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                                                                   EXHIBIT 10.10

                               NETVANTAGE, INC.

                           1996 INCENTIVE STOCK PLAN

     1.  OBJECTIVES.

     The NETVANTAGE, INC. 1996 Incentive Stock Plan (the "Plan") is designed to
retain directors, executives and selected employees and consultants and reward
them for making major contributions to the success of the Company.  These
objectives are accomplished by making long-term incentive awards under the Plan
thereby providing Participants with a proprietary interest in the growth and
performance of the Company.

     2.  DEFINITIONS.

          (a) "Board" - The Board of Directors of the Company.
               -----                                          

          (b) "California Securities Rules" - Chapter 3, Subchapter 2,
               ---------------------------                            
Subarticle 4 of Article 4 of Title 10 of the Corporate Securities Rules of the
Commissioner of Corporations of the state of California.

          (c) "Code" - The Internal Revenue Code of 1986, as amended from time
               ----                                                           
to time.

          (d) "Committee" - The Executive Compensation Committee of the
               ---------                                               
Company's Board, or such other committee of the Board that is designated by the
Board to administer the Plan, composed of not less than two members of the Board
all of whom are disinterested persons, as contemplated by Rule 16b-3 ("Rule 16b-
3") promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").

          (e) "Company" - NETVANTAGE, INC. and its subsidiaries including
               -------                                                   
subsidiaries of subsidiaries.

          (f) "Exchange Act" - The Securities Exchange Act of 1934, as amended
               ------------                                                   
from time to time.

          (g) "Fair Market Value" -  The fair market value of the Company's
               -----------------                                           
issued and outstanding Stock as determined in good faith by the Board or
Committee.

          (h) "Grant" - The grant of any form of stock option, stock award, or
               -----                                                          
stock purchase offer, whether granted singly, in combination or in tandem, to a
Participant pursuant to such terms, conditions and limitations as the Committee
may establish in order to 

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fulfill the objectives of the Plan.

          (i) "Grant Agreement" - An agreement between the Company and a
               ---------------                                          
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.

          (j) "Option" - Either an Incentive Stock Option, in accordance with
               ------                                                        
Section 422 of Code, or a Nonstatutory Option, to purchase the Company's Stock
that may be awarded to a Participant under the Plan.  A Participant who receives
an award of an Option shall be referred to as an "Optionee."

          (k) "Participant" - A director, officer, employee or consultant of the
               -----------                                                      
Company to whom an Award has been made under the Plan.

          (l) "Restricted Stock Purchase Offer" - A Grant of the right to
               -------------------------------                           
purchase a specified number of shares of Stock pursuant to a written agreement
issued under the Plan.

          (m) "Securities Act" - The Securities Act of 1933, as amended from
               --------------                                               
time to time.

          (n) "Stock" - Authorized and issued or unissued shares of Class A
               -----                                                       
Common Stock of the Company.

          (o) "Stock Award" - A Grant made under the Plan in stock or
               -----------                                           
denominated in units of stock for which the Participant is not obligated to pay
additional consideration.

     3.  ADMINISTRATION

          The Plan shall be administered by the Board, provided however, that
the Board may delegate such administration to the Committee.  Subject to the
provisions of the Plan, the Board and/or the Committee shall have authority to
(a) grant, in its discretion, Incentive Stock Options in accordance with Section
422 of the Code, or Nonstatutory Options, Stock Awards or Restricted Stock
Purchase Offers; (b) determine in good faith the fair market value of the Stock
covered by any Grant; (c) determine which eligible persons shall receive Grants
and the  number of shares, restrictions, terms and conditions to be included in
such Grants; (d) construe and interpret the Plan; (e) promulgate, amend and
rescind rules and regulations relating to its administration, and correct
defects, omissions and inconsistencies in the Plan or any Grant; (f) consistent
with the Plan and with the consent of the Participant, as appropriate, amend any
outstanding Grant or amend the exercise date or dates thereof; (g) determine the
duration and purpose of leaves of absence which may be granted to Participants
without constituting termination of their employment for the purpose of the Plan
or any Grant; and (h) make all other determinations necessary or advisable for
the Plan's administration.  The interpretation and construction by the Board of
any provisions of the Plan or selection of Participants shall be conclusive and
final.  No member of the Board or the Committee shall be 

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liable for any action or determination made in good faith with respect to the
Plan or any Grant made thereunder.

     4.  ELIGIBILITY

          (a) General:  The persons who shall be eligible to receive Grants
              -------                                                      
shall be directors, officers, employees or consultants to the Company.  The term
consultant shall mean any person, other than an employee, who is engaged by the
Company to render services and is compensated for such services.  An Optionee
may hold more than one Option.  Any issuance of a Grant to an officer or
director of the Company subsequent to the first registration of any of the
securities of the Company under the Exchange Act shall comply with the
requirements of Rule 16b-3.

          (b) Incentive Stock Options:  Incentive Stock Options may only be
              -----------------------                                      
issued to employees of the Company.  Incentive Stock Options may be granted to
officers, whether or not they are directors, provided they are also employees of
the Company.  Payment of a director's fee shall not be sufficient to constitute
employment by the Company.

          The Company shall not grant an Incentive Stock Option under the Plan
to any employee if such Grant would result in such employee holding the right to
exercise for the first time in any one calendar year, under all Incentive Stock
Options granted under the Plan or any other plan maintained by the Company, with
respect to shares of Stock having an aggregate fair market value, determined as
of the date of the Option is granted, in excess of $100,000.  Should it be
determined that an Incentive Stock Option granted under the Plan exceeds such
maximum for any reason other than a failure in good faith to value the Stock
subject to such option, the excess portion of such option shall be considered a
Nonstatutory Option.  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 Option as Incentive Stock
Options under the Federal tax laws shall be applied on the basis of the order in
which such Options are granted.  If, for any reason, an entire Option does not
qualify as an Incentive Stock Option by reason of exceeding such maximum, such
Option shall be considered a Nonstatutory Option.

          (c) Nonstatutory Option:  The provisions of the foregoing Section 4(b)
              -------------------                                               
shall not apply to any Option designated as a "Nonstatutory Option" or which
sets forth the intention of the parties that the Option be a Nonstatutory
Option.

          (d) Stock Awards and Restricted Stock Purchase Offers:  The provisions
              -------------------------------------------------                 
of this Section 4 shall not apply to any Stock Award or Restricted Stock
Purchase Offer under the Plan.

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     5.  STOCK

          (a) Authorized Stock:  Stock subject to Grants may be either unissued
              ----------------                                                 
or reacquired Stock.

          (b) Number of Shares:  Subject to adjustment as provided in Section
              ----------------                                               
6(i) of the Plan, the total number of shares of Stock which may be purchased or
granted directly by Options, Stock Awards or Restricted Stock Purchase Offers,
or purchased indirectly through exercise of Options granted under the Plan shall
not exceed 800,000.  If any Grant shall for any reason terminate or expire, any
shares allocated thereto but remaining unpurchased upon such expiration or
termination shall again be available for Grants with respect thereto under the
Plan as though no Grant had previously occurred with respect to such shares.
Any shares of Stock issued pursuant to a Grant and repurchased pursuant to the
terms thereof shall be available for future Grants as though not previously
covered by a Grant.

          (c) Reservation of Shares:  The Company shall reserve and keep
              ---------------------                                     
available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the requirements of the Plan.  If, after
reasonable efforts, which efforts shall not include the registration of the Plan
or Grants under the Securities Act, the Company is unable to obtain authority
from any applicable regulatory body, which authorization is deemed necessary by
legal counsel for the Company for the lawful issuance of shares hereunder, the
Company shall be relieved of any liability with respect to its failure to issue
and sell the shares for which such requisite authority was so deemed necessary
unless and until such authority is obtained.

          (d)  Application of Funds:  The proceeds received by the Company from 
               --------------------
the sale of common Stock pursuant to the exercise of Options or rights under
Stock Purchase Agreements will be used for general corporate purposes.

          (e)  No Obligation to Exercise:  The issuance of a Grant shall impose 
               -------------------------
no obligation upon the Participant to exercise any rights under such Grant.

     6.  TERMS AND CONDITIONS OF OPTIONS

          Options granted hereunder shall be evidenced by agreements between the
Company and the respective Optionees, in such form and substance as the Board or
Committee shall from time to time approve.  The form of Incentive Stock Option
Agreement attached hereto as Exhibit "A" and the three forms of a Nonstatutory
Stock Option Agreement for 

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employees, for directors and for consultants, attached hereto as Exhibits "B-1,"
"B-2" and "B-3," respectively, shall be deemed to be approved by the Board.
Option agreements need not be identical, and in each case may include such
provisions as the Board or Committee may determine, but all such agreements
shall be subject to and limited by the following terms and conditions:

          (a) Number of Shares:  Each Option shall state the number of shares to
              ----------------                                                  
which it pertains.

          (b) Exercise Price:  Each Option shall state the exercise price, which
              --------------                                                    
shall be determined as follows:

               (i) Any Option granted to a person who at the time the Option is
     granted owns (or is deemed to own pursuant to Section 424(d) of the Code)
     stock possessing more than ten percent (10%) of the total combined voting
     power or value of all classes of stock of the Company, ("Ten Percent
     Holder") shall have an exercise price of no less than 110% of the Fair
     Market Value of the Stock as of the date of grant; and

               (ii) Incentive Stock Options granted to a person who at the time
     the Option is granted is not a Ten Percent Holder shall have an exercise
     price of no less than 100% of the Fair Market Value of the Class A Common
     Stock as of the date of grant.

               (iii)  Nonstatutory Options granted to a person who at the time
     the Option is granted is not a Ten Percent Holder shall have an exercise
     price of no less than 85% of the Fair Market Value of the Stock as of the
     date of grant.

          For the purposes of this Section 6(b), the Fair Market Value per share
shall be the average of the bid and asked prices (or the closing price if such
stock is listed on the NASDAQ National Market System or Small Cap Issue Market)
on the date of grant of the Option, or if listed on a stock exchange, the
closing price on such exchange on such date of grant; provided however, that if
there is no public market for such Stock, the Fair Market Value shall be as
determined by the Board in good faith, which determination shall be conclusive
and binding.

          (c) Medium and Time of Payment:  The exercise price shall become
              --------------------------                                  
immediately due upon exercise of the Option and shall be paid in cash or check
made payable to the Company.  Should the Company's outstanding Stock be
registered under Section 12(g) of the Exchange Act at the time the Option is
exercised, then the exercise price may also be paid as follows:

               (i) in shares of the Company's Stock held by the Optionee for the
     requisite period necessary to avoid a charge to the Company's earnings for
     financial 

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<PAGE>
 
     reporting purposes and valued at Fair Market Value on the exercise date, or

               (ii) through a special sale and remittance procedure pursuant to
     which the Optionee shall concurrently provide irrevocable written
     instructions (a) to a Company designated brokerage firm to effect the
     immediate sale of the purchased shares and remit to the Company, 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 Company by reason of such purchase and (b) to the
     Company to deliver the certificates for the purchased shares directly to
     such brokerage firm in order to complete the sale transaction.

          At the discretion of the Board, exercisable either at the time of
Option grant or of Option exercise, the exercise price may also be paid (i) by
Optionee's delivery of a promissory note in form and substance satisfactory to
the Company and permissible under the California Securities Rules and bearing
interest at a rate determined by the Board in its sole discretion, but in no
event less than the minimum rate of interest required to avoid the imputation of
compensation income to the Optionee under the Federal tax laws, or (ii) in such
other form of consideration permitted by the California Corporations Code as may
be acceptable to the Board.

          (d) Term and Exercise of Options:  Any Option granted to an employee
              ----------------------------                                    
of the Company shall become exercisable over a period of no longer than five (5)
years, and no less than twenty percent (20%) of the shares covered thereby shall
become exercisable annually.  No Option shall be exercisable, in whole or in
part, prior to one (1) year from the date it is granted unless the Board shall
specifically determine otherwise, as provided herein.  In no event shall any
Option be exercisable after the expiration of ten (10) years from the date it is
granted, and no Incentive Stock Option granted to a Ten Percent Holder shall, by
its terms, be exercisable after the expiration of five (5) years from the date
of the Option.  Unless otherwise specified by the Board or the Committee in the
resolution authorizing such option, the date of grant of an Option shall be
deemed to be the date upon which the Board or the Committee authorizes the
granting of such Option.

          Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective Option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee, and no
other person shall acquire any rights therein.  To the extent not exercised,
installments (if more than one) shall accumulate, but shall be exercisable, in
whole or in part, only during the period for exercise as stated in the Option
agreement, whether or not other installments are then exercisable.

          (e) Termination of Status as Employee, Consultant or Director:  If
              ---------------------------------------------------------     
Optionee's status as an employee shall terminate for any reason other than
Optionee's disability or death, then the Optionee (or if the Optionee shall die
after such termination, but 

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<PAGE>
 
prior to exercise, Optionee's personal representative or the person entitled to
succeed to the Option) shall have the right to exercise the portions of any of
Optionee's Incentive Stock Options which were exercisable as of the date of such
termination, in whole or in part, not less than 30 days nor more than three (3)
months after such termination (or, in the event of "termination for cause" as
that term is defined in Section 2922 of the California Labor Code and case law
related thereto, or by the terms of the Plan or the Option Agreement or an
employment agreement, the Option shall automatically terminate as of the
termination of employment as to all shares covered by the Option).

          With respect to Nonstatutory Options granted to employees, directors
or consultants, the Board may specify such period for exercise, not less than 30
days (except that in the case of "termination for cause" or termination of a
director pursuant to Section 302 or 304 of the California Corporations Code, the
Option shall automatically terminate as of the termination of employment or
services as to shares covered by the Option), following termination of
employment or services as the Board deems reasonable and appropriate.  The
Option may be exercised only with respect to installments that the Optionee
could have exercised at the date of termination of employment or services.
Nothing contained herein or in any Option granted pursuant hereto shall be
construed to affect or restrict in any way the right of the Company to terminate
the employment or services of an Optionee with or without cause.

          (f) Disability of Optionee:  If an Optionee is disabled (within the
              ----------------------                                         
meaning of Section 22(e)(3) of the Code) at the time of termination, the three
(3) month period set forth in Section 6(e) shall be a period, as determined by
the Board and set forth in the Option, of not less than six months nor more than
one year after such termination.

          (g) Death of Optionee:  If an Optionee dies while employed by, engaged
              -----------------                                                 
as a consultant to, or serving as a Director of the Company, the portion of such
Optionee's Option which was exercisable at the date of death may be exercised,
in whole or in part, by the estate of the decedent or by a person succeeding to
the right to exercise such Option at any time within (i) a period, as determined
by the Board and set forth in the Option, of not less than six (6) months nor
more than one (1) year after Optionee's death, which period shall not be more,
in the case of a Nonstatutory Option, than the period for exercise following
termination of employment or services, or (ii) during the remaining term of the
Option, whichever is the lesser.  The Option may be so exercised only with
respect to installments exercisable at the time of Optionee's death and not
previously exercised by the Optionee.

          (h) Nontransferability of Option:  No Option shall be transferable by
              ----------------------------                                     
the Optionee, except by will or by the laws of descent and distribution.

          (i) Recapitalization:  Subject to any required action of shareholders,
              ----------------                                                  
the number of shares of Stock covered by each outstanding Option, and the
Exercise price per share thereof set forth in each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Company resulting from a 

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subdivision or consolidation of shares or the payment of a stock dividend, or
any other increase or decrease in the number of such shares affected without
receipt of consideration by the Company; provided, however, the conversion of
any convertible securities of the Company shall not be deemed to have been
"effected" without receipt of consideration by the Company.

          In the event of a proposed dissolution or liquidation of the Company,
a merger or consolidation in which the Company is not the surviving entity, or a
sale of all or substantially all of the assets or capital stock of the Company
(collectively, a "Reorganization"), unless otherwise provided by the Board, this
Option shall terminate immediately prior to such date as is determined by the
Board, which date shall be no later than the consummation of such
Reorganization.  In such event, if the entity which shall be the surviving
entity does not tender to Optionee an offer, for which it has no obligation to
do so, to substitute for any unexercised Option a stock option or capital stock
of such surviving entity, as applicable, which on an equitable basis shall
provide the Optionee with substantially the same economic benefit as such
unexercised Option, then the Board may grant to such Optionee, in its sole and
absolute discretion and without obligation, the right for a period commencing
thirty (30) days prior to and ending immediately prior to the date determined by
the Board pursuant hereto for termination of the Option or during the remaining
term of the Option, whichever is the lesser, to exercise any unexpired Option or
Options without regard to the installment provisions of Paragraph 6(d) of the
Plan; provided, that any such right granted shall be granted to all Optionees
not receiving an offer to receive substitute options on a consistent basis, and
provided further, that any such exercise shall be subject to the consummation of
such Reorganization.

          Subject to any required action of shareholders, if the Company shall
be the surviving entity in any merger or consolidation, each outstanding Option
thereafter shall pertain to and apply to the securities to which a holder of
shares of Class A Common Stock equal to the shares subject to the Option would
have been entitled by reason of such merger or consolidation.

          In the event of a change in the Class A Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares without par value into the same number of shares with a par value, the
shares resulting from any such change shall be deemed to be the Stock within the
meaning of the Plan.

          To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.  Except as
expressly provided in this Section 6(i), the Optionee shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and the number or price of shares of
Stock subject to any Option shall not be affected by, and no adjustment shall be
made by reason of, any dissolution, liquidation, merger, consolidation or sale
of assets or capital stock, or any issue by the Company of shares of stock of
any class or securities convertible into 

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<PAGE>
 
shares of stock of any class.

          The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make any adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, consolidate, dissolve, or liquidate or to sell or
transfer all or any part of its business or assets.

          (j) Rights as a Shareholder:  An Optionee shall have no rights as a
              -----------------------                                        
shareholder with respect to any shares covered by an Option until the effective
date of the issuance of the shares following exercise of such Option by
Optionee.  No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as expressly provided in Section 6(i) hereof.

          (k) Modification, Acceleration, Extension, and Renewal of Options:
              -------------------------------------------------------------  
Subject to the terms and conditions and within the limitations of the Plan, the
Board may modify an Option, or, once an Option is exercisable, accelerate the
rate at which it may be exercised, and may extend or renew outstanding Options
granted under the Plan or accept the surrender of outstanding Options (to the
extent not theretofore exercised) and authorize the granting of new Options in
substitution for such Options, provided such action is permissible under Section
422 of the Code and the California Securities Rules.  Notwithstanding the
provisions of this Section 6(k), however, no modification of an Option shall,
without the consent of the Optionee, alter to the Optionee's detriment or impair
any rights or obligations under any Option theretofore granted under the Plan.

          (l) Exercise Before Exercise Date:  At the discretion of the Board,
              -----------------------------                                  
the Option may, but need not, include a provision whereby the Optionee may elect
to exercise all or any portion of the Option prior to the stated exercise date
of the Option or any installment thereof. Any shares so purchased prior to the
stated exercise date shall be subject to repurchase by the Company upon
termination of Optionee's employment as contemplated by Section 6(n) hereof
prior to the exercise date stated in the Option and such other restrictions and
conditions as the Board or Committee may deem advisable.

          (m) Other Provisions:  The Option agreements authorized under the Plan
              ----------------                                                  
shall contain such other provisions, including, without limitation, restrictions
upon the exercise of the Options, as the Board or the Committee shall deem
advisable.  Shares shall not be issued pursuant to the exercise of an Option, if
the exercise of such Option or the issuance of shares thereunder would violate,
in the opinion of legal counsel for the Company, the provisions of any
applicable law or the rules or regulations of any applicable governmental or
administrative agency or body, such as the Code, the Securities Act, the
Exchange Act, the California Securities Rules, California Corporations Code, and
the rules promulgated under the foregoing or the rules and regulations of any
exchange upon which the shares of the Company are listed.  Without limiting the
generality of the foregoing, the exercise of each 

                                      -9-
<PAGE>
 
Option shall be subject to the condition that if at any time the Company shall
determine that (i) the satisfaction of withholding tax or other similar
liabilities, or (ii) the listing, registration or qualification of any shares
covered by such exercise upon any securities exchange or under any state or
federal law, or (iii) the consent or approval of any regulatory body, or (iv)
the perfection of any exemption from any such withholding, listing,
registration, qualification, consent or approval is necessary or desirable in
connection with such exercise or the issuance of shares thereunder, then in any
such event, such exercise shall not be effective unless such withholding,
listing registration, qualification, consent, approval or exemption shall have
been effected, obtained or perfected free of any conditions not acceptable to
the Corporation.

          (n) Repurchase Agreement:  The Board may, in its discretion, require
              --------------------                                            
as a condition to the grant of an Option hereunder, that an Optionee execute an
agreement with the Company, in form and substance satisfactory to the Board in
its discretion ("Repurchase Agreement"), (i) restricting the Optionee's right to
transfer shares purchased under such Option without first offering such shares
to the Company or another shareholder of the Company upon the same terms and
conditions as provided therein; and (ii) providing that upon termination of
Optionee's employment with the Company, for any reason, the Company (or another
shareholder of the Company, as provided in the Repurchase Agreement) shall have
the right at its discretion (or the discretion of such other shareholders) to
purchase and/or redeem all such shares owned by the Optionee on the date of
termination of his or her employment at a price equal to (A) the  fair value of
such shares as of such date of termination, or (B) if such repurchase right
lapses at 20% of the number of shares per year, the original purchase price of
such shares, and upon terms of payment permissible under the California
Securities Rules; provided that in the case of Options or Stock Awards granted
to officers, directors, consultants or affiliates of the Company, such
repurchase provisions may be subject to additional or greater restrictions as
determined by the Board or Committee.

     7.  STOCK AWARDS AND RESTRICTED STOCK PURCHASE OFFERS

          (a)  Types of Grants.
               ----------------

               (i) Stock Award .  All or part of any Stock Award under the Plan
                   ------------                                                
     may be subject to conditions established by the Board or the Committee, and
     set forth in the Stock Award Agreement, which may include, but are not
     limited to, continuous service with the Company, achievement of specific
     business objectives, increases in specified indices, attaining growth rates
     and other comparable measurements of Company performance.  Such Awards may
     be based on Fair Market Value or other specified valuation.  All Stock
     Awards will be made pursuant to the execution of a Stock Award Agreement
     substantially in the form attached hereto as Exhibit "C".

               (ii)  Restricted Stock Purchase Offer.  A Grant of a Restricted
                     -------------------------------                          
     Stock Purchase Offer under the Plan shall be subject to such (i) vesting
     contingencies related to the Participant's continued association with the
     Company 

                                      -10-
<PAGE>
 
     for a specified time and (ii) other specified conditions as the Board or
     Committee shall determine, in their sole discretion, consistent with the
     provisions of the Plan. All Restricted Stock Purchase Offers shall be made
     pursuant to a Restricted Stock Purchase Offer substantially in the form
     attached hereto as Exhibit "D".

          (b) Conditions and Restrictions.  Shares of Stock which  Participants
              ----------------------------                                     
may receive as a Stock Award under a Stock Award Agreement or Restricted Stock
Purchase Offer under a Restricted Stock Purchase Offer may include such
restrictions as the Board or Committee, as applicable, shall determine,
including restrictions on transfer, repurchase rights, right of first refusal,
and forfeiture provisions.  When transfer of Stock is so restricted or subject
to forfeiture provisions it is referred to as "Restricted Stock".  Further, with
Board or Committee approval, Stock Awards or Restricted Stock Purchase Offers
may be deferred, either in the form of installments or a future lump sum
distribution.  The Board or Committee may permit selected Participants to elect
to defer distributions of Stock Awards or Restricted Stock Purchase Offers in
accordance with procedures established by the Board or Committee to assure that
such deferrals comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for
distribution after retirement. Any deferred distribution, whether elected by the
Participant or specified by the Stock Award Agreement, Restricted Stock Purchase
Offers or by the Board or Committee, may require the payment be forfeited in
accordance with the provisions of Section 7(c).  Dividends or dividend
equivalent rights may be extended to and made part of any Stock Award or
Restricted Stock Purchase Offers denominated in Stock or units of Stock, subject
to such terms, conditions and restrictions as the Board or Committee may
establish.

          (c) Cancellation and Rescission of Grants.  Unless the Stock Award
              --------------------------------------                        
Agreement or Restricted Stock Purchase Offer specifies otherwise, the Board or
Committee, as applicable, may cancel any unexpired, unpaid, or deferred Grants
at any time if the Participant is not in compliance with all other applicable
provisions of the Stock Award Agreement or Restricted Stock Purchase Offer, the
Plan and with the following conditions:

               (i) A Participant shall not render services for any organization
     or engage directly or indirectly in any business which, in the judgment of
     the chief executive officer of the Company or other senior officer
     designated by the Board or Committee, is or becomes competitive with the
     Company, or which organization or business, or the rendering of services to
     such organization or business, is or becomes otherwise prejudicial to or in
     conflict with the interests of the Company.  For Participants whose
     employment has terminated, the judgment of the chief executive officer
     shall be based on the Participant's position and responsibilities while
     employed by the Company, the Participant's post-employment responsibilities
     and position with the other organization or business, the extent of past,
     current and potential competition or conflict between the Company and the
     other organization or business, the effect on the Company's customers,
     suppliers and competitors and such other considerations as are deemed
     relevant given the applicable facts and circumstances.  A Participant who
     has retired shall be free, however, to purchase as 

                                      -11-
<PAGE>
 
     an investment or otherwise, stock or other securities of such organization
     or business so long as they are listed upon a recognized securities
     exchange or traded over-the-counter, and such investment does not represent
     a substantial investment to the Participant or a greater than 10 percent
     equity interest in the organization or business.

               (ii) A Participant shall not, without prior written authorization
     from the Company, disclose to anyone outside the Company, or use in other
     than the Company's business, any confidential information or material, as
     defined in the Company's Proprietary Information and Invention Agreement or
     similar agreement regarding confidential information and intellectual
     property, relating to the business of the Company, acquired by the
     Participant either during or after employment with the Company.

               (iii)  A Participant, pursuant to the Company's Proprietary
     Information and Invention Agreement, shall disclose promptly and assign to
     the Company all right, title and interest in any invention or idea,
     patentable or not, made or conceived by the Participant during employment
     by the Company, relating in any manner to the actual or anticipated
     business, research or development work of the Company and shall do anything
     reasonably necessary to enable the Company to secure a patent where
     appropriate in the United States and in foreign countries.

               (iv) Upon exercise, payment or delivery pursuant to a Grant, the
     Participant shall certify on a form acceptable to the Committee that he or
     she is in compliance with the terms and conditions of the Plan.  Failure to
     comply with all of the provisions of this Section 7(c) prior to, or during
     the six months after, any exercise, payment or delivery pursuant to a Grant
     shall cause such exercise, payment or delivery to be rescinded.  The
     Company shall notify the Participant in writing of any such rescission
     within two years after such exercise, payment or delivery.  Within ten days
     after receiving such a notice from the Company, the Participant shall pay
     to the Company the amount of any gain realized or payment received as a
     result of the rescinded exercise, payment or delivery pursuant to a Grant.
     Such payment shall be made either in cash or by returning to the Company
     the number of shares of Stock that the Participant received in connection
     with the rescinded exercise, payment or delivery.

          (d)  Nonassignability.
               -----------------

               (i) Except pursuant to Section 7(e)(iii) and except as set forth
     in  Section 7(d)(ii), no Grant or any other benefit under the Plan shall be
     assignable or transferable, or payable to or exercisable by, anyone other
     than the Participant to whom it was granted.

               (ii) Where a Participant terminates employment and retains a

                                      -12-
<PAGE>
 
     Grant pursuant to Section 7(e)(ii) in order to assume a position with a
     governmental, charitable or educational institution, the Board or
     Committee, in its discretion and to the extent permitted by law, may
     authorize a third party (including but not limited to the trustee of a
     "blind" trust), acceptable to the applicable governmental or institutional
     authorities, the Participant and the Board or Committee, to act on behalf
     of the Participant with regard to such Awards.

          (e) Termination of Employment.  If the employment or service to the
              -------------------------                                      
Company of a Participant terminates, other than pursuant to any of the following
provisions under this Section 7(e), all unexercised, deferred and unpaid Stock
Awards or Restricted Stock Purchase Offers shall be cancelled immediately,
unless the Stock Award Agreement or Restricted Stock Purchase Offer provides
otherwise:

               (i) Retirement Under a Company Retirement Plan.  When a
                   ------------------------------------------         
     Participant's employment terminates as a result of retirement in accordance
     with the terms of a Company retirement plan, the Board or Committee may
     permit Stock Awards or Restricted Stock Purchase Offers to continue in
     effect beyond the date of retirement in accordance with the applicable
     Grant Agreement and the exercisability and vesting of any such Grants may
     be accelerated.

               (ii) Resignation in the Best Interests of the Company.  When a
                    ------------------------------------------------         
     Participant resigns from the Company and, in the judgment of the Board or
     Committee, the acceleration and/or continuation of outstanding Stock Awards
     or Restricted Stock Purchase Offers would be in the best interests of the
     Company, the Board or Committee may (i) authorize, where appropriate, the
     acceleration and/or continuation of all or any part of Grants issued prior
     to such termination and (ii) permit the exercise, vesting and payment of
     such Grants for such period as may be set forth in the applicable Grant
     Agreement, subject to earlier cancellation pursuant to Section 10 or at
     such time as the Board or Committee shall deem the continuation of all or
     any part of the Participant's Grants are not in the Company's best
     interest.

               (iii)  Death or Disability of a Participant.
                      ------------------------------------ 

                      (1)  In the event of a Participant's death, the
     Participant's estate or beneficiaries shall have a period up to the
     expiration date specified in the Grant Agreement within which to receive or
     exercise any outstanding Grant held by the Participant under such terms as
     may be specified in the applicable Grant Agreement.  Rights to any such
     outstanding Grants shall pass by will or the laws of descent and
     distribution in the following order: (a) to beneficiaries so designated by
     the Participant; if none, then (b) to a legal representative of the
     Participant; if none, then (c) to the persons entitled thereto as
     determined by a court of competent jurisdiction. Grants so passing shall be
     made at such times and in such manner as if the Participant were living.

                                      -13-
<PAGE>
 
                      (2)  In the event a Participant is deemed by the Board or
     Committee, to be unable to perform his or her usual duties by reason of
     mental disorder or medical condition which does not result from facts which
     would be grounds for termination for cause, Grants and rights to any such
     Grants may be paid to or exercised by the Participant, if legally
     competent, or a committee or other legally designated guardian or
     representative if the Participant is legally incompetent by virtue of such
     disability.

                      (3)  After the death or disability of a Participant, the
     Board or Committee may in its sole discretion at any time (1) terminate
     restrictions in Grant Agreements; (2) accelerate any or all installments
     and rights; and (3) instruct the Company to pay the total of any
     accelerated payments in a lump sum to the Participant, the Participant's
     estate, beneficiaries or representative - notwithstanding that, in the
     absence of such termination of restrictions or acceleration of payments,
     any or all of the payments due under the Grant might ultimately have become
     payable to other beneficiaries.

                      (4)  In the event of uncertainty as to interpretation of
     or controversies concerning this Section 7, the determinations of the Board
     or Committee, as applicable, shall be binding and conclusive.

     8.  INVESTMENT INTENT

          All Grants under the Plan are intended to be exempt from registration
under the Securities Act provided by Rule 701 thereunder.  Unless and until the
granting of Options or sale and issuance of Stock subject to the Plan are
registered under the Securities Act or shall be exempt pursuant to the rules
promulgated thereunder, each Grant under the Plan shall provide that the
purchases or other acquisitions of Stock thereunder shall be for investment
purposes and not with a view to, or for resale in connection with, any
distribution thereof. Further, unless the issuance and sale of the Stock have
been registered under the Securities Act, each Grant shall provide that no
shares shall be purchased upon the exercise of the rights under such Grant
unless and until (i) all then applicable requirements of state and federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel, and (ii) if requested to do so by the Company,
the person exercising the rights under the Grant shall (i) give written
assurances as to knowledge and experience of such person (or a representative
employed by such person) in financial and business matters and the ability of
such person (or representative) to evaluate the merits and risks of exercising
the Option, and (ii) execute and deliver to the Company a letter of investment
intent and/or such other form related to applicable exemptions from
registration, all in such form and substance as the Company may require.  If
shares are issued upon exercise of any rights under a Grant without registration
under the Securities Act, subsequent registration of such shares shall relieve
the purchaser thereof of any investment restrictions or representations made
upon the exercise of such rights.

                                      -14-
<PAGE>
 
     9.  AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THE PLAN.

          The Board may, insofar as permitted by law, from time to time, with
respect to any shares at the time not subject to outstanding Grants, suspend or
terminate the Plan or revise or amend it in any respect whatsoever, except that
without the approval of the shareholders of the Company, no such revision or
amendment shall (i) increase the number of shares subject to the Plan, (ii)
decrease the price at which Grants may be granted, (iii) materially increase the
benefits to Participants, or (iv) change the class of persons eligible to
receive Grants under the Plan; provided, however, no such action shall alter or
impair the rights and obligations under any Option, or Stock Award, or
Restricted Stock Purchase Offer outstanding as of the date thereof without the
written consent of the Participant thereunder.  No Grant may be issued while the
Plan is suspended or after it is terminated, but the rights and obligations
under any Grant issued while the Plan is in effect shall not be impaired by
suspension or termination of the Plan.

          In the event of any change in the outstanding Stock by reason of a
stock split, stock dividend, combination or reclassification of shares,
recapitalization, merger, or similar event, the Board or the Committee may
adjust proportionally (a) the number of shares of Stock (i) reserved under the
Plan, (ii) available for Incentive Stock Options and Nonstatutory Options and
(iii) covered by outstanding Stock Awards or Restricted Stock Purchase Offers;
(b) the Stock prices related to outstanding Grants; and (c) the appropriate Fair
Market Value and other price determinations for such Grants.  In the event of
any other change affecting the Stock or any distribution (other than normal cash
dividends) to holders of Stock, such adjustments as may be deemed equitable by
the Committee, including adjustments to avoid fractional shares, shall be made
to give proper effect to such event.  In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Committee shall be authorized to issue or assume stock options,
whether or not in a transaction to which Section 424(a) of the Code applies, and
other Grants by means of substitution of new Grant Agreements for previously
issued Grants or an assumption of previously issued Grants.

     10.  TAX WITHHOLDING.

          The Company shall have the right to deduct applicable taxes from any
Grant payment and withhold, at the time of delivery or exercise of Options,
Stock Awards or Restricted Stock Purchase Offers or vesting of shares under such
Grants, an appropriate number of shares for payment of taxes required by law or
to take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for withholding of such taxes.  If Stock is used to
satisfy tax withholding, such stock shall be valued based on the Fair Market
Value when the tax withholding is required to be made.

                                      -15-
<PAGE>
 
     11.  AVAILABILITY OF INFORMATION.

          During the term of the Plan and any additional period during which a
Grant granted pursuant to the Plan shall be exercisable, the Company shall make
available, not later than one hundred and twenty (120) days following the close
of each of its fiscal years, such financial and other information regarding the
Company as is required by the bylaws of the Company and applicable law to be
furnished in an annual report to the shareholders of the Company.

     12.  NOTICE.

          Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the chief personnel officer or to the chief
executive officer of the Company, and shall become effective when it is received
by the office of the chief personnel officer or the chief executive officer.

     13.  UNFUNDED PLAN.

          Insofar as it provides for Grants, the Plan shall be unfunded.
Although bookkeeping accounts may be established with respect to Participants
who are entitled to Grants or rights thereto under the Plan, any such accounts
shall be used merely as a bookkeeping convenience.  The Company shall not be
required to segregate any assets that may at any time be represented by Grants
or rights thereto, nor shall the Plan be construed as providing for such
segregation, nor shall the Company nor the Board nor the Committee be deemed to
be a trustee of any Grants or rights thereto to be granted under the Plan.  Any
liability of the Company to any Participant with respect to a grant of Stock or
rights thereto under the Plan shall be based solely upon any contractual
obligations that may be created by the Plan and any Grant Agreement; no such
obligation of the Company shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company.  Neither the Company nor the Board
nor the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by the Plan.

     14.  INDEMNIFICATION OF BOARD

          In addition to such other rights or indemnifications as they may have
as directors or otherwise, and to the extent allowed by applicable law, the
members of the Board and the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any claim, action, suit
or proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any action taken, or failure to act, under or
in connection with the Plan or any Grant granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such claim, action, suit or proceeding, except
in any case in relation to matters as to which it shall be 

                                      -16-
<PAGE>
 
adjudged in such claim, action, suit or proceeding that such Board or Committee
member is liable for negligence or misconduct in the performance of his or her
duties; provided that within sixty (60) days after institution of any such
action, suit or Board proceeding the member involved shall offer the Company, in
writing, the opportunity, at its own expense, to handle and defend the same.

     15.  GOVERNING LAW.

          The Plan and all determinations made and actions taken pursuant
hereto, to the extent not otherwise governed by the Code or the securities laws
of the United States, shall be governed by the law of the State of California
and construed accordingly.

     16.  EFFECTIVE AND TERMINATION DATES.

          The Plan shall become effective on the date it is approved by the
holders of a majority of the shares of Stock then outstanding.  The Plan shall
terminate ten years later, subject to earlier termination by the Board pursuant
to Section 9.

                                      -17-