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                                                                    EXHIBIT 10.6

                            PEET'S COMPANIES, INC.

                       1994 CALIFORNIA STOCK OPTION PLAN

SECTION 1.  Purpose.

     The purpose of the 1994 California Stock Option Plan (this "Plan") is to
provide a means whereby selected employees, directors, officers, agents,
consultants, and advisors of Peet's Companies, Inc. (the "Company"), or of any
parent or subsidiary (as defined in subsection 5.8 and referred to hereinafter
as "related corporations") thereof, may be granted incentive stock options
and/or nonqualified stock options to purchase the Common Stock (as defined in
Section 3) of the Company, in order to attract and retain the service's or
advice of such employees, directors, officers, agents, consultants, and advisors
and to provide added incentive to such persons by encouraging stock ownership in
the Company.

SECTION 2.  Administration.

     This Plan shall be administered by the Board of Directors of the Company
(the "Board") or, in the event the Board shall appoint and/or authorize a
committee to administer this Plan, by such committee.  The administrator of this
Plan shall hereinafter be referred to as the "Plan Administrator."

     In the event a member of the Plan Administrator may be eligible, subject to
the restrictions set forth in Section 4, to participate in or receive or hold
options under this Plan, no member of the Plan Administrator shall vote with
respect to the granting of an option hereunder to himself or herself, as the
case may be, and, if state corporate law does not permit a committee to grant
options to directors, then any option granted under this Plan to a director for
his or her services as such shall be approved by the full Board.

     The members of any committee serving as Plan Administrator shall be
appointed by the Board for such term as the Board may determine.  The Board may
from time to time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, shall be filled by the Board.

     With respect to grants made under this Plan to individuals who are subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Plan Administrator shall be constituted at all times so as to meet
the requirements of Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act if any of the Company's equity securities are registered pursuant to Section
12(b) or 12(g) of the Exchange Act.

     2.1  Procedures. The Board shall designate one of the members of the Plan
Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members of
the Plan Administrator present at meetings at which a quorum exists, or acts
reduced to or approved in writing by all Plan Administrator members, shall be
valid acts of the Plan Administrator.

                                       1.
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     2.2  Responsibilities. Except for the terms and conditions explicitly set
forth in this Plan, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
this Plan, including selection of the individuals to be granted options, the
number of shares to be subject to each option, the exercise price, and all other
terms and conditions of the options. Grants under this Plan need not be
identical in any respect, even when made simultaneously. The interpretation and
construction by the Plan Administrator of any terms or provisions of this Plan
or any option issued hereunder, or of any rule or regulation promulgated in
connection herewith, shall be conclusive and binding on all interested parties,
so long as such interpretation and construction with respect to incentive stock
options correspond to the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations thereunder and any
amendments thereto.

     2.3  Rule 16b-3 Compliance and Bifurcation of Plan. It is the intention of
the Company that, if any of the Company's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, this Plan shall comply
in all respects with Rule 16b-3 under the Exchange Act. If any Plan provision is
later found not to be in compliance with such Rule, the provision shall be
deemed null and void, and in all events this Plan shall be construed in favor of
its meeting the requirements of Rule 16b-3. Notwithstanding anything in this
Plan to the contrary, the Board, in its absolute discretion, may bifurcate this
Plan so as to restrict, limit or condition the application of any provision of
this Plan to participants who are subject to Section 16 of the Exchange Act
without so restricting, limiting or conditioning this Plan with respect to other
participants.

SECTION 3.  Shares Subject to This Plan.

     The shares subject to this Plan shall be the Company's Common Stock (the
"Common Stock"), currently authorized but unissued.  Subject to adjustment as
provided in Section 7, the aggregate amount of Common Stock to be delivered upon
the exercise of all options granted under this Plan shall not exceed 415,800
shares as such Common Stock was constituted on the effective date of this Plan;
provided, however, that the number of shares of Common Stock available for
issuance under this Plan shall be reduced from time to time in direct proportion
to the number of shares of Common Stock reserved for issuance pursuant to
options granted under the Company's 1993 Stock Option Plan.  If any option
granted under this Plan shall expire or be surrendered, exchanged for another
option, cancelled or terminated for any reason without having been exercised in
full, the unpurchased shares subject thereto shall thereupon again be available
for purposes of this Plan, including for replacement options which may be
granted in exchange for such expired, surrendered, exchanged, cancelled or
terminated options.

SECTION 4.  Eligibility.

     An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or any related
corporation.  A nonqualified stock option may be granted to any employee,
director, officer, agent, consultant, or advisor of the Company or any related
corporation, whether an individual or an entity.  Any party to whom an option is
granted under this Plan shall be referred to hereinafter as an "Optionee."

                                       2.
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SECTION 5.  Terms and Conditions of Options.

     Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan.  Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:

     5.1  Number of Shares and Price. The maximum number of shares that may be
purchased pursuant to the exercise of each option and the price per share at
which such option is exercisable (the "exercise price") shall be as established
by the Plan Administrator, provided that the Plan Administrator shall act in
good faith to establish the exercise price which shall be not less than the fair
market value per share of the Common Stock at the time the option is granted
with respect to incentive stock options and not less than 85% of the fair market
value of the Common Stock at the time the option is granted with respect to
nonqualified stock options, and also provided that, with respect to incentive
stock options granted to greater than 10% shareholders, the exercise price shall
be as required by subsection 6.1. The foregoing notwithstanding, the maximum
number of shares with respect to which an option or options may be granted to
any Optionee in any one fiscal year of the Company shall not exceed 300,000
shares (the "Maximum Annual Optionee Grant").

     5.2  Term and Maturity. Subject to the restrictions contained in Section 6
with respect to granting incentive stock options to greater than 10%
shareholders, the term of each incentive stock option shall be as established by
the Plan Administrator and, if not so established, shall be 10 years from the
date it is granted but in no event shall it exceed 10 years. The term of each
nonqualified stock option shall be as established by the Plan Administrator and,
if not so established, shall be 10 years. To ensure that the Company or related
corporation will achieve the purpose and receive the benefits contemplated in
this Plan, any option granted to any Optionee hereunder shall, unless the
condition of this sentence is waived or modified in the agreement evidencing the
option or by resolution adopted at any time by the Plan Administrator, be
exercisable according to the following schedule:/*/

    Period of Optionee's Continuous
     Relationship With the Company
      or Related Corporation From                   Portion of Total Option
    the Date the Option is Granted                    Which Is Exercisable
-----------------------------------------    -----------------------------------

          Upon Grant                                          60%

          after 1 year                                        80%

          after 2 years                                      100%

_____________

 *  Note:  With respect to options granted as of February 9, 1996, the Plan
Administrator has established a different vesting schedule.  Please see your
Grant Letter for the applicable vesting schedule.

                                       3.
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     5.3  Exercise. Subject to the vesting schedule described in subsection 5.2,
each option may be exercised in whole or in part at any time and from time to
time. However, the Plan Administrator may in its discretion require that a
minimum number of shares be purchased upon any exercise of option rights
hereunder, provided that such minimum may in no event exceed 100 shares. Only
whole shares win be issued pursuant to the exercise of any option. An option
shall be exercised by delivery to the Company of notice of the number of shares
with respect to which the option is exercised, together with payment of the
exercise price.

     5.4  Payment of Exercise Price. Payment of the option exercise price shall
be made in fun at the time the notice of exercise of the option is delivered to
the Company and shall be in cash, bank certified or cashier's check or personal
check (unless at the time of exercise the Plan Administrator in a particular
case determines not to accept a personal check) for the shares being purchased.

     The Plan Administrator can determine at any time before exercise that
additional forms of payment will be permitted.  To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state corporate
law), an option may be exercised by:

          (a)  delivery of shares of Common Stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator; provided,
however, that payment in stock held by an Optionee shall not be made unless the
stock shall have been owned by the Optionee for a period of at least six months;

          (b)  delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, bear
interest at a rate specified by the Plan Administrator but in no case less than
the rate required to avoid imputation of interest (taking into account any
exceptions to the imputed interest rules) for federal income tax purposes, (ii)
the Plan Administrator in its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock option is granted or at
any time prior to exercise of a nonqualified stock option, (iii) the Plan
Administrator may require that the Optionee pledge to the Company for the
purpose of securing the payment of such note the shares of Common Stock to be
issued to the Optionee upon exercise of the option and may require that the
certificate representing such shares be held in escrow in order to perfect the
Company's security interest, and (iv) the Plan Administrator in its sole
discretion may at any time restrict or rescind this right upon notification to
the Optionee; or

          (c)  delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise.

     5.5  Withholding Tax Requirement. The Company or any related corporation
shall have the right to retain and withhold from any payment of cash or shares
of Common Stock

                                       4.
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under this Plan the amount of taxes required by any government to be withheld or
otherwise deducted and paid with respect to such payment. At its discretion, the
Company may require an Optionee receiving shares of Common Stock to reimburse
the Company for any such taxes required to be withheld by the Company and
withhold any distribution in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company shall have the right to withhold from
any other cash amounts due or to become due from the Company to the Optionee an
amount equal to such taxes. The Company may also retain and withhold or the
Optionee may elect, subject to approval by the Company at its sole discretion,
to have the Company retain and withhold a number of shares having a market value
not less than the amount of such taxes required to be withheld by the Company to
reimburse the Company for any such taxes and cancel (in whole or in part) any
such shares so withheld. In order to qualify such election for exemption under
Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, any individual
who is subject to Section 16 under the Exchange Act must exercise the option
during the quarterly 10-day window period required under Section 16(b) of the
Exchange Act for exercises of stock appreciation rights, and the election
relating to such option exercise must be (i) an irrevocable election made six
months prior to the date the option exercise becomes taxable; (ii) an election
that is made during a window period; or (iii) an election that is made prior to
a window period, provided the election becomes effective as of the next window
period.

     5.6  Holding Periods.

          5.6.1     Securities and Exchange Act Section 16. If an individual
subject to Section 16 of the Exchange Act sells shares of Common Stock obtained
upon the exercise of a stock option within six months after the date the option
was granted, such sale may result in short-swing profit recovery under Section
16(b) of the Exchange Act.

          5.6.2     Taxation of Stock Options. In order to obtain certain tax
benefits afforded to incentive stock options under Section 422 of the Code, an
optionee must hold the shares issued upon the exercise of an incentive stock
option for two years after the date of grant of the option and one year from the
date of exercise. An optionee may be subject to the alternative minimum tax at
the time of exercise of an incentive stock option.

     The Plan Administrator may require an Optionee to give the Company prompt
notice of any disposition of shares acquired by the exercise of an incentive
stock option prior to the expiration of such holding periods.

     Tax advice should be obtained by an Optionee when exercising any option and
prior to the disposition of the shares issued upon the exercise of any option.

     5.7  Transferability of Options. Options granted under this Plan and the
rights and privileges conferred hereby may not be transferred, assigned, pledged
or hypothecated in any manner (whether by operation of law or otherwise) other
than by win or by the applicable laws of descent and distribution and shall not
be subject to execution, attachment or similar process. During an Optionee's
lifetime, any options granted under this Plan are personal to him or her and are
exercisable solely by such Optionee. Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under this Plan or of any right
or privilege conferred hereby, contrary to the Code or to the provisions of this
Plan, or the sale or levy or any attachment or

                                       5.
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similar process upon the rights and privileges conferred hereby shall be null
and void. Notwithstanding the foregoing, to the extent permitted by Rule 16b-3
under the Exchange Act and other applicable law and regulation, the Plan
Administrator may permit an Optionee to (i) during the Optionee's lifetime,
designate a person who may exercise the option after the Optionee's death by
giving written notice of such designation to the Company. Such designation may
be changed from time to time by the Optionee by giving written notice to the
Company revoking any earlier designation and making a new designation or (ii)
with respect to nonqualified stock options, transfer the option and the rights
and privileges conferred hereby.

     5.8  Termination of Relationship. If the Optionee's relationship with the
Company or any related corporation ceases for any reason other than death or
total disability, and unless by its terms the option sooner terminates or
expires, then the Optionee may exercise, for a three-month period, that portion
of the Optionee's option which is exercisable at the time of such cessation, but
the Optionee's option shall terminate at the end of such period following such
cessation as to all shares for which it has not theretofore been exercised,
unless such provision is waived in the agreement evidencing the option. If, in
the case of an incentive stock option, an Optionee's relationship with the
Company or any related corporation changes (i.e., from employee to nonemployee,
such as a consultant), such change shall constitute a termination of an
Optionee's employment with the Company or any related corporation and the
Optionee's incentive stock option shall terminate in accordance with this
subsection 5.8. Upon the expiration of the three-month period following
cessation of employment in the case of an incentive stock option, or at any time
prior to the expiration of the option in the case of a nonqualified stock
option, the Plan Administrator shall have sole discretion in a particular
circumstance to extend the exercise period following such cessation to any date
up to the termination or expiration of the option. If, however, in the case of
an incentive stock option, the Optionee does not exercise the Optionee's option
within three months after cessation of employment, the option will no longer
qualify as an incentive stock option under the Code.

     If an Optionee's relationship with the Company or any related corporation
ceases because of a less than total disability, the Optionee's option shall not
terminate until the end of the 6-month period following such cessation (unless
by its terms it sooner terminates and expires).  If, however, in the case of an
incentive stock option, the Optionee does not exercise the Optionee's option
within three months after cessation of employment, the option will no longer
qualify as an incentive stock option under the Code.

     If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the Optionee's option shall not terminate
or, in the case of an incentive stock option, cease to be treated as an
incentive stock option until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates and expires).  As used in
this Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or which has lasted or is
expected to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity.  Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.

                                       6.
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     Options granted under the Plan shall not be affected by any change of
relationship with the Company so long as the Optionee continues to be an
employee, director, officer, agent, consultant, or advisor of the Company or of
a related corporation; however, a change in an Optionee's status from an
employee to a nonemployee (e.g., consultant or independent contractor) shall
result in the termination of an outstanding incentive stock option held by such
Optionee. The Plan Administrator, in its absolute discretion, may determine all
questions of whether particular leaves of absence constitute a termination of
services; provided, however, that with respect to incentive stock options, such
determination shall be subject to any requirements contained in the Code. The
foregoing notwithstanding, with respect to incentive stock options, employment
shall not be deemed to continue beyond the first 90 days of such leave, unless
the Optionee's reemployment rights are guaranteed by statute or by contract.

     As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

     5.9  Death of Optionee. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or within the three-
month period (or 6-month period in the case of less than totally disabled
Optionees or 12-month period in the case of totally disabled Optionees)
following cessation of such relationship, any option held by such Optionee to
the extent that the Optionee would have been entitled to exercise such option,
may be exercised within one year after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass (i) by will or by the applicable
laws of descent and distribution or (ii) by a designation or transfer pursuant
to Section 5.7.

     5.10 No Status As Shareholder. Neither the Optionee nor any party to which
the Optionee's rights and privileges under the option may pass shall be, or have
any of the rights or privileges of, a shareholder of the Company with respect to
any of the shares issuable upon the exercise of any option granted under this
Plan unless and until such option has been exercised.

     5.11 Continuation of Relationship. Nothing in this Plan or in any option
shall confer upon any Optionee any right to continue in the employ or other
relationship of the Company or of a related corporation, or to interfere in any
way with the right of the Company or of any such related corporation to
terminate his or her employment or other relationship with the Company at any
time.

     5.12 Modification and Amendment of Option. Subject to the requirements of
Code Section 422 with respect to incentive stock options and to the terms and
conditions and within the limitations of this Plan, the Plan Administrator may
modify or amend outstanding options

                                       7.
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granted under this Plan. The modification or amendment of an outstanding option
shall not, without the consent of the Optionee, impair or diminish any of his or
her rights or any of the obligations of the Company under such option. Except as
otherwise provided in this Plan, no outstanding option shall be terminated
without the consent of the Optionee.

     5.13 Limitation on Value for Incentive Stock Options. As to all incentive
stock options granted under the terms of this Plan, to the extent that the
aggregate fair market value of the shares (determined at the time the incentive
stock option is granted) with respect to which incentive stock options are
exercisable for the first time by the Optionee during any calendar year (under
this Plan and all other incentive stock option plans of the Company, a related
corporation or a predecessor corporation) exceeds $100,000, such options shall
be treated as nonqualified stock options. The previous sentence shall not apply
if the Internal Revenue Service issues a public rule, issues a private ruling to
the Company, any Optionee or any legatee, personal representative or distributee
of an Optionee or issues regulations changing or eliminating such annual limit.

SECTION 6.  Greater Than 10% Shareholders.

     6.1  Exercise Price and Term of Incentive Stock Options. If an incentive
stock option is granted under this Plan to any employee who owns more than 10%
of the total combined voting power of all classes of stock of the Company or any
related corporation, the term of such incentive stock options shall not exceed
five years and the exercise price shall be not less than 110% of the fair market
value of the shares at the time the incentive stock option is granted. This
provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document.

     6.2  Attribution Rule. For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own the shares owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Shares owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or warrant to purchase shares
of the Company, the shares subject to that portion of the option or warrant
which is unexercised shall not be counted in determining stock ownership. For
purposes of this Section 6, shares owned by an employee shall include all shares
actually issued and outstanding immediately before the grant of the incentive
stock option to the employee.

SECTION 7.  Adjustments Upon Changes in Capitalization.

     The aggregate number and class of shares for which options may be granted
under this Plan, the Maximum Annual Optionee Grant set forth in Section 5.1, the
number and class of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.

                                       8.
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     7.1  Effect of Liquidation or Reorganization.

          7.1.1     Cash, Stock or Other Property for Stock. Except as provided
in subsection 7.1.2, upon a merger (other than a merger of the Company in which
the holders of shares of Common Stock immediately prior to the merger have the
same proportionate ownership of shares of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the shareholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise such Optionee's
option to the extent the vesting requirements set forth in the option agreement
have been satisfied.

          7.1.2     Conversion of Options on Stock for Stock Exchange. If the
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1. The amount and price of converted options shall
be determined by adjusting the amount and price of the options granted hereunder
in the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. Unless
accelerated by the Board, the vesting schedule set forth in the option agreement
shall continue to apply to the options granted for the Exchange Stock.

     7.2  Fractional Shares. In the event of any adjustment in the number of
shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.

     7.3  Determination of Board to Be Final. All Section 7 adjustments shall be
made by the Board, and its determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive. Unless an
Optionee agrees otherwise, any change or adjustment to an incentive stock option
shall be made in such a manner so as not to constitute a "modification' as
defined in Code Section 425(h) and so as not to cause his or her incentive stock
option issued hereunder to fail to continue to qualify as an incentive stock
option as defined in Code Section 422(b).

                                       9.
<PAGE>

SECTION 8.  Securities Regulation.

     Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, 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, including the
availability, if applicable, of an exemption from registration for the issuance
and sale of any shares hereunder. Inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares hereunder
or the unavailability of an exemption from registration for the issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.

     As a condition to the exercise of an option, the Company may require the
Optionee 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 relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.

     Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.

SECTION 9.  Amendment and Termination.

     9.1  Board Action. The Board may at any time suspend, amend or terminate
this Plan, provided that, to the extent required for compliance with Rule l6b-3
promulgated under Section 16(b) of the Exchange Act, Section 422 of the Code or
by any applicable law or regulation, the Company's shareholders must approve any
amendment which will:

          (a)  increase the number of shares that may be issued under this Plan;

          (b)  with respect to nonqualified stock options, materially modify the
requirements as to eligibility for participation in this Plan or, with respect
to incentive stock

                                      10.
<PAGE>

options, change the designation of the participants or class of participants
eligible for participation in this Plan;

          (c)  materially increase the benefits accruing to the participants
under this Plan; or

          (d)  otherwise require shareholder approval under any applicable law
or regulation.

     Such shareholder approval must be obtained (i) within 12 months of the
adoption by the Board of such amendment or (ii) if earlier, and to the extent
required for compliance with Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, at the next annual meeting of shareholders after such adoption by
the Board.

     Any amendment made to this Plan which would constitute a "modification" to
incentive stock options outstanding on the date of such amendment, shall not be
applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.

     9.2  Automatic Termination. Unless sooner terminated by the Board, this
Plan shall terminate ten years from the earlier of (a) the date on which this
Plan is adopted by the Board or (b) the date on which this Plan is approved by
the shareholders of the Company. No option may be granted after such termination
or during any suspension of this Plan. The amendment or termination of this Plan
shall not, without the consent of the option holder, alter or impair any rights
or obligations under any option theretofore granted under this Plan.

SECTION 10. Effectiveness of This Plan.

     This Plan shall become effective upon adoption by the Board so long as it
is approved by the Company's shareholders at any time within 12 months of such
adoption of this Plan or, if earlier, and to the extent required for compliance
with Rule 16b-3 under the Exchange Act, at the next annual meeting of
shareholders after adoption by the Board.

     Plan adopted by the Board of Directors on July 20, 1994 and approved by the
shareholders on August 29, 1994. Amended by the Board of Directors on February
22, 1995.

                                      11.<PAGE>

                                                                    Exhibit 10.7

                            PEET'S COMPANIES, INC.

                          1997 EQUITY INCENTIVE PLAN

                             Adopted May 23, 1997
                 Approved by Shareholders ______________, 1997

1.   Purposes.

     (a)  The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.

     (b)  The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.

     (c)  The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.

2.   Definitions.

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

     (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 in accordance
with subsection 3(c) of the Plan.

     (e)  "Company" means Peet's Companies, Inc., a Washington corporation.

     (f)  "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided

                                       1.
<PAGE>

that the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.

     (g)  "Continuous Status as an Employee, Director or Consultant" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board or the chief executive
officer of the Company may determine, in that party's sole discretion, whether
Continuous Status as an Employee, Director or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board or
the chief executive officer of the Company, including sick leave, military
leave, or any other personal leave; or (ii) transfers between the Company,
Affiliates or their successors.

     (h)  "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

     (i)  "Director" means a member of the Board.

     (j)  "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

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

     (l)  "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows (and in each case prior to the
Listing Date, in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations).

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

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

     (m)  "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

     (n)  "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been

                                       2.
<PAGE>

certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.

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

     (p)  "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.

     (q)  "Officer" means (i) prior to the Listing Date, any person designated
by the Company as an officer and (ii) from and after the Listing Date, 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.

     (r)  "Option" means a stock option granted pursuant to the Plan.

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

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

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

     (v)  "Plan" means this 1997 Equity Incentive Plan.

     (w)  "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.

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

                                       3.
<PAGE>

     (y)  "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.

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

3.   Administration.

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

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

          (i)   To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.

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

          (iii) To amend the Plan or a Stock Award as provided in Section 13.

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

     (c)  The Board may delegate administration of the Plan to a committee of
the Board composed of two (2) or more members (the "Committee"), all of the
members of which Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the Listing Date, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to a committee of one or more members of the
Board and the term "Committee" shall apply to any

                                       4.
<PAGE>

person or persons to whom such authority has been delegated. In addition,
notwithstanding anything in this Section 3 to the contrary, the Board or the
Committee may delegate to a committee of one or more members of the Board the
authority to grant Stock Awards to eligible persons who (x) are not then subject
to Section 16 of the Exchange Act and/or (y) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Stock Award, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.

4.   Shares Subject To The Plan.

     (a)  Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate Three Hundred Eighty Thousand (380,000) shares of
the Company's common stock.  If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan.

     (b)  The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

5.   Eligibility.

     (a)  Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.

     (b)  Prior to the Listing Date, no person shall be eligible for the grant
of an Option or an award to purchase restricted stock if, at the time of grant,
such person owns (or is deemed to own pursuant to Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any of its Affiliates unless the
exercise price of such Option is at least one hundred ten percent (110%) of the
Fair Market Value of such stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant, or in
the case of a restricted stock purchase award, the purchase price is at least
one hundred percent (100%) of the Fair Market Value of such stock at the date of
grant. From and after the Listing Date this provision shall apply only to
Incentive Stock Options.

     (c)  Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than One Hundred Fifty-Five Thousand (155,000) shares of the Company's
common stock in any calendar year.  This subsection 5(c) shall not apply prior
to the Listing Date and, following the Listing Date, shall not apply until (i)
the earliest of:  (A) the first material modification of the Plan (including any
increase to the number of shares reserved for issuance under the Plan in
accordance with Section 4); (B) the issuance of all of the shares of common
stock reserved for issuance under the Plan; (C) the expiration of the Plan; or
(D) the first meeting of shareholders at which directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which occurred the first registration of an equity security under section 12 of
the Exchange

                                       5.
<PAGE>

Act; or (ii) such other date required by Section 162(m) of the Code and the
rules and regulations promulgated thereunder.

6.   Option Provisions.

     Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate.  The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

     (a)  Term.  No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.

     (b)  Price.  The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Incentive Stock Option on the date of grant; the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Nonstatutory Stock
Option on the date of grant.  Notwithstanding the foregoing, an Option (whether
an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.

     (c)  Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment arrangement (however, in the event the Company
is then incorporated in the state of Delaware, then payment of the common
stock's "par value" as defined in the Delaware General Corporation Law shall not
be made by deferred payment), or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board. In the case of any deferred
payment arrangement, interest shall be compounded at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.

     (d)  Transferability.  Prior to the Listing Date, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person.  From and after the Listing Date, a Nonstatutory Stock Option
may be transferable to the extent provided in the Option Agreement; provided,
however, that if the Option Agreement does not specifically provide for
transferability, then such Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution.  Notwithstanding the
foregoing, the person to whom the Option is granted may, by

                                       6.
<PAGE>

delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.

     (e)  Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. Prior to the Listing Date,
the vesting provisions of individual Options may vary but in each case will
provide for vesting of at least twenty percent (20%) per year of the total
number of shares subject to the Option; provided, however, that an Option
granted to an Officer, Director or Consultant may become fully exercisable,
subject to reasonable conditions such as continued employment, at any time or
during any period established by the Company or of any of its Affiliates. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.

     (f)  Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise the Option (to the extent that the Optionee was entitled
to exercise it as of the date of termination) but only within such period of
time ending on the earlier of (i) the date thirty (30) days following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer period as specified in the Option Agreement), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement;
provided, however, if the Optionee is terminated for cause, then the Option
shall terminate on the date Optionee's Continuous Status as an Employee,
Director or Consultant ceases. If, at the date of termination, the Optionee is
not entitled to exercise the entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise the Option within the time specified in the Option Agreement, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.

     An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act.  Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the

                                       7.
<PAGE>

term of the Option set forth in the first paragraph of this subsection 6(f), or
(ii) the expiration of a period of three (3) months after the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant during which
the exercise of the Option would not be in violation of such registration
requirements.

     (g)  Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise the Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which prior
to the Listing Date shall not be less than six (6) months, specified in the
Option Agreement), or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, at the date of termination, the Optionee is not
entitled to exercise the entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise the Option
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.

     (h)  Death of Optionee. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
as of the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which
prior to the Listing Date shall not be less than six (6) months, specified in
the Option Agreement), or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise the entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.

     (i)  Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate. Prior to the Listing
Date, however, any unvested shares so purchased shall be subject to a repurchase
right in favor of the Company, with the repurchase price to be equal to the
original purchase price of the stock, or to any other restriction the Board
determines to be appropriate; provided, however, that (i) the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Option was
granted, and (ii) such right shall be exercisable only within (A) the ninety
(90)-day period following the termination of employment or the relationship as a
Director or Consultant, or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")),

                                       8.
<PAGE>

and (iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Notwithstanding the foregoing,
shares received on exercise of an Option by an Officer, Director or Consultant
may be subject to additional or greater restrictions.

     (j)  Right of Repurchase. The Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to repurchase all or
any part of the vested shares exercised pursuant to the Option; provided,
however, that (i) such repurchase right shall be exercisable only within (A) the
ninety (90)-day period following the termination of employment or the
relationship as a Director or Consultant (or in the case of a post-termination
exercise of the Option, the ninety (90)-day period following such post-
termination exercise), or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")), (ii) such repurchase right shall be exercisable for less than
all of the vested shares only with the Optionee's consent, and (iii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares at a repurchase price equal to the stock's Fair
Market Value at the time of such termination. Notwithstanding the foregoing,
shares received on exercise of an Option by an Officer, Director or Consultant
may be subject to additional or greater restrictions specified in the Option
Agreement.

     (k)  Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Such right of first refusal shall be exercised by the Company no more
than thirty (30) days following receipt of notice of the Optionee's intent to
transfer shares and must be exercised as to all the shares the Optionee intends
to transfer unless the Optionee consents to exercise for less than all the
shares offered. The purchase of the shares following exercise shall be completed
within thirty (30) days of the Company's receipt of notice of the Optionee's
intent to transfer shares, or such longer period of time as has been offered by
the person to whom the Optionee intends to transfer the shares, or as may be
agreed to by the Company and the Optionee (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock").

     (l)  Re-Load Options. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option Agreement, in whole or in part, by surrendering other shares of
common stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the stock subject to the Re-Load
Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option which is granted to a 10% shareholder (as described
in subsection 5(b)), shall have an exercise price which is equal to one hundred
ten percent (110%) of the Fair Market Value of the stock subject

                                       9.
<PAGE>

to the Re-Load Option on the date of exercise of the original Option and shall
have a term which is no longer than five (5) years.

     Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 11(e) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option.  Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and the limits on the grants of Options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.

7.   Terms Of Stock Bonuses And Purchases Of Restricted Stock.

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

     (a)  Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such Stock Award Agreement, but in no event shall the
purchase price be less than eighty-five percent (85%) of the stock's Fair Market
Value on the date such Stock Award is made. Notwithstanding the foregoing, the
Board or the Committee may determine that eligible participants in the Plan may
be awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.

     (b)  Transferability. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable only by will or the laws of descent and
distribution, so long as stock awarded under such Stock Award Agreement remains
subject to the terms of the agreement.

     (c)  Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment arrangement (however, in the event the Company is then
incorporated in the state of Delaware, then payment of the common stock's "par
value" as defined in the Delaware General Corporation Law shall not be made by
deferred payment), or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board or the Committee in its discretion. Notwithstanding the foregoing,
the Board or the Committee to which administration of the Plan has been
delegated may award stock pursuant to a stock bonus agreement in consideration
for past services actually rendered to the Company or for its benefit.

                                      10.
<PAGE>

     (d)  Vesting.  Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.  Prior
to the Listing Date, the applicable agreement shall provide (i) that the right
to repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Stock Award
was granted (except that a Stock Award granted to an Officer, Director or
Consultant may become fully vested, subject to reasonable conditions such as
continued employment, at any time or during any period established by the
Company or of any of its Affiliates), and (ii) such right shall be exercisable
only (A) within the ninety (90)-day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the holder of the Stock Award (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), and (iii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares.

     (e)  Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire,
subject to the limitations described in subsection 7(d), any or all of the
shares of stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.

8.   Cancellation And Re-Grant Of Options.

     (a)  The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock
Option) or, in the case of a 10% shareholder (as described in subsection 5(b))
receiving a new grant of an Incentive Stock Option (any Option if the
cancellation or repricing takes place prior to the Listing Date), not less than
one hundred ten percent (110%) of the Fair Market Value) per share of stock on
the new grant date. Notwithstanding the foregoing, the Board or the Committee
may grant an Option with an exercise price lower than that set forth above if
such Option is granted as part of a transaction to which section 424(a) of the
Code applies.

     (b)  Shares subject to an Option canceled under this Section 8 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 8, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 8(b) shall be applicable only to the extent required by Section
162(m) of the Code.

                                      11.
<PAGE>

9.   Covenants Of The Company.

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

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

10.  Use Of Proceeds From Stock.

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

11.  Miscellaneous.

     (a)  Subject to any applicable provisions of the California Corporate
Securities Law of 1968 and related regulations relied upon prior to the Listing
Date as a condition of issuing securities pursuant to the Plan, the Board shall
have the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will vest
pursuant to subsection 6(e) or 7(d), notwithstanding the provisions in the Stock
Award stating the time at which it may first be exercised or the time during
which it will vest.

     (b)  Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.

     (c)  Throughout the term of any Stock Award, the Company shall deliver to
the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This subsection shall not
apply (i) after the Listing Date, or (ii) when issuance is limited to key
employees whose duties in connection with the Company assure them access to
equivalent information.

     (d)  Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue serving as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause, the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director as provided in the

                                      12.
<PAGE>

Company's Bylaws and the provisions of the applicable laws of the Company's
state of incorporation, or the right to terminate the relationship of any
Consultant subject to the terms of such Consultant's agreement with the Company
or any Affiliate.

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

     (f)  The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(b), as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.

     (g)  To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of Company common
stock.

12.  Adjustments Upon Changes In Stock.

     (a)  If any change is made in the stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the

                                      13.
<PAGE>

maximum number of securities subject to award to any person during any calendar
year pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the type(s) and number of securities and price per
share of stock subject to such outstanding Stock Awards. Such adjustments shall
be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")

     (b)  In the event of a Change in Control (as defined herein):  (i) any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the shareholders in a Change
in Control) for those outstanding under the Plan, or (ii) in the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, (A) with respect to Stock Awards held by persons then performing services
as Employees, Directors or Consultants (and subject to any applicable provisions
of the California Corporate Securities Law of 1968 and related regulations), the
vesting (and, if applicable, the exercisability) of such Stock Awards shall be
accelerated prior to such event and the Stock Awards terminated if not exercised
at or prior to such event, and (B) with respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall be terminated if not
exercised prior to such event.

     (c)  For purposes of the Plan, a "Change in Control" shall mean:  (1) a
dissolution, liquidation or sale of all or substantially all of the assets of
the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
from and after the Listing Date, the acquisition by any person, entity or group
within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors.

13.  Amendment Of The Plan and Stock Awards.

     (a)  The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company to the extent shareholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 under the
Exchange Act or any Nasdaq or securities exchange listing requirements.

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

                                      14.
<PAGE>

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

     (d)  Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.

     (e)  The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.

14.  Termination Or Suspension Of The Plan.

     (a)  The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on May 22, 2007, which is the day prior to
the tenth anniversary of the date the Plan was adopted by the Board or approved
by the shareholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

     (b)  Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Stock Award was granted.

15.  Effective Date Of Plan.

     The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, the Stock Awards have been qualified or exempted from
qualification under the laws of the State of California.

                                      15.
<PAGE>

                            STOCK OPTION AGREEMENT

     Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice.

     Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of (i) Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act") and (ii)
Section 25102(o) of the California Corporations Code. Defined terms not
explicitly defined in this Stock Option Agreement but defined in the Plan shall
have the same definitions as in the Plan.

     The details of your option are as follows:

     1.   Vesting. Subject to the limitations contained herein, your option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Status as an Employee, Director or Consultant.

     2.   Method Of Payment.

          (a)  Payment Options. Payment of the exercise price by cash or check
is due in full upon exercise of all or any part of your option, provided that
you may elect, to the extent permitted by applicable law and the Grant Notice,
to make payment of the exercise price under one of the following alternatives:

               (i)    Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;

               (ii)   Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or

               (iii)  Payment by a combination of the above methods.

     3.   Exercise Prior To Vesting. If permitted in the Grant Notice, and
subject to the provisions of your option contained herein, you may elect, at any
time that is both (i) during your Continuous Status as an Employee, Director or
Consultant and (ii) during your option's term, to exercise all or part of your
option, including the unvested portion of your option; provided, however, that:

                                       1.
<PAGE>

               (i)    a partial exercise of your option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;

               (ii)   any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Company's form of Early Exercise Stock
Purchase Agreement;

               (iii)  you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and

               (iv)   your option shall not be exercisable with respect to any
unvested installment to the extent such exercise would cause the aggregate fair
market value of any shares subject to incentive stock options granted you by the
Company (valued as of their grant date) which would become exercisable for the
first time during any calendar year to exceed $100,000.

     4.   Whole Shares. Your option may only be exercised for whole shares.

     5.   Securities Law Compliance. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.

     6.   Term. The term of your option commences on the Date of Grant and
expires upon the earliest of:

               (i)    the Expiration Date indicated in the Grant Notice;

               (ii)   the tenth (10th) anniversary of the Date of Grant;

               (iii)  eighteen (18) months after your death, if you die during,
or within three (3) months after the termination of your Continuous Status as
Employee, Director or Consultant;

               (iv)   twelve (12) months after the termination of your
Continuous Status as Employee, Director or Consultant due to disability;

               (v)    immediately after the termination of your Continuous
Status as Employee, Director or Consultant for Cause; or

               (vi)   three (3) months after the termination of your Continuous
Status as an Employee, Director or Consultant for any other reason, provided
that if during any part of such three (3)-month period the option is not
exercisable solely because of the condition set forth in paragraph 5 (Securities
Law Compliance), in which event the option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of Continuous Status as an
Employee, Director or Consultant.

                                       2.
<PAGE>

     For these purposes, "Cause" shall include, but not be limited to, the
commission of any act of fraud, embezzlement or dishonesty, any unauthorized use
or disclosure of confidential information or trade secrets of the Company, or
any other intentional misconduct adversely affecting the business or affairs of
the Company in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Company may consider as
ground for your dismissal or discharge.

     To obtain the federal income tax advantages associated with an "incentive
stock option," the Code requires that at all times beginning on the grant date
of the option and ending on the day three (3) months before the date of the
option's exercise, you must be an employee of the Company, except in the event
of your death or permanent and total disability. The Company cannot guarantee
that your option will be treated as an "incentive stock option" if you exercise
your option more than three (3) months after the date your employment with the
Company terminates.

     7.   Exercise.

          (a)  You may exercise the vested portion of your option during its
term (and the unvested portion of your option if the Grant Notice so permits) by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require.

          (b)  By exercising your option you agree that:

               (i)    as a condition to any exercise of your option, the Company
may require you to enter an arrangement providing for the payment by you to the
Company of any tax withholding obligation of the Company arising by reason of
(1) the exercise of your option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3) the
disposition of shares acquired upon such exercise;

               (ii)   you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of an incentive stock option that occurs within two (2)
years after the Date of Grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option; and

               (iii)  the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act as may be requested by the Company or the representative of the
underwriters. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.

     8.   Transferability. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company,

                                       3.
<PAGE>

you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.

     9.   Right of First Refusal/Right Of Repurchase. Vested shares that are
received upon exercise of your option are subject to any right of first refusal
that may be described in the Company's bylaws in effect at such time the Company
elects to exercise its right. The Company's right of first refusal shall expire
on the date of the first registration of an equity security of the Company under
Section 12 of the Exchange Act. In addition, to the extent provided in the
Company's bylaws as amended from time to time, the Company shall have the right
to repurchase all or any part of the shares received pursuant to the exercise of
your option, which right shall be in addition to any right created by exercise
prior to vesting.

     10.  Option Not a Service Contract. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in your option shall obligate the Company, its shareholders, board of
directors, officers or employees to continue any relationship which you might
have as a director or consultant for the Company.

     11.  Notices. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.

     12.  Governing Plan Document. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option,
including without limitation the provisions of the Plan relating to option
provisions, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.

                                       4.

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