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                                                                     EXHIBIT 4.2

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         2000 EQUITY COMPENSATION PLAN
                         -----------------------------


     The purpose of the 3-Dimensional Pharmaceuticals, Inc. 2000 Equity
Compensation Plan (the "Plan") is to provide (i) designated employees of 3-
Dimensional Pharmaceuticals, Inc. (the "Company") and its subsidiaries, (ii)
certain consultants and advisors who perform services for the Company or its
subsidiaries (including without limitation members of the Company's Scientific
Advisory Board) and (iii) non-employee members of the Board of Directors of the
Company (the "Board") with the opportunity to receive grants of incentive stock
options, nonqualified stock options, stock awards and performance units. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
stockholders, and will align the economic interests of the participants with
those of the stockholders.

     1.   Administration
          --------------

     (a)  Committee. The Plan shall be administered by a committee appointed by
          ---------
the Board (the "Committee"), which may consist of two or more persons who are
"outside directors" as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and related Treasury regulations and "non-
employee directors" as defined under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). However, the Board may ratify or
approve any grants as it deems appropriate.

     (b)  Committee Authority. The Committee shall have the sole authority to
          -------------------
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, (iv) amend
the terms of any previously issued grant, and (v) deal with any other matters
arising under the Plan.

     (c)  Committee Determinations. The Committee shall have full power and
          ------------------------
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
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     2.   Grants
          ------

     Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 "Nonqualified Stock Options") (Incentive Stock Options
and Nonqualified Stock Options are collectively referred to as "Options"), stock
awards as described in Section 6 ("Stock Awards"), and performance units as
described in Section 7 ("Performance Units") (hereinafter collectively referred
to as "Grants"). All Grants shall be subject to the terms and conditions set
forth herein and to such other terms and conditions consistent with this Plan as
the Committee deems appropriate and as are specified in writing by the Committee
to the individual in a grant instrument or an amendment to the grant instrument
(the "Grant Instrument"). The Committee shall approve the form and provisions of
each Grant Instrument. Grants under a particular Section of the Plan need not be
uniform as among the grantees.

     3.   Shares Subject to the Plan
          --------------------------

     (a)  Shares Authorized. Subject to adjustment as described below, the
          -----------------
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 6,000,000 shares. The maximum
aggregate number of shares of Company Stock that shall be subject to Grants made
under the Plan to any individual during any calendar year shall be 2,000,000
shares, subject to adjustment as described below. The shares may be authorized
but unissued shares of Company Stock or reacquired shares of Company Stock,
including shares purchased by the Company on the open market for purposes of the
Plan. If and to the extent Options granted under the Plan terminate, expire, or
are canceled, forfeited, exchanged or surrendered without having been exercised
or if any Stock Awards or Performance Units are forfeited, the shares subject to
such Grants shall again be available for purposes of the Plan.

     (b)  Adjustments. If there is any change in the number or kind of shares of
          -----------
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants may
be appropriately adjusted by the Committee to reflect any increase or decrease
in the number of, or change in the kind or value of, issued shares of Company
Stock to preclude, to the extent practicable, the enlargement or dilution of
rights and benefits under such Grants; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated. Any adjustments
determined by the Committee shall be final, binding and conclusive.

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     4.  Eligibility for Participation
         -----------------------------

     (a)  Eligible Persons. All employees of the Company and its subsidiaries
          ----------------
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Consultants and advisors who perform
services for the Company or any of its subsidiaries, including without
limitation members of the Company's Scientific Advisory Board ("Key Advisors"),
shall be eligible to participate in the Plan if the Key Advisors render bona
fide services to the Company or its subsidiaries, the services are not in
connection with the offer and sale of securities in a capital-raising
transaction and the Key Advisors do not directly or indirectly promote or
maintain a market for the Company's securities.

     (b)  Selection of Grantees. The Committee shall select the Employees, Non-
          ---------------------
Employee Directors and Key Advisors to receive Grants and shall determine the
number of shares of Company Stock subject to a particular Grant in such manner
as the Committee determines. Employees, Key Advisors and Non-Employee Directors
who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".

     5.   Granting of Options
          -------------------

     (a)  Number of Shares. The Committee shall determine the number of shares
          ----------------
of Company Stock that will be subject to each Grant of Options to Employees,
Non-Employee Directors and Key Advisors.

     (b)  Type of Option and Price.
          ------------------------

          (i)    The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.

          (ii)   The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal to or
greater than the Fair Market Value (as defined below) of a share of Company
Stock on the date the Option is granted; provided, however, that an Incentive
Stock Option may not be granted to an Employee who, at the time of grant, owns
stock possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company,
unless the Exercise Price per share is not less than 110% of the Fair Market
Value of Company Stock on the date of grant.

          (iii)  If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal trading
market for the Company Stock is

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a national securities exchange or the Nasdaq National Market, the last reported
sale price thereof on the relevant date or (if there were no trades on that
date) the latest preceding date upon which a sale was reported, or (y) if the
Company Stock is not principally traded on such exchange or market, the mean
between the last reported "bid" and "asked" prices of Company Stock on the
relevant date, as reported on Nasdaq or, if not so reported, as reported by the
National Daily Quotation Bureau, Inc. or as reported in a customary financial
reporting service, as applicable and as the Committee determines. If the Company
Stock is not publicly traded or, if publicly traded, is not subject to reported
transactions or "bid" or "asked" quotations as set forth above, the Fair Market
Value per share shall be as determined by the Committee.

     (c)  Option Term. The Committee shall determine the term of each Option.
          -----------
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.

     (d)  Exercisability of Options. Options shall become exercisable in
          -------------------------
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The Committee
may accelerate the exercisability of any or all outstanding Options at any time
for any reason.

     (e)  Grants to Non-Exempt Employees. Notwithstanding the foregoing, Options
          ------------------------------
granted to persons who are non-exempt employees under the Fair Labor Standards
Act of 1938, as amended, shall have an Exercise Price not less than 85% of the
Fair Market Value of the Company Stock on the date of grant, and may not be
exercisable for at least six months after the date of grant (except that such
Options may become exercisable, as determined by the Committee, upon the
Grantee's death, Disability or retirement, or upon a change of control or other
circumstances permitted by applicable regulations).

     (f)  Termination of Employment, Disability or Death.
          ----------------------------------------------

          (i)  Except as provided below, an Option may only be exercised while
the Grantee is employed by, or providing service to, the Company as an Employee,
Key Advisor or member of the Board. In the event that a Grantee ceases to be
employed by, or provide service to, the Company for any reason other than
Disability, death, or termination for Cause (as defined below), any Option which
is otherwise exercisable by the Grantee shall terminate unless exercised within
90 days after the date on which the Grantee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Except as otherwise provided by the Committee, any of the Grantee's
Options that are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by, or provide service to, the Company shall terminate as
of such date.

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          (ii)   In the event the Grantee ceases to be employed by, or provide
service to, the Company on account of a termination for Cause by the Company,
any Option held by the Grantee shall terminate as of the date the Grantee ceases
to be employed by, or provide service to, the Company. In addition,
notwithstanding any other provisions of this Section 5, if the Committee
determines that the Grantee has engaged in conduct that constitutes Cause at any
time while the Grantee is employed by, or providing service to, the Company or
after the Grantee's termination of employment or service, any Option held by the
Grantee shall immediately terminate and the Grantee shall automatically forfeit
all shares underlying any exercised portion of an Option for which the Company
has not yet delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares. Upon any exercise of an
Option, the Company may withhold delivery of share certificates pending
resolution of an inquiry that could lead to a finding resulting in a forfeiture.

          (iii)  In the event the Grantee ceases to be employed by, or provide
service to, the Company because the Grantee is Disabled, any Option which is
otherwise exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by, or provide
service to, the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Except as otherwise provided by the Committee, any of the Grantee's
Options which are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by, or provide service to, the Company shall terminate as
of such date.

          (iv)  If the Grantee dies while employed by, or providing service to,
the Company or within 90 days after the date on which the Grantee ceases to be
employed or provide service on account of a termination specified in Section
5(e)(i) above (or within such other period of time as may be specified by the
Committee), any Option that is otherwise exercisable by the Grantee shall
terminate unless exercised within one year after the date on which the Grantee
ceases to be employed by, or provide service to, the Company (or within such
other period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Except as otherwise
provided by the Committee, any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by, or
provide service to, the Company shall terminate as of such date.

          (v)    For purposes of this Section 5(e), and Sections 6 and 7:

          (A)    The term "Company" shall mean the Company and its parent and
  subsidiary corporations or other entities, as determined by the Committee.

          (B)    "Employed by, or provide service to, the Company" shall mean
  employment or service as an Employee, Key Advisor or member of the Board
  (so that, for purposes of exercising Options and satisfying conditions with
  respect to Stock Awards and Performance Units, a Grantee shall not be
  considered to have terminated employment or service until the Grantee
  ceases to be an Employee, Key Advisor and member of the Board), unless the
  Committee determines otherwise.

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          (C)  "Disability" shall mean a Grantee's becoming disabled within the
  meaning of section 22(e)(3) of the Code or the Grantee becomes entitled to
  receive long-term disability benefits under the Company's long-term
  disability plan.

          (D)  "Cause" shall mean, except to the extent specified otherwise by
  the Committee, a finding by the Committee that the Grantee (i) has breached
  his or her employment or service contract with the Company, (ii) has
  engaged in disloyalty to the Company, including, without limitation, fraud,
  embezzlement, theft, commission of a felony or proven dishonesty in the
  course of his or her employment or service, (iii) has disclosed trade
  secrets or confidential information of the Company to persons not entitled
  to receive such information, (iv) has breached a written non-competition,
  non-solicitation or confidentiality agreement between the Company and the
  Grantee, or (v) has engaged in such other behavior detrimental to the
  interests of the Company as the Committee determines.

     (e)  Exercise of Options. A Grantee may exercise an Option that has become
          -------------------
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (w) in cash, (x) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or by attestation (on a form prescribed by the Committee) to ownership of shares
of Company Stock having a Fair Market Value on the date of exercise equal to the
Exercise Price, (y) payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board, or (z) by such other
method as the Committee may approve. The Committee may authorize loans by the
Company to Grantees in connection with the exercise of an Option, upon such
terms and conditions as the Committee, in its sole discretion, deems
appropriate. Shares of Company Stock used to exercise an Option shall have been
held by the Grantee for the requisite period of time to avoid adverse accounting
consequences to the Company with respect to the Option. The Grantee shall pay
the Exercise Price and the amount of any withholding tax due at the time of
exercise.

     (f)  Limits on Incentive Stock Options. Each Incentive Stock Option shall
          ---------------------------------
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the Option, as to the excess, shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
section 424(f) of the Code).

     6.   Stock Awards
          ------------

     The Committee may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Stock Award, upon such terms as the
Committee deems appropriate. The following provisions are applicable to Stock
Awards:

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     (a)  General Requirements. Shares of Company Stock issued or transferred
          --------------------
pursuant to Stock Awards may be issued or transferred for consideration or for
no consideration, and subject to restrictions or no restrictions, as determined
by the Committee. The Committee may, but shall not be required to, establish
conditions under which restrictions on Stock Awards shall lapse over a period of
time or according to such other criteria as the Committee deems appropriate,
including, without limitation, restrictions based upon the achievement of
specific performance goals. The period of time during which the Stock Awards
will remain subject to restrictions will be designated in the Grant Instrument
as the "Restriction Period."

     (b)  Number of Shares. The Committee shall determine the number of shares
          ----------------
of Company Stock to be issued or transferred pursuant to a Stock Award and the
restrictions applicable to such shares.

     (c)  Requirement of Employment or Service. If the Grantee ceases to be
          ------------------------------------
employed by, or provide service to, the Company (as defined in Section 5(f))
during a period designated in the Grant Instrument as the Restriction Period, or
if other specified conditions are not met, the Stock Award shall terminate as to
all shares covered by the Grant as to which the restrictions have not lapsed,
and those shares of Company Stock must be immediately returned to the Company.
The Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.

     (d)  Restrictions on Transfer and Legend on Stock Certificate. During the
          --------------------------------------------------------
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of a Stock Award except to a Successor Grantee
under Section 11(a). Each certificate for a share of a Stock Award shall contain
a legend giving appropriate notice of the restrictions in the Grant. The Grantee
shall be entitled to have the legend removed from the stock certificate covering
the shares subject to restrictions when all restrictions on such shares have
lapsed. The Committee may determine that the Company will not issue certificates
for Stock Awards until all restrictions on such shares have lapsed, or that the
Company will retain possession of certificates for shares of Stock Awards until
all restrictions on such shares have lapsed.

     (e)  Right to Vote and to Receive Dividends. Unless the Committee
          --------------------------------------
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Stock Awards and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee, including, without limitation, the achievement of
specific performance goals.

     (f)  Lapse of Restrictions. All restrictions imposed on Stock Awards shall
          ---------------------
lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Stock Awards, that the restrictions shall lapse
without regard to any Restriction Period.

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     7.   Performance Units
          -----------------

     (a)  General Requirements. The Committee may grant performance units
          --------------------
("Performance Units") to an Employee, Non-Employee Director or Key Advisor. Each
Performance Unit shall represent the right of the Grantee to receive an amount
based on the value of the Performance Unit, if performance goals established by
the Committee are met. The value of a Performance Unit shall equal the Fair
Market Value of a share of Company Stock. The Committee shall determine the
number of Performance Units to be granted and the requirements applicable to
such Units.

     (b)  Performance Period and Performance Goals. When Performance Units are
          ----------------------------------------
granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.

     (c)  Payment with respect to Performance Units. At the end of each
          -----------------------------------------
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met, the value of the
Performance Units (if applicable), and the amount, if any, to be paid with
respect to the Performance Units. Payments with respect to Performance Units
shall be made partly in cash, in Company Stock, or in a combination of the two,
as determined by the Committee, provided that the cash portion does not exceed
50% of the amount to be distributed.

     (d)  Requirement of Employment or Service. If the Grantee ceases to be
          ------------------------------------
employed by, or provide service to, the Company (as defined in Section 5(f))
during a Performance Period, or if other conditions established by the Committee
are not met, the Grantee's Performance Units shall be forfeited. The Committee
may, however, provide for complete or partial exceptions to this requirement as
it deems appropriate.

     8.   Qualified Performance-Based Compensation.
          ----------------------------------------

     (a)  Designation as Qualified Performance-Based Compensation. The committee
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may determine that Performance Units or Stock Awards granted to an Employee
shall be considered "qualified performance-based compensation" under Section
162(m) of the Code. The provisions of this Section 8 shall apply to Grants of
Performance Units and Stock Awards that are to be considered "qualified
performance-based compensation" under section 162(m) of the Code.

     (b)  Performance Goals. When Performance Units or Stock Awards that are to
          -----------------
be considered "qualified performance-based compensation" are granted, the
Committee shall establish in writing (i) the objective performance goals that
must be met, (ii) the Performance Period during which the performance goals must
be met, (iii) the threshold, target and maximum

                                      -8-
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amounts that may be paid if the performance goals are met, and (iv) any other
conditions that the Committee deems appropriate and consistent with the Plan and
section 162(m) of the Code. The performance goals may relate to the Employee's
business unit or the performance of the Company and its subsidiaries as a whole,
or any combination of the foregoing. The Committee shall use objectively
determinable performance goals based on one or more of the following criteria:
stock price, earnings per share, net earnings, operating earnings, return on
assets, stockholder return, return on equity, growth in assets, unit volume,
sales, market share, scientific goals, pre-clinical or clinical goals,
regulatory approvals, or strategic business criteria consisting of one or more
objectives based on meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets, goals relating to
acquisitions or divestitures, or strategic partnerships.

     (c)  Establishment of Goals. The Committee shall establish the performance
          ----------------------
goals in writing either before the beginning of the Performance Period or during
a period ending no later than the earlier of (i) 90 days after the beginning of
the Performance Period or (ii) the date on which 25% of the Performance Period
has been completed, or such other date as may be required or permitted under
applicable regulations under section 162(m) of the Code. The performance goals
shall satisfy the requirements for "qualified performance-based compensation,"
including the requirement that the achievement of the goals be substantially
uncertain at the time they are established and that the goals be established in
such a way that a third party with knowledge of the relevant facts could
determine whether and to what extent the performance goals have been met. The
Committee shall not have discretion to increase the amount of compensation that
is payable upon achievement of the designated performance goals.

     (d)  Maximum Payment. Performance Units and Stock Awards under this
          ---------------
Section 8 may be granted to an Employee with respect to not more than 2,000,000
shares of Company Stock for any year in a Performance Period.

     (e)  Announcement of Grants. The Committee shall certify and announce the
          ----------------------
results for each Performance Period to all Grantees immediately following the
announcement of the Company's financial results for the Performance Period. If
and to the extent that the Committee does not certify that the performance goals
have been met, the grants of Stock Awards or Performance Units for the
Performance Period shall be forfeited or shall not be made, as applicable.

     (f)  Death, Disability or Other Circumstances. The Committee may provide
          ----------------------------------------
that Performance Units or Stock Awards shall be payable or restrictions shall
lapse, in whole or in part, in the event of the Grantee's death or Disability
(as defined in Section 5(f) above) during the Performance Period, or under other
circumstances consistent with the regulations and rulings under section 162(m).

     9.   Deferrals
          ---------

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<PAGE>

     The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of shares that would otherwise be due to such
Grantee in connection with any Option, the lapse or waiver of restrictions
applicable to Stock Awards, or the satisfaction of any requirements or
objectives with respect to Performance Units. If any such deferral election is
permitted or required, the Committee shall, in its sole discretion, establish
rules and procedures for such deferrals.

     10.  Withholding of Taxes
          --------------------

     (a)  Required Withholding. All Grants under the Plan shall be subject to
          --------------------
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options, Stock Awards and other Grants paid in Company Stock, the Company may
require that the Grantee or other person receiving or exercising Grants pay to
the Company the amount of any federal, state or local taxes that the Company is
required to withhold with respect to such Grants, or the Company may deduct from
other wages paid by the Company the amount of any withholding taxes due with
respect to such Grants.

     (b)  Election to Withhold Shares. If the Committee so permits, a Grantee
          ---------------------------
may elect to satisfy the Company's income tax withholding obligation with
respect to Options, Stock Awards or Performance Units paid in Company Stock by
having shares withheld up to an amount that does not exceed the Grantee's
minimum applicable withholding tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and may be subject to the prior approval of the Committee.

     11.  Transferability of Grants
          -------------------------

     (a)  Nontransferability of Grants. Except as provided below, only the
          ----------------------------
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Nonqualified Stock Options, if permitted in
any specific case by the Committee pursuant to a domestic relations order. When
a Grantee dies, the personal representative or other person entitled to succeed
to the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.

     (b)  Transfer of Nonqualified Stock Options. Notwithstanding the foregoing,
the Committee may provide, in a Grant Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members, or one or more trusts or other
entities for the benefit of or owned by family members, consistent with the
applicable securities laws, according to such terms as the Committee may
determine; provided that the Grantee receives no consideration for the transfer
of

                                      -10-
<PAGE>

an Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before the
transfer.

     12.  Corporate Events
          ----------------

     (a)  Sale or Exchange of Assets, Dissolution or Liquidation, or Merger or
          --------------------------------------------------------------------
Consolidation Where the Company Does Not Survive. If all or substantially all of
------------------------------------------------
the assets of the Company are to be sold or exchanged, the Company is to be
dissolved or liquidated, or the Company is a party to a merger or consolidation
with another corporation in which the Company will not be the surviving
corporation, then, at least ten days prior to the effective date of such event,
the Company shall give each Grantee with any outstanding Grants written notice
of such event. Unless the Committee provides otherwise in the Grant Instrument,
(i) each such Grantee shall thereupon have the right to exercise in full any
installments of outstanding Options not previously exercised (whether or not the
right to exercise such installments has accrued pursuant to such Options),
within ten days after such written notice is sent by the Company, and any
installments of such Options not so exercised shall thereafter lapse and be of
no further force or effect, (ii) restrictions and conditions on outstanding
Stock Awards shall immediately lapse and (iii) payment shall be made in
settlement of outstanding Performance Units in an amount determined by the
Committee.

     (b)  Merger or Consolidation Where the Company Survives. If the Company is
          --------------------------------------------------
a party to a merger or consolidation in which the Company will be the surviving
corporation, then the Committee may, in its sole discretion, elect to give each
Grantee with any outstanding Grants written notice of such event. If such notice
is given, unless the Committee provides otherwise in the Grant Instrument, (i)
each such Grantee shall thereupon have the right to exercise in full any
installments of outstanding Options not previously exercised (whether or not the
right to exercise such installments has accrued pursuant to such Options),
within ten days after such written notice is sent by the Company, and any
installments of Options not so exercised shall thereafter lapse and be of no
further force or effect, (ii) restrictions and conditions on outstanding Stock
Awards shall immediately lapse and (iii) payment shall be made in settlement of
outstanding Performance Units in an amount determined by the Committee.

     (c)  Committee Discretion. Notwithstanding the foregoing, (i) the Committee
          --------------------
may provide in a Grant Instrument specific provisions that are applicable to a
Grant in the event of a corporate transaction, and (ii) the Committee may
accelerate the exercisability or vesting of Grants in the event of any corporate
transaction, allow the assumption or substitution of Grants by a surviving
corporation and the continuation of such assumed or substituted Grants, or take
other actions with respect to outstanding Grants, as the Committee deems
appropriate.

     13.  Requirements for Issuance or Transfer of Shares
          -----------------------------------------------

     (a)  Limitations on Issuance or Transfer of Shares. No Company Stock shall
          ---------------------------------------------
be issued or transferred in connection with any Grant hereunder unless and until
all legal requirements applicable to the issuance or transfer of such Company
Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made

                                      -11-
<PAGE>

to any Grantee hereunder on such Grantee's undertaking in writing to comply with
such restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.

     (b)  Lock-Up Period. If so requested by the Company or any representative
          --------------
of the underwriters (the "Managing Underwriter") in connection with any
underwritten offering of securities of the Company under the Securities Act of
1933, as amended (the "Securities Act"), a Grantee (including any successors or
assigns) shall not sell or otherwise transfer any shares or other securities of
the Company during the 30-day period preceding and the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act for such underwriting (or such shorter period as may be requested
by the Managing Underwriter and agreed to by the Company) (the "Market Standoff
Period"). The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such Market
Standoff Period.

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

     (a)  Amendment. The Board may amend or terminate the Plan at any time;
          ---------
provided, however, that the Board shall not amend the Plan without stockholder
approval if (i) such approval is required in order for Incentive Stock Options
granted or to be granted under the Plan to meet the requirements of section 422
of the Code, (ii) such approval is required in order to exempt compensation
under the Plan from the deduction limit under section 162(m) of the Code, or
(iii) such approval is required by applicable stock exchange requirements.

     (b)  Stockholder Approval for "Qualified Performance-Based Compensation".
          -------------------------------------------------------------------
If Performance Units or Stock Awards are granted as "qualified performance-based
compensation" under Section 8 above, the Plan must be reapproved by the
stockholders no later than the first stockholders meeting that occurs in the
fifth year following the year in which the stockholders previously approved the
provisions of Section 8, if required by section 162(m) of the Code or the
regulations thereunder.

     (c)  Termination of Plan. The Plan shall terminate on the day immediately
          -------------------
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the stockholders.

     (d)  Termination and Amendment of Outstanding Grants. A termination or
          -----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 21(c). The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated
or amended under Section 21(c) or may be amended by agreement of the Company

                                      -12-
<PAGE>

and the Grantee consistent with the Plan.

     (e)  Governing Document. The Plan shall be the controlling document. No
          ------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.

     15.  Funding of the Plan
          -------------------

     This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Grants under this Plan. In no event shall interest be
paid or accrued on any Grant, including unpaid installments of Grants.

     16.  Rights of Participants
          ----------------------

     Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.

     17.  No Fractional Shares
          --------------------

     No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.

     18.  Headings
          --------

     Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.

     19.  Effective Date of the Plan.
          --------------------------

     Subject to approval by the Company's stockholders, the Plan shall be
effective upon an initial registration of Company Stock under Section 12(g) of
the Exchange Act, pursuant to an initial public offering of the Company Stock.

     20.  Miscellaneous
          -------------

     (a)  Grants in Connection with Corporate Transactions and Otherwise.
          --------------------------------------------------------------
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants

                                      -13-
<PAGE>

under this Plan in connection with the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business or assets of any corporation, firm
or association, including Grants to employees thereof who become Employees of
the Company, or for other proper corporate purposes, or (ii) limit the right of
the Company to grant stock options or make other awards outside of this Plan.
Without limiting the foregoing, the Committee may make a Grant to an employee of
another corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or stock awards grant made by such corporation. The terms and conditions
of the substitute grants may vary from the terms and conditions required by the
Plan and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.

     (b)  Employees Subject to Taxation Outside the United States. With respect
          -------------------------------------------------------
Grantees who are subject to taxation in countries other than the United States,
the Committee may make Grants on such terms and conditions as the Committee
deems appropriate to comply with the laws of the applicable countries, and the
Committee may create such procedures, addenda and subplans and make such
modifications as may be necessary or advisable to comply with such laws.

     (c)  Compliance with Law. The Plan, the exercise of Options and the
          -------------------
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In addition,
it is the intent of the Company that the Plan and applicable Grants under the
Plan comply with the applicable provisions of section 162(m) of the Code and
section 422 of the Code. To the extent that any legal requirement of section 16
of the Exchange Act or section 162(m) or 422 of the Code as set forth in the
Plan ceases to be required under section 16 of the Exchange Act or section
162(m) or 422 of the Code, that Plan provision shall cease to apply. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.

     (d)  Governing Law. The validity, construction, interpretation and effect
          -------------
of the Plan and Grant Instruments issued under the Plan shall be governed and
construed by and determined in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to the conflict of laws provisions thereof.

                                      -14-