRAMED CORPORATION
                         1996 STOCK INCENTIVE PLAN

                                ARTICLE ONE

                             GENERAL PROVISIONS

       I.         PURPOSE OF THE PLAN

                  This 1996 Stock Incentive Plan is intended to promote the
interests of QuadraMed Corporation, a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.

                  Capitalized terms shall have the meanings assigned to
such terms in the attached Appendix.

      II.         STRUCTURE OF THE PLAN

                  A. The Plan shall be divided into five separate equity
programs:

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

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

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

                     - the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock, and

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

                  B. The provisions of Articles One and Seven shall apply
to all equity programs under the Plan and shall govern the interests of all
persons under the Plan.

     III.         ADMINISTRATION OF THE PLAN

                  A. Prior to the Section 12 Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be
administered by the Board. Beginning with the Section 12 Registration Date,
the Primary Committee shall have sole and exclusive authority to administer
the Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders and shall have sole and exclusive authority to
administer the Salary Investment Option Grant Program with respect to all
eligible individuals.

                  B. Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in
the Primary Committee or a Secondary Committee, or the Board may retain the
power to administer those programs with respect to all such persons. The
members of the Secondary Committee may be Board members who are Employees
eligible to receive discretionary option grants or direct stock issuances
under the Plan or any other stock option, stock appreciation, stock bonus
or other stock plan of the Corporation (or any Parent or Subsidiary).

                  C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine
and may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers
and authority previously delegated to such committee.

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

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

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

      IV.         ELIGIBILITY

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

                      (i) Employees,

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

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

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

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

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

                  E. The individuals who shall be eligible to participate
in the Automatic Option Grant Program shall be limited to (i) those
individuals serving as non-employee Board members on the Underwriting Date
who have not previously received a stock option grant from the Corporation,
(ii) those individuals who first become non-employee Board members after
the Underwriting Date, whether through appointment by the Board or election
by the Corporation's stockholders, and (iii) those individuals who continue
to serve as non-employee Board members at one or more Annual Stockholders
Meetings held after the Underwriting Date. A non-employee Board member who
has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an option grant under the
Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues
to serve as a non-employee Board member.

                  F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.

       V.         STOCK SUBJECT TO THE PLAN

                  A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock initially reserved for issuance over the term of the
Plan shall not exceed 5,118,981 shares. Such authorized share reserve is
comprised of (i) the number of shares which remain available for issuance,
as of the Plan Effective Date, under the Predecessor Plan as last approved
by the Corporation's stockholders, including the shares subject to the
outstanding options to be incorporated into the Plan and the additional
shares which would otherwise be available for future grant, plus (ii) an
additional increase of 783,653 shares authorized by the Board but subject
to stockholder approval prior to the Section 12 Registration Date.

                  B. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading
day of each calendar year during the term of the Plan, beginning with the
1997 calendar year, by an amount equal to one and one-half percent (1.5%)
of the shares of Common Stock outstanding on the last trading day of the
immediately preceding calendar year. No Incentive Options may be granted on
the basis of the additional shares of Common Stock resulting from such
annual increases.

                  C. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 1,000,000 shares of Common Stock in the aggregate
per calendar year, beginning with the 2000 calendar year.

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

                  E. If any change is made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock
as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of
securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under this Plan per calendar year, (iii) the number and/or class of
securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv)
the number and/or class of securities and the exercise price per share in
effect under each outstanding option under the Plan and (v) the number
and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan.
Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits
under such options. The adjustments determined by the Plan Administrator
shall be final, binding and conclusive.

                                ARTICLE TWO

                     DISCRETIONARY OPTION GRANT PROGRAM

       I.         OPTION TERMS

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

                  A.       Exercise Price.

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

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

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

                                 (ii) shares of Common Stock held for the
         requisite period necessary to avoid a charge to the Corporation's
         earnings for financial reporting purposes and valued at Fair
         Market Value on the Exercise Date, or

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

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

                  B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number
of shares as shall be determined by the Plan Administrator and set forth in
the documents evidencing the option. However, no option shall have a term
in excess of ten (10) years measured from the option grant date.

                  C.       Effect of Termination of Service.

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

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

                                 (ii) Any option exercisable in whole or in
         part by the Optionee at the time of death may be subsequently
         exercised by the personal representative of the Optionee's estate
         or by the person or persons to whom the option is transferred
         pursuant to the Optionee's will or in accordance with the laws of
         descent and distribution.

                                 (iii) Should the Optionee's Service be
         terminated for Misconduct, then all outstanding options held by
         the Optionee shall terminate immediately and cease to be
         outstanding.

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

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

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

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

                  D. Stockholder Rights. The holder of an option shall have
no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price
and become a holder of record of the purchased shares.

                  E. Repurchase Rights. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares
of Common Stock. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, any or all of those unvested shares. The
terms upon which such repurchase right shall be exercisable (including the
period and procedure for exercise and the appropriate vesting schedule for
the purchased shares) shall be established by the Plan Administrator and
set forth in the document evidencing such repurchase right.

                  F. Limited Transferability of Options. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by
the Optionee and shall not be assignable or transferable other than by will
or by the laws of descent and distribution following the Optionee's death.
However, a Non-Statutory Option may, in connection with the Optionee's
estate plan, be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's immediate family or to a trust
established exclusively for one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for
the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.

      II.         INCENTIVE OPTIONS

                  The terms specified below shall be applicable to all
Incentive Options. Except as modified by the provisions of this Section II,
all the provisions of Articles One, Two and Seven shall be applicable to
Incentive Options. Options which are specifically designated as
Non-Statutory Options when issued under the Plan shall not be subject to
the terms of this Section II.

                  A. Eligibility. Incentive Options may only be granted to
Employees.

                  B. Exercise Price. The exercise price per share shall not
be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.

                  C. Dollar Limitation. The aggregate Fair Market Value of
the shares of Common Stock (determined as of the respective date or dates
of grant) for which one or more options granted to any Employee under the
Plan (or any other option plan of the Corporation or any Parent or
Subsidiary) may for the first time become exercisable as Incentive Options
during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such
options as Incentive Options shall be applied on the basis of the order in
which such options are granted.

                  D. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share
shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option
term shall not exceed five (5) years measured from the option grant date.

     III.         CORPORATE TRANSACTION/CHANGE IN CONTROL

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

                  B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection
with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the
time the repurchase right is issued.

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

                  D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction. Appropriate adjustments to reflect such
Corporate Transaction shall also be made to (i) the exercise price payable
per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same, (ii) the maximum
number and/or class of securities available for issuance over the remaining
term of the Plan and (iii) the maximum number and/or class of securities
for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the
Plan per calendar year.

                  E. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program
which will automatically accelerate in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are
assumed or replaced and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or
more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination
shall immediately terminate, and the shares subject to those terminated
repurchase rights shall accordingly vest in full.

                  F. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program
which will automatically accelerate in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control. Each option so accelerated shall
remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year
period measured from the effective date of the Involuntary Termination. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate, and the shares subject to those terminated repurchase rights
shall accordingly vest in full.

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

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

      IV.         CANCELLATION AND REGRANT OF OPTIONS

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

       V.         STOCK APPRECIATION RIGHTS

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

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

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

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

                                (iii) If the surrender of an option is not
         approved by the Plan Administrator, then the Optionee shall retain
         whatever rights the Optionee had under the surrendered option (or
         surrendered portion thereof) on the option surrender date and may
         exercise such rights at any time prior to the later of (a) five
         (5) business days after the receipt of the rejection notice or (b)
         the last day on which the option is otherwise exercisable in
         accordance with the terms of the documents evidencing such option,
         but in no event may such rights be exercised more than ten (10)
         years after the option grant date.

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

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

                                (ii) Upon the occurrence of a Hostile
         Take-Over, each individual holding one or more options with such a
         limited stock appreciation right shall have the unconditional
         right (exercisable for a thirty (30)-day period following such
         Hostile Take-Over) to surrender each such option to the
         Corporation, to the extent the option is at the time exercisable
         for vested shares of Common Stock. In return for the surrendered
         option, the Optionee shall receive a cash distribution from the
         Corporation in an amount equal to the excess of (A) the Take-Over
         Price of the shares of Common Stock which are at the time vested
         under each surrendered option (or surrendered portion thereof)
         over (B) the aggregate exercise price payable for such shares.
         Such cash distribution shall be paid within five (5) days
         following the option surrender date.

                                (iii) Neither the approval of the Plan
         Administrator nor the consent of the Board shall be required in
         connection with such option surrender and cash distribution.

                                (iv) The balance of the option (if any)
         shall remain outstanding and exercisable in accordance with the
         documents evidencing such option.

                               ARTICLE THREE

                   SALARY INVESTMENT OPTION GRANT PROGRAM

       I.         OPTION GRANTS

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

      II.         OPTION TERMS

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

                  A.       Exercise Price.

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

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

                  B. Number of Option Shares. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):

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

                           X is the number of option shares,

                           A is the dollar amount of the approved reduction
                           in the Optionee's base salary for the calendar
                           year, and

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

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

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

     III.         CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall be
assumed by the successor corporation (or parent thereof) in the Corporate
Transaction and shall remain exercisable for the fully-vested shares until
the earlier of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.

                  B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under
this Salary Investment Option Grant Program shall automatically accelerate
so that each such option shall immediately become fully exercisable with
respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earlier or (i) the expiration of the ten (10)-year option term or
(ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Service.

                  C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each outstanding option granted him or her under the Salary
Investment Option Grant Program. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to the surrendered option (whether or not the Optionee is otherwise
at the time vested in those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five
(5) days following the surrender of the option to the Corporation. No
approval or consent of the Board or any Plan Administrator shall be
required in connection with such option surrender and cash distribution.

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

     III.         REMAINING TERMS

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

                                ARTICLE FOUR

                           STOCK ISSUANCE PROGRAM

       I.         STOCK ISSUANCE TERMS

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

                  A.       Purchase Price.

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

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

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

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

                  B.       Vesting Provisions.

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

                                (i) the Service period to be completed by
         the Participant or the performance objectives to be attained,

                                (ii) the number of installments in which
         the shares are to vest,

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

                                (iv) the effect which death, Permanent
         Disability or other event designated by the Plan Administrator is
         to have upon the vesting schedule, shall be determined by the Plan
         Administrator and incorporated into the Stock Issuance Agreement.

                           2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect
to the Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject
to (i) the same vesting requirements applicable to the Participant's
unvested shares of Common Stock and (ii) such escrow arrangements as the
Plan Administrator shall deem appropriate.

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

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

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

      II.         CORPORATE TRANSACTION/CHANGE IN CONTROL

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

                  B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase/cancellation rights remain
outstanding under the Stock Issuance Program, to provide that those rights
shall automatically terminate in whole or in part, and the shares of Common
Stock subject to those terminated rights shall immediately vest, in the
event the Participant's Service should subsequently terminate by reason of
an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of any Corporate
Transaction in which those repurchase/cancellation rights are assigned to
the successor corporation (or parent thereof).

                  C. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase/cancellation rights remain
outstanding under the Stock Issuance Program, to provide that those rights
shall automatically terminate in whole or in part, and the shares of Common
Stock subject to those terminated rights shall immediately vest, in the
event the Participant's Service should subsequently terminate by reason of
an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of any Change in
Control.

     III.         SHARE ESCROW/LEGENDS

                  Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant
with restrictive legends on the certificates evidencing those unvested
shares.

                                ARTICLE FIVE

                       AUTOMATIC OPTION GRANT PROGRAM

       I.         OPTION TERMS

                  A. Grant Dates. Option grants shall be made on the dates
specified below:

                           1. Each individual serving as a non-employee
Board member on the Underwriting Date shall automatically be granted at
that time a Non-Statutory Option to purchase 10,000 shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary and has not previously received a
stock option grant from the Corporation.

                           2. Each individual who is first elected or
appointed as a non-employee Board member at any time after the Underwriting
Date shall automatically be granted, on the date of such initial election
or appointment, a Non-Statutory Option to purchase 10,000 shares of Common
Stock, provided that individual has not previously been in the employ of
the Corporation or any Parent or Subsidiary.

                           3. On the date of each Annual Stockholders
Meeting held after the Underwriting Date, each individual who is to
continue to serve as an Eligible Director, whether or not that individual
is standing for re-election to the Board at that particular Annual Meeting,
shall automatically be granted a Non-Statutory Option to purchase 6,000
shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six (6) months. There shall be no
limit on the number of such 6,000-share option grants any one Eligible
Director may receive over his or her period of Board service, and
non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received a
stock option grant from the Corporation prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over
their period of continued Board service.

                  B.       Exercise Price.

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

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

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

                  D. Exercise and Vesting of Options. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
10,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, as follows: (i) one-third of the option shares shall vest upon the
Optionee's completion of one (1) year of Board service measured from the
option grant date and (ii) the balance of the option shares shall vest in a
series of twenty-four (24) successive equal monthly installments upon the
Optionee's completion of each additional month of Board service over the
twenty-four (24)-month period measured from the first anniversary of such
grant date. Each annual 6,000-share grant shall vest, and the Corporation's
repurchase right shall lapse, in a series of 12 successive equal monthly
installments over the optionee's period of Board service measured from the
grant date.

                  E. Termination of Board Service. The following provisions
shall govern the exercise of any options held by the Optionee at the time
the Optionee ceases to serve as a Board member:

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

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

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

                                (iv) In no event shall the option remain
         exercisable after the expiration of the option term. Upon the
         expiration of the twelve (12)-month exercise period or (if
         earlier) upon the expiration of the option term, the option shall
         terminate and cease to be outstanding for any vested shares for
         which the option has not been exercised. However, the option
         shall, immediately upon the Optionee's cessation of Board service
         for any reason other than death or Permanent Disability, terminate
         and cease to be outstanding to the extent the option is not
         otherwise at that time exercisable for vested shares.

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

                  A. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock
at the time subject to such option and may be exercised for all or any
portion of those shares as fully-vested shares of Common Stock. Immediately
following the consummation of the Corporate Transaction, each automatic
option grant shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).

                  B. In connection with any Change in Control, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. Each such option shall
remain exercisable for such fully-vested option shares until the expiration
or sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.

                  C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding automatic option grants. The
Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those
shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. No approval or consent of the
Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.

                  D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction. Appropriate adjustments shall also be made to
the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall
remain the same.

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

     III.         REMAINING TERMS

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

                                ARTICLE SIX

                     DIRECTOR FEE OPTION GRANT PROGRAM

       I.         OPTION GRANTS

                  Each non-employee Board member may elect to apply all or
any portion of the annual retainer fee otherwise payable in cash for his or
her service on the Board to the acquisition of a special option grant under
this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to first day of the
calendar year for which the annual retainer fee which is the subject of
that election is otherwise payable. Each non-employee Board member who
files such a timely election shall automatically be granted an option under
this Director Fee Option Grant Program on the first trading day in January
in the calendar year for which the annual retainer fee which is the subject
of that election would otherwise be payable.

      II.         OPTION TERMS

                  Each option shall be a Non-Statutory Option governed by
the terms and conditions specified below.

                  A.       Exercise Price.

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

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

                  B. Number of Option Shares. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):

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

                           X is the number of option shares,

                           A is the portion of the annual retainer fee
                           subject to the non-employee Board member's
                           election, and

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

                  C. Exercise and Term of Options. The option shall become
exercisable for fifty-percent (50%) of the option shares upon the
Optionee's completion of six (6) months of Board service in the calendar
year for which his or her election under this Director Fee Option Grant
Program is in effect, and the balance of the option shares shall become
exercisable in a series of six (6) successive equal monthly installments
upon the Optionee's completion of each additional month of Board service
during that calendar year. Each option shall have a maximum term of ten
(10) years measured from the option grant date.

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

                  E. Death or Permanent Disability. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability,
then each option held by such Optionee under this Director Fee Option Grant
Program shall immediately become exercisable for all the shares of Common
Stock at the time subject to that option, and the option may be exercised
for any or all of those shares as fully-vested shares until the earlier of
(i) the expiration of the ten (10)-year option term or (ii) the expiration
of the three (3)-year period measured from the date of such cessation of
Board service.

                  Should the Optionee die after cessation of Board service
but while holding one or more options under this Director Fee Option Grant
Program, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Board service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent
and distribution. Such right of exercise shall lapse, and the option shall
terminate, upon the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Board service.

     III.         CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such
Optionee under this Director Fee Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall be
assumed by the successor corporation (or parent thereof) in the Corporate
Transaction and shall remain exercisable for the fully-vested shares until
the earlier of (i) the expiration of the ten (10)-year option term or (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service.

                  B. In the event of a Change in Control while the Optionee
remains in Service, each outstanding option held by such Optionee under
this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall immediately become fully exercisable with
respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earlier or (i) the expiration of the ten (10)-year option term or
(ii) the expiration of the three (3)-year period measured from the date of
the Optionee's cessation of Service.

                  C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each outstanding option granted him or her under the Director
Fee Option Grant Program. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of
(i) the Take-Over Price of the shares of Common Stock at the time subject
to each surrendered option (whether or not the Optionee is otherwise at the
time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required in
connection with such option surrender and cash distribution.

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

      IV.         REMAINING TERMS

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

                               ARTICLE SEVEN

                               MISCELLANEOUS

       I.         FINANCING

                  The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price of shares issued under the Stock
Issuance Program by delivering a full-recourse, interest bearing promissory
note payable in one or more installments. The terms of any such promissory
note (including the interest rate and the terms of repayment) shall be
established by the Plan Administrator in its sole discretion. In no event
may the maximum credit available to the Optionee or Participant exceed the
sum of (i) the aggregate option exercise price or purchase price payable
for the purchased shares plus (ii) any Federal, state and local income and
employment tax liability incurred by the Optionee or the Participant in
connection with the option exercise or share purchase.

      II.         TAX WITHHOLDING

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

                  B. The Plan Administrator may, in its discretion, provide
any or all holders of Non-Statutory Options or unvested shares of Common
Stock under the Plan (other than the options granted or the shares issued
under the Automatic Option Grant or Director Fee Option Grant Program) with
the right to use shares of Common Stock in satisfaction of all or part of
the Taxes incurred by such holders in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any
such holder in either or both of the following formats:

                           Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such Non-Statutory Option or the vesting of such
shares, a portion of those shares with an aggregate Fair Market Value equal
to the percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.

                           Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the
shares vest, one or more shares of Common Stock previously acquired by such
holder (other than in connection with the option exercise or share vesting
triggering the Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.

     III.         EFFECTIVE DATE AND TERM OF THE PLAN

                  A. The Plan shall become effective immediately upon the
Plan Effective Date. However, the Salary Investment Option Grant Program
shall not be implemented until such time as the Primary Committee may deem
appropriate. Options may be granted under the Discretionary Option Grant or
Automatic Option Grant Program at any time on or after the Plan Effective
Date. However, no options granted under the Plan may be exercised, and no
shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the Plan Effective Date, then all options
previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.

                  B. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants or direct stock issuances
shall be made under the Predecessor Plan after the Section 12 Registration
Date. All options outstanding under the Predecessor Plan on the Section 12
Registration Date shall be incorporated into the Plan at that time and
shall be treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by
the terms of the documents evidencing such option, and no provision of the
Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such incorporated options with respect to
their acquisition of shares of Common Stock.

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

                  D. The Plan shall terminate upon the earliest to occur of
(i) May 25, 2006, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such plan termination, all outstanding option grants and
unvested stock issuances shall thereafter continue to have force and effect
in accordance with the provisions of the documents evidencing such grants
or issuances.

      IV.         AMENDMENT OF THE PLAN

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

                  B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant and Salary Investment Option
Grant Programs and shares of Common Stock may be issued under the Stock
Issuance Program that are in each instance in excess of the number of
shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until
there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance
under the Plan. If such stockholder approval is not obtained within twelve
(12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate)
for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.

       V.         USE OF PROCEEDS

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

      VI.         REGULATORY APPROVALS

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

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

     VII.         NO EMPLOYMENT/SERVICE RIGHTS

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

                                  APPENDIX

                  The following definitions shall be in effect under the
Plan:

         A. Automatic Option Grant Program shall mean the automatic option
grant program in effect under the Plan.

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

         C. Change in Control shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:

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

                       (ii) a change in the composition of the Board over a
         period of thirty-six (36) consecutive months or less such that a
         majority of the Board members ceases, by reason of one or more
         contested elections for Board membership, to be comprised of
         individuals who either (A) have been Board members continuously
         since the beginning of such period or (B) have been elected or
         nominated for election as Board members during such period by at
         least a majority of the Board members described in clause (A) who
         were still in office at the time the Board approved such election
         or nomination.

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

         E.       Common Stock shall mean the Corporation's common stock.

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

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

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

         G. Corporation shall mean QuadraMed Corporation, a Delaware
corporation, and its successors.

         H. Director Fee Option Grant Program shall mean the special stock
option grant in effect for non-employee Board members under Article Six of
the Plan.

         I. Discretionary Option Grant Program shall mean the discretionary
option grant program in effect under the Plan.

         J. Eligible Director shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance
with the eligibility provisions of Article One.

         K. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and
the manner and method of performance.

         L. Exercise Date shall mean the date on which the Corporation
shall have received written notice of the option exercise.

         M. Fair Market Value per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

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

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

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

                       (iv) For purposes of any option grants made prior to
         the Underwriting Date, the Fair Market Value shall be determined
         by the Plan Administrator, after taking into account such factors
         as it deems appropriate.

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

         O. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.

         P. Involuntary Termination shall mean the termination of the
Service of any individual which ocurs by reason of:

                        (i) such individual's involuntary dismissal or
         discharge by the Corporation for reasons other than Misconduct, or

                       (ii) such individual's voluntary resignation
         following (A) a change in his or her position with the Corporation
         which materially reduces his or her level of responsibility, (B) a
         reduction in his or her level of compensation (including base
         salary, fringe benefits and participation in any
         corporate-performance based bonus or incentive programs) by more
         than fifteen percent (15%) or (C) a relocation of such
         individual's place of employment by more than fifty (50) miles,
         provided and only if such change, reduction or relocation is
         effected by the Corporation without the individual's consent.

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

         R. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.

         S. Non-Statutory Option shall mean an option not intended to
satisfy the requirements of Code Section 422.

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

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

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

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

         X. Plan shall mean the Corporation's 1996 Stock Incentive Plan, as
set forth in this document.

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

         Z. Plan Effective Date shall mean June 26, 1996, the date on which
the Plan was adopted by the Board.

         AA. Predecessor Plan shall mean the Corporation's pre-existing
Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.

         BB. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders and to administer the Salary Investment Option Grant
Program with respect to all eligible individuals.

         CC. Salary Investment Option Grant Program shall mean the salary
investment option grant program in effect under the Plan.

         DD. Secondary Committee shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other
than Section 16 Insiders.

         EE. Section 12 Registration Date shall mean the date on which the
Common Stock is first registered under Section 12(g) of Section 16 of the
1934 Act.

         FF. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.

         GG. Service shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant
or independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant or stock issuance.

         HH. Stock Exchange shall mean either the American Stock Exchange
or the New York Stock Exchange.

         II. Stock Issuance Agreement shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.

         JJ. Stock Issuance Program shall mean the stock issuance program
in effect under the Plan.

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

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

         MM. Taxes shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options
or unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.

         NN. 10% Stockholder shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Corporation (or
any Parent or Subsidiary).

         OO. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

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

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