Document:

Execution
Copy

    Exhibit
10.1

    

    FORM
OF NOTE

    

    AMENDED AND RESTATED
PROMISSORY NOTE

    (Line
of Credit)

     

    
      
        	
                Up to $1,200,000

              	
                Dated:  January
      26, 2009

              

      

    

     

    THIS
AMENDED AND RESTATED PROMISSORY NOTE REPLACES AND AMENDS AND RESTATES IN ITS
ENTIRETY THAT CERTAIN PROMISSORY NOTE (LINE OF CREDIT) EXECUTED BY BORROWER AND
DELIVERED TO LENDER IN THE ORIGINAL PRINCIPAL AMOUNT OF UP TO ONE MILLION TWO
HUNDRED THOUSAND DOLLARS ($1,200,000) DATED SEPTEMBER 15, 2005, (THE “PRIOR
NOTE”).  BY ACCEPTANCE OF THIS AMENDED AND RESTATED PROMISSORY NOTE,
LENDER ACKNOWLEDGES AND AGREES THAT THE PRIOR NOTE SHALL CEASE TO EVIDENCE ANY
OBLIGATION OF BORROWER TO LENDER.

     

    FOR VALUE
RECEIVED, PICOMETRIX, LLC, a Delaware limited liability company (“Borrower”),
promises to pay to the order of THE MICHIGAN ECONOMIC DEVELOPMENT CORPORATION, a
public body corporate (“Lender” or “MEDC”), at 300 North Washington Square,
Lansing, Michigan or at such other place as Lender may designate in writing, the
principal sum of One Million Two Hundred Thousand Dollars ($1,200,000) or such
lesser sum as shall have been advanced by Lender to Borrower under this Note and
as contemplated by that certain Loan Agreement between Borrower and Lender,
dated as of the date hereof (the “Loan Agreement”), plus interest as hereinafter
provided, all in lawful money of the United States of America, in accordance
with the terms hereof.  Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Loan
Agreement.

     

    All
disbursements made under this promissory note (“Note”) shall be charged to a
loan account in Borrower’s name on Lender’s books, and Lender shall debit to
such account the amount of each advance made to, and credit to such account the
amount of each repayment made by Borrower.  From time to time and upon
Borrower's request, Lender shall furnish Borrower a statement of Borrower’s loan
account, which statement shall be deemed to be correct, accepted by, and binding
upon Borrower, unless Lender receives a written statement of exceptions from
Borrower within ten calendar days after such statement has been
furnished.

     

    The
unpaid principal balance of this Note shall bear interest from the date advanced
at a per annum rate of seven percent (7.0%).  Interest shall be
computed on the basis of the actual number of days elapsed.

     

    Borrower
shall have no obligation to make any payment of principal or accrued interest on
this Note until October 1, 2009.  As of such date, all accrued but
unpaid interest on this Note shall be added to then outstanding principal of
this Note, with such sum referred to herein as the “Restated
Principal.”  Interest at the rate provided above shall thereafter
accrue on the Restated Principal.  Commencing with the first business
day of the calendar month first following October 1, 2009 continuing on the
first business day of each of the following Thirty Five calendar months,
Borrower shall pay Lender the Restated Principal and accrued interest on any
unpaid portion thereof in equal installments until paid in full.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    In the
event that any payment under this Note is not received by Lender within ten days
of the date when due, a late charge of five (5%) percent of the amount of such
shall be due and payable.  Borrower agrees that the late charge is a
reasonable estimate of the administrative costs which Lender will incur in
processing the delinquency.  Lender’s acceptance of a late payment
and/or of the late payment charge will not waive any default under this
Note.

     

    The
Company shall have the right to prepay accrued interest and principal in whole
or in part at any time without payment of any prepayment fee or
penalty.  Prepayments are to be applied first to accrued interest and
then to principal.

     

    Upon the
occurrence of an “Event of Default” (as such capitalized term is defined in the
Loan Agreement), the entire Indebtedness, shall become immediately due and
payable at the election of Lender without notice, demand or
presentment.  All costs and expenses of collection, including, without
limitation, reasonable attorneys fees and expenses, shall be added to and become
part of the total indebtedness evidenced by this Note.

     

    Upon the
occurrence of a Trigger Event, Lender may at its sole option and discretion
declare the entire Indebtedness, plus a premium equal to seven percent (7%) of
the then-outstanding principal balance of this Note, immediately due and
payable.  Lender shall give Borrower written notice of this
declaration of acceleration by sending a statement to Borrower stating the
declaration and setting out the amount owed as of the date of the
notice.  Notwithstanding the foregoing, but provided that the Lender
shall have disbursed the Maximum Amount in respect of satisfaction of all of the
Key Milestones, Lender may not accelerate this Note during the Eighteen month
period commencing with the last such disbursement, but may do so at any time
during the Sixty days following the expiration of such period with respect to a
Trigger Event occurring during such period.  In any event, interest
shall continue to accrue at the rate set out herein until Borrower pays the
Indebtedness and such premium, in full.

     

    Acceptance
by Lender of any payment in an amount less than the amount then due shall be
deemed an acceptance on account only, and Borrower’s failure to pay the entire
amount then due shall be and continue to be a default.  Upon the
occurrence of any Event of Default under the Loan Agreement, neither the failure
of Lender promptly to exercise its right to declare the outstanding principal
and accrued unpaid interest and any applicable premium hereunder to be
immediately due and payable, nor the failure of Lender to demand strict
performance of any other obligation of Borrower, shall constitute a waiver of
any such rights, nor a waiver of such rights in connection with any future
default on the part of Borrower or any other person who may be liable
hereunder.

     

    Notwithstanding
anything herein to the contrary, in no event shall Borrower be required to pay a
rate of interest in excess of the Maximum Rate.  The term “Maximum
Rate” shall mean the maximum non-usurious rate of interest that Lender is
allowed to contract for, charge, take, reserve or receive under the applicable
laws of any applicable state or of the United States of America (whichever from
time to time permits the highest rate for the use, forbearance or detention of
money) after taking into account, to the extent required by applicable law, any
and all relevant payments or charges hereunder, or under any other document or
instrument executed and delivered in connection therewith and the indebtedness
evidenced hereby.

     

    In the
event Lender ever receives, as interest, any amount in excess of the Maximum
Rate, such amount as would be excessive interest shall be deemed a partial
prepayment of principal, and, if the principal hereof is paid in full, any
remaining excess shall be returned to Borrower.  In determining
whether or not the interest paid or payable, under any specified contingency,
exceeds the Maximum Rate, Borrower and Lender shall, to the maximum extent
permitted by law, (a) characterize any non-principal payment as an expense, fee,
or premium rather than as interest; (b) exclude voluntary prepayments and the
effects thereof; and (c) amortize, prorate, allocate and spread the total amount
of interest through the entire contemplated term of such indebtedness until
payment is made in full of the principal (including the period of any extension
or renewal thereof) so that the interest on account of such indebtedness shall
not exceed the Maximum Rate.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    This Note
shall be binding upon Borrower and its successors and assigns, and the benefits
hereof shall inure to Lender and its successors and assigns.  This
Note has been executed in the State of Michigan, and all rights and obligations
hereunder shall be governed by the laws of the State of Michigan.

     

    
      
        
          
            	
                    BORROWER:  Picometrix,
      LLC

                  
	 
      
	
                    /s/Robin
      F. Risser

                  
	
                    Robin
      F. Risser

                  
	
                    Chief
      Executive Officer

                  

          

        

      

    

    

    
      
         

      

      
        3Exhibit 10.1

                          AMERICAN STATES WATER COMPANY

                     2003 NON-EMPLOYEE DIRECTORS STOCK PLAN

                      Amended and Restated Effective as of
                                January 27, 2009

<PAGE>

<TABLE>
<CAPTION>

                                                   TABLE OF CONTENTS

                                                                                                              Page

<S>      <C>      <C>                                                                                          <C>
SECTION 1.            GENERAL DESCRIPTION........................................................................1

SECTION 2.            DEFINITIONS................................................................................1

SECTION 3.            EFFECTIVE DATE; DURATION...................................................................3

SECTION 4.            STOCK OPTION AWARDS........................................................................3

         4.1      Annual Award...................................................................................3

         4.2      Maximum Number of Shares. .....................................................................4

         4.3      Option Price. .................................................................................4

         4.4      Option Period and Exercisability. .............................................................4

         4.5      Termination of Directorship. ..................................................................4

         4.6      Option Agreements. ............................................................................5

         4.7      Dividend Equivalent Credits to Option Dividend Equivalent Accounts. ...........................5

SECTION 5.            STOCK UNITS AWARDS.........................................................................5

         5.1      2003 Awards....................................................................................5

         5.2      Annual Award...................................................................................6

         5.3      Crediting of Dividend Equivalents to Stock Unit Accounts.......................................6

         5.4      Units and Other Amounts Vest Immediately.......................................................6

         5.5      Distribution of Benefits.......................................................................6

SECTION 6.            CHANGES IN CAPITAL STRUCTURE...............................................................7

         6.1      Adjustments                                                                                    7

         6.2      Corporate Transactions-Assumptions or Terminations of Awards                                   8

         6.3      Option Termination                                                                             8

SECTION 7.            SHARES SUBJECT TO THE PLAN; SHARES LIMITS

         7.1      Shares Available for Issuance. ................................................................9

         7.2      Share Limits; Cut Backs. ......................................................................9

         7.3      Fractional Shares; Minimum Issue. .............................................................9

SECTION 8.            ADMINISTRATION.............................................................................9

         8.1      The Administrator..............................................................................9

         8.2      Committee Action...............................................................................9

         8.3      Rights and Duties; Delegation and Reliance; Decisions Binding.................................10

SECTION 9.            AMENDMENT AND TERMINATION; STOCKHOLDER APPROVAL...........................................10

         9.1      Amendment and Termination.....................................................................10

         9.2      Stockholder Approval..........................................................................11

SECTION 10.           MISCELLANEOUS.............................................................................11

                                                             -i-
<PAGE>

                                                  TABLE OF CONTENTS
                                                     (continued)
                                                                                                              Page

         10.1     Limitation on Participants' Rights............................................................11

         10.2     Beneficiaries.................................................................................11

         10.3     Non-Transferability...........................................................................12

         10.4     Obligations Binding Upon Successors...........................................................12

         10.5     Governing Law; Severability...................................................................12

         10.6     Compliance with Laws..........................................................................12

         10.7     Limitations on Rights Associated with Units...................................................13

         10.8     Plan Construction.............................................................................13

         10.9     Headings Not Part of Plan.....................................................................13

                                                            -ii-
</TABLE>

<PAGE>

                          AMERICAN STATES WATER COMPANY
                     2003 NON-EMPLOYEE DIRECTORS STOCK PLAN

Section 1.        General Description

         The American  States Water Company 2003  Non-Employee  Directors  Stock
Plan (the  "Plan")  provides  for  grants of stock  units and stock  options  to
non-employee  directors.  The purposes of the Plan are (a) to attract,  motivate
and retain eligible  directors of the Company by providing to them  supplemental
stock-based  compensation  and (b) to encourage  eligible  directors to increase
their stock  ownership in the  Company.  The Plan is amended and restated in its
entirety effective as of January 27, 2009.

Section 2.        Definitions

         Whenever the following  terms are used in this Plan they shall have the
meaning specified below unless the context clearly indicates to the contrary:

         "Account or  Accounts"  means the  Participant's  Stock Unit Account or
Option Dividend Equivalent Account, as the context requires.

         "Award Units" means Stock Units  credited  pursuant to Sections 5.1 and
5.2 and any Dividend Equivalents credited thereon pursuant to Section 5.3.

         "Board" means the Board of Directors of the Company.

         "Cause" has the same  meaning as  determined  under  Section 304 of the
California Corporations Code or any successor thereof.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Common  Stock"  means the  Common  Stock of the  Company,  subject  to
adjustment pursuant to Section 6.

         "Committee"  means the Board or a Committee  of the Board  acting under
delegated authority from the Board.

         "Company"   means   American   States  Water   Company,   a  California
corporation, and its successors and assigns.

         "Dividend Equivalent" means (a), with respect to a Participant's Option
Dividend  Equivalent  Account,  the  amount  of cash  dividends  or  other  cash
distributions  paid by the Company on that number of shares of Common Stock that
is equal to the number of shares subject to each outstanding  Option held by the
Participant  as of the  applicable  measurement  date for the  dividend or other
distribution,  which amount  shall be  allocated as Stock Units  credited to the
Participant's  Option Dividend  Equivalent  Account pursuant to Section 4.7; and
(b),  with respect to a  Participant's  Stock Unit  Account,  the amount of cash
dividends  or other cash  distributions  paid by the  Company on that  number of
shares of Common Stock that is equal to the number of Stock Units then  credited
to the  Participant's  Stock Unit Account as of the applicable  measurement date
for the  dividend or other  distribution,  which  amount  shall be  allocated as
additional  Stock  Units to the  Participant's  Stock Unit  Account  pursuant to
Section 5.3.

                                        1
<PAGE>

         "Distribution   Subaccount"   means  a  subaccount  of  a  Non-Employee
Director's Option Dividend  Equivalent Account established to separately account
for  Dividend  Equivalents  credited in the form of Stock Units with  respect to
each outstanding Option.

         "Effective Date" means May 20, 2003, subject to shareholder approval at
the 2004 annual meeting of shareholders.

         "Eligible  Non-Employee  Director" means each Non-Employee Director who
first  becomes a  Non-Employee  Director on or after the date of the 2003 Annual
Meeting and each other Non-Employee Director who notifies the Company in writing
of his or her  election  to waive  all  benefits  under the  Retirement  Plan in
exchange for  participation in the Stock Unit Award feature under Section 5.2(a)
of this Plan.

         "Exchange  Act" means the  Securities  Exchange Act of 1934, as amended
from time to time.

         "Fair  Market  Value"  on any date  means (1) if the stock is listed or
admitted to trade on a national  securities  exchange,  the closing price of the
stock on the  Composite  Tape,  as published in the Western  Edition of The Wall
Street Journal, of the principal national securities exchange on which the stock
is so listed or admitted to trade,  on such date,  or, if there is no trading of
the stock on such date,  then the  closing  price of the stock as quoted on such
Composite  Tape on the next  preceding  date on which  there was trading in such
shares;  (2) if the  stock is not  listed  or  admitted  to trade on a  national
securities exchange,  the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National  Market  Reporting  System or a similar  organization if the NASD is no
longer reporting such information; (3) if the stock is not listed or admitted to
trade on a national  securities  exchange  and is not  reported on the  National
Market Reporting System,  the mean between the bid and asked price for the stock
on such date, as furnished by the NASD or a similar organization;  or (4) if the
stock is not listed or admitted to trade on a national securities  exchange,  is
not reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the value
as established by the Committee at such time for purposes of this Plan.

         "Grant  Date" means the date on which an Option is granted  pursuant to
Section 4.

         "Non-Employee  Director"  means a  member  of the  Board  who is not an
officer or employee of the Company or a subsidiary.

         "Option or  Nonqualified  Stock  Option"  means an option to purchase a
number of shares of Common Stock granted to Non-Employee  Directors  pursuant to
Section 4.1.

                                        2
<PAGE>

         "Option  Dividend  Equivalent  Account" means the  bookkeeping  account
maintained  by the Company on behalf of each  Participant  that is credited with
Dividend   Equivalents  in  accordance  with  Section  4.7,  and  includes  each
Distribution Subaccount.

         "Participant"  means any person who has been granted an Option or Award
Units under this Plan.

         "Plan"  means the  American  States  Water  Company  2003  Non-Employee
Directors Stock Plan.

         "Retirement"  means  a  retirement  or  resignation  by a  Non-Employee
Director who either (a) has attained age 65 and has provided at least five years
service as a member of the Board or (b) is required  to retire  from  service on
the  Board and not seek  reelection  or  nomination  pursuant  to the  Company's
director retirement policy.

         "Retirement Plan" means the Company's  Amended and Restated  Retirement
Plan for Non-Employee Directors of American States Water Company.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Stock" means a share of Common Stock.

         "Stock Unit or Unit" means a non-voting  unit of  measurement  which is
deemed for bookkeeping and payment  purposes to represent one outstanding  share
of Common Stock of the Company solely for purposes of determining benefits under
this Plan,  established  pursuant to the grant of Award Units under Sections 5.1
and 5.2, or in respect of Dividend Equivalents under Section 4.7 or Section 5.3,
and payable solely in a share of Stock, on a one-for-one basis.

         "Stock Unit Account" means the  bookkeeping  account  maintained by the
Company on behalf of each  Participant  that is  credited  with Award  Units and
Dividend Equivalents in accordance with Section 5.

         "2003  Annual  Meeting"  means the  Company's  2003  annual  meeting of
stockholders.

Section 3.        Effective Date; Duration

         The effective date of the Plan is May 20, 2003,  subject to approval of
the  Company's  stockholders  at their  2004  annual  meeting.  No awards may be
granted  under the Plan after May 19,  2013.  The Plan shall  continue in effect
until all matters relating to Options, Stock Units and the administration of the
Plan have been completed and all payments of benefits have been made.

Section 4.        Stock Option Awards

         4.1 Annual Award.

                  (a) On the date of each annual meeting of  stockholders in the
         years  2003  through  2006,  each   Non-Employee   Director  in  office
         immediately  following  the annual  meeting  shall be granted,  without
         further  action  by the  Committee,  a  Nonqualified  Stock  Option  to
         purchase  shares of  Common  Stock.  Each  Non-Qualified  Stock  Option
         granted  pursuant to this  Section  4.1(a) in 2003 and 2004 shall be an
         option to  purchase  1000  shares and each  Nonqualified  Stock  Option
         granted  pursuant to this  Section  4.1(a) in 2005 and 2006 shall be an
         option to purchase 3000 shares.

                                       3
<PAGE>

                  (b) If any person who was not a  Non-Employee  Director at the
         immediately  preceding  annual meeting of stockholders at which a grant
         is made  pursuant to Section  4.1(a)  becomes a  Non-Employee  Director
         within six months following such annual meeting, then such Non-Employee
         Director shall be granted, without any further action by the Committee,
         a Nonqualified Stock Option to purchase that number of shares of Common
         Stock granted to Non-Employee  Directors at the  immediately  preceding
         annual  meeting,  the Grant Date of which  shall be the date the person
         takes office; provided, however, that no such grant shall be made after
         May 1, 2007.

         4.2 Maximum Number of Shares. Annual grants that would otherwise exceed
the maximum  number of shares  allotted for issuance under the Plan contained in
Section 7.1 shall be prorated within such limitation pursuant to Section 7.2.

         4.3 Option Price.  The exercise price per share of the Stock covered by
each Option granted  pursuant to this Section 4 shall be 100% of the Fair Market
Value of the Stock on the Grant Date.  The exercise  price of any Option granted
under this Section 4 shall be paid in full at the time of each purchase in cash,
by electronic funds transfer,  or by check or in shares of Stock valued at their
Fair Market Value on the date the Participant exercises the Option, or partly in
such  shares and partly in cash,  provided  that any such shares used in payment
that were previously  acquired by the Participant from the Company upon exercise
of an Option or otherwise  shall have been owned by the Participant at least six
months  prior to the date of  exercise.  The Company  shall not be  obligated to
deliver  shares  of Stock  unless  and until it  receives  full  payment  of the
exercise  price  therefor  and any  related  conditions  of the Option have been
satisfied.

         4.4 Option Period and  Exercisability.  Each Option  granted under this
Section 4 and all rights or obligations  thereunder  shall expire 10 years after
the Grant Date and shall be subject to earlier  termination  as provided  below.
Each Option shall be fully exercisable upon the Grant Date.

         4.5 Termination of Directorship.

                  (a) If a Non-Employee  Director's  services as a member of the
         Board  terminate  for any  reason  other  than  Cause,  then any Option
         granted  pursuant  to this  Section  4 held by such  Participant  shall
         remain  exercisable  for the  period  of time set  forth in the  option
         agreement evidencing his or her Option.

                  (b) If a Non-Employee  Director's  services as a member of the
         Board terminate for Cause,  all unexercised  Options shall terminate on
         the date of termination of services.

                                       4
<PAGE>

         4.6 Option Agreements.  Each Option granted to a Non-Employee  Director
shall be evidenced by an agreement in a form approved by the Committee and shall
contain  the terms and  conditions  consistent  with the Plan as approved by the
Committee relating to the Option.

         4.7 Dividend Equivalent Credits to Option Dividend Equivalent Accounts.

                  (a) As of each dividend  record date from the date of grant of
         an Option to the  earlier of (1) the third  anniversary  of the date of
         grant of such Option or (2) the  Participant's  termination  of service
         for Cause, regardless of whether the Option has been partially or fully
         exercised,  a Participant's Option Dividend Equivalent Account shall be
         credited   with  Stock  Units  in  an  amount  equal  to  the  Dividend
         Equivalents  representing  dividends payable as of such dividend record
         date on a number  of  shares  equal to the  aggregate  number of shares
         originally subject to such Option divided by the then Fair Market Value
         of a share of Common  Stock on the dividend  record date.  The Dividend
         Equivalents  attributable to each Option granted to a Participant shall
         be credited to a separate Distribution  Subaccount established for such
         Participant.

                  (b) Stock  Units  credited to the  Participant's  Distribution
         Subaccount  with  respect  to an Option  shall  become  payable  to the
         Participant  upon  the  earlier  to  occur  of  (1)  the  date  of  the
         Non-Employee  Director's  termination  of service as a director  of the
         Company or (2) three years from the Grant Date.

                  (c) Stock Units credited to a Non-Employee  Director's  Option
         Dividend  Equivalent  Account  shall at all times be fully  vested  and
         non-forfeitable  and shall be distributed in an equivalent whole number
         of shares of Stock. Any fractional share interests shall be accumulated
         and paid in cash on the distribution date.

Section 5.        Stock Units Awards

         5.1 2003 Awards

                  (a) Continuing Eligible Non-Employee Directors. As of the date
         of the 2003 Annual  Meeting,  the Stock Unit Account of each person who
         is   continuing  in  office  as  an  Eligible   Non-Employee   Director
         immediately  following  such meeting shall be credited with a number of
         Stock Units equal to (1) $15,000,  multiplied  by (2) the lesser of (i)
         the  Non-Employee  Director's  years of prior Board service or (ii) 10,
         divided by (3) the Fair Market  Value of a share of Common Stock on the
         last trading date prior to the 2003 Annual Meeting.

                  (b) New  Non-Employee  Directors.  As of the  date of the 2003
         Annual Meeting, the Stock Unit Account of each person who first becomes
         a  Non-Employee  Director at the 2003 Annual  Meeting shall be credited
         with  a  number  of  Stock  Units  equal  to  (1)  the  amount  of  the
         then-current  annual retainer divided by (2) the Fair Market Value of a
         share of Common Stock on the last trading date prior to the 2003 Annual
         Meeting.

                                       5
<PAGE>

         5.2 Annual Award.

                  (a) As of the  date of each  annual  meeting  of  stockholders
         commencing   in  2009,   the  Stock  Unit  Account  of  each   Eligible
         Non-Employee  Director  in  office  immediately  following  the  annual
         meeting shall be credited with a number of Stock Units equal to (1) two
         times the amount of the  then-current  annual  retainer  payable by the
         Company for services  rendered as a director for such year,  divided by
         (2) the Fair  Market  Value of Common  Stock on the last  trading  date
         prior to such annual meeting.

                  (b) Annual  grants  that would  otherwise  exceed the  maximum
         number of shares  allotted  for  issuance  under the Plan  contained in
         Section  7.1 shall be  prorated  within  such  limitation  pursuant  to
         Section 7.2.

         5.3 Crediting of Dividend Equivalents to Stock Unit Accounts.

                  (a) As of each dividend record date, an Eligible  Non-Employee
         Director's  Stock Unit Account shall be credited with additional  Stock
         Units in an  amount  equal  to the  Dividend  Equivalents  representing
         dividends payable as of such dividend record date on a number of shares
         equal to the aggregate  number of Units  credited to the  Participant's
         Stock  Unit  Account  divided  by the Fair  Market  Value of a share of
         Common Stock on the dividend record date.

                  (b) Stock Units  credited  in respect of Dividend  Equivalents
         shall  be paid in Stock at the  same  time and the same  manner  as the
         Stock Units to which they relate.

         5.4  Units  and  Other  Amounts  Vest  Immediately.  All Units or other
amounts credited to an Eligible Non-Employee Director's Stock Unit Account shall
be at all times fully vested and not subject to a risk of forfeiture.

         5.5 Distribution of Benefits.

                  (a)  Notwithstanding  anything  herein  to the  contrary,  the
         portion of a Non-Employee Director's Stock Unit Account attributable to
         Stock Units granted pursuant to Section 5.1 or 5.2(a) (and any Dividend
         Equivalents  attributable  to such Stock Units) shall be distributed in
         accordance with this Section 5.5(a).

                           (1) Commencement of Benefits Distribution. Subject to
                  the terms of this Section  5.5(a) and Section 6, each Eligible
                  Non-Employee   Director   shall  be   entitled  to  receive  a
                  distribution  of his or her Stock Unit  Account in the form of
                  shares of Stock  upon his or her  termination  of service as a
                  director of the Company.

                           (2)  Manner  of   Distribution.   Upon  an   Eligible
                  Non-Employee  Director's  termination of service as a director
                  of the  Company,  the Company  shall,  subject to Section 7.2,
                  deliver  to the  Participant  (or his or her  Beneficiary,  as
                  applicable) a number of shares of Stock equal to the number of
                  Stock Units (as adjusted pursuant to Section 6, if applicable)
                  to which the  Participant  is then entitled under the terms of
                  Section 5.5(a).  Such distribution shall be made in a lump sum
                  as soon as administratively  practicable, but no later than 30
                  days, following the Participant's termination of service.

                                       6
<PAGE>

                  (b)  Notwithstanding  anything  herein  to the  contrary,  the
         portion of a Non-Employee Director's Stock Unit Account attributable to
         Stock  Units  granted  pursuant  to Section  5.2(b)  (and any  Dividend
         Equivalents  attributable  to such Stock Units) shall be distributed in
         accordance with this Section 5.5(b).

                           (1)  Commencement  of  Benefits  Distribution.   With
                  respect  to  each  grant  of  Stock  Units  to a  Non-Employee
                  Director,  the  Non-Employee  Director  shall be  entitled  to
                  receive  one-third  of such Stock  Units  (including  Dividend
                  Equivalents  applicable  to such  Stock  Units) on each of the
                  first,  second  and third  anniversaries  of such grant in the
                  form of shares of Stock.  Notwithstanding the foregoing,  if a
                  Non-Employee  Director terminates service as a director of the
                  Company prior to the complete distribution of his or her Stock
                  Unit Account,  such Non-Employee Director shall be entitled to
                  receive a distribution of his or her Stock Unit Account in the
                  form of shares of Stock.

                           (2) Manner of Distribution.  Upon the first,  second,
                  and third anniversaries of the date of grant of Stock Units to
                  a  Non-Employee  Director  (or if  earlier,  the  Non-Employee
                  Director's  termination  of  service  as  a  director  of  the
                  Company),  the Company shall,  subject to Section 7.2, deliver
                  to the Participant (or his or her Beneficiary,  as applicable)
                  a number of shares of Stock equal to the number of Stock Units
                  (as adjusted  pursuant to Section 6, if  applicable)  to which
                  the  Participant  is then entitled  under the terms of Section
                  5.5(b).  Such distribution shall be made in a lump sum as soon
                  as  administratively  practicable,  but no later than 30 days,
                  following  the  applicable  anniversary  of the grant (or,  if
                  earlier, the Participant's termination of service).

Section 6.        Changes in Capital Structure.

         6.1  Adjustments.   Upon  (or,  as  may  be  necessary  to  effect  the
adjustment, immediately prior to): any reclassification, recapitalization, stock
split (including a stock split in the form of a stock dividend) or reverse stock
split; any merger,  combination,  consolidation,  or other  reorganization;  any
spin-off, split-up, or similar extraordinary dividend distribution in respect of
the Common  Stock;  or any exchange of Common Stock or other  securities  of the
Corporation,  or any similar,  unusual or extraordinary corporate transaction in
respect  of  the  Common  Stock;   then  the  Committee   shall   equitably  and
proportionately  adjust (1) the  number  and type of shares of Common  Stock (or
other  securities) that thereafter may be made the subject of awards  (including
the specific share limits, maximums and numbers of shares set forth elsewhere in
this Plan), (2) the number,  amount and type of shares of Common Stock (or other
securities  or  property)  subject  to any  outstanding  awards,  (3) the grant,
purchase,   or  exercise  price  of  any  outstanding  awards,  and/or  (4)  the
securities,  cash or other property  deliverable upon exercise or payment of any
outstanding  awards,  in each case to the extent  appropriate  to  preclude  the
enlargement or dilution of rights and benefits under such awards.

                                       7
<PAGE>

         It is intended that, if possible,  any adjustments  contemplated by the
preceding  paragraph be made in a manner that satisfies  applicable  legal,  tax
(including,  without limitation and as applicable in the circumstances,  Section
424 of the Code,  Section  409A of the Code and Section  162(m) of the Code) and
accounting  (so as to not trigger any charge to  earnings  with  respect to such
adjustment) requirements.

         Without  limiting  the  generality  of  Section  8.3,  any  good  faith
determination by the Committee  pursuant to this Section 6.1 shall be conclusive
and binding on all persons.

         6.2 Corporate  Transactions-Assumption  or Termination of Awards.  Upon
the occurrence of any of the following: any merger, combination,  consolidation,
or other reorganization; any exchange of Common Stock or other securities of the
Corporation; a sale of all or substantially all the business, stock or assets of
the Corporation;  a dissolution of the Corporation;  or any other event in which
the  Corporation  does not survive  (or does not survive as a public  company in
respect of its Common  Stock);  then the Committee may make provision for a cash
payment in settlement of, or for the assumption, substitution or exchange of any
or all  outstanding  share-based  awards or the  cash,  securities  or  property
deliverable to the holder of any or all outstanding  share-based  awards,  based
upon,  to the extent  relevant  under the  circumstances,  the  distribution  or
consideration  payable to holders of the Common Stock upon or in respect of such
event.

         The Committee may adopt such valuation  methodologies  for  outstanding
awards as it deems reasonable in the event of a cash or property settlement and,
in the case of  options or  similar  rights,  but  without  limitation  on other
methodologies, may base such settlement solely upon the excess if any of the per
share amount  payable upon or in respect of such event over the exercise or base
price of the award.

         In any of the events referred to in this Section 6.2, the Committee may
take such  action  contemplated  by this  Section  6.2  prior to such  event (as
opposed to on the  occurrence  of such event) to the extent  that the  Committee
deems the action  necessary  to permit the  participant  to realize the benefits
intended to be conveyed with respect to the underlying shares.

         Without  limiting  the  generality  of  Section  8.3,  any  good  faith
determination by the Committee  pursuant to its authority under this Section 6.2
shall be conclusive and binding on all persons.

         6.3 Option  Termination.  To the extent  that any vested  Option is not
exercised  prior to (i) a  dissolution  of the Company or (ii) a merger or other
corporate  event,  and no  provision  is made  for the  assumption,  conversion,
substitution  or exchange of the Option,  the Option  shall  terminate  upon the
occurrence of such event.

Section 7. Shares Subject To The Plan; Share Limits

         7.1 Shares Available for Issuance.  Subject to adjustment under Section
6, the aggregate number of shares of Stock that may be issued or delivered under
the Plan shall not exceed 250,000  shares.  Stock delivered by the Company under
the Plan  shall be shares of  authorized  and  unissued  shares of Stock  and/or
previously  issued  Stock  held as  treasury  shares and shall be fully paid and
non-assessable when issued. Shares issuable on exercise of Options or payment of
Stock Units shall be reserved for issue, and to the extent that awards terminate
or expire without payment in shares, the shares will be available for subsequent
grants or  accretions.  Subject to  adjustment  under  Section 6, the  aggregate
number of Stock Units that may be issued or delivered under the Plan is 118,000.

                                       8
<PAGE>

         7.2 Share Limits;  Cut Backs. If any grant of an Option or the award or
crediting  of Stock Units would cause the sum of the shares of Stock  previously
issued and shares issuable under outstanding awards under the Plan to exceed the
maximum  number of shares  authorized  under the Plan, the Company shall prorate
among the  Non-Employee  Directors  the grant of new  Options  or award of Stock
Units and allocate the number of remaining  shares  available for issuance first
to the grant of Options and second  toward the award of Award Units.  If and for
so long as no available share authorization remains, no additional Options shall
be granted or Stock  Units  credited  and cash shall be paid in lieu of dividend
equivalents under Sections 4.7 and 5.3 for such duration.

         7.3 Fractional Shares; Minimum Issue. Fractional share interests may be
accumulated but shall not be issued. Cash will be paid or transferred in lieu of
any fractional share interests that remain upon a final  distribution  under the
Plan.  No fewer than 100 shares may be purchased on exercise of an Option at any
one time unless the number  purchased is the total number at the time  available
for purchase under the Option.

Section 8.        Administration

         8.1 The Administrator.

         The  Administrator  of this  Plan  shall  be the  Board as a whole or a
Committee as appointed from time to time by the Board to serve as  administrator
of this  Plan.  The  participating  members  of any  Committee  so acting  shall
include,  as to decisions in respect of participants  who are subject to Section
16 of the Exchange Act, only those  members who are  Non-Employee  Directors (as
defined  in Rule  16b-3  promulgated  under the  Exchange  Act).  Members of the
Committee shall not receive any additional  compensation for  administration  of
this Plan.

         8.2 Committee Action.

         A member of the  Committee  shall not vote or act upon any matter which
relates  solely to himself or herself as a Participant  in this Plan.  Action of
the  Committee  with respect to the  administration  of this Plan shall be taken
pursuant  to a  majority  vote or  (assuming  compliance  with  Section  8.1) by
unanimous written consent of its members.

         8.3 Rights and Duties; Delegation and Reliance; Decisions Binding.

         Subject to the limitations of this Plan, the Committee shall be charged
with the general administration of this Plan and the responsibility for carrying
out its  provisions,  and  shall  have  powers  necessary  to  accomplish  those
purposes, including, but not by way of limitation, the following:

                  (a) To construe and interpret this Plan;

                                       9
<PAGE>

                  (b) To resolve any questions concerning the amount of benefits
         payable to a Participant  (except that no member of the Committee shall
         participate in a decision relating solely to his or her own benefits);

                  (c) To   make  adjustments  under  Section  6  and  all  other
         determinations required by this Plan;

                  (d) To   maintain   all   the   necessary   records   for  the
         administration of this Plan; and

                  (e) To make and publish  forms,  rules and  procedures for the
         administration of this Plan.

         The  determination  of the  Committee  made  in  good  faith  as to any
disputed  question or controversy and the Committee's  determination of benefits
payable to Participants,  including decisions as to adjustments under Section 6,
shall be conclusive and binding for all purposes of this Plan. In performing its
duties,  the  Committee  shall be  entitled  to rely on  information,  opinions,
reports or statements prepared or presented by: (i) officers or employees of the
Company  whom the  Committee  believes to be reliable  and  competent as to such
matters;  and (ii) counsel (who may be  employees of the  Company),  independent
accountants  and other persons as to matters which the Committee  believes to be
within such persons'  professional or expert competence.  The Committee shall be
fully  protected with respect to any action taken or omitted by it in good faith
pursuant to the advice of such persons. The Committee may delegate  ministerial,
bookkeeping  and  other  non-discretionary  functions  to  individuals  who  are
officers or employees of the Company.

Section 9.        Amendment and Termination; Stockholder Approval

         9.1 Amendment and Termination.  Subject to Section 9.2, the Board shall
have the  right to amend  this Plan in whole or in part from time to time or may
at any time suspend or terminate this Plan; provided,  however,  that, except as
contemplated by Section 6, no amendment or termination shall cancel or otherwise
adversely  affect  in  any  way,  without  his  or  her  written  consent,   any
Participant's rights with respect to Stock Units credited to his or her Accounts
or Options  granted;  and provided  further that neither Section 4 nor any other
provision of the Plan or an award shall be amended to permit the  reduction  (by
amendment,  substitution,  cancellation  and  regrant  or  other  means)  of the
exercise price of any Option without prior stockholder approval.  Any amendments
authorized  hereby  shall  be  stated  in an  instrument  in  writing,  and  all
Participants shall be bound by such amendment. Changes contemplated by Section 6
shall not be deemed to  constitute  changes or  amendments  for purposes of this
Section 9.1.

         9.2  Stockholder  Approval.  The Plan,  any  grant,  election,  action,
crediting or vesting prior to stockholder approval, shall be subject to approval
of the Plan by the stockholders of the Company and, to the extent required under
applicable  law or listing  agency rule,  required by the  provisions of Section
9.1, or deemed  necessary or advisable by the Board,  any  amendment to the Plan
shall be subject to stockholder approval.

                                       10
<PAGE>

Section 10.       Miscellaneous

         10.1 Limitation on  Participants'  Rights.  Participation  in this Plan
shall  not give any  person  the right to  continue  to serve as a member of the
Board or any rights or interests other than as expressly  provided herein.  This
Plan shall create only a contractual obligation on the part of the Company as to
such  amounts  and shall  not be  construed  as  creating  a trust or  fiduciary
relationship between the Company, the Board, the Committee,  and any Participant
or other person. This Plan, in and of itself, has no assets.  Participants shall
have only the rights of a general unsecured creditor of the Company with respect
to amounts credited and benefits payable, if any, on their Accounts,  and rights
no greater than the right to receive the Common Stock (or equivalent  value as a
general unsecured creditor) with respect to Accounts.  Participants shall not be
entitled to receive actual dividends or to vote Shares until after delivery of a
certificate representing the Shares.

         10.2 Beneficiaries.

                  (a)  Beneficiary  Designation.  Upon  forms  provided  by  the
         Company  each  Non-Employee  Director  may  designate  in  writing  the
         Beneficiary or Beneficiaries  (as defined in Section 10.2(b)) whom such
         Non-Employee  Director desires to receive any amounts payable under the
         Plan after his or her death.  Beneficiary  designation  forms  shall be
         effective  on the  date  that  the form is  received  by the  Corporate
         Secretary.  A Non-Employee Director may from time to time change his or
         her designated Beneficiary or Beneficiaries without the consent of such
         Beneficiary  or  Beneficiaries  by filing a new  designation in writing
         with  the  Corporate  Secretary.  However,  if a  married  Non-Employee
         Director  wishes to  designate a person other than his or her spouse as
         Beneficiary,  such designation  shall be consented to in writing by the
         spouse. The Non-Employee Director may change any election designating a
         Beneficiary or Beneficiaries without any requirement of further spousal
         consent  if the  spouse's  consent  so  provides.  Notwithstanding  the
         foregoing,  spousal consent shall not be necessary if it is established
         that the required  consent cannot be obtained because the spouse cannot
         be  located  or  because  of  other  circumstances  prescribed  by  the
         Committee.  The Company and the Committee may rely on the  Non-Employee
         Director's  designation of a Beneficiary or Beneficiaries last filed in
         accordance with the terms of the Plan.

                  (b) Definition of Beneficiary.  A Participant's  "Beneficiary"
         or "Beneficiaries"  shall be the person,  persons,  trust or trusts (or
         similar  entity)  designated by the Participant or, in the absence of a
         designation,  entitled by will or the laws of descent and  distribution
         to receive the  Participant's  benefits under this Plan in the event of
         the Participant's  death, and shall mean the Participant's  executor or
         administrator  if no other  Beneficiary  is identified  and able to act
         under the circumstances.

                                       11
<PAGE>

         10.3  Non-Transferability.  A Participant's  rights and interests under
the Plan in respect of Options and Stock  Units,  including  amounts  payable or
Stock deliverable under or in respect thereof, may not be assigned,  pledged, or
transferred except:

                  (a) in the event of a  Participant's  death,  to a  designated
         beneficiary as provided in Section  10.2(b) above, or in the absence of
         such designation, by will or the laws of descent and distribution; or

                  (b) in the case of Options,  with the consent of the Committee
         evidenced in writing or by duly adopted resolution,  to certain persons
         or entities  related to the  Participant,  including but not limited to
         members of the Participant's immediate family, charitable institutions,
         or trusts or other entities whose  beneficiaries  or beneficial  owners
         are members of the  Participant's  immediate  family and/or  charitable
         institutions,  pursuant  to  such  conditions  and  procedures  as  the
         Committee may establish. Any permitted transfer shall be subject to the
         condition that the Committee  receive evidence  satisfactory to it that
         the transfer is being made for  essentially  estate and/or tax planning
         purposes or a gratuitous  or donative  basis and without  consideration
         (other than nominal  consideration  or in exchange for an interest in a
         qualified  transferee)  and only if such  transfer  would not adversely
         affect the Company's  eligibility to use Form S-8 to register under the
         Securities  Act of 1933,  as amended,  the offering of shares  issuable
         under the Plan by the Company.

The above exercise and transfer restrictions shall not apply to transfers to the
Company or transfers pursuant to a court order.

         10.4 Obligations Binding Upon Successors.

         Obligations  of the  Company  under  this Plan  shall be  binding  upon
successors of the Company.

         10.5 Governing Law; Severability.

         The  validity of this Plan and any  agreements  entered  into under the
Plan or any of its provisions  shall be construed,  administered and governed in
all respects  under the laws of the State of  California.  If any  provisions of
this Plan shall be held by a court of  competent  jurisdiction  to be invalid or
unenforceable,  the  remaining  provisions  hereof  shall  continue  to be fully
effective.

         10.6 Compliance with Laws.

         This Plan and the  offer,  issuance  and  delivery  of shares of Common
Stock and/or the payment of benefits  under this Plan are subject to  compliance
with all applicable federal and state laws, rules and regulations (including but
not limited to state and federal  securities  law) and to such  approvals by any
listing,  agency or any  regulatory  or  governmental  authority  as may, in the
opinion of counsel for the Company,  be  necessary  or  advisable in  connection
therewith.  Any securities  delivered  under this Plan shall be subject to prior
registration or such restrictions as the Company may deem necessary or desirable
to assure  compliance  with all applicable  legal  requirements,  and the person
acquiring  such  securities  shall,  if requested  by the Company,  provide such
assurances and  representations  to the Company as it may reasonably  request to
assure such compliance.

                                       12
<PAGE>

         10.7  Limitations  on Rights  Associated  with  Units.  A  Non-Employee
Director's  Accounts shall be a memorandum  account on the books of the Company.
The Units credited to a Non-Employee Director's Accounts shall be used solely as
a  device  for  the  determination  of the  number  of  shares  of  Stock  to be
distributed to the Participant in accordance with this Plan following his or her
termination  of service as a director  of the  Company.  The Units  shall not be
treated as  property  or as a trust fund of any kind.  No  Participant  shall be
entitled  to any  voting  or other  stockholder  rights  with  respect  to Units
credited  under  this  Plan.  The number of Units  credited  to a  Participant's
Accounts  shall be subject to adjustment  in  accordance  with Section 6 and the
terms of this Plan.

         10.8 Plan Construction.

         It is the intent of the Company that transactions pursuant to this Plan
satisfy and be interpreted in a manner that satisfies the applicable  conditions
for exemption under Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3")
so that,  to the extent  consistent  therewith,  the  crediting of Units and the
payment of Stock as well as grants of Options  will be entitled to the  benefits
of Rule 16b-3 or other  exemptive rules under Section 16 of the Exchange Act and
will not be subjected to avoidable liability thereunder.

         10.9 Headings Not Part of Plan.

         Headings and  subheadings  in this Plan are inserted for reference only
and are not to be considered in the construction of the provisions hereof.

                                       13

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