PAGE
PART I. FINANCIAL INFORMATION			3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			3
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND DECEMBER 31, 2003			3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003			4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003			5
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                RESULTS OF OPERATIONS			11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			28
ITEM 4. CONTROLS AND PROCEDURES			29
PART II. OTHER INFORMATION			29
ITEM 1. LEGAL PROCEEDINGS			29
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS			29
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			30
ITEM 5. OTHER INFORMATION			30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K			30

• compensation costs relating to employees who provide customer service to our clients;
  
  
• compensation costs relating to our network support staff;
  
  
• allocated occupancy costs and related overhead; and
  
  
• the cost of supporting our primary and backup network infrastructure, including expenses related to leasing space and connectivity for our services, third-party network monitoring and depreciation of certain hardware and software.

• market acceptance by companies doing business online of real-time sales, marketing and customer service solutions;
  
  
• our clients’ business success;
  
  
• our clients’ demand for our services;
  
  
• our ability to attract and retain clients;
  
  
• the amount and timing of capital expenditures and other costs relating to the expansion of our operations, including those related to acquisitions;
  
  
• the introduction of new services by us or our competitors; and
  
  
• changes in our pricing policies or the pricing policies of our competitors.

• economic conditions specific to the Internet, electronic commerce and online media; and
  
  
• general economic and political conditions.

• enhance the features and performance of the LivePerson services;
  
  
• develop and offer new services that are valuable to companies doing business online and Internet users; and
  
  
• respond to technological advances and emerging industry standards and practices in a cost-effective and timely manner.

• longer operating histories;
  
  
• greater brand recognition;
  
  
• more diversified lines of products and services; and
  
  
• significantly greater financial, marketing and other resources.

• undertake more extensive marketing campaigns;
  
  
• adopt more aggressive pricing policies; and
  
  
• make more attractive offers to businesses to induce them to use their products or services.

• damage to our reputation;
  
  
• lost sales;
  
  
• delays in or loss of market acceptance of our products; and
  
  
• unexpected expenses and diversion of resources to remedy errors.

• difficulties in integrating operations, technologies, products and personnel with LivePerson;
  
  
• diversion of financial and management resources from efforts related to the LivePerson services or other then-existing operations; risks of entering new markets beyond providing real-time sales, marketing and customer service solutions for companies doing business online;
  
  
• potential loss of either our existing key employees or key employees of any companies we acquire; and
  
  
• our inability to generate sufficient revenue to offset acquisition or investment costs.

• any issued patent or patents issued in the future may not be broad enough to protect our intellectual property rights;
  
  
• any issued patent or any patents issued in the future could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from exploiting the inventions claimed in the patents;

• current and future competitors may independently develop similar technologies, duplicate our services or design around any patents we may have; and
  
  
• effective patent protection may not be available in every country in which we do business, where our services are sold or used, where the laws may not protect proprietary rights as fully as do the laws of the U.S. or where enforcement of laws protecting proprietary rights in not common or effective.

• continued growth in the number of users;
  
  
• concerns about transaction security;
  
  
• continued development of the necessary technological infrastructure;
  
  
• development of enabling technologies;
  
  
• uncertain and increasing government regulation; and
  
  
• the development of complementary services and products.

• variations in our quarterly operating results;
  
  
• changes in market valuations of publicly-traded companies in general and Internet and other technology companies in particular;
  
  
• our announcements of significant client contracts, acquisitions and our ability to integrate these acquisitions, strategic partnerships, joint ventures or capital commitments;
  
  
• our failure to complete significant sales;
  
  
• additions or departures of key personnel;
  
  
• future sales of our common stock;
  
  
• changes in financial estimates by securities analysts; and
  
  
• terrorist attacks against the United States or in Israel, the engagement in hostilities or an escalation of hostilities by or against the United States or Israel, or the declaration of war or national emergency by the United States or Israel.

                                                                    Exhibit 31.1

         I, ROBERT P. LOCASCIO, certify that:

         1. I have reviewed this quarterly report on Form 10-Q of LivePerson,
Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

         c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  August 20, 2004          By: /s/ ROBERT P. LOCASCIO
                                    --------------------------------------
                                    Name: Robert P. LoCascio
                                    Title: Chief Executive Officer
                                           (principal executive officer)

                                                                    Exhibit 31.2

         I, TIMOTHY E. BIXBY, certify that:

         1. I have reviewed this quarterly report on Form 10-Q of LivePerson,
Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

         c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: August 20, 2004      By: /s/ TIMOTHY E. BIXBY
                               ---------------------------------
                               Name: Timothy E. Bixby
                               Title: President, Chief Financial Officer and
                                      Secretary (principal financial officer)

                                                                    Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      I, Robert P. LoCascio, Chief Executive Officer of LivePerson, Inc. (the
"Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

            (1) the Quarterly Report of the Company on Form 10-Q for the period
      ended June 30, 2004, as filed with the Securities and Exchange Commission
      (the "Report"), fully complies with the requirements of Section 13(a) or
      15(d) of the Securities Exchange Act of 1934; and


            (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Company.


Date: August 20, 2004           By: /s/ ROBERT P. LOCASCIO
                                    ------------------------------------------
                                    Name: Robert P. LoCascio
                                    Title: Chief Executive Officer

                                                                    Exhibit 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      I, Timothy E. Bixby, Chief Financial Officer of LivePerson, Inc. (the
"Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

            (1) the Quarterly Report of the Company on Form 10-Q for the period
      ended June 30, 2004, as filed with the Securities and Exchange Commission
      (the "Report"), fully complies with the requirements of Section 13(a) or
      15(d) of the Securities Exchange Act of 1934; and


            (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Company.


Date: August 20, 2004           By: /s/ TIMOTHY E. BIXBY
                                    -----------------------------------------
                                    Name: Timothy E. Bixby
                                    Title: President, Chief Financial Officer
                                           and Secretary

                                                                    Exhibit 10.3

                                LIVEPERSON, INC.
                            2000 STOCK INCENTIVE PLAN
                ----------------------------------------------
                (as Amended and Restated as of April 22, 2004)

                                  Article One

                               GENERAL PROVISIONS


I.    PURPOSE OF THE PLAN

      This 2000 Stock Incentive Plan (the "Plan") is intended to promote the
interests of LivePerson, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation. The Plan is amended and restated as
of April 22, 2004, subject to stockholder approval at the Corporation's 2004
Annual Meeting of Stockholders.

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

Appendix A.

II.   STRUCTURE OF THE PLAN

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

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

            (ii) the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special options,

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

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

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



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

III.  ADMINISTRATION OF THE PLAN

      A. Prior to the Section 12 Registration Date, the Discretionary Option
Grant and Stock Issuance Programs shall be administered by the Board unless
otherwise determined by the Board. Beginning with the Section 12 Registration
Date, the following provisions shall govern the administration of the Plan:

            (i) The Board shall have the authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders but may delegate such authority in whole or in part to the Primary
Committee.

            (ii) Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.

            (iii) The Board (or Primary Committee) shall select the Section 16
Insiders and other highly compensated Employees eligible to participate in the
Salary Investment Option Grant Program. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
terms of that program and the Primary Committee shall not exercise any
administrative discretion with respect to option grants made under the program.

            (iv) Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs.

      B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full power and authority subject to the
provisions of the Plan:

            (i) to establish such rules as it may deem appropriate for proper
administration of the Plan, to make all factual determinations, to construe and
interpret the provisions of the Plan and the awards thereunder and to resolve
any and all ambiguities thereunder;

            (ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs, which eligible persons
are to receive such awards, the time or times when such awards are to be made,
the number of shares to be covered by each such award, the vesting schedule (if
any) applicable to the award, the status of a granted option as either an
Incentive Option or a Non-Statutory Option and the maximum term for which the
option is to remain outstanding;

            (iii) to amend, modify or cancel any outstanding award with the
consent of the holder or accelerate the vesting of such award; and


                                       2


            (iv) to take such other discretionary actions as permitted pursuant
to the terms of the applicable program.

Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.

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

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

IV.   ELIGIBILITY

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

            (i) Employees,

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

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

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

      C. Only non-employee Board members shall be eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.

V.    STOCK SUBJECT TO THE PLAN

      A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall be Ten Million
(10,000,000) shares. Such reserve shall consist of (i) the number of shares
estimated to remain available for issuance, as of the Section 12 Registration
Date, under the Predecessor Plan, including the shares subject to the
outstanding options to be incorporated into the Plan and the additional shares
which would otherwise be available for future grant, plus (ii) an increase of
Four Million One Hundred Sixty Five Thousand Three Hundred Fifteen (4,165,315)
shares authorized by the Board subject to stockholder approval prior to the
Section 12 Registration Date.


                                       3


      B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with the calendar year
2001, by an amount equal to three percent (3%) of the total number of shares of
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall such annual increase exceed One
Million Five Hundred Thousand (1,500,000) shares.

      C. No one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
Five Hundred Thousand (500,000) shares of Common Stock in the aggregate per
calendar year.

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

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


                                       4


                                  Article Two

                       DISCRETIONARY OPTION GRANT PROGRAM

I.    OPTION TERMS

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

      A.    Exercise Price.

      1. The exercise price per share shall be fixed by the Plan Administrator
at the time of the option grant and may be less than, equal to or greater than
the Fair Market Value per share of Common Stock on the option grant date.

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

            (i) in cash or check made payable to the Corporation;

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

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

            (iv) on such other terms and conditions as may be acceptable to the
Plan Administrator (including, without limitation, the relinquishment of
options). No shares of Common Stock shall be issued until payment therefor, as
provided herein, has been made or provided for.

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

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


                                       5


      C.    Cessation of Service.

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

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

            (ii) Any option exercisable in whole or in part by the Optionee at
the time of death may be subsequently exercised by his or her Beneficiary.

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

            (iv) Should the Optionee's Service be terminated for Misconduct or
should the Optionee engage in Misconduct while his or her options are
outstanding, then all such options shall terminate immediately and cease to be
outstanding.

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

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

            (ii) to permit the option to be exercised, during the applicable
post-Service exercise period, for one or more additional installments in which
the Optionee would have vested had the Optionee continued in Service.

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


                                       6


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

      F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. Notwithstanding the foregoing, the Plan
Administrator may, in its discretion, permit a consultant or independent advisor
entity that is awarded Non-Statutory Options to transfer any or all such
Non-Statutory Options awarded.

      Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options,
and those options shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Optionee's death while
holding those options. Such beneficiary or beneficiaries shall take the
transferred options subject to all the terms and conditions of the applicable
agreement evidencing each such transferred option, including (without
limitation) the limited time period during which the option may be exercised
following the Optionee's death.

      II.   INCENTIVE OPTIONS

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

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

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

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


                                       7


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

      III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

      A. Each option outstanding at the time of a Change in Control but not
otherwise fully-vested shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant. Each option outstanding
at the time of the Change in Control shall terminate as provided in Section
III.C. of this Article Two.

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

      C. Immediately following the consummation of the Change in Control, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.

      D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
to reflect such Change in Control shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same, (ii) the maximum number
and/or class of securities available for issuance over the remaining term of the
Plan and (iii) the maximum number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances under the Plan per calendar year. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options, substitute one or more shares of its own common stock with
a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Change in Control.


                                       8


      E. The Plan Administrator may at any time provide that one or more options
will automatically accelerate in connection with a Change in Control, whether or
not those options are assumed or otherwise continued in full force and effect
pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Plan Administrator may at any time
provide that one or more of the Corporation's repurchase rights shall not be
assignable in connection with such Change in Control and shall terminate upon
the consummation of such Change in Control.

      F. The Plan Administrator may at any time provide that one or more options
will automatically accelerate upon an Involuntary Termination of the Optionee's
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of any Change in Control in which those options do
not otherwise accelerate. Any options so accelerated shall remain exercisable
for fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1) year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.

      G. The Plan Administrator may at any time provide that one or more options
will automatically accelerate in connection with a Hostile Take-Over. Any such
option shall become exercisable, immediately prior to the effective date of such
Hostile Take-Over, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Plan Administrator may at any time
provide that one or more of the Corporation's repurchase rights shall terminate
automatically upon the consummation of such Hostile Take-Over. Alternatively,
the Plan Administrator may condition such automatic acceleration and termination
upon an Involuntary Termination of the Optionee's Service within a designated
period (not to exceed eighteen (18) months) following the effective date of such
Hostile Take-Over. Each option so accelerated shall remain exercisable for
fully-vested shares until the expiration or sooner termination of the option
term.

      H. The portion of any Incentive Option accelerated in connection with a
Change in Control or Hostile Take Over shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar ($100,000)
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.


                                       9


      IV.   STOCK APPRECIATION RIGHTS

      The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.


                                       10


                                 Article Three

                     SALARY INVESTMENT OPTION GRANT PROGRAM

      I.    OPTION GRANTS

      The Primary Committee may implement the Salary Investment Option Grant
Program for one or more calendar years beginning after the Underwriting Date and
select the Section 16 Insiders and other highly compensated Employees eligible
to participate in the Salary Investment Option Grant Program for each such
calendar year. Each selected individual who elects to participate in the Salary
Investment Option Grant Program must, prior to the start of each calendar year
of participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by an amount not less than Five Thousand Dollars
($5,000) nor more than Fifty Thousand Dollars ($50,000). Each individual who
files such a timely election shall be granted an option under the Salary
Investment Grant Program on the first trading day in January for the calendar
year for which the salary reduction is to be in effect.

      II.   OPTION TERMS

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

      A. Exercise Price.

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

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

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

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

                        X is the number of option shares,

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

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


                                       11


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

      D. Cessation of Service. Each option outstanding at the time of the
Optionee's cessation of Service shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the option term or (ii) the
expiration of the three (3)-year period following the Optionee's cessation of
Service. To the extent the option is held by the Optionee at the time of his or
her death, the option may be exercised by his or her Beneficiary. However, the
option shall, immediately upon the Optionee's cessation of Service, terminate
and cease to remain outstanding with respect to any and all shares of Common
Stock for which the option is not otherwise at that time exercisable.

III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

      A. In the event of any Change in Control or Hostile Take-Over while the
Optionee remains in Service, each outstanding option shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Change in Control or Hostile Take-Over, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such option accelerated in connection
with a Change in Control shall terminate upon the Change in Control, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
continued in full force and effect pursuant to the terms of the Change in
Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.

      B. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options, substitute one or more shares of its own common stock with
a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Change in Control.

      C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding options. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Option Surrender Value of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.


                                       12


IV.   REMAINING TERMS

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


                                       13


                                  Article Four

                             STOCK ISSUANCE PROGRAM

I.    STOCK ISSUANCE TERMS

      Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate stock issuances without any intervening options.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to stock issuances which entitle the recipients to receive those shares
upon the attainment of designated performance objectives or Service
requirements. Each such stock issuance shall be evidenced by one or more
documents which comply with the terms specified below.

      A. Purchase Price.

            1. The purchase price per share of Common Stock subject to direct
issuance shall be fixed by the Plan Administrator and may be less than, equal to
or greater than the Fair Market Value per share of Common Stock on the issue
date.

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

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

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

      B. Vesting/Issuance Provisions.

            1. The Plan Administrator may issue shares of Common Stock which are
fully and immediately vested upon issuance or which are to vest in one or more
installments over the Participant's period of Service or upon attainment of
specified performance objectives (including the Performance Goals specified in
Appendix B hereto) or such other factors as the Plan Administrator may
determine, in its sole discretion, including to comply with the requirements of
Section 162(m) of the Code. Alternatively, the Plan Administrator may issue
stock issuances which shall entitle the recipient to receive a specified number
of vested shares of Common Stock upon the attainment of one or more Performance
Goals or Service requirements established by the Plan Administrator.

            2. Notwithstanding the foregoing, if the stock issuance is intended
to comply with the "performance based" compensation exception under Section
162(m) of the Code and if the lapse of restrictions on such stock issuance is
based on the attainment of Performance Goals, the Plan Administrator shall
establish the objective Performance Goals or grant conditions relating to the
applicable vesting percentage of the Common Stock applicable to each Participant
or class of Participants in writing prior to the beginning of the applicable
fiscal year or at such later date as otherwise determined by the Plan
Administrator and while the outcome of the Performance Goals are substantially
uncertain. Such Performance Goals may incorporate provisions for disregarding
(or adjusting for) changes in accounting methods, corporate transactions
(including, without limitation, dispositions and acquisitions) and other similar
type events or circumstances. The Performance Goals are set forth in Appendix B
hereto.


                                       14


            3. A Participant selected to receive a stock issuance shall not have
any rights with respect to such issuance, unless and until such Participant has
delivered a fully executed copy of the award agreement evidencing the stock
issuance to the Corporation and has otherwise complied with the applicable terms
and conditions of such issuance.

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

            5. The Participant shall have full stockholder rights with respect
to the issued shares of Common Stock, whether or not the Participant's interest
in those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares,
but shall have no right to transfer such shares until vested. Unless otherwise
determined by the Plan Administrator, the Participant shall not be permitted to
transfer shares of Common Stock awarded under this Plan during a period set by
the Plan Administrator commencing with the date of such award, as set forth in
the applicable award agreement.

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

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


                                       15


            8. Outstanding stock issuances shall automatically terminate, and no
shares of Common Stock shall actually be issued in satisfaction of those
issuances, if the performance objectives or Service requirements established for
such issuances are not attained. The Plan Administrator, however, shall have the
authority to issue shares of Common Stock in satisfaction of one or more
outstanding stock issuances as to which the designated performance objectives or
Service requirements are not attained.

II.   CHANGE IN CONTROL/HOSTILE TAKE-OVER

      A. All of the Corporation's outstanding repurchase rights shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Change in Control,
except to the extent (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.

      B. The Plan Administrator may at any time provide for the automatic
termination of one or more of those outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed eighteen (18) months) following the effective date of any Change in
Control or Hostile Take-Over in which those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continue in full
force and effect.

III.  SHARE ESCROW/LEGENDS

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


                                       16


                                  Article Five

                         AUTOMATIC OPTION GRANT PROGRAM

I.    OPTION TERMS

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

            1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase Fifteen Thousand (15,000) shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation (or any Parent or Subsidiary).

            2. On the date of each Annual Stockholders Meeting beginning with
the 2001 Annual Stockholder Meeting, each individual who is to continue to serve
as a non-employee Board member shall automatically be granted a Non-Statutory
Option to purchase Five Thousand (5,000) shares of Common Stock, provided that
individual has served as a non-employee Board member for at least six (6)
months.

      B.    Exercise Price.

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

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

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

      D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 15,000-share option shall
vest, and the Corporation's repurchase right shall lapse, in a series of three
(3) successive equal annual installments over the Optionee's period of continued
service as a Board member, with the first such installment to vest upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 5,000-share option shall vest, and the Corporation's
repurchase right shall lapse, upon the Optionee's completion of one (1) year of
Board service measured from the option grant date.


                                       17


      E. Cessation of Board Service. The following provisions shall govern the
exercise of any options outstanding at the time of the Optionee's cessation of
Board service:

            (i) Any option outstanding at the time of the Optionee's cessation
of Board service for any reason shall remain exercisable for a twelve (12)-month
period following the date of such cessation of Board service, but in no event
shall such option be exercisable after the expiration of the option term.

            (ii) Any option exercisable in whole or in part by the Optionee at
the time of death may be subsequently exercised by his or her Beneficiary.

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

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

II.   CHANGE IN CONTROL/HOSTILE TAKE-OVER

      A. In the event of any Change in Control or Hostile Take-Over, the shares
of Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option may,
immediately prior to the effective date of such Change in Control or Hostile
Take-Over, became fully exercisable for all of the shares of Common Stock at the
time subject to such option and maybe exercised for all or any of those shares
as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.

      B. All outstanding repurchase rights shall automatically terminate and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Change in Control or Hostile Take-Over.

      C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding options. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Option Surrender Value of the shares of Common Stock at the time subject to each
surrendered option (whether or not the option is otherwise at the time
exercisable for those shares) over (ii) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation.


                                       18


      D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Change in Control,
the successor corporation may, in connection with the assumption of the
outstanding options, substitute one or more shares of its own common stock with
a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Change in Control.

III.  REMAINING TERMS

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


                                       19


                                  Article Six

                        DIRECTOR FEE OPTION GRANT PROGRAM

I.    OPTION GRANTS

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

II.   OPTION TERMS

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

      A. Exercise Price.

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

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

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

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

                        X is the number of option shares,

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

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


                                       20


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

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

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

      Should the Optionee die after cessation of Board service but while holding
one or more options, then each such option may be exercised, for any or all of
the shares for which the option is exercisable at the time of the Optionee's
cessation of Board service (less any shares subsequently purchased by Optionee
prior to death), by the Optionee's Beneficiary. Such right of exercise shall
lapse, and the option shall terminate, upon the earlier of (i) the expiration of
the ten (10)-year option term or (ii) the three (3)-year period measured from
the date of the Optionee's cessation of Board service.

III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER

      A. In the event of any Change in Control or Hostile Take-Over while the
Optionee remains in Board service, each outstanding option held by such Optionee
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Change in Control or Hostile Take-Over, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise expressly continued in full force and effect pursuant to the terms of
the Change in Control. Each such option accelerated in connection with a Hostile
Take-Over shall remain exercisable until the expiration or sooner termination of
the option term.

      B. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding options. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Option Surrender Value of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.


                                       21


      C. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
shall also be made to the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor corporation
may, in connection with the assumption of the outstanding options under the
Director Fee Option Grant Program, substitute one or more shares of its own
common stock with a fair market value equivalent to the cash consideration paid
per share of Common Stock in such Change in Control.

IV.   REMAINING TERMS

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


                                       22


                                 Article Seven

                                  MISCELLANEOUS

I.    NO IMPAIRMENT OF AUTHORITY

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

II.   FINANCING

      The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase. Notwithstanding the foregoing, no Optionee or
Participant may utilize this Section in violation of the prohibition on personal
loans to or for executive officers or directors contained in Section 402 of the
Sarbanes-Oxley Act of 2002.

III.  TAX WITHHOLDING

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

      B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Withholding Taxes incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:

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

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


                                       23


IV.   EFFECTIVE DATE AND TERM OF THE PLAN

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

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

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

      D. The Plan shall terminate upon the earliest of (i) March 20, 2010, (ii)
the date on which all shares available for issuance under the Plan shall have
been issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with a Change in Control. Upon such plan termination, all
outstanding options and unvested stock issuances shall thereafter continue to
have force and effect in accordance with the provisions of the documents
evidencing such grants or issuances.

V.    AMENDMENT OF THE PLAN

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


                                       24


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

VI.   USE OF PROCEEDS

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

VII.  REGULATORY APPROVALS

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

      B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws and all applicable
listing requirements of any stock exchange (or the Nasdaq Stock Market, if
applicable) on which Common Stock is then listed for trading, and shall be
further subject to the approval of counsel for the Corporation with respect to
such compliance.

VIII. NO EMPLOYMENT/SERVICE RIGHTS

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


                                       25


                                   APPENDIX A


      The following definitions shall be in effect under the Plan:

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

      B. Beneficiary shall mean, in the event the Plan Administrator implements
a beneficiary designation procedure, the person designated by an Optionee or
Participant, pursuant to such procedure, to succeed to such person's rights
under any outstanding awards held by him or her at the time of death. In the
absence of such designation or procedure, the Beneficiary shall be the personal
representative of the estate of the Optionee or Participant or the person or
persons to whom the award is transferred by will or the laws of inheritance.

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

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

            (i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than fifty
percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the Corporation's outstanding voting securities immediately
prior to such transaction,

            (ii) any stockholder-approved transfer or other disposition of all
or substantially all of the Corporation's assets, or

            (iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board recommends such stockholders accept.

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

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

      G. Corporation shall mean LivePerson, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of LivePerson, Inc. which shall by appropriate action adopt the Plan.


                                      A-1


      H. Director Fee Option Grant Program shall mean the director fee option
grant program in effect under the Plan.

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

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

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

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

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

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

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

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

      M. Hostile Take-Over shall mean:

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


                                      A-2


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

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

      O. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:

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

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

      P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any intentional wrongdoing by such person,
whether by omission or commission, which adversely affects the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material manner.
This shall not limit the grounds for the dismissal or discharge of any person in
the Service of the Corporation (or any Parent or Subsidiary).

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

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

      S. Option Surrender Value shall mean the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation or, in the
event of a Hostile Take-Over, effected through a tender offer, the highest
reported price per share of Common Stock paid by the tender offeror in effecting
such Hostile Take-Over, if greater. However, if the surrendered option is an
Incentive Option, the Option Surrender Value shall not exceed the Fair Market
Value per share.


                                      A-3


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

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

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

      W. Performance Goals, as defined in Article Four and Appendix B, shall
mean specified performance objectives as determined by the Plan Administrator.

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

      Y. Plan shall mean the Corporation's 2000 Stock Incentive Plan, as set
forth in this document.

      Z. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction. However, the
Primary Committee shall have the plenary authority to make all factual
determinations and to construe and interpret any and all ambiguities under the
Plan to the extent such authority is not otherwise expressly delegated to any
other Plan Administrator.

      AA. Plan Effective Date shall mean March 21, 2000, the date on which the
Plan was adopted by the Board.


                                      A-4


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

      CC. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board (each of whom is intended to
be a "Non-Employee Director" (within the meaning of Rule 16b-3), an "independent
director" (within the meaning of NASD Rule 4200(a)(15) or such other applicable
stock exchange rule) and an "outside director" (within the meaning of Code
Section 162(m)) to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders and to administer the Salary
Investment Option Grant Program with respect to all eligible individuals.

      DD. Rule 16b-3 shall mean Rule 16b-3 of the 1934 Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.

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

      FF. Secondary Committee shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

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

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

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

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

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

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


                                      A-5


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

      NN. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock. OO. Underwriting Date shall mean the date on which
the Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.

      PP. Withholding Taxes shall mean the Federal, state and local income and
employment withholding tax liabilities to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.


                                      A-6


                                   APPENDIX B

                                Performance Goals

      Performance goals established for purposes of the grant and/or vesting of
Common Stock intended to be "performance-based" under Section 162(m) of the Code
shall be based on one or more of the following performance goals ("Performance
Goals"): (i) the attainment of certain target levels of, or a specified increase
in, enterprise value or value creation targets of the Corporation (or any
subsidiary, division or other operational unit of the Corporation); (ii) the
attainment of certain target levels of, or a percentage increase in after-tax or
pre-tax profits of the Corporation, including without limitation that
attributable to continuing and/or other operations of the Corporation (or in
either case a subsidiary, division, or other operational unit of the
Corporation); (iii) the attainment of certain target levels of, or a specified
increase in, operational cash flow of the Corporation (or a subsidiary,
division, or other operational unit of the Corporation); (iv) the attainment of
a certain level of reduction of, or other specified objectives with regard to
limiting the level of increase in all or a portion of, the Corporation's bank
debt or other long-term or short-term public or private debt or other similar
financial obligations of the Corporation, which may be calculated net of cash
balances and/or other offsets and adjustments as may be established by the Plan
Administrator; (v) the attainment of a specified percentage increase in earnings
per share or earnings per share from continuing operations of the Corporation
(or a subsidiary, division or other operational unit of the Corporation); (vi)
the attainment of certain target levels of, or a specified percentage increase
in, net sales, revenues, net income or earnings before income tax or other
exclusions of the Corporation (or a subsidiary, division, or other operational
unit of the Corporation); (vii) the attainment of certain target levels of, or a
specified increase in, return on capital employed or return on invested capital
of the Corporation (or any subsidiary, division or other operational unit of the
Corporation); (viii) the attainment of certain target levels of, or a percentage
increase in, after-tax or pre-tax return on stockholder equity of the
Corporation (or any subsidiary, division or other operational unit of the
Corporation); (ix) the attainment of certain target levels in the fair market
value of the shares of the Corporation's Common Stock; or (x) the growth in the
value of an investment in the Corporation's Common Stock assuming the
reinvestment of dividends.

      In addition, such Performance Goals may be based upon the attainment of
specified levels of Corporation (or subsidiary, division or other operational
unit of the Corporation) performance under one or more of the measures described
above relative to the performance of other corporations. To the extent permitted
under Section 162(m) of the Code, but only to the extent permitted under Section
162(m) of the Code (including, without limitation, compliance with any
requirements for stockholder approval), the Plan Administrator may: (i)
designate additional business criteria on which the Performance Goals may be
based, or (ii) adjust, modify or amend the aforementioned business criteria.

                                      B-1