Document:

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                                                                   EXHIBIT 10.41

                              APPLIED IMAGING CORP.

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (the "Agreement") is made and entered into
effective as of October 19, 2001 (the "Effective Date"), by and between
______________ (the "Employee") and Applied Imaging Corp., a Delaware
corporation (the "Company"). Certain capitalized terms used in this Agreement
are defined in Section 1 below.

                                 R E C I T A L S
                                 ---------------

     A. It is expected that the Company from time to time will consider the
possibility of a transaction involving the merger with or acquisition by another
company (a "Change of Control," as defined below). The Board of Directors of the
Company (the "Board") recognizes that such a transaction could be a distraction
to the Employee and could cause the Employee to consider alternative employment
opportunities.

     B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his
employment and to maximize the value of the Company upon a Change of Control for
the benefit of its stockholders.

     C. In order to provide the Employee with enhanced financial security and
sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Employee with certain benefits upon the Employee's termination of
employment following a Change of Control.

                                    AGREEMENT
                                    ---------

     In consideration of the mutual covenants herein contained and the continued
employment of Employee by the Company, the parties agree as follows:

     1. Definition of Terms. The following terms referred to in this Agreement
        -------------------
shall have the following meanings:

        (a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken
            -----
by the Employee in connection with his responsibilities as an employee which is
intended to result in personal enrichment of the Employee, (ii) Employee's
conviction of a felony which the Board reasonably believes has had or will have
a material detrimental effect on the Company's reputation or business, (iii) a
willful act by the Employee which constitutes misconduct and is injurious to the
Company, or (iv) continued willful violations by the Employee of the Employee's
obligations to the Company after there has been delivered to the Employee a
written demand for performance from the Company which describes the basis for
the Company's belief that the Employee has not substantially performed his/her
duties.

<PAGE>

        (b)  Change of Control. "Change of Control" shall mean the occurrence of
             -----------------
any of the following events:

             (i)   the approval by stockholders of the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;

             (ii)  the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets;

             (iii) any "person" (as such term is used in Sections 13(d) and 14
(d) of the Securities Exchange Act of 1934, as amended) becoming the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities; or

             (iv)  a change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those directors whose
election or nomination was not in connection with any transactions described in
subsections (i), (ii), or (iii) or in connection with an actual or threatened
proxy contest relating to the election of directors of the Company.

        (c)  Involuntary Termination. "Involuntary Termination" shall mean (i)
             -----------------------
without the Employee's express written consent, a significant reduction of the
Employee's duties, position or responsibilities relative to the Employee's
duties, position or responsibilities in effect immediately prior to such
reduction, or the removal of the Employee from such position, duties and
responsibilities, unless the Employee is provided with comparable duties,
position and responsibilities; provided, however, that a reduction in duties,
position or responsibilities solely by virtue of the Company being acquired and
made part of a larger entity (as, for example, when the Chief Executive Officer
of the Company retains his or her responsibilities following a Change of Control
but is not made the Chief Executive Officer of the acquiring corporation) shall
not constitute an "Involuntary Termination;" (ii) without the Employee's express
written consent, a substantial reduction, without good business reasons, of the
facilities and perquisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) following a Change of
Control, without the Employee's express written consent, a reduction by the
Company of the Employee's base salary as in effect immediately prior to such
reduction; (iv) following a Change of Control, without the Employee's express
written consent, a material reduction by the Company in the kind or level of
employee benefits to which the Employee is entitled immediately prior to such

                                      -2-

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reduction with the result that the Employee's overall benefits package is
significantly reduced; (v) following a Change of (c) Control, without the
Employee's express written consent, the relocation of the Employee to a facility
or a location more than thirty-five (35) miles from his current location; (vi)
any purported termination of the Employee by the Company which is not effected
for Cause or for which the grounds relied upon are not valid; or (vii) the
failure of the Company to obtain the assumption of this Agreement by any
successors contemplated in Section 8 below.

            (d) Termination Date. "Termination Date" shall mean the effective
                ----------------
date of any notice of termination delivered by one party to the other hereunder.

     2. Appointment, Responsibilities and Remuneration. Employee is confirmed as
        ----------------------------------------------
Vice President, ____________ of the Company. Employee agrees to perform all
services appropriate to that position and such other services as may reasonably
be assigned by the Company. Employee shall devote his/her best efforts and
full-time attention to the performance of his/her duties and shall not accept
any other employment or engage in any other business, commercial or professional
activity that is or may be competitive with the Company, that might create a
conflict of interest with the Company, or that may otherwise interfere with the
business of the Company or any affiliate. Employee may serve as a director or as
a member of the advisory board of any other company provided that he complies
with the restrictions contained herein or in any relevant non-disclosure
agreement.

     Employee's salary shall be $_________ per year, payable on the Company's
normal payroll schedule. In addition to salary, Employee (i) will be eligible to
receive a cash bonus of up to ___% of annual salary, based on achievement of
mutually agreed objectives set by the Company's Board of Directors; and, (ii)
shall be entitled to receive all benefits provided by the Company to its
employees. Notwithstanding the foregoing, it is explicitly understood that the
Company reserves the right to make any reductions to the employee's salary at
any time prior to a change of control for any reason and that such salary
reduction will not constitute an involuntary termination for purposes of this
Agreement, provided that such reduction does not exceed 30%.

     3. Term of Agreement. This Agreement shall terminate upon the date that all
        -----------------
obligations of the parties hereto under this Agreement have been satisfied or,
if earlier, on the date, prior to a Change of Control, Employee is no longer
employed by the Company.

     4. At-Will Employment. The Company and the Employee acknowledge that the
        ------------------
Employee's employment is and shall continue to be for no specified duration
("at-will," as defined under applicable law) and may be terminated at any time
by either party. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
established under the Company's then existing employee benefit plans or policies
at the time of termination.

                                      -3-

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     5. Change of Control Benefits. Provided that Employee's status as a
        --------------------------
full-time employee of the Company continues immediately prior to a Change of
Control, all stock options granted by the Company to the Employee prior to the
Change of Control shall become fully vested and exercisable to the extent such
stock options are outstanding and unexercisable at the time of such Change of
Control;

     6. Severance Benefits.
        ------------------

        (a)   Termination Following A Change of Control. If the Employee's
              -----------------------------------------
employment with the Company terminates as a result of an Involuntary Termination
at any time within twelve (12) months after a Change of Control, Employee shall
be entitled to the following severance benefits:

              (i)   _______ months of Employee's base salary as in effect as
of the date of such termination, less applicable withholding, payable in a lump
sum within thirty (30) days of the Involuntary Termination;

              (ii)  all stock options granted by the Company to the Employee
following the Change of Control shall become fully vested and exercisable as of
the date of the termination to the extent such stock options are outstanding and
unexercisable at the time of such termination;

              (iii) the same level of health (i.e., medical, vision and dental)
coverage and benefits as in effect for the Employee on the day immediately
preceding the day of the Employee's termination of employment; provided,
however, that (i) the Employee constitutes a qualified beneficiary, as defined
in Section 4980B(g)(1) of the Internal Revenue Code of 1986, as amended; and
(ii) Employee elects continuation coverage pursuant to the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), within the time period
prescribed pursuant to COBRA. The Company shall continue to provide Employee
with health coverage until the earlier of (i) the date Employee is no longer
eligible to receive continuation coverage pursuant to COBRA, or (ii) ______
months from the termination date.

              (iv)  in the event that the Employee's employment with the Company
terminates other than as a result of an Involuntary Termination within the
twelve (12) months following a Change of Control, then the Employee shall not be
entitled to receive severance or other benefits hereunder, but may be eligible
for those benefits (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
termination which had been extended to Employee and are applicable as a result
of the nature of Employee's termination.

        (b) Termination Apart from a Change of Control. In the event the Company
            ------------------------------------------
terminates Employee's employment, except for Cause, and no Change of Control
event has occurred, the Company will, at Company's election, either make a lump
sum payment to Employee equal to ___% of Employee's annual salary, less any
ordinary withholding, or, make severance payments to Employee (b) each payroll
period for ___ months following the termination date in an amount totalling ___%
of employee's annual salary, less ordinary withholding. Employee will also
receive health benefits (i.e., medical, vision and dental) as defined in
Paragraph 6(a)(iii) above until the earlier of

                                      -4-

<PAGE>

months following the termination date or the date on which Employee obtains
health benefits from a new employer. If the Employee's employment with the
Company terminates other than as a result of an Involuntary Termination then the
Employee shall not be entitled to receive severance or other benefits hereunder,
but may be eligible for those benefits (if any) as may then be established under
the Company's then existing severance and benefits plans and policies at the
time of such termination which had been extended to Employee and are applicable
as a result of the nature of Employee's termination.

              (c)   Accrued Wages and Vacation; Expenses. Without regard to the
                    ------------------------------------
reason for, or the timing of, Employee's termination of employment: (i) the
Company shall pay the Employee any unpaid base salary due for periods prior to
the Termination Date; (ii) the Company shall pay the Employee all of the
Employee's accrued and unused vacation through the Termination Date; and (iii)
following submission of proper expense reports by the Employee, the Company
shall reimburse the Employee for all expenses reasonably and necessarily
incurred by the Employee in connection with the business of the Company prior to
the Termination Date. These payments shall be made promptly upon termination and
within the period of time mandated by law.

        7.    Limitation on Payments. In the event that the severance and other
              ----------------------
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the Code,
and (ii) would be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), then Employee's benefits under this Agreement shall be
either

              (a)   delivered in full, or

              (b)   delivered as to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax,

        whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the Excise Tax, results in the receipt
by Employee on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code.

        Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Employee and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Section 280G and 4999 of the Code.
The Company and the Employee shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.

                                      -5-

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              8.    Successors.
                    ----------

                    (a)   Company's Successor. Any successor to the Company
                          -------------------
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets shall assume the Company's obligations under
this Agreement and agrees expressly to perform the Company's obligations under
this Agreement in the same manner and to the same extent as the Company would be
required to perform such obligations in the absence of a succession. For all
purposes under this Agreement, the term "Company" shall include any successor to
the Company's business and/or assets which executes and delivers the assumption
agreement described in this subsection (a) or which becomes bound by the terms
of this Agreement by operation of law.

                    (b)   Employee's Successors. Without the written consent of
                          ---------------------
the Company, Employee shall not assign or transfer this Agreement or any right
or obligation under this Agreement to any other person or entity.
Notwithstanding the foregoing, the terms of this Agreement and all rights of
Employee hereunder shall inure to the benefit of, and be enforceable by,
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

             9.     Notices.
                    -------

                    (a)   General. Notices and all other communications
                          -------
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given (i) when personally delivered, (ii) five (5) days after mailing
by U.S. registered or certified mail, return receipt requested and postage
prepaid, or (iii) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. In the case of the Employee, mailed notices shall be addressed to him
at the home address which he most recently communicated to the Company in
writing. In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its President.

                    (b)   Notice of Termination. Any termination by the Company
                          ---------------------
for Cause or by the Employee as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with this Section 9. Such notice shall
indicate the specific termination provision in this Agreement relied upon, shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
Termination Date (which shall be not more than 30 days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his/her rights hereunder.

            10.     Arbitration.
                    -----------

                    (a)   Any dispute or controversy arising out of, relating
to, or in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination

                                      -6-

<PAGE>

hereof, shall be settled by binding arbitration to be held in Santa Clara
County, California, in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association (the
"Rules"). The arbitrator may grant injunctions or other relief in such dispute
or controversy. The decision of the arbitrator shall be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction.

              (b)   The arbitrator shall apply California law to the merits of
any dispute or claim, without reference to conflicts of law rules. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Employee hereby consents to
the personal jurisdiction of the state and federal courts located in California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.

              (c)   Employee understands that nothing in this Section modifies
Employee's at-will employment status. Either Employee or the Company can
terminate the employment relationship at any time, with or without Cause.

              (d)   EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
HEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A
JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS
OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING CLAIMS:

                    (i)   ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT
OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR
PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.

                    (ii)  ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE
OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL
RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR
CODE SECTION 201, et seq;

                    (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

                                      -7-

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         11.  Miscellaneous Provisions.
              ------------------------

              (a)   No Duty to Mitigate. The Employee shall not be required to
                    -------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.

              (b)   Waiver. No provision of this Agreement may be modified,
                    ------
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by the Chairman of the Compensation
Committee of the Company's Board of Directors. No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.

              (c)   Integration. This Agreement and any outstanding stock option
                    -----------
or stock purchase agreements along with the Employment Confidential Information
and Invention Assignment Agreement represent the entire agreement and
understanding between the parties as to the subject matter herein and supersede
all prior or contemporaneous agreements, whether written or oral, with respect
to this Agreement and any stock option or stock purchase agreement. It is
understand that the terms of the Employment Confidential Information and
Invention Assignment Agreement shall survive any termination of Employee's
employment, either voluntary or involuntary.

              (d)   Choice of Law. The validity, interpretation, construction
                    -------------
and performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of California.

              (e)   Severability. The invalidity or unenforceability of any
                    ------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

              (f)   Employment Taxes. All payments made pursuant to this
                    ----------------
Agreement shall be subject to withholding of applicable income and employment
taxes.

              (g)   Counterparts. This Agreement may be executed in
                    ------------
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

                                      -8-

<PAGE>

        IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.

COMPANY:                                      APPLIED IMAGING CORP.

                                              By:
                                                 ------------------------------
                                              Title: President & CEO
                                                    ---------------------------

EMPLOYEE:
                                              ---------------------------------
                                              Signature

                                              ---------------------------------
                                              Printed Name<PAGE>

                                                                   EXHIBIT 10.42

                             APPLIED IMAGING, CORP.
                           RETENTION INCENTIVE PROGRAM

                           EFFECTIVE OCTOBER 19, 2001

I.   ABOUT THE PLAN
-    --------------

The Applied Imaging, Corp. Retention Incentive Program (the "Program") has been
established for eligible Participants of Applied Imaging, Corp., a Delaware
corporation, (the "Company") in order to provide appropriate retention
incentives to key officers and directors.

A Retention Bonus (if any) paid to you under the Program is in addition to any
other incentives, pay or other benefits to which you may be entitled from the
Company.

II.  ELIGIBILITY
     -----------

You are eligible to participate in the Program (that is, to become a
"Participant") if one of the following conditions is satisfied:

..    you are an Officer, or

..    you are an Outside Director.

III. QUALIFYING FOR A RETENTION BONUS
     --------------------------------

     A.  General Rules
     -   -------------

You will be eligible for a Retention Bonus under the Program only if you are a
Participant upon the occurrence of a Triggering Event, Subsequent Triggering
Event or if you are Involuntarily Terminated.

     B.  Cessation of Status as a Participant
     -   ------------------------------------

You will cease being a Participant, and will therefore not be entitled to
receive any Retention Bonus under the Program, immediately upon the first date
on which you:

..    receive your full Retention Bonus under this Program;

..    voluntarily terminate employment with the Company;

..    are terminated for Cause by the Company.

<PAGE>

     C.   Triggering Event
     -    ----------------

A Triggering Event occurs on any of the following:

..    a Change of Control; or

..    December 31, 2002.

     D.   Subsequent Triggering Event
     -    ---------------------------

A Subsequent Triggering Event occurs upon any of the following:

..    December 31, 2003;

..    the six (6) month anniversary following a Change of Control; or

..    an Involuntary Termination.

     E.   Qualification Limitation
     -    ------------------------

No Participant shall be entitled to receive a Retention Bonus as both an Outside
Director and as an Employee.

IV.  AMOUNT OF YOUR RETENTION BONUS
     ------------------------------

The amount of your Retention Bonus will be as follows:

..    in the event you are an Outside Director, upon the occurrence of a (i)
     Triggering Event you will be entitled to receive $50,000 and/or (ii)
     Subsequent Triggering Event you will be entitled to receive $50,000; or

..    in the event you are an Officer, upon the occurrence of a (i) Triggering
     Event you will be entitled to receive a payment equal to fifty percent
     (50%) of your annual base salary as is in effect upon the date of the
     Triggering Event; and/or (ii) Subsequent Triggering Event you will be
     entitled to a payment equal to fifty percent (50%) of your annual base
     salary as is in effect upon the date of the Triggering Event.

V.   TAXATION OF BENEFITS
     --------------------

Your Retention Bonus is ordinary income for tax purposes and will be subject to
withholding taxes. At the time of payment of your Retention Bonus, the Company
will deduct applicable withholding taxes.

VI.  ADMINISTRATION
     --------------

<PAGE>

The Administrator shall have the exclusive discretion and authority to establish
rules, forms, and procedures for the administration of the Program, and to
construe and interpret the Program and to decide any and all questions of fact,
interpretation, definition, computation or administration arising in connection
with the operation of the Program, including, but not limited to, the
eligibility to participate in the Program and amount of the Retention Bonus
payable under the Program. The rules, interpretations, computations and other
actions of the Administrator shall be binding and conclusive on all persons.

VII.   AMENDMENT, MODIFICATION AND TERMINATION
----------------------------------------------

The Administrator expressly reserves the right to amend, modify or terminate the
Program, including whether to pay a Retention Bonus provided by the Program upon
the occurrence of a Triggering Event or Subsequent Triggering Event, at any time
and for any reason; provided; however, that no such amendment, modification or
termination shall affect the right of a Participant to receive any Retention
Bonus upon or following the occurrence of a Change of Control, unless expressly
consented to in writing between the Company and the Participant.

VIII.  AT WILL EMPLOYMENT
       ------------------

The Program is neither intended to confer upon any Participant any right with
respect to continuing the Participant's relationship as an Employee or Director
with the Company, nor shall it interfere in any way with an Officer's right or
the Company's right to terminate such relationship at any time, with or without
cause, and with or without notice.

IX.    NO ASSIGNMENT OR TRANSFER BY PARTICIPANT
       ----------------------------------------

None of the rights, benefits, obligations or duties under the Program may be
assigned or transferred by any Participant.

X.     GOVERNING LAW
       -------------

The Plan and this Option Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof. This Agreement is governed by
the internal substantive laws but not the choice of law rules of the State of
California.

XI.    BINDING ON SUCCESSORS
       ---------------------

This Agreement will be binding on any Successor of the Company. Any Successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes.

<PAGE>

                                   DEFINITIONS
                                   -----------

"Administrator" means the Board or the board of directors of a Successor.

"Board" means the board of directors of the Company.

"Cause" means (i) any act of personal dishonesty taken by the Employee in
connection with his responsibilities as an employee which is intended to result
in substantial personal enrichment of the Employee, (ii) Employee's conviction
of a felony that the Board reasonably believes has had or will have a material
detrimental effect on the Company's reputation or business, (iii) a willful act
by the Employee which constitutes misconduct and is injurious to the Company, or
(iv) continued willful violations by the Employee of the Employee's obligations
to the Company after there has been delivered to the Employee a written demand
for performance from the Company which describes the basis for the Company's
belief that the Employee has not substantially performed his duties.

"Change of Control" means the occurrence of any of the following events: (ii)
the approval by shareholders of the Company of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation; (ii) the approval by the shareholders of the Company of a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
(iii) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becoming the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power represented by
the Company's then outstanding voting securities; or (iv) a change in the
composition of the Board, as a result of which fewer than a majority of the
Directors are Incumbent Directors.

"Director" means a member of the Company's Board.

"Employee" means any person employed by the Company or any Parent or Subsidiary
of the Company. The payment of a Director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.

"Incumbent Directors" means directors who either (A) are directors of the
Company as of the date hereof, or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of those directors
whose election or nomination was not in connection with any transactions
described in subsections (i), (ii), or (iii) or in connection with an actual or
threatened proxy contest relating to the election of directors of the Company.

"Involuntary Termination" means: (i) without the Employee's express written
consent, a significant reduction of the Employee's duties, position or
responsibilities relative to the

<PAGE>

Employee's duties, position or responsibilities in effect immediately prior to
such reduction, or the removal of the Employee from such position, duties and
responsibilities, unless the Employee is provided with comparable duties,
position and responsibilities; provided, however, that a reduction in duties,
position or responsibilities solely by virtue of the Company being acquired and
made part of a larger entity (as, for example, when the Chief Financial Officer
of the Company remains as such following a Change of Control but is not made the
Chief Financial Officer of the acquiring corporation) shall not constitute an
"Involuntary Termination;" (ii) without the Employee's express written consent,
a substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) following a Change of Control,
without the Employee's express written consent, a reduction by the Company of
the Employee's base salary as in effect immediately prior to such reduction;
(iv) following a change of control, without the Employee's express written
consent, a material reduction by the Company in the kind or level of employee
benefits to which the Employee is entitled immediately prior to such reduction
with the result that the Employee's overall benefits package is significantly
reduced; (v) following a change of control, without the Employee's express
written consent, the relocation of the Employee to a facility or a location more
than thirty-five (35) miles from his current location; (vi) any purported
termination of the Employee by the Company which is not effected for Cause or
for which the grounds relied upon are not valid; (vii) the removal of an Outside
Director from the board of directors of the Company or the unwillingness of the
Successor to make the Outside Director a member of Successor's board of
directors; or (viii) the failure of the Company to obtain the assumption of this
Agreement by any Successor.

"Officer" means an Employee who is a vice-president, president or chief
executive officer of the Company.

"Outside Director" means a Director who is not an Employee of the Company.

"Parent" means a "parent corporation," whether now or hereafter existing, as
defined in Section 424(e) of the Internal Revenue Code of 1986, as amended.

"Participant" has the meaning as set forth in section II herein.

"Retention Bonus" means the monetary benefit that you may be entitled to receive
pursuant to the Program.

"Subsidiary" means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended.

"Successor" means any person, firm, corporation or other business entity which
at any time, whether by purchase, merger or otherwise, directly or indirectly
acquires all or substantially all of the assets or business of the Company.

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