Document:

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                                                                     Exhibit 4.1

                              ESCALON MEDICAL CORP.

                           1999 EQUITY INCENTIVE PLAN

         1. PURPOSE. The purpose of the Escalon Medical Corp. 1999 Equity
Incentive Plan is to enhance the ability of Escalon Medical Corp. (the
"Company") and any subsidiaries to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to such personnel and to promote the success of the Company. To
accomplish these purposes, this Plan provides a means whereby employees,
directors and consultants may receive stock options ("Options") to purchase the
Company's Common Stock, no par value, (the "Common Stock").

         2. ADMINISTRATION.

         (a) COMPOSITION OF THE COMMITTEE. This Plan shall be administered by a
committee (the "Committee"), which shall be appointed by and serve at the
pleasure of the Company's Board of Directors (the "Board"). The Committee shall
be comprised of two or more members of the Board. Each member of the Committee
shall be (i) a "non-employee director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act") and (ii) an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to the foregoing, from time to time the
Board may increase or decrease the size of the Committee, appoint additional
members thereof, remove members (with or without cause), appoint new members in
substitution therefor, fill vacancies or remove all members of the Committee and
thereafter directly administer this Plan.

         (b) AUTHORITY OF THE COMMITTEE. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of this Plan and
to decide all questions of fact arising in its application; to determine the
employees, directors and consultants to whom awards shall be made and the type,
amount, size and terms of each such award; to determine the time when awards
shall be granted; and to make all other determinations necessary or advisable
for the administration of this Plan. The Committee shall have the authority to
adopt, amend and rescind such rules, regulations and procedures as, in its
opinion, may be advisable in the administration of this Plan, including, without
limitation, rules, regulations and procedures that: (i) deal with satisfaction
of an optionee's tax withholding obligations pursuant to Section 13 hereof, (ii)
include arrangements to facilitate an optionee's ability to borrow funds for the
payment of the exercise price of an Option, if applicable, from securities'
brokers and dealers, and (iii) include arrangements that provide for the payment
of some or all of an Option's exercise price by delivery of previously owned
shares of Common Stock or other property and/or by withholding some of the
shares of Common

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Stock being acquired upon exercise of an Option. All decisions, determinations
and interpretations of the Committee shall be final and binding on all optionees
and all other holders of Options granted under this Plan.

         (c) AUTHORITY OF THE BOARD. Notwithstanding anything to the contrary
set forth in this Plan, all authority granted hereunder to the Committee may be
exercised at any time and from time to time by the Board. All decisions,
determinations and interpretations of the Board shall be final and binding on
all optionees and all other holders of Options granted under this Plan.

         3. STOCK SUBJECT TO THIS PLAN. Subject to Section 16 hereof, the shares
that may be issued under this Plan shall not exceed in the aggregate 235,000
shares of Common Stock. Such shares may be authorized and unissued shares or
shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any reason expires or
is terminated unexercised as to such shares shall again be available under this
Plan.

         4. ELIGIBILITY TO RECEIVE OPTIONS. Persons eligible to receive Options
under this Plan shall be limited to those consultants, directors, officers and
other employees of the Company and any subsidiary (as defined in Section 425 of
the Code or any amendment or substitute thereto), who are in positions in which
their decisions, actions and counsel significantly impact upon the profitability
and success of the Company and any subsidiary. Directors of the Company who are
not also employees of the Company or any subsidiary and consultants shall not be
eligible to be awarded Incentive Stock Options (as defined in Section 5 hereof).
Notwithstanding anything to the contrary set forth in this Plan, the maximum
number of shares of Common Stock for which Options may be granted to any
employee in any calendar year shall be 100,000 shares.

         5. TYPES OF OPTIONS. Grants may be made at any time and from time to
time by the Committee in the form of Options to purchase shares of Common Stock.
Options granted hereunder may be Options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code or any
amendment or substitute thereto ("Incentive Stock Options") or Options that are
not intended to so qualify ("Nonqualified Stock Options").

         6. OPTION AGREEMENTS. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with this Plan as
the Committee shall approve from time to time. The Options granted hereunder may
be evidenced by a single agreement or by multiple agreements, as determined by
the Committee in its sole discretion. Each Option agreement shall contain in
substance the following terms and conditions:

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         (a) TYPE OF OPTION. Each Option agreement shall identify the Options
represented thereby as Incentive Stock Options or Nonqualified Stock Options, as
the case may be.

         (b) OPTION PRICE. Each Option agreement shall set forth the purchase
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii) hereof, the
purchase price of the Common Stock subject to an Incentive Stock Option shall be
not less than 100% of the fair market value of such stock on the date the Option
is granted, as determined by the Committee, but in no event less than the par
value of such stock. The purchase price of the Common Stock subject to a
Nonqualified Stock Option shall be not less than 85% of the fair market value of
such stock on the date the Option is granted, as determined by the Committee.
For this purpose, fair market value on any date shall mean the closing price of
the Common Stock, as reported in The Wall Street Journal or if not so reported,
as otherwise reported by the National Association of Securities Dealers
Automated Quotation ("Nasdaq") System, or if the Common Stock is not reported by
Nasdaq, the fair market value shall be as determined by the Committee pursuant
to Section 422 of the Code.

         (c) EXERCISE TERM. Each Option agreement shall state the period or
periods of time within which the Option may be exercised, in whole or in part,
which shall be such a period or periods of time as may be determined by the
Committee, provided that no Option shall be exercisable after ten years from the
date of grant thereof. The Committee shall have the power to permit an
acceleration of previously established exercise terms, subject to the
requirements set forth herein, upon such circumstances and subject to such terms
and conditions as the Committee deems appropriate.

         (d) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option,
each Option agreement shall contain such other terms, conditions and provisions
as the Committee determines necessary or desirable in order to qualify such
Option as a tax-favored Option (within the meaning of Section 422 of the Code or
any amendment or substitute thereto or regulation thereunder) including without
limitation, each of the following, except that any of these provisions may be
omitted or modified if it is no longer required in order to have an Option
qualify as a tax-favored Option within the meaning of Section 422 of the Code or
any substitute therefor:

                  (i) The aggregate fair market value (determined as of the date
the Option is granted) of the Common Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year (under
all plans of the Company) shall not exceed $100,000.

                  (ii) No Incentive Stock Options shall be granted to any
employee if, at the time the Option is granted, the employee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent

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or its subsidiaries unless, 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, by its terms, the Option is not exercisable after the expiration of five
years from the date of grant.

                  (iii) No Incentive Stock Options shall be exercisable more
than three months (or one year, in the case of an employee who dies or becomes
disabled within the meaning of Section 72(m)(7) of the Code or any substitute
therefor) after termination of employment.

         (e) SUBSTITUTION OF OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by directors,
consultants and employees of other corporations who are about to become, and who
do concurrently with the grant of such options become, directors, consultants or
employees of the Company or a subsidiary as a result of a merger or
consolidation of the employing corporation with the Company or a subsidiary, or
the acquisition by the Company or a subsidiary of the assets or capital stock of
the employing corporation or a subsidiary of the employing corporation. The
terms and conditions of the substitute options so granted may vary from the
terms and conditions set forth in this Section 6 to such extent as the Committee
at the time of grant may deem appropriate to conform, in whole or in part, to
the provisions of the stock options in substitution for which they are granted.

         7. DATE OF GRANT. The date on which an Option shall be deemed to have
been granted under this Plan shall be the date of the Committee's authorization
of the Option or such later date as may be determined by the Committee at the
time the Option is authorized. Notice of the determination shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant.

         8. EXERCISE AND PAYMENT FOR SHARES. Options may be exercised in whole
or in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased,
except that no Option may be exercised in whole or in part during the first six
months after the Option is granted unless expressly permitted by the Committee.
The purchase price of the shares with respect to which an Option is exercised
shall be payable in full at the time notice is given in cash, Common Stock at
fair market value, or a combination thereof, as the Committee may determine from
time to time and subject to such terms and conditions as may be prescribed by
the Committee for such purpose. The Committee may also, in its discretion and
subject to prior notification to the Company by an optionee, permit an optionee
to enter into an agreement with the Company's transfer agent or a brokerage firm
of national standing whereby the optionee will simultaneously exercise the
Option and sell the shares acquired thereby through the Company's transfer agent
or such a brokerage firm and either the Company's transfer agent or the
brokerage firm executing the sale will remit the Company from the proceeds of
sale the exercise price of the shares as to which the Option has been exercised.

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         9. RIGHTS UPON TERMINATION OF SERVICE. In the event that an optionee
ceases to be a consultant, director, officer or employee of the Company or any
subsidiary, for any reason other than death, retirement, as hereinafter defined,
or disability (within the meaning of Section 72(m)(7) of the Code or any
substitute therefor), the optionee shall have the right to exercise the Option
during its term within a period of three months after such termination to the
extent that the Option was exercisable at the time of termination, or within
such other period, and subject to such terms and conditions as may be specified
by the Committee. In the event that an optionee dies, becomes disabled or, in
the case of any employee, retires prior to the expiration of his Option and
without having fully exercised his Option, the optionee or his successor shall
have the right to exercise the Option during its term within a period of one
year after termination of service due to death, disability (within the meaning
of Section 72(m)(7) of the Code) or, in the case of an employee, retirement, in
each case only to the extent that the Option was exercisable at the time of
termination, or within such other period, and subject to such terms and
conditions as may be specified by the Committee. As used in this Section 9,
"retirement" means a termination of employment by reason of an optionee's
retirement at or after his earliest permissible retirement date pursuant to and
in accordance with his employer's regular retirement plan or personnel
practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an
Incentive Stock Option may be exercised more than three months after termination
of employment due to retirement, as provided in this Section 9, but in that
event, the Option shall lose its status as an Incentive Stock Option and shall
be treated as a Nonqualified Stock Option.

         10. GENERAL RESTRICTIONS. Each Option granted under this Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the recipient of an Option with respect to the
disposition of shares of Common Stock is necessary or desirable as a condition
of or in connection with the granting of such Option or the issuance or purchase
of shares of Common Stock thereunder, such Option shall not be consummated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.

         11. RIGHTS OF A SHAREHOLDER. The recipient of any Option under this
Plan, unless otherwise provided by this Plan, shall have no rights as a
shareholder unless and until certificates for shares of Common Stock are issued
and delivered to him.

         12. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Plan or in
any agreement entered into pursuant to this Plan shall confer upon any optionee

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the right to continue in the employment of the Company or any subsidiary or
affect any right that the Company or any subsidiary may have to terminate the
employment of such optionee or consulting relationship with such optionee.

         13. WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under this Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the Committee, in its sole discretion, an optionee may make
an election, by means of a form of election to be prescribed by the Committee,
to have shares of Common Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Common Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be irrevocable and shall be subject to the disapproval
of the Committee at any time. Any securities so withheld or tendered will be
valued by the Committee as of the date of exercise.

         14. NON-ASSIGNABILITY. No Option under this Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve. During the
life of the recipient such Option shall be exercisable only by such person or by
such person's guardian or legal representative.

         15. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
this Plan (including without limitation determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under this Plan whether or not such persons are similarly situated.

         16.      ADJUSTMENTS.

         (a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under this Plan but as to which no Options have yet been
granted or which have been returned to this Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that

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conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.

         (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Committee and give each Option holder the right to exercise
his Option as to all or any part of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable.

         (c) SALE OR MERGER. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee, in the exercise of its sole
discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing an Option to be assumed or an equivalent option to be
substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that an Option holder shall have the right
to exercise his Option as to all of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable, or (iii) declaring that an Option shall terminate at a date fixed
by the Committee provided that the Option holder is given notice and opportunity
to exercise the then exercisable portion of his Option prior to such date.

         17. AMENDMENT. The Board may terminate or amend this Plan at any time
with respect to shares as to which Options have not been granted, subject to any
required shareholder approval or any shareholder approval that the Board may
deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the consent of the holder of an Option, alter or impair any
Option previously granted under this Plan, except as specifically authorized
herein.

         18. CONDITIONS UPON ISSUANCE OF SHARES.

         (a) COMPLIANCE WITH SECURITIES LAWS. Shares of the Company's Common
Stock shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated

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thereunder, and the requirements of any stock exchange upon which the Common
Stock of the Company may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

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

         19. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of this Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained.

         20. EFFECT ON OTHER PLANS. Participation in this Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any subsidiary. Any Options granted pursuant to this Plan
shall not be used in determining the benefits provided under any other plan of
the Company or any subsidiary unless specifically provided.

         21. DURATION OF THIS PLAN. This Plan shall remain in effect until all
Options granted under this Plan have been satisfied by the issuance of shares,
but no Option shall be granted more than ten years after the earlier of the date
this Plan is adopted by the Company or is approved by the Company's
shareholders.

         22. FORFEITURE FOR DISHONESTY. Notwithstanding anything to the contrary
in this Plan, if the Committee finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and any
optionee, that the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonest conduct in the course of his employment or
retention by the Company or any subsidiary that damaged the Company or any
subsidiary or that the optionee has disclosed trade secrets of the Company or
any subsidiary, the optionee shall forfeit all unexercised Options and all
exercised Options under which the Company has not yet delivered the
certificates. The decision of the Committee in interpreting and applying the
provisions of this Section 22 shall be final. No decision of the Committee,
however, shall affect the finality of the discharge or termination of such
optionee by the Company or any subsidiary in any manner.

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         23. NO PROHIBITION ON CORPORATE ACTION. No provision of this Plan shall
be construed to prevent the Company or any officer or director thereof from
taking any corporate action deemed by the Company or such officer or director to
be appropriate or in the Company's best interest, whether or not such action
could have an adverse effect on this Plan or any Options granted hereunder, and
no optionee or optionee's estate, personal representative or beneficiary shall
have any claim against the Company or any officer or director thereof as a
result of the taking of such action.

         24. INDEMNIFICATION. With respect to the administration of this Plan,
the Company shall indemnify each present and future member of the Committee and
the Board against, and each member of the Committee and the Board shall be
entitled without further action on his part to indemnity from the Company for
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and the Board, whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity shall not
include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee or the
Board; or (ii) in respect of any matter in which any settlement is effected for
an amount in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any such
member of the Committee and the Board unless, within 60 days after institution
of any such action, suit or proceeding, he shall have offered the Company in
writing the opportunity to handle and defend same at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee and the Board
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.

         25. MISCELLANEOUS PROVISIONS.

         (a) COMPLIANCE WITH PLAN PROVISIONS. No optionee or other person shall
have any right with respect to this Plan, the Common Stock reserved for issuance
under this Plan or in any Option until a written option agreement shall have
been executed by the Company and the optionee and all the terms, conditions and
provisions of this Plan and the Option applicable to such optionee (and each
person claiming under or through him) have been met.

         (b) APPROVAL OF COUNSEL. In the discretion of the Committee, no shares
of Common Stock, other securities or property of the Company, or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the

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Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.

         (c) COMPLIANCE WITH RULE 16b-3. To the extent that Rule 16b-3 under the
Exchange Act applies to this Plan or to Options granted under this Plan, it is
the intention of the Company that this Plan comply in all respects with the
requirements of Rule 16b-3, that any ambiguities or inconsistencies in
construction of this Plan be interpreted to give effect to such intention and
that, if this Plan shall not so comply, whether on the date of adoption or by
reason of any later amendment to or interpretation of Rule 16b-3, the provisions
of this Plan shall be deemed to be automatically amended so as to bring them
into full compliance with such rule.

         (d) UNFUNDED PLAN. This Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets under this Plan.

         (e) EFFECTS OF ACCEPTANCE OF OPTION. By accepting any Option or other
benefit under this Plan, each optionee and each person claiming under or through
him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under this Plan by the
Company, the Board and/or the Committee or its delegates.

         (f) CONSTRUCTION. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.

         26. SHAREHOLDER APPROVAL. The Company shall submit this Plan to the
shareholders entitled to vote hereon for approval within twelve months after the
date of adoption by the Board in order to meet the requirements of Section 422
of the Code and the regulations thereunder, Section 162(m) of the Code and
regulations thereunder, and the National Association of Securities Dealers, Inc.
for the quotation of the Common Stock on the Nasdaq System. The exercise of any
Option granted under this Plan shall be subject to the approval of this Plan by
the shareholders.

         Date of Adoption by the Board:  July 15, 1999.

         Date of Approval by the Shareholders:  November 9, 1999.

                                      -10-<PAGE>   1
                                                                     Exhibit 4.2

                              ESCALON MEDICAL CORP.

              EQUITY INCENTIVE PLAN FOR EMPLOYEES OF SONOMED, INC.

         1. PURPOSE. The purpose of the Escalon Medical Corp. Equity Incentive
Plan for Employees of Sonomed, Inc. is to enhance the ability of Escalon Medical
Corp. (the "Company") and its subsidiary, Sonomed, Inc. ("Sonomed"), to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to such personnel and to
promote the success of the Company and Sonomed. To accomplish these purposes,
this Plan provides a means whereby key employees of Sonomed may receive stock
options ("Options") to purchase the Company's Common Stock (the "Common Stock").

         2. ADMINISTRATION.

         (a) COMPOSITION OF THE COMMITTEE. This Plan shall be administered by a
committee (the "Committee"), which shall be appointed by and serve at the
pleasure of the Company's Board of Directors (the "Board"). The Committee shall
be comprised of two or more members of the Board. Each member of the Committee
shall be (i) a "non-employee director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act"), and (ii) an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to the foregoing, from time to time the
Board may increase or decrease the size of the Committee, appoint additional
members thereof, remove members (with or without cause), appoint new members in
substitution therefor, fill vacancies or remove all members of the Committee and
thereafter directly administer this Plan.

         (b) AUTHORITY OF THE COMMITTEE. The Committee shall have full and final
authority, in its discretion, to interpret the provisions of this Plan and to
decide all questions of fact arising in its application; to determine the
employees of Sonomed to whom awards shall be made and the type, amount, size and
terms of each such award; to determine the time when awards shall be granted;
and to make all other determinations necessary or advisable for the
administration of this Plan. The Committee shall have the authority to adopt,
amend and rescind such rules, regulations and procedures as, in its opinion, may
be advisable in the administration of this Plan, including, without limitation,
rules, regulations and procedures that: (i) deal with satisfaction of an
optionee's tax withholding obligations pursuant to Section 13 hereof, (ii)
include arrangements to facilitate an optionee's ability to borrow funds for the
payment of the exercise price of an Option, if applicable, from securities'
brokers and dealers, and (iii) include arrangements that provide for the payment
of some or all of an Option's exercise price by delivery of previously owned
shares of Common Stock or other property and/or by withholding some of the
shares of Common Stock

<PAGE>   2

being acquired upon exercise of an Option. All decisions, determinations and
interpretations of the Committee shall be final and binding on all optionees and
all other holders of Options granted under this Plan.

         (c) AUTHORITY OF THE BOARD. Notwithstanding anything to the contrary
set forth in this Plan, all authority granted hereunder to the Committee may be
exercised at any time and from time to time by the Board. All decisions,
determinations and interpretations of the Board shall be final and binding on
all optionees and all other holders of Options granted under this Plan.

         3. STOCK SUBJECT TO THIS PLAN. Subject to Section 16 hereof, the shares
that may be issued under this Plan shall not exceed in the aggregate 330,000
shares of Common Stock. Such shares may be authorized and unissued shares or
shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any reason expires or
is terminated unexercised as to such shares shall again be available under this
Plan.

         4. ELIGIBILITY TO RECEIVE OPTIONS. Persons eligible to receive Options
under this Plan shall be limited to those employees of Sonomed who are in
positions in which their decisions, actions and counsel significantly impact
upon the profitability and success of the Company and Sonomed.

         5. TYPES OF OPTIONS. Grants may be made at any time and from time to
time by the Committee in the form of Options to purchase shares of Common Stock.
Options granted hereunder may be Options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code or any
amendment or substitute thereto ("Incentive Stock Options") or Options that are
not intended to so qualify ("Nonqualified Stock Options").

         6. OPTION AGREEMENTS. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with this Plan as
the Committee shall approve from time to time. The Options granted hereunder may
be evidenced by a single agreement or by multiple agreements, as determined by
the Committee in its sole discretion. Each option agreement shall contain in
substance the following terms and conditions:

         (a) TYPE OF OPTION. Each option agreement shall identify the Options
represented thereby as Incentive Stock Options or Nonqualified Stock Options, as
the case may be.

         (b) OPTION PRICE. Each option agreement shall set forth the purchase
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii) hereof, the
purchase price of the Common Stock subject to an Incentive Stock Option shall be
not less than 100% of the fair market value of such stock on the date the Option
is granted, as determined

                                      -2-
<PAGE>   3

by the Committee, but in no event less than the par value of such stock. The
purchase price of the Common Stock subject to a Nonqualified Stock Option shall
be not less than 100% of the fair market value of such stock on the date the
Option is granted, as determined by the Committee. For this purpose, fair market
value on any date shall mean the closing price of the Common Stock, as reported
in The Wall Street Journal or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
System, or if the Common Stock is not reported by Nasdaq, the fair market value
shall be as determined by the Committee pursuant to Section 422 of the Code.

         (c) EXERCISE TERM. Each option agreement shall state the period or
periods of time within which the Option may be exercised, in whole or in part,
which shall be such a period or periods of time as may be determined by the
Committee, provided that no Option shall be exercisable after ten years from the
date of grant thereof. The Committee shall have the power to permit an
acceleration of previously established exercise terms, subject to the
requirements set forth herein, upon such circumstances and subject to such terms
and conditions as the Committee deems appropriate.

         (d) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option,
each option agreement shall contain such other terms, conditions and provisions
as the Committee determines necessary or desirable in order to qualify such
Option as a tax-favored Option (within the meaning of Section 422 of the Code or
any amendment or substitute thereto or regulation thereunder) including without
limitation, each of the following, except that any of these provisions may be
omitted or modified if it is no longer required in order to have an Option
qualify as a tax-favored Option within the meaning of Section 422 of the Code or
any substitute therefor:

                  (i) The aggregate fair market value (determined as of the date
the Option is granted) of the Common Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year (under
all plans of the Company) shall not exceed $100,000.

                  (ii) No Incentive Stock Options shall be granted to any
employee if, at the time the Option is granted, the employee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or its subsidiaries unless, 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, by its terms, the Option is not exercisable
after the expiration of five years from the date of grant.

                  (iii) No Incentive Stock Options shall be exercisable more
than three months (or one year, in the case of an employee who dies or becomes
disabled within the meaning of Section 72(m)(7) of the Code or any substitute
therefor) after termination of employment. Any Incentive Stock Option that,
pursuant to Section 9

                                      -3-
<PAGE>   4

hereof, shall become exercisable for a period longer than that permitted by the
preceding sentence shall lose its status as an Incentive Stock Option upon the
expiration of the period so specified and shall become a Nonqualified Stock
Option.

         7. DATE OF GRANT. The date on which an Option shall be deemed to have
been granted under this Plan shall be the date of the Committee's authorization
of the Option or such later date as may be determined by the Committee at the
time the Option is authorized. Notice of the determination shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant.

         8. EXERCISE AND PAYMENT FOR SHARES. Options may be exercised in whole
or in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased. The
purchase price of the shares with respect to which an Option is exercised shall
be payable in full at the time notice is given in cash, Common Stock at fair
market value, or a combination thereof, as the Committee may determine from time
to time and subject to such terms and conditions as may be prescribed by the
Committee for such purpose. The Committee may also, in its discretion and
subject to prior notification to the Company by an optionee, permit an optionee
to enter into an agreement with the Company's transfer agent or a brokerage firm
of national standing whereby the optionee will simultaneously exercise the
Option and sell the shares acquired thereby through the Company's transfer agent
or such a brokerage firm and either the Company's transfer agent or the
brokerage firm executing the sale will remit to the Company from the proceeds of
sale the exercise price of the shares as to which the Option has been exercised.

         9. RIGHTS UPON TERMINATION OF SERVICE. In the event that an optionee
ceases to be an employee of the Company or Sonomed for any reason, the optionee
shall have the right to exercise the Option during its term within such period
of time after termination of employment and subject to such terms and
conditions, as may be specified by the Committee in the option agreement between
the Company and the Employee.

         10. GENERAL RESTRICTIONS. Each Option granted under this Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (ii) the consent or approval of any government regulatory
body, such Option shall not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the
Committee. The Company agrees to use its best efforts to cause such requirements
to be satisfied.

                                      -4-
<PAGE>   5

         11. RIGHTS OF A SHAREHOLDER. The recipient of any Option under this
Plan, unless otherwise provided by this Plan, shall have no rights as a
shareholder unless and until certificates for shares of Common Stock are issued
and delivered to him.

         12. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Plan or in
any agreement entered into pursuant to this Plan shall confer upon any optionee
the right to continue in the employment of the Company or Sonomed or affect any
right that the Company or Sonomed may have to terminate the employment of such
optionee.

         13. WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under this Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the Committee, in its sole discretion, an optionee may make
an election, by means of a form of election to be prescribed by the Committee,
to have shares of Common Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Common Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be irrevocable and shall be subject to the disapproval
of the Committee at any time. Any securities so withheld or tendered will be
valued by the Committee as of the date of exercise.

         14. NON-ASSIGNABILITY. No Option under this Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve. During the
life of the recipient such Option shall be exercisable only by such person or by
such person's guardian or legal representative.

         15. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
this Plan (including without limitation determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under this Plan whether or not such persons are similarly situated.

         16. ADJUSTMENTS.

         (a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under this Plan but as to which no Options have yet been
granted or which have been returned to this Plan upon cancellation or expiration
of

                                      -5-
<PAGE>   6

an Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.

         (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee; provided, however, that the Committee shall
notify the Employee of the date fixed by the Committee on which the Options
shall terminate and shall give each Option holder at least 20 days' prior
written notice of such date and the right to exercise his Option prior to such
date as to all or any part of the shares of Common Stock covered by the Option,
including shares as to which the Option would not otherwise be exercisable prior
to such date.

         (c) SALE OR MERGER. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee, in the exercise of its
discretion, may take any of the following actions or similar actions as it deems
desirable: (i) causing an Option to be assumed or an equivalent option to be
substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that an Option holder shall have the right
to exercise his Option as to all of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable, or (iii) declaring that an Option shall terminate at a date fixed
by the Committee provided that the Option holder is given at least 20 days'
prior written notice of such event and the opportunity to exercise his Option as
to all or any part of the shares of Common Stock covered by the Option,
including shares as to which the Option would not otherwise be exercisable prior
to such date.

         17. AMENDMENT. The Board may terminate or amend this Plan at any time
with respect to shares as to which Options have not been granted, subject to any
required shareholder approval or any shareholder approval that the Board may
deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the

                                      -6-
<PAGE>   7

consent of the holder of an Option, alter or impair any Option previously
granted under this Plan, except as specifically authorized herein.

         18. CONDITIONS UPON ISSUANCE OF SHARES.

         (a) COMPLIANCE WITH SECURITIES LAWS. Shares of the Company's Common
Stock shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Common Stock of the Company may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance. The Company shall use reasonable efforts to cause such
requirements to be satisfied.

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

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

         20. EFFECT ON OTHER PLANS. Participation in this Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any subsidiary. Any Options granted pursuant to this Plan
shall not be used in determining the benefits provided under any other plan of
the Company or any subsidiary unless specifically provided.

         21. DURATION OF THIS PLAN. This Plan shall remain in effect until all
Options granted under this Plan have been satisfied by the issuance of shares,
but no Option shall be granted more than ten years after the earlier of the date
this Plan is adopted by the Company.

         22. NO PROHIBITION ON CORPORATE ACTION. No provision of this Plan shall
be construed to prevent the Company or any officer or director thereof from
taking any corporate action deemed by the Company or such officer or director to
be appropriate or in the Company's best interest, whether or not such action
could have an adverse effect on this Plan or any Options granted hereunder, and
no optionee or optionee's estate, personal representative or beneficiary shall
have any claim against the Company or any officer or director thereof as a
result of the taking of such action.

                                      -7-
<PAGE>   8

         23. INDEMNIFICATION. With respect to the administration of this Plan,
the Company shall indemnify each present and future member of the Committee and
the Board against, and each member of the Committee and the Board shall be
entitled without further action on his part to indemnity from the Company for
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and the Board, whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity shall not
include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee or the
Board; or (ii) in respect of any matter in which any settlement is effected for
an amount in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any such
member of the Committee and the Board unless, within 60 days after institution
of any such action, suit or proceeding, he shall have offered the Company in
writing the opportunity to handle and defend such action at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee and the Board
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.

         24. MISCELLANEOUS PROVISIONS.

         (a) COMPLIANCE WITH PLAN PROVISIONS. No optionee or other person shall
have any right with respect to this Plan, the Common Stock reserved for issuance
under this Plan or in any Option until a written option agreement shall have
been executed by the Company and the optionee and all the terms, conditions and
provisions of this Plan and the Option applicable to such optionee (and each
person claiming under or through him) have been met.

         (b) APPROVAL OF COUNSEL. In the discretion of the Committee, no shares
of Common Stock, other securities or property of the Company, or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.

         (c) COMPLIANCE WITH RULE 16b-3. To the extent that Rule 16b-3 under the
Exchange Act applies to this Plan or to Options granted under this Plan, it is
the intention of the Company that this Plan comply in all respects with the
requirements

                                      -8-
<PAGE>   9

of Rule 16b-3, that any ambiguities or inconsistencies in construction of this
Plan be interpreted to give effect to such intention and that, if this Plan
shall not so comply, whether on the date of adoption or by reason of any later
amendment to or interpretation of Rule 16b-3, the provisions of this Plan shall
be deemed to be automatically amended so as to bring them into full compliance
with such rule.

         (d) UNFUNDED PLAN. This Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets under this Plan.

         (e) EFFECTS OF ACCEPTANCE OF OPTION. By accepting any Option or other
benefit under this Plan, each optionee and each person claiming under or through
him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under this Plan by the
Company, the Board and/or the Committee or its delegates.

         (f) CONSTRUCTION. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.

         Date of Adoption by the Board:  November 9, 1999.

                                      -9-

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