<PAGE>

                                                                     Exhibit 4.3


                          PINNACLE ENTERTAINMENT, INC.
                          ----------------------------

                             2001 STOCK OPTION PLAN
                             ----------------------

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

     (a)   to attract and retain the best available personnel for positions of
substantial responsibility,

     (b)   to provide additional incentive to selected key Employees,
Consultants and Directors, and

     (c)   to promote the success of the Company's business.

2.   Definitions. For the purposes of this Plan, the following terms will have
     -----------
the following meanings:

     (a)   "Administrator" means the Board or any of its Committees that
administer the Plan, in accordance with Section 4.

     (b)   "Applicable Laws" means the legal requirements relating to the
administration of and issuance of securities under stock incentive plans,
including, without limitation, the requirements of state corporations law,
federal and state securities law, federal and state tax law, and the
requirements of any stock exchange or quotation system upon which the Shares may
then be listed or quoted. For all purposes of this Plan, references to statutes
and regulations shall be deemed to include any successor statutes and
regulations, to the extent reasonably appropriate as determined by the
Administrator.

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

     (d)   "Cause" shall have the meaning set forth in an Optionee's employment
or consulting agreement with the Company (if any), or if not defined therein,
shall mean (i) acts or omissions by the Optionee which constitute intentional
material misconduct or a knowing violation of a material policy of the Company
or any of its subsidiaries, (ii) the Optionee personally receiving a benefit in
money, property or services from the Company or any of its subsidiaries or from
another person dealing with the Company or any of its subsidiaries, in material
violation of applicable law or Company policy, (iii) an act of fraud,
conversion, misappropriation, or embezzlement by the Optionee or his conviction
of, or entering a guilty plea or plea of no contest with respect to, a felony,
or the equivalent thereof (other than DUI), or (iv) any material misuse or
improper disclosure of confidential or proprietary information of the Company.

     (e)   "Code" means the Internal Revenue Code of 1986, as amended. For all
purposes of this Plan, references to Code sections shall be deemed to include
any successor Code sections, to the extent reasonably appropriate as determined
by the Administrator.
<PAGE>

     (f)   "Committee" means a Committee appointed by the Board in accordance
with Section 4.

     (g)   "Common Stock" means the common stock, $0.10 par value per share, of
the Company.

     (h)   "Company" means Pinnacle Entertainment, Inc., a Delaware corporation.

     (i)   "Consultant" means any natural person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render bona fide services and who is
compensated for such services, provided that the term "Consultant" does not
include (i) Employees or (ii) Directors who are paid only a director's fee by
the Company or who are not compensated by the Company for their services as
Directors.

     (j)   "Continuous Status as an Employee, Director or Consultant" means that
the employment, director or consulting relationship is not interrupted or
terminated by the Company, any Parent or Subsidiary, or by the Employee,
Director or Consultant. Continuous Status as an Employee, Director or Consultant
will not be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave, provided, that for purposes of Incentive Stock Options, any such
                --------
leave may not exceed 90 days, unless reemployment upon the expiration of such
leave is guaranteed by contract (including certain Company policies) or statute;
or (ii) transfers between locations of the Company or between the Company, its
Parent, its Subsidiaries or its successor.

     (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)   "Employee" means any person, including Officers and Directors
employed as a common law employee by the Company or any Parent or Subsidiary of
the Company. Neither service as a Director nor payment of a director's fee by
the Company will be sufficient, in and of itself, to constitute "employment" by
the Company.

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

     (o)   "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 National Market System of NASDAQ, the Fair
                     Market Value of a Share of Common Stock will be the closing
                     sales price for such stock (or the closing bid, if no sales
                     are reported) as quoted on that system or exchange (or the
                     system or exchange with the greatest volume of trading in
                     Common Stock) on the last market trading day prior to the
<PAGE>

                     day of determination, as reported in the Wall Street
                                                              -----------
                     Journal or any other source the Administrator considers
                     -------
                     reliable.

              (ii)   If the Common Stock is quoted on the NASDAQ System (but not
                     on the NASDAQ National Market System) or is regularly
                     quoted by recognized securities dealers but selling prices
                     are not reported, the Fair Market Value of a Share of
                     Common Stock will 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 any other source the
                            -------------------
                     Administrator considers reliable.

              (iii)  If the Common Stock is not traded as set forth above, the
                     Fair Market Value will be determined in good faith by the
                     Administrator with reference to the earnings history, book
                     value and prospects of the Company in light of market
                     conditions generally, and any other factors the
                     Administrator considers appropriate, such determination by
                     the Administrator to be final, conclusive and binding.

     (p)   "Family Member" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Optionee"s household (other than a tenant or employee), a trust in which these
persons (or the Optionee) control the management of assets, and any other entity
in which these persons (or the Optionee) own more than fifty percent of the
voting interests.

     (q)   "Grant Notice" shall mean a written notice evidencing certain terms
and conditions of an individual Option grant.  The Grant Notice is part of the
Option Agreement.

     (r)   "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.

     (s)   "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.

     (t)   "Nonqualified Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.

     (u)   "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.

     (v)   "Option" means a stock option granted under this Plan.

     (w)   "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement is subject to the terms and conditions of this Plan.
<PAGE>

     (x)   "Optioned Stock" means the Common Stock subject to an Option.

     (y)   "Optionee" means an Employee, Consultant or Director who holds an
outstanding Option.

     (z)   "Parent" means a "parent corporation" with respect to the Company,
whether now or later existing, as defined in Section 424(e) of the Code.

     (aa)     "Plan" means this 2001 Stock Option Plan.

     (bb)     "Section" means, except as otherwise specified, a section of this
Plan.

     (cc)     "Share" means a share of the Common Stock, as adjusted in
accordance with Section 14.

     (dd)     "Subsidiary" means a "subsidiary corporation" with respect to the
Company, whether now or later existing, as defined in Section 424(f) of the
Code.

3.   Stock Subject to the Plan. Subject to the provisions of Section 14 of the
     -------------------------
Plan, the maximum aggregate number of Shares which may be issued under the Plan
will be 900,000 Shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock.

     If an Option expires or becomes unexercisable without having been exercised
in full, the Shares that were not purchased which were subject thereto will
become available for future grant under the Plan (unless the Plan has
terminated). If the Company reacquires Shares which were issued pursuant to the
exercise of an Option, however, those reacquired Shares will not be available
for future grant under the Plan.

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

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

              (i)    Composition of the Administrator. The Plan will be
                     administered by (A) the Board, or (B) a Committee
                     designated by the Board, which Committee will be
                     constituted to satisfy Applicable Laws. Once appointed, a
                     Committee will serve in its designated capacity until
                     otherwise directed by the Board. The Board may increase the
                     size of the Committee and appoint additional members,
                     remove members (with or without cause)and substitute new
                     members, fill vacancies (however caused), and remove all
                     members of the Committee and thereafter directly administer
                     the Plan. Notwithstanding the foregoing, unless the Board
                     expressly resolves to the contrary, from and after such
                     time as the Company is registered pursuant to Section 12 of
                     the Exchange Act, the Plan will be administered only by a
                     Committee, which will then consist solely of persons who
                     are both "non-employee directors" within the meaning of
                     Rule 16b-3 promulgated under the Exchange Act and "outside
                     directors" within
<PAGE>

                     the meaning of Section 162(m) of the Code; provided,
                     however, the failure of the Committee to be composed solely
                     of individuals who are both "non-employee directors" and
                     "outside directors" shall not render ineffective or void
                     any awards or grants made by, or other actions taken by,
                     such Committee.

              (ii)   Multiple Administrative Bodies. The Plan may be
                     administered by different bodies with respect to Directors,
                     Officers who are not Directors, and Employees and
                     Consultants who are neither Directors nor Officers.

     (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 that Committee, the Administrator will have the authority, in its
discretion:

              (i)    to determine the Fair Market Value of the Common Stock, in
                     accordance with Section 2(o);

              (ii)   to select the Consultants, Employees or Directors to whom
                     Options may be granted;

              (iii)  to determine whether and to what extent Options are
                     granted, and whether Options are intended as Incentive
                     Stock Options or Nonqualified Stock Options;

              (iv)   to determine the number of Shares to be covered by each
                     Option granted;

              (v)    to approve forms of Grant Notices, Option Agreements;

              (vi)   to determine the terms and conditions, not inconsistent
                     with the terms of this Plan, of any grant of Options,
                     including, but not limited to, (A) the Options' exercise
                     price, (B) the time or times when Options may be exercised,
                     which may be based on performance criteria or other
                     reasonable conditions such as Continuous Status as an
                     Employee, Director or Consultant, (C) any vesting
                     acceleration or waiver of forfeiture restrictions, and any
                     restriction or limitation regarding any Option or Optioned
                     Stock, based in each case on factors that the Administrator
                     determines in its sole discretion, including but not
                     limited to a requirement subjecting the Optioned Stock to
                     (i) certain restrictions on transfer (including without
                     limitation a prohibition on transfer for a specified period
                     of time and/or a right of first refusal in favor of the
                     Company), and (ii) a right of repurchase in favor of the
                     Company upon termination of the Optionee"s Continuous
                     Status as an Employee, Director or Consultant;
<PAGE>

              (vii)  to determine whether, to what extent and under what
                     circumstances Common Stock and other amounts payable with
                     respect to a grant of Options under this Plan will be
                     deferred either automatically or at the election of the
                     participant (including providing for and determining the
                     amount, if any, of any deemed earnings on any deferred
                     amount during any deferral period);

              (viii) to construe and interpret the terms of this Plan;

              (ix)   to prescribe, amend, and rescind rules and regulations
                     relating to the administration of this Plan;

              (x)    to modify or amend each Option, subject to Section 16 (c);

              (xi)   to authorize any person to execute on behalf of the Company
                     any instrument required to effect the grant of an Option
                     previously granted by the Administrator;

              (xii)  to accelerate the vesting or exercisability of an Option;

              (xiii) to determine the terms and restrictions applicable to
                     Options; and

              (xiv)  to make all other determinations it considers necessary or
                     advisable for administering this Plan.

     (c)   Effect of Administrator's Decision. The Administrator's decisions,
           ----------------------------------
determinations and interpretations will be final and binding on all holders of
Options.

5.   Eligibility. Options granted under this Plan may be Incentive Stock Options
     -----------
or Nonqualified Stock Options, as determined by the Administrator at the time of
grant. Nonqualified Stock Options may be granted to Employees, Consultants and
Directors. Incentive Stock Options may be granted only to Employees. If
otherwise eligible, an Employee, Consultant or Director who has been granted an
Option may be granted additional Options.

6.   Limitations on Grants of Incentive Stock Options. Each Option will be
     ------------------------------------------------
designated in the Grant Notice as either an Incentive Stock Option or a
Nonqualified Stock Option. However, notwithstanding such designations, if the
Shares subject to an Optionee's Incentive Stock Options (granted under all plans
of the Company or any Parent or Subsidiary), which become exercisable for the
first time during any calendar year, have a Fair Market Value in excess of
$100,000, the Options accounting for this excess will be treated as Nonqualified
Stock Options. For purposes of this Section 6, Incentive Stock Options will be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares will be determined as of the time of grant.

7.   Limit on Annual Grants to Individuals. From and after such time as the
     -------------------------------------
Company is required to be registered pursuant to Section 12 of the Exchange Act,
no Optionee may receive grants, during any fiscal year of the Company or portion
thereof, of Options which,
<PAGE>

in the aggregate, cover more than 100,000 Shares, subject to adjustment as
provided in Section 14. If an Option expires or terminates for any reason
without having been exercised in full, the unpurchased shares subject to that
expired or terminated Option will continue to count against the maximum numbers
of shares for which Options may be granted to an Optionee during any fiscal year
of the Company or portion thereof.

8.   Term of the Plan. Subject to Section 20, this Plan will become effective
     ----------------
upon the earlier to occur of its adoption by the Board or its approval by the
shareholders of the Company as described in Section 20. It will continue in
effect for a term of ten years unless terminated earlier under Section 16.
Unless otherwise provided in this Plan, its termination will not affect the
validity of any Option outstanding at the date of termination.

9.   Term of Option. The term of each Option will be stated in the Option
     --------------
Agreement; provided, however, that in no event may the term be more than ten
           --------  -------
years from the date of grant. In addition, 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 of the voting power of
all classes of capital stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option will be five years from the date of grant or
any shorter term specified in the Option Agreement.

10.  Option Exercise Price and Consideration.
     ---------------------------------------

     (a)   Exercise Price of Incentive Stock Options. The exercise price for
           -----------------------------------------
Shares to be issued pursuant to exercise of an Incentive Stock Option will be
determined by the Administrator provided that the per Share exercise price will
be no less than 100% of the Fair Market Value per Share on the date of grant;
provided, further that in the case of an Incentive Stock Option granted to an
Employee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent of the voting power of all classes of capital
stock of the Company or any Parent or Subsidiary, the per Share exercise price
will be no less than 110% of the Fair Market Value per Share on the date of
grant.

     (b)   Exercise Price of Nonqualified Stock Options. In the case of a
           --------------------------------------------
Nonqualified Stock Option, the exercise price for Shares to be issued pursuant
to the exercise of any such Option will be determined by the Administrator.

     (c)   Waiting Period and Exercise Dates. At the time an Option is granted,
           ---------------------------------
the Administrator will fix the period within which the Option may be exercised
and will determine any conditions which must be satisfied before the Option may
be exercised. Exercise of an Option may be conditioned upon performance criteria
or other reasonable conditions such as Continuous Status as an Employee,
Director or Consultant.

     (d)   Form of Consideration. The Administrator will determine the
           ---------------------
acceptable form of consideration for exercising an Option, including the method
of payment.  Such consideration may consist partially or entirely of:

              (i)    cash;

              (ii)   a promissory note made by the Optionee in favor of the
                     Company;
<PAGE>

                  (iii)    other Shares which have a Fair Market Value on the
                           date of surrender equal to the aggregate exercise
                           price of the Shares as to which an Option will be
                           exercised;

                  (iv)     delivery of a properly executed exercise notice
                           together with any other documentation as the
                           Administrator and the Optionee's broker, if
                           applicable, require to effect an exercise of the
                           Option and delivery to the Company of the sale or
                           loan proceeds required to pay the exercise price; or

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

11.  Exercise of Option.
     ------------------

     (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
         -----------------------------------------------
hereunder will be exercisable according to the terms of the Plan and at times
and under conditions determined by the Administrator and set forth in the Option
Agreement; provided, however, that an Option may not be exercised for a fraction
of a Share.

     An Option will be deemed exercised when the Company receives: (i) written
notice of exercise (in accordance with the Option Agreement) from the person
entitled to exercise the Option, (ii) full payment for the Shares with respect
to which the Option is exercised, and (iii) all representations,
indemnifications and documents reasonably requested by the Administrator. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and this Plan. Shares issued
upon exercise of an Option will 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 stock certificate evidencing such Shares is 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 will exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. Subject to the provisions of
Sections 13, 17, and 18, the Company will issue (or cause to be issued) such
stock certificate 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 stock certificate is issued, except as provided in Section 14 of the
Plan. Notwithstanding the foregoing, the Administrator in its discretion may
require the Company to retain possession of any certificate evidencing Shares of
Common Stock acquired upon exercise of an Option, if those Shares remain subject
to repurchase under the provisions of the Option Agreement or any other
agreement between the Company and the Optionee, or if those Shares are
collateral for a loan or obligation due to the Company.

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

     (b) Termination of Employment or Consulting Relationship or Directorship.
         --------------------------------------------------------------------
If an Optionee holds exercisable Options on the date his or her Continuous
Status as an Employee, Director or Consultant terminates (other than because of
termination due to Cause, death or Disability), the Optionee may exercise the
Options that were vested and exercisable as of the date of termination for a
period of 90 days following such termination in the case of an Incentive Stock
Option, or 30 days following such termination in the case of a Nonqualified
Stock Option (or such other period as is set forth in the Option Agreement or
determined by the Administrator). If the Optionee is not entitled to exercise
his or her entire Option at the date of such termination, the Shares covered by
the unexercisable portion of the Option will revert to the Plan. If the Optionee
does not exercise an Option within the time specified above after termination,
that Option will expire, and the Shares covered by it will revert to the Plan.

     (c) Disability of Optionee. If an Optionee holds exercisable Options on the
         ----------------------
date his or her Continuous Status as an Employee, Director or Consultant
terminates because of Disability, the Optionee may exercise the Options that
were vested and exercisable as of the date of termination for a period of twelve
months following such termination in the case of an Incentive Stock Option, or
six months following such termination in the case of a Nonqualified Stock Option
(or such other period as is set forth in the Option Agreement or determined by
the Administrator). If the Optionee is not entitled to exercise his or her
entire Option at the date of such termination, the Shares covered by the
unexercisable portion of the Option will revert to the Plan. If the Optionee
does not exercise an Option within the time specified above after termination,
that Option will expire, and the Shares covered by it will revert to the Plan.

     (d) Death of Optionee. If an Optionee holds exercisable Options on the date
         -----------------
his or her death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance may exercise the Options that were
vested and exercisable as of the date of death for a period of twelve months
following the date of death in the case of an Incentive Stock Option, or six
months following death in the case of a Nonqualified Stock Option (or such other
period as is set forth in the Option Agreement or determined by the
Administrator). If the Optionee is not entitled to exercise his or her entire
Option at the date of death, the Shares covered by the unexercisable portion of
the Option will revert to the Plan. If the Optionee's estate or a person who
acquired the right to exercise the Option by bequest or inheritance does not
exercise an Option within the time specified above after termination, that
Option will expire, and the Shares covered by it will revert to the Plan.

     (e) Termination for Cause. If an Optionee"Optionee's Continuous Status as
         ---------------------
an Employee, Director or Consultant is terminated for Cause, then all Options
(including any vested Options) held by Optionee shall immediately be terminated
and cancelled.

     (f) Disqualifying Dispositions of Incentive Stock Options. If Common Stock
         -----------------------------------------------------
acquired upon exercise of any Incentive Stock Option is disposed of in a
disposition that, under Section 422 of the Code, disqualifies the holder from
the application of Section 421(a) of the Code, the holder of the Common Stock
immediately before the disposition will comply with any requirements imposed by
the Company in order to enable the Company to secure the related income tax
deduction to which it is entitled in such event.
<PAGE>

12.  Non-Transferability of Options.
     ------------------------------

     (a) No Transfer. An Option 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. Notwithstanding the foregoing, to the extent
that the Administrator so authorizes at the time a Nonqualified Stock Option is
granted or amended, (i) such Option may be assigned pursuant to a qualified
domestic relations order as defined by the Code, and exercised by the spouse of
the Optionee who obtained such Option pursuant to such qualified domestic
relations order, and (ii) such Option may be assigned, in whole or in part,
during the Optionee's lifetime to one or more Family Members of the Optionee.
Rights under the assigned portion may be exercised by the Family Member(s) who
acquire a proprietary interest in such Option pursuant to the assignment. The
terms applicable to the assigned portion shall be the same as those in effect
for the Option immediately before such assignment and shall be set forth in such
documents issued to the assignee as the Administrator deems appropriate.

     (b) Designation of Beneficiary. An Optionee may file a written designation
         --------------------------
of a beneficiary who is to receive any Options that remain unexercised in the
event of the Optionee's death. If a participant is married and the designated
beneficiary is not the spouse, spousal consent will be required for the
designation to be effective. The Optionee may change such designation of
beneficiary at any time by written notice to the Administrator, subject to the
above spousal consent requirement.

     (c) Effect of No Designation. If an Optionee dies and there is no
         ------------------------
beneficiary validly designated and living at the time of the Optionee's death,
the Company will deliver such Optionee's Options to the executor or
administrator of his or her estate, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Options to the spouse or to any one or more
dependents or relatives of the Optionee, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company may designate.

     (d) Death of Spouse or Dissolution of Marriage. If an Optionee designates
         ------------------------------------------
his or her spouse as beneficiary, that designation will be deemed automatically
revoked if the Optionee's marriage is later dissolved. Similarly, any
designation of a beneficiary will be deemed automatically revoked upon the death
of the beneficiary if the beneficiary predeceases the Optionee. Without limiting
the generality of the preceding sentence, the interest in Options of a spouse of
an Optionee who has predeceased the Optionee or (except as provided in Section
12(a) regarding qualified domestic relations orders) whose marriage has been
dissolved will automatically pass to the Optionee, and will not be transferable
by such spouse in any manner, including but not limited to such spouse's will,
nor will any such interest pass under the laws of intestate succession.

13.  Withholding Taxes. The Company will have the right to take whatever steps
     -----------------
the Administrator deems necessary or appropriate to comply with all applicable
federal, state, local, and employment tax withholding requirements, and the
Company's obligations to deliver Shares upon the exercise of an Option will be
conditioned upon compliance with all
<PAGE>

such withholding tax requirements. Without limiting the generality of the
foregoing, upon the exercise of an Option, the Company will have the right to
withhold taxes from any other compensation or other amounts which it may owe to
the Optionee, or to require the Optionee to pay to the Company the amount of any
taxes which the Company may be required to withhold with respect to the Shares
issued on such exercise. Without limiting the generality of the foregoing, the
Administrator in its discretion may authorize the Optionee to satisfy all or
part of any withholding tax liability by (a) having the Company withhold from
the Shares which would otherwise be issued on the exercise of an Option that
number of Shares having a Fair Market Value, as of the date the withholding tax
liability arises, equal to or less than the amount of the Company's withholding
tax liability, or (b) by delivering to the Company previously-owned and
unencumbered Shares of the Common Stock having a Fair Market Value, as of the
date the withholding tax liability arises, equal to or less than the amount of
the Company's withholding tax liability.

14.  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, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company or a successor entity, or for other
property (including without limitation, cash), through reorganization,
recapitalization, reclassification, stock combination, stock dividend, stock
split, reverse stock split, spin off or other similar transaction, an
appropriate and proportionate adjustment will be made in the maximum number and
kind of shares as to which Options may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares and/or property
allocated to unexercised Options which have been granted prior to any such
change will likewise be made. Any such adjustment in the outstanding Options
will be made without change in the aggregate purchase price applicable to the
unexercised portion of the Options but with a corresponding adjustment in the
price for each share or other unit of any security covered by the Option. Such
adjustment will be made by the Administrator, whose determination in that
respect will be final, binding, and conclusive.

     Where an adjustment under this Section 14(a) is made to an Incentive Stock
Option, the adjustment will be made in a manner which will not be considered a
"modification" under the provisions of subsection 424(h)(3) of the Code.

     (b) Dissolution or Liquidation. In the event of the proposed dissolution or
         --------------------------
liquidation of the Company, to the extent that an Option had not been previously
exercised , it will terminate immediately prior to the consummation of such
proposed dissolution or liquidation. In such instance, the Administrator may, in
the exercise of its sole discretion, declare that any Option will terminate as
of a date fixed by the Administrator and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.

     (c) Corporate Transaction. Upon the happening of a merger, reorganization
         ---------------------
or sale of substantially all of the assets of the Company, the Administrator,
may, in its sole discretion, do one or more of the following: (i) shorten the
period during which Options are exercisable
<PAGE>

(provided they remain exercisable for at least 30 days after the date notice of
such shortening is given to the Optionees); (ii) accelerate any vesting schedule
to which an Option is subject; (iii) arrange to have the surviving or successor
entity or any parent entity thereof assume the Options or grant replacement
options with appropriate adjustments in the option prices and adjustments in the
number and kind of securities issuable upon exercise or adjustments so that the
Options or their replacements represent the right to purchase the shares of
stock, securities or other property (including cash) as may be issuable or
payable as a result of such transaction with respect to or in exchange for the
number of Shares of Common Stock purchasable and receivable upon exercise of the
Options had such exercise occurred in full prior to such transaction; or (iv)
cancel Options upon payment to the Optionees in cash, with respect to each
Option to the extent then exercisable (including, if applicable, any Options as
to which the vesting schedule has been accelerated as contemplated in clause
(ii) above), of an amount that is the equivalent of the excess of the Fair
Market Value of the Common Stock (at the effective time of the merger,
reorganization, sale or other event) over the exercise price of the Option. The
Administrator may also provide for one or more of the foregoing alternatives in
any particular Option Agreement.

15.  Date of Grant. The date of grant of an Option will be, for all purposes,
     -------------
the date as of which the Administrator makes the determination granting such
Option, or any other, later date determined by the Administrator and specified
in the Option Agreement. Notice of the determination will be provided to each
Optionee within a reasonable time after the date of grant.

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

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

     (b) Shareholder Approval. The Company will obtain shareholder approval of
         --------------------
any Plan amendment that increases the number of Shares for which Options may be
granted, or to the extent necessary and desirable to comply with Section 422 of
the Code (or any successor statute) or other Applicable Laws, or the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted. Such shareholder approval, if required, will be obtained in
such a manner and to such a degree as is required by the Applicable Law or
requirement.

     (c) Effect of Amendment or Termination. No amendment, alteration,
         ----------------------------------
suspension or termination of the Plan will impair the rights of a Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator. Any
such agreement must be in writing and signed by the Optionee and the Company.

17.  Conditions Upon Issuance of Shares.
     ----------------------------------

     (a) Legal Compliance. Shares will not be issued pursuant to the exercise of
         ----------------
an Option unless the exercise of such Option and the issuance and delivery of
such Shares will comply with all Applicable Laws, and will be further subject to
the approval of counsel for the Company with respect to such compliance. Any
securities delivered under the Plan will
<PAGE>

be subject to such restrictions, and the person acquiring such securities will,
if requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all Applicable Laws. To the extent permitted by Applicable Laws, the Plan and
Options granted hereunder will be deemed amended to the extent necessary to
conform to such laws, rules and regulations.

     (b) Investment Representation. As a condition to the exercise of an Option,
         -------------------------
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being acquired only
for investment and without any present intention to sell, transfer, or
distribute such Shares.

18. Liability of Company.
    --------------------

     (a) Inability to Obtain Authority. If the Company cannot, by the exercise
         -----------------------------
of commercially reasonable efforts, obtain authority from any regulatory body
having jurisdiction for the sale of any Shares under this Plan, and such
authority is deemed by the Company's counsel to be necessary to the lawful
issuance of those Shares, the Company will be relieved of any liability for
failing to issue or sell those Shares.

     (b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
         --------------------------------
Option exceed, as of the date of grant, the number of Shares which may be issued
under the Plan without additional shareholder approval, that Option will be
contingent with respect to such excess Shares, unless and until shareholder
approval of an amendment sufficiently increasing the number of Shares subject to
this Plan is timely obtained in accordance with Section 16(b).

     (c) Rights of Participants and Beneficiaries. The Company will pay all
         ----------------------------------------
amounts payable under this Plan only to the Optionee, or beneficiaries entitled
thereto pursuant to this Plan. The Company will not be liable for the debts,
contracts, or engagements of any Optionee or his or her beneficiaries, and
rights to cash payments under this Plan may not be taken in execution by
attachment or garnishment, or by any other legal or equitable proceeding while
in the hands of the Company.

19. Reservation of Shares. The Company will at all times reserve and keep
    ---------------------
available for issuance a number of Shares sufficient to satisfy this Plan's
requirements during its term.

20. Shareholder Approval. Continuance of this Plan will be subject to approval
    --------------------
by the shareholders of the Company within 12 months before or after the date of
its adoption. Such shareholder approval will be obtained in the manner and to
the degree required under Applicable Laws. Options may be granted but Options
may not be exercised prior to shareholder approval of the Plan. If any Options
are so granted and shareholder approval is not obtained within 12 months of the
date of adoption of this Plan by the Board, those Options will terminate
retroactively as of the date they were granted.

21. Legending Stock Certificates. In order to enforce any restrictions imposed
    ----------------------------
upon Common Stock issued upon exercise of an Option granted under this Plan or
to which such Common Stock may be subject, the Administrator may cause a legend
or legends to be placed on any certificates representing such Common Stock,
which legend or legends will
<PAGE>

make appropriate reference to such restrictions, including, but not limited to,
a restriction against sale of such Common Stock for any period of time as may be
required by Applicable Laws. Additionally, and not by way of limitation, the
Administrator may impose such restrictions on any Common Stock issued pursuant
to the Plan as it may deem advisable.

22.  No Employment Rights. Neither this Plan nor any Option will confer upon an
     --------------------
Optionee any right with respect to continuing the Optionee's employment or
consulting relationship with the Company, or continuing service as a Director,
nor will they interfere in any way with the Optionee's right or the Company's
right to terminate such employment or consulting relationship or directorship at
any time, with or without cause.

23.  Governing Law.  The Plan will be governed by, and construed in accordance
     -------------
with the laws of the State of Delaware (without giving effect to conflicts of
law principles).