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                                                                    EXHIBIT 10.3
                           ARBOR SOFTWARE CORPORATION
                      1995 STOCK OPTION/STOCK ISSUANCE PLAN



                                    ARTICLE I

                               GENERAL PROVISIONS



     1. PURPOSE OF THE PLAN

            This 1995 Stock Option/Stock Issuance Plan is intended to promote
the interests of Arbor Software Corporation, a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.

            Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.

     2. STRUCTURE OF THE PLAN

          A. The Plan shall be divided into four separate equity programs:

               (i)   the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,

               (ii)  the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary reduced each
year in return for options to purchase shares of Common Stock,

               (iii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of Common
Stock directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary), and

               (iv)  the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic intervals to
purchase shares of Common Stock.

          B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
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     3. ADMINISTRATION OF THE PLAN

          A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to Section 16 Insiders. To the extent
required by Rule 16b-3 under the 1934 Act, no non-employee Board member shall be
eligible to serve on the Primary Committee if such individual has, during the
twelve (12)-month period immediately preceding the date of his or her
appointment to the Committee or (if shorter) the period commencing with the
Section 12(g) Registration Date and ending with the date of his or her
appointment to the Primary Committee, received an option grant or direct stock
issuance under the Plan or any stock option, stock appreciation, stock bonus or
other stock plan of the Corporation (or any Parent or Subsidiary), other than
pursuant to the Automatic Option Grant Program.

          B. Administration of the Discretionary Option Grant, Salary Investment
Option Grant and Stock Issuance Programs with respect to all other persons
eligible to participate in those programs may, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee, or the Board may
retain the power to administer those programs with respect to all such persons.
The members of the Secondary Committee may be Board members who are Employees
eligible to receive discretionary option grants or direct stock issuances under
the Plan or any stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any Parent or Subsidiary).

          C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.

          D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant, Salary Investment Option Grant
and Stock Issuance Programs and to make such determinations under, and issue
such interpretations of, the provisions of such programs and any outstanding
options or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties who have an
interest in the Discretionary Option Grant, Salary Investment Option Grant or
Stock Issuance Program under its jurisdiction or any option or stock issuance
thereunder.

          E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

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          F. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.

     4.    ELIGIBILITY

          A.    The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

               (i)   Employees,

               (ii)  non-employee members of the Board (other than those serving
as members of the Primary Committee) or the board of directors of any Parent or
Subsidiary, and

               (iii) consultants and other independent advisors who provide 
services to the Corporation (or any Parent or Subsidiary).

          B. Only Employees shall be eligible to participate in the Salary
Investment Program.

          C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant and Salary Investment Option Grant
Programs, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid for such shares.

          D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant and/or Salary
Investment Program to effect stock issuances in accordance with the Stock
Issuance Program.

          E. The individuals eligible to participate in the Automatic Option
Grant Program shall be (i) those individuals who are serving as non-employee
Board members on the Plan Effective Date or who are first elected or appointed
as non-employee Board members after the Plan Effective Date, whether through
appointment by the Board or election by the Corporation's stockholders, and (ii)
those individuals who continue to serve as non-employee Board members after one
or more Annual Stockholders Meetings held after the Plan Effective Date. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under

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the Automatic Option Grant Program on the Plan Effective Date or at the time he
or she first becomes a non-employee Board member, but such individual shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program upon his or her continued service as a non-employee Board member
following one or more Annual Stockholders Meetings.

     5.    STOCK SUBJECT TO THE PLAN

          A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 2,886,408 shares.
Such authorized share reserve is comprised of (i) the number of shares which
remained available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders prior to
such date, including the shares subject to the outstanding options incorporated
into the Plan and any other shares which would have been available for future
option grants under the Predecessor Plan, and an increase of 250,000 shares
authorized by the Board under the Plan, and approved by the stockholders on
September 15, 1995; plus (ii) an increase of 1,000,000 shares authorized by the
Board under the Plan and approved by the stockholders at the 1996 Annual
Meeting; plus (iii) an additional increase of 600,000 shares authorized by the
Board under the Plan and approved by the stockholders at the 1997 Annual
Meeting.

          B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1995 calendar year.

          C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option or the vesting of a stock issuance under the
Plan, then the number of shares of Common Stock available for issuance under the
Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number of
shares of Common Stock issued to the holder of such option or stock issuance.

          D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of

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consideration, appropriate adjustments shall be made to (i) the maximum number
and/or class of securities issuable under the Plan, (ii) the maximum number
and/or class of securities for which the share reserve is to increase
automatically each year, (iii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances per calendar year, (iv) the number and/or
class of securities for which automatic option grants are to be subsequently
made per Eligible Director under the Automatic Option Grant Program and (v) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.

                                   ARTICLE II

                       DISCRETIONARY OPTION GRANT PROGRAM



     1.    OPTION TERMS

            Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

          A.    Exercise Price.

               1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.

               2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Six
and the documents evidencing the option, be payable in one or more of the forms
specified below:

                    (i) cash or check made payable to the Corporation,

                    (ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or

                    (iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and 

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(b) the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.

            Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

          B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.

          C. Effect of Termination of Service.

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

                    (i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such period of
time thereafter as shall be determined by the Plan Administrator and set forth
in the documents evidencing the option, but no such option shall be exercisable
after the expiration of the option term.

                    (ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution.

                    (iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the extent it is
not exercisable for vested shares on the date of such cessation of Service.

                    (iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.

                    (v) In the event of an Involuntary Termination following a
Corporate Transaction, the provisions of Section III of this Article Two shall
govern the period for which the outstanding options are to remain exercisable
following the Optionee's cessation of Service and shall supersede any provisions
to the contrary in this section.

               2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:

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               (i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in effect for that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the expiration of
the option term, and/or

               (ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option had the
Optionee continued in Service.

          D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

          E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.

               F. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in whole or in part during Optionee's lifetime in accordance with
the terms of a Qualified Domestic Relations Order. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to such Qualified Domestic Relations Order. The terms applicable
to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.

          2. INCENTIVE OPTIONS

            The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.

               A. Eligibility. Incentive Options may only be granted to
Employees.

               B. Exercise Price. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

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               C. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

               D. 10% Stockholder. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

          3. CORPORATE TRANSACTION/CHANGE IN CONTROL

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

               B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.

               C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

               D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the

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number and class of securities which would have been issuable to the Optionee in
consummation of such Corporate Transaction had the option been exercised
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to (i) the number and class of securities available for issuance
under the Plan on both an aggregate and per Optionee basis following the
consummation of such Corporate Transaction and (ii) the exercise price payable
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.

               E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.

               F. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.

               G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.

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

          4. CANCELLATION AND REGRANT OF OPTIONS

            The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding 

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options incorporated from the Predecessor Plan) and to grant in substitution new
options covering the same or different number of shares of Common Stock but with
an exercise price per share based on the Fair Market Value per share of Common
Stock on the new option grant date.

          5. STOCK APPRECIATION RIGHTS

               A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.

               B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:

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

                    (ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled 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 Plan Administrator shall in its
sole discretion deem appropriate.

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

               C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:

                    (i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.

                    (ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock appreciation
right in effect for at least six (6) months shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the option is at
the time exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from the
Corporation in an

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amount equal to the excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the option
surrender date.

               (iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option surrender
and cash distribution.

               (iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.

                                  ARTICLE III

                     SALARY INVESTMENT OPTION GRANT PROGRAM

          1. OPTION GRANTS

            Each Employee selected by the Plan Administrator to participate in
the Salary Investment Program for any calendar year must, prior to the start of
that calendar year, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated multiple of one percent (1%), but
in no event less than five percent (5%). The Plan Administrator shall determine
whether to approve, in whole or in part, such authorization. To the extent the
Plan Administrator approves the authorization, the individual who filed that
authorization shall be granted an option under this Salary Investment Program.

          2. OPTION TERMS

            Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.

            A. Exercise Price.

               1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.

               2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

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               B. Number of Option Shares. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

                  X = A / (B x 66-2/3%), where

                  X is the number of option shares,

                  A is the  dollar  amount of the  approved  reduction  in the
                  Optionee's base salary for the calendar year, and

                  B is the Fair Market Value per share of Common Stock on the
                  option grant date.

               C. Exercise and Term of Options. Provided the Optionee continues
in Service, the option shall become exercisable for the option shares in a
series of twelve (12) successive equal monthly installments on the last day of
each of the twelve (12) calendar months in the calendar year for which the
option is granted. Each option shall have a maximum term of ten (10) years
measured from the option grant date.

               D. Effect of Termination of Service.

                    1. Should the Optionee cease Service for any reason AFTER
his or her outstanding option has become exercisable in whole or in part, then
that option shall remain exercisable, for any or all of the shares for which the
option is exercisable on the date of such cessation of Service, until the
expiration of the option term. After the Optionee's death, such option may be
exercised, for any or all of the shares for which the option is exercisable at
the time of the Optionee's death, by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Such right of exercise shall lapse, and the option shall
terminate, upon the expiration of the option term. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease to be
outstanding to the extent it is not exercisable on the date of such cessation of
Service.

                    2. Should the Optionee die BEFORE his or her outstanding
option becomes exercisable for any of the option shares, then the personal
representative of the Optionee's estate or the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution shall have the right to exercise such option
for up to that number of option shares equal to (i) one-twelfth (1/12) of the
total number of option shares multiplied by (ii) the number of full calendar
months which have elapsed between the first day of the calendar year for which
the option is granted and the last day of the calendar month during which the
Optionee ceases Service. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of the expiration of the option term or the
third anniversary of the date of the Optionee's death. However, the option
shall, immediately upon the Optionee's death, terminate and cease to be
outstanding with respect to the balance of the shares subject to that option.

                                       12
<PAGE>   13
                    3. Should the Optionee become Permanently Disabled and cease
by reason thereof to remain in Service BEFORE his or her outstanding option
becomes exercisable for any of the option shares, then the Optionee shall have
the right to exercise such option for up to that number of option shares equal
to (i) one-twelfth (1/12) of the total number of option shares multiplied by
(ii) the number of full calendar months which have elapsed between the first day
of the calendar year for which the option is granted and the last day of the
calendar month during which the Optionee ceases Service. Such right of exercise
shall lapse, and the option shall terminate, upon the expiration of the option
term. However, the option shall, immediately at the time Optionee becomes
Permanently Disabled, terminate and cease to be outstanding with respect to the
balance of the shares subject to that option.

     3. CORPORATE TRANSACTION/CHANGE IN CONTROL

          A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each such option shall terminate,
unless assumed by the successor corporation (or parent thereof).

          B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Program shall automatically accelerate so that each such option shall
immediately become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for any or all of such
shares as fully-vested shares of Common Stock. The option shall remain so
exercisable until the expiration of the option term.

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

     4. REMAINING TERMS

            The remaining terms of each option granted under the Salary
Investment Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                       13
<PAGE>   14
                                   ARTICLE IV

                             STOCK ISSUANCE PROGRAM



     1. STOCK ISSUANCE TERMS

            Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.

          A. Purchase Price.

               1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issuance date.

               2. Subject to the provisions of Section I of Article Six, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

                    (i) cash or check made payable to the Corporation, or

                    (ii) past services rendered to the Corporation (or any
Parent or Subsidiary).

           B. Vesting Provisions.

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

                    (i) the Service period to be completed by the Participant or
the performance objectives to be attained,

                    (ii) the number of installments in which the shares are to
vest,

                    (iii) the interval or intervals (if any) which are to lapse
between installments, and

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

                                       14
<PAGE>   15
shall be determined by the Plan  Administrator and incorporated into the Stock
Issuance Agreement.

               2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

               3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

               4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.

               5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.

     2. CORPORATE TRANSACTION/CHANGE IN CONTROL

          A. All of the outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.

                                       15
<PAGE>   16
          B. Any repurchase rights that are assigned in the Corporate
Transaction shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective date
of such Corporate Transaction.

          C. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to (i) provide for the
automatic termination of one or more outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those rights upon the
occurrence of a Change in Control or (ii) condition any such accelerated vesting
upon the subsequent Involuntary Termination of the Participant's Service within
a specified period following the effective date of such Change in Control.

        3. SHARE ESCROW/LEGENDS

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

                                   ARTICLE V

                         AUTOMATIC OPTION GRANT PROGRAM



       1. OPTION TERMS

               A. Grant Dates. Option grants shall be made on the dates
specified below:

                    1. Each Eligible Director who is first elected or appointed
as a non-employee Board member after the Plan Effective Date shall automatically
be granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 20,000 shares of Common Stock.

                    2. On the date of each Annual Stockholders Meeting,
beginning with the 1996 Annual Meeting, each individual who is to continue to
serve as an Eligible Director after such meeting, shall automatically be
granted, whether or not such individual is standing for re-election as a Board
member at that Annual Meeting, a Non-Statutory Option to purchase an additional
5,000 shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six (6) months prior to the date of such
Annual Meeting. There shall be no limit on the number of such 5,000-share option
grants any one Eligible Director may receive over his or her period of Board
service.

                                       16
<PAGE>   17
               B. Exercise Price.

                    1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.

                    2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

               C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.

               D. Exercise and Vesting of Options. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in two (2) equal and successive
annual installments over the Optionee's period of continued service as a Board
member, with the first such installment to vest upon the Optionee's completion
of one (1) year of Board service measured from the option grant date. Each
annual grant shall vest, and the Corporation's repurchase right shall lapse,
upon the Optionee's completion of one (1) year of Board service measured from
the option grant date.

               E. Effect of Termination of Board Service. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:

                    (i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option.

                    (ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.

                    (iii) Should the Optionee cease to serve as a Board member
by reason of death or Permanent Disability, then all shares at the time subject
to the option shall immediately vest so that such option may, during the twelve
(12)-month exercise period following such cessation of Board service, be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock.

                    (iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or

                                       17
<PAGE>   18
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the Optionee's
cessation of Board service, terminate and cease to be outstanding to the extent
it is not exercisable for vested shares on the date of such cessation of Board
service.

          2. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

               A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

               B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.

               C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her for a period of at least six (6) months. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board shall be required in connection
with such option surrender and cash distribution.

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

          3. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM

            To the extent required by Rule 16b-3 under the 1934 Act, the
provisions of this Automatic Option Grant Program, together with the option
grants outstanding thereunder, may

                                       18
<PAGE>   19
not be amended at intervals more frequently than once every six (6) months,
other than to the extent necessary to comply with applicable Federal income tax
laws and regulations.

          4. REMAINING TERMS

            The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                   ARTICLE VI

                                  MISCELLANEOUS



          1. FINANCING

               A. The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program or
the purchase price for shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.

               B. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.

          2. TAX WITHHOLDING

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

               B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:

                                       19
<PAGE>   20

               (i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.

               (ii) Stock Delivery: The election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised or the shares vest, one or
more shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.

          3. EFFECTIVE DATE AND TERM OF THE PLAN

               A. The Discretionary Option Grant, Salary Investment and Stock
Issuance Programs shall become effective on the Plan Effective Date and options
may be granted under the Discretionary Option Grant Program from and after the
Plan Effective Date. The Automatic Option Grant Program shall also become
effective on the Plan Effective Date and the initial options under the Automatic
Option Grant Program shall be made to the Eligible Directors at that time.

               B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
Plan Effective Date. All options outstanding under the Predecessor Plan as of
such date shall, immediately upon the Plan Effective Date, be incorporated into
the Plan and treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of shares
of Common Stock.

               C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.

               D. On June 6, 1996, the Board approved an increase in the number
of shares issuable under the Plan by 1,000,000 shares to 2,286,408 shares, and
the Corporation's stockholders approved such share increase at the 1996 Annual
Stockholders Meeting. On ____ __, 1997, the Board approved an increase in the
number of shares issuable under the Plan by 600,000 shares to 2,886,408 shares,
and the Corporation's stockholders approved such share increase at the 1997
Annual Stockholders Meeting.

               E. The Plan shall terminate upon the earliest of (i) September
30, 2005, (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the options or the
issuance of shares (whether vested or unvested) under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate

                                       20
<PAGE>   21
Transaction. Upon such Plan termination, all options and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.

          4. AMENDMENT OF THE PLAN

               A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, (i) no
such amendment or modification shall adversely affect the rights and obligations
with respect to options, stock appreciation rights or unvested stock issuances
at the time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification, and (ii) any amendment made to the
Automatic Option Grant Program (or any options outstanding thereunder) shall be
in compliance with the limitations of that program. In addition, the Board shall
not, without the approval of the Corporation's stockholders, (i) materially
increase the maximum number of shares issuable under the Plan, the number of
shares for which options may be granted under the Automatic Option Grant Program
or the maximum number of shares for which any one person may be granted options,
separately exercisable stock appreciation rights and direct stock issuances per
calendar year, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) materially modify the
eligibility requirements for Plan participation or (iii) materially increase the
benefits accruing to Plan participants.

               B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess shares actually issued under those
programs are held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically canceled
and cease to be outstanding.

          5. USE OF PROCEEDS

            Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.

          6. REGULATORY APPROVALS

               A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory

                                       21
<PAGE>   22

authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.

               B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

          7. NO EMPLOYMENT/SERVICE RIGHTS

            Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.


                                       22
<PAGE>   23
                                    APPENDIX



            The following definitions shall be in effect under the Plan:

          A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.

          B. BOARD shall mean the Corporation's Board of Directors.

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

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

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

          D. CODE shall mean the Internal Revenue Code of 1986, as amended.

          E. COMMON STOCK shall mean the Corporation's common stock.

          F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

               (i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction; or

               (ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.

          G. CORPORATION shall mean Arbor Software Corporation, a Delaware
corporation.

                                       
<PAGE>   24
          H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.

          I. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.

          J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

          K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

          L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.

          M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

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

               (ii) If the Common Stock is at the time listed on any 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 Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.

               (iii) For purposes of option grants made on the date the
Underwriting Agreement is executed and the initial public offering price of the
Common Stock is established, the Fair Market Value shall be deemed to be equal
to the established initial offering price per share.

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

                                     
<PAGE>   25

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

               (ii) more than fifty percent (50%) of the securities so acquired
are accepted from persons other than Section 16 Insiders.

           O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

           P. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:

               (i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

               (ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15%) or (C) a relocation of such individual's place of employment by
more than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's consent.

          Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

          R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.

          S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.

          T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant or Automatic
Option Grant Program.
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          U. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

          V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.

          W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for the purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.

          X. PLAN shall mean the Corporation's 1995 Stock Option/Stock Issuance
Plan, as set forth in this document.

          Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.

          Z. PLAN EFFECTIVE DATE shall mean the date on which the Underwriting
Agreement is executed and the initial public offering price of the Common Stock
is established.

          AA. PREDECESSOR PLAN shall mean the Corporation's existing 1992 Stock
Option Plan.

          BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders.

          CC. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.

          DD. SALARY INVESTMENT PROGRAM shall mean the salary reduction grant
program in effect under the Plan.
<PAGE>   27
          EE. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant, Salary Investment Option Grant and Stock Issuance Programs with respect
to eligible persons other than Section 16 Insiders.

          FF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

          GG. SECTION 12(g) REGISTRATION DATE shall mean the first date on which
the Common Stock is registered under Section 12(g) of the 1934 Act.

          HH. SERVICE shall mean the provision of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.

          II. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.

          JJ. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

          KK. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.

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

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

          NN. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.

          OO. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
<PAGE>   28
          PP. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.