<PAGE>   1

                                                                     EXHIBIT 4.2


                               WILLIAM LYON HOMES

                            2000 STOCK INCENTIVE PLAN


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

        (a) to attract and retain the best available personnel for positions of
substantial responsibility,

        (b) to provide additional incentive to selected key Employees,
Consultants and Directors, and

        (c) to promote the success of the Company's business.

2.      Definitions. For the purposes of this Plan, the following terms will
have the following meanings:

        (a) "ADMINISTRATOR" means the Board or any of its Committees that
administer the Plan, in accordance with Section 4.

        (b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of and issuance of securities under stock incentive plans,
including, without limitation, the requirements of state corporations law,
federal and state securities law, federal and state tax law, and the
requirements of any stock exchange or quotation system upon which the Shares may
then be listed or quoted. For all purposes of this Plan, references to statutes
and regulations shall be deemed to include any successor statutes and
regulations, to the extent reasonably appropriate as determined by the
Administrator.

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

        (D) "CAUSE" shall have the meaning set forth in a Grantee's employment
or consulting agreement with the Company (if any), or if not defined therein,
shall mean (i) acts or omissions by the Grantee which constitute intentional
material misconduct or a knowing violation of a material written policy of the
Company or any of its subsidiaries, (ii) the Grantee personally receiving a
benefit in money, property or services from the Company or any of its
subsidiaries or from another person dealing with the Company or any of its
subsidiaries, in material violation of applicable law or written Company policy,
(iii) an act of fraud, conversion, misappropriation, or embezzlement by the
Grantee or his conviction of, or entering a guilty plea or plea of no contest
with respect to, a felony, or the equivalent thereof (other than DUI), or (iv)
any material misuse or improper disclosure of confidential or proprietary
information of the Company.

        (e) "CODE" means the Internal Revenue Code of 1986, as amended. For all
purposes of this Plan, references to Code sections shall be deemed to include
any successor Code sections, to the extent reasonably appropriate as determined
by the Administrator.


                                       1
<PAGE>   2

        (f) "COMMITTEE" means a Committee appointed by the Board in accordance
with Section 4.

        (g) "COMMON STOCK" means the common stock, $0.01 par value per share, of
the Company.

        (h) "COMPANY" means William Lyon Homes, a Delaware corporation.

        (i) "CONSULTANT" means any natural person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render bona fide services and who is
compensated for such services, provided that the term "Consultant" does not
include (i) Employees or (ii) Directors who are paid only a director's fee by
the Company or who are not compensated by the Company for their services as
Directors. Notwithstanding the foregoing, "Consultant" shall not include an
individual who provides services in connection with the offer and sale of
securities in a capital-raising transaction or services that directly or
indirectly promote or maintain a market for the Company's securities.

        (j) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the employment, director or consulting relationship is not interrupted or
terminated by the Company, any Parent or Subsidiary, or by the Employee,
Director or Consultant. Continuous Status as an Employee, Director or Consultant
will not be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave, provided, that for purposes of Incentive Stock Options, any such
leave may not exceed 90 days, unless reemployment upon the expiration of such
leave is guaranteed by contract (including certain Company polices) or statute;
or (ii) transfers between locations of the Company or between the Company, its
Parent, its Subsidiaries or its successor.

        (k) "DIRECTOR" means a member of the Board.

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

        (m) "EMPLOYEE" means any person, including Officers and Directors
employed as a common law employee by the Company or any Parent or Subsidiary of
the Company. Neither service as a Director nor payment of a director's fee by
the Company will be sufficient, in and of itself, to constitute "employment" by
the Company.

        (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

        (o) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:

        (i)     If the Common Stock is listed on any established stock exchange
                or a national market system, including without limitation, the
                National Market System of NASDAQ, the Fair Market Value of a
                Share of Common Stock will be the closing sales price for such
                stock (or the closing bid, if no sales are reported) as quoted
                on that system or exchange (or the system or exchange with the
                greatest volume of


                                       2
<PAGE>   3

                trading in Common Stock) on the last market trading day prior to
                the day of determination, as reported in the Wall Street Journal
                or any other source the Administrator considers reliable.

        (ii)    If the Common Stock is quoted on the NASDAQ System (but not on
                the NASDAQ National Market System) or is regularly quoted by
                recognized securities dealers but selling prices are not
                reported, the Fair Market Value of a Share of Common Stock will
                be the mean between the high bid and low asked prices for the
                Common Stock on the last market trading day prior to the day of
                determination, as reported in the Wall Street Journal or any
                other source the Administrator considers reliable.

        (iii)   If the Common Stock is not traded as set forth above, the Fair
                Market Value will be determined in good faith by the
                Administrator with reference to the earnings history, book value
                and prospects of the Company in light of market conditions
                generally, and any other factors the Administrator considers
                appropriate, such determination by the Administrator to be
                final, conclusive and binding.

        (p) "FAMILY MEMBER" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which these
persons (or the Grantee) control the management of assets, and any other entity
in which these persons (or the Grantee) own more than fifty percent of the
voting interests.

        (q) "GRANTEE" shall mean (i) any Optionee or (ii) any Employee,
Consultant or Director to whom a Stock Award has been granted pursuant to this
Plan.

        (r) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

        (s) "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.

        (t) "NONQUALIFIED STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

        (u) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 15 of the Exchange Act and the rules and regulations
promulgated thereunder.

        (v) "OPTION" means a stock option granted under this Plan.


                                       3
<PAGE>   4

        (w) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement is subject to the terms and conditions of this Plan.

        (x) "OPTION EXCHANGE PROGRAM" means a program in which outstanding
Options are surrendered in exchange for Options with a lower exercise price.

        (y) "OPTIONED STOCK" means the Common Stock subject to an Option.

        (z) "OPTIONEE" means an Employee, Consultant or Director who holds an
outstanding Option.

        (aa) "PARENT" means a "parent corporation" with respect to the Company,
whether now or later existing, as defined in Section 424(e) of the Code.

        (bb) "PLAN" means this 2000 Stock Incentive Plan.

        (cc) "SECTION" means, except as otherwise specified, a section of this
Plan.

        (dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 16.

        (ee) "STOCK AWARD" shall mean a grant or sale by the Company of a
specified number of Shares upon terms and conditions determined by the
Administrator.

        (ff) "STOCK APPRECIATION RIGHT" shall mean the right to surrender an
Option (or a portion thereof) in exchange for cash or shares of Common Stock.

        (gg) "SUBSIDIARY" means a "subsidiary corporation" with respect to the
Company, whether now or later existing, as defined in Section 424(f) of the
Code.

3.      Stock Subject to the Plan. Subject to the provisions of Section 16 of
the Plan, the maximum aggregate number of Shares which may be issued under the
Plan will be One Million (1,000,000) Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.

        If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, or
if a Stock Award shall be cancelled or surrendered or expire for any reason
without having been received in full, the Shares that were not purchased or
received which were subject thereto will become available for future grant or
sale under the Plan (unless the Plan has terminated). If the Company reacquires
Shares which were issued pursuant to the exercise of an Option or grant of a
Stock Award, however, those reacquired Shares will not be available for future
grant under the Plan.


                                       4


<PAGE>   5

4.      Administration of the Plan.

        (a)     Procedure.

                (i)     Composition of the Administrator. The Plan will be
                        administered by (A) the Board, or (B) a Committee
                        designated by the Board, which Committee will be
                        constituted to satisfy Applicable Laws. Once appointed,
                        a Committee will serve in its designated capacity until
                        otherwise directed by the Board. The Board may increase
                        the size of the Committee and appoint additional
                        members, remove members (with or without cause) and
                        substitute new members, fill vacancies (however caused),
                        and remove all members of the Committee and thereafter
                        directly administer the Plan. Notwithstanding the
                        foregoing, unless the Board expressly resolves to the
                        contrary, from and after such time as the Company is
                        registered pursuant to Section 12 of the Exchange Act,
                        the Plan will be administered only by a Committee, which
                        will then consist solely of persons who are both
                        "non-employee directors" within the meaning of Rule
                        16b-3 promulgated under the Exchange Act and "outside
                        directors" within the meaning of Section 162(m) of the
                        Code; provided, however, the failure of the Committee to
                        be composed solely of individuals who are both
                        "non-employee directors" and "outside directors" shall
                        not render ineffective or void any awards or grants made
                        by, or other actions taken by, such Committee.

                (ii)    Multiple Administrative Bodies. The Plan may be
                        administered by different bodies with respect to
                        Directors, Officers who are not Directors, and Employees
                        and Consultants who are neither Directors nor Officers.

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

                (i)     to determine the Fair Market Value of the Common Stock,
                        in accordance with Section 2(o);

                (ii)    to select the Consultants, Employees or Directors to
                        whom Options or Stock Awards may be granted;

                (iii)   to determine whether and to what extent Options or Stock
                        Awards are granted, and whether Options are intended as
                        Incentive Stock Options or Nonqualified Stock Options;

                (iv)    to determine the number of shares of Common Stock to be
                        covered by each Option or Stock Award granted;

                (v)     to approve forms of Option Agreement and agreements
                        governing Stock Awards;


                                       5
<PAGE>   6

                (vi)    to determine the terms and conditions, not inconsistent
                        with the terms of this Plan, of any grant of Options or
                        Stock Awards, including, but not limited to, (A) the
                        Options' exercise price, (B) the time or times when
                        Options may be exercised or Stock Awards will be vested,
                        which may be based on performance criteria or other
                        reasonable conditions such as Continuous Status as an
                        Employee, Director or Consultant, (C) any vesting
                        acceleration or waiver of forfeiture restrictions, and
                        any restriction or limitation regarding any Option,
                        Optioned Stock or Stock Award, based in each case on
                        factors that the Administrator determines in its sole
                        discretion, including but not limited to a requirement
                        subjecting the Optioned Stock or Shares to (i) certain
                        restrictions on transfer (including without limitation a
                        prohibition on transfer for a specified period of time
                        and/or a right of first refusal in favor of the
                        Company), and (ii) a right of repurchase in favor of the
                        Company upon termination of the Grantee's Continuous
                        Status as an Employee, Director or Consultant;

                (vii)   to determine whether, to what extent and under what
                        circumstances Common Stock and other amounts payable
                        with respect to a grant of Options under this Plan will
                        be deferred either automatically or at the election of
                        the participant (including providing for and determining
                        the amount, if any, of any deemed earnings on any
                        deferred amount during any deferral period);

                (viii)  to determine whether an Option will include a Stock
                        Appreciation Right and the terms of any such Stock
                        Appreciation Right;

                (ix)    to reduce the exercise price of any Option to the Fair
                        Market Value at the time of the reduction, if the Fair
                        Market Value of the Common Stock covered by that Option
                        has declined since the date it was granted;

                (x)     to construe and interpret the terms of this Plan;

                (xi)    to prescribe, amend, and rescind rules and regulations
                        relating to the administration of this Plan;

                (xii)   to modify or amend each Option or Stock Award, subject
                        to Section 18(c);

                (xiii)  to authorize any person to execute on behalf of the
                        Company any instrument required to effect the grant of
                        an Option previously granted by the Administrator;

                (xiv)   to institute an Option Exchange Program;

                (xv)    to accelerate the vesting or exercisability of an Option
                        or Stock Award;


                                       6

<PAGE>   7

                (xvi)   to determine the terms and restrictions applicable to
                        Options or Stock Awards; and

                (xvii)  to make all other determinations it considers necessary
                        or advisable for administering this Plan.

        (c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations will be final and binding on all holders of
Options or Stock Awards.

5.      Eligibility. Options granted under this Plan may be Incentive Stock
Options or Nonqualified Stock Options, as determined by the Administrator at the
time of grant. Nonqualified Stock Options and Stock Awards may be granted to
Employees, Consultants and Directors. Incentive Stock Options may be granted
only to Employees. If otherwise eligible, an Employee, Consultant or Director
who has been granted an Option or a Stock Award may be granted additional
Options or Stock Awards.

6.      Limitations on Grants of Incentive Stock Options. Each Option will be
designated in the Option Agreement as either an Incentive Stock Option or a
Nonqualified Stock Option. However, notwithstanding such designations, if the
Shares subject to an Optionee's Incentive Stock Options (granted under all plans
of the Company or any Parent or Subsidiary), which become exercisable for the
first time during any calendar year, have a Fair Market Value in excess of
$100,000, the Options accounting for this excess will be treated as Nonqualified
Stock Options. For purposes of this Section 6, Incentive Stock Options will be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares will be determined as of the time of grant.

7.      Limit on Annual Grants to Individuals. From and after such time as the
Company is required to be registered pursuant to Section 12 of the Exchange Act,
no Optionee may receive grants, during any fiscal year of the Company or portion
thereof, of Options which, in the aggregate, cover more than One Million
(1,000,000) Shares, subject to adjustment as provided in Section 16. If an
Option expires or terminates for any reason without having been exercised in
full, the unpurchased shares subject to that expired or terminated Option will
continue to count against the maximum numbers of shares for which Options may be
granted to an Optionee during any fiscal year of the Company or portion thereof.

8.      Term of the Plan. Subject to Section 22, this Plan will become effective
upon the earlier to occur of its adoption by the Board or its approval by the
shareholders of the Company as described in Section 22. It will continue in
effect for a term of ten years unless terminated earlier under Section 18.
Unless otherwise provided in this Plan, its termination will not affect the
validity of any Option Agreement or Stock Award outstanding at the date of
termination.

9.      Term of Option. The term of each Option will be stated in the Option
Agreement; provided, however, that in no event may the term be more than ten
years from the date of grant. In addition, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent of the voting power of
all classes of capital stock of the Company or any Parent or


                                       7
<PAGE>   8

Subsidiary, the term of the Incentive Stock Option will be five years from the
date of grant or any shorter term specified in the Option Agreement.

10.     Option Exercise Price and Consideration.

        (a) Exercise Price of Incentive Stock Options. The exercise price for
Shares to be issued pursuant to exercise of an Incentive Stock Option will be
determined by the Administrator provided that the per Share exercise price will
be no less than 100% of the Fair Market Value per Share on the date of grant;
provided, further that in the case of an Incentive Stock Option granted to an
Employee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent of the voting power of all classes of capital
stock of the Company or any Parent or Subsidiary, the per Share exercise price
will be no less than 110% of the Fair Market Value per Share on the date of
grant.

        (b) Exercise Price of Nonqualified Stock Options. In the case of a
Nonqualified Stock Option, the exercise price for Shares to be issued pursuant
to the exercise of any such Option will be determined by the Administrator.

        (c) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator will fix the period within which the Option may be exercised
and will determine any conditions which must be satisfied before the Option may
be exercised. Exercise of an Option may be conditioned upon performance criteria
or other reasonable conditions such as Continuous Status as an Employee,
Director or Consultant.

        (d) Form of Consideration. The Administrator will determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist partially or entirely of:

        (i)     cash;

        (ii)    a promissory note made by the Optionee in favor of the Company;

        (iii)   other Shares which have a Fair Market Value on the date of
                surrender equal to the aggregate exercise price of the Shares as
                to which an Option will be exercised;

        (iv)    delivery of a properly executed exercise notice together with
                any other documentation as the Administrator and the Optionee's
                broker, if applicable, requires to effect an exercise of the
                Option and delivery to the Company of the sale or loan proceeds
                required to pay the exercise price; or

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

11.     Stock Appreciation Rights. If deemed appropriate by the Administrator,
any Option may be coupled with a Stock Appreciation Right at the time of the
grant of the Option, or, the Administrator may grant a Stock Appreciation Right
to any Optionee at any time after granting an Option to such Optionee prior to
the expiration of such Option. A Stock


                                       8
<PAGE>   9

Appreciation Right shall be subject to such terms and conditions as the
Administrator shall impose, provided that: (i) a Stock Appreciation Right shall
be exercisable to the extent, and only to the extent, the associated Option is
exercisable and shall be exercisable only for such period as the Administrator
shall determine (which period may expire prior to the expiration of the Option);
and (ii) a Stock Appreciation Right shall entitle the Optionee to surrender to
the Company the associated unexercised Option (or any portion thereof), and to
receive from the Company in exchange therefor a number of shares of Common Stock
(or, to the extent permitted by the Administrator, cash) having an aggregate
Fair Market Value equal to the excess of the Fair Market Value of one share of
Common Stock over the Option exercise price per share multiplied by the number
of shares of Common Stock subject to the Option (or portion thereof) that is
surrendered.

12.     Exercise of Option.

        (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder will be exercisable according to the terms of the Plan and at times
and under conditions determined by the Administrator and set forth in the Option
Agreement; provided, however, that an Option may not be exercised for a fraction
of a Share.

               An Option will be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, (ii) full payment for the Shares with
respect to which the Option is exercised, and (iii) all representations,
indemnifications and documents reasonably requested by the Administrator. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and this Plan. Shares issued
upon exercise of an Option will be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder will exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. Subject to the provisions of
Sections 15, 19, and 20, the Company will issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 16 of the
Plan. Notwithstanding the foregoing, the Administrator in its discretion may
require the Company to retain possession of any certificate evidencing Shares of
Common Stock acquired upon exercise of an Option, if those Shares remain subject
to repurchase under the provisions of the Option Agreement or any other
agreement between the Company and the Optionee, or if those Shares are
collateral for a loan or obligation due to the Company.

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

        (b) Termination of Employment or Consulting Relationship or
Directorship. If an Optionee holds exercisable Options on the date his or her
Continuous Status as an Employee, Director or Consultant terminates (other than
because of termination due to

                                       9
<PAGE>   10

Cause, death or Disability), the Optionee may exercise those Options until
the earlier of (i) their expiration as set forth in the Option Agreement, and
(ii) 30 days after the date of such termination (or a longer period determined
by the Administrator). If the Optionee is not entitled to exercise his or her
entire Option at the date of such termination, the Shares covered by the
unexercisable portion of the Option will revert to the Plan. If the Optionee
does not exercise an Option within the time specified above after termination,
that Option will expire, and the Shares covered by it will revert to the Plan.

        (c) Disability of Optionee. If an Optionee holds exercisable Options on
the date his or her Continuous Status as an Employee, Director or Consultant
terminates because of Disability, the Optionee may exercise those Options until
the earlier of (i) their expiration as set forth in the Option Agreement, and
(ii) six months after the date of such termination (or a longer period
determined by the Administrator). If the Optionee is not entitled to exercise
his or her entire Option at the date of such termination, the Shares covered by
the unexercisable portion of the Option will revert to the Plan. If the Optionee
does not exercise an Option within the time specified above after termination,
that Option will expire, and the Shares covered by it will revert to the Plan.

        (d) Death of Optionee. If an Optionee holds exercisable Options on the
date his or her death, the Optionee's estate or a person who acquired the right
to exercise the Option by bequest or inheritance may exercise those Options
until the earlier of (i) their expiration as set forth in the Option Agreement,
and (ii) six months after the date of death (or a longer period determined by
the Administrator). If the Optionee is not entitled to exercise his or her
entire Option at the date of death, the Shares covered by the unexercisable
portion of the Option will revert to the Plan. If the Optionee's estate or a
person who acquired the right to exercise the Option by bequest or inheritance
does not exercise an Option within the time specified above after termination,
that Option will expire, and the Shares covered by it will revert to the Plan.

        (e) Termination for Cause. If an Optionee's Continuous Status as an
Employee, Director or Consultant is terminated for Cause, then all Options held
by Optionee shall immediately be terminated and cancelled.

        (f) Disqualifying Dispositions of Incentive Stock Options. If Common
Stock acquired upon exercise of any Incentive Stock Option is disposed of in a
disposition that, under Section 422 of the Code, disqualifies the holder from
the application of Section 421(a) of the Code, the holder of the Common Stock
immediately before the disposition will comply with any requirements imposed by
the Company in order to enable the Company to secure the related income tax
deduction to which it is entitled in such event.

13.     Non-Transferability of Options.

        (a) No Transfer. An Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee. Notwithstanding the foregoing, to the extent
that the Administrator so authorizes at the time a Nonqualified Stock Option is
granted or amended, (i) such Option may be assigned pursuant to a qualified
domestic relations order as defined by the Code, and exercised by the


                                       10
<PAGE>   11

spouse of the Optionee who obtained such Option pursuant to such qualified
domestic relations order, and (ii) such Option may be assigned, in whole or in
part, during the Optionee's lifetime to one or more Family Members of the
Optionee. Rights under the assigned portion may be exercised by the Family
Member(s) who acquire a proprietary interest in such Option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the Option immediately before such assignment and shall be
set forth in such documents issued to the assignee as the Administrator deems
appropriate.

        (b) Designation of Beneficiary. An Optionee may file a written
designation of a beneficiary who is to receive any Options that remain
unexercised in the event of the Optionee's death. If a participant is married
and the designated beneficiary is not the spouse, spousal consent will be
required for the designation to be effective. The Optionee may change such
designation of beneficiary at any time by written notice to the Administrator,
subject to the above spousal consent requirement.

        (c) Effect of No Designation. If an Optionee dies and there is no
beneficiary validly designated and living at the time of the Optionee's death,
the Company will deliver such Optionee's Options to the executor or
administrator of his or her estate, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Options to the spouse or to any one or more
dependents or relatives of the Optionee, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company may designate.

        (d) Death of Spouse or Dissolution of Marriage. If an Optionee
designates his or her spouse as beneficiary, that designation will be deemed
automatically revoked if the Optionee's marriage is later dissolved. Similarly,
any designation of a beneficiary will be deemed automatically revoked upon the
death of the beneficiary if the beneficiary predeceases the Optionee. Without
limiting the generality of the preceding sentence, the interest in Options of a
spouse of an Optionee who has predeceased the Optionee or (except as provided in
Section 13(a) regarding qualified domestic relations orders) whose marriage has
been dissolved will automatically pass to the Optionee, and will not be
transferable by such spouse in any manner, including but not limited to such
spouse's will, nor will any such interest pass under the laws of intestate
succession.

14.     Stock Awards.

        (a) Grant. Subject to the express provisions and limitations of the
Plan, the Administrator, in its sole and absolute discretion, may grant Stock
Awards to Employees, Consultants or Directors for a number of shares of Common
Stock on such terms and conditions and to such Employees, Consultants or
Directors as it deems advisable and specifies in the respective grants. Subject
to the limitations and restrictions set forth in the Plan, an Employee,
Consultant or Director who has been granted a Option or Stock Award may, if
otherwise eligible, be granted additional Options or Stock Awards if the
Administrator shall so determine.

        (b) Restrictions. The Administrator, in its sole and absolute
discretion, may impose restrictions in connection with any Stock Award,
including without limitation,


                                       11
<PAGE>   12

(i) imposing a restricted period during which all or a portion of the Common
Stock subject to the Stock Award may not be sold, assigned, transferred, pledged
or otherwise encumbered (the "RESTRICTED PERIOD"), (ii) providing for a vesting
schedule with respect to such Common Stock such that if a Grantee ceases to be
an Employee, Consultant or Director during the Restricted Period, some or all of
the shares of Common Stock subject to the Stock Award shall be immediately
forfeited and returned to the Corporation. The Administrator may, at any time,
reduce or terminate the Restricted Period. Each certificate issued in respect of
shares of Common Stock pursuant to a Stock Award which is subject to
restrictions shall be registered in the name of the Grantee, shall be deposited
by the Grantee with the Company together with a stock power endorsed in blank
and shall bear an appropriate legend summarizing the restrictions imposed with
respect to such shares of Common Stock.

        (c) Rights As Shareholder. Subject to the terms of any agreement
governing a Stock Award, the Grantee of a Stock Award shall have all the rights
of a shareholder with respect to the Common Stock issued pursuant to a Stock
Award, including the right to vote such Shares; provided, however, that
dividends or distributions paid with respect to any such Shares which have not
vested shall be deposited with the Company and shall be subject to forfeiture
until the underlying Shares have vested unless otherwise released by the
Administrator in its sole discretion. A Grantee shall not be entitled to
interest with respect to the dividends or distributions so deposited.

15.     Withholding Taxes. The Company will have the right to take whatever
steps the Administrator deems necessary or appropriate to comply with all
applicable federal, state, local, and employment tax withholding requirements,
and the Company's obligations to deliver Shares upon the exercise of an Option
or in connection with a Stock Award will be conditioned upon compliance with all
such withholding tax requirements. Without limiting the generality of the
foregoing, upon the exercise of an Option, the Company will have the right to
withhold taxes from any other compensation or other amounts which it may owe to
the Optionee, or to require the Optionee to pay to the Company the amount of any
taxes which the Company may be required to withhold with respect to the Shares
issued on such exercise. Without limiting the generality of the foregoing, the
Administrator in its discretion may authorize the Grantee to satisfy all or part
of any withholding tax liability by (a) having the Company withhold from the
Shares which would otherwise be issued in connection with a Stock Award or on
the exercise of an Option that number of Shares having a Fair Market Value, as
of the date the withholding tax liability arises, equal to or less than the
amount of the Company's withholding tax liability, or (b) by delivering to the
Company previously-owned and unencumbered Shares of the Common Stock having a
Fair Market Value, as of the date the withholding tax liability arises, equal to
or less than the amount of the Company's withholding tax liability.

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

        (a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, if the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company or a successor entity, or for other
property (including without limitation, cash), through reorganization,
recapitalization, reclassification, stock combination, stock dividend,



                                       12
<PAGE>   13

stock split, reverse stock split, spin off or other similar transaction, an
appropriate and proportionate adjustment will be made in the maximum number and
kind of shares as to which Options and Stock Awards may be granted under this
Plan. A corresponding adjustment changing the number or kind of shares allocated
to Stock Awards or unexercised Options which have been granted prior to any such
change will likewise be made. Any such adjustment in the outstanding Options
will be made without change in the aggregate purchase price applicable to the
unexercised portion of the Options but with a corresponding adjustment in the
price for each share or other unit of any security covered by the Option. Such
adjustment will be made by the Administrator, whose determination in that
respect will be final, binding, and conclusive.

               Where an adjustment under this Section 16(a) is made to an
Incentive Stock Option, the adjustment will be made in a manner which will not
be considered a "modification" under the provisions of subsection 424(h)(3) of
the Code.

        (b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, to the extent that an Option had not been
previously exercised or a Stock Award had not previously vested, it will
terminate immediately prior to the consummation of such proposed dissolution or
liquidation. In such instance, the Administrator may, in the exercise of its
sole discretion, declare that any Stock Award shall become vested or any Option
will terminate as of a date fixed by the Administrator and give each Optionee
the right to exercise his or her Option as to all or any part of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable.

        (c) Corporate Transaction. Upon the happening of a merger,
reorganization or sale of substantially all of the assets of the Company, the
Administrator, may, in its sole discretion, do one or more of the following: (i)
shorten the period during which Options are exercisable (provided they remain
exercisable for at least 30 days after the date notice of such shortening is
given to the Optionees); (ii) accelerate any vesting schedule to which an Option
or Stock Award is subject; (iii) arrange to have the surviving or successor
entity or any parent entity thereof assume the Stock Awards and the Options or
grant replacement options with appropriate adjustments in the option prices and
adjustments in the number and kind of securities issuable upon exercise or
adjustments so that the Options or their replacements represent the right to
purchase the shares of stock, securities or other property (including cash) as
may be issuable or payable as a result of such transaction with respect to or in
exchange for the number of Shares of Common Stock purchasable and receivable
upon exercise of the Options had such exercise occurred in full prior to such
transaction; or (iv) cancel Options or unvested Stock Awards upon payment to the
Optionees or Grantees in cash, with respect to each Option or Stock Award to the
extent then exercisable or vested (including, if applicable, any Options or
Stock Awards as to which the vesting schedule has been accelerated as
contemplated in clause (ii) above), of an amount that is the equivalent of the
excess of the Fair Market Value of the Common Stock (at the effective time of
the merger, reorganization, sale or other event) over (in the case of Options)
the exercise price of the Option. The Administrator may also provide for one or
more of the foregoing alternatives in any particular Option Agreement or
agreement governing a Stock Award.

17.     Date of Grant. The date of grant of an Option or Stock Award will be,
for all purposes, the date as of which the Administrator makes the determination
granting such


                                       13
<PAGE>   14

Option or Stock Award, or any other, later date determined by the
Administrator and specified in the Option Agreement. Notice of the determination
will be provided to each Grantee within a reasonable time after the date of
grant.

18.     Amendment and Termination of the Plan.

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

        (b) Shareholder Approval. The Company will obtain shareholder approval
of any Plan amendment that increases the number of Shares for which Options or
Stock Awards may be granted, or to the extent necessary and desirable to comply
with Section 422 of the Code (or any successor statute) or other Applicable
Laws, or the requirements of any exchange or quotation system on which the
Common Stock is listed or quoted. Such shareholder approval, if required, will
be obtained in such a manner and to such a degree as is required by the
Applicable Law or requirement.

        (c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan will impair the rights of a Grantee,
unless mutually agreed otherwise between the Grantee and the Administrator. Any
such agreement must be in writing and signed by the Grantee and the Company.

19.     Conditions Upon Issuance of Shares.

        (a) Legal Compliance. Shares will not be issued in connection with a
Stock Award or pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares will comply with all
Applicable Laws, and will be further subject to the approval of counsel for the
Company with respect to such compliance. Any securities delivered under the Plan
will be subject to such restrictions, and the person acquiring such securities
will, if requested by the Company, provide such assurances and representations
to the Company as the Company may deem necessary or desirable to assure
compliance with all Applicable Laws. To the extent permitted by Applicable Laws,
the Plan and Options and Stock Awards granted hereunder will be deemed amended
to the extent necessary to conform to such laws, rules and regulations.

        (b) Investment Representation. As a condition to the exercise of an
Option or grant of a Stock Award, the Company may require the person exercising
such Option or receiving such Stock Award to represent and warrant at the time
of any such exercise that the Shares are being acquired only for investment and
without any present intention to sell, transfer, or distribute such Shares.

20.     Liability of Company.

        (a) Inability to Obtain Authority. If the Company cannot, by the
exercise of commercially reasonable efforts, obtain authority from any
regulatory body having jurisdiction for the sale of any Shares under this Plan,
and such authority is deemed by the Company's counsel to be necessary to the
lawful issuance of those Shares, the Company will be relieved of any liability
for failing to issue or sell those Shares.


                                       14
<PAGE>   15

        (b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by
an Option or Shares subject to a Stock Award exceed, as of the date of grant,
the number of Shares which may be issued under the Plan without additional
shareholder approval, that Option or Stock Award will be contingent with respect
to such excess Shares, unless and until shareholder approval of an amendment
sufficiently increasing the number of Shares subject to this Plan is timely
obtained in accordance with Section 18(b).

        (c) Rights of Participants and Beneficiaries. The Company will pay all
amounts payable under this Plan only to the Grantee, or beneficiaries entitled
thereto pursuant to this Plan. The Company will not be liable for the debts,
contracts, or engagements of any Grantee or his or her beneficiaries, and rights
to cash payments under this Plan may not be taken in execution by attachment or
garnishment, or by any other legal or equitable proceeding while in the hands of
the Company.

21.     Reservation of Shares. The Company will at all times reserve and keep
available for issuance a number of Shares sufficient to satisfy this Plan's
requirements during its term.

22.     Shareholder Approval. Continuance of this Plan will be subject to
approval by the shareholders of the Company within 12 months before or after the
date of its adoption. Such shareholder approval will be obtained in the manner
and to the degree required under Applicable Laws. Options or Stock Awards may be
granted but Options may not be exercised prior to shareholder approval of the
Plan. If any Options or Stock Awards are so granted and shareholder approval is
not obtained within 12 months of the date of adoption of this Plan by the Board,
those Options or Stock Awards will terminate retroactively as of the date they
were granted.

23.     Legending Share Certificates. In order to enforce any restrictions
imposed upon Common Stock issued in connection with a Stock Award or upon
exercise of an Option granted under this Plan or to which such Common Stock may
be subject, the Administrator may cause a legend or legends to be placed on any
share certificates representing such Common Stock, which legend or legends will
make appropriate reference to such restrictions, including, but not limited to,
a restriction against sale of such Common Stock for any period of time as may be
required by Applicable Laws. Additionally, and not by way of limitation, the
Administrator may impose such restrictions on any Common Stock issued pursuant
to the Plan as it may deem advisable.

24.     No Employment Rights. Neither this Plan nor any Option or Stock Award
will confer upon a Grantee any right with respect to continuing the Grantee's
employment or consulting relationship with the Company, or continuing service as
a Director, nor will they interfere in any way with the Grantee's right or the
Company's right to terminate such employment or consulting relationship or
directorship at any time, with or without cause.

25.     Governing Law. The Plan will be governed by, and construed in accordance
with the laws of the State of Delaware (without giving effect to conflicts of
law principles).



                                       15