Document:

EXHIBIT 10.3
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              QUANAM MEDICAL CORPORATION 1996 EQUITY INCENTIVE PLAN
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                           QUANAM MEDICAL CORPORATION

                                 1996 STOCK PLAN

     1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees and Consultants of the Company and
its Subsidiaries and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an Option
and subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder. Stock Purchase Rights may also be granted
under the Plan.

     2. DEFINITIONS. As used herein, the following definitions shall apply:

         (a) "ADMINISTRATOR" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.

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

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

         (d) "COMMITTEE" means a Committee appointed by the Board of Directors
in accordance with Section 4 of the Plan.

         (e) "COMMON STOCK" means the Common Stock of the Company.

         (f) "COMPANY" means Quanam Medical Corporation, a California
corporation.

         (g) "CONSULTANT" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of any
equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services or
are paid only a Director's fee by the Company.

         (h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. A leave of
absence approved by the Company shall include sick leave, military leave, or any
other personal leave approved by an authorized representative of the Company.
For purposes of Incentive Stock Options, no such leave may exceed 90 days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract, including Company policies. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 91st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.

         (i) "DIRECTOR" means a member of the Board of Directors of the Company.

         (j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.

         (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE>

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

              (i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination and reported in The Wall Street Journal or
such other source as the Administrator deems reliable;

              (ii) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or

              (iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.

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

         (n) "NONSTATUTORY- STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

         (o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

         (p) "OPTION" means a stock option granted pursuant to the Plan.

         (q) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.

         (r) "OPTIONEE" means an Employee or Consultant who receives an Option
or Stock Purchase Right.

         (s) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

         (t) "PLAN" means this 1995 Stock Plan.

         (u) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.

         (v) "SECTION 16(B)" means Section 16(b) of the Securities Exchange Act
of 1934, as amended.

         (w) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.

         (x) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock
pursuant to Section 11 below.

         (y) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

     3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 500,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
<PAGE>

     If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an option
exchange program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.

     4. ADMINISTRATION OF THE PLAN.

         (a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which the
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a Committee appointed by the Board.

         (b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY
BECOMES SUBJECT TO THE EXCHANGE ACT.

              (iI) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers and Employees who are neither Directors nor Officers.

              (ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to grants of Options and Stock Purchase Rights to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with the rules under
Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
16b-3 ") relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.

              (iii) ADMINISTRATION WITH RESPECT TO OTHER EMPLOYEES AND
CONSULTANTS. With respect to grants of Options and Stock Purchase Rights to
Employees or Consultants who are neither Directors nor Officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.

         (c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discretion:

              (i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(1) of the Plan;

              (ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
<PAGE>

              (iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;

              (iv) to determine the number of Shares to be covered by each such
award granted hereunder;

              (v) to approve forms of agreement for use under the Plan;

              (vi) to determine the terms and conditions of any award granted
hereunder;

              (vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;

              (viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and

              (ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

         (d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.

     5. ELIGIBILITY.

         (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if otherwise eligible, be granted additional Options or
Stock Purchase Rights.

         (b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

         (c) Neither the Plan nor any Option or Stock Purchase Right shall
coffer upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.

         (d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:

              (i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 75% of the
shares reserved for issuance under the Plan.

              (ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.

              (iii) If an Option or Stock Purchase Right is cancelled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option or
Stock Purchase Right shall be counted against the limit set forth in subsection
(i) above. For this purpose, if the exercise price of an Option or Stock
<PAGE>

Purchase Right is reduced, such reduction will be treated as a cancellation of
the Option or Stock Purchase Right and the grant of a new Option or Stock
Purchase Right.

     6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company, as described in Section 18 of the Plan. It shall continue in effect
for a term often (10) years unless sooner terminated under Section 14 of the
Plan.

     7. TERM OF OPTION. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.

     8. OPTION EXERCISE PRICE AND CONSIDERATION.

         (a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

              (i) In the case of an Incentive Stock Option

                  (A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.

                  (B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

              (ii) In the case of a Nonstatutory Stock Option

                  (A) granted to a person who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.

                  (B) granted to any other person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.

         (b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.

     9. EXERCISE OF OPTION.

         (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan, but in no case at a rate of less than 20% per year over five (5) years
from the date the Option is granted.
<PAGE>

     An Option may not be exercised for a fraction of a Share.

     An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 hereof.

     Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

         (b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event
of termination of an Optionee's Continuous Status as an Employee or Consultant
(but not in the event of an Optionee's change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3.)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.

         (c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months and one day following such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

         (d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's death, the
Optionee's estate or a person who acquires the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

         (e) RULE 16B-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.

         (f) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
<PAGE>

     10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

     11. STOCK PURCHASE RIGHTS.

         (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator makes the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock purchase
agreement in the form determined by the Administrator. Shares purchased pursuant
to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."

         (b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.

         (c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.

         (d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.

     12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.

         (a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.

         (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.

         (c) MERGER. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or
<PAGE>

a parent or subsidiary of such successor corporation. If, in such event, an
Option or Stock Purchase Right is not assumed or substituted, the Option or
Stock Purchase Right shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.

     13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

     14. AMENDMENT AND TERMINATION OF THE PLAN.

         (a) AMENDMENT AND TERMINATION. The Board may at any time amend., alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASDAQ or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.

         (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.

     15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
to the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules. and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

     As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.

     16. RESERVATION OF SHARES. The Company, during the term of this Plan, shall
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

     17. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
<PAGE>

     18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.

     19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.<PAGE>   1
                                                                   EXHIBIT 10.27

                     SEVERANCE AGREEMENT AND GENERAL RELEASE

                This Agreement is between RemedyTemp, Inc. (Remedy) and Paul W.
Mikos ("Mikos"). Mikos will be employed by Remedy until his separation on June
30, 2001. Remedy and Mikos desire to enter into this Agreement to establish
certain terms of Mikos's separation from Remedy.

        1. Mikos hereby confirms his resignation and separation as an employee
and officer from Remedy, effective as of June 30, 2001. The Employment Agreement
dated May 2, 1999, between Mikos and Remedy, as amended, is hereby terminated,
except for the rights and obligations set forth in Section 5 of the Employment
Agreement which are hereby incorporated by reference as if fully set forth
herein. All payments to Mikos as a result of his separation from employment
shall be governed by this Agreement and not the Employment Agreement.

        2. Remedy agrees to pay to Mikos the amount of $1,800,000 over the next
two years, less applicable taxes and withholdings, constituting two years' base
salary and maximum bonus. Such amount shall be payable semi-monthly in Remedy's
normal payroll cycles commencing with the first payroll cycle after July 17,
2001. Remedy shall also provide Mikos with the following benefits: i) pay
Mikos's health benefits and life and disability insurance premiums then in
effect at the time of severance, for a period of three (3) years and seventeen
(17) days commencing July 1, 2001; and ii) on June 30, 2001, Remedy shall
transfer ownership from Remedy to Mikos of that certain 2000 Mercedes and 1996
Range Rover and the artwork located in Mikos's office at Remedy, provide Mikos
with a lump sum of $30,000 for perquisites, and automatically vest all of Mr.
Mikos's 123,872 options to purchase RemedyTemp, Inc. Class A Common Stock,
exercisable for the balance of their respective terms. All severance benefits
set forth herein in this Section 2 shall be collectively referred to as the
"Severance Payments." The Company's obligations to make the Severance Payments
shall survive the death of Mikos and inure to the benefit of his heirs.

        3. On June 30, 2001, Remedy shall pay Mikos's pay and vacation accrued
as of July 17, 2001 for a total of $20,769.25 and $9,220.68, respectively and
Mikos agrees that such amount and the Severance Payments shall be the only
amounts which Remedy shall pay to Mikos, and all other payments, wages, bonuses,
incentive compensation, claims for payments or any other forms of compensation
whatsoever are hereby waived.

        4. Except for those obligations created by or arising out of this
Agreement, Mikos on behalf of himself, his descendants, dependents, heirs,
executors, administrators, assigns, and successors, and each of them, hereby
covenants not to sue and fully releases and discharges Remedy, and its parent,
subsidiaries and affiliates, past and present, and each of them, as well as its
and their trustees, directors, officers, agents, attorneys, insurers, employees,
shareholders, representatives, assigns, and successors, past and

<PAGE>   2

present, and each of them, hereinafter together and collectively referred to as
"Releasees," with respect to and from any and all claims, wages, demands,
rights, liens, agreements, contracts, covenants, actions, suits, causes of
action, obligations, debts, costs, expenses, attorneys' fees, damages,
judgments, orders and liabilities of whatever kind or nature in law, equity or
otherwise, whether now known or unknown, suspected or unsuspected, and whether
or not concealed or hidden, which he now owns or holds or he has at any time
heretofore owned or held or may in the future hold as against said Releasees,
arising out of or in any way connected with his employment relationship with
Remedy, or his voluntary resignation from employment or any other transactions,
occurrences, acts or omissions or any loss, damage or injury whatever, known or
unknown, suspected or unsuspected, resulting from any act or omission by or on
the part of said Releasees, or any of them, committed or omitted prior to the
date of this Agreement including, without limiting the generality of the
foregoing, any claim under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, the
Family and Medical Leave Act of 1993, the California Fair Employment and Housing
Act, the California Family Rights Act, or any claim for severance pay, bonus,
sick leave, holiday pay, vacation pay, life insurance, health or medical
insurance or any other fringe benefit, workers' compensation or disability.

        5. It is the intention of Mikos in executing this instrument that the
same shall be effective as a bar to each and every claim, demand and cause of
action hereinabove specified. In furtherance of this intention, Mikos hereby
expressly waives any and all rights and benefits conferred upon him by the
provisions of SECTION 1542 OF THE CALIFORNIA CIVIL CODE and expressly consents
that this Agreement shall be given full force and effect according to each and
all of its express terms and provisions, including those related to unknown and
unsuspected claims, demands and causes of action, if any, as well as those
relating to any other claims, demands and causes of action hereinabove
specified. SECTION 1542 provides:

        "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
        KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
        RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
        SETTLEMENT WITH THE DEBTOR."

        6. Mikos expressly acknowledges and agrees that, by entering into this
Agreement, he is waiving any and all rights or claims that he may have arising
under the Age Discrimination in Employment Act of 1967, as amended, which have
arisen on or before the date of execution of this Agreement. Mikos further
expressly acknowledges and agrees that:

                (a) In return for this Agreement, he will receive consideration
        beyond that which he was already entitled to receive before entering
        into this Agreement;

                                       2
<PAGE>   3

                (b) He is hereby advised in writing by this Agreement to consult
        with an attorney before signing this Agreement;

                (c) He was given a copy of this Agreement on April 24, 2001, and
        informed that he had 21 days within which to consider the Agreement; and

                (d) He is hereby advised that he has seven (7) days after
        execution to revoke the Agreement, and to that end this Agreement will
        not become effective or enforceable until the expiration of such
        seven-day period. Any revocation must be delivered to Remedy's legal
        department.

        7. Mikos agrees and covenants that he will not make any negative or
disparaging comments about Remedy or its affiliated entities nor will he make
any comments that are ruled by a court or arbitrator to be defamatory about
Remedy's directors, officers or employees to any person or company commencing as
of the date of this Agreement. Violation of this Section 7 or the provisions in
Section 5 of the Employment Agreement shall be a material breach of this
Agreement.

        8. This instrument constitutes and contains the entire agreement and
final understanding of Mikos's employment, the termination thereof, and the
other subject matters addressed herein between the parties. Any modifications to
this Agreement must be in writing and signed by Mikos and Remedy to be binding
on the parties. Mikos acknowledges that he is not relying on any statement or
representation of Remedy, its employees or agents with respect to the subject
matter, basis or effect of this Agreement.

        9. The prevailing party in any litigation relating to an alleged breach
of this Agreement shall be entitled to an award of its reasonable attorneys'
fees and costs.

        10. Mikos acknowledges that he fully understands his right to discuss
this Agreement with an attorney, that he has carefully read and fully
understands this entire Agreement and that he is voluntarily entering into this
Agreement.

        11. Any breach or default of obligations hereunder shall not release the
non-breaching party of its or his duties and obligations hereunder.

Dated: May 10, 2001                    PAUL W. MIKOS
                                       -----------------------------------------
                                       Paul W. Mikos

                                       REMEDYTEMP, INC.

Dated: May 10, 2001                    By:
                                          --------------------------------------

                                       3
<PAGE>   4

                                          Printed:
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                                          Title:
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                                       4

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