Document:

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EXHIBIT 10.6

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                                    TABLE OF CONTENTS

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1. THE PLAN.........................................................................  1

       1.1      Purpose.............................................................  1
       1.2      Administration......................................................  1
       1.3      Participation.......................................................  2
       1.4      Shares Subject to the Plan..........................................  2
       1.5      Documentation.......................................................  3
       1.6      Transfer and Other Limitations on Options...........................  3

2. OPTIONS..........................................................................  3

       2.1      Grants..............................................................  3
       2.2      Option Price........................................................  3
       2.3      Option Period.......................................................  3
       2.4      Vesting and Exercisability..........................................  3
       2.5      Manner of Exercise..................................................  4
       2.6      Payment Forms.......................................................  4
       2.7      Special Limit on Grant and Terms of ISOs............................  4
       2.8      ISO Notice of Sale Requirement......................................  4
       2.9      Limits on 10% Holders...............................................  4
       2.10     Option Repricing/Cancellation and Regrant/Waiver of Restrictions....  5

3. OTHER PROVISIONS.................................................................  5

       3.1      Rights of Eligible Persons, Participants and Beneficiaries..........  5
       3.2      Adjustments; Early Termination......................................  7
       3.3      Effect of Termination of Services; Termination of Subsidiary Status.  8
       3.4      Compliance; Government Regulations; Securities Laws.................  9
       3.5      Tax Withholding..................................................... 11
       3.6      Amendment, Termination and Suspension............................... 11
       3.7      Privileges of Stock Ownership....................................... 12
       3.8      Effective Date of the Plan.......................................... 12
       3.9      Term of the Plan.................................................... 12
       3.10     Governing Law....................................................... 12
       3.11     Captions............................................................ 12
       3.12     Non-Exclusivity of Plan............................................. 12
       3.13     Construction........................................................ 12

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4. DEFINITIONS...................................................................... 12

APPENDIX A: SECURITIES LAW INVESTMENT REPRESENTATIONS...............................A-1

APPENDIX B: FORM OF INCENTIVE STOCK OPTION AGREEMENT................................B-1

APPENDIX C: FORM OF NONQUALIFIED STOCK OPTION AGREEMENT.............................C-1

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                             COMBIMATRIX CORPORATION
                             1998 STOCK OPTION PLAN

1. THE PLAN.

         1.1 PURPOSE. The purpose of this Plan is to benefit the Company's
stockholders by encouraging high levels of performance by individuals who
contribute to the success of the Company and to enable the Company to attract,
motivate, retain and reward talented and experienced individuals. This purpose
is to be accomplished by providing Eligible Persons with an opportunity to
obtain or increase a proprietary interest in the Company and/or by providing
Eligible Persons with additional incentives to join or remain with the Company.
Capitalized terms are defined in Article 4.

         1.2 ADMINISTRATION.

                  1.2.1 COMMITTEE. This Plan shall be administered by the
         Committee, acting by majority vote or unanimous written consent.

                  1.2.2 AUTHORITY INTERPRETATION; POWERS OF COMMITTEE. Subject
         to the express provisions of this Plan, the Committee shall have the
         authority:

                           (i) to determine the particular Eligible Persons who
                  will receive Options;

                           (ii) to grant Options to Eligible Persons, determine
                  the price and amount of securities to be offered or awarded to
                  such persons, and determine the other specific terms and
                  conditions of such Options, establish the installments (if
                  any) in which such Options shall become vested or exercisable
                  (subject to Section 2.4), or determine that no delayed vesting
                  or exercisability is required, determine specific call rights
                  of the Corporation or affiliates, establish the events of
                  termination or forfeiture of such Options, and impose such
                  other restrictions on Options, consistent with the express
                  limits of this Plan, as the Committee deems appropriate;

                           (iii) to approve the forms of Option Agreements
                  (which need not be identical either as to type of Option or
                  among Participants);

                           (iv) to construe and interpret this Plan and
                  agreements defining the rights and obligations of the Company
                  and Participants under this Plan, to further define the terms
                  used in this Plan, and to prescribe, amend, and rescind rules
                  and regulations relating to the administration of this Plan;

                           (v) to cancel, modify, or waive the Company's rights
                  with respect to, or modify, discontinue, suspend, or terminate
                  any or all outstanding Options held by Participants, subject
                  to any required consent under Section 3.6.3 or 3.6.4;

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                           (vi) to accelerate the exercisability or the vesting
                  of any Option under such circumstances as the Committee shall
                  determine, including the occurrence of an Event, or to extend
                  the exercisability or extend the term of any or all
                  outstanding Options within the maximum 10-year term of Options
                  under Section 2.3 or (subject to Section 3.10) relax
                  restrictions on transfer of benefits under Options; and

                           (vii) to make all other determinations and take such
                  other action as contemplated by this Plan or as may be
                  necessary or advisable for the administration of this Plan and
                  the effectuation of its purposes.

                  1.2.3 BINDING DETERMINATIONS; RELIANCE. Subject only to
         compliance with the express provisions hereof, the Board and Committee
         may act in their absolute discretion in matters within their authority
         under this Plan (including, but not limited to, actions under Section
         1.2.2) and their determinations and interpretations shall be final and
         binding upon all persons. In determining whether to take any action
         permitted under the Plan, the Board or Committee may rely upon the
         advice of counsel, accountants, appraisers and other experts. No
         director, officer or agent of the Company shall be liable for any such
         action or determination taken or made or omitted in good faith.

                  1.2.4 DELEGATION. The Committee may delegate ministerial,
         non-discretionary functions to third parties, including officers or
         employees of the Company.

                  1.2.5 COMMITTEE ADMINISTRATION. The Board may, at any time (a)
         assume or change the administration of this Plan, (b) change the number
         of members of the Committee, and (c) change the membership of the
         Committee.

         1.3 PARTICIPATION. Options may be granted by the Committee only to
those persons that the Committee determines to be Eligible Persons. An Eligible
Person is not entitled to any Options hereunder. An Eligible Person who has been
granted an Option may, if otherwise eligible, be granted additional Options.

         1.4 SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section
3.2, the capital stock that may be delivered under this Plan shall be shares of
the Corporation's authorized but unissued Common Stock. The Shares may be
delivered for any lawful consideration, but not for less than the minimum lawful
consideration under California law.

                  1.4.1 NUMBER OF SHARES. The aggregate number of Shares that
         may be issued pursuant to all Options granted under this Plan,
         including ISOs, may not exceed _______ shares to all Eligible Persons.
         The aggregate number of Shares that may be subject to Options that are
         granted during any calendar year to any Eligible Person may not exceed
         _______ shares. The foregoing limits are subject to adjustment pursuant
         to Section 3.2.

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                  1.4.2 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED
         OPTIONS. Shares subject to outstanding Options shall be reserved for
         issue. Shares that are subject to or underlie Options which expire or
         for any reason are cancelled or terminated, are forfeited, fail to
         vest, or for any other reason are not paid or delivered under this
         Plan, as well as reacquired Shares, shall again, except to the extent
         prohibited by law, be available and reserved for subsequent Options
         under this Plan. The foregoing sentence does not apply to Shares
         withheld under Section 3.5.

         1.5 DOCUMENTATION. Each Option will be evidenced by an Option Agreement
the form of which must be approved by the Committee and signed by the Company,
and, if required by the Committee, by the Participant. The grant of an Option is
made on the Grant Date, unless the Committee specifies a later date. Each Option
shall be subject to the terms and conditions set forth in this Plan, a copy of
which will be provided to the Participant upon execution of an Option Agreement,
and on such other terms and conditions established by the Committee as are not
inconsistent with the specific provisions of this Plan and set forth in the
Option Agreement.

         1.6 TRANSFER AND OTHER LIMITATIONS ON OPTIONS. All Options shall be
subject to transfer and other limitations of Sections 3.1.3 and 3.1.4.

2. OPTIONS.

         2.1 GRANTS. One or more Options may be granted under this Article 2 to
any Eligible Person. Each Option shall be designated by the Committee in the
applicable Option Agreement as either a NQSO or an ISO. ISOs may be granted to
Eligible Persons who are employed by the Company or a corporation that is a
"parent" or "subsidiary" within the meaning of Section 424(e) and 424(f) of the
Code, respectively.

         2.2 OPTION PRICE. Except as provided in Sections 2.9 and 2.10, the
Purchase Price per Share covered by each Option will be determined by the
Committee at the time of the grant of the Option, but shall not be less than 85%
of the Fair Market Value of the Shares on the Grant Date (as determined
consistent with the requirements of Section 25102(o) of the California Corporate
Securities Law).

         2.3 OPTION PERIOD. Each Option shall expire on a date determined by the
Committee, but not later than 10 years after the Grant Date, and will be subject
to earlier termination as set forth in this Plan or the Option Agreement.

         2.4 VESTING AND EXERCISABILITY. Vesting and exercisability will be
determined by the Committee; provided, however, that any Option granted to
Participants other than officers, directors or consultants of the Company
pursuant to this Plan shall vest at a rate no slower than 20% of the Shares
subject to the Option on the first anniversary of the applicable Grant Date and
as to additional 20% increments on each of the second, third, fourth and fifth
anniversaries of the Grant Date, subject to adjustment pursuant to Section 3.2.
Once vesting occurs, Options shall remain exercisable until the expiration or
earlier termination of the Option.

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         2.5 MANNER OF EXERCISE. An Option shall only be exercisable in respect
of whole Shares, and fractional Share interests shall be disregarded. An Option
may only be exercised as to at least 100 Shares unless the number purchased is
the total number then exercisable under the Option. An exercisable Option may be
exercised, in whole or in part by delivery to the Secretary of the Corporation
of a written notice of election to exercise in a form approved by the Committee,
which notice shall specify the number of shares with respect to which the Option
is being exercised, together with payment of the Purchase Price and any
applicable tax withholding in accordance with Sections 2.7 and 3.5 and
satisfaction of any other conditions of the exercise. The date on which the
Corporation certifies the satisfaction of these conditions by written acceptance
of the notice, which certification shall not be unreasonably delayed or
withheld, shall be deemed to be the exercise date.

         2.6 PAYMENT FORMS. The Purchase Price must be paid in full at the time
of each exercise in cash equivalent or (to the extent authorized and approved by
the Committee or set forth in the applicable Option Agreement) one or a
combination of the following methods: (a) cash equivalent, (b) with shares of
Common Stock already owned by the Participant for at least six months, or (c) a
promissory note in a form and on such terms as the Committee may approve. Any
shares permitted to be used to satisfy the Purchase Price will be valued at
their Fair Market Value on the exercise date.

         2.7 SPECIAL LIMIT ON GRANT AND TERMS OF ISOS.

                  2.7.1 $100,000 LIMIT. To the extent that the aggregate Fair
         Market Value of stock with respect to which ISOs first become
         exercisable by a Participant in any calendar year exceeds the $100,000
         limit in Section 422 of the Code, such options shall be treated as
         nonqualified stock options. In reducing the number of options treated
         as ISOs to meet this limit, the Committee may, in the manner and to the
         extent permitted by law, designate which Shares are to be treated as
         Shares acquired pursuant to the exercise of an ISO.

                  2.7.2 OTHER CODE LIMITS. There shall be imposed in any Option
         Agreement relating to ISOs such terms and conditions as from time to
         time are required in order that the Option be an "incentive stock
         option" as that term is defined in Section 422 of the Code.

         2.8 ISO NOTICE OF SALE REQUIREMENT. Any employee who exercises an ISO
shall give prompt written notice to the Corporation of any sale or other
transfer of the Shares acquired within one year after the exercise date or two
years after the Grant Date.

         2.9 LIMITS ON 10% HOLDERS. No Options may be granted to any person who,
at the time the Option is granted, owns (or is deemed to own under Section
424(d) of the Code) Shares possessing more than 10% of the total combined voting
power of all classes of stock of the Company, unless the Purchase Price of the
Option is at least 110% of the Fair Market Value of the stock subject to the
Option. In the case of an ISO granted to such a person, such Option by its terms
shall not be exercisable after the expiration of five years from the Grant Date.

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         2.10 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS.
Subject to Section 1.4 and Section 3.6 and the specific limitations on Options
contained in this Plan, the Committee from time to time may authorize, generally
or in specific cases only, for the benefit of any Eligible Person any adjustment
in the Purchase Price, the vesting schedule, the number of Shares subject to,
the restrictions upon, or the term of, an Option granted under this Section 2 by
cancellation of an outstanding Option and a subsequent regranting of an Option,
by amendment, by substitution of an outstanding Option, by waiver or by other
legally valid means. Subject to Section 1.4 and Section 3.6 and the specific
limitations on Options contained in this Plan, such amendment or other action
may, among other changes, result in a Purchase Price which is higher or lower
than the Purchase Price of the original or prior Option (but subject to the
pricing limit on the date of the change), provide for a greater or lesser number
of Shares subject to the Option, or provide for a longer or shorter vesting or
exercise period.

3. OTHER PROVISIONS.

         3.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.

                  3.1.1 NO BINDING COMMITMENT. Options will not automatically or
         necessarily be granted to each person who is an Eligible Person.

                  3.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan
         (or any document related hereto) shall confer upon any Eligible Person
         or Participant any right to continue in the service or employ of the
         Company or constitute any contract or agreement of service or
         employment, or interfere in any way with the right of the Company to
         reduce such person's compensation or other benefits or to terminate the
         services or employment of such person, with or without cause.
         Similarly, nothing contained in this Plan (or any related document)
         shall affect any other contractual right of any Eligible Person or
         Participant, except as such other right may expressly provide. The
         Committee may, however, condition a grant upon a Participant's
         commitment to future or continued service.

                  3.1.3 LIMITATIONS ON TRANSFERABILITY OF OPTIONS. An
         exercisable Option may be exercised only by, and Shares deliverable
         pursuant to an Option will be delivered only to, the Participant or, if
         the Participant dies, to the Participant's Beneficiary. If a Personal
         Representative has been appointed for a Participant, payment or
         delivery will be made to the Personal Representative. Other than by
         will or the laws of descent and distribution, no Option, benefit
         payable or Shares deliverable under, or interest in, this Plan or in
         any Option shall be subject in any manner to anticipation, alienation,
         sale, transfer, assignment, pledge, encumbrance or charge, and any
         attempted action or transfer to that end shall be void. No such benefit
         or interest shall be, in any manner, liable for, or subject to, debts,
         contracts, liabilities, engagements or torts of any Eligible Person,
         Participant or Beneficiary. The Company shall disregard any attempted
         transfer, assignment or other alienation prohibited by the preceding
         sentence or other applicable law and shall pay or deliver Shares only
         in accordance with this Plan. Beneficiary designations authorized by
         the Committee are not subject to these restrictions.

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                  3.1.4 CORPORATION'S RIGHT TO REPURCHASE SHARES ON TERMINATION
         OF SERVICES. Shares acquired pursuant to an Option are subject to
         certain repurchase rights in favor of the Corporation as set forth in
         this Section 3.1.4. However, nothing in this Section 3.1.4 shall be
         construed so as to create an obligation on the part of the Corporation
         to repurchase any Shares from any Participant. The provisions of this
         Section 3.1.4 shall terminate upon the closing of a bona fide
         underwritten public offering and sale of at least ____% of the
         Corporation's Common Stock, or upon a reorganization or other event
         affecting the Corporation whereby it becomes a registered company in
         respect of its Common Stock under Section 12 of the Exchange Act.

                           (i) Upon a Participant's Termination of Services, the
                  Corporation shall have the right to purchase, and such
                  Participant shall be obligated to sell, any Shares acquired
                  pursuant to an Option, during a 90-day period beginning on
                  either: (i) the date of such termination, or (ii) in the case
                  of Shares purchased pursuant to the exercise of an Option
                  after a Participant's Termination of Services, the date of
                  such exercise (the "CALL PERIOD").

                           (ii) The purchase price for Shares repurchased
                  pursuant to this Section 3.1.4 shall be the Fair Market Value
                  of such Shares (as defined in the Plan) as of the date of the
                  commencement of the Call Period. The purchase price shall be
                  paid at the closing (which shall occur not later than the 10th
                  day after the Corporation exercises its call right and in any
                  event not later than the expiration of the Call Period) by
                  check or by virtue of the cancellation of purchase money
                  indebtedness for the Shares against surrender by the
                  Participant of a stock certificate evidencing the Shares with
                  duly endorsed stock powers. No adjustments shall be made to
                  the purchase price for fluctuations in the Fair Market Value
                  of the Shares during the Call Period.

                           (iii) Subject to the foregoing, the right of the
                  Corporation to repurchase and the obligation of a Participant
                  to sell the Shares to the Corporation under this Section 3.1.4
                  shall terminate after the expiration of the Call Period.

                           (iv) Notwithstanding any other provisions of the Plan
                  or this Section 3.1.4 to the contrary, the Corporation may
                  assign any or all of its repurchase rights under this Section
                  3.1.4 to one or more shareholders or successors of the
                  Corporation.

                           (v) Certificates representing all Shares issued under
                  the Plan will bear legends referring to the restrictions on
                  transfer and the repurchase and call rights of the Corporation
                  set forth herein and in the Plan.

                  3.1.5 NO TRUST OR FUND. No Participant, Beneficiary or other
         person shall have any right, title or interest in any fund or in any
         specific asset (including Shares) of the Company by reason of any
         Option. Neither this Plan nor any Option under it creates any trust or
         fiduciary relationship of any kind between the Company and any
         Participant, Beneficiary or other person. If a Participant, Beneficiary
         or other person acquires a right to receive anything other than Shares
         upon exercise of an Option, such right will be no greater than the
         right of any unsecured general creditor of the Company.

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                  3.1.6 CHARTER DOCUMENTS. The Articles of Incorporation and
         Bylaws of the Company, as either of them may be amended from time to
         time, may provide for additional restrictions and limitations with
         respect to Shares (including further restrictions and limitations on
         the transfer of Shares). To the extent that these restrictions and
         limitations are greater than those provided for in this Plan, such
         restrictions and limitations shall apply to Shares acquired pursuant to
         the exercise of Options and are incorporated herein by this reference.

         3.2 ADJUSTMENTS; EARLY TERMINATION. Any discretion with respect to any
of the events described in this Section 3.2 shall be limited to the extent
required by the applicable accounting requirements in the case of a transaction
intended to be accounted for as a pooling of interests transaction.

                  3.2.1 ADJUSTMENTS. If the outstanding Shares are changed into
         or exchanged for cash, other property or a different number or kind of
         shares or securities of the Company or of another issuer, or if
         additional Shares or new or different securities are distributed with
         respect to the outstanding Shares, through a reorganization or merger
         in which the Company is a party, or through a combination,
         consolidation, recapitalization, reclassification, stock split, stock
         dividend, reverse stock split, stock consolidation, extraordinary
         dividend or distribution of cash or property to the stockholders of the
         Company, or if there shall occur any other extraordinary corporate
         transaction or event in respect of the Common Stock or a sale of
         substantially all the assets of the Company as an entirety which in the
         judgment of the Committee materially affects the Common Stock, then the
         Committee shall, in such manner and to such extent (if any) as it deems
         appropriate and equitable, (a) proportionately adjust any or all of (i)
         the number and kind of Shares or other consideration that is subject to
         or may be delivered under this Plan and pursuant to outstanding
         Options, (ii) any performance standards appropriate to any outstanding
         Options, (iii) any exercise or base price (and other terms, in the
         discretion of the Committee, necessarily affected by such change) of
         outstanding Options, and/or (iv) the consideration payable with respect
         to Options granted prior to any such change; or (b) in the case of an
         extraordinary acquisition of Company stock, extraordinary dividend or
         other distribution, merger, reorganization, consolidation, combination,
         sale of assets, split up, exchange or spin off, make provision for a
         cash payment or for the substitution or exchange of (i) any or all
         outstanding Options or the cash, securities or property deliverable to
         the holder of any or all outstanding Options, for (ii) cash, property
         and/or other securities, based upon the distribution or consideration
         payable to holders of the Common Stock of the Company upon or in
         respect of such event; PROVIDED, HOWEVER, in each case, that with
         respect to awards of ISOs, no such adjustment shall be made which would
         cause this Plan to violate Section 424(a) of the Code or any successor
         provisions thereto. In any of such events, the Committee may take such
         action sufficiently prior to such event if necessary to permit the
         Participant to realize the benefits intended to be conveyed with
         respect to the underlying Shares in the same manner as stockholders
         generally.

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                  3.2.2 ACCELERATION OF OPTIONS UPON AN EVENT. As to any
         Participant, unless prior to an Event the Committee determines that,
         upon its occurrence, there shall be no acceleration of benefits under
         Options or determines that only certain or limited benefits under
         Options shall be accelerated and the extent to which they shall be
         accelerated, and/or establishes a different time in respect of such
         Event for such acceleration, then upon the occurrence of an Event, each
         Option shall become immediately exercisable. The Committee may override
         the limitations on acceleration in this Section 3.2.2 by express
         provision in the Option Agreement and may also accord any Participant a
         right to refuse any acceleration, whether or not pursuant to the Option
         Agreement or otherwise. The Committee may accelerate vesting and
         exercisability in anticipation of an Event or on a case by case or any
         other basis, in such circumstances as it deems appropriate and in the
         interests of the Company. Any acceleration of Options shall comply with
         applicable regulatory requirements, including without limitation
         Section 422 of the Code.

                  3.2.3 POSSIBLE EARLY TERMINATION OF ACCELERATED OPTIONS. If
         any Option or other right to acquire Shares under this Plan has been
         fully accelerated as required or permitted by Section 3.2.2 but is not
         exercised or has not vested prior to (i) a dissolution of the Company,
         or (ii) an event described in Section 3.2.1 involving an Event approved
         by the Board, such Option or right shall terminate, subject to any
         provision that has been made by the Committee through a plan of
         reorganization approved by the Board or otherwise for the survival,
         substitution, conversion, assumption, exchange or other settlement
         and/or adjustment of such Option or right pursuant to Section 3.2.1.

         3.3 EFFECT OF TERMINATION OF SERVICES; TERMINATION OF SUBSIDIARY
STATUS. Any Option, to the extent not then vested, shall terminate and become
null and void upon a Termination of Services of the Participant, except as set
forth below or otherwise expressly provided by the Committee in the Option
Agreement. Notwithstanding anything contained in this Section 3.3 to the
contrary, all Options shall be subject to earlier termination pursuant to or as
contemplated by Sections 2.3 and 3.2 of this Plan.

                  3.3.1 POST-SERVICE EXERCISE PERIODS ON TERMINATION OTHER THAN
         FOR CAUSE. Except as otherwise expressly provided in Section 2.4, 3.2,
         3.3.2 or 3.3.3 (and, with respect to officers, directors or consultants
         of the Company, except as the Committee may otherwise provide in the
         applicable Option Agreement), a Participant may exercise an Option that
         is exercisable on the date of the Participant's Termination of Services
         ("TERMINATION DATE") and has not been previously exercised and has not
         expired in accordance with its stated term, only to the extent it is
         vested and exercisable on the Termination Date, within the following
         periods:

                           (a) If the Participant incurs a Termination of
                  Services for any reason other than Death, Total Disability, or
                  a termination by the Company for Cause, the Participant will
                  have 30 days after the Termination Date to exercise an Option;
                  and

                           (b) If the Participant's Termination of Services
                  results from the Participant's death or Total Disability, or
                  if the Participant dies or suffers a Total Disability within
                  30 days after a termination described in Section 3.3.1(a), the
                  Participant, the Participant's Beneficiary or the
                  Participant's Personal Representative, as the case may be,
                  will have six months after the date of Total Disability or, if
                  earlier, the Termination Date.

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                  3.3.2 TERMINATION OF OPTION ON TERMINATION FOR CAUSE. Any and
         all rights to an Option, whether or not vested, shall expire
         immediately upon a Termination of Services of the Participant by the
         Company for Cause, as determined by the Company in its sole discretion
         and in accordance with applicable law.

                  3.3.3 ADJUSTMENTS TO EXERCISABLE PORTION. Notwithstanding the
         foregoing, if a Participant's Termination of Services results from any
         reason other than a termination for Cause, the Committee may, in its
         discretion, increase the portion of the Option exercisable by the
         Participant (or Participant's Beneficiary or Personal Representative,
         as the case may be) or extend the exercisability period upon such terms
         as the Committee shall determine.

                  3.3.4 EFFECT OF CESSATION OF SUBSIDIARY STATUS. If an entity
         ceases to be a Subsidiary, such action will be deemed for purposes of
         this Plan to be a Termination of Services of each Eligible Person of
         that entity who does not continue as an Eligible Person of the Company.

                  3.3.5 TERMINATION OF CONSULTING OR AFFILIATE SERVICES. If the
         Participant is not an employee but provides services under a written
         contract, or provides services to the Company solely as an employee of
         a designated affiliate of the Corporation (other than a Subsidiary),
         the Committee shall be the sole judge of whether the Participant
         continues to render services to the Company, unless the contract or
         Option Agreement otherwise provides. By written notice to the
         Participant, the Committee may determine whether a Termination of
         Services of such Participant for purposes of this Plan has occurred. In
         such event (unless the contract or Option Agreement otherwise expressly
         provides), the Participant's Termination of Services for purposes of
         Section 3.3 shall be the date which is 10 days after the Committee's
         mailing of the notice.

         3.4 COMPLIANCE; GOVERNMENT REGULATIONS; SECURITIES LAWS.

                  3.4.1 GENERAL. This Plan, the grant, vesting and
         exercisability of Options, the issuance or transfer of Shares, and the
         payment of money pursuant thereto are subject to compliance with all
         applicable federal and state laws and rules and to such approvals by
         any regulatory or governmental agency that may, in the judgment of the
         Committee, be necessary or advisable. These laws and rules include but
         are not limited to those laws and rules regulating the offer, issuance,
         and sale of securities, securities lending, conflicts of interest and
         tax matters. In connection with any stock issuance or transfer, the
         person acquiring the Shares must, if requested, give assurances
         satisfactory to the Committee in respect of such matters as the Board
         deems desirable to assure compliance with all applicable legal
         requirements (including but not limited to federal and state securities
         law matters).

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                  3.4.2 COMPLIANCE WITH SECURITIES LAWS. No Participant shall
         make any disposition of all or any portion of Shares acquired upon
         exercise of an Option, except in compliance with applicable federal and
         state securities laws and unless and until:

                           (a) there is then in effect a registration statement
                  under the Securities Act of 1933, as amended (the "SECURITIES
                  ACT") covering such proposed disposition and such disposition
                  is made in accordance with such registration statement; or

                           (b) such disposition is made in accordance with Rule
                  144 under the Securities Act; or

                           (c) such Participant notifies the Company of the
                  proposed disposition and furnishes the Company with a
                  statement of the circumstances surrounding the proposed
                  disposition, and if requested by the Company, Participant
                  furnishes the Company with an opinion of counsel acceptable to
                  Company's counsel, that such disposition will not require
                  registration under the Securities Act and will be in
                  compliance with applicable state securities laws.

                           NOTWITHSTANDING ANYTHING ELSE CONTAINED HEREIN OR IN
         ANY RELATED DOCUMENT TO THE CONTRARY, THE COMPANY HAS NO OBLIGATION TO
         REGISTER THE COMMON STOCK OR FILE ANY REGISTRATION STATEMENT UNDER
         EITHER FEDERAL OR STATE SECURITIES LAWS, NOR DOES THE COMPANY MAKE ANY
         REPRESENTATION CONCERNING THE LIKELIHOOD OF A PUBLIC OFFERING OF THE
         COMMON STOCK.

                  3.4.3 FINANCIAL STATEMENT DELIVERY. The Company shall deliver
         annually to Participants financial statements of the Company sufficient
         to satisfy the requirements of Section 260.140.46 of the Regulations
         adopted under the California Corporate Securities Law, to the extent
         (if any) applicable to the Participants or this Plan.

                  3.4.4 INVESTMENT REPRESENTATIONS. By acceptance and execution
         of his or her Option Agreement and again upon exercise of his or her
         Option (unless the Company is then a Public Company or waives this
         requirement), each Participant makes and agrees to reaffirm the
         representations contained in Appendix A hereto to the Company and
         acknowledges that the Company's reliance on federal and state
         securities law exemptions from registration and qualification is
         predicated, in part, on such representations.

         3.5 TAX WITHHOLDING. Upon and as a condition precedent to any exercise,
vesting, or payment of any Option, the Company has the right at its option to
require payment through cash withholding of other compensation or (if
withholding would not timely discharge the obligation) by check (in form
acceptable to the Company) payable to the Company of the amount of any taxes
that the Company may be required to withhold with respect to such transaction.
If a tax is required to be withheld in connection with the issuance or transfer
of Shares, the Committee may authorize the Participant to elect, subject to
prior Board approval at or prior to the offset, to have the Company reduce the
number of Shares to be issued by the number of Shares (valued at Fair Market
Value) necessary to accomplish such withholding.

                                       10
<PAGE>

         3.6 AMENDMENT, TERMINATION AND SUSPENSION.

                  3.6.1 AMENDMENT, TERMINATION AND SUSPENSION. The Board may, at
         any time, terminate or, from time to time, amend, modify or suspend
         this Plan, in whole or in part. No Option may be granted during the
         suspension of this Plan or after termination of this Plan, but the
         Committee shall retain jurisdiction as to Options then outstanding in
         accordance with the terms of this Plan.

                  3.6.2 SHAREHOLDER APPROVAL. No amendment to the Plan shall be
         required to be submitted to the shareholders of the Company for their
         approval unless such shareholder approval of the amendment is required
         pursuant to applicable law.

                  3.6.3 AMENDMENT OF OPTIONS. Without limiting any other express
         authority of the Committee under, but subject to the express limits of,
         this Plan, the Committee by agreement or resolution may waive
         conditions of or limitations on Options to Eligible Persons that the
         Committee in the prior exercise of its discretion has imposed, without
         the consent of a Participant, and may make other changes to the terms
         and conditions of Options that do not affect, in any manner materially
         adverse to the Participant, his or her rights and benefits under an
         Option.

         NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SECTION 3.6.3 OR
         SECTION 3.6.4, IF THE ACCOUNTING TREATMENT UNDER GENERALLY ACCEPTED
         ACCOUNTING PRINCIPLES OF ANY OPTION GRANTED HEREUNDER WOULD BE
         MATERIALLY MORE ADVERSE TO THE COMPANY WITH RESPECT TO ITS ABILITY TO
         RAISE ADDITIONAL CAPITAL THAN ANTICIPATED AT THE TIME OF APPROVAL OF
         THIS PLAN OR THE OPTION BECAUSE OF A CHANGE IN THOSE PRINCIPLES OR THE
         INTERPRETATION OR APPLICATION THEREOF, THE COMMITTEE MAY, IN THE
         EXERCISE OF ITS DISCRETION AND WITHOUT THE CONSENT OF THE PARTICIPANT,
         AMEND THE TERMS OF SUCH OPTION TO THE EXTENT THE COMMITTEE DEEMS
         NECESSARY TO ELIMINATE SUCH EFFECT.

                  3.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND OPTIONS. Subject
         to Section 3.6.3., no amendment, suspension or termination of this Plan
         or change of or affecting any outstanding Option shall, without written
         consent of the Participant, affect in any manner materially adverse to
         the Participant any rights or benefits of the Participant or
         obligations of the Company under any Option granted under this Plan
         prior to the effective date of such change. Changes contemplated by
         Section 3.2 or 3.3 shall not be deemed to constitute changes or
         amendments requiring Participant consent under Section 3.6.3 or Section
         3.6.4.

         3.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly
authorized by the Committee or this Plan, a Participant shall not be entitled to
any privilege of stock ownership as to any Shares that the Participant does not
possess or hold of record. No adjustment will be made for dividends or other
rights as a shareholder for which a record date is prior to the date of delivery
of a certificate representing the Shares.

                                       11
<PAGE>

         3.8 EFFECTIVE DATE OF THE PLAN. This Plan will be effective upon its
approval by the Board, subject to approval by the shareholders of the Company
within 12 months after the date of such Board approval.

         3.9 TERM OF THE PLAN. Unless previously terminated by the Board, this
Plan will terminate at the close of business on the date which is the day before
the 10th anniversary of the adoption of the Plan by the Board, and no Option may
be granted under this Plan after that date. Unless otherwise expressly provided
in this Plan or in an applicable Option Agreement, any Option theretofore
granted may extend beyond such date, and all authority of the Board and the
Committee with respect to Options hereunder, including its authority to amend an
Option, shall continue in respect of outstanding Options on that date.

         3.10 GOVERNING LAW. This Plan and all documents related hereto shall be
governed by, and construed in accordance with, the laws of the State of
California. If any provision is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions of this Plan will continue
to be fully effective.

         3.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of this Plan or any provision thereof.

         3.12 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board or the Committee to grant awards or
to authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.

         3.13 CONSTRUCTION.. At the time of the adoption of this Plan, the
Company is not a Public Company. This Plan, and the granting of Options under
this Plan, is intended to satisfy the requirements of Rule 701 under the
Securities Act and Section 25102(o) of the California Corporate Securities Law
and shall be construed and interpreted in accordance with such intent.

4. DEFINITIONS.

                  "ACACIA GROUP" means (i) Acacia Research Corporation, (ii) any
affiliate of Acacia Research Corporation (as the term "affiliate" and "control"
as used therein are defined in Rule 405 under the Securities Act), and (iii) any
employee benefit plan (or related trust) sponsored or maintained by one or more
of the foregoing, or their respective successors.

                  "AFFILIATE" of any entity means any other entity controlled
by, controlling or under common control with the subject entity (where "control"
means the possession, direct or indirect, of the power to direct or cause the
direction of the management, policies or actions of the controlled person).

                  "BENEFICIARY" means the person(s) or trust(s) entitled by will
or the laws of descent and distribution or properly designated by a Participant
on forms approved by the Committee to receive the benefits specified under this
Plan if the Participant dies.

                                       12
<PAGE>

                  "BOARD" means the Board of Directors of the Corporation.

                  "CAUSE" means that the Company, acting in good faith,
determines that the Participant: (a) has committed a material breach of the
Participant's duties and responsibilities (other than as a result of incapacity
due to a Total Disability) or any employment agreement with the Company and the
breach is willful or arises out of the Participant's gross negligence; or (b)
has been convicted of a felony, or entered a plea of guilty or nolo contendere
with respect to a felony; or (c) has repeatedly engaged or is engaging in
immoderate use of alcoholic beverages or narcotics or other substance abuse; or
(d) has violated in any material respect any of the legal or regulatory
provisions applicable to the Company or has violated any fiduciary duty or duty
of care, loyalty or confidentiality owed to the Company.

                  "CHANGE OF CONTROL" means any of the following events:

                  (i) an acquisition by any Person (excluding one or more
         members of the Acacia Group) of beneficial ownership (within the
         meaning of Rule 13d-3 under Exchange Act) of or a pecuniary interest in
         (either comprising "OWNERSHIP OF") more than 50% of the Corporation's
         Common Stock or voting securities ("VOTING STOCK"), after giving effect
         to any new issue in the case of an acquisition from the Corporation, if
         one or more members of the Acacia Group (after giving effect to the
         acquisition) has ownership of ("owns") less than the aggregate amount
         owned by such acquiring Person;

                  (ii) the consummation of a complete liquidation or dissolution
         of the Corporation;

                  (iii) the consummation of a merger, consolidation,
         reorganization or sale or other disposition of all or substantially all
         of the Company's assets as an entirety (collectively, a "BUSINESS
         COMBINATION"), other than a Business Combination (A) in which all or
         substantially all of the holders of Voting Stock hold or receive 50% or
         more of the voting stock of the entity resulting from the Business
         Combination and (B) after which no Person owns more than 50% of the
         voting stock of the resulting entity who did not own directly or
         indirectly at least that amount of Voting Stock immediately before the
         Business Combination or

                  (iv) the Acacia Group ceases to own, directly or indirectly,
         at least 25% of the Voting Stock or at least 25% of the voting stock of
         an entity resulting from a Business Combination.

                  "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMITTEE" shall mean a committee appointed by the Board to
administer this Plan, which committee shall be comprised of two or more
directors. In the absence of such appointment, the Board shall be the Committee.

                                       13
<PAGE>

                  "COMMON STOCK" means the Common Stock of the Corporation.

                  "COMPANY" means the Corporation, any Subsidiary, and any other
affiliate of the Corporation designated by the Committee.

                  "CORPORATION" means CombiMatrix Corporation, a California
corporation, and its successors.

                  "ELIGIBLE PERSON" means (i) an officer, a director or a key
employee of the Company; or (ii) any consultant who renders or has rendered bona
fide substantial services to the Company (other than services in connection with
the offering or sale of securities of the Company in a capital raising
transaction) under a written contract with the Company, and who is selected to
participate in the Plan by the Committee.

                  "EVENT" means (i) approval by the shareholders of the
Corporation of (A) the dissolution or liquidation of the Corporation, or (B) a
Change of Control described in clause (ii) or (iii) of the definition thereof;
or (ii) a Change of Control described in clause (i) or (iv) of the definition
thereof.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time.

                  "FAIR MARKET VALUE" on any specified date shall mean the fair
value of such Shares on such date determined in the following manner:

                  (i) If the Common Stock is not registered under Section 12 of
         the Exchange Act, or the National Association of Securities Dealers,
         Inc. ("NASD") or a similar organization does not furnish the mean
         between the bid and asked prices for the Common Stock on such date, the
         fair value of the Common Stock as of the date of determination, on a
         consolidated, fully diluted basis, assuming the exercise of any and all
         outstanding rights or options (whether or not vested) to purchase or
         acquire Common Stock, including but not limited to rights under this
         Plan, as determined in good faith by the Committee, based on the most
         recent available quarterly financial statements of the Company and such
         other factors as the Committee may deem relevant for such purposes.
         Such factors may (and, to the extent required by Section 3.4 shall)
         include but are not limited to, the liquidity of the Common Stock and
         any applicable transfer and other restrictions on the subject shares
         (including call rights of the Corporation to which the shares are
         subject), material developments subsequent to the end of the period
         covered by such financial statements, developments in the Company's
         business, general or specific industry and economic developments, the
         price at which the Shares of the Common Stock recently have traded or
         been sold or purchased, the frequency and volume of trades, the price
         at which securities of reasonably comparable corporations (if any) in
         the same industry are being traded (subject to appropriate adjustments
         for dissimilarities between the corporations being compared), and the
         earnings history, cash flow, book value and prospects of the Company in
         light of market conditions generally and conditions specific to the
         Company.

                                       14
<PAGE>

                  (ii) If the Common Stock is registered under Section 12 of the
         Exchange Act: (A) if the stock is listed or admitted to trade on a
         national securities exchange, the closing price of the stock on the
         Composite Tape, as published in the Western Edition of the Wall Street
         Journal, of the principal national securities exchange on which the
         stock is so listed or admitted to trade, on such date, or, if there is
         no trading of the stock on such date, then the closing price of the
         stock as quoted on such Composite Tape on the next preceding date on
         which there was trading in such shares; (B) if the stock is not listed
         or admitted to trade on a national securities exchange, the last price
         for the stock on such date, as furnished by the NASD through the NASDAQ
         National Market Reporting System or a similar organization if the NASD
         is no longer reporting such information; (C) if the stock is not listed
         or admitted to trade on a national securities exchange and is not
         reported on the National Market Reporting System, the mean between the
         bid and asked price for the stock on such date, as furnished by the
         NASD or a similar organization.

                  "GRANT DATE" means the date upon which the Committee took the
action granting an Option or such later date as may be set by the Committee.

                  "ISO" means an Option which is intended, as evidenced by its
designation, as an incentive stock option within the meaning of Section 422 of
the Code, the award of which contains such provisions (including but not limited
to receipt of stockholder approval of the Plan, if the Option is made prior to
such approval) and is made under such circumstances and to such persons as may
be necessary to comply with that section.

                  "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who
is not an officer or employee of the Corporation.

                  "NQSO" means an Option that is designated as a nonqualified
stock option and shall include any Option intended as an ISO that fails to meet
applicable legal requirements. Any Option granted hereunder that is not
designated as an incentive stock option shall be deemed to be designated a NQSO
under this Plan and not an incentive stock option under the Code.

                  "OPTION" means an option to purchase Shares under this Plan.

                  "OPTION AGREEMENT" means a writing, approved by the Committee,
setting forth the terms of an Option. Option Agreements for ISOs shall include
any terms and conditions required for incentive stock options under Section 422
of the Code.

                  "PARTICIPANT" means an Eligible Person who has been granted an
Option.

                  "PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
governmental entity and a "person" as that term is used under Section 13(d) or
14(d) of the Exchange Act.

                                       15
<PAGE>

                  "PERSONAL REPRESENTATIVE" means the person or persons who,
upon the Total Disability or incompetence of a Participant, has lawfully
acquired on behalf of the Participant the power to exercise the rights and
receive the benefits specified in this Plan.

                  "PLAN" means this CombiMatrix Corporation 1998 Stock Option
Plan.

                  "PUBLIC COMPANY" means a company the Common Stock of which is
registered under the Exchange Act.

                  "PURCHASE PRICE" means the exercise price expressed in dollars
payable by the Participant to the Company upon exercise of an Option in
accordance with the applicable Option Agreement.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.

                  "SHARES" means shares of the Corporation's Common Stock.

                  "SUBSIDIARY" means any corporation or other entity at least
50% of the outstanding voting stock or voting power of which is beneficially
owned directly or indirectly by the Company, subject to Section 3.4 and (in the
case of ISOs) to limitations under Section 422 of the Code.

                  "TERMINATION OF SERVICES" means any termination (by reason of
death, Total Disability, or any other reason whatsoever, either with or without
cause, unless otherwise specified) of a Participant's employment with the
Company or, if the person is not an employee and the Participant's services to
the Company are provided (or continue) under a written consulting contract, a
Termination of Services in accordance with Section 3.3.5. Termination of
Services may be deemed by the Committee not to occur if the Participant, after
terminating employment or service in one capacity, continues to provide service
to the Company under a written contract in another consulting capacity
authorized in writing and approved by the Committee. Status as an employee of
the Company is deemed to be in service. Termination of employment shall be
deemed a Termination of Services except as above provided.

                  "TOTAL DISABILITY" means a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions, or conditions as the Board may include.

                                       16
<PAGE>

                             COMBIMATRIX CORPORATION
                             1998 STOCK OPTION PLAN

                                   APPENDIX A

                    SECURITIES LAW INVESTMENT REPRESENTATIONS

1.       NO INTENT TO SELL.

                  The Participant represents that he/she is acquiring the Option
and if and when he/she exercises the Option will acquire any Shares solely for
his/her own account, for investment purposes only, and not with a view to or an
intent to sell, or to offer for resale in connection with any unregistered
distribution of all or any portion of the Shares within the meaning of the
Securities Act or the California Corporate Securities Law.

2.       NO RELIANCE ON CORPORATION.

                  In evaluating the merits and risks of an investment in the
Shares, the Participant represents that he/she has and will rely upon the advice
of his/her own legal counsel, tax advisors, and/or investment advisors.

3.       RISK OF LOSS.

                  The Participant represents that he/she is aware that the
Option may be of no practical value, that any value it may have depends on its
vesting and exercisability as well as an increase in the Fair Market Value of
the underlying Shares from the Grant Date to the date of exercise, and that any
investment in shares of a closely held corporation such as the Corporation is
non-marketable, non-transferable and could require his/her capital to be
invested for an indefinite period of time, possibly without return and at risk
of loss.

4.       RESTRICTIONS ON SHARES.

                  The Participant represents that he/she understands that any
Shares acquired on exercise of the Option will be characterized as "restricted
securities" under the federal securities laws since the Shares are being
acquired from the Corporation in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act only in certain limited
circumstances. The Participant acknowledges receiving a copy of Rule 144
promulgated under the Securities Act, as presently in effect, and represents
that he/she is familiar with such rule, and understands the resale limitations
imposed thereby and by the Securities Act and the California Corporate
Securities Law.

                                      A-1
<PAGE>

5.       ADDITIONAL RESTRICTIONS.

                  The Participant represents that he/she has read and
understands the restrictions and limitations imposed on the Option and any
Shares which may be acquired thereunder, including, but not limited to, the
following: (i) the termination provisions of Sections 3.2.3 and 3.3 of the Plan;
(ii) the non-transferability provisions of Section 3.1.3 of the Plan; and (iii)
the Corporation's repurchase rights of Section 3.1.4 of the Plan.

6.       NO CORPORATION REPRESENTATIONS.

                  The Participant represents that at no time was an oral
representation made to him/her relating to the Option or the purchase of Shares
and that he/she was not presented with or solicited by any promotional meeting
or material relating to the Option or the Shares.

7.       SHARE CERTIFICATE LEGEND.

                  The Participant represents that he/she understands and
acknowledges that any certificate evidencing the Shares (or evidencing any other
securities issued with respect thereto pursuant to any stock split, stock
dividend, merger or other form of reorganization or recapitalization) if and
when issued shall bear, in addition to any other legends which may be required
by applicable state securities laws, the following legends:

                  "THE SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER AND VOTING OF
                  THE SHARES REPRESENTED BY THIS CERTIFICATE OR ANY INTEREST
                  THEREIN ARE SUBJECT TO AN AGREEMENT DATED _________________,
                  ____ (A SIGNED COPY OF WHICH IS ON FILE AT THE OFFICE OF
                  COMBIMATRIX CORPORATION), AND THE SHARES ARE SUBJECT TO
                  REPURCHASE RIGHTS OF THE CORPORATION AS PROVIDED THEREIN.

                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT") NOR HAVE
                  THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
                  ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED
                  UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS
                  TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE
                  144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL TO THE
                  CORPORATION, REGISTRATION UNDER THE ACT IS UNNECESSARY IN
                  ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH
                  APPLICABLE STATE SECURITIES LAWS."

                                      A-2

<PAGE>

                    AMENDMENTS TO THE COMBIMATRIX CORPORATION

                             1998 STOCK OPTION PLAN

         These Amendments to the CombiMatrix Corporation 1998 Stock Option Plan
(the "Plan") were approved by resolutions of the Board of Directors of the
Corporation on July 5, 2000.

         1. Section 1.4.1 of the Plan is hereby deleted in its entirety and is
hereby replaced in its entirety with the following:

                  The aggregate number of Shares that may be issued pursuant to
                  all Options granted under this Plan, including ISOs, may not
                  exceed 5,000,000 Shares to all Eligible Persons. The aggregate
                  number of Shares that may be subject to Options that are
                  granted during any calendar year to any Eligible Person may
                  not exceed 5,000,000 Shares. The foregoing limits are subject
                  to adjustment pursuant to Section 3.2.

                     [Remainder of page intentionally blank]

<PAGE>

                 SECOND AMENDMENT TO THE COMBIMATRIX CORPORATION

                             1998 STOCK OPTION PLAN

                              W I T N E S S E T H:

         WHEREAS, CombiMatrix Corporation (the "Company") presently maintains
the CombiMatrix Corporation 1998 Stock Option Plan which became effective on
____________, 1998 (the "Plan"); and

         WHEREAS, the Company, pursuant to Section 3.6 of the Plan, has the
right to amend the Plan from time to time subject to certain limitations; and

         WHEREAS, effective September 14, 2000 ("Effective Date"), the Company
changed from being a California corporation to become a Delaware corporation;
and

         WHEREAS, the Company desires to amend the Plan so that the Options (as
defined in the Plan) granted after the Effective Date are subject to the laws of
the state of Delaware.

         NOW, THEREFORE, in order to make certain revisions desired by the
Company, the Plan is hereby amended in the following manner:

         1. Effective as of the Effective Date, Section 1.4 of the Plan is
hereby amended in its entirety to read as follows:

                  1.4 SHARES SUBJECT TO THE PLAN. Subject to the provisions of
                  Section 3.2, the capital stock that may be delivered under
                  this Plan shall be shares of the Corporation's authorized but
                  unissued Common Stock. The Shares may be delivered for any
                  lawful consideration, but not for less than the minimum lawful
                  consideration under Delaware law.

         2. Effective as of the Effective Date, Section 2.2 of the Plan is
hereby amended in its entirety to read as follows:

                  2.2 OPTION PRICE. Except as provided in Sections 2.9 and 2.10,
                  the Purchase Price per Share covered by each Option will be
                  determined by the Committee at the time of the grant of the
                  Option, but shall not be less than 85% of the Fair Market
                  Value of the Shares on the Grant Date.

         3. Effective as of the Effective Date, Section 2.6 of the Plan is
hereby amended in its entirety to read as follows:

                  2.6 PAYMENT FORMS. The Purchase Price must be paid in full at
                  the time of each exercise (to the extent authorized and
                  approved by the Committee or set forth in the applicable
                  Option Agreement): (a) cash or immediately available funds
                  (including wire transfer, personal check, cashier's checks,
                  postal or express money order or bank draft), (b) with shares

<PAGE>

                  of Common Stock already owned by the Participant for at least
                  six months, or (c) a promissory note (but not a non-recourse
                  promissory note) that bears a market rate of interest in a
                  form and on such terms as the Committee may approve. Any
                  shares permitted to be used to satisfy the Purchase Price will
                  be valued at their Fair Market Value on the exercise Date.
                  Additionally, in the discretion of the Committee, payment for
                  any shares subject to an Option may also be made by delivering
                  a properly executed exercise notice to the Company, together
                  with a copy of irrevocable instructions to a broker to deliver
                  promptly to the Company the amount of sale or loan proceeds
                  necessary to pay the purchase price, and, if requested, the
                  amount of any federal, state, local or foreign withholding
                  taxes. To facilitate the foregoing, the Company may enter into
                  agreements for coordinated procedures with one or more
                  brokerage firms.

         4. Effective as of the Effective Date, Section 3.4.3 of the Plan is
intentionally omitted from the Plan.

         5. Effective as of the Effective Date, the first sentence in Section
3.10 is hereby amended to read as follows:

                  3.10 GOVERNING LAW. This Plan and all documents related hereto
                  shall be governed by, and construed in accordance with, the
                  laws of the State of Delaware. If any provision is held by a
                  court of competent jurisdiction to be invalid and
                  unenforceable, the remaining provisions of this Plan will
                  continue to be fully effective.

         6. Effective as of the Effective Date, the last sentence of Section
3.13 is hereby amended in its entirety to read as follows:

                  This Plan, and the granting of Options under this Plan, is
                  intended to satisfy the requirements of Rule 701 under the
                  Securities Act and applicable Delaware corporate securities
                  law and shall be construed and interpreted in accordance with
                  such intent.

         7. Effective as of the Effective Date, the definition of "Corporation"
under Section 4 of the Plan is hereby amended to read as follows:

                  CORPORATION means CombiMatrix Corporation, a Delaware
                  corporation, and its successors.

         8. Effective as of the Effective Date, Appendix A to the Plan shall be
the Appendix A attached hereto.

                                       -2-
<PAGE>

         IN WITNESS WHEREOF, CombiMatrix Corporation has caused this Second
Amendment to the CombiMatrix 1998 Stock Option Plan to be executed on this
______ day of __________, 2000.

                                            COMBIMATRIX CORPORATION

                                            By:
                                                --------------------------------

<PAGE>

                 COMBIMATRIX CORPORATION 1998 STOCK OPTION PLAN

                                   APPENDIX A

                    SECURITIES LAW INVESTMENT REPRESENTATIONS

1.       NO INTENT TO SELL.

         The Participant represents that he/she is acquiring the Option and if
and when he/she exercises the Option will acquire any Shares solely for his/her
own account, for investment purposes only, and not with a view to or an intent
to sell, or to offer for resale in connection with any unregistered distribution
of all or any portion of the Shares within the meaning of the Securities Act or
the security laws of Delaware.

2.       NO RELIANCE ON CORPORATION.

         In evaluating the merits and risks of an investment in the Shares, the
Participant represents that he/she has and will rely upon the advice of his/her
own legal counsel, tax advisors, and/or investment advisors.

3.       RISK OF LOSS.

         The Participant represents that he/she is aware that the Option may be
of no practical value, that any value it may have depends on its vesting and
exercisability as well as an increase in the Fair Market Value of the underlying
Shares from the Grant Date to the date of exercise, and that any investment in
shares of a closely held corporation such as the Corporation is non-marketable,
non-transferable and could require his/her capital to be invested for an
indefinite period of time, possibly without return and at risk of loss.

4.       RESTRICTIONS ON SHARES.

         The Participant represents that he/she understands that any Shares
acquired on exercise of the Option will be characterized as "restricted
securities" under the federal securities laws since the Shares are being
acquired from the Corporation in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act only in certain limited
circumstances. The Participant acknowledges receiving a copy of Rule 144
promulgated under the Securities Act, as presently in effect, and represents
that he/she is familiar with such rule, and understands the resale limitations
imposed thereby and by the Securities Act and the security law.

5.       ADDITIONAL RESTRICTIONS.

         The Participant represents that he/she has read and understands the
restrictions and limitations imposed on the Option and any Shares which may be
acquired thereunder, including, but not limited to, the following: (i) the
termination provisions of Sections 3.2.3 and 3.3 of the Plan; (ii) the
non-transferability provisions of Section 3.1.3 of the Plan; and (iii) the
Corporation's repurchase rights of Section 3.1.4 of the Plan.

                                      A-1
<PAGE>

6.       NO CORPORATION REPRESENTATIONS.

         The Participant represents that at no time was an oral representation
made to him/her relating to the Option or the purchase of Shares and that he/she
was not presented with or solicited by any promotional meeting or material
relating to the Option or the Shares.

7.       SHARE CERTIFICATE LEGEND.

         The Participant represents that he/she understands and acknowledges
that any certificate evidencing the Shares (or evidencing any other securities
issued with respect thereto pursuant to any stock split, stock dividend, merger
or other form of reorganization or recapitalization) if and when issued shall
bear, in addition to any other legends which may be required by applicable state
securities laws, the following legends:

                  "THE SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER AND VOTING OF
                  THE SHARES REPRESENTED BY THIS CERTIFICATE OR ANY INTEREST
                  THEREIN ARE SUBJECT TO AN AGREEMENT DATED _________________,
                  ____ (A SIGNED COPY OF WHICH IS ON FILE AT THE OFFICE OF
                  COMBIMATRIX CORPORATION), AND THE SHARES ARE SUBJECT TO
                  REPURCHASE RIGHTS OF THE CORPORATION AS PROVIDED THEREIN.

                   THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
                  UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT") NOR HAVE
                  THEY BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
                  ANY STATE. NO TRANSFER OF SUCH SECURITIES WILL BE PERMITTED
                  UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS
                  TO SUCH TRANSFER, THE TRANSFER IS MADE IN ACCORDANCE WITH RULE
                  144 UNDER THE ACT, OR IN THE OPINION OF COUNSEL TO THE
                  CORPORATION, REGISTRATION UNDER THE ACT IS UNNECESSARY IN
                  ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND WITH
                  APPLICABLE STATE SECURITIES LAWS."

                                      A-2<PAGE>
EXHIBIT 10.7

                             COMBIMATRIX CORPORATION
                             2000 STOCK AWARDS PLAN

                                   I. PURPOSE

         The purpose of the CombiMatrix Corporation 2000 Stock Awards Plan (the
"PLAN") is to provide a means through which CombiMatrix Corporation, a Delaware
corporation (the "COMPANY" or "COMBIMATRIX"), and its subsidiaries, may attract
able persons to the Company and to provide a means whereby those employees,
Directors and consultants, upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and
potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company and their desire to remain in its employ or service.
A further purpose of the Plan is to provide such employees, Directors and
consultants with additional incentive and reward opportunities designed to
enhance the profitable growth of the Company. Accordingly, the Plan provides for
granting Incentive Stock Options, options which do not constitute Incentive
Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Performance
Awards, Phantom Stock Awards, or any combination of the foregoing, as is best
suited to the circumstances of the particular employee or consultant, as
provided herein.

                                 II. DEFINITIONS

         The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:

         (a) "AFFILIATES" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of Code Sections 424(e) and (f),
respectively, and any entity which directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with the
Company.

         (b) "AWARD" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation Right.

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

         (d) "CHANGE OF CONTROL" means (i) any direct or indirect transfer,
assignment, sale or any other disposition (in each case, a "Disposition") or
series of related Dispositions to any transferee or related or affiliated
transferees of either substantially all of the assets of CombiMatrix or more
than 50% of the outstanding shares of the common stock of Acacia Research
Corporation or CombiMatrix, (ii) CombiMatrix is to be dissolved and liquidated
or (iii) as a result of or in connection with a contested election of Directors,
the persons who were Directors of CombiMatrix or Acacia Research before such
election shall cease to constitute a majority of their respective boards. An
initial public offering that is not followed by a change in control of the Board
of Directors of CombiMatrix or Acacia Research shall not constitute a "change of
control transaction" for purposes hereof.

                                      -1-
<PAGE>

         (e) "CHANGE OF CONTROL VALUE" shall mean (i) the per share price
offered to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Change of Control takes place, or (iii) if such Change of
Control occurs other than pursuant to a tender or exchange offer, the Fair
Market Value per share of the shares into which Awards are exercisable, as
determined by the Committee, whichever is applicable. In the event that the
consideration offered to stockholders of the Company consists of anything other
than cash, the Committee shall determine the fair cash equivalent of the portion
of the consideration offered which is other than cash.

         (f) "CODE" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to any section and any regulations under such
section.

         (g) "COMMITTEE" means the Compensation Committee of the Board which
shall be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and
(ii) constituted solely of "outside Directors," within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder.

         (h) "COMPANY" means CombiMatrix Corporation and any of its Affiliates.

         (i) A "CONSULTANT" means an individual who performs services for the
Company or its Affiliates as an independent contractor.

         (j) "DIRECTOR" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.

         (k) An "EMPLOYEE" means any person (including an officer or a Director)
in an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).

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

         (m) "FAIR MARKET VALUE" means, as of any specified date, the closing
sale price of the Stock (i) reported by any interdealer quotation system on
which the Stock is quoted on that date or (ii) if the Stock is listed on a
national stock exchange, reported on the stock exchange composite tape on that
date; or, in either case, if no prices are reported on that date, on the last
preceding date on which such prices of the Stock are so reported. If the Stock
is traded over the counter at the time a determination of its fair market value
is required to be made hereunder, its fair market value shall be deemed to be
equal to (i) the closing sale price of the Stock on that date, if such price is
available, or (ii) if such price is not available, the average between the
reported high and low or closing bid and asked prices of Stock on the most
recent date on which Stock was publicly traded. In the event Stock is not
publicly traded at the time a determination of its value is required to be made
hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.

                                      -2-
<PAGE>

         (n) "HOLDER" means an employee, Director or consultant who has been
granted an Award.

         (o) "INCENTIVE STOCK OPTION" means an option that is designated as an
incentive stock option within the meaning of section 422(b) of the Code.

         (p) "NONQUALIFIED STOCK OPTION" means an option granted under Paragraph
VII of the Plan to purchase Stock which does not constitute an Incentive Stock
Option.

         (q) "OPTION" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified Stock
Options to purchase Stock.

         (r) "OPTION AGREEMENT" means a written agreement between the Company
and a Holder with respect to an Option.

         (s) "PERFORMANCE AWARD" means an Award granted under Paragraph X of the
Plan.

         (t) "PERFORMANCE AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Performance Award.

         (u) "PHANTOM STOCK AWARD" means an Award granted under Paragraph XI of
the Plan.

         (v) "PHANTOM STOCK AWARD AGREEMENT" means a written agreement between
the Company and a Holder with respect to a Phantom Stock Award.

         (w) "PLAN" means the CombiMatrix Corporation 2000 Stock Awards Plan, as
amended from time to time.

         (x) "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.

         (y) "RESTRICTED STOCK AWARD" means an Award granted under Paragraph IX
of the Plan.

         (z) "RULE 16B-3" means SEC Rule 16b-3 promulgated under the 1934 Act,
as such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.

         (aa) "SPREAD" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share of Stock
on the date such right is exercised over the exercise price of such Stock
Appreciation Right.

         (bb) "STOCK" means the common stock, $0.001 par value of the Company.

                                      -3-
<PAGE>

         (cc) "STOCK APPRECIATION RIGHT" means an Award granted under Paragraph
VIII of the Plan.

         (dd) "STOCK APPRECIATION RIGHTS AGREEMENT" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.

                  III. EFFECTIVE DATE AND DURATION OF THE PLAN

         The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the stockholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The Plan
shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.

                               IV. ADMINISTRATION

         (a) COMMITTEE. The Plan shall be administered by the Committee.

         (b) POWERS. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees, Directors
and consultants shall receive an Award, the time or times when such Award shall
be made, whether an Incentive Stock Option, Nonqualified Option or Stock
Appreciation Right shall be granted, the number of shares of Stock which may be
issued under each Option, Stock Appreciation Right or Restricted Stock Award,
and the value of each Performance Award and Phantom Stock Award. In making such
determinations the Committee may take into account the nature of the services
rendered by the respective employees, Directors and consultants, their present
and potential contributions to the Company's success and such other factors as
the Committee in its discretion shall deem relevant.

         (c) ADDITIONAL POWERS. The Committee shall have such additional powers
as are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, the Committee is authorized to construe the Plan
and the respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Paragraph IV
shall be conclusive.

                                      -4-
<PAGE>

                 V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
                   RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS
              AND PHANTOM STOCK AWARDS; SHARES SUBJECT TO THE PLAN

         (a) STOCK GRANT AND AWARD LIMITS. The Committee may from time to time
grant Awards to one or more employees, Directors or consultants determined by it
to be eligible for participation in the Plan in accordance with the provisions
of Paragraph VI. Subject to Paragraph XII, the aggregate number of shares of
Stock that may be issued under the Plan shall not exceed 1,360,529 shares.
Shares of Stock shall be deemed to have been issued under the Plan only to the
extent actually issued and delivered pursuant to an Award. To the extent that an
Award lapses or the rights of its Holder terminate or the Award is paid in cash,
any shares of Stock subject to such Award shall again be available for the grant
of an Award. Separate stock certificates shall be issued by the Company for
those shares acquired pursuant the exercise of an Incentive Stock Option and for
those shares acquired pursuant to the exercise of a Nonqualified Stock Option.

         (b) STOCK OFFERED. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.

                                 VI. ELIGIBILITY

         Awards may be granted only to persons who, at the time of grant, are
employees, Directors or consultants of the Company or its Affiliates. An Award
may be granted on more than one occasion to the same person, and, subject to the
limitations set forth in the Plan, such Award may include an Incentive Stock
Option or a Nonqualified Stock Option, a Stock Appreciation Right, a Restricted
Stock Award, a Performance Award, a Phantom Stock Award or any combination
thereof.

                               VII. STOCK OPTIONS

         (a) OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant; provided that, the term of an incentive stock
option cannot exceed ten years from the date of grant.

         (b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable
in whole or in such installments and at such times as determined by the
Committee.

         (c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. No more than
1,360,529 shares of Stock may be subject to Incentive Stock Options. Incentive
Stock Options may only be granted to employees of the Company and its
Affiliates. To the extent that the aggregate Fair Market Value (determined at
the time the respective Incentive Stock Option is granted) of Stock with respect
to which Incentive Stock Options are exercisable for the first time by an
individual during any calendar year under all incentive stock option plans of
the Company and its parent and subsidiary corporations exceeds $100,000, such
Incentive Stock Options shall be treated as Nonqualified Stock Options as
determined by the Committee. The Committee shall determine, in accordance with
applicable provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of an optionee's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the optionee of such determination as soon as practicable after such

                                      -5-
<PAGE>

determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
section 422(b)(6) of the Code, unless (i) at the time such Option is granted the
option price is at least 110% of the Fair Market Value of the Stock subject to
the Option and (ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant.

         (d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. No individual may be granted in any calendar year
an Option to purchase more than 300,000 shares of Stock. The option price must
be paid in full at the time of each exercise in one or a combination of the
following methods (to the extent authorized and approved by the Committee or set
forth in the applicable Option Agreement): (a) cash or immediately available
funds (including wire transfer, personal check, cashier's check, postal or
express money order or bank draft), (b) with shares of Common Stock already
owned by the participant for at least six months, or (c) a promissory note (but
not a non-recourse promissory note) that bears a market rate of interest in a
form and on such terms as the Committee may approve. Additionally, in the
discretion of the Committee, payment for any shares subject to an Option may
also be made by a "cashless exercise" which shall include the following:
delivering a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds necessary to pay the purchase price, and, if
requested, the amount of any federal, state, local or foreign withholding taxes.
To facilitate the foregoing "cashless exercise", the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. Each
Option Agreement shall specify the effect of termination of employment, the
cessation of serving on the Board or the cessation of performing services as a
consultant to the Company on the exercisability of the Option. Such Option
Agreement may also include, without limitation, provisions relating to (i)
vesting of Options, subject to the provisions hereof accelerating such vesting
on a Change of Control, (ii) tax matters (including provisions (y) permitting
the delivery of additional shares of Stock or the withholding of shares of Stock
from those acquired upon exercise to satisfy federal or state income tax
withholding requirements and (z) dealing with any other applicable employee wage
withholding requirements), and (iii) any other matters not inconsistent with the
terms and provisions of this Plan that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Option
Agreements need not be identical.

         (e) OPTION PRICE AND PAYMENT. The price at which a share of Stock may
be purchased upon exercise of an Option shall be determined by the Committee,
but (i) such purchase price shall not be less than the Fair Market Value of
Stock subject to an Option on the date the Option is granted and (ii) such
purchase price shall be subject to adjustment as provided herein. The Option or
portion thereof may be exercised by delivery of an irrevocable notice of
exercise to the Company. The purchase price of the Option or portion thereof
shall be paid in full in the manner prescribed by the Committee.

                                      -6-
<PAGE>

         (f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to
all the privileges and rights of a stockholder only with respect to such shares
of Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.

         (g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY
OTHER CORPORATIONS. Options and Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.

                         VIII. STOCK APPRECIATION RIGHTS

         (a) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is the right
to receive an amount equal to the Spread with respect to a share of Stock upon
the exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement
which shall contain such terms and conditions as may be approved by the
Committee. No individual may be granted in any calendar year more than 300,000
Stock Appreciation Rights. The Spread with respect to a Stock Appreciation Right
may be payable either in cash, shares of Stock with a Fair Market Value equal to
the Spread or in a combination of cash and shares of Stock. With respect to
Stock Appreciation Rights that are subject to Section 16 of the 1934 Act,
however, the Committee shall, except as provided in Paragraph XII(c), retain
sole discretion (i) to determine the form in which payment of the Stock
Appreciation Right will be made (I.E., cash, securities or any combination
thereof) or (ii) to approve an election by a Holder to receive cash in full or
partial settlement of Stock Appreciation Rights. Each Stock Appreciation Rights
Agreement shall specify the effect of termination of employment, the cessation
of serving on the Board or the cessation of performing services as a consultant
to the Company on the exercisability of the Stock Appreciation Rights.

         (b) OTHER TERMS AND CONDITIONS. At the time of such Award, the
Committee, may in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Stock Appreciation Rights, including, but not limited
to rules pertaining to termination of employment, the cessation of serving on
the Board or the cessation of performing services as a consultant to the Company
(by retirement, disability, death or otherwise) of a Holder prior to the
expiration of such Stock Appreciation Rights. Such additional terms, conditions
or restrictions shall be set forth in the Stock Appreciation Rights Agreement
made in conjunction with the Award. Such Stock Appreciation Rights Agreements
may also include, without limitation, provisions relating to (i) vesting of
Awards, subject to the provisions hereof accelerating vesting on a Change of
Control,(ii) tax matters (includinG provisions covering applicable wage
withholding requirements), and (iii) any other matters not inconsistent with the
terms and provisions of this Plan, that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Appreciation
Rights Agreements need not be identical.

                                      -7-
<PAGE>

         (c) EXERCISE PRICE. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and (ii)
shall be subject to adjustment as provided in Paragraph XII.

         (d) EXERCISE PERIOD. The term of each Stock Appreciation Right shall be
as specified by the Committee at the date of grant.

         (e) LIMITATIONS ON EXERCISE OF STOCK APPRECIATION RIGHT. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.

                           IX. RESTRICTED STOCK AWARDS

         (a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares
of Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"FORFEITURE RESTRICTIONS"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (1) the price of a share of
Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the
revenue of a business unit of the Company designated by the Committee, (5) the
return on stockholders' equity achieved by the Company, or (6) the Company's
pre-tax cash flow from operations, (ii) the Holder's continued service or
employment with the Company for a specified period of time, or (iii) a
combination of any two or more of the factors listed in clauses (i) and (ii) of
this sentence. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee. The Forfeiture Restrictions
applicable to a particular Restricted Stock Award shall not be changed except as
permitted by Paragraph IX(b) or Paragraph XII.

         (b) OTHER TERMS AND CONDITIONS. No individual may be awarded more than
300,000 shares of Stock that are subject to a Restricted Stock Award in any
calendar year. Stock awarded pursuant to a Restricted Stock Award shall be
represented by a stock certificate registered in the name of the Holder of such
Restricted Stock Award. The Holder shall have the right to receive dividends
with respect to Stock subject to a Restricted Stock Award, to vote Stock subject
thereto and to enjoy all other stockholder rights, except that (i) the Holder
shall not be entitled to delivery of the stock certificate until the Forfeiture
Restrictions shall have expired, (ii) the Company shall retain custody of the
Stock until the Forfeiture Restrictions shall have expired, (iii) the Holder may
not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the
Stock until the Forfeiture Restrictions shall have expired, and (iv) a breach of
the terms and conditions established by the Committee pursuant to the Restricted
Stock Agreement, shall cause a forfeiture of the Restricted Stock Award. At the
time of such Award, the Committee may, in its sole discretion, prescribe

                                      -8-
<PAGE>

additional terms, conditions or restrictions relating to Restricted Stock
Awards, including, but not limited to, rules pertaining to the termination of
employment, the cessation of serving on the Board or the cessation of performing
services as a consultant to the Company (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Forfeiture Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award. Such Restricted Stock
Agreement may also include, without limitation, provisions relating to (i)
subject to the provisions hereof accelerating vesting on a Change of Control,
vesting of Awards, (ii) tax matters (including provisions (y) covering any
applicable employee wage withholding requirements and (z) prohibiting an
election by the Holder under section 83(b) of the Code), and (iii) any other
matters not inconsistent with the terms and provisions of this Plan that the
Committee shall in its sole discretion determine. The terms and conditions of
the respective Restricted Stock Agreements need not be identical.

         (c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the
amount and form of any payment for Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Stock received pursuant to a Restricted
Stock Award, except to the extent otherwise required by law.

         (d) AGREEMENTS. At the time any Award is made under this Paragraph IX,
the Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical.

                              X. PERFORMANCE AWARDS

         (a) PERFORMANCE PERIOD. The Committee shall establish, with respect to
and at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.

         (b) PERFORMANCE AWARDS. Each Performance Award shall have a maximum
value established by the Committee at the time of such Award, provided that no
individual may be granted a Performance Award in any calendar year where the
value of such award exceeds the Fair Market Value of 300,000 shares of Stock.

         (c) PERFORMANCE MEASURES. A Performance Award shall be awarded to an
employee, Director or consultant contingent upon future performance of the
employee, Director or consultant, the Company or any subsidiary, division or
department thereof by or in which is he employed or for which he performs
services during the performance period. The Committee shall establish the
performance measures applicable to such performance prior to the beginning of
the performance period but subject to such later revisions as the Committee
shall deem appropriate to reflect significant, unforeseen events or changes.

         (d) AWARDS CRITERIA. In determining the value of Performance Awards,
the Committee shall take into account an employee's, Director's or consultant's
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.

                                      -9-
<PAGE>

         (e) PAYMENT. Following the end of the performance period, the Holder of
a Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Stock or a
combination thereof, as determined by the Committee. Payment shall be made in a
lump sum or in installments as prescribed by the Committee. Any payment to be
made in Stock shall be based on the Fair Market Value of the Stock on the
payment date. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.

         (f) TERMINATION OF EMPLOYMENT, CESSATION OF SERVING ON BOARD OR
TERMINATION OF SERVICE . A Performance Award shall terminate if the Holder does
not remain continuously in the employ of the Company or fails to serve on the
Board or fails to perform services for the Company at all times during the
applicable performance period, except as may be determined by the Committee or
as may otherwise be provided in the Award at the time granted.

         (g) AGREEMENTS. At the time any Award is made under this Paragraph X,
the Company and the Holder shall enter into a Performance Award Agreement
setting forth each of the matters contemplated hereby, and, in addition such
matters are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.

                            XI. PHANTOM STOCK AWARDS

         (a) PHANTOM STOCK AWARDS. Phantom Stock Awards are rights to receive
shares of Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Stock (or portion thereof) over a specified period of time, which vest
over a period of time or upon the occurrence of an event (including without
limitation a Change of Control) as established by the Committee, without payment
of any amounts by the Holder thereof (except to the extent otherwise required by
law) or satisfaction of any performance criteria or objectives. Each Phantom
Stock Award shall have a maximum value established by the Committee at the time
of such Award, provided that no individual may be granted a Phantom Stock Award
in any calendar year for more than 300,000 shares of Stock.

         (b) AWARD PERIOD. The Committee shall establish, with respect to and at
the time of each Phantom Stock Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.

         (c) AWARDS CRITERIA. In determining the value of Phantom Stock Awards,
the Committee shall take into account an employee's, Director's or consultant's
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.

         (d) PAYMENT. Following the end of the vesting period for a Phantom
Stock Award, the Holder of a Phantom Stock Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Phantom Stock
Award, based on the then vested value of the Award. Payment of a Phantom Stock
Award may be made in cash, Stock or a combination thereof as determine by the

                                      -10-
<PAGE>

Committee. Payment shall be made in a lump sum or in installments as prescribed
by the Committee in its sole discretion. Any payment to be made in Stock shall
be based on the Fair Market Value of the Stock on the payment date. Cash
dividend equivalents may be paid during or after the vesting period with respect
to a Phantom Stock Award, as determined by the Committee. If a payment of cash
is to be made on a deferred basis, the Committee shall establish whether
interest shall be credited, the rate thereof and any other terms and conditions
applicable thereto.

         (e) TERMINATION OF EMPLOYMENT, CESSATION OF SERVING ON BOARD OR
TERMINATION OF SERVICE A Phantom Stock Award shall terminate if the Holder does
not remain continuously in the employ of the Company or fails to serve on the
Board or fails to perform services for the Company at all times during the
applicable vesting period, except as may be otherwise determined by the
Committee or as set forth in the Award at the time of grant.

         (f) AGREEMENTS. At the time any Award is made under this Paragraph XI,
the Company and the Holder shall enter into a Phantom Stock Award Agreement
setting forth each of the matters contemplated hereby and, in addition such
matters as are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.

                     XII. RECAPITALIZATION OR REORGANIZATION

         (a) The shares with respect to which Awards may be granted are shares
of Stock as presently constituted, but if, and whenever, prior to the expiration
of an Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or satisfied, as applicable, (i) in
the event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.

         (b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms of
the recapitalization if, immediately prior to such recapitalization, the Holder
had been the holder of record of the number of shares of Stock then covered by
such Award.

         (c) Upon the occurrence of a Change of Control, all outstanding Awards
shall immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a Change
of Control, each Award other than an Option outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Stock subject to such Award,
cash in an amount equal to the excess, if any, of the Change of Control Value
over the exercise price. Further, in the event of a Change of Control, the
Committee, in its discretion shall act to effect one or more of the following
alternatives with respect to outstanding Options, which may vary among

                                      -11-
<PAGE>

individual Holders and which may vary among Options held by any individual
Holder: (1) determine a limited period of time for the exercise of such Options
on or before a specified date (before or after such Change of Control) after
which specified date all unexercised Options and all rights of Holders
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Change of Control,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each Holder an amount of cash per
share equal to the excess, if any, of the Change of Control Value of the shares
subject to such Option over the exercise price(s) under such Options for such
shares, (3) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding) or (4) provide that thereafter upon any exercise of
an Option theretofore granted the Holder shall be entitled to purchase under
such Option, in lieu of the number of shares of Stock then covered by such
Option the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution the Holder has been the holder of record of the
number of shares of Stock then covered by such Option. The provisions contained
in this paragraph shall be inapplicable to an Award granted within six (6)
months before the occurrence of a Change of Control if the Holder of such Award
is subject to the reporting requirements of Section 16(a) of the 1934 Act. The
provisions contained in this paragraph shall not alter any rights or terminate
any rights of the Holder to further payments pursuant to any other agreement
with the Company following a Change of Control.

         (d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.

         (e) The existence of the Plan and the Awards granted hereunder shall
not affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.

         (f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d)
above shall be subject to any required stockholder action.

                                      -12-
<PAGE>

         (g) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares of obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Awards theretofore granted or the purchase
price per share, if applicable.

                   XIII. AMENDMENT AND TERMINATION OF THE PLAN

         The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided that no change in any Award theretofore granted may be
made which would impair the rights of the Holder without the consent of the
Holder (unless such change is required in order to cause the benefits under the
Plan to qualify as performance-based compensation within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder), and
provided, further, that the Board may not, without approval of the stockholders,
amend the Plan:

         (a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;

         (b) to change the Option price;

         (c) to change the class of employees, Directors or consultants eligible
to receive Awards or materially increase the benefits accruing to employees,
Directors or consultants under the Plan;

         (d) to extend the maximum period during which Awards may be granted
under the Plan;

         (e) to modify materially the requirements as to eligibility for
participation in the Plan; or

         (f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.

                               XIV. MISCELLANEOUS

         (a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
employee, Director or consultant any right to be granted an Award to purchase
Stock, a right to a Stock Appreciation Right, a Restricted Stock Award, a
Performance Award or a Phantom Stock Award or any of the rights hereunder except
as may be evidenced by an Award or by an Option Agreement, Stock Appreciation
Rights Agreement, Restricted Stock Agreement, Performance Award Agreement or
Phantom Stock Award Agreement on behalf of the Company, and then only to the
extent and on the terms and conditions expressly set forth therein. The Plan
shall be unfunded. The Company shall not be required to establish any special or
separate fund or to make any other segregation of funds or assets to assure the
payment of any Award.

                                      -13-
<PAGE>

         (b) NO EMPLOYMENT OR SERVICE RIGHTS CONFERRED. Nothing contained in the
Plan shall (i) confer upon any employee any right with respect to continuation
of employment or service with the Company or any subsidiary or (ii) interfere in
any way with the right of the Company or any subsidiary to terminate his or her
employment or service at any time.

         (c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to
issue any Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Stock shall be delivered, nor shall any cash in
lieu of fractional shares be paid. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.

         (d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.

         (e) RESTRICTIONS ON TRANSFER. An Award shall not be transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
"qualified domestic relations order" as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall be exercisable during the Holder's lifetime only by such
Holder or the Holder's guardian or legal representative.

         (f) RULE 16B-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.

         (g) SECTION 162(m). If the plan is subject to 162(m) of the Code, it is
intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options and Stock Appreciation Rights granted
hereunder and, if determined by the Committee, Restricted Stock Awards, shall
constitute "performance-based" compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the Plan to comply with Section 162(m) as so intended, such provision
shall be construed or deemed amended to conform to the requirements or
provisions of Section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Holder of any Award
previously granted hereunder.

                                      -14-
<PAGE>

         (h) GOVERNING LAW. This Plan shall be construed in accordance with the
laws of the State of Delaware.

                                      -15-

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