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                                                                    EXHIBIT 99.1

                         SUNSTONE HOTEL INVESTORS, INC.

                            1994 STOCK INCENTIVE PLAN


                                   ARTICLE ONE
                                     GENERAL


     I.  PURPOSE OF THE PLAN

         A. This 1994 Stock Incentive Plan (the "Plan") is intended to promote
the interests of Sunstone Hotel Investors, Inc., a Maryland corporation or any
successor corporation (the "Corporation") adopting the Plan, by providing (i)
employees (including officers and directors) of the Corporation (or its parent
or subsidiary corporations) who are responsible for the management, growth and
financial success of the Corporation (or its parent or subsidiary corporations)
and (ii) consultants and other advisors (and their respective employees) who
provide valuable services to the Corporation (or its parent or subsidiary
corporations) with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation (or its parent or
subsidiary corporations).

         B. The Plan shall become effective immediately upon the execution and
final pricing of the Underwriting Agreement for the initial public offering of
the Corporation's Common Stock. The execution date of such Underwriting
Agreement is hereby designated as the Effective Date of the Plan.

     II. DEFINITIONS

         A. For purposes of the Plan, the following definitions shall be in
effect:

         BOARD: the Corporation's Board of Directors.

         CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:

         a. the direct or indirect acquisition by any person or related group of
     persons (other than the Corporation or a person that directly or indirectly
     controls, is controlled by, or is under common control with, the
     Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
     the 1934 Act) of securities possessing more than fifty percent (50%) of the
     total combined voting 
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     power of the Corporation's outstanding securities pursuant to a tender or
     exchange offer made directly to the Corporation's stockholders which the
     Board does not recommend such stockholders to accept; or

         b. a change in the composition of the Board over a period of thirty-six
     (36) consecutive months or less such that a majority of the Board members
     (rounded up to the next whole number) ceases, by reason of one or more
     contested elections for Board membership, to be comprised of individuals
     who either (i) have been Board members continuously since the beginning of
     such period or (ii) have been elected or nominated for election as Board
     members during such period by at least a majority of the Board members
     described in clause (i) who were still in office at the time such election
     or nomination was approved by the Board.

         CODE: the Internal Revenue Code of 1986, as amended.

         COMMITTEE: one or more committees of the Board, each with at least two
(2) Board members, which shall assume responsibility for the administration of
one or more functions under the Plan, either to the extent expressly provided in
the Plan or as specifically authorized by Board resolution.

         COMMON STOCK: shares of the Corporation's common stock.

         CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:

         a. a merger or consolidation in which the Corporation is not the
     surviving entity, except for a transaction the principal purpose of which
     is to change the state in which the Corporation is incorporated;

         b. the sale, transfer or other disposition of all or substantially all
     of the assets of the Corporation in complete liquidation or dissolution of
     the Corporation; or

         c. any reverse merger in which the Corporation is the surviving entity
     but in which securities possessing more than fifty percent (50%) of the
     total combined voting power of the Corporation's outstanding securities are
     transferred to a person or persons different from the persons holding those
     securities immediately prior to such merger.

         EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more parent or subsidiary corporations, subject to the
control and direction 

                                       2.
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of the employer entity not only as to the work to be performed but also as to
the manner and method of performance.

         EXERCISE DATE: the date on which the Corporation shall have received
written notice of the exercise of an option granted pursuant to the
Discretionary Option Grant Program of Article Two of the Plan.

         FAIR MARKET VALUE: the value per share of Common Stock determined in
accordance with the following provisions:

         a. For any option grants or direct stock issuances made on the
     Effective Date, the Fair Market Value shall be the price per share at which
     the Common Stock is to be sold in the initial public offering of the Common
     Stock pursuant to the Underwriting Agreement. For all other purposes, the
     Fair Market Value shall be determined in accordance with the provisions of
     subparagraphs b through d below.

         b. If the Common Stock is at the time traded on the Nasdaq National
     Market, the Fair Market Value shall be the closing selling price per share
     on the date in question, as such price is reported by the National
     Association of Securities Dealers on the Nasdaq National Market or any
     successor system. If there is no reported closing selling price for the
     Common Stock on the date in question, then the closing selling price on the
     last preceding date for which such quotation exists shall be determinative
     of Fair Market Value.

         c. If the Common Stock is at the time listed or admitted to trading on
     any national securities exchange, then the Fair Market Value shall be the
     closing selling price per share on the date in question on the securities
     exchange determined by the Plan Administrator to be the primary market for
     the Common Stock, as such price is officially quoted in the composite tape
     of transactions on such exchange. If there is no reported sale of Common
     Stock on such exchange on the date in question, then the Fair Market Value
     shall be the closing selling price on the exchange on the last preceding
     date for which such quotation exists.

         HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:

         a. the direct or indirect acquisition by any person or related group of
     persons (other than the Corporation or a person that directly or indirectly
     controls, is controlled by, or is under common control with, the
     Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
     the 1934 Act) of securities possessing more than fifty percent (50%) of the
     total combined voting

                                       3.
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     power of the Corporation's outstanding securities pursuant to a tender or
     exchange offer made directly to the Corporation's stockholders which the
     Board does not recommend such stockholders to accept, and

         b. the acceptance of more than fifty percent (50%) of the securities so
     acquired in such tender or exchange offer from holders other than the
     officers and directors of the Corporation subject to the short-swing profit
     restrictions of Section 16 of the 1934 Act.

         INCENTIVE OPTION: a stock option which satisfies the requirements of
Code Section 422.

         1934 ACT: the Securities and Exchange Act of 1934, as amended from time
to time.

         NON-STATUTORY OPTION: a stock option not intended to meet the
requirements of Code Section 422.

         OPTIONEE: any person to whom an option is granted under the
Discretionary Option Grant Program in effect under Article Two of the Plan.

         PARTICIPANT: any person who receives an award of Performance Shares
under the Performance Share Program of Article Three or a direct issuance of
Common Stock under the Stock Issuance Program of Article Four of the Plan.

         PERFORMANCE SHARE: an equity-like participating interest in the
Corporation which may be awarded to a Participant pursuant to the Performance
Share Program of Article Three of the Plan.

         PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of an
Optionee or a Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.

         PLAN ADMINISTRATOR: either the Board or a Committee of the Board to the
extent any such Committee is at the time responsible for the administration of
the Plan in accordance with Section IV of Article One.

         PRIMARY COMMITTEE: a committee of two (2) or more non-employee Board
members appointed by the Board.

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         SECTION 12(g) REGISTRATION DATE: the date on which the initial
registration of the Common Stock under Section 12(g) of the 1934 Act becomes
effective.

         SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option grant, Performance Share award, or stock issuance
agreement.

         TAKE-OVER PRICE: the greater of (a) the Fair Market Value per share of
Common Stock on the date an option to purchase such stock is surrendered to the
Corporation in connection with a Hostile Take-Over or (b) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (a) price per share.

         B. The following provisions shall be applicable in determining the
parent and subsidiary corporations of the Corporation:

             Any corporation (other than the Corporation) in an unbroken chain
     of corporations ending with the Corporation shall be considered to be a
     PARENT of the Corporation, provided each such corporation in the unbroken
     chain (other than the Corporation) owns, at the time of the determination,
     stock possessing fifty percent (50%) or more of the total combined voting
     power of all classes of stock in one of the other corporations in such
     chain.

             Each corporation (other than the Corporation) in an unbroken chain
     of corporations beginning with the Corporation shall be considered to be a
     SUBSIDIARY of the Corporation, provided each such corporation in the
     unbroken chain (other than the last corporation) owns, at the time of the
     determination, stock possessing fifty percent (50%) or more of the total
     combined voting power of all classes of stock in one of the other
     corporations in such chain.

     III. STRUCTURE OF THE PLAN

         A. Stock Programs. The Plan shall be divided into three (3) separate
components: the Discretionary Option Grant Program specified in Article Two, the
Performance Share Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may be granted options to purchase shares of Common Stock.
Under the Performance Share Program, Participants may be awarded Performance
Shares entitling them to receive a payment equal to the Fair Market Value of a
specified number of shares of Common Stock if certain pre-determined performance
goals are attained. Under the Stock Issuance Program, eligible individuals may
be issued shares 

                                       5.
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of Common Stock directly, either through the immediate purchase of such shares
at a price not less than the Fair Market Value of the shares at the time of
issuance or as a bonus tied to the performance of services or the Corporation's
attainment of financial objectives.

         B. General Provisions. Unless the context clearly indicates otherwise,
the provisions of Articles One and Five shall apply to the Discretionary Option
Grant Program, the Performance Share Program and the Stock Issuance Program and
shall accordingly govern the interests of all individuals under the Plan.

     IV. ADMINISTRATION OF THE PLAN

         A. The Plan shall be administered in accordance with the following
provisions:

             - The Primary Committee shall have sole and exclusive authority to
     administer the Plan with respect to those individuals subject to the
     short-swing profit restrictions of the Federal securities laws. No Board
     member shall be eligible to serve on the Primary Committee if such
     individual has, within the relevant period designated below, received an
     option grant, stock appreciation right, Performance Share award or stock
     issuance under this Plan or under any other stock option, stock
     appreciation, stock bonus or other stock plan of the Corporation (or any
     parent or subsidiary corporation), other than pursuant to the Corporation's
     1994 Directors Plan:

               1. for each of the initial members of the Primary Committee, the
     period commencing with the Section 12(g) Registration Date and ending with
     the date of his or her appointment to the Primary Committee, or

               2. for any successor or substitute member, the twelve (12)-month
     period immediately preceding the date of his or her appointment to the
     Primary Committee or (if shorter) the period commencing with the Section
     12(g) Registration Date and ending with the date or his or her appointment
     to the Primary Committee.

             - Administration of the Plan with respect to all other individuals
     eligible to participate in the Plan may, at the Board's discretion, be
     vested in the Primary Committee or a secondary committee of two (2) or more
     Board members appointed by the Board, or the Board may retain the power to
     administer those programs with respect to all individuals who are not
     subject to the short-swing profit restrictions of the Federal securities
     laws. The membership of any secondary committee may include Board members
     who are Employees eligible to receive option grants, stock appreciation
     rights, Performance Share awards or stock issuances under this Plan or any
     other stock option, stock appreciation, stock 

                                       6.
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     bonus or other stock plan of the Corporation (or any parent or subsidiary
     corporation).

             - Members of the Primary Committee or any secondary committee shall
     serve for such period as the Board may determine and shall be subject to
     removal by the Board at any time. The Board may also at any time reassume
     all administrative powers and authority delegated under the Plan to any
     secondary committee appointed by the Board.

         B. The Plan Administrator shall, within the scope of its administrative
authority under the Plan, have full power and discretion (subject to the express
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for the proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the provisions of each
program established under the Plan and any outstanding option grants, stock
appreciation rights, Performance Shares or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative authority under the Plan shall be final and binding
on all parties who have an interest in the Plan or any outstanding option, stock
appreciation right, Performance Share or stock issuance thereunder.

         C. Service on the Primary Committee or any secondary committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of either committee shall
be liable for any act or omission made in good faith with respect to the Plan or
any options granted, Performance Shares awarded or shares issued under the Plan.

     V.  OPTION GRANTS AND STOCK ISSUANCES

         A. The following persons shall be eligible to participate in the Plan:

             1. Officers and other Employees of the Corporation (or its parent
     or subsidiary corporations) who render services which contribute to the
     management, growth and financial success of the Corporation (or its parent
     or subsidiary corporations); and

             2. those consultants or other advisors (and their respective
     employees) who provide valuable services to the Corporation (or its parent
     or subsidiary corporations).

         B. Non-employee Board members shall not be eligible to participate in
the Plan. Such individuals shall, however, be eligible to receive automatic
option grants and direct stock issuances pursuant to the Corporation's 1994
Directors Plan.

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         C. The Plan Administrator shall have full authority to determine (i)
with respect to the grants made under the Discretionary Option Grant Program,
which eligible individuals are to be granted stock options or stock appreciation
rights, the time or times when such grants are to be made, the number of shares
to be covered by each such grant, the status of any granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option or stock appreciation right is to become exercisable and the
maximum term for which the option or stock appreciation right may remain
outstanding, (ii) with respect to awards made under the Performance Share
Program, which eligible individuals are to receive Performance Shares, the
number of Performance Shares to be awarded, the performance-related objectives
to be achieved, or the period of Service to be completed, in order for such
Performance Shares to become fully vested and the form in which payment is to be
made on the vested Performance Shares, and (iii) with respect to direct
issuances under the Stock Issuance Program, which eligible individuals are to
receive such issuances, the number of shares subject to each such issuance, the
vesting schedule (if any) to be applicable to the issued shares and the
consideration to be paid by the individual for those shares.

     VI. STOCK SUBJECT TO THE PLAN

         A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 500,000 shares, subject to adjustment from time to time in accordance
with the provisions of this Section VI.

         B. In no event shall the aggregate number of shares of Common Stock for
which any one individual participating in the Plan may be granted stock options
and separately exercisable stock appreciation rights exceed 250,000 shares in
any calendar year. In addition, the aggregate number of shares of Common Stock
for which any one individual participating in the Plan may receive Performance
Shares and direct stock issuances in any one calendar year shall not exceed
50,000 shares.

         C. Should one or more outstanding options under Article Two of this
Plan expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two), then the shares subject to the portion of each
option not so exercised shall be available for subsequent issuance under the
Plan. Should one or more Performance Shares awarded under Article Three of this
Plan terminate or expire prior to vesting, the number of shares underlying those
expired or terminated Performance Share award shall be available for subsequent
issuance under the Plan. Shares subject to any stock appreciation rights
exercised in accordance with Section V of Article Two or any vested Performance
Shares liquidated pursuant to the payout provisions of Article Three and all
stock issuances under the Plan, whether or not the shares are subsequently
repurchased by the 

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Corporation pursuant to its repurchase rights under the Plan, shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent issuance the Plan. In addition, should the exercise price of an
outstanding option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an outstanding option under Article Two or the vesting of a
direct stock issuance under Article Four, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock actually issued to
the holder of such option or stock issuance.

         D. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one individual participating in the Plan may be granted
stock options, separately exercisable stock appreciation rights, Performance
Shares and direct stock issuances in the aggregate per calendar year, (iii) the
number and/or class of securities and price per share in effect under each
option or stock appreciation right outstanding under the Discretionary Option
Grant Program and (iv) the number and/or class of securities underlying the
Performance Shares outstanding under the Performance Share Program. Such
adjustments are to be effected by the Plan Administrator in a manner which shall
preclude the enlargement or dilution of rights and benefits under the Plan, and
such adjustments shall be final, binding and conclusive.

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                                   ARTICLE TWO

                       DISCRETIONARY OPTION GRANT PROGRAM


I.   TERMS AND CONDITIONS OF OPTIONS

         Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or Non-Statutory
Options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted Non-Statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.

         A. Exercise Price.

             1. The exercise price per share shall be fixed by the Plan
Administrator but shall in no event be less than one hundred percent (100%) of
the Fair Market Value per share of Common Stock on the grant date.

             2. The exercise price shall become immediately due upon exercise of
the option and, subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the alternative
forms specified below:

                a. full payment in cash or check made payable to the
     Corporation's order;

                b. full payment in shares of Common Stock held for the requisite
     period necessary to avoid a charge to the Corporation's earnings for
     financial reporting purposes and valued at Fair Market Value on the
     Exercise Date;

                c. full payment in a combination of shares of Common Stock held
     for the requisite period necessary to avoid a charge to the Corporation's
     earnings for financial reporting purposes and valued at Fair Market Value
     on the Exercise Date and cash or check made payable to the Corporation's
     order; or

                d. to the extent the option is exercised for vested shares, full
     payment through a broker-dealer sale and remittance procedure pursuant to

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     which the option holder shall provide concurrent irrevocable written
     instructions (i) to a Corporation-designated brokerage firm to effect the
     immediate sale of the purchased shares and remit to the Corporation, out of
     the sale proceeds available on the settlement date, sufficient funds to
     cover the aggregate exercise price payable for the purchased shares plus
     all applicable Federal, state and local income and employment taxes
     required to be withheld by the Corporation in connection with such purchase
     and (ii) to the Corporation to deliver the certificates for the purchased
     shares directly to such brokerage firm in order to complete the sale
     transaction.

         Except to the extent the sale and remittance procedure is utilized in
connection with the exercise of the option, payment of the exercise price for
the purchased shares must accompany the written notice to the Corporation
evidencing the option exercise.

         B. Term and Exercise of Options. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years measured from the grant date. During
the lifetime of the Optionee, the option, together with any stock appreciation
rights pertaining to such option, shall be exercisable only by the Optionee and
shall not be assignable or transferable by the Optionee except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death.

         C. Termination of Service.

             1. The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.

                a. Should an Optionee cease Service for any reason (including
     death or Permanent Disability) while holding one or more outstanding
     options under this Article Two, then none of those options shall (except to
     the extent otherwise provided pursuant to subparagraph 3 below) remain
     exercisable for more than a thirty-six (36)-month period (or such shorter
     period determined by the Plan Administrator and set forth in the instrument
     evidencing the grant) measured from the date of such cessation of Service.

                b. Any option held by the Optionee under this Article Two and
     exercisable in whole or in part on the date of his or her death may be
     exercised by the personal representative of the Optionee's estate or by the
     person or persons to whom the option is transferred pursuant to the
     Optionee's will or in accordance with the laws of descent and distribution.
     However, the right to exercise such option shall lapse upon the earlier of
     (i) the third anniversary of the 

                                      11.
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     date of the Optionee's death (or such shorter period determined by the Plan
     Administrator and set forth in the instrument evidencing the grant) or (ii)
     the specified expiration date of the option term. Accordingly, upon the
     occurrence of the earlier event, the option shall terminate and cease to
     remain outstanding.

                c. Under no circumstances shall any such option be exercisable
     after the specified expiration date of the option term.

                d. During the applicable post-Service exercise period, the
     option may not be exercised in the aggregate for more than the number of
     shares (if any) in which the Optionee is vested at the time of his or her
     cessation of Service. Upon the expiration of the limited post-Service
     exercise period or (if earlier) upon the specified expiration date of the
     option term, each such option shall terminate and cease to remain
     outstanding with respect to any vested shares for which the option has not
     otherwise been exercised. However, each outstanding option shall
     immediately terminate and cease to remain outstanding, at the time of the
     Optionee's cessation of Service, with respect to any shares for which the
     option is not otherwise at that time exercisable or in which the Optionee
     is not otherwise vested.

                e. Should (i) the Optionee's Service be terminated for
     misconduct (including, but not limited to, any act of dishonesty, willful
     misconduct, fraud or embezzlement) or (ii) the Optionee make any
     unauthorized use or disclosure of confidential information or trade secrets
     of the Corporation or its parent or subsidiary corporations, then in any
     such event all outstanding options held by the Optionee under this Article
     Two shall immediately terminate and cease to remain outstanding.

             2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under this paragraph C., not only with respect to the number
of vested shares of Common Stock for which each such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have subsequently
vested had the Optionee continued in Service.

             3. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service or death
from the limited period in effect under subparagraph C.1. above to such greater
period of time as the Plan Administrator shall deem appropriate. In

                                      12.
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no event, however, shall such option be exercisable after the specified
expiration date of the option term.

         D. Stockholder Rights. An Optionee shall have no stockholder rights
with respect to any shares covered by the option until such individual shall
have exercised the option and paid the exercise price for the purchased shares.

         E. Repurchase Rights. The shares of Common Stock acquired upon the
exercise of any Article Two option grant may be subject to repurchase by the
Corporation in accordance with the following provisions:

            1. The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase any or all of those unvested shares at the exercise
price paid per share. The terms and conditions upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the instrument evidencing such
repurchase right.

            2. All of the Corporation's outstanding repurchase rights under this
Article Two shall automatically terminate, and all shares subject to such
terminated rights shall immediately vest in full, upon the occurrence of a
Corporate Transaction, except to the extent: (i) such repurchase right is
expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.

            3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one or
more shares purchased or purchasable by the Optionee under this Discretionary
Option Grant Program and thereby accelerate the vesting of such shares in whole
or in part at any time.

II.  INCENTIVE OPTIONS

         The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as Non-Statutory Options when issued under the Plan shall not be
subject to such terms and conditions.

         A. Dollar Limitation. The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee under this Plan (or any other option plan of the
Corporation or its parent or 

                                      13.
<PAGE>   14
subsidiary corporations) may for the first time become exercisable as Incentive
Options under the Federal tax laws during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable for the first time
in the same calendar year, the foregoing limitation on the exercisability of
such options as Incentive Options under the Federal tax laws shall be applied on
the basis of the order in which such options are granted. Should the number of
shares of Common Stock for which any Incentive Option first becomes exercisable
in any calendar year exceed the applicable One Hundred Thousand Dollar
($100,000) limitation, then that option may nevertheless be exercised in such
calendar year for the excess number of shares as a Non-Statutory Option under
the Federal tax laws.

         B. 10% Stockholder. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing ten percent (10%) or more of the total combined voting power of all
classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the grant date, and the option term shall not exceed five (5) years measured
from the grant date.

         Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

         A. In the event of any Corporate Transaction, each option which is at
the time outstanding under this Article Two shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares as fully vested shares of
Common Stock. However, an outstanding option under this Article Two shall NOT so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof, (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.

                                      14.
<PAGE>   15
         B. Immediately following the consummation of the Corporate Transaction,
all outstanding options under this Article Two shall terminate and cease to
remain outstanding, except to the extent assumed by the successor corporation or
its parent corporation.

         C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply and pertain to the number
and class of securities which would have been issued to the option holder in
consummation of such Corporate Transaction, had such person exercised the option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the exercise price payable per share, provided the aggregate
exercise price payable for such securities shall remain the same. In addition,
the class and number of securities available for issuance under the Plan on an
aggregate and per participant basis following the consummation of the Corporate
Transaction shall be appropriately adjusted.

         D. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide (upon such terms as it may deem appropriate) for (i) the
automatic acceleration of one or more outstanding options granted under this
Article Two which are assumed or replaced in the Corporate Transaction and do
not otherwise accelerate at that time and/or (ii) the immediate termination of
one or more of the Corporation's outstanding repurchase rights which are
assigned in connection with the Corporate Transaction and do not otherwise
terminate at that time, in the event the Optionee's Service should subsequently
terminate within a designated period following such Corporate Transaction.

         E. The Plan Administrator shall have the discretionary authority,
exercisable at the time the option is granted or at any time while the option
remains outstanding, to provide (upon such terms as it may deem appropriate) for
the automatic acceleration of one or more outstanding options under this Article
Two (and the immediate termination of one or more of the Corporation's
outstanding repurchase rights under this Article Two) upon the occurrence of a
Change in Control. The Plan Administrator shall also have full power and
authority to condition any such option acceleration (and the termination of any
outstanding repurchase rights) upon the subsequent termination of the Optionee's
Service within a specified period following the Change in Control.

         F. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.

         G. The grant of options under this Article Two shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.

                                      15.
<PAGE>   16
         H. The portion of any Incentive Option accelerated under this Section
III in connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option under the Federal tax laws only to the extent
the dollar limitation of Section II of this Article Two is not exceeded. To the
extent such dollar limitation is exceeded, the accelerated portion of such
option shall be exercisable as a Non-Statutory Option under the Federal tax
laws.

IV.  CANCELLATION AND REGRANT OF OPTIONS

         The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under this Article Two and to
grant in substitution therefor new options under the Plan covering the same or
different numbers of shares of Common Stock but with an exercise price per share
not less than the Fair Market Value per share of Common Stock on the new grant
date.

V.   STOCK APPRECIATION RIGHTS

         A. The Plan Administrator shall have full power and authority,
exercisable in its sole discretion, to grant stock appreciation rights to
selected Optionees or other individuals eligible to receive option grants under
the Discretionary Option Grant Program.

         B. Three types of stock appreciation rights shall be authorized for
issuance under the Plan: Tandem Stock Appreciation Rights ("Tandem Rights"),
Independent Stock Appreciation Rights ("Independent Rights") and Limited Stock
Appreciation Rights ("Limited Rights").

         C. The following terms and conditions shall govern the grant and
exercise of Tandem Rights under this Article Two.

            1. One or more Optionees may be granted the Tandem Right,
     exercisable upon such terms and conditions as the Plan Administrator may
     establish, to elect between the exercise of the underlying Article Two
     stock option for shares of Common Stock and the surrender of that option in
     exchange for a distribution from the Corporation in an amount equal to the
     excess of (i) the Fair Market Value (on the option surrender date) of the
     number of shares in which the Optionee is at the time vested under the
     surrendered option (or surrendered portion thereof) over (ii) the aggregate
     exercise price payable for such vested shares.

            2. No such option surrender shall be effective unless it is approved
     by the Plan Administrator. If the surrender is so approved, then the
     distribution to which the Optionee shall accordingly become entitled under
     this Section V may be made in shares of Common Stock valued at Fair Market
     Value 

                                      16.
<PAGE>   17
     on the option surrender date, in cash, or partly in shares and partly in
     cash, as the Plan Administrator shall in its sole discretion deem
     appropriate.

            3. If the surrender of an option is rejected by the Plan
     Administrator, then the Optionee shall retain whatever rights the Optionee
     had under the surrendered option (or surrendered portion thereof) on the
     option surrender date and may exercise such rights at any time prior to the
     later of (i) five (5) business days after the receipt of the rejection
     notice or (ii) the last day on which the option is otherwise exercisable in
     accordance with the terms of the instrument evidencing such option, but in
     no event may such rights be exercised more than ten (10) years after the
     date of the option grant.

         D. The following terms and conditions shall govern the grant and
exercise of Independent Rights under this Article Two:

            1. One or more individuals eligible to participate in the
     Discretionary Option Grant Program may be granted an Independent Right not
     tied to any underlying Article Two stock option. The Independent Right
     shall be exercisable upon such terms and conditions as the Plan
     Administrator may establish and shall entitle the holder to receive a
     distribution from the Corporation in an amount equal to the excess of (i)
     the aggregate Fair Market Value (on the exercise date of such right) of the
     shares of Common Stock underlying the exercised right over (ii) the
     aggregate base price in effect for those shares.

            2. The number of shares of Common Stock underlying the Independent
     Right and the base price in effect for those shares shall be determined by
     the Plan Administrator in its sole discretion at the time the Independent
     Right is granted. The base price may not be less than the Fair Market Value
     (on the grant date of the right) of the shares of Common Stock underlying
     that right.

            3. The distribution to which the holder of the Independent Right
     shall become entitled under this Section V may be made in shares of Common
     Stock valued at Fair Market Value on the exercise date of such right, in
     cash, or partly in shares and partly in cash, as the Plan Administrator
     shall in its sole discretion deem appropriate.

         E. The following terms and conditions shall govern the grant and
exercise of Limited Rights under this Article Two:

            1. One or more officers of the Corporation subject to the
     short-swing profit restrictions of the Federal securities laws may, in the
     Plan 

                                      17.
<PAGE>   18
     Administrator's sole discretion, be granted Limited Rights with respect to
     their outstanding options under this Article Two.

            2. Upon the occurrence of a Hostile Take-Over, each such officer
     holding one or more options with such a Limited Right in effect for at
     least six (6) months shall have the unconditional right (exercisable for a
     thirty (30)-day period following such Hostile Take-Over) to surrender each
     such option to the Corporation, to the extent the option is at the time
     exercisable for fully vested shares of Common Stock. The officer shall in
     return be entitled to a cash distribution from the Corporation in an amount
     equal to the excess of (i) the Take-Over Price of the vested shares of
     Common Stock at the time subject to each surrendered option (or surrendered
     portion of such option) over (ii) the aggregate exercise price payable for
     such vested shares. Such cash distribution shall be made within five (5)
     days following the option surrender date.

            3. Neither the approval of the Plan Administrator nor the consent of
     the Board shall be required in connection with such option surrender and
     cash distribution. Any unsurrendered portion of the option shall continue
     to remain outstanding and become exercisable in accordance with the terms
     of the instrument evidencing such grant.

         F. The shares of Common Stock subject to any stock appreciation right
exercised in accordance with this Section V shall NOT be available for
subsequent issuance under the Plan.

                                      18.
<PAGE>   19
                                  ARTICLE THREE

                            PERFORMANCE SHARE PROGRAM


        I.        AWARD OF PERFORMANCE SHARES

                  A. The Plan Administrator shall have full power and authority,
subject to the provisions of this Article Three, to award Performance Shares.
Each Performance Share shall function as an "equity-type" participating interest
in the Corporation and shall entitle the Participant to receive a payment equal
to the Fair Market Value per share of Common Stock on the date on which the
Performance Share vests. The Plan Administrator may condition vesting of
Performance Shares upon the attainment of specified performance goals or upon
other such factors or criteria as the Plan Administrator shall determine,
including (without limitation) continued Service, appreciation in the Fair
Market Value of the Common Stock, increased return on assets or earnings per
share growth.

                  Performance objectives may vary from Participant to
Participant and among groups of Participants and shall be based upon such
corporate-wide, subsidiary, group or division factors or criteria as the Plan
Administrator may deem appropriate.

                  B. Each Participant who is awarded Performance Shares shall be
issued a written agreement evidencing the total number of Performance Shares
awarded him or her and the terms and conditions upon which such Performance
Shares are to vest and become payable.

                  C. The award of Performance Shares under this Article Three
shall not entitle the holder to any stockholder rights, including (without
limitation) any voting, dividend or liquidation rights, with respect to the
underlying shares of Common Stock which serve to determine the value of the
award.

                  D. The award of Performance Shares under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

       II.        VESTING OF PERFORMANCE SHARES

                  A. No Performance Share shall vest prior to the first
anniversary of the date on which the Performance Share award is approved by the
Plan Administrator. Subject to the foregoing restriction, the Plan Administrator
shall have full power and discretion to establish the vesting schedule
applicable to the Performance Shares.


                                       19.
<PAGE>   20
                  B. All unvested Performance Shares held by a Participant at
the time of his or her cessation of Service shall automatically terminate and
cease to be outstanding, without any payment due the Participant on the
terminated shares. However, the Plan Administrator shall have full and complete
discretion, exercisable at any time, to accelerate in whole or in part the
vesting schedule in effect for one or more Performance Shares held by a
Participant.

      III.        LIQUIDATION OF PERFORMANCE SHARES

                  A. A Participant's Performance Shares shall be liquidated upon
the occurrence of the vesting event applicable to those Performance Shares, and
the Participant shall accordingly become entitled to a payment in an amount
determined by multiplying the number of vested Performance Shares by the Fair
Market Value of those Performance Shares on the vesting date.

                  B. Payment for the liquidated Performance Shares shall be made
to the Participant within thirty (30) days after the vesting event. Payment may,
in the Plan Administrator's sole discretion, be made in cash or shares of Common
Stock valued at Fair Market Value on the vesting date.

       IV.        CANCELLATION OF PERFORMANCE SHARES

                  Each outstanding Performance Share shall terminate, and each
Participant holding one or more Performance Shares shall cease to have any
further rights or benefit entitlement thereunder, upon the receipt of the amount
(if any) which becomes due and payable to such individual under the liquidation
provisions of Section III of this Article Three.

        V.        NON-TRANSFERABILITY/DEATH

                  Neither the Performance Shares issued under this Article Three
nor any rights or interests pertaining thereto may be transferred, assigned,
pledged or encumbered, other than a transfer effected pursuant to the
Participant's will or in accordance with the laws of descent and distribution
following the Participant's death. Any unpaid amounts due the Participant with
respect to vested Performance Shares liquidated prior to his or her death shall
be paid to the administrator or executor of such individual's estate.

       VI.        WITHHOLDING

                  All payments under this Article Three shall be subject to the
Corporation's collection of all applicable Federal, state and local income and
employment taxes required to be withheld therefrom.


                                       20.
<PAGE>   21
      VII.        UNFUNDED AND UNSECURED OBLIGATION

                  The Corporation's obligation to pay the amounts which become
due and payable under this Article Three shall at all times be an unfunded and
unsecured obligation of the Corporation, and no trust fund, escrow arrangement
or other segregated account shall be established as a funding vehicle for any
payments to be made hereunder. Accordingly, holders of Performance Shares shall
only have the status of general creditors with respect to any amounts which may
actually become due and payable to them under this Article Three and shall look
solely and exclusively to the general assets of the Corporation for payment.


                                       21.
<PAGE>   22
                                  ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM

        I.        TERMS AND CONDITIONS OF STOCK ISSUANCES

                  Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Four.

                  A.       Consideration.

                           1.       Shares of Common Stock shall be issued under
the Stock Issuance Program for one or more of the following items of
consideration which the Plan Administrator may deem appropriate in each
individual instance:

                               a.         full payment in cash or check made
payable to the Corporation's order;

                               b.         a promissory note payable to the
Corporation's order in one or more installments, which may be subject to
cancellation in whole or in part upon terms and conditions established by the
Plan Administrator; or

                               c.         past services rendered to the
Corporation or any parent or subsidiary corporation.

                           2.       The issued shares shall, in all instances,
be issued for consideration with a value equal to the Fair Market Value of such
shares at the time of issuance.

                  B.       Vesting Provisions.

                           1.       Shares of Common Stock issued under the
Stock Issuance Program may, in the absolute discretion of the Plan
Administrator, be fully and immediately vested upon issuance or may vest in one
or more installments over the Participant's period of Service or upon the
attainment of performance milestones. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:

                    a.     the Service period to be completed by the Participant
or the performance milestones to be achieved by the Corporation or the
Participant,

                    b.     the number of installments in which the shares are to
vest,


                                      22.
<PAGE>   23
                    c.     the interval or intervals (if any) which are to lapse
between installments, and

                    d.     the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting schedule,

shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued. However, (i) in the event that the Plan
Administrator determines that certain performance objectives are to be achieved
before the shares vest, such shares may not vest sooner than one year following
the date of the stock issuance, and (ii) in the event that the issued shares are
to vest in installments over the Participant's period of Service, full vesting
of such shares may not occur within the three (3)-year period immediately
following the date of the stock issuance.

                           2.       The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to him or her under the
Plan, whether or not his or her interest in those shares is vested. Accordingly,
the Participant shall have the right to vote such shares and to receive any
regular cash dividends paid on such shares. Any new, additional or different
shares of stock or other property (including money paid other than as a regular
cash dividend) which the Participant may have the right to receive with respect
to his or her unvested shares by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued, subject to (i) the same vesting
requirements applicable to his or her unvested shares and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.

                           3.       Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock under the
Stock Issuance Program, then those shares shall be immediately surrendered to
the Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money promissory note),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.

                           4.       The Plan Administrator may in its discretion
elect to waive the surrender and cancellation of one or more unvested shares of
Common Stock (or other assets attributable thereto) which would otherwise occur
upon the non-completion of the vesting schedule applicable to such shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be


                                       23.
<PAGE>   24
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.

       II.        CORPORATE TRANSACTION/CHANGE IN CONTROL

                  A. Upon the occurrence of any Corporate Transaction, all
unvested shares of Common Stock at the time outstanding under this Stock
Issuance Program shall immediately vest in full and the Corporation's repurchase
rights shall terminate, except to the extent: (i) any such repurchase right is
expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination is precluded
by other limitations imposed in the Issuance Agreement.

                  B. The Plan Administrator shall have the discretionary
authority to provide for the automatic vesting of one or more unvested shares
outstanding under the Stock Issuance Program (and the immediate termination of
the Corporation's repurchase rights with respect to those shares) at the time of
any Change in Control. The Plan Administrator shall also have full power and
authority to condition any such accelerated vesting upon the subsequent
termination of the Participant's Service within a specified period following the
Change in Control.

      III.        TRANSFER RESTRICTIONS/SHARE ESCROW

                  A. Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the Participant's
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing those unvested shares.

                  B. The Participant shall have no right to transfer any
unvested shares of Common Stock issued to him or her under the Stock Issuance
Program. For purposes of this restriction, the term "transfer" shall include
(without limitation) any sale, pledge, assignment, encumbrance, gift or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled in
accordance with substantially the same procedure in effect under Section I.B.3
of this Article Four, and neither the Participant nor the proposed transferee
shall have any rights with respect to such cancelled shares. However, the
Participant shall have the right to make a gift of unvested shares acquired
under the Stock Issuance Program to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the donee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Stock Issuance Program and the Issuance
Agreement applicable to the gifted shares.


                                       24.
<PAGE>   25
                                  ARTICLE FIVE

                                  MISCELLANEOUS


        I.        LOANS OR INSTALLMENT PAYMENTS

                  A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant, to the extent such Optionee or Participant is an
Employee (including an Optionee or Participant who is an officer of the
Corporation), in the exercise of one or more options granted to such Optionee
under the Discretionary Option Grant Program or the purchase of one or more
shares issued to such Participant under the Stock Issuance Program, including
the satisfaction of any Federal, state and local income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such Optionee or Participant or (ii) permitting the Optionee
or Participant to pay the exercise price or purchase price for the purchased
shares in installments. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be upon such terms as
the Plan Administrator specifies in the applicable option or issuance agreement
or otherwise deems appropriate under the circumstances. Loans or installment
payments may be authorized with or without security or collateral. However, the
maximum credit available to the Optionee or Participant may not exceed the
exercise or purchase price of the acquired shares plus any Federal, state and
local income and employment tax liability incurred by the Optionee or
Participant in connection with the acquisition of such shares.

                  B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under this financial assistance
program shall be subject to forgiveness by the Corporation in whole or in part
upon such terms and conditions as the Plan Administrator may deem appropriate.

       II.        AMENDMENT OF THE PLAN AND AWARDS

                  A. The Board has complete and exclusive power and authority to
amend or modify the Plan (or any component thereof) in any or all respects
whatsoever. However, (i) no such amendment or modification shall adversely
affect rights and obligations with respect to options at the time outstanding
under the Plan, nor adversely affect the rights of any Participant with respect
to outstanding Performance Shares or unvested Common Stock under the Performance
Share or Stock Issuance Programs, unless the Optionee or Participant consents to
such amendment. In addition, the Board may not, without the approval of the
Corporation's stockholders, amend the Plan to (i) materially increase the
maximum number of shares issuable over the term of the Plan or the maximum
number of shares for which any one individual participating in the Plan may be
granted stock options, separately exercisable stock appreciation 


                                       25.
<PAGE>   26
rights, Performance Shares and direct stock issuances in the aggregate per
calendar year, except for permissible adjustments under Section VI.D. of Article
One, (ii) materially modify the eligibility requirements for plan participation
or (iii) materially increase the benefits accruing to plan participants.

                  B. In no event may Performance Shares be awarded under Article
Three which are in excess of the number of shares of Common Stock then available
for issuance under the Plan. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program, and shares of Common Stock
may be issued under the Stock Issuance Program which are in both instances in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the Discretionary Option Grant
Program or the Stock Issuance Program are held in escrow until stockholder
approval is obtained for a sufficient increase in the number of shares available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess option grants or excess
stock issuances are made, then (i) any unexercised excess options shall
terminate and cease to be exercisable and (ii) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.

      III.        TAX WITHHOLDING

                  A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of stock options for such shares or the vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.

                  B. The Plan Administrator may, in its discretion and in
accordance with the provisions of this Section III and such supplemental rules
as the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of Securities and Exchange Commission Rule 16b-3),
provide any or all holders of Non-Statutory Options or unvested shares of Common
Stock under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Federal, state and local income and
employment tax liabilities incurred by such holders in connection with the
exercise of their options or the vesting of their shares (the "Taxes"). Such
right may be provided to any such holder in either or both of the following
formats:

                           Stock Withholding: The holder of the Non-Statutory
Option or unvested shares may be provided with the election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value to exceed one
hundred percent (100%) of the applicable Taxes.


                                       26.
<PAGE>   27
                           Stock Delivery: The Plan Administrator may, in its
discretion, provide the holder of the Non-Statutory Option or the unvested
shares with the election to deliver to the Corporation, at the time the
Non-Statutory Option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such individual (other than in connection
with the option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value not to exceed one hundred percent (100%) of the
Taxes incurred in connection with such option exercise or share vesting.

       IV.        EFFECTIVE DATE AND TERM OF PLAN

                  A. This Plan was adopted by the Board on September 23, 1994
and was subsequently approved by the Corporation's sole stockholder. The Plan
became effective on August 10, 1995, the date on which the Underwriting
Agreement for the initial public offering of the Corporation's Common Stock was
executed and finally priced.

                  B. The Plan shall terminate upon the earlier of (i) September
22, 2004 unless sooner terminated by the Board and (ii) the date on which all
shares available for issuance under the Plan shall have been issued or cancelled
pursuant to the exercise of the stock options and stock appreciation rights
granted under the Discretionary Option Grant Program, the award of Performance
Shares under the Performance Share Program or the issuance of shares (whether
vested or unvested) under the Stock Issuance Program. If the date of termination
is determined under clause (i) above, then all stock options, stock appreciation
rights, Performance Shares and stock issuances outstanding on such date shall
thereafter continue to have force and effect in accordance with the provisions
of the instruments evidencing such grants or issuances.

        V.        USE OF PROCEEDS

                  Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants or stock issuances under the Plan shall be used
for general corporate purposes.

       VI.        REGULATORY APPROVALS

                  A. The implementation of the Plan, the granting of any stock
option or stock appreciation right under the Discretionary Option Grant Program,
the award of any Performance Shares under the Performance Share Program, the
issuance of any shares under the Stock Issuance Program and the issuance of
Common Stock upon the exercise of the stock options or stock appreciation rights
granted hereunder shall each be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options, stock appreciation rights and Performance
Shares granted under it and the Common Stock issued pursuant to it.


                                       27.
<PAGE>   28
                  B. No shares of Common Stock or other assets shall be issued
or delivered under this Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws and all
applicable listing requirements of any securities exchange on which the Common
Stock is then listed for trading.

      VII.        NO EMPLOYMENT/SERVICE RIGHTS

                  Neither the action of the Corporation in establishing the
Plan, nor any action taken by the Plan Administrator hereunder, nor any
provision of the Plan shall be construed so as to grant any individual the right
to remain in the Service of the Corporation (or any parent or subsidiary
corporation) for any period of specific duration, and the Corporation (or any
parent or subsidiary corporation retaining the services of such individual) may
terminate such individual's Service at any time and for any reason, with or
without cause.

     VIII.        MISCELLANEOUS PROVISIONS

                  A. Except to the extent otherwise expressly provided in the
Plan, the right to acquire Common Stock or other assets under the Plan may not
be assigned, encumbered or otherwise transferred by any Optionee or Participant.

                  B. The provisions of the Plan relating to the exercise of
options and the vesting of shares shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules, as such laws
are applied to contracts entered into and performed in such State.

                  C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and the Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.


                                       28.