<PAGE>

                                                                    EXHIBIT 10.1

                                   PALM, INC.

                                1999 STOCK PLAN



     1.  Purposes of the Plan.  The purposes of this 1999 Stock Plan are:
         --------------------

         .  to attract and retain the best available personnel for positions of
            substantial responsibility,

         .  to provide additional incentive to Employees, Directors and
            Consultants, and

         .  to promote the success of the Company's business.

         Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

     2.  Definitions.  As used herein, the following definitions shall apply:
         -----------

         (a) "Administrator" means the Board or any of its Committees as shall
              -------------
be administering the Plan, in accordance with Section 4 of the Plan.

         (b) "Applicable Laws" means the requirements relating to the
              ---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

         (c) "Board" means the Board of Directors of the Company.
              -----

         (d) "Cause" shall mean (i) an act of personal dishonesty taken by the
              -----
Optionee in connection with his or her responsibilities as a Service Provider
and intended to result in substantial personal enrichment of the Optionee, (ii)
Optionee being convicted of a felony, (iii) a willful act by the Optionee which
constitutes gross misconduct and which is injurious to the Company, (iv)
following delivery to the Optionee of a written demand for performance from the
Company which describes the basis for the Company's reasonable belief that the
Optionee has not substantially performed his duties, continued violations by
the Optionee of the Optionee's obligations to the Company which are
demonstrably willful and deliberate on the Optionee's part.

         (e) "Change of Control" means the occurrence of any of the following
              -----------------
events:

             (i)  Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the

                                       1
<PAGE>

total voting power represented by the Company's then outstanding voting
securities who is not already such as of the Effective Date; or

             (ii)  The consummation of the sale or disposition by the Company of
all or substantially all the Company's assets; or

             (iii) The consummation of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining out-standing or by being
converted into voting securities of the surviving entity or its parent) at least
fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation; or

             (iv)  A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the Effective Date, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of those directors whose election or nomination was not in connection
with any transaction described in subsections (i), (ii), or (iii) above, or in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company.

     Notwithstanding the foregoing, in no event shall either or both of the
following events constitute a Change of Control: (i) the initial public offering
of the Company's securities pursuant to a registration statement filed under
Section 12 of the Exchange Act or (ii) the spin-off of the Company from 3Com
pursuant to one or more transactions in which 3Com distributes eighty percent
(80%) or more of its securities ownership of the Company to the shareholders of
3Com.

          (f)  "Code" means the Internal Revenue Code of 1986, as amended.
                ----

          (g)  "Committee" means a committee of Directors appointed by the
                ---------
Board in accordance with Section 4 of the Plan.

          (h)  "Common Stock" means the common stock of the Company.
                ------------

          (i)  "Company" means Palm, Inc., a Delaware corporation.
                -------

          (j)  "Consultant" means any person, including an advisor, engaged by
                ----------
the Company or a Parent or Subsidiary to render services to such entity.

          (k)  "Director" means a member of the Board.
                --------

          (l)  "Disability" means total and permanent disability as defined in
                ----------
Section 22(e)(3) of the Code.

          (m)  "Effective Date" means the effective date of this Plan as
                --------------
determined in accordance with Section 7.

                                      -2-
<PAGE>

          (n)  "Employee" means any person, including Officers and Directors,
                --------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.

          (o)  "Exchange Act" means the Securities Exchange Act of 1934, as
                ------------
amended.

          (p)  "Fair Market Value" means, as of any date, the value of Common
                -----------------
Stock determined as follows:

               (i)  If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

               (ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator; or

               (iv)  For purposes of Option grants made on the effective date of
the Company's initial public offering of Common Stock, the Fair Market Value
shall be the initial price to the public as set forth in the final prospectus
included with the registration on Form S-1 filed with the Securities and
Exchange Commission for such offering.

          (q)  "Incentive Stock Option" means an Option intended to qualify as
                ----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

          (r)  "Nonstatutory Stock Option" means an Option not intended to
                -------------------------
qualify as an Incentive Stock Option.

                                      -3-
<PAGE>

          (s)  "Notice of Grant" means a written or electronic notice
                ---------------
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.

          (t)  "Officer" means a person who is an officer of the Company within
                -------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (u)  "Option" means a stock option granted pursuant to the Plan.
                ------

          (v)  "Option Agreement" means an agreement between the Company and
                ----------------
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.

          (w)  "Option Exchange Program" means a program whereby outstanding
                -----------------------
Options are surrendered in exchange for Options with a lower exercise price.

          (x)  "Optioned Stock" means the Common Stock subject to an Option or
                --------------
Stock Purchase Right.

          (y)  "Optionee" means the holder of an outstanding Option or Stock
                --------
Purchase Right granted under the Plan.

          (z)  "Parent" means a "parent corporation," whether now or hereafter
                ------
existing, as defined in Section 424(e) of the Code.

          (aa) "Plan" means this 1999 Stock Plan.
                ----

          (bb) "Restricted Stock" means shares of Common Stock acquired
                ----------------
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

          (cc) "Restricted Stock Purchase Agreement" means a written agreement
                -----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.

          (dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
                ----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

          (ee) "Section 16(b) " means Section 16(b) of the Exchange Act.
                -------------

          (ff) "Service Provider" means an Employee, Director or Consultant. In
                ----------------
addition, an individual who receives an award under this Plan while an Employee,
Director or Consultant, and who ceases to be an Employee, Director or
Consultant, but who remains an employee, director or consultant to 3Com shall be
deemed Service Provider for purposes of this Plan.

          (gg) "Share" means a share of the Common Stock, as adjusted in
                -----
accordance with Section 13 of the Plan.

                                      -4-
<PAGE>

          (hh) "Stock Purchase Right" means the right to purchase Common Stock
                --------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

          (ii) "Subsidiary" means a "subsidiary corporation", whether now or
                ----------
hereafter existing, as defined in Section 424(f) of the Code.

          (jj) "3Com" means 3Com Corporation, a Delaware corporation.
                ----

      3.  Stock Subject to the Plan.  Subject to the provisions of Section 13
          -------------------------
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 20,000,000 Shares, plus an annual increase to be added
the first day of the Company's fiscal year, beginning in fiscal 2001, equal to
the lesser of (i) 25,000,000 shares, (ii) 5% of the outstanding shares of
Common Stock on such date, or (iii) a lesser amount determined by the Board.
The Shares may be authorized, but unissued, or reacquired Common Stock.

          If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
             --------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

      4.  Administration of the Plan.
          --------------------------

          (a)  Procedure.
               ---------

               (i)   Multiple Administrative Bodies. Different Committees with
                     ------------------------------
respect to different groups of Service Providers may administer the Plan.

               (ii)  Section 162(m).  To the extent that the Administrator
                     --------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

               (iii) Rule 16b-3. To the extent desirable to qualify
                     ----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

               (iv)  Other Administration. Other than as provided above, the
                     --------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

          (b)  Powers of the Administrator. Subject to the provisions of the
               ---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

                                      -5-
<PAGE>

                    (i)    to determine the Fair Market Value;

                    (ii)   to select the Employees, Directors and Consultants to
whom Options and Stock Purchase Rights may be granted hereunder;

                    (iii)  to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;

                    (iv)   to approve forms of agreement for use under the Plan;

                    (v)    to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;

                    (vi)   to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

                    (vii)  to institute an Option Exchange Program;

                    (viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;

                    (ix)   to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred treatment under foreign
laws;

                    (x)    to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;

                    (xi)   to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to (or less than) the minimum amount required
to be withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by an Optionee to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;

                    (xii)  to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

                                      -6-
<PAGE>

                    (xiii)  to make all other determinations deemed necessary or
advisable for administering the Plan.

              (c)   Effect of Administrator's Decision. The Administrator's
                    ----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

          5.  Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
              -----------
may be granted to Employees, Directors or Consultants. Incentive Stock Options
may be granted only to Employees.

          6.  Limitations.
              -----------

              (a)   Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

              (b)   Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider, nor shall they interfere in any
way with the Optionee's right or the Company's or 3Com's right, as applicable,
to terminate such relationship at any time, with or without cause.

              (c)   The following limitations shall apply to grants of Options:

                    (i)   No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 3,000,000 Shares.

                    (ii)  In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
6,000,000 Shares, which shall not count against the limit set forth in
subsection (i) above.

                    (iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.

                    (iv)  If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

          7.  Term of Plan.  Subject to Section 19 of the Plan, the Plan shall
              ------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.

                                      -7-
<PAGE>

          8.  Term of Option.  The term of each Option shall be stated in the
              --------------
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.

          9.  Option Exercise Price and Consideration.
              ---------------------------------------

              (a)   Exercise Price. The per share exercise price for the Shares
                    --------------
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

                    (i)   In the case of an Incentive Stock Option

                          (A)  granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.

                          (B)  granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

                    (ii)  In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                    (iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

               (b)  Waiting Period and Exercise Dates.  At the time an Option
                    ---------------------------------
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions that must be satisfied before
the Option may be exercised.

               (c)  Form of Consideration.  The Administrator shall determine
                    ---------------------
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

                    (i)   cash;

                    (ii)  check;

                                      -8-
<PAGE>

                    (iii)  promissory note;

                    (iv)   other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

                    (v)    consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;

                    (vi)   a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;

                    (vii)  any combination of the foregoing methods of payment;
or

                    (viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.

          10.  Exercise of Option.
               ------------------

               (a)  Procedure for Exercise; Rights as a Shareholder.  Any
                    -----------------------------------------------
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.

                    An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.

                    Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

               (b)  Termination of Relationship as a Service Provider.  If an
                    -------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise

                                      -9-
<PAGE>

his or her Option within such period of time as is specified in the Option
Agreement to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.

               (c)  Disability of Optionee.  If an Optionee ceases to be a
                    ----------------------
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

               (d)  Death of Optionee. If an Optionee dies while a Service
                    -----------------
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant) but only to the extent that
the Option is vested on the date of death. In the absence of a specified time in
the Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's death. The Option may be exercised by the Optionee's
designated beneficiary, provided such beneficiary has been designated prior to
Optionee's death in a form acceptable by the Administrator. If no such
beneficiary has been designated by the Optionee, then such Option may be
exercised within the applicable time period by the personal representative of
the Optionee's estate or by the person or persons to whom the Option is
transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

               (e)  Buyout Provisions.  The Administrator may at any time offer
                    -----------------
to buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.

          11.  Stock Purchase Rights.
               ---------------------

               (a)  Rights to Purchase.  Stock Purchase Rights may be issued
                    ------------------
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan; provided, however that in no
event may Stock Purchase Rights be issued in any fiscal year of the Company for
more than ten percent (10%) of the total Shares available for issuance

                                      -10-
<PAGE>

hereunder, in the aggregate, on the first day of such fiscal year. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.

               (b)  Repurchase Option.  Unless the Administrator determines
                    -----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.

               (c)  Other Provisions.  The Restricted Stock Purchase Agreement
                    ----------------
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.

               (d)  Rights as a Shareholder.  Once the Stock Purchase Right is
                    -----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

          12.  Transferability of Options and Stock Purchase Rights.  Unless
               ----------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

          13.  Adjustments Upon Changes in Capitalization, Dissolution, Merger
               ---------------------------------------------------------------
or Asset Sale.
-------------

               (a)  Changes in Capitalization. Subject to any required action
                    -------------------------
by the shareholders of the Company, the number of shares of Common Stock which
have been authorized for issuance under the Plan, including Shares as to which
no Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the number of Shares that may be added annually to the Shares
reserved under the Plan (pursuant to Section 3(i)), and the number of shares of
Common Stock covered by each outstanding Option and Stock Purchase Right, as
well as the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without

                                      -11-
<PAGE>

receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.

               (b)  Dissolution or Liquidation.  In the event of the proposed
                    --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.

               (c)  Merger or Asset Sale.  In the event of a merger of the
                    --------------------
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

                                      -12-
<PAGE>

     Notwithstanding the foregoing, if an Optionee's status as a Service
Provider is terminated for reasons other than Cause within twelve (12) months
following a Change of Control, then the vesting and exercisability of each of
the Optionee's outstanding Options and Stock Purchase Rights shall partially
accelerate upon such termination with respect to fifty percent (50%) of the then
unvested Shares subject to or acquired under each such Option or Stock Purchase
Right.

          14.  Date of Grant.  The date of grant of an Option or Stock Purchase
               -------------
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator.  Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.

          15.  Amendment and Termination of the Plan.
               -------------------------------------

               (a)  Amendment and Termination. The Board may at any time amend,
                    -------------------------
alter, suspend or terminate the Plan.

               (b)  Shareholder Approval. The Company shall obtain shareholder
                    --------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

               (c)  Effect of Amendment or Termination.  No amendment,
                    ----------------------------------
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.

          16.  Conditions Upon Issuance of Shares.
               ----------------------------------

               (a)  Legal Compliance.  Shares shall not be issued pursuant to
                    ----------------
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.

               (b)  Investment Representations.  As a condition to the exercise
                    --------------------------
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.

          17.  Inability to Obtain Authority.  The inability of the Company to
               -----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

                                      -13-
<PAGE>

          18.  Reservation of Shares. The Company, during the term of this
               ---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

          19.  Shareholder Approval.  The Plan shall be subject to approval by
               --------------------
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.

                                      -14-