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                                                                    EXHIBIT 10.4



                                  VAXGEN, INC.
                             1996 STOCK OPTION PLAN


        This 1996 Stock Option Plan (this "Plan") provides for the grant of
options to acquire shares of common stock, $0.01 par value (the "Common Stock"),
of VaxGen, Inc., a Delaware corporation (the "Company"). Stock options granted
under this Plan that qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), are referred to in this
Plan as "Incentive Stock Options." Incentive Stock Options and stock options
that do not qualify as such under Section 422 of the Code ("Non-Qualified Stock
Options") granted under this Plan are referred to as "Options."

1.      PURPOSES.

        The purposes of this Plan are to retain the services of non-employee
directors, valued key employees and consultants of the Company, to encourage
such persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the stockholders of
the Company, and to serve as an aid and inducement in the hiring of new
employees and to provide an equity incentive to directors, consultants and other
persons selected by the Board of Directors in accordance with Section 3 below.

2.      ADMINISTRATION.

        This Plan shall be administered by the full Board of Directors of the
Company (the "Board") or if the Board so desires, by a committee designated by
the Board and composed of two (2) or more "Non-Employee Directors" (as defined
below). The term "Non-Employee Directors" shall have the meaning assigned to it
under Rule 16b-3 (as amended from time to time) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In the event that the Company is
or becomes subject to the provisions of Section 16 of the Exchange Act, the
Board shall attempt to provide for administration of the Plan, insofar as it
relates to the participation of officers, directors or stockholders of the
Company who at the time in question are subject to the reporting and liability
provisions of Section 16 of the Exchange Act (the "Insiders"), in a manner which
shall qualify the grant, exercise, expiration or surrender of options under this
Plan for the treatment afforded by Rule 16b-3 under the Exchange Act, as amended
from time to time, or any successor rule or regulatory requirement. The term
"Board" when used in any provision of this Plan other than Section 5(n) shall be
deemed to refer to the Board or any committee thereof appointed to administer
this Plan.

        Subject to the provisions of this Plan, and with a view to effecting its
purpose, the Board shall have sole authority, in its absolute discretion, to (a)
construe and interpret this Plan; (b) define the terms used in this Plan; (c)
prescribe, amend and rescind rules and regulations relating to this Plan; (d)
correct any defect, supply any omission or reconcile any inconsistency in this
Plan; (e) grant Options under this Plan (other than pursuant to Section 6); (f)
determine the individuals to whom Options shall be granted under this Plan and
whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option;
(g) determine the time or times at which Options shall be granted under this
Plan; (h) determine the number of shares of Common Stock subject to each Option,
the exercise price of each Option, the duration of each Option and the times at
which each Option shall become exercisable; (i) determine all other terms and
conditions of Options; and (j) make all other determinations necessary or
advisable for the administration of this Plan. All decisions, determinations and
interpretations made by the Board shall be binding and conclusive on all
participants in this Plan and on their legal representatives, heirs and



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beneficiaries.

        The Board shall have no authority, discretion or power to select the
persons who will receive Options under Section 6 hereof or to set the number of
shares to be covered by such Options, the exercise price of such options, the
timing of the grant of such Options or the period within which such Options may
be exercised.

3.      ELIGIBILITY.

        Incentive Stock Options may be granted to any individual who, at the
time the Option is granted, is an employee of the Company or any Related
Corporation (as defined below), including employees who are directors of the
Company ("Employees"). Non-Qualified Stock Options may be granted to Employees,
Non-Employee Directors and consultants. Options may be granted in substitution
for outstanding options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization between
such other corporation and the Company or any subsidiary of the Company. Options
also may be granted in exchange for outstanding Options. Any person to whom an
Option is granted under this Plan is referred to as an "Optionee." Any person
who is the owner of an Option is referred to as a "Holder."

        As used in this Plan, the term "Related Corporation," shall mean any
corporation that is a "Parent Corporation" of the Company or "Subsidiary
Corporation" of the Company, as those terms are defined in Sections 424(e) and
424(f), respectively, of the Code (or any successor provisions), and the
regulations thereunder (as amended from time to time).

4.      STOCK.

        The Board is authorized to grant Options to acquire up to a total of
1,000,000 shares of the Company's authorized but unissued, or reacquired, Common
Stock. The number of shares with respect to which Options may be granted
hereunder is subject to adjustment as set forth in Section 5(m) hereof. In the
event that any outstanding Option expires or is terminated for any reason, the
shares of Common Stock allocable to the unexercised portion of such Option may
again be subject to an Option to the same Optionee (subject to the next
sentence) or to a different person eligible under Section 3 of this Plan. Any
canceled Options will be counted against the maximum number of shares with
respect to which Options may be granted to the person previously holding the
canceled Options.

5.      TERMS AND CONDITIONS OF OPTIONS.

        Each Option granted under this Plan shall be evidenced by a written
agreement approved by the Board (the "Agreement"). Agreements may contain such
provisions, not inconsistent with this Plan, as the Board in its discretion may
deem advisable. All Options also shall comply with the following requirements:

        (a) Number of Shares and Type of Option.

        Each Agreement shall state the number of shares of Common Stock to which
it pertains and whether the Option is intended to be an Incentive Stock Option
or a Non-Qualified Stock Option. In the absence of action to the contrary by the
Board in connection with the grant of an Option, all Options shall be
Non-Qualified Stock Options. The aggregate fair market value (determined at the
Date of Grant, as defined below) of the stock with respect to which Incentive
Stock Options are exercisable for the first 



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time by the Optionee during any calendar year (granted under this Plan and all
other Incentive Stock Option plans of the Company, a Related Corporation or a
predecessor corporation) shall not exceed $100,000, or such other limit as may
be prescribed by the Code as it may be amended from time to time. Any portion of
an Option which exceeds the annual limit shall not be void but rather shall be a
Non-Qualified Stock Option.

        (b) Date of Grant.

        Each Agreement shall state the date the Board has deemed to be the
effective date of the Option for purposes of this Plan (the "Date of Grant").

        (c) Exercise Price.

        Each Agreement shall state the price per share of Common Stock at which
it is exercisable. Options granted in substitution for outstanding options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock or other reorganization involving such other corporation and
the Company or any subsidiary of the Company may be granted with an exercise
price equal to the exercise price for the substituted option of the other
corporation, subject to any adjustment consistent with the terms of the
transaction pursuant to which the substitution is to occur.

            (i) The per share exercise price for an Incentive Stock Option shall
not be less than the fair market value per share of the Common Stock at the Date
of Grant as determined by the Board in good faith. With respect to Incentive
Stock Options granted to greater-than-ten percent (> 10%) stockholders of the
Company (as determined with reference to Section 424(d) of the Code), the
exercise price per share shall not be less than one hundred ten percent (110%)
of the fair market value per share of the Common Stock at the Date of Grant as
determined by the Board in good faith.

            (ii) The per share exercise price for a Non-Qualified Stock Option
shall not be less than eighty-five percent (85%) of the fair market value per
share of the Common Stock at the Date of Grant as determined by the Board in
good faith. With respect to Non-Qualified Stock Options granted to any person
who owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, the exercise price per
share shall not be less than one hundred ten percent (110%) of the fair market
value per share of the Common Stock at the Date of Grant as determined by the
Board in good faith.

        (d) Duration of Options.

        At the time of the grant of the Option, the Board shall designate,
subject to paragraph 5(g) below, the expiration date of the Option. The
expiration date of any Incentive Stock Option granted to a greater-than-ten
percent (> 10%) stockholder of the Company (as determined with reference to
Section 424(d) of the Code) shall not be later than five years from the Date of
Grant. The expiration date of any other Incentive Stock Option shall not be
later than ten (10) years from the Date of Grant. With respect to all other
Options, in the absence of action to the contrary by the Board in connection
with the grant of a particular Option, all Options granted under this Section 5
shall expire ten (10) years from the Date of Grant.



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        (e) Vesting Schedule.

        No Option shall be exercisable until it has vested. The vesting schedule
for each Option may be specified by the Board at the time of grant of the Option
prior to the provision of services with respect to which such Option is granted,
but in no event shall the Board specify a vesting schedule which permits an
Option to vest at a rate less than twenty percent (20%) per year. If no vesting
schedule is specified at the time of grant, the Option shall vest according to
the following schedule:

<TABLE>
<CAPTION>
                                                          PERCENTAGE OF
                      NUMBER OF YEARS                     TOTAL
                      FOLLOWING DATE OF GRANT             OPTION VESTED
                           <S>                               <C>
                           One                               25%
                           Two                               50%
                           Three                             75%
                           Four                             100%
</TABLE>

        The Board may specify a vesting schedule for all or any portion of an
Option based on the achievement of performance objectives established in advance
of the commencement by the Optionee of services related to the achievement of
the performance objectives. Performance objectives may be expressed in terms of
one or more of the following: return on equity, return on assets, share price,
market share, sales, earnings per share, costs, net earnings, net worth,
inventories, cash and cash equivalents, gross margin, the Company's performance
relative to its internal business plan or such other basis as determined by the
Board. Performance objectives may be in respect of the performance of the
Company as a whole (whether on a consolidated or unconsolidated basis), a
Related Corporation, or a subdivision, operating unit, product or such other
basis. Performance objectives may be absolute or relative and may be expressed
in terms of a progression or a range. An Option which is exercisable (in whole
or in part) upon the achievement of one or more performance objectives may be
exercised only following written notice to the Optionee from the Board that the
performance objective has been achieved.

        (f) Acceleration of Vesting.

        The vesting of one or more outstanding options may be accelerated by the
Board at such times and in such amounts as it shall determine in its sole
discretion. The vesting of Options also shall be accelerated under the
circumstances described in Sections 5(m) and 5(n) below.

        (g) Term of Option.

        Vested Options shall terminate, to the extent not previously exercised,
upon the first to occur of the following events: (i) the expiration of the
Option; (ii) the date of an Optionee's termination of employment or service as a
director or consultant with the Company or any Related Corporation for cause (as
determined in the sole discretion of the Board); (iii) the expiration of ninety
(90) days from the date of an Optionee's termination of employment or service as
a director or consultant with the Company or any Related Corporation for any
reason whatsoever other than cause, death or Disability (as defined below)
unless, the exercise period is extended by the Board until a date not later than
the expiration date of the Option; or (iv) the expiration of one year from (A)
the date of death of the Optionee or (B) cessation of an Optionee's employment
or contractual relationship by reason of Disability (as defined below) unless,
the exercise period is extended by the Board until a date not later than the
expiration date of the Option. If an Optionee's employment or contractual
relationship is terminated by death, any Option held by the Optionee shall be
exercisable only by the person or persons to whom such Optionee's 



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rights under such Option shall pass by the Optionee's will or by the laws of
descent and distribution of the state or county of the Optionee's domicile at
the time of death. For purposes of the Plan, unless otherwise defined in the
Agreement, "Disability" shall mean any physical, mental or other health
condition which substantially impairs the Optionee's ability to perform his or
her assigned duties for one hundred twenty (120) days or more in any two hundred
forty (240) day period or that can be expected to result in death. The Board
shall determine whether an Optionee has incurred a Disability on the basis of
medical evidence acceptable to the Board. Upon making a determination of
Disability, the Board shall, for purposes of the Plan, determine the date of an
Optionee's termination of employment or contractual relationship.

        Unless accelerated in accordance with Section 5(f) above, unvested
Options shall terminate immediately upon termination of employment of the
Optionee by the Company for any reason whatsoever, including death or
Disability. For purposes of this Plan, transfer of employment between or among
the Company and any Related Corporation, or among Related Corporations shall not
be deemed to constitute a termination of employment with the Company or any
Related Corporation. For purposes of this subsection with respect to Incentive
Stock Options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Board). The foregoing notwithstanding, employment shall not be deemed to
continue beyond the first ninety (90) days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.

        (h) Exercise of Options.

        Options shall be exercisable, either all or in part, at any time after
vesting, until termination. If less than all of the shares included in the
vested portion of any Option are purchased, the remainder may be purchased at
any subsequent time prior to the expiration of the Option term. If the vested
portion of any Option is less than one hundred (100) shares, it may be exercised
with respect to all shares for which it is vested. In all other cases, no
portion of any Option for less than one hundred (100) shares (as adjusted
pursuant to Section 5(m) below) may be exercised. Only whole shares may be
issued pursuant to an Option, and to the extent that an Option covers less than
one (1) share, it is unexercisable.

        Options or portions thereof may be exercised by giving written notice to
the Company, which notice shall specify the number of shares to be purchased,
and be accompanied by payment in the amount of the aggregate exercise price for
the Common Stock so purchased, which payment shall be in the form specified in
Section 5(i) below. The Company shall not be obligated to issue, transfer or
deliver a certificate of Common Stock to the Holder of any Option, until
provision has been made by the Holder, to the satisfaction of the Company, for
the payment of the aggregate exercise price for all shares for which the Option
shall have been exercised and for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by the Optionee or a transferee who takes title to
the Option in the manner permitted by Section 5(1) hereof.

        (i) Payment upon Exercise of Option.

        Upon the exercise of any Option, the aggregate exercise price shall be
paid to the Company in cash or by certified or cashier's check. In addition, the
Holder, at its or the Company's option, may pay for all or any portion of the
aggregate exercise price by complying with one or more of the following
alternatives:

                (1) by delivering to the Company shares of Common Stock
previously held by such 



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Holder which shares of Common Stock received shall have a fair market value at
the date of exercise (as determined by the Board) equal to the aggregate
exercise price to be paid by the Optionee upon such exercise;

                (2) by delivering a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price;

                (3) by delivering a full recourse promissory note for all or
part of the aggregate exercise price, payable on such terms and bearing such
interest rate as determined by the Board (but in no event less than the minimum
interest rate specified under the Code at which no additional interest would be
imputed and in no event more than the maximum interest rate allowed under
applicable usury laws), which promissory note may be either secured or unsecured
in such manner as the Board shall approve (including, without limitation, by a
security interest in the shares of the Company);

                (4) by delivering a combination of (1), (2) and (3) above.

        (j) Net Issue Exercise.

        Notwithstanding the provisions of Paragraph (i), above, if, at the date
of making the calculation set forth below, the fair market value of one share of
Common Stock is greater than the exercise price of the Option, then in lieu of
exercising the Option for cash, the Holder may elect to convert the Option and
receive Common Stock equal to the value (as determined below) of the Option (or
the portion thereof being exercised) by surrender of the Option together with a
notice of the Holder's election to proceed pursuant to this Paragraph (j). In
such an event, the Company shall issue to the Holder that number of shares of
Common Stock derived utilizing the following formula:

                      Y (A-B)
                      -------
               X=
                         A

Where                    X = the number of shares of Common Stock to be
                             issued to the Holder pursuant to election under
                             this Section 5(j)

                             Y = the number of shares of Common Stock
                                 purchasable under the Option or, if only a
                                 portion of the Option is being exercised,
                                 the portion of the Option being converted
                                 and canceled (at the date of such
                                 calculation)

                             A = the fair market value of one share of
                                 Common Stock (at the date of such
                                 calculation)

                             B = the exercise price (as adjusted to the
                                 date of such calculation).

For purposes of the above calculation, the "fair market value" of one share of
Common Stock shall equal:

            (i) In the event the Option is exercised in connection with the
Company's initial public offering of Common Stock, the per share offering price
to the public in such public offering.



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            (ii) In other circumstances in which a public market exists for the
Common Stock at the time of such exercise, the average of the closing bid and
asked prices of the Common Stock quoted in the Over-The-Counter Market Summary
or the last quoted sale price of the Common Stock or the closing price quoted on
the Nasdaq National Market or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in The Wall Street Journal for the
five (5) trading days prior to the date of determination of the fair market
value.

            (iii) In all other circumstances, such value as is established by
the Board acting in good faith.

        (k) Rights as a Stockholder.

        A Holder shall have no rights as a stockholder with respect to any
shares covered by an Option until such Holder becomes a record holder of such
shares, irrespective of whether such Holder has given notice of exercise.
Subject to the provisions of Sections 5(m) and 5(n) hereof, no rights shall
accrue to a Holder and no adjustments shall be made on account of dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock for
which the record date is prior to the date the Holder becomes a record holder of
the shares of Common Stock covered by the Option, irrespective of whether such
Holder has given notice of exercise.

        (l) Transfer of Option.

        No Option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any Option or of any right or privilege conferred by this
Plan contrary to the provisions hereof, or upon the sale, levy or any attachment
or similar process upon the rights and privileges conferred by this Plan, such
Option shall thereupon terminate and become null and void. During the life of
the optionee, an Option shall be exercisable only by the optionee.

        (m) Securities Regulation and Tax Withholding.

                    (1) Shares shall not be issued with respect to an Option
unless the exercise of such Option and the issuance and delivery of such shares
shall comply with all relevant provisions of law, including, without limitation,
any applicable state securities laws, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations hereunder and the requirements of
any stock exchange upon which such shares may then be listed, and such issuance
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including the availability of an exemption from registration
for the issuance and sale of such shares. The inability of the Company to obtain
from any regulatory body the authority deemed by the Company to be necessary for
the lawful issuance and sale of any shares under this Plan, or the
unavailability of an exemption from registration for the issuance and sale of
any shares under this Plan, shall relieve the Company of any liability with
respect to the non-issuance or sale of such shares.

        As a condition to the exercise of an Option, the Board may require the
Holder to represent and warrant in writing at the time of such exercise that the
shares are being purchased only for investment and without any then-present
intention to sell or distribute such shares. At the option of the Board, a
stop-transfer order against such shares may be placed on the stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
stating that such transfer is not in violation of any applicable law or
regulation, 



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may be stamped on the certificates representing such shares in order to assure
an exemption from registration. The Board also may require such other
documentation as may from time to time be necessary to comply with federal and
state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION
OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF OPTIONS.

                    (2) The Holder shall pay to the Company by certified or
cashier's check, promptly upon exercise of an Option or, if later, the date that
the amount of such obligations becomes determinable, all applicable federal,
state, local and foreign withholding taxes that the Board, in its discretion,
determines to result upon exercise of an Option or from a transfer or other
disposition of shares of Common Stock acquired upon exercise of an Option or
otherwise related to an Option or shares of Common Stock acquired in connection
with an Option. Upon approval of the Board, a Holder may satisfy such obligation
by complying with one or more of the following alternatives selected by the
Board:

                             (A) by delivering to the Company shares of Common
                    Stock previously held by such Holder or by the Company
                    withholding shares of Common Stock otherwise deliverable
                    pursuant to the exercise of the Option, which shares of
                    Common Stock received or withheld shall have a fair market
                    value at the date of exercise (as determined by the Board)
                    equal to the tax obligation to be paid by the Optionee upon
                    such exercise; provided that if the Holder is an Insider or
                    if beneficial ownership of the shares issuable upon exercise
                    of the Option is attributable to an Insider pursuant to the
                    regulations under Section 16 of the Exchange Act, the grant
                    of such Option to such Holder was specifically approved (or,
                    in the case of clause (b), ratified) (i) by the entire Board
                    or a committee of the Board composed solely of two or more
                    Non-Employee Directors (as defined in Rule 16b-3(b)(3)(i) of
                    the Exchange Act) or (ii) in compliance with Section 14 of
                    the Exchange Act by the holders of a majority of the
                    securities of the Company present, or represented, and
                    entitled to vote at a meeting duly held in accordance with
                    the laws of the state of incorporation of the Company, or
                    the written consent of the holders of a majority of the
                    securities of the Company entitled to vote, so long as such
                    ratification occurred no later than the date of the next
                    annual meeting of stockholders; or

                             (B) by executing appropriate loan documents
                    approved by the Board by which the Holder borrows funds from
                    the Company to pay the withholding taxes due under this
                    Paragraph 2, with such repayment terms as the Board shall
                    select.


                    (3) The issuance, transfer or delivery of certificates of
Common Stock pursuant to the exercise of Options may be delayed, at the
discretion of the Board, until the Board is satisfied that the applicable
requirements of the federal and state securities laws and the withholding
provisions of the Code have been met.

        (n) Stock Dividend, Reorganization or Liquidation.

                    (1) If (i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code (or any successor provision)
or any "corporate transaction" described in the regulations thereunder; (ii) the
Company shall declare a dividend payable in, or shall subdivide or combine, its
Common Stock or (iii) any other event with substantially the same effect shall
occur, the Board shall, with respect to each outstanding Option, proportionately
adjust the number of shares of Common Stock subject to such Option, the exercise
price per share or both so as to preserve the rights of the Holder substantially
proportionate to the rights of the Holder prior to such event, and to the extent
that such action shall include an increase or decrease in the number of shares
of Common Stock subject 



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to outstanding Options, the number of shares available under Section 4 of this
Plan and the number of shares of Common Stock underlying Options to be granted
pursuant to Section 6 hereof shall automatically be increased or decreased, as
the case may be, proportionately, without further action on the part of the
Board, the Company, the Company's stockholders, or any Holder.

                    (2) If the Company shall at any time declare an
extraordinary dividend with respect to the Common Stock, whether payable in cash
or other property, the Board may, in the exercise of its sole discretion and
with respect to each outstanding Option, proportionately adjust the number of
shares of Common Stock subject to such Option, the exercise price per share or
both so as to preserve the rights of the Holder substantially proportionate to
the rights of the Holder prior to such event, and to the extent that such action
shall include an increase or decrease in the number of shares of Common Stock
subject to outstanding Options, the number of shares available under Section 4
of this Plan and the number of shares of Common Stock underlying Options to be
granted pursuant to Section 6 hereof shall automatically be increased or
decreased, as the case may be, proportionately, without further action on the
part of the Board, the Company, the Company's stockholders, or any Holder.

                    (3) If the Company is liquidated or dissolved, the Board may
allow the Holders of any outstanding Options to exercise all or any part of the
unvested portion of the Options held by them, provided they do so prior to the
effective date of such liquidation or dissolution. If the Holders do not
exercise their Options prior to such effective date, each outstanding Option
shall terminate as of the effective date of the liquidation or dissolution.

                    (4) The foregoing adjustments in the shares subject to
Options shall be made by the Board, or by any successor administrator of this
Plan, or by the applicable terms of any assumption or substitution document.

                    (5) The grant of an Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.

        (o) Change in Control.

                    (1) Any and all Options that are outstanding under the Plan
at the time of occurrence of any of the events described in Subparagraphs (A),
(B), (C) and (D) below (an "Eligible Option") shall become immediately vested
and fully exercisable for the periods indicated (each such exercise period
referred to as an "Acceleration Window"):

                             (A) For a period of forty-five (45) days beginning
                    on the day on which any Person together with all Affiliates
                    and Associates (as such terms are defined below) of such
                    Person shall become the Beneficial Owner (as defined below)
                    of fifty percent (50%) or more of the shares of Common Stock
                    then outstanding, but shall not include the Company, any
                    subsidiary of the Company, any employee benefit plan of the
                    Company or of any subsidiary of the Company, or any Person
                    or entity organized, appointed or established by the Company
                    for or pursuant to the terms of any such employee benefit
                    plan;

                             (B) Beginning on the date that a tender or exchange
                    offer for Common Stock by any Person (other than the
                    Company, any subsidiary of the Company, any employee benefit
                    plan of the Company or of any subsidiary of the Company, or
                    any Person or entity organized, appointed 



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                    or established by the Company for or pursuant to the terms
                    of any such employee benefit plan) is first published or
                    sent or given within the meaning of Rule 14d-2 under the
                    Exchange Act and continuing so long as such offer remains
                    open (including any extensions or renewals of such offer),
                    unless by the terms of such offer the offeror, upon
                    consummation thereof, would be the Beneficial Owner of less
                    than fifty percent (50%) of the shares of Common Stock then
                    outstanding;

                             (C) For a period of twenty (20) days beginning on
                    the day on which the stockholders of the Company (or, if
                    later, approval by the stockholders of any Person) duly
                    approve any merger, consolidation, reorganization or other
                    transaction providing for the conversion or exchange of more
                    than fifty percent (50%) of the outstanding shares of Common
                    Stock into securities of any Person, or cash, or property,
                    or a combination of any of the foregoing, unless the holders
                    of the voting stock of the Company immediately prior to such
                    transaction hold not less than fifty percent (50%) of the
                    voting rights in the surviving entity; or

                             (D) For a period of twenty (20) days beginning on
                    the day on which, at any meeting of the stockholders of the
                    Company involving a contest for the election of directors,
                    individuals constituting a majority of the Board who were
                    not the Board's nominees for election immediately prior to
                    the meeting are elected; provided, however, that with
                    respect to the events specified in Subparagraphs (A), (B)
                    and (C) above, such accelerated vesting shall not occur if
                    the event that would otherwise trigger the accelerated
                    vesting of Eligible Options has received the prior approval
                    of a majority of all of the directors of the Company,
                    excluding for such purposes the votes of directors who are
                    directors or officers of, or have a material financial
                    interest in any Person (other than the Company) who is a
                    party to the event specified in Subparagraph (A), (B) or (C)
                    above which otherwise would trigger acceleration of vesting
                    and provided, further, that no Option which is to be
                    converted into an option to purchase shares of Exchange
                    Stock as stated at item (3) below shall be accelerated
                    pursuant to this Section 5(n).

                    (2) The exercisability of any Eligible Option which remains
unexercised following expiration of an Acceleration Window shall be governed by
the vesting schedule and other terms of the Agreement representing such Option.

                    (3) If the stockholders of the Company receive shares of
capital stock of another Person ("Exchange Stock") in exchange for or in place
of shares of Common Stock in any transaction involving any merger,
consolidation, reorganization or other transaction providing for the conversion
or exchange of all or substantially all outstanding shares of Common Stock into
Exchange Stock, then at the closing of such transaction all Options granted
hereunder shall be converted into options to purchase shares of Exchange Stock
unless the Company (by the affirmative vote of a majority of all of the
directors of the Company, excluding for such purposes the votes of directors who
are directors or officers of, or have a material financial interest in the
Person issuing the Exchange Stock and any Affiliate of such Person), in its sole
discretion, determines that any or all such Options granted hereunder shall not
be so converted but instead shall terminate. The amount and price of converted
Options shall be determined by adjusting the amount and price of the Options
granted hereunder in the same proportion as used for determining the shares of
Exchange Stock the holders of the Common Stock received in such merger,
consolidation, reorganization or other transaction. Unless altered by the Board,
the vesting schedule set forth in the Agreement shall continue to apply to the
Options granted for Exchange Stock.

        For the purposes of this Section 5(n): (i) "Person" shall include any
individual, firm, corporation, partnership or other entity; (ii) "Affiliate" and
"Associate" shall have the meanings assigned to them in 



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<PAGE>   11

Rule 12b-2 under the Exchange Act; and (iii) "Beneficial Owner" shall have the
meaning assigned to it in Rule 16a-I under the Exchange Act.

6.      NON-INSIDER DIRECTOR GRANTS.

        In the event and beginning at such time as the Company is or becomes
subject to the provisions of Section 16 of the Exchange Act, Directors who are
not also employees of the Company ("Non-Insider Directors") shall only be
eligible to receive Options under the Plan in accordance with the terms and
conditions of this Section 6, unless the Board, in its sole discretion, grants
Options to the Non-Insider Director under the other provisions of the Plan in
addition to, or in lieu of, Options granted under this Section 6. Directors who
are employees of the Company shall remain eligible to receive Options under the
other provisions of the Plan.

        (a) Number of Shares and Date of Grant.

        Concurrent with his or her first election to the Board, and so long as
shares are available for grant pursuant to Section 4, each Non-Insider Director
shall automatically receive a Non-Qualified Stock Option to purchase 50,000
shares of Common Stock, subject to adjustment as set forth in Section 5(m)
hereof. The Date of Grant of each Non-Qualified Stock Option shall be the date
of such Non-Insider Director's first election or appointment to the Board.

        (b) Option Price.

        The exercise price of Options granted under this Section 6 shall be the
fair market value of the Company's Common Stock on the Date of Grant, determined
as provided in Section 5(j).

        (c) Vesting.

        In order to ensure that the Company will receive the benefits
contemplated in exchange for the Options, no option granted under this Section 6
shall be exercisable until it has vested. Options granted pursuant to this
Section 6 shall vest and become exercisable as follows: forty percent (40%) on
the Date of Grant and sixty percent (60%) on the first anniversary of the Date
of Grant.

        (d) Term of Option.

        Options shall terminate, to the extent not previously exercised, upon
the occurrence of the first of the following events:

            (i) ten (10) years from the Date of Grant;

            (ii) the expiration of ninety (90) days from the date of Optionee's
termination as a Non-Insider Director of the Company for any reason other than
death or Disability (as defined below); or

            (iii) the expiration of one (1) year from the date of death of
Optionee or the cessation of Optionee's service as a Non-Insider Director by
reason of Disability (as defined below).

        For purposes of this Section 6, unless otherwise defined in the
Agreement, "Disability" shall mean any physical, mental or other health
condition which substantially impairs the Optionee's ability 



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<PAGE>   12

to perform his or her duties as a director of the Company for one hundred twenty
(120) days or more in any two hundred forty (240) day period or that can be
expected to result in death.

        (e) Other Terms.

        Except as otherwise provided in this Section 6, all Options granted to
Non-Employee Directors shall be subject to the provisions of the Plan, including
Section 5.

        (f) Amendments.

        The provisions of this Section 6 shall not be amended more than once
every six (6) months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules thereunder.

7.      EFFECTIVE DATE; TERM.

        This Plan shall be effective as of September 1, 1996. Incentive Stock
Options may be granted by the Board from time to time thereafter until the tenth
anniversary of such date. Non-Qualified Stock Options may be granted until this
Plan is terminated by the Board in its sole discretion. Termination of this Plan
shall not terminate any Option granted prior to such termination. Any Options
granted by the Board prior to the approval of this Plan by the stockholders of
the Company shall be granted subject to ratification of this Plan by the
stockholders of the Company within twelve (12) months after this Plan is adopted
by the Board. The Board may require any stockholder approval that it considers
necessary for the Company to comply with or to avail the Company and/or the
Optionees of the benefits of any securities, tax, market listing or other
administrative or regulatory requirement. If such stockholder ratification is
sought within twelve (12) months after this Plan is adopted by the Board and
such stockholder ratification is not obtained, each and every Option granted
under this Plan shall be null and void and shall convey no rights to the Holder
thereof.

8.      NO OBLIGATIONS TO EXERCISE OPTION.

        The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.

9.      NO RIGHT TO OPTIONS OR TO EMPLOYMENT.

        Except for the grant of options pursuant to Section 6 hereof, whether or
not any Options are to be granted under this Plan shall be exclusively within
the discretion of the Board, and nothing contained in this Plan shall be
construed as giving any person any right to participate under this Plan. The
grant of an Option shall in no way constitute any form of agreement or
understanding binding on the Company or any Related Corporation, express or
implied, that the Company or any Related Corporation will employ or contract
with an Optionee for any length of time, nor shall it interfere in any way with
the Company's or, where applicable, a Related Corporation's right to terminate
Optionee's employment at any time, which right is hereby reserved.

10.     APPLICATION OF FUNDS.

        The proceeds received by the Company from the sale of Common Stock
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board.



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<PAGE>   13

11.     INDEMNIFICATION OF BOARD.

        In addition to all other rights of indemnification they may have as
members of the Board, directors shall be indemnified by the Company for all
reasonable expenses and liabilities of any type or nature, including attorneys'
fees, incurred in connection with any action, suit or proceeding to which they
or any of them are a party by reason of, or in connection with, this Plan or any
Option granted under this Plan, and against all amounts paid by them in
settlement thereof (provided that such settlement is approved by independent
legal counsel selected by the Company), except to the extent that such expenses
relate to matters for which it is adjudged that such director is liable for
willful misconduct; provided, that within fifteen (15) days after the
institution of any such action, suit or proceeding, the director involved
therein shall, in writing, notify the Company of such action, suit or
proceeding, so that the Company may have the opportunity to make appropriate
arrangements to prosecute or defend the same.

12.     FINANCIAL INFORMATION.

        The Company shall provide to each Holder during the period such Holder
holds an outstanding Option, and to each holder of Common Stock acquired upon
exercise of Options granted under the Plan for so long as such person is a
holder of such Common Stock, annual financial statements of the Company as
prepared either by the Company or independent certified public accountants of
the Company. Such financial statements shall include, at a minimum, a balance
sheet and an income statement, and shall be delivered as soon as practicable
following the end of the Company's fiscal year.

13.     AMENDMENT OF PLAN.

        Except as set forth in Section 6 hereof, the Board may, at any time,
modify, amend or terminate this Plan or modify or amend Options granted under
this Plan, including, without limitation, such modifications or amendments as
are necessary to maintain compliance with applicable statutes, rules or
regulations; provided, however, no amendment with respect to an outstanding
Option which has the effect of reducing the benefits afforded to the Holder
thereof shall be made over the objection of such Holder; provided further, that
the events triggering acceleration of vesting of outstanding Options may be
modified, expanded or eliminated without the consent of Holders. The Board may
condition the effectiveness of any such amendment on the receipt of stockholder
approval at such time and in such manner as the Board may consider necessary for
the Company to comply with or to avail the Company, the Optionees or both of the
benefits of any securities, tax, market listing or other administrative or
regulatory requirement which the Board determines to be desirable. Without
limiting the generality of the foregoing, the Board may modify grants to persons
who are eligible to receive Options under this Plan who are foreign nationals or
employed outside the United States to recognize differences in local law, tax
policy or custom.

Date Approved by Board of Directors of Company:
Date Approved by Stockholders of Company:





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