AMENDED AND RESTATED
 
                            2002 INCENTIVE AWARD PLAN
 
                                       OF
 
                               FILENET CORPORATION
 
     FileNet Corporation,  a Delaware  corporation (the "Company"),  has adopted
the Amended and Restated 2002 Incentive Award Plan of FileNet Corporation,  (the
"Restated  Plan"),  for the benefit of its eligible  employees,  consultants and
directors.  The  Company  originally  adopted the 2002  Incentive  Award Plan of
FileNet  Corporation  effective  May 22,  2002.  This  Restated  Plan amends and
restates the original plan effective as of May 7, 2004.
 
     The purposes of the Restated Plan are as follows:
 
     (1) To provide an  additional  incentive for  directors,  key Employees and
Consultants (as such terms are defined below) to further the growth, development
and  financial  success of the  Company by  personally  benefiting  through  the
ownership  of  Company  stock  and/or  rights  which   recognize   such  growth,
development and financial success.
 
     (2) To enable the Company to obtain and retain the  services of  directors,
key Employees and Consultants  considered essential to the long range success of
the Company by offering them an  opportunity  to own stock in the Company and/or
rights which will reflect the growth,  development and financial  success of the
Company.
 
 
                                   ARTICLE I.
 
                                   DEFINITIONS
 
     Wherever the following  terms are used in the Restated Plan they shall have
the meanings  specified below,  unless the context clearly indicates  otherwise.
The singular pronoun shall include the plural where the context so indicates.
 
     1.1.  "Administrator"  shall  mean the entity  that  conducts  the  general
administration  of the Restated Plan as provided  herein.  With reference to the
administration  of  the  Restated  Plan  with  respect  to  Options  granted  to
Independent  Directors,  the term "Administrator" shall refer to the Board. With
reference to the  administration  of the Restated Plan with respect to any other
Award, the term "Administrator"  shall refer to the Committee,  unless the Board
has assumed the authority for  administration  of the Restated Plan generally as
provided  in Section  10.1 or the  Committee  has  delegated  its  authority  to
administer  the  Restated  Plan as provided  in Section  10.5,  in which  events
"Administrator"  shall refer to the Board or such  delegated  sub-committee,  as
applicable.
 
     1.2.  "Award" shall mean an Option, a Restricted Stock award, a Performance
Award,  a Dividend  Equivalents  award,  a Deferred Stock award, a Stock Payment
award or a Stock  Appreciation  Right which may be awarded or granted  under the
Restated Plan (collectively, "Awards").
 
     1.3.  "Award  Agreement"  shall  mean a written  agreement  executed  by an
authorized officer of the Company and the Holder, which shall contain such terms
and conditions with respect to an Award as the  Administrator  shall  determine,
consistent with the Restated Plan.
 
                                       36
 
 
     1.4.  "Award Limit" shall mean 400,000 shares of Common Stock,  as adjusted
pursuant  to Section  11.3;  provided,  however,  that  solely  with  respect to
Performance  Awards granted  pursuant to Section 8.2(b),  Award Limit shall mean
Seven Hundred Fifty Thousand Dollars ($750,000).
 
     1.5. "Board" shall mean the Board of Directors of the Company.
 
     1.6. "Change in Control" shall mean a change in ownership or control of the
Company effected through any of the following transactions:
 
          (a) Any person or related group of persons  (other than the Company or
     a person that, prior to such transaction,  directly or indirectly controls,
     is controlled by, or is under common control with, the Company) directly or
     indirectly acquires beneficial  ownership (within the meaning of Rule 13d-3
     under the Exchange Act) of securities possessing more than 50% of the total
     combined voting power of the Company's outstanding securities pursuant to a
     tender or exchange offer made directly to the Company's  stockholders which
     the Board does not recommend such stockholders accept; or
 
          (b) There is a change in the composition of the Board over a period of
     36  consecutive  months (or less) such that a majority of the Board members
     (rounded up to the nearest whole number)  ceases,  by reason of one or more
     proxy  contests  for the  election of Board  members,  to be  comprised  of
     individuals who either (i) have been Board members  continuously  since the
     beginning  of such  period,  or (ii) 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 (i) who were still in office at the time
     such election or nomination was approved by the Board; or
 
          (c) Any person is or becomes the beneficial owner of securities of the
     Company  representing  10% or  more of the  combined  voting  power  of the
     Company's  then  outstanding  securities  and (i) the identity of the Chief
     Executive  Officer of the Company is changed during the period beginning 60
     days before the attainment of the 10%  beneficial  ownership and ending two
     years  thereafter,  or (ii) individuals  constituting at least one-third of
     the members of the Board at the  beginning  of such period  shall leave the
     Board during the period  beginning 60 days before the attainment of the 10%
     beneficial ownership and ending two years thereafter.
 
     1.7. "Code" shall mean the Internal Revenue Code of 1986, as amended.
 
     1.8.  "Committee"  shall mean the  Compensation  Committee of the Board, or
another committee or subcommittee of the Board, appointed as provided in Section
10.1.
 
     1.9. "Common Stock"  shall mean the common stock of the Company,  par value
$0.01 per share.
 
     1.10. "Company" shall mean FileNet Corporation, a Delaware corporation.
 
     1.11. "Consultant" shall mean any consultant or adviser if:
 
          (a) The  consultant  or  adviser  renders  bona fide  services  to the
     Company;
 
          (b) The  services  rendered  by the  consultant  or adviser are not in
     connection  with  the  offer  or sale of  securities  in a  capital-raising
     transaction and do not directly or indirectly  promote or maintain a market
     for the Company's securities; and
 
          (c) The  consultant or adviser is a natural  person who has contracted
     directly with the Company to render such services.
 
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     1.12. "Corporate Transaction" shall mean:
 
          (a) The  stockholders of the Company approve a merger or consolidation
     of the Company with any other  corporation (or other entity),  other than a
     merger or consolidation  which would result in the voting securities of the
     Company  outstanding  immediately  prior  thereto  continuing  to represent
     (either  by  remaining  outstanding  or  by  being  converted  into  voting
     securities  of the surviving  entity) more than 50% of the combined  voting
     power of the voting  securities  of the  Company or such  surviving  entity
     outstanding  immediately  after  such  merger or  consolidation;  provided,
     however,   that  a  merger  or   consolidation   effected  to  implement  a
     recapitalization of the Company (or similar transaction) in which no person
     acquires more than 25% of the combined  voting power of the Company's  then
     outstanding securities shall not constitute a Change in Control; or
 
          (b)  The  stockholders  of the  Company  approve  a plan  of  complete
     liquidation  of the Company or an agreement for the sale or  disposition by
     the Company of all or substantially all of the Company's assets.
 
     1.13.  "Deferred  Stock" shall mean Common Stock awarded under Article VIII
of the Restated Plan.
 
     1.14. "Director" shall mean a member of the Board.
 
     1.15.  "Dividend  Equivalent"  shall mean a right to receive the equivalent
value (in cash or Common Stock) of dividends paid on Common Stock, awarded under
Article VIII of the Restated Plan.
 
     1.16. "DRO" shall mean a domestic relations order as defined by the Code or
Title I of the Employee  Retirement Income Security Act of 1974, as amended,  or
the rules thereunder.
 
     1.17. "Effective Date" shall mean May 7, 2004.
 
     1.18.  "Employee"  shall mean any officer or other  employee (as defined in
accordance  with  Section  3401(c)  of  the  Code)  of  the  Company,  or of any
corporation that is a Subsidiary.
 
     1.19.  "Exchange  Act" shall mean the  Securities  Exchange Act of 1934, as
amended.
 
     1.20.  "Fair  Market  Value" of a share of Common  Stock as of a given date
shall be (a) the average of the high and low selling prices of a share of Common
Stock on the  principal  exchange or the Nasdaq  Stock Market on which shares of
Common Stock are then  trading,  if any (or as reported on any  composite  index
which  includes such  principal  exchange),  on such date, or if shares were not
traded on such date,  then on the next preceding date on which a trade occurred,
or (b) if Common Stock is not traded on an exchange or the Nasdaq Stock  Market,
but is quoted on Nasdaq or a  successor  quotation  system,  the  average of the
closing representative bid and asked prices for the Common Stock on such date as
reported by Nasdaq or such successor quotation system, or (c) if Common Stock is
not  publicly  traded on an  exchange  and not  quoted on Nasdaq or a  successor
quotation  system,  the  Fair  Market  Value  of a  share  of  Common  Stock  as
established by the Administrator acting in good faith.
 
     1.21.  "Holder"  shall  mean a person  who has been  granted  or awarded an
Award.
 
     1.22.  "Incentive  Stock Option" shall mean an option which conforms to the
applicable  provisions  of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.
 
     1.23. "Independent Director" shall mean a member of the Board who is not an
Employee of the Company.
 
     1.24.  "Non-Qualified  Stock  Option"  shall  mean  an  Option  that is not
designated as an Incentive Stock Option by the Administrator.
 
                                       38
 
 
     1.25.  "Option"  shall mean a stock option  granted under Article IV of the
Restated Plan. An Option granted under the Restated Plan shall, as determined by
the Administrator,  be either a Non-Qualified Stock Option or an Incentive Stock
Option;  provided,  however,  that Options granted to Independent  Directors and
Consultants shall be Non-Qualified Stock Options.
 
     1.26.  "Performance  Award"  shall mean a cash bonus,  stock bonus or other
performance  or  incentive  award  that is  paid  in  cash,  Common  Stock  or a
combination of both, awarded under Article VIII of the Restated Plan.
 
     1.27.  "Performance  Criteria" shall mean the following  business  criteria
with respect to the Company,  any Subsidiary or any division or operating  unit:
(a) net income,  (b) pre-tax income,  (c) operating  income,  (d) cash flow, (e)
earnings  per share,  (f) return on equity,  (g) return on  invested  capital or
assets,  (h)  cost  reductions  or  savings,  (i)  funds  from  operations,  (j)
appreciation  in the fair market value of Common Stock,  and (k) earnings before
any  one or  more of the  following  items:  interest,  taxes,  depreciation  or
amortization each as determined in accordance with generally accepted accounting
principles or subject to such  adjustments  as may be specified by the Committee
with respect to a Performance Award.
 
     1.28.  "Permanent  Disability"  shall mean the  inability  of the Holder to
perform  his  usual  duties  as a  Board  member,  employee  or  consultant,  as
applicable,   by  reason  of  any  medically  determinable  physical  or  mental
impairment expected to result in death or to be of continuous duration of twelve
months or more.
 
     1.29."Restated  Plan" shall mean the Amended and  Restated  2002  Incentive
Award Plan of FileNet Corporation, as amended and/or restated from time to time.
 
     1.30.  "Restricted  Stock"  shall mean  Common  Stock,  or right to acquire
Common  Stock in the form of  restricted  stock  units,  in each case subject to
restrictions and awarded under Article VII of the Restated Plan.
 
     1.31.  "Rule  16b-3" shall mean Rule 16b-3  promulgated  under the Exchange
Act, as such Rule may be amended from time to time.
 
     1.32.  "Section 162(m)  Participant" shall mean any key Employee designated
by the Administrator as a key Employee whose compensation for the fiscal year in
which the key Employee is so  designated  or a future fiscal year may be subject
to the limit on deductible compensation imposed by Section 162(m) of the Code.
 
     1.33. "Securities Act" shall mean the Securities Act of 1933, as amended.
 
     1.34.  "Stock  Appreciation  Right" shall mean a stock  appreciation  right
granted under Article IX of the Restated Plan.
 
     1.35.  "Stock  Payment"  shall  mean (a) a payment in the form of shares of
Common  Stock,  or (b) an option  or other  right to  purchase  shares of Common
Stock, as part of a deferred  compensation  arrangement,  made in lieu of all or
any portion of the compensation,  including without limitation,  salary, bonuses
and  commissions,  that would  otherwise  become  payable to a key  Employee  or
Consultant in cash, awarded under Article VIII of the Restated Plan.
 
     1.36.  "Subsidiary"  shall mean any  corporation  in an  unbroken  chain of
corporations  beginning with the Company if each of the corporations  other than
the last  corporation  in the unbroken  chain then owns 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.
 
     1.37.  "Substitute  Award" shall mean an Option granted under this Restated
Plan upon the assumption of, or in substitution for,  outstanding  equity awards
previously  granted by a company or other entity in connection  with a corporate
transaction,  such as a merger,  combination,  consolidation  or  acquisition of
 
                                       39
 
 
property  or  stock;  provided,  however,  that  in  no  event  shall  the  term
"Substitute Award" be construed to refer to an award made in connection with the
cancellation and repricing of an Option.
 
     1.38.  "Termination of Consultancy" shall mean the time when the engagement
of a Holder as a Consultant to the Company or a Subsidiary is terminated for any
reason,  with or without  cause,  including,  but not by way of  limitation,  by
resignation,  discharge,  death or retirement,  but excluding terminations where
there is a  simultaneous  commencement  of  employment  with the  Company or any
Subsidiary. The Administrator,  in its absolute discretion,  shall determine the
effect of all matters and  questions  relating to  Termination  of  Consultancy,
including,  but not by way of limitation,  the question of whether a Termination
of  Consultancy  resulted from a discharge for good cause,  and all questions of
whether a particular leave of absence  constitutes a Termination of Consultancy.
Notwithstanding  any other  provision of the Restated  Plan,  the Company or any
Subsidiary  has an absolute and  unrestricted  right to terminate a Consultant's
service at any time for any reason whatsoever,  with or without cause, except to
the extent expressly provided otherwise in writing.
 
     1.39.  "Termination of Directorship"  shall mean the time when a Holder who
is an Independent  Director  ceases to be a Director for any reason,  including,
but not by way of  limitation,  a  termination  by  resignation,  failure  to be
elected,  death or retirement.  The Board, in its sole and absolute  discretion,
shall determine the effect of all matters and questions  relating to Termination
of Directorship with respect to Independent Directors.
 
     1.40.   "Termination   of   Employment"   shall  mean  the  time  when  the
employee-employer   relationship  between  a  Holder  and  the  Company  or  any
Subsidiary is terminated for any reason, with or without cause,  including,  but
not by way of  limitation,  a  termination  by  resignation,  discharge,  death,
Permanent  Disability or retirement;  but excluding (a) terminations where there
is a  simultaneous  reemployment  or  continuing  employment  of a Holder by the
Company  or  any  Subsidiary,  (b)  at  the  discretion  of  the  Administrator,
terminations  which  result in a temporary  severance  of the  employee-employer
relationship, and (c) at the discretion of the Administrator, terminations which
are followed by the simultaneous  establishment of a consulting  relationship by
the Company or a Subsidiary with the former employee. The Administrator,  in its
absolute  discretion,  shall  determine  the effect of all matters and questions
relating to Termination of Employment,  including, but not by way of limitation,
the question of whether a Termination  of  Employment  resulted from a discharge
for good  cause,  and all  questions  of whether a  particular  leave of absence
constitutes a Termination of Employment;  provided,  however, that, with respect
to Incentive Stock Options,  unless otherwise determined by the Administrator in
its  discretion,  a leave of  absence,  change in status  from an employee to an
independent  contractor  or other change in the  employee-employer  relationship
shall  constitute a Termination of Employment  if, and to the extent that,  such
leave of absence, change in status or other change interrupts employment for the
purposes of Section  422(a)(2) of the Code and the then  applicable  regulations
and revenue rulings under said Section.
 
 
                                   ARTICLE II.
 
                         SHARES SUBJECT TO RESTATED PLAN
 
 
     2.1. Shares Subject to Restated Plan.
 
          (a) The  shares  of stock  subject  to Awards  shall be Common  Stock,
     initially  shares of the Company's  Common Stock.  Subject to adjustment as
     provided in Section 11.3, the aggregate  number of such shares which may be
     issued  upon  exercise of such  Options or rights or upon any other  Awards
     under the  Restated  Plan  shall not  exceed  Four  Million  Eight  Hundred
     Thousand (4,800,000) shares, and the aggregate number of shares that may be
     issued as Restricted Stock,  Deferred Stock,  Performance  Awards and Stock
     Payments  shall not exceed Seven Hundred  Thousand  (700,000)  shares.  The
     shares of Common Stock  issuable upon exercise of such Options or rights or
     upon any other  Awards may be either  previously  authorized  but  unissued
     shares or treasury shares.
 
          (b) The  maximum  number of  shares  which  may be  subject  to Awards
     granted  under the Restated  Plan to any  individual  in any calendar  year
     shall not exceed the Award Limit.
 
                                       40
 
 
     2.2. Add-back of Options and Other Awards. If any Option, or other right to
acquire  shares of Common Stock under any other Award under the  Restated  Plan,
expires or is canceled without having been fully  exercised,  or is exercised in
whole or in part for cash as  permitted  by the  Restated  Plan,  the  number of
shares  subject to such  Option or other  right but as to which  such  Option or
other right was not exercised prior to its expiration,  cancellation or exercise
may again be optioned, granted or awarded hereunder,  subject to the limitations
of Section  2.1.  Furthermore,  any shares  subject to Awards which are adjusted
pursuant to Section 11.3 and become  exercisable with respect to shares of stock
of another corporation shall be considered  cancelled and may again be optioned,
granted or awarded hereunder,  subject to the limitations of Section 2.1. Shares
of Common  Stock  which are  delivered  by the Holder or withheld by the Company
upon the  exercise  of any Award  under the  Restated  Plan,  in  payment of the
exercise  price  thereof  or tax  withholding  thereon,  may again be  optioned,
granted or awarded hereunder,  subject to the limitations of Section 2.1. If any
shares of Restricted  Stock are  surrendered by the Holder or repurchased by the
Company  pursuant  to  Section  7.4 or 7.5  hereof,  such  shares  may  again be
optioned,  granted or awarded  hereunder,  subject to the limitations of Section
2.1.  Notwithstanding  the  provisions  of this Section 2.2, no shares of Common
Stock may again be  optioned,  granted or awarded if such action  would cause an
Incentive  Stock  Option to fail to qualify as an  incentive  stock option under
Section 422 of the Code.
 
 
                                  ARTICLE III.
 
                               GRANTING OF AWARDS
 
 
     3.1. Award Agreement.  Each Award shall be evidenced by an Award Agreement.
Award  Agreements  evidencing  Awards  intended to qualify as  performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and  conditions as may be necessary to meet the  applicable  provisions of
Section 162(m) of the Code. Award Agreements  evidencing Incentive Stock Options
shall  contain  such  terms  and  conditions  as may be  necessary  to meet  the
applicable provisions of Section 422 of the Code.
 
     3.2. Provisions Applicable to Section 162(m) Participants.
 
          (a) The  Administrator,  in its discretion,  may determine  whether an
     Award is to qualify  as  performance-based  compensation  as  described  in
     Section 162(m)(4)(C) of the Code.
 
          (b) Notwithstanding anything in the Restated Plan to the contrary, the
     Administrator  may  grant  any  Award  to  a  Section  162(m)  Participant,
     including  Restricted  Stock the  restrictions  with respect to which lapse
     upon the attainment of  performance  goals which are related to one or more
     of  the  Performance  Criteria  and  any  performance  or  incentive  award
     described in Article VIII that vests or becomes exercisable or payable upon
     the attainment of performance goals which are related to one or more of the
     Performance Criteria.
 
          (c) To the  extent  necessary  to  comply  with the  performance-based
     compensation requirements of Section 162(m)(4)(C) of the Code, with respect
     to any Award  granted  under  Articles VII and VIII which may be granted to
     one or more  Section  162(m)  Participants,  no later than ninety (90) days
     following  the  commencement  of any fiscal  year in  question or any other
     designated fiscal period or period of service (or such other time as may be
     required or permitted  by Section  162(m) of the Code),  the  Administrator
     shall, in writing,  (i) designate one or more Section 162(m)  Participants,
     (ii) select the Performance Criteria applicable to the fiscal year or other
     designated fiscal period or period of service,  (iii) establish the various
     performance  targets,  in terms of an objective  formula or  standard,  and
     amounts of such Awards, as applicable,  which may be earned for such fiscal
     year or other  designated  fiscal  period or period  of  service,  and (iv)
     specify the relationship  between Performance  Criteria and the performance
     targets and the amounts of such Awards, as applicable, to be earned by each
     Section 162(m)  Participant for such fiscal year or other designated fiscal
     period or period of service.  Following the  completion of each fiscal year
     or other designated  fiscal period or period of service,  the Administrator
     shall certify in writing  whether the applicable  performance  targets have
     been  achieved for such fiscal year or other  designated  fiscal  period or
     period of service.  In  determining  the amount earned by a Section  162(m)
     Participant,  the Administrator  shall have the right to reduce (but not to
     increase) the amount  payable at a given level of  performance to take into
     account  additional factors that the Administrator may deem relevant to the
     assessment of individual  or corporate  performance  for the fiscal year or
     other designated fiscal period or period of service.
 
                                       41
 
 
          (d) Furthermore,  notwithstanding  any other provision of the Restated
     Plan or any Award which is granted to a Section 162(m)  Participant  and is
     intended  to qualify as  performance-based  compensation  as  described  in
     Section  162(m)(4)(C)  of the  Code  shall  be  subject  to any  additional
     limitations  set  forth  in  Section  162(m)  of the  Code  (including  any
     amendment  to  Section  162(m) of the Code) or any  regulations  or rulings
     issued    thereunder   that   are   requirements   for   qualification   as
     performance-based  compensation as described in Section 162(m)(4)(C) of the
     Code, and the Restated Plan shall be deemed amended to the extent necessary
     to conform to such requirements.
 
     3.3.  Limitations  Applicable  to Section 16 Persons.  Notwithstanding  any
other  provision of the Restated  Plan, the Restated Plan, and any Award granted
or awarded to any  individual  who is then subject to Section 16 of the Exchange
Act, shall be subject to any additional  limitations set forth in any applicable
exemptive  rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are  requirements  for the  application  of
such  exemptive  rule. To the extent  permitted by applicable  law, the Restated
Plan and  Awards  granted or awarded  hereunder  shall be deemed  amended to the
extent necessary to conform to such applicable exemptive rule.
 
     3.4. Consideration.  In consideration of the granting of an Award under the
Restated Plan, the Holder shall agree, in the Award Agreement,  to remain in the
employ  of (or to  consult  for or to serve as an  Independent  Director  of, as
applicable)  the Company or any Subsidiary for a period of at least one year (or
such shorter  period as may be fixed in the Award  Agreement or by action of the
Administrator  following  grant of the Award) after the Award is granted (or, in
the  case  of  an  Independent  Director,  until  the  next  annual  meeting  of
stockholders of the Company).
 
     3.5.  At-Will  Employment.  Nothing  in the  Restated  Plan or in any Award
Agreement  hereunder  shall  confer upon any Holder any right to continue in the
employ  of, or as a  Consultant  for,  the  Company or any  Subsidiary,  or as a
director  of the  Company,  or shall  interfere  with or restrict in any way the
rights of the Company and any Subsidiary,  which are hereby expressly  reserved,
to discharge any Holder at any time for any reason  whatsoever,  with or without
cause, except to the extent expressly provided otherwise in a written employment
agreement between the Holder and the Company and any Subsidiary.
 
     3.6.  Prohibition on Repricing.  The Administrator shall not, without prior
approval by the  Company's  stockholders,  reprice,  replace or regrant  through
cancellation  or lowering of the Option  exercise  price any awards issued under
the Restated Plan.
 
 
                                   ARTICLE IV.
 
                        GRANTING OF OPTIONS TO EMPLOYEES,
                      CONSULTANTS AND INDEPENDENT DIRECTORS
 
 
     4.1. Eligibility.  Any Employee or Consultant selected by the Administrator
pursuant to Section  4.4(a)(i)  shall be eligible to be granted an Option.  Each
Independent  Director of the Company shall be eligible to be granted  Options at
the times and in the manner set forth in Section 4.5.
 
     4.2.  Disqualification  for Stock  Ownership.  No person  may be granted an
Incentive  Stock Option under the Restated Plan if such person,  at the time the
Incentive  Stock Option is granted,  owns stock  possessing more than 10% of the
total  combined  voting power of all classes of stock of the Company or any then
existing  Subsidiary or parent corporation (within the meaning of Section 422 of
the  Code)  unless  such  Incentive  Stock  Option  conforms  to the  applicable
provisions of Section 422 of the Code.
 
     4.3.  Qualification  of Incentive Stock Options.  No Incentive Stock Option
shall be granted to any person who is not an Employee.
 
                                       42
 
 
     4.4. Granting of Options to Employees and Consultants.
 
          (a) The  Administrator  shall  from  time  to  time,  in its  absolute
     discretion, and subject to applicable limitations of the Restated Plan:
 
               (i) Determine  which  Employees are key Employees and select from
          among  the  key  Employees  or  Consultants  (including  Employees  or
          Consultants  who have  previously  received  Awards under the Restated
          Plan) such of them as in its opinion should be granted Options;
 
               (ii) Subject to the Award Limit,  determine  the number of shares
          to be subject to such Options granted to the selected key Employees or
          Consultants;
 
               (iii) Subject to Section 4.3,  determine whether such Options are
          to be  Incentive  Stock  Options or  Non-Qualified  Stock  Options and
          whether such Options are to qualify as performance-based  compensation
          as described in Section 162(m)(4)(C) of the Code; and
 
               (iv)   Determine  the  terms  and  conditions  of  such  Options,
          consistent with the Restated Plan; provided,  however,  that the terms
          and  conditions  of Options  intended to qualify as  performance-based
          compensation  as described in Section  162(m)(4)(C)  of the Code shall
          include,  but not be limited to, such terms and  conditions  as may be
          necessary to meet the  applicable  provisions of Section 162(m) of the
          Code.
 
          (b) Upon the  selection of a key Employee or  Consultant to be granted
     an Option, the Administrator shall instruct the Secretary of the Company to
     issue the Option and may impose such  conditions on the grant of the Option
     as it deems appropriate.
 
          (c) Any Incentive  Stock Option granted under the Restated Plan may be
     modified  by  the  Administrator,  with  the  consent  of  the  Holder,  to
     disqualify such Option from treatment as an "incentive  stock option" under
     Section 422 of the Code.
 
     4.5.  Automatic  Granting of Options to Independent  Directors.  During the
term  of  the  Restated  Plan,  each  person  who  is  an  Independent  Director
automatically  shall be granted an Option to  purchase  10,000  shares of Common
Stock  (subject to  adjustment  as provided in Section 11.3) on the date of each
annual meeting of stockholders at which the Independent Director is reelected to
the Board,  commencing with the 2004 Annual Meeting of Stockholders.  During the
term of the Restated Plan, a person who is initially elected or appointed to the
Board after the Effective Date and who is an Independent Director at the time of
such  initial  election  or  appointment  automatically  shall be granted (x) an
Option to purchase  25,000  shares of Common  Stock  (subject to  adjustment  as
provided in Section 11.3) on the date of such initial  election or  appointment,
and (y) an  Option  to  purchase  10,000  shares of  Common  Stock  (subject  to
adjustment  as provided in Section  11.3) on the date of each annual  meeting of
stockholders   after  such  initial  election  or  appointment,   at  which  the
Independent  Director is reelected to the Board,  provided such  individual  has
served as an  Independent  Director for at least six months prior to the date of
such annual meeting of  stockholders.  Members of the Board who are employees of
the  Company  who  subsequently  retire from the Company and remain on the Board
will not receive an initial Option grant pursuant to clause (x) of the preceding
sentence,  but to the extent that they are  otherwise  eligible,  will  receive,
after  retirement  from  employment  with the  Company,  Options as described in
clause (y) of the  preceding  sentence.  Certain  material  terms of the Options
granted  pursuant  to this  Section  4.5 are set forth in Section  5.4.  All the
foregoing  Option  grants   authorized  by  this  Section  4.5  are  subject  to
stockholder approval of the Restated Plan.
 
     4.6. Discretionary Granting of Options to Independent Directors.  The Board
may from time to time,  in its absolute  discretion,  and subject to  applicable
limitations of the Restated Plan:
 
          (a) Select from among the Independent Directors (including Independent
     Directors who have  previously  received  Options under the Restated  Plan)
     such of them as in its opinion should be granted Options;
 
                                       43
 
 
          (b) Subject to the Award Limit,  determine  the number of shares to be
     subject to such Options granted to the selected Independent Directors;
 
          (c) Subject to the  provisions  of Article 5,  determine the terms and
     conditions of such Options, consistent with the Restated Plan.
 
     4.7. Options in Lieu of Cash Compensation. Options may be granted under the
Restated Plan to Employees and  Consultants  in lieu of cash bonuses which would
otherwise  be payable  to such  Employees  and  Consultants  and to  Independent
Directors in lieu of  directors'  fees which would  otherwise be payable to such
Independent  Directors,  pursuant to such  policies  which may be adopted by the
Administrator from time to time.
 
 
                                   ARTICLE V.
 
                                TERMS OF OPTIONS
 
 
     5.1. Option Price. The price per share of the shares subject to each Option
granted  to  Employees  and  Consultants  shall  be set  by  the  Administrator;
provided,  however, that such price shall be no less than 85% of the Fair Market
Value of a share of Common Stock on the date the Option is granted and:
 
          (a) In the case of Options  intended  to qualify as  performance-based
     compensation  as described in Section  162(m)(4)(C) of the Code, such price
     shall not be less than 100% of the Fair  Market  Value of a share of Common
     Stock on the date the Option is granted;
 
          (b) In the case of  Incentive  Stock  Options, such price shall not be
     less than 100% of the Fair Market  Value of a share of Common  Stock on the
     date the Option is granted (or the date the Option is modified, extended or
     renewed for purposes of Section 424(h) of the Code);
 
          (c) In the case of Incentive  Stock  Options  granted to an individual
     then owning  (within  the meaning of Section  424(d) of the Code) more than
     10% of the  total  combined  voting  power of all  classes  of stock of the
     Company or any Subsidiary or parent corporation thereof (within the meaning
     of Section 422 of the Code),  such price shall not be less than 110% of the
     Fair  Market  Value of a share of  Common  Stock on the date the  Option is
     granted  (or the date the  Option is  modified,  extended  or  renewed  for
     purposes of Section 424(h) of the Code).
 
     5.2.  Option  Term.  The  term  of an  Option  granted  to an  Employee  or
consultant  shall  be set  by the  Administrator  in its  discretion;  provided,
however,  that  the term  shall not be more  than ten  years  from the  date the
Option is granted,  or five years from the date the  Incentive  Stock  Option is
granted if the Incentive  Stock Option is granted to an  individual  then owning
(within  the  meaning of Section  424(d) of the Code) more than 10% of the total
combined  voting power of all classes of stock of the Company or any  Subsidiary
or parent  corporation  thereof (within the meaning of Section 422 of the Code).
Except as limited by requirements of Section 422 of the Code and regulations and
rulings thereunder  applicable to Incentive Stock Options, the Administrator may
extend the term of any outstanding  Option in connection with any Termination of
Employment or Termination of Consultancy of the Holder,  or amend any other term
or condition of such Option relating to such a termination.
 
     5.3. Option Vesting.
 
          (a) The  period  during  which the right to  exercise,  in whole or in
     part, an Option granted to an Employee or a Consultant  vests in the Holder
     shall be set by the  Administrator and the Administrator may determine that
     an Option may not be exercised  in whole or in part for a specified  period
     after  it  is  granted.   At  any  time  after  grant  of  an  Option,  the
     Administrator  may,  in its sole and  absolute  discretion  and  subject to
     whatever  terms and  conditions  it selects,  accelerate  the period during
     which an Option granted to an Employee or Consultant vests.
 
                                       44
 
 
          (b) No portion of an Option granted to an Employee or Consultant which
     is   unexercisable   at   Termination   of  Employment  or  Termination  of
     Consultancy, as applicable, shall thereafter become exercisable,  except as
     may  be  otherwise  provided  by the  Administrator  either  in  the  Award
     Agreement  or by action  of the  Administrator  following  the grant of the
     Option.
 
          (c) To the extent that the  aggregate  Fair Market Value of stock with
     respect to which  "incentive  stock options" (within the meaning of Section
     422 of the Code,  but  without  regard to  Section  422(d) of the Code) are
     exercisable  for the first time by a Holder during any calendar year (under
     the Restated Plan and all other incentive stock option plans of the Company
     and any parent or subsidiary corporation, within the meaning of Section 422
     of the  Code) of the  Company,  exceeds  $100,000,  such  Options  shall be
     treated as  Non-Qualified  Stock Options to the extent  required by Section
     422 of the Code.  The rule set  forth in the  preceding  sentence  shall be
     applied  by taking  Options  into  account  in the order in which they were
     granted.  For  purposes of this  Section  5.3(c),  the Fair Market Value of
     stock shall be  determined  as of the time the Option with  respect to such
     stock is granted.
 
     5.4.  Terms of  Options  Automatically  Granted  to  Independent  Directors
Pursuant to Section 4.5. Options granted to an Independent  Director pursuant to
Section 4.5 shall be subject to the following terms and conditions:
 
          (a) The  exercise  price per share shall equal 100% of the Fair Market
     Value of a share of Common Stock on the date the Option is granted.
 
          (b)  The  Options  shall  become   exercisable  in  cumulative  annual
     installments  of 25% on  each  of  the  first,  second,  third  and  fourth
     anniversaries  of the date of Option grant,  except that any Option granted
     to an  Independent  Director shall become  immediately  exercisable in full
     upon the Termination of Directorship  due to death or Permanent  Disability
     of the Independent Director.
 
          (c)  Subject to Section  6.6,  the term of each  Option  granted to an
     Independent  Director  shall be ten  years  from the  date  the  Option  is
     granted.
 
          (d) No portion of an Option which is  unexercisable  at Termination of
     Directorship shall thereafter become exercisable.
 
          (e) Each vested  Option may be exercised  until the earlier of (i) the
     expiration of the Option term or (ii) 12 months  following the  Independent
     Director's cessation of service on the Board for any reason.
 
     5.5. Substitute Awards.  Notwithstanding  the foregoing  provisions of this
Article V to the contrary,  in the case of an Option that is a Substitute Award,
the price per share of the shares  subject  to such  Option may be less than the
Fair Market Value per share on the date of grant, provided, that the excess of:
 
          (a) The  aggregate  Fair Market Value (as of the date such  Substitute
     Award is granted) of the shares subject to the Substitute Award; over
 
          (b) The aggregate exercise price thereof;
 
does not exceed the excess of:
 
          (c) The  aggregate  fair  market  value  (as of the  time  immediately
     preceding the transaction  giving rise to the Substitute  Award,  such fair
     market value to be  determined by the  Administrator)  of the shares of the
     predecessor  entity that were subject to the grant  assumed or  substituted
     for by the Company; over
 
          (d) The aggregate exercise price of such shares.
 
                                       45
 
 
                                   ARTICLE VI.
 
                               EXERCISE OF OPTIONS
 
 
     6.1. Partial Exercise.  An exercisable  Option may be exercised in whole or
in part.  However, an Option shall not be exercisable with respect to fractional
shares and the  Administrator  may require that,  by the terms of the Option,  a
partial exercise be with respect to a minimum number of shares.
 
     6.2. Manner of Exercise. All or a portion of an exercisable Option shall be
deemed  exercised  upon delivery of all of the following to the Secretary of the
Company or his or her office:
 
          (a) A written notice complying with the applicable  rules  established
     by the  Administrator  stating that the Option,  or a portion  thereof,  is
     exercised.  The notice  shall be signed by the Holder or other  person then
     entitled to exercise the Option or such portion of the Option;
 
          (b) Such  representations  and documents as the Administrator,  in its
     absolute discretion, deems necessary or advisable to effect compliance with
     all  applicable  provisions of the  Securities Act and any other federal or
     state  securities  laws  or  regulations.  The  Administrator  may,  in its
     absolute  discretion,  also  take  whatever  additional  actions  it  deems
     appropriate  to  effect  such  compliance  including,  without  limitation,
     placing legends on share certificates and issuing  stop-transfer notices to
     agents and registrars;
 
          (c) In the  event  that the  Option  shall be  exercised  pursuant  to
     Section  11.1 by any person or persons  other than the Holder,  appropriate
     proof of the right of such person or persons to exercise the Option; and
 
          (d) Full cash  payment to the  Secretary of the Company for the shares
     with  respect  to which the  Option,  or  portion  thereof,  is  exercised.
     However,  the  Administrator  may, in its discretion,  (i) allow a delay in
     payment  up to 30 days from the date the  Option,  or portion  thereof,  is
     exercised; (ii) allow payment, in whole or in part, through the delivery of
     shares of Common Stock which have been owned by the Holder for at least six
     months,  duly endorsed for transfer to the Company with a Fair Market Value
     on the date of delivery equal to the aggregate exercise price of the Option
     or exercised  portion  thereof;  (iii) allow payment,  in whole or in part,
     through the surrender of shares of Common Stock then issuable upon exercise
     of the Option  having a Fair  Market  Value on the date of Option  exercise
     equal to the aggregate  exercise  price of the Option or exercised  portion
     thereof;  (iv) allow payment,  in whole or in part, through the delivery of
     property of any kind which constitutes good and valuable consideration; (v)
     allow payment, in whole or in part, through the delivery of a full recourse
     promissory  note bearing  interest (at no less than such rate as shall then
     preclude the  imputation of interest  under the Code) and payable upon such
     terms as may be prescribed by the  Administrator;  (vi) allow  payment,  in
     whole or in part,  through  the  delivery  of a notice  that the Holder has
     placed a market sell order with a broker  with  respect to shares of Common
     Stock then issuable upon exercise of the Option, and that the broker pays a
     sufficient  portion  of the net  proceeds  of the  sale to the  Company  in
     satisfaction  of the Option  exercise price; or (vii) allow payment through
     any   combination   of  the   consideration   provided  in  the   foregoing
     subparagraphs  (ii), (iii), (iv), (v) and (vi). In the case of a promissory
     note,  the  Administrator  may also prescribe the form of such note and the
     security  to be given  for such  note.  The  Option  may not be  exercised,
     however,  by  delivery of a  promissory  note or by a loan from the Company
     when or where such loan or other extension of credit is prohibited by law.
 
     6.3. Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased  upon  the  exercise  of  any  Option  or  portion  thereof  prior  to
fulfillment of all of the following conditions:
 
          (a) The admission of such shares to listing on all stock  exchanges on
     which such class of stock is then listed;
 
                                       46
 
 
          (b) The completion of any registration or other  qualification of such
     shares under any state or federal law, or under the rulings or  regulations
     of  the  Securities  and  Exchange  Commission  or any  other  governmental
     regulatory body which the Administrator  shall, in its absolute discretion,
     deem necessary or advisable;
 
          (c) The obtaining of any approval or other clearance from any state or
     federal  governmental agency which the Administrator shall, in its absolute
     discretion, determine to be necessary or advisable;
 
          (d) The lapse of such reasonable period of time following the exercise
     of the  Option as the  Administrator  may  establish  from time to time for
     reasons of administrative convenience; and
 
          (e) The  receipt  by the  Company  of full  payment  for such  shares,
     including  payment  of  any  applicable   withholding  tax,  which  in  the
     discretion of the Administrator may be in the form of consideration used by
     the Holder to pay for such shares under Section 6.2(d).
 
     6.4.  Rights as  Stockholders.  Holders  shall not be,  nor have any of the
rights or privileges  of,  stockholders  of the Company in respect of any shares
purchasable  upon  the  exercise  of any  part of an  Option  unless  and  until
certificates  representing  such  shares have been issued by the Company to such
Holders.
 
     6.5.  Ownership  and  Transfer  Restrictions.  The  Administrator,  in  its
absolute  discretion,   may  impose  such  restrictions  on  the  ownership  and
transferability  of the shares  purchasable upon the exercise of an Option as it
deems  appropriate.  Any such  restriction  shall be set forth in the respective
Award  Agreement  and may be referred  to on the  certificates  evidencing  such
shares.  The Holder shall give the Company  prompt notice of any  disposition of
shares of Common Stock acquired by exercise of an Incentive  Stock Option within
(a) two  years  from the date of  granting  (including  the date the  Option  is
modified,  extended or renewed for purposes of Section  424(h) of the Code) such
Option to such Holder, or (b) one year after the transfer of such shares to such
Holder.
 
     6.6.  Limitations on Exercise of Options Granted to Independent  Directors.
No Option granted to an  Independent  Director may be exercised to any extent by
anyone after the first to occur of the following events:
 
          (a) The  expiration  of twelve  months  from the date of the  Holder's
     Termination of Directorship; or
 
          (b) The expiration of ten years from the date the Option was granted.
 
     6.7. Additional Limitations on Exercise of Options. Holders may be required
to comply with any timing or other  restrictions  with respect to the settlement
or  exercise  of an Option,  including  a  window-period  limitation,  as may be
imposed in the discretion of the Administrator.
 
 
                                  ARTICLE VII.
 
                            AWARD OF RESTRICTED STOCK
 
 
     7.1.  Eligibility.  Subject  to the Award  Limit,  Restricted  Stock may be
awarded to any Employee who the  Administrator  determines  is a key Employee or
any Consultant who the Administrator determines should receive such an Award.
 
     7.2. Award of Restricted Stock.
 
          (a)  The  Administrator  may  from  time  to  time,  in  its  absolute
     discretion:
 
               (i) Determine  which  Employees are key Employees and select from
          among  the  key  Employees  or  Consultants  (including  Employees  or
 
                                       47
 
 
          Consultants  who have  previously  received  other  awards  under  the
          Restated  Plan)  such of  them as in its  opinion  should  be  awarded
          Restricted Stock; and
 
               (ii)  Determine the purchase  price,  if any, and other terms and
          conditions  applicable to such Restricted  Stock,  consistent with the
          Restated Plan.
 
          (b) The Administrator  shall establish the purchase price, if any, and
     form of payment for Restricted Stock; provided, however, that such purchase
     price  shall  be no less  than  the par  value  of the  Common  Stock to be
     purchased,  unless  otherwise  permitted  by  applicable  state law. In all
     cases,  legal   consideration  shall  be  required  for  each  issuance  of
     Restricted Stock.
 
          (c) Upon the  selection of a key Employee or  Consultant to be awarded
     Restricted  Stock,  the  Administrator  shall instruct the Secretary of the
     Company to issue such  Restricted  Stock and may impose such  conditions on
     the issuance of such Restricted Stock as it deems appropriate.
 
     7.3. Rights as  Stockholders.  Subject to Section 7.4, upon delivery of the
shares of  Restricted  Stock (other than  restricted  stock units) to the escrow
holder pursuant to Section 7.6, the Holder shall have, unless otherwise provided
by the  Administrator,  all the  rights of a  stockholder  with  respect to said
shares, subject to the restrictions in his or her Award Agreement, including the
right to vote and receive all  dividends  and other  distributions  paid or made
with respect to the shares;  provided,  however,  that in the  discretion of the
Administrator,  any extraordinary distributions with respect to the Common Stock
shall be subject to the restrictions set forth in Section 7.4.
 
     7.4. Restriction.  All shares of Restricted Stock issued under the Restated
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends,  stock splits or any other form
of recapitalization)  shall, in the terms of each individual Award Agreement, be
subject  to  such  restrictions  as  the  Administrator  shall  provide,   which
restrictions may include,  without  limitation,  restrictions  concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance;  provided, however,
that,  unless the  Administrator  otherwise  provides  in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to  Section  16 of the  Exchange  Act  shall  be  sold,  assigned  or  otherwise
transferred  until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and provided,  further, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants and
intended to be  "performance-based"  compensation  under  Section  162(m) of the
Code, by action taken after the Restricted  Stock is issued,  the  Administrator
may, on such terms and conditions as it may determine to be appropriate,  remove
any or all of the  restrictions  imposed  by the terms of the  Award  Agreement.
Restricted  Stock  may not be sold or  encumbered  until  all  restrictions  are
terminated or expire.
 
     If no consideration was paid by the Holder upon issuance, a Holder's rights
in unvested  Restricted  Stock shall lapse,  and such Restricted  Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable,  upon Termination of Consultancy with the Company;  provided,
however,  that the Administrator in its sole and absolute discretion may provide
that such rights  shall not lapse in the event of a  Termination  of  Employment
following a "change of  ownership  or  control"  (within the meaning of Treasury
Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the
Company or because of the Holder's  death,  Permanent  Disability or retirement;
provided,  further, except with respect to shares of Restricted Stock granted to
Section  162(m)  Participants,  the  Administrator  in  its  sole  and  absolute
discretion may provide that no such lapse or surrender  shall occur in the event
of a Termination of Employment,  or a Termination of Consultancy,  without cause
or  following  any Change in Control of the  Company or because of the  Holder's
retirement, or otherwise.
 
     7.5.  Repurchase of Restricted  Stock. If no consideration  was paid by the
Holder  upon  issuance,  the  Administrator  shall  provide in the terms of each
individual  Award  Agreement that the Company shall have the right to repurchase
from the Holder the  Restricted  Stock then  subject to  restrictions  under the
Award Agreement  immediately upon a Termination of Employment or, if applicable,
upon a Termination of Consultancy  between the Holder and the Company, at a cash
 
                                       48
 
 
price per share equal to the price paid by the Holder for such Restricted Stock;
provided,  however,  that the Administrator in its sole and absolute  discretion
may  provide  that no such  right of  repurchase  shall  exist in the event of a
Termination of Employment  following a "change of ownership or control"  (within
the meaning of Treasury  Regulation Section  1.162-27(e)(2)(v)  or any successor
regulation  thereto) of the Company or because of the Holder's death,  Permanent
Disability or retirement; provided, further, that, except with respect to shares
of Restricted Stock granted to Section 162(m) Participants, the Administrator in
its sole and absolute  discretion  may provide that no such right of  repurchase
shall exist in the event of a Termination  of  Employment  or a  Termination  of
Consultancy  without  cause or following any Change in Control of the Company or
because of the Holder's retirement, or otherwise.
 
     7.6.  Escrow.  The  Secretary of the Company or such other escrow holder as
the  Administrator may appoint shall retain physical custody of each certificate
representing  Restricted  Stock  and  shall  credit  such  stock  to a  separate
restricted  account  until  all of the  restrictions  imposed  under  the  Award
Agreement with respect to such shares expire or shall have been removed.
 
     7.7. Legend.  In order to enforce the  restrictions  imposed upon shares of
Restricted Stock hereunder, the Administrator shall cause a legend or legends to
be placed on  certificates  representing  shares of Restricted  Stock,  or shall
appropriately mark any account to which shares of Restricted Stock are credited,
which  legend or legends  shall make  appropriate  reference  to the  conditions
imposed thereby.
 
     7.8.  Section 83(b)  Election.  If a Holder makes an election under Section
83(b) of the Code, or any successor section thereto, to be taxed with respect to
the Restricted  Stock as of the date of transfer of the Restricted  Stock rather
than as of the date or dates upon which the Holder  would  otherwise  be taxable
under  Section  83(a) of the  Code,  the  Holder  shall  deliver  a copy of such
election to the Company immediately after filing such election with the Internal
Revenue Service.
 
 
                                  ARTICLE VIII.
 
    PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS
 
 
     8.1.  Eligibility.  Subject  to the Award  Limit,  one or more  Performance
Awards, Dividend Equivalents, awards of Deferred Stock and/or Stock Payments may
be granted to any Employee whom the  Administrator  determines is a key Employee
or any  Consultant  whom the  Administrator  determines  should  receive such an
Award.
 
     8.2. Performance Awards.
 
          (a) Any key Employee or Consultant  selected by the  Administrator may
     be granted one or more  Performance  Awards.  The value of such Performance
     Awards  may be linked  to any one or more of the  Performance  Criteria  or
     other  specific   performance   criteria  determined   appropriate  by  the
     Administrator, in each case on a specified date or dates or over any period
     or periods determined by the Administrator.  In making such determinations,
     the  Administrator  shall  consider  (among such other  factors as it deems
     relevant  in  light  of the  specific  type of  award)  the  contributions,
     responsibilities  and other  compensation of the particular key Employee or
     Consultant.
 
          (b) Without  limiting  Section  8.2(a),  the  Administrator  may grant
     Performance  Awards to any 162(m)  Participant  in the form of a cash bonus
     payable  upon the  attainment  of  objective  performance  goals  which are
     established  by  the  Administrator  and  relate  to  one  or  more  of the
     Performance Criteria, in each case on a specified date or dates or over any
     period or periods determined by the Administrator. Any such bonuses paid to
     162(m)  Participants  shall be based upon  objectively  determinable  bonus
     formulas  established in accordance with the provisions of Section 3.2. The
     maximum  amount of any  Performance  Award payable to a 162(m)  Participant
     under this Section  8.2(b) shall not exceed the Award Limit with respect to
     any  calendar  year  of the  Company.  Unless  otherwise  specified  by the
     Administrator at the time of grant,  the Performance  Criteria payable to a
     Section  162(m)  Participant  shall be determined on the basis of generally
     accepted accounting principles.
 
                                       49
 
 
     8.3. Dividend Equivalents.
 
          (a) Any key Employee or Consultant  selected by the  Administrator may
     be granted Dividend  Equivalents based on the dividends  declared on Common
     Stock,  to be  credited  as of dividend  payment  dates,  during the period
     between the date a Stock Appreciation Right,  Deferred Stock or Performance
     Award is  granted,  and the date such Stock  Appreciation  Right,  Deferred
     Stock or Performance Award is exercised, vests or expires, as determined by
     the Administrator.  Such Dividend Equivalents shall be converted to cash or
     additional  shares of  Common  Stock by such  formula  and at such time and
     subject to such limitations as may be determined by the Administrator.
 
          (b) Any Holder of an Option who is an Employee or Consultant  selected
     by the  Administrator  may be  granted  Dividend  Equivalents  based on the
     dividends  declared on Common Stock, to be credited as of dividend  payment
     dates,  during the period  between the date an Option is  granted,  and the
     date such Option is  exercised,  vests or  expires,  as  determined  by the
     Administrator.  Such  Dividend  Equivalents  shall be  converted to cash or
     additional  shares of  Common  Stock by such  formula  and at such time and
     subject to such limitations as may be determined by the Administrator.
 
          (c) Any Holder of an Option who is an Independent Director selected by
     the  Board  may be  granted  Dividend  Equivalents  based on the  dividends
     declared on Common  Stock,  to be credited  as of dividend  payment  dates,
     during the period  between  the date an Option is granted and the date such
     Option is exercised,  vests or expires,  as  determined by the Board.  Such
     Dividend  Equivalents  shall be converted to cash or  additional  shares of
     Common  Stock  by  such  formula  and at  such  time  and  subject  to such
     limitations as may be determined by the Board.
 
          (d) Dividend  Equivalents  granted with respect to Options intended to
     be qualified performance-based  compensation for purposes of Section 162(m)
     of the  Code  shall be  payable,  with  respect  to  pre-exercise  periods,
     regardless of whether such Option is subsequently exercised.
 
     8.4.  Stock  Payments.  Any key  Employee  or  Consultant  selected  by the
Administrator  may receive Stock Payments in the manner  determined from time to
time by the  Administrator.  The  number of shares  shall be  determined  by the
Administrator  and may be based upon the Performance  Criteria or other specific
performance criteria determined appropriate by the Administrator,  determined on
the date such Stock Payment is made or on any date thereafter.
 
     8.5.  Deferred  Stock.  Any key  Employee  or  Consultant  selected  by the
Administrator may be granted an award of Deferred Stock in the manner determined
from time to time by the  Administrator.  The number of shares of Deferred Stock
shall be determined by the  Administrator  and may be linked to the  Performance
Criteria or other specific  performance criteria determined to be appropriate by
the Administrator,  in each case on a specified date or dates or over any period
or periods determined by the  Administrator.  Common Stock underlying a Deferred
Stock  award  will not be issued  until the  Deferred  Stock  award has  vested,
pursuant to a vesting schedule or performance criteria set by the Administrator.
Unless otherwise provided by the Administrator, a Holder of Deferred Stock shall
have no rights as a Company  stockholder  with  respect to such  Deferred  Stock
until  such time as the Award has vested and the  Common  Stock  underlying  the
Award has been issued.
 
     8.6. Term. The term of a Performance Award,  Dividend Equivalent,  award of
Deferred  Stock and/or Stock  Payment shall be set by the  Administrator  in its
discretion.
 
     8.7.  Exercise or Purchase  Price.  The  Administrator  may  establish  the
exercise or purchase price of a Performance  Award,  shares of Deferred Stock or
shares received as a Stock Payment; provided, however, that such price shall not
be less  than  the par  value  of a share  of  Common  Stock,  unless  otherwise
permitted by applicable state law.
 
     8.8. Exercise Upon Termination of Employment, Termination of Consultancy or
Termination of Directorship.  A Performance Award, Dividend Equivalent, award of
Deferred  Stock and/or Stock  Payment is  exercisable  or payable only while the
 
                                       50
 
 
Holder is an  Employee,  Consultant  or  Independent  Director,  as  applicable;
provided,  however,  that the Administrator in its sole and absolute  discretion
may provide that the Performance Award,  Dividend Equivalent,  award of Deferred
Stock and/or Stock Payment may be exercised or paid  subsequent to a Termination
of Employment  following a "change of control or ownership"  (within the meaning
of  Section  1.162-27(e)(2)(v)  or any  subsequent  regulation  thereto)  of the
Company;  provided, further,  that except  with  respect to  Performance  Awards
granted  to  Section  162(m)  Participants,  the  Administrator  in its sole and
absolute discretion may provide that Performance Awards may be exercised or paid
following a Termination of Employment or a Termination  of  Consultancy  without
cause,  or  following  a Change in  Control  of the  Company,  or because of the
Holder's retirement, death or Permanent Disability, or otherwise.
 
     8.9. Form of Payment. Payment of the amount determined under Section 8.2 or
8.3  above  shall be in cash,  in  Common  Stock or a  combination  of both,  as
determined  by the  Administrator.  To the extent any payment under this Article
VIII is effected in Common Stock,  it shall be made subject to  satisfaction  of
all provisions of Section 6.3.
 
                                   ARTICLE IX.
 
                            STOCK APPRECIATION RIGHTS
 
 
     9.1. Grant of Stock Appreciation  Rights. A Stock Appreciation Right may be
granted to any key Employee or Consultant selected by the Administrator. A Stock
Appreciation Right may be granted (a) in connection and simultaneously  with the
grant of an Option,  (b) with respect to a  previously  granted  Option,  or (c)
independent of an Option.  A Stock  Appreciation  Right shall be subject to such
terms  and   conditions  not   inconsistent   with  the  Restated  Plan  as  the
Administrator shall impose and shall be evidenced by an Award Agreement.
 
     9.2. Coupled Stock Appreciation Rights.
 
          (a) A Coupled Stock  Appreciation Right ("CSAR") shall be related to a
     particular  Option and shall be exercisable only when and to the extent the
     related Option is exercisable.
 
          (b) A CSAR may be granted to the Holder for no more than the number of
     shares subject to the  simultaneously or previously granted Option to which
     it is coupled.
 
          (c) A CSAR  shall  entitle  the Holder (or other  person  entitled  to
     exercise  the Option  pursuant to the  Restated  Plan) to  surrender to the
     Company  unexercised  a portion of the Option to which the CSAR relates (to
     the extent then exercisable  pursuant to its terms) and to receive from the
     Company in exchange  therefore  an amount  determined  by  multiplying  the
     difference  obtained by subtracting the Option exercise price from the Fair
     Market Value of a share of Common Stock on the date of exercise of the CSAR
     by the  number of shares of Common  Stock  with  respect  to which the CSAR
     shall have been exercised, subject to any limitations the Administrator may
     impose.
 
     9.3. Independent Stock Appreciation Rights.
 
          (a)  An  Independent  Stock   Appreciation  Right  ("ISAR")  shall  be
     unrelated to any Option and shall have a term set by the Administrator.  An
     ISAR shall be exercisable in such  installments  as the  Administrator  may
     determine. An ISAR shall cover such number of shares of Common Stock as the
     Administrator   may   determine;   provided,   however,   that  unless  the
     Administrator  otherwise provides in the terms of the ISAR or otherwise, no
     ISAR granted to a person subject to Section 16 of the Exchange Act shall be
     exercisable until at least six months have elapsed from (but excluding) the
     date on which the  Option  was  granted.  The  exercise  price per share of
     Common  Stock  subject to each ISAR shall be set by the  Administrator.  An
     ISAR is  exercisable  only while the Holder is an Employee  or  Consultant;
     provided,  that  the  Administrator  may  determine  that  the  ISAR may be
     exercised  subsequent  to  Termination  of  Employment  or  Termination  of
     Consultancy without cause,  or following a Change in Contol of the Company,
 
                                       51
 
 
     or because of the Holder's retirement,  death or Permanent  Disability,  or
     otherwise.
 
          (b) An ISAR shall  entitle  the Holder (or other  person  entitled  to
     exercise  the ISAR  pursuant to the  Restated  Plan) to  exercise  all or a
     specified  portion of the ISAR (to the extent then exercisable  pursuant to
     its  terms)  and to  receive  from the  Company  an  amount  determined  by
     multiplying  the difference  obtained by subtracting the exercise price per
     share of the ISAR from the Fair Market  Value of a share of Common Stock on
     the date of  exercise  of the ISAR by the number of shares of Common  Stock
     with  respect to which the ISAR shall have been  exercised,  subject to any
     limitations the Administrator may impose.
 
     9.4. Payment and Limitations on Exercise.
 
          (a) Payment of the amounts  determined under Section 9.2(c) and 9.3(b)
     above shall be in cash,  in Common Stock (based on its Fair Market Value as
     of the date the Stock  Appreciation Right is exercised) or a combination of
     both,  as determined  by the  Administrator.  To the extent such payment is
     effected in Common  Stock it shall be made subject to  satisfaction  of all
     provisions of Section 6.3 above pertaining to Options.
 
          (b)  Holders of Stock  Appreciation  Rights may be  required to comply
     with any timing or other  restrictions  with respect to the  settlement  or
     exercise  of  a  Stock  Appreciation   Right,   including  a  window-period
     limitation, as may be imposed in the discretion of the Administrator.
 
 
                                   ARTICLE XI.
 
                                 ADMINISTRATION
 
 
     10.1.  Compensation  Committee.  The  Compensation  Committee  (or  another
committee or a subcommittee of the Board assuming the functions of the Committee
under  the  Restated  Plan)  shall  consist  solely  of two or more  Independent
Directors  appointed by and holding office at the pleasure of the Board, each of
whom is both a "non-employee  director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section  162(m) of the Code.  Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering  written notice to the Board.  Vacancies in the
Committee may be filled by the Board. In its absolute discretion,  the Board may
at any time and from time to time  exercise any and all rights and duties of the
Committee  under the Restated  Plan except with  respect to matters  which under
Rule 16b-3 or Section  162(m) of the Code,  or any  regulations  or rules issued
thereunder,  are  required  to be  determined  in  the  sole  discretion  of the
Committee.  Notwithstanding the foregoing,  the full Board, acting by a majority
of its  members in office,  shall  conduct  the  general  administration  of the
Restated Plan with respect to Awards granted to Independent Directors.
 
     10.2. Duties and Powers of the  Administrator.  It shall be the duty of the
Administrator  to conduct the general  administration  of the  Restated  Plan in
accordance  with its  provisions.  The  Administrator  shall  have the  power to
interpret  the Restated Plan and the Award  Agreements,  and to adopt such rules
for the  administration,  interpretation and application of the Restated Plan as
are consistent  therewith,  to interpret,  amend or revoke any such rules and to
amend any Award Agreement  provided that the rights or obligations of the Holder
of the Award that is the subject of any such Award  Agreement  are not  affected
adversely.  Any such grant or award under the Restated Plan need not be the same
with respect to each Holder. Any such  interpretations and rules with respect to
Incentive  Stock Options shall be consistent  with the provisions of Section 422
of the Code.
 
     10.3. Majority Rule; Unanimous Written Consent. The Administrator shall act
by a majority  of its  members in  attendance  at a meeting at which a quorum is
present or by a memorandum or other written  instrument signed by all members of
the Administrator.
 
     10.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Administrator shall receive such compensation, if any, for their services as
 
                                       52
 
 
members as may be determined by the Board.  All expenses and  liabilities  which
members of the Administrator  incur in connection with the administration of the
Restated  Plan shall be borne by the Company.  The  Administrator  may, with the
approval of the Board, employ attorneys, consultants,  accountants,  appraisers,
brokers or other  persons.  The  Administrator,  the Company  and the  Company's
officers and  Directors  shall be entitled to rely upon the advice,  opinions or
valuations of any such persons.  All actions taken and all  interpretations  and
determinations  made by the  Administrator  or the Board in good faith  shall be
final and  binding  upon all  Holders,  the  Company  and all  other  interested
persons. No members of the Administrator or Board shall be personally liable for
any action,  determination or interpretation  made in good faith with respect to
the Restated Plan or Awards,  and all members of the Administrator and the Board
shall  be  fully  protected  by the  Company  in  respect  of any  such  action,
determination or interpretation.
 
     10.5.  Delegation of Authority to Grant Awards. The Committee may, but need
not,  delegate  from time to time some or all of its  authority  to grant Awards
under the Restated Plan and  administer the Restated Plan as to such Awards to a
committee  consisting  of one or more members of the Committee or of one or more
officers of the Company; provided,  however, that the Committee may not delegate
its authority to grant Awards to individuals  (a) who are subject on the date of
the grant to the  reporting  rules under  Section 16(a) of the Exchange Act, (b)
who are Section 162(m) Participants,  or (c) who are officers of the Company who
are delegated  authority by the Committee  hereunder.  Any delegation  hereunder
shall be subject to the restrictions and limits that the Committee  specifies at
the time of such delegation of authority and may be rescinded at any time by the
Committee.  At all times, any committee  appointed under this Section 10.5 shall
serve in such capacity at the pleasure of the Committee.
 
 
                                   ARTICLE XI.
 
                            MISCELLANEOUS PROVISIONS
 
 
     11.1. Transferability of Awards.
 
          (a) Except as provided in Section 11.1(b):
 
               (i) No Award  under  the  Restated  Plan  may be  sold,  pledged,
          assigned or  transferred  in any manner other than by will or the laws
          of  descent  and  distribution  or,  subject  to  the  consent  of the
          Administrator, pursuant to a DRO, unless and until such Award has been
          exercised,  or the shares underlying such Award have been issued,  and
          all restrictions applicable to such shares have lapsed.
 
               (ii) No Award or  interest or right  therein  shall be liable for
          the  debts,  contracts  or  engagements  of the  Holder  or his or her
          successors in interest or shall be subject to disposition by transfer,
          alienation, anticipation, pledge, encumbrance, assignment or any other
          means  whether such  disposition  be voluntary  or  involuntary  or by
          operation of law by judgment,  levy,  attachment,  garnishment  or any
          other legal or equitable proceedings (including  bankruptcy),  and any
          attempted disposition thereof shall be null and void and of no effect,
          except  to the  extent  that  such  disposition  is  permitted  by the
          preceding sentence.
 
               (iii)  During  the  lifetime  of the  Holder,  only he or she may
          exercise an Option or other Award (or any portion  thereof) granted to
          him or her under the  Restated  Plan,  unless it has been  disposed of
          with the consent of the  Administrator  pursuant  to a DRO.  After the
          death of the  Holder,  any  exercisable  portion of an Option or other
          Award may, prior to the time when such portion  becomes  unexercisable
          under  the  Restated  Plan  or  the  applicable  Award  Agreement,  be
          exercised  by his  or her  personal  representative  or by any  person
          empowered to do so under the deceased  Holder's will or under the then
          applicable laws of descent and distribution.
 
          (b) Notwithstanding  Section 11.1(a),  the Administrator,  in its sole
     discretion,  may  determine to permit a Holder to transfer an Option to any
     one or more  Permitted  Transferees  (as  defined  below),  subject  to the
     following terms and conditions:
 
                                       53
 
 
               (i) an Option transferred to a Permitted  Transferee shall not be
          assignable or transferable by the Permitted  Transferee  other than by
          will or the laws of descent and distribution;
 
               (ii) an Option  which is  transferred  to a Permitted  Transferee
          shall  continue to be subject to all the terms and  conditions  of the
          Option as applicable to the original Holder (other than the ability to
          further transfer the Option); and
 
               (iii) the Holder and the Permitted  Transferee  shall execute any
          and all documents requested by the Administrator,  including,  without
          limitation  documents to (A) confirm the status of the transferee as a
          Permitted  Transferee,  (B) satisfy any  requirements for an exemption
          for the transfer under  applicable  federal and state  securities laws
          and (C) evidence the transfer.
 
     For purposes of this Section 11.1(b),  "Permitted  Transferee"  shall mean,
with respect to a Holder, any child, stepchild,  grandchild, parent, stepparent,
grandparent,  spouse,  former spouse,  sibling,  niece,  nephew,  mother-in-law,
father-in-law,  son-in-law,  daughter-in-law,  brother-in-law, or sister-in-law,
including  adoptive  relationships,  any person  sharing the Holder's  household
(other  than a tenant  or  employee),  a trust in which  these  persons  (or the
Holder)  control the  management of assets,  and any other entity in which these
persons (or the Holder) own more than fifty percent of the voting interests,  or
any other transferee  specifically  approved by the  Administrator  after taking
into  account  any  state  or  federal  tax or  securities  laws  applicable  to
transferable Options."
 
     11.2. Amendment,  Suspension or Termination of the Restated Plan. Except as
otherwise  provided in this Section  11.2,  the  Restated  Plan may be wholly or
partially amended or otherwise modified,  suspended or terminated at any time or
from  time  to time  by the  Administrator.  However,  without  approval  of the
Company's  stockholders given within 12 months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
11.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be  issued  under the  Restated  Plan.  No  amendment,  suspension  or
termination of the Restated Plan shall, without the consent of the Holder, alter
or impair  any  rights or  obligations  under any Award  theretofore  granted or
awarded,  unless the Award itself otherwise expressly so provides. No Awards may
be granted or awarded  during any period of suspension or after  termination  of
the Restated Plan, and in no event after February 24, 2014.
 
     11.3.  Changes in Common  Stock or Assets of the  Company,  Acquisition  or
Liquidation of the Company and Other Corporate Events.
 
          (a) Subject to Section  11.3(e),  in the event that the  Administrator
     determines that any dividend or other distribution  (whether in the form of
     cash, Common Stock, other securities or other property),  recapitalization,
     reclassification, stock split, reverse stock split, reorganization, merger,
     consolidation,  split-up, spin-off, combination,  repurchase,  liquidation,
     dissolution,  or sale,  transfer,  exchange or other  disposition of all or
     substantially all of the assets of the Company, or exchange of Common Stock
     or other securities of the Company, issuance of warrants or other rights to
     purchase Common Stock or other securities of the Company,  or other similar
     corporate  transaction or event, in the  Administrator's  sole  discretion,
     affects  the Common  Stock such that an  adjustment  is  determined  by the
     Administrator to be appropriate in order to prevent dilution or enlargement
     of the benefits or potential  benefits  intended to be made available under
     the  Restated  Plan or with  respect  to an Award,  then the  Administrator
     shall, in such manner as it may deem equitable, adjust any or all of:
 
               (i) The  number  and kind of  shares  of  Common  Stock (or other
          securities or property) with respect to which Awards may be granted or
          awarded (including, but not limited to, adjustments of the limitations
          in Section 2.1 on the maximum  number and kind of shares  which may be
          issued and adjustments of the Award Limit);
 
               (ii) The  number  and kind of shares  of  Common  Stock (or other
          securities or property) subject to outstanding Awards; and
 
               (iii) The grant or exercise price with respect to any Award.
 
                                       54
 
 
          (b)  Subject  to  Section  11.3(c)  and  11.3(e),  in the event of any
     transaction or event described in Section  11.3(a),  any Change in Control,
     any Corporate  Transaction or any unusual or  nonrecurring  transactions or
     events  affecting  the  Company,  any  affiliate  of  the  Company,  or the
     financial  statements  of the  Company or any  affiliate,  or of changes in
     applicable laws, regulations or accounting  principles,  the Administrator,
     in its sole and absolute discretion, and on such terms and conditions as it
     deems  appropriate,  either by the  terms of the  Award or by action  taken
     prior  to  the   occurrence  of  such   transaction  or  event  and  either
     automatically or upon the Holder's  request,  is hereby  authorized to take
     any  one or  more  of the  following  actions  whenever  the  Administrator
     determines that such action is appropriate in order to prevent  dilution or
     enlargement  of the  benefits  or  potential  benefits  intended to be made
     available  under the  Restated  Plan or with respect to any Award under the
     Restated Plan, to facilitate such  transactions or events or to give effect
     to such changes in laws, regulations or principles:
 
               (i) To provide  for either the  purchase of any such Award for an
          amount of cash equal to the amount that could have been  attained upon
          the exercise of such Award or realization  of the Holder's  rights had
          such Award been  currently  exercisable  or payable or fully vested or
          the  replacement of such Award with other rights or property  selected
          by the Administrator in its sole discretion;
 
               (ii) To provide  that the Award  cannot  vest,  be  exercised  or
          become payable after such event;
 
               (iii) To provide that such Award shall be  exercisable  as to all
          shares covered  thereby,  notwithstanding  anything to the contrary in
          Section 5.3 or 5.4 or the provisions of such Award;
 
               (iv) To provide  that such Award be assumed by the  successor  or
          survivor  corporation,  or a parent or subsidiary thereof, or shall be
          substituted  for by similar  options,  rights or awards  covering  the
          stock  of the  successor  or  survivor  corporation,  or a  parent  or
          subsidiary thereof, with appropriate  adjustments as to the number and
          kind of shares and prices; and
 
               (v) To make  adjustments  in the  number  and type of  shares  of
          Common Stock (or other securities or property)  subject to outstanding
          Awards, and in the number and kind of outstanding  Restricted Stock or
          Deferred  Stock and/or in the terms and  conditions of (including  the
          grant or exercise price),  and the criteria  included in,  outstanding
          options, rights and awards and options, rights and awards which may be
          granted in the future.
 
               (vi) To provide  that,  for a  specified  period of time prior to
          such event,  the  restrictions  imposed under an Award  Agreement upon
          some or all  shares  of  Restricted  Stock or  Deferred  Stock  may be
          terminated,  and, in the case of Restricted  Stock, some or all shares
          of such Restricted  Stock may cease to be subject to repurchase  under
          Section 7.5 or forfeiture under Section 7.4 after such event.
 
          (c) In the event of a Change in  Control  or a  Corporate  Transaction
     each Option granted to an  Independent  Director shall be exercisable as to
     all shares  covered  thereby upon such Change in Control or during the five
     days immediately  preceding the consummation of such Corporate  Transaction
     and subject to such consummation,  notwithstanding anything to the contrary
     in Section 5.4 or the vesting  schedule of such Options.  In the event of a
     Change in Control,  each Option  granted to an  Independent  Director shall
     remain exercisable for such fully-vested option shares until the expiration
     or sooner  termination  of the  Option  term.  In the event of a  Corporate
     Transaction,  to the extent that the Board does not have the ability  under
     Rule 16b-3 to take or to refrain from taking the discretionary  actions set
     forth in Section  11.3(b)(ii)  above,  no Option  granted to an Independent
     Director may be exercised following such Corporate  Transaction unless such
     Option is, in connection with such Corporate Transaction, either assumed by
     the successor or survivor  corporation (or parent or subsidiary thereof) or
     replaced  with a  comparable  right with  respect to shares of the  capital
     stock of the  successor or survivor  corporation  (or parent or  subsidiary
     thereof).
 
                                       55
 
 
          (d)  Notwithstanding  any other provision of the Restated Plan, in the
     event of a Corporate Transaction,  each outstanding Option shall be assumed
     or an  equivalent  option  substituted  by the successor  corporation  or a
     parent or subsidiary of the  successor  corporation.  In the event that the
     successor  corporation  refuses to assume or substitute for the Option, the
     optionee  shall  have the  right to  exercise  the  Option as to all of the
     optioned  stock,  including  shares as to which it would not  otherwise  be
     exercisable.  If  an  Option  is  exercisable  in  lieu  of  assumption  or
     substitution in the event of a merger or sale of assets,  the Administrator
     shall notify the optionee that the Option shall be fully  exercisable for a
     period  of 15 days  from  the date of such  notice,  and the  Option  shall
     terminate  upon the  expiration  of such  period.  For the purposes of this
     Section 11.3(c),  the Option shall be considered  assumed if, following the
     merger or sale of  assets,  the option  confers  the right to  purchase  or
     receive, for each share of optioned stock subject to the Option immediately
     prior to the merger or sale of assets,  the  consideration  (whether stock,
     cash, or other  securities  or property)  received in the merger or sale of
     assets by holders of Common Stock for each share held on the effective date
     of the transaction (and if holders were offered a choice of  consideration,
     the type of  consideration  chosen  by the  holders  of a  majority  of the
     outstanding shares); provided, however, that if such consideration received
     in the  merger  or sale  of  assets  was not  solely  common  stock  of the
     successor  corporation  or its  parent,  the  Administrator  may,  with the
     consent of the successor  corporation,  provide for the consideration to be
     received upon the exercise of the Option,  for each share of optioned stock
     subject  to  the  Option,  to be  solely  common  stock  of  the  successor
     corporation  or its  parent  equal in fair  market  value to the per  share
     consideration  received by holders of Common Stock in the merger or sale of
     assets.
 
          (e) Subject to Sections 11.3(e),  3.2 and 3.3, the Administrator  may,
     in its discretion,  include such further  provisions and limitations in any
     Award,  agreement or certificate,  as it may deem equitable and in the best
     interests of the Company.
 
          (f) With  respect  to  Awards  which are  granted  to  Section  162(m)
     Participants and are intended to qualify as performance-based  compensation
     under  Section  162(m)(4)(C),  no  adjustment  or action  described in this
     Section  11.3 or in any  other  provision  of the  Restated  Plan  shall be
     authorized  to the extent that such  adjustment  or action would cause such
     Award to fail to so qualify  under Section  162(m)(4)(C),  or any successor
     provisions  thereto. No adjustment or action described in this Section 11.3
     or in any other  provision of the Restated  Plan shall be authorized to the
     extent that such  adjustment  or action  would cause the  Restated  Plan to
     violate Section 422(b)(1) of the Code.  Furthermore,  no such adjustment or
     action shall be  authorized  to the extent such  adjustment or action would
     result in  short-swing  profits  liability  under Section 16 or violate the
     exemptive conditions of Rule 16b-3 unless the Administrator determines that
     the Award is not to comply with such  exemptive  conditions.  The number of
     shares of Common Stock  subject to any Award shall always be rounded to the
     next whole number.
 
          (g) The existence of the Restated  Plan,  the Award  Agreement and the
     Awards granted  hereunder shall not affect or restrict in any way the right
     or power of the  Company  or the  shareholders  of the  Company  to make or
     authorize any adjustment, recapitalization,  reorganization or other change
     in  the  Company's  capital  structure  or  its  business,  any  merger  or
     consolidation of the Company, any issue of stock or of options, warrants or
     rights  to  purchase  stock or of  bonds,  debentures,  preferred  or prior
     preference  stocks  whose rights are superior to or affect the Common Stock
     or the rights thereof or which are  convertible  into or  exchangeable  for
     Common Stock, or the dissolution or liquidation of the company, or any sale
     or  transfer  of all or any part of its  assets or  business,  or any other
     corporate act or proceeding, whether of a similar character or otherwise.
 
     11.4. Approval of Restated Plan by Stockholders.  The Restated Plan will be
submitted for the approval of the Company's  stockholders within 12 months after
the date of the Board's  initial  adoption of the Restated  Plan.  Awards may be
granted or awarded prior to such stockholder approval, provided that such Awards
shall not be  exercisable  nor shall such Awards vest prior to the time when the
Restated Plan is approved by the stockholders, and provided further that if such
approval  has not been  obtained  at the end of said  twelve-month  period,  all
Awards previously  granted or awarded under the Restated Plan shall thereupon be
canceled and become null and void.  In addition,  if the Board  determines  that
Awards other than Options or Stock  Appreciation  Rights which may be granted to
Section  162(m)  Participants  should  continue  to be  eligible  to  qualify as
performance-based  compensation  under  Section  162(m)(4)(C)  of the Code,  the
Performance  Criteria  must  be  disclosed  to and  approved  by  the  Company's
 
                                       56
 
 
stockholders  no later than the first  stockholder  meeting  that  occurs in the
fifth year  following  the year in which the Company's  stockholders  previously
approved the Performance Criteria.
 
     11.5. Tax Withholding.  The Company shall be entitled to require payment in
cash or  deduction  from other  compensation  payable to each Holder of any sums
required by federal,  state or local tax law to be withheld  with respect to the
issuance,  vesting,  exercise or payment of any Award. The  Administrator may in
its  discretion  and in  satisfaction  of the foregoing  requirement  allow such
Holder to elect to have the Company  withhold  shares of Common Stock  otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums  required to be withheld.  Notwithstanding
any other  provision of the Restated  Plan, the number of shares of Common Stock
which may be withheld with respect to the issuance, vesting, exercise or payment
of any Award (or which may be  repurchased  from the Holder of such Award within
six months  after such shares of Common  Stock were  acquired by the Holder from
the  Company) in order to satisfy  the  Holder's  federal  and state  income and
payroll tax  liabilities  with  respect to the  issuance,  vesting,  exercise or
payment of the Award shall be limited to the number of shares  which have a Fair
Market Value on the date of  withholding  or  repurchase  equal to the aggregate
amount of such liabilities based on the minimum statutory  withholding rates for
federal and state tax income and payroll tax  purposes  that are  applicable  to
such supplemental taxable income.
 
     11.6.  Loans.  The  Administrator  may, in its discretion and to the extent
permitted  by  applicable  law,  extend  one or more loans to key  Employees  in
connection with the exercise or receipt of an Award granted or awarded under the
Restated  Plan,  or the issuance of Restricted  Stock or Deferred  Stock awarded
under the Restated  Plan. The terms and conditions of any such loan shall be set
by the Administrator.
 
     11.7. Forfeiture Provisions. Pursuant to its general authority to determine
the terms and  conditions  applicable  to Awards  under the Restated  Plan,  the
Administrator shall have the right to provide, in the terms of Awards made under
the  Restated  Plan,  or to  require  a  Holder  to agree  by  separate  written
instrument,  that (a)(i) any proceeds,  gains or other economic benefit actually
or  constructively  received  by the Holder  upon any receipt or exercise of the
Award,  or upon the receipt or resale of any Common Stock  underlying the Award,
must be paid  to the  Company,  and  (ii)  the  Award  shall  terminate  and any
unexercised portion of the Award (whether or not vested) shall be forfeited,  if
(b)(i) a Termination of Employment, Termination of Consultancy or Termination of
Directorship occurs prior to a specified date, or within a specified time period
following  receipt or exercise of the Award,  or (ii) the Holder at any time, or
during a specified time period,  engages in any activity in competition with the
Company,  or which is  inimical,  contrary  or harmful to the  interests  of the
Company,  as further defined by the  Administrator  or (iii) the Holder incurs a
Termination  of  Employment,   Termination  of  Consultancy  or  Termination  of
Directorship for cause.
 
     11.9.  Effect of Restated Plan  Upon Options and  Compensation  Plans.  The
adoption  of the  Restated  Plan  shall not  affect  any other  compensation  or
incentive  plans in effect  for the  Company or any  Subsidiary.  Nothing in the
Restated  Plan  shall be  construed  to limit  the right of the  Company  (a) to
establish any other forms of incentives or compensation for Employees, Directors
or  Consultants  of the  Company  or any  Subsidiary,  or (b) to grant or assume
options or other  rights or awards  otherwise  than under the  Restated  Plan in
connection  with  any  proper  corporate  purpose  including  but  not by way of
limitation,   the  grant  or  assumption  of  options  in  connection  with  the
acquisition  by purchase,  lease,  merger,  consolidation  or otherwise,  of the
business,  stock or assets of any corporation,  partnership,  limited  liability
company, firm or association.
 
     11.10. Compliance with Laws. The Restated Plan, the granting and vesting of
Awards under the Restated Plan and the issuance and delivery of shares of Common
Stock and the payment of money under the Restated  Plan or under Awards  granted
or awarded  hereunder 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 federal margin requirements) and to such approvals by
any  listing,  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  the  Restated  Plan  shall  be  subject  to  such
restrictions,  and the person  acquiring such securities  shall, if requested by
the Company,  provide such assurances and  representations to the Company as the
Company may deem necessary or desirable to assure compliance with all applicable
legal requirements. To the extent permitted by applicable law, the Restated Plan
 
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and Awards  granted or awarded  hereunder  shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
 
     11.11. Titles.  Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Restated Plan.
 
     11.12.  Governing Law. The Restated Plan and any agreements hereunder shall
be  administered,  interpreted and enforced under the internal laws of the State
of California without regard to conflicts of laws thereof.
 
 
                                      * * *
 
     I hereby  certify that the foregoing  Restated Plan was duly adopted by the
Board of Directors of FileNet Corporation on February 25, 2004.
 
                                      * * *
 
     I hereby  certify  that the  foregoing  Restated  Plan was  approved by the
stockholders of FileNet Corporation on May 7, 2004.
 
 
                  Executed on this ____ day of May 2004.
 
 
 
                                   __________________________________________
                                     Katharina M. Mueller, Vice President,
                                       General Counsel and Secretary
 
 
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