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                                                                    EXHIBIT 10.2

                         THE 2001 INCENTIVE AWARD PLAN
                                       OF
                          WATSON PHARMACEUTICALS, INC.

     Watson Pharmaceuticals, Inc., a Nevada corporation, has adopted the 2001
Incentive Award Plan of Watson Pharmaceuticals, Inc. (the "Plan"), effective
February 12, 2001, for the benefit of its eligible employees, consultants and
directors.

     The purposes of the Plan are as follows:

          (1) To provide an additional incentive for directors, key Employees
     and Consultants (as such terms are defined below) to further the growth,
     development and financial success of the Company by personally benefiting
     through the ownership of Company stock and/or rights which recognize such
     growth, development and financial success.

          (2) To enable the Company to obtain and retain the services of
     directors, key Employees and Consultants considered essential to the long
     range success of the Company by offering them an opportunity to own stock
     in the Company and/or rights which will reflect the growth, development and
     financial success of the Company.

                                   ARTICLE I.

                                  DEFINITIONS

     Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise. The
singular pronoun shall include the plural where the context so indicates.

     1.1. "Administrator" shall mean the entity that conducts the general
administration of the Plan as provided herein. With reference to the
administration of the Plan with respect to Options granted to Independent
Directors, the term "Administrator" shall refer to the Board. With reference to
the administration of the Plan with respect to any other Award, the term
"Administrator" shall refer to the Committee unless the Board has assumed the
authority for administration of the Plan generally as provided in Section 7.1.
With reference to the duties of the Committee under the Plan which have been
delegated to one or more persons pursuant to Section 7.2, the term
"Administrator" shall refer to such person(s) unless the Committee or the Board
has revoked such delegation.

     1.2. "Award" shall mean an Option which may be awarded or granted under the
Plan.

     1.3. "Award Agreement" shall mean a written agreement executed by an
authorized officer of the Company and the Holder which shall contain such terms
and conditions with respect to an Award as the Administrator shall determine,
consistent with the Plan.

     1.4. "Award Limit" shall mean 500,000 shares of Common Stock, as adjusted
pursuant to Section 8.3.

     1.5. "Board" shall mean the Board of Directors of the Company.

     1.6. "Change of Control" shall mean the occurrence of any of the following:

          (a) a sale of assets representing fifty percent (50%) or more of the
     net book value and of the fair market value of the Company's consolidated
     assets (in a single transaction or in a series of related transactions);

          (b) a liquidation or dissolution of the Company;

          (c) a merger or consolidation involving the Company or any subsidiary
     of the Company after the completion of which: (i) in the case of a merger
     (other than a triangular merger) or a consolidation

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     involving the Company, the shareholders of the Company immediately prior to
     the completion of such merger or consolidation beneficially own (within the
     meaning of Rule 13d-3 promulgated under the Exchange Act), or comparable
     successor rules), directly or indirectly, outstanding voting securities
     representing less than sixty percent (60%) of the combined voting power of
     the surviving entity in such merger or consolidation, and (ii) in the case
     of a triangular merger involving the Company or a subsidiary of the
     Company, the shareholders of the Company immediately prior to the
     completion of such merger beneficially own (within the meaning of Rule
     13d-3 promulgated under the Exchange Act, or comparable successor rules),
     directly or indirectly, outstanding voting securities representing less
     than sixty percent (60%) of the combined voting power of the surviving
     entity in such merger and less than sixty percent (60%) of the combined
     voting power of the parent of the surviving entity in such merger;

          (d) an acquisition by any person, entity or "group" (within the
     meaning of Section 13(d) or 14(d) of the Exchange Act or any comparable
     successor provisions), other than any employee benefit plan, or related
     trust, sponsored or maintained by the Company or an affiliate of the
     Company and other than in a merger or consolidation of the type referred to
     in clause (c), of beneficial ownership (within the meaning of Rule 13d-3
     promulgated under the Exchange Act, or comparable successor rules) of
     outstanding voting securities of the Company representing more than thirty
     percent (30%) of the combined voting power of the Company (in a single
     transaction or series of related transactions); or

          (e) in the event that the individuals who, as of the date hereof, are
     members of the Board (the "Incumbent Board"), cease for any reason to
     constitute at least fifty percent (50%) of the Board. (If the election, or
     nomination for election by the Company's shareholders, of any new member of
     the Board is approved by a vote of at least fifty percent (50%) of the
     Incumbent Board, such new member of the Board shall be considered as a
     member of the Incumbent Board.)

     1.7. "Code" shall mean the Internal Revenue Code of 1986, as amended.

     1.8. "Committee" shall mean the Compensation Committee of the Board, or
another committee or subcommittee of the Board, appointed as provided in Section
7.1.

     1.9. "Common Stock" shall mean the common stock of the Company, par value
$0.0033 per share.

     1.10. "Company" shall mean Watson Pharmaceuticals, Inc., a Nevada
corporation.

     1.11. "Consultant" shall mean any consultant or adviser if:

          (a) The consultant or adviser renders bona fide services to the
     Company;

          (b) The services rendered by the consultant or adviser are not in
     connection with the offer or sale of securities in a capital-raising
     transaction and do not directly or indirectly promote or maintain a market
     for the Company's securities; and

          (c) The consultant or adviser is a natural person who has contracted
     directly with the Company to render such services.

     1.12. "Director" shall mean a member of the Board.

     1.13. "DRO" shall mean a domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.

     1.14. "Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.

     1.15. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

     1.16. "Fair Market Value" of a share of Common Stock as of a given date
shall be (a) the closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on the
trading day previous to such date, or if shares were not traded on the trading
day previous to such date, then on the next preceding date on which a trade
occurred, (b) if Common Stock is not traded on an exchange but is quoted on

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Nasdaq or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by Nasdaq or such successor quotation system,
or (c) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Administrator, in its sole discretion, acting
in good faith.

     1.17. "Holder" shall mean a person who has been granted or awarded an
Award.

     1.18. "Incentive Stock Option" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Administrator.

     1.19. "Independent Director" shall mean a member of the Board who is not an
Employee of the Company.

     1.20. "Non-Qualified Stock Option" shall mean an Option which is not
designated as an Incentive Stock Option by the Administrator.

     1.21. "Option" shall mean a stock option granted under Article IV of the
Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Independent Directors and
Consultants shall be Non-Qualified Stock Options.

     1.22. "Plan" shall mean the 2001 Incentive Award Plan of Watson
Pharmaceuticals, Inc.

     1.23. "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act, as such Rule may be amended from time to time.

     1.24. "Section 162(m) Participant" shall mean any key Employee designated
by the Administrator as a key Employee whose compensation for the fiscal year in
which the key Employee is so designated or a future fiscal year may be subject
to the limit on deductible compensation imposed by Section 162(m) of the Code.

     1.25. "Securities Act" shall mean the Securities Act of 1933, as amended.

     1.26. "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns 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.

     1.27. "Substitute Award" shall mean an Option granted under this Plan upon
the assumption of, or in substitution for, outstanding equity awards previously
granted by a company or other entity in connection with a corporate transaction,
such as a merger, combination, consolidation or acquisition of property or
stock; provided, however, that in no event shall the term "Substitute Award" be
construed to refer to an award made in connection with the cancellation and
repricing of an Option.

     1.28. "Termination of Consultancy" shall mean the time when the engagement
of a Holder as a Consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause, including, but not by way of limitation, by
resignation, discharge, death or retirement, but excluding terminations where
there is a simultaneous commencement of employment with the Company or any
Subsidiary. The Administrator, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Consultancy,
including, but not by way of limitation, the question of whether a Termination
of Consultancy resulted from a discharge for good cause, and all questions of
whether a particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of the Plan, the Company or any Subsidiary
has an absolute and unrestricted right to terminate a Consultant's service at
any time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.

     1.29. "Termination of Directorship" shall mean the time when a Holder who
is an Independent Director ceases to be a Director for any reason, including,
but not by way of limitation, a termination by resignation, failure to be
elected, death or retirement. The Board, in its sole and absolute discretion,
shall determine the

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effect of all matters and questions relating to Termination of Directorship with
respect to Independent Directors.

     1.30. "Termination of Employment" shall mean the time when the
employee-employer relationship between a Holder and the Company or any
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (b) at the discretion of the Administrator, terminations which
result in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not by way of limitation, the question
of whether a Termination of Employment resulted from a discharge for good cause,
and all questions of whether a particular leave of absence constitutes a
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, unless otherwise determined by the Administrator in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section.

                                  ARTICLE II.

                             SHARES SUBJECT TO PLAN

     2.1. Shares Subject to Plan.

     (a) The shares of stock subject to Awards shall be Common Stock, initially
shares of the Company's Common Stock. Subject to adjustment as provided in
Section 8.3, the aggregate number of such shares which may be issued upon
exercise of such Options or rights or upon any such Awards under the Plan shall
not exceed 7,500,000. The shares of Common Stock issuable upon exercise of such
Options or rights or upon any such awards may be either previously authorized
but unissued shares or treasury shares.

     (b) The maximum number of shares which may be subject to Awards granted
under the Plan to any individual in any fiscal year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit.

     2.2. Add-back of Options. If any Option expires or is canceled without
having been fully exercised, or is exercised in whole or in part for cash as
permitted by the Plan, the number of shares subject to such Option but as to
which such Option was not exercised prior to its expiration, cancellation or
exercise may again be optioned, granted or awarded hereunder, subject to the
limitations of Section 2.1. Furthermore, any shares subject to Awards which are
adjusted pursuant to Section 8.3 and become exercisable with respect to shares
of stock of another corporation shall be considered cancelled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock which are delivered by the Holder or withheld by the
Company upon the exercise of any Award under the Plan, in payment of the
exercise price thereof or tax withholding thereon, may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.

                                  ARTICLE III.

                               GRANTING OF AWARDS

     3.1. Award Agreement. Each Award shall be evidenced by an Award Agreement.
Award Agreements evidencing Awards intended to qualify as performance-based
compensation as described in
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Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may
be necessary to meet the applicable provisions of Section 162(m) of the Code.
Award Agreements evidencing Incentive Stock Options shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section 422
of the Code.

     3.2. Provisions Applicable to Section 162(m) Participants.

     (a) The Committee, in its discretion, may determine whether an Award is to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code.

     (b) Furthermore, notwithstanding any other provision of the Plan or any
Award which is granted to a Section 162(m) Participant and is intended to
qualify as performance-based compensation as described in Section 162(m)(4)(C)
of the Code shall be subject to any additional limitations set forth in Section
162(m) of the Code (including any amendment to Section 162(m) of the Code) or
any regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent
necessary to conform to such requirements.

     3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any
other provision of the Plan, the Plan, and any Award granted or awarded to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.

     3.4. Consideration. In consideration of the granting of an Award under the
Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of
(or to consult for or to serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year (or such shorter
period as may be fixed in the Award Agreement or by action of the Administrator
following grant of the Award) after the Award is granted (or, in the case of an
Independent Director, until the next annual meeting of stockholders of the
Company).

     3.5. At-Will Employment. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a Consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written employment agreement
between the Holder and the Company and any Subsidiary.

                                  ARTICLE IV.

                       GRANTING OF OPTIONS TO EMPLOYEES,
                     CONSULTANTS AND INDEPENDENT DIRECTORS

     4.1. Eligibility. Any Employee or Consultant selected by the Committee
pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in Section 4.5.

     4.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any then
existing Subsidiary or parent corporation (within the meaning of Section 422 of
the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.

     4.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.

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     4.4. Granting of Options to Employees and Consultants.

     (a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of the Plan:

          (i) Determine which Employees are key Employees and select from among
     the key Employees or Consultants (including Employees or Consultants who
     have previously received Awards under the Plan) such of them as in its
     opinion should be granted Options;

          (ii) Subject to the Award Limit, determine the number of shares to be
     subject to such Options granted to the selected key Employees or
     Consultants;

          (iii) Subject to Section 4.3, determine whether such Options are to be
     Incentive Stock Options or Non-Qualified Stock Options and whether such
     Options are to qualify as performance-based compensation as described in
     Section 162(m)(4)(C) of the Code; and

          (iv) Determine the terms and conditions of such Options, consistent
     with the Plan; provided, however, that the terms and conditions of Options
     intended to qualify as performance-based compensation as described in
     Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
     terms and conditions as may be necessary to meet the applicable provisions
     of Section 162(m) of the Code.

     (b) Upon the selection of a key Employee or Consultant to be granted an
Option, the Committee shall instruct the Secretary of the Company to issue the
Option and may impose such conditions on the grant of the Option as it deems
appropriate.

     (c) Any Incentive Stock Option granted under the Plan may be modified by
the Committee, with the consent of the Holder, to disqualify such Option from
treatment as an "incentive stock option" under Section 422 of the Code.

     4.5. Granting of Options to Independent Directors. The Board shall from
time to time, in its absolute discretion, and subject to applicable limitations
of the Plan:

          (a) Select from among the Independent Directors (including Independent
     Directors who have previously received Options under the Plan) such of them
     as in its opinion should be granted Options;

          (b) Subject to the Award Limit, determine the number of shares to be
     subject to such Options granted to the selected Independent Directors; and

          (c) Subject to the provisions of Article 5, determine the terms and
     conditions of such Options, consistent with the Plan.

     All the foregoing Option grants authorized by this Section 4.5 are subject
to stockholder approval of the Plan.

     4.6. Options in Lieu of Cash Compensation. Options may be granted under the
Plan to Employees and Consultants in lieu of cash bonuses which would otherwise
be payable to such Employees and Consultants, and to Independent Directors in
lieu of directors' fees which would otherwise be payable to such Independent
Directors, pursuant to such policies which may be adopted by the Administrator
from time to time.

                                   ARTICLE V.

                                TERMS OF OPTIONS

     5.1. Option Price. The price per share of the shares subject to each Option
granted to Employees, Independent Directors and Consultants shall be set by the
Committee; provided, however, that:

          (a) In the case of Options intended to qualify as performance-based
     compensation as described in Section 162(m)(4)(C) of the Code, such price
     shall not be less than 100% of the Fair Market Value of a share of Common
     Stock on the date the Option is granted;

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          (b) In the case of Incentive Stock Options such price shall not be
     less than 100% of the Fair Market Value of a share of Common Stock on the
     date the Option is granted (or the date the Option is modified, extended or
     renewed for purposes of Section 424(h) of the Code);

          (c) In the case of Incentive Stock Options granted to an individual
     then owning (within the meaning of Section 424(d) of the Code) more than
     10% of the total combined voting power of all classes of stock of the
     Company or any Subsidiary or parent corporation thereof (within the meaning
     of Section 422 of the Code), such price shall not be less than 110% of the
     Fair Market Value of a share of Common Stock on the date the Option is
     granted (or the date the Option is modified, extended or renewed for
     purposes of Section 424(h) of the Code).

     5.2. Option Term. The term of an Option granted to an Employee, Independent
Director or Consultant shall be set by the Committee in its discretion;
provided, however, that, in the case of Incentive Stock Options, the term shall
not be more than 10 years from the date the Incentive Stock Option is granted,
or five years from the date the Incentive Stock Option is granted if the
Incentive Stock Option is granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code). Except as
limited by requirements of Section 422 of the Code and regulations and rulings
thereunder applicable to Incentive Stock Options, the Committee may extend the
term of any outstanding Option in connection with any Termination of Employment,
Termination of Directorship or Termination of Consultancy of the Holder, or
amend any other term or condition of such Option relating to such a termination.

     5.3. Option Vesting.

     (a) The period during which the right to exercise, in whole or in part, an
Option granted to an Employee, Independent Director or a Consultant vests in the
Holder shall be set by the Committee and the Committee may determine that an
Option may not be exercised in whole or in part for a specified period after it
is granted; provided, however, that, unless the Committee otherwise provides in
the terms of the Award Agreement or otherwise, no Option shall be exercisable by
any Holder who is then subject to Section 16 of the Exchange Act within the
period ending six months and one day after the date the Option is granted. At
any time after grant of an Option, the Committee may, in its sole and absolute
discretion and subject to whatever terms and conditions it selects, accelerate
the period during which an Option granted to an Employee or Consultant vests.

     (b) No portion of an Option granted to an Employee, Independent Director or
Consultant which is unexercisable at Termination of Employment, Termination of
Consultancy or Termination of Directorship, as applicable, shall thereafter
become exercisable, except as may be otherwise provided by the Committee either
in the Award Agreement or by action of the Committee following the grant of the
Option.

     (c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by a Holder during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any parent or subsidiary
corporation, within the meaning of Section 422 of the Code) of the Company,
exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options
to the extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking Options into account in the order
in which they were granted. For purposes of this Section 5.3(c), the Fair Market
Value of stock shall be determined as of the time the Option with respect to
such stock is granted.

     5.4. Substitute Awards. Notwithstanding the foregoing provisions of this
Article V to the contrary, in the case of an Option that is a Substitute Award,
the price per share of the shares subject to such Option may be less than the
Fair Market Value per share on the date of grant, provided, that the excess of:

          (a) The aggregate Fair Market Value (as of the date such Substitute
     Award is granted) of the shares subject to the Substitute Award; over

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          (b) The aggregate exercise price thereof;

does not exceed the excess of:

          (c) The aggregate fair market value (as of the time immediately
     preceding the transaction giving rise to the Substitute Award, such fair
     market value to be determined by the Committee) of the shares of the
     predecessor entity that were subject to the grant assumed or substituted
     for by the Company; over

          (d) The aggregate exercise price of such shares.

                                  ARTICLE VI.

                              EXERCISE OF OPTIONS

     6.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.

     6.2. Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company, or such other person or entity designated by the Board, or his, her or
its office, as applicable:

          (a) A written notice complying with the applicable rules established
     by the Administrator stating that the Option, or a portion thereof, is
     exercised. The notice shall be signed by the Holder or other person then
     entitled to exercise the Option or such portion of the Option;

          (b) Such representations and documents as the Administrator, in its
     absolute discretion, deems necessary or advisable to effect compliance with
     all applicable provisions of the Securities Act and any other federal or
     state securities laws or regulations. The Administrator may, in its
     absolute discretion, also take whatever additional actions it deems
     appropriate to effect such compliance including, without limitation,
     placing legends on share certificates and issuing stop-transfer notices to
     agents and registrars;

          (c) In the event that the Option shall be exercised pursuant to
     Section 8.1 by any person or persons other than the Holder, appropriate
     proof of the right of such person or persons to exercise the Option; and

          (d) Full cash payment to the Secretary of the Company for the shares
     with respect to which the Option, or portion thereof, is exercised.
     However, the Administrator may, in its discretion, (i) allow a delay in
     payment up to 30 days from the date the Option, or portion thereof, is
     exercised; (ii) allow payment, in whole or in part, through the delivery of
     shares of Common Stock which have been owned by the Holder for at least six
     months, duly endorsed for transfer to the Company with a Fair Market Value
     on the date of delivery equal to the aggregate exercise price of the Option
     or exercised portion thereof; (iii) allow payment, in whole or in part,
     through the surrender of shares of Common Stock then issuable upon exercise
     of the Option having a Fair Market Value on the date of Option exercise
     equal to the aggregate exercise price of the Option or exercised portion
     thereof; (iv) allow payment, in whole or in part, through the delivery of
     property of any kind which constitutes good and valuable consideration; (v)
     allow payment, in whole or in part, through the delivery of a full recourse
     promissory note bearing interest (at no less than such rate as shall then
     preclude the imputation of interest under the Code) and payable upon such
     terms as may be prescribed by the Administrator; (vi) allow payment, in
     whole or in part, through the delivery of a notice that the Holder has
     placed a market sell order with a broker with respect to shares of Common
     Stock then issuable upon exercise of the Option, and that the broker has
     been directed to pay a sufficient portion of the net proceeds of the sale
     to the Company in satisfaction of the Option exercise price, provided that
     payment of such proceeds is then made to the Company upon settlement of
     such sale; or (vii) allow payment through any combination of the
     consideration provided in the foregoing subparagraphs (ii), (iii), (iv),
     (v) and (vi). In the case of a promissory note, the Administrator may also
     prescribe the form of such note and the security to be given for such note.
     The Option may not be exercised, however, by delivery of a promissory note
     or by a loan from the Company when or where such loan or other extension of
     credit is prohibited by law.

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     6.3. Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:

          (a) The admission of such shares to listing on all stock exchanges on
     which such class of stock is then listed;

          (b) The completion of any registration or other qualification of such
     shares under any state or federal law, or under the rulings or regulations
     of the Securities and Exchange Commission or any other governmental
     regulatory body which the Administrator shall, in its absolute discretion,
     deem necessary or advisable;

          (c) The obtaining of any approval or other clearance from any state or
     federal governmental agency which the Administrator shall, in its absolute
     discretion, determine to be necessary or advisable;

          (d) The lapse of such reasonable period of time following the exercise
     of the Option as the Administrator may establish from time to time for
     reasons of administrative convenience; and

          (e) The receipt by the Company of full payment for such shares,
     including payment of any applicable withholding tax, which in the
     discretion of the Administrator may be in the form of consideration used by
     the Holder to pay for such shares under Section 6.2(d).

     6.4. Rights as Stockholders. Holders shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.

     6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder, or (b) one year after the transfer of such shares to such
Holder.

     6.6. Additional Limitations on Exercise of Options. Holders may be required
to comply with any timing or other restrictions with respect to the settlement
or exercise of an Option, including a window-period limitation, as may be
imposed in the discretion of the Administrator.

                                  ARTICLE VII.

                                 ADMINISTRATION

     7.1. Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under the Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.

     7.2. Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith, to interpret, amend or
revoke any such rules and to amend any Award Agreement provided that the rights
or obligations of the Holder of the Award that is the subject of any such Award
Agreement are not affected adversely. Any such grant or award under the Plan
need not be the same with respect to each Holder. Any such interpretations and
rules with respect to Incentive Stock
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<PAGE>   10

Options shall be consistent with the provisions of Section 422 of the Code. In
its absolute discretion, the Board may at any time and from time to time
exercise any and all rights and duties of the Committee under the Plan except
with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or
any regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee. In addition, the Committee has the authority,
in its discretion, to delegate all or any part of its responsibilities and
powers under the Plan to any person or persons selected by it. Notwithstanding
the foregoing, the full Board, acting by a majority of its members in office,
shall conduct the general administration of the Plan with respect to Options
granted to Independent Directors.

     7.3. Majority Rule; Unanimous Written Consent. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.

     7.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Holders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Committee and the Board shall be fully protected by the Company
to the maximum extent permitted under applicable law and the charter documents
of the Company in respect of any such action, determination or interpretation.

                                 ARTICLE VIII.

                            MISCELLANEOUS PROVISIONS

     8.1. Not Transferable.

     (a) No Award under the Plan may be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and distribution or,
subject to the consent of the Administrator (which consent may be withheld in
the Administrator's sole and absolute discretion), pursuant to a DRO, unless and
until such Award has been exercised, or the shares underlying such Award have
been issued, and all restrictions applicable to such shares have lapsed. No
Award or interest or right therein shall be liable for the debts, contracts or
engagements of the Holder or his or her successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.

     (b) During the lifetime of the Holder, only he or she may exercise an
Option (or any portion thereof) granted to him or her under the Plan, unless it
has been disposed of with the consent of the Administrator (which consent may be
withheld in the Administrator's sole and absolute discretion) pursuant to a DRO.
After the death of the Holder, any exercisable portion of an Option may, prior
to the time when such portion becomes unexercisable under the Plan or the
applicable Award Agreement, be exercised by his or her personal representative
or by any person empowered to do so under the deceased Holder's will or under
the then applicable laws of descent and distribution.

     8.2. Amendment, Suspension or Termination of the Plan. Except as otherwise
provided in this Section 8.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Administrator. However, without approval of the Company's stockholders given
within 12 months before or after the action by the Administrator, no action of
the
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<PAGE>   11

Administrator may, except as provided in Section 8.3, increase the limits
imposed in Section 2.1 on the maximum number of shares which may be issued under
the Plan. No amendment, suspension or termination of the Plan shall, without the
consent of the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so
provides. No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Incentive Stock Option be
granted under the Plan after the first to occur of the following events:

          (a) The expiration of 10 years from the date the Plan is adopted by
     the Board; or

          (b) The expiration of 10 years from the date the Plan is approved by
     the Company's stockholders under Section 8.4.

     8.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.

     (a) Subject to Section 8.3(e), in the event that the Administrator
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Administrator's sole discretion, affects
the Common Stock such that an adjustment is determined by the Administrator to
be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Award, then the Administrator shall, in such manner as it may deem
equitable, adjust any or all of:

          (i) The number and kind of shares of Common Stock (or other securities
     or property) with respect to which Awards may be granted or awarded
     (including, but not limited to, adjustments of the limitations in Section
     2.1 on the maximum number and kind of shares which may be issued and
     adjustments of the Award Limit);

          (ii) The number and kind of shares of Common Stock (or other
     securities or property) subject to outstanding Awards; and

          (iii) The grant or exercise price with respect to any Award.

     (b) Subject to Sections 8.3(c) and 8.3(e), in the event of any transaction
or event described in Section 8.3(a) or any unusual or nonrecurring transactions
or events affecting the Company, any affiliate of the Company, or the financial
statements of the Company or any affiliate, or of changes in applicable laws,
regulations or accounting principles, the Administrator, in its sole and
absolute discretion, and on such terms and conditions as it deems appropriate,
either by the terms of the Award or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the Holder's request,
is hereby authorized to take any one or more of the following actions whenever
the Administrator determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to any Award under the Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:

          (i) To provide for either the purchase of any such Award for an amount
     of cash equal to the amount that could have been attained upon the exercise
     of such Award or realization of the Holder's rights had such Award been
     currently exercisable or payable or fully vested or the replacement of such
     Award with other rights or property selected by the Administrator in its
     sole discretion;

          (ii) To provide that the Award cannot vest, be exercised or become
     payable after such event;

          (iii) To provide that such Award shall be exercisable as to all shares
     covered thereby, notwithstanding anything to the contrary in Section 5.3 or
     the provisions of such Award;

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<PAGE>   12

          (iv) To provide that such Award be assumed by the successor or
     survivor corporation, or a parent or subsidiary thereof, or shall be
     substituted for by similar options, rights or awards covering the stock of
     the successor or survivor corporation, or a parent or subsidiary thereof,
     with appropriate adjustments as to the number and kind of shares and
     prices; and

          (v) To make adjustments in the number and type of shares of Common
     Stock (or other securities or property) subject to outstanding Awards
     and/or in the terms and conditions of (including the grant or exercise
     price), and the criteria included in, outstanding options which may be
     granted in the future.

     (c) Notwithstanding any other provision of the Plan, in the event of a
Change of Control, each outstanding Option shall be assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the optionee shall have the right to
exercise the Option as to all of the optioned stock, including shares as to
which it would not otherwise be exercisable. If an Option is exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the optionee that the Option shall be fully
exercisable for a period of 15 days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of this
Section 8.3(c), the Option shall be considered assumed if, following the merger
or sale of assets, the option confers the right to purchase or receive, for each
share of optioned stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares); provided, however, that if
such consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each share of optioned stock
subject to the Option, to be solely common stock of the successor corporation or
its parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.

     (d) Subject to Sections 8.3(e), 3.2 and 3.3, the Administrator may, in its
discretion, include such further provisions and limitations in any Award or
Award Agreement, as it may deem equitable and in the best interests of the
Company.

     (e) With respect to Awards which are granted to Section 162(m) Participants
and are intended to qualify as performance-based compensation under Section
162(m)(4)(C), no adjustment or action described in this Section 8.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under Section
162(m)(4)(C), or any successor provisions thereto. No adjustment or action
described in this Section 8.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Administrator determines that the Award is
not to comply with such exemptive conditions. The number of shares of Common
Stock subject to any Award shall always be rounded to the next whole number.

     (f) Notwithstanding the foregoing, in the event that the Company becomes a
party to a transaction that is intended to qualify for "pooling of interests"
accounting treatment and, but for one or more of the provisions of this Plan or
any Award Agreement would so qualify, then this Plan and any Award Agreement
shall be interpreted so as to preserve such accounting treatment, and to the
extent that any provision of the Plan or any Award Agreement would disqualify
the transaction from pooling of interests accounting treatment (including, if
applicable, an entire Award Agreement), then such provision shall be null and
void. All determinations to be made in connection with the preceding sentence
shall be made by the independent accounting firm whose opinion with respect to
"pooling of interests" treatment is required as a condition to the Company's
consummation of such transaction.

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<PAGE>   13

     (g) The existence of the Plan, the Award Agreement and the Awards granted
hereunder shall not affect or restrict in any way the right or power of the
Company or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.

     8.4. Approval of Plan by Stockholders. The Plan will be submitted for the
approval of the Company's stockholders within 12 months after the date of the
Board's initial adoption of the Plan. Awards may be granted or awarded prior to
such stockholder approval, provided that such Awards shall not be exercisable
nor shall such Awards vest prior to the time when the Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void.

     8.5. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld. Notwithstanding
any other provision of the Plan, the number of shares of Common Stock which may
be withheld with respect to the issuance, vesting, exercise or payment of any
Award (or which may be repurchased from the Holder of such Award within six
months after such shares of Common Stock were acquired by the Holder from the
Company) in order to satisfy the Holder's federal and state income and payroll
tax liabilities with respect to the issuance, vesting, exercise or payment of
the Award shall be limited to the number of shares which have a Fair Market
Value on the date of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding rates for federal
and state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.

     8.6. Loans. The Committee may, in its discretion, extend one or more loans
to key Employees, Consultants and Directors in connection with the exercise or
receipt of an Award granted or awarded under the Plan. The terms and conditions
of any such loan shall be set by the Committee.

     8.7. Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to Awards under the Plan, the Administrator
shall have the right to provide, in the terms of Awards and Award Agreements
made under the Plan, or to require a Holder to agree by separate written
instrument, that (a)(i) any proceeds, gains or other economic benefit actually
or constructively received by the Holder upon any receipt or exercise of the
Award, or upon the receipt or resale of any Common Stock underlying the Award,
must be paid to the Company, and (ii) the Award shall terminate and any
unexercised portion of the Award (whether or not vested) shall be forfeited, if
(b)(i) a Termination of Employment, Termination of Consultancy or Termination of
Directorship occurs prior to a specified date, or within a specified time period
following receipt or exercise of the Award, or (ii) the Holder at any time, or
during a specified time period, engages in any activity in competition with the
Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Administrator or (iii) the Holder incurs a
Termination of Employment, Termination of Consultancy or Termination of
Directorship for "cause" (as such term is defined in the sole and absolute
discretion of the Committee, or as set forth in a written agreement relating to
such Award between the Company and the Holder).

     8.8. Effect of Plan Upon Options and Compensation Plans. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary, or (b) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper

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<PAGE>   14

corporate purpose including but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, limited liability company, firm or association.

     8.9. Compliance with Laws. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.

     8.10. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.

     8.11. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.

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