NANOMETRICS INCORPORATED

                         2000 EMPLOYEE STOCK OPTION PLAN

      1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:

            o     to  attract  and  retain  the  best  available  personnel  for
                  positions of substantial responsibility,

            o     to provide  additional  incentive to Employees,  Directors and
                  Consultants, and

            o     to promote the success of the Company's business.

            Options  granted  under the Plan may be Incentive  Stock  Options or
Nonstatutory  Stock Options,  as determined by the  Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

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

            (a)  "Administrator"  means  the Board or any of its  Committees  as
shall be administering the Plan, in accordance with Section 4 of the Plan.

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

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

            (d) "Code" means the Internal Revenue Code of 1986, as amended.

            (e)  "Committee"  means a committee  of  Directors  appointed by the
Board in accordance with Section 4 of the Plan.

            (f) "Common Stock" means the common stock of the Company.

            (g)  "Company"   means   Nanometrics   Incorporated,   a  California
corporation.

            (h) "Consultant" means any person,  including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.

            (i) "Director" means a member of the Board.

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            (j) "Disability" means total and permanent  disability as defined in
Section 22(e)(3) of the Code.

            (k) "Employee" means any person,  including  Officers and Directors,
employed by the Company or any Parent or  Subsidiary  of the Company.  A Service
Provider  shall  not  cease to be an  Employee  in the case of (i) any  leave of
absence  approved  by the Company or (ii)  transfers  between  locations  of the
Company or between the Company,  its Parent,  any Subsidiary,  or any successor.
For purposes of Incentive  Stock Options,  no such leave may exceed ninety days,
unless  reemployment  upon  expiration of such leave is guaranteed by statute or
contract.  If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option  held by the  Optionee  shall cease to be treated as an  Incentive  Stock
Option and shall be treated for tax  purposes as a  Nonstatutory  Stock  Option.
Neither  service as a Director  nor payment of a  director's  fee by the Company
shall be sufficient to constitute "employment" by the Company.

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

            (m) "Fair Market Value" means,  as of any date,  the value of Common
Stock determined as follows:

                  (i) If the  Common  Stock is listed on any  established  stock
exchange or a national market system,  including  without  limitation the Nasdaq
National Market or The Nasdaq  SmallCap  Market of The Nasdaq Stock Market,  its
Fair  Market  Value  shall be the  closing  sales  price for such  stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of  determination,  as reported in
The  Wall  Street  Journal  or such  other  source  as the  Administrator  deems
reliable;

                  (ii) If the Common Stock is  regularly  quoted by a recognized
securities dealer but selling prices are not reported,  the Fair Market Value of
a Share of Common  Stock  shall be the mean  between  the high bid and low asked
prices for the Common  Stock on the last market  trading day prior to the day of
determination,  as reported in The Wall Street  Journal or such other  source as
the Administrator deems reliable; or

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

            (n) "Incentive  Stock Option" means an Option intended to qualify as
an incentive  stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

            (o)  "Nonstatutory  Stock  Option"  means an Option not  intended to
qualify as an Incentive Stock Option.

            (p)  "Notice  of  Grant"  means  a  written  or  electronic   notice
evidencing  certain  terms  and  conditions  of an  individual  Option  or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.


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            (q) "Officer" means a person who is an officer of the Company within
the  meaning  of Section 16 of the  Exchange  Act and the rules and  regulations
promulgated thereunder.

            (r) "Option" means a stock option granted pursuant to the Plan.

            (s) "Option Agreement" means an agreement between the Company and an
Optionee  evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

            (t) "Option  Exchange  Program" means a program whereby  outstanding
Options are surrendered in exchange for Options with a lower exercise price.

            (u) "Optioned  Stock" means the Common Stock subject to an Option or
Stock Purchase Right.

            (v) "Optionee"  means the holder of an  outstanding  Option or Stock
Purchase Right granted under the Plan.

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

            (x) "Plan" means this 2000 Stock Plan.

            (y)  "Restricted  Stock"  means  shares  of  Common  Stock  acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

            (z) "Restricted Stock Purchase  Agreement" means a written agreement
between the  Company  and the  Optionee  evidencing  the terms and  restrictions
applying to stock purchased under a Stock Purchase Right.  The Restricted  Stock
Purchase  Agreement is subject to the terms and  conditions  of the Plan and the
Notice of Grant.

            (aa)  "Rule  16b-3"  means  Rule  16b-3 of the  Exchange  Act or any
successor to Rule 16b-3,  as in effect when  discretion is being  exercised with
respect to the Plan.

            (bb) "Section 16(b) " means Section 16(b) of the Exchange Act.

            (cc) "Service Provider" means an Employee, Director or Consultant.

            (dd)  "Share"  means a share of the Common  Stock,  as  adjusted  in
accordance with Section 13 of the Plan.

            (ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

            (ff) "Subsidiary" means a "subsidiary  corporation",  whether now or
hereafter existing, as defined in Section 424(f) of the Code.


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<PAGE>

      3. Stock Subject to the Plan.  Subject to the  provisions of Section 13 of
the Plan, the maximum  aggregate  number of Shares that may be optioned and sold
under the Plan is two million four hundred fifty  thousand  (2,450,000)  Shares.
The Shares may be authorized, but unissued, or reacquired Common Stock.

            If  an  Option  or  Stock   Purchase   Right   expires   or  becomes
unexercisable  without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become  available for future grant or sale under the Plan (unless the Plan
has terminated);  provided,  however, that Shares that have actually been issued
under the  Plan,  whether  upon  exercise  of an  Option or Right,  shall not be
returned  to the Plan and shall not become  available  for  future  distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.

      4. Administration of the Plan.

            (a) Procedure.

                  (i) Multiple Administrative Bodies.  Different Committees with
respect to different groups of Service Providers may administer the Plan.

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

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

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

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

                  (i) to determine the Fair Market Value;

                  (ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;

                  (iii) to determine  the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;

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


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<PAGE>

                  (v) to determine the terms and  conditions,  not  inconsistent
with the  terms of the  Plan,  of any  Option or Stock  Purchase  Right  granted
hereunder.  Such  terms and  conditions  include,  but are not  limited  to, the
exercise  price,  the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or  waiver  of  forfeiture  restrictions,  and  any  restriction  or  limitation
regarding  any  Option or Stock  Purchase  Right or the  shares of Common  Stock
relating thereto,  based in each case on such factors as the  Administrator,  in
its sole discretion, shall determine;

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

                  (vii) to institute an Option Exchange Program;

                  (viii) to  construe  and  interpret  the terms of the Plan and
awards granted pursuant to the Plan;

                  (ix) to  prescribe,  amend and rescind  rules and  regulations
relating to the Plan,  including  rules and  regulations  relating to  sub-plans
established  for the purpose of qualifying  for  preferred  tax treatment  under
foreign tax laws;

                  (x) to modify or amend  each  Option or Stock  Purchase  Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the  post-termination  exercisability  period of Options  longer  than is
otherwise provided for in the Plan;

                  (xi) to allow Optionees to satisfy withholding tax obligations
by  electing  to have the  Company  withhold  from the Shares to be issued  upon
exercise of an Option or Stock  Purchase  Right that  number of Shares  having a
Fair Market Value equal to the amount  required to be withheld.  The Fair Market
Value of the  Shares to be  withheld  shall be  determined  on the date that the
amount of tax to be withheld is to be  determined.  All elections by an Optionee
to have Shares  withheld for this  purpose  shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;

                  (xii) to  authorize  any  person to  execute  on behalf of the
Company  any  instrument  required  to  effect  the  grant of an Option or Stock
Purchase Right previously granted by the Administrator;

                  (xiii) to make all other  determinations  deemed  necessary or
advisable for administering the Plan.

            (c)  Effect  of  Administrator's   Decision.   The   Administrator's
decisions,  determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

      5. Eligibility.  Nonstatutory  Stock Options and Stock Purchase Rights may
be granted to Service Providers.  Incentive Stock Options may be granted only to
Employees.


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<PAGE>

      6. Limitations.

            (a) Each  Option  shall be  designated  in the Option  Agreement  as
either an  Incentive  Stock  Option or a  Nonstatutory  Stock  Option.  However,
notwithstanding  such designation,  to the extent that the aggregate Fair Market
Value  of  the  Shares  with  respect  to  which  Incentive  Stock  Options  are
exercisable  for the first time by the Optionee  during any calendar year (under
all plans of the Company and any Parent or Subsidiary)  exceeds  $100,000,  such
Options shall be treated as  Nonstatutory  Stock  Options.  For purposes of this
Section 6(a),  Incentive  Stock Options shall be taken into account in the order
in which  they  were  granted.  The Fair  Market  Value of the  Shares  shall be
determined as of the time the Option with respect to such Shares is granted.

            (b)  Neither the Plan nor any Option or Stock  Purchase  Right shall
confer upon an Optionee  any right with  respect to  continuing  the  Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the  Optionee's  right or the  Company's  right to  terminate  such
relationship at any time, with or without cause.

            (c) The following limitations shall apply to grants of Options:

                  (i) No Service  Provider shall be granted,  in any fiscal year
of the Company, Options to purchase more than 1,000,000 Shares.

                  (ii) In connection with his or her initial service,  a Service
Provider  may be  granted  Options to  purchase  up to an  additional  1,000,000
Shares,  which  shall not count  against the limit set forth in  subsection  (i)
above.

                  (iii)   The   foregoing    limitations   shall   be   adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.

                  (iv) If an Option is  cancelled in the same fiscal year of the
Company in which it was granted  (other than in  connection  with a  transaction
described  in Section  13),  the  cancelled  Option will be counted  against the
limits set forth in  subsections  (i) and (ii) above.  For this purpose,  if the
exercise  price of an Option is reduced,  the  transaction  will be treated as a
cancellation of the Option and the grant of a new Option.

      7. Term of Plan.  Subject to Section 20 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 16 of the Plan.

      8. Term of Option.  The term of each Option  shall be stated in the Option
Agreement.  In the case of an Incentive Stock Option, the term shall be ten (10)
years  from the date of grant or such  shorter  term as may be  provided  in the
Option Agreement.  Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive  Stock Option is granted,  owns stock
representing  more than ten percent (10%) of the total combined  voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive  Stock  Option  shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.


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<PAGE>

      9. Option Exercise Price and Consideration.

            (a) Exercise  Price.  The per share exercise price for the Shares to
be  issued  pursuant  to  exercise  of an  Option  shall  be  determined  by the
Administrator, subject to the following:

                  (i) In the case of an Incentive Stock Option

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

                        (B)  granted  to any  Employee  other  than an  Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

                  (ii) In the case of a Nonstatutory Stock Option, the per Share
exercise  price  shall  be  determined  by the  Administrator.  In the case of a
Nonstatutory   Stock   Option   intended   to  qualify   as   "performance-based
compensation"  within the meaning of Section  162(m) of the Code,  the per Share
exercise  price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                  (iii)  Notwithstanding  the foregoing,  Options may be granted
with a per Share  exercise  price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

            (b)  Waiting  Period and  Exercise  Dates.  At the time an Option is
granted,  the Administrator  shall fix the period within which the Option may be
exercised and shall determine any conditions  that must be satisfied  before the
Option may be exercised.

            (c) Form of  Consideration.  The  Administrator  shall determine the
acceptable form of consideration for exercising an Option,  including the method
of payment.  In the case of an Incentive Stock Option,  the Administrator  shall
determine  the  acceptable  form of  consideration  at the time of  grant.  Such
consideration may consist entirely of:

                  (i) cash;

                  (ii) check;

                  (iii) promissory note;

                  (iv)  other  Shares  which (A) in the case of Shares  acquired
upon  exercise of an option,  have been owned by the  Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender  equal to the aggregate  exercise price of the Shares as to which said
Option shall be exercised;


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<PAGE>

                  (v)  consideration  received by the  Company  under a cashless
exercise program implemented by the Company in connection with the Plan;

                  (vi) a reduction in the amount of any Company liability to the
Optionee,  including any liability attributable to the Optionee's  participation
in any Company-sponsored deferred compensation program or arrangement;

                  (vii) any combination of the foregoing methods of payment; or

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

      10. Exercise of Option.

            (a)  Procedure  for Exercise;  Rights as a  Shareholder.  Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the  Administrator and set
forth in the Option  Agreement.  Unless the  Administrator  provides  otherwise,
vesting of Options granted  hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.

                  An Option shall be deemed exercised when the Company receives:
(i) written or  electronic  notice of exercise  (in  accordance  with the Option
Agreement)  from the person  entitled  to  exercise  the  Option,  and (ii) full
payment  for the Shares  with  respect to which the  Option is  exercised.  Full
payment may consist of any consideration and method of payment authorized by the
Administrator  and permitted by the Option Agreement and the Plan. Shares issued
upon  exercise of an Option  shall be issued in the name of the  Optionee or, if
requested  by the  Optionee,  in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate  entry on the books
of the Company or of a duly authorized transfer agent of the Company),  no right
to vote or receive  dividends or any other rights as a  shareholder  shall exist
with respect to the Optioned Stock,  notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares  promptly  after the
Option is exercised.  No  adjustment  will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued,  except as
provided in Section 13 of the Plan.

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

            (b)  Termination  of  Relationship  as a  Service  Provider.  If  an
Optionee ceases to be a Service  Provider,  other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is  specified  in the Option  Agreement to the extent that the Option is
vested on the date of termination  (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option  Agreement,  the Option shall remain  exercisable
for three (3) months  following the Optionee's  termination.  If, on the date of
termination,  the  Optionee  is not vested as to his or her entire  Option,  the
Shares  covered by the unvested  portion of the Option shall revert to the Plan.
If, after  termination,  the Optionee does not exercise his or her Option within
the time specified by the


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<PAGE>

Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.

            (c)  Disability of Optionee.  If an Optionee  ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of  termination  (but in no event
later than the  expiration of the term of such Option as set forth in the Option
Agreement).  In the absence of a  specified  time in the Option  Agreement,  the
Option shall remain  exercisable for twelve (12) months following the Optionee's
termination.  If, on the date of  termination,  the Optionee is not vested as to
his or her entire  Option,  the Shares  covered by the  unvested  portion of the
Option shall revert to the Plan.  If, after  termination,  the Optionee does not
exercise his or her Option within the time  specified  herein,  the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

            (d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be  exercised  within such period of time as is  specified in the
Option  Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant),  by the  Optionee's  estate or by a
person who acquires the right to exercise the Option by bequest or  inheritance,
but only to the extent  that the  Option is vested on the date of death.  In the
absence of a specified  time in the Option  Agreement,  the Option  shall remain
exercisable for twelve (12) months following the Optionee's termination.  If, at
the time of death,  the  Optionee is not vested as to his or her entire  Option,
the Shares  covered by the  unvested  portion  of the Option  shall  immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s)  entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution.  If the
Option is not so exercised  within the time specified  herein,  the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

            (e) Buyout  Provisions.  The  Administrator may at any time offer to
buy out for a payment in cash or Shares an Option  previously  granted  based on
such terms and conditions as the  Administrator  shall establish and communicate
to the Optionee at the time that such offer is made.

      11. Stock Purchase Rights.

            (a) Rights to Purchase.  Stock Purchase  Rights may be issued either
alone,  in addition  to, or in tandem with other awards  granted  under the Plan
and/or cash awards made outside of the Plan. After the Administrator  determines
that it will offer Stock  Purchase  Rights  under the Plan,  it shall advise the
offeree  in  writing or  electronically,  by means of a Notice of Grant,  of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time  within  which the offeree  must accept such offer.  The offer shall be
accepted by  execution  of a  Restricted  Stock  Purchase  Agreement in the form
determined by the Administrator.

            (b)  Repurchase   Option.   Unless  the   Administrator   determines
otherwise,  the Restricted  Stock Purchase  Agreement  shall grant the Company a
repurchase option  exercisable upon the voluntary or involuntary  termination of
the  purchaser's  service  with the Company for any reason  (including  death or
Disability).   The  purchase  price  for  Shares  repurchased  pursuant  to  the
Restricted


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<PAGE>

Stock Purchase  Agreement  shall be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to the Company.
The repurchase option shall lapse at a rate determined by the Administrator.

            (c) Other Provisions.  The Restricted Stock Purchase Agreement shall
contain such other terms,  provisions and conditions not  inconsistent  with the
Plan as may be determined by the Administrator in its sole discretion.

            (d)  Rights  as a  Shareholder.  Once the  Stock  Purchase  Right is
exercised,  the  purchaser  shall  have  the  rights  equivalent  to  those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized  transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

      12.  Non-Transferability  of Options  and Stock  Purchase  Rights.  Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or  distribution  and may be
exercised,  during the lifetime of the Optionee,  only by the  Optionee.  If the
Administrator makes an Option or Stock Purchase Right transferable,  such Option
or Stock  Purchase Right shall contain such  additional  terms and conditions as
the Administrator deems appropriate.

      13.  Adjustments Upon Changes in  Capitalization,  Dissolution,  Merger or
Asset Sale.

            (a) Changes in Capitalization. Subject to any required action by the
shareholders  of the Company,  the number of shares of Common  Stock  covered by
each  outstanding  Option and Stock Purchase Right,  and the number of shares of
Common Stock which have been  authorized  for issuance  under the Plan but as to
which no Options or Stock  Purchase  Rights have yet been  granted or which have
been returned to the Plan upon  cancellation or expiration of an Option or Stock
Purchase  Right,  as well as the price per share of Common Stock covered by each
such  outstanding  Option  or Stock  Purchase  Right,  shall be  proportionately
adjusted for any  increase or decrease in the number of issued  shares of Common
Stock  resulting  from a stock  split,  reverse  stock  split,  stock  dividend,
combination or  reclassification  of the Common Stock,  or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of  consideration  by the Company;  provided,  however,  that  conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of  consideration."  Such adjustment shall be made by the Board,
whose  determination  in that respect  shall be final,  binding and  conclusive.
Except as  expressly  provided  herein,  no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the  number or price of shares of  Common  Stock  subject  to an Option or Stock
Purchase Right.

            (b)  Dissolution  or  Liquidation.  In the  event  of  the  proposed
dissolution or liquidation of the Company,  the Administrator  shall notify each
Optionee as soon as  practicable  prior to the  effective  date of such proposed
transaction.  The Administrator in its discretion may provide for an Optionee to
have the right to exercise  his or her Option  until ten (10) days prior to


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<PAGE>

such  transaction  as to all of the Optioned  Stock covered  thereby,  including
Shares as to which the Option would not otherwise be  exercisable.  In addition,
the Administrator  may provide that any Company  repurchase option applicable to
any Shares  purchased  upon exercise of an Option or Stock  Purchase Right shall
lapse as to all such Shares,  provided the proposed  dissolution  or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been  previously  exercised,  an Option or Stock  Purchase  Right will terminate
immediately prior to the consummation of such proposed action.

            (c) Merger or Asset  Sale.  In the event of a merger of the  Company
with or into another corporation which does not constitute a "Change of Control"
(as defined in Section  14), or the sale of  substantially  all of the assets of
the Company,  each outstanding  Option and Stock Purchase Right shall be assumed
or an equivalent option or right  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 or Stock
Purchase Right,  the Optionee shall fully vest in and have the right to exercise
the Option or Stock  Purchase Right as to all of the Optioned  Stock,  including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or  Stock  Purchase  Right  becomes  fully  vested  and  exercisable  in lieu of
assumption  or  substitution  in the  event of a merger or sale of  assets,  the
Administrator  shall notify the Optionee in writing or  electronically  that the
Option or Stock  Purchase  Right  shall be fully  vested and  exercisable  for a
period of  fifteen  (15) days from the date of such  notice,  and the  Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes  of this  paragraph,  the  Option  or  Stock  Purchase  Right  shall be
considered  assumed if,  following  the merger or sale of assets,  the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets,  the consideration  (whether stock, cash, or other securities or
property)  received  in the merger or sale of assets by holders of Common  Stock
for each Share held on the  effective  date of the  transaction  (and if holders
were offered a choice of consideration,  the type of consideration chosen by the
holders of a majority of the outstanding  Shares);  provided,  however,  that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor  corporation or its Parent,  the Administrator  may, with
the consent of the successor  corporation,  provide for the  consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned  Stock subject to the Option or Stock Purchase  Right,  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.

      14. Vesting Acceleration on Change of Control.

            (a) Vesting Acceleration. In the event of a "Change of Control," (i)
all of the Optionee's  rights to purchase stock under all Option Agreements with
the Company pursuant to the Plan shall be automatically vested in their entirety
on an accelerated basis and be fully exercisable,  and (ii) all of the Company's
rights  to  repurchase  unvested  stock  under  all  Restricted  Stock  Purchase
Agreements  pursuant to the Plan with the Optionee shall lapse in their entirety
on an accelerated basis:

                  (i) as of the  date  immediately  preceding  such  "Change  of
Control" in the event any such Option  Agreement or  Restricted  Stock  Purchase
Agreement is or will be terminated


                                      -11-
<PAGE>

or canceled  (except by mutual consent) or any successor to the Company fails to
assume and agree to perform  all such Option  Agreements  and  Restricted  Stock
Purchase Agreements; or

                  (ii) as of the date  immediately  preceding  such  "Change  of
Control" in the event the Optionee does not or will not receive upon exercise of
the  Optionee's  stock  purchase  rights  under any such Option  Agreement or in
exchange  for the  Optionee's  Restricted  Stock  acquired  pursuant to any such
Restricted Stock Purchase  Agreement the same identical  securities and/or other
consideration  as  is  received  by  all  other   shareholders  in  any  merger,
consolidation,  sale,  exchange or similar  transaction  occurring upon or after
such "Change of Control"; or

                  (iii) as of the date  immediately  preceding any  "Involuntary
Termination"  of the  Optionee  occurring  upon or  after  any such  "Change  of
Control"; or

                  (iv) in the case of an  Optionee  who at the time of a "Change
of  Control"  has  been  designated  as an  executive  officer  by the  Board of
Directors, as of the date twelve (12) months following the first such "Change of
Control,"  provided  that the  Optionee  shall not have  voluntarily  terminated
Optionee's  employment  with the Company  prior to the end of such  twelve-month
period;

whichever shall first occur (all quoted terms as defined below).

            (b) Change of Control.  "Change of Control"  means the occurrence of
any of the following events:

                  (i) Any "person"  (as such term is used in Sections  13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), or group of "persons"
acting in  concert,  is or becomes  the  "beneficial  owner" (as defined in Rule
13d-3 under said Act),  directly or  indirectly,  of  securities  of the Company
representing 50% or more of the total voting power  represented by the Company's
then outstanding voting securities; or

                  (ii) A change in the  composition of the Board of Directors of
the  Company as a result of which  fewer than a majority  of the  directors  are
"Incumbent Directors." "Incumbent Directors" shall mean directors who either (A)
are  directors  of the Company as of the date  hereof,  or (B) are  elected,  or
nominated for election,  to the Board of Directors  with the  affirmative  votes
(either by a specific vote or by approval of the proxy  statement of the Company
in which such  person is named as a nominee for  election as a director  without
objection  to such  nomination)  of at  least  three-quarters  of the  Incumbent
Directors at the time of such election or  nomination  (but shall not include an
individual  whose  election or  nomination  is in  connection  with an actual or
threatened  proxy contest relating to the election of directors of the Company);
or

                  (iii)  The  shareholders  of the  Company  approve a merger or
consolidation of the Company with any other corporation,  other than a merger or
consolidation  which  would  result  in the  voting  securities  of the  Company
outstanding  immediately  prior  thereto  continuing  to  represent  (either  by
remaining  outstanding  or by being  converted  into  voting  securities  of the
surviving entity or such surviving entity's parent) at least fifty percent (50%)
of the total voting power represented by the voting securities of the Company or
such


                                      -12-
<PAGE>

surviving entity or such surviving entity's parent outstanding immediately after
such merger or consolidation,  or the shareholders of the Company approve a plan
of  complete  liquidation  of the  Company  or an  agreement  for  the  sale  or
disposition by the Company of all or substantially all the Company's assets.

            (c) Involuntary  Termination.  "Involuntary  Termination" shall mean
(i) a termination by the Company of the Optionee's  employment  with the Company
other  than for Cause;  (ii)  without  Optionee's  written  consent,  a material
reduction  by the  Company  in the base  salary  of the  Optionee  as in  effect
immediately prior to such reduction; (iii) without Optionee's written consent, a
material  reduction  by the Company in the kind or level of  employee  benefits,
including bonuses, to which the Optionee was entitled  immediately prior to such
reduction,  with the result  that the  Optionee's  overall  benefits  package is
materially reduced;  (iv) without Optionee's written consent,  the relocation of
the  Optionee  to a facility  or a location  more than fifty (50) miles from the
Optionee's then present  location;  or (v) in the case of an Optionee who at the
time of a "Change of Control" has been designated as an executive officer by the
Board of Directors, a material diminution of the Optionee's duties, authority or
responsibilities  as in effect  immediately  prior to the  "Change  of  Control"
(provided  that the fact that the Company as a result of the "Change of Control"
is no longer independent shall not be construed as a "material diminution").

            (d)  Cause.  "Cause"  shall  mean (i) any  willful  act of  personal
dishonesty,  fraud or misrepresentation taken by the Optionee in connection with
his or her  responsibilities  as an  employee  which was  intended  to result in
substantial  gain or personal  enrichment  of the Optionee at the expense of the
Company;  (ii) the  Optionee's  arrest  for a  felony,  fraud or an act of moral
turpitude;   or  (iii)  the   Optionee's   willful  and  continued   failure  to
substantially  perform his or her principal duties and obligations of employment
and follow  written  policies  applicable to all employees  (other than any such
failure  resulting  from  incapacity due to physical or mental  illness),  which
failure is not remedied in a reasonable  period of time after receipt of written
notice from the Company.

            (e) Voluntary Resignation;  Termination For Cause. If the Optionee's
status  as a  Service  Provider  of the  Company  terminates  by  reason  of the
Optionee's  voluntary  resignation  (and not Involuntary  Termination) or if the
Optionee's  status as a Service Provider of the Company is terminated for Cause,
in either case prior to such time as  accelerated  vesting occurs as provided in
Section  14(a)  hereof,  then the  Optionee  shall not be  entitled  to  receive
accelerated vesting under Section 14(a) hereof.

      15. Date of Grant.  The date of grant of an Option or Stock Purchase Right
shall  be,  for all  purposes,  the date on which  the  Administrator  makes the
determination  granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

      16. Amendment and Termination of the Plan.

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


                                      -13-
<PAGE>

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

            (c) Effect of Amendment or  Termination.  No amendment,  alteration,
suspension or  termination  of the Plan shall impair the rights of any Optionee,
unless mutually  agreed  otherwise  between the Optionee and the  Administrator,
which  agreement  must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers  granted to it hereunder  with respect to Options  granted  under the
Plan prior to the date of such termination.

      17. Conditions Upon Issuance of Shares.

            (a) Legal  Compliance.  Shares  shall not be issued  pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock  Purchase  Right and the  issuance  and  delivery of such Shares  shall
comply  with  Applicable  Laws and shall be further  subject to the  approval of
counsel for the Company with respect to such compliance.

            (b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase  Right,  the Company may require the person  exercising
such Option or Stock  Purchase Right to represent and warrant at the time of any
such  exercise  that the  Shares are being  purchased  only for  investment  and
without  any  present  intention  to sell or  distribute  such Shares if, in the
opinion of counsel for the Company, such a representation is required.

      18. Inability to Obtain Authority.  The inability of the Company to obtain
authority  from any  regulatory  body having  jurisdiction,  which  authority is
deemed by the Company's  counsel to be necessary to the lawful issuance and sale
of any Shares  hereunder,  shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

      19. Reservation of Shares. The Company, during the term of this Plan, will
at all  times  reserve  and keep  available  such  number  of Shares as shall be
sufficient to satisfy the requirements of the Plan.

      20.  Shareholder  Approval.  The Plan shall be subject to  approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted.  Such  shareholder  approval shall be obtained in the manner and to the
degree required under Applicable Laws.


                                      -14-