Document:

<PAGE>

                                                                    EXHIBIT 10.8

                             EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of March 1, 1999, by and between BUY.COM Inc., a Delaware corporation (the
"Company"), and Greg Hawkins ("Executive").

                                       I.

                                   EMPLOYMENT

          1.1  Position and Duties.  The Company hereby engages and employs
               -------------------
Executive as Chief Executive Officer for the terms set forth in this Agreement.

          The Company's Board of Directors (the "Board") may provide such
additional designations of title to Executive as the Board, in its discretion,
may deem appropriate.  Executive shall perform the executive duties and
functions related to the above positions, subject to the reasonable limitations
of authority set forth from time to time in the resolutions of the Board and
applicable law.

          1.2  Best Efforts.    Executive agrees to devote his full time and
               ------------
attention to the Company, to use his best efforts to advance the business and
welfare of the Company, to render his services under this Agreement fully,
faithfully, diligently, competently and to the best of his ability, and not to
engage in any other employment activities.  Notwithstanding anything herein to
the contrary, Executive shall not be precluded from (a) engaging in charitable
activities and community affairs or (b) managing his personal investments and
affairs, provided that such activities do not materially interfere with the
proper performance of his duties and responsibilities under this Agreement.

                                      II.

                           COMPENSATION AND BENEFITS

          2.1  Base Salary.  For all services to be rendered by Executive under
               -----------
this Agreement, the Company agrees to pay Executive an annual base salary of Two
Hundred Forty Thousand Dollars ($240,000.00), less deductions required by law,
payable in accordance with the normal payroll practices of the Company.

          2.2  Stock Options.  The Company shall grant Executive an option to
               -------------
purchase Four Hundred Eighty Four Thousand (484,000) shares of the Company's
common stock, subject to the vesting structure noted in the Offer Letter dated
February 12, 1999 and the provisions set forth in the Company's Stock Option
Plan and Stock Option agreement.

          2.3  Other Benefits.  The Company shall further provide to Executive
               --------------
the following other benefits:

          (a)  An automobile allowance of Eight Hundred dollars ($800.00) per
month; and
<PAGE>

          (b)  Full participation, on a basis commensurate with his position
with the Company, in all plans of life, accident, disability and health
insurance that generally are made available to senior executives of the Company.

          2.4  Expense Reimbursement.  The Company shall promptly reimburse
               ---------------------
Executive for all actual and reasonable business expenses incurred by Executive
in promoting the business of the Company, including expenditures for car phone,
entertainment, travel, or other expenses, provided that (a) such expenditures
are of a nature qualifying them as legitimate business deductions and (b)
Executive furnishes to the Company adequate records and other documentary
evidence reasonably required by the Company to substantiate such expenditures.

                                     III.

                         TERMINATION AND SEVERANCE PAY

          3.1  At Will.  Executive and the Company acknowledge and agree that
               -------
Executive's employment with the Company is expressly "at-will" both during and
after the term of this Agreement.  This means that either party may terminate
Executive's employment with or without cause.  Any termination of Executive's
employment is, however, subject to the terms and provisions of this Agreement as
to severance pay and other obligations.

          3.2  Involuntary Termination.
               -----------------------

          (a)  Severance Pay.  In the event that Executive's employment with the
               -------------
Company is terminated by the Company for Cause (as defined in Section 3.2(c)),
                                                              --------------
Executive shall be entitled to no severance pay.  In the event that Executive's
employment with the Company is terminated by the Company other than for Cause,
then in consideration of Executive's compliance with his obligations under

Article V and Article VI and Executive's execution of a general release in favor
---------     ----------
of the Company, Executive, on March 1 2000, shall have the right to exercise the
One Hundred and Eight Thousand - Nine Hundred (108,900) options that vest on
March 1, 2000 in accordance with Executive's option grant dated March 1, 1999;
and Executive shall be entitled to severance pay ("Severance Pay") in the form
of monthly payments to Executive in the amount of Executive's monthly base
salary as in effect on the date of termination, payable in accordance with
customary payroll practices, and related health benefits for the greater of (i)
the remainer of the initial one year term as defined in Section 4.1, or (ii) six
(6) months. Executive acknowledges and agrees that in the event Executive
breaches any provision of Article V or Article VI, his right to receive
                          ---------    ----------
severance payments under this Section 3.2(a) shall automatically terminate.
                              --------------

          (b)  Benefits.  Following termination, Executive shall cease to be a
               --------
Company employee and shall not be entitled to any employee benefits.  This shall
not preclude Executive from exercising his COBRA benefits under applicable law.

          (c)  Cause. For purposes of this Agreement, "Cause" shall mean (i) the
               -----
willful refusal of Executive to comply with a lawful instruction of the Board;
(ii) an act or acts of personal dishonesty by Executive that were intended to
result in personal enrichment of Executive at the expense of the Company; (iii)
Executive's conviction of any felony; (iv) performing an act of race, sex,
national origin, religion, disability, age-based or other illegal discrimination
or an act of sexual harassment; or (v) Executive's willful insubordination or
misconduct, intentional or persistent

                                       2
<PAGE>

failure to abide by the Company's policies, or material breach of any provision
of this Agreement, including any representation or covenant contained in
Article V or Article VI of this Agreement.
---------    ----------

          3.3  Voluntary Termination.
               ---------------------

          (a)  Severance Pay.  In the event Executive voluntarily terminates his
               -------------
employment with the Company, Executive shall be entitled to no severance pay.
For purposes of this Agreement, the term "voluntarily terminates" shall not
include a resignation that is tendered by Executive pursuant to a direct request
for the Board.  A resignation tendered by Executive pursuant to a direct request
of the Board shall, for purposes of this Agreement, be treated as an involuntary
termination, and Executive's entitlement to severance pay in accordance with the
provisions of Section 3.2(a) shall depend upon whether the Board's request was
              --------------
based on Cause (as defined in Section 3.2(c)).
                              --------------

          3.4  Death.  In the event of Executive's death, this Agreement shall
               -----
automatically terminate and shall be of no further force and effect.
Termination of Executive's employment as a result of his death shall not result
in any obligation by the Company to pay severance pay or other benefits to
Executive's estate or heirs.

          3.5  Disability.  In the event of Executive's Disability (as defined
               ----------
below) during the term of this Agreement for any period of at least three (3)
consecutive months, the Company shall have the right, which may be exercised in
its sole discretion, to terminate this Agreement.  In the event the Company does
elect to terminate this Agreement, Executive shall not be entitled to any
severance pay at any time but shall be entitled to normal disability benefits in
accordance with the policies established from time to time by the Company.  For
purposes of this Agreement, "Disability" shall mean the inability of Executive
to perform his employment services hereunder by reason of physical or mental
illness or incapacity as determined by a physician chosen by the Company and
reasonably satisfactory to Executive or his legal representative.

                                      IV.

                                     TERM

          4.1  Term.  The term of Executive's employment under this Agreement
               ----
shall commence on the date hereof and shall continue for one year from the date
hereof, as such date may be extended from time to time.

                                      V.

                         NONDISCLOSURE OF INFORMATION

                       AND NON-SOLICITATION OF EMPLOYEES

          5.1  Nondisclosure of Confidential Information.  Except in the
               -----------------------------------------
performance of his duties hereunder, Executive shall not disclose to any person
or entity or use for his own direct or indirect benefit any Confidential
Information (as defined below) pertaining to the Company obtained by Executive
in the course of his employment with the Company.  For purposes of this
Agreement, "Confidential Information" shall include the Company's products,
services, processes, suppliers, customers, customers' account executives,
employees, financial, sales and distribution

                                       3
<PAGE>

information, price lists, identity and list of actual and potential customers,
trade secrets, technical information, business plans, payroll information and
strategies to the extent that such information has not been publicly
disseminated by the Company, other than through a breach hereof.

          5.2  Return of Information.  Upon termination of Executive's
               ---------------------
employment, Executive will deliver to the Company all customer lists, proposals,
reports, memoranda, computer software and programming, budgets and other
financial information, and other materials or records or writings of any type
(including any copies thereof and regardless of the medium in which the
information exists) made, used or obtained by Executive in connection with his
employment by the Company.

          5.3  Employee Proprietary Information and Inventions Agreement.
               ---------------------------------------------------------
Executive shall be subject to the provisions of the Company's Employee
Proprietary Information and Inventions Agreement, a copy of which is attached
hereto as Exhibit A and incorporated herein by this reference.
          ---------

          5.4  Non-Solicitation.  Executive agrees that, so long as he is
               ----------------
employed by the Company and for a period of one (1) year after termination of
his employment for any reason, he shall not (a) directly or indirectly solicit,
induce or attempt to solicit or induce any Company employee to discontinue his
or her employment with the Company, (b) usurp any opportunity of the Company
that Executive became aware of during his tenure at the Company or which is made
available to him on the basis of the belief that Executive is still employed by
the Company, or (c) directly or indirectly solicit or induce or attempt to
influence any person or business that is an account, customer or client of the
Company to restrict or cancel the business of any such account, customer or
client with the Company.

                                      VI.

                                NON-COMPETITION

          Executive agrees that given the extent and nature of the Confidential
Information he obtains during the course of his employment, it would be
inevitable that such Confidential Information would be disclosed or utilized by
the Executive should he obtain employment from, or become associated with, an
entity or person that is engaged in a business whose products or services are
substantially similar in function or capability to the products or services then
being developed, manufactured or sold by the Company, and are marketed to
substantially the same type of user as that to which the products and services
of the Company are marketed or proposed to be marketed. In order to protect the
Confidential Information Executive obtains during the course of his employment,
Executive agrees that, so long as Executive is employed by the Company and for a
period of six (6) months after termination of his employment for any reason,
Executive shall not, without the prior written consent of the Company, either
directly or indirectly, including without limitation through a partnership,
joint venture, corporation or other entity or as a consultant, director or
employee, engage in a business whose products or services are substantially
similar in function or capability to the products or services then being
developed, manufactured or sold by the Company, and are marketed to
substantially the same type of user as that to which the products and services
of the Company are marketed or proposed to be marketed.

                                       4
<PAGE>

          The parties hereto agree that both the scope and nature of the
covenant and the duration and area for which the covenant not to compete set
forth in this Article VI is to be effective are reasonable in light of all facts
              ----------
and circumstances. In the event that any provision of this Agreement, including
without limitation any provision of this Article VI, shall to any extent be held
                                         ----------
invalid, unreasonable or unenforceable, in any circumstances, the parties hereto
agree that the remainder of this Agreement and the application of such provision
of this Agreement to other circumstances shall be valid and enforceable to the
fullest extent permitted by law. If any provision, or any part thereof, is held
to be unenforceable because of the scope or duration of or the area covered by
such provision, the parties hereto agree that the court making such
determination shall have the power, and is hereby asked by the parties, to
reduce the scope, duration and/or areas of such provisions (and to substitute
appropriate provisions for any such unenforceable provisions) in order to make
such provisions enforceable to the fullest extent permitted by law, and/or to
delete specific words and phrases, and such modified provisions shall then be
enforceable and shall be enforced.

                                     VII.

                                 MISCELLANEOUS

          7.1  Successors; Binding Agreement.  This Agreement shall not be
               -----------------------------
terminated by the voluntary or involuntary dissolution of the Company or by any
merger or consolidation, whether or not the Company is the surviving or
resulting corporation, or upon any transfer of all or substantially all of the
assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall bind and inure to the
benefit of the surviving or resulting corporation, or the corporation to which
such assets shall have been transferred, as the case may be; provided, however,
that the Company will require any successor to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.

          7.2  Arbitration.  Any disputes or controversy between the parties to
               -----------
this Agreement, including allegations of fraud and misrepresentation arising
from or as a result of this Agreement, the resulting business dealings between
Company and Executive, Executive's employment or the termination thereof,
including any claims of discrimination or other claims under any federal, state,
or local law or regulation now in existence or hereinafter enacted concerning in
any way the subject of Executive's employment with Company or its termination,
shall be resolved, after the parties attempt informal resolution, exclusively by
arbitration in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association. All arbitration
hearings shall be held in Orange County, California within one hundred twenty
days from the date arbitration is demanded by any of the parties and the
arbitrator shall render his/her written decision within thirty days after the
arbitration hearing has concluded. The decision of the arbitrator shall be final
and binding on all parties, and may be entered as a judgment by any party with
any federal or state court of competent jurisdiction. The parties to the
arbitration hearing shall share any filing fees and arbitrator's fees which must
be paid in advance of the hearing equally; however, as set forth below the
prevailing party shall be entitled to recover from the losing party all costs
that it has incurred as a result of the arbitration hearing, including fees paid
to the arbitrator, travel costs and attorneys' fees. This provision shall not
alter

                                       5
<PAGE>

the rights of the parties to seek and obtain the provisional equitable remedies
provided under any applicable state or federal law. Executive represents, by her
signature, that he is making a voluntary and knowing waiver of her right to
pursue any and all employment-related claims in court.

          7.3  No Waiver.  The waiver by either party of a breach of any
               ---------
provision of this Agreement shall not operate as or be construed as a waiver of
any subsequent breach thereof.

          7.4  Governing Law.  This Agreement shall be construed and enforced in
               -------------
accordance with the laws and decisions of the State of California.

          7.5  Entire Agreement; Modifications.  This Agreement represents the
               -------------------------------
entire agreement between the parties with respect to the matters set forth
herein and supersedes all prior agreements and understandings between the
parties relating to the employment of Executive by the Company, and it may not
be changed or terminated orally. No modification, termination, or attempted
waiver of any other provisions of this Agreement shall be valid unless in
writing signed by the party against whom the same is sought to be enforced.

          7.6  Jurisdiction; Venue.  The parties do hereby agree and submit to
               -------------------
personal jurisdiction in the State of California for the purposes of any
proceedings brought to enforce or construe the terms of this Agreement or to
resolve any dispute or controversy relating to Executive's employment or arising
under, as a result of, or in connection with this Agreement, and do hereby agree
and stipulate that any such proceedings shall be venued and held in Orange
County, California.

          IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.

                                    The "COMPANY":

                                    BUY.COM Inc.
                                    a Delaware corporation

                                    By: ____________________________
                                    Its:____________________________

                                    "EXECUTIVE":

                                    ________________________________
                                    Name: __________________________

                                   EXHIBITS

          EXHIBIT A                     Employee Proprietary
                                        Information and Inventions
                                        Agreement

                                       6
<PAGE>

                                AMENDMENT NO. 1
                                    TO THE
                             EMPLOYMENT AGREEMENT

     THIS AMENDMENT NO. 1 TO THE EMPLOYMENT AGREEMENT (the "Amendment") is made
and entered into effective as of this ___ day of July, 1999 (the "Effective
Date") by and between Buy.Com Inc., a Delaware corporation (the "Company"), and
Greg Hawkins, an individual ("Executive").

                                   RECITALS
                                   --------

A.   The Company and Executive entered into that certain Employment Agreement
     (the "Employment Agreement") dated March 1, 1999 governing the terms of
     Executive's employment with the Company and certain related compensation
     matters. Capitalized terms, unless expressly defined herein, shall have the
     same meaning herein as provided in the Employment Agreement.

B.   The parties hereto desire to amend the Employment Agreement as provided in
     this Amendment.

                                   AGREEMENT
                                   ---------

     NOW, THEREFORE, the parties hereto agree as follows:

1.   Term.
     ----

     Section 4.1 of the Employment Agreement is hereby amended and restated in
its entirety to provide as follows:

     "4.1  Term.  The term of Executive's employment under this Agreement shall
           ----
commence on March 1, 1999 and shall continue for one year from such date, as
such date may be extended from time to time. After expiration of the initial one
year period of this Agreement, Executive's employment will automatically renew
for a period of one year, each year, on the same terms and conditions as are set
forth herein except as provided below, unless either party gives the other
notice of non-renewal at least thirty (30) days prior to the end of the initial
term of employment, or for any year in which the employment was renewed,
whichever the case may be. Notwithstanding anything to the contrary contained
herein, Sections 3.2, 3.3, 3.4 and 3.5 of this Agreement shall not apply or have
any force or effect any time after the initial one year term."

2.  Stock Options
    -------------

    Section 2.2 of the Employment Agreement is hereby amended and restated in
its entirety to provide as follows:
<PAGE>

     "2.2  Stock Options.   The Company shall grant Executive an option to
           -------------
purchase Four Hundred Eighty Four Thousand Five Hundred and Ten (484,510) shares
of the Company's common stock, subject to the vesting structure noted in the
Offer Letter dated February 12, 1999 and the provisions set forth in the
Company's Stock Option Plan and Stock Option agreement."

3.    Effect of Amendment.
      -------------------

      Except as hereby modified and amended by this Amendment, the Employment
Agreement shall remain unchanged and shall continue in full force and effect.

4.    General Provisions.
      ------------------

          3.1  Counterparts.  This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

          3.2  Headings.  The various headings used in this Amendment are
inserted for convenience only and shall not affect the meaning or interpretation
of the Employment Agreement, as amended by this Amendment, or any provision
thereof.

          3.3  Entire Amendment.  This Amendment, the Executive Agreement (and
those Agreements incorporated by reference therein) constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior agreements, representations, undertakings and
understandings, both written and oral, between the Company and Executive with
respect to the subject matter hereof.

     IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to
the Employment Agreement effective as of the day and year first above written.

                              The "COMPANY":
                              BUY.COM INC., a Delaware corporation

                              By:__________________________________

                              Its:_________________________________

                              "EXECUTIVE":

                              _____________________________________

                              Name:  Greg Hawkins
<PAGE>

                                AMENDMENT NO. 1
                                    TO THE
                             EMPLOYMENT AGREEMENT

     THIS AMENDMENT NO. 1 TO THE EMPLOYMENT AGREEMENT (the "Amendment") is made
and entered into effective as of this ___ day of July, 1999 (the "Effective
Date") by and between Buy.Com Inc., a Delaware corporation (the "Company"), and
Greg Hawkins, an individual ("Executive").

                                    RECITALS
                                    --------

A.   The Company and Executive entered into that certain Employment Agreement
     (the "Employment Agreement") dated March 1, 1999 governing the terms of
     Executive's employment with the Company and certain related compensation
     matters.  Capitalized terms, unless expressly defined herein, shall have
     the same meaning herein as provided in the Employment Agreement.

B.   The parties hereto desire to amend the Employment Agreement as provided in
     this Amendment.

                                   AGREEMENT
                                   ---------

     NOW, THEREFORE, the parties hereto agree as follows:

1.   Term.
     ----

     Section 4.1 of the Employment Agreement is hereby amended and restated in
its entirety to provide as follows:

     "4.1  Term.  The term of Executive's employment under this Agreement shall
           ----
commence on March 1, 1999 and shall continue for one year from such date, as
such date may be extended from time to time.  After expiration of the initial
one year period of this Agreement, Executive's employment will automatically
renew for a period of one year, each year, on the same terms and conditions as
are set forth herein except as provided below, unless either party gives the
other notice of non-renewal at least thirty (30) days prior to the end of the
initial term of employment, or for any year in which the employment was renewed,
whichever the case may be.  Notwithstanding anything to the contrary contained
herein, Sections 3.2, 3.3, 3.4 and 3.5 of this Agreement shall not apply or have
any force or effect any time after the initial one year term."

2.   Stock Options
     -------------

     Section 2.2 of the Employment Agreement is hereby amended and restated in
its entirety to provide as follows:
<PAGE>

     "2.2  Stock Options.    The Company shall grant Executive an option to
           -------------
purchase Four Hundred Eighty Four Thousand Five Hundred and Ten (484,510) shares
of the Company's common stock, subject to the vesting structure noted in the
Offer Letter dated February 12, 1999 and the provisions set forth in the
Company's Stock Option Plan and Stock Option agreement."

3.   Effect of Amendment.
     -------------------

     Except as hereby modified and amended by this Amendment, the Employment
Agreement shall remain unchanged and shall continue in full force and effect.

4.   General Provisions.
     ------------------

          3.1  Counterparts.  This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

          3.2  Headings.  The various headings used in this Amendment are
inserted for convenience only and shall not affect the meaning or interpretation
of the Employment Agreement, as amended by this Amendment, or any provision
thereof.

          3.3  Entire Amendment.  This Amendment, the Executive Agreement (and
those Agreements incorporated by reference therein) constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior agreements, representations, undertakings and
understandings, both written and oral, between the Company and Executive with
respect to the subject matter hereof.

     IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to
the Employment Agreement effective as of the day and year first above written.

                                           The "COMPANY":
                                           BUY.COM INC., a Delaware corporation

                                           By:_________________________________

                                           Its:________________________________

                                           "EXECUTIVE":

                                           ____________________________________
                                           Name:  Greg Hawkins<PAGE>

                                                                   EXHIBIT 10.12

                                  BUY.COM INC.
                           1999 STOCK INCENTIVE PLAN
                           -------------------------

                                  ARTICLE ONE

                              GENERAL PROVISIONS
                              ------------------

I.   PURPOSE OF THE PLAN

     This 1999 Stock Incentive Plan is intended to promote the interests of
BUY.COM Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.

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

II.  STRUCTURE OF THE PLAN

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

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

        - the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special option grants,

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

        - the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at designated intervals
over their period of continued Board service, and

        - the Director Fee Option Grant Program under which non-employee Board
members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.

     B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
<PAGE>

III. ADMINISTRATION OF THE PLAN

     A.  The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.

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

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

     D.  The Primary Committee shall have the sole and exclusive authority to
determine which Section 16 Insiders and other highly compensated Employees shall
be eligible for participation in the Salary Investment Option Grant Program for
one or more calendar years.  However, all option grants under the Salary
Investment Option Grant Program shall be made in accordance with the express
terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.

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

     F.  Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those programs.

                                       2
<PAGE>

IV.  ELIGIBILITY

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

         (i)   Employees,

         (ii)  non-employee members of the Board or the board of directors of
     any Parent or Subsidiary, and

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

     B.  Only Employees who are Section 16 Insiders or other highly compensated
individuals shall be eligible to participate in the Salary Investment Option
Grant Program.

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

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

     E.  The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who first become
non-employee Board members on or after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders, and (ii)
those individuals who continue to serve as non-employee Board members at one or
more Annual Stockholders Meetings held after the Underwriting Date. A non-
employee Board member who has previously been in the employ of the Corporation
(or any Parent or Subsidiary) shall not be eligible to receive an option grant
under the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.

     F.  All non-employee Board members shall be eligible to participate in the
Director Fee Option Grant Program.

                                       3
<PAGE>

V.   STOCK SUBJECT TO THE PLAN

     A.  The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed twenty-four
million seven hundred sixty-nine thousand five hundred twenty-five (24,769,525)
shares. Such reserve shall consist of (i) the number of shares/1/ estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plans as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under the Predecessor Plans, (ii) plus
an additional increase of approximately one million eight hundred seventy-five
thousand (1,875,000) shares to be approved by the Corporation's stockholders
prior to the Underwriting Date.

     B.  The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to three percent (3%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
four million (4,000,000) shares.

     C.  No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than one million five hundred thousand (1,500,000) shares of Common Stock
in the aggregate per calendar year.

     D.  Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plans) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock

_____________

/1/ All numbers in this document reflect the eight (8)-to-five (5) reverse
    stock split to be effected by the Board of Directors prior to the Plan
    Effective Date.

                                       4
<PAGE>

issuance.  Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall not
be available for subsequent issuance under the Plan.

     E.  If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made by
the Plan Administrator to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities for
which any one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar year,
(iii) the number and/or class of securities for which grants are subsequently to
be made under the Automatic Option Grant Program to new and continuing non-
employee Board members, (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan,
(v) the number and/or class of securities and exercise price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plans and (vi) the maximum number and/or class of securities by which the share
reserve is to increase automatically each calendar year pursuant to the
provisions of Section V.B of this Article One.  Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

                                       5
<PAGE>

                                  ARTICLE TWO

                      DISCRETIONARY OPTION GRANT PROGRAM
                      ----------------------------------

I.  OPTION TERMS

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

    A.  Exercise Price.
        --------------

        1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.

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

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

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

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

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

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

                                       6
<PAGE>

     C.  Effect of Termination of Service.
         --------------------------------

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

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

         (ii)  Any option held by the Optionee at the time of death and
     exercisable in whole or in part at that time may be subsequently exercised
     by the personal representative of the Optionee's estate or by the person or
     persons to whom the option is transferred pursuant to the Optionee's will
     or the laws of inheritance or by the Optionee's designated beneficiary or
     beneficiaries of that option.

         (iii) Should the Optionee's Service be terminated for Misconduct or
     should the Optionee otherwise engage in Misconduct while holding one or
     more outstanding options under this Article Two, then all those options
     shall terminate immediately and cease to be outstanding.

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

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

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

                                       7
<PAGE>

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

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

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

     F.  Limited Transferability of Options.  During the lifetime of the
         ----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.

II.  INCENTIVE OPTIONS

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

                                       8
<PAGE>

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

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

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

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

     A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all the
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully vested shares of Common Stock. However,
an outstanding option shall not become exercisable on such an accelerated basis
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the successor corporation (or parent thereof) or
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.

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

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

                                       9
<PAGE>

     D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i) the
exercise price payable per share under each outstanding option, provided the
                                                                --------
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year and (iv) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year.  To the
extent the actual holders of the Corporation's outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Corporate
Transaction, the successor corporation may, in connection with the assumption of
the outstanding options under the Discretionary Option Grant Program, substitute
one or more shares of its own common stock with a fair market value equivalent
to the cash consideration paid per share of Common Stock in such Corporate
Transaction.

     E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.

     F. The Plan Administrator shall have full power and authority to structure
one or more outstanding options under the Discretionary Option Grant Program so
that those options shall become exercisable for all the shares of Common Stock
at the time subject to those options in the event the Optionee's Service is
subsequently terminated by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those options are assumed and do not
otherwise accelerate. In addition, the Plan Administrator may structure one or
more of the Corporation's repurchase rights so that those rights shall
immediately terminate with respect to any shares held by the Optionee at the
time of his or her Involuntary Termination, and the shares subject to those
terminated repurchase rights shall accordingly vest in full at that time.

                                       10
<PAGE>

     G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.

     H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.

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

IV.  CANCELLATION AND REGRANT OF OPTIONS

     The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plans) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.

V.  STOCK APPRECIATION RIGHTS

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

                                       11
<PAGE>

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

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

        (ii)  No such option surrender shall be effective unless it is approved
     by the Plan Administrator, either at the time of the actual option
     surrender or at any earlier time. If the surrender is so approved, then the
     distribution to which the Optionee shall be entitled may be made in shares
     of Common Stock valued at Fair Market Value on the option surrender date,
     in cash, or partly in shares and partly in cash, as the Plan Administrator
     shall in its sole discretion deem appropriate.

        (iii) If the surrender of an option is not approved by the Plan
     Administrator, then the Optionee shall retain whatever rights the Optionee
     had under the surrendered option (or surrendered portion thereof) on the
     option surrender date and may exercise such rights at any time prior to the
     later of (a) five (5) business days after the receipt of the rejection
     -----
     notice or (b) the last day on which the option is otherwise exercisable in
     accordance with the terms of the documents evidencing such option, but in
     no event may such rights be exercised more than ten (10) years after the
     option grant date.

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

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

        (ii) Upon the occurrence of a Hostile Take-Over, each individual holding
     one or more options with such a limited stock appreciation right shall have
     the unconditional right (exercisable for a thirty (30)-day period following
     such Hostile Take-Over) to surrender each such option to the Corporation.
     In return for the surrendered option, the Optionee shall receive a cash
     distribution from the Corporation in an amount equal to the excess of (A)
     the Take-Over Price of the shares of Common Stock at the time subject to
     such option (whether or not the option is otherwise exercisable for those
     shares) over (B) the aggregate exercise price payable for those shares.
     Such cash distribution shall be paid within five (5) days following the
     option surrender date.

                                       12
<PAGE>

        (iii)  At the time such limited stock appreciation right is granted,
     the Plan Administrator shall pre-approve any subsequent exercise of that
     right in accordance with the terms of this Paragraph C. Accordingly, no
     further approval of the Plan Administrator or the Board shall be required
     at the time of the actual option surrender and cash distribution.

                                       13
<PAGE>

                                 ARTICLE THREE

                     SALARY INVESTMENT OPTION GRANT PROGRAM
                     --------------------------------------

     I.   OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years.  Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00).   Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.

     II.  OPTION TERMS

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

          A.  Exercise Price.
              --------------

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

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

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

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

              X is the number of option shares,

                                       14
<PAGE>

              A is the dollar amount of the reduction in the Optionee's base
          salary for the calendar year to be in effect pursuant to this program,
          and

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

          C.  Exercise and Term of Options.  The option shall become exercisable
              ----------------------------
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.

          D.  Effect of Termination of Service.  Should the Optionee cease
              --------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
                   -------
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of the option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten (10)-
                                 -------
year option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon the
Optionee's cessation of Service for any reason, terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.

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

           A.  In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
                        -------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.

                                       15
<PAGE>

           B.  In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
--------
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction  or (iv) the surrender of the option in
connection with a Hostile Take-Over.

           C.  Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.

           D.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Salary Investment Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

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

                                       16
<PAGE>

     IV.  REMAINING TERMS

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

                                       17
<PAGE>

                                 ARTICLE FOUR

                             STOCK ISSUANCE PROGRAM
                             ----------------------

     I.   STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.  Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.

          A.  Purchase Price.
              --------------

              1.    The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.

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

              (i)   cash or check made payable to the Corporation, or
              (ii)  past services rendered to the Corporation (or any Parent or
Subsidiary).

          B.  Vesting Provisions.
              ------------------

              1.  Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.

              2.  Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or

                                       18
<PAGE>

other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

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

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

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

              6.  Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.

     II.  CORPORATE TRANSACTION/CHANGE IN CONTROL

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

                                       19
<PAGE>

          B.  The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).

          C.  The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.

    III.  SHARE ESCROW/LEGENDS

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

                                       20
<PAGE>

                                 ARTICLE FIVE

                         AUTOMATIC OPTION GRANT PROGRAM
                         ------------------------------

     I.   OPTION TERMS

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

              1.  Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase Twenty-Four Thousand (24,000) shares of Common
Stock, provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.

              2.  On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a Non-
Statutory Option to purchase Eight Thousand (8,000) shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months. There shall be no limit on the number of such Eight Thousand
(8,000)-share option grants any one Eligible Director may receive over his or
her period of Board service, and non-employee Board members who have previously
been in the employ of the Corporation (or any Parent or Subsidiary) or who have
otherwise received one or more stock option grants from the Corporation prior to
the Underwriting Date shall be eligible to receive one or more such annual
option grants over their period of continued Board service.

          B.  Exercise Price.
              --------------

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

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

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

          D.  Exercise and Vesting of Options.  Each option shall be immediately
              -------------------------------
exercisable for any or all of the option shares.  However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares.  The shares subject to each initial
Twenty-Four Thousand (24,000)-share grant shall vest, and the Corporation's
repurchase right shall lapse with respect to, (i) twenty-five percent (25%) of
the

                                       21
<PAGE>

Option Shares upon Optionee's completion of one (1) year of Service as a Board
member measured from the Option Grant Date and (ii) the balance of the Option
Shares in a series of thirty-six (36) successive equal monthly installments upon
Optionee's completion of each additional month of Service as a Board member over
the thirty-six (36)-month period measured from the first anniversary of the
Option Grant Date. In no event shall any additional Option Shares vest after
Optionee's cessation of Service. The shares subject to each annual Eight
Thousand (8,000)-share option grant shall initially be unvested and the
Corporation's Repurchase Right shall lapse with respect to, (i) twenty-five
percent (25%) of the Option Shares upon Optionee's completion of one (1) year of
Service as a Board member measured from the Option Grant Date and (ii) the
balance of the Option Shares in a series of thirty-six (36) successive equal
monthly installments upon Optionee's completion of each additional month of
Service as a Board member over the thirty-six (36)-month period measured from
the first anniversary of the Option Grant Date. In no event shall any additional
Option Shares vest after Optionee's cessation of Service.

          E.  Limited Transferability of Options.  Each option under this
              ----------------------------------
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with the Optionee's estate plan
or pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.

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

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

              (ii)   During the twelve (12)-month exercise period, the option
     may not be exercised in the aggregate for more than the number of vested
     shares

                                       22
<PAGE>

     of Common Stock for which the option is exercisable at the time of the
     Optionee's cessation of Board service.

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

                                       23
<PAGE>

              (iv)   In no event shall the option remain exercisable after the
     expiration of the option term. Upon the expiration of the twelve (12)-month
     exercise period or (if earlier) upon the expiration of the option term, the
     option shall terminate and cease to be outstanding for any vested shares
     for which the option has not been exercised. However, the option shall,
     immediately upon the Optionee's cessation of Board service for any reason
     other than death or Permanent Disability, terminate and cease to be
     outstanding to the extent the option is not otherwise at that time
     exercisable for vested shares.

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

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

          B.  In the event of any Change in Control while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each outstanding
option held by that Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Each such option shall
remain exercisable for such fully vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.

          C.  All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.

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

                                       24
<PAGE>

          E.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Automatic Option Grant Program, substitute one or more shares
of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

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

    III.  REMAINING TERMS

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

                                       25
<PAGE>

                                  ARTICLE SIX

                       DIRECTOR FEE OPTION GRANT PROGRAM
                       ---------------------------------

     I.   OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect.  For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program.  Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable.  Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.

     II.  OPTION TERMS

          Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.

          A.  Exercise Price.
              --------------

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

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

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

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

               X is the number of option shares,

               A is the portion of the annual retainer fee subject to the non-
          employee Board member's election, and

                                       26
<PAGE>

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

          C.  Exercise and Term of Options.  The option shall become exercisable
              ----------------------------
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each calendar month of Board service during the calendar year for
which the retainer fee election is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.

          D.  Limited Transferability of Options.  Each option under this
              ----------------------------------
Article Six may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.

          E.  Termination of Board Service.  Should the Optionee cease Board
              ----------------------------
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
-------
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.

          F.  Death or Permanent Disability.  Should the Optionee's service as a
              -----------------------------
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the earlier of (i) the expiration of the ten
                                        -------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from

                                       27
<PAGE>

the date of such cessation of Board service.  In the event of the Optionee's
death while holding such option, the option may be exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or the laws of inheritance
or by the designated beneficiary or beneficiaries of such option.

          Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
-------
(3)-year period measured from the date of the Optionee's cessation of Board
service.

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

          A.  In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
                        -------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.

          B.  In the event of a Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
--------
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.

          C.  Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the

                                       28
<PAGE>

Take-Over Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the option is otherwise at the time
exercisable for those shares) over (ii) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation. No approval or consent of the
Board or any Plan Administrator shall be required at the time of the actual
option surrender and cash distribution.

          D.  Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Director Fee Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

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

     IV.  REMAINING TERMS

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

                                       29
<PAGE>

                                 ARTICLE SEVEN

                                 MISCELLANEOUS
                                 -------------

     I.   FINANCING

          The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments.  The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion.  In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

     II.  TAX WITHHOLDING

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

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

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

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

                                       30
<PAGE>

     III.  EFFECTIVE DATE AND TERM OF THE PLAN

           A.  The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.

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

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

           D.  The Plan shall terminate upon the earliest to occur of (i)
                                                 --------
December 17, 2009, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Should the Plan terminate on December 17, 2009, then all option
grants and unvested stock issuances outstanding at that time shall continue to
have force and effect in accordance with the provisions of the documents
evidencing such grants or issuances.

     IV.   AMENDMENT OF THE PLAN

           A.  The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

                                       31
<PAGE>

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

     V.    USE OF PROCEEDS

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

     VI.   REGULATORY APPROVALS

           A.  The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

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

     VII.  NO EMPLOYMENT/SERVICE RIGHTS

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

                                       32
<PAGE>

                                   APPENDIX
                                   --------

          The following definitions shall be in effect under the Plan:

          A.  Automatic Option Grant Program shall mean the automatic option
              ------------------------------
grant program in effect under Article Five of the Plan.

          B.  Board shall mean the Corporation's Board of Directors.
              -----
          C.  Change in Control shall mean a change in ownership or control of
              -----------------
the Corporation effected through either of the following transactions:

              (i)  the acquisition, directly or indirectly by any person or
     related group of persons (other than the Corporation or a person that
     directly or indirectly controls, is controlled by, or is under common
     control with, the Corporation), of beneficial ownership (within the meaning
     of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
     percent (50%) of the total combined voting power of the Corporation's
     outstanding securities pursuant to a tender or exchange offer made directly
     to the Corporation's stockholders, or

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

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

          E.  Common Stock shall mean the Corporation's common stock.
              ------------

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

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

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

          G.  Corporation shall mean BUY.COM Inc., a Delaware corporation, and
              -----------
any corporate successor to all or substantially all of the assets or voting
stock of BUY.COM Inc. which shall by appropriate action adopt the Plan.

          H.  Director Fee Option Grant Program shall mean the special stock
              ---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.

          I.  Discretionary Option Grant Program shall mean the discretionary
              ----------------------------------
option grant program in effect under Article Two of the Plan.

          J.  Eligible Director shall mean a non-employee Board member eligible
              -----------------
to participate in the Automatic Option Grant Program or the Director Fee Option
Grant Program in accordance with the eligibility provisions of Articles One,
Five and Six.

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

          L.  Exercise Date shall mean the date on which the Corporation shall
              -------------
have received written notice of the option exercise.

          M.  Fair Market Value per share of Common Stock on any relevant date
              -----------------
shall be determined in accordance with the following provisions:

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

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

              (iii)  For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price per share
at which the Common Stock is to be sold in the initial public offering pursuant
to the Underwriting Agreement.

                                     A-2
<PAGE>

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

          O.  Incentive Option shall mean an option which satisfies the
              ----------------
requirements of Code Section 422.

          P.  Involuntary Termination shall mean the termination of the Service
              -----------------------
of any individual which occurs by reason of:

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

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

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

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

          S.  Non-Statutory Option shall mean an option not intended to satisfy
              --------------------
the requirements of Code Section 422.

          T.  Optionee shall mean any person to whom an option is granted under
              --------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.

                                     A-3
<PAGE>

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

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

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

         X.   Plan shall mean the Corporation's 1999 Stock Incentive Plan, as
              ----
set forth in this document.

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

         Z.   Plan Effective Date shall mean the date the Plan shall become
              -------------------
effective and shall be coincident with the Underwriting Date.

         AA.  Predecessor Plans shall mean the Corporation's 1998 Stock Plan,
              -----------------
the BuyGolf.com, Inc. 1998 Stock Option Plan, as assumed by the Corporation in
connection with the Corporation's acquisition of BuyGolf.com, Inc., and the
Corporation's Special Executive Stock Option Plan, all as in effect immediately
prior to the Plan Effective Date hereunder.

         BB.  Primary Committee shall mean the committee of two (2) or more non-
              -----------------
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders and
to administer the Salary Investment Option Grant Program solely with respect to
the selection of the eligible individuals who may participate in such program.

         CC.  Salary Investment Option Grant Program shall mean the salary
              --------------------------------------
investment option grant program in effect under Article Three of the Plan.

         DD.  Secondary Committee shall mean a committee of one or more Board
              -------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

                                     A-4
<PAGE>

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

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

      GG.  Stock Exchange shall mean either the American Stock Exchange or the
           --------------
New York Stock Exchange.

      HH.  Stock Issuance Agreement shall mean the agreement entered into by the
           ------------------------
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

      II.  Stock Issuance Program shall mean the stock issuance program in
           ----------------------
effect under Article Four of the Plan.

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

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

      LL.  10% Stockholder shall mean the owner of stock (as determined under
           ---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

      MM.  Underwriting Agreement shall mean the agreement between the
           ----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

      NN.  Underwriting Date shall mean the date on which the Underwriting
           -----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.

      OO.  Withholding Taxes shall mean the Federal, state and local income and
           -----------------
employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.

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