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                                                                    EXHIBIT 10.1

                          SALIX PHARMACEUTICALS, LTD.
                             1996 STOCK OPTION PLAN
                      (as amended through March 12, 2001)


     1.  Purposes of the Plan.  The purposes of this 1996 Stock Option Plan are
         --------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.  Options
granted hereunder may be either Incentive Stock Options or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement.

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

          (a)   "Administrator" shall mean the Board or any of its Committees
                 -------------
     appointed pursuant to Section 4 of the Plan.

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

          (c)  "Associate" shall mean (i)  any company of which such person or
                ---------
     company beneficially owns, directly or indirectly, voting securities
     carrying more than 10 per cent of the voting rights attached to all voting
     securities of the company for the time being outstanding, (ii) any partner
     of that person or company, (iii) any trust or estate in which such person
     or company has a substantial beneficial interest or as to which such person
     or company serves as trustee or in a similar capacity, (iv) any relative of
     that person who resides in the same home as that person, (v) any person of
     the opposite sex who resides in the same home as that person and to whom
     that person is married or with whom that person is living in a conjugal
     relationship outside marriage, or (vi) any relative of a person mentioned
     in clause (v) who has the same home as that person.

          (d)  "Board" shall mean the Board of Directors of the Company.
                -----

          (e)  "Change in Control" shall mean a change in control of a nature
                -----------------
     that would required to be reported in response to item 6(e) of Schedule 14A
     of Regulation 14A promulgated under the Exchange Act as such Schedule,
     Regulation and Act were in effect on the date of adoption of this Plan by
     the Board, assuming that such Schedule, Regulation and Act applied to the
     Company, provided that such a change in control shall be deemed to have
     occurred at such time as:

               (i)       any "person" (as that term is used in Section 13(d) and
          14(d)(2) of the Exchange Act) (other than the Company, a Subsidiary or
          an Affiliate of the Company) becomes, directly or indirectly, the
          "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
          of securities representing a 33-1/3% or more of the combined voting
          power for election of members of the Board of the then outstanding
          voting securities of the Company or any successor of the Company;

               (ii)      during any period of two consecutive years or less,
          individuals who at the beginning of such period constituted the Board
          of the Company cease, for any reason, to constitute at least a
          majority of the Board, unless the election of nomination for election
          of each new member of the Board was approved by a vote of at least
          two-thirds of the members of the Board then still in office who were
          members of the Board at the beginning of the period;

               (iii)     the equityholders of the Company approve any merger or
          consolidation to which the Company is a party as a result of which the
          persons who were equityholders of the Company immediately prior to the
          effective date of the merger or consolidation (and excluding, however,
          any shares held by any party to such merger or consolidation and their
          affiliates) shall have beneficial ownership of less than 50% of the
          combined voting power for election of members of
<PAGE>

          the Board (or equivalent) of the surviving entity following the
          effective date of such merger or consolidation; or

               (iv)      the equityholders of the Company approve any merger or
          consolidation as a result of which the equity interests in the Company
          shall be changed, converted or exchanged (other than a merger with a
          wholly-owned Subsidiary of the Company) or any liquidation of the
          Company or any sale or other disposition of all or substantially all
          of the assets of the Company.

     However, in no event shall a Change in Control be deemed to have occurred
with respect to a Optionee, if the Optionee is part of a purchasing group which
consummates the Change in Control transaction.  The Optionee shall be deemed
"part of a purchasing group" for purposes of the preceding sentence if the
Optionee is either directly or indirectly an equity participant in the
purchasing group (except for (i) passive ownership of less than 3% of the stock
of the purchasing group, or (ii) ownership of equity participation in the
purchasing group which is otherwise not significant, as determined prior to the
Change in Control by the Committee).

          (f)  "Code" shall mean the Internal Revenue Code of 1986, as amended,
                ----
     or any successor thereto.

          (g)  "Committee" shall mean any Committee appointed by the Board of
                ---------
     Directors in accordance with Section 4(a) of the Plan, if one is appointed.

          (h)  "Common Stock" shall mean the Common Stock of the Company.
                ------------

          (i)  "Company" shall mean Salix Pharmaceuticals, Ltd., a British
                -------
     Virgin Islands International Business Company.

          (j)  "Consultant" shall mean any person, including an advisor, engaged
                ----------
     by the Company or any Parent or Subsidiary to render services to such
     entity, and any director of the Company whether compensated for such
     services or not.

          (k)  "Continuous Status as an Employee or Consultant" shall mean the
                ----------------------------------------------
     absence of any interruption or termination of service as an Employee or
     Consultant.  Continuous Status as an Employee or Consultant shall not be
     considered interrupted in the case of sick leave, military leave, or any
     other leave of absence approved by the Administrator; provided that such
                                                           --------
     leave is for a period of not more than 90 days or reemployment upon the
     expiration of such leave is guaranteed by contract or statute.  For
     purposes of this Plan, a change in status from Employee to Consultant or
     from Consultant to Employee will not constitute a termination of
     employment.

          (l)  "Director" shall mean a member of the Board.
                --------

          (m)  "Employee" shall mean any person, including officers and Named
                --------
     Executives (including officers and Named Executives who are also
     directors), employed by the Company or any Parent or Subsidiary of the
     Company.  The payment of a director's fee by the Company shall not be
     sufficient to constitute "employment" by the Company.

          (n)  "Exchange Act" shall mean 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 national market system in the United States, including
          without limitation the National Market System of the National
          Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
          System, its Fair Market Value shall be the closing sales price for
          such stock (or the closing bid, if no sales were reported, as quoted
          on such exchange or system for the last market trading day prior to
          the time of determination) as reported in The Wall Street Journal or
          such other source as the Administrator deems reliable;

               (ii)      If the Common Stock is quoted on the NASDAQ System (but
          not on The National Market System thereof) or regularly quoted by a
          recognized securities dealer but selling
<PAGE>

          prices are not reported, its
          Fair Market Value shall be the mean between the high bid and low asked
          prices for the Common Stock; or

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

          (p)  "Incentive Stock Option" shall mean an Option intended to qualify
                ----------------------
     as an incentive stock option within the meaning of Section 422 of the Code.

          (q)  "Named Executive" shall mean any individual who, on the last day
                ---------------
     of the Company's fiscal year, is the chief executive officer of the Company
     (or is acting in such capacity) or among the four highest compensated
     officers of the Company (other than the chief executive officer).  Such
     officer status shall be determined pursuant to the executive compensation
     disclosure rules under the Exchange Act.

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

          (s)  "Officer" shall mean 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, or any successor thereto and (a) every
     director or senior officer of the Company, (b) every director or senior
     officer of a company that is itself an insider or subsidiary of the
     Company, (c) any person or company who beneficially owns, directly or
     indirectly, voting securities of the Company or who exercises control or
     direction over voting securities of the Company or a combination of both
     carrying more than 10% of the voting rights attached to all voting
     securities of the Company for the time being outstanding other than voting
     securities held by the person or company as underwriter in the course of a
     distribution, and (d) the Company where it has purchased, redeemed or
     otherwise acquired any of its securities, for so long as it holds any of
     its securities;

          (t)  "Option" shall mean a stock option granted pursuant to the Plan.
                ------

          (u)  "Optioned Stock" shall mean the Common Stock subject to an
                --------------
                Option.

          (v)  "Optionee" shall mean an Employee or Consultant who receives an
                --------
     Option.

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

          (x)  "Plan" shall mean this 1996 Stock Option Plan, as amended.
                ----

          (y)  "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
                ----------
     Act as the same may be amended from time to time, or any successor
     provision.

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

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

     3.   Stock Subject to the Plan.  Subject to the provisions of Section 13 of
          -------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 4,500,000.  The Shares may be authorized, but unissued, or
reacquired Common Stock.  If an Option should expire or become unexercisable for
any reason without having been exercised in full, the unpurchased Shares that
were subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.  Notwithstanding any other provision
of the Plan, shares issued under the Plan and later repurchased by the Company
shall not become available for future grant or sale under the Plan.
<PAGE>

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

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

               (i) Multiple Administrative Bodies.  The Plan may be administered
                   ------------------------------
          by different Committees with respect to different groups of Employees
          and Consultants.

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

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

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

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

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

               (ii)      to select the Employees and Consultants to whom Options
          may from time to time be granted hereunder;

               (iii)     to determine whether and to what extent Options are
          granted hereunder;

               (iv)      to determine the number of shares of Common Stock to be
          covered by each such award granted hereunder;

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

               (vi)      to determine the terms and conditions, not inconsistent
          with the terms of the Plan, of any award granted hereunder (including,
          but not limited to, the share price and any restriction or limitation,
          or any vesting acceleration or waiver of forfeiture restrictions
          regarding any Option and/or the shares of Common Stock relating
          thereto, based in each case on such factors as the Administrator shall
          determine, in its sole discretion);

               (vii)     to determine whether, to what extent and under what
          circumstances Common Stock and other amounts payable with respect to
          an award under this Plan shall 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 the Plan and
          awards granted pursuant to the Plan;

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

               (x)       to institute an option exchange program.

          (c)  Effect of Administrator's Decision. All decisions, determinations
               ----------------------------------
     and interpretations of the Administrator shall be final and binding on all
     Optionees and any other holders of any Options.
<PAGE>

     5.   Eligibility.
          -----------

          (a)       Nonstatutory Stock Options may be granted only to Employees
     and Consultants. Incentive Stock Options may be granted only to Employees.
     An Employee or Consultant who has been granted an Option may, if he or she
     is otherwise eligible, be granted an additional Option or Options.

          (b)       Each Option shall be designated in the written option
     agreement as either an Incentive Stock Option or a Nonstatutory Stock
     Option. However, notwithstanding such designations, to the extent that the
     aggregate Fair Market Value of Options that are exercisable for the first
     time by an Optionee during any calendar year (under all plans of the
     Company or any Parent or Subsidiary) exceeds $100,000, such excess Options
     shall be treated as Nonstatutory Stock Options.

          (c)       For purposes of Section 5(b), Incentive Stock Options shall
     be taken into account in the order in which they were granted, and the Fair
     Market Value of the Shares shall be determined as of the time the Option
     with respect to such Shares is granted.

          (d)       The Plan shall not confer upon any Optionee any right with
     respect to continuation of employment or consulting relationship with the
     Company, nor shall it interfere in any way with his or her right or the
     Company's right to terminate his or her employment or consulting
     relationship at any time, with or without cause.

          (e)       The terms of any Option shall comply with Applicable Laws.

     6.  Term of Plan.   The Plan shall become effective upon the earlier to
         ------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company.  It shall continue in effect for a term of ten (10)
years, unless sooner terminated under Section 15 of the Plan.

     7.  Term of Option. The term of each Option shall be the term stated in
         --------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
                      --------  -------
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.

     8.  Option Exercise Price and Consideration.
         ---------------------------------------

          (a)  The per Share exercise price for the Shares to be issued
     pursuant to exercise of an Option shall be such price as is determined by
     the Administrator, but shall be subject to the following:

               (i)  In the case of an Incentive Stock Option

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

                    (B)  granted to any Employee, the per Share exercise price
               shall be no less than 100% of the Fair Market Value per Share on
               the date of grant.

               (ii) In the case of a Nonstatutory Stock Option granted to a
          person who, at the time of the grant of such Option, is a Named
          Executive of the Company, the per share Exercise Price shall be no
          less than 100% of the Fair Market Value on the date of grant;

          (b) The consideration to be paid for the Shares to be issued upon
     exercise of an Option, including the method of payment, shall be determined
     by the Administrator (and, in the case of an Incentive Stock Option, shall
     be determined at the time of grant) and may consist entirely of (1) cash,
     (2) check, (3) other Shares that (x) in the case of Shares acquired upon
     exercise of an Option either have been owned by the Optionee for more than
     six months on the date of surrender or were not acquired, directly or
     indirectly, from the Company, and (y) have a Fair Market Value on the date
     of surrender equal to the aggregate
<PAGE>

     exercise price of the Shares as to which said Option shall be exercised,
     (4) authorization from the Company to retain from the total number of
     Shares as to which the Option is exercised that number of Shares having a
     Fair Market Value on the date of exercise equal to the exercise price for
     the total number of Shares as to which the Option is exercised, (5)
     delivery of a properly executed exercise notice together with irrevocable
     instructions to a broker to deliver promptly to the Company the amount of
     sale or loan proceeds required to pay the exercise price, (6) any
     combination of the foregoing methods of payment, or (7) such other
     consideration and method of payment for the issuance of Shares to the
     extent permitted under Applicable Laws. No Optionee shall receive financial
     assistance from the Company in connection with the exercise of any Option
     and the purchase price of the Common Stock issuable pursuant to any Option
     shall be paid in full prior to the issuance of such Common Stock. In making
     its determination as to the type of consideration to accept, the
     Administrator shall consider if acceptance of such consideration may be
     reasonably expected to benefit the Company.

     9.   Exercise of Option.
          ------------------

          (a)  Procedure for Exercise; Rights as a Stockholder.  Any Option
               -----------------------------------------------
     granted hereunder shall be exercisable at such times and under such
     conditions as determined by the Administrator, including performance
     criteria with respect to the Company and/or the Optionee, and as shall be
     permissible under the terms of the Plan.

          An Option may not be exercised for a fraction of a Share.

          An Option shall be deemed to be exercised when written notice of such
     exercise has been given to the Company in accordance with the terms of the
     Option by the person entitled to exercise the Option and full payment for
     the Shares with respect to which the Option is exercised has been received
     by the Company. Full payment may, as authorized by the Administrator,
     consist of any consideration and method of payment allowable under Section
     8(b) of the Plan.  Until the issuance (as evidenced by the appropriate
     entry on the books of the Company or of a duly authorized transfer agent of
     the Company) of the stock certificate evidencing such Shares, no right to
     vote or receive dividends or any other rights as a stockholder shall exist
     with respect to the Optioned Stock, notwithstanding the exercise of the
     Option.  The Company shall issue (or cause to be issued) such stock
     certificate promptly upon exercise of the Option.  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 13
     of the Plan.

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

          (b)  Termination of Status as an Employee or Consultant.  In the event
               ---------------------------------------------------
     of termination of an Optionee's Continuous Status as an Employee or
     Consultant, such Optionee may, but only within thirty (30) days (or such
     other period of time, not exceeding three (3) months in the case of an
     Incentive Stock Option or six (6) months in the case of a Nonstatutory
     Stock Option, as is determined by the Administrator, with such
     determination in the case of an Incentive Stock Option being made at the
     time of grant of the Option) after the date of such termination (but in no
     event later than the date of expiration of the term of such Option as set
     forth in the Option Agreement), exercise his or her Option to the extent
     that he or she was entitled to exercise it at the date of such termination.
     To the extent that the Optionee was not entitled to exercise the Option at
     the date of such termination, or if the optionee does not exercise such
     Option (which he or she was entitled to exercise) within the time specified
     herein, the Option shall terminate.

          (c)  Disability of Optionee. Notwithstanding the provisions of Section
               ----------------------
     9(b) above, in the event of termination of an Optionee's Continuous Status
     as an Employee or Consultant as a result of his or her disability, he or
     she may, but only within twelve (12) months (or such other period of time
     not exceeding twelve (12) months as is determined by the Administrator,
     with such determination in the case of an Incentive Stock Option being made
     at the time of grant of the Option) from the date of such termination (but
     in no event later than the date of expiration of the term of such Option as
     set forth in the Option Agreement), exercise his or her Option to the
     extent he or she was entitled to exercise it at the date of such
     termination. To the extent that he or she was not entitled to exercise the
     Option at the date of termination, or if he does not exercise such Option
     (which he was entitled to exercise) within the time specified herein, the
     Option shall terminate.
<PAGE>

          (d)  Death of Optionee.   In the event of the death of an Optionee:
               -----------------

               (i)       during the term of the Option who is at the time of his
          death an Employee or Consultant of the Company and who shall have been
          in Continuous Status as an Employee or Consultant since the date of
          grant of the Option, the Option may be exercised, at any time within
          six (6) months (or such other period of time, not exceeding six (6)
          months, as is determined by the Administrator, with such determination
          in the case of an Incentive Stock Option being made at the time of
          grant of the Option) following the date of death (but in no event
          later than the date of expiration of the term of such Option as set
          forth in the Option Agreement), by the Optionee's estate or by a
          person who acquired the right to exercise the Option by bequest or
          inheritance but only to the extent of the right to exercise that would
          have accrued had the Optionee continued living and remained in
          Continuous Status as an Employee or Consultant three (3) months (or
          such other period of time as is determined by the Administrator as
          provided above) after the date of death, subject to the limitation set
          forth in Section 5(b); or

               (ii)      within thirty (30) days (or such other period of time
          not exceeding three (3) months as is determined by the Administrator,
          with such determination in the case of an Incentive Stock Option being
          made at the time of grant of the Option) after the termination of
          Continuous Status as an Employee or Consultant, the Option may be
          exercised, at any time within twelve (12) months following the date of
          death (but in no event later than the date of expiration of the term
          of such Option as set forth in the Option Agreement), by the
          Optionee's estate or by a person who acquired the right to exercise
          the Option by bequest or inheritance, but only to the extent of the
          right to exercise that had accrued at the date of termination.

     10.  Withholding Taxes.  As a condition to the exercise of Options granted
          -----------------
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option.  The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.

     11.  Satisfaction of Withholding Tax Obligations.  At the discretion of the
          -------------------------------------------
Administrator, Optionees may satisfy withholding obligations as provided in this
paragraph.  When an Optionee incurs tax liability in connection with an Option
which tax liability is subject to tax withholding under applicable tax laws, and
the Optionee is obligated to pay the Company an amount required to be withheld
under applicable tax laws, the Optionee may satisfy the withholding tax
obligation by one or some combination of the following methods: (a) by cash
payment, or (b) out of Optionee's current compensation, (c) if permitted by the
Administrator, in its discretion, by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Optionee for more than six (6) months on the date of surrender, and (ii)
have a Fair Market Value on the date of surrender equal to or less than
Optionee's marginal tax rate times the ordinary income recognized, or (d) by
electing to have the Company withhold from the Shares to be issued upon exercise
of the Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld.  For this purpose, the Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined (the "Tax Date").

     All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator.

     12.  Non-Transferability of Options.   Unless determined otherwise by the
          ------------------------------
Administrator, 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.  If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

     13.  Adjustments Upon Changes in Capitalization or Merger.
          -----------------------------------------------------

          (a)       Changes in Capitalization. Subject to any required action by
                    -------------------------
     the stockholders of the Company, the number of shares of Common Stock
     covered by each outstanding Option, the number of shares of Common Stock
     that have been authorized for issuance under the Plan but as to which no
     Options have yet been granted or which have been returned to the Plan upon
     cancellation or expiration of an Option, and the price per share of Common
     Stock covered by each such outstanding Option, shall be proportionately
     adjusted for any increase or decrease in the number of issued shares of
     Common Stock
<PAGE>

     resulting from a stock split, reverse stock split, stock dividend,
     combination or reclassification of the Common Stock, or any other
     increase or decrease in the number of issued shares of Common Stock
     effected without receipt of consideration by the Company; provided,
                                                               --------
     however, that conversion of any convertible securities of the Company shall
     -------
     not be deemed to have been "effected without receipt of consideration."
     Such adjustment shall be made by the Administrator, whose determination in
     that respect shall be final, binding and conclusive. Except as expressly
     provided herein, no issuance by the Company of shares of stock of any
     class, or securities convertible into shares of stock of any class, shall
     affect, and no adjustment by reason thereof shall be made with respect to,
     the number or price of shares of Common Stock subject to an Option.

          (b)       Dissolution or Liquidation.  In the event of the proposed
                    --------------------------
     dissolution or liquidation of the Company, the Board shall notify the
     Optionee as soon as practicable prior to the effective date of such
     proposed action.  To the extent it has not been previously exercised, the
     Option will terminate immediately prior to the consummation of such
     proposed action.

          (c)       Acceleration upon Change in Control. In the event of a
                    -----------------------------------
     Change in Control of the Company, all outstanding options granted under the
     Plan shall become vested and immediately and fully exercisable, and may
     either (i) be assumed or an equivalent option or right shall be substituted
     by such successor corporation or a parent or subsidiary of such successor
     corporation or (ii) terminate ten (10) days after the Administrator shall
     notify the Optionee of such vesting and termination. For the purposes of
     this paragraph, the Option shall be considered assumed if, following the
     merger or sale of assets, the option confers the right to purchase or
     receive, for each Share of Optioned Stock subject to the Option immediately
     prior to the merger or sale of assets, the consideration (whether stock,
     cash, or other securities or property) received in the merger or sale of
     assets by holders of Common Stock for each Share held on the effective date
     of the transaction (and if holders were offered a choice of consideration,
     the type of consideration chosen by the holders of a majority of the
     outstanding Shares); provided, however, that if such consideration received
     in the merger or sale of assets is not solely common stock of the successor
     corporation or its Parent, the Administrator may, with the consent of the
     successor corporation, provide for the consideration to be received upon
     the exercise of the Option, for each Share of Optioned Stock subject to the
     Option, to be solely common stock of the successor corporation or its
     Parent equal in fair market value to the per share consideration received
     by holders of Common Stock in the merger or sale of assets.

          (d)       Certain Distributions. In the event of any distribution to
                    ---------------------
     the Company's shareholders of securities of any other entity or other
     assets (other than dividends payable in cash or stock of the Company)
     without receipt of consideration by the Company, the Administrator may, in
     its discretion, appropriately adjust the price per share of Common Stock
     covered by each outstanding Option to reflect the effect of such
     distribution.

     14.  Time of Granting Options.  The date of grant of an Option shall, for
          ------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.

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

          (a)       Amendment and Termination. The Board may amend or terminate
                    -------------------------
     the Plan from time to time in such respects as the Board may deem
     advisable.

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

          (c)       Effect of Amendment or Termination.  Any such amendment or
                    ----------------------------------
     termination of the Plan shall not affect Options already granted and such
     Options shall remain in full force and effect as if this Plan had not been
     amended or terminated, unless mutually agreed otherwise between the
     Optionee and the Board, which agreement must be in writing and signed by
     the Optionee and the Company.

     16.  Conditions Upon Issuance of Shares.  Shares shall not be issued
          ----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
<PAGE>

     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 purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.

     17.       Reservation of Shares. The Company, during the term of this Plan,
               ---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.

     18.       Option Agreement.   Options shall be evidenced by written option
               ----------------
agreements in such form as the Board shall approve.