NETWORK EQUIPMENT TECHNOLOGIES, INC.
                        1997 N.E.T. STOCK OPTION PROGRAM
                       AMENDED AND RESTATED APRIL 14, 1998

                                TABLE OF CONTENTS




ARTICLE ONE...................................................................2

GENERAL PROVISIONS............................................................2
I.       PURPOSES OF PROGRAM..................................................2
II.      ADMINISTRATION OF PROGRAM............................................2
III.     STOCK SUBJECT TO PROGRAM.............................................3

ARTICLE TWO...................................................................5

DISCRETIONARY OPTION GRANTS...................................................5
I.       ELIGIBILITY FOR OPTION GRANTS........................................5
II.      TERMS AND CONDITIONS OF OPTIONS......................................5
III.     CORPORATE TRANSACTION................................................8
IV.      CANCELLATION AND REGRANT OF OPTIONS.................................10
V.       STOCK APPRECIATION RIGHTS; HOSTILE TAKE-OVER;
         CHANGE IN CONTROL...................................................10

ARTICLE THREE................................................................13

RESTRICTED STOCK AWARDS......................................................13
I.       DETERMINATION OF ELIGIBILITY AND AMOUNT OF AWARDS...................13
II.      RESTRICTED STOCK....................................................13
III.     VESTING SCHEDULE....................................................13

ARTICLE FOUR.................................................................17

MISCELLANEOUS................................................................17
I.       AMENDMENT OF PROGRAM................................................17
II.      TAX WITHHOLDING.....................................................17
III.     TERM OF PROGRAM.....................................................17
IV.      USE OF PROCEEDS.....................................................18
V.       REGULATORY APPROVALS................................................18
VI.      NO EMPLOYMENT/SERVICE RIGHTS........................................18
VII.     MISCELLANEOUS PROVISIONS............................................18



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                           N.E.T. STOCK OPTION PROGRAM

                                   ARTICLE ONE

                               GENERAL PROVISIONS


I.   PURPOSES OF PROGRAM

     A. This N.E.T. Stock Option Program (the "Program") is adopted by the Board
of Directors ("Board") of Network Equipment Technologies, Inc. ("N.E.T." or the
"Corporation") as of April 1, 1997 (the "Effective Date") to promote the
interests of Network Equipment Technologies, Inc., a Delaware corporation (the
"Corporation"), by allowing eligible individuals to acquire or increase
proprietary interests in the Corporation as an incentive to remain in the
service of the Corporation (or its "parent" or "subsidiary" corporations, as
defined in Section 424 of the Internal Revenue Code).

     B. This Program is intended to provide for the granting of options to
employees and consultants who are not Officers or Directors of the Corporation
on substantively the same terms and conditions as the Network Equipment
Technologies, Inc. 1993 Stock Option Plan.

     C. This Program is amended and restated as of April 14, 1998 to include the
provisions of and provide a successor plan for the Corporation's 1988 Restricted
Stock Award Plan (the "1988 Plan"). No restricted stock shall be granted under
the 1988 Plan from and after April 14, 1998. The terms and conditions of
restricted stock granted under the 1988 Plan before April 14, 1998 are not
affected by the amendment of this Program.


II.  ADMINISTRATION OF PROGRAM

     A. This Program shall be administered by a committee (the "Program
Administrator" or "Committee") of two (2) or more non-employee Directors
appointed by the Corporation's Board. Committee members shall serve for such
periods as the Board may determine and may be removed by the Board at any time.
As of the Effective Date, the Compensation Committee of the Board is the Program
Administrator.

     B. The Program Administrator shall have full authority (subject to the
provisions of this Program) to establish such rules and regulations as it deems
appropriate for the proper administration of this Program and to make such
determinations and interpretations concerning this Program and options granted
under this Program as it deems necessary or advisable. Decisions of the Program
Administrator shall be final and binding upon all parties.

     C. The Program Administrator shall have full authority to grant options and
stock appreciation rights pursuant


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to this Program and restricted stock pursuant to this Program and to determine
in its sole discretion which eligible individuals are to receive such options,
rights, or restricted stock, the number of shares to be covered by each such
option or grant, the time(s) at which each option or grant is to become vested
or exercisable, and the maximum term for which each option is to be outstanding.
Only non-statutory options ("Non-qualified Options") will be issuable under this
Program.


III. STOCK SUBJECT TO PROGRAM

     A. An aggregate of 1,000,000 shares of the Corporation's common stock, par
value $0.01 per share ("Common Stock") is available for issuance under this
Program. These shares may be authorized but unissued shares of Common Stock or
reacquired shares of Common Stock, including shares repurchased by the
Corporation on the open market. The Program Administrator shall periodically
recommend to the Board the shares to be issued pursuant to this Program and the
Board shall authorize such issuance as it deems to be in the best interests of
the Corporation.

     B. To the extent that an option granted under this Program or a restricted
stock award under the 1988 Plan expires or terminates for any reason before
exercise or vesting in full (including any option canceled in accordance with
the cancellation-regrant provisions of this Program), the shares then subject to
the option or restricted stock award shall again be available for grant under
this Program. Shares repurchased by the Corporation pursuant to any repurchase
rights available under this Program, shall not again become available for option
grants under this Program. If the exercise price of an option granted under this
Program is paid with shares of Common Stock, or if shares of Common Stock
otherwise issuable under this Program are withheld by the Corporation in
satisfaction of withholding taxes incurred upon the exercise of an option, then
the number of shares available for issuance under this Program shall be reduced
by the gross number of shares for which the option is exercised and not by the
net number of shares issued to the option holder.

     C. If a change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, or other similar
change, then appropriate adjustments shall be made to (i) the number and/or
class of shares issuable under this Program, and (ii) the number and/or class of
shares and price per share in effect under each then-outstanding option or
restricted stock award granted under this Program. The purpose of adjustments to
outstanding and restricted stock awards options shall be to preclude the
enlargement or dilution of rights and benefits under such options or awards. The
adjustments determined by the Program Administrator shall be final, binding, and
conclusive.



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     D. The Corporation may not issue stock options covering in the aggregate
more than 100,000 shares of Common Stock (subject to adjustments as required
above) to any one participant in any one-year period.






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                                   ARTICLE TWO

                           DISCRETIONARY OPTION GRANTS


I.   ELIGIBILITY FOR OPTION GRANTS

     The following persons are eligible to participate in this Program:

     A. Key employees of the Corporation (or its parent or subsidiary
corporations) whose services contribute to the management, growth, and financial
success of the Corporation (or its parent or subsidiary corporations), and

     B. Those consultants and independent contractors who provide valuable
services to the Corporation (or its parent or subsidiary corporations).

     C. Notwithstanding the foregoing, members of the Board of Directors and
Officers of the Corporation shall not be eligible to participate in this
Program.


II.  TERMS AND CONDITIONS OF OPTIONS

     Options granted pursuant to this Program may only be Non-qualified Options.
Each option shall be evidenced by one or more written instruments in a form
approved by the Program Administrator. Each such instrument shall comply with
the terms and conditions specified below. Failure to issue, or (if agreement is
required) to agree to, an instrument evidencing an option shall not invalidate
the option grant; however, the option shall not be exercisable until a written
instrument has been issued and (if required) agreed to.

     A.   Option Price.

     1. The option price per share shall be fixed by the Program Administrator,
but shall not be less than the "fair market value" (defined below) per share of
Common Stock on the date of the option grant.

     2. The option price shall, subject to Section III below, be immediately due
upon exercise of the option and shall be payable in one or a combination of the
following forms:

          (a) cash or check payable to the Corporation;


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          (b) shares of Common Stock held by the optionee for the period
     necessary to avoid a charge to the Corporation's earnings for financial
     reporting purposes and valued at "fair market value" on the exercise date;
     or

          (c) a broker-dealer sale-and-remittance procedure pursuant to which
     the optionee shall provide irrevocable written instructions (i) to a
     designated brokerage firm to effect the immediate sale of the option shares
     and remit to the Corporation, from the sale proceeds available on the
     settlement date, sufficient funds to cover the aggregate option price plus
     all income and employment taxes required to be withheld by the Corporation
     in connection with the exercise, and (ii) to the Corporation to deliver the
     certificates for the purchased shares directly to the brokerage firm to
     complete the transaction.

     3. The Program Administrator may assist any optionee in the exercise of any
option granted under this Program and the satisfaction of any federal and state
income and employment tax obligations arising therefrom by (a) authorizing a
loan to the optionee by the Corporation, or (b) permitting the optionee to pay
the option price in installments over a period of months or years. The terms of
any loan or installment method of payment (including the interest rate and terms
of repayment) will be established by the Program Administrator in its sole
discretion. Loans and installment payments may be allowed with or without
security or collateral (other than to optionees who are consultants or
independent contractors, who must adequately secure any loan by collateral other
than the purchased shares), but the maximum credit available to the optionee
shall not exceed the sum of (i) the aggregate option price (less par value) of
the purchased shares, plus (ii) any federal and state income and employment tax
liability incurred by the optionee in connection with the exercise of the
option.

     4. The "fair market value" per share of Common Stock on any relevant date
shall be determined as follows:

          (a) If the Common Stock is listed or admitted to trading on any
     national stock exchange, then the fair market value shall be the closing
     selling price per share of Common Stock on the date in question on the
     stock exchange determined by the Program Administrator to be the primary
     market for the Common Stock, as officially quoted on the composite tape of
     transactions on that exchange. If there is no reported sale of Common Stock
     on that exchange on the date in question, the fair market value shall be
     the closing selling price on the exchange on the next preceding date for
     which a closing selling price is quoted.

          (b) If the Common Stock is not listed or admitted to trading on any
     national stock exchange, but is traded 


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     on the Nasdaq National Market System, the fair market value shall be the
     closing selling price per share of Common Stock on the date in question as
     reported on that system. If there is no closing selling price for the
     Common Stock on the date in question, then the fair market value shall be
     the closing selling price for the next preceding date for which a closing
     selling price is quoted.

     B. Term and Exercise of Options.

     1. Each option granted under this Program shall be exercisable at such
time(s), during such period, and for such number of shares as shall be
determined by the Program Administrator and set forth in the written instrument
evidencing the option. No option granted under this Program shall have a term in
excess of ten (10) years after the grant date.

     2. During the lifetime of the optionee, the option shall be exercisable
only by the optionee and shall not be assignable or transferable by the optionee
other than by will or by the laws of descent and distribution following the
optionee's death.

     3. Exercise of an option shall be effected by delivery to the Corporation
of a written notice in a form approved by the Program Administrator specifying
the number of shares as to which the option is being exercised, accompanied by
payment of the exercise price (or provision for payment acceptable to the
Program Administrator), and containing such other provisions as the Program
Administrator approves from time to time.

     C. Termination of Service.

     1. Except as otherwise approved by the Program Administrator, if the
optionee's service to the Corporation is terminated:

          (a) for cause, each then-outstanding option held by the optionee shall
     terminate immediately;

          (b) for any reason other than cause, death, or permanent disability,
     each then-outstanding option held by the optionee shall expire no later
     than three (3) months after the termination date;

          (c) by reason of permanent disability (as defined in Section 22(e)(3)
     of the Internal Revenue Code), each then-outstanding option held by the
     optionee shall expire no later than twelve (12) months after the
     termination date; or

          (d) by reason of the optionee's death, or if the optionee dies during
     the three (3) months following 


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     termination of his or her employment other than for cause or by reason of
     permanent disability, each then-outstanding option held by the optionee
     shall expire no later than twelve (12) months following the termination
     date. Following the optionee's death, the option may be exercised by the
     personal representative of the optionee's estate or by the person(s) to
     whom the option is transferred pursuant to the optionee's will or in
     accordance with the laws of descent and distribution.

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

     3. Following termination of the optionee's service, an option shall not be
exercisable to any greater extent than on the termination date; provided,
however, that the Program Administrator shall have complete discretion, at any
time while the option remains outstanding, to permit the option to be exercised,
not only with respect to the number of shares for which the option is
exercisable at the time of the termination, but also with respect to one or more
subsequent installments of purchasable shares for which the option would
otherwise have become exercisable had termination not occurred.

     4. For purposes of this Program:

          (a) An optionee shall be deemed to remain in service to the
     Corporation for so long as he or she renders (or in the case of consultants
     or advisors, has agreed to render) services on a periodic basis to the
     Corporation (or any parent or subsidiary) as an employee or an independent
     consultant or advisor.

          (b) An optionee shall be considered to be an employee for so long as
     he or she remains in the employ of the Corporation (or any parent or
     subsidiary), subject to the control and direction of the employer entity as
     to the work to be performed and the manner and method of performance.

     D. Stockholder Rights.

     An optionee shall have no stockholder rights with respect to any option
shares until he or she has exercised the option and paid (or made arrangements
satisfactory to the Program Administrator to pay) the option price for the
purchased shares.


III. CORPORATE TRANSACTION

     A. In the event of any of the following stockholder-approved transactions
(a "Corporate Transaction"):


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          1. a merger or consolidation in which the Corporation is not the
     surviving entity, except for a transaction whose principal purpose is to
     change the state of the Corporation's incorporation,

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

          3. any "reverse" merger in which the Corporation is the surviving
     entity, but in which securities possessing more than 50% of the total
     combined voting power of the Corporation's outstanding securities are
     transferred to holders other than those who owned such voting power
     immediately before the merger, then immediately before the Effective Date
     of the Corporate Transaction, each option granted under this Program shall
     become fully exercisable ("accelerate") with respect to the total number of
     shares of Common Stock then subject to the option. However, an option shall
     not accelerate if and to the extent: (i) the option is, in connection with
     the Corporate Transaction, either to be assumed by the successor
     corporation or parent thereof or to be replaced by an equivalent option to
     purchase shares of the capital stock of the successor corporation or parent
     thereof, or (ii) acceleration of the option is subject to other limitations
     imposed by the Program Administrator at the time of grant. The
     determination of equivalence under clause (i) above shall be made by the
     Program Administrator and shall be final, binding, and conclusive.

     B. Upon the consummation of the Corporate Transaction, all options granted
under this Program shall terminate and cease to be outstanding, except to the
extent assumed by the successor (or surviving) corporation or its parent
company.

     C. Each option granted under this Program that is replaced by an equivalent
option in a Corporate Transaction, or that otherwise continues in effect, shall
be appropriately adjusted, immediately after the Corporate Transaction, to apply
to the number and class of securities that would have been issued in the
Corporate Transaction to an actual holder of the number of shares of Common
Stock that were subject to the option immediately before the Corporate
Transaction. Appropriate adjustment shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under this Program following the consummation
of the Corporate Transaction shall be appropriately adjusted.

     D. The grant of options under this Program shall not affect the right of
the Corporation to adjust, reclassify, reorganize, or otherwise change its
capital or business structure 


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or to merge, consolidate, dissolve, liquidate, or sell or transfer all or any
part of its business or assets.


IV.  CANCELLATION AND REGRANT OF OPTIONS

     The Program Administrator may, at any time and from time to time, with the
consent of the affected optionees, cancel any or all outstanding options granted
under this Program and grant in substitution new options covering the same or
different numbers of shares of Common Stock but having an option price per share
not less than the fair market value of the Common Stock on the new grant date.

V.   STOCK APPRECIATION RIGHTS; HOSTILE TAKE-OVER; CHANGE IN CONTROL

     A. As determined by the Program Administrator in its sole discretion, one
or more optionees may be granted the right, exercisable upon such terms and
conditions as the Program Administrator may establish, to surrender all or part
of an unexercised option granted under this Program in exchange for a payment by
the Corporation of an amount equal to the excess of (i) the fair market value
(on the option surrender date) of the number of shares in which the optionee is
at the time vested under the surrendered option (or part thereof), over (ii) the
aggregate option price payable for those shares.

     B. No surrender of an option shall be effective hereunder unless it is
approved by the Program Administrator. If the surrender is approved, then the
payment to the optionee under this Section V may be made in shares of Common
Stock valued at fair market value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Program Administrator determines in
its sole discretion.

     C. If the surrender of an option is rejected by the Program Administrator,
then the optionee shall retain whatever rights he or she had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time before the later of (i) five (5)
business days after receipt of the rejection notice, or (ii) the last day on
which the option is otherwise exercisable in accordance with its terms, but in
no event more than ten (10) years after the date of the option grant.

     D. In the event that an individual optionee under this Program thereafter
becomes a member of the Board of Directors or a Corporate Officer of the
Corporation and is subject to the short-swing profit restrictions of the federal
securities laws, then that individual shall have the following limited stock
appreciation rights in tandem with each option 


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received under this Program. Upon the occurrence of a Hostile Take-Over (defined
below), each option with such a limited stock appreciation right in effect for
at least six (6) months shall automatically be canceled and the optionee shall
be entitled to a cash payment by the Corporation in the amount of the excess of
(i) the Take-Over Price (defined below) of the shares of Common Stock subject to
the canceled option (whether or not the option is otherwise exercisable for such
shares), over (ii) the aggregate exercise price payable for such shares. The
payment shall be made within five (5) days after consummation of the Hostile
Take-Over. Neither the approval of the Program Administrator nor the consent of
the Board shall be required in connection with such option cancellation and cash
payment.

     E. A "Hostile Take-Over" shall be deemed to occur if (i) any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]) of securities possessing more than 50% of the total combined
voting power of the Corporation's outstanding securities pursuant to a tender or
exchange offer that the Board does not recommend that the Corporation's
stockholders accept, and (ii) more than 50% of the securities so acquired are
accepted from holders other than Officers and Directors of the Corporation
subject to Section 16 of the Exchange Act. The "Take-Over Price" per share shall
be the greater of (a) the fair market value per share on the date of
cancellation, as determined pursuant to the valuation provisions of Section
II.A.4 of this Program, or (b) the highest reported price per share paid in
effecting such Hostile Take-Over.

     F. The Program Administrator shall have full discretionary authority,
exercisable either in advance of, or at the time of, a Change in Control
(defined below), to provide for the automatic acceleration of options granted
under this Program upon the occurrence of the Change in Control. The Program
Administrator shall also have full discretionary authority to condition any such
acceleration upon the subsequent termination of the optionee's service to the
Corporation (or a parent or subsidiary) within a specified period after the
Change in Control. The Program Administrator hereby exercises such discretion to
accelerate vesting of all outstanding options held by Officers of the
Corporation whose employment is terminated in conjunction with, or within a year
of, a Change in Control or Corporate Transaction. Any option accelerated in
connection with the Change in Control shall remain fully exercisable until the
expiration of the option term. For all purposes of this Program, a "Change in
Control" shall mean a change in control of the Corporation of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A 


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promulgated under the Exchange Act, whether or not the Corporation is then
subject to such reporting requirement, other than a Corporate Transaction;
provided that, without limitation, a Change in Control shall be deemed to have
occurred if:

          1. any individual, partnership, firm, corporation, association, trust,
     unincorporated organization or other entity, or any syndicate or group
     deemed to be a "person" under Section 14(d)(2) of the Exchange Act, is or
     becomes the "beneficial owner" (as defined in Rule 13d-3 of the General
     Rules and Regulations under the Exchange Act), directly or indirectly, of
     securities of the Corporation representing 40% or more of the combined
     voting power of the Corporation's then-outstanding securities entitled to
     vote in the election of Directors of the Corporation, pursuant to a tender
     or exchange offer that the Board does not recommend that the Corporation's
     stockholders accept; or

          2. during any period of two (2) consecutive years, individuals who, at
     the beginning of such period, constituted the Board and any new members of
     the Board, whose election by the Board or nomination for election by the
     Corporation's stockholders was approved by a vote of at least
     three-quarters (3/4) of the Directors then in office who either were
     Directors at the beginning of the period or whose election or nomination
     for election was previously so approved, cease for any reason to constitute
     a majority thereof.

     G. The shares of Common Stock subject to any option surrendered or canceled
for an appreciation distribution pursuant to this Section V shall not be
available for subsequent option grant under this Program.



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                                  ARTICLE THREE

                             RESTRICTED STOCK AWARDS


I.   DETERMINATION OF ELIGIBILITY AND AMOUNT OF AWARDS

     The persons who shall be eligible to receive restricted stock awards under
this Article shall be such key employees of the Corporation or its subsidiaries,
excluding officers and directors, as the Program Administrator shall select from
time to time. In no event, however, shall any employee owning stock possessing
more than ten percent (10%) of the total combined voting power or value of all
classes of stock of the Corporation or any subsidiary be eligible to receive
shares under this Article.


II.  RESTRICTED STOCK

     A. Restricted stock awards shall be made from time to time under the
Program in recognition of the services rendered to the Corporation or its
subsidiaries by the selected participants. All such restricted stock awards
shall provide for the issuance, either as soon as practicable following the time
of the award or at a later date specified in the agreement evidencing the award,
of shares of the Corporation's Common Stock.

     B. Each recipient of a restricted stock award under the Program shall, at
the time the shares of Common Stock are issued in payment of such award, pay to
the Corporation, in cash or cash equivalent, an amount equal to the aggregate
par value of the issued shares.


III. VESTING SCHEDULE

     A. The interest of an employee in the shares of Common Stock issued to such
employee under this Article may, in the discretion of the Program Administrator,
be fully and immediately vested upon issuance or may vest in one or more
installments in accordance with the vesting provisions of Section III.C. Except
as otherwise provided in Section III.F., the employee may not transfer any of
the Common Stock in which he or she does not have a vested interest.
Accordingly, all unvested shares issued to an employee under the Program shall
bear the restrictive legend specified in Section III.D.1., until such legend is
removed in accordance with Section III.D.2. The employee, however, shall have
all the rights of a stockholder with respect to the shares of Common Stock
issued to him or her 


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hereunder, whether or not his or her interest in such shares is vested.
Accordingly, the employee shall have the right to vote such shares and to
receive any cash dividend paid on such shares. Any new, additional or different
shares of stock or other property (including money paid other than as a cash
dividend) which the holder of unvested Common Stock may have the right to
receive by reason of a stock dividend, stock split or reclassification of Common
Stock or by reason of a merger, consolidation, liquidation or other change in
the capital structure of the Corporation shall be issued to the employee,
subject to (i) the same vesting schedule applicable to his or her unvested
Common Stock and (ii) such escrow arrangements as the Program Administrator
shall deem appropriate.

     B. In the event an employee should, while his or her interest in the Common
Stock remains unvested, (i) attempt to transfer (other than by way of a
permissible gift under Section III.F.) any of the unvested Common Stock or any
interest therein or (ii) cease employment with the Corporation for any reason
whatsoever, then the certificates evidencing the employee's unvested Common
Stock (other than shares which become vested by reason of, or upon, such
termination in accordance with the agreement evidencing the award) shall be
immediately surrendered to the Corporation for cancellation and the employee
shall no longer have any stockholder rights with respect to the canceled Common
Stock. In exchange for the surrendered certificates the employee shall receive a
cash payment from the Corporation equal to the aggregate par value of the
canceled shares. For purposes of this Article, the employee shall not be deemed
to have ceased employment with the Corporation for so long as the employee
remains in the active employ of the Corporation or one or more of its
subsidiaries.

     C. Vesting; Corporate Transaction; Change in Control.

     1. Any shares of Common Stock issued under this Article that are not vested
at the time of such issuance shall vest in one or more installments thereafter.
The elements of the vesting schedule applicable to the issued shares, including
the number of installments in which the shares are to vest, the interval or
intervals (if any) which are to lapse between installments and the effect which
death, disability or other event designated by the Program Administrator is to
have upon the vesting schedule, shall be determined by the Program Administrator
and shall be specified in the stock restriction agreement executed by the
employee at the time the shares are issued.

     2. Should the Corporation's Common Stock be converted into cash or other
shares or securities of the Corporation or any other corporation as a result of
a Corporate Transaction (as defined in Article Two, Section III.A.), then the
shares of Common Stock outstanding at such time under this Article shall
likewise be converted into cash or such other shares or securities, and such
assets may, in the discretion of 


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the Program Administrator, be held in escrow by the Corporation or its successor
and shall thereafter be distributed to the employees from time to time as their
interests therein vest in accordance with the same vesting schedules which are
in effect for their shares of Common Stock immediately prior to such conversion.
However, the interest each employee has in the shares of Common Stock issued to
him or her under this Article (together with any cash or other shares or
securities into which such Common Stock is to be converted) shall become vested
immediately prior to the specified effective date for the Corporate Transaction
if the Company's rights to repurchase or cancel unvested shares under this
Article (for a payment equal to the par value of the shares) are not to be
assigned to the successor corporation or parent thereof in connection with the
Corporate Transaction. If the Corporation is to be acquired by a reverse merger
in which it is to remain the surviving entity, then no accelerated vesting under
the Program shall occur, unless the Program is to be terminated in connection
with such reverse merger.

     3. In the event of a Change in Control (as defined in Article Two, Section
V.F.), then the Program Administrator shall have full power and authority
(exercisable before or after the Change in Control) to accelerate the vesting of
the interests of one or more of the employees in the shares of Common Stock
issued to him or her under this Article.

     4. In the event of a Corporate Transaction, then any outstanding
obligations or commitments to issue Common Stock pursuant to this Article shall
be assumed by the successor corporation or parent thereof.

     D. Restrictive Legends.

     1. Each certificate representing unvested shares of Common Stock (or other
securities) issued under this Article shall bear the following restrictive
legend:

     "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
     RESTRICTIONS ON TRANSFER AND TO CANCELLATION IN ACCORDANCE WITH THE TERMS
     AND CONDITIONS OF ARTICLE THREE OF THE CORPORATION'S 1997 STOCK OPTION
     PROGRAM AND THE STOCK RESTRICTION AGREEMENT EXECUTED THEREUNDER BY THE
     CORPORATION AND THE REGISTERED HOLDER (OR HIS PREDECESSOR IN INTEREST). A
     COPY OF THE 1997 STOCK OPTION PROGRAM AND STOCK RESTRICTION AGREEMENT MAY
     BE OBTAINED FROM THE SECRETARY OF THE CORPORATION."

     2. As the interest of the employee vests in the shares of Common Stock
issued under this Article, the Corporation shall, upon the employee's delivery
of the certificate for such shares, issue a new certificate for the vested
shares without the restrictive legend of Section III.D.1. and a second
certificate for any remaining unvested shares with the Section III.D.1. legend
endorsed thereon. If any unvested shares of the employee


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are surrendered and canceled under Section III.C.3., then the Corporation shall
at the time the cancellation is effected deliver a new certificate, without the
restrictive legend of Section III.D.1., representing the number of shares (if
any) in which the employee is at such time vested and which are accordingly no
longer subject to cancellation by the Corporation.

     E. The Program Administrator may in its discretion waive, in whole or in
part, any cancellation of unvested Common Stock (or other assets) to which an
employee would otherwise be subject under Section III.B. Such a waiver shall
result in the immediate vesting of the employee's interest in the shares of
Common Stock (or other assets) as to which the waiver applies.

     F. As used in this Section III, the term "transfer" shall include (without
limitation) any sale, pledge, encumbrance, gift or other disposition of the
shares of Common Stock issued under Article Four. However, the employee shall
have the right to make a gift of any or all of his unvested shares under Article
to his spouse, parents or children or to a trust established for such spouse,
parents or children, provided the recipient of the gifted shares delivers to the
Corporation a written agreement to be bound by all the provisions of the Program
and the stock restriction agreement executed by the employee with respect to
such shares.

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<PAGE>


                                  ARTICLE FOUR

                                  MISCELLANEOUS


I.   AMENDMENT OF PROGRAM

     The Board shall have complete and exclusive authority to amend or modify
this Program in any or all respects whatsoever. However, no such amendment or
modification shall, without the consent of the optionee or restricted stock
award holders, adversely affect rights and obligations with respect to options
or awards at the time outstanding under this Program.


II.  TAX WITHHOLDING

     A. The Corporation's obligation to deliver shares or cash upon exercise of
options or stock appreciation rights or restricted stock awards granted under
this Program shall be subject to the satisfaction of all federal, state, and
local income and employment tax withholding requirements.

     B. The Program Administrator may, in its discretion and upon such terms and
conditions as it deems appropriate, provide any or all optionees under this
Program with the election to have the Corporation withhold, from the shares of
Common Stock otherwise issuable upon the exercise of options, one or more
share(s) with an aggregate fair market value equal to a designated percentage
(any whole multiple of 5% specified by the optionee) of the federal and state
income taxes ("Taxes") incurred in connection with the acquisition of such
shares. In lieu of direct withholding, optionees may be granted the right to
deliver shares of Common Stock to the Corporation in satisfaction of such Taxes.
The withheld or delivered shares shall be valued at the fair market value on the
applicable determination date for such Taxes.


III. TERM OF PROGRAM

     A. This Program shall terminate on (i) August 10, 2003, or (ii) the date on
which all shares available for issuance under this Program have been issued
pursuant to restricted stock awards or the exercise of options granted under
this Program. If the date of termination is determined under clause (i) above,
then no options or awards outstanding on such date shall be affected by the
termination of this Program.



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<PAGE>


     B. Options may be granted under this Program to purchase shares of Common
Stock in excess of the number of shares then available for issuance under this
Program, provided each option granted is not to become exercisable, in whole or
in part, at any time before Board approval of issuance of a sufficient increase
in the number of shares issuable under this Program.


IV.  USE OF PROCEEDS

     Any cash proceeds received by the Corporation from the sale of shares
pursuant to options or restricted stock awards granted under this Program may be
used for general corporate purposes.


V.   REGULATORY APPROVALS

     A. The implementation of this Program, the granting of any option
hereunder, and the issuance of stock for any restricted stock award or upon the
exercise or surrender of any such option shall be subject to the procurement by
the Corporation of all approvals and permits required by regulatory authorities
having jurisdiction over this Program, the options granted under it, and the
stock issued pursuant to it.

     B. No shares of Common Stock or other assets shall be issued or delivered
under this Program unless and until there shall have been compliance with all
applicable requirements of federal and state securities laws, including the
filing and effectiveness of a Form S-8 registration statement for the shares of
Common Stock issuable under this Program, and all applicable listing
requirements of any securities exchange on which stock of the same class is then
listed.


VI.  NO EMPLOYMENT/SERVICE RIGHTS

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


VII. MISCELLANEOUS PROVISIONS

     A. Except as otherwise provided in this Program, the right to acquire
Common Stock or other assets under this Program may not be assigned, encumbered,
or otherwise transferred by any optionee.


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<PAGE>

     B. The provisions of this Program shall be governed by the laws of the
State of California, as such laws are applied to contracts entered into and
performed in that state.

     C. The provisions of this Program shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, and the optionees,
the legal representatives of their respective estates, their respective heirs or
legatees, and their permitted assignees.

                                       o0o




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