Document:

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                                                                   Exhibit 10.53

                                 SEQUENOM, INC.

                          STOCK RESTRICTION AGREEMENT

     This Agreement made as of this _____ day of ___________, _____ by and among
Sequenom, Inc. (the "Corporation"), a Delaware corporation, and the undersigned
stockholder ("Stockholder").

                         W I T N E S S E T H   T H A T

     WHEREAS, the Stockholder wishes to purchase from the Corporation ____
shares (the "Shares") of the Corporation's Common stock, $.001 par value per
share (the "Common Stock"), pursuant to the exercise of options previously
granted to the Stockholder by the Corporation; and

     WHEREAS, the Corporation has required as a condition to such purchase that
the Stockholder agree, and in order to induce the Corporation to sell the Shares
the Stockholder has agreed, to certain restrictions on the rights of ownership
incidental to the shares of Common Stock purchased by the Stockholder from the
Corporation; and

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other valuable consideration, the receipt of which is
hereby acknowledged, the Stockholder and the Corporation agree as follows:

     1.  Restrictions on Transfer of Shares.
         ----------------------------------

         (a)  Corporation's Right of First Refusal. Prior to closing of a firm
              ------------------------------------
commitment underwriting of the Corporation's Common Stock pursuant to a
registration statement under the Securities Act of 1933 with gross proceeds to
the Corporation of at least $10,000,000.00, the Stockholder shall not sell,
assign, transfer, pledge, hypothecate or otherwise dispose of (collectively
"transfer") any shares of Common Stock acquired by him, including, without
limitation, the Shares, or any interest therein, whether such shares are now
held or hereafter acquired, without first giving written notice thereof to the
Corporation identifying the proposed transferee, the transfer price, and the
terms of the proposed transaction (which must be bona fide), and offering such
shares to the Corporation for purchase by it at the same price and on the same
terms. Such offer shall be in writing and mailed, postage prepaid, or delivered
to the Corporation at its principal office. The Corporation shall have 20 days
after actual receipt of such offer to notify the Stockholder in writing of its
intention to purchase all or any part of such shares. If the Corporation elects
to repurchase all or any part of such shares, the Stockholder shall sell to the
Corporation the shares to be repurchased, free of all encumbrances, and shall
deliver the certificates representing such shares, duly endorsed in blank by the
Stockholder or with duly executed stock powers attached thereto, all in form
suitable for the transfer of such shares to the Corporation, within 20 days of
the date of acceptance of the offer to sell, against
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payment therefor at the same price and according to the same terms as were
offered by the proposed transferee. If an offer has not been accepted by the
Corporation as to any or all offered shares within the time specified in this
subparagraph, then the Stockholder shall have 20 days within which he may
transfer the shares as to which the offer shall not have been accepted, free of
the restrictions imposed by this subparagraph, to the proposed transferee at the
same price and according to the same terms as the Stockholder previously
notified the Corporation, and thereafter such restrictions shall not apply to
any shares so transferred. At the end of such 20-day period, the restrictions
imposed by this subparagraph shall resume and be in full force and effect as to
all shares not so transferred within the period.

     Notwithstanding any provisions to the contrary herein contained, the
Stockholder may during his lifetime, and the legal representatives of the
Stockholder may after his death, transfer any shares of Common Stock held by him
absolutely to, or in trust solely for the benefit of, any member of his
immediate family (which shall for the purposes hereof, mean his spouse and any
lineal descendant of his), without being required to offer such shares to the
Corporation as provided herein, provided, however, that such shares as are so
transferred shall remain subject to any and all restrictions and obligations
hereunder as if such shares continued to be held by the original transferor
thereof.

         (b)  Applicability to Certain Transferees. Anything to the contrary in
              ------------------------------------
subparagraph (a) of this Paragraph 1 notwithstanding, shares transferred to any
executor, administrator, legatee or heir of the Stockholder's estate or any
trustee in bankruptcy, receiver or other officer or legal representative
appointed by any court to whom title to any of such restricted shares shall have
been transferred, whether by operation of law or otherwise, or to any other
person or entity by operation of law, shall be subject after such transfer to
the restrictions of said subparagraph (a).

         (c)  Lock-up. The Stockholder agrees that for a period of up to one
              -------
hundred eighty (180) days from the effective date of any registration of
securities of the Corporation (upon request of the Corporation or the
underwriters managing any underwritten offering of the Corporation's
securities), he will not sell, make any short sale or loan of, grant any option
for the purchase of, or otherwise dispose of any shares of Common Stock held by
him without the prior written consent of the Corporation or such underwriters,
as the case may be.

     2.  Transfer in Violation of this Agreement. If any transfer of shares
         ---------------------------------------
subject to this Agreement (including, without limitation, the Shares) is made or
attempted in violation of any provision of this Agreement, or if any such shares
are not offered to the Corporation as required hereby, the Corporation shall
have the right to purchase such shares from the owner thereof or his transferee
at any time before or after the transfer, as herein provided. In addition to any
other legal or equitable remedies which it may have, the Corporation may enforce
its rights by actions for specific performance (to the extent permitted by law).
The Corporation shall not be required (i) to transfer on its books any shares
which shall have been sold or transferred in violation of any provision of this
Agreement or (ii) to treat as the owner of such shares, or to pay dividends to,
any transferee to whom any such shares shall have been so sold or transferred.

     3.  Restrictive Legend. All certificates representing shares of Common
         ------------------
Stock held by the Stockholder which are subject to this Agreement shall have
affixed thereto a legend in

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substantially the following form, in addition to any other legends that may be
required by the Corporation in connection with compliance with federal or state
securities laws or otherwise:

          "The shares of stock represented by this certificate are subject to
          restrictions on transfer and/or an option to purchase set forth in a
          Stock Restriction Agreement between the Corporation and the registered
          owner of the shares represented by this certificate (or his
          predecessor in interest).  The Corporation will furnish a copy of such
          agreement to the holder of this certificate upon written request
          without charge."

The Stockholder shall cause such legend to be affixed to any such certificates
not so legended.

     4.  Disposition of Stock. Any shares (including the Shares) that the
         --------------------
Corporation elects to purchase hereunder may be disposed of by it in such manner
as it deems appropriate with or without restrictions on the transfer thereof,
and the Corporation may require their transfer to a nominee or designee as part
of this purchase of the shares from the Stockholder.

     5.  Parties. This Agreement shall be binding upon the parties hereto and
         -------
their heirs, legal representatives, successors and assigns (including, without
limitation, transferees described in Paragraph 1 hereof), and the rights and
obligations of the Stockholder hereunder may not be assigned or delegated
without the written consent of the Corporation.

     6.  Notices. All notices hereunder shall be in writing and shall be
         -------
delivered in hand or sent by registered or certified mail, postage prepaid,
return receipt requested, to the Corporation at its principal place of business
and to the Stockholder at his last known address or at the address, if any,
appearing on the books of the Corporation.

     7.  Other Agreements. The rights and obligations of the Stockholder
         ----------------
pursuant to this Agreement are in addition to and to be construed consistently
with the Stockholder's rights and obligations (including restrictions on the
Stockholder's right to dispose of shares of the Corporation's stock) contained
in any other agreement relating to the Corporation's right of first refusal that
the Stockholder executes before, on, or after the date hereof.

     8.  Waiver, Modification and Termination. The Corporation, by vote of its
         ------------------------------------
directors, may waive any of its rights hereunder either generally or with
respect to any or more specific transfers which have been proposed, attempted or
made. This Agreement may be modified or terminated by vote of the directors of
the Corporation and the written consent of the Stockholder.

     9.  Counterparts. This Agreement may be executed in one or more
         ------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single instrument.

     10. Governing Law. This Agreement shall be governed by, and construed and
         -------------
enforced in accordance with, the laws of the State of California, without regard
to its principles of conflicts of laws.

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     IN WITNESS WHEREOF, the Corporation and the Stockholder have executed this
Agreement as a contract under seal as of the day and year first above written.

                              SEQUENOM, INC.

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

                              STOCKHOLDER:

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

                                       4<PAGE>
                                                                   EXHIBIT 10.59

                                SEQUENOM, INC.

                           1999 STOCK INCENTIVE PLAN
                           -------------------------

                                  ARTICLE ONE

                              GENERAL PROVISIONS
                              ------------------

     I.   PURPOSE OF THE PLAN

          This 1999 Stock Incentive Plan is intended to promote the interests of
Sequenom, Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.

          Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.

     II.  STRUCTURE OF THE PLAN

          A.   The Plan shall be divided into five separate equity incentive
programs:

               -    the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,

               -    the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,

               -    the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),

               -    the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at designated
intervals over their period of continued Board service, and

               -    the Director Fee Option Grant Program under which non-
employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special stock option grant.
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          B.   The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.

     III. ADMINISTRATION OF THE PLAN

          A.   The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.  However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.

          B.   Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time.  The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.

          C.   Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable.  Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.

          D.   The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years.  However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.

          E.   Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee.  No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

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          F.   Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.

     IV.  ELIGIBILITY

          A.   The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

                    (i)   Employees,

                    (ii)  non-employee members of the Board or the board of
     directors of any Parent or Subsidiary, and

                    (iii) consultants and other independent advisors who provide
     services to the Corporation (or any Parent or Subsidiary).

          B.   Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.

          C.   Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.

          D.   The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.

          E.   The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date.  A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant

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under the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.

          F.   All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.

     V.   STOCK SUBJECT TO THE PLAN

          A.   The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market.  The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 4,750,000
shares.  Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under the Predecessor Plan, (ii) plus
an additional increase of approximately 850,000 shares to be approved by the
Corporation's stockholders prior to the Underwriting Date.

          B.   The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to four percent (4%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
2,000,000 shares.

          C.   No one person participating in the Plan may receive stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 1,000,000 shares of Common Stock in the aggregate per
calendar year.

          D.   Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two.  Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan.  However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and

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<PAGE>

not by the net number of shares of Common Stock issued to the holder of such
option or stock issuance. Shares of Common Stock underlying one or more stock
appreciation rights exercised under Section IV of Article Two, Section III of
Article Three, Section II of Article Five or Section III of Article Six of the
Plan shall not be available for subsequent issuance under the Plan.

          E.   If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and exercise
price per share in effect under each outstanding option incorporated into this
Plan from the Predecessor Plan and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year pursuant to the provisions of Section V.B of this Article One.  Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.

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<PAGE>

                                  ARTICLE TWO

                      DISCRETIONARY OPTION GRANT PROGRAM
                      ----------------------------------

     I.   OPTION TERMS

          Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
                                    --------
shall comply with the terms specified below.  Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

          A.   Exercise Price.
               --------------

               1.   The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.

               2.   The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or more
of the forms specified below:

                    (i)   cash or check made payable to the Corporation,

                    (ii)  shares of Common Stock held for the requisite period
     necessary to avoid a charge to the Corporation's earnings for financial
     reporting purposes and valued at Fair Market Value on the Exercise Date, or

                    (iii) to the extent the option is exercised for vested
     shares, through a special sale and remittance procedure pursuant to which
     the Optionee shall concurrently provide irrevocable instructions to (a) a
     Corporation-designated brokerage firm to effect the immediate sale of the
     purchased shares and remit to the Corporation, out of the sale proceeds
     available on the settlement date, sufficient funds to cover the aggregate
     exercise price payable for the purchased shares plus all applicable
     Federal, state and local income and employment taxes required to be
     withheld by the Corporation by reason of such exercise and (b) the
     Corporation to deliver the certificates for the purchased shares directly
     to such brokerage firm in order to complete the sale.

          Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

          B.   Exercise and Term of Options.  Each option shall be exercisable
               ----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option.  However, no option shall have a term in excess of ten
(10) years measured from the option grant date.

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<PAGE>

          C.   Effect of Termination of Service.
               --------------------------------

               1.   The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:

                    (i)   Any option outstanding at the time of the Optionee's
     cessation of Service for any reason shall remain exercisable for such
     period of time thereafter as shall be determined by the Plan Administrator
     and set forth in the documents evidencing the option, but no such option
     shall be exercisable after the expiration of the option term.

                    (ii)  Any option held by the Optionee at the time of death
     and exercisable in whole or in part at that time may be subsequently
     exercised by the personal representative of the Optionee's estate or by the
     person or persons to whom the option is transferred pursuant to the
     Optionee's will or the laws of inheritance or by the Optionee's designated
     beneficiary or beneficiaries of that option.

                    (iii) Should the Optionee's Service be terminated for
     Misconduct or should the Optionee otherwise engage in Misconduct while
     holding one or more outstanding options under this Article Two, then all
     those options shall terminate immediately and cease to be outstanding.

                    (iv)  During the applicable post-Service exercise period,
     the option may not be exercised in the aggregate for more than the number
     of vested shares for which the option is exercisable on the date of the
     Optionee's cessation of Service. Upon the expiration of the applicable
     exercise period or (if earlier) upon the expiration of the option term, the
     option shall terminate and cease to be outstanding for any vested shares
     for which the option has not been exercised. However, the option shall,
     immediately upon the Optionee's cessation of Service, terminate and cease
     to be outstanding to the extent the option is not otherwise at that time
     exercisable for vested shares.

               2.   The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:

                    (i)   extend the period of time for which the option is to
     remain exercisable following the Optionee's cessation of Service from the
     limited exercise period otherwise in effect for that option to such greater
     period of time as the Plan Administrator shall deem appropriate, but in no
     event beyond the expiration of the option term, and/or

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<PAGE>

                    (ii)  permit the option to be exercised, during the
     applicable post-Service exercise period, not only with respect to the
     number of vested shares of Common Stock for which such option is
     exercisable at the time of the Optionee's cessation of Service but also
     with respect to one or more additional installments in which the Optionee
     would have vested had the Optionee continued in Service.

          D.   Stockholder Rights.  The holder of an option shall have no
               ------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

          E.   Repurchase Rights.  The Plan Administrator shall have the
               -----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock.  Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares.  The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.

          F.   Limited Transferability of Options.  During the lifetime of the
               ----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death.  Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order.  The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and  those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options.  Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.

     II.  INCENTIVE OPTIONS

          The terms specified below shall be applicable to all Incentive
Options.  Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options.  Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section II.
                                 ---

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<PAGE>

          A.   Eligibility.  Incentive Options may only be granted to Employees.
               -----------

          B.   Dollar Limitation.  The aggregate Fair Market Value of the shares
               -----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000).  To the extent
the Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

          C.   10% Stockholder.  If any Employee to whom an Incentive Option is
               ---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.

     III. CORPORATE TRANSACTION/CHANGE IN CONTROL

          A.   In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock.  However, an outstanding option shall not become
exercisable on such an accelerated basis if and to the extent:  (i) such option
is, in connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.

          B.   All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.

          C.   Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

                                       9
<PAGE>

          D.   Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
--------
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year and (iv) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year. To the extent the actual holders of the Corporation's outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.

          E.   The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those  options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction.  In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.

          F.   The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those  options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
and do not otherwise accelerate.  In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.

                                       10
<PAGE>

          G.   The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.

          H.   The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded.  To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.

          I.   The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

     IV.  CANCELLATION AND REGRANT OF OPTIONS

          The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.

     V.   STOCK APPRECIATION RIGHTS

          A.   The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.

          B.   The following terms shall govern the grant and exercise of tandem
stock appreciation rights:

                                       11
<PAGE>

                    (i)   One or more Optionees may be granted the right,
     exercisable upon such terms as the Plan Administrator may establish, to
     elect between the exercise of the underlying option for shares of Common
     Stock and the surrender of that option in exchange for a distribution from
     the Corporation in an amount equal to the excess of (a) the Fair Market
     Value (on the option surrender date) of the number of shares in which the
     Optionee is at the time vested under the surrendered option (or surrendered
     portion thereof) over (b) the aggregate exercise price payable for such
     shares.

                    (ii)  No such option surrender shall be effective unless it
     is approved by the Plan Administrator, either at the time of the actual
     option surrender or at any earlier time. If the surrender is so approved,
     then the distribution to which the Optionee shall be entitled may be made
     in shares of Common Stock valued at Fair Market Value on the option
     surrender date, in cash, or partly in shares and partly in cash, as the
     Plan Administrator shall in its sole discretion deem appropriate.

                    (iii) If the surrender of an option is not approved by the
     Plan Administrator, then the Optionee shall retain whatever rights the
     Optionee had under the surrendered option (or surrendered portion thereof)
     on the option surrender date and may exercise such rights at any time prior
     to the later of (a) five (5) business days after the receipt of the
            -----
     rejection notice or (b) the last day on which the option is otherwise
     exercisable in accordance with the terms of the documents evidencing such
     option, but in no event may such rights be exercised more than ten (10)
     years after the option grant date.

          C.   The following terms shall govern the grant and exercise of
limited stock appreciation rights:

                    (i)   One or more Section 16 Insiders may be granted limited
     stock appreciation rights with respect to their outstanding options.

                    (ii)  Upon the occurrence of a Hostile Take-Over, each
     individual holding one or more options with such a limited stock
     appreciation right shall have the unconditional right (exercisable for a
     thirty (30)-day period following such Hostile Take-Over) to surrender each
     such option to the Corporation. In return for the surrendered option, the
     Optionee shall receive a cash distribution from the Corporation in an
     amount equal to the excess of (A) the Take-Over Price of the shares of
     Common Stock at the time subject to such option (whether or not the option
     is otherwise at that time exercisable for those shares) over (B) the
     aggregate exercise price payable for those shares. Such cash distribution
     shall be paid within five (5) days following the option surrender date.

                                       12
<PAGE>

                    (iii) At the time such limited stock appreciation right is
     granted, the Plan Administrator shall pre-approve any subsequent exercise
     of that right in accordance with the terms of this Paragraph C.
     Accordingly, no further approval of the Plan Administrator or the Board
     shall be required at the time of the actual option surrender and cash
     distribution.

                                       13
<PAGE>

                                 ARTICLE THREE

                    SALARY INVESTMENT OPTION GRANT PROGRAM
                    --------------------------------------

     I.   OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years.  Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00).   Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.

     II.  OPTION TERMS

          Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
                                                          --------
that each such document shall comply with the terms specified below.

          A.   Exercise Price.
               --------------

               1.   The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.

               2.   The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program.  Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

          B.   Number of Option Shares.  The number of shares of Common Stock
               -----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

               X = A / (B x 66-2/3%), where

               X is the number of option shares,

                                       14
<PAGE>

               A is the dollar amount of the reduction in the Optionee's base
          salary for the calendar year to be in effect pursuant to this program,
          and

               B is the Fair Market Value per share of Common Stock on the
          option grant date.

          C.   Exercise and Term of Options.  The option shall become
               ----------------------------
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect.  Each option shall have a
maximum term of ten (10) years measured from the option grant date.

          D.   Effect of Termination of Service.  Should the Optionee cease
               --------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
                   -------
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service.  Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of the option.  Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten (10)-
                                 -------
year option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service.  However, the option shall, immediately upon
the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.

     III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER

          A.   In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock.  Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction.  Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
                        -------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.

                                       15
<PAGE>

          B.   In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
--------
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction  or (iv) the surrender of the option in
connection with a Hostile Take-Over.

          C.   Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program.  The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares.  Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation.  The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C.  Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.

          D.   Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------
payable for such securities shall remain the same.  To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Salary Investment Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

          E.   The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

                                       16
<PAGE>

     IV.  REMAINING TERMS

          The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                       17
<PAGE>

                                 ARTICLE FOUR

                            STOCK ISSUANCE PROGRAM
                            ----------------------

     I.   STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.  Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.

          A.   Purchase Price.
               --------------

               1.   The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.

               2.   Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

                    (i)   cash or check made payable to the Corporation, or

                    (ii)  past services rendered to the Corporation (or any
     Parent or Subsidiary).

          B.   Vesting Provisions.
               ------------------

               1.   Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives.  The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement.   Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.

               2.   Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or

                                       18
<PAGE>

other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

               3.   The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested.  Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

               4.   Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares.  To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.

               5.   The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares.  Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies.  Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.

               6.   Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained.  The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.

     II.  CORPORATE TRANSACTION/CHANGE IN CONTROL

          A.   All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.

                                       19
<PAGE>

          B.   The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).

          C.   The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.

     III. SHARE ESCROW/LEGENDS

     Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.

                                       20
<PAGE>

                                 ARTICLE FIVE

                        AUTOMATIC OPTION GRANT PROGRAM
                        ------------------------------

     I.   OPTION TERMS

          A.   Grant Dates.  Option grants shall be made on the dates specified
               -----------
below:

               1.   Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 15,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.

               2.   On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as a non-
employee Board member, whether or not that individual is standing for re-
election to the Board at that particular Annual Meeting, shall automatically be
granted a Non-Statutory Option to purchase 3,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months.  There shall be no limit on the number of such 3,000-share
option grants any one non-employee Board member may receive over his or her
period of Board service, and non-employee Board members who have previously been
in the employ of the Corporation (or any Parent or Subsidiary) or who have
otherwise received one or more stock option grants from the Corporation prior to
the Underwriting Date shall be eligible to receive one or more such annual
option grants over their period of continued Board service.

          B.   Exercise Price.
               --------------

               1.   The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.

               2.   The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

          C.   Option Term.  Each option shall have a term of ten (10) years
               -----------
measured from the option grant date.

          D.   Exercise and Vesting of Options.  Each option shall be
               -------------------------------
immediately exercisable for any or all of the option shares.  However, any
unvested shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares.  The shares subject to each
initial 15,000-share grant shall vest, and the Corporation's repurchase right
shall lapse, in a series of three (3) successive equal annual installments upon
the Optionee's

                                       21
<PAGE>

completion of each year of service as a Board member over the three (3)-year
period measured from the option grant date. The shares subject to each annual
3,000-share option grant shall vest in one installment upon the Optionee's
completion of the one (1)-year period of service measured from the grant date.

          E.   Limited Transferability of Options.  Each option under this
               ----------------------------------
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with the Optionee's estate plan
or pursuant to domestic relations order.  The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.  The Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Five, and  those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options.  Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.

          F.   Termination of Board Service.  The following provisions shall
               ----------------------------
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:

                    (i)   The Optionee (or, in the event of Optionee's death,
     the personal representative of the Optionee's estate or the person or
     persons to whom the option is transferred pursuant to the Optionee's will
     or the laws of inheritance or the designated beneficiary or beneficiaries
     of such option) shall have a twelve (12)-month period following the date of
     such cessation of Board service in which to exercise each such option.

                    (ii)  During the twelve (12)-month exercise period, the
     option may not be exercised in the aggregate for more than the number of
     vested shares of Common Stock for which the option is exercisable at the
     time of the Optionee's cessation of Board service.

                    (iii) Should the Optionee cease to serve as a Board member
     by reason of death or Permanent Disability, then all shares at the time
     subject to the option shall immediately vest so that such option may,
     during the twelve (12)-month exercise period following such cessation of
     Board service, be exercised for all or any portion of those shares as fully
     vested shares of Common Stock.

                                       22
<PAGE>

                    (iv)  In no event shall the option remain exercisable after
     the expiration of the option term. Upon the expiration of the twelve (12)-
     month exercise period or (if earlier) upon the expiration of the option
     term, the option shall terminate and cease to be outstanding for any vested
     shares for which the option has not been exercised. However, the option
     shall, immediately upon the Optionee's cessation of Board service for any
     reason other than death or Permanent Disability, terminate and cease to be
     outstanding to the extent the option is not otherwise at that time
     exercisable for vested shares.

     II.  CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER

          A.   In the event of any Corporate Transaction while the Optionee
remains a Board member, the shares of Common Stock at the time subject to each
outstanding option but not otherwise vested shall automatically vest in full so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become exercisable for all the option shares as fully
vested shares of Common Stock and may be exercised for any or all of those
vested shares.  Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

          B.   In connection with any Change in Control while the Optionee
remains a Board member, the shares of Common Stock at the time subject to each
outstanding option but not otherwise vested shall automatically vest in full so
that each such option shall, immediately prior to the effective date of the
Change in Control, become exercisable for all the option shares as fully vested
shares of Common Stock and may be exercised for any or all of those vested
shares. Each such option shall remain exercisable for such fully vested option
shares until the expiration or sooner termination of the option term or the
surrender of the option in connection with a Hostile Take-Over.

          C.   All outstanding repurchase rights under this Article Five shall
automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction or Change in Control.

          D.   Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants.  The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares.  Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation.  No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.

                                       23
<PAGE>

          E.   Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Automatic Option Grant Program, substitute one or more shares
of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

          F.   The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

     III. REMAINING TERMS

          The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.

                                       24
<PAGE>

                                  ARTICLE SIX

                       DIRECTOR FEE OPTION GRANT PROGRAM
                       ---------------------------------

     I.   OPTION GRANTS

          The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect.  For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program.  Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable.  Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.

     II.  OPTION TERMS

          Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.

          A.   Exercise Price.
               --------------

          1.   The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.

          2.   The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

          B.   Number of Option Shares.  The number of shares of Common Stock
               -----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):

               X = A / (B x 66-2/3%), where

               X is the number of option shares,

               A is the portion of the annual retainer fee subject to the non-
          employee Board member's election, and

                                       25
<PAGE>

               B is the Fair Market Value per share of Common Stock on the
          option grant date.

               C.   Exercise and Term of Options.  The option shall become
                    ----------------------------
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each calendar month of Board service during the
calendar year for which the retainer fee election is in effect.  Each option
shall have a maximum term of ten (10) years measured from the option grant date.

               D.   Limited Transferability of Options.  Each option under this
                    ----------------------------------
Article Six may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order.  The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.  The Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Six, and  those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options.  Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.

               E.   Termination of Board Service.  Should the Optionee cease
                    ----------------------------
Board service for any reason (other than death or Permanent Disability) while
holding one or more options under this Director Fee Option Grant Program, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Board service,
until the earlier of (i) the expiration of the ten (10)-year option term or
          -------
(ii) the expiration of the three (3)-year period measured from the date of such
cessation of Board service. However, each option held by the Optionee under this
Director Fee Option Grant Program at the time of his or her cessation of Board
service shall immediately terminate and cease to remain outstanding with respect
to any and all shares of Common Stock for which the option is not otherwise at
that time exercisable.

               F.   Death or Permanent Disability.  Should the Optionee's
                    -----------------------------
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee under this Director Fee Option Grant Program
shall immediately become exercisable for all the shares of Common Stock at the
time subject to that option, and the option may be exercised for any or all of
those shares as fully vested shares until the earlier of (i) the expiration of
                                              -------
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from

                                       26
<PAGE>

the date of such cessation of Board service.  In the event of the Optionee's
death while holding such option, the option may be exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or the laws of inheritance
or by the designated beneficiary or beneficiaries of such option.

                    Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
-------
three (3)-year period measured from the date of the Optionee's cessation of
Board service.

     III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

          A.   In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock.  Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction.  Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
                        -------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.

          B.   In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock.  The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
--------
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.

          C.   Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program.  The Optionee shall in return be

                                       27
<PAGE>

entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the option is otherwise at
the time exercisable for those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.

          D.   Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
                                     --------
payable for such securities shall remain the same.  To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Director Fee Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

          E.   The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

     IV.  REMAINING TERMS

          The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.

                                       28
<PAGE>

                                 ARTICLE SEVEN

                                 MISCELLANEOUS
                                 -------------

     I.   FINANCING

          The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments.  The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion.  In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

     II.  TAX WITHHOLDING

          A.   The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.

          B.   The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares.  Such right may be provided to any such holder
in either or both of the following formats:

               Stock Withholding:  The election to have the Corporation
               -----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

               Stock Delivery:  The election to deliver to the Corporation, at
               --------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

                                       29
<PAGE>

     III. EFFECTIVE DATE AND TERM OF THE PLAN

          A.   The Plan shall become effective immediately on the Plan Effective
Date.  However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate.  Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time.  However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders.  If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.

          B.   The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date.  All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.

          C.   One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.

          D.   The Plan shall terminate upon the earliest to occur of (i)
                                                 --------
November 6, 2009, (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction.  Should
the Plan terminate on November 6, 2009, then all option grants and unvested
stock issuances outstanding at that time shall continue to have force and effect
in accordance with the provisions of the documents evidencing such grants or
issuances.

     IV.  AMENDMENT OF THE PLAN

          A.   The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects.  However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification.  In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.

                                       30
<PAGE>

          B.   Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan.  If such stockholder approval is not obtained
within twelve (12) months after the date the first such excess issuances are
made, then (i) any unexercised options granted on the basis of such excess
shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.

     V.   USE OF PROCEEDS

          Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

     VI.  REGULATORY APPROVALS

          A.   The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.

          B.   No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

     VII. NO EMPLOYMENT/SERVICE RIGHTS

          Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

                                       31
<PAGE>

                                   APPENDIX

          The following definitions shall be in effect under the Plan:

          A.   Automatic Option Grant Program shall mean the automatic option
               ------------------------------
grant program in effect under Article Five of the Plan.

          B.   Board shall mean the Corporation's Board of Directors.
               -----

          C.   Change in Control shall mean a change in ownership or control of
               -----------------
the Corporation effected through either of the following transactions:

                    (i) the acquisition, directly or indirectly by any
     person or related group of persons (other than the Corporation or
     a person that directly or indirectly controls, is controlled by,
     or is under common control with, the Corporation), of beneficial
     ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
     securities possessing more than fifty percent (50%) of the total
     combined voting power of the Corporation's outstanding securities
     pursuant to a tender or exchange offer made directly to the
     Corporation's stockholders, or

                    (ii) a change in the composition of the Board over
     a period of thirty-six (36) consecutive months or less such that
     a majority of the Board members ceases, by reason of one or more
     contested elections for Board membership, to be comprised of
     individuals who either (A) have been Board members continuously
     since the beginning of such period or (B) have been elected or
     nominated for election as Board members during such period by at
     least a majority of the Board members described in clause (A) who
     were still in office at the time the Board approved such election
     or nomination.

          D.   Code shall mean the Internal Revenue Code of 1986, as amended.
               ----

          E.   Common Stock shall mean the Corporation's common stock.
               ------------

          F.   Corporate Transaction shall mean either of the following
               ---------------------
stockholder-approved transactions to which the Corporation is a party:

                    (i) a merger or consolidation in which securities
     possessing more than fifty percent (50%) of the total combined
     voting power of the Corporation's outstanding securities are
     transferred to a person or persons different from the persons
     holding those securities immediately prior to such transaction,
     or

                    (ii) the sale, transfer or other disposition of
     all or substantially all of the Corporation's assets in complete
     liquidation or dissolution of the Corporation.

                                       A-1.
<PAGE>

          G.   Corporation shall mean Sequenom, Inc., a Delaware corporation,
               -----------
and any corporate successor to all or substantially all of the assets or voting
stock of Sequenom, Inc. which shall by appropriate action adopt the Plan.

          H.   Director Fee Option Grant Program shall mean the special stock
               ---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.

          I.   Discretionary Option Grant Program shall mean the discretionary
               ----------------------------------
option grant program in effect under Article Two of the Plan.

          J.   Employee shall mean an individual who is in the employ of the
               --------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

          K.   Exercise Date shall mean the date on which the Corporation shall
               -------------
have received written notice of the option exercise.

          L.   Fair Market Value per share of Common Stock on any relevant date
               -----------------
shall be determined in accordance with the following provisions:

                    (i) If the Common Stock is at the time traded on
     the Nasdaq National Market, then the Fair Market Value shall be
     the closing selling price per share of Common Stock on the date
     in question, as such price is reported by the National
     Association of Securities Dealers on the Nasdaq National Market
     and reported in The Wall Street Journal. If there is no closing
                     -----------------------
     selling price for the Common Stock on the date in question, then
     the Fair Market Value shall be the closing selling price on the
     last preceding date for which such quotation exists.

                    (ii) If the Common Stock is at the time listed on
     any Stock Exchange, then the Fair Market Value shall be the
     closing selling price per share of Common Stock on the date in
     question on the Stock Exchange determined by the Plan
     Administrator to be the primary market for the Common Stock, as
     such price is officially quoted in the composite tape of
     transactions on such exchange and reported in The Wall Street
                                                   ---------------
     Journal. If there is no closing selling price for the Common
     -------
     Stock on the date in question, then the Fair Market Value shall
     be the closing selling price on the last preceding date for which
     such quotation exists.

                    (iii) For purposes of any option grants made on
     the Underwriting Date, the Fair Market Value shall be deemed to
     be equal to the price per share at which the Common Stock is to
     be sold in the initial public offering pursuant to the
     Underwriting Agreement.

                                      A-2
<PAGE>

          M.   Hostile Take-Over shall mean the acquisition, directly or
               -----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.

          N.   Incentive Option shall mean an option which satisfies the
               ----------------
requirements of Code Section 422.

          O.   Involuntary Termination shall mean the termination of the Service
               -----------------------
of any individual which occurs by reason of:

                    (i) such individual's involuntary dismissal or
     discharge by the Corporation for reasons other than Misconduct,
     or

                    (ii) such individual's voluntary resignation
     following (A) a change in his or her position with the
     Corporation which materially reduces his or her duties and
     responsibilities or the level of management to which he or she
     reports, (B) a reduction in his or her level of compensation
     (including base salary, fringe benefits and target bonus under
     any corporate-performance based bonus or incentive programs) by
     more than fifteen percent (15%) or (C) a relocation of such
     individual's place of employment by more than fifty (50) miles,
     provided and only if such change, reduction or relocation is
     effected by the Corporation without the individual's consent.

          P.   Misconduct shall mean the commission of any act of fraud,
               ----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner.  The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

          Q.   1934 Act shall mean the Securities Exchange Act of 1934, as
               --------
amended.

          R.   Non-Statutory Option shall mean an option not intended to satisfy
               --------------------
the requirements of Code Section 422.

          S.   Optionee shall mean any person to whom an option is granted under
               --------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.

                                      A-3
<PAGE>

          T.   Parent shall mean any corporation (other than the Corporation) in
               ------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

          U.   Participant shall mean any person who is issued shares of Common
               -----------
Stock under the Stock Issuance Program.

          V.   Permanent Disability or Permanently Disabled shall mean the
               --------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.  However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

          W.   Plan shall mean the Corporation's 1999 Stock Incentive Plan, as
               ----
set forth in this document.

          X.   Plan Administrator shall mean the particular entity, whether the
               ------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.

          Y.   Plan Effective Date shall mean the date the Plan shall become
               -------------------
effective and shall be coincident with the Underwriting Date.

          Z.   Predecessor Plan shall mean the Corporation's 1998 Stock
               ----------------
Option/Stock Issuance Plan in effect immediately prior to the Plan Effective
Date hereunder.

          AA.  Primary Committee shall mean the committee of two (2) or more
               -----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.

          BB.  Salary Investment Option Grant Program shall mean the salary
               --------------------------------------
investment option grant program in effect under Article Three of the Plan.

          CC.  Secondary Committee shall mean a committee of one or more Board
               -------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.

                                      A-4
<PAGE>

          DD.  Section 16 Insider shall mean an officer or director of the
               ------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

          EE.  Service shall mean the performance of services for the
               -------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.

          FF.  Stock Exchange shall mean either the American Stock Exchange or
               --------------
the New York Stock Exchange.

          GG.  Stock Issuance Agreement shall mean the agreement entered into by
               ------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

          HH.  Stock Issuance Program shall mean the stock issuance program in
               ----------------------
effect under Article Four of the Plan.

          II.  Subsidiary shall mean any corporation (other than the
               ----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

          JJ.  Take-Over Price shall mean the greater of (i) the Fair Market
               ---------------                -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over.  However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.

          KK.  10% Stockholder shall mean the owner of stock (as determined
               ---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

          LL.  Underwriting Agreement shall mean the agreement between the
               ----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

          MM.  Underwriting Date shall mean the date on which the Underwriting
               -----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.

          NN.  Withholding Taxes shall mean the Federal, state and local income
               -----------------
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.

                                       36

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