Document:

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                                                                   Exhibit 10.17

                                 FREEPC, INC.

                                1999 STOCK PLAN

     1.  Purposes of the Plan.  The purposes of this Stock Plan are to attract
         --------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.

     2.  Definitions.  As used herein, the following definitions shall apply:
         -----------

         (a)  "Administrator" means the Board or any of its Committees as shall
               -------------
be administering the Plan in accordance with Section 4 hereof.

         (b)  "Applicable Laws" means the requirements relating to the
               ---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.

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

         (d)  "Code" means the Internal Revenue Code of 1986, as amended.
               ----

         (e)  "Committee" means a committee of Directors appointed by the Board
               ---------
in accordance with Section 4 hereof.

         (f)  "Common Stock" means the Common Stock of the Company.
               ------------

         (g)  "Company" means FreePC, Inc., a Delaware corporation.
               -------

         (h)  "Consultant" means any person who is engaged by the Company or any
               ----------
Parent or Subsidiary to render consulting or advisory services to such entity.

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

         (j)  "Disability" means total and permanent disability as defined in
               ----------
Section 22(e)(3) of the Code.
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         (k)  "Employee" means any person, including Officers and Directors,
               --------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

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

         (m)  "Fair Market Value" means, as of any date, the value of Common
               -----------------
Stock determined as follows:

              (i)    If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

              (ii)   If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or

              (iii)  In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.

         (n)  "Incentive Stock Option" means an Option intended to qualify as an
               ----------------------
incentive stock option within the meaning of Section 422 of the Code.

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

         (p)  "Officer" means a person who is an officer of the Company within
               -------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

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

         (r)  "Option Agreement" means a written or electronic agreement between
               ----------------
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.

                                      -2-
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         (s)  "Option Exchange Program" means a program whereby outstanding
               -----------------------
Options are exchanged for Options with a lower exercise price.

         (t)  "Optioned Stock" means the Common Stock subject to an Option or a
               --------------
Stock Purchase Right.

         (u)  "Optionee" means the holder of an outstanding Option or Stock
               --------
Purchase Right granted under the Plan.

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

         (w)  "Plan" means this 1998 Stock Plan.
               ----

         (x)  "Restricted Stock" means shares of Common Stock acquired pursuant
               ----------------
to a grant of a Stock Purchase Right under Section 11 below.

         (y)  "Section 16(b)" means Section 16(b) of the Securities Exchange
               -------------
Act of 1934, as amended.

         (z)  "Service Provider"  means an Employee, Director or Consultant.
               ----------------

         (aa) "Share" means a share of the Common Stock, as adjusted in
               -----
accordance with Section 12 below.

         (bb) "Stock Purchase Right" means a right to purchase Common Stock
               --------------------
pursuant to Section 11 below.

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

     3.  Stock Subject to the Plan. Subject to the provisions of Section 12 of
         -------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 2,500,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.

         If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated).  However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.

     4.  Administration of the Plan.
         --------------------------

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         (a)  Administrator.  The Plan shall be administered by the Board or a
              -------------
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.

         (b)  Powers of the Administrator. Subject to the provisions of the Plan
              ---------------------------
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:

              (i)    to determine the Fair Market Value;

              (ii)   to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;

              (iii)  to determine the number of Shares to be covered by each
such award granted hereunder;

              (iv)   to approve forms of agreement for use under the Plan;

              (v)    to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;

              (vi)   to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;

              (vii)  to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;

              (viii) to initiate an Option Exchange Program;

              (ix)   to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

              (x)    to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by Optionees to
have Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable; and

                                      -4-
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              (xi)   to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.

         (c)  Effect of Administrator's Decision. All decisions, determinations
              ----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.

     5.  Eligibility.
         -----------

         (a)  Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

         (b)  Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

         (c)  Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.

     6.  Term of Plan.  The Plan shall become effective upon its adoption by the
         ------------
Board.  It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.

     7.  Term of Option.  The term of each Option shall be stated in the Option
         --------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof.  In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.

     8.  Option Exercise Price and Consideration.
         ---------------------------------------

         (a)  The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

              (i)  In the case of an Incentive Stock Option

                   (A)  granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of

                                      -5-
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stock of the Company or any Parent or Subsidiary, the exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.

                   (B)  granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

              (ii) In the case of a Nonstatutory Stock Option

                   (A)  granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.

                   (B)  granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.

              (iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.

         (b)  The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.

     9.  Exercise of Option.
         ------------------

         (a)  Procedure for Exercise; Rights as a Stockholder. Any Option
              -----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder shall be tolled during any unpaid leave of absence. An Option may not
be exercised for a fraction of a Share.

          An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised.  Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan.  Shares issued
upon exercise of

                                      -6-
<PAGE>

an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Shares, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Shares are issued, except as provided in Section 12 of
the Plan.

          Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

     (b)  Termination of Relationship as a Service Provider. If an Optionee
          -------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

     (c)  Disability of Optionee. If an Optionee ceases to be a Service Provider
          ----------------------
as a result of the Optionee's Disability, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

     (d)  Death of Optionee.  If an Optionee dies while a Service Provider, the
          -----------------
Option may be exercised within such period of time as is specified in the Option
Agreement (of at least six (6) months) to the extent that the Option is vested
on the date of death (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement) by the Optionee's estate or by
a person who acquires the right to exercise the Option by bequest or
inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

                                      -7-
<PAGE>

         (e)  Buyout Provisions.  The Administrator may at any time offer to buy
              -----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

     10.  Non-Transferability of Options and Stock Purchase Rights. The Options
          --------------------------------------------------------
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

     11.  Stock Purchase Rights.
          ---------------------

          (a)  Rights to Purchase.  Stock Purchase Rights may be issued either
               ------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.

         (b)  Repurchase Option. Unless the Administrator determines otherwise,
              -----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.

         (c)  Other Provisions. The Restricted Stock purchase agreement shall
              ----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.

         (d)  Rights as a Stockholder. Once the Stock Purchase Right is
              -----------------------
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.

     12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
         ----------------------------------------------------------------

         (a)  Changes in Capitalization.  Subject to any required action by the
              -------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted

                                      -8-
<PAGE>

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

         (b)  Dissolution or Liquidation. In the event of the proposed
              --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.

         (c)  Merger or Asset Sale. In the event of a merger of the Company with
              --------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration

                                      -9-
<PAGE>

received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.

     13.  Time of Granting Options and Stock Purchase Rights. The date of grant
          --------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.

     14.  Amendment and Termination of the Plan.
          -------------------------------------

          (a)  Amendment and Termination. The Board may at any time amend,
               -------------------------
alter, suspend or terminate the Plan.

          (b)  Stockholder Approval. The Board shall obtain stockholder approval
               --------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.

          (c)  Effect of Amendment or Termination. No amendment, alteration,
               ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

     15.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Legal Compliance. Shares shall not be issued pursuant to the
               ----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

          (b)  Investment Representations. As a condition to the exercise of an
               --------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

     16.  Inability to Obtain Authority.  The inability of the Company to obtain
          -----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

                                      -10-
<PAGE>

     17.  Reservation of Shares. The Company, during the term of this Plan,
          ---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     18.  Stockholder Approval.  The Plan shall be subject to approval by the
          --------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted.  Such stockholder approval shall be obtained in the degree and manner
required under Applicable Laws.

     19.  Information to Optionees and Purchasers. The Company shall provide to
          ---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.

                                      -11-
<PAGE>

                                 FREEPC, INC.

                                1999 STOCK PLAN

                            STOCK OPTION AGREEMENT

     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.

I.   NOTICE OF STOCK OPTION GRANT
     ----------------------------

     ____________________________
     ____________________________
     ____________________________

     The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:

     Grant Number                      ___________________

     Date of Grant                     ___________________

     Vesting Commencement Date         ___________________

     Exercise Price per Share          ___________________

     Total Number of Shares Granted    ___________________

     Total Exercise Price              ___________________

     Type of Option:                   _____________  Incentive Stock Option

                                       _____________  Nonstatutory Stock Option

     Term/Expiration Date:             ___________________

     Vesting Schedule.
     ----------------

     This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:

          a.   [20% of the Shares subject to this Option shall vest upon the
six (6) month anniversary of this Option's Vesting Commencement Date; provided,
however, that if Optionee
<PAGE>

ceases to be a Service Provider prior to the six (6) month anniversary of this
Option's Vesting Commencement Date then the initial 20% vesting of this Option's
shares shall occur on Optionee's termination date provided that Optionee's
termination is other than a voluntary termination by the Optionee.]

          b.  [The remaining Shares subject to this Option shall vest annually
on the anniversary of Optionee's Vesting Commencement Date for four (4) years
after such Vesting Commencement Date, with 20% of the total Shares subject to
this Option vesting upon each such anniversary.]

          c.  Except as otherwise provided above, all vesting is subject to
Optionee's continuing to be a Service Provider on the above provided vesting
dates.

     Termination Period.
     ------------------

     This Option shall be exercisable for three (3) months after Optionee ceases
to be a Service Provider.  Upon Optionee's death or Disability, this Option may
be exercised for twelve (12) months after Optionee ceases to be a Service
Provider.  In no event may Optionee exercise this Option after the
Term/Expiration Date as provided above.

II.  AGREEMENT
---  ---------

     1.  Grant of Option.  The Plan Administrator of the Company hereby grants
         ---------------
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference.  Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.

     If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code.  Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").

     2.  Exercise of Option.
         ------------------

         a.  Right to Exercise.  This Option shall be exercisable during its
             -----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.

         b.  Method of Exercise.  This Option shall be exercisable by delivery
             ------------------
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
                                              ---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The

                                      -2-
<PAGE>

Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the
aggregate Exercise Price.

     No Shares shall be issued pursuant to the exercise of an Option unless such
issuance and such exercise complies with Applicable laws.  Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.

     3.  Optionee's Representations.  In the event the Shares have not been
         --------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
                                                                       -------
B.
-

     4.  Lock-Up Period.  Optionee hereby agrees that, if so requested by the
         --------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act.  Such restriction shall apply only  to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act.  The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.

     5.  Method of Payment.  Payment of the aggregate Exercise Price shall be
         -----------------
by any of the following, or a combination thereof, at the election of the
Optionee:

         a.  cash or check;

         b.  consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or

         c.  surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.

     6.  Restrictions on Exercise.  This Option may not be exercised until such
         ------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.

                                      -3-
<PAGE>

     7.  Non-Transferability of Option.  This Option may not be transferred in
         -----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee.  The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

     8.  Term of Option.  This Option may be exercised only within the term set
         --------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.

     9.  Tax Consequences.  Set forth below is a brief summary as of the date
         ----------------
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares.  THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.  THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

         a.  Exercise of ISO.  If this Option qualifies as an ISO, there will
             ---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.

         b.  Exercise of Nonstatutory Stock Option.  There may be a regular
             -------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price.  If Optionee is
an Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.

         c.  Disposition of Shares.  In the case of an NSO, if Shares are held
             ---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes.  In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes.  If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares.  Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.

                                      -4-
<PAGE>

         d.  Notice of Disqualifying Disposition of ISO Shares.  If the Option
             -------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition.  Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.

     10. Entire Agreement; Governing Law.  The Plan is incorporated herein by
         -------------------------------
reference.  The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.  This agreement is governed by the internal substantive laws but not
the choice of law rules of California.

     11. No Guarantee of Continued Service.  OPTIONEE ACKNOWLEDGES AND AGREES
         ---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.

                       [Signatures appear on next page.]
                                      -5-
<PAGE>

     Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof.  Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option.  Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.

OPTIONEE                            FREEPC, INC.

____________________________        ___________________________________
                                    By:

                                    ___________________________________
                                    Title:

____________________________

____________________________
Residence Address

<PAGE>

                                   EXHIBIT A
                                   ---------

                                1999 STOCK PLAN
                                EXERCISE NOTICE

FreePC, Inc.
74 N. Pasadena Avenue, 8/th/ Floor
Pasadena, CA  91103

Attention:  President

     1.   Exercise of Option.  Effective as of today, ______________, 19__, the
          ------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of FreePC, Inc. (the
"Company") under and pursuant to the 1999 Stock Plan (the "Plan") and the Stock
Option Agreement dated  ____________, 19__ (the "Option Agreement").

     2.   Delivery of Payment.  Purchaser herewith delivers to the Company the
          -------------------
full purchase price of the Shares, as set forth in the Option Agreement.

     3.   Representations of Optionee.  Optionee acknowledges that Optionee has
          ---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

     4.   Rights as Shareholder.  Until the issuance of the Shares (as evidenced
          ---------------------
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option.  The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised.  No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.

     5.   Company's Right of First Refusal.  Before any Shares held by Optionee
          --------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").

          a.   Notice of Proposed Transfer.  The Holder of the Shares shall
               ---------------------------
deliver to the Company a written notice (the "Notice") stating:  (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
<PAGE>

          b.   Exercise of Right of First Refusal.  At any time within thirty
               ----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.

          c.   Purchase Price.  The purchase price ("Purchase Price") for the
               --------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price.  If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.

          d.   Payment.  Payment of the Purchase Price shall be made, at the
               -------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.

          e.   Holder's Right to Transfer.  If all of the Shares proposed in the
               --------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee.  If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.

          f.   Exception for Certain Family Transfers.  Anything to the contrary
               --------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister.  In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.

          g.   Termination of Right of First Refusal.  The Right of First
               -------------------------------------
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.

                                      -2-
<PAGE>

     6.   Tax Consultation.  Optionee understands that Optionee may suffer
          ----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares.  Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

     7.   Restrictive Legends and Stop-Transfer Orders.
          --------------------------------------------

          a.   Legends.  Optionee understands and agrees that the Company shall
               -------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:

               THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
          AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
          PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
          UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
          SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
          OFFER, SALE OR TRANSFER, PLEDGE OR HYPO-THECATION IS IN
          COMPLIANCE THEREWITH.

               THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
          SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT
          OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS
          SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
          THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
          MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
          SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL
          ARE BINDING ON TRANSFEREES OF THESE SHARE S.

          b.   Stop-Transfer Notices.  Optionee agrees that, in order to ensure
               ---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company  transfers its own securities, it may make appropriate
notations to the same effect in its own records.

          c.   Refusal to Transfer.  The Company shall not be required (i) to
               -------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.

     8.   Successors and Assigns.  The Company may assign any of its rights
          ----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company.  Subject to
the restrictions on transfer herein set forth, this

                                      -3-
<PAGE>

Agreement shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.

     9.   Interpretation.  Any dispute regarding the interpretation of this
          --------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting.  The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.

     10.  Governing Law; Severability.  This Agreement is governed by the
          ---------------------------
internal substantive laws but not the choice of law rules, of California.

     11.  Entire Agreement.  The Plan and Option Agreement are incorporated
          ----------------
herein by reference.  This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.

                       [Signatures appear on next page.]

                                      -4-
<PAGE>

Submitted by:                       Accepted by:
OPTIONEE:                           FREEPC, INC.

___________________________         _____________________________________
                                    By

                                    _____________________________________
                                    Its

Address:                            Address:
-------                             -------

___________________________         74 N. Pasadena Avenue, 8/th/ Floor
___________________________         Pasadena, CA  91103

                                    _____________________________________
                                    Date Received
<PAGE>

                                   EXHIBIT B
                                   ---------
                      INVESTMENT REPRESENTATION STATEMENT

     OPTIONEE:

     COMPANY:       FREEPC, INC.

     SECURITY:      COMMON STOCK

     AMOUNT:

     DATE:

     In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:

     a.   Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities.  Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

     b.   Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein.  In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future.  Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available.  Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities.  Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, a legend prohibiting their transfer without the
consent of the Commissioner of Corporations of the State of California and any
other legend required under applicable state securities laws.

     c.   Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities"
<PAGE>

acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of the grant of the
Option to the Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.

     In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.

     d.   Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.  Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.

                                   Signature of Optionee:

                                   ______________________________________

                                   Date: _______________________, 19__

                                      -2-THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), OR ANY STATE
         SECURITIES LAWS AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED,
         OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, BY THE
         HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION
         OF ITS COUNSEL OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE
         AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY, IN EITHER CASE, TO
         THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933
         ACT AND APPLICABLE STATE SECURITIES LAWS.

                             TELENETICS CORPORATION

                          Common Stock Purchase Warrant
                                       to
                             Purchase _______ Shares
                                       of
                                  Common Stock

                This Common Stock Purchase Warrant is issued to:

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

by TELENETICS CORPORATION, a California corporation (hereinafter called the
"Company", which term shall include its successors and assigns).

         FOR VALUE RECEIVED and subject to the terms and conditions hereinafter
set out, the registered holder of this Warrant as set forth on the books and
records of the Company (the "Holder") is entitled upon surrender of this Warrant
to purchase from the Company ____________________________________ (______)
fully paid and nonassessable shares of Common Stock, no par value per share (the
"Common Stock"), at the Exercise Price (as defined below) per share.

         This Warrant shall expire at the close of business on November 15,
2002.

         1. (a) The right to purchase shares of Common Stock represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company at 25111 Arctic Ocean, Lake Forest, California 92630 (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), and
upon payment to the Company, by cash or by certified check or bank draft, of the
Exercise Price for such shares. The Company agrees that the shares of Common
Stock so purchased shall be deemed to be issued to the Holder as the record
owner of such shares of Common Stock as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such shares
of Common Stock as aforesaid. Certificates for the shares of Common Stock so
purchased (together with a cash adjustment in lieu of any fraction of a share)
shall be delivered to the Holder within a reasonable time, not exceeding five

                                       -1-
<PAGE>

(5) business days, after the rights represented by this Warrant shall have been
so exercised, and, unless this Warrant has expired, a new Warrant representing
the number of shares of Common Stock, if any, with respect to which this Warrant
shall not then have been exercised, in all other respects identical with this
Warrant, shall also be issued and delivered to the Holder within such time, or,
at the request of the Holder, appropriate notation may be made on this Warrant
and the same returned to the Holder.

                  (b) This Warrant may be exercised to acquire, from and after
the date hereof, the number of shares of Common Stock set forth on the first
page hereof (subject to adjustments described in this Warrant); provided,
however, the right hereunder to purchase such shares of Common Stock shall
expire at the close of business on November 15, 2002.

         2. This Warrant is being issued by the Company pursuant to the terms of
the Company's Confidential Private Placement Memorandum dated November 15, 1999
(the "Memorandum").

         3. The Company covenants and agrees that all Common Stock upon issuance
against payment in full of the Exercise Price by the Holder pursuant to this
Warrant will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof (except to the extent
resulting from the Holder's own circumstances, actions or omissions). The
Company covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will have at all times
authorized, and reserved for the purpose of issue or transfer upon exercise of
the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant, and
will procure at its sole expense upon each such reservation of shares the
listing thereof (subject to issuance or notice of issuance) on all stock
exchanges on which the Common Stock is then listed or inter-dealer trading
systems on which the Common Stock is then traded. The Company will take all such
action as may be necessary to assure that such shares of Common Stock may be so
issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Common Stock may
be listed or inter-dealer trading system on which the Common Stock is then
traded. The Company will not take any action which would result in any
adjustment in the number of shares of Common Stock purchasable hereunder if the
total number of shares of Common Stock issuable pursuant to the terms of this
Warrant after such action upon full exercise of this Warrant and, together with
all shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and other rights to purchase shares of
Common Stock then outstanding, would exceed the total number of shares of Common
Stock then authorized by the Company's Restated and Amended Articles of
Incorporation, as then amended.

         4. The Initial Exercise Price is $1.75 per share of Common Stock
("Initial Exercise Price"). The Initial Exercise Price shall be adjusted as
provided for below in this Section 4 (the Initial Exercise Price, and the
Initial Exercise Price, as thereafter then adjusted, shall be referred to as the
"Exercise Price") and the Exercise Price from time to time shall be further
adjusted as provided for below in this Section 4. Upon each adjustment of the
Exercise Price, the Holder shall thereafter be entitled to receive upon exercise
of this Warrant, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock obtained by (i) multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of shares of Common
Stock purchasable hereunder immediately prior to such adjustment, and (ii)
dividing the product thereof by the Exercise Price resulting from such
adjustment. The Exercise Price shall be adjusted as follows:

                                       -2-
<PAGE>

                         (i) In the case of any amendment to the Company's
                Restated and Amended Articles of Incorporation to change the
                designation of the Common Stock or the rights, privileges,
                restrictions or conditions in respect to the Common Stock or
                division of the Common Stock, this Warrant shall be adjusted so
                as to provide that upon exercise thereof, the Holder shall
                receive, in lieu of each share of Common Stock theretofore
                issuable upon such exercise, the kind and amount of shares,
                other securities, money and property receivable upon such
                designation, change or division by the Holder issuable upon such
                exercise had the exercise occurred immediately prior to such
                designation, change or division. This Warrant shall be deemed
                thereafter to provide for adjustments which shall be as nearly
                equivalent as may be practicable to the adjustments provided for
                in this Section 4. The provisions of this Subsection 4(i) shall
                apply in the same manner to successive reclassifications,
                changes, consolidations and mergers.

                         (ii) If the Company shall at any time subdivide its
                outstanding shares of Common Stock into a greater number of
                shares of Common Stock, or declare a dividend or make any other
                distribution upon the Common Stock payable in shares of Common
                Stock, the Exercise Price in effect immediately prior to such
                subdivision or dividend or other distribution shall be
                proportionately reduced, and conversely, in case the outstanding
                shares of Common Stock shall be combined into a smaller number
                of shares of Common Stock, the Exercise Price in effect
                immediately prior to such combination shall be proportionately
                increased.

                         (iii) If the Company shall, through either a private
                placement or a public offering (but other than pursuant to
                options granted under the Company's directors' and employee
                stock option and stock purchase plans or shares or options
                issued in an acquisition or shares issuable upon conversion of
                shares of the Company's Series A 7.0% Convertible Redeemable
                Preferred Stock (the "Preferred Stock") or the shares of Common
                Stock issuable upon the exercise of the warrants issued in
                connection with the sale of the Preferred Stock or shares
                issuable pursuant to the exercise of warrants outstanding on
                November 11, 1999, and other than the issuance of up to an
                aggregate of 1,500,000 shares of Common Stock pursuant to
                transactions not described in this parenthetical) issues shares
                of Common Stock, or options to purchase Common Stock or rights
                to subscribe for Common Stock or securities convertible into or
                exchangeable for Common Stock at a price (such price, if other
                than cash, as determined by the Board of Directors) less than
                the Conversion Price (the "Lower Price"), the Conversion Price
                shall be automatically reduced to the Lower Price.
                Notwithstanding the foregoing, in no event shall the Exercise
                Price ever be increased as a result of this Subsection 4(iii).
                There will be no adjustment in the event that the Company pays a
                dividend in cash to its holders of Common Stock; provided,
                however, the Company will give the holder of this Warrant
                written notice at least thirty (30) days prior to the record
                date for the cash dividend, that the Company intends to declare
                a cash dividend.

                                       -3-
<PAGE>

                         (iv) If any capital reorganization or reclassification
                of the capital stock of the Company, or any consolidation or
                merger of the Company with or into another corporation or other
                entity, or the sale of all or substantially all of the Company's
                assets to another corporation or other entity shall be effected
                in such a way that holders of shares of Common Stock shall be
                entitled to receive stock, securities, other evidence of equity
                ownership or assets with respect to or in exchange for shares of
                Common Stock, then, as a condition of such reorganization,
                reclassification, consolidation, merger or sale (except as
                otherwise provided below in this Section 4), lawful and adequate
                provisions shall be made whereby the Holder shall thereafter
                have the right to receive upon the exercise hereof upon the
                basis and upon the terms and conditions specified herein, such
                shares of stock, securities, other evidence of equity ownership
                or assets as may be issued or payable with respect to or in
                exchange for a number of outstanding shares of such Common Stock
                equal to the number of shares of Common Stock immediately
                theretofore purchasable and receivable upon the exercise of this
                Warrant under this Section 4 had such reorganization,
                reclassification, consolidation, merger or sale not taken place,
                and in any such case appropriate provisions shall be made with
                respect to the rights and interests of the Holder to the end
                that the provisions hereof (including, without limitation,
                provisions for adjustments of the Exercise Price and of the
                number of shares of Common Stock receivable upon the exercise of
                this Warrant) shall thereafter be applicable, as nearly as may
                be, in relation to any shares of stock, securities, other
                evidence of equity ownership or assets thereafter deliverable
                upon the exercise hereof (including an immediate adjustment, by
                reason of such consolidation or merger, of the Exercise Price to
                the value for the Common Stock reflected by the terms of such
                consolidation or merger if the value so reflected is less than
                the Exercise Price in effect immediately prior to such
                consolidation or merger). Subject to the terms of this Warrant,
                in the event of a merger or consolidation of the Company with or
                into another corporation or other entity as a result of which
                the number of shares of common stock of the surviving
                corporation or other entity issuable to holders of Common Stock,
                is greater or lesser than the number of shares of Common Stock
                outstanding immediately prior to such merger or consolidation,
                then the Exercise Price in effect immediately prior to such
                merger or consolidation shall be adjusted in the same manner as
                though there were a subdivision or combination of the
                outstanding shares of Common Stock. The Company shall not effect
                any such consolidation, merger or sale, unless, prior to the
                consummation thereof, the successor corporation (if other than
                the Company) resulting from such consolidation or merger or the
                corporation purchasing such assets shall assume by written
                instrument executed and mailed or delivered to the Holder, the
                obligation to deliver to the Holder such shares of stock,
                securities, other evidence of equity ownership or assets as, in
                accordance with the foregoing provisions, the Holder may be
                entitled to receive or otherwise acquire. If a purchase, tender
                or exchange offer is made to and accepted by the holders of more
                than fifty (50%) percent of the outstanding shares of Common
                Stock, the Company shall not effect any consolidation, merger or
                sale with the person having made such offer or with any
                affiliate of such person, unless prior to the consummation of
                such consolidation, merger or sale the Holder of this Warrant
                shall have been given a reasonable opportunity to then elect to
                receive upon the exercise of this Warrant the amount of stock,
                securities, other evidence of equity ownership or assets then
                issuable with respect to the number of shares of Common Stock in
                accordance with such offer.

                                       -4-
<PAGE>

                         (v) In case the Company shall, at any time prior to
                exercise of this Warrant, consolidate or merge with any other
                corporation or other entity (where the Company is not the
                surviving entity) or transfer all or substantially all of its
                assets to any other corporation or other entity, then the
                Company shall, as a condition precedent to such transaction,
                cause effective provision to be made so that the Holder of this
                Warrant upon the exercise of this Warrant after the effective
                date of such transaction shall be entitled to receive the kind
                and amount of shares, evidences of indebtedness and/or other
                securities or property receivable on such transaction by a
                holder of the number of shares of Common Stock as to which this
                Warrant was exercisable immediately prior to such transaction
                (without giving effect to any restriction upon such exercise);
                and, in any such case, appropriate provision shall be made with
                respect to the rights and interest of the Holder of this Warrant
                to the end that the provisions of this Warrant shall thereafter
                be applicable (as nearly as may be practicable) with respect to
                any shares, evidences of indebtedness or other securities or
                assets thereafter deliverable upon exercise of this Warrant.
                Upon the occurrence of any event described in this Section 4(v),
                the holder of this Warrant shall have the right to (i) exercise
                this Warrant immediately prior to such event at an Exercise
                Price equal to lesser of (1) the then Exercise Price or (2) the
                price per share of Common Stock paid in such event, or (ii)
                retain ownership of this Warrant, in which event, appropriate
                provisions shall be made so that the Warrant shall be
                exercisable at the Holder's option into shares of stock,
                securities or other equity ownership of the surviving or
                acquiring entity.

         Whenever the Exercise Price shall be adjusted pursuant to this Section
4, the Company shall issue a certificate signed by its President or Vice
President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors of the Company made any determination hereunder), and the Exercise
Price after giving effect to such adjustment, and shall cause copies of such
certificates to be mailed (by first-class mail, postage prepaid) to the Holder
of this Warrant. The Company shall make such certificate and mail it to the
Holder promptly after each adjustment.

         No fractional shares of Common Stock shall be issued in connection with
any exercise of this Warrant, but in lieu of such fractional shares, the Company
shall make a cash payment therefor equal in amount to the product of the
applicable fraction multiplied by the Exercise Price then in effect.

         5. In the event the Company grants rights (other than rights granted
pursuant to a shareholder rights or poison pill plan) to all shareholders to
purchase Common Stock, the Holder shall have the same rights as if this Warrant
had been exercised immediately prior to such grant.

         6. The Holder shall, with respect to the shares of Common Stock
issuable upon the exercise of this Warrant, have the "piggy back" registration
rights set forth in the Subordinated Note and Warrant Purchase Agreement between
the Company and the Holder pursuant to which the Company is, among other things,

                                       -5-
<PAGE>

issuing this Warrant. Such "piggy back" registration rights are incorporated
herein by this reference as if such provisions had been set forth herein in
full.

        7. This Warrant may be redeemed by the Company, for one ($.01) cent per
Warrant, on not less than thirty (30) days or more than forty-five (45) days
written notice, provided that at the time such notice is given and on the
effective date of redemption, (A) the shares of Common Stock issuable upon the
exercise of this Warrant have been registered pursuant to the 1933 Act as
provided for in the Subordinated Note and Warrant Purchase Agreement and such
registration is then currently effective and (B) the average closing bid price
of the Common Stock or, if the Common Stock is listed on the National
Association of Securities Dealers Automated Quotation System, the New York Stock
Exchange or American Stock Exchange, the last reported sales price, if a sale is
made on such date, during twenty (20) out of the last thirty (30) consecutive
trading day period ending five (5) business days prior to the date that written
notice of the Warrants redemption is given is at least three dollars and
seventy-five cents ($3.75) per share of Common Stock.

         8. This Warrant need not be changed because of any change in the
Exercise Price or in the number of shares of Common Stock purchased hereunder.

         9. The terms defined in this paragraph, whenever used in this Warrant,
shall, unless the context otherwise requires, have the respective meanings
hereinafter specified. The term "Common Stock" shall mean and include the
Company's Common Stock, no par value per share, authorized on the date of the
original issue of this Warrant and shall also include in case of any
reorganization, reclassification, consolidation, merger or sale of assets of the
character referred to in Section 4 hereof, the stock, securities or assets
provided for in such paragraph. The term "Company" shall also include any
successor corporation to Telenetics Corporation by merger, consolidation or
otherwise. The term "outstanding" when used with reference to Common Stock shall
mean at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company. The term "1933 Act" shall mean the Securities Act of
1933, as amended, or any successor Federal statute, and the rules and
regulations of the Securities and Exchange Commission, or any other Federal
agency then administering the 1933 Act, thereunder, all as the same shall be in
effect at the time.

        10. This Warrant is exchangeable, upon the surrender hereby by the
Holder at the office or agency of the Company, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares of Common Stock as shall be designated by the Holder at
the time of such surrender. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant or any such new
Warrants and, in the case of any such loss, theft, or destruction, upon delivery
of a bond of indemnity, reasonably satisfactory to the Company, or, in the case
of any such mutilation, upon surrender or cancellation of this Warrant or such
new Warrants, the Company will issue to the Holder a new Warrant of like tenor,
in lieu of this Warrant or such new Warrants, representing the right to
subscribe for and purchase the number of shares of Common Stock which may be
subscribed for and purchased hereunder.

                                       -6-
<PAGE>

         11. The Company agrees to use its best efforts to file timely all
reports required to be filed by it pursuant to Sections 13 or 15 of the
Securities Exchange Act of 1934, as amended, and to provide such information as
will permit the Holder to sell this Warrant or any shares of Common Stock
acquired upon exercise of this Warrant in accordance with Rule 144 under the
1933 Act.

         12. The Company will at no time close its transfer books against the
transfer of this Warrant or of any shares of Common Stock issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. This Warrant shall not entitle the Holder to any
voting rights or any rights as a shareholder of the Company. The rights and
obligations of the Company, of the Holder, and of any holder of shares of Common
Stock issuable hereunder, shall survive the exercise of this Warrant.

         13. This Warrant sets forth the entire agreement of the Company and the
Holder of the Common Stock issuable upon the exercise of this Warrant with
respect to the rights of the Holder and the Common Stock issuable upon the
exercise of this Warrant, notwithstanding the knowledge of such Holder of any
other agreement or the provisions of any agreement, whether or not known to the
Holder, and the Company represents that there are no agreements inconsistent
with the terms hereof or which purport in any way to bind the Holder of this
Warrant or the Common Stock.

         14. The validity, interpretation and performance of this Warrant and
each of its terms and provisions shall be governed by the laws of the State of
California.

        IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal and dated as of __________,
____.

                                            TELENETICS CORPORATION

                                            By:______________________________
                                              Name:    Michael A. Armani
                                              Title:   President

                                       -7-

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