Document:

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                                                                    EXHIBIT 10.1

          STOCK OPTION AGREEMENT dated as of February 7, 2000 (this
"Agreement"), by and between ORTEL CORPORATION, a Delaware corporation
 ---------
("Issuer"), and LUCENT TECHNOLOGIES INC., a Delaware corporation ("Grantee").
  ------                                                           -------

                                   RECITALS

          A.  Grantee, Solara Acquisition Inc., a wholly owned subsidiary of
Grantee ("Acquisition"), and Issuer have entered into an Agreement and Plan of
          -----------
Merger dated as of the date hereof (the "Merger Agreement"; defined terms used
                                         ----------------
but not defined herein have the respective meanings set forth in the Merger
Agreement), providing for, among other things, the merger of Acquisition with
and into Issuer, with Issuer as the surviving corporation in the Merger and
becoming a wholly owned subsidiary of Grantee; and

          B.  As a condition and inducement to Grantee's willingness to enter
into the Merger Agreement, Grantee has requested that Issuer agree, and Issuer
has agreed, to grant Grantee the Option (as defined below).

          NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Issuer
and Grantee agree as follows:

          1.   Grant of Option. Subject to the terms and conditions set forth
               ---------------
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
                                                                    ------
purchase up to 2,550,041 (as adjusted as set forth herein) shares (the "Option
                                                                        ------
Shares") of common stock, par value $.001 per share ("Issuer Common Stock"), of
------                                                -------------------
Issuer at a purchase price of $177.125 (as adjusted as set forth herein) per
Option Share (the "Purchase Price").
                   --------------

          2.   Exercise of Option. (a) Grantee may exercise the Option, with
               ------------------
respect to any or all of the Option Shares at any time or times, subject to the
provisions of Section 2(c), after the occurrence of any event as a result of
which the Grantee is unconditionally entitled to receive the Termination Fee
pursuant to Section 5.10(b) of the Merger Agreement (a "Purchase Event");
                                                        --------------
provided, that (i) except as provided in the last sentence of this Section 2(a),
--------
the Option will terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time and (B) 15 months after the first
occurrence of a Purchase Event, and (ii) any purchase of Option Shares upon
exercise of the Option will be subject to compliance with the HSR Act and the
obtaining or making of any consents, approvals, orders, notifications, filings
or authorizations, the failure of which to have obtained or made would have the
effect of making the issuance of Option Shares to Grantee illegal (the
"Regulatory Approvals"). Notwithstanding the termination of the Option, Grantee
 --------------------
will be entitled to purchase the Option Shares if it has exercised the Option in
accordance with the terms hereof prior to the termination of the Option and the
termination of the Option will not affect any rights hereunder which by their
terms do not terminate or expire prior to or as of such termination.

          (b)  In the event that Grantee is entitled to and wishes to exercise
the Option, it will send to Issuer a written notice (an "Exercise Notice"; the
                                                         ---------------
date of such notice being herein
<PAGE>

referred to as the "Notice Date") to that effect which Exercise Notice also
                    -----------
specifies the number of Option Shares, if any, Grantee wishes to purchase
pursuant to this Section 2(b), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee wishes to purchase
pursuant to this Section 2(b) and a date (an "Option Closing Date"), subject to
                                              -------------------
the following sentence, not earlier than seven business days nor later than 20
business days from the Notice Date for the closing of such purchase (an "Option
                                                                         ------
Closing"). Any Option Closing will be at an agreed location and time in New
-------
York, New York on the applicable Option Closing Date or at such later date as
may be necessary so as to comply with the first sentence of Section 2(a).

          (c)  Notwithstanding anything to the contrary contained herein, any
exercise of the Option and purchase of Option Shares shall be subject to
compliance with applicable laws and regulations, which may prohibit the purchase
of all the Option Shares specified in the Exercise Notice without first
obtaining or making certain Regulatory Approvals. In such event, if the Option
is otherwise exercisable and Grantee wishes to exercise the Option, the Option
may be exercised in accordance with Section 2(b) and Grantee shall acquire the
maximum number of Option Shares specified in the Exercise Notice that Grantee is
then permitted to acquire under the applicable laws and regulations, and if
Grantee thereafter obtains the Regulatory Approvals to acquire the remaining
balance of the Option Shares specified in the Exercise Notice, then Grantee
shall be entitled to acquire such remaining balance. Issuer agrees to use its
reasonable best efforts (as defined in the Merger Agreement) to assist Grantee
in seeking the Regulatory Approvals.

          In the event (i) Grantee receives official notice that a Regulatory
Approval required for the purchase of any Option Shares will not be issued or
granted or (ii) such Regulatory Approval has not been issued or granted within
six months of the date of the Exercise Notice, then with respect to the number
of Option Shares for which such Regulatory Approval will not be issued or
granted or has not been issued or granted, Grantee shall have the right to
exercise its Cash-Out Right pursuant to Section 6(c) with respect to such number
of Option Shares for which such Regulatory Approval will not be issued or
granted or has not been issued or granted.

          3.   Payment and Delivery of Certificates. (a) At any Option Closing,
               ------------------------------------
Grantee will pay to Issuer in immediately available funds by wire transfer to a
bank account designated in writing by Issuer an amount equal to the Purchase
Price multiplied by the number of Option Shares to be purchased at such Option
Closing plus the amount of any transfer, stamp or other similar taxes or charges
imposed in connection therewith.

          (b)  At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Issuer will deliver to
Grantee a certificate or certificates representing the Option Shares to be
purchased at such Option Closing, which Option Shares will be free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever. If at the
time of issuance of Option Shares pursuant to an exercise of the Option
hereunder, Issuer shall have issued any securities similar to rights under a
stockholder rights plan, then each Option Share issued pursuant to such exercise
will also represent such a

                                      -2-
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corresponding right with terms substantially the same as and at least as
favorable to Grantee as are provided under any such stockholder rights plan then
in effect.

          (c)  Certificates for the Option Shares delivered at an Option Closing
will have typed or printed thereon a restrictive legend which will read
substantially as follows:

          "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
          BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
          BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
          FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
          SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN
          THE STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 7, 2000, A COPY
          OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF ORTEL CORPORATION
          AT ITS PRINCIPAL EXECUTIVE OFFICES."

It is understood and agreed that (i) the reference to restrictions arising under
the Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option Shares have been registered
pursuant to the Securities Act, such Option Shares have been sold in reliance on
and in accordance with Rule 144 under the Securities Act or Grantee has
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act and (ii) the reference to restrictions pursuant to this Agreement
in the above legend will be removed by delivery of substitute certificate(s)
without such reference if the Option Shares evidenced by certificate(s)
containing such reference have been sold or transferred in compliance with the
provisions of this Agreement under circumstances that do not require the
retention of such reference.

          4.   Representations and Warranties of Issuer. Issuer hereby
               ----------------------------------------
represents and warrants to Grantee as follows:

          Authorized Stock.  Issuer has taken all necessary corporate
          ----------------
          and other action to authorize and reserve and, subject to the
          expiration or termination of any required waiting period under
          the HSR Act, to permit it to issue, and, at all times from the
          date hereof until the obligation to deliver Option Shares upon
          the exercise of the Option terminates, shall have reserved for
          issuance, upon exercise of the Option, shares of Issuer Common
          Stock necessary for Grantee to exercise the Option, and Issuer
          will take all necessary corporate action to authorize and reserve
          for issuance all additional shares of Issuer Common Stock or

                                      -3-
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          other securities which may be issued pursuant to
          Section 6 upon exercise of the Option. The shares
          of Issuer Common Stock to be issued upon due exercise
          of the Option, including all additional shares of
          Issuer Common Stock or other securities which may
          be issuable upon exercise of the Option or any other
          securities which may be issued pursuant to Section 6,
          upon issuance pursuant hereto, will be duly and validly
          issued, fully paid and nonassessable, and will be delivered
          free and clear of all liens, claims, charges and
          encumbrances of any kind or nature whatsoever, including
          without limitation any preemptive rights of any stockholder
          of Issuer.

          5.   Representations and Warranties of Grantee. Grantee hereby
               -----------------------------------------
represents and warrants to Issuer that:

          Purchase Not for Distribution.  Any Option Shares or other securities
          -----------------------------
          acquired by Grantee upon exercise of the Option
          will not be transferred or otherwise disposed of
          except in a transaction registered, or exempt from
          registration, under the Securities Act.

          6.   Adjustment upon Changes in Capitalization, Etc. (a) In the event
               ----------------------------------------------
of any change in Issuer Common Stock by reason of a stock dividend, split-up,
merger, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price thereof, will be adjusted appropriately, and proper
provision will be made in the agreements governing such transaction, so that
Grantee will receive upon exercise of the Option the number and class of shares
or other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to such
event or the record date therefor, as applicable. Subject to Section 1, and
without limiting the parties' relative rights and obligations under the Merger
Agreement, if any additional shares of Issuer Common Stock are issued after the
date of this Agreement (other than pursuant to an event described in the first
sentence of this Section 6(a)), the number of shares of Issuer Common Stock
subject to the Option will be adjusted so that, after such issuance, it equals
19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the Option.

          (b)  Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that Issuer enters into an agreement
(i) to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and Issuer will not be the continuing or surviving corporation
in such consolidation or merger, (ii) to permit any person, other than Grantee
or one of its subsidiaries, to merge into Issuer and Issuer will be the
continuing or surviving corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately prior to the consummation
of such merger will be changed into or exchanged for stock or other securities
of Issuer or any other person or cash or any other property, or the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger will, after such merger, represent less than 50% of the outstanding
voting securities of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction will make proper provision so that the Option will, upon the
consummation of any such transaction and upon the terms and conditions set forth

                                      -4-
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herein, be converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Grantee would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale, or transfer, or the record date therefor, as
applicable and make any other necessary adjustments.

          (c)  If at any time during the period commencing on a Purchase Event
and ending on the termination of the Option in accordance with Section 2,
Grantee sends to Issuer an Exercise Notice indicating Grantee's election to
exercise its right (the "Cash-Out Right") pursuant to this Section 6(c), then
Issuer shall pay to Grantee on the Option Closing Date, in exchange for the
cancellation of the Option with respect to such number of Option Shares as
Grantee specifies in the Exercise Notice, an amount in cash equal to such number
of Option Shares multiplied by the difference between (i) the average closing
price, for the 10 trading days commencing on the 12th trading day immediately
preceding the Option Closing Date, per share of Issuer Common Stock as reported
on The Nasdaq National Market (or, if not listed on The Nasdaq National Market,
as reported on any other national securities exchange or national securities
quotation system on which the Issuer Common Stock is listed or quoted, as
reported in The Wall Street Journal (Northeast edition), or, if not reported
thereby, any other authoritative source) (the "Closing Price") and (ii) the
                                               -------------
Purchase Price. Notwithstanding the termination of the Option, Grantee will be
entitled to exercise its rights under this Section 6(c) if it has exercised such
rights in accordance with the terms hereof prior to the termination of the
Option.

          (d)  (i) Notwithstanding any other provision of this Agreement, in no
event shall Grantee's Total Profit (as hereinafter defined) plus any Termination
Fee paid to Grantee pursuant to Section 5.10(b) of the Merger Agreement exceed
in the aggregate $105 million and, if the total amount that otherwise would be
received by Grantee would exceed such amount, Grantee, at its election, shall
either (a) reduce the number of shares of Issuer Common Stock subject to the
Option, (b) deliver to Issuer for cancellation shares of Issuer Common Stock
previously purchased by Grantee, (c) pay cash to Issuer or (d) take any action
representing any combination of the preceding clauses (a), (b) and (c), so that
Grantee's actually realized Total Profit, when aggregated with such Termination
Fee so paid to Grantee, shall not exceed $105 million after taking into account
the foregoing actions.

          (ii)  Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of Option Shares as would, as of the
date of exercise, result in a Notional Total Profit (as defined below) which,
together with any Termination Fee theretofore paid to Grantee, would exceed $105
million; provided, that nothing in this sentence shall restrict any exercise of
the Option permitted hereby on any subsequent date.

          (iii) As used herein, the term "Total Profit" shall mean the aggregate
                                          ------------
amount (before taxes) of the following: (A) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to the exercise of the Cash-Out Right under Section 6(c) and (B) the net cash
amounts or the fair market value of any property received by Grantee pursuant to
the sale of Option Shares (or other securities).

                                      -5-
<PAGE>

          (iv)  As used herein, the term "Notional Total Profit" with respect to
any number of Option Shares as to which Grantee may propose to exercise the
Option shall be the Total Profit determined as of the date of such proposal
assuming for such purpose that the Option was exercised on such date for such
number of Option Shares and assuming that such Option Shares, together with all
other Option Shares held by Grantee and its affiliates as of such date, were
sold for cash at the closing market price on The Nasdaq National Market (or, if
shares of Issuer Common Stock are not then listed or traded on The Nasdaq
National Market, on any other national securities exchange or national quotation
system on which shares of Issuer Common Stock are so listed or traded) for
shares of Issuer Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions).

          7.   Registration Rights. Issuer will, if requested by Grantee at any
               -------------------
time and from time to time within two years of the exercise of the Option, as
expeditiously as reasonably possible prepare and file up to three registration
statements under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all shares of securities that
have been acquired by or are issuable to Grantee upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Grantee, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer will use its best efforts
to qualify such shares or other securities under any applicable state securities
laws. Grantee agrees to cause, and to cause any underwriters of any sale or
other disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that upon
consummation thereof no purchaser or transferee will own beneficially more than
3.0% of the then-outstanding voting power of Issuer. Issuer will use reasonable
efforts to cause each such registration statement to become effective, to obtain
all consents or waivers of other parties which are required therefor, and to
keep such registration statement effective for such period not in excess of 120
calendar days from the day such registration statement first becomes effective
as may be reasonably necessary to effect such sale or other disposition. The
obligations of Issuer hereunder to file a registration statement and to maintain
its effectiveness may be suspended for up to 120 calendar days in the aggregate
if the Board of Directors of Issuer shall have determined that the filing of
such registration statement or the maintenance of its effectiveness would
require premature disclosure of material nonpublic information that would
materially and adversely affect Issuer or otherwise interfere with or adversely
affect any pending or proposed offering of securities of Issuer or any other
material transaction involving Issuer. Any registration statement prepared and
filed under this Section 7, and any sale covered thereby, will be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and the
fees and disbursements of Grantee's counsel related thereto. Grantee will
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section 7, Issuer effects a
registration under the Securities Act of Issuer Common Stock for its own account
or for any other stockholders of Issuer (other than on Form S-4 or Form S-8, or
any successor form), it will allow Grantee the right to participate in such
registration, and such participation will not affect the obligation of Issuer to
effect demand registration statements for Grantee under this Section 7; provided
                                                                        --------
that, if the managing underwriters of such offering advise Issuer in writing
that in their opinion the number of shares of Issuer Common Stock requested to
be included in such registration exceeds

                                      -6-
<PAGE>

the number which can be sold in such offering, Issuer will include the shares
requested to be included therein by Grantee pro rata with the shares intended to
be included therein by Issuer. In connection with any registration pursuant to
this Section 7, Issuer and Grantee will provide each other and any underwriter
of the offering with customary representations, warranties, covenants,
indemnification, and contribution in connection with such registration.

          If a requested registration pursuant to this Section 7 involves an
underwritten offering, the underwriter or underwriters thereof shall be a
nationally recognized firm or firms selected by Issuer. Notwithstanding anything
else contained in this Section 7, each requested registration shall be for a
number of shares of Issuer Common Stock which represent at least one-fourth of
the total of number of shares of Issuer Common Stock purchased by Grantee
hereunder.

          8.   Transfers. The Option Shares may not be sold, assigned,
               ---------
transferred, or otherwise disposed of except (i) in an underwritten public
offering as provided in Section 7 or (ii) to any purchaser or transferee who
would not, to the knowledge of Grantee after reasonable inquiry (which shall
include obtaining a representation from the purchaser or transferee),
immediately following such sale, assignment, transfer or disposal, beneficially
own more than 3.0% of the then-outstanding voting power of the Issuer; provided,
                                                                       --------
that Grantee shall be to sell any Option Shares if such sale is made pursuant to
a tender or exchange offer that has been approved or recommended by a majority
of the members of the Board of Directors of Issuer (which majority shall include
a majority of directors who were directors as of the date hereof).

          9.  Listing. If Issuer Common Stock or any other securities to be
              -------
acquired upon exercise of the Option are then listed on The Nasdaq National
Market (or any other national securities exchange or national securities
quotation system), Issuer, upon the request of Grantee, will promptly file an
application to list the shares of Issuer Common Stock or other securities to be
acquired upon exercise of the Option on The Nasdaq National Market (and any such
other national securities exchange or national securities quotation system) and
will use reasonable efforts to obtain approval of such listing as promptly as
practicable.

          10.  Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
               ------------------
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered will constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed, or mutilated shall at any time be
enforceable by anyone.

          11.  Miscellaneous. (a) Expenses. Each of the parties hereto will bear
               -------------
and pay all costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated hereunder, including fees and expenses of its
own financial consultants, investment bankers, accountants, and counsel.

                                      -7-
<PAGE>

          (b)  Amendment. This Agreement may not be amended, except by an
               ---------
instrument in writing signed on behalf of each of the parties.

          (c)  Extension; Waiver. Any agreement on the part of a party to waive
               -----------------
any provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.

          (d)  Entire Agreement; No Third-Party Beneficiaries. This Agreement,
               ----------------------------------------------
the Merger Agreement (including the documents and instruments attached thereto
as exhibits or schedules or delivered in connection therewith) and the
Confidentiality Agreement (i) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement, and (ii) are not intended
to confer upon any person other than the parties any rights or remedies.

          (e)  Governing Law. This Agreement will be governed by, and construed
               -------------
in accordance with, the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.

          (f)  Notices. All notices, requests, claims, demands, and other
               -------
communications under this Agreement shall be sent in the manner and to the
addresses set forth in the Merger Agreement.

          (g)  Assignment. Neither this Agreement, the Option nor any of the
               ----------
rights, interests, or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise, by Issuer or
Grantee without the prior written consent of the other. Any assignment or
delegation in violation of the preceding sentence will be void. Subject to the
first and second sentences of this Section 11(g), this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.

          (h)  Further Assurances. In the event of any exercise of the Option by
               ------------------
Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other actions that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.

          (i)  Enforcement. The parties agree that irreparable damage would
               -----------
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of New York or in New York state court, the foregoing being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (i) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of New York or any New
York

                                      -8-
<PAGE>

state court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, and (iii) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal court sitting in the State of
New York or a New York state court.

          (j)  Severability. If any term or other provision of this Agreement is
               ------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.

                                      -9-
<PAGE>

          IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the day
and year first written above.

                                 ORTEL CORPORATION

                                 By:    /s/ Stephen R. Rizzone
                                    -------------------------------------------
                                 Name:  Stephen R. Rizzone
                                 Title: President, Chief Executive Officer
                                        and Chairman of the Board

                                 LUCENT TECHNOLOGIES INC.

                                 By:    /s/ John T. Dickson
                                    -------------------------------------------
                                 Name:  John T. Dickson
                                 Title: Executive VP and CEO, Microelectronics
                                        and Communications Technologies

                                      -10-Exhibit 4.1

                             1988 STOCK OPTION PLAN

                                   IOMED INC.

             ------------------------------------------------------

1. Purpose. This 1988 Stock Option Plan (the "Plan") is intended as an incentive
to employees  (whether or not officers) of IOMED,  INC., a Utah corporation (the
"Corporation"),  or its  subsidiaries,  and to others  who  perform  substantial
services  for the  Corporation,  by engaging  them to acquire or increase  their
proprietary  interest in the Corporation  through ownership of the Corporation's
common shares.  The purposes of the Plan are to enable the Corporation to retain
valuable employees,  to attract new employees, to obtain the services of experts
and consultants, to encourage the sense of proprietorship of such persons in the
Corporation,  and to  stimulate  the  active  interest  of such  persons  in the
development and financial success of the Corporation.

2. Status of Options.  Options  granted under the Plan shall  constitute  either
incentive  stock  options  ("Incentive  Stock  Options")  within the  meaning of
Section 422A of the Internal  Revenue Code, as amended (the "Code"),  or options
which are not  incentive  stock options  ("Non-Incentive  Stock  Options").  The
Incentive Stock Options and the Non-Incentive Stock Options which may be granted
under the Plan are referred to herein collectively as "Options."

3.  Administration.   The  Plan  shall  be  administered  by  a  committee  (the
"Committee")  appointed  by the  Board  of  Directors  of the  Corporation.  The
Committee  shall consist of at least three (3) members of the Board of Directors
and may include the entire Board of Directors;  provided,  that no member of the
Committee shall be eligible to receive Options under the Plan while serving as a
member of the  Committee.  The Board of Directors may from time to time,  remove
members  from,  or add members to, the  Committee.  Vacancies on the  Committee,
howsoever  caused,  shall be filled by the Board of Directors  from the Board of
Directors.  The Committee shall select one of its members as Chairman, and shall
hold  meetings at such times and places as it shall  select.  Acts approved by a
majority of the  Committee  at  meetings  at which a quorum is present,  or acts
reduced to and approved in writing by all of the members of the Committee, shall
be the valid acts of the Committee.  The Committee  shall have full and complete
power and  authority,  without  further  approval by the Board of Directors,  to
designate those persons who shall receive Options pursuant to the Plan; to grant
Options  pursuant to the Plan; to determine  whether Options granted pursuant to
the Plan; to determine  whether  Options  granted  pursuant to the Plan shall be
Incentive Stock Options or Non-Incentive  Stock Options;  to establish the dates
upon which Options granted pursuant to the Plan shall be exercisable, the option
purchase price of the  Corporation's  common shares which are subject to Options
granted  under the Plan,  and all other  terms  and  conditions  concerning  the
Options or their  exercise;  to  interpret  the  provisions  and  supervise  the
administration  of the Plan; and to otherwise  further the purposes of the Plan.
The  interpretation  and  construction  by the Committee of any provision of the
Plan, or of any Option granted under it, shall be final,  conclusive and binding
upon the  Corporation and all persons who are granted Options under the Plan. No
member of the Board of Directors or the Committee shall be liable for any action
or  determination  made in good  faith with  respect to the Plan,  or any Option
granted under it.

4.   Eligibility.

     a. The persons who shall be eligible  to receive  Incentive  Stock  Options
under the Plan shall be such full or part time  employees  (including  officers,
whether or not they are directors) of the Corporation,  or of its  subsidiaries,
as  the  Committee  shall  select  from  time  to  time.   Except  as  otherwise
specifically provided herein, no employee shall be eligible to receive Incentive
Stock  Options  under the Plan if, at the date such  Options are  granted,  such
employee owns stock possessing more than ten percent (10%) of the total combined
voting  power of all  classes of stock of the  Corporation,  or of any parent or
subsidiary corporation, including stock attributable to the employee pursuant to
Section 425(d) of the Code; provided,  however, that any employee who would have
been otherwise  eligible to receive  Incentive Stock Options under the Plan, but
for the fact that such  employee  owns stock  possessing  more than ten  percent
(10%) of the total  combined  voting power of all classes of stock,  as provided
above,  shall be eligible to receive  Incentive Stock Options under the Plan if,
at the time such Incentive Stock Options are granted,  the option purchase price
for the  Corporation's  common shares subject to such Option is at least 110% of
the fair market  value such common  shares,  and if the  Incentive  Stock Option
granted to such  employee is not  exercisable  after the  expiration of five (5)
years from the date such Option is granted.

     b. The persons who shall be eligible to receive Non-Incentive Stock Options
under  the  Plan  shall  be  such  persons  (whether  or  not  employees  of the
Corporation)  who  perform  substantial   services  for  or  on  behalf  of  the
Corporation  or any of its  subsidiaries,  affiliates or any entity in which the
Corporation  has an  interest,  all as the  Committee  shall select from time to
time.

5.  Common  Shares  Subject to the Plan.  The shares  which  shall be subject to
Options granted pursuant to the Plan shall be the  Corporation's  authorized but
unissued or reacquired common shares,  par value $0.001 per share. The aggregate
number of common  shares which may be issued  pursuant to Options  granted under
the Plan shall not exceed One Million  (1,000,000)  shares (the  "Shares").  The
limitations  established by each of the preceding  sentences shall be subject to
adjustment as provided in paragraph 8 hereof.  In the event that any outstanding
Option  under the Plan for any  reason  expires  or is  terminated,  the  Shares
allocable  to the  unexercised  portion  of such  Option  may  again be made the
subject of an Option under the Plan.

6. Terms and  Conditions of Incentive  Stock  Options.  Incentive  Stock Options
granted  pursuant to the Plan shall be  authorized by the Committee and shall be
evidenced by agreements which shall be in such form and which shall contain such
provisions  consistent  with the Plan as the Committee  shall deem necessary and
appropriate.  Each  Incentive  Stock Option  granted  pursuant to the Plan shall
comply with and be subject to the following terms and conditions:

     a. Employment Arrangement. The granting of an Incentive Stock Option to any
employee  shall not impose upon the  Corporation  any  obligation  to retain the
employee in its employ for any period.

     b. Number of Shares.  Each Incentive Stock Option shall state the number of
Shares to which it pertains.

     c.  Option  Price.  Each  Incentive  Stock  Option  shall  state the option
purchase  price of the Shares  subject to such Options,  which shall not be less
than 100% of the fair market  value of the Shares on the date of the granting of
the  Incentive  Stock  Option.  The fair  market  value of the  Shares  shall be
determined  by the Committee in good faith,  by reference to market  quotations,
appraisals by disinterested  parties, or such other means as the Committee shall
deem appropriate. The option purchase price of Shares subject to Incentive Stock
Options granted to any employee who owns stock  possessing more than ten percent
(10%)  of the  total  combined  voting  power  of all  classes  of  stock of the
Corporation, shall be determined in accordance with paragraph 4(a) hereof.

     d. Medium and Time of Payment. The option purchase price of Incentive Stock
Options shall be payable upon the exercise of the Option and may be paid by cash
or  check,  or by  the  delivery  to the  Corporation  of  such  other  form  of
consideration,  including but not limited to common shares of the Corporation or
options to purchase common shares of the  Corporation,  provided that no type of
consideration  which would  disqualify  the Option as an Incentive  Stock Option
under Section 422A of the Code shall be approved by the Committee. The Incentive
Stock Option shall be exercised  by written  notice to the  Corporation,  in the
form  attached  hereto as Exhibit  "A" (or in such  other form as the  Committee
shall, in its sole discretion,  deem acceptable) at its principal  office.  Such
notice shall state the optionee's  election to exercise the Option,  shall state
the  exact  number of Shares  as to which  exercise  is being  made and shall be
accompanied by payment of the full purchase price of such Shares.  The Incentive
Stock Option shall be deemed exercised upon the date of the Corporation actually
receives the notice and payment required by this paragraph 6(d). The Corporation
shall deliver to the person  exercising the Incentive Stock Option a certificate
or  certificates  representing  the  Shares  covered  by such  Option as soon as
practical  after the  required  notice and  payment  have been  received  by the
Corporation.

     e. Terms and Exercise.  Each Incentive Stock Option granted pursuant to the
Plan  may be  exercised  only  as  provided  in the  agreement  executed  by the
Corporation  and the  employee,  which shall  contain  such  provisions  as to a
vesting  schedule and other terms or  conditions  for exercise of the  Incentive
Stock  Options as the  Committee  may,  in its sole  discretion,  determine  and
approve.  Unless  otherwise  provided in the Plan or the  agreement  between the
employee and the  Corporation,  any portion of the Incentive Stock Option not in
fact  exercised  in the  year in  which  it vests  shall  not  lapse  and may be
exercised at any time during the remaining  term of the Incentive  Stock Option.
Notwithstanding  anything  in the plan to the  contrary,  each  Incentive  Stock
Option  granted  under the Plan shall  terminate and may not be exercised to any
extent  after the  expiration  of ten (10)  years  from the date such  Option is
granted.  No Incentive Stock Option or installment  thereof shall be exercisable
except as to whole shares,  and fractional share interests shall be disregarded.
During the lifetime of the employee, Incentive Stock Option shall be exercisable
only  by the  employee.  No  Incentive  Stock  Option  shall  be  assignable  or
transferable  by the  employee,  other than by will or the laws of  descent  and
distribution, as provided in paragraph 6(g) hereof.

     f.  Termination of Employment  Except  Disability or Death. If the employee
shall cease to be employed by the  Corporation,  or by one of its  subsidiaries,
for any reason except  disability or death,  Incentive  Stock Options granted to
such  employee,  to the extent vested upon the date such  employee's  employment
terminates and to the extent not theretofore exercised,  shall be exercisable at
any time  within  three (3)  months  after such  cessation  of  employment.  The
transfer of the employee from the employ of the Corporation to a subsidiary,  or
vice versa,  or from one subsidiary to another,  shall not be deemed a cessation
of employment;  provided,  however,  that  Incentive  Stock Options shall not be
exercisable,  under any  condition,  after the expiration of ten (10) years from
the date they are granted.  Whether  authorized  leave of absence or absence for
military or governmental service shall constitute termination of employment, for
the  purposes  of  the  Plan,  shall  be  determined  by  the  Committee,  which
determination shall be final and conclusive.

     g. Death or Disability of Employee or Transfer of Incentive  Stock Options.
If the  employee  shall die or become  disabled  (within  the meaning of Section
422A(c)(7) of the Code) while in the employ of the Corporation, or a subsidiary,
and shall not have theretofore  fully exercised  Incentive Stock Options granted
under the Plan,  such  Incentive  Stock Options may be exercised,  to the extent
that the  employee's  right to the  exercise  such  Incentive  Stock  Option had
accrued and become vested upon the date of his death or disability,  at any time
within  twelve (12) months  after the  employee's  death or  disability,  by the
employee  or his  legal  representative,  in the case of  disability,  or by the
personal representatives,  executors or administrators of the employee's estate,
in the case of death,  or by any person or persons who shall have  acquired  the
Incentive  Stock Option  directly  from the employee by bequest or  inheritance,
provided,  that under no  circumstances  may an Incentive  Stock Option  granted
under the Plan be  exercisable  after the  expiration of ten (10) years from the
date upon which such Option was granted.

     h.  Value  of  Shares  Issued.  Notwithstanding  anything  to the  contrary
provided  herein,  the aggregate fair market value, as determined at the time an
Incentive Stock Option is granted, of the Shares with respect to which Incentive
Stock Options  granted under this Plan are exercisable for the first time by the
optionee during any calendar year (under all incentive stock option plans of the
Corporation  and its  parent  and  subsidiary  corporations)  shall  not  exceed
$100,000.

7. Terms and  Conditions of  Non-Incentive  Stock Options.  Non-incentive  Stock
Options  granted  pursuant to the Plan shall be  authorized by the Committee and
shall be  evidenced  by  agreements  which shall be in such form and which shall
contain such  provisions  consistent  with the Plan as the Committee  shall deem
necessary and appropriate.  Each Non-Incentive  Stock Option granted pursuant to
the Plan shall comply with and be subject to the following terms and conditions:

     a. Number of Shares. Each Non-Incentive Stock Option shall state the number
of shares to which it
pertains.

     b. Option Price.  Each  Non-Incentive  Stock Options shall state the option
purchase  price for the shares  covered by such Option,  which shall not be less
than the par value of the shares.

     c. Medium and Time of Payment.  The option purchase price of  Non-Incentive
Stock  Options  shall  be  paid  by the  delivery  to the  Corporation  of  such
consideration as the Committee shall determine.  The Non-Incentive Stock Options
shall be exercised by written  notice to the  Corporation,  in the form attached
hereto as Exhibit "B" (or in such other form as the Committee shall, in its sole
discretion,  deem acceptable) at its principal  office.  Such notice shall state
the optionee's election to exercise the Non-Incentive Stock Option,  shall state
the  exact  number of Shares  as to which  exercise  is being  made and shall be
accompanied  by payment of the full option  purchase  price of such shares.  The
Non-Incentive  Stock  Option  shall  be  deemed  exercised  upon  the  date  the
Corporation  actually receives the notice and payment required by this paragraph
7(c). The Corporation  shall deliver to the person  exercising the Non-Incentive
Stock Option a certificate or  certificates  representing  the shares covered by
such option as soon as practical after the required notice and payment have been
received by the Corporation.

     d. Expiration of Non-Incentive Stock Options. No Non-Incentive Stock Option
granted  pursuant to the Plan shall be exercisable by the optionee,  in whole or
in part,  at any time after the  expiration of ten (10) years from the date such
option is granted.

     e. Time and Exercise.  Each Non-Incentive  Stock Option granted pursuant to
the Plan may be  exercised  only as  provided in the  agreement  executed by the
Corporation  and the  optionee,  which shall  contain  such  provisions  as to a
vesting schedule and other terms or conditions for exercise of the Non-Incentive
Stock  Option  as the  Committee  may,  in its sole  discretion,  determine  and
approve.  Unless otherwise  provided in the Plan or in the agreement between the
optionee and the Corporation, any portion of a Non-Incentive Stock Option not in
fact  exercised  in the  year in  which  it vests  shall  not  lapse  and may be
exercised  at any time during the  remaining  term of such  Non-Incentive  Stock
Option.  No Incentive  Stock Option or installment  thereof shall be exercisable
except as to whole shares, and factional share interests shall be disregarded.

8.  Recapitalization  of the Corporation.  Subject to any required action by the
shareholders of the Corporation,  the number of Shares covered by an Option, and
the option purchase price of Shares subject to Options, shall be proportionately
adjusted  for any  increase or decrease in the number of issued and  outstanding
common shares of the Corporation  resulting from a subdivision or  consolidation
of such  shares or the  payment of a share  dividend  or any other  increase  or
decrease in the number of such shares effected  without receipt of consideration
by the Corporation.

     If the  Corporation  shall be the  surviving  corporation  in any merger or
consolidation,  each outstanding Option shall pertain and apply to the number of
securities to which the owner of the number of Shares subject to an Option would
have been entitled had the optionee been the owner of such Shares on the date of
the merger or consolidation. In the event of a dissolution or liquidation of the
Corporation,  or the  sale  of all or  substantially  all of the  assets  of the
Corporation,  or a merger or  consolidation  in which the Corporation is not the
surviving corporation  (collectively  "Terminating  Events"), the optionee shall
have the right,  for a period of thirty  (30) days after the date upon which the
Corporation  shall,  at its sole  election,  send to the optionee (by  certified
United States mail, with postage prepaid and return receipt  requested)  written
notice of such  Terminating  Event,  to exercise  his Option in whole or in part
without regard to any vesting schedule  otherwise  applicable to the Option.  If
the  optionee  shall fail to  exercise  his Option  within  such thirty (30) day
period,  the Option (or any  unexercised  portion  thereof) shall  terminate and
shall be of no further force or effect.  If the  Corporation  elects not to give
the optionees  written notice of the Terminating  Event,  then each  outstanding
Option shall pertain and apply to the number of securities or other  property to
which the owner of the  number of Shares  subject  to an Option  would have been
entitled  had the  optionee  been the  owner of such  Shares  on the date of the
Terminating Event.

     In the  event of a change  in the  Shares  as  presently  constituted,  the
securities  resulting  from any such change shall be deemed to be Shares  within
the meaning of the Plan.

     To the extent that the foregoing  adjustments relate to stock or securities
of the  Corporation,  such  adjustments  shall be made by the  Committee,  whose
determination in that respect shall be final, binding and conclusive.

     Except as hereinbefore expressly provided in this paragraph 8, the optionee
shall have no rights by reason of any subdivision or  consolidation of shares of
stock of any class or the payment of any stock dividend or any other increase or
decrease  in the  number  of  shares  of stock of any  class or by reason of any
dissolution,  liquidation,  merger, consolidation or spin-off of assets or stock
of another  corporation,  and any issue by the Corporation of shares of stock of
any class, or securities  convertible  into shares of stock of any class,  shall
not affect,  and no adjustment by reason  thereof shall be made with respect to,
the number or price of the Shares subject to the Option.

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

9. Rights as a Shareholder. An optionee or an authorized transferee of an Option
shall have no rights as a  shareholder  of the  Corporation  with respect to any
Shares  covered by an Option  until the date of the  issuance  of a  certificate
representing such Shares. No adjustment shall be made for dividends (ordinary or
extraordinary,  whether in cash,  securities or other property) or distributions
or other rights for which the record date is prior to the date such  certificate
is issued, except as provided in paragraph 8 hereof.

10.  Modification,  Extension and Renewal of Options.  The Committee may modify,
extend or renew  outstanding  Options  granted  under the  Plan,  or accept  the
surrender  of  outstanding  Options (to the extent not  theretofore  exercised);
provided,  however, that in regard to Incentive Stock Options such actions shall
be taken subject to the terms and conditions and strictly in accordance with the
statutorily imposed limitations of Section 422A of the Code. Notwithstanding the
foregoing,  however,  without the consent of the optionee, no modification of an
Option  shall  materially  alter or impair any rights or  obligations  under any
Option theretofore granted under the Plan.

11. Restrictive Legends. Each certificate representing Shares issued pursuant to
the exercise of an Option may have impressed  thereupon such restrictive legends
as the Committee shall deem appropriate.

12. Right of First Refusal.  Until the date which shall occur 120 days after the
effective date of the first registration statement relating to the common shares
of the  Corporation  which  is  filed by the  Corporation  on a form of  general
applicability  with the  Securities  and  Exchange  commission  pursuant  to the
Securities Act of 1933, as amended,  no optionee who acquires Shares pursuant to
the exercise of an Option granted under the Plan shall sell,  transfer,  pledge,
encumber or  otherwise  hypothecate  (collectively  a "Sale") any of such Shares
except in accordance with the provisions of this paragraph 12.

         a. Any  optionee  who desires to engage in Sale of any Shares  acquired
pursuant  to the  exercise  of an Option  granted  under the Plan shall give the
Corporation  written notice of the proposed Sale, which written notice shall set
forth, in detail, all of the terms and conditions of the proposed Sale.

         b. For a period  of 30 days  from and  after  the date  upon  which the
Corporation  actually  receives the written notice  required by paragraph  12(i)
hereof,  the Corporation,  or its designee(s),  shall have the right to purchase
all (but not less than all) of the Shares described in such written notice for a
purchase price which shall be equal to either the cash purchase price  specified
in such  notice or, in the event that the  proposed  Sale  provides  for noncash
consideration,  an amount of cash which shall be equal to the fair market  value
(as determined in good faith by the Committee) of such noncash consideration.

         c. If the  Corporation,  or its designee(s)  shall fail to exercise its
rights to purchase the Shares described in the written notice within such 30 day
period, the optionee shall be free to engage in and carry out the Sale, but only
upon the exact terms and conditions specified in the written notice.

13. Loans. The Corporation shall have the right, but not the obligation, to loan
to any optionee an amount equal to all or a portion of the option purchase price
for  Shares  subject to  Options  granted  under the Plan in order to enable the
optionee to exercise all or a portion of an Option.  All loans made to optionees
pursuant to this  paragraph 13 shall be made upon such terms and  conditions  as
the  Committee  shall  recommend,  shall  provide for adequate  security for the
repayment of such loan and shall be made only upon the specific  approval of the
Board of Directors of the Corporation.  The Corporation  shall not make loans to
any officer,  director or control person of the  Corporation  who is an optionee
unless each such loan is approved by the shareholders of the Corporation.

14. Other  Provisions.  Options  granted under the Plan shall contain such other
provisions, including, without limitation, restrictions upon the exercise of the
Option, as the Committee shall deem advisable.

15. Term of Plan.  Options may be granted pursuant to the Plan from time to time
within a period of ten (10)  years  from the date this  Plan is  adopted  by the
Board  of  Directors,  or the date  upon  which  this  Plan is  approved  by the
shareholders of the Corporation, whichever shall first occur.

16.  Indemnification  of  Committee.  The  members  of the  Committee  shall  be
indemnified by the Corporation,  to the full extent permitted by the Articles of
Incorporation  and Bylaws of the  Corporation and the laws of the State of Utah,
against  the  reasonable  expense,   including   attorneys'  fees,  actually  or
necessarily incurred by them in connection with the defense or settlement of any
action,  suit or proceeding,  or in connection with any appeal therein, to which
they or any of them may be made a party by reason of any action taken or failure
to act under or in connection with the Plan or any Option granted thereunder.

17.  Amendment  of the Plan.  The  Board of  Directors  may,  from time to time,
insofar as permitted by law suspend or  discontinue  the Plan or revise or amend
it in any respect  whatsoever with respect to any Shares not at the time subject
to Options at the time of such action; provided, however, that, without approval
of the  shareholders  of the  Corporation,  no such revision or amendment  shall
change the number of Shares subject to the Plan,  change the  designation of the
class of person eligible to receive Options, decrease the price at which Options
may be granted, or remove the administration of the Plan from the Committee.

18. Application of Funds. The proceeds received by the Corporation from the sale
of Shares pursuant to Options will be used for general corporate purposes.

19. No Obligation to Exercise Option.  The granting of an Option shall impose no
obligation upon the optionee to exercise such Option.

20.  Approval  of  Shareholders.  The Plan shall be approved by the holders of a
majority of the  outstanding  shares of each class of stock of the  Corporation,
which approval must occur within the period  beginning  twelve months before the
ending  twelve  months  after  the  date  the Plan is  adopted  by the  Board of
Directors.

21.  Severability.  It is the intent of the Board of  Directors  that  Incentive
Stock  Options  granted  pursuant  to the terms of this Plan shall  qualify  for
treatment  under Section 422A of the Code as incentive  stock  options.  To that
end,  should  any  provision  of this  Plan be  determined  to  invalidate  such
incentive stock option  treatment,  such provisions  shall not be a part of this
Plan, and shall be severable from and shall not affect the remaining  provisions
of this Plan.

                       CERTIFICATE OF CORPORATE SECRETARY

     I hereby certify that the foregoing 1988 Stock Option Plan was approved and
adopted by the Board of Directors of Iomed, Inc., on April 15, 1988.

                                          --------------------------------------
                                          Secretary

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