EXHIBIT 10.5
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                        Innovative Micro Technology, Inc.

                            2001 STOCK INCENTIVE PLAN
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Termination Date:  November 16, 2011

1. PURPOSE OF THE PLAN.

      The purpose of this 2001 Stock  Incentive  Plan (the "Plan") is to provide
incentives and rewards to selected eligible directors,  officers,  employees and
consultants  of  Innovative  Micro  Technology,  Inc.  (the  "Company")  or  its
affiliates  in order to assist the Company  and its  affiliates  in  attracting,
retaining  and  motivating  those  persons by providing  for or  increasing  the
proprietary  interests of those persons in the Company, and by associating their
interests in the Company with those of the Company's stockholders.

2. DEFINITIONS

      (a) "Affiliate" means any parent corporation or subsidiary  corporation of
the Company,  whether now or hereafter  existing,  as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (b) "Bankruptcy  Plan" means the Debtor's Plan of Bankruptcy under Chapter
11 of the Bankruptcy Code dated as of July 6, 2001 and filed with the Bankruptcy
Court for the Central District of California on September 24, 2001, as such Plan
may be modified from time to time.

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

      (d) "Cause," with respect to any  Participant,  means (except as otherwise
provided  in the  applicable  Stock Award  Agreement  or an  applicable  written
employment  contract  executed by an authorized  officer of the Company and such
Participant)  such  Participant's  (i)  conviction  of any  felony  or any crime
involving moral turpitude or dishonesty, (ii) participation in a fraud or act of
dishonesty against the Company,  (iii) conduct that, based upon a good faith and
reasonable factual investigation and determination by the Company,  demonstrates
such  Participant's  gross unfitness to serve,  (iv) failure,  based upon a good
faith and reasonable factual  determination by the Company,  to meet the minimum
performance  requirements  of his or her position as established by the Company,
or (v) intentional,  material  violation of any contract between the Company and
such  Participant or any statutory duty of such  Participant to the Company that
such  Participant  does not correct within thirty (30) days after written notice
to such Participant thereof. A Participant's physical or mental disability shall
not constitute "Cause."

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

      (f)  "Committee"  means a  committee  of one or more  members of the Board
appointed by the Board in accordance with subsection 3(c).

      (g) "Common  Stock" means the Class A Common  Stock,  par value $.0001 per
share, of the Company.

      (h)  "Company"  means  Innovative  Micro  Technology,   Inc.,  a  Delaware
corporation.

      (i) "Consultant"  means any person,  including an advisor,  (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated  for such services or (ii) who is a member of the Board of Directors
of an  Affiliate.  However,  the term  "Consultant"  shall  not  include  either
Directors who are not compensated by the Company for their services as Directors
or  Directors  who are merely  paid a  director's  fee by the  Company for their
services as Directors.

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      (j)  "Continuous  Service" means that the  Participant's  service with the
Company or an Affiliate,  whether as an Employee, Director or Consultant, is not
interrupted or terminated.  The  Participant's  Continuous  Service shall not be
deemed to have  terminated  merely  because of a change in the capacity in which
the  Participant  renders service to the Company or an Affiliate as an Employee,
Consultant  or  Director  or a change in the  entity  for which the  Participant
renders such service,  provided that there is no  interruption or termination of
the Participant's  Continuous  Service.  For example, a change in status from an
Employee of the Company to a Consultant  of an Affiliate or a Director  will not
constitute  an  interruption  of  Continuous  Service.  The  Board or the  chief
executive officer of the Company, in that party's sole discretion, may determine
whether  Continuous  Service shall be considered  interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

      (k) "Corporate  Transaction" means after the Effective Date, (i) a sale of
all or  substantially  all of the assets of the  Company  (in one or a series of
transactions),  (ii) a  transaction  or a series of  transactions  whereby fifty
percent (50%) of the issued and outstanding shares of Common Stock (prior to any
dilution for unvested  shares of Restricted  Stock or  unexercised  Options) are
held by a Person (including such Person's affiliates), excluding that percent of
the issued and outstanding  shares of Common Stock held by such Person as of the
Effective Date,  unless such Person acquires  additional  shares of Common Stock
after the Effective Date and such shares of Common Stock, when combined with the
shares of Common Stock held by such Person as of the Effective  Date,  aggregate
more than 49.9% of the issued and  outstanding  shares of Common Stock (prior to
any  dilution  for  unexercised  Options,  or (iii) a  transaction  or series of
transactions  whereby  fifty-one  percent  (51%) of the issued  and  outstanding
shares of Common Stock vote to sell the equity interests in or merge the Company
and such sale or merger  results in Persons  holding fifty percent (50%) or more
of the Common Stock that are other than the Persons  holding fifty percent (50%)
or more of the Common Stock immediately prior to such sale or merger.

      (l) "Covered Employee" means the chief executive officer, or an individual
acting in such capacity,  and the four (4) other highest compensated officers of
the  Company  for  whom  total  compensation  is  required  to  be  reported  to
stockholders  under the  Exchange  Act, as  determined  for  purposes of Section
162(m) of the Code.

      (m) "Director" means a member of the Board of Directors of the Company.

      (n)  "Disability"  means the  permanent  and total  disability of a person
within the meaning of Section 22(e)(3) of the Code.

      (o) "Employee"  means any person  employed by the Company or an Affiliate.
Mere service as a Director or payment of a  director's  fee by the Company or an
Affiliate  shall not be sufficient to constitute  "employment" by the Company or
an Affiliate.

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

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

          (i)   If the Common Stock is listed on any established  stock exchange
                or traded on the Nasdaq  National  Market or the Nasdaq SmallCap
                Market,  the Fair Market  Value of a share of Common Stock shall
                be the closing  sales price for such stock (or the closing  bid,
                if no sales were  reported) as quoted on such exchange or market
                (or the exchange or market with the  greatest  volume of trading
                in the Common Stock) on the last market trading day prior to the
                day of determination,  as reported in The Wall Street Journal or
                such other source as the Board deems reliable.

          (ii)  In the absence of such  markets for the Common  Stock,  the Fair
                Market Value shall be determined in good faith by the Board.

      (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.
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      (s)  "Non-Employee  Director"  means a  Director  who  either (i) is not a
current  Employee or Officer of the Company or its parent or a subsidiary,  does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary  for s rendered as a consultant or in any capacity other than as
a Director  (except for an amount as to which  disclosure  would not be required
under Item 404(a) of Regulation S-K  promulgated  pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which  disclosure  would be required  under Item 404(a) of Regulation S-K and is
not engaged in a business  relationship as to which disclosure would be required
under  Item  404(b)  of  Regulation  S-K;  or (ii)  is  otherwise  considered  a
"non-employee director" for purposes of Rule 16b-3.

      (t) "Nonstatutory 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  16 of the  Exchange  Act and  the  rules  and  regulations
promulgated thereunder.

      (v) "Option"  means an  Incentive  Stock  Option or a  Nonstatutory  Stock
Option granted pursuant to the Plan.

      (w) "Option  Agreement" means a written  agreement between the Company and
an  Optionholder  evidencing  the terms and  conditions of an individual  Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

      (x) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.

      (y)  "Outside  Director"  means a Director who either (i) is not a current
employee of the Company or an  "affiliated  corporation"  (within the meaning of
Treasury  Regulations  promulgated  under Section 162(m) of the Code),  is not a
former  employee  of  the  Company  or  an  "affiliated  corporation"  receiving
compensation  for prior  services  (other than  benefits  under a tax  qualified
pension plan), was not an officer of the Company or an "affiliated  corporation"
at any time and is not currently receiving direct or indirect  remuneration from
the Company or an  "affiliated  corporation"  for services in any capacity other
than as a Director or (ii) is otherwise  considered  an "outside  director"  for
purposes of Section 162(m) of the Code.

      (z) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable,  such other person who holds an outstanding Stock
Award.

      (aa)  "Plan"  means this  Innovative  Micro  Technology,  Inc.  2001 Stock
Incentive Plan.

      (bb) "Rule 16b-3" means Rule 16b-3  promulgated  under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (cc) "Securities Act" means the Securities Act of 1933, as amended.

      (dd) "Stock Award" means any right  granted  under the Plan,  including an
Option, a stock bonus and a right to acquire restricted stock.

      (ee) "Stock Award Agreement" means a written agreement between the Company
and a  holder  of a Stock  Award  evidencing  the  terms  and  conditions  of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

      (ff) "Ten  Percent  Stockholder"  means a person who 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 of all classes of stock of the
Company or of any of its Affiliates.

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3. ADMINISTRATION.

      (a)  Administration  by Board.  The Board shall administer the Plan unless
and until the Board  delegates  administration  to a  Committee,  as provided in
subsection 3(c).

      (b)  Powers of Board.  The Board  shall have the  power,  subject  to, and
within the limitations of, the express provisions of the Plan:

          (i)   To  determine  from time to time which of the  persons  eligible
                under the Plan shall be granted Stock Awards;  when and how each
                Stock Award shall be granted;  what type or combination of types
                of Stock Award shall be granted;  the  provisions  of each Stock
                Award granted (which need not be identical),  including the time
                or times when a person  shall be  permitted  to  receive  Common
                Stock  pursuant  to a Stock  Award;  and the number of shares of
                Common  Stock  with  respect  to  which a Stock  Award  shall be
                granted to each such person.

          (ii)  To construe  and  interpret  the Plan and Stock  Awards  granted
                under  it,  and  to  establish,   amend  and  revoke  rules  and
                regulations for its  administration.  The Board, in the exercise
                of this power, may correct any defect, omission or inconsistency
                in the Plan or in any Stock Award Agreement,  in a manner and to
                the extent it shall deem necessary or expedient to make the Plan
                fully effective.

          (iii) To amend the Plan or a Stock Award as provided in Section 14.

          (iv)  Generally,  to exercise  such powers and to perform such acts as
                the Board  deems  necessary  or  expedient  to promote  the best
                interests  of the  Company  which are not in  conflict  with the
                provisions of the Plan.

      (c) Delegation to Committee.

          (i)   General. The Board may delegate  administration of the Plan to a
                Committee or Committees of one (1) or more members of the Board,
                and the term "Committee" shall apply to any person or persons to
                whom such authority has been  delegated.  If  administration  is
                delegated  to  a  Committee,   the  Committee   shall  have,  in
                connection  with the  administration  of the  Plan,  the  powers
                theretofore  possessed  by the  Board,  including  the  power to
                delegate to a subcommittee any of the administrative  powers the
                Committee is authorized to exercise (and references in this Plan
                to  the  Board  shall   thereafter   be  to  the   Committee  or
                subcommittee),   subject,  however,  to  such  resolutions,  not
                inconsistent  with the provisions of the Plan, as may be adopted
                from  time to time by the  Board.  The  Board  may  abolish  the
                Committee at any time and revest in the Board the administration
                of the Plan.

          (ii)  Committee  Composition when Common Stock is Publicly Traded.  At
                such  time  as the  Common  Stock  is  publicly  traded,  in the
                discretion of the Board,  a Committee may consist  solely of two
                or more Outside Directors,  in accordance with Section 162(m) of
                the Code, and/or solely of two or more Non- Employee  Directors,
                in  accordance  with  Rule  16b-3.  Within  the  scope  of  such
                authority,  the Board or the  Committee  may (1)  delegate  to a
                committee  of one or  more  members  of the  Board  who  are not
                Outside  Directors  the  authority  to  grant  Stock  Awards  to
                eligible  persons who are either (a) not then Covered  Employees
                and are not  expected  to be  Covered  Employees  at the time of
                recognition of income resulting from such Stock Award or (b) not
                persons with  respect to whom the Company  wishes to comply with
                Section  162(m) of the Code;  and/or (2) delegate to a committee
                of one or more  members  of the Board  who are not  Non-Employee
                Directors  the  authority  to grant  Stock  Awards  to  eligible
                persons who are not then  subject to Section 16 of the  Exchange
                Act.
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      (d) Effect of Board's Decision.  All  determinations,  interpretations and
constructions  made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4.    AVAILABLE AWARDS.

      (a) Common Stock and Derivative  Security Awards.  Awards authorized under
the Plan shall consist of any type of arrangement with a Participant that is not
inconsistent  with the  provisions of the Plan and that, by its terms,  include,
but need not be  limited  to,  sales,  bonuses  and  other  transfers  of stock,
restricted stock, stock options,  reload stock options, stock purchase warrants,
other rights to acquire stock or securities  convertible  into or redeemable for
stock,  stock  appreciation  rights,   phantom  stock,   dividend   equivalents,
performance  units or performance  shares,  or any other type of Award which the
Board shall  determine is consistent  with the objectives and limitations of the
Plan.  An Award may consist of one such  security or benefit,  or two or more of
them in tandem or in the alternative.

      (b) Consideration. Common Stock may be issued pursuant to an Award for any
lawful consideration as determined by the Board, including,  without limitation,
a cash payment, services rendered, or the cancellation of indebtedness.

      (c)  Guidelines.  The Board may adopt,  amend or revoke  from time to time
written policies  implementing the Plan. Such policies may include, but need not
be limited to, the type, size and term of Awards to be made to participants  and
the conditions for payment of such Awards.

5.    SHARES SUBJECT TO THE PLAN.

      (a) Share  Reserve.  Subject to the  provisions  of Section 12 relating to
adjustments  upon changes in Common  Stock,  the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate  2,250,000  shares of
Common Stock.

      (b) Reversion of Shares to the Share Reserve. If any Stock Award shall for
any reason expire or otherwise  terminate,  in whole or in part,  without having
been exercised in full, the shares of Common Stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.

      (c) Source of Shares.  The shares of Common Stock  subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

6.    ELIGIBILITY.

      (a) Eligibility for Specific Stock Awards.  Incentive Stock Options may be
granted only to Employees.  Stock Awards other than Incentive  Stock Options may
be granted to Employees, Directors and Consultants.

      (b) Ten  Percent  Stockholders.  A Ten  Percent  Stockholder  shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one  hundred ten  percent  (110%) of the Fair  Market  Value of the Common
Stock  at the  date of  grant  and  the  Option  is not  exercisable  after  the
expiration of five (5) years from the date of grant.

      (c) Section  162(m)  Limitation.  Subject to the  provisions of Section 12
relating to adjustments  upon changes in the shares of Common Stock, no Employee
shall  be  eligible  to be  granted  Options  covering  more  than  one  million
(1,000,000) shares of Common Stock during any calendar year.

      (d) Consultants.

          (i)   A  Consultant  shall  not be  eligible  for the grant of a Stock
                Award  if,  at  the  time  of  grant,  a Form  S-8  Registration
                Statement under the Securities Act ("Form S-8") is not available
                to  register  either  the  offer  or the  sale of the  Company's
                securities  to such  Consultant  because  of the  nature  of the
                services  that the  Consultant  is providing to the Company,  or

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                because the Consultant is not a natural person,  or as otherwise
                provided by the rules  governing the use of Form S-8, unless the
                Company  determines  both  (i)  that  such  grant  (A)  shall be
                registered in another manner under the Securities Act (e.g.,  on
                a Form S-3  Registration  Statement)  or (B)  does  not  require
                registration  under the  Securities  Act in order to comply with
                the requirements of the Securities Act, if applicable,  and (ii)
                that such grant complies with the  securities  laws of all other
                relevant jurisdictions.

          (ii)  Form S-8 generally is available to consultants and advisors only
                if (i) they are natural  persons;  (ii) they  provide  bona fide
                services  to  the  issuer,   its  parents,   its  majority-owned
                subsidiaries  or  majority-owned  subsidiaries  of the  issuer's
                parent;  and (iii) the services are not in  connection  with the
                offer or sale of  securities in a  capital-raising  transaction,
                and do not directly or  indirectly  promote or maintain a market
                for the issuer's securities.

      (e) Suspension or Termination  of Awards.  If the Company  believes that a
Participant  has  committed  an act  of  misconduct  as  described  in the  next
sentence,  the  Company  may suspend  the  Participant's  rights  under any then
outstanding  Award pending a determination by the Board. If the Board determines
that a Participant has committed an act of  embezzlement,  fraud,  nonpayment of
any obligation owed to the Company or any  subsidiary,  breach of fiduciary duty
or deliberate  disregard of the  Company's  rules  resulting in loss,  damage or
injury to the Company,  or if a Participant makes an unauthorized  disclosure of
trade secret or confidential  information of the Company, engages in any conduct
constituting  unfair  competition,  or induces  any  customer  of the Company to
breach a contract  with the  Company,  neither  the  Participant  nor his or her
estate shall be entitled to exercise any rights  whatsoever with respect to such
Award. In making such  determination,  the Board shall act fairly and shall give
the Participant a reasonable  opportunity to appear and present  evidence on his
or her behalf to the Board.

7.    OPTION PROVISIONS.

      Each  Option  shall be in such  form and  shall  contain  such  terms  and
conditions as the Board shall deem appropriate.  All Options shall be separately
designated  Incentive Stock Options or Nonstatutory Stock Options at the time of
grant,  and, if certificates are issued, a separate  certificate or certificates
will be issued for shares of Common Stock  purchased on exercise of each type of
Option.  The  provisions  of separate  Options need not be  identical,  but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

      (a) Term.  Subject to the  provisions  of  subsection  6(b)  regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

      (b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection  6(b)  regarding Ten Percent  Stockholders,  the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock  subject to the Option on the date the
Option is granted.  Notwithstanding the foregoing, an Incentive Stock Option may
be granted  with an exercise  price  lower than that set forth in the  preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another  option in a manner  satisfying  the provisions of Section 424(a) of the
Code.

      (c) Exercise Price of a Nonstatutory  Stock Option.  The exercise price of
each Nonstatutory Stock Option shall be not less than ninety-five  percent (95%)
of the Fair Market Value of the Common  Stock  subject to the Option on the date
the Option is granted.  Notwithstanding  the  foregoing,  a  Nonstatutory  Stock
Option may be granted  with an  exercise  price lower than that set forth in the
preceding  sentence  if such  Option is granted  pursuant  to an  assumption  or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

      (d) Consideration. The purchase price of Common Stock acquired pursuant to
an Option  shall be paid,  to the extent  permitted by  applicable  statutes and
regulations,  either (i) in cash at the time the Option is  exercised or (ii) at
the  discretion  of the  Board  at the  time  of the  grant  of the  Option  (or
subsequently in the case of a Nonstatutory  Stock Option) (1) by delivery to the
Company of other Common Stock, (2) in any other form of legal consideration that
may be acceptable to the Board.  Unless otherwise  specifically  provided in the
Option,  the purchase price of Common Stock acquired  pursuant to an Option that

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is paid by delivery to the Company of other Common Stock  acquired,  directly or
indirectly  from the  Company,  shall be paid only by shares of the Common Stock
that  have been held for more than six (6)  months  (or such  longer or  shorter
period of time required to avoid a charge to earnings for  financial  accounting
purposes). At any time that the Company is incorporated in Delaware,  payment of
the Common Stock's "par value," as defined in the Delaware  General  Corporation
Law, shall not be made by deferred payment.

      In the  case  of any  deferred  payment  arrangement,  interest  shall  be
compounded  at least  annually  and  shall be  charged  at the  minimum  rate of
interest  necessary to avoid the  treatment as  interest,  under any  applicable
provisions of the Code, of any amounts other than amounts  stated to be interest
under the deferred payment arrangement.

      (e)  Transferability  of an Incentive  Stock  Option.  An Incentive  Stock
Option  shall not be  transferable  except by will or by the laws of descent and
distribution  and shall be exercisable  during the lifetime of the  Optionholder
only by the Optionholder.  Notwithstanding the foregoing,  the Optionholder may,
by  delivering  written  notice to the Company,  in a form  satisfactory  to the
Company,  designate  a  third  party  who,  in the  event  of the  death  of the
Optionholder, shall thereafter be entitled to exercise the Option.

      (f) Vesting Generally.  The total number of shares of Common Stock subject
to an Option  may,  but need  not,  vest and  therefore  become  exercisable  in
periodic  installments  that may,  but need not,  be equal.  The  Option  may be
subject to such other terms and  conditions  on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem  appropriate.  The vesting  provisions of individual  Options may vary. The
provisions  of  this  subsection  7(g)  are  subject  to any  Option  provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.

      (g)  Termination  of Continuous  Service.  In the event an  Optionholder's
Continuous  Service  terminates  (other  than upon the  Optionholder's  death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the  Optionholder  was  entitled  to  exercise  such  Option  as of the  date of
termination)  but only  within  such period of time ending on the earlier of (i)
the date  ninety  (90) days  following  the  termination  of the  Optionholder's
Continuous  Service (or such longer or shorter  period  specified  in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement;  provided  however,  that if the Participant is terminated for
reasons other than Cause and the Participant,  upon such termination is entitled
under an employment contract to be automatically  vested in any benefit program,
the  Participant can exercise the Option (and any related  warrants).  If, after
termination,  the  Optionholder  does not exercise his or her Option  within the
time specified in the Option Agreement, the Option shall terminate.

      (h) Extension of Termination Date. An Optionholder's  Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's  Continuous Service (other than upon the Optionholder's  death or
Disability)  would be  prohibited  at any time solely  because  the  issuance of
shares of Common Stock would  violate the  registration  requirements  under the
Securities  Act,  then the  Option  shall  terminate  on the  earlier of (i) the
expiration  of the term of the Option set forth in  subsection  7(a) or (ii) the
expiration  of a period  of  ninety  (90)  days  after  the  termination  of the
Optionholder's  Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.

      (i)  Disability  of  Optionholder.  In the  event  that an  Optionholder's
Continuous Service terminates as a result of the Optionholder's  Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise  such Option as of the date of  termination),  but only
within  such  period of time  ending on the  earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option  Agreement)  or (ii) the  expiration of the term of the Option as set
forth in the Option Agreement. If, after termination,  the Optionholder does not
exercise his or her Option within the time  specified  herein,  the Option shall
terminate.

      (j) Death of Optionholder.  In the event (i) an Optionholder's  Continuous
Service  terminates  as a  result  of  the  Optionholder's  death  or  (ii)  the
Optionholder  dies within the period (if any) specified in the Option  Agreement
after the  termination  of the  Optionholder's  Continuous  Service for a reason
other  than  death,  then  the  Option  may be  exercised  (to  the  extent  the
Optionholder  was  entitled to exercise  such Option as of the date of death) by
the  Optionholder's  estate,  by a person who acquired the right to exercise the

                                      -7-
<PAGE>
Option by bequest or  inheritance  or by a person  designated  to  exercise  the
Option upon the  Optionholder's  death pursuant to subsection  6(e) or 6(f), but
only  within the period  ending on the  earlier  of (1) the date  eighteen  (18)
months  following the date of death (or such longer or shorter period  specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option  Agreement.  If,  after death,  the Option is not  exercised
within the time specified herein, the Option shall terminate.

      (k) Early  Exercise.  The Option  may,  but need not,  include a provision
whereby  the  Optionholder  may  elect at any  time  before  the  Optionholder's
Continuous  Service  terminates  to exercise the Option as to any part or all of
the shares of Common  Stock  subject to the Option  prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase  option in favor of the Company or to any other restriction the Board
determines  to be  appropriate.  The Company will not  exercise  its  repurchase
option  until at least six (6) months (or such longer or shorter  period of time
required to avoid a charge to earnings for financial  accounting  purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically
provides in the Option.

      (l) Re-Load Options.

          (i)    Without in any way limiting the  authority of the Board to make
                 or not to make  grants of Options  hereunder,  the Board  shall
                 have the authority  (but not an  obligation) to include as part
                 of any Option Agreement a provision  entitling the Optionholder
                 to a  further  Option  (a  "Re-Load  Option")  in the event the
                 Optionholder  exercises  the  Option  evidenced  by the  Option
                 Agreement, in whole or in part, by surrendering other shares of
                 Common  Stock in  accordance  with  this Plan and the terms and
                 conditions   of  the   Option   Agreement.   Unless   otherwise
                 specifically provided in the Option, the Optionholder shall not
                 surrender   shares  of  Common  Stock  acquired,   directly  or
                 indirectly from the Company,  unless such shares have been held
                 for more than six (6) months (or such longer or shorter  period
                 of time  required to avoid a charge to earnings  for  financial
                 accounting purposes).

          (ii)   Any such  Re-Load  Option  shall  (1)  provide  for a number of
                 shares of Common  Stock equal to the number of shares of Common
                 Stock  surrendered as part or all of the exercise price of such
                 Option;  (2) have an  expiration  date which is the same as the
                 expiration  date of the Option the  exercise of which gave rise
                 to such Re-Load Option; and (3) have an exercise price which is
                 equal to one hundred percent (100%) of the Fair Market Value of
                 the Common Stock  subject to the Re-Load  Option on the date of
                 exercise of the original Option. Notwithstanding the foregoing,
                 a Re-Load  Option shall be subject to the same  exercise  price
                 and term provisions  heretofore described for Options under the
                 Plan.

          (iii)  Any such Re-Load  Option may be an Incentive  Stock Option or a
                 Nonstatutory  Stock  Option,  as the Board may designate at the
                 time of the grant of the original  Option;  provided,  however,
                 that the  designation  of any  Re-Load  Option as an  Incentive
                 Stock  Option  shall be  subject  to the one  hundred  thousand
                 dollar ($100,000)  annual  limitation on the  exercisability of
                 Incentive  Stock Options  described in  subsection  9(d) and in
                 Section 422(d) of the Code.  There shall be no Re-Load  Options
                 on a Re-Load  Option.  Any such Re-Load Option shall be subject
                 to the availability of sufficient  shares of Common Stock under
                 subsection  5(a) and the  "Section  162(m)  Limitation"  on the
                 grants of Options under subsection 6(c) and shall be subject to
                 such  other  terms and  conditions  as the Board may  determine
                 which are not inconsistent  with the express  provisions of the
                 Plan regarding the terms of Options.

8.    PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

      (a) Stock Bonus Awards.  Each stock bonus  agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and  conditions  of separate  stock bonus  agreements  need not be
identical,  but each stock bonus agreement shall include (through  incorporation
of provisions  hereof by reference in the agreement or otherwise)  the substance
of each of the following provisions:

                                      -8-
<PAGE>
          (i)   Consideration. A stock bonus may be awarded in consideration for
                past services  actually  rendered to the Company or an Affiliate
                for its benefit.

          (ii)  Vesting.  Shares of Common Stock  awarded  under the stock bonus
                agreement  may,  but need not, be subject to a share  repurchase
                option  in favor of the  Company  in  accordance  with a vesting
                schedule to be determined by the Board.

          (iii) Termination of Participant's  Continuous Service. In the event a
                Participant's  Continuous  Service  terminates,  the Company may
                reacquire  any or all of the shares of Common  Stock held by the
                Participant  which have not vested as of the date of termination
                under the terms of the stock bonus agreement.

          (iv)  Transferability.  Rights to acquire shares of Common Stock under
                the  stock  bonus   agreement   shall  be  transferable  by  the
                Participant only upon such terms and conditions as are set forth
                in the stock bonus  agreement,  as the Board shall  determine in
                its discretion,  so long as Common Stock awarded under the stock
                bonus agreement  remains subject to the terms of the stock bonus
                agreement.

      (b) Restricted  Stock Awards.  Each  restricted  stock purchase  agreement
shall be in such form and shall  contain such terms and  conditions as the Board
shall  deem  appropriate.  The  terms and  conditions  of the  restricted  stock
purchase  agreements  may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted  stock purchase  agreement shall include  (through  incorporation  of
provisions  hereof by reference in the agreement or otherwise)  the substance of
each of the following provisions:

          (i)   Purchase Price.  The purchase price under each restricted  stock
                purchase  agreement  shall be such  amount  as the  Board  shall
                determine  and  designate  in  such  restricted  stock  purchase
                agreement. The purchase price shall not be less than eighty-five
                percent  (85%) of the Common  Stock's  Fair Market  Value on the
                date  such  award  is  made  or at  the  time  the  purchase  is
                consummated,  provided that the purchase price of any Restricted
                Stock  established in the Bankruptcy  Plan shall be conclusively
                deemed to comply with this paragraph. .

          (ii)  Consideration.  The  purchase  price of  Common  Stock  acquired
                pursuant to the  restricted  stock purchase  agreement  shall be
                paid either: (i) in cash at the time of purchase; or (ii) in any
                other form of legal  consideration that may be acceptable to the
                Board in its  discretion;  provided,  however,  that at any time
                that the Company is  incorporated  in Delaware,  then payment of
                the Common  Stock's  "par  value,"  as  defined in the  Delaware
                General Corporation Law, shall not be made by deferred payment.

          (iii) Vesting.  Shares of Common Stock  acquired  under the restricted
                stock  purchase  agreement  may,  but need not,  be subject to a
                share  repurchase  option in favor of the Company in  accordance
                with a vesting schedule to be determined by the Board.

          (iv)  Termination of Participant's  Continuous Service. In the event a
                Participant's  Continuous  Service  terminates,  the Company may
                repurchase  or otherwise  reacquire  any or all of the shares of
                Common Stock held by the Participant which have not vested as of
                the date of termination  under the terms of the restricted stock
                purchase agreement.

          (v)   Transferability.  Rights to acquire shares of Common Stock under
                the restricted stock purchase agreement shall be transferable by
                the  Participant  only upon such terms and conditions as are set
                forth in the restricted stock purchase  agreement,  as the Board
                shall  determine  in its  discretion,  so long as  Common  Stock
                awarded under the restricted  stock purchase  agreement  remains
                subject to the terms of the restricted stock purchase agreement.

                                      -9-
<PAGE>
9.    COVENANTS OF THE COMPANY.

      (a)  Availability  of Shares.  During the terms of the Stock  Awards,  the
Company  shall keep  reserved and available at all times the number of shares of
Common Stock required to satisfy such Stock Awards.

      (b) Securities Law Compliance.  The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock  Awards and to issue and sell shares of Common
Stock  upon  exercise  of  the  Stock  Awards;  provided,   however,  that  this
undertaking  shall not require the Company to register  under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts,  the Company is unable to obtain
from any such  regulatory  commission or agency the authority  which counsel for
the Company  deems  necessary  for the lawful  issuance and sale of Common Stock
under the Plan,  the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon  exercise of such Stock Awards unless and until
such authority is obtained.


10.   USE OF PROCEEDS FROM STOCK.

      Proceeds  from the sale of Common  Stock  pursuant to Stock  Awards  shall
constitute general funds of the Company.

11.   MISCELLANEOUS.

      (a) Acceleration of Exercisability  and Vesting.  The Board shall have the
power to  accelerate  the time at which a Stock Award may first be  exercised or
the time during which a Stock Award or any part thereof will vest in  accordance
with the Plan,  notwithstanding  the  provisions  in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.

      (b) Stockholder  Rights.  No Participant  shall be deemed to be the holder
of, or to have any of the  rights of a holder  with  respect  to,  any shares of
Common Stock subject to such Stock Award unless and until such  Participant  has
satisfied  all  requirements  for  exercise of the Stock  Award  pursuant to its
terms.

      (c) No  Employment  or other  Service  Rights.  Nothing in the Plan or any
instrument  executed or Stock Award granted  pursuant  thereto shall confer upon
any  Participant  any right to continue to serve the Company or an  Affiliate in
the  capacity in effect at the time the Stock Award was granted or shall  affect
the right of the Company or an Affiliate to terminate  (i) the  employment of an
Employee with or without notice and with or without Cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate,  and any applicable  provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

      (d) Incentive  Stock Option  $100,000  Limitation.  To the extent that the
aggregate  Fair Market Value  (determined  at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000),  the Options or
portions  thereof which exceed such limit  (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

      (e) Investment  Assurances.  The Company may require a  Participant,  as a
condition of exercising or acquiring  Common Stock under any Stock Award, (i) to
give  written  assurances  satisfactory  to the Company as to the  Participant's
knowledge and  experience in financial and business  matters  and/or to employ a
purchaser   representative   reasonably  satisfactory  to  the  Company  who  is
knowledgeable  and experienced in financial and business  matters and that he or
she  is  capable  of   evaluating,   alone  or  together   with  the   purchaser
representative,  the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant

                                      -10-
<PAGE>
is acquiring Common Stock subject to the Stock Award for the  Participant's  own
account and not with any present intention of selling or otherwise  distributing
the Common Stock. The foregoing requirements,  and any assurances given pursuant
to such requirements,  shall be inoperative if (1) the issuance of the shares of
Common  Stock upon the exercise or  acquisition  of Common Stock under the Stock
Award  has  been  registered  under  a  then  currently  effective  registration
statement  under the Securities Act or (2) as to any particular  requirement,  a
determination  is made by counsel for the Company that such requirement need not
be met in the  circumstances  under the then  applicable  securities  laws.  The
Company  may,  upon  advice of counsel to the  Company,  place  legends on stock
certificates   issued  under  the  Plan  as  such  counsel  deems  necessary  or
appropriate in order to comply with applicable securities laws,  including,  but
not limited to, legends restricting the transfer of the Common Stock.

      (f)  Withholding  Obligations.  To the extent  provided  by the terms of a
Stock Award Agreement,  the Participant may satisfy any federal,  state or local
tax  withholding  obligation  relating to the exercise or  acquisition of Common
Stock  under a Stock  Award by any of the  following  means (in  addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means:  (i) tendering a cash payment;  (ii)
authorizing  the Company to withhold  shares of Common  Stock from the shares of
Common Stock  otherwise  issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.

      (g) Cancellation and Re-Grant of Options.

          (i)   Authority  to  Reprice.  The Board shall have the  authority  to
                effect,  at any time and from time to time, (1) the repricing of
                any  outstanding  Options  under  the Plan  and/or  (2) with the
                consent  of any  adversely  affected  holders  of  Options,  the
                cancellation of any  outstanding  Options under the Plan and the
                grant in  substitution  therefor of new  Options  under the Plan
                covering  the same or  different  numbers  of  shares  of Common
                Stock. The exercise price per share of Common Stock shall be not
                less than that specified  under the Plan for newly granted Stock
                Awards.  Notwithstanding  the foregoing,  the Board may grant an
                Option with an exercise price lower than that set forth above if
                such Option is granted as part of a transaction to which Section
                424(a) of the Code applies.

          (ii)  Effect of Repricing under Section 162(m) of the Code.  Shares of
                Common  Stock  subject to an Option which is amended or canceled
                in order to set a lower exercise price per share of Common Stock
                shall  continue  to be  counted  against  the  maximum  award of
                Options permitted to be granted pursuant to subsection 5(c). The
                repricing of an Option under this subsection  10(g) resulting in
                a  reduction  of the  exercise  price  shall be  deemed  to be a
                cancellation   of  the  original  Option  and  the  grant  of  a
                substitute  Option;  in the  event of such  repricing,  both the
                original and the  substituted  Options shall be counted  against
                the maximum awards of Options  permitted to be granted  pursuant
                to subsection 5(c). The provisions of this subsection  11(g)(ii)
                shall be  applicable  only to the  extent  required  by  Section
                162(m) of the Code.

12.   ADJUSTMENTS UPON CHANGES IN STOCK.

      If any change is made in the Common Stock  subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization,  reincorporation, stock
dividend,  dividend  in  property  other than  cash,  stock  split,  liquidating
dividend,  combination  of  shares,  exchange  of  shares,  change in  corporate
structure or other transaction not involving the receipt of consideration by the
Company),  the Plan will be appropriately  adjusted in the class(es) and maximum
number of securities  subject to the Plan  pursuant to  subsection  5(a) and the
maximum  number  of  securities  subject  to award  to any  person  pursuant  to
subsection 6(c), and the outstanding Stock Awards will be appropriately adjusted
in the class(es)  and number of  securities  and price per share of Common Stock
subject to such outstanding Stock Awards. The Board shall make such adjustments,
and its determination shall be final, binding and conclusive. (The conversion of
any convertible  securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)

                                      -11-
<PAGE>
13.   CORPORATE TRANSACTIONS.

      (a) Except as otherwise  provided for in the Optionee's  Option Agreement,
in  the  event  of a  Corporate  Transaction,  the  Company  and  the  successor
corporation may agree:

          (i)   to  terminate  the Plan and cancel all  outstanding  Options and
                unvested shares of Restricted Stock; provided,  however, subject
                to Subsection (b) below, the Company shall vest the Optionees in
                their outstanding Options and unvested Shares and shall give the
                Optionees 20 days to exercise their  outstanding  Options before
                they are cancelled;

          (ii)  that the  successor  corporation  or its parent  will assume the
                Plan  and  all  outstanding   Options  and  unvested  shares  of
                Restricted Stock;

          (iii) to  terminate  the Plan and cancel all  outstanding  Options and
                unvested shares of Restricted Stock and replace such Options and
                unvested shares of Restricted Stock with comparable  options and
                unvested  shares in the successor  corporation or parent thereof
                (the  determination  of  comparability  shall  be  made  by  the
                Administrator,  and its determination  shall be final,  binding,
                and conclusive); or

          (iv)  to  terminate  the Plan and cancel all  outstanding  Options and
                unvested shares of Restricted  Stock and deliver to the Optionee
                in lieu  thereof,  (i) the  difference  between  the Fair Market
                Value of a share of  Common  Stock on the date of the  Corporate
                Transaction  and the Exercise  Price of the  Optionee's  Option,
                multiplied by the number of shares to which the Option  relates,
                and  (ii)  cash  equal to the  Fair  Market  Value of a share of
                Common Stock on the date of the Corporate Transaction multiplied
                by the number of unvested Shares on such date.

      (b)  The  acceleration  of  vesting  of  Options  or  unvested  shares  of
Restricted  Stock  provided for in subsection  (a) above shall be subject to any
limitations  in any  Change in  Control  Agreement  between  the  holder and the
Company.

14.   AMENDMENT OF THE PLAN AND STOCK AWARDS.

      (a) Amendment of Plan.  Subject to the  Bankruptcy  Plan, the Board at any
time, and from time to time, may amend the Plan. However,  except as provided in
Section 12 relating to  adjustments  upon changes in Common Stock,  no amendment
shall be effective  unless  approved by the  stockholders  of the Company to the
extent stockholder  approval is necessary to satisfy the requirements of Section
422 of the  Code,  Rule  16b-3 or any  Nasdaq  or  securities  exchange  listing
requirements.  With  respect  to Stock  Awards  issued  prior  to any such  Plan
amendment and still  outstanding at any time  thereafter,  except as provided in
subsection 14(d) below, such amendments shall apply to such Stock Awards.

      (b) Stockholder Approval.  The Board may, in its sole discretion,  subject
to the Bankrupcy  Plan,  submit any other  amendment to the Plan for stockholder
approval,  including,  but not limited to,  amendments  to the Plan  intended to
satisfy  the  requirements  of  Section  162(m) of the Code and the  regulations
thereunder  regarding the exclusion of  performance-based  compensation from the
limit on  corporate  deductibility  of  compensation  paid to certain  executive
officers.

      (c) Contemplated  Amendments.  It is expressly contemplated that the Board
may amend the Plan in any respect  the Board deems  necessary  or  advisable  to
provide eligible  Employees with the maximum benefits provided or to be provided
under the  provisions  of the Code and the  regulations  promulgated  thereunder
relating to Incentive  Stock Options  and/or to bring the Plan and/or  Incentive
Stock Options granted under it into compliance therewith.

      (d) No Impairment of Rights.  Rights under any Stock Award granted  before
amendment of the Plan shall not be impaired by any  amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

                                      -12-
<PAGE>
      (e)  Amendment of Stock  Awards.  The Board at any time,  and from time to
time,  may amend the terms of any one or more Stock Awards;  provided,  however,
that the  rights  under  any  Stock  Award  shall  not be  impaired  by any such
amendment  unless (i) the Company  requests the consent of the  Participant  and
(ii) the Participant consents in writing.

15.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) Plan Term.  The Board may suspend or  terminate  the Plan at any time.
Unless sooner  terminated,  the Plan shall terminate on the day before the tenth
(10th)  anniversary  of the date the Plan is adopted by the Board or approved by
the  stockholders of the Company,  whichever is earlier.  No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

      No Impairment of Rights.  Suspension or  termination of the Plan shall not
impair rights and obligations under any Stock Award granted while the Plan is in
effect except with the written consent of the Participant.

16.   EFFECTIVE DATE OF PLAN.

      The Plan is effective on the "Effective Date" as defined in the Bankruptcy
Plan , as such Plan may be modified  from time to time,  subject to the approval
by the  affirmative  votes of the holders of a majority of the securities of the
Company entitled to vote.

17.   FORM S-8 REGISTRATION STATEMENT.

      The Company intends to file a Registration  Statement on Form S-8, or such
other form as counsel for the Company  determines  appropriate,  to register the
issuance of shares by the  Company  upon the  exercise  of any  options  granted
pursuant to the Plan. Prior to the filing and  effectiveness of the Registration
Statement,  any shares issued upon the exercise of options  granted  pursuant to
the Plan to U.S.  resident  shareholders will be issued pursuant to Section 4(2)
of the Securities Act of 1933 and will be subject to appropriate restrictions on
transfer. Any shares issued upon the exercise of options granted pursuant to the
Plan to persons who are not U.S. Persons, as defined in Regulation S promulgated
pursuant  to the  Securities  Act of  1933,  shall  be  issued  in  reliance  of
Regulation  S and  subject to the  conditions  of  Regulation  S  including  the
agreement of the  Participants  not to resell the shares to a U.S. Person or for
the  account  or  benefit  of a U.S.  Person  until  expiry of the  distribution
compliance period.

18.   GOVERNING LAW.

      The law of the State of California  shall govern all questions  concerning
the construction,  validity and  interpretation of this Plan,  without regard to
such state's conflict of laws rules.

                                      -13-